PRESENT: All the Justices
CITY OF RICHMOND
OPINION BY
v. Record No. 110820 CHIEF JUSTICE CYNTHIA D. KINSER
June 7, 2012
JACKSON WARD PARTNERS, L.P.
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Melvin R. Hughes, Jr., Judge
The City of Richmond (the City) appeals from a judgment of
the circuit court correcting erroneous tax assessments on real
property owned by Jackson Ward Partners, L.P. (JWP). Because we
conclude that JWP failed to carry its burden to prove the fair
market value of the eight parcels of real property at issue, we
will reverse the judgment of the circuit court.
FACTS AND PROCEEDINGS
JWP owns real property, designated as Jackson Ward
Apartments (the Properties), in the Jackson Ward area of the
City of Richmond, which it operates as an affordable housing
development. 1 The Properties are considered a "scattered site
community" and consist of 11 structures with 18 residential
rental units situated on eight, non-contiguous tax parcels
located on three different streets, West Clay, West Marshall,
and North 1st Streets. The Properties consist of various types
of dwellings: three parcels contain a single duplex, i.e., one
1
The Properties were originally purchased by Jackson Ward
Associates, an affiliated company, and subsequently assigned to
Jackson Ward Partners, L.P. In this opinion, these companies
will be referred to collectively as JWP.
structure with two units, four parcels contain single-family
homes, and one parcel contains four attached duplexes with a
total of eight units. The parcels are zoned R-6, single family
or duplex, 2 and contain both two-bedroom and three-bedroom units.
In purchasing the eight parcels, JWP agreed to renovate the
structures and operate the Properties as affordable rental
housing. The required renovations were financed through
Virginia Housing & Development Authority (VHDA) loans, the terms
of which were pre-negotiated by the Richmond Redevelopment &
Housing Authority (RRHA) and United States Department of Housing
and Urban Development (HUD) through the Properties'
participation in HUD's Section 8 affordable housing program.
The eight, non-contiguous tax parcels are subject to a deed
of trust and a regulatory agreement with VHDA. Under that
agreement, the parcels are required to be operated as an 18-
unit, affordable, multifamily rental housing development for a
40-year period. 3 The VHDA treats the Properties as comparable to
an 18-unit apartment complex. The regulatory agreement
prohibits the sale of individual structures or parcels and
requires that the units be rented to persons whose income is 40%
2
See Richmond City Code § 114-412.1.
3
In addition, a regulatory agreement restricting the
property for a 30-year period was required for participation in
the low income housing tax credit program. VHDA administers the
low income housing tax credit.
2
or less than the area median income. 4 Pursuant to the various
agreements, HUD dictates the rental rates on the Properties and
conducts periodic inspections to ensure compliance with certain
regulatory requirements.
Pursuant to Code § 58.1-3984, JWP filed a second amended
complaint in the circuit court for correction of erroneous tax
assessments on the Properties for the tax years 2005-2008. In
its complaint, JWP claimed the assessments were "clearly
erroneous and in excess of fair market value in violation of the
Constitution of Virginia, Article X, § 2," and "lacked
uniformity . . . with respect to the same class of subjects
within the City in violation of the Constitution of Virginia,
Article X, § 1."
At a five-day bench trial, Eugene Joseph, a licensed
commercial real estate appraiser, testified for JWP regarding
his appraisal of the Properties for the tax years in question.
Joseph stated that the "cornerstone of any appraisal" is
determining the highest and best use. He explained the "four
general areas of the highest and best use": what is "legally
permissible, . . . physically possible, financially feasible,
and . . . maximally productive." Because the eight parcels were
"restricted by an extended use regulatory agreement" and could
4
By receiving the low income housing tax credit, JWP must
rent the units to individuals whose income is 50% or less than
the area median income.
3
not "be sold off as a single family [home] or duplex," Joseph
opined that the only legally permissible use, and thus the
highest and best use, was a multifamily, 18-unit parcel.
According to Joseph, he had "to value the property as what it
truly is and that is a scattered site single, multifamily
property per what's legally permissible."
To determine fair market value, Joseph considered the cost,
sales comparison, and income approaches to valuing the
Properties. Joseph deemed the income approach to be the primary
indicator of value but used the sales comparison approach for
"some additional support." According to Joseph, the income
approach is more reliable because "typical buyers and investors
consider the income potential of a property." In applying the
income approach, Joseph considered the contract rents set by
HUD, the typical vacancy and collection losses, typical
operating costs for such a property, and the historical
operating expenses of the Properties to arrive at the net
operating income. Joseph then determined a capitalization rate,
primarily by "extract[ing] capitalization rates from . . . other
sales," and capitalized the net operating income to arrive at
his value estimate. 5 Under the sales comparison approach, Joseph
5
Because the real estate taxes were in dispute, Joseph
excluded them from the operating expenses in determining net
operating income and compensated for the real estate taxes by
adjusting the capitalization rate.
4
compared the sale of similar properties, which in this case
meant multifamily apartment complexes. Joseph then made "lump
sum adjustment[s] to account for" the rent restrictions, again
because "the property is encumbered and you have to account for
that."
Using these methods, Joseph determined that the fair market
value of the Properties as a whole was $600,000 for each of the
tax years 2005-2008. Joseph opined that "the overall value of
$600,000 should be allocated on a per unit basis to reflect the
individual tax parcels as identified by the City." According to
Joseph, "you can simply allocate on a per unit basis to the
various parcels and to the various units." By allocating the
$600,000 value equally on a per unit basis to the 18 units,
Joseph determined the fair market value of each unit to be
$33,333. Joseph then determined the fair market value of each
tax parcel based on the number of units located on the parcel.
