SENATOR v. Ada County, Bd. of Equalization

• Decision Date: 02 April 2003
• Docket Number: No. 27402.,27402.
• Citation: 138 Idaho 566,67 P.3d 45
• Parties: THE SENATOR, INC., Appellant-Appellant on Appeal, v. ADA COUNTY, BOARD OF EQUALIZATION, Respondent-Respondent on Appeal.
• Court: Idaho Supreme Court

67 P.3d 45

138 Idaho 566

THE SENATOR, INC., Appellant-Appellant on Appeal, v. ADA COUNTY, BOARD OF EQUALIZATION, Respondent-Respondent on Appeal.

No. 27402.

Supreme Court of Idaho, Boise, December 2002 Term.

April 2, 2003.

Davison, Copple, Copple & Copple, Boise, for appellant. E. Don Copple argued.

Hon. Greg H. Bower, Ada County Prosecuting Attorney; Teresa A. Baker, Deputy Prosecuting Attorney, Boise, for respondent. Teresa A. Baker argued.

EISMANN, Justice.

This is an appeal from a judgment of the district court affirming the tax assessment of a mobile home/manufactured home park. The taxpayer contends that to give major consideration to the actual and functional use of the park, the assessment must, as a matter of law, take into account the actual vacancy rate of the space rentals. We disagree and affirm the judgment of the district court.

I. FACTS AND PROCEDURAL HISTORY

The Senator, Inc., owns a mobile home/manufactured home park named "The Senator Retirement Community" (herein "Park") located in Boise, Ada County, Idaho. The 18.99-acre Park was built in 1968 as a mobile home park. In 1976 Congress enacted statutes regulating the mobile housing industry. As a result, mobile housing built prior to 1976 is called a mobile home, and mobile housing built from 1976 to the present is called a manufactured home. In the early 1990's, the Park adopted a policy of phasing out the mobile homes in the Park and only renting spaces for manufactured homes. In 1993 it also decided to restrict its renters to persons aged 55 years or older.

In 1999, the Ada County Assessor assessed the value of the Park at $2,241,883. The Park appealed to the Ada County Board of Equalization, which affirmed the 1999 assessment. The Park then appealed to the Idaho State Board of Tax Appeals, which is permitted to receive further evidence on appeal. IDAHO CODE § 63-511(2) (2000). After a hearing, the Board of Tax Appeals issued a decision and order finding that the value of the Park for assessment purposes was $1,938,500. The Park appealed the Board's determination to the district court, which determines such appeals in a trial de novo without a jury. IDAHO CODE § 63-3812(c) (2000).

In 2000, the Ada County Assessor assessed the value of the Park at $1,938,500. The Park appealed to the Ada County Board of Equalization, which affirmed the assessment. The Park then appealed to the district court pursuant to Idaho Code § 63-511(3), which provides: "Any appeal that may be taken to the board of tax appeals may, during the same time period, be taken to the district court for the county in which the property is located." The district court hears such appeals in the same manner as the appeal would be heard before the Board of Tax Appeals under Idaho Code § 63-3812(c).¹ Riverside Dev. Co. v. Vandenberg, 137 Idaho 382, 48 P.3d 1271 (2002).

Both cases were consolidated in the district court. It heard the matter as a trial de novo and issued its memorandum decision on January 23, 2001. The Park contended that the assessed value was erroneous for two reasons. First, it failed to take into consideration the actual and functional use of the property, which the Park contends should take into consideration its space rental vacancy rate. Second, the Park contended that the assessment included an amount for business goodwill. The district court rejected these arguments. It found that the Park had failed to show by clear and convincing evidence that the assessed value of its property failed to take into consideration "the actual and functional use" as required by Idaho Code § 63-208 and that the assessed value included business goodwill in violation of Idaho Code § 63-602L. On March 12, 2001, the district court entered its judgment, and the Park then timely appealed.

II. ISSUES ON APPEAL

A. Must the actual vacancy rate of the manufactured home rental lots in the Park be considered when determining the actual and functional use of the Park's real property?

