Tax Appeal of Brookings Associates v. South Dakota State Bd. of Equalization, 17461

• Decision Date: 24 October 1991
• Docket Number: No. 17461,17461
• Citation: 482 N.W.2d 873
• Parties: In the Matter of the TAX APPEAL OF BROOKINGS ASSOCIATES, Plaintiff and Appellant, v. SOUTH DAKOTA STATE BOARD OF EQUALIZATION, Defendant and Appellee. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 873

482 N.W.2d 873

In the Matter of the TAX APPEAL OF BROOKINGS ASSOCIATES,

Plaintiff and Appellant,

v.

SOUTH DAKOTA STATE BOARD OF EQUALIZATION, Defendant and Appellee.

No. 17461.

Supreme Court of South Dakota.

Considered on Briefs Oct. 24, 1991.

Reassigned Jan. 13, 1992.

Decided March 25, 1992.

James E. Carlon, Pierre, for plaintiff and appellant.

Mark Barnett, Atty. Gen., David D. Wiest, Asst. Atty. Gen., Pierre, for defendant and appellee.

HENDERSON, Justice (on reassignment).

PROCEDURAL HISTORY/ISSUE

Brookings Associates (Associates), a partnership, contests the assessed valuation imposed upon its property by Brookings County Director of Equalization, Beryle Sessions (assessor). Associates initially appealed to the Brookings County Board of Equalization, which did not change assessor's revised assessed valuation of $1,477,465.00. Associates next appealed to the State Board of Equalization, which affirmed the County Board. Associates then appealed to the circuit court for Brookings County, pursuant to SDCL 10-11-43 (1989). The court affirmed the decision of the State Board.

On appeal, Associates raises the following issue:

Is the subject property assessed at more than its full and true fair market value?

FACTS

The property at issue in this appeal is an apartment complex known as Country Garden Apartments located within the city of Brookings, South Dakota. The apartment complex consists of four separate buildings which contain a total of eighty-eight apartment units. The property also contains forty detached garages and sits upon 5.5 acres of real property. These apartment buildings are the sole assets and business interests of Associates. Daniel Boeckermann, one of the partners in Associates, purchased a controlling interest in the partnership. He presently owns a seventy percent interest which he obtained by assuming the debt outstanding against Country Garden Apartments.

The assessor initially indicated to Boeckermann that based on her calculations, the property had a value of $1,043,379. The assessor then revised her valuation of the property after changes and recalculation, to reflect a value of $1,227,797.00 to the property. Later, however, the assessor assessed the property to indicate a value for tax purposes, at $1,477,465.00.

During the trial to the court, testimony was heard from three individuals: Boeckermann; Verne Hansen, a real estate appraiser employed by Associates; and assessor. Each individual gave an opinion as to the true and full value of the subject property. Boeckermann testified the property should be valued at $1,090,000. Hansen opined the value of the property was $1,095,000 and the assessor testified that the value of the property was $1,477,465. It appears the difference in valuation resulted from different techniques utilized by those individuals. Both appraiser Hansen and the county assessor utilized the income approach, comparable sales approach, and cost approach in making their respective assessments of the property.

Income Approach

The income approach is "the method of valuing income producing property by capitalizing net income by a rate which takes into consideration the risks involved in the investment." ARSD 64:03:01:01(3). Hansen prepared the income approach analysis utilizing the actual income history of the apartments. He reduced the actual income history of the apartments by the actual reasonable expenses which he determined through his investigation. He included, in his list of expenses, the real estate taxes paid by Associates for the apartments. Hansen concluded that with using the income approach, the property had a fair market value of $1,096,500.00.

The county assessor did not consider the actual income history but instead utilized what could be the income potential in Brookings for the apartments. County assessor did not consider the actual operating income and expense. Assessor relied upon what she believed would be a typical rate of expense in the community and average income potential.

The assessor calculated a valuation, based on the income approach, of $1,043,379.00. She subsequently altered her methodology and established a value of $1,227,797.00. She subsequently altered her valuation, for tax purposes, a third time and established a property value of $1,439,020.00.

Comparable Sales Approach

Another method of valuing property is the comparable sales approach. In this analysis, one compares the subject property with comparable properties that have recently sold within the area. See, ARSD 64:03:01:02.02. Following an investigation, Hansen determined that there were sufficient sales of apartment buildings in Brookings to make an assessment based on comparable sales. He utilized four comparable sales of apartment buildings and analyzed each according to the Real Estate Commission's administrative rules. He determined that comparable sales indicated a value for the Country Garden Apartments of $1,084,745.00.

