Court Opinion

ID: 4525284
Source: CourtListenerOpinion
Date Created: 2020-04-14 22:09:10.616911+00
Date Added: 2024-06-11T09:25:47.461942
License: Public Domain

MARION TIBBS, ASSESSOR             )
BUTLER COUNTY, MISSOURI            )
                                   )
     Appellant,                    )
                                   )            No. SD35625
vs.                                )
                                   )
POPLAR BLUFF ASSOCIATES I, L.P.,   )
and                                )
POPLAR BLUFF PROPERTIES III, L.P., )
                                   )            Filed: April 14, 2020
     Respondents.                  )

         APPEAL FROM THE CIRCUIT COURT OF BUTLER COUNTY

                      Honorable Judge Michael M. Pritchett

AFFIRMED

      The Butler County Assessor Marion Tibbs and his successor, Chris

Rickman ("Assessor"), appeal the trial court's judgment affirming the decision

and order of the State Tax Commission ("Commission") establishing the value of

two low-income housing properties known as Idlewild Estates and Oak View

Apartments ("properties") for certain tax years. In point 1, Assessor alleges the

Commission used an impermissible valuation approach based on actual income
and expenses rather than market income and expenses. In point 2, Assessor

contends the Commission's valuation approach creates subclassifications of real

property in violation of article X sections 3 and 4(a) and (b) of the Missouri

Constitution. Finding no merit to Assessor's arguments, we affirm the judgment

of the trial court.

                            Factual and Procedural History

         Poplar Bluff Associates I, L.P. ("PB Associates") and Poplar Bluff

Properties III L.P. ("PB Properties") (collectively, "Owners") developed two

housing complexes whose construction was funded by low-income tax credits.

PB Associates built Idlewild Estates, a forty-unit housing complex, in 2005

consisting of an 8.47 acre tract of land improved by a multi-family dwelling with

21 buildings.1 PB Properties constructed Oak View Apartments in 1999

consisting of a 3.92 acre tract of land improved by a multi-family dwelling of 48

units.

         Both Idlewild Estates and Oak View Apartments are subject to Low

Income Housing Tax Credit Land Use Restriction Agreements ("LUR

Agreements") made between Owners and the Missouri Housing Development

Commission ("MHDC"). MHDC administers the low-income housing tax credit

program. The terms of these LUR Agreements state that restrictive covenants

governing "use" and "occupancy" are covenants "running with the land" which

bind subsequent owners of the properties for the terms of the agreements. The

1 The fair market value of Idlewild Estates for tax purposes was the subject of previous litigation in

Tibbs v. Poplar Bluff Associates I, L.P. ("Tibbs 1"), 411 S.W.3d 814 (Mo. App. S.D. 2013).
In Tibbs 1, this Court held that neither of the Assessor's points on appeal had been raised before
the Commission and therefore Assessor's claims were not preserved for appellate review. Id. at
821.

                                                  2
properties' LUR Agreements were recorded with the Butler County Recorder of

Deeds. For Idlewild, the LUR Agreement dated April 2006 runs for a mandatory

compliance period of 15 years, with an additional compliance period of 5 years

and an "extended use period" of 30 years. For Oak View, the LUR Agreement

dated March 2001 has a mandatory compliance period of fifteen years and an

extended low-income use period of fifteen years.

       Under the terms of the LUR Agreements, the units shall be rented to

qualified low-income tenants. Idlewild may not be sold without the consent of

MHDC. Oak View may be sold but the acquisition is "subject to the requirements

of this Agreement[.]" Rent for the properties may not be increased without the

prior approval of MHDC and is subject to limitations. Owners' failure to comply

with the LUR Agreements and other related rules and regulations will permit

MHDC to immediately seek recapture of the tax credits previously allocated to

the project.

       Assessor assessed Idlewild Estates and Oak View Apartments at the

following values, which were affirmed by the Butler County Board of Equalization

("BOE") after their respective owners appealed.

     Property        Year         Market Valuation           Assessed Value

 Idlewild Estates    2009    $2,668,060                    $506,922

 Idlewild Estates    2011    $3,648,494                    $693,210

 Idlewild Estates    2013    $3,648,490                    $693,213

 Oak View            2011    $2,425,878                    $460,920
 Apartments
 Oak View            2013    $2,425,878                    $460,920
 Apartments

                                        3
Owners then requested review by the Commission. See § 138.430.2

        An evidentiary hearing on the two properties' five assessed values was held

before Hearing Officer John Treu ("Hearing Officer").3 Four appraisers testified

regarding their valuation of the properties. The four appraisers each described

how they valued the properties and their consideration of the three main

approaches to valuation: the cost approach, the sales comparison approach, and

the income approach. The main distinction between the four appraisers was

whether or not they conducted their appraisals with consideration of the LUR

Agreements covering the properties.

