Norman B. Carey v. Department of Revenue

OCR transcription for search; preserved printed pages are authoritative

BEFORE THE MONTANA TAX APPEAL BOARD

AUG 23 2018
Montana Tex Appeal Board
NORMAN B. CAREY, CASE No: PT-2018-9
Appellant,
FINDINGS OF FACT,
Vv. CONCLUSIONS OF LAW, ORDER,
STATE OF MONTANA, AND NOTICE OF OPPORTUNITY FOR
DEPARTMENT OF REVENUE, JUDICIAL REVIEW
Respondent.

Before the Montana Tax Appeal Board is appellant Norman B. Carey’s
appeal from the Missoula County Tax Appeal Board (CTAB) decision reducing
the value of his property.

This Board held a de novo hearing on May 22, 2018.

For the reasons provided below, this Board partially grants Mr. Carey’s
appeal.

ISSUES TO BE DECIDED
1. Whether the Montana Department of Revenue (DOR) properly and
accurately valued Mr. Carey’s land and improvements.
FINDINGS OF FACT
Description of the Property |
2. The land in this appeal is described as follows:

RIVERSIDE ADD 007, 820, T13 N, R19 W, BLOCK
23, LOT 1 — 20, 197654 SQUARE FEET, BLK 26 POR
VAC DAKOTA STEET AND PORTIONS A, B AND C
AMENDED RIVERSIDE ADDITION BLOCKS 23, 24

AND 26; geocode 04-2200-20-1-01-05-0000, with a
common address of 1615 Wyoming Street, Missoula.

The property’s location is best represented by the map provided below,

with the marker designating the location of Mr. Carey’s property:

ie Rgsula Car § Truce

SOM

5 ae

— 1615 Wyoming Street

Sy habeus Tre ‘The Source Health Cleb

The land is 4.54 acres. DOR Ex. A.

On the land is a 41,948 square foot building which houses Westside
Lanes and Fun Center, which includes bowling, mini-golf, a casino with
a bar, a snack bar/restaurant and offices. MTAB Transcr. 34:4-7. Mr.
Carey testified Westside Lanes and Fun Center employs 20 to 25 people.
MTAB Transcr. 20:1-3.

For the 2015/2016 tax cycle, the DOR determined Mr. Carey’s land had
a value of $360,979 and his improvements a value of $2,386,021 for a
total value of $2,747,000. DOR Ex. A.

On July 3, 2017, the DOR issued its assessment notice for the 2017/2018
tax cycle to Mr. Carey. The DOR determined Mr. Carey’s land had a
value of $858,046 and his improvements a value of $2,687,054 for a total
value of $3,545,100. Mr. Carey’s land valuation increased by almost
$500,000 in the two years since the prior tax cycle lien date.

CTAB hearing — appeal and outcome

8. On July 20, 2017, Mr. Carey appealed the DOR’s assessed value to the
Missoula County Tax Appeal Board. Mr. Carey requested the CTAB find
his land had a value of $379,063 and his improvements a value of
$2,504,972 for a total value of $2,884,000.

9. On December 15, 2017, the CTAB heard Mr. Carey’s appeal.

10. After hearing all the evidence, the CTAB determined the land
maintained a value of $858,046 but reduced the value of the
improvements from $2,687,054 to $2,497,754 for a total value of
$3,355,800. The CTAB issued its decision on December 27, 2017.

MTAB hearing

11. On January 25, 2018, Mr. Carey appealed the CTAB’s decision to this
Board. Mr. Carey requests this Board further reduce the valuation of
his property to a total value of $2,884,000.

12. This Board held a hearing on May 22, 2018.

13. At the hearing, Mr. Carey represented himself and testified on his own

behalf. He called no other witnesses. Mr. Carey did not submit any

exhibits.

14. At the hearing, the DOR was represented by Dave Burleigh. The
following witnesses testified in the DOR’s case:

a. Leslie Snyder, area manager, DOR Property Assessment
Division — Missoula County; and
b. Helen Greenberg lead commercial appraiser, DOR Property
Assessment Division — Missoula County.
15. This Board admitted the following exhibits submitted by the DOR:

a. DOR Ex. A: DOR CTAB packet, which includes Classification
and Appraisal Notice, Property Record Card, photos, and
income and expense sheets for Mr. Carey’s property;

b. DOR Ex. B: 2014, 2015, and 2016 Schedule E IRS forms
showing income and loss for Westside Lanes [confidential]; and

c. DOR Ex. C: the DOR’s Computer Assisted Land Pricing (CALP)
model for valuing Mr. Carey’s land [confidential].

