Soifer v. Floyd County Bd. of Review

• Decision Date: 23 January 2009
• Docket Number: No. 05-1641.,05-1641.
• Citation: 759 N.W.2d 775
• Parties: Sam SOIFER, Estate of Barbara J. Soifer, Deceased, by Sam Soifer and Joann Robinson, Coexecutors, and Franchise Realty Interstate Corp., Appellants, v. FLOYD COUNTY BOARD OF REVIEW, Appellee.
• Court: Iowa Supreme Court

759 N.W.2d 775

Sam SOIFER, Estate of Barbara J. Soifer, Deceased, by Sam Soifer and Joann Robinson, Coexecutors, and Franchise Realty Interstate Corp., Appellants, v. FLOYD COUNTY BOARD OF REVIEW, Appellee.

No. 05-1641.

Supreme Court of Iowa.

January 23, 2009.

Judith M. O'Donohoe of Elwood, O'Donohoe, Stochl, Braun & Churbuck, Charles City, for appellants.

Bruce B. Green and Brett Ryan of Willson & Pechacek, P.L.C., Council Bluffs, and Kimberly L. Birch, Assistant County Attorney, Charles City, for appellee.

TERNUS, Chief Justice.

This case involves taxpayers' consolidated appeals from the decisions of the appellee, Floyd County Board of Review, denying the taxpayers' objections to assessments of their property for tax purposes. The property is a McDonald's fast-food restaurant located in Charles City, Iowa. It is owned by appellant, Franchise Realty Interstate Corp., who leases it to appellants Sam and Barbara Soifer,¹ McDonald's franchisees. The parties dispute the actual value of the property and the necessity of using franchise-to-franchise sales as comparable transactions in determining market value. The district court dismissed the taxpayers' appeals, ruling the assessed value of $352,990 in 2003, 2004, and 2005 was not excessive or inequitable.

On appeal, the court of appeals reversed the district court and reduced the assessed value to $230,000 for the years in question. In its de novo review, the court of appeals found more convincing the testimony of the taxpayers' expert witnesses that the market value of the property was far less than the assessed value. We granted further review. Upon our review of the record, we agree with the district court that the assessed value was not excessive or inequitable. Therefore, we vacate the court of appeals' decision and affirm the judgment of the district court.

I. General Principles of Law Applicable to Assessment Proceedings.

We start our discussion of this appeal with a review of the legal concepts governing valuation of real estate for taxation purposes, as we believe it is helpful to have these principles in mind before reviewing the background facts and prior proceedings. The relevant statutory framework for the assessment and valuation of property is contained in Iowa Code chapter 441. See Iowa Code ch. 441 (2005). "All property subject to taxation shall be valued at its actual value...." Id. § 441.21(1)(a). "Actual value" is "the fair and reasonable market value of [the] property." Id. § 441.21(1)(b).

"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.

Id. In determining market value, "[s]ales 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."² Id. The statute also instructs that "abnormal transactions not reflecting market value shall not be taken into account or shall be adjusted to eliminate the effect of factors which distort market value." Id. Although the assessor may consider any factor that "would assist in determining the fair and reasonable market value of the property," the assessor may not take into consideration "[s]pecial value or use value of the property to its present owner, and the good will or value of a business which uses the property as distinguished from the value of the property as property." Id. § 441.21(2).

The Iowa Administrative Code requires an assessor to "classify and value property according to its present use and not according to its highest and best use."³ Iowa Admin. Code r. 701-71.1(1). "[P]roperty subject to a lease is taxed as a whole and measured by the value of its fee." Merle Hay Mall v. City of Des Moines Bd. of Review, 564 N.W.2d 419, 422 (Iowa 1997).

A property owner who is dissatisfied with the county assessor's valuation may protest the assessment to the board of review. Iowa Code § 441.37(1). Among other grounds, the protest may be based on a claim "[the] assessment is not equitable as compared with assessments of other like property in the taxing district" or on a claim "the property is assessed for more than the value authorized by law." Id. § 441.37(1)(a), (b).

If the property owner is not content with the board's disposition of the protest, the taxpayer may appeal to the district court. Id. § 441.38(1). Although the taxpayer is limited to the grounds raised before the board, the taxpayer may introduce evidence in the district court to sustain those grounds. Id. The district court hears the appeal in equity and "determine[s] anew all questions arising before the board." Id. § 441.39. There is no presumption "as to the correctness of the valuation of assessment" from which the appeal is taken. Id.

