Opinion
No. A-08-059.
Filed December 23, 2008.
Appeal from the Tax Equalization and Review Commission. Affirmed.
Allen L. Fugate for appellants.
Rebecca Harling, Lincoln County Attorney, and Joe W. Wright for appellee.
INBODY, Chief Judge, and SEVERS and MOORE, Judges.
NOTICE: THIS OPINION IS NOT DESIGNATED FOR PERMANENT PUBLICATION AND MAY NOT BE CITED EXCEPT AS PROVIDED BY NEB. CT. R. OF PRAC. 2E.
MEMORANDUM OPINION AND JUDGMENT ON APPEAL
This matter is before us upon a "Petition for Review" from the Nebraska Tax Equalization and Review Commission (TERC) concerning the valuation on January 1, 2006, of a 20-acre tract located in Lincoln County, Nebraska. The Lincoln County assessor valued the property at $42,300, and the owners of the property, Nicholas Aloi and Michele Aloi (the Alois), protested that valuation to the Lincoln County Board of Equalization, which upheld the assessor's valuation. The Alois then appealed to TERC, which determined that the land value for the tax year 2006 was $31,155. It is from that determination that the Alois now appeal to this court.
FACTUAL BACKGROUND
The legal description used for purposes of the proceedings below and which we adopt is as follows: "Part of the West ½ of the Northeast ¼ of Section 33, Township 13, Range 30, Tract 2, a 20-acre tract, Lincoln County, Nebraska." We will usually reference this tract throughout as "the Property."
The Property is a 20-acre tract of unimproved land in rural Lincoln County that adjoins an 11.2-acre residential parcel on the north also owned by the Alois, where they live, very near Lake Maloney and its associated recreational facilities. The Property was part of a large pasture owned by Willis Roethemeyer, who sold the Property to the Alois in 1993 for $20,000. After the sale, Roethemeyer's adjoining pasture consisted of a 152-acre tract. Since 1993, the Alois leased the Property to Roethemeyer for cattle pasture via an oral lease, which was reduced to writing in 2007. The evidence is that the Property will only support two cow-calf units per year. In 2003, the Property was fenced separately from Roethemeyer's pasture. Michele Aloi testified that during the years 2004, 2005, and 2006, the Property was not pastured because of drought. Roethemeyer did not pasture cattle on his own pasture in 2005 or 2006. Neither the Aloi pasture nor the Roethemeyer pasture has a stock well, but Roethemeyer obtained water for the pastures by siphoning water out of an irrigation canal and letting it run down a canyon into a watering hole located on the Roethemeyer pasture.
At the core of this appeal is the Alois' claim that the property should be assessed as agricultural land rather than as rural residential land. Michele Aloi testified that she believed the actual value of the Property on January 1, 2006, was $20,000, based on her experience as a title insurance agent reviewing various real estate transactions in Lincoln County, and that the Property was topographically unfit for development and lacked access. Additionally, she asserted that the adjacent pastureland (Roethemeyer's pasture) was valued at only $592.61 per acre. Further recitation of the evidence adduced before TERC will be discussed as necessary in the analysis portion of our opinion.
TERC'S DECISION
The hearing before TERC produced 557 pages of testimony through seven witnesses and six volumes of exhibits. TERC's unanimous decision found that the decision of the county board to classify the property as rural residential rather than as agricultural and horticultural land was not unreasonable or arbitrary. TERC found that the determination of actual value of the real estate is based on its highest and best use, regardless of actual use. With respect to Michele Aloi's valuation testimony of $20,000, TERC's opinion noted that such was not supported by comparable sales, and the only evidence that the property could not be developed was simply Michele Aloi's assertion, whereas photographs and other evidence suggested otherwise. The Property is located very close to Lake Maloney, and the Alois' residential tract is closer still to the lake. To the immediate east thereof is Roethemeyer Lakeview Estates subdivision, a lakeside residential development. TERC noted the testimony of the county assessor and two county appraisers that the actual value of the property as of January 1, 2006, was $31,155. This figure was derived from the use of tables used to value small parcels in Lincoln County, and such tables were based on an analysis of Lincoln County land sales over time. The data relied upon for the development of the tables was not introduced into evidence before TERC, but evidence was introduced about four sales that the county assessor believed were comparable and supported the actual value derived from the use of the tables.
