Schuyler Apt. Partners v. Colfax Cty. Bd. of Equal.

Schuyler A pArtment pArtnerS, llc, AppellAnt, v.
colfAx county BoArd of equAlizAtion, Appellee .
columBuS A pArtment pArtnerS, llc, AppellAnt, v.
plAtte county BoArd of equAlizAtion, Appellee .
783 N.W.2d 587
Filed June 11, 2010. 	Nos. S-09-644, S-09-645.
1. Taxation: Judgments: Appeal and Error. Appellate courts review decisions
rendered by the Tax Equalization and Review Commission for errors appearing
on the record.
2. Judgments: Appeal and Error. When reviewing a judgment for errors appearing
on the record, an appellate court’s inquiry is whether the decision conforms to the
law, is supported by competent evidence, and is neither arbitrary, capricious, nor
unreasonable.
3. Taxation: Appeal and Error. Questions of law arising during appellate review
of Tax Equalization and Review Commission decisions are reviewed de novo on
the record.
4. Statutes: Appeal and Error. Appellate courts give statutory language its plain
and ordinary meaning and will not resort to interpretation to ascertain the mean-
ing of statutory words which are plain, direct, and unambiguous.
Appeals from the Tax Equalization and Review Commission.
Affirmed.
Theodore R. Boecker, of Boecker Law, P.C., L.L.O., for
appellants.
Edmond E. Talbot III, of Talbot & Truhlsen Law Offices,
L.L.P., for appellee Colfax County Board of Equalization.
Carl K. Hart, Jr., Deputy Platte County Attorney, for appel-
lee Platte County Board of Equalization.
heAvicAn, 	c.J., 	Wright, 	connolly, 	gerrArd, 	StephAn,
mccormAck, and miller-lermAn, JJ.
heAvicAn, C.J.
I. INTRODUCTION
In two separate proceedings, the Colfax County assessor
and the Platte County assessor set the valuations for low-
income housing owned by Schuyler Apartment Partners, LLC,
and Columbus Apartment Partners, LLC, respectively. In each
case, the property owner protested the valuation. In the case of
SCHUyLER APT. PARTNERS v. COLFAx CTy. BD. OF EQUAL. 	989
Cite as 279 Neb. 989
Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
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Schuyler Apartment Partners, the assessor’s value was affirmed;
in the case of Columbus Apartment Partners, the value was
reduced but not to the level sought by the property owner.
Those valuations were appealed to the Tax Equalization and
Review Commission (TERC), which affirmed. The property
owners, which are separate but related entities with the same
managing member, now appeal to this court. We affirm.
II. FACTUAL BACKGROUND
1. Schuyler A pArtment pArtnerS
Schuyler Apartment Partners owns a multifamily residential
parcel located in Schuyler, Nebraska. This property includes
four apartment buildings consisting of 24 rental units.
The Schuyler property is low-income housing organized
under the Internal Revenue Code at I.R.C. § 42 (2006) and
authorized by the federal low-income housing tax credit pro-
gram (LIHTC). As such, the property is subject to limitations
in the amount of rent that may be collected on each unit. In
addition, units may only be rented to tenants who earn 60
percent or less of the area’s median income. Tax credits are
associated with the property and are granted as an incen-
tive to developers to build low-income housing. In Nebraska,
LIHTC credits are administered by the Nebraska Investment
Finance Authority.
For the 2006 tax year, the Schuyler property was val-
ued by the Colfax County assessor at $59,285 for the land
and $893,560 for the improvements, for a total of $952,845.
Schuyler Apartment Partners protested the assessor’s valua-
tion and instead suggested a valuation between $333,420 and
$370,467. The Colfax County Board of Equalization rejected
the protest and kept the valuation at the level set by the
assessor. Schuyler Apartment Partners appealed to TERC.
TERC affirmed.
2. columBuS A pArtment pArtnerS
A separate but related organization, Columbus Apartment
Partners, also owns a multifamily residential parcel, this one
located in Columbus, Nebraska. This property also includes 24
rental units which were constructed in 2002 and 2003. Like the
990 	279 NEBRASKA REPORTS

