Ohio Region Senior Citizens Hous. Corp. v. Franklin Cty. Bd. of Revision

OPINIONS OF THE SUPREME COURT OF OHIO

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Ohio Region Senior Citizens Housing Corp., Appellant v.

Franklin County Board of Revision et al., Appellees.

[Cite as Ohio Region Senior Citizens Hous. Corp. v. Franklin

Cty. Bd. of Revision (1994), Ohio St.3d .]

Taxation -- Real property valuation -- Federally subsidized

apartment complex for low-income or handicapped persons --

Board of Tax Appeals required to use appropriate economic

or market rents and expenses in determining true value of

subsidized apartments by the income approach to value --

Board's decision reversed, when.

(No. 92-1808 -- Submitted June 10, 1993 -- Decided March

23, 1994.)

Appeal from the Board of Tax Appeals, No. 89-C-888.

Appellant, Ohio Region Senior Citizens Housing

Corporation, owns a forty-unit apartment complex located on

3.711 acres in Columbus, Ohio. Tenancy in this federally

subsidized complex is limited to low-income elderly or

handicapped persons. The complex, constructed in 1987,

consists of ten efficiency units and thirty one-bedroom units -

- four of which were designed specifically for use by the

handicapped. For tax year 1988, the appellee Franklin County

Auditor determined the complex's true value to be $1,079,300.

This valuation was affirmed by appellee Franklin County Board

of Revision; and appellant, claiming the right to a reduction

in value, appealed to the Board of Tax Appeals ("BTA").

The BTA likewise determined the true value of the complex

to be $1,079,300.

This cause is now before the court upon an appeal as of

right.

Arter & Hadden and Karen H. Bauernschmidt, for appellant.

Michael Miller, Franklin County Prosecuting Attorney, and

James R. Gorry, Assistant Prosecuting Attorney, for appellees

Franklin County Board of Revision et al.

Teaford, Rich, Coffman & Wheeler and Jeffrey A. Rich, for

appellee Columbus School District Board of Education.

Per Curiam. Appellant, in its notice of appeal, urges

that: (1) the BTA valuation contravened Canton Towers, Ltd. v.

Stark Cty. Bd. of Revision (1983), 3 Ohio St. 3d 4, 3 OBR 302,

444 N.E. 2d 1027, and later supporting cases, (2) it was

unreasonable for the BTA to reject the income approach to value

of appellant's appraiser, John R. Garvin ("Garvin"), and (3) it

was unlawful for the BTA to reject Garvin's use of stabilized

expenses in his income approach.

At the the BTA hearing, Garvin presented his appraisal

report and testified at length. Garvin, relying on the cost

approach and the income approach to value, estimated the true

value of the complex, including furniture, fixtures and

equipment, to be $610,000. The appraiser for the appellees (the

auditor, the board of revision and the school board) used the

income approach and the market approach, and estimated the true

value of the complex at $1,100,000. Both appraisers considered

all three standard approaches to value. Both agreed that the

income approach was the most appropriate method of valuation

and that the complex should be appraised as if unencumbered,

since it was subsidized housing.

The BTA agreed that the income approach was appropriate,

but criticized Garvin for his use of actual expenses rather

than market expenses, and it criticized appellees' appraiser

for his failure to provide specific information concerning

sales of comparable units. The BTA refused to accept the

valuation of either appraiser, and determined that "considering

the valid elements of each appraisal, i.e., the appellant's

comparables, including the appellant's adjusted gross income

figure, and the county appellees' expenses figure and

capitalization rate, the figure derived would be virtually the

same as that which the county auditor determined * * *." Thus,

the BTA found the value assessed by the auditor "accurately

reflect[s] the fair market value of the subject property as of

January 1, 1988."

The BTA found the significant defect in Garvin's income

approach was his failure to use market expenses, as required by

Canton Towers, Ltd., supra. We do not find that Garvin used

the actual expenses only in appraising the subject property.

The BTA erred. Its rejection of Garvin's appraisal on this

basis "is not the sort of weighing of evidence or determination

of credibility to which we must defer." SFZ Transp., Inc. v.

Limbach (1993), 66 Ohio St. 3d 602, 605, 613 N.E. 2d 1037, 1040.

