Schmidt v. Thayer County Bd. Of Equal.

• Decision Date: 20 March 2001
• Docket Number: No. A-00-469.,A-00-469.
• Parties: Dennis G. SCHMIDT and Joyce E. Schmidt, Appellants, v. THAYER COUNTY BOARD OF EQUALIZATION, Appellee.
• Court: Nebraska Court of Appeals

624 N.W.2d 63

10 Neb.App. 10

Dennis G. SCHMIDT and Joyce E. Schmidt, Appellants, v. THAYER COUNTY BOARD OF EQUALIZATION, Appellee.

No. A-00-469.

Court of Appeals of Nebraska.

March 20, 2001.

Gregory C. Damman, of Blevens & Damman, Seward, for appellants.

Daniel L. Werner, Thayer County Attorney, Hebron, for appellee.

HANNON, SIEVERS, and MOORE, Judges.

MOORE, Judge.

INTRODUCTION

This is an appeal from a decision of the Nebraska Tax Equalization and Review Commission (TERC) affirming a determination by the Thayer County Board of Equalization (Board) regarding the valuation of a quarter section of agricultural property. The taxpayers appeal on the ground that the valuation was above market value for the land classes and soil types contained on the property. For the following reasons, we reverse, and remand for further proceedings.

PROCEDURAL BACKGROUND

This appeal from TERC involves a quarter section of agricultural real property in Thayer County, Nebraska, owned by Dennis G. Schmidt (Schmidt) and Joyce E. Schmidt. This quarter section is farmed as dryland. The acceptable range of assessment for agricultural land is from 74 to 80 percent of the actual value. See Neb.Rev.Stat. §§ 77-201 (Cum.Supp.2000) and 77-5023 (Cum.Supp.1998). For convenience, we refer to the subject property as the "SW¼," and the dollar figures used herein are generally stated as the agricultural assessment as opposed to actual values. For the year 1999, the county assessed the SW¼, approximately 160 acres, at $126,750. The prior valuation had been $88,350. The Schmidts protested to the Board for the reason that the "[v]aluation is above market value for the land classes and soil types contained on this parcel" and requested a valuation of $99,840. The Board made no change to the valuation. The Schmidts appealed the Board's decision to TERC.

Prior to the TERC hearing, the Schmidts filed an objection to the Board's calling witnesses identified in its witness list, as the list was not provided to the Schmidts 30 days prior to the hearing as required by TERC's order and notice of hearing and because the Schmidts had not been provided with the substance of any expert testimony as required by the order. TERC determined that the Board had failed to comply with the order of hearing with respect to the witnesses and that no good cause had been shown to excuse or explain the failure. TERC therefore ordered that the Board was limited to calling two expert witnesses, the county assessor and a licensed appraiser, and the witnesses would be limited to testifying to those matters in the exhibits submitted by both parties and in the record. The experts were barred from conducting a "Review Appraisal" of the professional appraisal commissioned by the Schmidts.

In TERC's findings and order affirming the decision of the Board, it determined that Schmidt's testimony as to the soil types in Thayer County and the productivity of that soil was based on the Thayer County soil survey. TERC found that Schmidt's opinion of value based on soil types had no foundation and therefore accorded it little or no weight. TERC further determined that five out of eight of Schmidt's comparable sales were not comparable and further found that Schmidt's opinion as to the value of the SW¼ was competent but not credible. TERC also found that the appraisal the Schmidts had commissioned was deficient in respects similar to the reasons it discounted Schmidt's opinion of value and therefore accorded it no weight. TERC did accept the testimony of the expert witness for the Board that the valuation on the SW¼ was correct and should not be changed. TERC ordered that the decision of the Board which denied the Schmidts' protest be affirmed and that the property be valued for the tax year 1999 at $126,750.

The Schmidts appeal from the decision of TERC for the reasons that the valuation of the SW¼ is above the market value for the land classes and soil types and that TERC failed to properly consider the evidence. The petition on appeal prays that the matter be remanded to TERC for the entry of an order finding that the proper valuation of the real property as of January 1, 1999, is $99,840.

