Opinion ID: 4471272
Heading Depth: 1
Heading Rank: 2

Heading: facts

Text: Wheatland Industries, LLC/Mid America Agri Products (Wheatland) owned an ethanol plant on commercial real estate in Madrid, Perkins County, Nebraska (Madrid property). The - 640 - Nebraska Supreme Court Advance Sheets 304 Nebraska Reports WHEATLAND INDUS. v. PERKINS CTY. BD. OF EQUAL. Cite as 304 Neb. 638 Perkins County assessor, Peggy Burton, assessed the value of the Madrid property at $16,364,768 for the 2017 tax year. Wheatland protested the assessment to the Perkins County Board of Equalization (Board). At the protest hearing, Wheatland did not present evidence. The Board affirmed Burton’s valuation of the Madrid property. Wheatland appealed to TERC. A hearing was held and both parties presented evidence. We first summarize the evidence regarding the county’s assessment, then the evidence of the taxpayer’s appraisal, and finally TERC’s decision. County Assessment For the county, Darrell Stanard conducted an appraisal of the Madrid property using the mass appraisal method. He had appraised five other ethanol plants in different counties using the mass appraisal approach. He agreed with the $16 million value of the Madrid property. In order to aid the mass appraisal assessment, Burton prepared a spreadsheet of the values of all ethanol plants in Nebraska. She obtained the values directly from the other counties’ assessors but she was unaware how those counties assessed their ethanol plants. She maintained that the $16 million value was the proper value for the Madrid property. Wheatland elicited evidence about the value shown on Burton’s spreadsheet for the Furnas County ethanol plant. Stanard agreed with Wheatland that the Furnas County plant’s nameplate capacity shown on the spreadsheet was incorrect. Its nameplate capacity was actually 44 million gallons, not 22 million gallons as shown on the spreadsheet. He explained that the nameplate capacity is critical to determining the value of the plant. Before this court, the Board in effect concedes the error. And Burton agreed that if the spreadsheet contained incorrect information about the nameplate capacity of the Furnas County plant, it would change her opinion about the value of the Madrid property. But she did not quantify how her opinion would change. - 641 - Nebraska Supreme Court Advance Sheets 304 Nebraska Reports WHEATLAND INDUS. v. PERKINS CTY. BD. OF EQUAL. Cite as 304 Neb. 638 Wheatland’s appraiser, Joseph Calvanico, had valued the Furnas County plant twice. He stated that the Furnas County plant was “almost a mirror copy” of the Madrid property—both were constructed at the same time, used the same technology, and are about the same size. When appraising the Furnas County plant, he used the same methodology as he did for the Madrid plant. Wheatland’s chief executive officer stated that he owned the Furnas County plant and that it was identical to the Madrid property, except there was 200 more acres of land for the Furnas County plant. The Furnas County plant was assessed at $8,943,575. Stanard agreed that if Calvanico was correct that the Furnas County plant was a “sister” plant to the Madrid property, he would have no disagreement with Calvanico’s appraisal of the Madrid property. Wheatland Appraisal At the time of TERC’s hearing, Calvanico had been a real property appraiser for 35 years. Wheatland hired him to appraise the Madrid property. He testified that his appraisal conformed with the Uniform Standards of Professional Appraisal Practice. Calvanico utilized the cost approach method to appraise the property. He stated that the income approach would not be useful, because the income stream associated with the property came from the separately assessed equipment rather than from the real estate. He opined that the sales comparison approach was useful to underscore the information from the cost approach. He explained that the sales comparison approach would not be effective as a stand-alone method of appraisal for the Madrid property, because most sales of ethanol plants were older and not from the area. Calvanico explained his application of the cost approach method. He began by determining the value of the underlying land. He examined land sales of dry farmland and concluded that the price per acre was $1,600. He appraised the value of the underlying land at $277,000. He then appraised the - 642 - Nebraska Supreme Court Advance Sheets 304 Nebraska Reports WHEATLAND INDUS. v. PERKINS CTY. BD. OF EQUAL. Cite as 