Maryville Properties, L.P. v. Nelson

• Decision Date: 25 June 2002
• Docket Number: No. WD 60335.,WD 60335.
• Citation: 83 S.W.3d 608
• Parties: MARYVILLE PROPERTIES, L.P., Appellant, v. Pat NELSON, Assessor, Nodaway County, MO, Respondent.
• Court: Missouri Court of Appeals

Page 608

83 S.W.3d 608

MARYVILLE PROPERTIES, L.P., Appellant, v. Pat NELSON, Assessor, Nodaway County, MO, Respondent.

No. WD 60335.

Missouri Court of Appeals, Western District.

June 25, 2002.

Rehearing Denied July 25, 2002.

Application for Transfer Denied September 24, 2002.

COPYRIGHT MATERIAL OMITTED

Cathy Joy Pitman Dean, Kansas City, for appellant.

Scott W. Ross, Maryville, for respondent.

RONALD R. HOLLIGER, Judge.

Maryville Properties, L.P. (Maryville Properties) appeals from a decision of the State Tax Commission (Commission) including Low Income Housing Tax Credits (LIHTCs) received by Maryville Properties's limited partners in the valuation of a rent restricted apartment complex for real property tax purposes. Maryville Properties contends that 1) the tax credits and accelerated depreciation passed through to limited partners are intangible property not properly considered by statute in valuations for real estate tax assessments; 2) the Commission's decision violated the Missouri Constitution by valuing the property based upon the interest of the individual limited partners of Maryville Properties rather than the property's fair market value; and 3) the Commission arbitrarily deviated from its own prior decision that such tax credits were not properly included in valuing real property.

Jurisdiction

We must first address the issue of our jurisdiction because Article V, Section 3 of the Missouri Constitution grants exclusive appellate jurisdiction to the Missouri Supreme Court of all cases involving the constructions of revenue laws of the state. Alumax Foils, Inc. v. City of St. Louis, 939 S.W.2d 907, 910 (Mo. banc 1997). The Supreme Court does not have exclusive jurisdiction unless each of the three separate elements is met: 1) construction; 2) of the revenue laws; 3) of this state. "Construction" differs from "application," and if the Supreme Court has already decided an issue, the Court of Appeals applies the Supreme Court precedent. Branson Scenic Ry. v. Dir. of Revenue, 3 S.W.3d 788, 789 (Mo.App.1999). This case is one of first impression, and this court, therefore, has no Supreme Court precedent to apply. Construction is required. The law in question, however, is not a "revenue law of this state." We are required to interpret § 137.010, which defines, inter alia, two constitutionally mandated classifications of taxable property: real property and tangible personal property. Nevertheless, § 137.010 does not constitute a revenue law:

A "revenue law" directly creates or alters an income stream to the government that imposes a tax or fee on property owned or used or an activity undertaken in that government's area of authority. Thus, a revenue law either establishes or abolishes a tax or fee, changes the rate of an existing tax, broadens or narrows the base or activity against which a tax or fee is assessed, or excludes from or creates exceptions to an existing tax or fee....

A revenue law "of the state" is a law adopted by the general assembly to impose, amend or abolish a tax or fee on all similarly-situated persons, properties, entities or activities in this state, the proceeds of which are deposited in the state treasury.

Alumax Foils, 939 S.W.2d at 910. (Emphasis added).

This court has previously held that cases involving property taxes imposed by a county and paid to the treasury of the county are not "revenue laws of this state." Two Pershing Square, L.P. v. Boley, 981 S.W.2d 635, 638 (Mo.App.1998). This case does involve construction of a law adopted by the general assembly. The proceeds of the ad valorem tax on real property are deposited in the treasury of Nodaway County, rather than in the state treasury. None of the other issues involved are reserved for the exclusive jurisdiction of the Supreme Court. Jurisdiction, therefore, properly lies with this court. Id.

Background of Rent Restricted Federal Housing and Low Income Housing Tax Credits

Since the 1930's, the federal government has utilized a number of approaches to provide higher quality and more affordable housing to lower income individuals and families. These efforts have ranged from government constructed and operated projects to various incentives for private investors to provide such housing. The FmHA Section 515 Program is intended to provide more affordable housing in rural areas to low to moderate income families and senior citizens by providing favorable long term financing to private developers. In return for this financing, the project owner restricts occupancy to qualified families and charges rent at rates set by FmHa.