TERC found that numerous small parcels of the approximate size of the Property have sold in Lincoln County for prices substantially higher than could be attributed to agricultural or horticultural uses. As a result, the county assessor developed a new classification of rural property, "rural residential," to avoid comparison with agricultural and horticultural land so as to avoid unjustifiably increasing the value of agricultural land. TERC specifically found that the highest and best use of the property, irrespective of its actual use, was "as a rural residential parcel." Although TERC found that the Alois had clearly raised the issue of whether the Property was properly classified, there was no evidence that the Alois presented the issue of the taxable value of the property as equalized with other small parcels, whether classified as agricultural or rural residential, to the county board. TERC then concluded it did not have jurisdiction to consider the issue of equalization with similarly classified properties because such issue was not raised before the county board and thus could not be raised before TERC, citing our decision in Harrison Square v. Sarpy Cty. Bd. of Equal, 6 Neb. App. 454, 574 N.W.2d 180 (1998). TERC found that the Alois had properly raised the issues of highest and best use, proper classification, and actual value before the county board and such issues were, therefore, properly before TERC. TERC found that the actual value of the property as of January 1, 2006, should be reduced to $31,155.
The Alois have timely followed the proper procedure to appeal the decision of TERC to this court.
ASSIGNMENTS OF ERROR
The Alois assign the following errors on the part of TERC: (1) TERC erred in not classifying the property as agricultural; (2) TERC erred in finding that the "issue of uniformity and proportionality and equalization had not been raised before the County Board of Equalization and that [as a result TERC] did not have jurisdiction to determine the issue of equalization"; (3) "TERC erred in failing to determine that the actual value of the Property had not been uniformly, or proportionately and equally assessed for the tax year 2006"; and (4) "TERC erred in failing to determine the correct actual value of the property for the tax year 2006." There is considerable overlap in the assignments, and as a result, our analysis does not use a strict assignment of error format.
STANDARD OF REVIEW
Appellate review of TERC decisions shall be conducted for error on the record. Mid City Bank v. Douglas County Bd. of Equal, 260 Neb. 282, 616 N.W.2d 341 (2000). When reviewing a judgment for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable. County of Douglas v. Nebraska Tax Equal Rev. Comm., 262 Neb. 578, 635 N.W.2d 413 (2001).
The meaning of a statute is a question of law, and a reviewing court is obligated to reach its conclusions independent of the determination made by TERC. Creighton St. Joseph Hosp. v. Tax Equal. Rev. Comm., 260 Neb. 905, 620 N.W.2d 90 (2000).
ANALYSIS
County Board's Presumption.
The statutes governing TERC create a presumption that the county board has faithfully performed its official duties and has acted upon sufficient competent evidence to justify its actions. City of York v. York Cty. Bd. of Equal, 266 Neb. 297, 664 N.W.2d 445 (2003). This presumption remains until there is competent evidence to the contrary presented. Id. Once the presumption has been rebutted, the burden shifts to the party requesting the exemption to prove its entitlement thereto. Id. In the instant case, TERC determined that the Alois had carried their burden of proof to rebut the presumption by virtue of the evidence from the appraisers for Lincoln County. The appraisers operated on the basis that the two adjoining tracts owned by the Alois, the 11.2-acre tract and the 20-acre tract at issue, should first be valued as one parcel because of common ownership, and then the 20-acre tract's value should be calculated from that combined valuation. When the two tracts were valued as one, the net effect was that a lower multiplier for the price per acre of the entire tract (.2114) would be used, producing a value of $62,000 for the entire 31.2 acres. Thus, given the assessed value of $30,845 for the year 2006 for the 11.2 acres on which the residence was located, a valuation not involved in this appeal, the appraisers therefore assigned the balance of the $62,000, or $31,155, as the value of the 20-acre tract. To do this calculation, the appraisers used the "Site Price per Acre Chart" and the size adjustment chart — which produced the lower multiplier for the price per acre than if the 20 acres had been considered wholly apart from the 11.2 acres. The result of this calculation was that the price per acre on the Alois' 20-acre property was $1,558. As a result of this evidence from the appraisers, TERC reduced the 2006 valuation of the Property from the county board's $42,300 to $31,155. In short, by the time of the TERC hearing, the county assessor had "corrected" the calculation of value so as to reduce it from the $42,300 asserted before the county board to a lesser value of $31,155. Thus, the first part of the Alois' argument that the presumption has dissipated is correct, and TERC so concluded in its opinion.
Was the Property Properly Classified as Rural Residential?
