Berkeley Cnty. Council v. Gov't Props. Income Trust LLC

• Decision Date: 10 November 2022
• Docket Number: 20-1019, No. 20-1022
• Citation: 247 W.Va. 395,880 S.E.2d 487
• Parties: BERKELEY COUNTY COUNCIL, Defendant Below, Petitioner, v. GOVERNMENT PROPERTIES INCOME TRUST LLC, Plaintiff Below, Respondent. Berkeley County Council, Defendant Below, Petitioner, v. Martinsburg IRS OC, LLC, Plaintiff Below, Respondent.
• Court: West Virginia Supreme Court

247 W.Va. 395

880 S.E.2d 487

BERKELEY COUNTY COUNCIL, Defendant Below, Petitioner,

v.GOVERNMENT PROPERTIES INCOME TRUST LLC, Plaintiff Below, Respondent.

Berkeley County Council, Defendant Below, Petitioner,

v.Martinsburg IRS OC, LLC, Plaintiff Below, Respondent.

No. 20-1019

No. 20-1022

Supreme Court of Appeals of West Virginia.

Submitted: September 27, 2022

Filed: November 10, 2022

Jeffrey T. Mauzy, Esquire, Anthony J. Delligatti, Esquire, Martinsburg, West Virginia, Counsel for Petitioners.

Eric Hulett, Esquire, Christopher M. Hunter, Esquire, Jackson Kelly PLLC, Charleston, West Virginia, AND Edward F. Hirshberg, Esquire, Ryan Law Firm, PLLC, Pittsburgh, Pennsylvania, Counsel for Respondent.

Joshua A. Cottle, Esquire, Kimberly S. Croyle, Esquire, Howard E. Seufer, Jr., Bowles Rice LLP, Charleston, West Virginia, Counsel for Amicus Curiae Board of Education of the County of Berkeley.

ARMSTEAD, Justice:

In these two consolidated appeals, The Berkeley County Council ("Petitioner") appeals the judgments of the Circuit Court of Berkeley County that reversed the orders issued by Petitioner while sitting as the Berkeley County Board of Assessment Appeals ("Board").¹ These orders arose from appeals of the ad valorem assessments of properties owned by Government Properties Income Trust LLC ("Government Properties") and Martinsburg IRS OC, LLC ("Martinsburg IRS OC") (collectively, "Taxpayers") as determined by the Berkeley County Assessor ("Assessor") for the 2019 tax year.² Petitioner appealed both rulings of the circuit court to this Court, raising six total issues across both appeals.³ In our review, we believe these issues encompass two overarching questions, which are: 1) whether the Assessor was an indispensable party to the actions and should have been named in the Taxpayers’ appeals to the circuit court; and, 2) whether the circuit court erred in determining the assessments as affirmed by the Board were invalid.⁴ Although these two appeals deal with different pieces of property, owned by two different entities, the same issues are common to both appeals. Thus, we consolidated these two matters and placed them on the docket for oral argument under Rule 19 of the West Virginia Rules of Appellate Procedure.

After review of the trial transcript and evidence, the briefs and arguments of the parties, and all other matters of record, we find that the circuit court erred in reversing the Board and reverse and remand for further proceedings consistent with this opinion. ⁵

I. FACTUAL AND PROCEDURAL BACKGROUND

Because of differences in the properties at issue, we will separately set out the facts relating to each.

A. Government Properties Property

The Government Properties property is located at 882 TJ Jackson Drive in Falling Waters, West Virginia, contains 4.42 acres, and is comprised of a commercial building containing 37,605 square feet of interior space, which includes a 30,875 square foot computer room/data center. The Assessor assessed the fair market value of this property for the 2019 tax year to be $4,212,200.00, with an assessed value of $2,527,320.00. The Assessor based its valuation upon the cost approach to value,⁶ the methodology of which was explained before the Board by John Streett, commercial appraiser for the Assessor:

Legislative Rule 110 1P was considered and utilized for the 2019 tax year. The legislative rule enumerates a number of elements that shall be considered when doing a commercial appraisal. The majority of those elements are located within IAS on a property record card.^{[7 ]} However, some of the elements are found on the tax map, where others are found on the Certificate of Transfer and Sales Form received from the County Clerk's office.

