Alta Pacific Associates, Ltd. v. Utah State Tax Commission

This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----oo0oo----
Alta Pacific Associates, Ltd., 	No. 950192
and Sevier Valley Development
Co.,
Petitioners,
v.
Utah State Tax Commission
and County Board of
Equalization of Sevier 	F I L E D
County, State of Utah,
Respondents. 	January 7, 1997
---
Original Proceeding in this Court
Attorneys: 	Richard C. Terry, Mark J. Morrise, Salt Lake City,
for petitioners
Jan Graham, Att’y Gen., Kelly W. Wright, Asst.
Att’y Gen., Salt Lake City, for Tax Commission
Rulon Don Brown, Richfield, and Bill Thomas Peters,
Salt Lake City, for Board of Equalization
---
RUSSON, Justice:
Alta Pacific Associates, Ltd., and Sevier Valley
Development Co., owners of the Glenbrook Apartments and the Urcy
Bell Apartments in Richfield, Utah (hereinafter collectively
referred to as the owners), seek review of the Tax Commission’s
(the Commission) resolution of their appeal from the Sevier
County Board of Equalization. 	Petitioners argue that in
approving Sevier County’s property tax assessments, the
Commission failed to fully recognize that the apartments, built
under special federal housing programs for the needy and the
elderly, had less value as a result of the restraints on the
property imposed by the federal schemes. 	We affirm.

No. 950192 	2
BACKGROUND
The Glenbrook and Urcy Bell Apartments were financed
and operated under two federal housing programs for the benefit
of the poor and the elderly. 	The Glenbrook Apartments
participated in the program set forth in section 8 of the United
States Housing Act of 1937, 42 U.S.C. § 1437f, and administered
by the Department of Housing and Urban Development (HUD). 	The
Urcy Bell Apartments participated in the Rural-Renting Housing
Program of the United States Housing Act of 1949, 42 U.S.C.
§ 1485, administered by the Farmers Home Administration (FHA)
within the Department of Agriculture.
Under both programs, the Glenbrook and Urcy Bell
Apartments were guaranteed substantially higher rent than that
received by comparable, nonparticipating apartments. 	The owners
were guaranteed by contract that they would receive a set amount
of rents regardless of the amount tenants actually paid. 	In HUD
and FHA parlance, this amount was known as “contract rent.” 	It
consisted of the amounts tenants paid plus rental subsidies paid
by either HUD or FHA directly to the owners to add up to an
amount predetermined by the relevant federal agency. 	The
contract rents were generally much higher than rent received in
the local market. 	For example, in 1991, the average monthly
contract rent was $565 for the Glenwood Apartments and $335 for
the Urcy Bell Apartments, whereas the market rent was $275 per
month.
In addition to the guaranteed contract rents, the
owners of the apartments received other benefits. 	For example,
Phillip Carroll, who was the general partner for both owners,
received a monthly fee of $1,881 for managing both complexes.
Additionally, the programs guaranteed that even if a rental unit
was vacant, the owner of that unit would still be paid a certain
rate.
The owners also took advantage of loans offered by
governmental entities. 	Under the FHA program, the owner of the
Urcy Bell Apartments received a direct loan from FHA. 	The loan
was a fifty-year mortgage agreement written at a 9% interest
rate. 	Moreover, FHA provided the owner with an interest credit
which reduced the effective interest rate to 1%. 	The owner of
the Glenbrook Apartments entered into a forty-year mortgage
agreement with a 10.33% interest rate.
In exchange for the beneficial financing and rental
subsidies, the owners accepted regulatory burdens on their
properties. 	First, both federal programs required that the

3 	No. 950192
apartments be used as low income housing for twenty years. 	Also,
HUD and FHA had the right to set rental rates and to restrict the
owner’s financial return from the properties. 	The profits
realized from the Urcy Bell Apartments were fixed at $5,240.92
per year. 	In addition, the programs required more construction
and greater maintenance to accommodate elderly and handicapped
tenants than was required of nonparticipating apartments. 	The
owners were also required to help provide assistance to elderly
tenants who needed medical care and food allowances.
Additionally, immediate repairs and higher maintenance
standards were mandated, and the properties were always subject
to governmental inspection. 	The owners also had to ensure that
the housing programs were properly administered. 	On-site
managers had to process tenant applications to determine if
prospective tenants met federal qualifications for occupancy.
There was also a significant amount of record keeping and
reporting necessary to comply with governmental regulations. 	For
example, costly yearly audits were required.
The Urcy Bell and Glenbrook Apartments were both
located in Sevier County, and for the 1991 through 1993 tax
years, the Sevier County Assessor determined that the fair market
value of the Glenbrook Apartments was $700,000. 	For the 1992 and
1993 tax years, the county assessed the Urcy Bell Apartments’
fair market value at $562,740. 	The owners appealed the
assessments to the Sevier County Board of Equalization, which
affirmed the assessed values.
Thereafter, the owners appealed the assessments to the
Commission. 	During a formal hearing, Sevier County increased its
assessments of the apartments. 	For each of the 1991 through 1993
tax years, the county increased its assessments of the Glenbrook
Apartments to $1.1 million and the Urcy Bell Apartments’
assessments to $750,000 for the 1992 and 1993 tax years. 	The
owners, however, contended that Sevier County’s assessments were
too high and offered their own appraisals. 	The owners argued
that the Glenbrook Apartments had a value of $420,000 in 1991,
$435,000 in 1992, and $460,000 in 1993. 	The owners’ appraisals
for the Urcy Bell Apartments were $410,000 for the 1992 tax year
and $432,000 for the 1993 tax year.
The discrepancies between the owners’ assessments and
Sevier County’s assessments were based upon different
applications of appraisal methodology. 	In assessing the
Glenbrook and the Urcy Bell Apartments, both Sevier County and
the owners used the income, cost, and comparable sales approaches
to estimate the apartments’ values. 	The income approach

No. 950192 	4
income
capitalization rate ' estimated value
determines the value of property by, first, determining the
reasonable income expected to be earned by the property. 	Next,
that expected income is converted to present value by dividing
that income by a capitalization rate. 	In other words, under the
income approach,
The cost approach determines value on the basis of cost less
depreciation. 	The comparable sales approach uses the prices at
which comparable properties are sold to determine value.
Following the applications of these approaches, the parties
reconciled the approaches’ results to single estimates of value
based upon their opinions of the relative accuracy and probity of
each of the approaches. 	Both parties relied heavily on the
results of the income approach in their appraisals.
For the most part, the differences between Sevier
County’s assessments and the owners’ assessments concerned the
calculation of the apartments’ income and the derivation of
capitalization rates under the income approach. 	In assessing the
value of both the Glenbrook Apartments and the Urcy Bell
Apartments, Sevier County used the federally guaranteed contract
rents as the apartments’ income. 	At a formal hearing before the
Commission, Sevier County’s appraiser, Leroy Pia, testified that
the contract rents were guaranteed as part of the government
subsidy programs and, unlike the rents of nonparticipating
apartments, were not at risk. 	In addition, Pia testified that
the rental subsidies were transferrable and thus would be
considered by a potential buyer of the properties. 	Pia also
testified that using contract rents as the apartments’ income was
supported by the majority of published decisions and articles.
For these reasons, Sevier County used the Glenbrook Apartments’
and the Urcy Bell Apartments’ actual contract rents as the
apartments’ income.
The owners contended that the use of contract rents
under the income approach was improper. 	One of the owners’
experts, Eric Johnson, who performed the owners’ appraisals of
the apartments, testified that the contract rents guaranteed by
the federal housing programs should be ignored for two reasons.
First, Johnson stated that for ad valorem tax purposes, the
Commission had adopted a rule that properties should be appraised
as if owned in unencumbered fee simple. 	See Property Tax
Division of the Utah State Tax Commission, Real Property

