Richter Enterprises, Inc. v. Sully County

[¶ 21.]

GILBERTSON, Justice

(dissenting).

[¶ 22.] I respectfully dissent. In my opinion, the uneontradieted record establishes that this property was unconstitutionally assessed in excess of its actual value.

[¶ 23.] 1. Sufficiency of the Evidence.

[¶ 24.] The material facts are not in dispute. In 1991, these two brick buildings were offered for sale by a local real estate broker to the public for $110,000. When six months passed with no results, the listing *846expired. It was then listed with a Pierre realty agency in February of 1992 at a reduced price of $76,000. When this failed to produce a sale or counteroffers, in December of 1992, the price was further reduced to $60,000. The record indicates that throughout this period the realty was advertised in area newspapers.

25.] Later, four’ local individuals agreed to purchase the property for $60,000 subject to the condition that a long-term lease could be made with a current tenant, the Agricultural Stabilization and Conservation Service (ASCS). When ASCS refused to commit to a lease of any term, this proposed sale did not go through.

[¶ 26.] Finally, the current owners purchased the two properties on March 5, 1993, by a contract for deed for an amount of $53,750. At that point the properties had been continuously listed for sale to the public for one and one-half years.

[¶27.] There have been no improvements of any substance to the buildings, and they are in the same condition as of the date of purchase. The same tenants remain. Yet the County set the valuation of the two buildings at $119,424 for the 1995 assessment. Taxpayers state that they have no intention to use the buildings for anything but their existing purposes assuming the current tenants can be convinced to stay. County makes no claim that the buildings are not being currently used for their highest and best use.

[¶28.] Article XI, Section 2 of the South Dakota Constitution mandates “the valuation of property for taxation purposes shall never exceed the actual value thereof.” There is a presumption that the valuation produced by the director of equalization is consistent with this requirement, and that to overcome this presumption, a taxpayer must show that the assessor’s “valuation” exceeds “the actual value thereof.” Brookings Assocs. v. State Bd. of Equalization, 482 N.W.2d 873, 876 (S.D.1992).

The terms ‘actual value’ and ‘true and full value’ mean the ‘market value’ of property to be assessed and market value has been defined as the price ... a purchaser willing but not obligated to buy would pay an owner willing but not obligated to sell, taking into consideration all uses to which the property is adapted and might in reason be applied.

Roseland v. Faulk County Bd. of Equalization, 474 N.W.2d 273, 275 (S.D.1991).

[¶ 29.] Here we have a sale of the property within a short period of time prior to the valuation made by the County. It was an arm’s length transaction. Prior to the sale, the property was publicly advertised for sale by professional brokers who could not obtain a higher price than the ultimate sales price. Since the sale, there have been no changes to the property or its use. It still has the same tenants. In short, everything was the same on the date of the sale as it was on the date of assessment. Yet the Director of Equalization claims the property to be worth $119,424 rather than its sales price of $53,000. Why?

[¶ 30.] According to the Director of Equalization, she had three justifications for this difference. Her first observation is that the owners got a “good deal” when they purchased the property. Yet she does not contest that this same “good deal” was offered in varying amounts to the public for 18 months prior to the property being sold. Even the initial sales price of $110,000, which brought no buyers, was less than the Director of Equalization’s valuation.

[¶ 31.] Second, the Director claims that the sale was not valid because there were party walls between the buildings and the Masons (a nonprofit organization) had a building in between the two buildings now in dispute. This makes no sense as during the entire time the two buildings were offered for sale and at the time of the sale, the same conditions existed. The Director further testified she believes the property to now be worth $119,424 although the party walls are still there, as are the Masons.

[¶ 32.] Finally, the Director states that by statute and directives of the Department of Revenue, she must consider all three methods of valuation: comparable sales, cost and income. These are recognized methods of arriving at a valuation where a direct method — namely, a recent arm’s length sale of the actual property with no subsequent changes *847to the property — does not exist.5 As we said in an early case, Sheraton-Midcontinent Corp. v. County of Pennington, 77 S.D. 554, 95 N.W.2d 892, 896 (S.D.1959):

In assessing property, the statutory standard of ‘true and full value’ must be adhered to. This as we have indicated is commonly construed to mean the amount a willing purchaser will pay a willing seller in an open market. If there is no market for property subject to taxation, it nonetheless must be assessed at its ‘true and full value.’ If the market value method cannot be followed, the assessor in the performance of the duty that the law has imposed upon him must use such pertinent factors, as replacement costs less proper deductions and income from the property in determining true and full value.

See also Yadco, Inc. v. Yankton County, 89 S.D. 651, 237 N.W.2d 665 (1975). More recently we held that “[a]n assessment simply cannot exceed the value of the property; manuals, computers, and a goal to establish a tax valuation cannot be vaulted over constitutional, statutory and decisional law.” Brookings Assocs., 482 N.W.2d at 877.

[¶ 33.] This case is similar to Roseland, supra. There the taxpayers introduced three instances of arm’s length sales of realty and compared them with the assessed value assigned the next year, which was around double the purchase prices. We held this evidence to overcome the presumption that the assessor’s valuations were correct. Likewise, here, the assessment machinery has gotten so engrossed in Marshall and Swift appraisal manuals and computer programs, various methods of valuation, outside consultants, etc., that it forgot the simple principle that if you recently bought property at an arm’s length sale, there have been no changes in the property and surrounding conditions or the general market conditions, then the sale price is what the property is worth.6 Compare with Willow, Inc. v. Yankton County, 89 S.D. 643, 237 N.W.2d 660 (S.D.1975) and Sheraton-Midcontinent, 95 N.W.2d at 896 (as to change of conditions since date of sale). Until the citizens of this State see fit to amend Article XI, Section 2 of our Constitution, that is all the property can be valued “for taxation purposes.”7

*848[¶ 34.] 2. Failure to Use Economic Obsolescence.

