Merris v. Ada County

• Decision Date: 10 April 1979
• Docket Number: No. 12427,12427
• Citation: 593 P.2d 394,100 Idaho 59
• Parties: Robert W. MERRIS, d/b/a Lindsay Soft Water of Boise, Plaintiff-Respondent, v. ADA COUNTY, Idaho, Defendant-Appellant.
• Court: Idaho Supreme Court

Page 394

593 P.2d 394

100 Idaho 59

Robert W. MERRIS, d/b/a Lindsay Soft Water of Boise, Plaintiff-Respondent, v. ADA COUNTY, Idaho, Defendant-Appellant.

No. 12427.

Supreme Court of Idaho.

April 10, 1979.

Jim Harris, Ada County Prosecuting Atty., Boise, for defendant-appellant.

E. Don Copple, Davison, Copple, Copple & Copple, Boise, for plaintiff-respondent.

BAKES, Justice.

This appeal involves a dispute between appellant Ada County and respondent Robert W. Merris, dba Lindsay Soft Water of Boise, concerning the valuation for Ad valorem tax assessment purposes of certain tangible personal property used by respondent in his business. Ada County appeals from a district court judgment which held that under the cost-less-depreciation valuation method used by the county the wholesale cost of respondent's lease and rental property must be used as the basis for the valuation. We affirm.

Respondent Merris was in the years prior to 1975 engaged in the commercial sale, lease, rental and service of Lindsay brand water conditioning equipment. In 1974 Merris had between 500 and 600 rental units leased or rented to customers in the Boise, Idaho, area. Ada County has routinely assessed Ad valorem taxes against Merris on this equipment employing the cost-less-depreciation method of valuation, one of the three major methods of valuation for tax assessment purposes approved in Articles 202 and 202.1 of the State Tax Commission Regulations. In 1974, employing the cost-less-depreciation method of appraisal, the Ada County assessor changed from use of respondent's actual cost of those units, which has throughout these proceedings been referred to as wholesale cost, as the basis of the valuation of the lease and rental equipment, to the use of the retail price of the units. As a result, the assessed valuation of respondent's lease and rental equipment increased from $33,909.00 to $108,928.00 between 1973 and 1974, with an increase in respondent's Ad valorem tax liabilities on the equipment from $599.54 to $2,787.55.

Respondent paid the assessed taxes under protest and filed a petition with the Board of County Commissioners of Ada County, sitting as the Board of Equalization, arguing that use of the so called "retail cost basis" in the valuation and the county's method of calculating depreciation for the water softening equipment did not result in valuation of the property at its "market value," as required by law. The board upheld the assessor's valuation. Respondent filed a timely appeal to the Idaho State Board of Tax Appeals. After a hearing the board issued findings of fact and conclusions of law sustaining the assessor's choice of retail price as the basis for an appraisal of the property by the cost-less-depreciation method and the assessor's method of computing depreciation. Respondent then filed a notice of appeal to the district court from the findings of fact, conclusions of law and order of the Idaho State Board of Tax Appeals.

In April, 1976, a trial De novo was held in district court pursuant to I.C. § 63-3812(c). ¹ Respondent Merris's contentions were that the assessor's selection of retail value as a basis for application of the cost-less-depreciation method of valuation and the assessor's method of calculating depreciation were erroneous and resulted in an overassessment for tax purposes of the equipment leased to users by respondent, contrary to Title 63 of the Idaho Code, which requires valuations for tax assessment purposes to reflect "market value." At trial respondent Merris presented evidence which showed that the retail price of a water softener unit is about three times the price the dealer actually purchases the unit for, and that the retail price includes a salesman's commission, a one year's service warranty including cost of parts and labor, the cost of wiring, plumbing and pipe necessary to make an installation, labor costs of installation, and the price of obtaining a building permit. Respondent Merris testified that his lease and rental fees were calculated based on the costs of the equipment to him as a dealer buying on a wholesale market, installation and service costs, and taxes, with an aim toward recovering his initial outlay in about three to five years, at which time the rental would begin to show a profit.