        In his testimony at the hearing, Assessor rejected a valuation approach

which relied on actual income and expenses. Assessor testified that an owner's

decision to enter into a LUR Agreement was a choice the owner made when they

decided to own low-income housing, and assessors are to "value the property, not

the business of the owner." Assessor testified that, although two appraisers

provided appraisals on Assessor's behalf with effective dates of 2009 and 2011

respectively, the values for the 2009, 2011, and 2013 assessments dates would be

the same.

                                 Hearing Officer's Decision

        In June 2016, after a February 2016 evidentiary hearing, the Hearing

Officer set aside the BOE's decision, finding Owners had presented substantial

2 All statutory citations are to RSMo. (2016). While some referenced statutes have been amended
since 2009, the year of Idlewild's first appraisal, these changes do not affect the analysis herein.
3 The Hearing Officer consolidated the appeals 09-45500, 11-45500, 11-45501, 13-45502, and 13-

45503 for purposes of the evidentiary hearing. Per statute, the assessed values for each odd-
numbered year apply in the following even-numbered year, except for new construction and
property improvements. § 137.115.1.

                                                 4
and persuasive evidence that the true market value of the properties was

significantly lower than Assessor's valuations. The Hearing Officer's decision

stated that properties funded by low-income tax credits are "unique" in that their

"owners have willingly . . . accept[ed] various restrictions, including restricted

rents, in exchange for economically desirable benefits." The Hearing Officer

determined the "[s]ubject properties herein should be valued using the income

approach, utilizing the actual rents and expenses and looking to the market to

develop a capitalization rate."4

        The Hearing Officer established the net operating income for Idlewild

Estates for 2008 ($106,241), for 2010 ($83,002), and for 2012 ($85,610). The

Hearing Officer established the net operating income for Oak View Apartments

for 2010 ($65,413) and for 2012 ($79,954). As for the capitalization rate for both

properties, the Hearing Officer chose to use the "market direct capitalization

rate" of 7.84%, which was the actual loaded capitalization rate for Oak View

Apartments, because it was "consistent within the subsidized housing market and

does not exceed the average capitalization rate in the Poplar Bluff Market."5

        The Hearing Officer entered his decision with the assessed value for each

property as follows:

 Appeal #       Parcel #                             Tax        True Market     Assessed
                                                     Year       Value           Value
 09-45500       Idlewild Estates                     1/1/09     $1,355,115      $257,471
 11-45501       Idlewild Estates                     1/1/11     $1,175,965      $223,433
 13-45503       Idlewild Estates                     1/1/13     $1,091,964      $207,473
 11-45500       Oak View Apartments                  1/1/11     $834,349        $158,527
 13-45502       Oak View Apartments                  1/1/13     $1,019,821      $193,766

4 This was the same "income-based approach" prescribed by the legislature for valuing subsidized

property in the 2015 amendment to section 137.076. The Hearing Officer chose to apply this
methodology "irrespective of whether the statute [§ 137.076] existed or not."
5 A "loaded" capitalization rate has the effective tax rate built in.

                                               5
       Under section 138.432, Assessor appealed the Hearing Officer's decision to

the Commission challenging the decision as "erroneous as a matter of law"

because of the valuation method used, and specifically preserving the argument

that the valuation method violated article X sections 3 and 4(a) and (b). The

Commission's order, which incorporated the Hearing Officer's decision by

reference, affirmed the Hearing Officer's decision.

       Assessor then filed an amended petition for review of the Commission's

order in Butler County Circuit Court, and the trial court affirmed the

Commission. The trial court found the Commission's decision did not violate the

Missouri Constitution. This appeal followed.6

                                  Standard of Review

       This Court reviews the Commission's decision, not the judgment of the

trial court, to determine whether it:

       (1)     violates constitutional provisions;
       (2)     exceeds its statutory authority or jurisdiction;
       (3)     is not supported by competent and substantial evidence on the
               whole record;
       (4)     is unauthorized by law for any other reason;
       (5)     was rendered by means of unlawful procedures or without a fair
               trial;
       (6)     is arbitrary, capricious, or unreasonable; or
       (7)     constitutes an abuse of discretion.

Armstrong-Trotwood, LLC, 516 S.W.3d at 835; see also § 536.140 and Mo.

Const. art. V, § 18. "Notwithstanding, in our mandate, we reverse, affirm or

otherwise act upon the judgment of the trial court." Tibbs 1, 411 S.W.3d at 819

6 We have jurisdiction over this appeal because the case is not within the exclusive appellate

jurisdiction of the Supreme Court of Missouri. See Armstrong-Trotwood, LLC v. State Tax
Comm'n, 516 S.W.3d 830, 834 (Mo. banc 2017) (holding that a challenge to property assessment
not resulting in deposit to state treasury did not involve construction of "revenue laws of the
state" requiring exclusive appellate jurisdiction in the Supreme Court of Missouri).