On cross-examination, Joseph conceded that the parcels
could be assessed individually, though only as a "fractional
appraisal" because the highest and best use of the Properties
was as one multifamily housing development. According to
Joseph, "you have to value the property as one" because of the
restrictions contained in the regulatory agreement. He further
admitted that his appraisal was not a fee simple valuation for
the same reason. When asked if his allocation method "was
5
simply a mathematical calculation," Joseph indicated that it was
and opined that the method was "a valid technique."
Several witnesses who testified for JWP stated that the
Properties operate at a loss due, in large part, to the City's
tax assessments. According to those witnesses, the Properties
could neither generate sufficient income to justify the assessed
value nor be sold at the assessed value.
Richard Woodson, the Deputy Assessor for the City and also
a licensed real estate appraiser, testified regarding the City's
assessment of the Properties for tax years 2005-2008. In
contrast to Joseph, Woodson stated that the "true test of
highest and best use" is "[w]hat use produces the highest
value." Woodson explained that in the Jackson Ward area of the
City, the trend is for "rooming houses" to be converted back to
single family dwellings. That factor, along with the applicable
zoning and the type of construction on each parcel led Woodson
to conclude that the highest and best use of the Properties is
as single-family homes and duplexes. Woodson did not consider
the Properties to be a scattered site apartment complex because
he was required to assess the "fee simple interest [de]void of
any encumbrances." Woodson stated the City's assessment method
was not restricted by the deed of trust or the regulatory
agreement's treatment of the Properties as a multifamily housing
development and, with one exception, he did not consider the
6
restrictions imposed by the regulatory agreement in arriving at
the assessed value of the eight parcels. 6 Doing so, he opined,
would mean assessing a leasehold interest rather than a fee
simple interest.
Woodson believed the City was required to assess each
parcel individually: "Each parcel gets a separate tax bill, so
it has to have a separate assessment." He pointed out that the
RRHA has numerous single-family dwellings scattered throughout
the City that have similar rent restrictions. Nevertheless, the
City assesses each parcel individually under a fee simple
valuation. Woodson opined that other than the fact that the
parcels are owned by one entity and are rented as a package,
they do not resemble an apartment complex.
To determine the fair market value of each of the eight tax
parcels, Woodson considered the income, cost, and sales
comparison approaches. Unlike Joseph, Woodson utilized the
sales comparison approach because it provided "[t]he most
6
As of the 2007 tax year, to determine fair market value, a
taxing authority had to consider restrictions on rent and
alienation of title, and the actual operating expenses for real
property "containing more than four residential units operated
in whole or in part as affordable rental housing." Former Code
§ 58.1-3295 (as in effect prior to amendments by 2009 Acts ch.
264, 2010 Acts chs. 552, 791, 824, and 2011 Acts ch. 137).
Woodson applied that statute only to the parcel on Clay Street,
with four attached duplexes, for tax years 2007 and 2008. Under
the statute, Woodson accounted for the "below market rents and
higher than normal expenses" by applying a "lower gross rent
multiplier."
7
readily identifiable and trackable information for single family
and duplex houses" that was "readily available" to the City. To
apply the sales comparison approach, Woodson used properties
"most similar in size, location, condition, quality, land sizes,
et cetera." As Woodson noted, the structures on the parcels
have unique "individual characteristics" with respect to
setbacks, entries, porches, and square footage. The City
assessed the eight tax parcels at the following fair market
values for the years in question:
Address 2005 2006 2007 2008
509 N. 1st St. $150,000 $150,500 $162,000 $186,000
511 N. 1st St. $150,000 $133,000 $155,000 $171,000
517 N. 1st St. $185,000 $185,000 $190,000 $200,000
519 N. 1st St. $169,000 $153,000 $163,000 $174,000
521 N. 1st St. $155,000 $182,000 $215,000 $220,000
315-321 W. Clay St. $565,000 $725,000 $605,000 $605,000
409 W. Marshall St. $165,000 $185,000 $225,000 $225,000
411 W. Marshall St. $155,000 $194,000 $215,000 $235,000
TOTAL VALUES $1,694,000 $1,907,500 $1,930,000 $2,016,000
Woodson criticized Joseph's assessment as not valuing the
fee simple interest but instead the leased fee, an "entirely
different subject[]." In addition, Woodson believed the
properties used by Joseph as comparable properties were
completely different types of property. Joseph, Woodson stated,
should have assessed each parcel individually and his assessment
was "nothing more than an appraisal for investment value in a
leasehold context."
8
Following the close of evidence, JWP asked the circuit
court to correct the City's assessments on the eight tax
parcels. According to JWP, the City, in assessing the
Properties, ignored their highest and best use as an 18-unit,
multifamily housing development. Because the regulatory
restrictions required that the Properties be operated as an
affordable housing development, JWP argued, the City committed
manifest error by basing its assessment on a false premise: that
the units were single-family homes and duplexes. While JWP
conceded that the Properties consisted of distinct tax parcels
and that "the law require[d] that all property be taxed," it
argued there was no requirement for an "individual appraisal on
each parcel."
Responding, the City argued that it was not a party to the
restrictions placed on the Properties and the restrictions,
therefore, could not alter its assessment obligations. The City
argued that "the biggest flaw" in JWP's appraisal was the
determination of highest and best use, which ignored the
Properties' R-6 zoning and the fact that there are eight, non-
contiguous tax parcels. The City also claimed that by
appraising all the parcels as a whole and then allocating that
value to each of the individual parcels with a "mathematical
calculation," JWP ignored this Court's holding in West Creek
Associates, LLC v. County of Goochland, 276 Va. 393, 665 S.E.2d
9
834 (2008), that each parcel must be assessed individually. In
addition, the City noted that JWP’s appraisal failed to account
for differences in size, location, age, and features of the
individual structures, as well as the fact that some units had
recently been renovated.
