B.F. Keith Columbus Co. v. Board of Revision of Franklin County

• Citation: 148 Ohio St. 253,74 N.E.2d 359
• Decision Date: 09 July 1947
• Docket Number: 30852.
• Parties: B. F. KEITH COLUMBUS CO. v. BOARD OF REVISION OF FRANKLIN COUNTY et al.
• Court: United States State Supreme Court of Ohio

74 N.E.2d 359

148 Ohio St. 253

B. F. KEITH COLUMBUS CO. v. BOARD OF REVISION OF FRANKLIN COUNTY et al.

No. 30852.

Supreme Court of Ohio

July 9, 1947

Syllabus by the Court.

1. In determining the value of property for the purpose of taxation, the assessing body must take into consideration all factors which affect the value of the property.

2. Functional depreciation occurs where property, although still in good physical condition, has become obsolete or useless due to changing business conditions and thus for all practical considerations is of little or no value to the owner of such property.

3. Where the evidence shows that, due to a change of business conditions, property has become obsolete, it is unreasonable for the assessing body not to consider this factor of functional depreciation in arriving at the tax value.

Ulmer Berne & Gordon, of Cleveland, for appellant.

Ralph J. bartlett and D. B. Sharp, both of Columbus, for appellees.

SOHNGEN Judge.

This appeal is from a decision of the Board of Tax Appeals brought under authority of Section 5611-2, General Code determining the valuation for taxation for the tax year 1944 of the land and building of The B. F. Keity Columbus Company, appellant, which property is located in Columbus and known as the Palace Theater.

The auditor of Franklin county appraised the property for taxation for the year 1944, as follows: land, $170,250; building, $512,400; total, $682,650.

The Board of Revision refused to grant any reduction in this valuation.

On appeal the Board of Tax Appeals modified the auditor's valuation, and valued and assessed, as follows, the property in question for the year 1944: land, $170,250; building, $468,736; total, $638,986.

The appellant seeks a reduction of the valuation as determined by the Board of Tax Appeals.

The valuation and assessment for taxation for the tax year 1943 was: land, $92,760; building, $228,850; total, $321,610.

The auditor, by his assessment, increased the appraised value of this property by nearly 100% over the appraised value for the tax year 1943, which assessment, with a slight reduction, was affirmed by the Board of Tax Appeals. The appellant claims the decision of the Board of Tax Appeals is unreasonable and unlawful.

The property in question consists of a parcel of land, 157.5 feet on Lynn street by 115 feet on Wall street, under a perpetual lease to the appellant, on which is situated a fireproof, steel frame, brick wall theater building. The record discloses that the theater entrance is located at 36 West Broad street. The evidence shows that this property does not abut on Broad street but is 72.5 feet north of same. The theater does have an entrance easement 42 feet in width beginning at the corner of West Broad and North Wall streets, extending back 47.8 feet, then widening to 62.5 feet and going back a further distance of 24.7 feet to the appellant's peoperty line. The appllant also has an easement renning from North Wall street to Front street. Th evidence shows that appellant pays a rental of $18,000 a year for the above land, including the easements, but pays no taxes on the easements.

The question for determination on this appeal is whether the valuation as determined by the Board of Tax Appeals for the tax year 1944 is unreasonable or unlawful. Section 5611-2, General Code.

With respect to the valuation of the building involved, appellant offered the testimony of R. T. Hoidge, an architect of New York City, who qualified as an expert and who was the architect of the Palace Theater in Columbus when it was built in 1926. The appellees offered the testimony of James M. Cleminshaw who was connected with the J. M. Cleminshaw Company, appraisal engineers of Cleveland, Ohio, and who also qualified as an expert.

A careful review of the testimony of Hoidge and Cleminshaw, with respect to the building involved, discloses that there is no disagreement between them as to (1) the number of cubic feet in the theater building and (2) the replacement costs of 40 cents per cubic foot for the year 1944. Both witnesses asserted there are areas in the building which in 1944 were useless and valueless and should be eliminated in determining the value of the building, but there is disagreement between them as to the extent of these areas. The other issue upon which the expert witnesses disagree is the rate of depreciation which should be applied annually to the theater structure from 1926, when it was built, until 1944, a period of 18 years.