If the property owner "`offers competent evidence by at least two disinterested witnesses that the market value of the property is less than the market value determined by the assessor,' the burden shifts to the board of review to uphold the assessed value." Boekeloo v. Bd. of Review, 529 N.W.2d 275, 277 (Iowa 1995) (quoting Iowa Code § 441.21(3) (1993)). If the taxpayer fails to offer competent evidence of two disinterested witnesses, then the burden of persuasion remains with the taxpayer to establish that the assessed valuation was excessive. Id. at 279; Foreman & Clark of Iowa, Inc. v. Bd. of Review, 286 N.W.2d 169, 172 (Iowa 1979). When a property owner claims the valuation was excessive, in addition to proving the excessiveness of the board's valuation, the property owner must establish the correct valuation. Heritage Cablevision v. Bd. of Review, 457 N.W.2d 594, 598 (Iowa 1990); Iowa Code § 441.21(3).

Having in mind this general introduction to the statutory scheme governing property assessments and appeals from them, we turn now to the facts of this case.

II. Background Facts and Proceedings.

Sam and Barbara Soifer own a franchise for a McDonald's restaurant located in Charles City, Iowa. The building and the real estate upon which it sits is owned by a McDonald's company known as Franchise Realty Interstate Corp. The Soifers lease the property from Franchise Realty, and under the agreement, are responsible for payment of the property taxes on the parcel.

The building on the property was constructed in 1978 and has undergone periodic modifications, enlargements and updating since that time. The property is located in a 100-year floodplain and was flooded in 1993, 1996, 1999, and 2004. Due to the floodplain location, the property insurance premium includes a $4000 surcharge. Although the restaurant is just off the main commercial street going through Charles City known as Old Highway 218, it has no frontage on this street. Moreover, in July 2000, the Avenue of the Saints, an interstate highway, opened. This interstate bypasses Charles City, causing traffic that would normally take Old Highway 218 through Charles City to travel around Charles City on the new interstate. The rerouting of traffic has caused a drop in business along Old Highway 218. The Soifers claim a twenty-five-percent decrease in gross sales receipts since the opening of the interstate, and an additional ten-percent drop since the opening of another fast-food restaurant directly off the bypass exit. Nonetheless, the Soifers and their appraiser acknowledge this McDonald's restaurant continues to be a very viable establishment.

In 2001, the county assessor raised the assessment on the property from $356,000 to $399,000 after conducting a complete market analysis to re-evaluate all commercial properties in the taxing district. After an appeal, the Board reduced the assessed value to $368,650, and in an out-of-court settlement, the valuation was reduced even further to $351,780. In 2002, the assessment was again raised, this time to $352,990 for 2003 and 2004. Upon the Soifers' protest, the Board upheld the assessment. During the pendency of an appeal of the 2002 assessment, another assessment occurred resulting in the same assessed value of $352,990. The taxpayers unsuccessfully protested and then appealed the subsequent assessment as well, and both appeals were consolidated.

In the consolidated appeals for tax years 2003, 2004, and 2005, the Soifers challenged the assessments on two grounds. First, they asserted the actual value of their property was $250,000, not $352,990. Second, they claimed the assessments of their property were not equitable when compared with the assessments of like properties in the city.

In the district court proceedings, the Soifers introduced the expert testimony of an appraiser, Brett Blanchfield, and a local realtor, Connie Parsons. Blanchfield placed the value of the property at $230,000, and Parsons opined the value was between $193,000 and $217,500. The Board presented the testimony of the county assessor and Robert Ehler, an appraiser who testified the reasonable market value of the property was $381,000.

The district court concluded all three experts' opinions were flawed. Although Ehler, the Board's appraiser, used franchise-to-franchise sales as comparable transactions, which the court believed more fairly and accurately reflected the fair market value of the subject property, Ehler failed to adequately account for local market conditions in evaluating these comparable sales. The taxpayers' appraiser, Blanchfield, considered local market conditions, but did not use franchise-to-franchise sales as his comparables. The court found that,

[t]o obscure the fact that this real estate is being operated as a viable McDonald's restaurant, a quite popular American establishment, would be to ignore reality.... It would be commonly inferred that a willing buyer would reasonably...