1. Taxation--ad valorem--shopping mall--valuation method--
income approach
The Property Tax Commission appropriately used the income
approach rather than the cost approach in valuing Hanes Mall for
ad valorem taxes. Although the taxpayer cites In re Appeal of
Belk-Broome Co., 119 N.C. App. 470 and argues that the outcome of
the assessment should be limited by the cost method, that case
states that the cost approach may not effectively reflect market
conditions and leaves room for the fair market value to differ
from the cost approach value. To hold otherwise would place
improper restrictions on determining the fair market value.
2. Taxation--ad valorem--shopping mall--valuation method--equal
protection
There was no equal protection violation in an ad valorem tax
assessor's use of the income approach when appraising Hanes Mall
even though all other commercial properties were appraised under
the cost approach because there was evidence that Hanes Mall was
the only super regional mall in the county and that it was unlike
any other property in the county. The taxpayer did not show that
it was discriminated against by being excluded from the same
class as strip malls and the like because it did not show that it
was entitled to be considered in that class.
Maupin Taylor & Ellis, P.A., by Charles B. Neely, Jr. and
Nancy S. Rendleman; Fisk, Kart & Katz, by James P. Regan, for
taxpayer-appellant.
Bell, Davis & Pitt, P.A., by John A. Cocklereece, Jr., Stephen
M. Russell and Kevin G. Williams, for appellee-Forsyth County.
HUNTER, Judge.
Taxpayer-appellant Winston-Salem Joint Venture (herein“Taxpayer”) appeals the final decision of the North
Carolina
Property Tax Commission (“the Commission”) modifying the Forsyth
County Board of Equalization and Review's (“the Board”) decision as
to the value of Taxpayer's commercial property (referred to herein
as “Hanes Mall”), and finding its appraised value to be
$140,000,000. Taxpayer argues the Commission erred: (1) by
failing to apply or properly consider the cost approach method in
appraising Hanes Mall, and; (2) by adopting the County's expert
appraiser's assessment of the property's value. Upon careful
review of the record before us, we affirm the Commission's
decision.
Finding no discrepancy in the parties' recitation of the
facts, we take our account of the facts directly from Taxpayer's
brief to this Court. Effective 1 January 1997, the Forsyth County
Tax Assessor (“the Assessor”) “appraised the real property
associated with Hanes Mall in Winston-Salem at a total value of
$162,725,000.” Taxpayer appealed the assessment to the Board in a
timely manner. Subsequently, the Board heard Taxpayer's appeal and
“on December 4, 1997 . . . affirmed the decision of the Assessor.”
Then on 2 January 1998, Taxpayer appealed the Board's decision to
the Commission. After a hearing which lasted several days, the
Commission found, in pertinent part:
12. . . . [The] County [Assessor] used
the direct capitalization method to arrive at
a total value of $162,725,000 for the subject
property. This method is used to convert an
estimate of one year's income expectancy, or
an annual average of several years' income
expectancy into an indication of value in one
direct step. . . . In general, the direct
capitalization approach requires the use of
comparable sales and the income derivedtherefrom to arrive at an appropriate
capitalization rate. When using this approach
to value the subject property, [the Assessor]
did not apply or rely upon its 1997 schedule
of values, rules and standards to arrive at
the capitalization rate of 7.75%. Instead,
the [Assessor] used data developed for a prior
appraisal assignment that did not correlate
with the rate information used to develop the
1997 schedule of values, standards and rules.
Hence, the [Assessor] arrived at a
capitalization rate of 7.75% and when that
rate was applied to the applicable schedule of
values, rules and standards it resulted in an
improper classification of the subject
property as an A plus mall.
13. . . . In Mr. Nafe's opinion
[Taxpayer's expert witness], the value of the
subject property is composed of three
components: (1) real estate, (2) Hanes Mall's
internal profit centers, and (3) the
intangible personal property associated with
Hanes Mall's business. . . .
14. In Mr. Nafe's opinion, in order to
determine fair market value, the appraiser
must identify and segregate the non-realty
elements of the subject property so that his
appraisal of the subject property would be
limited to the fee simple in the property's
real estate value. . . . In applying the cost
approach, Mr. Nafe . . . estimated the value
of the subject property to be $84,000,000.