Schuyler property, the Columbus property is low-income hous-
ing organized and restricted as detailed above.
For the 2006 tax year, the Columbus property was val-
ued by the Platte County assessor at $44,000 for the land
and $756,000 for the improvements, for a total of $800,000.
Columbus Apartment Partners protested the assessor’s valua-
tion. In response, the Platte County Board of Equalization low-
ered the valuation of the improvements to $606,000 for a total
valuation of $650,000. Columbus Apartment Partners appealed
this reduced valuation to TERC. TERC affirmed.
III. ASSIGNMENTS OF ERROR
On appeal, Schuyler Apartment Partners assigns, restated
and renumbered, that TERC erred in (1) failing to find that the
valuation of the Colfax County Board of Equalization violated
Neb. Rev. Stat. § 77-112 (Reissue 2009), (2) failing to find that
Schuyler Apartment Partners’ property had not been valued in
accordance with Neb. Rev. Stat. § 77-1333 (Cum. Supp. 2006),
(3) relying on Town Sq. v. Clay Cty. Bd. of Equal.,1 (4) substi-
tuting its own analysis for that of the board, and (5) failing to
find that Schuyler Apartment Partners’ property was valued too
high and thus affirming the board’s decision.
Columbus Apartment Partners assigns, restated and renum-
bered, that TERC erred in (1) relying on Town Sq. v. Clay Cty.
Bd. of Equal.2 and (2) failing to find that Columbus Apartment
Partners’ property was valued too high and thus affirming the
decision of the Platte County Board of Equalization.
IV. STANDARD OF REVIEW
[1-3] Appellate courts review decisions rendered by TERC
for errors appearing on the record.3 When reviewing a judgment
for errors appearing on the record, an appellate court’s inquiry
is whether the decision conforms to the law, is supported by
competent evidence, and is neither arbitrary, capricious, nor
1 Town Sq. v. Clay Cty. Bd. of Equal., 704 N.W.2d 896 (S.D. 2005).
2 Id.
3 Fort Calhoun Bapt. Ch. v. Washington Cty. Bd. of Eq., 277 Neb. 25, 759
N.W.2d 475 (2009).
SCHUyLER APT. PARTNERS v. COLFAx CTy. BD. OF EQUAL. 	991
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unreasonable.4 Questions of law arising during appellate review
of TERC decisions are reviewed de novo on the record.5
V. ANALySIS
On appeal, both Schuyler Apartment Partners and Columbus
Apartment Partners argue generally that TERC erred in affirm-
ing the valuations set by the Colfax and Platte Counties’ boards
of equalization.
1. Schuyler A pArtment pArtnerS
(a) Violations of §§ 77-112 and 77-1333
On 	appeal, 	Schuyler 	Apartment 	Partners 	assigns 	that
TERC erred in not finding that the Colfax County Board of
Equalization violated both §§ 77-112 and 77-1333. Schuyler
Apartment Partners argues that its property was not valued
pursuant to the income approach, which it claims is required
by § 77-1333.
Section 77-1333 provided:
(1) The county assessor shall perform an income-
approach calculation for all rent-restricted housing proj-
ects constructed to allow an allocation of low-income
housing tax credits under section 42 of the Internal
Revenue Code and approved by the Nebraska Investment
Finance Authority when considering the assessed valu-
ation to place on the property for each assessment year.
The income-approach calculation shall be consistent with
any rules and regulations adopted and promulgated by the
Property Tax Administrator and shall comply with profes-
sionally accepted mass appraisal techniques. Any low-
income housing tax credits authorized under section 42 of
the Internal Revenue Code that were granted to owners of
the project shall not be considered income for purposes
of the calculation but may be considered in determining
the capitalization rate to be used when capitalizing the
income stream. The county assessor, in determining the
actual value of any specific property, may consider other
4 Id.
5 Id.
992 	279 NEBRASKA REPORTS

methods of determining value that are consistent with
professionally accepted mass appraisal methods described
in section 77-112.
(2) The owner of a rent-restricted housing project shall
file a statement with the county assessor on or before
October 1 of each year that details income and expense
data for the prior year, a description of any land-use
restrictions, and such other information as the county
assessor may require.
Section 77-112 provides:
Actual value of real property for purposes of taxation
means the market value of real property in the ordinary
course of trade. Actual value may be determined using
professionally accepted mass appraisal methods, includ-
ing, but not limited to, the (1) sales comparison approach
using the guidelines in section 77-1371, (2) income
approach, and (3) cost approach. Actual value is the most
probable price expressed in terms of money that a prop-
erty will bring if exposed for sale in the open market, or
in an arm’s length transaction, between a willing buyer
and willing seller, both of whom are knowledgeable con-
cerning all the uses to which the real property is adapted
and for which the real property is capable of being used.
In analyzing the uses and restrictions applicable to real
property, the analysis shall include a consideration of
the full description of the physical characteristics of the
real property and an identification of the property rights
being valued.
We first note that contrary to Schuyler Apartment Partners’
position, § 77-1333 does not require that property actually be
valued by the income approach. Absent a statutory indication
to the contrary, words in a statute will be given their ordinary
meaning.6 And § 77-1333 indicates that the income approach
shall be performed, but also specifically provides that the
“county assessor, in determining the actual value of any spe-
cific property, may consider other methods of determining
value,” including the cost approach and the sales approach.
6 In re Estate of Chrisp, 276 Neb. 966, 759 N.W.2d 87 (2009).
SCHUyLER APT. PARTNERS v. COLFAx CTy. BD. OF EQUAL. 	993
Cite as 279 Neb. 989