                                              6
(internal citation and quotation omitted). "This [C]ourt reviews the decision of

the Commission and not the hearing officer, unless, as here, the Commission

incorporated the decision of the hearing officer, in which case we consider both

together[.]" Id. at 820. (internal citations, quotations, and brackets omitted).

       Our Supreme Court has noted its "hesitan[cy] to substitute its judgment

for the [Commission] in matters of property tax assessment[,]" and we defer to

the Commission's judgment on factual matters. Bateman v. Rinehart, 391
S.W.3d 441, 445 (Mo. banc 2013). However, to the extent the Commission's

decision and order was based on its interpretation and application of the law, this

Court will review the Commission's decision de novo and correct erroneous

interpretations of the law. Union Elec. Co. v. Estes, 534 S.W.3d 352, 365 (Mo.

App. W.D. 2017). "While the Commission has some discretion in deciding which

approach best estimates the value of a particular property," the Commission's

choice of valuation approach "must comply with the law, and once the

Commission decides to use a particular approach, it must apply that approach

properly and consider all relevant factors." Parker v. Doe Run Co., 553
S.W.3d 356, 360 (Mo. App. S.D. 2018).

       A county BOE's valuation is "presumed correct[,]" but a taxpayer may

rebut this presumption by presenting "substantial and persuasive evidence that

the valuation is erroneous." Id. It is the taxpayer's burden to establish the value

that should have been placed on the property. Id. "Determining the true value

in money is an issue of fact for the Commission[.]" Id.

                                         7
                                      Discussion

         This case involves the taxation of real property, one of the three classes of

property for ad valorem tax purposes. See Mo. Const. art. X, § 4(a). Real

property is further classified by the Missouri Constitution into three

subclassifications, including one of "[r]esidential property." Mo. Const. art. X,

§ 4(a) and (b). Section 137.115 governs real and personal property assessments,

and provides: "[t]he assessor shall annually assess all real property . . . at the

percent of its true value in money[.]" § 137.115.1 (emphasis added); see also

§ 137.115.5 (real property should be valued at a percentage of its "true value").

         "True value in money" means the "price which the property would bring

from a willing buyer when offered for sale by a willing seller." Cohen v.

Bushmeyer, 251 S.W.3d 345, 348 (Mo. App. E.D. 2008). The true value in

money is the fair market value of the property on the property's valuation date,

and "is a function of its highest and best use, which is the use of the property

which will produce the greatest return in the reasonably near future." Snider v.

Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 346 (Mo.

banc 2005) (internal citation and quotation omitted). True value in money is

defined "in terms of value in exchange" not "value in use." Equitable Life

Assur. Soc. of the U. S./Marriott Hotels, Inc. v. State Tax Comm'n, 852
S.W.2d 376, 380 (Mo. App. E.D. 1993). True value is "never an absolute figure,

but is merely an estimate of the fair market value on the valuation date." Drury

Chesterfield, Inc. v. Muehlheausler, 347 S.W.3d 107, 112 (Mo. App. E.D.

2011).

                                            8
                                       Point 1

       In point 1, Assessor argues the Commission erred in its ruling that low-

income housing should be valued using an income approach based on actual

income and expenses rather than market income and expenses because this

valuation method "fails to find the true value of the property as required by the

Missouri Constitution," fails to value the "fee simple estate," undervalues the

property, and is contrary to the code of state regulations and standard appraisal

practice. Because Assessor's constitutional challenges to the Commission's

valuation method are included in both of Assessor's points but are specifically

identified in point 2, we will address the constitutional issues as part of our point

2 analysis.

       For property tax purposes, real property is generally valued using "one or

more of three generally accepted approaches." Snider, 156 S.W.3d at 346.

These three approaches include the cost approach, the comparable sales

approach, and the income approach (also known as income capitalization). Id. at

346-48; Missouri Baptist Children's Home v. State Tax Comm'n

("MBCH"), 867 S.W.2d 510, 511 n.3 (Mo. banc 1993). The cost approach is

based on "either reproduction cost or replacement cost." Snider, 156 S.W.3d at

347. The comparable sales approach applies "prices paid for similar properties in

arms-length transactions and adjusts those prices to account for differences

between the properties." Id. at 347-48. The income approach to valuation

"determines value by estimating the present worth of what an owner will likely

receive in the future as income from the property." Id. at 347. This approach

considers what a buyer would be willing to pay to realize the income stream

                                          9
obtainable "from the property when devoted to its highest and best use." Id.

(quoting Equitable Life, 852 S.W.2d at 380).

