Dublin City School District Board of Education v. Franklin County Board of Revision

DUBLIN CITY SCHOOL DISTRICT BOARD OF EDUCATION, APPELLANT, v. FRANKLIN

COUNTY BOARD OF REVISION ET AL., APPELLEES.

[Cite as Dublin Bd. of Edn. v. Franklin Cty. Bd. of Revision (1997), 80 Ohio St.3d

450.]

Taxation — Real property valuation — True value of 340-unit apartment complex

— Board of Tax Appeals’ finding that allocated purchase price did not

correspond with property’s fair market value reasonable and lawful, when.

(No. 97-34 — Submitted July 22, 1997 — Decided December 31, 1997.)

APPEAL from the Board of Tax Appeals, No. 95-J-948.

On November 18, 1994, Merry Land & Investment Company, Inc., appellee,

purchased a portfolio of twelve properties from Fogelman Secured Equity, L.P.,

for $154,413,500. This portfolio included Saw Mill Village, a 340-unit apartment

complex in the Dublin City School District. Merry Land and Fogelman allocated

$19,591,212.81 of the total purchase price to Saw Mill Village.

For tax year 1994, the Franklin County Auditor, appellant, had valued Saw

Mill Village at $15,400,000. Noting the November sale, the Dublin City School

District Board of Education (“Dublin”), appellant, filed a complaint with the

Franklin County Board of Revision (“BOR”), appellee, asserting that the true

value of the property for tax year 1994 was the amount Merry Land had allocated

to it. Merry Land filed a counter-complaint seeking to maintain the auditor’s

value. The BOR affirmed the auditor’s value, and Dublin appealed to the Board of

Tax Appeals (“BTA”).

At the BTA’s hearing, Dublin presented a certified copy of the real property

conveyance fee statement for the sale and a certified copy of the warranty deed.

These documents indicated that the purchase price for the property was

$19,591,212.81.

Merry Land presented as a witness Dorrie Green, its vice-president of

administration, to refute Dublin’s claim that the BTA should treat the allocated

price as the true value of Saw Mill Village. Green testified about Merry Land’s

strategy in purchasing the properties and allocating the purchase amount to Saw

Mill Village. Green testified that Merry Land established an artificially high

allocated price for Saw Mill Village because it planned to sell the property shortly

after the purchase. It planned to do this because it owned and operated apartment

properties in the southern United States and did not desire to operate a northern

property. A high allocated price, according to Green, would place it in a better

negotiating position with potential buyers. Furthermore, Merry Land was a real

estate investment trust, and any gain on a sale of property within four years of its

purchase would result in the gain being taxed for federal income taxes at one

hundred percent. A high allocated price would, thus, lessen Merry Land’s income

tax exposure. Finally, Merry Land had the option to delete any properties from the

purchase if the cost to repair any property’s defects exceeded a certain figure.

Merry Land hoped to delete Saw Mill Village from the purchase for this reason. A

high allocated amount would, consequently, reduce the overall purchase price

disproportionately.

Dublin objected to Green’s testimony, claiming that he lacked personal

knowledge of Merry Land’s strategy in allocating the purchase price because he

did not directly negotiate the sale. The BTA, however, overruled Dublin’s

objection and ruled that it would give this testimony “whatever weight we may

afford it.” The BTA afforded his testimony considerable weight in deciding this

case.

The BTA found, in accord with the witness’s testimony, “that the price

allocated to the subject property was based on the business needs of the company,

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and not upon market value. * * * In this instance, therefore, the Board finds that

the allocated purchase price does not correspond with the property’s fair market

value. The allocation was based upon factors which had no connection with the

property’s true value. Although the purchase price of the entire package may have

been negotiated, the price of the subject was not.”

After finding that the allocated price was not the value of the property, the

BTA reviewed, but rejected, an appraisal presented by Merry Land. The BTA

declared that Dublin had the burden of going forward to establish a value different

from the value found by the BOR and found that Dublin had not sustained this

burden. The BTA concluded that the evidence supports the conclusion reached by

the auditor and the BOR. Accordingly, the BTA adopted the BOR’s value,

$15,400,000.

This cause is now before this court upon an appeal as of right.

__________________

Teaford, Rich & Wheeler, Jeffrey A. Rich and Carol Cassell Fox, for

appellant.

Ronald J. O’Brien, Franklin County Prosecuting Attorney, and Matthew H.

Chafin, Assistant Prosecuting Attorney, for appellees Franklin County Board of

Revision et al.

Fred Siegel Co., L.P.A., and Annrita S. Johnson, for appellee Merry Land &

Investment Co., Inc.

__________________

Per Curiam. Dublin argues that the BTA based its decision on inadmissible

hearsay testimony and that the BTA unreasonably found that the allocated price

was not the true value of the property. We disagree and affirm the BTA’s

decision.

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In its third proposition of law, Dublin argues that Green did not have

personal knowledge of the facts about which he testified and that, consequently,

the BTA should not have admitted or relied on his testimony. Dublin contends

that Green’s lack of personal knowledge violates Evid.R. 602, which prohibits a

witness from testifying “to a matter unless evidence is introduced sufficient to

support a finding that he has personal knowledge of the matter.”

As we ruled in Orange City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd.

of Revision (1996), 74 Ohio St.3d 415, 417, 659 N.E.2d 1223, 1224, the BTA need

not comply with the Rules of Evidence, but the rules may guide the BTA in

conducting its hearings. Yet, as Dublin argues, personal knowledge by a witness

of facts about which he testifies is a substantive rule of law that the BTA should

observe. Bucyrus v. Dept. of Health (1929), 120 Ohio St. 426, 430, 166 N.E. 370,

371.

