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Sapina v. Cuyahoga County Board of Revision

Supreme Court of Ohio

July 16, 2013

Sapina et al., Appellants,
v.
Cuyahoga County Board of Revision et al., Appellees.

Submitted May 7, 2013

Appeal from the Board of Tax Appeals, Nos. 2009-K-667 and 2009-K-816.

Siegel Jennings Co., L.P.A., Victor Anselmo, J. Kieran Jennings, and Jason P. Lindholm, for appellant.

Britton, Smith, Peters & Kalail Co., L.P.A., Karrie M. Kalail, and Michael E. Stinn, for appellee Euclid City School District Board of Education.

Timothy J. McGinty, Cuyahoga County Prosecuting Attorney, and Saundra Curtis-Patrick, Assistant Prosecuting Attorney, for appellees Cuyahoga County Board of Revision and Cuyahoga County Fiscal Officer.

Per Curiam.

{¶ 1} In this real-property-valuation case, the taxpayers, Ivica and Katarina Sapina, acquired a two-story building in 2006, with two storefronts below and two residential apartments upstairs. The real property was sold to them as part of the same contract by which they acquired a business on the first floor of the building. Thus, the asset purchase included personal property (restaurant equipment plus a covenant not to compete) as well as the realty.

{¶ 2} For tax year 2007, the auditor used the entire aggregate purchase price, $325, 000, as the property value, even though that official had previously determined the value for 2006 to be only $116, 700. The Sapinas sought an allocation of the purchase price to reduce the value of the realty, and the Cuyahoga County Board of Revision ("BOR") reduced the value to $175, 000. Both the owners and the Euclid City School District Board of Education ("school board") appealed to the BTA, which held a hearing and issued a decision reinstating the $325, 000 aggregate sale price as the value of the property.

{¶ 3} The Sapinas have appealed to this court, and we conclude that the adoption of the full sale price is unreasonable and unlawful. We therefore exercise our authority pursuant to R.C. 5717.04 to order that the value be modified to $160, 000, an allocation supported by the mortgage loan secured by the real property.

Facts

A. Background

{¶ 4} On December 1, 2005, Ivica and Katarina Sapina entered into a purchase agreement under which the Sapinas acquired real property plus a carryout restaurant. The real property consisted of a lot improved with a two-story building in Euclid, Ohio. On the ground floor were two business spaces, one of which was occupied by a carryout restaurant that the Sapinas acquired as part of the deal. The other first-floor commercial space was vacant. Upstairs were two residential apartments let to tenants. The sale was consummated in February 2006.

{¶ 5} The purchase agreement set a contract price of $325, 000 for all of the assets transferred under the agreement. Appended to the agreement is a list of personal property acquired as part of the carryout business, which includes such items as a walk-in cooler, two freezers, and metal tables for food preparation. The purchase agreement also contains a two-year covenant not to compete by the seller. But the agreement sets forth no allocation of the aggregate purchase price to individual assets.

B. Proceedings before the BOR

{¶ 6} Although the original updated valuation for tax years 2006 and 2007 had been $116, 700, the school board obtained an increase to the full aggregate sale price of $325, 000 for tax year 2006, which the auditor then carried forward to tax year 2007. On January 7, 2008, the Sapinas filed a valuation complaint seeking a reduction to $125, 000 for the 2007 tax year. The school board filed a countercomplaint, seeking retention of the full purchase price as the value of the realty.

{¶ 7} On February 11, 2009, the BOR held a hearing at which Katarina Sapina appeared and testified. She also presented a written appraisal (but not testimony) of Donald Durrah, which found a value of $120, 000 as of January 27, 2009 (the tax-lien date was more than two years earlier, January 1, 2007). Durrah performed a valuation under all three approaches and, placing the greatest weight on income capitalization, reconciled to a value of $120, 000 as of January 27, 2009.

{¶ 8} Sapina presented additional documents at the BOR. First, she introduced a mortgage dated February 24, 2006, which the Sapinas had given to their credit union in conjunction with the asset purchase. The loan amount was $160, 000 of the $325, 000 purchase price. Second, she presented correspondence showing the Sapinas' attempts to amend the purchase agreement by allocating $160, 000 to the realty and $165, 000 to the personal property-although tendered to the sellers, the amendment was never signed. Ms. Sapina testified that there was no downpayment, given the role of the credit union as mortgagee of the Sapinas' house.

{¶ 9} Delegates at the BOR requested that Ms. Sapina do research and work up a set of values for the used items of personal property listed on the appendix to the purchase agreement, and she complied. According to Sapina's workup, the tangible personal property associated with the carryout business had a value of about $38, 172.60.

{¶ 10} Apparently based on Sapina's workup, a review of the appraisal, and other evidence in the record, the BOR itself allocated $150, 000 to personal property and treated the remainder, $175, 000, as the value of the realty. But the exact method by which the BOR reached that number is ...


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