Market value of Mr. Carey’s land .

16. To value the land, the DOR used computer assisted land pricing (CALP)
modeling software. The software estimates the value of land based upon
sales in the model by analyzing extracted land sale prices and adjusting
for time, location and size to estimate a typical value for the first and
remaining acres in the model area. DOR Ex. C.

17. The DOR testified the land sales within the commercial land market in
Missoula started increasing in number and value at the end of 2014.
MTAB Transcr. 16:10-18, 12:3-6.

18. The DOR explained the countywide commercial market’s increases when
inputted into the CALP revealed a “hot spot” or an “influence factor” for
Mr. Carey’s land. The DOR witness testified that the CALP indicated

there were several neighborhoods in central Missoula in which larger

parcels of land commanded premium prices for development. MTAB

19.

20.

21.

Transcr. 16:10-15. According to the DOR, the model indicated that
considering size and location of recent sales, Mr. Carey’s land is in a
prime commercial location in Missoula and thus should have a higher
land value due to the likelihood of it selling for a premium price. The
DOR, as a result, designated Mr. Carey’s land as “prime,” which by the
formula used increased the first acre of his land value by 30 percent.
MTAB Transcr. 18:15.

Using this prime designation, therefore, DOR determined as of the
January 1, 2016 lien date, Mr. Carey’s land had a value of $858,046.
DOR Ex. A. The DOR testified its land value was only $4.33 per square
foot which is almost half the amount per square foot of similar
commercial land sales in Missoula. MTAB Transcr. 14:4.

The CALP used to value the subject land included the purchase of
adjoining land by a car dealership for expansion as a valid sale; for a sale
price which was substantially higher than other sales in the model. DOR
Ex. C. MTAB Transcr. 21:2-4. The DOR testified some of the land sales
included in the CALP were for less than the final value found for Mr.
Carey’s land. For example, the DOR’s CALP included one sale of a 4-
acre parcel of land the DOR determined had a value of $695,836. DOR
Ex. A. Based on similar verified sales in the county, the DOR determined
another 5.4-acre parcel of land had a value of $497,285. DOR Ex. A.
Lastly, the DOR determined the sale of a 10.3-acre parcel indicated a
land value of $1,255,555. DOR Ex. A.

Within the CALP, eight prime location adjustments were applied to land
sold in locations referred to as “hot spots.” The DOR designated these
areas as premium in the CALP and applied a multiplier of 180% on the

22.

23.

first acre to account for the perceived desirability. The DOR relied on its
CALP software to dictate premium pricing but gave limited testimony on
comparable sales proximate to the subject which they believed justified
why commercial land on Wyoming Street should be designated as prime.
While Ms. Greenberg from the DOR testified in general terms about her
opinion of where “hot spots” were located in Missoula, she did not provide
any maps, definitions, or statistical analysis to support the “hot spots.”
Mr. Carey expressed concern about his land being designated as “prime.”
MTAB Transcr. 21:13. Mr. Carey testified his property is not on the main
thoroughfare and is even considered hard to find by some customers.
MTAB Transcr. 22:1-3. The DOR explained that the model indicates
high priced sales on the major streets is radiating out to the secondary
streets like Wyoming Street where the subject property is located.
MTAB Transcr. 31:10-15.

Market value of Mr. Carey’s improvements

24.

20.

The DOR testified it valued Mr. Carey’s improvements using the income
approach consistent with ARM 42.20.108. MTAB Transcr. 12:19-22.

The DOR’s income model is created by compiling self-reported income
and expense information provided by commercial businesses in
Missoula. MTAB Transcr. 10:14-15. The DOR’s income model then
generates rent ratings — i.e. the income deriving possibility per square
foot for a commercial property which changes based on the commercial
use — and net operating income for such a business. MTAB Transcr.
11:17-23. The DOR then multiplies the net operating income it
generates for the business by a capitalization rate to determine the

market value of a property. MTAB Transcr. 20:17-19; DOR Ex. A.