[¶ 35.] I also respectfully dissent on Issue 2. I would hold that the Director of Equalization erred by failing to adequately consider economic obsolescence, which is a justification for a reduction in her assessed valuation of the disputed properties.

[¶ 36.] Recently in National Food Corp. v. Aurora County Bd. of Comm’rs, 537 N.W.2d 564, 568 (S.D.1995), we defined this concept as “the loss of value from outside causes, also known as locational obsolescence.” We further viewed the term as “ ‘loss of value brought about by conditions in the neighborhood of a property causing loss of business.’ ” Id. (quoting Yadco, 89 S.D. at 659, 237 N.W.2d at 670).

[¶ 37.] Here the Director of Equalization granted economic obsolescence consideration to residential property in Onida and to business property in Agar, the other town in Sully County. However, she refused to grant it to business property in Onida.

[¶38.] The Director supports her position in part by using so-called comparable sales, which turn out to be an old wooden liquor store built in 1919 which had recently been sold for $5,000, and the sale of four vacant commercial lots. The brick buildings in question in this appeal were not built until 1964. The trial court was correct to question this justification by viewing it as comparing apples with oranges.

[¶ 39.] There has not been a new business building constructed on the main street of Onida in the past twenty years. When three buildings burned down in 1991 or 1992, none were replaced. The town of 750 residents has a declining population base.

[¶ 40.] Undue weight was also given to the fact that the buildings were currently occupied by tenants. While this is important, it should also be re-emphasized that there was a buyer for the buildings at $60,000 if there were long-term leases in effect, but when the tenants would not consent to anything more than short-term leases, the offer to purchase was withdrawn.8 With the short-term tenants, a sales price of only $53,750 was possible.

[¶ 41.] Yet the Director testified it made no difference to her whether the lease was for one month or twenty years. It is clear from the record that should either or both of the current tenants vacate the buildings, the owners will find it difficult at best to secure a replacement tenant, let alone at the current rental rate.

[¶ 42.] For the above reasons, I respectfully dissent.

[¶ 43.] MILLER, C.J., joins this dissent.

.SDCL 10-6-33 provides in part that “[t]he true and full value shall be determined by appropriate consideration of the cost approach, the market approach and the income approach to appraisal.” The key words are "appropriate consideration” not "blind adherence" especially in the face of an arm's length sale. Appraisals are essentially an "estimate" or "evaluation” as to value by a person trained in the field, based on recognized underlying factors, but still only that. See State Highway Comm’n v. Black, 417 P.2d 750, 752 (Wy.1966) and Black's Law Dictionary 129 (4th ed 1968).

The ultimate accuracy of such subjective opinions will be determined in the marketplace at such time as there is an actual arm’s length sale. Here that has already been done. How can the value of a piece of property be established by such an educated guess as against an actual sale between a willing seller and buyer in a public market where there is no dispute there have been no changes in the property since the sale? Appraisers are expert witnesses and subject to the same evidentiary limitations as other experts who offer their opinions to assist the court in its fact-finding duties.

This state is not a trial-by-expert jurisdiction. The value of the opinion of an expert witness is no better than the facts upon which it is based. It cannot rise above its foundation and proves nothing if its factual basis is not true. It may prove little if only partially true. Bridge v. Karl’s Inc., 538 N.W.2d 521, 525 (S.D. 1995) (citations omitted).

. Just how far the correct concept has been depreciated in favor of blind reliance on manuals was clearly borne out in the examination of the Director of Equalization by the trial court:

Q: And if that property sold four more times in the next two years for between $50,000 and $60,000 and you had no reason to think anybody was cheating, would that affect your valuation of the property?
A: There again, the common wall and the exempt portion of the building still remains there. I think I would still put it in as a reject sale and not use it....
Q: That's because your sales ratio was at a hundred percent?
A: Yes. (tr 102-3)

. I respectfully dissent from the majority holding that "[tjaxpayer failed to cite authority for the statement that '[a] recent sale between a willing buyer and a willing seller must be given weight in determining the tax assessment.' " Taxpayer cited to Article XI, Section 2 of the Constitution of the State of South Dakota; Willow, 237 N.W.2d at 664, and Roseland, 474 N.W.2d at 276 (Henderson, J., concurring specially):

Rather, the domineering dictates of the South Dakota Department of Revenue, as exemplified *848by the correspondence in this file, was elevated over the State Constitution and the previous decisions of the South Dakota Supreme Court. Also, and regretfully, the circuit court became caught up in scientific, bookworm, technical construction of land values by an assessment 'Bible’ which led the trial court astray. I hope, for the sake of all South Dakota citizens, that the circuit court judges of this state begin to realize that statutes cannot change our State Constitution; that manuals cannot change our State Constitution; that assessment formulas cannot change the State Constitution.

Id.

. The continued occupancy by the ASCS is the most tenuous. ASCS operates on an annual lease and refused to extend it for any greater period of time. It has also given serious consideration to building its own building in Onida or re-locating outside the county as a consolidation move. The lease with the Postal Service is more long term as it runs for five years. However, it will expire in 1999.

The owners felt the lack of a long-term tenant was significant enough that based solely upon that fact, at the time they purchased the property, they allocated the purchase price by assigning a value of $16,250 to the ASCS building and a value of $37,500 to the Post Office building. The owners were not without expertise in this area, as one is a long-time banker in Onida who also held a real estate license.