Rancho Cincinnati Rivers, L.L.C. v. Warren Cnty. Bd. of Revision

• Decision Date: 18 August 2021
• Docket Number: No. 2020-0643,2020-0643
• Citation: 177 N.E.3d 256,165 Ohio St.3d 227
• Parties: RANCHO CINCINNATI RIVERS, L.L.C., Appellant, v. WARREN COUNTY BOARD OF REVISION et al., Appellees.
• Court: Ohio Supreme Court

165 Ohio St.3d 227

177 N.E.3d 256

RANCHO CINCINNATI RIVERS, L.L.C., Appellant,

v.WARREN COUNTY BOARD OF REVISION et al., Appellees.

No. 2020-0643

Supreme Court of Ohio.

Submitted April 14, 2021

Decided August 18, 2021.

The Gibbs Firm, L.P.A., Ryan J. Gibbs, Cincinnati, and Geoffrey N. Byrne, for appellant.

David P. Fornshell, Warren County Prosecuting Attorney, and Christopher A. Watkins, Assistant Prosecuting Attorney, for appellees Warren County Board of Revision and Warren County Auditor.

David C. DiMuzio, Inc., David C. DiMuzio, and Mathew C. DiMuzio, for appellee Kings Local School District, Board of Education.

Donnelly, J. {¶ 1} Appellant, Rancho Cincinnati Rivers, L.L.C., owns and leases property in Warren County for use as a Lowe's Home Centers store. In this appeal, Rancho contests the tax valuation of that property for tax year 2016. Rancho maintains that an appraisal that had been introduced by appellee Kings Local School District Board of Education ("school board"), which was adopted by the Warren County Court of Common Pleas as the basis for determining the value of the property, was not competent evidence of the property's value, because it did not value the "fee simple, as if unencumbered" as required by R.C. 5713.03.

{¶ 2} Rancho contends that for a piece of property to be valued as a "fee simple estate, as if unencumbered" as required by R.C. 5713.03, the property must be appraised under the theory that a hypothetical sale of the property on the tax-lien date would involve the current tenant vacating the property at transfer. We disagree, and we therefore affirm the judgment of the Twelfth District Court of Appeals.

I. BACKGROUND

A. The property

{¶ 3} The property at issue is a 141,400 square-foot structure with a large parking lot, all of which sits on a parcel of land that is a little over 12 acres. Rancho acquired the property in 2011 for $5,130,000, subject to a 20-year ground lease pursuant to which Lowe's pays $375,000 per year.¹

B. Course of proceedings

{¶ 4} Appellee Warren County Auditor assessed the property as having a true value of $8,493,150 for the 2016 tax year. In March 2017, Rancho filed a complaint against the auditor's valuation; the school board filed a countercomplaint in April 2017 asking appellee Warren County Board of Revision ("BOR") to retain the auditor's valuation. The BOR held a hearing at which Rancho presented the testimony and appraisal report of Richard G. Racek Jr., a member of the Appraisal Institute. Racek determined that the property had a value of $5,660,000 under the sales-comparison approach² and a value of $6,000,000 under the income-capitalization approach,³ which he reconciled to an appraised value of $5,800,000. After discussing and rejecting Rancho's legal theory, the BOR decided to retain the auditor's valuation of the property.

{¶ 5} Pursuant to R.C. 5717.05, Rancho appealed the BOR's decision to the Warren County Court of Common Pleas. A magistrate conducted a hearing in April 2018 at which Rancho again relied on Racek's testimony and appraisal report. At the hearing, the school board presented the testimony and appraisal report of James W. Burt, also a member of the Appraisal Institute. Burt determined that the property had a value of $9,010,000 under the cost approach, a value of $8,480,000 under the sales-comparison approach, and a value of $8,570,000 under the income-capitalization approach, for a final-value conclusion of $8,480,000.

{¶ 6} Agreeing with Rancho's argument, the magistrate rejected the suggestion that "encumbered comparable properties may be used in a comparable sales approach, unadjusted, merely because the rent for such properties is at the market rate." Warren C.P. No. 17CV090411, 6 (Apr. 19, 2019). The magistrate reversed the BOR's decision and adopted Racek's valuation of $5,800,000.

{¶ 7} The BOR and the auditor (collectively, "the county") filed objections to the magistrate's decision, as did the school board. The common pleas court sustained their objections and set the property's value at $8,480,000, in accordance with Burt's appraisal. Specifically, the court stated that by "valu[ing] the Property as if the first occupant of the structure had left and the property was sitting for sale, vacant," "treating the property as ‘vacant’ and ‘second generation,’ "⁴ and "comparing the Property to other properties who have been on market for years but have yet to sell," Racek "provided an inaccurate valuation for the Property." Warren C.P. No. 17CV090411, 14 (June 28, 2019). The common pleas court explained that Racek's approach was not proper, given that "the Property is currently leased to its first and only tenant, and all evidence indicates that lease agreement is fruitful." Id. The court found that because Burt (1) considered first-generation leases similar to Lowe's lease, (2) made qualitative adjustments based on the existence of the leases to which the comparable properties were subject, and (3) inquired into "whether the comparable properties were being leased at market value or if further adjustments were necessary," id. at 15, Burt's appraisal was both more reflective of precedent and more probative than Racek's. The court therefore adopted Burt's valuation of $8,480,000 as the property's value as of January 1, 2016.

