Port Auth. v. Bd. of Revision

• Decision Date: 09 May 2007
• Docket Number: No. 2006-0492.,2006-0492.
• Citation: 865 N.E.2d 22,2007 Ohio 1948,113 Ohio St.3d 281
• Parties: DAYTON-MONTGOMERY COUNTY PORT AUTHORITY, Appellant, v. MONTGOMERY COUNTY BOARD OF REVISION et al., Appellees.
• Court: Ohio Supreme Court

865 N.E.2d 22

113 Ohio St.3d 281

2007-Ohio-1948

DAYTON-MONTGOMERY COUNTY PORT AUTHORITY, Appellant, v. MONTGOMERY COUNTY BOARD OF REVISION et al., Appellees.

No. 2006-0492.

Supreme Court of Ohio.

Submitted January 23, 2007.

Decided May 9, 2007.

Sleggs, Danzinger & Gill Co., L.P.A., and Todd W. Sleggs, Cleveland, for appellant.

Mathias H. Heck Jr., Montgomery County Prosecuting Attorney, and Nolan Thomas, Assistant Prosecuting Attorney, for appellees Montgomery County Board of Revision and Montgomery County Auditor.

David C. DiMuzio, Inc., and David C. DiMuzio, for appellee Dayton City School District Board of Education.

O'CONNOR, J.

{¶ 1} In this appeal, appellant, the Dayton-Montgomery County Port Authority, the owner of a recently constructed office building in downtown Dayton, seeks to reduce that building's cost valuation as computed by the county auditor and as affirmed by the Board of Tax Appeals ("BTA") for the tax year 2003. The Port Authority contends that the actual-cost figures it presented to the board of revision constitute a more accurate valuation than the figures used by the auditor. In particular, the Port Authority asserts that its actual-cost evidence refutes the auditor's use of a 1.6 "grade factor adjustment," which had the effect of increasing the value assigned to the building by 60 percent over the costs as listed on the basic cost schedules that the auditor presumptively utilized. Given the present record, we agree with the Port Authority, and we therefore reverse the decision of the BTA and remand the case. On remand, the BTA is instructed to value the building on the basis of the cost evidence presented to the board of revision, without using any grade-factor adjustment.

RELEVANT BACKGROUND

{¶ 2} The evidence in this case consists of the transcript certified by the board of revision to the BTA, an audiotape preserving the testimony before the board of revision, and the exhibits introduced by the Port Authority at the board of revision.

{¶ 3} The sole witness was Thomas Fister, who had overseen the construction of the building at issue on behalf of the Port Authority, and who furnished background information concerning the construction. The project involved demolition of a Sears facility, the remediation of the land, and the construction of a five-story office building, and represented a concerted effort by the city of Dayton and Montgomery County to entice a private corporation to locate in the office building. The benefit sought by the Port Authority was not profit but the creation of some 550 jobs and the concomitant generation of income tax revenue. Next door, a six-story parking garage was constructed, but it is not part of the parcel at issue. Enticements to the private tenant included provision of free parking in the adjacent parking garage and enjoyment of the 30-35 parking spaces in the basement. Rent of the office building was calculated to recover costs of financing the building, without any allowance for the cost of providing parking, and was well short of assuring any profit to the Port Authority. Contracting on the project began, according to Fister's recollection, in 2000, with construction beginning in 2001 and ending in 2002. Fister characterized the project as a "design-build" project in which a general contractor handled all the arrangements for construction and submitted invoices reflecting all costs incurred.

{¶ 4} The Port Authority submitted documentation of actual project costs to the board of revision. The final "application for payment" confirms a contract date of October 20, 2000, and reflects a final tally of costs incurred as of August 31, 2002. The contractor's application for payment documented a total project cost of $13,537,710. Notably, the application for payment explicitly encompassed items such as "building permit" and "architectural/engineering design," which constitute "soft costs" associated with the project.

{¶ 5} Another of the Port Authority's exhibits at the board of revision set forth adjustments leading to a total proposed cost valuation of the building of $12,680,305. In its brief, the appellant now interprets the evidence as showing actual building costs of $13,934,260.

{¶ 6} The Port Authority contrasts these actual-cost figures to the county auditor's calculation of replacement cost. The second page of the property record card shows that the auditor aggregated replacement-cost figures to arrive at a total of $11,936,463. The auditor then applied a "grade factor" of 1.6, which adjusted the cost figure up to $19,098,340. Because the building was new, the auditor recognized a depreciation of one percent, arriving at a final cost of the building of $18,907,360. Adding the land value of $316,620 to the cost of improvements, the county arrived at a valuation of $19,223,980.

