Firstcal Indus. 2 Acquisitions v. Franklin Cty. Bd. Of Revision, 2009-1505.

• Decision Date: 06 May 2010
• Docket Number: No. 2009-1505.,2009-1505.
• Citation: 929 N.E.2d 426,2010 Ohio 1921,125 Ohio St.3d 485
• Parties: FIRSTCAL INDUS. 2 ACQUISITIONS, L.L.C.v.FRANKLIN CTY. BD. OF REVISION
• Court: Ohio Supreme Court

125 Ohio St.3d 485

929 N.E.2d 426

2010 Ohio 1921

FIRSTCAL INDUS. 2 ACQUISITIONS, L.L.C.v.FRANKLIN CTY. BD. OF REVISION

No. 2009-1505.

Supreme Court of Ohio.

Submitted March 31, 2010.

Decided May 6, 2010.

Wayne E. Petkovic, for appellant.

Rich & Gillis Law Group, L.L.C., and Mark H. Gillis, Dublin, for appellees Hilliard City School District Board of Education and South-Western City School District Board of Education.

O'CONNOR, J.

{¶ 1} This is an appeal from a decision of the Board of Tax Appeals (“BTA”) that found the value of four parcels of real property. ¹ Appellant, FirstCal Industrial 2 Acquisitions, L.L.C., part of a real estate investment trust, challenges the BTA's determination, which adopted the Franklin County Board of Revision's (“BOR”) allocation of the bulk-sale price that FirstCal reported on its conveyance-fee statement. FirstCal contends that the BTA's decision is unreasonable and unlawful because the allocation performed by the BOR lacks a reasonable factual basis and because the BOR and the BTA improperly placed the burden of refuting the validity of that allocation on FirstCal. We disagree and therefore affirm.

Relevant Background

{¶ 2} On March 24, 2006, the South-Western City Schools Board of Education and the Hilliard City Schools Board of Education (collectively, the “school boards”) filed five valuation complaints concerning five separate parcels that were listed on a conveyance-fee statement filed by FirstCal Industrial 2 Acquisition, L.L.C., as grantee. The school boards contended that the value assigned to the parcels for tax year 2005 should be proportionately increased in light of the October 2005 bulk sale of the parcels.

{¶ 3} On the conveyance-fee statement, FirstCal reported a bulk-sale price of $34,336,121 relating to the properties transferred that were located in Franklin County. That price, according to the fee statement, pertained to six listed parcels. The BTA made a specific finding that in spite of “some duplications and/or errors in listing parcel numbers” on the deed and the fee statement, the sale involved the five parcels challenged by the boards of education in their valuation complaints. FirstCal Indus. 2 Acquisitions, L.L.C. v. Franklin Cty. Bd. of Revision (July 28, 2009), BTA Nos. 2006-B-1789, 2006-B-1790, 2006-B-1791, and 2006-B-1792, 2006 WL 2360912, *7, fn. 3. FirstCal did not contest that finding in this court. ²

{¶ 4} Because the sale price reported on the conveyance-fee statement exceeded the aggregate value of the parcels as determined by the auditor, the school boards sought an allocated increase in value of the parcels at issue. ³ In their valuation complaints, the school boards computed a new value for each parcel by (1) determining each parcel's percentage of the aggregate value assessed as to all parcels by the auditor and then (2) applying that percentage to the $34,336,121 sale price.

{¶ 5} A hearing was held before the BOR on July 18, 2006. FirstCal presented the testimony of William McVeigh, a property-tax manager first for the seller, Duke Realty Ohio, and later for FirstCal. McVeigh was engaged to analyze the property-tax aspects of the sale for both buyers and sellers. He testified that he had personal knowledge of “how things were negotiated and why things were negotiated.”

{¶ 6} The bulk sale involved 72 industrial warehouse buildings in Ohio that were transferred as part of the sale, and the buildings were located in various counties, including Cuyahoga, Hamilton, and Franklin. Some vacant parcels were also transferred as part of the deal. Motivation for the sale lay in the seller's decision to broadly divest Ohio industrial properties.

{¶ 7} The deal was negotiated as one price. Later, FirstCal allocated the sale price to each county based on its own considerations. FirstCal's goal was to liquidate the properties within 12 months. The seller was merely cutting its losses.

{¶ 8} Because real estate investment trusts were involved, no unitary allocation had to be performed for federal tax purposes. The county-by-county allocations reported on conveyance-fee statements were not separately negotiated aspects of sale price.

{¶ 9} McVeigh stated generally that the arm's-length character of some real estate sales between real estate investment trusts can be questioned because of the special motivations that the parties have in arriving at a sale price, such as portfolio balancing to adhere to Securities and Exchange Commission requirements. But McVeigh did not assert that this case fell into that category.⁴ Moreover, McVeigh testified that some types of bulk-sale prices and allocations pertain to property value more than others do-but he did not testify that the type of allocation among the counties in this case was unrelated to property value.

