Town Square Limited Partnership v. Clay County Board of Equalization, No. 23125

CourtSupreme Court of South Dakota
Writing for the CourtKONENKAMP, Justice.
Citation2005 SD 99,704 NW 2d 896
PartiesTOWN SQUARE LIMITED PARTNERSHIP, a South Dakota Limited Partnership, Plaintiff and Appellant, v. CLAY COUNTY BOARD OF EQUALIZATION, Defendant and Appellee. 505 W. MAIN LIMITED PARTNERSHIP, Plaintiff and Appellant, v. CLAY COUNTY BOARD OF EQUALIZATION, Defendant and Appellee.
Decision Date21 September 2005
Docket Number No. 23125, No. 23126

2005 SD 99
704 NW 2d 896

TOWN SQUARE LIMITED PARTNERSHIP, a South Dakota Limited Partnership, Plaintiff and Appellant,
v.
CLAY COUNTY BOARD OF EQUALIZATION, Defendant and Appellee.
505 W. MAIN LIMITED PARTNERSHIP, Plaintiff and Appellant,
v.
CLAY COUNTY BOARD OF EQUALIZATION, Defendant and Appellee

Nos. 23125, 23126

Supreme Court of South Dakota.

Considered On Briefs on October 4, 2004

Opinion Filed September 21, 2005


THOMAS K. WILKA of Hagen, Wilka & Archer, PC, Sioux Falls, South Dakota, Attorneys for plaintiffs and appellants.

TAMI MARONEY BERN, Clay County State's Attorney, Vermillion, South Dakota, Attorney for defendants and appellees.

KONENKAMP, Justice.

[¶1.] In this property tax appeal, we address the valuation of an apartment building operating under the Federal Low Income Housing Tax Credit (LIHTC) program. The question is whether the "true and full value" of this low-income housing property must be calculated using market rent rates or whether the actual reduced rents should be used, and if the latter, whether the tax credits should also be included in the valuation. We conclude that both the restricted rents and the tax credits must be considered when assessing the property. Because these components were not accounted for in the assessment, we reverse and remand.

Background

[¶2.] Town Square Limited Partnership owns two apartment buildings in Vermillion, South Dakota. One building has thirty rental units and the other, forty. In this consolidated appeal, the owners challenge the tax assessments imposed by the Clay County Board of Equalization on the thirty-unit building for the years 2001 and 2002. By agreement of the parties, consideration of the forty-unit apartment building was held in abeyance. The thirty-unit apartment complex was designed to house elderly and disabled residents. It was still under construction on November 1, 2001, and at that time, the building was eighty percent complete. On January 29, 2002, the City of Vermillion issued a certificate of occupancy, but the building did not have occupants until July 2002, and was not fully occupied until December 2002.

[¶3.] Congress enacted the Low Income Housing Tax Credit (LIHTC) to address the nationwide undersupply of affordable housing for low-income people. See 26 USC § 42. By creating equity capital through federal tax credits, this program indirectly subsidizes the purchase, construction, and rehabilitation of low income housing. See Sagit Leviner, Affordable Housing and the Role of the Low Income Housing Tax Credit Program: A Contemporary Assessment, 57 Tax Law 869 (2004) (citation omitted). In allocating federal tax credits to developers of low cost rental housing and thus reducing investor federal tax liability, the LIHTC grants incentives for private construction. Without these incentives, affordable housing for low income individuals might well become increasingly unattainable. David Philip Cohen, Improving the Supply of Affordable Housing: The Role of the Low-Income Housing Tax Credit, 6 JL & Pol'y 537 (1998).

[¶4.] The LIHTC program is administered by the Department of the Treasury through local state agencies. Our state's official "housing credit agency" is the South Dakota Housing Development Authority. It is responsible for the administration and allocation of South Dakota's tax credits. 26 USC § 42(m). The program offers a ten-year reduction in tax liability for owners of low-income rental housing based on the development costs. Credit-financed apartments cannot be rented to anyone whose income exceeds sixty percent of the area's median gross income. "Under the program, nonprofit organizations form partnerships with for-profit entities [to permit] private equity to reach the project while allowing the project's tax credit allocation to pass through to the for-profit limited partner." Jonathan Penna, Fairness in Valuation of Low-Income Housing Tax Credit Properties: An Argument for Tax Exemption, 11 J Affordable Housing & Cmty Dev L 53 (2001).