The LIHTC program is intended to motivate private investment by providing income tax credits which directly offset the federal income tax obligation of the individual investor. The individual investors in the Maryville property received such income tax credits through the Missouri Housing Development Commission (MHDC), a state agency established pursuant to RSMo. § 215.020. This program also supplied state income tax credits to the investors.

According to the testimony, the individual investor is motivated solely by the tax benefits. The tax credits expire after ten years. The tax credits are "sold" to the individual investor on a discounted basis.

Maryville Properties developed the rentrestricted apartment complex in 1992. For the tax years 1997 and 1998, the assessor valued this property at $758,300. Maryville Properties contested that the actual value was $350,000.

The property is subject to FmHA Section 515, which means that the owner must restrict occupancy to low-income tenants and must comply with various regulations in return for a favorable interest rate. The limited partners of Maryville Properties also received federal income tax credits under the LIHTC Program as a result of their investment in the property.

After development, Maryville Properties syndicated the project. The syndication process consisted of Maryville Properties creating a limited partnership in which a company under its control was the general partner. It then sold the ninety-nine percent limited partnership interest to a consortium of investors for between $138,000 and $169,000. The project cost was $748,647, but after syndication the value was $898,437. At the hearing, Maryville Properties' appraiser, Mr. Blaylock, testified that he could not explain the $149,790 increase in value except by way of the money paid during syndication. This appraiser testified that the income tax credits were not part of the real property. Another appraiser, Robert Cowan, testified for the assessor. His estimation of the value of the property included "the value a taxpayer in a 39% tax bracket would pay for the property," and assumed that person would sell the property as soon as the tax credit expired. The assessor also included in the value of the property accelerated depreciation that the federal program allows to be passed through to each limited partner.

The hearing officer's decision included the value a person in a thirty-nine percent tax bracket would place on the tax credits and deductions. Maryville Properties appealed the hearing officer's decision, and the Commission denied review, adopting the hearing officer's decision as its own. Maryville Properties appealed to the Nodaway County Circuit Court, which affirmed the Commission's decision. This appeal follows. Other facts will be stated as the issues are considered.

Analysis

We generally review the Commission's decision to determine whether it was supported by competent and substantial evidence on the record as a whole, whether it was arbitrary, capricious or unreasonable, or whether the Commission abused its discretion. Evangelical Ret. Homes of Greater St. Louis, Inc. v. State Tax Comm'n of Mo., 669 S.W.2d 548, 552 (Mo. banc 1984). A reviewing court is not to substitute its opinion as to the value of a property for that of the Commission. John Calvin Manor, Inc. v. Aylward, 517 S.W.2d 59, 63 (Mo.1974). However, if the question involves the application of law to the facts, the reviewing court must weigh the evidence for itself and determine the facts accordingly. § 536.140(3). Maryville Properties argues that the Commission erroneously applied the law.

The Commission stated under Finding of Fact 13: "Tax credits run with the land. They are part of the real property." However, whether LIHTCs constitute real property or intangible personal property, and whether a valuation of property that includes an assumption that the owner would be in a thirty-nine percent tax bracket values the property according to the owner's interest in it are questions of law. "It is well-settled that administrative agency decisions based on the agency's interpretation of law are matters for the independent judgment of the reviewing court." Morton v. Brenner, 842 S.W.2d 538, 540 (Mo. banc 1992). (Internal citations omitted).

Maryville Properties raises three points on appeal. In its first point it argues that the Commission erroneously applied the law because the income tax benefits to the individual limited partners are not real property for the purposes of valuation for real estate tax purposes. In its second point, Maryville Properties claims that the inclusion of the tax benefits to the individual limited partners amounted to a violation of Article X, Section 4(a) of the Missouri Constitution prohibiting the classification of real property based on the owner's interest in the property. In its third point, Maryville Properties argues that the Commission failed to follow its own precedent in the valuation of a similar low-income housing project.

Constitutional and Statutory Scheme

For ad valorem tax purposes there are three classes of property: (1) real property, (2) tangible personal property and (3) intangible personal property. Mo. Const. Art. X, § 4(a). Each class of property is defined by statute:

Class One (Real Property)

"Real property" includes land itself, whether laid...