Colonial Village v. Washington Cty., 2008-0443.

• Decision Date: 29 September 2009
• Docket Number: No. 2008-0560.,No. 2008-0561.,No. 2008-0559.,No. 2008-0443.,2008-0443.,2008-0559.,2008-0560.,2008-0561.
• Citation: 2009 Ohio 4975,123 Ohio St.3d 268,915 N.E.2d 1196
• Parties: COLONIAL VILLAGE, LTD., Appellant and Cross-Appellee, v. WASHINGTON COUNTY BOARD OF REVISION et al., Appellees and Cross-Appellants. Colonial Terrace Apartments, Appellant and Cross-Appellee, v. Washington County Board of Revision et al., Appellees and Cross-Appellants. Colonial Terrace Apartments II, Appellant and Cross-Appellee, v. Washington County Board of Revision et al., Appellees and Cross-Appellants.
• Court: Ohio Supreme Court

915 N.E.2d 1196

123 Ohio St.3d 268

2009-Ohio-4975

COLONIAL VILLAGE, LTD., Appellant and Cross-Appellee, v. WASHINGTON COUNTY BOARD OF REVISION et al., Appellees and Cross-Appellants.

Colonial Terrace Apartments, Appellant and Cross-Appellee, v. Washington County Board of Revision et al., Appellees and Cross-Appellants.

Colonial Terrace Apartments II, Appellant and Cross-Appellee, v. Washington County Board of Revision et al., Appellees and Cross-Appellants.

No. 2008-0443.

No. 2008-0559.

No. 2008-0560.

No. 2008-0561.

Supreme Court of Ohio.

Submitted August 11, 2009.

Decided September 29, 2009.

Karen H. Bauernschmidt Co., L.P.A., and Karen H. Bauernschmidt, Cleveland, for appellants and cross-appellees.

James R. Gorry, Columbus, for appellees and cross-appellants.

PER CURIAM.

{¶ 1} The appellants and cross-appellees in these consolidated appeals are affiliated entities that own adjacent tracts of federally subsidized low-income housing in Washington County. In Colonial Village Ltd. v. Washington Cty. Bd. of Revision, 114 Ohio St.3d 493, 2007-Ohio-4641, 873 N.E.2d 298 ("Colonial Village I"), we reviewed the determination of value for tax year 2003 rendered by the Board of Tax Appeals ("BTA") for one of the tracts at issue. In that case, the BTA had found that the owner's appraisal did not constitute probative evidence of value, and as a result, it adopted the value assigned by the auditor and affirmed by the Washington County Board of Revision ("BOR"). On appeal, we reversed and remanded. Relying on the property record card, we concluded that the auditor had valued the property based on a cost approach, and we held that the BTA had contravened our precedents by using a cost valuation, given the entire record in the case.

{¶ 2} The BTA's decisions in the consolidated cases before us demonstrate the influence of our holding in Colonial Village I. The first of the consolidated cases, No. 2008-0443, addresses the BTA's decision on remand of Colonial Village I. The second, No. 2008-0559, concerns the very same tract but addresses the valuation for tax year 2004. The third and fourth appeals, Nos. 2008-0560 and 2008-0561, concern the value of two separate tracts improved with government-subsidized housing that are owned by different but affiliated entities. The tax year at issue in Nos. 2008-0560 and 2008-0561 is 2004.

{¶ 3} For convenience, we will refer to No. 2008-0443, which addresses the BTA's decision after we remanded in Colonial Village I, as the "2003 tax-year case" or more simply the "2003 case."¹ We will also refer collectively to Nos. 2008-0559, 2008-0560, and 2008-0561 as the "2004 tax-year cases" or more simply the "2004 cases." As for the three different but affiliated property owners, we will use the term "Colonial" to refer to all of them collectively and each of them individually.

The 2003 tax-year case

{¶ 4} As noted, the 2003 case — No. 2008-0443 in this court — calls upon us to review the BTA's decision after remand of Colonial Village I. Our instruction to the BTA was to perform an independent valuation of the property based on the evidentiary record that had been developed in the case. The evidence before the BTA did not change. First, Colonial had presented to the BOR an owner's opinion of value consisting of an income approach, along with the testimony of Colonial's Randall Palmer. Second, Colonial had presented the testimony and appraisal report of Charles Snyder to the BTA.

{¶ 5} The owner's opinion of value notes that the improvements constitute a Section 8 federally subsidized housing project where tenants pay 30 percent of their adjusted gross income as rent, with the federal government paying the remainder of a specified monthly rental fee. The federal government also specifies a utility allowance that helps pay utility bills, and the amount of these allowances is paid to Colonial to be remitted to the tenants. At Colonial Village, each apartment is separately metered, and tenants pay electric bills separately, but other utilities are apparently provided by the landlord. There are a total of 45 apartments, of which 35 are two-bedroom and 10 are three-bedroom units.

