F & M Schaeffer Brewing Co. v. Lehigh County Bd. of Appeals

• Decision Date: 18 May 1992
• Citation: 530 Pa. 451,610 A.2d 1
• Court: Pennsylvania Supreme Court
• Parties: F & M SCHAEFFER BREWING COMPANY: c/o Stroh Brewing Company, Appellant, v. LEHIGH COUNTY BOARD OF APPEALS and County of Lehigh, Appellees.

Page 1

610 A.2d 1

530 Pa. 451

F & M SCHAEFFER BREWING COMPANY: c/o Stroh Brewing Company, Appellant, v. LEHIGH COUNTY BOARD OF APPEALS and County of Lehigh, Appellees.

Supreme Court of Pennsylvania.

Argued Jan. 22, 1992.

Decided May 18, 1992.

John E. Garippa, Seth I. Davenport, Montclair, N.J., for appellant.

Anthony R. Thompson, Allentown, (for amicus curiae Pennsylvania Chamber of Business and Industry and Institute of Property Taxation).

Al Hettinger, Frank J. Madey, Allentown, William E. Schantz, Sol. for Upper Macungie, for appellees.

Before NIX, C.J., and LARSEN, FLAHERTY, McDERMOTT, ZAPPALA, PAPADAKOS and CAPPY, JJ.

OPINION ANNOUNCING THE JUDGMENT OF THE COURT

LARSEN, Justice.

Appellant F & M Schaeffer Brewing Company, c/o Stroh Brewing Company appeals from the order of the Commonwealth Court affirming the denial of appellant's tax assessment appeal by the Lehigh County Court of Common Pleas, which determined that appellant's property had a fair market value of $34 million for the years 1984-1988 and that the property's assessed value was $8,432,000 for 1984; $8,058,000 for 1985; $7,548,000 for 1986; $6,936,000 for 1987; and $6,120,000 for 1988.

The trial court described the subject property as follows:

The subject property involved is a 791,382 square foot facility situated on 62.243 acres of land located on the south side of U.S. Route 22 and on the west side of Pennsylvania Route 100 in Upper Macungie Township. In 1971 a brewery was built on the land by the F & M Schaeffer Brewing Co. and subsequently in 1981, the property was acquired by the Stroh Brewing Co. The bulk of the building area is contained in one large, irregularly shaped manufacturing office and warehouse plant. In addition there are numerous small special purpose buildings located on the southwest side of the main plant.

The plant was built by F & M Schaeffer specifically to produce beer. At the northwest end of the main plant are the tall six story brew houses. In 1982 a new brew house was added to accommodate the special fire brewing process for the production of Stroh's beer. Adjacent to the brew houses are the large silos which contain the grains used in the production of beer. Behind the silos is an interior rail shed which allows grains to be pumped from railroad cars into the silo storage area. Once the beer is brewed it is pumped into fermenter cellars adjacent to the rail shed and eventually it is stored in large storage cellars.

In the middle of the building is a 2 story office section. The office building contains the Stroh House which is a room for entertaining visitors. From the office section there is a visitors walkway for tours of the plant.

The rear portion of the plant is used for packaging and warehousing. Within this area there are elaborate packaging systems for bottling and canning the various beer products. Within the large warehouse there are three sections for keg washing, full keg storage and empty keg storage. In 1976 an addition was made to the warehouse to increase storage capacity. Outside the main building are various small support buildings which include additional warehouses, a garage, a waste recovery building a waste pre-treatment facility, a water recirculation building and a security building. The subject facility, with its attendant equipment, is capable of producing 3,500,000 barrels of beer annually.

Opinion of the Trial Court at pp. 2-3.

The subject property was assessed at a fair market value of $34 million in 1984. Appellant appealed the assessment to the Lehigh County Board of Assessment Appeals, which denied the appeal. Appellant then sought de novo review by the Court of Common Pleas. Thereafter, the County of Lehigh intervened.

Before the Court of Common Pleas, the parties stipulated to the applicable common level ratios ¹ and presented expert testimony regarding the valuation of the subject property. Appellees' experts testified that the property's fair market value was $34 million. In arriving at this figure, appellees' experts testified that they first determined that the property's highest and best use was a "special purpose" brewery and then applied a replacement cost valuation approach based specifically on the amount of beer produced at the facility. Appellant's expert, on the other hand, testified that the fair market value was $9.5 million based on a comparable sales valuation approach. After hearing all of the evidence, the trial court rejected appellant's expert testimony and concluded that the property's fair market value was $34 million. The Commonwealth Court affirmed. We granted appellant's petition for allowance of appeal and now reverse.