5 	No. 950192
Valuation Standards of Practice 2 (Nov. 1995) [hereinafter
Valuation Standards]. 	Characterizing the federal programs,
including the contract rents, as encumbrances, Johnson testified
that the properties should be valued without considering them.
Second, Johnson testified that the apartments should be valued
according to their highest and best use and that due to the
burdensome federal programs, the highest and best use of the
apartments was as apartments not participating in the federal
programs. 	For these reasons, Johnson and the owners’ other
appraisal expert, William Lang, determined that the rent which
comparable apartments realized in the local market was the best
representative of the apartments’ income under the income
approach.
Another discrepancy between the owners’ and Sevier
County’s income approaches concerned the calculation of
capitalization rates. 	Capitalization rates are used in
appraisals to convert future income into present value. 	Because
the income is divided by the capitalization rate, a lower
capitalization rate will yield a higher estimation of value. 	The
rates can be calculated in various ways. 	Sevier County employed
an 8.5% capitalization rate partly because it determined that the
owners of the subsidized apartments were more likely to realize a
return on their initial investments than owners of
nonparticipating apartments. 	The owners, however, argued that
the federal programs did not reduce the risk of losing their
investments and therefore set their capitalization rate at a
higher 10.75%.
In addition, the owners contended that Sevier County’s
assessments should be rejected because the county failed to
adequately consider the burdens imposed by the federal programs.
In addition to the disadvantages previously mentioned, Philip
Carroll, the general partner of the owners, testified that during
the twenty-year contract periods, the long-term mortgage
agreements with the governmental entities could not be
refinanced, and that after the twenty-year periods, governmental
permission was required to refinance. 	Carroll also testified
that there was a limited market for federally subsidized
properties.
Sevier County responded that its assessments,
particularly its income approach, sufficiently accounted for the
regulatory burdens. 	Its assessment of the Glenbrook Apartments
stated:
Arguments have been made that requirements
for government subsidized projects cause

No. 950192 	6
. . . high expense figures. 	After completing
an appraisal of government subsidized
projects in Ogden[,] Utah . . . , we conclude
that a small additional cost may be necessary
to reflect HUD and federally regulated
accounting systems and maintenance programs.
However, this factor is not substantial. 	In
no case did we find government subsidized
projects that incurred expenses over $2,000
per unit . . . .
. . . The [Glenbrook] project has
expenses at around $2,000 per unit. 	All of
the other projects[’ expenses] range from
. . . $1,000 to $1,335 per unit. 	Again, a
slight increase in expenses may be due to the
regulations regarding government subsidies.
As discussed above, $2,000 per unit seems to
be the maximum. 	The [Glenbrook Apartments]
is operating at the maximum; $2,000 per unit
is just within reason.
In addition, Sevier County argued that the regulatory burdens
imposed on the Urcy Bell Apartments were also taken into account.
Sevier County pointed out that the high $2,000 per unit expense
figure was also applied to its assessments of the Urcy Bell
Apartments.
Aside from Sevier County’s analysis of the federal
restraints on the apartments, the only other examination of the
restraints came from the owners’ appraisals. 	Even though Johnson
testified that the federal programs, including the contract
rents, were burdens on the apartments and therefore should be
ignored, he deducted 31% from the apartments’ value calculated
under the cost approach. 	This deduction was necessary, Johnson
stated, to account for two adverse effects of the federal housing
programs:
The first is the extra expense associated
with governmental subsidized housing
management (say 6%) that reduces the net
operating income along with the actual rent
received by the landlord tied to the poverty
level of the area; thus, a reduction of
“return on the investment.” 	In addition,
subsidized properties as such, in most
recently known instances are generally
concluded by ownership that the lack of

7 	No. 950192
disposition of the properties inhibits the
ability of the property to have a “return of
investment” . . . .
Having heard the arguments and testimony presented by
the parties, the Commission issued its final decision, which
included its findings of fact and conclusions. 	The Commission
found that the HUD and FHA housing programs created a “distinctly
separate kind of property” that required assessors to value
subsidized properties in light of the federal restraints and
corresponding benefits. 	According to the Commission, “[t]he
benefits of the subsidized property are a value which is inherent
in the total value of the property” and therefore the use of
actual, contract rents was appropriate. 	In addition, the
Commission favored Sevier County’s 8.5% capitalization rate over
the owners’ 10.75% rate because the county’s rate reflected the
“lower risk [of not recouping initial investments] inherent in
the property.” 	Thus, the Commission determined that Sevier
County’s income approach “with its emphasis placed on actual
rents . . . is the most reflective analysis of the fair market
value of the subject properties.” 	On that basis, the Commission
adopted Sevier County’s $1.1 million assessments for the
Glenbrook Apartments and its $750,000 assessments for the Urcy
Bell Apartments. 	The owners sought review.
On review, the owners argue that (1) by including the
benefits of the federal housing programs within the value of the
apartments, the Commission violated the rule of appraisal that
properties under assessment are to be valued as if they were
owned as unencumbered, fee simple estates; (2) the Commission
erred in finding that Sevier County’s appraisal reflected the
apartments’ fair market value; (3) the Commission created a
special class of federally subsidized property for assessment
purposes in violation of the Uniform Operation of Laws Clause and
the uniformity in taxation requirements of the Utah Constitution;
and (4) the Commission’s decision failed to properly account for
the burdens imposed on the owners’ apartments by the federal
programs.
ANALYSIS
The owners first argue that Sevier County’s inclusion
of the federal housing programs’ benefits and the Commission’s
subsequent approval of the practice violated accepted standards
of appraisal. 	The owners contend that pursuant to the
Commission’s own standards, property is valued as if owners had
all rights over the property; as if the owner owned an absolute
or fee simple estate. 	See Valuation Standards at 2. 	In this

No. 950192 	8
case, the federal government had significant rights over the
subject properties. 	Thus, in valuing the subject properties, the
owners argue, Sevier County should have combined the government’s
rights with the owners’ rights and ignored the rental subsidies.
The Commission and Sevier County respond that the
owners misunderstand the fee simple rule and mischaracterize the
government subsidies as encumbrances. 	Sevier County argues that
the fee simple rule is not a rule of law, but an appraisal
guideline, and the application of such guidelines is an issue of
fact. 	Therefore, the county argues, this court must afford
deference to the Commission’s determination and apply “a
substantial evidence standard on review.” 	Utah Code Ann.
§ 59-1-610(1)(a). 	Under such a standard, we must uphold the
Commission’s finding if it is “‘supported by substantial evidence
based upon the record as a whole.’” 	Beaver County v. Utah State
Tax Comm’n, 916 P.2d 344, 354 (Utah 1996) (quoting Zissi v. State
Tax Comm’n, 842 P.2d 848, 852 (Utah 1992)). 	The county and the
Commission further argue that the evidence received by the
Commission demonstrates that the rental subsidies were not
encumbrances and amply supports the use of the contract rents
under the income approach.
The first question is whether the Commission’s approval
of the use of contract rents under the income approach is a
finding of fact or a conclusion of law. 	If the approval amounts
to a finding of fact, we must apply “a substantial evidence
standard on review.” 	Utah Code Ann. § 59-1-610(1)(a). 	On the
other hand, if the approval is a conclusion of law, we must
“grant the commission no deference [and apply] a correction of
error standard” of review. 	Id. § 59-1-610(1)(b).
In Beaver County v. Utah State Tax Commission, we held
that the proper application of appraisal methods was a question
of fact:
The proper application of appraisal
techniques depends upon varying factual
circumstances that defy generalization:
“‘[V]aluation is an art, not a science. 	It
is a function of judgment, not of natural law
. . . . 	[F]or example--true market value for
purposes of ad valorem taxation is always an
estimate, always an expression of judgment,
always a result built on a foundation of
suppositions about knowledgeable and willing
buyers and sellers endowed with money and

