Daly v. P.D. George Co.

• Decision Date: 16 April 2002
• Docket Number: No. ED 79613.,ED 79613.
• Parties: Gregory F.X. DALY, License Collector, City of St. Louis, Missouri, Appellant, v. The P.D. GEORGE COMPANY, et al., Respondents.
• Court: Missouri Court of Appeals

77 S.W.3d 645

Gregory F.X. DALY, License Collector, City of St. Louis, Missouri, Appellant, v. The P.D. GEORGE COMPANY, et al., Respondents.

No. ED 79613.

Missouri Court of Appeals, Eastern District, Division Four.

April 16, 2002.

Motion for Rehearing and/or Transfer to Supreme Court Denied May 28, 2002.

Patricia A. Hageman, Mark J. O'Toole, St. Louis, MO, for appellant.

Thomas L. Caradonna, Patrick T. McLaughlin, St. Louis, MO, for respondent.

LAWRENCE G. CRAHAN, Judge.

The St. Louis City License Collector ("Collector") appeals the judgment affirming the State Tax Commission's ("Commission") decision, which adopted the P.D. George Company's ("Taxpayer") valuation of its machinery and equipment for purposes of assessing manufacturers' tax pursuant to Sections 150.300 to 150.370 RSMo 2000.¹ We affirm.

Taxpayer is a manufacturer located in the City of St. Louis ("City") whose machinery and equipment is subject to City's manufacturers' tax. The machinery and equipment includes process lines made up of tanks, reactors, pumps, filter presses, conveying devices, weighing devices, mixers, ovens and boilers. The facility also includes a complete maintenance shop, life trucks, laboratories, work benches, housekeeping equipment, miscellaneous material, handling tables, carts, hoppers, safety equipment and support equipment.

On December 10, 1997, the Board of Merchants' and Manufacturers' Tax Equalization of the City of St. Louis ("Board") issued a notice to Taxpayer that increased the assessment of Taxpayer's tangible personal property to a market value of $7,018,587. Taxpayer appealed the assessment of its tangible personal property to the Board and the Board affirmed.

After the Board affirmed Taxpayer's assessment, Taxpayer appealed to the Commission. The Commission's chief hearing officer conducted a hearing at which Taxpayer and Collector presented evidence of the value of Taxpayer's tangible property. Taxpayer's evidence primarily consisted of the appraisal report and testimony of Allen D. Bealmer ("Appraiser"). In conducting his appraisal, Appraiser personally observed each item of machinery over four days of inspection at Taxpayer's facility. He set forth in detail a description of each item of property, including the condition and the value approach utilized for establishing the true value of each item.

To arrive at his opinion of true value, Appraiser used both the market approach and the cost approach, depending on the particular item of property. Appraiser used comparable sales data from the market on all property valued using the market approach, and used the cost approach, applying depreciation, in those instances where comparable market data were not found. Appraiser obtained data from his employer's database, which includes at least 35,000 separate line items of market sales of property comparable to most of the property in Taxpayer's facility.

Appraiser did not add value to the machinery and equipment because it is installed in Taxpayer's facility, or deduct value from the property on the assumption that it would have to be removed if sold. Rather, Appraiser considered the property to have uses other than those for which it is used by Taxpayer, and that most of it is sold individually in the marketplace, such that a purchaser would not necessarily buy the property as part of Taxpayer's entire business. He employed the "fair market value in exchange" concept of value, or what a willing buyer would pay a willing seller for each individual item of property valued.

Gerald Huether, Collector's appraiser, also appraised the property, but added value to include costs for freight, taxes, and various installation costs, utilizing the "fair market value installed" concept of valuation. Mr. Huether based his valuation method on his opinion that Taxpayer's property's highest and best use would be as part of a special coatings manufacturing facility. Therefore, according to Mr. Huether, the property would be sold to a buyer who would continue using it as part of an overall coatings manufacturing facility and not for other purposes. However, he conceded on cross-examination that the property could be put to other uses.

The chief hearing officer found that fair market value in exchange is the recognized standard under Missouri law, that Taxpayer's method of valuation under the fair market value in exchange concept was appropriate, and that Taxpayer presented substantial and persuasive evidence of the market value of the property. He also found that Taxpayer is not a special purpose facility utilizing special purpose property.

