The opinion
FILED
November 30, 1999
Cecil Crowson, Jr.
Appellate Court Clerk
WESTVACO CORPORATION, )
)
Plaintiff/Appellee, )
) Appeal No.
v. ) M1999-01226-COA-R3-CV
)
TENNESSEE ASSESSMENT APPEALS ) Davidson Chancery
COMMISSION; BENTON COUNTY ) No. 97-1234-III
ASSESSOR OF PROPERTY; )
BENTON COUNTY TRUSTEE, )
)
)
Defendants/Appellants. )
COURT OF APPEALS OF TENNESSEE
APPEAL FROM THE CHANCERY COURT FOR DAVIDSON COUNTY
AT NASHVILLE, TENNESSEE
THE HONORABLE ELLEN HOBBS LYLE, CHANCELLOR
PHILLIP G. HOLLIS
Peeler & Hollis
39 North Court Square
P. O. Box 218
Camden, Tennessee 38302
JERRY C. SHELTON
Lyell, Seaman & Shelton
The Tower, Suite 2704
611 Commerce Street
Nashville, Tennessee 37203
ATTORNEYS FOR PLAINTIFF/APPELLEE
Page 1
PAUL. G. SUMMERS
Attorney General and Reporter
SEAN D. CLANCY
Assistant Attorney General
Cordell Hull Building, Second Floor
425 Fifth Avenue North
Nashville, Tennessee 37243
ATTORNEYS FOR DEFENDANTS/APPELLANTS
REVERSED AND REMANDED
WILLIAM B. CAIN, JUDGE
OPINION
I. NATURE OF THE CASE
Tennessee Assessment Appeals Commission and the Benton County
Assessor and County Trustee, (referred to collectively hereinafter as the State and
Benton County, respectively) appeal from an adverse decision below regarding the
ad valorem taxation of certain real property owned by the taxpayer, Westvaco
Corporation (Westvaco), and located in Benton County, Tennessee. At the time of
assessment, Westvaco owned approximately 59 parcels of woodland totaling over
24,000 acres. 1 Regarding the valuation and assessment in question, the following
facts as related by the trial court are not in dispute:
Westvaco is a forest resource management company who
harvests timber on its land for a papermill. Westvaco owns
approximately 25,000 acres in Benton County in blocks of large
tracts of 1000 to 2000 acres.
In 1993 the State required counties in Tennessee to conduct
mass reappraisals. As required, Benton County undertook such
a reappraisal which included Westvaco’s land.
The controversy in this case is generated by Benton County
valuing Westvaco’s land by a method not used for any other
Benton County taxpayer. The Benton County Assessor arrived
at his assessment of Westvaco’s land by using the values
assigned to the land under the County’s 1983 appraisal and
adding $50.00 per acre. The justification for this method was
testified to by Bob Farmer, the county assessor. He stated that
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Westvaco had paid the taxes assessed according to the 1983
appraisal. The $50.00 per acre was added because of the system
of roads Westvaco had constructed throughout its property.
The assessor determined that the road system improved the
property and added value which had to be accounted for on
assessment. Mr. Farmer contacted the State Department of
Transportation for road valuation information and contacted
Westvaco for the number of miles of road (55) on Westvaco’s
property to come up with the amount of $50.00 per acre to
account for road improvements by Westvaco. He then added
that $50.00 per acre to the values assigned to the land under the
county’s 1983 appraisal to arrive at his assessment of Westvaco’
s land. To “check” the assessment, he also consulted four sales
of alleged comparable clear cut-over land.
Westvaco paid the assessment and pursued its appellate remedies.
Westvaco appealed the assessment in a hearing before an administrative law judge.
It then appealed the ALJ’s ruling to the Assessment Appeals Commission, and
appealed the Assessment Appeals Commission’s decision to Davidson County
Chancery Court. At each stage of the administrative appeal process prior to
chancery court, Westvaco was unsuccessful, and the values set by the assessor and
the Benton County Board of Equalization were affirmed. The Chancellor, however,
reversed the Appeals Commission and remanded the case for findings of fact not
inconsistent therewith. Specifically, the order of the chancery court states the
following:
There is nothing in the record before this Court which
demonstrates that the respondents’ appraisal method of using the
1983 appraisal values for Westvaco’s property and adding in
$50.00 per acre to account for roads complies with the
requirements of Tennessee Code Annotated sections 67-5-601(a)
and 67-5-216. There is nothing in the record to indicate that the
1983 appraisal still reflects the measure of a willing buyer and a
willing seller without consideration of speculative value.
