In re Appeal of Villas at Peacehaven, LLC , 235 N.C. App. 46 ( 2014 )

NO. COA13-1224
NORTH CAROLINA COURT OF APPEALS
Filed: 15 July 2014
IN THE MATTER OF:
APPEAL OF:
Villas at Peacehaven, LLC From the North Carolina
from the decisions of the Forsyth Property Tax Commission
County Board of Equalization and No. 10 PTC 011
Review concerning the valuations
of certain real property for tax
year 2009.
Appeal by taxpayer from final decision entered 16 May 2013
by the North Carolina Property Tax Commission. Heard in the
Court of Appeals 5 March 2014.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by S.
Leigh Rodenbough, IV, Robert W. Saunders, and Craig D.
Schauer, for taxpayer-appellant.
Assistant County Attorney B. Gordon Watkins, III, for
Forsyth County.
McCULLOUGH, Judge.
Villas at Peacehaven, LLC, (“taxpayer”) appeals from the
Final Decision of the North Carolina Property Tax Commission
(the “Commission”) dismissing its appeal from the decision of
the Forsyth County Board of Equalization and Review (the
“Board”). For the following reasons, we reverse.
I. Background
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This case concerns the revaluation of property in Winston-
Salem that taxpayer owns and operates as a rental community
known as Villas at Peacehaven. The property at issue is
comprised of 121 adjacent tax parcels spanning approximately 25
acres. Of the 121 separate tax parcels, 120 are residential
lots, each improved with a detached single-family residence.
The remaining lot is improved with a clubhouse and amenities for
tenants, including a pool and a tennis court.
During the revaluation, effective as of 1 January 2009, a
Forsyth County Tax Assessor (“the Assessor”) determined the
aggregate value of all 121 lots to be $16,945,800.1 Taxpayer
appealed the Assessor’s valuation to the Board, which heard
taxpayer’s appeal on 10 December 2009 and notified taxpayer in
writing of its decision to affirm the Assessor’s valuation on 15
December 2009. Taxpayer then initiated an appeal of the Board’s
decision by submitting an Application For Hearing to the
Commission on 12 February 2010. The Commission held a final
pre-hearing conference on 31 August 2012 and filed an Order On
Final Pre-hearing Conference on 4 September 2012. On 13
September 2012, taxpayer’s appeal came on for hearing before the
1
The County later stipulated to a reduced value of $16,647,200.
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Commission, sitting as the State Board of Equalization and
Review.
At the hearing, taxpayer framed the issue as follows:
“[W]hether or not separately platted lots with single-family
residential homes constructed on them that are held by a common
owner and have continuously been owned, operated, financed and
managed as a single, income-producing rental property should be
assessed as an income-producing property and assessed using the
direct capitalization approach . . . .” Taxpayer then referred
to the approach as an income approach as a unified whole rather
than on an individual basis and argued for its use. Taxpayer
further contended the method of valuation employed by the
Assessor, in which the Assessor determined the value of each
parcel separately on a cost basis using the County’s schedule of
values and totaled the values assigned to each parcel to reach
the aggregate value, was an arbitrary and illegal method of
valuation that resulted in value far in excess of the true value
of the property. In support of its argument, taxpayer relied on
a South Carolina Supreme Court case and the testimony of two
witnesses, its managing member, and an appraiser who performed a
valuation of the property using the income approach.
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At the close of taxpayer’s evidence, the County moved to
dismiss taxpayer’s appeal on the ground that taxpayer failed to
carry its burden of production. Upon considering both sides’
arguments, the Commission granted the County’s motion in open
court. A Final Decision was later entered on 16 May 2013.
Taxpayer filed Notice of Appeal and Exceptions from the
Final Decision on 13 June 2013.
II. Standard of Review
This Court’s standard of review of a decision by the
Commission is governed by statute. When reviewing a decision of
the Commission:
the court shall decide all relevant
questions of law, interpret constitutional
and statutory provisions, and determine the
meaning and applicability of the terms of
any Commission action. The court may affirm
or reverse the decision of the Commission,
declare the same null and void, or remand
the case for further proceedings; or it may
reverse or modify the decision if the
substantial rights of the appellants have
been prejudiced because the Commission's
findings, inferences, conclusions or
decisions are:
(1) In violation of constitutional
provisions; or
(2) In excess of statutory authority or
jurisdiction of the Commission; or
(3) Made upon unlawful proceedings; or
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(4) Affected by other errors of law; or
(5) Unsupported by competent, material and
substantial evidence in view of the
entire record as submitted; or
(6) Arbitrary or capricious.
