Biltmore Hotel Partners v. Maricopa County

• Decision Date: 09 December 1993
• Docket Number: No. TX,TX
• Citation: 177 Ariz. 167,866 P.2d 149
• Parties: BILTMORE HOTEL PARTNERS v. MARICOPA COUNTY; Arizona Department of Revenue. 92-00865.
• Court: Arizona Tax Court

Page 149

866 P.2d 149

177 Ariz. 167

BILTMORE HOTEL PARTNERS v. MARICOPA COUNTY; Arizona Department of Revenue.

No. TX 92-00865.

Tax Court of Arizona.

Dec. 9, 1993.

[177 Ariz. 168] John E. Wolfinger, Phoenix, for plaintiff.

Helm & Kyle by Roberta S. Livesay and Ileen K. Keenan, Phoenix, for defendant.

OPINION

SCHAFER, Judge.

The issue in this case is whether the 1992 valuation of the Arizona Biltmore Hotel property is too high--or too low.

The Biltmore is a quality, full-service, luxury resort hotel opened in 1929. It has 502 rooms, a 38,000k square foot conference center, three heated swimming pools, eight lighted tennis courts, a health & fitness center, retail shops and boutiques, three restaurants and two lounges, and is adjacent to two PGA-rated championship golf courses. From 1959 through 1990 it received a five-star rating from the Mobil Travel Guide.

In mid-1991 the Biltmore underwent approximately $7,000,000 worth of renovations to its main lobby, restaurants and outdoor recreation facilities. Another $20,000,000 will be spent in the next three years to renovate the guest rooms and other facilities to return it to its previous five-star condition.

In June of 1992 Biltmore Hotel Partners (Partners) purchased the Biltmore for $61.5 million. The Partners' marketing plan anticipated an occupancy level of 63.46-68.20% and an average daily room rate (ADR) of between $162.76 and $186.37 for 1992, 1993 and 1994. ¹

For the tax year 1992, Maricopa County set the full cash value of the Biltmore, as of January 1, 1992, at $48,146,291. After the Partners purchased the property in June of 1992 they filed an appeal with this Court contesting the County's 1992 valuation. Trial to the Court was held in September of 1993.

The Partners contend that the County's full cash value of $48k million is excessive and should be lowered to $37,078,160. The County argues $48k is too low and should be raised to $61.5 million.

ANALYSIS

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). In order 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)). Likewise, the County, to overcome the presumption and have the assessed value raised, must produce enough evidence contradictory to the presumption which will allow the Court to determine the true full cash value of the property. Ibid.

The Tax Court may make an independent evaluation 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. This evidence may be comprised of the evidence used in determining the full cash value. Department of Property Valuation v. Trico Electric Cooperative, Inc., supra, 113 Ariz. at 70, 546 P.2d at 806. Second, the Court must make a preliminary finding that the valuation is excessive or insufficient.

Here, in an effort to overcome the presumption of correctness of the County's valuation of $48k million, the Partners presented the testimony of Matthew Crow, one of the Partners, Dr. Karl L. Guntermann, a professor in the Department of Business Administration at Arizona State University, Pete Zych, a tax agent, and rebuttal testimony of Mike Husij, an MAI appraiser. Through these witnesses, the Partners attempted to establish that (1) the financing obtained by the Partners for the purchase of the Biltmore was not at market interest rates or market terms; (2) an equivalent market rate for the financing received on the Biltmore purchase would have been either 14.5% or 15.4%; and (3) when an appropriate market interest rate is factored into the calculation of a cash equivalency for the Biltmore property the result is a value of only $37,078,160. Clearly this evidence contradicts the initial full cash value determined by the County. However, it was not sufficient to prove the original valuation is excessive.

Several significant flaws exist in the evidence the Partners presented. Those flaws include: an initial presumption by the Partners that the financing obtained on the Biltmore purchase was not at prevailing market rates and terms, a purported market interest rate derived from data which was not specific to the hotel-resort industry when such data was readily available, a failure to consider the $20 million loan guarantee of AOKI Corporation in calculating the value, and the inability to satisfactorily explain why a purchase price of $61.5 million was set if such price was not a reflection of the Biltmore's true value.

Further, and most significant, in arriving at the figure the Partners want this Court to adopt, the Partners' expert performed only a cash equivalency analysis for the Biltmore property rather than utilizing one of the three standard approaches to valuation. For purposes of establishing value for property taxes, Arizona courts have traditionally recognized only three approaches: the income approach, the cost approach, and the market or sales comparison approach. These are the three accepted...