       Each valuation approach is applied with reference to a specific use
       of the property – its highest and best use. The method used
       depends on several variables inherent in the highest and best use of
       the property in question. Each method uses its own unique factors
       to calculate the property's true value in money.
Id. at 346-47 (internal citations omitted); see Union Elec. Co., 534 S.W.3d at

366. Use of a particular valuation approach may be more appropriate in some

circumstances than others. For example, use of the comparable sales approach is

"most appropriate when there is an active market for the type of property at

issue" and there is "sufficient data [] available to make a comparative analysis."

Snider, 156 S.W.3d at 348. Conversely, when there is an "absence of

comparables in the market," the comparable sales approach should be rejected.
Id. at 350.

       "It is within the purview of the hearing officer to determine the method of

valuation to be adopted in a given case." Drury, 347 S.W.3d at 112. The

Commission has some discretion when deciding "which approach best estimates

the value of a particular property[,]" but its choice of a valuation approach must

comply with the law that "real property in Missouri be taxed according to its true

value in money." Snider, 156 S.W.3d at 348. Here, the Commission heard

evidence from four different appraisers who used a combination of approaches to

value the properties, but who all relied heavily on the income approach.

                               Assessor's Appraisals

       On behalf of Assessor, John Karnes ("Karnes") prepared an appraisal of

Idlewild Estates effective January 1, 2009 using the cost approach and the

                                         10
income approach to valuation. For his income approach, to which he gave more

weight, Karnes compared the property with "similar rented facilities" with similar

physical characteristics and location characteristics. Karnes considered the

highest and best use of the property to be multi-unit residential. The key aspect

of Karnes' appraisal was that he evaluated the owner's property rights as an

"owner of the fee simple title to subject property, under the hypothetical

condition that no government contracts are in place." (emphasis in original).

Applying a 7.15% capitalization rate under his income approach, Karnes'

valuation for Idlewild Estates was $3,468,000 and this was also his final

valuation.7

        Randy Rahlmann ("Rahlmann") provided an appraisal of Oak View

Apartments for Assessor as of January 1, 2011 where he utilized all three

approaches to valuation, but gave the most weight to the income approach since

these are "income producing property." Like Karnes, Rahlmann did not consider

the deed restrictions associated with the property. In developing his income

approach, Rahlmann looked to the rents on four comparable properties. He

chose to use actual rents as market rents after considering that "the subject units

are newer" and contain more bedrooms and bathrooms than the comparable

properties. Rahlmann chose to use current interest rates for a mortgage and "an

acceptable equity dividend rate" to arrive at his overall capitalization rate, once

the tax rate factor was added in, of 10%. Based on the income approach and sales

7Capitalization is the "process of converting a net income stream into an indication of value." A
capitalization rate is a combination of: "(1) the effective tax rate, (2) the interest mortgage rate
and (3) the equity rate." Lebanon Props. I v. North, 66 S.W.3d 765, 769 (Mo. App. S.D.
2002).

                                                 11
comparison approaches, Rahlmann determined the Oak View property value on

January 1, 2011 was $2,000,000.

                                     Owners' Appraisals

        On behalf of PB Associates, Troy Smith ("Smith") provided valuations of

Idlewild Estates for the years 2009, 2011, and 2013, using the income approach

and the cost approach. Smith also stated that to make his appraisal compliant

with the Uniform Standards of Appraisal Practice ("USPAP"), he needed to value

the property "with that deed restriction in place." Smith primarily relied on the

income approach, using the current low-income housing tax credit rents

established by MHDC.8 Using a capitalization rate adjusted for taxes of 8.81%,

Smith concluded the true value in money of the fee simple estate was $1,020,000

for 2009. This true value in money was raised to $1,030,000 for 2011 and

$1,060,000 for 2013.

        Kenneth Jaggers ("Jaggers") appraised Oak View Apartments on behalf of

PB Properties for the effective dates of January 1, 2011 and January 1, 2013 and

he used a sales comparison approach and income capitalization approach.9 For

his income approach, Jaggers used the direct capitalization method to convert

anticipated net income into an indication of value and compared the market rent

of other rent-restricted properties. Jaggers' report concluded that the value for

8 Smith stated the sales comparison approach was potentially misleading because properties
subject to LUR Agreements rarely sell due to their rent-restricted income.
9 Jaggers calculated the restricted rents were "approximately 49% of cost feasible rents."

However, since the "sales transactions cannot be accurately adjusted to reflect all of the economic
elements of abandoning the [LUR Agreement,]" Jaggers gave the sales comparison approach only
"ancillary consideration."

                                                12
the property as of January 1, 2011 was $670,000 and as of January 1, 2013 was

$970,000.