9 	No. 950192
desire, whose desires are said to converge in
a dollar description of the asset.’”
Beaver County, 916 P.2d at 355 (quoting Utah Ass’n of Counties v.
Tax Comm’n, 895 P.2d 819, 825 (Utah 1995) (alteration in
original) (quoting Union Pac. R.R. v. State Tax Comm’n, 716 F.
Supp. 543, 554 (D. Utah 1988))). 	In another case, this court
stated, “Because of the many different kinds of property and the
various factors that affect their values, the determination of
what constitutes equal ‘in proportion to the value of . . .
tangible property’ . . . cannot be made by application of any
single formula.” 	Rio Algom Corp. v. San Juan County, 681 P.2d
184, 188 (Utah 1984) (quoting Utah Const. art. XIII, § 3). 	These
rulings apply in this case because the application of the fee
simple rule is not a rule of law but merely an aspect of
appraisal methodology.
The fee simple rule is a technique of appraisal whose
application depends upon the specific characteristics of the
property under assessment. 	The rule, as drafted by the
Commission, provides, “For ad valorem tax purposes, properties
are generally appraised as if all ownership rights and interests
are attached, i.e., the fee simple interest.” 	Valuation
Standards at 2 (emphasis added). 	The word “generally” as used in
the fee simple rule reveals that the rule was not drafted to
apply in every case. 	The inclusion of the word implies that in
some cases, property may be assessed in an encumbered state. 	In
addition, none of the Commission’s standards should be presumed
to apply in every case. 	Rather, the standards were drafted only
“as a guide to achieve equity and uniformity in the
administration of real property assessment.” 	Id. at 1. 	Equity
and uniformity are the ultimate goals of property assessment, and
these goals cannot, in every case, be achieved by resort to a
single guideline. 	See Rio Algom Corp., 681 P.2d at 188. 	For
these reasons, the fee simple rule is better viewed as merely a
guideline for appraisal, and its utility and proper application,
like all matters of appraisal methodology, is a question of fact.
See Beaver County, 916 P.2d at 355.
Our past decisions reviewing Tax Commission
determinations of fair market value have treated such issues as
questions of fact. 	See, e.g., Beaver County v. Utah State Tax
Comm’n, 293 Utah Adv. Rep. 32, 36 (1996) (Union Pacific) (holding
that tax commission’s use of capitalization rate calculated with
forecasted earnings is question of fact); Beaver County v. Utah
State Tax Comm’n, 916 P.2d 344, 354-55 (Utah 1996) (PacifiCorp)
(holding that use of average annual stock prices and weighting of
indicators is question of fact); Utah Ass’n of Counties v. Tax

No. 950192 	10
Comm’n, 895 P.2d 819, 821 (Utah 1995) (characterizing tax
commission’s findings with respect to determination of fair
market value as findings of fact); Kennecott Corp. v. Utah State
Tax Comm’n, 858 P.2d 1381, 1386 (Utah 1993) (characterizing as
finding of fact tax commission’s utilization of capitalized net
revenue method to value Kennecott’s property); Questar Pipeline
Co. v. Utah State Tax Comm’n, 850 P.2d 1175, 1176-77 (Utah 1993)
(characterizing methodology determinations as findings of fact);
First Nat’l Bank v. County Bd. of Equalization, 799 P.2d 1163,
1165 (Utah 1990) (characterizing determination of fair market
value as finding of fact).
The Tax Commission’s valuation determinations--
including the utilization of contract rents to value a particular
piece of property--are highly fact-specific and involve a great
deal of expertise. 	In making such determinations, the Commission
is presented with the testimony of expert witnesses and makes
factual findings on the basis of this evidence. 	As Justice Howe
noted in Utah Association of Counties v. Tax Commission:
The mere fact that two experts, both long
trained in the area of valuation, can reach
such an immense divergence of opinions is
evidence of the nature of tax appraisal.
. . . 	It is with this in mind that we have
considered the unenviable responsibility of
the Commission to sort out the great volume
of evidence and “artistically” reach its
valuation.
895 P.2d at 824-25. 	And as we stated in Utah Department of
Transportation v. Jones:
[T]he work of an appraiser, though it can be
in a sense factual and scientific in some of
its aspects, is also an art, in that it
reflects the creative talents, the
experience, the integrity, and in sum, the
personalized judgment of the individualized
appraiser. 	It is his prerogative to select
and analogize the various factors which seem
important to him in arriving at his estimate
as to value. 	Therefore no one should be able
to put him in a straightjacket as to method.
694 P.2d 1031, 1035 (Utah 1984) (emphasis added) (quoting
Redevelopment Agency of Salt Lake City v. Mitsui Investment,
Inc., 522 P.2d 1370, 1373 (Utah 1974) (footnote omitted)).

1 As to this issue, Judge McIff’s opinion represents a
majority of the court.
11 	No. 950192
However, contrary to precedent, Judge McIff’s
concurring opinion, joined by Chief Justice Zimmerman and Justice
Durham, treats the Commission’s decision to utilize contract
rents in this case as a matter of law. 1
Against the weight of this precedent, Chief Justice
Zimmerman would bind the Tax Commission as a matter of law to
consider contract rents regardless of expert testimony or other
evidence. 	Chief Justice Zimmerman writes, ”In the metaphor of
[State v. Pena, 869 P.2d 932], we are saying only that as a
matter of law, the broad pasture that the commission is permitted
when addressing methods of valuation has boundaries, and one of
those boundaries requires that it consider the terms of contract
rents.” 	But what if expert testimony indicated that
consideration of contract rents would distort the fair market
value of the property in question? 	After all, consideration of
contract rents may be applicable in a locality where the contract
rents are higher than the market rents but may not be applicable
in a locality where the market rents are higher than the contract
rents. 	Into the mix would be added economic forecasts,
population shifts, zoning, political changes, and the numerous
other factors expert appraisers utilize in forming opinions as to
fair market value of property. 	It is for this reason that this
court has always held that tax commission determinations of fair
market value involve findings of fact.
Tax Commission methodology determinations--here, the
decision to apply contract rather than market rents--are not
within Pena’s “pasture,” whereby the size of the pasture
determines the amount of discretion a judge or agency has in
applying facts to law, as Chief Justice Zimmerman declares.
Rather, the issue before us is purely factual. 	It is on the
“open range” for the trier of fact to determine on the basis of
the evidence presented.
Chief Justice Zimmerman states in his concurring
opinion that our approach in labeling the question under
consideration as factual is “result oriented.” 	To the contrary,
it is the approach taken by Chief Justice Zimmerman that is
result oriented inasmuch as appellate judges are left free to
enlarge or restrict the size of the pasture--without
forewarning--depending on the result desired. 	On the other hand,
labeling valuation questions factual clearly establishes the
trial court’s role to weigh the evidence before it in resolving

No. 950192 	12
such disputes, with the appellate court reviewing for substantial
evidence.
Accordingly, I now continue my analysis and examine, as
a question of fact, whether the Commission’s decision to utilize
contract rents to determine the fair market value of the subject
property was supported by substantial evidence. 	As challengers,
the owners bear the burden of demonstrating that factual findings
are erroneous. 	To prevail, the owners must “marshal all of the
evidence supporting the findings and show that despite the
supporting facts and in light of the conflicting evidence, the
findings are not supported by substantial evidence.” 	Beaver
County, 916 P.2d at 355-56. 	“‘Substantial evidence’ is that
quantum and quality of relevant evidence that is adequate to
convince a reasonable mind to support a conclusion.” 	First Nat’l
Bank v. County Bd. of Equalization, 799 P.2d 1163, 1165 (Utah
1990). 	Also, inconsistencies within one party’s appraisal could
support the approval of a competing and more consistent
appraisal. 	Cf. State v. Lancaster, 765 P.2d 872, 873 (Utah 1988)
(stating that defendant had opportunity to point out
inconsistencies within a witness’s testimony to impeach his
credibility); State v. Hewitt, 689 P.2d 22, 24-25 (Utah 1984)
(stating that palpable inconsistencies within testimony of
prosecution witnesses could result in vacation of criminal
conviction); State v. Velarde, 675 P.2d 1194, 1195 (Utah 1984)
(per curiam) (holding that defendant’s inconsistent testimony is
legitimate basis for prosecutor’s questioning his credibility).
The appraisals submitted by the owners were explained
and supported by Eric Johnson and William Lang. 	Johnson and Lang
testified that market rents rather than the contract rents should
be used because the contract rents were indivisible parts of
government programs that also imposed significant regulatory
burdens. 	Following the fee simple rule, the experts testified,
the burdens must not be considered and therefore neither should
the contract rents. 	Johnson also advocated the use of market
rent on the ground that the lower rent would have been the
revenue the apartments would have received if put to their
highest and best use. 	According to Johnson, due to burdensome
regulations, the apartments would be more profitable as
nonparticipating apartments receiving market rent as income than
as participating, subsidized apartments receiving contract rents.
Thus, Johnson testified, the apartments should be valued using
market rents.
At the same time, however, Johnson testified that even
if the apartments were valued as nonsubsidized housing, the
appraisals would still be too high. 	Therefore, under the cost