Moreover, that the State required counties in 1993 to conduct
mass reappraisals is some indication that the 1983 appraisal is no
longer accurate. The $50.00 per acre to account for road
improvement, while perhaps some indicator of intrinsic value, is
just tacked on. In sum, there simply is nothing in the record
demonstrating that the method used by the respondents takes
into account the factors required by sections 67-5-601(a) and
67-5-216.
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* * *
As to the issues of fact pertaining to valuation which were
presented to this Court through proof supplementary to the
record (as permitted by Tennessee Code Annotated section
67-5-511) and from the record, the Court determines that the
case should be remanded for the expertise of the administrative
agency to develop the facts and further findings as to the
valuation of Westvaco’s property using the method outlined in
Richardson, and not using the cut-over land method or the 1983
appraisal plus $50.00 per acre.
II. ISSUES ON APPEAL
From the order of the Chancery Court, Benton County seeks review,
raising the following issues on appeal:
1. Whether the trial court properly considered Westvaco’s
complaints pursuant to Tennessee Code Annotated section
67-5-1407(a)(1)(A) and (B)?
2. Whether the Trial court was correct in its holding that the
residual method of valuation, the method used by the chancery
court in Richardson v. Assessment Appeals Comm’n, 828
S.W.2d 403 (Tenn. Ct. App.1991), was the only appropriate
method to evaluate Westvaco’s property for tax purposes?
3. Whether the trial court was correct in holding that the
consideration of cut-over land sales to arrive at bare land values
for timberland properties did not comply with Tennessee Code
Annotated sections 67-5-601(a) and 67-5-216?
4. Whether the court erred in finding that nothing in the record
before it demonstrated that the method used by Benton County
and the State to value Westvaco’s land in Benton County took
into account the factors required by Tennessee Code Annotated
sections 67-5-601(a) and 67-5-216?
The State joins in the appeal arguing simply the impropriety of the
chancellors requirement that the Assessment Appeals Commission apply the residual
valuation method.
For its part, Westvaco urges on appeal the allegedly unconstitutional nature
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of Benton County’s assessment method as well as the impropriety of a remand in
light of the attendant facts. Specifically, Westvaco’s brief lists the following issues:
1. Whether the appraisal methodology used by the Benton
County Assessor and the Assessment Appeals Commission, but
not used for any other woodland appraisals in Benton County,
denies Westvaco equal protection under the United Stated and
Tennessee Constitutions?
2. Whether the record clearly establishes the ad valorem
property tax value of Westvaco’s woodland, exclusive of the
value of growing timber, so that this Court may fully resolve all
issues in this case without necessity of the remand to the
Assessment Appeals Commission as ordered by the trial court?
Considering the above issues in conjunction, we find that the answers to
the following three questions are integral to the resolution of the controversy on
appeal.
1. For the purpose of ad valorem taxation, does the law of this
state mandate one particular method of valuation of real property
over another?
2. Regardless of the answer to the previous question, was the
method of valuation used by the Benton County Assessor
consistent with the statutory and regulatory requirements
concerning the accuracy of said property assessments?
3. Was the action of the chancellor in reversal and remand
consistent with statutory authority determining the standard of
review concerning appeals from administrative actions and the
presumption accorded to factual findings made within the agency
’s field of expertise?
In light of our negative findings with regard to the above questions one
through three, we find it unnecessary to proceed to Westvaco’s equal protection
argument except to reiterate the statement of the Supreme Court in the case of
Allegheny Pittsburgh Coal Co. v. County Commission, “that two methods are used
to assess property in the same class is, without more, of no constitutional moment.”
Allegheny Pittsburgh Coal Co. v. County Commission, 488 U.S. 336, 343, 109
S.Ct. 633 (1989). 2
Page 5
As with any case involving taxation, before proceeding to the detailed
resolution of the issues, we must place the controversy against the backdrop of ad
valorem taxation and valuation methodology.