The circuit court held that JWP satisfied its burden of
proving the City's assessments for years 2005-2008 were
erroneous and ordered the City to correct its assessments and
issue refunds to JWP for taxes it overpaid based on the
erroneous assessment, plus interest. The circuit court agreed
with JWP that consideration of the Properties' highest and best
use compelled consideration of the applicable regulatory
restrictions. Invoking the definition of fair market value as
"[w]hat a willing buyer while under no compulsion to buy" will
pay, the court held that the "deed restrictions have to come
into play." Because the City's assessments failed to consider
the restrictions on the Properties, the court concluded that JWP
had carried its burden to show by a clear preponderance of the
evidence that the City committed manifest error in its
assessments of the eight tax parcels. The City, according to
the court, did not "take into account the reality of the
situation."
The circuit court stated:
10
[Valuing the property as an apartment
complex is] the best way to approach it given the
deed restrictions and the regulatory agreement.
It has to be. It just defies reality . . . that
any purchaser approaching a seller of these
properties wouldn't have to take these things
into account, and the fee simple analysis is just
not appropriate.
In addition, the court opined that "the income approach as urged
by [JWP] is the correct and more readily available vehicle for
determining . . . the fair market value." The circuit court
thus concluded that the City’s tax assessments should be
"adjusted according to [JWP's] evidence and the refunds
allowed."
The circuit court denied the City's motion to reconsider,
and this appeal followed.
ANALYSIS
We granted the City an appeal on the following assignments
of error:
1. The Circuit Court of the City of Richmond
erred in ruling that eight non-contiguous
tax parcels should be valued as one
apartment complex.
2. The Circuit Court of the City of Richmond
erred by accepting Plaintiff's values, which
were determined in bulk.
3. The Circuit Court of the City of Richmond
erred by ruling that the City's values had
to be determined under the income approach
to valuation at less than fee simple
interest.
4. The Circuit Court of the City of Richmond
erred by determining that Plaintiff overcame
11
the presumption of correctness under
Virginia Code § 58.1-3984.
With regard to these issues, the parties make essentially the
same arguments on appeal as they did before the circuit court.
If the City is correct on any one of the issues raised in the
assignments of error, the circuit court's judgment must be
reversed.
The question presented by the first two assignments of
error is dispositive of the appeal, i.e., whether the circuit
court erred as a matter of law by holding, based on JWP's
appraisal of the Properties, that eight separate, non-contiguous
parcels of real property can be appraised as one parcel and that
the appraised value could then be allocated among the individual
parcels based solely on the number of rental units situated on
each parcel. This question is a mixed question of law and fact,
and we thus conduct a de novo review. See Ford Motor Credit Co.
v. Chesterfield Cnty., 281 Va. 321, 334, 707 S.E.2d 311, 317
(2011).
The Constitution of Virginia, with certain exceptions not
relevant here, requires that all property be taxed, and that all
taxes "shall be uniform upon the same class of subjects within
the territorial limits of the authority levying the tax." Va.
Const. art. X, § 1. In addition, all assessments of real
property "shall be at their fair market value." Va. Const. art.
12
X, § 2. A taxing authority's assessment is presumed to be
correct, and a taxing authority need not "prov[e] the
correctness of its assessment." TB Venture, LLC v. Arlington
Cnty., 280 Va. 558, 563, 701 S.E.2d 791, 794 (2010). The lack
of such evidence " 'does not impeach [the correctness of an
assessment] since the taxpayer has the burden of proving the
assessment erroneous.' " Id. (quoting West Creek, 276 Va. at
409, 665 S.E.2d at 843).
A taxpayer challenging an assessment must show, "by a clear
preponderance of the evidence," that the taxing authority
"totally disregarded controlling evidence in making the
assessment" or "committed manifest error." TB Venture, 280 Va.
at 563, 701 S.E.2d at 794 (internal quotation marks omitted).
To establish manifest error in the assessment, the taxpayer must
prove
that the taxing authority employed an improper
methodology in arriving at a property's assessed
value or by establishing "a significant disparity
between fair market value and assessed value
. . . so long as the assessment [does not come]
within the range of a reasonable difference of
opinion, . . . when considered in light of the
presumption in its favor."
Id. (quoting West Creek, 276 Va. at 414, 665 S.E.2d at 845)
(alterations in original) (internal quotation marks omitted).
Regardless of the manner in which a taxpayer attempts to
establish manifest error,
13
to satisfy the statutory requirement of showing
that real property is assessed at more than its
fair market value, a taxpayer must necessarily
establish the property's fair market value. This
is so irrespective of whether a taxpayer is
attempting to show manifest error or disregard of
controlling evidence by proving a significant
disparity between fair market value and assessed
value, or by establishing a flawed methodology by
the taxing authority in setting the assessed
value.
West Creek, 276 Va. at 417, 665 S.E.2d at 847 (citation omitted)
(emphasis added).
"[F]air market value 'is the present actual value of the
land with all its adaptations to general and special uses, and
not its prospective, speculative or possible value, based on
future expenditures and improvements.'" Id. at 416, 665 S.E.2d
at 846 (quoting Fruit Growers Express Co. v. City of Alexandria,
216 Va. 602, 609, 221 S.E.2d 157, 162 (1976)); see also Keswick
Club, L.P. v. County of Albemarle, 273 Va. 128, 136, 639 S.E.2d
243, 247 (2007) (fair market value of real property is the "sale
price when offered for sale by one who desires, but is not
obliged, to sell it, and is bought by one who is under no
necessity of having it") (internal quotation marks omitted).
