Willamette Industries, Inc. v. AAC

• Citation: 11 S.W.3d 142
• Court: Court of Appeals of Tennessee
• Decision Date: 07 February 2000
• Parties: WILLAMETTE INDUSTRIES, INC., Petitioner-Appellant, v. TENNESSEE ASSESSMENT APPEALS COMMISSION, Wayne County Assessor of Property, and Wayne County Trustee, Respondents-Appellees.

11 S.W.3d 142

WILLAMETTE INDUSTRIES, INC., Petitioner-Appellant, v. TENNESSEE ASSESSMENT APPEALS COMMISSION, Wayne County Assessor of Property, and Wayne County Trustee, Respondents-Appellees.

Court of Appeals of Tennessee, Eastern Section, at Nashville.

September 3, 1999.

Application for Permission to Appeal Denied February 7, 2000.^*

COPYRIGHT MATERIAL OMITTED

Jerry C. Shelton, Lyell, Seaman & Shelton, Nashville, TN, for Appellant.

Paul G. Summers, Attorney General & Reporter, and Sean D. Clancy, Assistant Attorney General, Nashville, TN, for Appellee, Tennessee Assessment Appeals Commission.

James Y. Ross, Sr. Waynesboro, TN, for Appellees, Wayne County Assessor of Property and Wayne County Trustee.

Application for Permission to Appeal Denied by Supreme Court February 7, 2000.^*

OPINION

SUSANO, Judge.

The petition in this case seeks judicial review of real property valuations established by a final order of the Tennessee Assessment Appeals Commission ("AAC"), a body created by the State Board of Equalization to hear "appeals regarding the assessment, classification and value of property for purposes of taxation." T.C.A. § 67-5-1502(a). The AAC's order in the instant case fixed, for ad valorem tax purposes, the separate values of 15 parcels of Wayne County woodland owned by the petitioner, Willamette Industries, Inc. ("Willamette"). Upon review of the AAC's order, the trial court held, among other things, that the appraisal methodology utilized by the AAC was not per se contrary to Tennessee law, and that the record contained substantial and material evidence to support the AAC's valuations based upon that methodology. Accordingly, it affirmed the AAC's order. Willamette appeals, raising the following issues for our consideration:

1. Do Tennessee statutes and case law, prior decisions of the AAC, and the administrative procedures manual for Wayne County require woodland with growing trees to be valued by the "residual method," whereby the value of standing timber is subtracted from the sale price of comparable land with standing timber to arrive at the "residual value" for the land only?

2. Is there substantial and material evidence to support the value set by the AAC for Willamette's woodland?

3. Did the appraisal methodology used by the Wayne County Assessor and State Division of Property Assessments for Willamette's woodland, but not for any other woodland appraisals in Wayne County, deny Willamette equal protection under the United States and Tennessee Constitutions?

I. Facts and Procedural History

In 1992, the respondent, the Wayne County Assessor of Property ("the County"),¹ assisted by the State Department of Property Assessments ("DPA"), completed a reappraisal of all taxable real property in Wayne County. Information regarding 70 property sales was compiled by Leon Oliver, a DPA employee, who analyzed each sale and subtracted from the sales price an estimated value for any appropriate deductions, including standing timber. This information was compiled into a "Rural Land Schedule,²" which in turn formed the basis for the appraisal of, among other things, all woodland in Wayne County, including the 15 parcels owned by Willamette.³

Application of the Rural Land Schedule resulted in a weighted average value⁴ of $178 per acre for Willamette's 10,061 acres. The $178 per acre value was arrived at by subtracting from the gross value per acre the sum of $62 per acre representing the alleged value of the standing timber.⁵ Arguing that this adjustment for the excepted-from-taxation timber was inadequate, Willamette appealed the County's assessments to the Wayne County Board of Equalization. After receiving an unfavorable determination there, Willamette then appealed to the State Board of Equalization. A hearing before an administrative law judge was held on January 4 and 5, 1994. The administrative law judge determined that the timber values had been underestimated and ordered that the appraisal of Willamette's properties be reduced by an additional $67 per acre, i.e., that the average adjustment for timber be increased from $62 per acre to $129 per acre—the amount calculated by Willamette based upon research by its own experts, as well as U.S. Forest Service statistics. In so holding, the administrative law judge adopted the "residual method" of woodland valuation advocated by Willamette. Under that method, the value of each parcel was reduced by the estimated value of its standing timber to determine the land's "residual" value for tax assessment purposes.