I McCormick on Evidence (4 Ed.1992) 40, in commenting on the

requirement that a witness have firsthand knowledge of facts, states:

“One who has no knowledge of a fact except what another has told him

cannot, of course, satisfy the present requirement of knowledge from observation.

When the witness, however, bases his testimony partly upon firsthand knowledge

and partly upon the accounts of others, the problem is one which calls for practical

compromise. Thus when he speaks of his own age, or of his kinship with a

relative, the court will allow the testimony. And when the witness testifies to facts

that he knows partly at first hand and partly from reports, the judge, it seems,

should admit or exclude according to the reasonable reliability of the evidence.”

This quotation and the holding in Akron-Canton Waste Oil, Inc. v. Safety-

Kleen Oil Services, Inc. (1992), 81 Ohio App.3d 591, 611 N.E.2d 955, convince us

that Green’s testimony exhibits reasonable reliability and that the BTA did not err

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in admitting and weighting it. In Akron-Canton Waste Oil, the court of appeals

approved admitting the testimony of a secretary who testified about the intention

of her corporate employer. The witness was in contact with the managers and

corporate employees and, basically, ran the office during her tenure. She received

instructions from her superiors to perform operations that disclosed their

intentions. The appeals court, first, ruled that the trial court enjoyed broad

discretion in admitting and excluding evidence, due to its superior vantage, and

that the court of appeals would not reverse admitting evidence absent a clear

showing of abuse, which the court of appeals did not find in that case. Then, the

court of appeals concluded that the secretary had based her testimony on her

personal knowledge. “Her description of her job duties also allowed an inference

that she would be in a position to know the reasons for the various practices of the

corporation.” Id. at 597, 611 N.E.2d at 960.

In this case, Green’s job allowed him similar access to information.

According to his testimony, he attended and participated in corporate management

meetings at which the sale and the strategy for allocating the purchase price were

discussed. He oversaw “property taxes, insurance, financial reporting, corporate,

federal and state income tax filings, among other things.” His duties included

administering the purchased properties. The BTA could infer that he collaborated

in devising the allocation strategy and could find that he incorporated the

allocation decision in his reporting and filing duties. Thus, he had sufficient

personal knowledge of the facts on the strategy of the purchase and the price

allocation. The BTA did not abuse its discretion in admitting the testimony or in

granting it the weight that it did. Orange City School Dist. Bd. of Edn. v.

Cuyahoga Cty. Bd. of Revision.

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In its first two propositions of law, Dublin essentially argues that the BTA’s

decision to reject the allocated purchase price for the given reasons was

unreasonable. In Conalco v. Monroe Cty. Bd. of Revision (1977), 50 Ohio St.2d

129, 4 O.O.3d 309, 363 N.E.2d 722, paragraph two of the syllabus, we stated:

“In valuing real property sold within three days of the tax lien date in an

arm’s-length transaction, the best evidence of ‘true value in money’ is the proper

allocation of the lump-sum purchase price and not an appraisal ignoring the

contemporaneous sale.”

Later, in a further appeal of that case, Consol. Aluminum Corp. v. Monroe

Cty. Bd. of Revision (1981), 66 Ohio St.2d 410, 414-415, 20 O.O.3d 357, 360, 423

N.E.2d 75, 78, we stated:

“The Board of Tax Appeals is not required, in every instance, and in all

events, to accept as the true value in money of real property, an allocation of a

portion of a lump-sum purchase price paid for a group of assets which included the

property in question, and where it finds a proper allocation of the lump-sum

purchase price to the property in question is not possible it may consider all of the

evidence which is before it in determining the true value in money of the

property.”

In this case, the BTA reasonably determined that the allocated purchase

price was not the true value of the property. Merry Land allocated a lump-sum

price among twelve properties. It settled on an allocation that benefited it for

business reasons. As the BTA determined, the allocation did not reflect the true

value of the property; instead, the allocation positioned Merry Land to gain a

financial advantage on a planned, quick resale of the property.

Tele-Media Co. of Addil v. Lindley (1982), 70 Ohio St.2d 284, 24 O.O. 3d

367, 436 N.E.2d 1362, does not govern this case, as Dublin contends. In Tele-

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Media, the taxpayer allocated a lump-sum purchase price to assets to take

advantage of federal income tax rules, claimed the allocation was higher than true

value, and listed a lower value in personal property tax returns filed with the Tax

Commissioner. The Tele-Media court held that the taxpayer, to establish a lower

true value than the sale price, had to prove that the allocation of the recent sale

was not the best evidence of the true value and that another indicator more

accurately represented the value. Ultimately, the court held that the taxpayer had

not presented sufficient, probative evidence to sustain a finding that another

indicator was a more accurate representative of the value.

Here, Dublin, as appellant, had the burden to persuade the BTA to increase

the value. Cincinnati School Dist. Bd. of Edn. v. Hamilton Cty. Bd. of Revision

(1997), 78 Ohio St.3d 325, 677 N.E.2d 1197. It chose to stand on the allocated

price. As a hedge against the BTA’s rejecting this stand (indeed, the BOR had

rejected this position), it should have set out to prove that another indicator

established the true value of the property. It did not, and the BTA, without any

other credible evidence, correctly adopted the value determined by the BOR.

Cleveland Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision (1994), 68 Ohio St.3d

336, 626 N.E.2d 933; Westlake Med. Investors, L.P. v. Cuyahoga Cty. Bd. of

Revision (1996), 74 Ohio St.3d 547, 660 N.E.2d 467.

Accordingly, we affirm the decision of the BTA because it is reasonable and

lawful.

Decision affirmed.

MOYER, C.J., RESNICK, F.E. SWEENEY, PFEIFER, COOK and LUNDBERG

STRATTON, JJ., concur.

DOUGLAS, J., dissents.

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