There are many factors to be considered in
arriving at the fair market value of property.
While size and cost of the property may be
factors to be given weight, there are many other
factors which tend to increase or diminish such
value; for instance, the design, style, location,
appearance, availability of use, and the economic
situation prevailing in its area, as well as
other circumstances.
14
Smith v. City of Covington, 205 Va. 104, 108-09, 135 S.E.2d 220,
223 (1964).
In West Creek, 144 separate limited liability companies
(collectively, West Creek) challenged the tax assessments of 144
parcels of real property comprising a total of 2,500 acres, a
portion of which had been deeded to each company. 276 Va. at
397-98, 665 S.E.2d at 836. Citing the lack of metes and bounds
descriptions of the parcels, an approved subdivision, and
infrastructure on many of the parcels, West Creek's expert real
estate appraiser valued the parcels "as a whole" and then
"assigned a per acre value . . . based on the availability of
infrastructure." Id. at 401, 665 S.E.2d at 838. On appeal, one
of the issues was whether the trial court erred in concluding
that the taxpayer had failed to establish the fair market value
of certain parcels of real estate because the taxpayer "had done
nothing more than spread the value of the development across the
individual parcels." Id. at 414, 665 S.E.2d at 845 (internal
quotation marks omitted).
This Court affirmed the trial court's judgment "that West
Creek failed to present credible evidence of the parcels' fair
market values." Id. at 416-17, 665 S.E.2d at 847. We held that
"[i]n order to satisfy the statutory requirement of showing that
real property is assessed at more than its fair market value,
15
see Code § 58.1-3984(A), a taxpayer must necessarily establish
the property's fair market value." Id. at 417, 665 S.E.2d at
847. Citing Code § 58.1-3290, we pointed out that even West
Creek agreed the County was required to assess the 144 parcels
individually. Id. at 414, 665 S.E.2d at 846.
In relevant part, Code § 58.1-3290 provides
that, "[w]hen a tract or lot becomes the property
of different owners in two or more parcels,
subsequent to any general reassessment of real
estate in the city or county in which such tract
or lot is situated each of the two or more
parcels shall be assessed and shown separately
upon the land books, as required by law."
Although the assessments at issue in this appeal
were part of the County's quadrennial
reassessment, other statutes also require the
parcels to be assessed individually. See, e.g.,
Code § 58.1-3281 (commissioner of revenue shall
annually, on January 1, "ascertain all the real
estate in his county or city, . . . and the
person to whom the same is chargeable with taxes
on that day"); Code § 58.1-3303 (requiring clerk
of each circuit court to provide commissioner of
revenue with deed recordation receipt showing,
among other things, description of real property
conveyed and names of grantor and grantee); Code
§ 58.1-3309 (requiring information appearing in
receipts provided pursuant to Code § 58.1-3303 to
be transferred "on the land book and charged to
the person to whom the transfer is made").
Id. at 414 n.8, 665 S.E.2d at 846 n.8 (emphasis added).
In response to West Creek's argument that the trial court
had failed "to consider the recent purchase price for the
amassed parcels as evidence of [their] fair market value," we
held that West Creek was required to establish the fair market
value of each parcel, regardless of any error on the part of the
16
taxing authority. Id. at 415-17, 665 S.E.2d at 846-47.
Continuing, we explained that West Creek's expert appraiser had
"accepted the sale price of the 2,500 acres as controlling and
assigned portions of the price as the per acre value for parcels
depending on the developmental phase in which the parcels were
located." Id. at 417, 665 S.E.2d at 847. We noted that the
appraiser's methodology was "'an arithmetic formula,' which is
not an accepted appraisal method." Id. Thus, we concluded that
"West Creek's evidence did not rebut the presumption of
correctness afforded the assessments." Id. at 417-18, 665
S.E.2d at 847.
This Court's decision in TB Venture is even more
compelling. There, TB Venture, LLC (TB Venture) alone owned a
condominium development containing 21 units that were subject to
an agreement requiring the units "to be rented to qualifying,
low-income households for a period of 40 years and specif[ying]
limitations on rental amounts and occupancy." 280 Va. at 560-
61, 701 S.E.2d at 792. TB Venture challenged the taxing
authority's tax assessments on the condominium units and at
trial presented testimony from an expert qualified in real
estate appraisal. Id. at 561, 701 S.E.2d at 793. Valuing the
units on a "'leased fee' rather than a fee simple basis" to
account for the 40-year rental restrictions encumbering the
units, the expert admitted that he appraised " 'all 21 units as
17
a whole' " and "then allocated a value to each unit 'based on
the pro rata share of the income of each of the units derived by
the overall income.' " Id. at 561-62, 701 S.E.2d at 793. Like
JWP's appraiser, Joseph, TB Venture's expert appraiser testified
that "he did not determine the fair market value of each unit
because 'the units [could not] be sold individually as
condominiums' but are 'basically tied together through this
covenant.' " Id. at 562, 701 S.E.2d at 793 (alteration in
original).
The trial court sustained the taxing authority's motion to
strike TB Venture's evidence. Id. at 562, 701 S.E.2d at 793. In
part, the court concluded that TB Venture had " 'failed to prove
the value of the subject properties.' " Id. On appeal, we
affirmed the trial court's judgment. Id. at 565, 701 S.E.2d at
795. Noting that "the taxpayer's burden to prove that real
property is assessed at more than its fair market value
necessarily requires that the taxpayer establish the property's
fair market value," we held that TB Venture did not carry its
"burden to establish each unit's fair market value." Id. at
564-65, 701 S.E.2d at 794-95.
