Opinion ID: 1761035
Heading Depth: 1
Heading Rank: 3

Heading: true cash value.

Text: All methods used to determine true cash value involve the exercise of judgment or decision-making. While it may seem that a sale which has occurred definitely fixes market price so as almost indisputably to determine true cash value, this is not necessarily the case, particularly if the property is unique and if there have been few sales. The testimony in this case shows that a great many considerations enter into the determination of sales price  need of or ability to utilize the property, the calculation of potential income, actual income, age and physical condition, possible tax benefits or detriments, cost of money, and so on. Sales price, particularly a single sales price, is only one index of true cash value. Twenty-Two Charlotte, Inc., v. City of Detroit (1940), 294 Mich 275, 283; Moran v. Grosse Pointe Township, supra ; Kingsford Chemical Company v. City of Kingsford, supra, at 102, 103. In Davidson v. City of Lansing (1959), 356 Mich 697, 700, Justice KELLY wrote for a unanimous Court: The sale price paid by appellants was an item to be considered by the assessor, but is not of and by itself controlling. If reproduction or replacement cost is used as the test, we are again met by uncertainties. No reconstruction or replacement of the property is contemplated. Consequently, pricing by competitive bids is lacking. Costs are often related to those of other structures thought to be within the same building-type classification. After a figure for cost has been selected, the next step is to determine the amount to be allowed for depreciation and for obsolescence, if any. Allowances for depreciation normally bear a relation to the remaining useful life of the building at the time of its construction. What the assigned useful life of a building should be may prove a debatable question. Two types of obsolescence may be considered by the assessor: functional obsolescence and economic obsolescence. The first covers loss of value due to inherent deficiencies within the property. The second is loss of value occasioned by outside forces. The measure of allowable obsolescence becomes a subjective determination. It can vary widely in the minds of individual assessors. All of these decisions, where the reproduction or replacement cost method is used, demand the exercise of judgment. Finally, the capitalization of income method will produce different results depending upon such decisions as whether to use actual income or projected income, the amount and make-up of the capitalization rate, et cetera. In this case the taxpayer's expert, Mr. Luedders, used a capitalization rate of 9% after property taxes but before depreciation: Two reasons: one in the interest of conservatism and the other, there is a certain amount of pride of ownership in owning such a beautiful complex and such a prominent piece of property. A shift of 1% either way would produce considerable variation in value, as will be seen hereafter. True cash value should be based upon one or more of the recognized methods for its determination. The method or methods to be used is a matter for decision at the assessing level and, if supported by the record, will not be subject to judicial review. Review will be limited to fraud, error of law or the adoption of wrong principles. In these assessment decisions, three levels of determination  (1) by the assessor, (2) by the board of review, and (3) by the State tax commission  must ordinarily suffice. The commission's staff report indicates that the current reproduction cost of the Fisher-New Center buildings before depreciation or obsolescence amounts to $63,160,864. Excluding ornate construction, the current replacement cost amounts to $51,062,475. The staff estimated that after depreciation and obsolescence the value of the buildings and improvements is $13,870,342. The land, parking lots, et cetera, brings the total estimated value of the Fisher-New Center properties to $19,558,348. The average net income of the Fisher-New Center properties before depreciation and property taxes for the years 1960, 1961, and 1962, was $1,176,314. The commission's appraiser estimated that the future net income should approximate $1,576,314. The appraisal presented on behalf of appellant shows the actual figures for 1963 and 1964 to have been $1,526,806 and $1,482,284, respectively, being net income before real estate taxes. The commission utilized a capitalization factor of 8.1%. Such capitalization factor, applied against the 1963 net income, would indicate a value in an amount approximating $18,850,000. The appraisal offered on behalf of appellant also shows an estimated stabilized net income [5] before taxes of $1,623,500. If one were to capitalize by the commission's factor of 8.1% this stabilized net income before taxes, the capitalized true cash value of the Fisher-New Center properties would be $20,043,210. The gross income of the properties, according to appellant's appraisal for 1963 and 1964, was $3,531,989 and $3,635,379, respectively. The State tax commission's staff report recites that: A gross income check for office buildings from Boeckh's Manual [6] indicates a gross income multiplier of 4 to 6. Exhibit M, offered by cross-appellant, recites: An analysis of sales of comparable property showed that such sales prices were at an average ratio of 5.6 times the gross income of these properties. Multiplication of the gross income shown by appellant for 1964, approximating $3,600,000, by a multiplier of 5.6 would indicate a true cash value of $20,160,000. Projecting gross income of $3,500,000 for 1963 by a multiplier of 5.6 would produce a true cash value of $19,600,000. The determination of the State tax commission with regard to the true cash value of taxpayer's property is supported by the record. Appellant has not demonstrated errors of law or the application of wrong principles.