Opinion ID: 1730025
Heading Depth: 1
Heading Rank: 16

Heading: External Depreciation

Text: DRI argues that TERC erred in rejecting its argument that external or locational depreciation should have been applied in determining the value of Lane's house and the feedlot house, due to their proximity to a cattle feedlot. This argument has merit. The Nebraska Court of Appeals addressed this issue in Livingston v. Jefferson Cty. Bd. of Equal., [25] which involved the valuation of a rural home located less than 1 mile from the owner's hog farrowing facility. TERC affirmed the assessed valuation of the home, and on appeal, the property owner argued that TERC erred in rejecting any external depreciation based on the proximity of the house to the hog facility. Noting that [t]he whole concept of determining value must assume both a willing buyer and [a willing] seller, the court concluded: It was arbitrary for the Board and TERC to ignore the effect that the nearby hog facility would have on the house's fair market value in the ordinary course of trade. No reasonable fact finder could conclude that in the real estate marketplace, a potential buyer would not notice, and react economically, to having a large hog facility very nearby while living in a remote location. Thus, the Board's valuation, and TERC's decision upholding that valuation, was arbitrary and capricious. [26] In an unpublished opinion, [27] the Court of Appeals applied Livingston to the 2002 valuation of the DRI property which we refer to in this case as Lane's house. As in this case, Gary testified in that case that the home was located next to a 20,000-head cattle feedlot, causing problems with trucks en route to and from the feedlot, as well as dust and flies. He also testified that the truck traffic caused the home to vibrate and that the well for the home is connected to the cattle-watering facility. The Court of Appeals held that because this competent evidence was undisputed, TERC's decision upholding the Board's valuation for the property was unreasonable and arbitrary. The court reversed that portion of the TERC order and remanded the cause with directions to consider the proximity of the home to the feedlot in decreasing its value. At the TERC hearing in this case, the assessor acknowledged that TERC ordered an adjustment in the 2002 and 2003 valuations of Lane's house due to its proximity to the feedlot. However, she testified that no similar adjustment was made in the 2004 valuation because she did not consider the home to be close enough to the feedlot that it has the problems that the taxpayer contends. As to the feedlot house, which she acknowledged to be actually in the feedlot, the assessor testified that she did not apply any locational depreciation because the house had an 85 percent physical depreciation, which means that it's about worn out, and that she was not sure an additional depreciation allowance based upon location would make that much difference. An administrative agency's decision is arbitrary when it is made in disregard of the facts or circumstances and without some basis which would lead a reasonable person to the same conclusion. [28] It is undisputed that an external depreciation was applied in determining the valuations of these properties for 2002 and 2003, but not for 2004. Gary's description of the problems associated with the location of Lane's house, situated approximately one-eighth mile from the feedlot and next to its access road, is essentially the same as that summarized in the prior case decided by the Court of Appeals. The Board produced no evidence to refute these facts, other than the assessor's unsubstantiated opinion that the property was not close enough to the feedlot and a photograph which depicts the home situated across the road from the feedlot. As to the feedlot house, there is no competent evidence in the record to support the assessor's position that depreciation based on useful life obviates the applicability of external depreciation based on the feedlot. The Board's valuations of Lane's house and the feedlot house and the affirmance by TERC were, for these reasons, arbitrary and unreasonable.