Under the income approach, Mr. Nafe arrived at
total value $80,000,000 for the subject
property when applying both the direct
capitalization analysis and the discounted
cash flow analysis. Mr. Nafe's going-concern
value of the subject property as of January 1,
1997 was $130,000,000, denoted as follows:
Fee simply [sic] real
estate only: &
nbsp; $ 80,000,000
Non-realty value: &n
bsp; $ 50,000,000
Total Going Concern value: $130,000,000
. . .
16. . . . In summary, Mr. Nafe concluded
that the value of the subject real property
. . . was $80,000,000 . . . . He reached this
valuation by applying the income approach,which is typically given greatest weight in
the analysis of income-producing property.
. . .
20. Investors in regional malls do not
use the cost approach to determine market
value because of the assumptions and wide
variety of estimates that are placed upon such
items as entrepreneurial profit, subsidies,
and influences by anchor department
stores. . . .
21. To arrive at an opinion of value for
the subject property, Mr. . . . Korpacz, the
[Assessor]'s expert witness, utilized the
direct capitalization and yield capitalization
approaches as recognized under the income
method of valuation. While Mr. Korpacz
utilized the sales comparison approach to
value, he rejected the cost approach based
upon his experience that investors in regional
malls give little value to this approach to at
arrive [sic] market value.
22. Mr. Korpacz considered business
enterprise value in his value analysis of the
subject property, but he rejected this concept
because, based upon his experience, regional
mall investors do not recognize or reflect
this concept when investing in this particular
market. . . .
23. Mr. Korpacz's fee simple opinion of
value for the subject property . . . was
$140,000,000. He reached this value when
applying the income approach; analyzing market
rents and determining that the appropriate
capitalization rate was 8.55%. Mr. Korpacz's
appraisal correlates with the
County[Assessor]'s 1997 schedule of values,
rules and standards in that his appraisal
analysis yields a proper classification of the
subject property as a B plus mall.
24. Of the three traditional appraisal
methods considered by the Commission, the cost
approach, the comparable sales approach, and
the income approach, the income approach is
the most reliable method in reaching market
value for the subject property.
25. Even though the Commission
considered the comparable sales and costapproaches to value, the Commission determined
that those approaches would not yield fair
market value of the subject property and
should not be relied upon as the primary
approaches to determine value.
(Emphasis added.) Thus, the Commission concluded as a matter of
law:
2. In North Carolina, property must be
valued for ad valorem tax assessment purposes
at its “true value in money,” which is
statutorily defined as “market value[,]”
[pursuant to N.C. Gen. Stat. § 105-283.]
. . .
3. Ad valorem assessments are presumed
to be correct. In order for the Taxpayer to
rebut the presumption of correctness, the
Taxpayer must prove that the County [Assessor]
employed an arbitrary or illegal method of
valuation and that the assessment of the
subject property substantially exceeded the
true value in money of the subject property.
. . .
6. In reaching a total assessed value
for the subject property . . . of
$162,725,000, the County [Assessor] failed to
properly apply its schedule of values, rules
and standards, as required and directed by
G.S. 105-317 of the North Carolina Machinery
Act. The income capitalization rate developed
by the County [Assessor] does not correlate
with an appropriate classification of the
subject property under the County[Assessor]'s
schedule of values, rules and standards. . . .
. . .
10. The income approach is the most
probative means to establish the fair market
value of the subject property and even though
it is the preferred method, a combination of
the three methods may be used as long as the
income approach is given the greatest
weight. . . .
11. The value of the subject property,
relying primary [sic] on the income approach. . . was $140,000,000.
(Emphasis added.) Taxpayer appeals the Commission's decision.