       Thus, all four appraisers utilized the income approach to valuation while

also considering one or more other approaches to valuation. In its decision, the

Commission used the income method of valuation to determine the value of the

properties. The Commission rejected the other approaches to valuation because

"subsidized properties do not tend to sell and costs tend to be inflated, making

sales and cost approaches difficult." Because the income approach is the

approach "most appropriate" when valuing "investment-type properties[,]"

Snider, 156 S.W.3d at 347, it was within the Commission's sound discretion to

use the income approach to determine the true value of the properties. See

Union Elec. Co., 534 S.W.3d at 367. However, when the Commission decides

to use a particular approach, the Commission "must apply that approach properly

and consider all of the factors relevant to that approach." Snider, 156 S.W.3d at

348.

       In MBCH, the Supreme Court of Missouri considered the value of a

below-market lease on the Commission's assessment of the "true value in money"

of a piece of commercial property in an application of the income capitalization

valuation method. 867 S.W.2d at 512. Our Supreme Court concluded the

"better-reasoned approach is to authorize the assessing authority to utilize

actual as well as potential income in determining true value." Id. The Court

favorably considered cases that took a "realistic approach" to economic

conditions which cause the property to have "lower actual rentals" than could be

obtained if the property was unencumbered by the lease. Id. at 512-13. The fact

                                        13
that "prudent potential buyers would take the lease into consideration in

determining what they are willing to pay are economic factors weighing in favor

of giving consideration to actual rentals rather than relying solely on hypothetical

value." Id. at 513. The Court stated "consideration of potential rent hypothesizes

an unrealistic market[]" and "[w]holly excluding below-market long-term leases

from the equation assumes facts that do not and are unlikely ever to exist." Id.

However, our Supreme Court noted that circumstances may exist where

"projected actual income may be adjusted to reflect current market conditions

where actual rent substantially distorts the property's true value[,]10 and there

may be circumstances where "the income capitalization method is too vague or

speculative to be a reliable measure of value." Id.

       MBCH was analyzed in Maryville Properties, L.P. v. Nelson, where

the court considered whether the Commission could rely on the value of low-

income housing tax credits as part of its valuation of a rent-restricted apartment

complex. 83 S.W.3d 608, 617 (Mo. App. W.D. 2002). The court rejected the

consideration of these tax credits because they were "intangible property." Id.

As part of its analysis, the court contrasted the value of low-income housing tax

credits with characteristics of property that have a direct effect on its income,

such as "[b]elow market leases and tax abatements[.]" Id. at 616.

       Here, the Commission's choice to consider the actual income and expenses

of the properties when applying the income valuation methodology was

consistent with our Supreme Court's holding in MBCH. Similar to the long-term

10See Nance v. State Tax Comm'n, 18 S.W.3d 611, 620 (Mo. App. W.D. 2000) for an example
of a case where the court found that the actual income received under a lease "substantially
distorted [a] leasehold's true value."

                                             14
lease in MBCH, Idlewild Estates and Oak View Apartments are both covered by

LUR Agreements. These LUR Agreements restrict the income the properties can

produce by restricting the amounts Owners can charge for rent. Even Assessor's

appraiser, Rahlmann, noted that a well-informed buyer would consider the

existence of deed restrictions associated with a property when making a decision

on whether to buy the property. To calculate the value of the properties without

considering the restrictions imposed by virtue of the LUR Agreements would

"hypothesize[] an unrealistic market" and assume facts that do not exist.

MBCH, 867 S.W.2d at 513.

       The true value in money of real property "is the fair market value of the

property on the valuation date, and is a function of its highest and best use, which

is the use of the property which will produce the greatest return in the

reasonably near future." Snider, 156 S.W.3d at 346 (emphasis added)

(quoting Aspenhof Corp. v. State Tax Comm'n, 789 S.W.2d 867, 869 (Mo.

App. E.D. 1990)). "Property should be valued according to the use that is readily

available." Peruque, LLC v. Shipman, 352 S.W.3d 370, 376 (Mo. App. E.D.

2011). The properties' actual income and expenses do not serve to distort the

properties' true value, see MBCH, 867 S.W.2d at 513, but rather reflect the only

use of the properties that is readily available in the reasonably near future: as

low-income housing subject to rent-restricted income.

       In this case, the restrictions placed on the property by the LUR

Agreements limit the income the property can produce by limiting the rent that

can be charged and mandating that rent increases can only be made subject to

MHDC approval. Unlike tax credits, which have "no direct contribution to the

                                         15
market value" of a subsidized housing development, "below market leases" have a

direct effect on the income of the property. Maryville, 83 S.W.3d at 617. The

properties' restrictions found in the LUR Agreements "run with the land" and

remain in place to bind subsequent owners of the properties. Accordingly, the

Commission's decision to consider the actual income and expenses of the

properties when determining the properties' true value in money was in

accordance with our Supreme Court's decision in MBCH and was not erroneous

as a matter of law.11

        Assessor also argues the Commission must value the properties at their

"highest and best use," citing Snider, and argues the highest and best use of an

apartment is the rent the apartment could generate with no LUR Agreement.