And that is exactly what happened in this case. Though the
Colfax County assessor ultimately valued the property under
the cost-approach method of valuation, the record demonstrates
that it first conducted both a cost-approach valuation and an
income-approach valuation, as detailed by § 77-112. As such,
neither statute was violated and Schuyler Apartment Partners’
first and second assignments of error are without merit.
(b) Town Sq. Case
Schuyler Apartment Partners also assigns that TERC erred
in relying on Town Sq. v. Clay Cty. Bd. of Equal.7 In that case,
the South Dakota Supreme Court held that tax credits under
LIHTC should be considered in valuing property for tax pur-
poses. TERC cited to Town Sq. for the proposition that “LIHTC
credits are transferable and a part of the economic reality of
parcels subject to the agreements which make their use pos-
sible,” and it further noted that the “rationale described by the
Town Square Court for inclusion of value of LIHTC credits
in the valuation of real property is persuasive and consistent
with Nebraska law.” Schuyler Apartment Partners complains
on appeal that Town Sq. is inconsistent with § 77-1333. This
argument is also without merit.
Section 77-1333(1) provides in relevant part as follows:
Any low-income housing tax credits authorized under sec-
tion 42 of the Internal Revenue Code that were granted
to owners of the project shall not be considered income
for purposes of the calculation but may be considered
in determining the capitalization rate to be used when
capitalizing the income stream.
Schuyler Apartment Partners claims this means that the credits
cannot be valued and that thus, TERC’s adoption of such hold-
ing was in error.
Our reading of § 77-1333 does not comport with Schuyler
Apartment Partners’ conclusion. While § 77-1333 does indi-
cate that the credits cannot be used as income in conducting
an income-approach valuation, the language clearly allows for
consideration of those credits in the form of the capitalization
7 Town Sq. v. Clay Cty. Bd. of Equal., supra note 1.
994 	279 NEBRASKA REPORTS

rate used to determine the present value of the property. The
Town Sq. rationale that such credits are part of the economic
reality of the property is applicable here as well. We find
Schuyler Apartment Partners’ third assignment of error is with-
out merit.
(c) TERC’s Affirmance of Board’s Valuation
Finally, Schuyler Apartment Partners argues that TERC
erred in affirming the value of the property as set by the
Colfax County Board of Equalization. Schuyler Apartment
Partners’ fifth assignment of error, that TERC erred in adopt-
ing its own reasoning to justify the board’s valuation, is a
related assignment of error. As such, the two will be dis-
cussed together.
We review TERC for errors appearing on the record. In so
doing, we focus our inquiry on whether TERC’s decision con-
forms to the law, is supported by competent evidence, and is
neither arbitrary, capricious, nor unreasonable. Having engaged
in this inquiry, we cannot find that the decision reached by
TERC was in error.
William Kaiser, an appraiser with the Colfax County asses-
sor’s office, testified as to the methods he undertook to deter-
mine the valuation of the Schuyler property. His reports were
introduced into evidence. Schuyler Apartment Partners pre-
sented the testimony of their own expert, Dwight Whitesides.
However, Whitesides’ testimony did not consider any benefits
flowing from I.R.C. § 42 properties, but instead considered
only the liabilities involved in such properties. Whitesides’
valuation was not supported by any other valuation approach
besides the income approach. Whitesides also failed to value
the tax credits.
There was sufficient evidence in the form of Kaiser’s tes-
timony to support the valuation placed on the property by
the Colfax County Board of Equalization and affirmed by
TERC. And Schuyler Apartment Partners bears the burden of
showing that the board’s decision was incorrect.8 We cannot
conclude that TERC’s decision was arbitrary, capricious, or
8 Neb. Rev. Stat. § 77-5016(8) (Cum. Supp. 2006).
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Cite as 279 Neb. 989

