Comstock Village Ltd. Dividend Housing Ass'n v. Comstock Tp.

• Decision Date: 07 July 1988
• Docket Number: Docket No. 90477
• Citation: 168 Mich.App. 755,425 N.W.2d 702
• Parties: COMSTOCK VILLAGE LIMITED DIVIDEND HOUSING ASSOCIATION, Petitioner-Appellant/Cross-Appellee, v. COMSTOCK TOWNSHIP, Respondent-Appellee/Cross-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 702

425 N.W.2d 702

168 Mich.App. 755

COMSTOCK VILLAGE LIMITED DIVIDEND HOUSING ASSOCIATION Petitioner-Appellant/Cross-Appellee, v. COMSTOCK TOWNSHIP, Respondent-Appellee/Cross-Appellant.

Docket No. 90477.

Court of Appeals of Michigan.

Submitted June 16, 1987.

Decided June 6, 1988.

Released for Publication July 7, 1988.

Terry Lewis, Ypsilanti, for petitioner-appellant/cross-appellee.

Bauckham, Reed, Lang, Sparks, Rolfe & Thomsen, P.C. by Richard D. Reed and Lynda E. Thomsen, Kalamazoo, for respondent-appellee/cross-appellant.

Before SAWYER, P.J., and MacKENZIE and CAPRATHE, ^* JJ.

CAPRATHE, Judge.

This case involves the appeal as of right of petitioner, Comstock Village Limited Dividend Housing Association and the cross-appeal of respondent, Comstock Township, from a Michigan Tax Tribunal decision concerning the lawfulness of the property tax assessments issued for the housing association's commercial realty for 1982 through 1984. Both the housing association and the township challenge the Tax Tribunal's determination of true cash value and, in particular, the tax treatment of governmental rental subsidies and regulations connected with the commercial realty. We affirm.

I

The commercial realty in question is a governmentally subsidized 112-unit apartment complex in Comstock Township near Kalamazoo. Project construction was completed in about 1980. The project is owned by the housing association, a limited partnership.

Capital contributions of the housing association's partners, including subscriptions receivable, was $800,210. The project was financed by a mortgage loan. The cost of the project was $4,233,260. The forty-year term mortgage loan was in the amount of $4,312,604. The interest rate was 8.97 percent per annum. The difference between the cost and the loan takes into account escrow requirements to assure the project's future feasibility.

The mortgage loan was obtained through the Michigan State Housing Development Authority (MSHDA), which is a public body created by the MSHDA act of 1966, M.C.L. Sec. 125.1401 et seq.; M.S.A. Sec. 16.114(1) et seq. One purpose of the MSHDA act was to take advantage of available federal funds for housing projects. The project was operated as part of a program under Sec. 8 of the United States Housing Act of 1937, 42 U.S.C. Sec. 1437f. This program was designed to assist lower income families with housing and to promote economically mixed housing.

Under the Sec. 8 program, the rents charged by the housing association are federally regulated in accordance with a Housing Assistance Payment contract, which also provides for federal rental subsidies. The rental rates are based on fair market rents for the area and on whether such rents can feasibly support the project's debt service and operations.

It appears that the housing association's first year of operation was 1981. The assessment issued by the township for tax date December 31, 1981, was $1,342,500. The housing association timely protested the assessment to the township's board of review, but was not granted relief.

On June 21, 1982, the housing association filed a petition for review of its 1982 assessment. The housing association's later motions to amend its petition to add the 1983 and 1984 assessment years were granted. The housing association's assessments on the rolls for 1982, 1983 and 1984 were $1,342,500, $1,409,600, and $1,564,000.

The evidentiary hearing on the assessments commenced on February 11, 1985, with Hearing Officer Roger Groves presiding. On April 26, 1985, the hearing officer entered a proposed judgment on his determination of true cash value. The township's income approach to valuation was adopted. On January 22, 1986, Tax Tribunal Judge William Koney vacated the proposed judgment and entered his own determination of true cash value under the income approach. The township's motion for a rehearing was denied.

The true cash values advanced by the housing association and the township as well as the findings of the Tax Tribunal are as follows:

                True Cash Value              1982        1983        1984
                 Per housing association  $2,400,000  $2,400,000  $2,400,000
                 Per township              3,981,400   4,280,000   4,591,300
                 Per Tax Tribunal          2,741,270   3,202,207   3,480,488
                

The assessment level was fifty percent of the true cash value for each year. Both parties now appeal from the determinations of the Tax Tribunal.