The record reflects that Garvin began with a review of the

actual expenses, but that they were only a part of the basis

for his appraisal. He identified the actual expenses of the

complex for 1987, 1988 and 1989, and explained how those

expenses had to be adjusted to stabilize expenses for the tax

year in question by deducting real estate taxes and the costs

of repairs, maintenance, utilities, and management fees, in

addition to reserves for replacement. These adjusted expenses,

according to Garvin, compared "very closely with other

operating expense statements [he had] reviewed over the * * *

years which apply to apartment projects." He testified that

the capitalization rate employed in his calculation of true

value of the complex was "based on other observations in the

market." He also testified that personal property, consisting

of furniture, fixtures and equipment valued at $27,700, was

included in his true value estimate. Finally, on

cross-examination, Garvin said that his "appraisal report is on

the market economics of the project * * * and not the economics

of subsidization."

We agree with appellant that Canton Towers, Ltd., supra,

requires the use of appropriate economic or market rents and

expenses in determining the true value of subsidized apartments

by the income approach to value. That is precisely what

Garvin's evidence showed. The BTA's conclusion to the contrary

is both unreasonable and unlawful. See, also, Villa Park Ltd.

v. Clark Cty. Bd. of Revision (1994), 68 Ohio St.3d 215, 625

N.E.2d 613.

Additionally, we reiterate our holding in R.R.Z. Assoc. v.

Cuyahoga Cty. Bd. of Revision (1988), 38 Ohio St.3d 198, 202,

527 N.E.2d 874, 878, that "[a]ppellant had the duty to prove

its right to a reduction in value."

In this case, appellant complained of the true value

determination of the county auditor and the board of revision,

presented to the BTA the evidence of its appraisal witness, and

sustained its burden of proving that the true value

determination from which it appealed was excessive.

The decision of the BTA, affirming the decision of the

board of revision, is unreasonable and unlawful and it is

reversed. The BTA is instructed to find the true value of the

subject property, excluding furniture, fixtures and equipment,

to be $582,300.

Decision reversed.

Moyer, C.J., A.W. Sweeney, Wright, Resnick, F.E. Sweeney

and Pfeifer, JJ., concur.

Douglas, J., dissents.

Douglas, J., dissenting. This case is just another

dispute between parties, each with qualified appraisers, who

disagree on how the market value of a piece of real property

should be determined. One of the reasons the Board of Tax

Appeals ("BTA") was created was to resolve just such factual

disputes. Reversing this decision of the BTA will ensure yet

another steady stream of cases to this court on such issues

with the hope (and maybe now, even expectation) that a majority

of this court will sit as a super BTA and substitute the

court's judgment for that of the BTA.

The only real issue in this case is which expense ratios

should be used as part of the process for determining market

value. The appraiser for appellant-landowner used the actual

HUD operating expenses and, thereby, reached a fifty-five

percent expense ratio. Appellees' appraiser used a straight

percentage expense ratio and found thirty percent to be the

proper figure.

While appellant's argument, that different county

appraisers utilize differing "standard" expense ratios, seems

to have validity, it is also true that this is why this court

has, time and again, said that: "The Board of Tax Appeals is

not required to adopt the valuation fixed by any expert or

witness * * *"; "[t]he Board of Tax Appeals is vested with wide

discretion in determining the weight to be given to evidence

and the credibility of witnesses which come before the board *

* *"; and "[t]he fair market value of property for tax purposes

is a question of fact, the determination of which is primarily

within the province of the taxing authorities, and this court

will not disturb a decision of the Board of Tax Appeals with

respect to such valuation unless it affirmatively appears from

the record that such decision is unreasonable or unlawful. * *

*" (Citations omitted.) Cardinal Fed. S. & L. Assn. v.

Cuyahoga Cty. Bd. of Revision (1975), 44 Ohio St.2d 13, 73

O.O.2d 83, 336 N.E.2d 433, paragraphs two, three and four of

the syllabus.

The issue before the BTA and this court is one that is a

question of fact. In Dinner Bell Meats, Inc. v. Cuyahoga Cty.

Bd. of Revision (1984), 12 Ohio St.3d 270, 272, 12 OBR 347,

349, 466 N.E.2d 909, 911, this court said that "[t]he

appraisals of the two experts differed on the amount to be

deducted for these factors, thus creating a disputed factual

situation for the board. It is well-settled that 'it is not

the function of this court to substitute its judgment on

factual issues for that of the Board of Tax Appeals. We are

limited to a determination from the record whether the decision

reached by the board is unreasonable or unlawful.'" (Citations

omitted.)

The majority recites some of appellant's appraiser's

testimony. That is fine -- but not the issue. The BTA

listened to the evidence on both sides of the issue and

determined that the evidence, on this issue, submitted by

appellant through its appraiser should not be accepted. There

is nothing unreasonable or unlawful in this factual

determination by the BTA.

I would affirm the decision of the BTA. Because the

majority does not do so, I respectfully dissent.