Dublin City Sch. Bd. of Educ. v. Franklin Cnty. Bd. of Revision

• Decision Date: 16 October 2013
• Docket Number: No. 2012–1432.,2012–1432.
• Parties: DUBLIN CITY SCHOOLS BOARD OF EDUCATION, Appellee, v. FRANKLIN COUNTY BOARD OF REVISION et al., Appellees; East Bank Condominiums II, L.L.C., Appellant.
• Court: Ohio Supreme Court

139 Ohio St.3d 193

11 N.E.3d 206

DUBLIN CITY SCHOOLS BOARD OF EDUCATION, Appellee,

v.FRANKLIN COUNTY BOARD OF REVISION et al., Appellees; East Bank Condominiums II, L.L.C., Appellant.^*

No. 2012–1432.

Supreme Court of Ohio.

Submitted June 4, 2013.

Decided Oct. 16, 2013.

Rich & Gillis Law Group, L.L.C., Mark H. Gillis, Jeffrey A. Rich, and Karol C. Fox, Dublin, for appellee Dublin City Schools Board of Education.

Zeiger, Tigges & Little, L.L.P., Marion H. Little Jr., and Matthew S. Zeiger, Columbus, for appellant.

O'DONNELL, J.

{¶ 1} East Bank Condominiums II, L.L.C. (“East Bank”), appeals from a decision of the Board of Tax Appeals (“BTA”) reversing the property valuation of the Franklin County Board of Revision regarding 21 condominium units and reinstating the county auditor's valuation of those condominium units as requested by the countercomplaints filed by the Dublin City Schools Board of Education. Many of the 21 units remained unfinished to varying degrees as of the 2008 tax lien date. Specifically, we are concerned with whether the BTA properly utilized the auditor's valuation of the 21 units when the only evidence in the record appears to negate the auditor's determination. Because the property owner presented expert evidence of valuation and because the board of education failed to present any evidence, we reverse the determination of the BTA and establish the 2008 valuation in accordance with the property owner's evidence of $3,100,000.

Factual Background and Procedural History

{¶ 2} East Bank began construction of the East Bank II condominium complex in 2006. The business plan involved first completing the construction of the building's infrastructure and then completing each of its 28 condominium units to suit the buyer. According to East Bank, as of January 1, 2008, the tax lien date, three of the 28 units were completed and sold, four units were finished but unsold, and 21 units remained unsold and unfinished.

{¶ 3} The Franklin County auditor assessed the true value of each parcel individually for the tax year 2008 and determined that the aggregate true value of the 21 units was $8,139,300. East Bank objected and filed complaints for each of the unfinished and unsold units, challenging the valuation of the property with the board of revision. Subsequently, the school board filed countercomplaints seeking to retain the auditor's valuation of the condominium units.

{¶ 4} At the board of revision hearing, East Bank presented the testimony of East Bank managing partner George Babyak, as well as the appraisal report and testimony of Thomas Horner. Although an attorney representing the board of education appeared at the board of revision hearing and cross-examined Babyak, the board of education did not present any witnesses or additional information regarding the valuation of the property.

{¶ 5} Thus, the only evidence of value presented at the hearing came from Horner's appraisal and testimony. Using a “condominium analysis,” Horner opined that the 21 units had a “net present market value” or “as-is value” of $3,100,000. Horner testified that he considered the 21 units as a “single economic unit” because they are “owned by one owner” and “[t]hat owner can only sell all units at one time to one investor.” He utilized a comparable sales analysis using condominium sales and marketing activity of East Bank I and East Bank II and then made reductions based on the estimated cost to finish the remaining units. This analysis yielded “gross sale proceeds” of $6,492,294. Considering the units to be a “single economic unit,” Horner applied what he called a “bulk discount” to arrive at an estimated value of $3,100,000, which is approximately 48 percent of $6,492,294.

{¶ 6} After its review, the board of revision accepted Horner's valuation of $3,100,000 as the total fair market value for the 21 units, stating, “We were given no additional information on behalf of the county complainant school board in this matter, and * * * we recognize Mr. Horner as being an expert in the area of real estate appraisal.” The school board then appealed the board of revision's decision to the BTA.

{¶ 7} At the BTA hearing, East Bank once again presented Babyak and Horner as witnesses. At that time, Horner had additional data from condominium sales occurring in the four-year period after the tax lien date. He testified to a revised cash flow analysis using the actual historical sales, which included investor discounts for some units ranging from $75,000 to $105,800. Taking into account the various investor discounts and the construction costs to complete the units, he retrospectively concluded that the cash flow analysis resulted in a value of $2,900,000.