We explained that "just as the [taxing authority] was
required to separately assess each unit, TB Venture was required
to establish the fair market value of each unit." Id. at 564,
701 S.E.2d 795. According to Code § 55-79.42, "each condominium
18
unit constitutes for all purposes a separate parcel of real
estate" and, "[i]f there is any unit owner other than the
declarant, each unit, together with its common element interest
. . . shall be separately assessed and taxed." 7 See also West
Creek, 276 Va. at 414 n.8, 665 S.E.2d at 846 n.8 (listing
statutes that require parcels of real property to be assessed
individually).
Addressing TB Venture's argument that "each unit's location
in the complex, its amenities, and even its view [were]
irrelevant because of the restrictions" applicable to all the
units, the Court stated:
To the extent there are market-driven
impediments to selling the units individually and
limitations on the rental income that can be
realized, such factors may affect each unit's
fair market value. But, they do not alter the
statutory requirement that condominiums be
treated as separate parcels of real estate and
separately assessed. Nor do such factors alter
TB Venture's burden to establish each unit's fair
market value in order to show that its real
property is assessed at more than fair market
value.
Id. at 565, 701 S.E.2d at 795 (citations omitted) (emphasis
added).
The statutes at issue in TB Venture and West Creek
requiring individual assessments of the real properties at issue
in those cases are not unique in the realm of real property
7
TB Venture was not the "declarant." Id. at 564, 701
S.E.2d at 794.
19
assessments by taxing authorities. Instead, both statutes, Code
§§ 55-79.42 and 58.1-3290, respectively, merely apply to unique
circumstances the general rule that each tax parcel must be
assessed individually. Regarding Code § 55-79.42, at issue in
TB Venture, it is essential to note that "condominiums are
creatures of statute wholly unknown at common law." Orchard
Glen East, Inc. v. Board of Supervisors, 254 Va. 307, 311, 492
S.E.2d 150, 153 (1997). Thus, being a creature of statute, the
General Assembly had to direct the treatment of condominium
units for purposes of assessment by taxing authorities. It did
so by requiring taxing authorities to assess each condominium
unit as a separate tax parcel, like all other parcels of real
property.
The same can be said of time-shares and cooperatives.
Because both are creatures of statute, Code § 55-363 directs how
to treat time-share estates for purposes of tax assessment, and
Code § 55-428 does the same for cooperative interests.
Specifically, Code § 55-363(B) states that "[e]ach time-share
estate constitutes for purposes of title a separate estate or
interest in a unit," and subsection C requires that each time-
share unit be taxed as if it were owned by a single taxpayer.
Code § 55-363(C). Similarly, Code § 55-428(A) states that a
cooperative interest "is real estate for all purposes" and
subsection C commands that in certain instances, "[t]he fair
20
market value of each such cooperative apartment unit shall be
established by determining its fair market value for sale as an
individual unit, determined in the same manner . . . as the fair
market value of condominium units."
The statute at issue in West Creek states that
[w]hen a tract or lot becomes the property of
different owners in two or more parcels,
subsequent to any general reassessment of real
estate in the city or county in which such tract
or lot is situated each of the two or more
parcels shall be assessed and shown separately
upon the land books, as required by law.
Code § 58.1-3290. Similarly, Code § 58.1-3285 provides:
Whenever a tract of land is subdivided into
lots under the provisions of law and plats
thereof are recorded, subsequent to any general
reassessment of real estate in the city or county
in which such real estate is situated, each lot
in such subdivision shall be assessed and shown
separately upon the land books, as required by
law.
Rather than imposing a unique requirement for the assessment of
a tract of real property that has been subdivided or has become
the "property of different owners in two or more parcels," these
statutes simply require that such real property be assessed like
all other tracts of real property, as individual parcels.
As we noted in West Creek, numerous statutes require that
separate parcels of real property be assessed on an individual
basis. Code § 58.1-3281 requires the commissioner of the
revenue to annually "ascertain all the real estate in his county
21
or city, . . . and the person to whom the same is chargeable
with taxes." In addition, the commissioner "shall assess the
value of any building and enclosure not previously assessed" and
the "value shall be added to the value at which the land was
previously charged." Id. Under Code § 58.1-3302, the
commissioner of the revenue is required to "enter separately" in
the table of town or city lots "each lot and [to] set forth
. . . the value of the buildings on the lot [and] the value of
the lot including buildings." Code § 58.1-3303 requires the
clerk of each circuit court to provide the commissioner of the
revenue with a deed recordation receipt for "all deeds for the
partition and conveyance of land" that states, among other
things, a description of the real property conveyed and the
names of the grantor and grantee. Furthermore, the Attorney
General expressed the opinion that certain statutes, Code §§ 58-
772, -772.1, -773 and -805 (now Code §§ 58.1-3285, -3290, -
3302), "provide a general legislative mandate that separate
parcels of real property shall be separately assessed." 1974-
1975 Op. Atty. Gen. 89.
Despite opining that the highest and best use of the eight
tax parcels is a single apartment complex, Joseph, as JWP's
appraiser, nonetheless recognized that he had to establish the
fair market value of each parcel when he allocated a numerical
value to each of the eight parcels. But, the methodology used
22
by Joseph to value each tax parcel, which was in turn sanctioned
by the circuit court, is the same methodology this Court
rejected in TB Venture. Joseph opined that the fair market
value of the eight parcels was $600,000 for each of the tax
years in question. When asked how that value translated to the
eight tax parcels, he responded that "you can simply allocate on
a per unit basis to the various parcels and to the various
units." During cross-examination, Joseph admitted that he took
the $600,000 value and performed a "mathematical calculation" to
arrive at the fair market value of each parcel. He also
admitted that he appraised the eight parcels as a single
apartment complex only because of the applicable restrictions
contained in the regulatory agreement.
