Columbus Board of Education v. Franklin County Board of Revision

• Decision Date: 28 January 1992
• Docket Number: 90AP-317,90AP-324,92-LW-0202
• Parties: Columbus Board of Education, Appellee-Appellee, v. Franklin County Board of Revision et al., Appellants-Appellees, Grange Mutual Casualty Company, Appellant-Appellant. Columbus Board of Education, Appellee-Appellee, v. Franklin County Board of Revision et al., Appellants-Appellants, Grange Mutual Casualty Company, Appellant-Appellee.
• Court: Ohio Court of Appeals

Columbus Board of Education Appellee-Appellee, v. Franklin County Board of Revision et al Appellants-Appellees, Columbus Board of Education Appellee-Appellee, v. Franklin County Board of Revision et al Appellants-Appellants, Grange Mutual Casualty Company, Appellant-Appellee.

Nos. 90AP-317, 90AP-324

92-LW-0202 (10th)

Court of Appeals of Ohio, Tenth District, Franklin.

January 28, 1992

O P I N I O N

TEAFORD, RICH, BELSKIS, COFFMAN & WHEELER, and MR. JEFFERY A. RICH, for appellee.

MR. MICHAEL MILLER, Prosecuting Attorney, and MR. JAMES R. GORRY, for appellants Franklin County Auditor and Franklin County Board of Revision.

MR. MICHAEL PETRUCCI and MR. KELLY MORGAN, for appellant Grange Mutual Casualty Company.

APPEALS from the Ohio Board of Tax Appeals.

WHITESIDE J.

Appellants, Grange Mutual Casualty Company, Franklin County Board of Revision ("BOR"), and the Franklin County Auditor appeal from a judgment of the Ohio Board of Tax Appeals ("BTA"), valuing the subject property at $325,000. Grange Mutual Casualty Company ("Grange"), in case No. 90AP-317, raises the following two assignments of error:

"I. THE OHIO BOARD OF TAX APPEALS PREJUDICIALLY ERRED IN DETERMINING THAT THE SALE PRICE OF THE SUBJECT PROPERTY REPRESENTED THE TRUE VALUE OF THE PROPERTY FOR THE TAX YEAR 1987.

"II. TAXATION OF THE SUBJECT PROPERTY IN ACCORDANCE WITH THE DECISION IF THE OHIO BOARD OF TAX APPEALS IS VIOLATIVE OF SECTION 2, ARTICLE XII OF THE OHIO CONSTITUTION."

The Franklin County Board of Revision and the Franklin County Auditor, in case No. 90AP-324, raise the following assignment of error:

"THE BOARD OF TAX [sic] ERRED IN USING THE SALE PRICE OF THE PROPERTY AS EVIDENCE OF ITS TRUE VALUE FOR TAX YEAR 1987 BECAUSE THE PROPERTY HAD UNDERGONE A SUBSTANTIAL CHANGE BETWEEN THE SALE AND TAX YEAR 1987."

Despite the assignments of error, the determinative issue before us is whether the order of the Board of Tax Appeals is unreasonable and unlawful. R.C. 5717.04.

The subject property is 9,780 square feet of vacant land located at 677 South High Street in Columbus, Franklin County, Ohio. The subject property is the final lot in a city block owned by appellant Grange. Appellant Grange purchased the subject property on November 21, 1986, from the estate of Katherine Elizabeth Hostettler for the sum of $325,000.

In largely undisputed testimony before the BOR and the Board of Tax Appeals, appellant Grange, through its corporate secretary and director of corporate facilities, Mr. John B. Horn, claimed that it had tried for several years to purchase the subject property from Mrs. Hostettler before her death. "Mrs. Hostettler refused to sell the property to appellant Grange and instructed them to negotiate with her estate after her death. Appellant Grange further asserted that, following Mrs. Hostettler's death, her estate did not offer the property for sale to the general public but, instead, offered to sell the property to it. Appellant Grange bought the property from the estate in order to prevent any other buyers from purchasing the property and to assure Grange's future opportunity to build a second office tower on the site of the property.

Due to the destruction of the buildings on the property, appellant Grange applied to the Franklin County Auditor for a new appraisal to be conducted pursuant to R.C. 319.38. The auditor subsequently appraised the property in March 1987 at $11 per square foot, or $107,600.

On March 24, 1988, appellee, Columbus Board of Education ("BOE"), filed a complaint with BOR, alleging that the true value of the subject property should be increased to reflect the recent sale price of $325,000, rather than the appraised value of $107,600, as determined by the Franklin County Auditor. The BOR held a hearing and decided that, as of the tax lien date, January 1, 1987, the true value of the subject property remained at $107,600.