unreasonable, particularly given the deficiencies in Whitesides’
testimony. And because that decision was supported by the
record, we reject Schuyler Apartment Partners’ further argu-
ment that TERC substituted its reasoning for the reasoning of
the board. Schuyler Apartment Partners’ final assignments of
error are without merit.
2. columBuS A pArtment pArtnerS
On appeal, Columbus Apartment Partners asserts that TERC
erred in relying on the Town Sq. case and in affirming the
decision of the Platte County Board of Equalization. Because
whether the Town Sq. case was incorrectly applied was previ-
ously addressed and rejected, it will not be repeated here.
Columbus Apartment 	Partners’ remaining 	argument 	on
appeal is that TERC erred in affirming the board’s valua-
tion. The crux of this argument is that the board erred in the
method it used to capitalize the net operating income of the
Columbus property to determine its value. The board used a
7.5-percent capitalization rate, while Columbus Apartment
Partners argues that a 9-percent rate should be used. The
applied capitalization rate matters, because in employing the
income approach, the higher the capitalization rate, the lower
the 	resulting 	property 	value. While 	Columbus Apartment
Partners ultimately believes that its property was valued too
highly, the focus of its argument is on the capitalization rate
applied by the board.
As noted above, we review TERC for errors appearing on
the record and focus our inquiry on whether TERC’s decision
conforms to the law, is supported by competent evidence, and
is neither arbitrary, capricious, nor unreasonable. And as found
above, we cannot find that the decision reached by TERC was
in error.
There 	was 	evidence 	from 	the 	Platte 	County 	appraiser,
Thomas Placzek, that the board utilized an “unloaded” capital-
ization rate, while the 9-percent rate Placzek had used (and also
sought by Columbus Apartment Partners) was a “loaded” rate.
An unloaded rate includes the real estate taxes in the net oper-
ating income, while a loaded rate does not and instead is higher
in order to reflect the tax levy. Placzek and Whitesides both
996 	279 NEBRASKA REPORTS

testified that the use of either method is acceptable and that
roughly the same value is reached under either calculation.
Columbus Apartment Partners also argues that the lower
rate was not appropriate because the Platte County Board of
Equalization lowered the rate in order to value the tax credits
and, according to Columbus Apartment Partners, such tax cred-
its cannot be valued. The record indicates that in addition to
using an unloaded as opposed to a loaded capitalization rate,
the board, in setting the 7.5-percent rate, “offset the 2% tax
rate with what [it] felt was a 2% tax credit factor.”
[4] As noted above, § 77-1333 provides in relevant part that
“low-income housing tax credits . . . shall not be considered
income for purposes of the calculation but may be consid-
ered in determining the capitalization rate to be used when
capitalizing the income stream.” Appellate courts give statutory
language its plain and ordinary meaning and will not resort
to interpretation to ascertain the meaning of statutory words
which are plain, direct, and unambiguous.9
Contrary to Columbus Apartment Partners’ argument, the
plain language of § 77-1333 clearly indicates that the board is
permitted to value the tax credits in the manner that it did—by
lowering the capitalization rate, resulting in a higher value to
the property in question.
Placzek testified as to the appropriateness of the use of
unloaded versus loaded capitalization rate, as well as to his
appraisal of the property and the Platte County Board of
Equalization’s general reasoning in the valuation of the prop-
erty. In response, Columbus Apartment Partners introduced
the testimony of Whitesides and the managing member. But
the managing member is not a licensed appraiser. And while
Whitesides is a licensed appraiser, he did not appraise the
Columbus property. In addition, much of Whitesides’ testimony
was not directly contradictory to Placzek’s testimony. TERC’s
decision was supported by competent evidence and was not
arbitrary, capricious, or unreasonable. We therefore conclude
9 State ex rel. Amanda M. v. Justin T., ante p. 273, 777 N.W.2d 565 (2010).
SCHUyLER APT. PARTNERS v. COLFAx CTy. BD. OF EQUAL. 	997
Cite as 279 Neb. 989

that Columbus Apartment Partners’ second and final assign-
ment of error is without merit.
VI. CONCLUSION
The decisions of TERC are affirmed.
A ffirmed.
998 	279 NEBRASKA REPORTS