TJ 2010 Corp. v. Dawson Cty. Bd. of Equal. ( 2015 )


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  •             Decisions    of the Nebraska Court of Appeals
    TJ 2010 CORP. v. DAWSON CTY. BD. OF EQUAL.	989
    Cite as 
    22 Neb. Ct. App. 989
    TJ 2010 Corporation, appellant, v.
    Dawson County Board of
    Equalization, appellee.
    ___ N.W.2d ___
    Filed June 23, 2015.     No. A-14-660.
    1.	 Taxation: Judgments: Appeal and Error. Decisions rendered by the Tax
    Equalization and Review Commission shall be reviewed by an appellate court for
    errors appearing on the record of the commission.
    2.	 Judgments: Appeal and Error. When reviewing a judgment for errors appearing
    on the record, an appellate court’s inquiry is whether the decision conforms to
    the law, is supported by competent evidence, and is neither arbitrary, capricious,
    nor unreasonable.
    3.	 Taxation: Appeal and Error. Questions of law arising during appellate review
    of Tax Equalization and Review Commission decisions are reviewed de novo on
    the record.
    4.	 Taxation: Valuation: Presumptions: Proof: Appeal and Error. There is a pre-
    sumption that a board of equalization has faithfully performed its official duties
    in making an assessment and has acted upon sufficient competent evidence to
    justify its action. That presumption remains until there is competent evidence
    to the contrary presented, and the presumption disappears when there is com-
    petent evidence adduced on appeal to the contrary. From that point forward,
    the reasonableness of the valuation fixed by the board of equalization becomes
    one of fact based upon all the evidence presented. The burden of showing such
    valua­tion to be unreasonable rests upon the taxpayer on appeal from the action
    of the board.
    5.	 Taxation: Valuation: Proof. The burden of proof is on the taxpayer to establish
    the taxpayer’s contention that the value of the taxpayer’s property has been
    arbitrarily or unlawfully fixed by the county board of equalization at an amount
    greater than its actual value, or that its value has not been fairly and properly
    equalized when considered in connection with the assessment of other property
    and that such disparity and lack of uniformity result in a discriminatory, unjust,
    and unfair assessment.
    6.	 ____: ____: ____. The burden of persuasion imposed on a complaining taxpayer
    is not met by showing a mere difference of opinion unless it is established by
    clear and convincing evidence that the valuation placed upon the taxpayer’s prop-
    erty, when compared with valuations placed on other similar properties, is grossly
    excessive and is the result of a systematic exercise of intentional will or failure of
    plain legal duty, and not mere errors of judgment.
    7.	 Evidence: Words and Phrases. Competent evidence is evidence that is admis-
    sible and tends to establish a fact in issue.
    8.	 ____: ____. Clear and convincing evidence is evidence which produces in
    the trier of fact a firm belief or conviction about the existence of a fact to
    be proved.
    Decisions of the Nebraska Court of Appeals
    990	22 NEBRASKA APPELLATE REPORTS
    9.	 Constitutional Law: Statutes: Appeal and Error. To raise a valid challenge
    to the constitutionality of a statute, a litigant is required to properly raise and
    preserve the issue before the trial court.
    Appeal from the Tax Equalization and Review Commission.
    Affirmed.
    Patrick M. Heng, of Waite, McWha & Heng, for appellant.
    Katharine L. Gatewood, Deputy Dawson County Attorney,
    for appellee.
    Irwin, Pirtle, and Riedmann, Judges.
    Riedmann, Judge.
    INTRODUCTION
    TJ 2010 Corporation (TJ) appeals the order of the Tax
    Equalization and Review Commission (TERC) affirming the
    decision of the Dawson County Board of Equalization (Board)
    regarding the 2013 taxable value of a hotel owned by TJ.
    Because we find that TJ failed to establish by clear and con-
    vincing evidence that the county’s valuation was arbitrary or
    unreasonable, we affirm TERC’s decision.
    BACKGROUND
    TJ owns property in Gothenburg, Dawson County, Nebraska.
