Court Opinion

ID: 3843130
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:12:04.168293+00
Date Added: 2024-06-11T14:14:27.249433
License: Public Domain

Decision rendered October 17, 1996.
This matter is before the court to resolve issues concerning the calculation of special farm use value. The court previously held a trial and ruled on the stipulated issues of (1) land-to-vine ratio and (2) bog acres to be included in the calculations. Based upon those determinations, plaintiffs (taxpayers) and the Department of Revenue (department) submitted proposed calculations of value.
While most appraisals seek real market value, the court must, in this case, determine special farm use value. That value is not based on market data but on farm income. This requires total reliance on the income approach. Although the income approach is an accepted method of valuing property, it has inherent limitations and dangers. In utilizing the income approach, appraisers analyze economic factors, manipulate market data, and engage in mathematical calculations. However, sometimes those formula exercises result in absurd and unreasonable results. Consequently, every appraiser recognizes that the income approach must be tempered by the exercise of intuitive judgment and common sense. This tempering judgment is derived from the perspective and context of the market. This vital part of appraising is not available when determining special farm use value. Furthermore, the motives for engaging in any particular occupation are rarely all economic.
In this case, the proposed calculations of both parties make sense, but both cannot be right. The court has worked *Page 8 
through the calculations, but it has no perspective or market context to verify whether the resulting calculation of value is correct. In addition, very minor changes in the income approach, particularly in the capitalization rate and in the amount of income, make a significant difference in the indicated value.
Having expressed these reservations and limitations, the court will now consider the three issues presented by the parties for resolution in connection with the calculation of assessed value.
                     BARRELS OF PRODUCTION PER ACRE
As indicated, the court previously determined that nonproducing bog acres are to be included in determining average production per acre. Using recommendations by the department's appraiser, taxpayers' calculations determined the average production over a three year period (1988, 1989, 1990). However, the department's appraiser used only two years of expenses to calculate average expense per acre and only two years to calculate average production per acre.
Despite the appraiser's general recommendations regarding the number of years, the court finds that it is more appropriate to use average production for two years when using average expenses for the same two years. The court finds that the average production for 1989 and 1990 was 86.885 barrels per acre. The parties are in agreement that each barrel produces gross revenue of $46.59, resulting in a gross income of $4,047.97 per acre.
                                EXPENSES
The department seeks to reduce the amount of expenses allowed, reasoning that if nonproducing bog acres are included in the calculations, the average expenses in the appraisal would be less per acre. Taxpayers object, claiming that expenses were not a controverted issue at trial and, consequently, the parties presented no testimony or evidence on expenses per acre. Taxpayers argue that although nonproducing bog acres may incur fewer expenses, other expenses may have been greater. The court finds that the appropriate expense amount to use is that used by the department's appraiser in his report, which is $3,753 per acre. *Page 9
                           CAPITALIZATION RATE
The department contends that a change in the income requires a change in the capitalization rate. This has the effect of backing into a rate, an approach which is less than persuasive. The court finds that the appropriate capitalization rate is 14.43 percent as used in the department's appraisal report and by taxpayers.2
                          COURT'S CALCULATIONS
Having made these determinations, the court calculates the special farm use value per acre as follows:
Income
Gross Income
      Avg production/acre x Avg price/acre       $4,047.97 (86.885 barrels x $46.59/barrel) Less Expenses/acre                        ($3,753.00) ___________ Net Income per acre                              $294.97
Capitalization
Net Income ÷ Cap Rate
$294.97 ÷ .1443 = $2,044.14 (vines and land/acre) x   .3969 (land ratio) -------- Special Farm Use Land Value $811.32/acre
Now, therefore,
IT IS ORDERED that Judgment be entered consistent with these findings and calculations.
2 Because the tax rate is a component of the capitalization rate in this case, a separate capitalization rate will need to be calculated for each code area using the appropriate tax rate. *Page 10