II

The scope of this Court's review of Tax Tribunal decisions in property tax valuation cases is limited. When fraud is not alleged, the question is whether the Tax Tribunal committed an error of law or adopted a wrong principle. Const. 1963, art. 6, Sec. 28; Teledyne Continental Motors v. Muskegon Twp., 145 Mich.App. 749, 378 N.W.2d 590 (1985). A decision of the Tax Tribunal is an "error of law" if it is not supported by competent, material and substantial evidence. Connors & Mack Hamburgers, Inc. v. Dep't of Treasury, 129 Mich.App. 627, 341 N.W.2d 846 (1983). "Substantial evidence" must be more than a scintilla of evidence, though it may be substantially less than the preponderance of evidence necessary for most civil cases. Holy Spirit Ass'n for the Unification of World Christianity v. Dep't of Treasury, 131 Mich.App. 743, 347 N.W.2d 707 (1984).

Petitioner's and respondent's respective claims are that the Tax Tribunal's determination of true cash value was based on wrong principles. A proceeding before the Tax Tribunal is de novo. M.C.L. Sec. 205.735(1); M.S.A. Sec. 7.650(35)(1). The burden of proof is on the taxpayer to establish the true cash value of his property. M.C.L. Sec. 205.737(3); M.S.A. Sec. 7.650(37)(3). The Tax Tribunal, however, is obligated to make an independent determination of true cash value, utilizing an approach which provides the most accurate valuation under the circumstances of the individual case. Antisdale v. City of Galesburg, 420 Mich. 265, 362 N.W.2d 632 (1984).

The weight given to evidence is a matter within the Tax Tribunal's discretion. Kern v. Pontiac Twp., 93 Mich.App. 612, 287 N.W.2d 603 (1979). The weighing process involves a considerable amount of judgment and reasonable approximation. Consumers Power Co. v. Port Sheldon Twp., 91 Mich.App. 180, 283 N.W.2d 680 (1979). If neither party's valuation figure is accurate, the tribunal should be free to reject both. However, the tribunal should not substitute some other figure which may be equally lacking in evidentiary support. Clark Equipment Co. v. Leoni Twp., 113 Mich.App. 778, 318 N.W.2d 586 (1982).

III

The housing association claims three errors. First, relying on First Federal Savings & Loan Ass'n of Flint v. Flint, 415 Mich. 702, 329 N.W.2d 755 (1982), the housing association claims that the Tax Tribunal adopted a wrong principle in basing true cash value upon the replacement cost of the property's "overimprovements." It claims that an assessment based on a cost approach ignores the additional costs in complying with federal construction and management regulations. We find no merit to this argument.

At issue in First Federal was the Tax Tribunal's adoption of a cost approach in determining the true cash value of a renovated building in downtown Flint which was occupied and owned by the bank. Our Supreme Court concluded that the Tax Tribunal adopted a wrong principle in including, as part of the bank's valuation, those expenditures made by the bank to enhance its own image, without regard to whether they added to the selling price of the building.

The housing association's reliance on First Federal is misplaced in the instant case because the Tax Tribunal did not adopt a cost approach to valuation, but instead adopted an income approach. First Federal only applies when a cost approach is used.

Second, the housing association contends that the Tax Tribunal's capitalization of income approach to value was based on a wrong principle in that rental subsidies were included in the project's net operating income. Relying on Congresshills Apartments v. Ypsilanti Twp. (After Remand), 128 Mich.App. 279, 341 N.W.2d 121 (1983), the housing association argues that a subsidy cannot be incorporated in any way in arriving at true cash value. We conclude that the housing association's reliance on Congresshills Apartments is misplaced.

The issue in Congresshills Apartments was the interest subsidy that was taken into account in calculating the capitalization rate for the property. The basis for the holding in the case was that the "interest subsidy is an intangible asset or benefit which cannot properly be subject to taxation as 'real' or 'tangible' property under Const 1963, art 9, Sec. 3." Id. at 283, 341 N.W.2d 121.

Here what was taken into account in reaching true cash value was not an interest subsidy, but a rental subsidy provided by the federal government. This subsidy was no more intangible than the actual rents paid by the tenants. A review of the regulatory agreement does not reveal any use restrictions on the rental subsidy, beyond its use as a method for making mortgage loan and other payments due MSHDA. The substance of the subsidy as it pertains to the project was rental income. Dowagiac Limited Dividend Housing Ass'n v. Dowagiac, 166 Mich.App. 232, 420 N.W.2d 114 (1987). Accordingly, we find no error of law in the Tax...