On December 7, 1988, the BOE appealed to the BTA. The BTA determined that the true value of the subject property had changed and was $325,000, with $307,500 being allocated to land and $17,500 being allocated to buildings. Appellant Grange appealed to this court on March 14, 1990. The BOR and the Franklin County Auditor filed a joint appeal to this court on May 15, 1990. The separate appeals were consolidated for hearing at the parties' request.

The BTA, in its opinion, concluded that the recent sale of the subject property represented an arm's-length transaction between a willing buyer and a willing seller. The BTA found that the estate of Mrs. Hostettler was not compelled to sell the property to appellant Grange but, rather, negotiated the best possible price. Likewise, the BTA found that appellant Grange was not "legally" compelled to purchase the subject property. Although the BTA acknowledged appellant Grange's explanation for paying the inflated price of $325,000, the BTA concluded that such economic pressure did not constitute compulsion.

Tom Wilhelm, an independent appraiser hired by appellant Grange to appraise the subject property, testified that the property had a value of $10 per square foot, or $97,800 as of the tax lien date, January 1, 1987. Mr. Wilhelm valued only the land, determining that the house had been destroyed in February 1987, a few months following the date of purchase. Mr. Wilhelm testified that his appraisal was based upon the market-data approach, which involves the examination of sales of comparable property in the surrounding area, most of which is commercial.

The gist of appellant Grange's appeal is that the BTA acted unreasonably and unlawfully in determining that the fair market value of the subject property is $325,000. The BOR and the Franklin County Auditor essentially raise the same argument in their sole assignment of error. The determination of fair market value of real property is a question of fact within the province of the BTA. R.C. 5717.03 and Bd. of Revision v. Fodor (1968), 15 Ohio St. 2d 52, syllabus. On appeal, the reviewing court is constrained whether the record affirmatively shows that the board's decision was unreasonable or unlawful. R.C. 5717.04 and Fodor.

In paragraph one of the syllabus of Conalco v. Bd. of Revision (1977), 50 Ohio St. 2d 129, the Ohio Supreme Court stated:

"The best evidence of the 'true value in money' of real property is an actual, recent sale of the property in an arm's-length transaction. [Citation omitted.]"

The syllabus of Ratner v. Stark Cty. Bd. of Revision (1986), 23 Ohio St. 3d 59, sets out the basic principle for property valuation:

"Although the sale price is the 'best evidence' of true value of real property for tax purposes, it is not the only evidence. A review of independent appraisals based upon factors other than the sale price is appropriate where it is shown that the sale price does not reflect true value. [Citation omitted.]"

The court in Ratner, at 61, sets out factors other than the sale price to be considered by the board in determining property valuation:

"This court has never adopted an absolutist interpretation of this statute. Our decisions and those of other jurisdictions with similar statutes have approved of considering factors that affect the use of the sale price of property as evidence of its true value. Such factors might include: mode of payment, sale-lease arrangements, abnormal economic conditions and the like. [Citations omitted.]"

According to the above authority, the BTA must initially determine whether a recent, actual sale was the result of an "arm's-length transaction." Only if the BTA determines that a sale was the result of an "arm's-length transaction" may the BTA presume that the sale price is the best evidence of true value. In this case, the BTA misapplied this standard. The BTA properly stated:

"*** [To determine the taxable value of real property] we first must determine the fair market or true value of the subject property, as taxable value is the product of fair market value multiplied by the applicable common level of assessment."

The BTA also stated the appropriate standard set forth by the Ohio Supreme Court in Ratner, namely, that the sale price from an actual, recent, arm's-length transaction is presumed to be the best evidence of true value but may be rebutted.

The definition for an arm's-length transaction adopted by the Ohio Supreme Court in the syllabus of Walters v. Knox Cty. Bd. of Revision (1989), 47 Ohio St. 3d 23, was cited by the BTA and is the following:

"An arm's-length sale is characterized by these elements: it is voluntary, i.e., without compulsion or duress; it generally takes place in an open market; and the parties act in their own self-interest."

The BTA apparently misconstrued this definition. Rather than applying the definition objectively, the BTA applied it only subjectively. An objective approach necessarily is required since fair market value is the extrinsic, not intrinsic, value of the property.

An objective approach requires the BTA to consider whether, in general, an informed willing buyer would have paid an informed willing seller $325,000 in the open market for this property without the special circumstances that Grange contends prompted it to pay the alleged premium price. Instead, the BTA considered only whether the individuals involved (Grange and the estate), under these circumstances willingly exchanged the property for a purchase price of $325,000. Obviously, they did since the seller (the estate) would be quite willing to accept a price greatly in excess of the actual fair market value where a buyer (Grange) is so anxious to acquire the property (for whatever reason) that it is willing to pay a substantial premium for the property--that is, an amount substantially in excess of its fair market...