Bedford Bd. of Educ. v. Cuyahoga Cnty. Bd. of Revision

• Decision Date: 27 June 2012
• Docket Number: No. 2010–0339.,2010–0339.
• Citation: 132 Ohio St.3d 371,2012 -Ohio- 2844,972 N.E.2d 559
• Parties: BEDFORD BOARD OF EDUCATION, Appellee, v. CUYAHOGA COUNTY BOARD OF REVISION et al., Appellees; Alexander Road, L.L.C., Appellant.
• Court: Ohio Supreme Court

132 Ohio St.3d 371

972 N.E.2d 559

2012 -Ohio- 2844

BEDFORD BOARD OF EDUCATION, Appellee,

v.CUYAHOGA COUNTY BOARD OF REVISION et al., Appellees;

Alexander Road, L.L.C., Appellant.

No. 2010–0339.

Supreme Court of Ohio.

Submitted June 20, 2012.

Decided June 27, 2012.

Kolick & Kondzer, Thomas A. Kondzer, Westlake, John P. Desimone, Lakewood, and Michelle A. Yanok, for appellee Bedford Board of Education.

Sleggs, Danzinger & Gill Co., L.P.A., and Todd W. Sleggs, Cleveland, for appellant.

PER CURIAM.

[Ohio St.3d 371]{¶ 1} In this appeal of a real-property-valuation case, the owner of four contiguous parcels improved with 103,700 square feet of warehouse space challenges an increase to the 2006 valuation of its property that was ordered by the Board of Tax Appeals (“BTA”) at the instigation of the Bedford Board of Education (“school board”). The BTA thereby reversed the decision of the Cuyahoga County Board of Revision (“BOR”), which had retained the auditor's valuation of $3,713,500. The BTA valued the property by using the allocated portion of the March 2006 sale price, which increased the valuation to $4,835,000.

{¶ 2} On appeal, the owner, Alexander Road, L.L.C., contends that it proved that the allocated sale price is not reflective of market value: first, through testimony regarding the allocation, and second, by showing that two principal tenants departed from the premises at or shortly after the purchase. It also argues in the alternative that if the sale price is held to furnish the criterion of value, the figure should be $4,698,700 rather than $4,835,000, reflecting the $136,300 deduction for personal property set forth on the conveyance-fee statement. The school board contests all of these assertions.

{¶ 3} We hold that the BTA erred by ignoring and failing to weigh the significance of the testimony regarding the seller's tax motivations in allocating the sale price to the subject property. Because it is the duty of the BTA to weigh the evidence and determine the facts concerning valuation, we must remand for proper consideration of the effect of that testimony.

[Ohio St.3d 372]{¶ 4} As for the departure of tenants, the BTA correctly found that vacancies that occurred after the transfer did not invalidate the allocated sale price as the criterion of value for the property.

{¶ 5} Finally, we hold that if the BTA on remand finds once again that the sale price furnishes the criterion of value in spite of the testimony regarding the seller's motivations, there should be no deduction for the value associated with personal property because the record contains no corroborating evidence for that allocation.

{¶ 6} Based on these holdings, we affirm in part but vacate the decision of the BTA, and we remand for further proceedings.

Facts

{¶ 7} For tax year 2006, the auditor valued the four parcels that make up the subject property, which is land improved with warehouse buildings, at $3,713,500. On March 29, 2007, the school board filed a valuation complaint that asserted the recent sale price of $4,698,700 (or $4,835,000, without the separate allocation to personal property) was the true value of the property.

{¶ 8} The BOR held a hearing on August 28, 2007. The school board cited the March 2006 sale as the basis for valuing the property. In defense, the owner presented the testimony of Fred Scalese, a corporate vice president associated with the owner.¹

{¶ 9} Scalese identified the purchase and sale agreement, which covered two properties including the property at issue and which set forth an aggregate sale price of $7,400,000 with no allocation between the two properties. The sale contract explicitly provided for the transfer of personal property along with real property, but does not set forth an allocation of price between these different assets.

{¶ 10} Scalese also identified amendments to the sale agreement dated March 2006 that reduced the aggregate sale price by a total of $65,000. In particular, the purchase price was reduced $50,000 in relation to the lease by an important tenant of the subject property. Scalese testified that due diligence had revealed drastic limitations to the personal guarantee for lease payments for that tenant, which led to the grant of a $50,000 concession in sale price.

[Ohio St.3d 373]{¶ 11} A settlement statement indicated the allocated price of $4,835,000 for the property at issue, along with the conveyance-fee statement showing an allocated sale price of $4,835,000 for the property at issue with $136,300 further allocated to personal property.