Additionally, Streett also considered obsolescence in making his appraisal, stating, "functional obsolescence and external obsolescence ... were taken into consideration. Based upon the definition of functional obsolescence and economic obsolescence, our office did not believe that any adjustments were needed other than normal depreciation on improvement."⁸ Thus, after considering the applicability of obsolescence, Streett rejected its application. Further, due to a lack of available data, Streett was unable to develop either the income approach or the comparative sales approach in performing his appraisal, ultimately settling on utilizing the cost approach:

It is the opinion of the Assessor's Office that there were no valid sales directly comparable to the subject property. Income approach was also considered, letters were mailed to those properties that were coded 353 office buildings asking for income and expense information. The one office building that was listed as a valid sale by this office was not returned to this office. Hence, our office was not able to develop a calculazation [sic] rate. And since the subject property has a (inaudible), there would be no income (inaudible) for this property for the current tax year, so consequently all three approaches to value were considered. The cost approach was chosen to be used for the 2019 tax year.

Government Properties appealed the assessment to the Board which held a hearing on the appeal. At that hearing, Government Properties offered an appraisal, completed by Paul Griffith, which reconciled fair market value for the 2019 tax year at $900,000.00, with an assessed value of $540,000.00. Griffith's appraisal was based upon a reconciliation of the cost and comparative sales approaches to value which used two West Virginia properties – one in Berkeley County and the other in Monongalia County, and two out-of-state properties – one in Allentown, Pennsylvania and the other in Baltimore, Maryland. The Baltimore property was ultimately not considered due to its location in the Baltimore market. Griffith concluded that there was significant functional obsolescence⁹ in this building which reduced the value of the subject property by $2,150,000.00. Based upon that determination, Griffith maintained that only 6,000 square feet of the 37,605 square foot building had any value because the rest of the building was functionally obsolete for the purposes of assessment.¹⁰

The Board found the Assessor's assessment to be valid. In so doing, the Board highlighted the discrepancies between the two appraisals:

Part of the differences result from the character of the two analyses. The Assessor is required to perform a mass appraisal of properties. Unlike the Taxpayer, it did not perform an individual bank-type appraisal. Where the Taxpayer considered only the 3.40 acres, valued at $480,000, the Assessor correctly assessed the property as 4.42 acres, valued at $1,095,000. The improvements are valued by the Assessor at $3,117,200. The Taxpayer, on the other hand, values the improvements at only $508,635. This surprisingly low appraisal value results from a $2,790,840 physical depreciation and a $2,150,000 functional obsolescence. The Taxpayer argues that of the 37,605 square feet it asserts comprises the building, only 6,000 square feet is functional, while 31,605 square feet are surplus space which should not be a part of the assessed property value. In addition, despite the Taxpayer's decision not to utilize the Income Approach to value the property, the appraisal adds $495,407 to the replacement costs of site and building improvements as "Entrepreneurial Profit".

Thus, there is a wide disparity between the two appraisals. On the one hand, the Taxpayer's appraisal results in an assessed value for 2019 Tax Year purposes of $593,181, while the Assessor's appraisal results in an assessment of $2,527,320 for purposes of determining the tax liability for Tax Year 2019.^[11]

From this discussion, the Board concluded:

While a mere recounting of methodology and results set forth in the Taxpayer's appraisal and excellent argument that such methodology and results are logical and make good sense are, indeed, helpful in giving the Board an understanding of the Taxpayer's position, those things do not meet the high burden of "clear and convincing" evidence that the Assessor's methodology and resulting assessment is erroneous. The Taxpayer's presentation, especially with regard to the extraordinary functional obsolescence, was lacking in evidentiary justification and was more conclusory than supportive.

On the other hand, the Assessor's presentation was cogent, comprehensive and persuasive. The Taxpayer failed to rebut the Assessor's findings or make any effective undermining of the methodology used or the assessment determination resulting.

Government Properties appealed the Board's determination to the circuit court, which reversed the Board. The circuit court's order adopted Government Properties’ proposed findings of fact and conclusions of law, adopting in total the appraisal offered by Government Properties and rejecting the cost approach valuation established by the Assessor. The circuit court found that the Government Properties appraisal was superior to the Assessor's appraisal, holding:

Here, the Appraisal and [Government Properties’] testimony related thereto presents an extremely in-depth and detailed analysis of the Property, the factors listed in the Rules, and the market value of the Property as of July 1, 2018[,] by development of both the cost and comparable sales approach. The analysis and data presented by the comparable sale approach is particularly important to the determination of the true and actual value for the Property in this case and properties involved in all tax assessment appeal cases, and its substantial impact on the determination of a Property's market value is clearly stated in Rules section 3.1.1. [W. Va. C.S.R.] § 110-1P-3.1.1 (when determining market value, "primary consideration shall be given to the trends of price paid for like or similar property in the area of locality in which the property is situated[."])

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As discussed in detail above, the Appraisal and testimony related thereto are more than adequate to

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