[1]Taxpayer first assigns error to the Commission's “failing
to apply or properly consider the cost approach in appraising Hanes
Mall.” Although Taxpayer admits “this Court [has] held that . . .
exclusive reliance on the cost approach [i]s an error of law and
that the income approach should be the primary method used,”
relying on In re Appeal of Belk-Broome Co., 119 N.C. App. 470, 473,
458 S.E.2d 921, 923-24 (1995), aff'd, 342 N.C. 890, 467 S.E.2d 242
(1996), Taxpayer argues “this Court did not conclude that the cost
approach should not be used.” (Emphasis omitted and added.) As
such, Taxpayer contends that “a combination of cost and income
methods could be used so long as the income approach is given
greatest weight” (emphasis added), and thus the cost approach
should have been used in the present case because that method's
“primary use is to establish a ceiling on valuation . . . .” Belk,
119 N.C. App. at 474, 458 S.E.2d at 924. We are unpersuaded.
N.C. Gen. Stat. § 105-345.2(b) (1999) governs the standard of
appellate review as to property valuations, stating that the
appellate Court “shall decide all relevant questions of law,
interpret constitutional and statutory provisions, and determine
the meaning and applicability of the terms of any Commission
action.” N.C. Gen. Stat. § 105-345.2(b). Further, the statute
gives this Court the authority to reverse, remand, modify, or
declare void any decision which prejudices a plaintiff, where said
decision is: (1) In violation of constitutional
provisions; or
(2) In excess of statutory authority or
jurisdiction of the Commission; or
(3) Made upon unlawful proceedings; or
(4) Affected by other errors of law; or
(5) Unsupported by competent, material, and
substantial evidence in view of the
entire record as submitted; or
(6) Arbitrary or capricious.
N.C. Gen. Stat. § 105-345.2(b). Moreover, our state's case law has
plainly set out that “ad valorem tax assessments are presumed to be
correct.” In re Appeal of Amp, Inc., 287 N.C. 547, 562, 215 S.E.2d
752, 761 (1975) (emphasis added). However, in dealing with this
very matter, this Court clearly held that
the presumption is one of fact and is
therefore rebuttable[; but t]o rebut the
presumption, [Taxpayer-]Belk must produce
“'competent, material and substantial'
evidence that tends to show that: (1) Either
the county tax supervisor used an arbitrary
method of valuation; or (2) the county tax
supervisor used an illegal method of
valuation; AND (3) the assessment
substantially exceeded the true value in money
of the property.” [Amp, Inc., 287 N.C.] at
563, 215 S.E.2d at 762. . . .
Belk, 119 N.C. App. at 473, 458 S.E.2d at 923 (emphasis in
original) (citation omitted). Additionally, the Court went on to
opine:
It is generally accepted that the income
approach is the most reliable method in
reaching the market value of investment
property[. . . and,] the cost approach's
primary use is to establish a ceiling on
valuation, rather than actual marketvalue. . . . [However, t]he modern appraisal
practice is to use cost approach as a
secondary approach “because cost may not
effectively reflect market conditions.”
[Coastal Eagle Point] Oil Co. [v. West
Deptfort Township], 13 N.J. Tax 242, 288
[(1993)] . . . .
Id. at 474, 458 S.E.2d at 924 (emphasis added).
We recognize that the Court's holding of what a taxpayer is
required to prove is absolute. However, we deem the Belk Court's
statement, that “the cost approach's primary use is to establish a
ceiling on valuation,” (upon which the present Taxpayer relies),
to be at most dicta. Id. This is because, even in its own
assessment of which approach is most proper, the Belk Court plainly
settled and stated that the goal of any valuation is to reach fair
market value for the subject property -- fair market value which
accurately “. . . 'reflect[s] market conditions.'” Id. (quoting
Oil Co., 13 N.J. Tax 242, 288). The Court further stated:
The County [Assessor] is required to value all
property for ad valorem tax purposes at its
true value in money, which is its “market
value.” North Carolina General Statutes §
105-283 (1992). Market value is defined in
the statute as
“the price estimated in terms of money at
which the property would change hands between
a willing and financially able buyer and a
willing seller, neither being under any
compulsion to buy or to sell and both having
reasonable knowledge of all the uses to which
the property is adapted and for which it is
capable of being used.”