26.

27.

28.

29.

30.

31.

According to the DOR, it selected a rent rating of 4 instead of 3 because
Mr. Carey’s building includes a casino and a bar. A rent rating of 4
corresponds to $11.75 of rent per square foot, while a rent rating of 3
corresponds to $9.25 of rent per square foot. MTAB Transcr. 10:4-6; DOR
Tox. A.
With its income approach, the DOR found Mr. Carey’s improvements had
a total value of $2,687,054. MTAB Transcr. 2:21.
The DOR testified it cannot use Mr. Carey’s income data alone to create
an income model. For example, the DOR determined Mr. Carey’s rent
rate of $4.00 per square foot is $10 per square foot lower than the
commercial market. MTAB Transcr. 27:11-18 Therefore, the DOR
testified Mr. Carey’s actual rent information did not represent fair
market value. MTAB Transcr. 14:1-6.
The DOR also valued Mr. Carey’s improvements with the cost approach.
DOR Ex. A. Using the cost approach, the DOR determined Mr. Carey’s
improvements had a replacement cost new less depreciation value of
$2,287,170. DOR Ex. A.
To whatever extent the following conclusions of law may be construed as
findings of fact, they are incorporated accordingly.

CONCLUSIONS OF LAW
To whatever extent the foregoing findings of fact may be construed as

conclusions of law, they are incorporated accordingly.

Jurisdiction

32.

My. Carey timely appealed the CTAB’s decision to this Board. Therefore,
this Board has jurisdiction to hear and decide this appeal. See Mont.
Code Ann. § 15-2-301(1)(b).

33.

34.

“In connection with any appeal under [Mont. Code Ann. § 15-2-301], the
state board is not bound by common law and statutory rules of evidence
or rules of discovery and may affirm, reverse, or modify any decision. To
the extent that this section is in conflict with the Montana
Administrative Procedure Act, this section supersedes that act.” Mont.
Code Ann. § 15-2-301(5).

This Board hears CTAB appeals de novo. See CHS, Inc. v. DOR, 2013
MT 100, {{ 29. “A trial de novo means trying the matter anew, the same
as if it had not been heard before and as if no decision had been

previously rendered.” McDunn v. Arnold, 2013 MT 138, § 22.

Burden of Proof

35.

36.

37.

The appraised value supported by the most defensible valuation
information serves as the value for ad valorem tax purposes. Mont.
Admin. Reg. 42.18.134, formerly Mont. Admin. Reg. 42.18.110(12).
However, “la]ls a general rule, ... the appraisal of the DOR is presumed
to be correct and the taxpayer must overcome this presumption. The
Department of Revenue should, on the other hand, bear a burden of
providing documented evidence to support its assessed values.”
Workman v. The Department of Revenue of the State of Montana, 1997
WL 37203, *1 (Mont.Tax.App.Bd.); citing Western Airlines, Inc. v.
Catherine J. Michunovich, et al, 149 Mont. 347, 428 P.2d 3 (1967).

The taxpayer has the burden to show the DOR’s appraisal value should
be reduced. Mont. Code Ann. § 26-1-401. |

Market Value

38.

“All taxable property must be assessed at 100 percent of its market value

except as otherwise provided.” MCA § 15-8-111(1).

39.

40.

4l.

AQ.

“Market value is the value at which property would change hands
between a willing buyer and a willing seller, neither being under any
compulsion to buy or to sell and both having reasonable knowledge of
relevant facts.” MCA § 15-8-111(2)(a).

This Board, upon hearing a tax appeal, may increase or decrease a
property value to ensure the property is “assessed at 100 percent of its
market value.” See Puget Sound Energy Inc. v. State Dept. of Revenue,
2011 MT 141, 255 P.3d 171; and O’Neill v. Department of Revenue, 2002
MT 130, 49 P.3d 43.

Under Montana law, the DOR can use a combination of approaches — i.e.

' the market data approach, the income approach, and the cost approach

—to value a property. Albright v. State, 281 Mont. 196, 208 - 209 (Mont.
1997). The DOR does not have to use only one approach when it
“appraises property and estimates market value.” Jd. at 208.

