Maytag Co. v. Partridge, 55481

Decision Date19 September 1973
Docket NumberNo. 55481,55481
Citation210 N.W.2d 584
PartiesThe MAYTAG COMPANY, Appellant, v. Thomas PARTRIDGE, Member and Chairman of the Board of Review of the City of Newton, Iowa, et al., Appellees.
CourtIowa Supreme Court

Murray B. Nelson, Newton, and Herrick, Langdon, Belin & Harris and Jeffrey E. Lamson, Des Moines, for appellant.

Lewis M. Girdner, Newton, for appellees.

Heard before MOORE, C.J., and RAWLINGS, LeGRAND, UHLENHOPP, and McCORMICK, JJ.

UHLENHOPP, Justice.

This appeal involves the valuation of a manufacturing plant for property tax purposes.

The former Iowa State Tax Commission disapproved the 1965 property tax valuation of one of The Maytag Company's manufacturing plants in Newton, Iowa. Litigation ensued, which the parties eventually settled. The parties stipulated in their settlement that representatives of the commission would inspect and appraise all industrial property in Newton in 1967 and 1968 and that the city assessor would revalue the properties in 1969. Commission representatives accordingly inspected and appraised Newton industrial property.

Between 1965 and 1969, the legislature substantially altered the definition of assessed value in the taxation of tangible property, by changing to a market value concept. Compare Code 1966, § 441.21, with Code 1971, § 441.21. Also in that period, the legislature reorganized the commission into the Iowa Department of Revenue.

In 1969 the Newton assessor valued Newton industrial property in the light of the commission's appraisal and his own information. Maytag objected to the new valuation of its Plant 2, and on review, the Newton Board of Review reduced the valuation. Maytag appealed to district court, which affirmed the board's reduced valuation. Maytag then appealed to this court.

The parties did not discover any sales of plants comparable to Maytag's Plant 2. Endeavoring to ascertain the value of that plant, they therefore considered the plant's three components--land, buildings, and machinery and equipment (we will call the latter component machinery). The lowest value of the whole plant estimated by Maytag's experts was $11,653,483. The value fixed by the board and shown by its evidence, was $18,848,905. Both sides introduced substantial evidence in support of their valuations.

As we view the case, the principal problems are these: (1) Does the existence of a used machinery market price require that the sales prices approach be used in valuing the machinery, and does the used machinery market price constitute superior evidence of the value of the machinery? (2) Was the assessor's method of valuing the machinery valid? (3) Are industrial properties inside and outside of Newton to be considered here for comparative purposes? (4) Who has the burden of proof? (5) What is the exchange value of the plant?

We begin with the controlling parts of our basic statutes and decisions. Section 441.21 of the Code deals with valuation of real and tangible personal property for property tax purposes. That section provides such property shall be assessed at 27% Of 'actual' value. It continues:

The Actual value of All property subject to assessment and taxation shall be the fair and reasonable Market value of such property. (Italics added.)

The section proceeds to define market value:

'Market value' is defined as the Fair and reasonable exchange in the year in which the property is listed and valued between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and each being familiar with all the facts relating to the particular property. (Italics added.)

(As to 'fair and reasonable exchange' or 'exchange value,' see 1 Bonbright, Valuation of Property, 44--46 (1937)--' exchange value' or 'value in exchange' are terms used by economists to include values reflected by transactions both on organized markets and by occasional sales.)

Next the section tells the assessor how to ascertain the 'fair and reasonable exchange' (which we will call exchange value). It authorizes two approaches. The first is the 'sales prices' approach:

Sales prices of the property or comparable property in normal transactions reflecting market value, and the probable availability or unavailability of persons interested in purchasing the property, shall be taken into consideration in arriving at its market value.

Then the section authorizes the second or 'other factors' approach:

In the event market value of the property being assessed cannot be readily established in the foregoing manner, then the assessor may consider its productive and earning capacity, if any, industrial conditions, its cost, physical and functional depreciation and obsolescence and replacement cost, and all other factors which would assist in determining the fair and reasonable market value of the property but the actual value shall not be determined by use of only one such factor.