304 Neb. 638 buildings and improvements on the land. He classified the buildings and improvements and used the Marshall Valuation Service to estimate the replacement cost. He estimated the base actual value of the buildings at $9,387,529 and improvements at $5,641,172. He then discussed depreciation. He concluded that the physical depreciation of the buildings that were 10 years old would depreciate 20 to 22 percent, the structures built within the past few years would depreciate 4 to 6 percent, and the improvements would depreciate 25 percent. Burton stated that when performing mass appraisal, she did not apply depreciation to any property and did not believe that depreciation was applied to the Madrid property. Stanard agreed that physical depreciation should be factored into the value of the Madrid property. Calvanico discussed the functional depreciation attributed to the buildings. He stated that if the fermentation and main proc­ ess buildings were put to an alternative use, those buildings would be the most difficult to repurpose, because their function is to house the equipment. He applied a 20-percent functional depreciation to those buildings. Stanard stated that functional depreciation should not be applied. Calvanico discussed the economic depreciation attributed to the buildings and improvements. He examined the ethanol industry in Nebraska and nationwide. He discussed the decrease in the price per bushel of corn and the diminished number of ethanol plants in Nebraska. He emphasized that in 2011, there were 39 ethanol plants in Nebraska, and that at the time of appraisal, there were 26 ethanol plants. He articulated that this was a 40-percent decrease in the ethanol industry in Nebraska and concluded that the economic value of the Madrid property would depreciate 40 percent. Stanard agreed that “some” economic depreciation should be applied but did not quantify how much that should be. Ultimately, Calvanico appraised the actual value of the Madrid property at $6.8 million. - 643 - Nebraska Supreme Court Advance Sheets 304 Nebraska Reports WHEATLAND INDUS. v. PERKINS CTY. BD. OF EQUAL. Cite as 304 Neb. 638 TERC’s Decision TERC found that because Calvanico performed the appraisal according to professionally approved standards, his appraisal report was competent evidence sufficient to rebut the presumption in favor of the Board’s determination. TERC then found that, for two reasons, it was unreasonable and arbitrary for the Board to rely upon Burton and Stanard’s valuation. First, TERC agreed with Burton, Stanard, and Calvanico that physical depreciation should be applied to the Madrid property. It characterized Burton’s and Stanard’s testimony as to whether physical depreciation had been applied as “inconsistent,” and it determined that they had provided no evidence of the amount of physical depreciation. Second, TERC pointed to the incorrect information Burton’s spreadsheet contained and the absence of a revised opinion based upon the correct information. TERC then discussed Calvanico’s appraisal and focused on his analysis of depreciation. First, TERC agreed with Calvanico’s assessment of physical depreciation. Second, it reasoned that the Madrid property was still operating as an ethanol plant with the “Delta-T technology” at the time of the assessment and that therefore, it did not suffer from functional depreciation. Finally, it agreed that due to the state of the ethanol industry, including a reduction in the price per gallon paid for ethanol, a reduction if not contraction of the rate of ethanol plant construction and other factors the depreciation to be applied to the [Madrid property] for economic obsolescence should be 40 [percent]. Except regarding functional depreciation, TERC found Calvanico’s appraisal persuasive and assessed the value of the Madrid property for 2017 at $7,336,042. The Board timely petitioned for review of TERC’s decision.1 We moved the review proceeding to our docket.2 1 See Neb. Rev. Stat. § 77-5019(2)(a)(i) (Reissue 2018). 2 See Neb. Rev. Stat. § 24-1106(3) (Reissue 2016). - 644 - Nebraska Supreme Court Advance Sheets 304 Nebraska Reports WHEATLAND INDUS. v. PERKINS CTY. BD. OF EQUAL. Cite as 304 Neb. 638 ASSIGNMENTS OF ERROR The Board assigns that (1) there was insufficient evidence for TERC to find that the Board’s determination was unreasonable and arbitrary, (2) TERC erred when it allowed a 40-­percent economic depreciation, and (3) it erred when it found the value of the Madrid property to be $7,336,042.