Wheatland Indus., LLC/Mid Am. Agri Prods. v. Perkins Cnty. Bd. of Equal.
| Decision Date | 06 December 2019 |
| Docket Number | No. S-19-305.,S-19-305. |
| Parties | WHEATLAND INDUSTRIES, LLC/MID AMERICA AGRI PRODUCTS, appellee, v. PERKINS COUNTY BOARD OF EQUALIZATION, appellant. |
| Court | Nebraska Supreme Court |
Richard H. Roberts, Perkins County Attorney, and Gary F. Burke, for appellant.
Frederick D. Stehlik and Zachary W. Lutz-Priefert, of Gross & Welch, P.C., L.L.O., Omaha, for appellee.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, Papik, and Freudenberg, JJ.
This review proceeding addresses the taxable valuation of commercial real estate used as an ethanol plant. The taxpayer unsuccessfully protested the county’s $16.3 million valuation—a valuation based upon mass appraisal techniques—and then appealed to the Tax Equalization and Review Commission (TERC), which reduced the value to $7.3 million based upon the taxpayer’s appraisal. Here, because the county’s valuation relied upon admittedly incorrect information and lacked evidentiary support regarding applicable depreciation, the evidence showed more than a mere difference of opinion. Finding no error appearing on the record, we affirm TERC’s ruling. But our decision should not be read to categorically reject mass appraisal as a proper valuation methodology for an ethanol plant.
Wheatland Industries, LLC/Mid America Agri Products (Wheatland) owned an ethanol plant on commercial real estate in Madrid, Perkins County, Nebraska (Madrid property). The Perkins County assessor, Peggy Burton, assessed the value of the Madrid property at $16,364,768 for the 2017 tax year.
Wheatland protested the assessment to the Perkins County Board of Equalization (Board). At the protest hearing, Wheatland did not present evidence. The Board affirmed Burton’s valuation of the Madrid property.
Wheatland appealed to TERC. A hearing was held and both parties presented evidence. We first summarize the evidence regarding the county’s assessment, then the evidence of the taxpayer’s appraisal, and finally TERC’s decision.
For the county, Darrell Stanard conducted an appraisal of the Madrid property using the mass appraisal method. He had appraised five other ethanol plants in different counties using the mass appraisal approach. He agreed with the $16 million value of the Madrid property.
In order to aid the mass appraisal assessment, Burton prepared a spreadsheet of the values of all ethanol plants in Nebraska. She obtained the values directly from the other counties’ assessors but she was unaware how those counties assessed their ethanol plants. She maintained that the $16 million value was the proper value for the Madrid property.
Wheatland elicited evidence about the value shown on Burton’s spreadsheet for the Furnas County ethanol plant. Stanard agreed with Wheatland that the Furnas County plant’s nameplate capacity shown on the spreadsheet was incorrect. Its nameplate capacity was actually 44 million gallons, not 22 million gallons as shown on the spreadsheet. He explained that the nameplate capacity is critical to determining the value of the plant. Before this court, the Board in effect concedes the error. And Burton agreed that if the spreadsheet contained incorrect information about the nameplate capacity of the Furnas County plant, it would change her opinion about the value of the Madrid property. But she did not quantify how her opinion would change.
Wheatland’s appraiser, Joseph Calvanico, had valued the Furnas County plant twice. He stated that the Furnas County plant was "almost a mirror copy" of the Madrid property—both were constructed at the same time, used the same technology, and are about the same size. When appraising the Furnas County plant, he used the same methodology as he did for the Madrid plant. Wheatland’s chief executive officer stated that he owned the Furnas County plant and that it was identical to the Madrid property, except there was 200 more acres of land for the Furnas County plant. The Furnas County plant was assessed at $8,943,575. Stanard agreed that if Calvanico was correct that the Furnas County plant was a "sister" plant to the Madrid property, he would have no disagreement with Calvanico’s appraisal of the Madrid property.