{¶ 7} The essence of the Port Authority's argument lies in comparing the auditor's cost figure (before the grade-factor adjustment) of $11,936,463 to its own original cost valuation of $12,680,305. The Port Authority maintains that the similarity of these figures negates the validity of applying the 1.6 grade-factor adjustment. The auditor has offered no evidence in support of the grade-factor adjustment.

{¶ 8} Without explanation, the board of revision adjusted the value of the building from $18,907,360 to $18,115,160. Also without explanation, the board of revision adopted $133,290 as the value of the land, rather than $316,260. On the auditor's property record card, the figure adopted by the board of revision constitutes the "prev. years" appraised value, not the current appraised value, of the land.

{¶ 9} The Port Authority appealed to the BTA, where the parties waived a hearing and submitted the case on the record developed before the board of revision. After reviewing the evidence, the BTA concluded that the Port Authority had "offered only part of the analysis necessary to derive a market value for the subject." Dayton-Montgomery Cty. Port Auth. v. Montgomery Cty. Bd. of Revision (Feb. 10, 2006), B.T.A. No. 2004-A-1227, at 7 ("Port Authority"). The BTA found the Port Authority's analysis to be "incomplete" because it lacked "testimony from an expert appraiser who could derive not only the hard costs, but also the soft costs, associated with the construction of the property, as well as study the market and analyze whether the actual costs represented market costs on tax lien date." Id. Rejecting both the Port Authority's suggested valuation and the board of revision adjustment, for which "there exists no credible explanation," the BTA found itself "constrained to revert to the auditor's valuation." Id. at 8. As to the land, however, the BTA adopted the board of revision value of $133,290 rather than the $316,620 figure used by the auditor. Id. On an appeal as of right from the BTA decision, the Port Authority asks us to reverse the BTA.

ANALYSIS

The Cost-Valuation Method

{¶ 10} R.C. 5713.03 requires the county auditors in Ohio to "determine, as nearly as practicable, the true value of each separate tract, lot, or parcel of real property and the buildings, structures, and improvements located thereon." The true value of real property is "`the amount for which that property would sell on the open market by a willing seller to a willing buyer.'" Alliance Towers, Ltd. v. Stark Cty. Bd. of Revision (1988), 37 Ohio St.3d 16, 21, 523 N.E.2d 826, quoting State ex rel. Park Invest. Co. v. Bd. of Tax Appeals (1964), 175 Ohio St. 410, 412, 25 O.O.2d 432, 195 N.E.2d 908. Accord Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio-4979, 834 N.E.2d 782, ¶ 8, 9. In performing their duties under the statute, the auditors are directed to apply "the uniform rules and methods of valuing and assessing real property as adopted, prescribed, and promulgated by the tax commissioner." R.C. 5713.03; R.C. 5715.01 (empowering the Tax Commissioner to promulgate such rules).

{¶ 11} The administrative rules prescribe the methods for valuing land and improvements. Ohio Admin.Code 5703-25-12 states that when valuing improvements, the auditors may use the market-data, the income, or the cost approach.

{¶ 12} The cost method of valuing improvements seeks to determine what a potential buyer would expect to pay in constructing a replacement for the existing building. That number is significant because "[a] prospective purchaser will not rationally pay $15,000 for a house, or for 100 shares of stock, or for a shipment of wheat if, without serious delay, he can build or buy equally satisfactory substitutes for $10,000." 1 Bonbright, The Valuation of Property (1937) 157. See Dinner Bell Meats, Inc. v. Cuyahoga Cty. Bd. of Revision (1984), 12 Ohio St.3d 270, 271, 12 OBR 347, 466 N.E.2d 909, fn. 1. By determining the cost to replace existing improvements, the auditor establishes an upper limit to the amount a buyer would be willing to pay for an existing structure. Id. at 272, 12 OBR 347, 466 N.E.2d 909; Meijer, Inc. v. Montgomery Cty. Bd. of Revision (1996), 75 Ohio St.3d 181, 187, 661 N.E.2d 1056. The cost method is appropriately applied when, as here, a building is a new structure not substantially depreciated. The Appraisal of Real Estate (12th Ed.2001) 354 ("Because cost and market value are usually more closely related when properties are new, the cost approach is important in estimating the market value of new or relatively new construction"); Higbee Co. v. Cuyahoga Cty. Bd. of Revision, 107 Ohio St.3d 325, 2006-Ohio-2, 839 N.E.2d 385, ¶ 47 (affirming the BTA's reliance on cost approach where building had been open only two months prior to tax lien date); Dinner Bell Meats at 271, 12 OBR 347, 466 N.E.2d 909, fn. 1. When county auditors compute cost value, Ohio Adm.Code 5703-25-12(A) first requires the estimation of "replacement cost new," after which an appropriate deduction must be made for depreciation and obsolescence. Ohio ...