It appears from the evidence of Cleminshaw that he made a careful appraisal of the building. He stated: 'I had a card record showing the outside measurements of the building. I obtained permission to go through it. I took voluminous notes of the construction and interior finish. I noted the kind of foundation walls, the type of structure, the exterior finish, the interior finish and the plumbing and the heating and the lighting. I noted that it was fully air-conditioned, there was a vacuum cleaning system. In other words I made a note of all structural details. Noted the building was of fireproof construction, steel frame, and steel trusses. That it had one passenger elevator, that there was tiling in the toilet rooms. That it was a particularly high-grade and ornately finished building. * * * I cubed the building at 1,831,412 cubic feet. * * * I did bear in mind that there was a very large stage, with a very high fly loft above it, which is perhaps not essential to the theater as it exists today. I talked to the manager and inquired as to how many stage presentations per year they put on and got the information substantially as was given in testimony here. So all of these factors had to be considered, the remaining expectancy of useful life of the structure, its desirability as a theater, accrued obsolescence, and arrived at a total depreciation of 30%. In arriving at the reproductive value I took 80% of my 100%, of $941,165, and placed a reproductive value of $731,000, from which I subtracted 30%, which gave a physical value of $512,400.'

The Board of Tax Appeals modified Cleminshaw's formula by allowing 36% instead of 30% for total accrued depreciation from all causes, as a fair and reasonable amount to be allowed for depreciation on the building, and found that the true value in money of the building, after giving it a depreciation of 36%, was $468,736.

Hoidge testified that the Palace Theater was built as a vaudeville theater in 1926; that vaudeville entertainment required a vast structure back of the curtain, a large stage structure, dressing rooms for actors, bathrooms, parlors, restrooms, nurseries, space for the care of animals, and other storage space and facilities used in vaudeville act; that during the days of vaudeville, theatres were built with high ceilings; that with the development of sound in pictures, vaudeville died in 1930; that the excess retiring rooms, high ceilings in the auditorium, big stage and elaborate dressing rooms have become obsolete and useless and are not reflected in any commercial value of the premises; that the overbuilt sections of the Palace Theater, which are obsolete and of no value, total 566,000 cubic feet; and that eliminating the 566,000 cubic feet as not needed and applying depreciation at the rate of 3% per annum for 18 years to the remainder, the true value of the Palace Theater building as of 1944 would be $265,000.

It is the contention of the appellant that since motion pictures have taken the place of vaudeville in this theater, the elaborate dressing rooms, stage properties and decorations are no longer of any value to appellant and should be eliminated in assessing the value of the property; and that a rate of depreciation higher than the 2% allowed by the Board of Tax Appeals should be applied to the remainder.

The record indicates that large areas of this theater, which were built for the purpose of vaudeville performances, and the elaborate public waiting rooms are no longer needed or used by the appellant. Due to necessary maintenance, they constitute more of a liability than an asset to the appellant. These areas have become subject to what is known as functional depreciation. Functional depreciation occurs where property, although still in good physical condition, has become obsolete or useless due to changing business conditions and thus to all intents and purposes valueless to the owner. There can be no hard-and-fast rule to valuation or depreciation. In this case, although Cleminshaw testified that 'I did bear in mind that there was a very large stage, with a very high fly loft above it, which is perhaps not essential to the theater as it exists today,' the valuation which he reached indicates that he gave no force and effect to the condition which he asserts he bore in mind. The transcript of his testimony discloses:

'Q. Now let us come to the question of depreciation and obsolescence of theaters. You took, as I understand it, the replacement cost of this theater at 40¢ per cubic foot and then allowed 30% depreciation for the 18 years of life of the theater, which is at the rate of 1 2/3%, I believe, per year, is that correct? A. It happens to work out at that.

'Q. And that one and two-thirds per cent, did that represent physical depreciation or function depreciation or obsolescence or what did it represent? A. It represented depreciation, however caused.

'Q. You are familiar with the card of the auditor's office in that respect. Did you make out those cards? A. I made out the original card.

'Q. Reading from this card, which is the original card of the auditor office, which you prepared with respect to this property, I find the age of the theater 1926, physical depreciation 30%, functional depreciation...