The chief hearing officer found that Collector employed a fair market value installed method of valuation, which included an estimate of costs for labor, material prices, freight, installation, taxes, and other miscellaneous fees to arrive at a total value of the property. Collector's proposed value amounted to $4,918,183 for the machinery and equipment, with an assessed value of $1,683,390. The hearing officer found no statutory, regulatory, or case law authority for utilization of Collector's valuation concept. He set aside the Board's assessment and found the true value in money for the property to be Taxpayer's proposed value of $2,376,475 with a corresponding assessed value of $789,160.

Collector appealed to the Commission. The Commission set aside the hearing officer's finding that it is unlawful to consider freight, taxes, installation, and other like charges. The Commission held that such charges could be appropriately included in the market value of tangible personal property when it is demonstrated that such costs would influence what a seller would be willing to sell the property for and what a buyer would be willing to pay for the property. The Commission found that Collector failed to demonstrate that there was a market for Taxpayer's property as installed, further finding that market value installed is not always the proper method to determine true value in money. It also found that Taxpayer met its burden of providing substantial and persuasive evidence of market value according to Missouri's value in exchange valuation standard.

Collector filed a petition for review of the Commission's decision. The trial court affirmed. This appeal follows.

In reviewing the judgment, we examine the decision of the Commission, and not the decision of the trial court. Smith v. Morton, 890 S.W.2d 403, 405 (Mo.App.1995). We are limited to a determination of whether the decision is supported by competent and substantial evidence upon the whole record, or whether it was arbitrary, capricious, unreasonable, unlawful, or in excess of the Commission's jurisdiction. Equitable Life Assurance Society of the United States/Marriott Hotels, Inc. v. State Tax Commission of Missouri, 852 S.W.2d 376, 379 (Mo.App.1993). We consider the evidence in the light most favorable to the administrative body, together with all reasonable inferences therefrom, and if the evidence would support either of two opposed findings, we are bound by the administrative determination. Id.

"In matters of property tax assessment, this Court has acknowledged the wisdom of the General Assembly in providing an administrative agency to deal with this specialized field." Id. (quoting Savage v. State Tax Commission of Missouri, 722 S.W.2d 72, 75 (Mo.banc 1984) (internal quotations omitted)). Courts may not assess property for tax purposes and proper methods of evaluation and assessment of property are delegated to the Commission. Id. Overall, "this Court is loathe to substitute its judgment for the expertise of the Commission in matters of property tax assessment. Absent clear abuse, we will stay our hands." Id. (quoting Savage, 722 S.W.2d at 75 (internal quotations omitted)).

In his first point, Collector argues that the Commission erred in determining that proper valuation of manufacturing equipment should only include freight, installation, and other service charges when it is shown that such added values would influence a buyer or seller in determining the purchase price of the property. Rather, Collector contends that such elements should normally be included when valuing manufacturing equipment. In response, Taxpayer argues that because fair market value in exchange is the proper valuation method under Missouri law, Collector may only include freight, installation, and other costs when it can show that inclusion of such costs constitutes the equipment's value in exchange. We agree with Taxpayer.

Section 137.115 requires that tangible personal property be assessed for tax purposes based on its true value in money. "True value" is the fair market value of the property, or the price that the property would bring when offered for sale by a willing seller who is not obligated to sell, and purchased by a willing buyer who is not compelled to buy. St. Joe Minerals Corporation v. State Tax Commission of Missouri, 854 S.W.2d 526, 528 (Mo.App. 1993). True value in money is defined in terms of value in exchange and not value in use. Equitable Life Assurance Society, 852 S.W.2d at 380.

Relying on Missouri case law, state tax commission decisions, opinions from other jurisdictions, and texts from the International Association of Assessing Officers and the American Society of Appraisers, Collector contends that the proper method to determine the true value in money of machinery and equipment is to value the assets as part of an entire manufacturing facility. Collector essentially asks us to create a valuation requirement that includes installation, freight, and other costs on all valuations of machinery and equipment for assessment purposes. Upon examination of Collector's authority, however, it is clear that none of the cases or texts support such a requirement, and we decline to impose one.

Collector initially cites Bussman Division of Cooper Industries/McGraw Hill v. State Tax Commission of Missouri, 802 S.W.2d 543 (Mo.Ap...