Opinion
No. 5-397 / 04-1436
Filed June 29, 2005
Appeal from the Iowa District Court for Lee (North) County, John G. Linn, Judge.
Taxpayers seek review of a decision by the county board of review assessing the value of the taxpayers' property. AFFIRMED.
Douglas H. Napier of Napier, Wolf Napier, Fort Madison, for appellants.
Michael P. Short, County Attorney, Keokuk, for appellee.
Considered by Mahan, P.J., Zimmer, J., and Brown, S.J.
Senior Judge assigned by order pursuant to Iowa Code section 602.9206 (2005).
Fort Madison Health Center, Inc., Donnellson Health Center, Inc., and Montrose Health Center, Inc. seek review of a decision by the county board of review assessing the value of the taxpayers' property. Specifically, they allege their respective properties were overassessed. We affirm.
I. Background Facts Proceedings.
Fort Madison Health Center, Inc., Donnellson Health Center, Inc., and Montrose Health Center, Inc. (hereinafter referred to collectively as "the taxpayers") are wholly-owned subsidiaries of Inhance Corporation. The three separate taxpayers operate long-term care facilities and own real property situated in Lee County, Iowa. The Fort Madison Health Center rests upon 11.11 acres of land. The one-story block building was originally erected in 1971. The original structure consisted of three wings and a common area. A fourth wing was added in 1974. The structure itself consists of 30,928 square feet and is licensed for one hundred beds. In 2003 the Fort Madison Health Center was assessed at $1,852,625. The Donnellson Health Center is also a one-story structure originally constructed in 1975. The structure contains two parallel wings that are connected by an intersecting wing. A rear wing was added to the structure in 1983. In 1988 the entire structure was remodeled. The 22,959 square foot structure rests upon 2.81 acres of land and is licensed for seventy beds. In 2003 the Donnellson Health Center was assessed at $1,137,252. The Montrose Health Center, also a one-story brick structure, was erected in 1977. In 1998 the structure underwent cosmetic remodeling. The building consists of 21,668 square feet and rests upon 3.66 acres of land. It is licensed for fifty-nine beds. In 2003 the Montrose Health Center was assessed at $1,210,854.
On April 25, 2003, the taxpayers individually petitioned the Lee County Board of Review for a reduction in the assessed value of their respective properties for the year 2003. On May 13, 2003, the board of review issued its final disposition. The board determined the Fort Madison Health Center and the Donnellson Health Center were properly assessed, but reduced the assessed value of the Montrose Health Center property to $1,090,562. The taxpayers appealed the board's decision to the district court. The three separate appeals were consolidated for one trial. Following a two-day trial on the issue of the assessed value of the taxpayers' properties, the district court determined the assessed value of all three properties was excessive. Consequently, the court reduced the assessed value of the Fort Madison Health Center to $1,750,000 and the Donnellson Health Center to $1,043,000. The court further reduced the assessed value of the Montrose Health Center to $885,000. The taxpayers appeal, asserting the district court's order assessing values of the three properties remains excessive.
II. Standard of Review.
The district court hears an appeal from the action of the board of review in equity. Iowa Code § 441.39 (2003). Consequently, this court's standard of review is de novo. Evangelical Lutheran Good Samaritan Soc'y v. Board of Review, 688 N.W.2d 482, 483 (Iowa Ct.App. 2004). We give weight to the fact findings of the trial court, especially when considering the credibility of witnesses, but are not bound by them. Iowa R. App. P. 6.14(6)( g).
III. The Merits.
Pursuant to the Code of Iowa, a property subject to taxation is valued at its actual value. Iowa Code § 441.21(1)(a). The "actual value" of a property is determined by ascertaining the "fair and reasonable market value" of such property. Id. § 441.21(1)(b).