    The subject property is a 44,000-square-foot hotel operating
    under a franchise, with 74 guestrooms, a swimming pool, a
    small meeting room, and a breakfast area. The property is
    located right next to Interstate 80. It was built in 2010 for
    approximately $4 million.
    The Dawson County assessor determined that the value of
    the property was $4,510,230 for tax year 2013. TJ protested
    the assessment to the Board and requested a valuation of
    $2.8 million. The Board determined that the taxable value was
    $4,510,230, as originally assessed. TJ appealed the Board’s
    decision to TERC. A hearing was held before TERC, during
    which the following evidence was adduced:
    Terry Jessen is the president and sole owner of TJ, which
    owns and operates the hotel at issue in Gothenburg. Jessen
    testified that the property was constructed with funds secured
    Decisions  of the Nebraska Court of Appeals
    TJ 2010 CORP. v. DAWSON CTY. BD. OF EQUAL.	991
    Cite as 
    22 Neb. Ct. App. 989
    from his personal contributions, a mortgage, and tax incre-
    ment financing. As part of the tax increment financing agree-
    ment with the city of Gothenburg, he agreed not to request a
    tax valuation of less than $2.8 million in any subsequent tax
    protests or appeals.
    Jessen owns five hotels in Nebraska and one in Wyoming.
    He testified that although he is not an appraiser, he is very
    familiar with the market value of hotels and the various meth-
    ods of valuation. He opined that the most important method
    for valuing hotels is the income stream approach, which he
    determines by using a multiplier of the property’s annual gross
    revenue averaged over the past 3 years. He indicated that in
    his experience, the appropriate multiplier for most mainstream
    hotels is between 2.8 and 3.
    Jessen submitted the property’s profit and loss statements
    for the year 2013, which indicate that the gross revenue for
    2013 was $1,097,000. Using his income stream approach with
    a multiplier of 3, Jessen opined that the actual value of the
    property was approximately $3,291,000. He explained that the
    value would be even lower if he had used the average annual
    gross revenue over the past 3 years, rather than just the gross
    revenue for 2013, because the property’s revenue increased
    each year from 2011 to 2013. He testified that if the property
    were placed on the market for sale, he would be able to find a
    buyer in that price range.
    Mark Stanard is a licensed appraiser that was contracted by
    the county assessor to determine the value of the subject prop-
    erty as of January 1, 2013. Stanard testified that he used both
    the cost approach and the income approach to calculate the
    value of the property. Stanard opined that the income approach
    is generally more applicable to income-producing properties,
    but that for newer or unique properties such as this one, the
    cost approach is a better indicator of actual value.
    Stanard testified that the cost approach is determined
    by calculating the replacement cost new, less depreciation,
    plus land. To determine the property’s value under the cost
    approach, Stanard utilized the 2010 “Marshall Swift costing
    tables,” which indicated a value of $4,546,446. He acknowl-
    edged that the more current version of the tables would have
    Decisions of the Nebraska Court of Appeals
    992	22 NEBRASKA APPELLATE REPORTS
    been more accurate in determining the actual value of the
    property as of January 1, 2013.
    Stanard calculated the property’s value under the income
    approach by estimating the property’s potential gross income
    (average room rate multiplied by the total number of rooms
    for 365 days), then deducting estimated vacancy and expense
    rates to determine the estimated net operating income, and then
    dividing that by a market capitalization rate. Stanard testified
    that he used market data, rather than actual data, to estimate
    the property’s room rate, vacancy rate, expense rate, and capi-
    talization rate. This approach yielded a valuation of approxi-
    mately $4,538,000.
    Jessen criticized the use of market data in Stanard’s income
    approach. He explained that Stanard’s analysis applied an
    estimated vacancy rate of 30 percent, whereas the property’s
    actual vacancy rate is 45.13 percent. Similarly, Jessen testified
    that Stanard’s approach assumed an average room rate of $99,
    while the property’s actual average room rate is only $78.91.
    In response, Stanard testified that he did not have access to
    the property’s profit and loss statements when he conducted
    his income analysis, but that even if he had, he would have
    elected to use market data instead of the property’s actual fig-
    ures due to concerns that the property’s actual income had not
    yet stabilized.
