In re Interstate Outdoor Inc.

• Decision Date: 16 September 2014
• Docket Number: No. COA14–223.,COA14–223.
• Citation: 236 N.C.App. 294,763 S.E.2d 172
• Court: North Carolina Court of Appeals
• Parties: In the Matter of: The Appeal of: INTERSTATE OUTDOOR INCORPORATED from the decision of the Johnston County Board of Equalization and Review regarding the valuation of certain business personal property for tax year 2012.

236 N.C.App. 294

763 S.E.2d 172

In the Matter of: The Appeal of: INTERSTATE OUTDOOR INCORPORATED from the decision of the Johnston County Board of Equalization and Review regarding the valuation of certain business personal property for tax year 2012.

No. COA14–223.

Court of Appeals of North Carolina.

Sept. 16, 2014.

Spence & Spence, P.A., Smithfield, by Robert A. Spence, for appellant Interstate Outdoor Incorporated.

David F. Mills, P.A., by David F. Mills, for appellee County of Johnston.

STROUD, Judge.

Interstate Outdoor, Inc. ("Interstate") appeals from two final decisions of the Property Tax Commission. It argues that the Commission erroneously affirmed ad valorem tax assessments for 2011 and 2012 made by Johnston County regarding 69 billboards it owns. We affirm the Commission's decisions because Interstate failed to produce substantial evidence that the valuation method used by Johnston County was arbitrary or illegal.

I. Background

Interstate is a corporation that owns and rents out billboards in 40 counties in North Carolina, including approximately 80 billboards in Johnston County. Interstate appealed Johnston County Tax Administration's valuation of 60 billboards it owned in Johnston County for tax years 2011 and 2012, as well as nine new billboards it bought in 2012. For tax year 2011, the county valued Interstate's property at $2,547,577. Interstate asserts its property was actually worth $1,923,746. For tax year 2012, the county valued Interstate's property at $2,786,200. Interstate asserted that its property was actually worth $1,790,691. To value the billboards, Johnston County relied on the Billboard Structures Valuation Guide published by the North Carolina Department of Revenue, which is updated annually.

On appeal to the Property Tax Commission, Interstate argued that the county had significantly overestimated the value of its property and introduced what it considered the proper estimate for each billboard. To do so, it asked one of its normal billboard contractors for ten quotes on different types of billboards. It then used one of the ten quotes for each of the billboards of contested value. Additionally, Interstate highlighted that the 2011 and 2012 tax values were approximately eighteen percent higher than those for 2010. In 2010, Interstate had appealed the valuation of its billboards. The parties reached a negotiated settlement, which valued its property at $1,923,746. Interstate argued that the value should remain the same for the 2011 and 2012 tax years.

The Property Tax Commission found that Interstate failed to show that the quotes it used "included all the costs that make the property ready for its intended uses," or a substantial connection between the quotes and the actual costs of constructing the billboards at issue. It therefore affirmed Johnston County's valuation for both tax years, with one dissent. Interstate timely appealed to this Court.

II. Standard of Review

In reviewing the decision of the Property Tax Commission,

the court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning and applicability of the terms of any Commission action. The court may affirm or reverse the decision of the Commission, declare the same null and void, or remand the case for further proceedings; or it may reverse or modify the decision if the substantial rights of the appellants have been prejudiced because the Commission's findings, inferences, conclusions or decisions are:

(1) In violation of constitutional provisions; or

(2) In excess of statutory authority or jurisdiction of the Commission; or

(3) Made upon unlawful proceedings; or

(4) Affected by other errors of law; or

(5) Unsupported by competent, material and substantial evidence in view of the entire record as submitted; or

(6) Arbitrary or capricious.

N.C. Gen.Stat. § 105–345.2(b) (2011). "In making the foregoing determinations, the court shall review the whole record or such portions thereof as may be cited by any party and due account shall be taken of the rule of prejudicial error." N.C. Gen.Stat. § 105–345.2(c).