III. VALUATION METHODOLOGY AND THE AD VALOREM TAX
ON REAL PROPERTY
Consistent with the requirements of state law, the Benton County Assessor
reappraised all real property countywide. Since Tennessee’s constitution exempts
from taxation the “direct product of the soil in the hands of the producer, and his
immediate vendee,” one can easily understand the problems that can occur in
determining the surface value of land minus these products. See Tenn. Const. Art.
2, §28. The method of valuation of real property therefore gains crucial importance.
Legislative authority on the subject of valuation for ad valorem taxation of real
property places some limits on the process. For example and of particular interest in
the instant case, this court has quoted the following:
Generally stated, surface values are to be established pursuant to
T.C.A. Sec. 67-5-601, et seq.
T.C.A. Sec. 67-5-601(a) and T.C.A. Sec. 67-5-602 provide
respectively in pertinent part as follows:
67-5-601. General Policy.--(a) The value of all property
shall be ascertained from the evidence of its sound,
intrinsic and immediate value, for purposes of sale between
a willing seller and a willing buyer without consideration of
speculative values ...
67-5-602. Assessment guided by manuals--Factors for
consideration.--(a) ... in determining the value of all
property of every kind, the assessor shall be guided by,
and follow the instructions of the appropriate assessment
manuals issued by the division of property assessments
and approved by the state board of equalization. ....
(b) For determining the value of real property, such
manuals shall provide for consideration of the following
factors:
Page 6
* * *
(7) Natural productivity of the soil, except that the value of
growing crops shall not be added to the value of the land.
As used in this subdivision, "crops" include trees; and ...
Thus, in general terms, surface values are determined without
regard to mineral value and without regard to the value of
growing crops, which by statutory mandate, include trees.
Richardson v. Assessment Appeals Comm’n, 828 S.W.2d 403, 407(Tenn. Ct. App.
1991). In many respects however the statutes quoted above present more questions
than answers regarding the method to be used by the taxing authority in determining
the value of real property throughout the county. 3 It hardly bears noting that the best
way to determine the “value” of any property, short of selling it, would be to find
recent sales of “comparable” property – hence, the need for periodic reappraisal.
According to the record before us, reappraisals for Benton County, as for all of
Tennessee, were conducted as mass appraisals based on land schedules published
by the Tennessee Division of Property Assessments. Appraiser Charles Smith of
the Division testified regarding these mass appraisals. Said Mr. Smith:
Q. And what’s the purpose of coming up with a mass appraisal,
or Rural Land Schedule to use instead of a valuation of each tract
individually?
A. Well, mass appraisal itself is unique in the fact that you have
normally a large amount of parcels of land and buildings to go
along with those. You have a certain time frame within which to
get those things appraised. We’re bound both by time and
budget and by the statutes as to when these things will be done.
In doing mass appraisal, rather than looking at each individual
tract and doing what we term a fee appraisal on those by getting
two or three [comparable sales,] three or four [comparable
sales,] whatever, these are – these properties are classified into
various sections or types of woodland, farmland, rotation lands,
pastureland, and models are constructed, or Rural Land
Schedules are built.
With regard to the proposed use of the Rural Land Schedule in Benton County,
Assessor Bob Farmer testified as follows:
Q. Just generally tell me what you did to go about forming the ‘
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93 mass appraisal Rural Land Schedule.
A. Okay. Mainly, the DPA and myself, we collected what we
call good, qualified sales, to try to find the true market value of
rural land that had been sold and transacted.
Q. And you did that over a period of time?
A. We tried to use no sales older than two years old.
Q. And what was your object? I mean, what were you trying to
accomplish by this?
A. To get a true market value of the land that we appraised.
Q. Now, under this procedure, are there several categories of
land? Do you have to divide the land into special classifications?
A. Yes they are.[sic]
Q. And on timberland, in particular, are there – is there more than
one classification for timberland?
A. Yes. We had a – prior to ‘93, we had a type 62 woodland,
good, average, and poor. From ’83 to ‘93, DPA, approved by
the State Board of Equalization, did the Rural Land Procedures
Manual that had a type 61 to come out to certain properties,
commercial-type, pulpwood operations. And that’s where the 61
type came from, instead of 62.
Q. You’ve heard referred to in this hearing as managed woodland
class, is that the 61 class you’re speaking of?