{¶ 12} Scalese then identified rent rolls showing tenancy on the property at issue as of January 2006 and then as of January 2007. The rent rolls documented significant revenue loss by virtue of the departure of two important tenants. Scalese pointed out that the rent rolls documented the departure of both of these tenants during 2006; their departure reflected about a $1,000,000 decline in value if the revenue loss were capitalized at 9 percent. Alexander Road did succeed in replacing one of the two departing tenants, but the space was leased at a considerably lower rent.

{¶ 13} Scalese testified that the seller allocated the sale price between the two properties and stated that the allocation reflected the seller's “own internal needs to have you know their tax issues handled in such a way that they wouldn't pay capital gains tax until they did whatever they needed to do with their 1031.”² Scalese also stated that the seller had acquired the two properties “as part of a multiple site acquisition.” Scalese said that Alexander Road acquiesced in the allocation “as we had no choice.”

{¶ 14} Scalese offered his opinion that the allocation did not reflect the relative value of the two properties. He pointed to the general difficulty in leasing such space but did not address the specific relative characteristics of the two properties that were bundled for sale in this case. Scalese testified that no appraisals were performed in connection with the purchase.

{¶ 15} Finally, Scalese testified that a personal property tax return had been filed that would document the propriety of allocating sale price to personal property. But in spite of counsel's statement that the personal property tax return would be submitted, the return is not in the record.

{¶ 16} The BOR retained the auditor's valuation, and the school board appealed. At the BTA, the parties waived hearing and the school board filed a brief advocating adoption of the sale price as the value of the property. On January 26, 2010, the BTA issued its decision, holding that the owner had not rebutted the presumptive propriety of using the allocated sale price as set forth on the conveyance-fee statement to value the property.

[Ohio St.3d 374]Analysis

{¶ 17} Because the true value of property is a “question of fact, the determination of which is primarily within the province of the taxing authorities,” we have held that we will “not disturb a decision of the Board of Tax Appeals with respect to such valuation unless it affirmatively appears from the record that such decision is unreasonable or unlawful.” Cuyahoga Cty. Bd. of Revision v. Fodor, 15 Ohio St.2d 52, 239 N.E.2d 25 (1968), syllabus. Moreover, as the finder of fact, “the BTA has wide discretion in granting weight to evidence and credibility to witnesses,” with the result that we will not reverse the BTA's determination of evidentiary weight and credibility “unless we find an abuse of this discretion.” Natl. Church Residence v. Licking Cty. Bd. of Revision, 73 Ohio St.3d 397, 398, 653 N.E.2d 240 (1995).

{¶ 18} On the other hand, although the BTA is responsible for determining factual issues, we “ ‘will not hesitate to reverse a BTA decision that is based on an incorrect legal conclusion.’ ” Satullo v. Wilkins, 111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 954, ¶ 14, quoting Gahanna–Jefferson Local School Dist. Bd. of Edn. v. Zaino, 93 Ohio St.3d 231, 232, 754 N.E.2d 789 (2001). In particular, we have recognized that the BTA “has the duty to state what evidence it considered relevant in reaching its determination,” and we thereby require that the BTA evaluate the evidence before it in making its findings. HealthSouth Corp. v. Levin, 121 Ohio St.3d 282, 2009-Ohio-584, 903 N.E.2d 1179, ¶ 34, 36.

The BTA erred by failing to weigh the probative force of the witness's testimony regarding the seller's motivation in allocating the sale price

1. The owner has the burden to (i) rebut the allocation to real property on the conveyance-fee statement and (ii) support any deduction from real property

{¶ 19} Our cases establish that “the best evidence of ‘true value in money’ is the proper allocation of the lump-sum purchase price and not an appraisal ignoring the contemporaneous sale.” Conalco, Inc. v. Monroe Cty. Bd. of Revision, 50 Ohio St.2d 129, 363 N.E.2d 722 (1977), paragraph two of the syllabus. But the validity of using the allocated sale price depends upon the propriety of the allocation; if the BTA finds that an allocation is not proper, or that a proper one is not possible based on the evidence before it, then the sale price is not determinative of value. Consol. Aluminum Corp. v. Monroe Cty. Bd. of Revision, 66 Ohio St.2d 410, 414, 423 N.E.2d 75 (1981); compare W.S. Tyler Co. v. Lake Cty. Bd. of Revision, 57 Ohio St.3d 47, 49, 565 N.E.2d 826 (1991) (use of allocated sale price to value real property was affirmed where “no facts” before the BTA indicated an “improper” allocation that would “distort the true value of [Ohio St.3d 375]the subject property”). Similar principles apply to the personal property tax. Compare Tele–Media Co. of Addil v. Lindley, 70 Ohio St.2d 284, 436 N.E.2d 1362 (1982) (an allocation of a lump-sum price for the purchase of business assets that was based on replacement cost and that comported with accounting principles established the value of the property) with Heimerl v. Lindley, 63 Ohio St.2d 309...