Admittedly, TB Venture involved condominium units, not
parcels of real property. But, as we have already explained,
Code § 55-79.42 requires each condominium unit to be assessed as
a separate parcel of real estate, just like all other individual
parcels of real property. TB Venture's expert appraiser, like
Joseph, valued numerous condominium units in bulk and placed a
single value on all the units. He then assigned a fair market
value to each unit by performing a mathematical calculation. TB
Venture, 280 Va. at 561-62, 701 S.E.2d at 793. We affirmed the
trial court's judgment granting the taxing authority's motion to
strike TB Venture's evidence on the basis that, as a matter of
23
law, TB Venture failed to carry its burden of establishing the
fair market value of each unit. 8 TB Venture, 280 Va. at 564-65,
701 S.E.2d at 794-95. Interestingly, the same methodology was
also employed and rejected in West Creek, 276 Va. at 401-02,
417-18, 665 S.E.2d at 838-39, 847-48. In other words, TB
Venture and West Creek are dispositive of the case before the
Court.
As we explained in City of Covington, fair market value
includes considerations of a parcel's unique characteristics
such as "size and cost[,] design, style, location, [and]
appearance." City of Covington, 205 Va. at 108-09, 135 S.E.2d
at 223. A value that has been mathematically assigned to
individual tax parcels from a bulk appraisal of multiple parcels
considers none of these factors. As the City correctly argued
to the circuit court, JWP's appraisal failed to account for
differences in the eight parcels with respect to size, location,
style, unique features like porches, and the fact that certain
units had received recent renovations. According to Woodson,
one of the parcels has "the original [wrought] iron porch
columns and filigree." Thus, like TB Venture, JWP failed as a
matter of law to carry its burden to establish the fair market
8
If TB Venture's methodology of valuing the condominium
units had been an issue for the fact-finder, it would have been
error for the trial court to strike TB Venture's evidence.
24
value of the eight tax parcels. See West Creek, 276 Va. at 417,
665 S.E.2d at 847.
The circuit court's decision implies that a taxpayer's
burden of proving the fair market value of each tax parcel is
somehow vitiated by the requirement to assess real property
according to its highest and best use. See Shoosmith Bros.,
Inc. v. County of Chesterfield, 268 Va. 241, 246, 601 S.E.2d
641, 644 (2004) ("[I]n assessing all tangible properties for tax
purposes such properties should be assessed at their highest and
best use.") (internal quotation marks omitted). Because the
Properties are subject to certain regulatory restrictions, the
circuit court held, the highest and best use is a single
apartment complex. But, the principle that real property be
assessed at its highest and best use does not mean real property
should be assessed as something other than what it actually is.
In this case, there is no dispute that the real property at
issue is eight separate, non-contiguous parcels. Appraising the
Properties according to their highest and best use does not
justify treating the Properties as if they were not eight
individual parcels.
Our decision in TB Venture makes clear that assessing
according to a property's highest and best use is compatible
with assessing each individual parcel even when there are
restrictions on the property. There, the taxpayer justified its
25
bulk assessment because the condominium units at issue could not
be sold individually. 280 Va. at 561-62, 701 S.E.2d at 793. We
held that this restriction did not alter either the requirement
that the units be assessed individually or the taxpayer's burden
to establish fair market value. Id. at 565, 701 S.E.2d at 795.
Such "market-driven impediments to selling the units
individually and limitations on the rental income that can be
realized" could, however, "affect each unit's fair market
value." Id. The same applies here. The particular
restrictions that apply to the Properties undoubtedly affect the
fair market value of each of the eight parcels, but they do not
obviate JWP's burden to prove the fair market value of each
parcel. See West Creek, 276 Va. at 417, 665 S.E.2d at 847 ("to
satisfy the statutory requirement of showing that real property
is assessed at more than its fair market value, a taxpayer must
necessarily establish the property's fair market value"). That
burden also is not affected by the circuit court's finding that
the City committed manifest error in its assessments of the
eight parcels. See TB Venture, 280 Va. at 563, 701 S.E.2d at
794 (because the taxpayer has the burden of proving a tax
assessment erroneous, the taxing authority's failure to prove
the correctness of its assessment does not impeach that
assessment).
26
CONCLUSION
In sum, "to satisfy the statutory requirement of showing
that real property is assessed at more than its fair market
value, a taxpayer must necessarily establish the property's fair
market value." West Creek, 276 Va. at 417, 665 S.E.2d at 847
(citation omitted). By appraising the eight separate, non-
contiguous parcels of real property in bulk as a single
apartment complex, i.e., as one tax parcel, and then assigning a
value to each constituent tax parcel based on a mathematical
calculation, JWP failed as a matter of law to carry its burden
of proving the fair market value of each parcel.
For these reasons, we will reverse the judgment of the
circuit court and remand for entry of an order reinstating the
City's tax assessments on the eight parcels for the tax years in
question.
Reversed and remanded.
JUSTICE McCLANAHAN, with whom JUSTICE POWELL joins, dissenting.