    Stanard testified that he did not conduct a full analysis
    under the sales comparison approach due to the lack of truly
    comparable properties. However, he did provide a list of “the
    most comparable sales we could find . . . simply to supple-
    ment or to support the assessed value based on sales.” Stanard
    explained that if he had done a full sales comparison analysis,
    he would have made adjustments for variables such as age,
    location, functional utility, quality, and condition of the com-
    parable properties. Stanard acknowledged that the capitaliza-
    tion rate and other market factors used in his income analysis
    were derived from this list of comparable sales, even though
    he did not make necessary adjustments to account for the
    differences between these comparable properties and the sub-
    ject property. Jessen asserted that truly comparable properties
    Decisions   of the Nebraska Court of Appeals
    TJ 2010 CORP. v. DAWSON CTY. BD. OF EQUAL.	993
    Cite as 
    22 Neb. Ct. App. 989
    would need to be located along Interstate 80 in a similarly
    sized town to Gothenburg that could not be classified as a des-
    tination location.
    TERC concluded that TJ provided competent evidence to
    rebut the presumption that the Board had faithfully performed
    its duties and had sufficient competent evidence to make its
    determination. It criticized Stanard’s valuation for using out-
    dated costing tables in the cost approach and for using market
    factors derived from comparable sales without making the
    necessary adjustments to the comparable properties. However,
    it determined that TJ’s valuation method was not a commonly
    accepted real property appraisal method and was not supported
    by market data. Therefore, it found that while there were con-
    cerns about the reliability of Stanard’s appraisal, there was no
    market data received in evidence to support a different opinion
    of any of the income approach factors. Thus, it concluded that
    TJ failed to present clear and convincing evidence that the
    Board’s valuation was unreasonable or arbitrary.
    ASSIGNMENTS OF ERROR
    TJ assigns, summarized and restated, that TERC erred in (1)
    determining that TJ failed to establish by clear and convincing
    evidence that the county’s valuation was arbitrary or unrea-
    sonable, (2) failing to apply the proper statutory standard of
    review, and (3) denying TJ due process by applying an uncon-
    stitutional presumption in Neb. Rev. Stat. § 77-5016(9) (Cum.
    Supp. 2014).
    STANDARD OF REVIEW
    [1-3] Decisions rendered by TERC shall be reviewed by an
    appellate court for errors appearing on the record of the com-
    mission. Darnall Ranch v. Banner Cty. Bd. of Equal., 
    276 Neb. 296
    , 
    753 N.W.2d 819
    (2008). When reviewing a judgment for
    errors appearing on the record, an appellate court’s inquiry
    is whether the decision conforms to the law, is supported
    by competent evidence, and is neither arbitrary, capricious,
    nor unreasonable. 
    Id. Questions of
    law arising during appel-
    late review of TERC decisions are reviewed de novo on the
    record. 
    Id. Decisions of
    the Nebraska Court of Appeals
    994	22 NEBRASKA APPELLATE REPORTS
    ANALYSIS
    Reasonableness of County’s Assessment.
    TJ assigns that TERC erred in determining that TJ failed to
    establish by clear and convincing evidence that the county’s
    valuation was arbitrary and unreasonable. In support of this
    assignment of error, TJ argues that TERC erred in failing to
    accept TJ’s valuation of the property, and by accepting the
    county’s flawed valuation.
    [4] Under § 77-5016(9), TERC’s standard of review in
    appeals from a board of equalization is as follows:
    In all appeals, excepting those arising under section
    77-1606, if the appellant presents no evidence to show
    that the order, decision, determination, or action appealed
    from is incorrect, [TERC] shall deny the appeal. If the
    appellant presents any evidence to show that the order,
    decision, determination, or action appealed from is incor-
    rect, such order, decision, determination, or action shall
    be affirmed unless evidence is adduced establishing that
    the order, decision, determination, or action was unrea-
    sonable or arbitrary.