13 	No. 950192
approach, Johnson included a 31% economic obsolescence factor due
to the added expenses of the housing programs. 	Thus, while the
owners advocated that the benefits of the housing programs should
not be considered because the benefits were part of a regulatory
package that included significant burdens, their appraisal also
made substantial adjustment for the regulatory burdens.
Sevier County’s assessments, supported by Leroy Pia and
Richard Cook, considered both the benefits and the burdens of the
federal housing programs. 	Pia testified that the fee simple rule
should not impede the use of contract rents. 	The object of
appraisal standards, including the fee simple rule, is to
ascertain full market value, and, according to Pia, consideration
of the benefits of the federal programs is imperative to achieve
that end. 	The highest and best use of the apartments, the
county’s experts testified, was as subsidized housing. 	Pia
testified that in his opinion, the Glenbrook and Urcy Bell
Apartments would sell for a much greater price than nonsubsidized
apartments receiving lower rents and therefore had a higher
market value. 	To account for the regulatory burdens, Sevier
County assessments deducted the administration, maintenance, and
additional expenses from the apartments’ income.
We find Sevier County’s approach to accounting for the
benefits and the burdens of the federal programs to be supported
by substantial evidence and more consistent than the owners’
approach. 	The positions of both sides were supported by
appraisals and expert testimony. 	However, the owners’ position
regarding the advantages and the disadvantages of the housing
programs seems contradictory. 	The owners’ experts testified that
under the fee simple rule, the contract rents, because they are
inextricably combined with federal restraints on the properties,
should not be considered. 	But at the same time, the owners’
appraisals made large deductions for the cost of the federal
restraints. 	In other words, the owners ignored the elements of
the federal programs that increased their apartments’ value but
included the elements that lessened it. 	As presented to the
Commission, Sevier County’s assessments were more consistent.
Its assessments included the burdens and the benefits of the
housing programs. 	Thus, the Commission was justified in
resolving the parties’ dispute by finding that Sevier County’s
approach better reflected the apartments’ fair market value.
Because this finding is supported by substantial evidence, we
uphold the Commission’s finding of approval.
The owners challenge other factual findings as well.
The owners contend that Sevier County’s assessments do not
reflect the apartments’ fair market value because (1) the

No. 950192 	14
assessments compared the apartments to properties outside
Richfield, Utah; (2) the assessments ignored significant federal
restraints on the apartments; and (3) the assessments’ 8.5%
capitalization rate was erroneous because there was no evidence
that subsidized properties entailed a lower risk of nonreturn on
investments than nonsubsidized properties. 	As with the
Commission’s finding regarding the propriety of using contract
rents, we will uphold the Commission’s factual findings if they
are supported by substantial evidence.
The owners challenge the Commission’s approval of
Sevier County’s assessments on the ground that the county
improperly compared the Glenwood and Urcy Bell Apartments to
similar properties outside Richfield, Utah. 	Comparable
properties are often selected and used in property assessments to
provide an analytical framework for valuing subject property.
See Beaver County v. Utah State Tax Comm’n, 293 Utah Adv. Rep.
32, 38 n.4 (June 28, 1996). 	The owners argue that while the
Commission stated that the “Richfield subsidized complexes are
considered to be a market unto themselves and should be compared
to each other,” it also ruled that Sevier County’s assessments,
which did not compare Richfield subsidized properties to each
other, was “the most reflective analysis of the fair market value
of the subject properties.” 	Thus, the owners argue, Sevier
County’s assessments do not meet the Commission’s own criteria
and therefore should not have been approved.
The owners misunderstand the criteria county
assessments must satisfy. 	County assessments are required to
meet the standards of uniformity and equality set forth in the
Utah Constitution and reflect fair market value pursuant to the
Utah Code. 	See Utah Const. art. XIII, §§ 2, 3; Utah Code Ann.
§ 59-2-103(1). 	If statements within the Commission’s decisions
impede the fulfillment of these constitutional and statutory
directives, the Commission’s statements must be ignored. 	See
Crossroads Plaza Ass’n v. Pratt, 912 P.2d 961, 965 (Utah 1996)
(stating that agency rulings must accord with governing
statutes).
This principle applies in this case. 	The Commission’s
preference that subsidized apartments should be compared with
other local subsidized apartments is most likely sound. 	Local
properties are more likely than foreign properties to be
influenced by the market conditions that influence the subject
property and thus are a better clue to determine the subject
property’s value. 	However, when obedience to this guideline
fails to produce accurate estimations of value, the guideline
must not be applied. 	In this case, comparison of the Glenbrook

15 	No. 950192
and Urcy Bell Apartments with other subsidized Richfield
apartments would not have contributed to an accurate calculation
of the apartments’ fair market value for the simple reason that
there were no other subsidized apartments in Richfield. 	For this
reason, Sevier County looked to nonsubsidized housing in
Richfield and subsidized housing outside Richfield for
comparisons.
In fact, the owners’ appraiser also looked to
properties outside Richfield to calculate the apartments’ value
under each of the appraisal approaches. 	Under the sales
comparison approach, Johnson cited conveyances of property in
Ephraim, Cedar City, and St. George, Utah. 	In addition, under
the cost approach, the expert compared the Urcy Bell and
Glenbrook Apartments to properties in Bountiful, Provo, Cedar
City, Kanab, and Salt Lake City, Utah. 	In addition, Johnson
testified that under the income approach, he relied on a 1993
report of apartments in the Salt Lake City area. 	Because
substantial evidence, including that of the owner’s expert,
supports the use of properties outside Richfield as comparable
properties, we uphold the Commission’s approval of Sevier
County’s use of comparable properties outside Richfield.
The next factual finding the owners contest is the
Commission’s finding that Sevier County’s appraisals adequately
took into account the federal burdens imposed upon the Glenbrook
and Urcy Bell Apartments. 	Specifically, the owners contend that
the County’s assessments failed to account for (1) the government
restrictions on the amount of profit the Urcy Bell Apartments can
earn; (2) the comparatively low profit margin associated with the
Glenbrook Apartments; (3) the long-term mortgages and the
Glenbrook Apartments’ high 10.33% interest rate; (4) the
necessity of obtaining government approval to refinance the
Glenbrook Apartments’ forty-year mortgage and the Urcy Bell
Apartments’ fifty-year mortgage after the twenty-year contracts
expire; (5) the inability to refinance the mortgages at all
during the twenty-year contract periods; and (6) the limited
market for federally subsidized properties.
Sevier County’s assessments, however, did take into
account the federal restraints. 	In its assessments, Sevier
County increased the amount of operating expenses to compensate
for the obligations imposed by the federal programs. 	Sevier
County deducted $2,000 from the revenue of each apartment unit
under the income approach “due to the regulations regarding
government subsidies.”

No. 950192 	16
Furthermore, although Sevier County’s assessments did
not detail how each of the regulatory restraints impacted its
assessments, this is not a ground for reversal since the owners’
appraisals did no better. 	“[W]here the taxpayer claims error, it
has an obligation, not only to show substantial error or
impropriety in the assessment, but also to provide a sound
evidentiary basis upon which the Commission could adopt a lower
valuation.” 	Utah Power & Light Co. v. Utah State Tax Comm’n, 590
P.2d 332, 335 (Utah 1979); accord Hercules Inc. v. Utah State Tax
Comm’n, 877 P.2d 169, 172 (Utah Ct. App. 1994). 	In this case,
even if Sevier County’s assessments should have provided a
detailed analysis of each of the federally imposed restraints,
the owners failed to detail how each of the burdens lead to lower
valuations.
In fact, the owners argued that the federal burdens
should not be considered at all. 	The owners contended that under
the fee simple appraisal rule, the burdens of the housing
programs, which included the contract rents, should not be taken
into account. 	Thus, the owners had advocated to the Commission
what they now object to.
The closest approximation to the analysis the owners
now demand was included within their cost approach. 	Under that
approach, the owners calculated an economic obsolescence rate of
31% and reduced the apartments’ value under the cost approach by
that amount. 	But in arriving at this rate, the owners’
appraisals failed to describe how each regulatory restriction
impacted the rate. 	Instead, the owners’ assessments provided
only two reasons for the high obsolescence rate.
The first is the extra expense associated
with governmental subsidized housing
management (say 6%) that reduces the net
operating income along with the actual rent
received by the landlord tied to the poverty
level of the area; thus a reduction of
“return on the investment.” 	In addition,
subsidized properties as such, in most
recently known instances are generally
concluded by ownership that the lack of
disposition of the properties inhibits the
ability of the property to have a “return of
investment” . . . .
Nowhere in the appraisals’ explanation for its 31% economic
obsolescence rate were the specific federal restraints mentioned.
During their testimony, the owners’ appraisal experts also failed