B. Was the district court's decision supported by substantial and competent evidence?

C. Did the county assessor improperly include business goodwill in valuing the Park's real property?

III. ANALYSIS

The district court determines the appeal of the county assessor's valuation in a trial de novo without a jury as though it were an original proceeding in that court. Riverside Dev. Co. v. Vandenberg, 137 Idaho 382, 48 P.3d 1271 (2002); IDAHO CODE § 63-3812(c) (2000). The issues before the district court are those raised below. IDAHO CODE § 63-3812(c) (2000). The county assessor's valuation of property for purposes of taxation is presumed correct, and the burden of proof is on the taxpayer to show by clear and convincing evidence that the taxpayer is entitled to the relief claimed. Roeder Holdings, L.L.C. v. Board of Equalization of Ada County, 136 Idaho 809, 41 P.3d 237 (2001). In 1999, the assessor's valuation of the Park was $2,241,883, but on appeal the Board of Tax Appeals reduced that assessment to $1,938,500. Because the Ada County Board of Equalization did not appeal the decision of the Board of Tax Appeals, the lower figure of $1,938,500 is considered the valuation that is presumed correct for the purposes of the proceedings in the district court. A trial court's findings of fact will be upheld on appeal if the findings are supported by substantial and competent evidence. Enright v. Jonassen, 129 Idaho 694, 931 P.2d 1212 (1997). It is the province of the trial judge to weigh the conflicting evidence and testimony and to judge the credibility of witnesses. Id. We freely review the trial court's conclusions of law. Id.

A. Must the Actual Vacancy Rate of the Manufactured Home Rental Lots in the Park Be Considered When Determining the Actual and Functional Use of the Park's Real Property?

Generally, all real property subject to property taxation must be assessed annually at market value as of 12:01 a.m. on the first day of January in the year in which such property taxes are levied. IDAHO CODE § 63-205(1) (2000). Market value is to be determined according to the requirements of Title 63, Idaho Code, and rules promulgated by the Tax Commission. Id. Idaho Code § 63-201(10) (2000) defines market value as follows:

"Market value" means the amount of United States dollars or equivalent for which, in all probability, a property would exchange hands between a willing seller, under no compulsion to sell, and an informed, capable buyer, with a reasonable time allowed to consummate the sale, substantiated by a reasonable down or full cash payment.

Rule 217 of the Property Tax Administrative Rules adopted by the Tax Commission provides that when assessing real property, the assessor shall consider the sales comparison approach, the cost approach, and the income approach. IDAPA 35.01.03.217.02. In addition, Idaho Code § 63-208 (2000) provides that "the actual and functional use shall be a major consideration when determining market value for assessment purposes." At issue in this case is what is meant by the phrase "the actual and functional use."

When determining the market value of the Park, the deputy assessor used all three methods, but she gave the most weight to the income approach. In her calculations, she used a three percent vacancy rate, which she testified was the typical vacancy rate in the market. The Park's actual vacancy rate was 26% in 1999 and 32% in 2000. The Park contends that the income approach must be based upon the Park's actual vacancy rate in order to take into account the actual and functional use of the property. It argues, "Here 88 spaces of Appellant's manufactured home community were occupied with the remaining 31 spaces vacant. Thus, the actual and functional use of Appellant's property as of January 1, 1999 was a two-thirds occupied manufactured home community and one-third as bare ground with site improvements available."

The legislature has not defined the phrase "actual and functional use." When interpreting a statute, we must begin with the literal words of the statute, giving the language its plain, obvious and rational meaning. Thomson v. City of Lewiston, 137 Idaho 473, 50 P.3d 488 (2002). Our goal is to give effect to the purpose of the statute and the legislative intent in enacting it, which may be implied from the language used or inferred on grounds of policy or reasonableness. Id. The interpretation of a statute is an issue of law over which we exercise free review. State v. Maidwell, 137 Idaho 424, 50 P.3d 439 (2002).

Real property is typically valued at its highest and best use. That determination takes into consideration the uses that are legally permissible, physically possible, financially feasible, maximally profitable, and reasonably probable in order to arrive at the highest value for the property. The highest and best use of real property may not be its present use, or the use for which any of its improvements were designed.

In 1971 the legislature added to what was then Idaho Code § 63-202 (the forerunner of Idaho Code § 63-208) the requirement that "the actual and functional use shall be a major consideration when determining market value of commercial and agricultural properties." Ch. 317, § 1, 1971 Idaho Sess. Laws 1264. In 1996, the legislature repealed former Idaho Code § 63-202 and enacted Idaho Code § 63-208, which retains the requirement that the actual and functional use shall be a major consideration when assessing real property, but it does not limit that requirement to commercial and agricultural properties. Ch. 98, §§ 1 & 3, 1996 Idaho Sess. Laws 308, 309, 318-22. It is apparent that the legislature inserted this requirement so that real property would not automatically be appraised at its highest and best use. See Fairway Development Co. v. Bannock County, 113 Idaho 933, 750 P.2d 954 (1988)

(distinguishing cases from other jurisdictions because statutes in those jurisdictions required that real property be assessed according...