N.C. Gen. Stat. § 105-345.2(b) (2013). “In making the foregoing
determinations, the court shall review the whole record or such
portions thereof as may be cited by any party and due account
shall be taken of the rule of prejudicial error.” N.C. Gen.
Stat. § 105-345.2(c).
The “whole record” test does not allow the
reviewing court to replace the
[Commission's] judgment as between two
reasonably conflicting views, even though
the court could justifiably have reached a
different result had the matter been before
it de novo. On the other hand, the “whole
record” rule requires the court, in
determining the substantiality of evidence
supporting the [Commission's] decision, to
take into account whatever in the record
fairly detracts from the weight of the
[Commission's] evidence. Under the whole
evidence rule, the court may not consider
the evidence which in and of itself
justifies the [Commission's] result, without
taking into account contradictory evidence
or evidence from which conflicting
inferences could be drawn.
In re Parkdale Mills, _ N.C. App. _, _, 741 S.E.2d 416, 419
(2013) (citation omitted).
III. Discussion
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“It is . . . a sound and a fundamental principle of law in
this State that ad valorem tax assessments are presumed to be
correct.” In re Appeal of Amp, Inc., 287 N.C. 547, 562, 215
S.E.2d 752, 761 (1975). Yet, “the presumption is only one of
fact and is therefore rebuttable.” Id. at 563, 215 S.E.2d at
762.
[I]n order for the taxpayer to rebut the
presumption he must produce competent,
material and substantial evidence that tends
to show that: (1) [e]ither the county tax
supervisor used an arbitrary method of
valuation; or (2) the county tax supervisor
used an illegal method of valuation; AND (3)
the assessment substantially exceeded the
true value in money of the property. Simply
stated, it is not enough for the taxpayer to
show that the means adopted by the tax
supervisor were wrong, he must also show
that the result arrived at is substantially
greater than the true value in money of the
property assessed, i.e., that the valuation
was unreasonably high.
Id. (quotation marks and citations omitted) (emphasis in
original). “In attempting to rebut the presumption of
correctness, the burden upon the aggrieved taxpayer ‘is one of
production and not persuasion.’” In re Blue Ridge Mall LLC, 214
N.C. App. 263, 267, 713 S.E.2d 779, 782 (2011) (quoting In re
IBM Credit Corp., 186 N.C. App. 223, 226, 650 S.E.2d 828, 830
(2007), aff'd. per curiam, 362 N.C. 228, 657 S.E.2d 355 (2008)).
[If] the taxpayer rebuts the initial
presumption, the burden shifts back to the
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County which must then demonstrate that its
methods produce true values. The critical
inquiry in such instances is whether the
County's appraisal methodology “is the
proper means or methodology given the
characteristics of the property under
appraisal to produce a true value or fair
market value.” To determine the appropriate
appraisal methodology under the given
circumstances, the Commission must “‘hear
the evidence of both sides, to determine its
weight and sufficiency and the credibility
of witnesses, to draw inferences, and to
appraise conflicting and circumstantial
evidence, all in order to determine whether
the Department met its burden.’”
In re Parkdale Mills, _ N.C. App. at _, 741 S.E.2d at 420
(citations omitted).
In the present case, the Commission granted the County’s
motion to dismiss taxpayers’ appeal “for failure of [taxpayer]
to rebut the initial presumption of correctness as to the
county’s tax assessments . . . .” Specifically, the Commission
found the following:
15. In this appeal, Appellant argued that
Forsyth County overvalued the units
because it used an arbitrary method to
value the property by not estimating a
value for all of the parcels taken as a
whole. When granting Forsyth County's
motion to dismiss at the conclusion of
Appellant's evidence, the Commission
determines that Forsyth County did not
use an arbitrary method to value the
subject individual parcels when our
Supreme Court has noted that "[a]n act is
arbitrary when it is done without
adequate determining principle." In re
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Hous. Auth. Of City of Salisbury, Project
NC 16-2, 235 N.C. 463, 468, 70 S.E.2d
500, 503 (1952). When Appellant did not
provide competent, material, and
substantial evidence as to the individual
values of all the parcels, then there was
no evidence tending to show that the
Forsyth County Assessor used an arbitrary
method regarding his values for the
subject parcels when his values were
determined during the revaluation process
and were not substantially higher than
the values called for by the statutory
formula.
The Commission then issued the following pertinent conclusions:
3. Since Appellant failed to rebut the
presumptive validity of the County’s
individual assessments of the subject
residential parcels, then the burden did
not shift back to the County and no
further analysis is necessary as to the
County’s appraisal methodology (i.e. the
county is not required to demonstrate that
its method produce[d] true values).