2 The uniform operation of laws clause of the Utah
Constitution provides, “All laws of a general nature shall have
uniform operation.” 	Utah Const. art. I, § 24.
3 In pertinent part, article XIII, section 2 of the Utah
(continued...)
17 	No. 950192
to explain how each of the federal burdens impacted the
appraisal. 	Thus, even if Sevier County’s assessments were flawed
for failing to account for each and every regulatory burden,
reversal of the Commission’s approval would be inappropriate
because the owners failed to suggest a sound alternative method
to correct the flaws.
The final contested factual finding is the Commission’s
finding that Sevier County’s 8.5% capitalization rate under the
income approach was proper since that rate reflects the
apartments’ lower risk of nonreturn on initial investments. 	The
owners contend that no substantial evidence supports the finding
that the Glenbrook and Urcy Bell Apartments had a lower risk of
nonreturn on investments. 	In fact, the owners argue, compliance
with the federal regulations created a great deal of risk.
We find that substantial evidence supports the
Commission’s finding that the owners were likely to realize a
return on their investments. 	Both sides admitted that the
housing programs guaranteed for each rental unit a monthly rent
that was well above the local market rent. 	In fact, the owners
could receive guaranteed rents for vacant units. 	In addition,
even though the return on the Urcy Bell Apartments was fixed at
$5,240.92 per year, plus a management fee of $840 per month, the
likelihood that the owner would lose its investment was not
increased. 	With that guaranteed income, the owner would likely
recoup its investment eventually. 	And even though operation of
the apartments entailed significant expense to comply with the
federal regulations, Sevier County’s experts testified that even
after deducting those expenses from the apartments’ revenue, the
apartments’ owners would still realize a significant gain.
Because substantial evidence supports the Commission’s finding
that the federal programs guaranteed a low risk of the owners’
losing their investments, we uphold this finding.
In addition to the objections to the Commission’s
factual determinations, the owners argue that the Commission
created special rules of assessment for federally subsidized
apartments in violation of the uniform operation of laws clause 2
and the uniformity in taxation requirement of article XIII,
section 2 of the Utah Constitution. 3 	The owners’ argument under

3 (...continued)
Constitution provides, “All tangible property in the state . . .
shall be taxed at a uniform and equal rate in proportion to its
value.”
4 This decision ruled that whether a classification is
permissible depends upon “[1] whether the classification is
reasonable, [2] whether the objectives of the legislative action
are legitimate, and [3] whether there is a reasonable
relationship between the classification and the legislative
purposes.” 	Blue Cross & Blue Shield v. State, 779 P.2d 634, 637
(Utah 1989).
No. 950192 	18
both clauses is the same. 	They argue that the Commission’s order
singles out subsidized properties for unfavorable treatment.
In relevant part, the Commission’s order provides:
The Commission considers the multi
housing market in the Richfield area to be
two markets. 	One a subsided housing market
and the other non-subsidized. 	The Richfield
subsidized complexes are considered to be a
market unto themselves and should be compared
to each other.
The Commission also ruled that the use of actual contract rents
was appropriate under the income approach. 	The owners argue that
the Commission’s acceptance of actual rents for subsidized
properties differs from its general practice with regard to
nonsubsidized properties. 	With regard to assessments of those
properties, the owners contend, the Commission demands the use of
market rents, not actual rents. 	According to the owners, this
classification scheme violates Utah’s uniform operation of laws
clause and its uniformity in taxation requirements.
Sevier County responds that the Commission did not
create a special class of property for assessment purposes. 	In
addition, the Commission responds that even if it did, the
classification is proper because it meets the test of permissible
classification enunciated by this court in Blue Cross & Blue
Shield v. State, 779 P.2d 634, 637 (Utah 1989). 4
Although the owners’ argument is based upon both the
uniform operation of laws clause and the uniformity in taxation
requirements of the Utah Constitution, they make no argument as
to how, if we were to uphold the Commission’s decision under one
clause, the decision would still violate the other. 	Therefore,

19 	No. 950192
we will treat the owners’ contentions as one single argument with
two legal bases. 	See State v. Anderson, 910 P.2d 1229, 1233 n.3
(Utah 1996).
The standard of review for this issue is governed by
section 59-1-610 of the Utah Code. 	That section provides, “When
reviewing formal adjudicative proceedings commenced before the
commission, the . . . Supreme Court shall . . . grant the
commission no deference concerning its conclusions of law,
applying a correction of error standard, unless there is an
explicit grant of discretion contained in a statute at issue
before the appellate court.” 	Utah Code Ann. § 59-1-610(1)(b).
The question of whether the Commission created a classification
of property for tax purposes in violation of the Utah
Constitution is a question of law. 	See State v. Bishop, 717 P.2d
261, 266 (Utah 1986). 	Because there is no statute at issue
before this court, section 59-1-610(1)(b) demands that we address
this issue under a correction of error standard of review.
A fundamental principle of the uniform operation of
laws clause is that “the law should treat persons who are
similarly situated in a similar fashion, and persons who are
dissimilarly situated should be treated dissimilarly.” 	Bishop,
717 P.2d at 266. 	The owners’ constitutional argument relies on
what they perceive as the Commission’s singling out subsidized
apartments for unfavorable treatment. 	The owners contend that
while the Commission requires the use of market rents in
nonsubsidized property assessments, it approved the use of actual
rents for assessments of subsidized apartments.
The owners cite a prior Commission decision, Mall
Development Partnership v. County Board of Equalization,
Nos. 84-1142 to 84-1146 (Utah State Tax Commission Jan. 27,
1988), for the proposition that market rents alone are the
appropriate measure of income to be used under the income
approach to valuation. 	In that case, the Commission stated, “The
Tax Commission adheres to the policy that economic [or market]
rent and not actual rent is to be used when estimating market
value pursuant to the income approach.” 	Id. at 5.
However, further examination of the Mall Development
Partnership decision reveals that market rent is not the
Commission’s sole method of calculating income. 	Not only did the
Commission consider the rents of comparable properties in the
market, it also considered whether using market rents as the sole
measure of income would have left any of the subject property’s
income unassessed. 	See id. at 6. 	The Commission approved the
use of market rents only because “[t]here is no remaining unused

No. 950192 	20
income potential of the subject property.” 	Id. 	If there had
been unused or unassessed income potential, the assessment would
have failed to reflect the property’s full market value: 	“Had it
been established that the subject property . . . contained unused
income potential, then [the county’s] assertion that [the
assessment] has valued less than a fee simple interest would be
well taken.” 	Id. 	Thus, Mall Development Partnership reveals
that the Commission endorses the use of market rents unless those
rents fail to include all the income potential of the property
and therefore fail to reflect full market value.
The Commission’s practice comports with statutory and
constitutional mandates. 	Article XIII, section 2 of the Utah
Constitution demands that “[all] tangible property in the state
. . . shall be taxed at a uniform and equal rate in proportion to
its value, to be ascertained as provided by law.” 	The
legislature has decided that “[all] tangible property shall be
assessed and taxed at a uniform and equal rate on the basis of
its fair market value.” 	Utah Code Ann. § 59-2-103(1). 	The
object of such uniformity and equality is “so that every person
and corporation shall pay a tax in proportion to the value of
his, her, or its tangible property.” 	Utah Const. art. XIII,
§ 3(1); see also Rio Algom Corp. v. San Juan County, 681 P.2d
184, 192 (Utah 1984) (“The objective is to assure that the taxes
that are levied in a given county will result in each property’s
being ‘accountable for its pro rata share of the burden of local
government.’” (quoting Appeal of Johnstown Assocs., 431 A.2d 932,
934 (Pa. 1981))); Kennecott Copper Corp. v. Salt Lake County, 799
P.2d 1156, 1160 (Utah 1990) (“Reasonable uniformity of assessment
is essential if every person and corporation is to be taxed in
the same proportion to ‘his, her, and its tangible property.’”
(quoting Utah Const. art. XIII, § 3(1))). 	Thus, Utah law demands
that all entities pay taxes in proportion to their property’s
full market value. 	See Kennecott Copper Corp. v. Salt Lake
County, 799 P.2d 1156, 1161-62 (Utah 1990) (holding that formula
used to assess mines must yield mines’ full cash value); Rio
Algom Corp., 681 P.2d at 195 (holding statute unconstitutional
which partially froze in time valuation of some properties
because it prevented the ascertainment of full market value);
Moon Lake Elec. Ass’n v. Utah State Tax Comm’n, 9 Utah 2d 384,
387, 345 P.2d 612, 614 (1959) (holding statutory formula
unconstitutional that fixed assessments for tax purposes because
it prevented the ascertainment of full market value). 	If some
properties could be assessed below full market value, and if
taxes could be calculated on that basis, the owners of the
properties could avoid accountability for their share of
governmental expenses, and the goal of uniformity and equality
would be defeated.