" Market value" is defined as the fair and reasonable exchange in the year in which the property is listed and valued between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and each being familiar with all the facts relating to the particular property. Sale prices of the property or comparable property in normal transactions reflecting market value, and the probable availability or unavailability of persons interested in purchasing the property, shall be taken into consideration in arriving at its market value. In arriving at market value, sale prices of property in abnormal transactions not reflecting market value shall not be taken into account, or shall be adjusted to eliminate the effect of factors which distort market value, including but not limited to sales to immediate family of the seller, foreclosure or other forced sales, contract sales, discounted purchase transactions or purchase of adjoining land or other land to be operated as a unit.
Id. If the market value of a particular parcel of property cannot be readily ascertained utilizing the comparable sales methodology set forth above, the assessor is authorized to determine the value of the property using a different method. Id. § 441.21(2). All of the parties involved in this appeal agree the market value of the three properties at issue can be readily established through the employment of the sales comparison methodology. Consequently, that particular method of valuation is mandated by the Code and an alternative method of valuation is inappropriate. See id.; see also Milroy v. Board of Review, 226 N.W.2d 814, 819 (Iowa 1975). A taxpayer who challenges an assessment must prove by a preponderance of the evidence the valuation by the board of review was excessive, inadequate, inequitable, or capricious. See Iowa Code § 441.21(3); see also Post-Newsweek Cable v. Board of Review, 497 N.W.2d 810, 813 (Iowa 1993). However, if the complainant offers competent evidence by two disinterested witnesses that the market value of the property is less than the value assigned by the assessor, the burden of proof shifts to the persons seeking to uphold the valuation. Id. If the complainant fails to shift the burden of proof, the burden remains with the complainant. On appeal, the taxpayers aver they presented sufficient evidence to shift the burden of proof to the board of review and the valuation of all three properties remains excessive. We will address each argument in turn.
The burden of proof referred to is one of persuasion. Post-Newsweek Cable, 497 N.W.2d at 813.
The taxpayers, relying on The Evangelical Lutheran Good Samaritan Society v. Board of Review, 688 N.W.2d at 490-91, also contend the three properties should have been assessed as "residential" property, as opposed to "commercial" property. The taxpayers allege The Evangelical Lutheran Good Samaritan Society stands for the proposition that all nursing home facilities are properly characterized as residential. However, the taxpayers' reliance upon that case is misguided. The Iowa Administrative Code specifically excludes from the definition of "residential real estate" "[b]uildings for human habitation that are used as commercial ventures, including but not limited hotels, motels, rest homes, and structures containing three or more separate living quarters. . . ." However, as The Evangelical Lutheran Good Samaritan Society, 688 N.W.2d at 490-91, acknowledges, such properties are residential real estate when they are owned and operated by organizations that have received tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. The Evangelical Lutheran Good Samaritan Society is simply an application of the above principles. See id. There is nothing in the record that would suggest the three facilities at issue in this case are owned and operated by a tax-exempt organization under Section 501(c)(3). Consequently, we cannot reach the merits of this argument on appeal.
A. Burden of Proof.
This court must first determine if the taxpayers succeeded in shifting the burden of proof to the board of review. In order to do so, the taxpayers were required to offer competent evidence from two disinterested witnesses establishing the actual value of the three properties was less than the value determined by the assessor. Iowa Code § 441.21(3). The taxpayers argue the burden of proof shifted to the county based upon the testimony of three witnesses: (1) Jan Calvert, the Lee County Assessor; (2) Dana Thompson, a Keokuk realtor; and (3) Robert Ehler, Lee County's expert appraiser. We disagree because neither the testimony of Calvert, nor the testimony of Thompson can be relied upon as a basis for shifting the burden of proof to the board. With respect to Calvert, upon our de novo review of the record, it is clear she testified the fair market value of each of the properties was in accord with the board of review's valuations. While Calvert acknowledged the lower figures arrived at by Ehler and indicated she did not have a problem with his appraisal, she did not, as the taxpayers contend, affirmatively adopt Ehler's findings as her own. Additionally, we point out Calvert did not compute the assessed values of the property utilizing the comparable sales approach. Rather, based on Calvert's testimony, she determined the assessed values of the three properties utilizing a cost approach. Consequently, Calvert's testimony cannot be relied upon because her method of valuation did not comport with the statutory scheme set forth in section 441.21. See Boekeloo v. Board of Review, 529 N.W.2d 275, 279-80 (Iowa 1995) (concluding testimony presented by witness was not competent where the cost method was utilized as the basis for the witness's opinion and there was no evidence comparable sales data was unavailable); see also Ross v. Board of Review, 417 N.W.2d 462, 465 (Iowa 1988).