[¶5.] Town Square qualified under the program to receive total tax credits of $1,592,630, i.e., $159,263 a year for ten years. Each one-bedroom unit has a rent limitation of $375 per month. If the owners comply with the LIHTC restrictions, tax credits are awarded per unit. The project was structured to require that all the units be occupied by low-income tenants. Failure to comply with the restrictions can trigger recapture of tax credits. Even though the tax credits are only available for ten years, the agreement with the South Dakota Housing Development Authority requires a forty-year restrictive covenant on the apartment building encompassing both income restrictions in eligibility for occupancy and in requirements for charging reduced rents.

[¶6.] Clay County's assessment of the thirty-unit Town Square apartment for November 1, 2001 was $1,189,543, and, for November 1, 2002, $1,251,808. When Town Square protested, the county conceded that the assessments were incorrect. Town Square insisted that the assessment should have been $255,000 for November 1, 2001, and $625,000 for November 1, 2002.

[¶7.] To obtain a professional appraisal, Clay County hired Steven Shaykett, a certified real property appraiser. Shaykett used the three required statutory approaches to determine value: cost, market, and income. SDCL 10-6-33. But he concluded that the "greatest weight and reliability [should be] given to the income capitalization approach." Under this approach, he gave alternative appraisals. The first used market rents; the second, restricted rents. In his final opinion, however, he recommended that only market rents should be used. He also concluded that the value of the tax credits should not be considered because they are "intangibles." Using market rents, Shaykett appraised the property at $732,640 as of November 1, 2001, and $910,000 as of November 1, 2002. Town Square's appraiser, Ritch LeGrand, considered the three required approaches to valuation and, like Shaykett, favored the income approach. Unlike Shaykett, however, he used only the reduced rents required to be charged and appraised the property at $255,000 as of November 1, 2001, and $625,000 as of November 1, 2002. LeGrand gave no consideration to the tax credits in his assessment.

[¶8.] When Clay County declined to reduce its assessments, Town Square appealed to the circuit court. During trial, it asked the court to apply the discretionary formula under SDCL 10-6-35.2. But the court found that Town Square had failed to introduce a copy of the county ordinance providing for the application of the discretionary formula. In so ruling, the court noted that it "can take judicial notice of the laws of the State of South Dakota but the laws or ordinances of sister states, foreign jurisdictions and municipalities must be proven." After trial, the court ruled that "Shaykett's appraisal . . . most accurately reflects the value of the subject property." As to the reduced rents, the court held that Town Square "artificially reduced the income of the subject property by participation in LIHTC, [thus] it is not appropriate to use the actual income of the complex to calculate value."

[¶9.] Town Square now appeals, questioning (1) whether the county used the proper methodology in assessing the apartment building; and (2) whether the property should be assessed under the discretionary formula in SDCL 10-6-35.2.1

Analysis and Decision

[¶10.] Under Article XI, Section 2, of the South Dakota Constitution, "[t]axes shall be uniform on all property of the same class, . . . and the valuation of property for taxation purposes shall never exceed the actual value thereof." Significant to this case, the same constitutional section also states, "[t]axes may be imposed on any and all property . . . . Gross earnings and net incomes may be considered in taxing any and all property . . . ." Id. By statute, "[a]ll property shall be assessed at its true and full value in money." SDCL 10-6-33. In turn, SDCL 10-6-1(6) defines "true and full value" as "the usual cash selling price at the place where the property to which the term is applied shall be at the time of the assessment." The methods required to calculate full and true value are set forth in SDCL 10-6-33:

The true and full value shall be determined by appropriate consideration of the cost approach, the market approach and the income approach to appraisal. The director of equalization shall consider and document all elements of such approaches that are applicable prior to a determination of true and full value.

Full and true value is "the price in money that property will bring in a competitive and open market under all conditions requisite to a fair sale between a willing buyer and a willing seller . . . ." SDCL 10-6-1.3; Tax Appeal of Brookings Assoc. v. South Dakota State Bd. of Equalization, 482 NW2d 873 (SD 1992); Yadco, Inc. v. Yankton County, 237 NW2d 665 (SD 1975). In assessing true value, the appraiser has the duty "to use all of those techniques and facts which accurately reflect `full and true' value and to reject those which do not." Yadco, 237 NW2d at 667 (citing Tidball v. Miller, 32 NW2d 683 (SD 1948)).

[¶11.] In this case, both sides...