    The Nebraska Supreme Court has construed this statutory stan-
    dard of review to mean that
    “‘[t]here is a presumption that a board of equalization
    has faithfully performed its official duties in making an
    assessment and has acted upon sufficient competent evi-
    dence to justify its action. That presumption remains until
    there is competent evidence to the contrary presented, and
    the presumption disappears when there is competent evi-
    dence adduced on appeal to the contrary. From that point
    forward, the reasonableness of the valuation fixed by the
    board of equalization becomes one of fact based upon
    all the evidence presented. The burden of showing such
    valuation to be unreasonable rests upon the taxpayer on
    appeal from the action of the board.’”
    Zabawa v. Douglas Cty. Bd. of Equal., 
    17 Neb. Ct. App. 221
    , 224-
    25, 
    757 N.W.2d 522
    , 526 (2008), quoting Brenner v. Banner
    Cty. Bd. of Equal., 
    276 Neb. 275
    , 
    753 N.W.2d 802
    (2008).
    Here, TERC determined that there was competent evidence
    to rebut the statutory presumption in favor of the Board, and
    Decisions  of the Nebraska Court of Appeals
    TJ 2010 CORP. v. DAWSON CTY. BD. OF EQUAL.	995
    Cite as 
    22 Neb. Ct. App. 989
    the county does not challenge that finding on appeal. Thus,
    TJ presented competent evidence to overcome the presump-
    tion that the Board faithfully performed its official duties in
    making an assessment and acted upon sufficient competent
    evidence to justify its action. From that point forward, the
    reasonableness of the county’s valuation became a ques-
    tion of fact based upon all the evidence presented, and the
    burden of showing such valuation to be unreasonable rested
    upon TJ. We find, based on the evidence presented and the
    factual findings set forth in TERC’s order, that TJ failed to
    meet its burden of establishing by clear and convincing evi-
    dence that the valuation adopted by the Board was arbitrary
    and unreasonable.
    [5,6] In Omaha Country Club v. Douglas Cty. Bd. of Equal.,
    
    11 Neb. Ct. App. 171
    , 
    645 N.W.2d 821
    (2002), we addressed what
    is required after the presumption of § 77-5016(9) has been
    overcome. We said:
    The burden of proof is on the taxpayer to establish
    the taxpayer’s contention that the value of the taxpayer’s
    property has been arbitrarily or unlawfully fixed by the
    county board of equalization at an amount greater than
    its actual value, or that its value has not been fairly and
    properly equalized when considered in connection with
    the assessment of other property and that such disparity
    and lack of uniformity result in a discriminatory, unjust,
    and unfair assessment. Newman v. County of Dawson,
    
    167 Neb. 666
    , 
    94 N.W.2d 47
    (1959). Such a burden is
    not met by showing a mere difference of opinion unless
    it is established by clear and convincing evidence that
    the valuation placed upon the taxpayer’s property, when
    compared with valuations placed on other similar proper-
    ties, is grossly excessive and is the result of a systematic
    exercise of intentional will or failure of plain legal duty,
    and not mere errors of judgment. 
    Id. Omaha Country
    Club v. Douglas Cty. Bd. of Equal., 11 Neb.
    App. at 
    174-75, 645 N.W.2d at 826
    .
    Our focus in this case is not on equalization, but, rather, on
    the initial question of whether the property valuation was fixed
    arbitrarily, which cannot be established simply by showing a
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    996	22 NEBRASKA APPELLATE REPORTS
    difference of opinion on value between the property owner
    and the appraiser. Rather, arbitrariness must be demonstrated
    by evidence that the assessment is grossly excessive and is a
    result of arbitrary or unlawful action and not just a mere error
    in judgment. Cabela’s Inc. v. Cheyenne Cty. Bd. of Equal., 
    8 Neb. Ct. App. 582
    , 
    597 N.W.2d 623
    (1999).