{¶ 8} Although the board of education's attorney cross-examined Babyak and Horner during the BTA hearing, the school board did not present any witnesses, evidence of its own valuation, or evidence in support of the auditor's valuation.

{¶ 9} After reviewing the evidence, the BTA concluded that East Bank “failed to present competent and probative evidence to either this board or the BOR in support of its requested decreases in value.” Dublin City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, BTA Nos. 2009–Q–1282 through 2009–Q–1301 and 2009–Q–1408, 2012 WL 3166815, *6 (July 24, 2012). Specifically, the BTA found that Horner's use of the bulk discount was improper under M/I Homes of Cincinnati, L.L.C. v. Warren Cty. Bd. of Revision, BTA No. 2009–V–3796, 2010 WL 3724159 (Sept. 21, 2010). Id. at *5. It further determined that it could not rely on the rest of Horner's appraisal report for multiple reasons. Id. First, the BTA took issue with the fact that Horner's calculation of each parcel's value was based on comparable sales of units within East Bank I and East Bank II, but the report contained withdrawn listings and listing prices—not sale prices—of the East Bank I units. Id. Second, it found no evidence that the “cost to finish,” which Horner deducted from each unit's estimated retail price, conformed to market costs. Id. And third, in response to East Bank's argument that the auditor had assessed the units as finished units as opposed to unfinished units, the BTA held that it could not make the appropriate adjustments to the valuation since there was no evidence as to the completion percentage of each unit. Id. at *6. It therefore reversed the board of revision's adjustments and reinstated the auditor's valuation of the 21 units. Id.

{¶ 10} East Bank appealed the BTA's decision to this court, contending first that the BTA's decision is unlawful and unreasonable because it reverted to the auditor's value when the board of education had introduced no evidence in support of the auditor's valuation. Second, East Bank argues that the BTA did not hold the board of education to its burden of proof and that it improperly shifted the burden of proof to East Bank. Third, East Bank asserts that the BTA erred as a matter of law by precluding the use of bulk discount factors in East Bank's valuation and that the BTA acted unreasonably and unlawfully by not valuing the 21 units as a single economic unit. Next, East Bank maintains that the record demonstrates that the units were unfinished on the tax lien date and also establishes the costs to complete the units, and it urges that the BTA acted unreasonably and unlawfully in not applying a discount based upon unfinished property. Finally, East Bank argues that the BTA abused its discretion in rejecting the board of revision's determination that East Bank presented the requisite evidence of value.

{¶ 11} In response, the board of education asserts that Horner's appraisal is an “investment value appraisal,” which “does not constitute competent and probative evidence of the true value of real property.” The board of education further argues that because East Bank did not satisfy its initial burden to prove that Horner's appraisal evidenced the true value of the property, the BTA did not improperly shift the burden of proof to East Bank. The board of education also maintains that “[t]he BTA is not required to accept the opinion of an appraiser concerning the cost to finish a condominium unit without any facts or figures to support that opinion or that the true value of the unit must be reduced on a dollar-for-dollar basis by the amount of the costs to finish the unit.”

{¶ 12} Thus, we must decide whether the BTA properly reinstated the auditor's valuation of the condominium units at issue.

Standard of Review

{¶ 13} Pursuant to R.C. 5717.04, this court reviews decisions of the BTA to determine whether they are “reasonable and lawful.” Our review of a question of law is not deferential but de novo. Akron Centre Plaza, L.L.C. v. Summit Cty. Bd. of Revision, 128 Ohio St.3d 145, 2010-Ohio-5035, 942 N.E.2d 1054, ¶ 10. This court will affirm a decision of the BTA only if the BTA correctly applies the law. HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 124 Ohio St.3d 481, 2010-Ohio-687, 923 N.E.2d 1144, ¶ 13. And, we will uphold the BTA's determination of fact if the record contains reliable and probative evidence supporting the BTA's determination. Satullo v. Wilkins, 111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 954, ¶ 14.

Burdens of Proof

{¶ 14} We have established that the taxpayer bears the burden to establish the right to a deduction and a taxpayer is “ ‘not entitled to the deduction claimed merely because no evidence is adduced contra his claim.’ ” Dayton–Montgomery Cty. Port Auth. v. Montgomery Cty. Bd. of Revision, 113 Ohio St.3d 281, 2007-Ohio-1948, 865 N.E.2d 22, ¶ 15, quoting W. Industries, Inc. v. Hamilton Cty. Bd. of Revision, 170 Ohio St. 340, 342, 164 N.E.2d 741 (1960).

{¶ 15} When a party appeals a board of revision's decision to the BTA, the appellant, whether it be a taxpayer or a board of education, has the burden to prove its right to a reduction or increase in the board of revision's determination of value....