FACTUAL BACKGROUND

At the TERC hearing, Schmidt testified that he has farmed since 1972 and has dryland farmed the SW¼ since 1980, that he bought it for $800 per acre in 1983, and that he farms 960 acres total of irrigated and dryland property, some owned and some leased. He has a bachelor of science degree from the University of Nebraska in agricultural education. He testified that he believes he has knowledge of real estate values by attending sales; by researching the records of the county assessor, particularly in preparing his protest; and by noting comparable sales. Schmidt prepared for the hearing before the Board by visiting the county assessor's office. The assessor showed him a map demarcating land referred to as "market area 1" and "market area 2." The SW¼ was contained in market area 1. Schmidt asked for comparable sales used in determining the valuation of his property. The assessor directed him to a stack of prior sales that were used in the valuation of the entire county. Schmidt performed his own research by going through the stack of prior sales and selecting eight sales that were, in his opinion, comparable. He used sales of dryland ground that were within a radius of approximately 5 or 6 miles of the SW¼ and had similar soil types. He admitted that two of his comparable sales were in 1993, but he used them because they were of "a high percentage of Class 1 land," were located near the SW¼, and were similar in topography to the SW¼. Using an old aerial photograph, Schmidt also produced a map of the SW¼ showing the soil types and percentage of soils. He was also of the opinion that irrigation on the SW¼ was not economically feasible. Schmidt admitted that there had been a general steady increase in land values since 1993.

The type and percentage of soils are important to the Schmidts' appeal, and we examine this factor more closely. The SW ¼ contains soils of class 1D (45 percent of the total SW¼) and class 3D1 (49 percent). On the SW¼, the 1D soil is very good producing soil. The 3D1 soil can be good producing soil, but is generally of moderately low fertility, is difficult to farm because it has a tendency to be sticky and to ball up when wet, is very hard when dry, and can only be farmed when it has dried out. The 3D1 soil bisects the SW¼ from southwest to northeast making it difficult to farm separately and requires that the SW¼ be farmed as one piece. If the 3D1 soil was located in one corner or one side, for example, Schmidt could farm it separately. Schmidt stated that according to the Thayer County soil survey, there are only 2,015 acres of the 3D1 soil in the county, or approximately one-half of 1 percent. Further compounding the difficulty of farming the SW¼ is that a drainage ditch is located in the interior of the 3D1 soil that bisects the SW¼. Schmidt asserted that because of the small percentage of 3D1 soil in the county and a relatively large percentage of 3D1 soil on the SW¼, the property is unique for valuation purposes.

With regard to his chosen comparable sales, Schmidt stated that some of the comparables contained very small percentages of 3D1 soil, the poorer producing soil, as compared to 1D soil, the better producing soil. Yet these comparables had sold for less than the SW¼ had been valued. Schmidt broke down the eight comparable sales into the type and percentage of soils on each parcel. The price per acre of Schmidt's eight comparables, as determined by the price paid at the time of previous sales, ranged from $580 to $840.

Schmidt also commissioned a professional appraisal of the SW¼ by Frank Bruning. Bruning personally inspected the property and considered the eight comparable sales that Schmidt had used. Bruning used a market or comparable sales approach, an income approach, and a soil type approach to arrive at an estimated actual value. The appraisal valued the real estate ranging from $85,700 to $124,000 actual value, depending on the approach. Bruning, who did not testify at the TERC hearing but whose appraisal was in evidence, rendered a written opinion that the most accurate actual valuation of the SW¼ was the market or comparable sales approach, which he determined to be $124,000. From this actual value as estimated by Bruning, and based on the information Schmidt had developed on his own, Schmidt argues that the assessed value should be set at $99,840, or approximately 80 percent of the actual value.

Schmidt disputed the value placed on the SW¼ by the Board because of the amount of 3D1 soil and the fact that it cuts across the entire SW¼, divides it, and requires him to farm it as one instead of separately. The 1D and 3D1 soils were each valued at $200 an acre more in market area 1 than in market area 2. Schmidt felt the Board did not take into consideration the negative effect that the 3D1 soil had on the other soil on the Schmidts' farm.

Jerry Knoche testified for the Board and stated that he is an appraiser by profession and had approximately 25 years' experience working with agricultural land appraisals. Knoche helped appraise agricultural land in Thayer County in 1999 and helped establish market areas; however, he was prevented from testifying as to the basis for establishing the market areas because of the pretrial order. The Board did make an offer of proof as to what Knoche would testify to on this point. Knoche had advised the assessor not to change the 1999 SW¼ valuation as it was fairly assessed. Knoche had not physically inspected the SW¼ other than a drive around the property and did not know if the property had a potential for irrigation.

The only other testimony adduced by the Board was that of the Thayer County assessor. He testified that he established the market areas for Thayer County. The assessor was...