However, this argument ignores our Supreme Court's reasoning in MBCH which

stated that the "better-reasoned approach" was to use actual and potential

income in determining true value. 867 S.W.2d at 512. As the Court in MBCH

observed, a long-term lease often "gives value to the property," and "prudent

potential buyers would take the lease into consideration in determining what they

are willing to pay[,]" which weighs in favor of considering actual rentals rather

than "relying solely on hypothetical value." Id. at 513. Here, Rahlmann

acknowledged that the highest and best use of property must fit the criteria of

being "physically possible, legally permissible, financially practical, and

11Faring no better are Assessor‘s other theories of error as a matter of law in considering actual
income and expenses. Rather than detailing other, individualized reasons each such claim fails,
we simply note that these complaints, individually and collectively, are no more than indirect
challenges to the propriety of the Commission’s subsidized-housing methodology itself. Because
we otherwise uphold this methodology supra and infra, we cannot find the Commission erred as
a matter of law in applying it.

                                                16
maximally productive." Karnes acknowledged his appraisal was not based on

"actual realities," but was hypothetical. The Commission reasonably applied the

income valuation approach using the properties' actual income and expenses

under the restrictions imposed by the LUR Agreements because this was the

legally permissible use of the property a potential buyer would consider, and not

a hypothetical value assuming no LUR Agreements existed. Cf. § 137.076.2.

        The Commission's choice and application of the income approach to

valuing the properties was both reasonable and lawful. Assessor's point 1 is

denied.

                                              Point 2

        In point 2, Assessor argues the Commission erred in using a valuation

method that treats low-income housing as "unique" and gives it favorable

treatment for tax purposes because this results in an impermissible

subclassification of residential real property in violation of article X sections 3

and 4(a) and (b) of the Missouri Constitution and "results in an unlawful partial

exemption from property taxes" for low-income housing. Assessor alleges that

the Commission's valuation method violates the requirement that "all taxes be

uniform" (found in art. X, § 3), and that the Constitution prohibits residential

real property from further subclassification.12

        Missouri's Constitution provides:

12Assessor also argues in their brief that § 137.076 is unconstitutional and states "[i]t would be in
the interest of judicial economy" for this Court to make such a finding. Such a finding would be
premature and inappropriate because neither the Hearing Officer, nor the Commission, nor the
trial court relied on section 137.076 when upholding the Commission's decision. The trial court
specifically stated that Assessor's "assertion that § 137.076 RSMo. 2015[] violates the Missouri
[C]onstitution is not an issue before this court." We decline to rule on the constitutionality of
§ 137.076 in this case.

                                                 17
      Taxes may be levied and collected for public purposes only, and
      shall be uniform upon the same class or subclass of
      subjects within the territorial limits of the authority
      levying the tax. All taxes shall be levied and collected by general
      laws and shall be payable during the fiscal or calendar year in which
      the property is assessed. Except as otherwise provided in this
      constitution, the methods of determining the value of property for
      taxation shall be fixed by law.

Mo. Const. art. X, § 3 (emphasis added).

      All taxable property shall be classified for tax purposes as follows:
      class 1, real property; class 2, tangible personal property; class
      3, intangible personal property. The general assembly, by
      general law, may provide for further classification
      within classes 2 and 3, based solely on the nature and
      characteristics of the property, and not on the nature,
      residence or business of the owner, or the amount owned.
      ...

Mo. Const. art. X, § 4(a) (emphasis added).

      Property in classes 1 and 2 and subclasses of those classes, shall be
      assessed for tax purposes at its value or such percentage of its value
      as may be fixed by law for each class and for each subclass.

      ....

      Property in class 1 shall be subclassed in the following
      classifications:

      (1) Residential property;

      (2) Agricultural and horticultural property;

      (3) Utility, industrial, commercial, railroad, and all other property
      not included in subclasses (1) and (2) of class 1. Property in the
      subclasses of class 1 may be defined by law, however
      subclasses (1), (2), and (3) shall not be further divided,
      provided, land in subclass (2) may by general law be assessed for
      tax purposes on its productive capability. The same percentage of
      value shall be applied to all properties within any subclass. No
      classes or subclass shall have a percentage of its true value in
      money in excess of thirty-three and one-third percent.

                                        18
Mo. Const. art. X, § 4(b) (emphasis added).13

        In MBCH, our Supreme Court considered whether an assessment which

factored in the below-market lease's effect on the valuation of the property

violated article X section 3 of the Missouri Constitution. 867 S.W.2d at 513. The

Supreme Court rejected that argument, stating "[m]erely because a factor exists

which impacts on the value of one piece of property that does not affect every

other piece of property in the same class is not a basis for violation of the

uniformity clause." Id. The Court found "no error was committed in considering

the actual rent as a factor." Id.