Id. An important factor in determining the
property's market value is its highest and
best use. The Belk property must be valued at
its highest and best use, which the parties
agree is its present use . . . . Therefore,the County, and the Commission [Assessors],
are required to use a valuation methodology
that reflects what willing buyers in the
market for anchor department stores will pay
for the subject property. In doing so, the
county must “consider at least [the
property's] . . . past income; probable future
income; and any other factors that may affect
its value.” North Carolina General Statutes §
105-317(a)(2) (1992).
Id. at 473-74, 458 S.E.2d at 923-24 (emphasis added) (citations
omitted).
We note that in the Belk case, the cost approach for the
subject property yielded a much higher value assessment than what
was shown to be the property's “fair market value” -- that is, what
a willing buyer would pay a willing seller under the terms outlined
above. As such, the cost approach's “ceiling on valuation” was
therefore an irrelevant factor, and the Court refused to accept the
cost approach value as fair market value. However, that is not so
in the case at bar.
In applying Belk to the present case, we find Taxpayer's
argument to be without merit. Taxpayer's business (though more
than just an anchor store) is of the exact type as that of Belk.
Taxpayer does not argue that the income approach used by the
Assessor was incorrect or unlawful, only that the outcome of the
Assessor's assessment should have been limited by the Assessor's
use of the cost method. However, the very case law upon which
Taxpayer relies clearly states that the cost approach “. . . 'may
not effectively reflect market conditions.'” Id. at 474, 458
S.E.2d at 924 (quoting Oil Co., 13 N.J. Tax 242, 288). We
recognize that it is Taxpayer's hope that this Court finds -- sincein the present instance the cost approach results in a much lower
assessment -- that the cost approach assessment should yield the
maximum value of Hanes Mall.
However, we refuse to ignore the plain language used by the
Belk Court. Instead, we hold that although the cost approach may
often times result in the upper limit of fair market value, it does
not necessarily need to be so. Therefore, we believe the precedent
set forth in Belk leaves room for the fair market value to differ
from the cost approach value. To hold otherwise would place
improper restrictions on determining the fair market value of
realty as required by statute, and render consideration of
competent evidence reflecting fair market values above the cost
approach assessment to be unacceptable. Further, we agree with the
Commission that the cost approach “would not yield fair market
value of the [mall] and should not be relied upon as the primary
approach[] to determine value.” Therefore, we hold that the
Commission's use of the income approach -- pursuant to Belk -- was
the appropriate valuation method in the case at bar.
[2]Taxpayer's second and final assignment of error is that
“[t]he Commission's adoption of Mr. Korpacz's appraisal as its
assessment of Hanes Mall resulted in a denial of Taxpayer's
constitutional and statutory rights to equal protection and uniform
taxation.” In its brief to this Court, Taxpayer goes to great
lengths in discussing cases which purport that “the use of one
assessment methodology to assess the property of one group of
taxpayers and another assessment methodology to assess the propertyof another group of taxpayers in the same class resulted in
significant differences in assessed values of comparable properties
and a denial of uniformity.” (Emphasis added.) Thus, Taxpayer
argues, because the Assessor treated Hanes Mall differently from
“any other property in Forsyth County,” Taxpayer has been
discriminated against. We disagree.
Taxpayer is correct when it states that “[t]he U.S. Supreme
Court has held that application of two distinct valuation
methodologies to properties in the same class which results in
systematic discrimination against one group of property owners is
a clear violation of uniformity.” Citing Allegheny Pitts. v.
Webster County, 488 U.S. 336, 345, 102 L. Ed. 2d 688, 698 (1989).
Additionally, per the parties' stipulations, the Assessor admits
that:
16. In performing its 1997 revaluation,
the assessments made by the Forsyth County
Assessor's Office of hotels and motels,
investment grade apartment complexes, the
Hanes Mall and the five anchor stores adjacent
to the Hanes Mall were based upon the income
approach to value, although the County may
have considered other approaches to value.
The assessments of all other commercial and
industrial properties in Forsyth County
including, but not limited to, strip centers
and other shopping centers, retail stores,
restaurants, nursing homes, bowling alleys,
office buildings, theaters, and industrial
enterprises were based upon the cost approach
to value, although the County may have
considered other approaches to value.