The Alois argue that the Property should be properly classified as agricultural land, rather than as "rural residential," the classification used by the county assessor and the county board and adopted and affirmed by TERC.
Summarized, the evidence reveals that the Lincoln County assessor developed the class of rural residential because numerous smaller tracts of land that were classified as agricultural land were being bought and sold in Lincoln County at prices substantially higher than market value for that class of land. But, there is considerable controversy in the record as to whether factors other than "size" of the tract were used by appraisers in the classification process. Having studied this large record, we are satisfied that despite "snippets" of testimony to the contrary, the record taken as a whole is convincing that multiple factors were considered: size, use, and selling price, as well as the nature and use of the surrounding land. That said, the evidence is clear that a high sales price, meaning well above the typical price for agricultural land, acted as a "red flag" that such smaller tracts might belong in a different class than agricultural land. As a result, such tracts would be evaluated to determine if such actually belonged in the residential rural class rather than in the agricultural class. The appraisers then looked at whether there was development around the tract as well as the actual use of the tract in order to determine if the tract should be classified as rural residential rather than agricultural land. The Alois do not challenge the creation of the class of rural residential, but rather they challenge the decision that their 20-acre tract belongs in that class.
With the foregoing background of the creation of the rural residential class and the factors the Lincoln County appraisers used for that classification, we turn to the pertinent statute, Neb. Rev. Stat. § 77-1359 (Cum. Supp. 2006), which provides that agricultural and horticultural land is a separate and distinct class of real property for assessment purposes. Section 77-1359(1) defines such as "a parcel of land which is primarily used for agricultural or horticultural purposes, including wasteland lying in or adjacent to and in common ownership or management with other agricultural land and horticultural land." Section 77-1359(2) provides "[agricultural or horticultural purposes means used for the commercial production of any plant or animal product in a raw or unprocessed state that is derived from the science and art of agriculture, aquaculture, or horticulture." It is clear that under § 77-1359(1), the actual use of the land is a key determinate. That said, we believe that some focus is properly placed on that portion of the statute which requires "commercial production of any plant or animal product" which connotes some degree of profit motivation or, at least, of a legitimate business enterprise.
TERC's opinion contains a summary of the historical use of the Property, which we can say after our review of the record is fully supported by what can fairly be characterized as undisputed evidence. Therefore, we reproduce and incorporate such summary in our opinion, but for the reader's benefit, we point out that the TERC's reference to "the seller" refers to Roethemeyer from whom the Alois purchased the Property leaving Roethemeyer an adjoining 152.01 acre tract — classified as agricultural for 2006 and assessed at $471 an acre — the value that the Alois argue we should use for their 20 acres. TERC's historical factual findings follow:
The subject property was acquired by the Taxpayer through an installment contract entered into during the year 1993 for $20,000 or $1,000 per acre. Final payment on the contract was made in 2006. Until 2004 the seller pastured cattle on the subject property pursuant to an oral lease. Cattle pastured on the subject property prior to 2004 also had use of the adjoining tract owned by the seller. In the fall of 2003 a fence was constructed separating the subject property from the larger parcel it had been a part of prior to its sale and purchase. The subject property after its severance from the larger tract did not have a source of water for livestock. The County Assessor testified that the subject property at 20 acres in size was not large enough to use economically or practically for pasture due to its size. The Taxpayer testified that the subject property was not pastured in 2004 due to a drought and the pasture needed to rest in 2005 because of the drought. The seller testified that he did not pasture the subject property in 2006 because he was developing part of the larger tract he had retained and had not fence[d] out the development.
The subject property adjoins an 11.2 acre residential parcel owned by the Taxpayer. The County Assessor whose family engages in ranching testified that the subject property was too small for use as a pasture by itself. The seller testified that 8 acres of grass were necessary for support of a cow and calf for 6 months. At that rate the subject property would support 2 cow calf pairs. The subject property does not have a source for stock water on it. After construction of the fence in 2003 the subject property did not have direct access to the larger tract retained by the seller until a gate was installed in 2007. The statutory test is whether the subject property was used to produce horticultural or agricultural products. Neb. Rev. Stat. § 77-1359(1) (Reissue 2003).
Agricultural products include grass for grazing. Neb. Rev. Stat. § 77-1359(2) (Reissue 2003). The evidence is that the owner made the subject property unusable for agricultural and horticultural production as contemplated by the statute in 2003, by fencing out a tract without a water source and that was too small for grazing more than 2 cow calf pairs. The refusal of the County Board to classify the subject property as agricultural land and horticultural land was not unreasonable or arbitrary.