        In Snider, the Court held that a different constitutional provision, article

X section 4(b), was violated when one type of commercial property was valued

"based on something less than its highest and best use while all other commercial

property is valued at its highest and best use." 156 S.W.3d at 348. By valuing a

casino at its "next best use," the Commission created an impermissible "valuation

subclass of commercial property." Id. at 349. Assessor relies on Snider to

argue the Commission's valuation method creates an impermissible subclass of

residential real property in violation of article X sections 3 and 4(b) by treating

low-income housing differently than other apartments and rental housing.

        However, Snider is distinguishable from this case for at least three

reasons. First, in Snider, our Supreme Court focused on the Commission's

choice of valuation method and not on the application of the proper valuation

13The subclassification of real property in article X section 4(b) resulted from a 1982
constitutional amendment. See Assoc. Indus. of Mo. v. State Tax Comm'n., 722
S.W.2d 916, 919 (Mo. banc 1987).

                                                19
method. See id. at 350 (noting the Commission "ignored evidence" that "the

reproduction cost approach," and not the income approach "would most

accurately indicate the true value in money" of the casino). Here, the

Commission applied the income valuation method which was in accord with the

method all four appraisers placed the most reliance on. Second, in Snider, the

possession of a gaming license was necessary to operate the property as a casino,

and this license was not tied to the property itself. Id. at 349. The casino

licensee could move the operation to another location, which could then be used

for another purpose. The LUR Agreements are different because they are

location-based, instead of license-based.

       Most importantly, consideration of the properties' actual rent and

expenses under the LUR Agreements does not impermissibly value the properties

at "less than [their] highest and best use" as compared to other residential

properties. Id. Assessor's appraiser Rahlmann agreed that the highest and best

use of the property in its existing use was with the property's "existing

limitations[.]" Jaggers testified he included the LUR Agreements as part of his

appraisal because they were "a matter of fact, and the property as it exists as of

the effective date." To value the properties as multi-family housing subject to

market rent assumes a hypothetical condition which does not exist, see MBCH,

867 S.W.2d at 513, and is not the same as valuing a casino at its "alternate

second-best use" as a country club. Snider, 156 S.W.3d at 348-49.

       The constitutional challenge presented in this case is more like the one

faced by our Supreme Court in MBCH and dissimilar to the one faced by the

Court in Snider. The property valuation upheld in MBCH factored in the

                                         20
effects of the below market long-term lease, which necessarily reduced the value

of this particular property as compared to others in the same classification of

commercial property, yet, this valuation was not deemed to violate article X

section 3 of the Missouri Constitution. 867 S.W.2d at 513. We conclude the

Commission's application of the income valuation method using actual rents and

expenses did not create an impermissible subclassification of residential property

in violation of article X section 3 or 4(a) or (b) of the Missouri Constitution.

Point 2 is denied.

                                    Conclusion

       The judgment of the trial court affirming the Commission's order is

affirmed.

MARY W. SHEFFIELD, J. – OPINION AUTHOR

JEFFREY W. BATES, J. – CONCURS

DANIEL E. SCOTT, J. – CONCURS IN RESULT IN SEPARATE OPINION

                                          21
MARION TIBBS, ASSESSOR               )
BUTLER COUNTY, MISSOURI              )
                                     )
               Appellant,            )
                                     )                      No. SD35625
v.                                   )
                                     )
POPLAR BLUFF ASSOCIATES I, L.P., and )
POPLAR BLUFF PROPERTIES III, L.P., )
                                     )
               Respondents.          )

                         OPINION CONCURRING IN RESULT
          The principal opinion’s extensive factual and legal background tends to
mask the central issue:            Does Assessor convince us that the Commission’s
subsidized-housing assessment methodology since 2004, and codified in 2015 as
§ 137.076.2, is unconstitutional?1 Assessor failed to preserve such claims in Tibbs