21 	No. 950192
Viewed in this light, the Commission’s order did not
create a classification scheme that sets subsidized property
apart from other types of property for assessment purposes. 	The
Commission’s overarching goal is the equality and uniformity that
results from valuing property at its full market value. 	When the
use of market rents fails to achieve that end, income must be
measured in some other way. 	In this case, the Commission
approved the assessments that reflected full market value and
thereby achieved the goals of equality and uniformity. 	There was
no question that the Glenbrook and the Urcy Bell Apartments
received substantially higher rents than the rents received by
nonsubsidized apartments in the area. 	Therefore, in determining
the Glenbrook and Urcy Bell Apartments’ fair market value, the
Commission justifiably rejected the use of market rents and
endorsed the use of the actual, contract rents. 	Since the
subsidized apartments in this case were treated no differently
than other apartments, no classification was made, and thus no
constitutional violation occurred.
The owners’ final argument is that the Commission erred
by failing to state how the federal restraints on their
apartments should be accounted for in county assessments.
According to the owners, although the Commission determined how
the benefits of the federal program should be taken into account,
through the use of contract rents, it failed to detail how the
burdens impacted the apartments’ value. 	The harm alleged by the
owners as a result of this failure is that “county assessors
implementing this decision will also ignore this issue, leading
to incorrect valuations.” 	To ameliorate this alleged error, the
owners request that we remand this case to the Commission for
supplemental findings.
However, even if the Commission did err in failing to
detail the effect of the federal burdens, we are precluded from
granting the owners’ requested relief. 	The Utah Administrative
Procedures Act, which governs appeals from the Commission, see
Utah Code Ann. § 63-46b-1(2)(b), requires that to obtain relief,
the owners must have been “substantially prejudiced” by the
complained-of agency action. 	Id. § 63-46b-16(4).
[F]or a reviewing court to grant relief under
the [Utah Administrative Procedures Act], it
must determine that the party has been
“substantially prejudiced” by the complained-
of agency action. 	In other words, we must be
able to determine that the alleged error was
not harmless. 	Thus, the aggrieved party must

No. 950192 	22
be able to demonstrate how the aqency’s
action prejudiced it.
Mountain Fuel Supply Co. v. Public Serv. Comm’n, 861 P.2d 414,
423 (Utah 1993) (citations omitted). 	“[A]n error is harmful only
if the likelihood of a different outcome is sufficiently high as
to undermine our confidence in the [outcome].” 	Crookston v. Fire
Ins. Exch., 817 P.2d 789, 796 (Utah 1991); see Mountain Fuel Co.,
861 P.2d at 423.
In this case, the only harm the owners allege as a
result of the Commission’s failure to detail how the federal
restraints should be assessed is that counties performing future
assessments on subsidized housing will ignore the restraints.
The owners fail to demonstrate how the Commission’s error in any
way harmed them. 	Thus, we cannot say that the Commission’s
failure to detail the effect of the federal burdens undermines
our confidence in the outcome, and we are therefore precluded
from granting the owners’ requested relief. 	For this reason, we
decline to determine whether the Commission erred. 	See State v.
Hovater, 914 P.2d 37, 44-45 (Utah 1996) (refusing to determine
whether error occurred since alleged error did not prejudice
appellant); State v. Germonto, 868 P.2d 50, 58 (Utah 1993)
(same).
CONCLUSION
We conclude that (1) the Commission did not err in
approving the use of the Glenbrook and Urcy Bell Apartments’
contract rents under Sevier County’s income approach to
valuation; (2) the Commission’s findings that Sevier County’s
assessments reflected the apartments’ fair market value are
supported by substantial evidence; (3) the Commission’s approval
of the use of contract rents over the use of market rent did not
violate either the uniform operation of laws clause or the
uniformity in taxation requirements of the Utah Constitution; and
(4) the owners failed to demonstrate how they were prejudiced by
the Commission’s alleged failure to detail the effect of the
federal restraints on the apartments’ value. 	We therefore
affirm.
---
ZIMMERMAN, Chief Justice, concurring:
I join in the opinion of Judge McIff and write only to
respond to Justice Russon’s characterization of the standard of
review adopted by a majority in this case.

23 	No. 950192
Justice Russon’s opinion suggests that there are only
two operative standards of review: 	One applicable to matters of
law, which calls upon this court to redetermine any matter coming
before it without granting any deference to the forum below, and
the other applicable to questions of fact, which calls upon us to
defer to the forum below if there is any substantial evidence to
support its action. 	He characterizes Judge McIff’s position,
which describes the principle now before us as one of law, as
requiring that, in the future, this court must make a detailed
inquiry regarding every aspect of every evaluation practice
adopted by the Tax Commission. 	With all deference, the one-size-
fits-all characterization Justice Russon places on the operation
of the standard of review applicable to law questions when they
are part of a mixed question of law and fact is far too
simplistic, as we explained in State v. Pena, 869 P.2d 932, 936
(Utah 1994). 	When an appellate court reviews a determination
that involves a mixed question of law and fact, the operative
standard of review, i.e., the actual level of scrutiny applied by
the appellate court, may vary, even though the ultimate question
reviewed involves a statement of the law. 	On some, we permit a
broad range of discretion, see Hansen v. Stewart, 761 P.2d 14,
17-18 (Utah 1988) (granting broad discretion to trial court in
deciding whether to grant or deny new trial based on
insufficiency of evidence), on others we do not, see State v.
Thurman, 846 P.2d 1256, 1269-71 (Utah 1993) (granting narrow
discretion to trial court decisions involving consent to search
that would otherwise violate Fourth Amendment). 	The
characterization of an issue as a mixed question of law and fact
sometimes begins, rather than ends, the inquiry as to how closely
the appellate court will scrutinize what the initial forum has
done. 	Pena, 869 P.2d at 937.
In the present case, the fact that, as an analytical
matter, we conclude that the determination made by the commission
is grounded on a question of law--whether the commission may
consider contract rents, as opposed to market rents, in the
subsidized housing context--says little about the closeness of
the scrutiny we will give the commission’s decision on exactly
what weight it may give those subsidized contract rents in
reaching a fair market value determination, and it says nothing
about how we will review the commission’s approach to applying
any other valuation methodology. 	The majority holds only that,
in the metaphor of Pena, the broad pasture that the commission is
permitted when addressing methods of valuation has boundaries,
and one of those boundaries requires that it consider the terms
of subsidized contract rents. 	See id. at 937-38. 	As for the
weight the commission chooses to give this factor, we say only
that the question is within the broad pasture accorded it. 	When

No. 950192 	24
such rents differ from market, the commission does not exceed the
discretion the law gives it when it decides to place primary
emphasis on them in making a valuation.
The fact that labeling a question a matter of law may
permit this court to define and, ultimately, to constrict the
pasture within which an agency or a trial court is permitted to
roam, does not mean that we must do so. 	For that reason, it does
not portend the evils that Justice Russon suggests. 	As we noted
in Pena, there are substantial institutional reasons why
appellate courts refrain from substituting their judgment for
that of an agency or trial court on mixed questions of fact and
law in any particular area, even if they have the power to do so.
Id. at 938-40. 	Those reasons apply with particular force when we
are addressing fact-intensive valuation decisions dependent on a
multitude of factors and made by an agency that has expertise in
an area. 	Id. at 940. 	On the other hand, merely because we
permit an agency or trial court broad discretion does not mean,
as Justice Russon would characterize it, that the standard of
review is one appropriate to questions of fact, rather than law.
That sort of approach to labeling the question under
consideration is result oriented, rather than based on an
analysis of the issue being addressed, and serves only to make
careful, candid appellate analysis of mixed questions of law and
fact more difficult. 	Carefully exercised self-restraint is the
real guardian of the proper relationship between trial and
appellate fora, not simple, conclusory labels of “law” and
“fact,” labels that history has shown are not capable of standing
in the way of an appellate court’s exercising searching review
when it thinks it appropriate, see id. at 936-38, but are capable
of producing much confusion in the standard of review area. 	Id.
at 936 (citing Evan Tsen Lee, Principled Decision Making and the
Proper Role of Federal Appellate Courts: The Mixed Questions
Conflict, 64 S. Cal. L. Rev. 235, 239-45 (1991)).
---
Justice Durham and Judge McIff concur in Chief Justice
Zimmerman’s concurring opinion.
---
HOWE, Justice, concurring:
I concur in the opinion of Justice Russon and also in
the observations made by Judge McIff in Part B of his opinion
regarding “Duration of Contract Term.”