A. That’s the 61 class.
Q. And did, then, you look at properties in Benton County to
determine whether or not there were any Class 61 landowners?
A. I did.
Q. And did you find that there were or were not any?
A. No one except Westvaco at the time.
Q. Did you determine that Westvaco fit within the managed
woodland category?
Page 8
A. I found that, yes.
The record suggests that once the Division’s Rural Land Schedule is
established, the task then falls to the County Assessor, to compare all property
within the classes to find the appropriate value of the land minus any adjustments
required by the Computer-Assisted Appraisal System Rural Land Procedures
Manual. Although no particular method is mandated in preference to another in this
manual, the general requirement is that timber, as a growing crop, should be
considered as a negative adjustment to sales of woodland. The record below
discloses two alternative methods for arriving at the timber value. One, the residual
method, considers comparable, or qualified sales of property including live timber,
and then subtracts from the average sales price the going rate of timber alone. In this
manner the residual value of the land becomes the value upon which the tax is
assessed. The other, the so-called direct comparable method seeks to evaluate the
property subject to tax by comparing it to recently clear-cut property which would in
all other respects be directly comparable to the subject property. At this point
however, the Assessor in Benton County chose an entirely different approach. Says
the Assessor on direct examination:
What we really did, . . . . [Westvaco had] paid on the ’83
schedule for ten years with no appeal. So, we knew those were
good values. We added the roads on as improvements, increased
value to the land, is mostly what we did. We took the cut-over–
or clear-cut to back up the values we had put on there.
IV. APPROPRIATE STANDARDS OF REVIEW
As a general rule, courts will “defer to 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. Ct. App. 1988). The UAPA provides clear guidance in this
area. In pertinent part, section 4-5-322(h) states the following:
The court may affirm the decision of the agency or remand the
case for further proceedings. The court may reverse or modify
the decision if the rights of the petitioner have been prejudiced
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because the administrative findings, inferences, conclusions or
decisions are:
(1) In violation of constitutional or statutory provisions;
(2) In excess of the statutory authority of the agency;
(3) Made upon unlawful procedure;
(4) Arbitrary or capricious or characterized by abuse of
discretion or clearly unwarranted exercise of discretion; or
(5) Unsupported by evidence which is both substantial and
material in the light of the entire record.
In determining the substantiality of evidence, the court shall take
into account whatever in the record fairly detracts from its
weight, but the court shall not substitute its judgment for that of
the agency as to the weight of the evidence on questions of fact.
Tenn. Code Ann. §4-5-322(1998).
Our review of the court below tracks the standard enumerated by the
Eastern Section in Richardson v. Assessment Appeals Commission. Judge
McMurray, writing for the majority in that case stated the following:
In our consideration of the case, we are bound by the provisions
of Rule 13(d) of The Tennessee Rules of Appellate Procedure,
i.e. unless otherwise required by statute, review of findings of
fact by the trial court in civil actions shall be de novo upon the
record of the trial court, accompanied by a presumption of the
correctness of the finding, unless the preponderance of the
evidence is otherwise. However, no presumption attaches to
conclusions of law.
Richardson v. Assessment Appeals Comm’n, 828 S.W.2d 403, 407(Tenn. Ct. App.
1991). In our review we are drawn to the following portion of the Commission’s
findings.
7. The assessor assigned an across the board value of $50 per
acre for all parcels for the contributory value of these roads to
the subject property. There was no valid proof that this figure
was inappropriate or excessive.
8. In comparison to productivity of other land in the county, this
Page 10
land is poorer than most and the subject parcels are not good
land for growth of hardwood trees. There was no valid proof
that the property was over assessed because of the quality of the
land.
The county did not offer any evidence and contended that the
appeal should be dismissed because the taxpayer did not present
a prima facie case that the subject parcels had been erroneously
classified and assessed. We concur.
In determining the “substantiality” of evidence, the reviewing court is
required to “take into account whatever in the record fairly detracts from its weight.”
Tenn. Code Ann. §4-5-322(h)(5). The amount of evidence recognized to support
an administrative decision, although less than a preponderance, must
amount to more than scintilla or glimmer. See Estate of Street v. State Bd. of
Equal., 812 s.w.2D 583, 586 (Tenn. Ct. App. 1990); see also Wayne County v.