I disagree that either TB Venture, LLC v. Arlington Cnty.,
280 Va. 558, 701 S.E.2d 791 (2010) or West Creek Associates, LLC
v. County of Goochland, 276 Va. 393, 665 S.E.2d 834 (2008) is
dispositive of this case. Applying an overly simplistic
analysis, the majority has isolated one aspect of the holdings
in TB Venture and West Creek to formulate its own policy of
27
appraisal methodology in Virginia. 1 Furthermore, the majority
has summarily judged the highest and best use of the parcels
comprising Jackson Ward Apartments – a determination which
necessarily drives methodology, but which neither TB Venture nor
West Creek address. In short, the majority has placed its
judicially created policy of appraisal methodology above the
constitutional mandate requiring assessment of property at fair
market value, and appointed itself both finder of fact and
expert to justify its reversal of the circuit court's judgment.
The circuit court properly recognized that the
determination of fair market value, not methodology, was the
controlling issue for its consideration. As the circuit court
stated, "[u]nder the constitution, we have to approach these
assessments with the aim of determining what the fair market
value is. We know from the experts that we have to determine
what the highest and best use is." See Va. Const. art. X, § 2
(All assessments of real estate and tangible personal property
"shall be at their fair market value."); Code § 58.1-3201;
1
The majority concludes that "[b]y appraising the eight
separate, non-contiguous parcels of real property in bulk as a
single apartment complex, i.e., as one tax parcel, and then
assigning a value to each constituent tax parcel based on a
mathematical calculation, JWP failed as a matter of law to carry
its burden of proving the fair market value of each parcel."
Although it is not entirely clear what component of Joseph's
appraisal the majority rejects, or whether the majority rejects
his appraisal in its entirety, what is clear is that the
majority deems the appraisal improper as a matter of law.
28
Shoosmith Bros. v. County of Chesterfield, 268 Va. 241, 246, 601
S.E.2d 641, 644 (2004) (in assessing fair market value, property
should be valued at its highest and best use). Thus, as the
circuit court correctly noted, determining the fair market value
of the property is the overriding objective. The method by
which the value is determined is dependent on the highest and
best use of the property to be valued. "The Constitution does
not prescribe that the valuation of all property for taxation
shall be ascertained in the same way or manner. It is not even
implied. In the nature of things, it could not be done. The
many kinds or species of property with their diverse
characteristics render it impossible." R. Cross, Inc. v. City
of Newport News, 217 Va. 202, 206-07, 228 S.E.2d 113, 116 (1976)
(internal quotation marks omitted). 2
Joseph, a commercial real estate appraiser specializing in
multifamily VDHA and low income tax properties, testified in
detail as to how he determined the fair market value of each tax
2
The majority discusses at length two basic principles –
that each tax parcel must be individually assessed by the taxing
authority and that the taxpayer must establish the fair market
value of the property. See, e.g., West Creek, 276 Va. at 414-15
& n.8, 665 S.E.2d at 846 & n.8 (discussing requirement that tax
parcels be "assessed individually"); TB Venture, 280 Va. at 563-
64, 701 S.E.2d at 794 (discussing requirement that taxpayer
establish the property's fair market value). But these
principles are not disputed by JWP and the application of these
principles does not compel reversal of the circuit court's
judgment since Joseph did value each tax parcel. The majority
simply rejects his values as a matter of law.
29
parcel. His values were based on his appraisal of the parcels
comprising Jackson Ward Apartments according to their highest
and best use as part of a single multifamily apartment
community. Joseph explained that under the Uniform Standards of
Appraisal Practice, he must consider the eight tax parcels as
one property from a legally permissible point of view, and that
it would have been appraisal error for him to value the Property
as single-family homes, duplex homes, or anything other than an
18-unit affordable multifamily rental housing community. He
further testified his determination of value for each parcel
using an "allocation method" was a valid technique for apartment
communities and the same method used by the City on other
apartment communities.
Persuaded by Joseph's opinion regarding the highest and
best use for the parcels comprising Jackson Ward Apartments and
his utilization of the income method appropriate for appraisal
of apartment communities, the circuit court ruled that JWP
proved the fair market value of each parcel. In doing so, the
circuit court found that the City's determination of highest and
best use ignored "the reality of the situation" in light of
evidence, found credible by the circuit court, that the parcels
are bound together, must legally be operated as multifamily
affordable rental housing, and could not be sold as separate
parcels. In fact, the evidence established that the City
30
initially worked with RRHD to bind these parcels together for
multifamily affordable rental housing and has continued to
approve the operation of the parcels as an apartment community. 3
As we have previously held, "[i]n cases where the circuit court
is presented with such conflicting testimony, we 'will defer to
the circuit court's judgment of the weight and credibility to be
given [the witness'] testimony.' " County of Albemarle v.
Keswick Club, L.P., 280 Va. 381, 388, 699 S.E.2d 491, 495 (2010)
(quoting Board of Supervisors v. HCA Health Servs., 260 Va. 317,
3
Before the parcels were acquired by JWP, the City of
Richmond and the RRHA presented JWP with a purchase contract
that packaged these tax parcels together for renovation and
operation as one affordable rental housing development. The
project resulted from an application made by the City and RRHA
to HUD for Section 8 funds in an effort to rejuvenate
deteriorated areas of the City and decentralize assisted housing
in connection with the City's Neighborhood Strategies program.
A subsequent renovation was undertaken by JWP thirteen years
following its purchase and was also financed through VHDA. The
renovations were endorsed by the City in a letter to the Deputy
Director of the Department of Housing & Community Development
stating as follows:
The construction or rehabilitation of the Jackson
Ward Apartments and the allocation of loan and/or
grant money from the Virginia Housing Partnership and
federal housing tax credits available under Internal
Revenue Code Section 42 for that development will help
meet the housing needs and priorities outlined in the
City of Richmond's 1993 Comprehensive Housing
Affordability Study (CHAS).