Returning to the language of § 77-1359(2) requiring "commercial production of any plant or animal product," it is apparent from the testimony of Roethemeyer, the Property is not suited for commercial production when it is fenced off from Roethemeyer's larger pasture and when it does not have water for stock. When the Alois appealed their 2004 assessment of the Property to the county board, Michelle Aloi wrote they were, among other reasons, "[purchasing under contract with . . . Roethemeyer to keep housing away from our Property." And while that same document asserts that "[c]ows are on the 20 Ac," the evidence is undisputed that no cattle were pastured there in 2004. Thus, there is a prior admission in the record that the purpose and use of the Property was not "commercial production" of an agricultural product. Allowing cattle from the neighbor's substantially larger pasture onto the ground seems more of an incidental use of the ground, rather than the primary use, remembering that in 2006, it was separately fenced and had no stock water. Finally, the evidence shows no cattle grazed the Property in 2004, 2005, and 2006. Thus, the fact is for those 3 years, its "use" was as ungrazed grassland pasture which had no commercial viability for the production of any agricultural product.
Given our standard of review for error on the record, our inquiry is simply whether TERC's decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable. City of York v. York Cty. Bd. of Equal, 266 Neb. 297, 664 N.W.2d 445 (2003). The issue of proper classification, at least in the present case, is a matter of fact, and as to the TERC's core factual findings quoted above, the evidence is essentially undisputed. The competent evidence supports the finding that the Property was not used primarily for agricultural purposes for commercial production as of January 1, 2006. TERC's failure to classify the Property as agricultural is neither arbitrary, capricious, nor unreasonable.
Did TERC Have Jurisdiction to Address Equalization?
TERC found that the Alois did not present the issue of equalization with other small parcels classified as either agricultural or rural residential, and therefore, TERC did not have jurisdiction to consider that issue, citing Harrison Square v. Sarpy Cty. Bd. of Equal, 6 Neb. App. 454, 574 N.W.2d 180 (1998).
In Harrison Square, supra, the partnership owned a shopping mall, and it contested the assessment thereof before the Sarpy County Board of Equalization, and not being satisfied with the result obtained there, it appealed to TERC. TERC made an express finding that "`[n]o evidence came before the Commission to contradict the County's determination that 12.25% was the appropriate capitalization rate for the subject property.'" Id. at 457, 574 N.W.2d at 183. On appeal to this court, the partnership argued that TERC should have used a different capitalization rate to value the property which would have produced a lower value. We noted in our opinion that in the TERC hearing when the testifying partner was asked if he had provided a different capitalization rate or information to justify the use of a different capitalization rate, the partner responded, `"No, I did not.'" Id. at 460, 574 N.W.2d at 185. We held that because the question of the proper capitalization rate was not presented to, or raised before, the Board for a ruling, it was not properly before TERC or before this court on appeal. Harrison Square, supra.
The Alois argue that the Legislature has effectively overruled our decision in Harrison Square, supra, by its amendment to Neb. Rev. Stat. § 77-5016 (Supp. 2007) by L.B. 167, effective February 10, 2007, so that § 77-5016(7) provided at the time of the TERC hearing in this case:
The commission may determine any question raised in the proceeding upon which an order, decision, determination, or action appealed from is based. The commission may consider all questions necessary to determine taxable value of property as it hears an appeal or cross appeal.
This new language effectively overruled the holding in Harrison Square, supra, that TERC has no authority to consider questions not raised before the county board of equalization which was based on 442 Neb. Admin. Code, ch. 3, § 001.04 (1996), and Ev. Luth. Soc. v. Buffalo Cty. Bd. of Equal, 243 Neb. 351, 500 N.W.2d 520 (1993).
While we will not repeat the legislative history here in any detail, it is abundantly clear from the history of L.B. 167 that the Legislature's intent was to overrule the holding of Harrison Square, supra. Therefore, at the time of the instant hearing before TERC, any aspect of the valuation for taxation process was "fair game" before TERC, despite what issues or arguments were advanced at the lower levels of the protest process.