Being dissatisfied with the judgment of the administrative law judge, the County appealed to the AAC. A hearing was held before that body on February 25 and 27, 1997. At the hearing, the County presented testimony from three witnesses, including Charles Smith ("Smith"), a DPA employee and certified general appraiser who was qualified as an expert with regard to the valuation of rural land. Smith calculated the weighted average value of Willamette's properties—without the standing timber—at $168 per acre. In reaching this conclusion, he utilized a "direct comparable sales" comparison method, whereby he determined the value of the subject properties by comparing them to sales of land from which the timber had either been removed or sold independent of the land. In the course of his analysis, Smith visited all of Willamette's properties and compared them to 28 similar properties selected from the 70 sales that had formed the basis of the Rural Land Schedule.

In addition to the direct comparable sales method advocated by Smith and the County, the AAC heard testimony regarding the residual method, described above, and the "land expectation" method, under which an expected income from timber is projected for the land and capitalized at an appropriate rate. Extensive proof regarding the latter two methods was offered by Willamette through the testimony of its expert witnesses. Willamette contended that the values for its properties should be reduced by an average adjustment of $136 per acre, representing the alleged value of the timber on the respective parcels. The AAC, however, found as follows:

... the direct comparable sales method is an attractive alternative if sufficient qualified sales are available, and that is the case here. The Division of Property Assessments reexamined its collection of sales in the course of defending taxpayer's appeal, and while this data is not uniformly beyond reproach, it offers a credible alternative to the difficult adjustments required by the residual method.

The AAC referred to two particular sales cited by the County and DPA, noting that use of such sales to determine the value of the subject parcels "offered a more credible alternative to the residual method as applied by Willamette's experts in this case." Therefore, the AAC modified the decision of the administrative law judge and determined that Willamette's properties should be assessed at a weighted average of $160 per acre.⁶ It assigned total values to each of the 15 parcels in an exhibit attached to its final decision and order, which was entered on March 18, 1997.

Willamette subsequently petitioned the trial court for review of the AAC's decision. After hearing argument based upon the proof in the administrative record, the trial court affirmed the findings of the AAC. The trial court held as follows:

Willamette contends that as a matter of law, the residual method is the only method that should be utilized in valuing woodland. The Court does not reach that conclusion. The case of Richardson v. Tennessee Assessment Appeals Commission, 828 S.W.2d 403 (Tenn.App.1991) does not declare an exclusive method of valuation. This Court cannot find Tennessee case law or any statute that designates a sole methodology for valuing woodland. In light of this, the Court cannot conclude, as a matter of law, that the residual method is the only method to be utilized in valuing woodland. Indeed, the legislature established specific administrative agencies to determine property values which have acquired extensive knowledge and expertise. The process of valuing property is intensely factual, and flexibility is necessary for the expert agencies to value property in wide ranging circumstances. "Courts will defer to the decisions of administrative agencies when they are acting within their area of specialized knowledge, experience, and expertise." Wayne County v. Tennessee Solid Waste Disposal Control Board, 756 S.W.2d 274, 279 (Tenn.App.1988).

The record reveals that the AAC examined sales compiled by Charles Smith and found there were sufficient qualified sales to use the direct comparable sales method in valuing Willamette's woodland. The AAC identified two sales out of Mr. Smith's report to support its decision to use the direct comparable sales method. Both of those sales involved the sale of land only, with timber not being a factor in the sale. These land only sales support the AAC's valuation of Willamette's properties. Willamette contends the AAC merely adopted Mr. Smith's conclusions; however, that is not evident from the record. The AAC, after hearing all the testimony and reviewing the exhibits, found the direct comparable sales method offered a credible basis to determine the land values compared to the questionable values resulting from use of the residual method. The Court concludes there is substantial and material evidence in the record to support the AAC's decision.

The trial court also held that the AAC had not erred in allowing Smith to testify regarding his report and opinions despite the fact that the witness had relied upon hearsay information obtained from buyers and sellers of the subject properties. Furthermore, the Court held that the AAC's valuation of Willamette's property had not resulted in any denial of equal protection to Willamette. Accordingly, the trial court affirmed the decision of the AAC in its entirety, and this appeal...