Court Opinion

ID: 9692678
Source: CourtListenerOpinion
Date Created: 2023-08-25 16:00:24.600535+00
Date Added: 2024-06-11T18:19:36.022102
License: Public Domain

Boslaugh, J.,
dissenting.
The sole issue in this case is the fair market value of the appellant bank’s property. Neb. Rev. Stat. § 77-201 (Reissue 1986) requires that real estate be valued at its actual value. For the purposes of taxation, the terms “actual value,” “market value,” and “fair market value” mean exactly the same thing. Xerox Corp. v. Karnes, 217 Neb. 728, 350 N.W.2d 566 (1984).
A taxpayer may question the assessed value (actual value) of its real estate, the lack of proportionate and uniform valuation of the property, or both issues, in a proceeding before a board of equalization. Chief Indus, v. Hamilton Cty. Bd. of Equal., 228 Neb. 275, 422 N.W.2d 324 (1988). In this case, the appellant questioned only the assessed value of its property. The evidence of the appellees, however, related primarily to the matter of equalization, which is not an issue in this case.
There is no substantial dispute concerning the value of the land itself. The primary controversy is over the valuation of the improvements, namely, the bank building.
The record shows that the county assessor had never been in the building, did not personally inspect or measure the property, and relied entirely upon the determination that had been made by the appraisal company. Where the assessor does not act upon his own information, or does not make a personal inspection of the property, there is no presumption that the official assessment is valid. Grainger Brothers Co. v. Board of Equalization, 180 Neb. 571, 144 N.W.2d 161 (1966).
On cross-examination, the assessor testified as follows:
*423Q- I’ll rephrase my question. We’ll assume we have an identical building in Syracuse and Nebraska City. Both cost $600,000.00. The one in Nebraska City will sell for $500,000.00 and the one in Syracuse will sell for $200,000.00. How would you assess those two buildings for tax purposes?
A-1 would say they would be assessed at $600,000.00, both areas.
Q- In both places?
A- In both places.
Q- And is that the theory you used in the taxation of the bank building in 1985 — ’86 rather?
A-That is correct.
The witness John Fritz, who testified for the county and whose company performed the reappraisal for Otoe County, testified that the value of the bank property was determined by use of a cost of reconstruction less depreciation method. The critical factor in that method is the determination of the proper amount of depreciation to be allowed so that the result will be the fair market value of the property. Depreciation in this process includes not only physical deterioration, but also functional and economic obsolescence. If an inadequate depreciation allowance is made, the resulting figure will be far in excess of the fair market value of the property. Fritz allowed only 5 percent depreciation.
In this case, it seems to be generally conceded that the property was “overimproved” in the sense that it is doubtful that any commercial building in Syracuse, Nebraska, a community of approximately 1,600 persons, could ever be sold to a willing buyer in an arm’s-length transaction for an amount approaching $1 million. In an effort to arrive at some further reduction in the value of the building, it appears that Fritz used “average” construction costs rather than “good,” despite the fact that there seems to be no justification for using average rather than good for a modern, newly constructed building.
In First Fed S & L Ass’n v Flint, 415 Mich. 702, 329 N.W.2d 755 (1982), the Supreme Court of Michigan discussed the difficulty inherent in attempting to determine market value by cost of reproduction. In that case the court said:
*424The constitution requires that property tax assessments reflect “true cash value”. The General Property Tax Act defines that term to mean “the usual selling price” of the property.
While actual and reproduction cost are some evidence of value, the constitutional and statutory standard is market-based.
The Tax Tribunal erred in adopting the hearing officer’s reasoning that the value should include amounts expended for physical improvements that the hearing officer found were made to enhance the bank’s “image” or “business”, without regard to whether the expenditures added to the “cash” or “usual selling price” of the property. The law does not tax expenditures that merely enhance the image or business of the owner, only expenditures that add to the cash value or selling price of the property.
It can be anticipated that, if a bank puts fine hardwood and marble throughout a building, those expenditures may not enhance the selling price of the building in an amount equal to their cost. While the expenditures may add to the selling price of the building, they may not add dollar-for-dollar.
A building is sometimes worth less the day after completion of construction than its cost of construction. Ordinarily overimprovements are built by government, not by private entrepreneurs who, in theory at least, would not construct an improvement unless they thought it was worth at least what it cost to build.
The constitution and statute do not authorize a tax on the value of lumber or marble incorporated into a building, but on the market value of the completed structure and land.
We do not hold that the income approach advocated by First Federal’s appraiser should govern, nor do we fault the city’s appraiser or the Tax Tribunal for considering historical cost. Rather, we reject the notion that it is proper to include, in determining value, expenditures made, as the Tax Tribunal found, to enhance plaintiff’s image and business without regard to whether they add to the selling *425price of the building.
Absent more persuasive evidence, such as comparable sales, historical cost or reproduction cost can be considered in arriving at the usual selling price, but historical or reproduction cost that merely enhances image or business but not selling price is not subject to taxation.
415 Mich, at 704-07, 329 N.W.2d at 757-58.
In notes to the opinion, the court made the following statements:
If the government were to sell an overimprovement to a private person, market price rather than the cost of construction would govern for ad valorem tax purposes. If the government subsidizes a private enterprise in constructing such structures, the market value rather than cost would govern.
This issue can also arise where a private landowner, for personal reasons or simple improvidence, overbuilds for the neighborhood. He constructs a house that costs $150,000 in a neighborhood where all the other houses are worth about $75,000. In the relevant market, the house costing $150,000 may be worth $125,000 or $100,000, but not $150,000. Because it is an overimprovement for the neighborhood, the house, although brand new, should be valued at the market value, not at what it cost.
Merely because the owner may have constructed an improvement that cost more than the improvement is worth on the market should not subject the owner to a higher ad valorem tax.
Even if the structure is not an overimprovement, expenditures on it do not necessarily enhance its value dollar-for-dollar. A greenhouse, a gazebo, a tennis court, or a hot tub, while of value to the owner, do not necessarily add dollar-for-dollar to the usual selling price.
415 Mich, at 706 nn.5-6, 329 N.W.2d at 757 nn.5-6.
The appellant’s evidence consisted principally of the testimony of Robert Ogden and Glen Davidson.
Davidson, a resident of Syracuse, Nebraska, and a licensed appraiser with 25 years’ experience in the insurance and real estate businesses, estimated that he had sold 200 properties in *426the Syracuse area during the last 10 years. He had been a tenant in the bank building, but had moved his office across the street because the upper floor of the bank was not convenient for his customers.
In Davidson’s opinion, the property could not be sold for an amount in excess of $200,000 to $250,000.
Ogden is a professional real estate appraiser, whose experience included 4 years in the Lancaster County assessor’s office. Ogden’s opinion was that functional depreciation should be 40 percent and that the property had a value of approximately $390,000.
In the final analysis, the test is not what factors the assessor considered or failed to consider, but whether the property in question was valued for tax purposes at its actual value. Airport Inn v. County Bd. of Equalization, 215 Neb. 659, 340 N.W.2d 378(1983).
My review of the record convinces me that the appellant in this case satisfied its burden of proof and established that under the Constitution and statutes of this state, and the prior decisions of this court, the board of equalization acted arbitrarily and the appellant was entitled to relief. Upon de novo review, I conclude that the assessed value of the appellant’s property should have been reduced to $390,000.
Caporale, J., and Colwell, D.J., Retired, join in this dissent.