    TERC found that “Stanard’s valuation approach contained
    errors in the application of accepted mass appraisal tech-
    niques.” It concluded that its concerns over Stanard’s meth-
    ods “call into question the reliability of Stanard’s appraisal”;
    however, “no market data was received in evidence sup-
    porting a different opinion of any of the income approach
    factors.” It therefore determined that “there is not clear and
    convincing evidence that the . . . Board’s determination of
    value was unreasonable or arbitrary.” We interpret TERC’s
    remarks as a finding that TJ did not satisfy its burden of
    proof. We agree.
    Stanard used a cost approach and an income approach
    supported by an examination of sales of alleged compa-
    rable properties. However, Stanard testified that the included
    properties were from dissimilar locations without appropriate
    adjustments. TERC concluded that without appropriate adjust-
    ments, the alleged comparable properties were less relevant
    indicators of the actual value of the property.
    As to the cost approach, TERC was critical of Stanard’s
    use of outdated costing tables. It found that “the use of out-
    dated costing tables is less likely to produce the actual value
    of the Subject Property as of January 1, 2013.” As to the
    income approach, TERC stated it had “concerns about the
    methods employed by Stanard to develop his market fac-
    tors.” These concerns were based in part upon testimony from
    Jessen that it would be inappropriate to compare the subject
    property, located in a rural community, to destination hotels
    in larger communities. The concerns were also based upon
    Stanard’s use of published room rates to determine potential
    gross income when Jessen testified that the published rate
    for the subject property was not the actual room rate. TJ pro-
    duced evidence of gross income based upon actual numbers,
    Decisions  of the Nebraska Court of Appeals
    TJ 2010 CORP. v. DAWSON CTY. BD. OF EQUAL.	997
    Cite as 
    22 Neb. Ct. App. 989
    which were significantly lower than the numbers proffered
    by Stanard.
    While these deficiencies are the basis for finding that the
    presumption of correctness by the Board has been overcome,
    we find them insufficient to satisfy the second half of TJ’s
    burden of proof: to show by clear and convincing evidence that
    the Board’s valuation is arbitrary. In order to meet this burden,
    TJ needed to present competent evidence of the property’s
    actual value as of January 1, 2013.
    Pursuant to Neb. Rev. Stat. § 77-201(1) (Reissue 2009),
    all taxable property shall be valued at actual value for taxa-
    tion purposes. “Actual value” means the market value of
    real property in the ordinary course of trade. Neb. Rev. Stat.
    § 77-112 (Reissue 2009). Additionally, real property value
    shall be assessed as of January 1 of each tax year. Neb. Rev.
    Stat. § 77-1301 (Cum. Supp. 2014). TJ failed to present any
    evidence of the property’s actual value as of January 1, 2013,
    because its income valuation was based on the property’s 2013
    profit and loss figures. In order to support its calculation of the
    property’s actual value as of January 1, 2013, TJ should have
    produced the profit and loss statement for 2012. In addition, as
    noted by TERC, the property’s income had not yet stabilized
    and TJ failed to produce any market data to support its income
    approach valuation.
    We acknowledge the deficiencies in both parties’ valua-
    tions; however, TJ failed to produce competent evidence of the
    property’s actual value as of January 1, 2013. While Stanard’s
    income approach had deficiencies, particularly in the develop-
    ment of the market factors, TJ did not present any market data
    supporting a different opinion of any of the income approach
    factors. We therefore affirm TERC’s decision that TJ failed to
    present clear and convincing evidence that the county’s valua-
    tion was arbitrary and unreasonable.
    TERC’s Standard of Review.
    TJ next assigns that TERC erred in failing to apply the
    proper standard of review. It argues that TERC merged its
    consideration of the reasonableness presumption with the
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    998	22 NEBRASKA APPELLATE REPORTS
    taxpayer’s ultimate burden of persuasion, causing improper
    deference to the county’s determination without consideration
    of all the evidence.
    Once the statutory presumption is overcome, as it was in
    this case, the reasonableness of the valuation fixed by a board
    of equalization becomes one of fact based upon all the evi-
    dence presented. The burden of showing such valuation to
    be unreasonable rests upon the taxpayer on appeal from the
    action of the board. Brenner v. Banner Cty. Bd. of Equal., 
    276 Neb. 275
    , 
    753 N.W.2d 802
    (2008). The taxpayer must prove
    unreasonableness by clear and convincing evidence. See JQH
    La Vista Conf. Ctr. v. Sarpy Cty. Bd. of Equal., 
    285 Neb. 120
    ,
    
    825 N.W.2d 447
    (2013).