(Emphasis added.) However, Taxpayer offers no evidence that the
Assessor utilized the cost approach to value another “super
regional mall” and yet used the income approach solely to valueHanes Mall. Contrarily, the Assessor presented evidence that Ha
nes
Mall is the only super regional mall in Forsyth County and that it
is “unlike any other property in the county, which creates an
inherent weakness for using the cost approach to determine a fair
[market] value.” Therefore, without a showing that Taxpayer's
property was entitled to be considered in the same class as strip
malls and the like, Taxpayer has failed to show it was
discriminated against by being excluded from that class. In
failing to fall within the same class, the assessment cannot
violate the equal protection clauses of the United States and North
Carolina Constitutions. See Tax Appeal of County of Maui v. KM
Hawaii, Inc., 81 Hawaii 248, 256, 915 P.2d 1349, 1357 (1996).
Additionally, we note Taxpayer failed to object or assign
error to the Commission's findings that the Assessor's expert
witness, Mr. Korpacz:
21. . . . rejected the cost approach
based upon his experience that investors in
regional malls give little value to this
approach to at arrive [sic] market value.
. . .
24. Of the three traditional appraisal
methods considered by the Commission, . . .
the income approach is the most reliable
method in reaching market value for the
subject property.
As such, Taxpayer has lost its right to argue those findings were
not supported by substantial evidence of record.
The law has long been that:
The Commission has the authority and
responsibility “to determine the weight and
sufficiency of the evidence and the
credibility of the witnesses, to drawinferences from the facts, and to appraise
conflicting and circumstantial evidence.” [In
re Appeal of Interstate Income Fund I, 126
N.C. App. 162, 164, 484 S.E.2d 450, 451
(1997)] (quoting In re McElwee, 304 N.C. 68,
87, 283 S.E.2d 115, 126-27 (1981)). . . .
In re Appeal of Phillip Morris, 130 N.C. App. 529, 532, 503 S.E.2d
679, 681, review denied, 349 N.C. 359, 525 S.E.2d 456 (1998).
Further, “[t]he weight to be accorded relevant evidence is a matter
for the factfinder, which is the Commission.” In re Appeal of
Westinghouse Electric Corp., 93 N.C. App. 710, 712, 379 S.E.2d 37,
38 (1989). Additionally:
Our Supreme Court has said valuations
fixed by the Commission shall be final and
conclusive where no error of law or abuse of
discretion is alleged. Belk's Department
Store, Inc. v. Guilford County, 222 N.C. 441,
23 S.E.2d 897 (1943). . . . [T]he Commission
“has full authority, notwithstanding
irregularities at the county level, to
determine the valuation and enter it
accordingly. Such valuation so fixed is final
and conclusive unless error of law or abuse of
discretion is shown.” In re Appeal of
Broadcasting Corp., 273 N.C. 571, 579, 160
S.E.2d 728, 733 (1968).
In re Appeal of Boos, 95 N.C. App. 386, 388, 382 S.E.2d 769, 770
(1989). Moreover, “[i]f the Commission's decision, considered in
the light of the foregoing rules, is supported by substantial
evidence, it cannot be overturned.” Phillip Morris, 130 N.C. App.
at 533, 503 S.E.2d at 682.
Having failed to show that the decision of the Commission was
either: in violation of constitutional provisions, in excess of
statutory authority, made upon unlawful proceedings, affected byother errors of law, unsupported by competent evidence, or
arbitrary or capricious, we hold Taxpayer has failed to prove it
was discriminated against. N.C. Gen. Stat. § 105-345.2(b).
Additionally, without a showing that “the assessment substantially
exceeded the true value in money of the property,” Amp, 287 N.C.
547, 563, 215 S.E.2d 752, 762 (emphasis in original), Taxpayer has
failed to rebut the presumption that its “ad valorem tax
assessments are . . . correct.” Id. at 562, 215 S.E.2d at 761
(emphasis added). Therefore, because we find the findings of fact
and conclusions of the Commission are based upon and supported by
competent, material and substantial evidence in the record, the
Commission's final decision is
Affirmed.
Judges MARTIN and HUDSON concur.
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