Phx. Cement Co. v. Yavapai Cnty.
| Decision Date | 22 October 2015 |
| Docket Number | No. 1 CA-TX 14-0010,1 CA-TX 14-0010 |
| Parties | PHOENIX CEMENT COMPANY, Plaintiff/Appellant, v. YAVAPAI COUNTY, a political subdivision of the State of Arizona, Defendant/Appellee. |
| Court | Arizona Court of Appeals |
NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
Appeal from the Arizona Tax Court
No. TX2011-000018 and TX2011-000751 (Consolidated)
The Honorable Dean M. Fink, Judge
AFFIRMED IN PART; VACATED AND REMANDED IN PART
Lewis Roca Rothgerber, LLP, Phoenix and Tucson
By Susan M. Freeman, Rob Charles, Justin James Henderson
Helm, Livesay, & Worthington, LTD, Tempe
By Roberta S. Livesay
Cavanagh Law Firm, Phoenix
By James G. Busby, Jr.
Judge Andrew W. Gould delivered the decision of the Court, in which Presiding Judge Donn Kessler and Judge Lawrence F. Winthrop joined.
¶1 Phoenix Cement Company appeals the tax court's decision adopting the Yavapai County Assessor's valuation of its property for tax years 2010 and 2011. For the following reasons, we affirm in part, vacate in part, and remand for further proceedings.
¶2 Phoenix Cement manufactures cement at its plant in Clarkdale, Arizona. The Assessor values the machinery and equipment at the plant as personal property. Phoenix Cement timely challenged the Assessor's full cash values of its property for tax years 2010 and 2011. After exhausting its administrative remedies, Phoenix Cement appealed the value of its property to tax court.1
¶3 The court held a four-day bench trial. Phoenix Cement supported its proposed reduction in full cash value through the testimony of its expert appraiser, Dennis Neilson. Neilson testified that he valued the property using the cost approach to value, which is the same method the County used. Unlike the County, however, Neilson concluded there was significant economic obsolescence, resulting from the recession's impact on the cement industry, which reduced the value of the property.
¶4 After making specific findings of fact and conclusions of law, the tax court upheld the County's determinations of full cash value and rejected Phoenix Cement's proposed reduction in full cash value based on economic obsolescence. The tax court also permitted the County to add to its valuation certain "escaped property" that Phoenix Cement had allegedly not reported, and assessed penalties and interest relating to the escaped property.2
¶5 Thereafter, the tax court entered judgment in favor of the County, and this appeal followed. We have jurisdiction pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(A)(1)(2015).3
¶6 In reviewing a judgment entered after a bench trial, we view the evidence in the light most favorable to upholding the trial court's decision. Double AA Builders, Ltd. v. Grand State Const. L.L.C., 210 Ariz. 503, 506, ¶ 9 (App. 2005). We will not set aside the tax court's findings of fact unless they are clearly erroneous or not supported by substantial evidence. Nordstrom, Inc. v. Maricopa Cnty., 207 Ariz. 553, 558, ¶ 18 (App. 2004). We review pure questions of law and mixed questions of law and fact de novo. Eurofresh, Inc. v. Graham Cnty., 218 Ariz. 382, 385, ¶ 14 (App. 2007).
¶7 Taxpayers in Arizona have a duty to self-report personal property to the county assessor. See A.R.S. § 42-15053. Using the information reported by the taxpayer, the assessor values the property by determining the "acquisition cost less any appropriate depreciation as prescribed by tables adopted by the [Arizona Department of Revenue]." A.R.S. § 42-13054(A). Pursuant to A.R.S. § 42-13054(A), the taxable value of personal property determined by the assessor "shall not exceed the market value." Id.
¶8 If a taxpayer believes the assessor's valuation exceeds market value, the taxpayer has a right to appeal. See A.R.S. §§ 42-16201, -16203, -16207, -19051, -19052. However, in challenging a taxing authority'svaluation of property, the taxpayer has the burden of proving that "the assessment is excessive" and must present evidence "from which the trial court can determine the full cash value of the property in question." Graham Cnty. v. Graham Cnty. Elec. Co-op., Inc., 109 Ariz. 468, 469-70 (1973).
