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L.L.C. v. Franklin County Board of Revision

Supreme Court of Ohio

June 22, 2017

Terraza 8, L.L.C., Appellant,
v.
Franklin County Board of Revision et al., Appellees.

          Submitted April 5, 2017

         Appeal from the Board of Tax Appeals, Nos. 2015-279, 2015-280.

          Sleggs, Danzinger & Gill, Co., L.P.A., and Todd W. Sleggs, for appellant.

          Rich & Gillis Law Group, L.L.C., Mark Gillis, and Kimberly G. Allison, for appellee Hilliard City Schools Board of Education.

          Fischer, J.

         {¶ 1} At issue in this case is whether a recent amendment to R.C. 5713.03 applies to real-property valuations for tax year 2013 and, if so, whether the statutory change affects how taxing authorities must value lease-encumbered properties that have been the subject of recent arm's-length sales. We conclude that the amendment to R.C. 5713.03 enacted in 2012 Am.Sub.H.B. No. 487 ("H.B. 487") applies here and that the statutory change requires us to remand this case to the Board of Tax Appeals ("BTA") for further consideration.

         Facts and Procedural History

         {¶ 2} The subject property is a 54, 261-square-foot fitness center situated on 3.41 acres in Franklin County and owned by appellant, Terraza 8, L.L.C. ("Terraza"). The building was constructed in 2007.

         {¶ 3} The Franklin County auditor assessed the property at $4, 850, 000 for tax year 2013. Appellee Hilliard City Schools Board of Education ("BOE") complained to appellee Franklin County Board of Revision ("BOR") that the property should have been valued at $15, 403, 200, based on its assertion that that was the amount Terraza paid for it in February 2013. Terraza did not defend against the complaint, and the BOR increased the valuation to $15, 403, 200 for tax years 2013 and 2014. Terraza appealed both years' valuations to the BTA.

         {¶ 4} At the BTA hearing, Terraza introduced the testimony and appraisal of Patricia Costello, who concluded that the sale price did "not represent the fee simple market value of the property." She used income and sales-comparison approaches to determine a value that she referred to as the property's "fee simple" value. Under the income approach, she concluded that the existing lease in place when Terraza acquired the property, which provided for an initial 20-year term ending in 2027 and two 10-year optional renewal periods, called for monthly rental payments above the market rate. She testified that the monthly market-rate rent for comparable properties in 2013 was $11 per square foot while the lease here called for monthly rental payments of $22 per square foot in 2013. Her income-approach valuation was $5, 650, 000. Her sales-comparison valuation was $7, 055, 000. She accorded greatest weight to the sales-comparison approach, reaching a final valuation of $7, 055, 000.

         {¶ 5} The BOE objected to the evidence presented by Costello, arguing that it was inadmissible because Terraza had not rebutted the recency or arm's-length nature of the sale. Terraza countered that the evidence was admissible due to a change in R.C. 5713.03, which, it alleged, required the county auditor, the BOR, and the BTA to value the unencumbered fee-simple estate of the property. The BTA overruled the objection and admitted the evidence.

         {¶ 6} The BTA found that an amended version of R.C. 5713.03 applies in this case but concluded that the change did not overrule Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio-4979, 834 N.E.2d 782, ¶ 13, which held that property must be valued according to the sale price of a recent arm's-length transfer. The BTA, therefore, disregarded Costello's appraisal and, after making a slight adjustment to the BOR's valuation, determined a value of $15, 403, 120 for tax year 2013. It also found that the BOR lacked jurisdiction to determine value for tax year 2014 and instructed the BOR to vacate its decision for that year. Terraza appealed the determination for tax year 2013 to this court.

         Standard of Review

         {¶ 7} We must affirm the BTA's decision if it was "reasonable and lawful." R.C. 5717.04. In making this determination, we must consider legal issues de novo, Akron City School Dist. Bd. of Edn. v. Summit Cty. Bd. of Revision, 139 Ohio St.3d 92, 2014-Ohio-1588, 9 N.E.3d 1004, ¶ 10-11, and defer to findings concerning the weight of evidence so long as they are supported by the record, Olmsted Falls Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 122 Ohio St.3d 134, 2009-Ohio-2461, 909 N.E.2d 597, ¶ 27.

         Recent Arm's-Length Sales under Ohio Law

         Ohio Constitution, Article XII, Section 2, and RC. 5713.01

         {¶ 8} The Ohio Constitution provides that "[l]and and improvements thereon shall be taxed by uniform rule according to value." Ohio Constitution, Article XII, Section 2. In State ex rel. Park Invest. Co. v. Bd. of Tax Appeals, 175 Ohio St. 410, 195 N.E.2d 908 (1964), we held that Article XII, Section 2, along with R.C. 5713.01, establishes the criterion for the assessment of real property in Ohio. Id. at 411. At that time, R.C. 5713.01 provided that "[t]he auditor shall assess all the real estate situated in the county at its true value in money." Am.S.B. No. 370, 128 Ohio Laws 410, 412. Although the General Assembly has amended R.C. 5713.01 a number of times since then, the statute still requires county auditors to appraise real property "at its true value in money." R.C. 5713.01(B).

         {¶ 9} "[T]he value or true value in money of real property" refers to "the amount for which that property would sell on the open market by a willing seller to a willing buyer * * *, i.e., the sales price." Park Invest. Co. at 412. We have explained that "[t]he best method of determining value, when such information is available, is an actual sale of such property between one who is willing to sell but not compelled to do so and one who is willing to buy but not compelled to do so." Id., citing In re Estate of Sears, 172 Ohio St. 443, 178 N.E.2d 240 (1961), paragraph two of the syllabus. "This, without question, will usually determine the monetary value of the property." Id. Later, in Conalco, Inc. v. Monroe Cty. Bd. of Revision, 50 Ohio St.2d 129, 363 N.E.2d 722 (1977), we reiterated that "[t]he best evidence of the 'true value in money' of real property is an actual, recent sale of the property in an arm's-length transaction." Id. at paragraph one of the syllabus, quoting R.C. 5713.01.

         The 1976 ...


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