At the time of TERC’s hearing, Calvanico had been a real property appraiser for 35 years. Wheatland hired him to appraise the Madrid property. He testified that his appraisal conformed with the Uniform Standards of Professional Appraisal Practice.
Calvanico utilized the cost approach method to appraise the property. He stated that the income approach would not be useful, because the income stream associated with the property came from the separately assessed equipment rather than from the real estate. He opined that the sales comparison approach was useful to underscore the information from the cost approach. He explained that the sales comparison approach would not be effective as a stand-alone method of appraisal for the Madrid property, because most sales of ethanol plants were older and not from the area.
Calvanico explained his application of the cost approach method. He began by determining the value of the underlying land. He examined land sales of dry farmland and concluded that the price per acre was $1,600. He appraised the value of the underlying land at $277,000. He then appraised the buildings and improvements on the land. He classified the buildings and improvements and used the Marshall Valuation Service to estimate the replacement cost. He estimated the base actual value of the buildings at $9,387,529 and improvements at $5,641,172.
He then discussed depreciation. He concluded that the physical depreciation of the buildings that were 10 years old would depreciate 20 to 22 percent, the structures built within the past few years would depreciate 4 to 6 percent, and the improvements would depreciate 25 percent.
Burton stated that when performing mass appraisal, she did not apply depreciation to any property and did not believe that depreciation was applied to the Madrid property. Stanard agreed that physical depreciation should be factored into the value of the Madrid property.
Calvanico discussed the functional depreciation attributed to the buildings. He stated that if the fermentation and main process buildings were put to an alternative use, those buildings would be the most difficult to repurpose, because their function is to house the equipment. He applied a 20-percent functional depreciation to those buildings. Stanard stated that functional depreciation should not be applied.
Calvanico discussed the economic depreciation attributed to the buildings and improvements. He examined the ethanol industry in Nebraska and nationwide. He discussed the decrease in the price per bushel of corn and the diminished number of ethanol plants in Nebraska. He emphasized that in 2011, there were 39 ethanol plants in Nebraska, and that at the time of appraisal, there were 26 ethanol plants. He articulated that this was a 40-percent decrease in the ethanol industry in Nebraska and concluded that the economic value of the Madrid property would depreciate 40 percent. Stanard agreed that "some" economic depreciation should be applied but did not quantify how much that should be.
Ultimately, Calvanico appraised the actual value of the Madrid property at $6.8 million.
TERC found that because Calvanico performed the appraisal according to professionally approved standards, his appraisal report was competent evidence sufficient to rebut the presumption in favor of the Board’s determination.
TERC then found that, for two reasons, it was unreasonable and arbitrary for the Board to rely upon Burton and Stanard’s valuation. First, TERC agreed with Burton, Stanard, and Calvanico that physical depreciation should be applied to the Madrid property. It characterized Burton’s and Stanard’s testimony as to whether physical depreciation had been applied as "inconsistent," and it determined that they had provided no evidence of the amount of physical depreciation. Second, TERC pointed to the incorrect information Burton’s spreadsheet contained and the absence of a revised opinion based upon the correct information.
Except regarding functional depreciation, TERC found Calvanico’s appraisal persuasive and assessed the value of the Madrid property for 2017 at $7,336,042.
The Board timely petitioned for review of TERC’s decision.1 We moved the review proceeding to our docket.2
The Board assigns that (1) there was insufficient evidence for TERC to find that the Board’s determination was unreasonable and arbitrary, (2) TERC erred when it allowed a 40-percent economic depreciation, and (3) it erred when it found the value of the Madrid property to be $7,336,042.
Appellate courts review decisions rendered by TERC for errors appearing on the record.3 When reviewing a judgment for errors appearing on the record, an appellate court’s inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.4 Agency action is arbitrary, capricious, and unreasonable if it is taken in disregard of the facts or circumstances of the case, without some basis which would lead a reasonable...
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