¶9 In this case, Phoenix Cement reported the cost of its personal property for tax years 2010 and 2011 to the Assessor who, in turn, determined the taxable value by calculating acquisition cost less depreciation. At trial and on appeal, Phoenix Cement challenges the Assessor's valuations, asserting that his valuations for 2010 and 2011 exceeded market value. Specifically, Phoenix Cement argues the tax court erred in:
¶10 As the tax court properly noted, "[b]y far, the greatest difference between the valuations of the two parties' experts is the existence or non-existence of economic obsolescence." Economic obsolescence is defined as:
[T]he loss in value or usefulness of a property caused by factors external to the asset. These factors include increased cost of raw materials, labor, or utilities . . . ; reduced demand for the product; increased competition, environmental or other regulations; or similar factors.
American Society of Appraisers, Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets 76 (3d ed. 2011)4 (emphasis added). This court similarly has defined economic obsolescence as "a loss in value caused by forces external to the property and outside the control of the property owner." Ariz. Dep't. of Revenue v. Questar S. TrailsPipeline Co., 215 Ariz. 577, 580, ¶ 12 (App. 2007) (quoting Magna Inv. & Dev. Corp. v. Pima Cnty., 128 Ariz. 291, 293 (App. 1981)). Additionally, in Eurofresh, Inc. v. Graham Cnty., 218 Ariz. 382 (App. 2007), we defined the term as "a temporary or permanent impairment of the utility or salability of an improvement or property due to negative influences outside the property."5 218 Ariz. at 386, ¶ 22 (quoting Appraisal Institute, The Appraisal of Real Estate 363 (12th ed. 2001)).
¶11 Here, the County's valuation of the property did not account for economic obsolescence beyond what may arguably be encompassed in the ADOR depreciation tables. Conversely, Phoenix Cement's expert opined that the economic recession, which resulted in decreased demand for cement, caused significant economic obsolescence that decreased the value of the plant. Specifically, in appraising the property, Neilson applied a 50% "economic obsolescence penalty" to the property's value for tax year 2010, reducing the value of the property by half, and a 60% penalty for tax year 2011, reducing the value of the property by more than half.6
¶12 This court addressed the application of economic obsolescence to property valuation in Eurofresh. We held that for a taxpayer to establish the existence of economic obsolescence, the taxpayer must offer probative evidence of (1) the cause of the obsolescence, (2) the quantity of the obsolescence, and (3) that the asserted cause of the obsolescence actually affects the subject property. Id. at 390, ¶ 37. In developing this test, we relied upon a decision from an Indiana court explaining that a taxpayer must establish "a connection to an actual loss in property value," which in cases involving commercial property "usually means a decrease in the property's income generating ability." Id. at 388, ¶ 29 (citing Wal Mart Stores, Inc. v. Wayne Twp. Assessor, 825 N.E.2d 485, 488 (Ind. T.C. 2005)).
¶13 At trial, Phoenix Cement attempted to satisfy the Eurofresh test by offering evidence of economic obsolescence. Specifically, Neilson testified that the plant's economic obsolescence was caused by "thesignificant loss in demand for cement" during the recession. In support of this opinion, Nielson produced evidence showing the impact of the recession on the cement industry. Thereafter, Neilson attempted to quantify the obsolescence through application of an inutility penalty formula.7 Finally, Neilson offered evidence that the recession, the cause of the economic obsolescence, affected production at the Phoenix Cement plant.
¶14 After considering Phoenix Cement's evidence, the tax court concluded that "Plaintiff's expert's opinion of alleged external obsolescence is not persuasive." The tax court found that "[t]o the extent Plaintiff's expert considered the economic obsolescence to be temporary, he failed to properly account for the temporary nature in reaching his conclusion."
¶15 We defer to the tax court's findings as long as the record supports them. In re the Gen. Adjudication of All Rights to Use Water in the Gila River Sys. & Source, 198 Ariz. 330, 337, ¶ 15 (2000); see also Ariz. R. Civ. P. 52(a) (). Additionally, the weight accorded expert testimony is within the sole province of the trial court. Magna Inv. & Dev. Corp. v. Pima Cnty., 128 Ariz. 291, 294 (App. 1981).
¶16 Our review of the record confirms the tax court did not abuse its discretion in determining that Neilson's testimony was not persuasive in establishing the amount of obsolescence proposed. See Flores v. Cooper Tire & Rubber Co., 218 Ariz. 52, 57, ¶ 20 (App. 2008) (). The tax court's...
To continue reading
Request your trial