In sum, in every case the objective sought is the exchange value between voluntary, informed buyers and sellers. That value is ascertained (a) by consideration of sales prices or, if such value cannot thus be readily established, (b) by consideration of other factors which will assist in determining exchange value.

A second statute involved in the case is § 428.22 of the Code:

Machinery used in manufacturing establishments shall, for the purpose of taxation, be regarded as real estate.

Under this statute, manufacturing machinery 'must be deemed real estate, or regarded as such, in its assessment and taxation.' Northwestern States Portland Cement Co. v. Board of Review of Mason City, 244 Iowa 720, 728, 58 N.W.2d 15, 20.

The principal decision involved in the case is Tiffany v. County Board of Review in and for Greene County, 188 N.W.2d 343 (Iowa). We there laid down the rule that in valuing improved real estate, an assessor is not to value the land the improvements separately and then add the two values together. Rather, he is to value the improved real estate as a unit. See also Juhl v. Greene County Board of Review, 188 N.W.2d 351 (Iowa); Markwardt v. County Board of Review in and for Franklin County, 174 N.W.2d 396 (Iowa).

Applying these principles, the law required this assessor first to endeavor to apply the sales prices approach in determining the exchange value of Maytag's Plant 2--that is, from sales prices of comparable plants. But since neither the assessor nor Maytag discovered such sales, exchange value could not be 'readily established' in that manner. The assessor thus had to turn to the second approach of other factors. This permitted him to consider values of components of the plant--not simply to be added together but for their bearing on the value of the plant as a whole. But since exchange value was the goal, the assessor's task was still to estimate the price a buyer and a seller would agree upon--not on the basis of actual sales prices, which were unavailable, but on the basis of an estimated price the plant would probably bring if offered for sale. See State ex rel. IBM Corp. v. Board of Review of Fond du Lac, 231 Wis. 303, 314--315, 285 N.W. 784, 789 ('In assessments involving property of this kind the inquiry should relate to the price that such property would probably bring if offered for sale.'); Allen v. Bonded Municipal Corp., 62 R.I. 101, 4 A.2d 249; 1 Bonbright, Valuation of Property, 59--61 (1937).

We come, then, to the specific issues.

I. Use of Used Machinery Prices. A major component of the plant is machinery. A major dispute between the parties relates to the valuation of this machinery.

The evidence shows that a number of firms throughout the country deal in used industrial machinery--buying, storing, and selling it--and that a market price exists for such machinery. In this connection Maytag asserts two propositions: first, the existence of a used machinery market price requires that the sales prices approach be used in valuing the machinery here, and second, even if use of the sales prices approach is not required, the used machinery market price is superior proof of the value of this machinery.

Maytag's first proposition involves two implicit assumptions. It initially assumes that the sales prices approach is to be applied to a component having a market price although the other factors approach is applicable to the taxable unit of which the component is a part. We find no justification for this assumption in the statute and, indeed, regard it as the antithesis of the Tiffany principle of valuing a taxable unit as a unit.

A case can be put in which the sales prices approach might apply to industrial machinery. The evidence here discloses that Maytag retires machines from time to time when they become worn or outdated. If Maytag disconnected those machines and placed them in its warehouse pending sale, a good claim could be made that they no longer are 'used in manufacturing' under § 428.22 and therefore no longer are to be assessed as part of the real estate. A plausible case could be made that they have the exchange value the used machinery market gives them and that the first approach of sales prices must therefore be applied to them. But such are not our facts. We are dealing with machinery which in fact is in use in manufacturing.

The other implicit assumption is that the exchange value of machinery imstalled and operating on the line equals the price of machinery on the used machinery market. This assumption brings us to Maytag's second proposition also--that the used machinery market price constitutes superior evidence of value under the approach of other factors. We will therefore consider this implicit assumption in connection with both propositions.

We think this assumption, like the initial one, will not withstand analysis. While the best uses to which non-agricultural property may be put are to be considered, the rule is that an assessor must also consider conditions existing at the time and the...

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