{¶ 6} In Colonial Village I, we briefly summarized the valuation methods pursued by both the owner's opinion of value at the BOR and the appraisal at the BTA. Colonial Village I, 114 Ohio St.3d 493, 2007-Ohio-4641, 873 N.E.2d 298, ¶ 17, 18. As for the owner's opinion of value, the BOR's technical advisors stated that (1) the capitalization rate was "too high," and (2) the expenses were "not based on market" and were "not realistic." On appeal, the BTA impugned Snyder's sales-comparison approach by faulting (i) the appraiser's limited inspection of the comparables, (ii) the disparate use of location adjustments, and (iii) the extrapolation from five comparables, of which three were determined to be valued at over $24,000 per unit, to a value of $22,000 per unit for Colonial Village. With respect to the income approach, the BTA found that both the vacancy-loss figures and the expense estimate lacked factual support. Because of these flaws, the BTA found the appraisal unreliable, and it affirmed the county's valuation of the property.

{¶ 7} As noted, we reversed in Colonial Village I because, based on our reading of the property record card, we determined that the county had used a cost-based approach, which is inappropriate for government-subsidized properties. Colonial Village I, 114 Ohio St.3d 493, 2007-Ohio-4641, 873 N.E.2d 298, ¶ 19, 22. As we have more recently explained, our subsidized-housing case law seeks to prevent the affirmative benefits of government subsidies from unduly inflating the value of the property for tax purposes. Woda Ivy Glen Ltd. Partnership v. Fayette Cty. Bd. of Revision, 121 Ohio St.3d 175, 2009-Ohio-762, 902 N.E.2d 984, ¶ 29. Reliance on a cost approach tends to run afoul of this precept because the subsidies allow developers to incur costs that ordinary market rents would not support. See Oberlin Manor, Ltd. v. Lorain Cty. Bd. of Revision (1989), 45 Ohio St.3d 56, 57, 543 N.E.2d 768. Nor have such subsidies been understood as pertaining directly to the value of the realty — we have excluded consideration of the effect the subsidies have on value on the theory that they constitute an "encumbrance" that should be disregarded, or alternatively, because they appear to constitute separable intangible benefits accorded in connection with the government program. Compare Alliance Towers, Ltd. v. Stark Cty. Bd. of Revision (1988), 37 Ohio St.3d 16, 523 N.E.2d 826, paragraph one of the syllabus with Woda Ivy Glen, ¶ 29, fn. 4. Additionally, we discerned in Colonial Village I that the record contained sufficient evidence to permit the BTA to perform an independent valuation, thereby obviating the need to adopt a cost-based approach. Id., ¶ 24.

{¶ 8} On February 1, 2008, the BTA issued its decision on remand in the 2003 tax-year case. In that decision, the BTA carried out this court's instruction by (1) marshaling evidence from the record whose validity had not previously been impugned and (2) deriving an income approach from that evidence. Colonial Village Ltd. v. Washington Cty. Bd. of Revision (Feb. 1, 2008), BTA No. 2004-A-574, at 11. The BTA's income approach derives the gross potential income, reserves for replacement, and capitalization rates from the Snyder appraisal, and the vacancy and collection loss from the owner's opinion of value. Id. After computing net operating income and applying the capitalization rate and a tax additur, the BTA derived a rounded figure of $1,171,930. The BTA then subtracted $9,000 for furniture, fixtures, and equipment and concluded that the value was $1,162,930. Id.

{¶ 9} Both Colonial on appeal and the county on cross-appeal characterize the BTA's valuation as unsupported by the evidence. We address their objections as follows.

{¶ 10} First, Colonial states that the 40 percent expense ratio used by the BTA lacks support. We disagree. The BTA forthrightly stated that it derived the ratio by examining the expenses associated with properties "that appear to be similar to the subject in size, configuration, and age, as contained in [Snyder's appraisal] report under the sales comparison and the capitalization rate section." Colonial Village (Feb. 1, 2008), BTA No. 2004-A-574, at 11, fn. 3. Snyder's appraisal report discloses the data to which the BTA refers and bears out the propriety of the figures that the BTA used. In particular, two properties appear on both the list of Snyder's sale comparables and the capitalization-rate determination. The expense ratios for those two are 37 percent and 42.2 percent. Additionally, these two parcels have expense ratios that are close to the highest and lowest on the list of properties in the capitalization-rate section.

{¶ 11} Accordingly, the 40 percent figure that the BTA adopted is supported by the information adduced in the very appraisal report upon which Colonial itself would have the BTA rely. See AP Hotels of Illinois, Inc. v. Franklin Cty. Bd. of Revision, 118 Ohio St.3d 343, 2008-Ohio-2565, 889 N.E.2d 115, ¶ 16 (even where appraiser's conclusion of value could not be used, his certification of the truth of statements of fact in the appraisal report justified the BTA in treating those statements as evidence). Indeed, as between the BTA's estimation and the analysis of Colonial's appraiser (who derived what amounted to a 51 percent expense ratio from actual expenses provided by the owner), the BTA's number certainly appears to be the more tenable of the two. See Colonial Village, Ltd. v. Washington Cty. Bd. of Revision (Apr. 21, 2006), BTA No. 2004-A-574, at 7, reversed and remanded, 114 Ohio St.3d 493, 2007-Ohio-4641, 873 N.E.2d 298.

{¶ 12} Second, Colonial faults the BTA for not adopting Snyder's vacancy- and collection-loss figure. This argument is barred by the law-of-the-case doctrine: the BTA...