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4 practice notes
  • Stone Brooke Ltd. Partnership v. Sisinni, No. 34423.
    • United States
    • Supreme Court of West Virginia
    • September 24, 2009
    ...St. Assocs. v. Board of Assessment Appeals, 946 A.2d 1131 (Pa.Commw.Ct.2008); Town Square Ltd. P'ship v. Clay County Bd. of Equalization, 2005 SD 99, 704 N.W.2d 896 (2005); Spring Hill, L.P. v. Tennessee State Bd. of Equalization, No. M2001-02683-COA-R3-CV, 2003 WL 23099679 (Tenn.Ct.App. De......
  • Woda Ivy Glen Ltd. Partnership v. Bor, No. 2008-0312.
    • United States
    • United States State Supreme Court of Ohio
    • February 26, 2009
    ...182 Partnership v. Dept. of Revenue (1995), 321 Or. 21, 27, 892 P.2d 1002; Town Square Ltd. Partnership v. Clay Cty. Bd. of Equalization, 2005 SD 99, 704 N.W.2d 896, ¶ 1 (court holds that both the tax credits and the restrictions ought to be considered because both constituted the owner's m......
  • In re Montana-Dakota Utilities Co., No. 24448.
    • United States
    • Supreme Court of South Dakota
    • October 17, 2007
    ...Aspen Storage, Inc. v. Flanagan, 2007 SD 66, ¶ 9, 737 N.W.2d 277, 280 (citing Town Square Ltd. P'ship v. Clay County Bd. of Equalization, 2005 SD 99, ¶ 9 n. 1, 704 N.W.2d 896, 899 n. 1 (citing Fall River County v. S.D. Dep't of Rev., 1999 SD 139, ¶ 15, 601 N.W.2d 816, 821 (citations Analysi......
  • Aspen Storage, Inc. v. Lawrence County, No. 24212.
    • United States
    • Supreme Court of South Dakota
    • July 3, 2007
    ...[¶ 9.] Statutory interpretation is a question of law reviewed de novo. Town Square Ltd. P'ship v. Clay County Bd. of Equalization, 2005 SD 99, ¶ 9 n. 1, 704 N.W.2d 896, 899 n. 1 (citing Fall River County v. S.D. Dep't of Rev., 1999 SD 139, ¶ 15, 601 N.W.2d 816, 821 (citations omitted)). It ......
4 cases
  • Stone Brooke Ltd. Partnership v. Sisinni, No. 34423.
    • United States
    • Supreme Court of West Virginia
    • September 24, 2009
    ...St. Assocs. v. Board of Assessment Appeals, 946 A.2d 1131 (Pa.Commw.Ct.2008); Town Square Ltd. P'ship v. Clay County Bd. of Equalization, 2005 SD 99, 704 N.W.2d 896 (2005); Spring Hill, L.P. v. Tennessee State Bd. of Equalization, No. M2001-02683-COA-R3-CV, 2003 WL 23099679 (Tenn.Ct.App. De......
  • Woda Ivy Glen Ltd. Partnership v. Bor, No. 2008-0312.
    • United States
    • United States State Supreme Court of Ohio
    • February 26, 2009
    ...182 Partnership v. Dept. of Revenue (1995), 321 Or. 21, 27, 892 P.2d 1002; Town Square Ltd. Partnership v. Clay Cty. Bd. of Equalization, 2005 SD 99, 704 N.W.2d 896, ¶ 1 (court holds that both the tax credits and the restrictions ought to be considered because both constituted the owner's m......
  • In re Montana-Dakota Utilities Co., No. 24448.
    • United States
    • Supreme Court of South Dakota
    • October 17, 2007
    ...Aspen Storage, Inc. v. Flanagan, 2007 SD 66, ¶ 9, 737 N.W.2d 277, 280 (citing Town Square Ltd. P'ship v. Clay County Bd. of Equalization, 2005 SD 99, ¶ 9 n. 1, 704 N.W.2d 896, 899 n. 1 (citing Fall River County v. S.D. Dep't of Rev., 1999 SD 139, ¶ 15, 601 N.W.2d 816, 821 (citations Analysi......
  • Aspen Storage, Inc. v. Lawrence County, No. 24212.
    • United States
    • Supreme Court of South Dakota
    • July 3, 2007
    ...[¶ 9.] Statutory interpretation is a question of law reviewed de novo. Town Square Ltd. P'ship v. Clay County Bd. of Equalization, 2005 SD 99, ¶ 9 n. 1, 704 N.W.2d 896, 899 n. 1 (citing Fall River County v. S.D. Dep't of Rev., 1999 SD 139, ¶ 15, 601 N.W.2d 816, 821 (citations omitted)). It ......

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