25 	No. 950192
---
McIFF, District Judge, concurring:
I concur in the result reached in the lead opinion and
generally concur with its reasoning. 	I write separately to
address two matters: 	(1) the applicable standard of review and
(2) the importance of considering the duration of the federal
contracts and the rental subsidies.
A. 	Standard of Review
The lead opinion concludes that the Commission’s
decision to treat federally subsidized projects as a distinctly
separate type of property and to consider the benefits and
burdens of the federal contracts amounts to a finding of fact.
As such, it would be entitled to “deference,” governed by a
“substantial evidence standard on review,” Utah Code Ann.
§ 59-1-610(1)(a), rather than the “correction of error” standard
applicable to conclusions of law. 	Utah Code Ann.
§ 59-1-610(1)(b).
If the lead opinion is correct, then presumably, a
Commission decision to completely disregard the federal contracts
and the subsidized rents would likewise have been entitled to
deference. 	That is a more sobering proposition. 	The valuation
swing that would have resulted from a complete disregard of
contract rents is, by any measure, overwhelming. 	Using contract
rents, the Commission put the values for the Glenbrook and Urcy
Belle Apartments at $1,100,000 and $750,000, respectively,
whereas market rents supported appraisals only in the $500,000
range for each complex.
While the Commission has urged this court to construe
the issues as factual in nature, its written findings of fact,
conclusions of law, and final decision are not entirely
consistent with this position. 	The Commission acknowledges that
it was not called upon to resolve conflicts in the evidence; to
the contrary, the evidence was essentially not in dispute.
Rather, the Commission, as well as the parties, in reality, want
legal guidance. 	In its findings, the Commission noted:
Both appraisals relied heavily upon the
income approach in their final determination
of fair market value, and both used many of
the same comparable sales and comparable
rents in their analysis.

No. 950192 	26
While the appraisers disputed some points on
one another’s appraisals, the real issue
focuses on methodology, specifically how to
value federally subsidized housing.
The parties in these cases ask the Tax
Commission to determine whether or not the
benefits and burdens related to federally
subsidized rental housing contracts should be
considered in determining the value of these
properties for ad valorem tax purposes.
Both sides recognize that the issue is a
legal one and certainly is of first
impression for the Tax Commission and
consequently, the Utah courts.
(Emphasis added.)
In its conclusions of law, the Commission opined that
“there exists mass controversy and confusion over how to value
federally subsidized housing.” 	It supported this observation by
contrasting the holdings in two cases on which the parties herein
continue to rely. 	While the cases reach different conclusions,
they are in accord in one respect, i.e., each treats the issue as
being legal rather than factual in nature.
In Alliance Towers v. Stark County Board of Revision,
523 N.E.2d 826 (Ohio 1988), relied upon herein by the landowners,
the Ohio Supreme Court held that the fee simple estate is to be
valued as if it were unencumbered, that the contract rents
(federally subsidized) did not indicate the true value of the
property and were not competent evidence thereof, and that the
analysis by the county’s appraiser was flawed by reliance
thereon. 	Id. at 831-33. 	The opposite result was reached by the
Supreme Court of Illinois in Kankakee County v. Property Tax
Appeal Board, 544 N.E.2d 762 (Ill. 1989). 	It held:
[W]e conclude that the PTAB erred as a matter
of law in accepting a valuation that relied
only on the rent the property would command
in the open market of unsubsidized housing.
A government subsidy contract that enhances
the income-earning capacity of a particular
piece of property must be considered in
assessing the fair cash value of that
property for taxation purposes.

1 The concept was applied in similar circumstances and for
the same basic purpose in Department of Transportation v. Jones,
694 P.2d 1031, 1035 (Utah 1984).
27 	No. 950192
Id. at 769 (emphasis added).
The Commission opted to go with the position advanced
in Kankakee. 	Its decision, which followed the findings outlined
above, has the clear sound and impact of a legal conclusion. 	The
Commission’s response to what it termed a “legal” issue “of first
impression” is as follows:
The Commission recognizes that the special
federal financing programs offered through
HUD section 8 and FmHA have created a
distinctly separate kind of property that
requires the assessing entity to value the
property in question in light of the federal
restraints and benefits.
On review, petitioners argue, “As a matter of law, this
ruling is in error.” 	The lead opinion disregards the clear
manner in which the issue is thus cast and mischaracterizes the
majority’s position. 	Petitioners urge this court to hold that
the benefits and burdens of the federal contracts should be
ignored and that the Commission should be precluded, as a matter
of law, from considering them. 	The majority rejects that
position. 	Rather than imposing a “straightjacket,” which Justice
Russon apparently perceives, the majority frees the Commission
from the one urged by petitioners. 	Moreover, the concept may be
less applicable to the Commission than to a fee appraiser. 	In
Redevelopment Agency of Salt Lake City v. Mitsui Investments,
Inc., 522 P.2d 1370, 1373 (Utah 1974), which gave birth to the
straightjacket language, 1 the condemnor challenged the
admissibility of an allegedly deficient appraisal prepared by the
landowner’s appraiser. 	In extending wide latitude to the
appraiser and allowing admission, the court reasoned that the
alleged deficiencies could be exposed during cross-examination
and the fact finder (jury) could determine the weight to be
given. 	Id. 	In the instant case, the Commission is the fact
finder as well as the decider of legal issues. 	It expresses more
than an opinion to be weighed against the opinions of others; it
performs a “quasi judicial” function, County Bd. of Equalization
of Kane County v. State Tax Comm’n, 88 Utah 219, 223-24, 50 P.2d
418, 421 (1935), and its expressions become the law of the case.
There is nothing in Mitsui or any other known precedent which
would preclude this court from clarifying the parameters within
which the Commission may employ its expertise. 	To the contrary,

No. 950192 	28
it is this court’s role to determine whether the statute, method,
or rule of appraisement pursuant to which property has been
valued will achieve the constitutional imperative of equal
taxation. 	See Kennecott Corp. v. Salt Lake County, 702 P.2d 451,
455 (Utah 1985).
If the Commission’s ruling is judged by a correction of
error standard, the result is the same as that reached in the
lead opinion. 	The reasoning of the Kankakee court is clearly
superior to that reflected in Alliance Tower. 	It recognizes the
obvious: 	“A willing buyer would most certainly consider the
guaranteed income rate set by the Federal government when
determining the fair cash value of the property.” 	Kankakee, 544
N.E.2d at 769. 	Utah law presumes that in arriving at “fair
market value,” both buyer and seller would have “reasonable
knowledge of the relevant facts.” 	Utah Code Ann. § 59-2-102(8).
It follows that they would be expected to make reasonable
decisions in light of this information, and accordingly, it is
not credible to assume that they would be oblivious to the value-
enhancing impact of significantly higher federally guaranteed
rents.
Employing a different standard of review does not
undermine the essential reasoning and analysis contained in the
lead opinion. 	What is stated therein about the appraisal process
continues to apply. 	Valuation is “‘an art, not a science,’”
Beaver County v. Utah State Tax Comm’n, 916 P.2d 344, 355 (Utah
1996) (Beaver County I) (quoting Utah Ass’n of Counties v. Tax
Comm’n, 895 P.2d 835, 828 (Utah 1995)); “any single formula” is
inadequate, Rio Algom Corp. v. San Juan County, 681 P.2d 184, 188
(Utah 1984); and the so-called fee simple rule is not a rule of
law, but a technique of appraisal generally but not always
employed. 	The legal conclusion that the benefits and burdens of
the federal contracts must be considered simply clarifies the
framework within which the Commission has flexibility to employ
its expertise.
Notwithstanding the necessity of flexibility in
appraisal methodology and the deference to which the Commission
is entitled, there must always be borders--outer limits--which
circumscribe the permissible area of judgment and discretion and
guard against appraisal approaches which may lead to aberrations.
To hold otherwise would be to license a potentially capricious,
irrational, or unreasonable result. 	For this reason, methodology
cannot always, in every case, be solely a question of fact. 	In
Beaver County v. State Tax Commission, 919 P.2d 547 (Utah 1996)
(Stewart, J., separate opinion) (Beaver County II), Justice