Appellant contends that the assessment does not reflect the fair market value of the property because the valuation methodology relied on by the trial court impermissibly employed a value-in-use standard to arrive at fair market value. Specifically, appellant claims that appellees' experts erroneously considered the value-in-use of the subject property by first estimating the property's highest and best use (ie ... a brewery) and then applying a replacement cost approach based on the utility of the property for that use (ie ... the production of 3.5 million barrels of beer per year).

Real estate is required to be assessed according to the "actual value thereof." 72 P.S. § 5020-402. The legislature has mandated that, in determining actual value, three approaches to valuation be used, namely, 1) cost (reproduction or replacement, as applicable, less depreciation and all forms of obsolescence), 2) comparable sales and 3) income approaches, and all three must be considered in conjunction with one another. 72 P.S. §§ 5020-402, 5348(d). The term "actual value" is defined as market value or fair market value, which in turn are defined as "the price which a purchaser, willing but not obliged to buy, would pay an owner, willing but not obliged to sell, taking into consideration all uses to which the property is adapted and might in reason be applied." Buhl Foundation v. Board of Property Assessment, 407 Pa. 567, 570, 180 A.2d 900, 902 (1962). "The actual or fair market value, while not easily ascertained, is fixed by the opinions of competent witnesses as to what the property is worth on the market at a fair sale." Id.; Algon Realty Co. Tax Assessment Appeal, 329 Pa. 321, 323, 198 A. 49, 50 (1938).

In contrast, use value or value-in-use represents the value to a specific user and, hence, does not represent fair market value. Authorities in the field of real estate valuation distinguish between market value (or value-in-exchange) and use value:

Use value is a concept based on the productivity of an economic good. Use value is the value a specific property has for a specific use.... Use value may vary, depending on the management of the property and external conditions such as changes in the business.... Real property may have a use value and a market value.

The Appraisal of Real Estate, American Institute of Real Estate Appraisers, (9th

ed., Chicago, 1987), cited in Appellant's Brief at p. 14. "Strictly speaking, value-in-use does not fit the criteria discussed in the definition of market value above [willing buyer/willing seller] and should not be considered equivalent to or a substitution for market value." Industrial Real Estate, Society of Industrial Realtors, (4th ed., Washington D.C., 1984), cited in Appellant's Brief at p. 14.

Because value-in-use is based on the use of the property and the value of that use to the current user, it may result in a higher value than the value in the marketplace. Value-in-use, therefore, is not a reflection of fair market value and is not relevant in tax assessment cases because only the fair market value (or value-in-exchange) is relevant in tax assessment cases. ² See McGraw-Edison Company v. Washington County Board of Assessment Appeals, 132 Pa.Cmwlth. 437, 443, 573 A.2d 248, 251 (1990); Pittsburgh-Des Moines Steel Co., Inc. v. McLaughlin, 77 Pa.Cmwlth. 565, 466 A.2d 1092 (1983). Thus, we hold that a property's use and its resulting value-in-use cannot be considered in assessing the fair market value of property for tax assessment purposes in Pennsylvania.

Despite this Commonwealth's historical aversion to the consideration of value-in-use in property tax assessment cases, appellees contend, and the courts below agreed, that the legislature's inclusion of the cost valuation approach in the tax assessment statutes made value-in-use relevant. The Commonwealth Court, opined that:

... before the legislature approved the cost approach, only a property's value-in-exchange [fair market value] was relevant in tax assessment cases. Pittsburgh-Des Moines Steel. However, a cost approach now has probative value in fixing property value for tax assessment purposes. Reichard-Coulston [Inc., v. Revenue Appeals Board of Northampton County, 102 Pa.Cmwlth. 227, 517 A.2d 1372 (1986) ]. Under a cost approach, when the highest and best use of the property is continuing the property's existing use, the property's value to the current user logically is relevant to determine the reproduction or the replacement cost of the facility.

* * * * * *

Although the trial court rejected the value-in-use method, it implicitly applied value-in-use analysis to determine the brewery's replacement cost, as required under Reichard-Coulston. Because the trial court correctly determined the property's fair market value by using that cost approach, we conclude that the trial court committed no error....

F & M Schaeffer Brewing Co. v. Lehigh County Board of Appeals, 133 Pa.Cmwlth. 197, 203, 204, 575 A.2d 649, 652, 653 (1990).

The courts below ignored the fact that real estate is still required to be assessed according to its fair market value, which by definition precludes consideration of value-in-use. The mere fact that the legislature mandated consideration of all three approaches to valuation does not mean...