{¶ 8} Rancho appealed, and the Twelfth District affirmed the judgment of the common pleas court. According to the court of appeals, Rancho "interprets R.C. 5713.03 to mean that an occupied property should be valued as if it were vacant and available for sale or rent to a future hypothetical user" and Rancho's "appraiser would value an occupied property, like the property in this case, as if it were vacant on the tax lien date, rather than occupied and rented at market rent." 2020-Ohio-1319, 142 N.E.3d 714, ¶ 29. The court of appeals explained that the phrase " ‘as if unencumbered’ means that if the subject property is encumbered, the appraiser adjusts for the effects of those encumbrances. It does not mean, however, that the appraiser must assume that the property is vacant or ignore the fact that the property is leased at a market rate." Id. , citing Harrah's Ohio Acquisition Co., L.L.C. v. Cuyahoga Cty. Bd. of Revision , 154 Ohio St.3d 340, 2018-Ohio-4370, 114 N.E.3d 192, ¶ 26-27.

{¶ 9} Based on this interpretation of precedent, the court of appeals affirmed the common pleas court's adoption of Burt's appraisal. Rancho appealed, and we accepted jurisdiction. See 159 Ohio St.3d 1464, 2020-Ohio-3882, 150 N.E.3d 117.

II. ANALYSIS

A. Standard of review

{¶ 10} The fair market value of property for tax purposes is a question of fact, the determination of which is primarily within the province of the taxing authorities. See NWD 300 Spring, L.L.C. v. Franklin Cty. Bd. of Revision , 151 Ohio St.3d 193, 2017-Ohio-7579, 87 N.E.3d 199, ¶ 13. When reviewing a board of revision's decision pursuant to R.C. 5717.05, a common pleas court may admit additional evidence, and it "should consider all such evidence and determine the taxable value through its independent judgment"—in other words, it should render a "decision de novo. " (Emphasis sic.) Black v. Cuyahoga Cty. Bd. of Revision , 16 Ohio St.3d 11, 14, 475 N.E.2d 1264 (1985). And on appeal, the judgment of the common pleas court "shall not be disturbed absent a showing of abuse of discretion." Id. at paragraph one of the syllabus.

{¶ 11} However, R.C. 5717.05 provides that an appeal may be taken from a decision of a common pleas court "on the questions of law as in other cases." The issues that Rancho raises call for the construction and application of the language of R.C. 5713.03 —and that is a question of law that we review de novo. See Akron Centre Plaza, L.L.C. v. Summit Cty. Bd. of Revision , 128 Ohio St.3d 145, 2010-Ohio-5035, 942 N.E.2d 1054, ¶ 10.

B. The statute at issue

{¶ 12} R.C. 5713.03 requires the county auditor, who is the assessor of real-property tax for the county, to "determine, as nearly as practicable, the true value of the fee simple estate, as if unencumbered but subject to any effects from the exercise of police powers or from other governmental actions, of each separate tract, lot, or parcel of real property and of buildings, structures, and improvements located thereon." In carrying out this duty, "if such tract, lot, or parcel has been the subject of an arm's length sale between a willing seller and a willing buyer within a reasonable length of time, either before or after the tax lien date, the auditor may consider the sale price of such tract, lot, or parcel to be the true value for taxation purposes." Id.

{¶ 13} For purposes of this case, the crucial language of the statute is the phrase "fee simple estate, as if unencumbered."⁵ That language was added to the statute by 2012 Am.Sub.H.B. No. 487 ("H.B. 487"), effective tax year 2013. See Terraza 8, L.L.C. v. Franklin Cty. Bd. of Revision , 150 Ohio St.3d 527, 2017-Ohio-4415, 83 N.E.3d 916, ¶ 15, 18. Before H.B. 487 was enacted, the statute merely required that the auditor determine the value "of each separate tract, lot, or parcel of real property." 136 Ohio Laws, Part II, 3182, 3247. At that time, the statute made no explicit reference to a fee-simple estate.

C. Rancho's propositions of law

{¶ 14} Rancho presents four propositions of law that focus on two main issues.⁶ Under the first, second, and fourth propositions of law presented in its merit brief, Rancho argues that Burt's appraisal is not competent evidence because it allegedly conflicts with the plain language of R.C. 5713.03, as amended in 2012 by H.B. 487. Rancho contends that R.C. 5713.03 requires the tax assessor to assume "an unencumbered transfer, wherein the hypothetical seller of the property vacates at closing and the buyer could take immediate possession and occupancy." Rancho asks this court to hold that " R.C. 5713.03 bars valuation of property assuming the presence of lease encumbrances, whether at market rates or otherwise." In...