Opinion ID: 1214260
Heading Depth: 1
Heading Rank: 2

Heading: Excessive Valuation.

Text: Through its expert witness the Company admitted that the Twentieth Century Building had been assessed and properly depreciated in all respects, with the exception of the theater area. With regard to this portion of the building, the Company contends that the assessed valuation is so far in excess of actual or full and true value as to amount to a confiscation of its property. The Company has no quarrel with the assessor's estimated reconstruction cost of the theater area as such. But it does argue vigorously that if the cost approach is to be used as a guide to value, the straight line twenty-five per cent physical depreciation allowed by the assessor is unrealistic and totally inadequate. The Company points to the fact that a theater is necessarily large in area and in volume, with an exceptionally high ceiling. It argues that size is not truly representative of actual value, because the theater business is a sick industry on account of the increased competition of television, and that this has caused approximately four hundred of the total one thousand seats in the theater to have no economic value. Thus, it contends that property of this type can be fairly valued only on its capacity to produce income, and that there must be taken into consideration not only physical depreciation but also what the Company refers to as functional obsolescence, measured by an annual loss in economic return which a theater of this size ought to produce but does not. The Company's expert witness, in computing functional obsolescence, arrived at a figure of approximately $293,000 which, when added to the amount of physical depreciation allowed and then subtracted from the estimated cost of reconstruction, resulted in a net value of the theater of approximately $48,000. This witness arrived at the same result by also computing the value of the theater on the basis of a capitalization of income. It was his contention that since a commercial building like a theater is constructed for the purpose of deriving income, the only fair method of ascertaining its value is to determine its true worth to the owner by analyzing the flow of the income stream and capitalizing the income. Using this approach, he again arrived at a net theater valuation of approximately $48,000. The City Assessor's valuation of this portion of the building, allowing a twenty-five per cent straight line depreciation and a lower reconstruction rate than that used for the rest of the building on account of the high ceiling in the theater, was in excess of $347,000. The Company asserts that this so far exceeds the theater's true economic worth, which it contends is equivalent to true and full value, that to permit the assessment to stand will offend the requirements of due process. The valuation and assessment of property for taxes does not contravene the due process clause of the Fourteenth Amendment unless it is plainly demonstrated that there is involved, not the exercise of the taxing power, but the exertion of a different and forbidden power, such as the confiscation of property. [10] Such a demonstration is not made simply by showing overvaluation; there must be something which, in legal effect, is equivalent to an intention or fraudulent purpose to place an excessive valuation on property, and thus violate fundamental principles that safeguard the taxpayer's property rights. [11] Invalidity of assessment is not shown by the city's refusal to adopt the Company's proposed method of valuation. Admittedly, the capitalization of income with respect to a commercial property may fairly reflect its value to the owner at the time the assessment is made; and in the circumstances of this case  where television was making inroads on the theater revenues  it would certainly have meant a tax saving for the Company. But the City's position cannot be ignored. When the Company appealed to the Board of Equalization in 1956 and again in 1957, it based its claim for tax relief on what were characterized by a Board member as skeleton statements showing costs and revenues from the operation of the theater. Reasonably, the Board would not have been expected to rely solely on such statements and representations by the Company and then adopt the capitalization of income technique to arrive at true value. It would have been necessary to first verify the amounts stated as income and expenses, and to determine whether fair allocations of management fees and other costs had been made among the Company's various business enterprises in the City of Juneau. This is indicated from a finding made by the court below that there had been a duplication and misdirection of costs which compelled the court to reach the conclusion that no efficacy could be accorded the net income figure submitted by the Company. The record discloses that the Board felt it could not utilize the Company's proposed method of valuation without conducting a complete audit of the Company's business enterprise. Furthermore, the Board may well have felt that if it adopted the Company's theory of valuation on the basis of net earnings, which would have been a departure from the established method of computing value on the cost basis, it would be compelled to give the same consideration to other taxpayers owning commercial properties. All of this would undoubtedly have resulted in an increased financial burden to the City and delays in the collection of taxes; and in the case of a business property not producing income, in an increased share of the burden of government being imposed on other taxpayers. These considerations serve to negate the Company's charge that it was the victim of arbitrary treatment and that there was a fraudulent purpose behind the actions of the assessor and the Board of Equalization. Although the income from property may be a legitimate factor to consider in fixing value for tax purposes, it is not the sole standard to apply. [12] The City was not bound by any particular formula, rule or method, either by statute [13] or otherwise. [14] Its choice of one recognized method of valuation over another was simply the exercise of a discretion committed to it by law. Whether or not it exercised a wise judgment is not our concern. This court has nothing to do with complaints of that nature. It will not substitute its judgment for the judgment of those upon whom the law confers the authority and duty to assess and levy taxes. This court is concerned with nothing less than fraud or the clear adoption of a fundamentally wrong principle of valuation. [15] Neither has been shown here. The actions of the assessor and the Board of Equalization are entirely compatible with a sincere effort to adopt valuations not relatively unjust or unequal; their determinations have not transgressed the bounds of honest judgment. [16] The judgment of the district court is affirmed.