    [7,8] We reject TJ’s argument that TERC merged its con-
    sideration of the reasonableness presumption with the tax-
    payer’s ultimate burden of persuasion. TERC recognized that
    TJ overcame the presumption by the production of competent
    evidence; however, it found that TJ failed to present clear
    and convincing evidence that the valuation was arbitrary or
    unreasonable. Competent evidence is evidence that is admis-
    sible and tends to establish a fact in issue. See Mathes v. City
    of Omaha, 
    254 Neb. 269
    , 
    576 N.W.2d 181
    (1998). Clear and
    convincing evidence, however, is evidence which produces in
    the trier of fact a firm belief or conviction about the existence
    of a fact to be proved. See In re Interest of Zachary D. &
    Alexander D., 
    289 Neb. 763
    , 
    857 N.W.2d 323
    (2015). While
    TJ’s evidence may have been competent to overcome the pre-
    sumption, that does not mean that it was clear and convincing
    to produce a firm belief that the valuation was arbitrary or
    unreasonable. Thus, we find this assignment of error to be
    without merit.
    Constitutionality of § 77-5016.
    Finally, TJ argues that the procedures to appeal tax assess-
    ments as set forth in § 77-5016 are unconstitutional because
    they violate due process and are impermissibly biased toward
    the government.
    [9] To raise a valid challenge to the constitutionality of a
    statute, a litigant is required to properly raise and preserve
    Decisions of the Nebraska Court of Appeals
    CANAS-LUONG v. AMERICOLD REALTY TRUST	999
    Cite as 
    22 Neb. Ct. App. 999
    the issue before the trial court. See Clark v. Tyrrell, 16 Neb.
    App. 692, 
    750 N.W.2d 364
    (2008). TJ did not challenge
    the constitutionality of § 77-5016 until the present appeal.
    Additionally, we note that TJ failed to comply with the notice
    provision for challenging the constitutionality of a statute as
    set forth in Neb. Ct. R. § 2-109(E) (rev. 2014). Because this
    issue was not raised before TERC, it is not properly before
    this court and we will not address it further on appeal.
    CONCLUSION
    We conclude that TJ failed to prove by clear and convincing
    evidence that the Board’s valuation was arbitrary and unrea-
    sonable. Accordingly, we affirm TERC’s decision.
    Affirmed.
    Elizabeth S. Canas-Luong, appellee, v.
    Americold R ealty Trust, appellant.
    ___ N.W.2d ___
    Filed June 23, 2015.     No. A-14-751.
    1.	 Workers’ Compensation: Appeal and Error. A judgment, order, or award of
    the Workers’ Compensation Court may be modified, reversed, or set aside only
    upon the grounds that (1) the compensation court acted without or in excess of its
    powers; (2) the judgment, order, or award was procured by fraud; (3) there is not
    sufficient competent evidence in the record to warrant the making of the order,
    judgment, or award; or (4) the findings of fact by the compensation court do not
    support the order or award.
    2.	 ____: ____. In determining whether to affirm, modify, reverse, or set aside a
    judgment of the Workers’ Compensation Court, the findings of fact of the trial
    judge will not be disturbed on appeal unless clearly wrong.
    3.	 Workers’ Compensation: Time. A claimant has not reached maximum medical
    improvement until all the injuries resulting from an accident have reached maxi-
    mum medical healing.
    4.	 ____: ____. The appropriate time to award permanent disability benefits is after
    the worker reaches maximum medical improvement.
    5.	 Workers’ Compensation. The Nebraska Workers’ Compensation Act authorizes
    an award of permanent disability, either partial or total, as a means of compensat-
    ing the injured worker for the loss of earning capacity.
    6.	 ____. When a whole body injury is the result of a scheduled member injury,
    the member injury should be considered in the assessment of the whole body