1   We quote § 137.076.2:
      In establishing the value of a parcel of real property, the county assessor shall use an income-
      based approach for assessment of parcels of real property with federal or state imposed
      restrictions in regard to rent limitations, operations requirements, or any other restrictions
      imposed upon the property in connection with:
          (1) The property being eligible for any income tax credits under Section 42 of the Internal
          Revenue Code of 1986, as amended;
          (2) Property constructed with the use of the United States Department of Housing and
          Urban Development HOME investment partnerships program;
          (3) Property constructed with the use of incentives provided by the United States
          Department of Agriculture Rural Development; or
          (4) Property receiving any other state or federal subsidies provided with respect to use of
          the property for housing purposes.
12 and, as next seen, briefing violations significantly hamper appellate review this
time.
        As the principal opinion notes, § 536.140 recognizes seven potential judicial
challenges to administrative action. Assessor’s critical failing, as appellant, stems
from his belief that he can compress and simultaneously assert all seven grounds
in a single Rule 84.04 point or argument. Appellate courts have decried similar
efforts where, as here, each ground for challenge is a separate legal claim proved
differently from other grounds and subject to different principles and procedures
of appellate review. See, e.g., Smith v. Great Am. Assur. Co., 436 S.W.3d 700,
703-04 (Mo.App. 2014). The difficulties presented by Assessor’s approach here,
with seven grounds for review, greatly exceed those in Smith where only three
grounds were involved. Moreover, per Rule 84.04(d) and cases following, the only
authorized challenges presented by Assessor’s points are article X, § 3, 4(a), and
4(b) constitutional complaints. I would consider only those, but not Assessor’s
non-constitutional arguments for fear that effectively-dicta statements may be
misconstrued by future litigants.
                           Unconstitutionality Complaints
                                      Article X, Section 3
        Like the court, I find this claim unpersuasive in light of MBCH.
                                    Article X, Section 4(a)
        Assessor urges “in particular” that the subsidized-housing methodology
“fails to determine the true value in money of the property and fails to value the

    For the purposes of this subsection, the term “income-based approach” shall include the
    use of direct capitalization methodology and computed by dividing the net operating income of
    the parcel of property by an appropriate capitalization rate not to exceed the average of the
    current market data available in the county of said parcel of property. Federal and state tax
    credits or other subsidies shall not be used when calculating the capitalization rate. Upon
    expiration of a land use restriction agreement, such parcel of property shall no longer be subject
    to this subsection.
See also Tibbs 1, 411 S.W.3d at 817-19 & n.6; Maryville Properties, L.P. v. Nelson, 2000 WL
509484 (Mo. State Tax Comm’n Apr. 27, 2000), as modified by Maryville Properties, L.P. v.
Nelson, 83 S.W.3d 608 (Mo.App. 2002), and discussed in Lake Ozark Village v. Whitworth,
2004 WL 1172803 (Mo. State Tax Comm’n Apr. 29, 2004)(“In this case, and all subsequent
subsidized housing cases, the correct methodology for valuing subsidized housing projects is the
methodology set out in Maryville Properties,” id. at *8).
2See 411 S.W.3d at 820-21. As in footnote 1, I freely short cite cases fully cited in the principal
opinion.

                                                  2
property based ‘on the nature and characteristics of the property and not on the …
business on the owner…’ Article X Section 4(a).”
        This assertion has two fatal flaws. First, as Associated Industries notes,
Assessor is quoting a constitutional provision for personal, not real, property. 722
S.W.2d at 919; see also id. at 921-22 (Robertson, J., concurring). Second, the “true
value in money” concept is primarily statutory (§ 137.115), not constitutional, and
thus offers little or no support for Assessor’s constitutional challenge.3
                                    Article X, Section 4(b)
        This is the most difficult claim. Assessor earnestly charges that a special
methodology limited to subsidized housing, which necessarily if not purposefully
reduces those tax values, de facto sub-classifies those residential properties in
violation of article X, § 4(b). Yet I am persuaded in this close case to follow the
lead of another close § 4(b) case, Associated Industries.
        Associated Industries considered whether a statutory definition then
limiting § 4(b) “residential property“ to structures of four or fewer dwelling units
established a subclass contrary to § 4(b). While not perfectly analogous to our case,
that claim seems as strong if not stronger than Assessor’s claim here. Our high
court upheld the statute by the slimmest of margins over three vigorous dissenting
opinions. I think principles that carried the day for that statute also do so here
(perhaps by an equally narrow margin) despite any differences between the cases
or claims.
        For one thing, as repeatedly noted, our legislature in 2015 raised the subject
methodology to statutory status. “Statutes are presumed to be constitutional until
the contrary is shown. Every indulgence must be made in favor of the legislature’s
handiwork.” Associated Industries, 722 S.W.2d at 918. “Perfect equity in the
assessment of real property cannot be expected.” Id. at 919. Ultimately, like
Associated Industries’ majority, I conclude “that the challenges have failed to
overcome the presumption of constitutionality.” Id. at 917. Our general assembly,

3 Section 4(b), not 4(a), does provide that “[n]o classes or subclass shall have a percentage of its

true value in money in excess of thirty-three and one-third percent.” But since Assessor claims the
subject properties are being undertaxed, not overtaxed, this “true value in money” reference does
not aid him.

                                                 3
armed with superior means of information about public impact of its actions,
legislatively confirmed this methodology. Assessor has not convinced me that the
legislature exceeded its constitutional authority in doing so or that its action was
otherwise constitutionally infirm. Id. at 919.
       For these reasons, I would reach the same outcome as the principal opinion,
so I concur in the result.
DANIEL E. SCOTT, J. — SEPARATE OPINION AUTHOR

                                         4