The Montana Supreme Court in A/bright concluded:

We recognize that the Department’s method of
assessing property and estimating market values is by
no means perfect, and will occasionally miss the mark
when it comes to the Constitution’s goal of equalizing
property valuation. However, perfection in this field
is, for all practical purposes, unattainable due to the
logical and historical preference for a market-based
method, and the occasional lack of market data.
Nonetheless, we conclude that the Department’s
interdisciplinary method — which utilizes the market
data approach, the income approach, the cost
approach, or some combination of those approaches —
is a reasonable attempt to equalize appraisal of real
property throughout the State and that it comports
with the most modern and accurate appraisal
practices available. Jd. at 213.

Improvements

43. This Board finds that the taxpayer failed to meet his burden to further
reduce his improvement value. His testimony indicates he charges his
tenant lower than market rate for the use of the improvements, but this
does not justify a further reduction in improvement value. We defer to
the local expertise of the Missoula County Tax Appeal Board which set
the rent and capitalization rates for the property at $6 per square foot and
a capitalization rate of 7.5% to yield an income improvement value of

$2,497,754.
Land

44. Regarding the value of Mr. Carey’s land, this Board finds the DOR did not
support the prime designation and its associated increase to the subject
land value. The DOR’s land value for the subject property during the
present tax cycle increased by approximately $500,000 from the prior tax
cycle. The DOR explained that commercial land sales have radiated out
to non-thorough fare streets and this warranted Mr. Carey’s property
being designated as prime. Because it was designated as prime land, the

DOR increased Mr. Carey’s land value.

10

45.

AG.

DOR’s CALP included land sales which were less than the DOR’s value of
Mr. Carey’s land but also seemed to rely on a purchase of land by a car

dealership which ostensibly has skewed the DOR’s CALP. Car dealerships
are captive to the sales of adjoining land if they want to expand, therefore
would be willing to pay higher than market values for this adjoining land.
The use of this sale raises questions about the reliability of the CALP used

to value the subject.

We find the DOR did not present evidence to show that “Hot Spots” are
more than intuition or speculation and that accordingly the prime
adjustment, or at a minimum the amount of that adjustment at 130% was
not supported by substantial credible evidence. Nor was this Board
provided evidence to convince us that Mr. Carey’s land is in a “Hot Spot.”
Mr. Carey gave credible testimony that the location of his property is not
on one of the busy arterial streets in Missoula that can justify a prime
designation. As a result, this Board finds insufficient evidence to justify a
prime designation for Mr. Carey’s land. When this designation is not
applied the value of this parcel it will be reduced from $858,046 to
$733,746.

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ORDER
1. Mr. Carey’s appeal is granted in part.
2. For the 2017 and 2018 tax years, the DOR shall value Mr. Carey’s
property, identified by geocode 04-2200-20-1-01-05-0000, as follows:
a. The land shall have a value of $733,746;
b. The improvements shall have a value of $2,497,754;
ce. For a total value of $3,231,500.

Ordered August yr. |
DA. Me

David L. McAlpin, Chairman
MONTANA TAX APPEAL BOARD

Stephen A. Doherty, Membe
MONTANA TAX APPEAL BOARD

Vine Bits by Pe

Valerie A. Balukas, Member
MONTANA TAX APPEAL * ARD

Notice: You may be entitled to judicial review of this Order by filing a petition
in district court within 60 days of the service of this Order. The Department

of Revenue shall promptly notify this Board of any judicial review to facilitate
the timely transmission of the record to the reviewing court. Mont. Code Ann.

§ 15-2-303(2).

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Certificate of Service

I certify that I caused a true and correct copy of the foregoing Findings of
Fact, Conclusions of Law, and Notice of Opportunity for Judicial Review to be
sent by Doe Mail via Print and Mail Services Bureau of the State of

; oe AS 2018 to:

Montana on

Norman B. Carey
P.O. Box 968
Missoula, MT 59806

David Burleigh

Montana Department of Revenue
Legal Services Office

P.O. Box 7701

Helena, MT 59604-7701

tie A bé4~———
“Lynn Cochran, Paralegal Assistant
MONTANA TAX APPEAL BOARD

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