Opinion ID: 2520803
Heading Depth: 1
Heading Rank: 11

Heading: bota's exclusion of anr's 1996 income

Text: In its prior decision, BOTA admitted evidence of ANR's post-appraisal income based upon this court's decision in Board of Ness County Comm'rs v. Bankoff Oil Co., 265 Kan. 525, 960 P.2d 1279 (1998). However, in this present case, BOTA concluded that it was error to allow the submission of the post-valuation income. BOTA did not discuss Bankoff but did conclude that post-valuation data is not typically allowed to determine present value except in cases where there is no relevant data available on the valuation date and such post-valuation data is in close proximity to the valuation date. ANR argues that the exclusion is an abuse of discretion and contrary to our decision in Bankoff. ANR sought admission of its 1996 income for the purpose of corroborating the income forecasts of its expert appraiser, Goodman. ANR discusses the generally accepted appraisal standards and procedures in valuing public utility property according to an income approach. Relying on eminent authority in the field of appraisals and case law, ANR states that the authorities establish that it is the anticipated future income projection, not actual future income that is critical in the income approach. Failure to consider future income would contradict the principle of anticipation, which holds that value is the present worth of future benefits. Appraisal Institute, The Appraisal of Real Estate 471 (11th ed. 1996). We agree that admission of actual income figures for future years beyond the valuation date contradicts the principle of anticipation and undermines and distorts an income approach to value. It is almost universally accepted that actual future income figures are not to be considered when considering future income projections under the income approach to value. [T]he valuation, although based upon a forecast of earnings, must be found upon what was known and anticipated as of the assessing date, unaided by hindsight. New Brunswick v. State of N.J. Div. of Tax Appeals, 39 N.J. 537, 545, 189 A.2d 702 (1963). Bankoff provides little if any support for admission of ANR's 1996 income. While Bankoff held that post-valuation income was admissible for purposes of determining the taxable value of an oil and gas lease, the similarities between Bankoff and this case stop there. See 265 Kan. at 544. Bankoff involved the 1993 taxes on an oil and gas lease in Ness County. Bankoff operated two wells on the Linden oil and gas lease in the Brownell field producing oil from the Cherokee sand formation in Ness County. The Linden lease had shown no decline characteristics for the years 1989, 1990, and 1991, primarily due to restrictions of the production equipment. However, the lease commenced a characteristic decline in late 1992, and Bankoff sought admission of data from the first quarter of 1993 so that the last quarter of 1992 could be compared with the first quarter of 1993 to establish a 50% decline in value. Absent such evidence, comparing the Linden lease's production in 1991 to that in 1993 demonstrated a decline rate of only 2%. BOTA initially refused to allow the 1993 income figure but upon reconsideration admitted the 1993 figures resulting in a tax refund of approximately $83,000. The Kansas Court of Appeals reversed BOTA, holding that K.S.A. 79-301 called for personal property subject to taxation be assessed as of January 1 of each year. Board of Ness County Comm'rs v. Bankoff Oil Co., 24 Kan. App. 2d 532, 949 P.2d 628 (1997). The guide developed by the PVD and relied upon by BOTA was in conflict with such statutes and therefore was invalid. Thus, the practice of using data beyond the January 1 assessment date was thereby prohibited. 24 Kan. App. 2d at 539-40. We granted Bankoff's petition for review. After an analysis of the taxing statutes involved and the guide developed by the PVD, we reversed the Court of Appeals, noting: The appraisal difficulties created by the flush production of a new lease are similar to the difficulties encountered when a lease begins a production decline late in the year preceding appraisal. The Guide developed by the Division of Property Valuation treats both incidents similarly, as the failure to properly calculate and confirm the decline rate of a lease would inaccurately reflect its future production and result in an inaccurate valuation and assessment, just as the failure to account for flush production in a new well would. 264 Kan. at 541-42. In addition, in K.S.A. 79-506, the legislature specifically adopted the Uniform Standards of Professional Appraisal Practice issued by the Appraisal Standards Board in effect on March 1, 1992. The amicus curiae points out that Appraisal Standard No. 3, adopted by the legislature, acknowledges that retrospective appraisals may be appropriate for property tax matters and permits appraisers to consider data subsequent to the effective date of appraisal to confirm trends which would have been considered by a buyer or seller as of the effective date in arriving at a retrospective value. . . . . Refusing to allow consideration of post-January 1 production data when assessing an oil or gas lease that has suffered a decline in production would be to ignore relevant and available factual information pertaining to the lease's future productivity and income. This result is not required by K.S.A. 79-503a, is contrary to assessment principles embodied in the statutory scheme, and denies the expertise wielded by the Director of Property Valuation in adopting the Guide. 265 Kan. at 542-44. Bankoff cited Appraisal Standard No. 3 of the Uniform Standards of Professional Appraisal Practice issued by the Appraisal Standards Board. 265 Kan. at 542. That standard permits the use of data subsequent to the valuation date, but cautions that a logical cut-off must be determined because at some point the later data does not reflect the relevant market on the date of valuation. Further, the standard cautions that  [i]n the absence of evidence in the market that data subsequent to the effective date was consistent with and confirmed market expectations as of the effective date, the effective date should be used as the cut-off date for data considered by the appraiser.  (Emphasis added.) Appraisal Standards Board, Uniform Standards of Professional Appraisal Practice 71 (1998). A correct reading of Bankoff demonstrates that consideration of post-valuation data becomes admissible when no data is available and the time lapse is within close proximity to the evaluation date. Here, ANR seeks to enter its 1996 income data some 28 and 40 months after the close of the valuation date in a situation where evidence exists to make the necessary projections from the valuation date without the aid of actual post-valuation data. Allowance of such evidence undermines the appraisal process and is contrary to the principles involved in the income approach to value. Unlike Bankoff, this case does not involve a change just prior to the date of valuation. The issue in this case is the effects of Order 636, which were debated significantly in years prior to the valuation dates of January 1, 1994, and January 1, 1995, at issue in this case. ANR was given the opportunity in this case to present testimony that its income was going to decline. This it did. Appraisal Standard No. 3 of the Uniform Standards of Professional Appraisal Practice expressly provides that the cut-off date in a case of this nature should be the valuation date. Bankoff fails under the facts of this case to provide authority for admission of the 1996 income. To say that the 1996 income of ANR was to be limited as corroborating evidence of its expert Goodman's projection does not change our conclusion when most of the experts testifying in this case agree that such evidence should not be considered in the income approach to value.