The county assessor used only two sales for her appraisal report and did not analyze those comparable sales in accordance with the Real Estate Commission's rules for real estate appraisals. Based on the two sales, the assessor opined that based on sales, the value of the Country Garden Apartments of $1,477,465.00 would be reasonable.

Cost Approach

The final approach to placing value on property is the cost approach. Both parties utilized the Marshall & Swift Valuation Service cost estimates manual in computing costs to assessed value.

Hansen used this manual to determine the cost of the apartments if built new. He subtracted from that amount estimates of the amounts for physical depreciation, functional obsolescence and economic obsolescence. He followed the guidelines of the Real Estate Commission for the preparation of appraisal reports. In addition, Hansen considered the three types of depreciation, mentioned above, as acknowledged by this Court in Rau v. Fritz, 81 S.D. 311, 134 N.W.2d 773 (1965). Based on this implementation of the cost approach, Hansen estimated the value of the apartments to be $1,187,000.00.

In utilizing the Marshall & Swift cost estimates manual, assessor reduced the amount based on those estimates by including physical depreciation and locational depreciation. Assessor, in cursory manner, occasionally included an element of functional depreciation. Assessor did not include economic obsolescence into her calculations. Assessor reiterated her opinion, based on this analysis, that the value of the property was $1,477,465.00.

DECISION

We are confronted with one issue and one issue only: Is the subject property, apartment buildings known as the Country Garden Apartments, assessed at more than its fair market value? The record so reflects and, thus, the assessment of the Brookings County Director of Equalization and the decisions of the State Board of Equalization and the trial court are reversed.

Essentially, Article XI, section 2 of the South Dakota Constitution, proscribes: "... the valuation of property for taxation purposes shall never exceed the actual value thereof." Accord, Roseland v. Faulk Cty. Bd. of Equal., 474 N.W.2d 273, 275 (S.D.1991); Kindsfater v. Butte County, 458 N.W.2d 347, 350 (S.D.1990); Codington County Bd. of Com'rs. v. Bd. of Equalization, 433 N.W.2d 555, 557 (S.D.1988).

County assessor was very inconsistent in her thinking and assessment methodology. Initially, when discussing the value of the property with Boeckermann, she indicated that based on her calculations the property had a value of $1,043,379.00. After rethinking the calculations and making some changes, she then indicated that in her opinion, the property had a value of $1,227,797.00. Later, she assessed the property for tax purposes at $1,477,465.00. This figure was adopted, to the penny, by the trial court. State Board of Equalization is appellee. Appellee submitted 8 pages of "Appellee's Proposed Findings of Fact and Conclusions of Law;" in toto, trial court adopted these and crossed out "Appellee's Proposed" and affixed initials of the trial court thereon. This same procedure was followed on a two page Judgment. This is not a good practice for it detracts from the objectivity of the decisional process; therefore, the vitality of a judge-made decision is greatly diminished. Such a practice is frowned upon. See, Roberts v. Ross, 344 F.2d 747, 751-752 (3rd Cir.1965) (this practice viewed with disfavor in majority of Federal District Courts); Vetter v. Vetter, 267 N.W.2d 790, 797 (N.D.1978).

In challenging a tax assessment ruling, Associates has two presumptions to overcome:

First, there is a presumption that tax officials will do their duty in accordance with the law and not act unfairly and arbitrarily regarding the assessment of property. Skinner v. New Mexico State Tax Comm'n, 66 N.M. 221, 345 P.2d 750 (1959). Second, there is a presumption that the county director of equalization's valuations are correct. Mortenson v. Stanley County, 303 N.W.2d 107, 110 (S.D.1981).

Hutchinson County v. Fischer, 393 N.W.2d 778, 782 (S.D.1986). Accord, Roseland, 474 N.W.2d at 275. To overcome the presumption the Director of Equalization's valuation is correct, an appellant "must produce sufficient evidence to show the assessed valuation was in excess of true and full value, lacked uniformity in the same class or was discriminatory." Knodel v. Board of County Commissioners, 269 N.W.2d 386, 389 (S.D.1978). Accord, Roseland, 474 N.W.2d at 275.

However, when there is evidence that contradicts a presumption, the presumption then evaporates. Headlee v. N.Y. Life Ins. Co., 69 S.D. 499, 12 N.W.2d 313 (1943). Under South Dakota law, a presumption does not shift the burden of persuasion, but relates only to the burden of initially producing evidence on a particular issue. A presumption is not evidence in and of itself, and may not be relied on by a party in whose favor it operates when the other party has produced evidence. McKiver...