4. For that reason, the Commission granted
Forsyth County’s motion to dismiss this
appeal at the conclusion of Appellant’s
evidence; by ruling that Appellant failed
to rebut the presumptive validity of the
County’s individual assessments of the
subject residential parcels. When
granting Forsyth County’s motion to
dismiss, no further analysis was necessary
as to the County’s appraisal methodology
(i.e. the Commission was not required to
“hear the evidence of both sides, to
determine its weight and sufficiency and
the credibility of witnesses, to draw
inference, and to appraise conflicting and
circumstantial evidence, all in order to
determine whether the County met its
burden.”)
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Now on appeal, taxpayer argues the Commission erred in
dismissing its appeal because it presented sufficient evidence
to rebut the presumption of correctness. We agree.
North Carolina’s uniform appraisal standards provide the
following:
All property, real and personal, shall as
far as practicable be appraised or valued at
its true value in money. When used in this
Subchapter, the words “true value” shall be
interpreted as meaning market value, that
is, the price estimated in terms of money at
which the property would change hands
between a willing and financially able buyer
and a willing seller, neither being under
any compulsion to buy or to sell and both
having reasonable knowledge of all the uses
to which the property is adapted and for
which it is capable of being used.
N.C. Gen. Stat. § 105-283 (2013). Thus, this Court has
recognized that “[a]n important factor in determining the
property's market value is its highest and best use.” In re
Appeal of Belk-Broome Co., 119 N.C. App. 470, 473, 458 S.E.2d
921, 923 (1995), aff’d per curiam, 342 N.C. 890, 467 S.E.2d 242(1996).
At the hearing before the Commission, taxpayer first called
its managing member, Mr. Barry Siegal, to testify. Siegal
testified concerning the nature of the property and how it was
purchased and developed with the intent that it be a rental
complex. Siegal further testified about how the property was
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managed as a rental complex with taxpayer responsible for the
maintenance of the interior and exterior of the residences,
common areas, and amenities.
Following Siegal’s testimony, taxpayer called Mr. Dick
Foster, who the County stipulated was an expert in appraisal, as
a witness. Foster testified that he determined the income
approach was the most appropriate valuation approach to employ
in this case. Foster testified that this determination was
based on the use of property as a rental complex, which Foster
found to be the highest and best use given the history of
taxpayer’s economic success with the property. Foster further
stated that “[he] thought the income approach was basically the
best way to go because it was an investment-grade property, and
the value of it is dictated about [sic] how much income you
bring in.” After explaining why he believed the income approach
was the most appropriate valuation approach, Foster described
how he employed the income approach to calculate the value of
the property. Foster then testified that his application of the
income approach produced a value of $10,905,000 for the
property.
Despite the testimony elicited by taxpayer supporting use
of the income approach, the County contends taxpayer did not
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produce sufficient evidence that the method employed by the
Assessor was arbitrary or illegal. Yet, this Court has
explained that:
[a]n illegal appraisal method is one which
will not result in “true value” as that term
is used in [N.C.G.S.] § [105–]283. Since
[a]n illegal appraisal method is one which
will not result in true value as that term
is used in [N.C.G.S. § 105–283], it follows
that such method is also arbitrary.
In re Blue Ridge Mall LLC, 214 N.C. App. at 269, 713 S.E.2d at
784 (quotation marks and citations omitted).
Keeping in mind the burden on the aggrieved taxpayer is one
of production and not persuasion, see Id. at 267, 713 S.E.2d at
782, we hold the taxpayer produced competent, material, and
substantial evidence tending to show that the Assessor’s
valuation was arbitrary or illegal and substantially exceeded
the true value of the property.
Although we determine taxpayer rebutted the presumption of
correctness, we take no position on the proper valuation method
in this case and explicitly decline taxpayer’s invitation to
provide guidance to the Commission. We determine only that
taxpayer produced sufficient evidence to rebut the presumption
of correctness afforded ad valorem tax assessments. Because the
Commission held otherwise and dismissed taxpayer’s appeal, we
reverse the Commission’s Final Decision and remand the case for
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the Commission to determine the appropriate valuation method.
Whether it is necessary for the Commission to hear evidence
beyond that already elicited from taxpayer’s witnesses during
direct- and cross-examinations is for the Commission to decide.
We simply hold taxpayer produced sufficient evidence to require
the Commission to address the valuation issue raised by
taxpayer.
III. Conclusion
For the reasons discussed above, we reverse the Final
Decision of the Commission and remand for further proceedings.
Reversed and remanded.
Judges HUNTER, Robert C. and GEER concur.