It was the contention of Ada County that the use of the retail value of the equipment was the proper value to be utilized in a cost-less-depreciation method of valuation. William Schroeder, head of the personal property division of the Ada County Assessor's office, testified that in his opinion the retail cost of the softener units more fully represented an open market concept of value since more purchases occur on the retail market than on the wholesale market, where the goods are sold in large lots between commercial parties. Schroeder testified that the county uses retail value uniformly for assessment purposes of leased property owned by businesses in Ada County engaged in lease or rental operations and that, in his opinion, "a retail price is really the price that is available to the general public and in my estimation that is the market price."

The trial court, in its findings of fact, conclusions of law and judgment, held that the county's method of assessment of respondent's lease and rental water softeners was arbitrary and capricious since it did not result in the assessment of respondent's property at its fair market value. It found that the retail sale price of individual water softeners is not relevant to the market value of units leased or rented out to the public by a dealer engaged in a commercial lease and rental business. The court found there to be a readily available wholesale market upon which an inventory of water softeners could be acquired by a lessor of such appliances and ordered the wholesale cost of water softeners to be used by the county in its valuation of respondent Merris's lease and rental inventory if the cost-less-depreciation method of valuation was employed. The court also found that the county's use of a flat 40% Depreciation figure in the cost-less-depreciation method of valuation ignored the actual depreciation rates for respondent's equipment. The court ordered a revaluation of respondent's rental and lease equipment using the wholesale cost of the appliances and reducing that cost by depreciation calculated on the basis of either (1) a ten year average useful life with a 20% Residual value or (2) a fifteen year depreciation with no residual value.

In bringing this appeal from the judgment of the trial court, appellant Ada County concedes that the trial court's ruling with respect to the calculation of depreciation of respondent's lease and rental stock was proper. Appellant Ada County argues, however, that the trial court erred in finding that the wholesale cost, not the retail value, is the proper "market value" to be chosen as the basis for valuation of respondent's rental and lease equipment for Ad valorem tax assessment purposes. The county also contends that because the county uniformly employs retail value where the cost-less-depreciation formula is used in determining the assessed valuation of lease and rental property in Ada County the state constitutional requirement that Ad valorem property taxes be levied in a uniform manner would be violated by our affirmance of the district court judgment.

In I.C. § 63-101 ² the legislature has authorized the assessment and taxation of all property within the state not otherwise expressly exempted. I.C. § 63-201 ³ provides that all non-exempt personal property shall be assessed by the assessor in the county in which it is located. "Assessed value" is defined as 20% Of "market value" in I.C. § 63-101B. ⁴ Synonyms for the term "market value" are provided in I.C. § 63-111, which reads as follows:

"63-111. Terms to be construed as market value. For purposes of assessment and taxation of property in title 63, the terms 'value,' 'cash value,' 'full cash value,' 'true value,' and 'true cash value' shall mean 'market value.' "

I.C. § 63-1203 provides in part that in making the assessment of non-exempt personal property required of him by I.C. § 63-201 ⁵ "the assessor shall actually determine, as nearly as practicable from the information provided to him by the taxpayer's declaration, the market value of each piece of personal property assessed . . . ."

The legislature has required the State Tax Commission to issue "rules and regulations prescribing and directing the manner in which market value is to be determined for the purpose(s) of taxation" and has provided that "the assessor of each county shall, and hereby is required to, abide by, adhere to and conform with (the) rules and regulations hereinabove required to be promulgated by the state tax commission." I.C. § 63-202. ⁶ Articles 202 and 202.1 of [100 Idaho 63] the State Tax Commission Regulations contain the regulations which have been promulgated by the State Tax Commission for use by county assessors in determination of market value for assessment and taxation of non-exempt personal property. Article 202 provides a general definition of market value as follows:

"MARKET VALUE:

"An open market value concept is 'that amount of United States money or its equivalent that in all probability a property would exchange hands for between a willing seller, under no compulsion to sell, and an informed, capable buyer; a reasonable time being allowed to consummate the sale and substantiated by a reasonable down payment or full cash payment."

Article 202 provides further that there are three primary methods of determining market value: the cost approach, in which the value as determined by new cost or market comparison is estimated and reduced by accrued depreciation; the income approach, applicable to "income producing property" in which a capitalization rate is determined from market conditions and applied to net income from the property...