In the Matter of Appeal of Blue Ridge Mall Llc From the Decisions of The Henderson County Bd. of Equalization And Review Concerning the Assessments of Real Prop. For Tax Year 2007., COA10–1487.

• Decision Date: 02 August 2011
• Docket Number: No. COA10–1487.,COA10–1487.
• Citation: 713 S.E.2d 779
• Parties: In the Matter of Appeal of BLUE RIDGE MALL LLC from the decisions of the Henderson County Board of Equalization and Review concerning the assessments of real property for tax year 2007.
• Court: North Carolina Court of Appeals

713 S.E.2d 779

In the Matter of Appeal of BLUE RIDGE MALL LLC from the decisions of the Henderson County Board of Equalization and Review concerning the assessments of real property for tax year 2007.

No. COA10–1487.

Court of Appeals of North Carolina.

Aug. 2, 2011.

OPINION TEXT STARTS HERE

Appeal by Henderson County and Blue Ridge Mall LLC from final decision entered 18 June 2010 by the North Carolina Property Tax Commission. Heard in the Court of Appeals 25 April 2011.

Parker Poe Adams & Bernstein LLP, Raleigh, by Charles C. Meeker and Jamie S. Schwedler, for Henderson County-appellant.

Bell, Davis & Pitt, P.A., Winston-Salem, by John A. Cocklereece, Jr., D. Anderson Carmen, and Justin M. Hardy, for Blue Ridge Mall LLC-appellant.North Carolina Association of County Commissioners, Raleigh, by Sharon Scudder, General Counsel, amicus curiae.

MARTIN, Chief Judge.

Blue Ridge Mall LLC (the taxpayer) and Henderson County (the County) appeal from the final decision of the North Carolina Property Tax Commission (the Commission), which valued the subject property (the property) for the tax year 2007 at $9,461,476. The taxpayer's property consists of two parcels of land located at 1800 Four Seasons Boulevard in Hendersonville, North Carolina. One parcel, comprised of approximately 5.15 acres, is currently used as a retention pond and the other, comprised of approximately 24.19 acres, is improved with a commercial mall, the Blue Ridge Mall. Anchoring the south end of the Blue Ridge Mall is a Belk store. Belk owns the portion of the mall housing its store as well as the underlying land, and Belk's parcel physically separates the 5.15–acre parcel from the 24.19–acre parcel.

Effective 1 January 2007, the County appraised the market value of the 24.19–acre parcel at $11,696,700 and the 5.15–acre parcel at $201,900.¹ In response to interrogatories, the County stated that it had used the cost approach to value the property “as set forth in its schedule of values.” The County stated that the land values in its schedule of values are based on comparable sales and that the building values in its schedule of values are based on “base costs, adjustments for various features and depreciation.”

The taxpayer appealed the County's assessment to the Henderson County Board of Equalization and Review and the assessment was confirmed. The taxpayer appealed to the Commission, sitting as the State Board of Equalization and Review, and the matter was heard in December 2009.

Before the Commission, the taxpayer offered into evidence an appraisal report prepared by Paul G. Carter Jr., MAI SRA, a commercial real estate appraiser. Mr. Carter's report explained, “Income-producing properties are typically purchased by investors for the earnings that they are capable of producing.” Because the income capitalization method “is by far the most applicable and reliable method of valuing multitenant [sic] income-producing properties like the subject,” he used the income capitalization method in his valuation. Mr. Carter concluded that the property's market value as of 1 January 2007 was $7,735,000.

In June 2010, the Commission entered a final decision, making the following relevant findings:

5. Henderson County is required to value all property for ad valorem tax purposes at its true value in money, which is “market value.” N.C. Gen.Stat. 105–283 .... Market value is defined in the statute as:

“The price estimated in terms of money at which the property would change hands between a willing and financially able buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of all the uses to which the property is adapted and for which it is capable of being used.” Id.

6. An important factor in determining the subject property's market value is its highest and best use. The highest and best use of the subject property is its present use as an enclosed regional mall.

....

8. The Commission recognizes that the [taxpayer's] appraiser[, Paul G. Carter, Jr. MAI, SRA,] prepared an appraisal report wherein he only used the income capitalization approach to estimate his opinion of value for the subject property....

