SMP II Ltd. Partnership v. Arizona Dept. of Revenue
| Decision Date | 30 March 1994 |
| Docket Number | No. TX,TX |
| Citation | 178 Ariz. 249,872 P.2d 204 |
| Parties | SMP II LIMITED PARTNERSHIP v. ARIZONA DEPARTMENT OF REVENUE; Maricopa County. 92-00619. |
| Court | Arizona Tax Court |
The issue in this case is the valuation of the Sheraton San Marcos Resort.
The San Marcos is a 295-room full-service resort hotel, including a golf course, located in Chandler, Arizona. It opened in 1913 with 35 guest rooms and operated until 1979. It re-opened in 1987 after extensive renovations and expansion. Even with the expansion and renovations the hotel continues to perform below area averages for average daily room rates and occupancy rates.
For tax year 1992, Maricopa County set the full cash value of the San Marcos at $15,649,535. SMP II Limited Partnership (SMP II), the owner of the hotel, filed an administrative appeal and the State Board of Tax Appeals reduced the full cash value to $11,110,457. It is that valuation which has been appealed. 1
SMP II contends that the full cash value of $11 k million is excessive and should be lowered to $6,780,000. The County concedes that $11 k million is excessive, but asserts that the value should be lowered only to $8.4 million. 2
When a valuation is appealed to the Tax Court, there is a presumption that the government's valuation is correct and lawful. A.R.S. § 42-178(B). The presumption is one of fact and may be overcome by competent evidence. Department of Property Valuation v. Trico Electric Cooperative, Inc., 113 Ariz. 68, 70, 546 P.2d 804, 806 (1976). To overcome the presumption, a taxpayer must present sufficient " 'evidence contradicting the presumption ... from which the trial court can determine the full cash value of the property in question.' " Department of Property Valuation v. Trico Electric Cooperative, Inc., supra, 113 Ariz. at 69 and 70, 546 P.2d at 805 and 806 (quoting Graham County v. Graham County Electric Coop., Inc., 109 Ariz. 468, 512 P.2d 11 (1973)).
The Tax Court may make its own determination of full cash value only after two conditions are met. First, evidence must be presented to rebut the presumption. A.R.S. § 42-178(C); Department of Property Valuation v. Trico Electric Cooperative, Inc., supra, 113 Ariz. at 70, 546 P.2d at 806. And second, the Court must make a preliminary finding that the valuation is excessive or insufficient. A.R.S. § 42-178(C).
Here, the parties are in agreement that the County's original valuation of $11,110,457 is excessive and should be reduced but they cannot agree on what the reduction should be. Therefore, it is up to the Court to determine the full cash value.
SMP II presented testimony and evidence to establish a full cash value of $6,780,000 while the County presented evidence showing $8,400,000 3. The Court finds the full cash value to be $6,780,000.
To support its position that the value should be lowered to $8.4 million, the County presented expert testimony and an appraisal of the property. The appraisal was prepared by Lawrence Bloom, a certified MAI appraiser and consultant. He inspected the property and reviewed the hotel's financial and operating statements. He derived his final valuation of approximately $8,460,625 by utilizing the income approach to value with a direct capitalization rate of 9.5%.
There are several flaws in Mr. Bloom's analysis. Those flaws include Mr. Bloom's use of a 366-day year in his calculations rather than the appropriate 365-day year, his failure to adjust certain items of expense and income attributable to those golf course operations of the resort not the subject of this appeal, his overadjustment of some expense items to inaccurately reflect the estimated operating expenses, and his failure to make other necessary adjustments to the income, expenses and the capitalization rate used in his approach to valuation. These flaws resulted in an inflated value.
SMP II also presented an appraisal of the property to support its reduction in value to $6,780,000. Its appraisal was done by Tom Turner, also a certified MAI appraiser and consultant. Mr. Turner used each of the three...
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SMP II Ltd. Partnership v. Arizona Dept. of Revenue
...5 CONCLUSION The judgment is reversed and remanded for proceedings consistent with this opinion. The opinion of the tax court, 178 Ariz. 249, 872 P.2d 204, is GERBER and KLEINSCHMIDT, JJ., concur. 1 Appellants also raised as an objection to Turner's appraisal and testimony that the taxpayer......