2 Whether Beaver County II was correctly decided and whether
the issues therein were properly characterized is not germane to
this case. 	The language from the separate opinion is cited
solely to buttress my conclusion that the Commission’s
“methodology” is not without some limitations which are legally
imposed and concerning which a correction of error standard is
applicable.
29 	No. 950192
Stewart perceives the same incorrect characterization which seems
to me to exist in this case. 	He states:
The Commission has developed significant and
substantial expertise in dealing with highly
complicated matters of valuation, which, as
the majority opinion points out, do indeed
involve matters of opinion and judgment. 	For
that reason, it is appropriate for this Court
to defer to the Commission’s expertise, as
long as the methodology rests on a reasonable
and consistent application of sound
principles for determining fair market value.
It is hardly appropriate, however, for this
Court to act as if the Commission’s
methodology is an issue of fact whereby this
Court all but abandons its constitutional and
statutory responsibilities of judicial review
by treating that which is not a factual
inquiry as if it were.
Id. at 556. 2
The existence of limitations which move judicial review
beyond the “substantial evidence” standard appears to have been
recognized by our court of appeals in a case arising from the
Industrial Commission. 	The court stated:
The decision of the Commission is entitled to
deference because of the agency’s expertise.
However, the decision is subject to judicial
review to assure that the facts support the
conclusions arrived at by the Commission and
that the decision falls within the limits of
reasonableness or rationality.
Gay Hill Field Serv. v. Board of Review, 750 P.2d 606, 608 (Utah
Ct. App. 1988) (citations omitted) (emphasis added).

3 The lead opinion should consider inconsistencies with the
stance taken by this court in review of decisions from other
state agencies. 	For example, in Stewart v. Public Service
Commission, 885 P.2d 759, 770 (Utah 1994), the court held, “The
factors that the Commission may legitimately take into account in
determining a rate of return are questions of law.” 	(Emphasis
added.) 	There may be legitimate distinctions between the
approach to “rate” fixing by the Public Service Commission and
the ascertainment of “fair market value” by the Tax Commission,
but in either case, there simply must be legal boundaries which
cannot be overstepped in the employment of expertise and the
exercise of discretion.
4 The lead opinion misconstrues the thrust and future effect
of this requirement endorsed by a majority of the court. 	Justice
Russon poses the question, “But what if expert testimony
indicated that consideration of contract rents would distort the
fair market value of the property . . . ?” 	The question is ill-
put since it assumes that the mere act of considering requires
acceptance. 	The answer to the question is that if after fair
consideration it appears that contract rents distort rather than
aid the inquiry, then the Commission’s factual findings should so
(continued...)
No. 950192 	30
For the Commission to have refused to consider the
benefits and burdens of the federal contracts, including the
guaranteed rents, would have breached the outer limits of
permissible appraisal methodology and would not, in my judgment,
have been entitled to deference. 	That was the holding in
Kankakee and should be adopted here. 	The fact that the
Commission embraced the correct legal position does not change
the fundamental nature of its ruling. 	The Commission’s decision
to consider the federal contracts and to treat federally
subsidized housing as a “distinctly separate kind of property”
should be upheld because it is legally correct, not because the
Commission is owed deference as to its factual findings. 3
Moreover, it is not at all unlikely that the appraisers
will come much closer to unanimity once the ground rules are
clarified. 	Having one set of appraisers concluding that it is
improper to consider the federal contracts and another set of
appraisers proceeding from the opposite premise creates an
irreconcilable methodology conflict which cannot reasonably be
expected to result in comparative appraisals that will be helpful
to the Commission. 	It is appropriate for this court to resolve
the conflict, as did the Kankakee court, by holding that the
benefits and burdens of the federal contracts, including the
contract rents, must be considered. 4

4 (...continued)
reflect.
31 	No. 950192
I hasten to add that the obligation to consider
contract rents is not tantamount to requiring their employment.
The Commission would retain wide latitude to evaluate their
impact and to devise and employ the methodology that will best
achieve the intended objective: 	namely, the determination of
“fair market value.” 	The Kankakee court succinctly noted this
latitude, suggested a caution, and identified important factors
the taxing authority should consider:
We do not mean to suggest that the tax
assessor, in applying the income approach to
valuation, is limited to and must accept the
actual rental figure under the government
subsidy contract as the sole measure of
projected income. 	In most cases, such an
approach would lead to a distorted measure of
fair cash value. 	Factors such as the
transferability of the subsidy contract, the
remaining term of the contract and
restrictions on the amount of return on
capital investment would certainly affect the
value of the property. 	A valuation approach
which considers the subsidy income, but does
not consider the negative aspects of a
subsidy agreement upon the earning capacity
of subsidized property, would be
inappropriate. 	The taxing authority must
weigh both the positive and the negative
aspects of the subsidy agreement and adjust
the actual income figure to accurately
reflect the true earning capacity of the
property in question.
544 N.E.2d at 769 (emphasis added).
B. 	Duration of Contract Term
The emphasis added to the Kankakee court’s language
quoted above highlights a potentially important area which was
not addressed by the Tax Commission. 	Neither party adequately
focused on the fact that the contract rents are guaranteed for
only twenty years, whereas FHA financing on Urcy Belle has a
fifty-year life and HUD financing on Glenbrook has a forty-year
life. 	Because the contract rents roughly double the market rate,
a prudent buyer of either apartment building would want some

5 If market rents exceed contract rents, value may be
compromised according to the number of years that the owner is
“locked-in” to the lower rates. 	The degree of impact would
depend upon an analysis of all the benefits and burdens of the
federal contract and could be expected to erode as the contract
moved toward expiration.
No. 950192 	32
assurance on the renewability of the subsidized arrangement. 	On
this the record is sketchy. 	The general partner in each of the
partnerships that owned the respective apartment complexes
testified:
Generally, these are renewed, but there’s
some negotiation in the 20 years.
The newer contracts they’re writing on these
[similar] properties . . . in the last two or
three years, actually has [sic] a 50-year
tie-in, so its the useful life of the
property . . . .
In voting to affirm, I indulge the assumption of
renewability. 	To the extent that there is any uncertainty in
this regard, it could be expected to influence what a prudent
buyer would pay and a seller’s assessment of what it had to sell.
Moreover, the effect would not await the expiration of the
twenty-year contract term because a “knowledgeable” buyer, as the
law presumes, see Utah Code Ann. § 59-2-102(8), would factor in
the uncertainty at whatever time the negotiations occurred. 	The
influence of a federal contract, including agreed rental rates,
corresponds directly with the remaining life of such contract.
Further, expiration of the contract term short of the anticipated
economic life of the assessed property is relevant to value
whether the contract rents are more or less than market rents.
In the former, a prudent buyer would ask, How much longer are the
subsidies guaranteed? in the latter, When will the property be
set free to command market rates? 	That which is a value-enhancer
in the Richfield market may be a value-depressant in other
markets. 5
The Urcy Bell Apartments were constructed in 1980; the
Glenbrook in 1983. 	The existing contracts will expire
respectively in four and seven years. 	In contrast, the
anticipated economic life of the projects will likely continue
for some three decades or more. 	The Commission’s appraisals for

6 Urcy Bell was appraised at $750,000 for 1992 and 1993;
Glenbrook was appraised at $1,100,00 for 1991, 1992, and 1993.
7 Though providing no relief for years past, the analysis is
relevant to the discharge of the County’s ongoing assessment
responsibility. 	It responds to the request for legal guidance
which is inherent in the Commission’s decision and in the
presentations of the parties addressed therein.
33 	No. 950192
the years in question were level. 6 	Such necessarily assumes an
uninterrupted continuation of the stream of income on which the
appraisals were premised. 	This may not accurately project the
future, but in the absence of any real treatment by the parties
or the Commission, no relief can be given in this appeal. 7
C. 	Conclusion
Since the Commission reached the proper legal
conclusion regarding the necessity of considering the federal
contracts, the issues focus on the adequacy of its factual
findings. 	I agree with the lead opinion’s conclusion that the
property owners failed to demonstrate that Sevier County’s
assessments inadequately addressed the benefits and burdens of
the federal contracts which had been properly raised. 	The actual
factual findings are supported by substantial evidence and are
entitled to deference. 	I further agree with the opinion’s
rejection of a claim of a constitutional violation. 	That is a
correct legal conclusion.
Accordingly, I agree that the Commission’s decision
should be affirmed.
---
Justice Durham concurs in Judge McIff’s concurring
opinion.
Having disqualified himself, Associate Chief Justice
Stewart does not participate herein; District Judge K. L. McIff
sat.