9. When relying upon the income capitalization approach, the [taxpayer's] appraiser reached an estimated opinion of value of $7,735,000 for the subject property, effective January 1, 2007. Mr. Carter arrived at his estimated opinion of value as follows:

Stabilized net operating income (NOI) excluding real estate taxes: $993,455

Divided by the tax-loaded overall capitalization rate: 0.12842

10. Of the sales information contained in his appraisal report, Mr. Carter relied upon the Mayberry Mall sale that occurred on December 28, 2007 to determine his overall capitalization rate of 12%. Mr. Carter made no adjustments to his overall capitalization rate due to the age of the Mayberry Mall property (The Mayberry Mall property is fifty percent (50%) older than the subject property) and the sale of this property occurred after the January 1, 2007 reappraisal date.

11. Of the three accepted appraisal approaches to value, namely the cost approach, comparable sales approach, and income capitalization approach, an appraiser should consider all three appraisal approaches to value as long as the income approach is given the greatest weight to determine the market value for income-producing property. When arriving at the fair market value for the subject property, an appraiser may consider the cost approach or a combination of the three approaches to value the property, but the appraiser's reliance upon the income capitalization approach is most appropriate to determine the subject property's market value as of January 1, 2007.

12. Henderson County did not assess the subject property at its market value as of January 1, 2007 when it did not rely upon the income capitalization approach to value the property. As such, the most reliable appraisal method to determine the market value for the subject property is the income capitalization approach.

13. There are two methods under the income capitalization approach (direct capitalization or yield capitalization (discounted cash flow analysis) [sic] that are used in appraising income-producing properties. For purposes of this appeal, the direct capitalization method is most appropriate because it is the method commonly used by investors in the region where the subject property is located.

14. The direct capitalization method considers net operating income at only one point in time. As of January 1, 2007, the subject property's stabilized net operating income (NOI) excluding real estate taxes was $993,455. When considering all the evidence an overall capitalization rate of 10.5% is most appropriate to determine the market value of the subject property as of January 1, 2007. When the subject property's net operating income of $993,455 is divided by the overall capitalization rate of 10.5%, the total market value for the property subject to this appeal was $9,461,476 as of January 1, 2007; $201,900 for the retention pond parcel ... and $9,259,576 for [the Blue Ridge Mall parcel].

(Footnotes omitted.) It then entered the following conclusions,

1. Ad valorem assessments are presumed to be correct. When assessments are attacked or challenged, an appellant is required to produce evidence that tends to show that the County relied on an illegal or arbitrary valuation method and that the assessment substantially exceeds true value of the property.

2. After the appellant produces such evidence as outlined above, the burden of going forward with the evidence and of persuasion that its methods would in fact produce true value then rests with the County; and it is the Commission's duty to 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 County met its burden.

3. After considering all the evidence, the exhibits and all matters of record and after determining its weight and sufficiency and the credibility of witnesses, and appraising conflicting and circumstantial evidence, the Commission concludes that Henderson County did not properly assess the subject property at its market value and that the total valuation of the subject property was $9,461,476, as of January 1, 2007.

(Footnotes omitted). Accordingly, the Commission ordered that the County revise its tax records to reflect the Commission's findings and conclusions. The taxpayer and the County filed timely notices of appeal from the Commission's decision.

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It is a “sound and a fundamental principle of law in this State that ad valorem tax assessments are presumed to be correct.” In re AMP Inc., 287 N.C. 547, 562, 215 S.E.2d 752, 761 (1975). However, a taxpayer may rebut this presumption by producing “competent, material and substantial evidence that tends to show that: (1) [e]ither 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.” Id. at 563, 215 S.E.2d at 762 (citing Albemarle Elec. Membership Corp. v. Alexander, 282 N.C. 402, 410, 192 S.E.2d 811, 816–17 (1972)) (emphasis omitted). In attempting to rebut the presumption of correctness, the burden upon the aggrieved taxpayer “is one of production and not persuasion.” In re IBM Credit Corp., 186 N.C.App. 223, 226, 650 S.E.2d 828, 830 (2007), aff'd per curiam, 362 N.C. 228, 657 S.E.2d 355 (2008). Once a taxpayer produces sufficient competent, material and substantial evidence to rebut the presumption of correctness, the burden of proof then shifts to the taxing authority and the taxing authority must demonstrate its methods produce true value. In re S. Ry. Co., 313 N.C. 177, 182, 328 S.E.2d 235, 239 (1985).

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