This project meets the stated priority of
neighborhood preservation to conserve and improve
physical structures. This project is in census tract
302 which the City has targeted as an area in which to
concentrate its rehabilitation efforts.
31
332, 535 S.E.2d 163, 171 (2000)). Departing from this general
rule, the majority judges Joseph's opinion not worthy of
credibility and rejects his values as being the product of
appraisal methodology it deems improper as a matter of law.
Neither the Constitution nor the Code mandates, however,
that the value of each tax parcel comprising Jackson Ward
Apartments be determined without consideration of the other
parcels, or that the highest and best use of the parcels be
anything other than an apartment community. 4 That, alone,
distinguishes TB Venture from this case. In TB Venture, we
upheld the circuit court's determination that the taxpayer
failed to establish the fair market value of each condominium
unit where the taxpayer's expert valued the condominium units as
a whole and allocated an amount to each unit based on the unit's
pro rata share of overall income. 280 Va. at 565, 701 S.E.2d at
795. Although the taxpayer appraised the condominium units as
rental units, because Code § 55-79.42 requires each unit to be
4
Although Code § 58.1-3302, relied on by the City, requires
the table of town or city lots to contain the name of the owner,
the number of each lot, the value of the buildings on the lot,
the value of the lot including buildings, and the amount of tax
at the legal rate, this administrative record-keeping provision
does not address the methodology to be used in determining the
value of each lot. The majority cites several additional
statutory provisions to reinforce its point that tax parcels
must be individually assessed, see Code §§ 58.1-3281, -3285, -
3290, -3303 and -3309, none of which addresses appraisal
methodology applicable in this case.
32
appraised independently from the other units, the condominium
complex could not be appraised as an apartment community
notwithstanding testimony that there was no market for sale of
one condominium. This was so because the highest and best use
of condominium units, registered as such, is mandated by
statute. See Orchard Glen East, Inc. v. Board of Supervisors,
254 Va. 307, 311-12, 492 S.E.2d 150, 153 (1997) (Under Code
§ 55-79.42, upon recordation of the condominium units, a
condominium complex may not be treated as an apartment complex
for purposes of valuing the condominium units for tax
assessment). Since Code § 55-79.42 does not apply to the
parcels comprising Jackson Ward Apartments, it does not prohibit
appraisal of the parcels as an apartment community. 5
Instead of analyzing whether the evidence supports the
circuit court's finding that JWP proved the fair market value of
the parcels comprising Jackson Ward Apartments, as the Court did
in West Creek, the majority singles out methodology as the
guiding principle in valuing real property and disregards the
significance of the property's highest and best use to that
methodology. In West Creek, we affirmed the circuit court's
5
While acknowledging Code § 55-79.42 does not govern this
case, the majority reasons that individual assessment is a
requirement applicable to all tax parcels. Under the majority's
reasoning, then, any methodology comparable to that used by the
taxpayer in TB Venture is improper, as a matter of law, for all
tax parcels. But this rationale ignores a property's highest
and best use, which necessarily controls the methodology.
33
ruling that the taxpayer failed to prove the fair market value
of the parcels at issue after reviewing the totality of evidence
considered by the circuit court and the basis for its ruling. 6
In upholding the circuit court's findings, we recognized that
"[i]t was within the province of the court, as the fact-finder,
to determine the credibility of the witnesses." West Creek, 276
Va. at 416, 665 S.E.2d at 847 (internal quotation marks
omitted). Reviewing the evidence before the circuit court and
deferring to its role as fact-finder, we could not say that the
circuit court's findings were "plainly wrong or without evidence
to support them." Id. at 417, 665 S.E.2d at 847. The majority,
however, dispenses with the review it undertook in West Creek,
6
The circuit court ruled the taxpayer failed to prove fair
market value of the parcels at issue for "several reasons."
West Creek, 276 Va. at 417, 665 S.E.2d at 847. It found the
taxpayer's expert appraiser "had not conducted an independent
appraisal" but valued the 144 parcels at the sale price, which
was negotiated as a bulk sale due to the large acreage. Id.
The circuit court also noted that the method of spreading the
value of the 2,500-acre development across the 144 parcels was
"not persuasive" since the expert ignored the " 'economy of
scale' " realized considering the sale price was discounted due
to the large number of acres. In weighing the evidence before
it, the circuit court found the testimony from the County's
expert " 'the most compelling.' " Id. at 416, 665 S.E.2d at
847. The circuit court was persuaded by the expert's testimony
that the highest and best use of the Park property was sale as
individual parcels, not as a sale of "in excess of 2,000 acres"
and that "[r]elying on [the bulk sale of the 2,500 acres] as an
independent indicator of value for any of the 144 parcels would
produce an appraisal report that would lack total credibility"
and "be grounds for possible dismissal from The Appraisal
Institute and probably revocation of one's appraisal license."
Id. at 406, 665 S.E.2d at 841.
34
extrapolates from West Creek a finding that was affirmed because
it was supported by the evidence, and adopts it as the
determining principle of law in this case to rationalize its
reversal of the circuit court's judgment.
In sum, TB Venture and West Creek do not support the
majority's conclusion that Joseph's appraisal of the parcels
comprising Jackson Ward Apartments was improper as a matter of
law. Neither case purports to establish any rule of appraisal
methodology or dictates the determination of highest and best
use of the parcels comprising Jackson Ward Apartments. In
removing issues involving appropriate appraisal methodology from
the realm of expert opinion and assuming for itself the role of
final arbiter of proper appraisal practice in Virginia, I
believe the majority has set a dangerous precedent. More
importantly, I believe the majority's singular focus on
methodology jeopardizes the constitutional right to just
valuation of property.
35