The court may not consider the evidence which in and of itself justifies the Commission's decision without also taking into account the contradictory evidence or other evidence from which conflicting inferences could be drawn.... Therefore, under N.C. Gen.Stat. § 105–345.2(b), questions of law receive de novo review, while issues such as sufficiency of the evidence to support the Commission's decision are reviewed under the whole-record test.

In re Blue Ridge Housing of Bakersville LLC,

––– N.C.App. ––––, 738 S.E.2d 802, 807 (citations, quotation marks, ellipses, and brackets omitted), app. dismissed

and rev. allowed, ––– N.C. ––––, 747 S.E.2d 526 (2013), disc. rev. improvidently allowed, – –– N.C. ––––, 753 S.E.2d 152 (2014). "If the court finds substantial evidence to support the Commission's decision, the Commission's decision may not be overturned." Matter of Moses H. Cone Memorial Hosp., 113 N.C.App. 562, 571, 439 S.E.2d 778, 783 (1994), aff'd in part, 340 N.C. 93, 455 S.E.2d 431 (1995).

III. Analysis

Although Interstate frames its arguments on appeal as four distinct issues, in reality, it raises but one. In essence, it argues that the County used an illegal and arbitrary method of valuation because it followed the Department of Revenue schedules for the valuation of billboards without taking into account local conditions in Johnston County.

A county's ad valorem tax assessment is presumptively correct. However, the taxpayer may rebut this presumption by presenting competent, material, and substantial evidence that tends to show that (1) either the county tax supervisor used an arbitrary method of valuation; or (2) the county tax supervisor used an illegal method of valuation; and (3) the assessment substantially exceeded the true value in money of the property. Simply stated, it is not enough for the taxpayer to show that the means adopted by the tax supervisor were wrong, he must also show that the result arrived at is substantially greater than the true value in money of the property assessed, i.e., that the valuation was unreasonably high.

Once the taxpayer rebuts the initial presumption, the burden shifts back to the County which must then demonstrate that its methods produce true values. The critical inquiry in such instances is whether the County's appraisal methodology is the proper means or methodology given the characteristics of the property under appraisal to produce a true value or fair market value. To determine the appropriate appraisal methodology under the given circumstances, the Commission must hear the evidence of both sides, to determine its weight and sufficiency and the credibility of witnesses, to draw inferences, and to appraise conflicting and circumstantial evidence, all in order to determine whether the Department met its burden.

In re Parkdale Mills,

––– N.C.App. ––––, ––––, 741 S.E.2d 416, 419–20 (2013).

Thus, we must first consider whether there is substantial evidence in the record, considering it as a whole, to support the Commission's conclusion that Interstate failed to carry its burden of showing that Johnston County used an arbitrary or illegal method of valuation.

N.C. Gen.Stat. § 105–291(g) (2011) authorizes the Department of Revenue to "develop and recommend standards and rules to be used by tax supervisors and other responsible officials in the appraisal of specific kinds and categories of property for taxation." The Local Government Division of the Department of Revenue created a Billboard Structures Valuation Guide ("Billboard Guide") for tax years 2011 and 2012. Johnston County used the guide to appraise Interstate's billboards for the relevant tax years.

The Billboard Guide recommended applying a replacement cost approach to valuation because of the difficulty of acquiring the information necessary to accurately value billboards using either the income or sales comparison approaches.¹ The schedule was created based on data "extracted from material costs, labor, and other integral components of billboard construction." George Hermane, the personal property manager for Johnston County Tax Administration, testified that use of a sales or income approach would not be possible because the necessary information is not normally available. As a result, the Billboard Guide suggests that "[t]he valuation of each sign ... be determined by calculating the replacement cost new (RCN) and then deducting depreciation based on an effective age depreciation schedule."

The Billboard Guide divides billboards into four general categories: (1) wood structures, (2) steel "A–Frame" structures, (3) multi-mast structures, and (4) monopole structures. It then further divides the various classes of billboards into subclasses based on the size, height, and number of panels and design. The Billboard Guide...