Tennessee Solid Waste Disposal Control Board, 756 S.W.2d 274, 280 (Tenn. Ct.
App. 1988).
Of particular import at this juncture in our analysis is the fact that no proof
was put on by Benton County before the commission. Considering the presumption
that attaches as well as the augmented record, we must affirm the trial court’s finding
that the commission’s approval of Mr. Farmer’s method was not supported by
substantial and material evidence. To assert that the statutes cited, supra, support
such a breadth of assessment gives a tortured meaning to the words “sound,
intrinsic, and immediate value.” See Tenn. Code Ann. § 67-5-601(a). 4 Although we
agree with the findings of the chancellor regarding the “method” that Benton County
used, we cannot agree with the method of assessment ordered by the chancellor.
The court below specifically relied upon Richardson v. Assessment
Appeals Commission in holding that Tennessee requires the residual method of
valuation as the only means of valuing timberland property in the state. Such reliance
is misplaced. The court in Richardson simply affirmed the finding of the chancellor
Page 11
that the residual method of valuation was proper under the circumstances of that
case. Nowhere in the opinion does Richardson require only one method of
valuation. In this respect the mandates of the assessment statutes are clear, and the
language of the review statute, Tennessee Code Annotated section 4-5-322 is equally
clear. Any recognized method supported by substantial and material evidence of the
assessed property’s immediate intrinsic value is sufficient.
On September 3, 1999, the Eastern Section of the Court of Appeals
released its opinion in Willamette Industries, Inc. v. Tennessee Assessment Appeals
Commission, et al, No. 01A01-9812-CH-00639, involving methods of valuation of
Timberland. We find the following discussion persuasive:
Turning first to Willamette’s issue regarding the proper method
of valuation, we do not find that the applicable statutory scheme,
Tennessee case law, or the appraisal manual used by the County
and DPA require that the residual method be utilized in the
valuation of timberland. On the contrary, no authority suggests
that any single method is mandated, to the exclusion of all others.
Although we affirmed the lower court’s use of the residual
method in the Richardson case, we did not hold that it was the
exclusive method available to the assessing agencies; on the
contrary, that case simply holds that, under the facts pr[e]sented
there, use of the residual method was appropriate. See
Richardson, 828 S.W.2d at 407-08. By the same token, we are
not aware of, nor have we been cited to, any other authority
mandating use of a single appraisal methodology.
***
As previously explained, courts typically will defer to an agency
decision where the agency is acting within its area of knowledge
and expertise, Id. at 280, and this is particularly true where
technical or scientific matters are involved. Id. Admittedly, the
record contains evidence regarding both advantages and
disadvantages of each appraisal method, as well as evidence that
the residual method could, in certain instances, be the preferable
means of valuation. On the other hand, it also contains credible
evidence indicating that, under the circumstances of this case, the
direct comparable sales method represented the appropriate
choice.
Willamette Ind., Inc. v. Tennessee Assessment Appeals Commission, No.
Page 12
01A01-9812-CH-00639, 1999 WL 684123, ** 5-6 (perm. app. filed Oct. 29, 1999).
In Willamette, the Tennessee Assessment Appeals Commission had used
the direct comparable sales method in valuing timberland and the Court of Appeals,
affirming the chancellor, held that under the evidence in the case the direct
comparable sales method satisfied the requirements of Tennessee Code Annotated
section 67-5-601(a).
In this case, we follow Willamette in holding that Richardson does not
require that the residual method of valuation is the only method of valuation that may
be used by those charged with the responsibility of assessing timberland.
IV. CONCLUSION
We affirm the finding of the trial court that the method used by the County
Assessor is unsupported by substantial and material evidence. We must reverse that
portion of the chancellor’s order requiring residual valuation to be used to determine
the value of Westvaco’s property subject to assessment. In view of the fact that no
full hearing on the merits was given Westvaco, we affirm as modified the order of
the trial court and remand this case ultimately to the Assessment Appeals
Commission of the State Board of equalization for findings and conclusions
regarding the proper assessment of the subject property minus the timber. Costs on
appeal are taxed against Benton County.
_____________________________________
WILLIAM B. CAIN, JUDGE
CONCUR:
____________________________________
BEN H. CANTRELL, P.J., M.S.
____________________________________
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DAVID H. WELLES, SPECIAL JUDGE
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