Opinion ID: 1179468
Heading Depth: 2
Heading Rank: 1

Heading: The Department's Ratio Study

Text: As discussed earlier, the department conducted a ratio study to determine the county's level of assessment of comparison class property during the 1993-94 tax year. To complete its study, the department audited 123 county accounts, out of a total of 23,707 accounts, and used the results of those audits to estimate the true market value for all the comparison class property and to calculate a final assessment ratio for that class. The department's study used a stratified sampling that organized the 123 accounts into five separate strata based upon their assessed values, with the first stratum containing the largest accounts and the fifth stratum containing the smallest. [29] In designing and conducting its study, the department consulted with an expert on ratio studies, Dr. Gloudemans. The department's audits consisted of conducting book and on-site audits of several assets randomly selected from the 1993-94 personal property return for each sample account (sample one), as well as an audit of several additional assets examined during an on-site inspection (sample two). The sample one audit primarily served to verify that the county had valued reported property correctly. The sample two audit served to broaden the sample base and to identify any additional assets that might have been omitted from the owner's personal property tax return. After completing the audits, the department applied its valuation factors to calculate an audited value, i.e., an estimated true market value, for each sample of selected assets. For some accounts, the auditors also noted any lump sum adjustments that, in their judgment, would ensure that the results of the audit accurately reflected the true market value of all the property in the account. Next, the department applied a formula to those numbers, which was developed by the department and approved by Gloudemans, in order to estimate the total true market value for each sample account. The department then calculated an assessment ratio for each account, by dividing the total assessed value for each account by the estimated true market value for each account. The department next used the assessment ratios for each sample account to determine an overall assessment ratio for each of the five strata. To do so, the department calculated three measures of central tendency, [30] that is, three methods for determining the most central ratio figure, for each stratum: the median, the mean, and the ratio of aggregates. The median, or midpoint, simply represented the middle ratio figure in each stratum. The mean, or average, was calculated by adding all the ratios in each stratum and then dividing that figure by the number of accounts included in each stratum. The ratio of aggregates, which computes an assessment ratio based upon aggregated total sums, was calculated by adding the assessed values for all the accounts in each stratum and then dividing that figure by the sum of the estimated true market values for those accounts, as determined by the department's formula, mentioned in the preceding paragraph. The department then calculated three measures of central tendency for the entire sample, which ignored the effects of the stratification, in an analogous manner. Finally, the department used the results from each stratum to calculate a composite result for the entire study that weighted the results under each stratum by the corresponding estimated market value of that stratum. The department first calculated an estimated market value for each stratum, again based upon each of the three measures of central tendency, by adding the total assessed values for the accounts in each stratum and dividing that figure by the median, mean, and ratio of aggregates for that stratum. To determine three final, weighted assessment ratios for the entire study, the department then added the assessed values of all 123 accounts and divided that figure by the sum of the estimated true market values of the five strata, calculated based upon the three measures of central tendency, as described in the preceding sentence. The results of the study are illustrated as follows: Assessed Number of Ratio Value of Total Sample of Accounts Number of Accounts Median Mean Aggreg's Stratum in Stratum Accounts Drawn (%) (%) (%) ---------------------------------------------------------------------------- 1 $3,520,680 + 38 16 100.00 101.16 100.12 2 $951,250 to 162 20 100.00 101.93 101.36 3,520,679 3 $273,150 to 568 20 97.70 96.30 96.00 $951,249 4 $66,960 to 2,141 20 100.00 99.75 100.40 $273,149 5 $3,000 to 20,798 47 100.00 104.48 91.32 $66,959 ---------------------------------------------------------------------------- Totals 23,707 123 100.00 101.53 100.11 ---------------------------------------------------------------------------- Final Weighted 99.53 100.65 97.69 Results According to the department's study, then, the assessment ratio for the comparison class during the 1993-94 tax year was between 97.69 and 100.65 percent. The department contends here that, because the median is the most appropriate method of central tendency to use in this case, the assessment ratio for the comparison class was 99.53 percent. At trial, the airlines challenged the department's study in several respects. For example, the department's audit reports in some instances were not complete and, therefore, did not always reliably reflect accurate values of the sample assets. The evidence also demonstrated that the auditors did not conduct a sample two audit for some accounts. Further, the auditors made the lump sum adjustments, some of which were substantial, based solely upon their judgment, as opposed to following any established procedure. Finally, the airlines also challenged the validity of the department's formula for calculating the estimated market value for each sample account and demonstrated that it had been applied differently in a few instances. We agree that the airlines have demonstrated several problems with the department's ratio study. However, of all the evidence presented at trial, we conclude that the department's study provides the best estimate of the assessment ratio for the comparison class. As discussed earlier, the Bahl study was based upon national figures compiled for the purpose of estimating the GNP and other national product and income figures, and is unpersuasive. By contrast, the department's study, even with its flaws, is based upon actual audits of personal property that is part of the comparison class. In our view, although neither study demonstrates precisely the value of comparison class property and thus of the accompanying assessment ratio, the department's study provides the more reliable estimate of those figures. The airlines make two additional challenges to the department's study that may affect the final calculation of the assessment ratio for the comparison class. We now turn to those issues.