The Alois argue that this legislative change was effective at the time of this TERC hearing, citing Cheloha v Cheloha, 255 Neb. 32, 582 N.W.2d 291 (1998). Cheloha, supra, holds that when an amendment to a statute makes a procedural change, it is binding upon a tribunal on the effective date of the amendment and is applicable to pending cases that have not been tried. Cheloha also says: "A substantive law creates duties, rights, and obligations, whereas a procedural law prescribes the means and methods through and by which substantive laws are enforced and applied." 255 Neb. at 43, 582 N.W.2d at 300 (citing Stansbury v. HEP, Inc., 248 Neb. 706, 539 N.W.2d 28 (1995)). These are well established doctrines. Thus, in the end, TERC incorrectly relied on Harrison Square, supra, to conclude that it did not have jurisdiction to decide the question of equalization of value of the Property. Therefore, the question becomes whether such error by TERC has any real impact on the outcome of this appeal.
We conclude that the answer is in the negative because, while the Alois assert in their assignment of error No. 3 that TERC erred in failing to determine that the Property has not been "proportionally and equally assessed for the tax year 2006," the argument advanced at pages 35 through 40 of the Alois' brief is really still a claim that their land belongs in the agricultural class, not rural residential. Moreover, with respect to equalization, the taxpayer's burden is rather heavy. The burden is on the taxpayer to show by clear and convincing evidence that the valuation placed upon the taxpayer's property when compared with valuation placed on other similar property is grossly excessive. Future Motels, Inc. v. Custer Cty. Bd. of Equal, 252 Neb. 565, 563 N.W.2d 785 (1997). Alois' equalization argument is, insofar as we can tell, really a wrongful classification argument, and we have already affirmed TERC's classification decision of the Property as rural residential. Therefore, our remaining task is simply to look to whether the value placed on Alois' rural residential property was "grossly excessive" when compared with the valuations placed on other similar properties. In Bumgarner v. County of Valley, 208 Neb. 361, 366, 303 N.W.2d 307, 310 (1981) (citing Newman v. County of Dawson, 167 Neb. 666, 94 N.W.2d 47 (1959)), the court said that "absolute or perfect equality and uniformity in [property] taxation cannot be attained." Therefore, the comparison is with valuations of rural residential tracts, rather than valuation of land classified as agricultural, remembering that perfection is not required.
In exhibit 36, the Lincoln County assessor and her two appraisers prepared and presented their valuation of the property at $31,155, or $1,557.75 per acre, and in doing so they used four comparable properties. A brief summary of the data concerning the comparables readily reveals that the Alois can hardly claim that the valuation of their land was "grossly excessive." All four tracts were within 2 miles of the Property, and all but the third of the four described tracts were vacant land. Tract #1 was 33.37 acres described as "fairly level" that sold for $2,000 an acre in December 2005 and was currently listed for sale at $2,394 an acre. Tract #2 is 10.06 acres described as "gently to steep rolling hills" that sold for $3,000 an acre in June 2005. Tract #3 is 10.11 acres described as "steep rolling hills" that sold for $3,000 an acre in May 2004, and it has an 864-square-foot garage on it. Tract #4 is 10.60 acres described as "gently rolling hills" that sold for $36,000, or $3,396 an acre. While the appraisers clearly understood that adjustments for size, topography, and access among the properties were necessary in the valuation process, the raw data on the comparables shows that the Property is not overvalued using the following principles of valuation and equalization.
"Taxes shall be levied by valuation uniformly and proportionately upon all real property." Neb. Const. art. VIII, § 1. Real property is tangible property under Nebraska law, and it must be equalized and taxed uniformly pursuant to the foregoing constitutional provision. MAPCO Ammonia Pipeline v. State Bd. of Equal, 238 Neb. 565, 471 N.W.2d 734 (1991). Equalization is the process of ensuring that all taxable property is placed on the assessment rolls at a uniform percentage of its actual value. Scribante v. Douglas Cty. Bd. of Equal, 8 Neb. App. 25, 588 N.W.2d 190 (1999). If a taxpayer's property is assessed in excess of the value at which others are taxed, then the taxpayer has a right to relief. Id.
However, under our standard of review for error on the record, we cannot say that TERC's decision is not supported by competent evidence, nor can we say its decision is arbitrary, capricious, or unreasonable. The Alois assert in their brief that if the land is not reclassified agricultural, then the only competent evidence of value is Michelle Aloi's testimony that it is worth $20,000. But, the assessment found in exhibit 36 using the four comparable tracts contains competent evidence of value that was adopted by TERC. Doing so was not error on the record, and thus, we affirm.
AFFIRMED.