{¶ 10} One of the five complaints that the school boards originally filed was dismissed because the case was settled. The parties in that case stipulated that the value was the sale price paid to FirstCal when it resold the property in March 2006. The school boards allege-and FirstCal does not dispute-that the sale price in that case was $3,200,000. That amount is lower than the $3,329,400 that would have been allocated to the property pursuant to the school boards' proposal,⁵ but it is significantly higher than the value originally assigned by the auditor, $2,400,028.

{¶ 11} The BOR decided to use the reported aggregate sale price and adopted the proposed allocations for the four remaining properties. FirstCal appealed to the BTA, where the school boards sought discovery of documentation relating to the bulk sale. When FirstCal failed to comply and produced a purported purchase agreement but not the other documents requested, it was sanctioned.

{¶ 12} At the BTA hearing, FirstCal relied on exhibits that included a deed, the alleged purchase agreement,⁶ and the conveyance-fee statement. There was no testimony at the BTA hearing.

{¶ 13} In its decision, the BTA discussed the case law and extracted the principle that the “price garnered through a bulk sale is evidence which may be used to value realty sold.” FirstCal, 2009 WL 2360912, *6. The BTA then imposed the burden of proof on FirstCal as the appellant and as the opponent of using the sale price. Because FirstCal did not discharge that burden, the BTA affirmed the BOR's valuation in accordance with the allocated sale price. Id.

Analysis

{¶ 14} R.C. 5713.03 states that the auditor “shall consider the sale price of [any] tract, lot, or parcel to be the true value for taxation purposes” if the sale was “an arm's length sale” that occurred “within a reasonable length of time, either before or after the tax lien date.” This case involves a bulk sale of real properties located throughout Ohio that occurred in October 2005, about ten months after the tax lien date at issue.⁷ FirstCal, as purchaser in the bulk-sale transaction, reported an allocated portion of the total bulk-sale price as the sale price of those parcels that were located in Franklin County.

{¶ 15} The use of the sale price in this case involved a two-step analysis. First, the school boards urged that the aggregate sale price reported on the conveyance-fee statement constituted the aggregate value of the Franklin County parcels to which it pertained. Next, the school boards suggested-and the BOR adopted-an allocation of the aggregate Franklin County sale price to the individual Franklin County parcels.

{¶ 16} When a single parcel is the subject of a recent, arm's-length sale, the sale price “ ‘shall be “the true value for taxation purposes.” ’ ” Cummins Property Servs., L.L.C. v. Franklin Cty. Bd. of Revision, 117 Ohio St.3d 516, 2008-Ohio-1473, 885 N.E.2d 222, ¶ 13, quoting Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio-4979, 834 N.E.2d 782, ¶ 13, quoting R.C. 5713.03. We have also stated, however, that the bulk sale differs from the situation in which a single parcel is the subject of a sale because the issue of proper allocation stands between the stated sale price and its character as reflecting the value of any one particular parcel. See generally St. Bernard Self-Storage, L.L.C. v. Hamilton Cty. Bd. of Revision, 115 Ohio St.3d 365, 2007-Ohio-5249, 875 N.E.2d 85, ¶ 15 (in a bulk-sale case, a “question arises beyond the basic pronouncement of Berea: whether the proffered allocation of bulk sale price to the particular parcel of real property is ‘proper,’ which is the same as asking whether the amount allocated reflects the true value of the parcel for tax purposes”).

{¶ 17} In the bulk-sale situation, two overarching principles control our decisions. We articulated those principles in two successive iterations of the same underlying case. In Conalco, Inc. v. Monroe Cty. Bd. of Revision (1977), 50 Ohio St.2d 129, 4 O.O.3d 309, 363 N.E.2d 722, paragraph two of the syllabus, we emphasized the importance of the sale price in the bulk-sale context, stating that “the best evidence of ‘true value in money’ is the proper allocation of the lump-sum purchase price and not an appraisal ignoring the contemporaneous sale.”

{¶ 18} After Conalco had returned to the BTA twice and the BTA had concluded that a probative allocation of the price could not be obtained, the court held that the BTA “is not required, in every instance, and in all events, to accept as the true value in money of real property, an allocation of a portion of a lump-sum purchase price paid for a group of assets which included the property in question.” Consol. Aluminum Corp. [formerly Conalco] v. Monroe Cty. Bd. of Revision (1981), 66 Ohio St.2d 410, 414, 20 O.O.3d 357, 423 N.E.2d 75. Indeed, when the BTA “finds [that] a proper allocation of the lump-sum purchase price to the property in question is not possible,” the BTA “may consider all of the evidence which is before it in determining the true value in money of the property.” Id. at 415, 20 O.O.3d 357, 423 N.E.2d 75.

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