The taxpayers' contention also fails with respect to Dana Thompson's testimony. Thompson arrived at his opinion based upon the sales of three nursing homes in the Lee County area — the old River Hills building, the Keokuk Convalescent Center, and the county home. We conclude, in accord with the findings of the district court, that the sale of the River Hills property and the county home are not comparable. Prior to its sale, the old River Hills building was vacant for two and a half years. Ultimately, it was sold for $286,000 for the purpose of converting the building into a dormitory. Ehler testified the sale price of the building was influenced by the fact that conversion of the building to a dormitory would require a large monetary investment. Similarly, the county home sat empty for an extended period of time before it ultimately was sold for $500,000. Like the old River Hills building, it was also purchased to serve as a private school and dormitory. Neither the sale of the county home, nor the old River Hills building can be considered representative. Further, although the Keokuk Convalescent Center is comparable property, the sale of the building for $878,991 cannot be considered representative because its value was substantially discounted due to significant economic obsolescence. Under Iowa's statutory scheme, abnormal transactions are not to be taken into account when arriving at the market value of a piece of property. See Iowa Code § 441.21(1)(b). Consequently, Thompson's testimony is not competent within the meaning of the statute because the sales upon which his testimony was based were not comparable. See Boekeloo, 529 N.W.2d at 279 ("[T]estimony by the taxpayer's witness on the value of the subject property under a sales price approach was competent only if the sales upon which they based their opinions on were comparable.") (citing Bartlett Co. Grain v. Board of Review, 253 N.W.2d 86, 88 (Iowa 1977)). Because neither Calvert's, nor Thompson's testimony can be relied upon to establish the actual value of the three properties was less than the value determined by the assessor, we conclude the taxpayers failed to shift the burden of proof to the board under section 441.21(3). B. Actual Value of the Properties.
In addition, we note neither Calvert nor Ehler would qualify as a "disinterested witness." See Post-Newsweek Cable, 497 N.W.2d at 813 (noting a disinterested witness has no "right, claim, title, or legal share in the cause or matter in issue").
Because the taxpayers failed to shift the burden of proof to the board, they retained the burden of persuasion and were required to establish by a preponderance of the evidence the assessed values of the three properties were excessive. We turn to whether the taxpayers met this burden. At trial, Ehler, an experienced expert in appraisal and evaluation, testified his analysis revealed the market values of the three properties to be lower than the value determined by the county assessor. This testimony was sufficient to establish the three properties were overassessed. Consequently, we will proceed to determine the actual values of the properties.
Ehler testified he conducted in-depth appraisals of the three properties utilizing a sales comparison approach. Under this methodology, Ehler arrived at the following valuations: $1,750,000 for the Fort Madison Health Center, $1,043,000 for the Donnellson Health Center, and $885,000 for the Montrose Health Center. Ehler provided competent and reliable testimony with respect to the market values of the three properties at issue in this case. Upon our de novo review of the record, we conclude Ehler's testimony is the only reliable and credible evidence in the record establishing the market value of the three properties. While Thompson testified the properties were assessed high based on their size and age, he did not opine as to what value the properties should have been given. Wayne Marple, the chief financial officer for Inhance Corporation, presented numerous calculations in an attempt to demonstrate the properties were overassessed and provided proposed assessments for the three properties that were significantly lower than the figures presented by Ehler. However, we note Marple has little, if any, training or experience with respect to property valuation and appraisals. The district court ultimately considered Ehler to be a more credible witness based on his experience and expertise as an appraiser. We defer to the district court's credibility determination and find the assessed value of the three properties to be as follows: $1,750,000 for the Fort Madison Health Center, $1,043,000 for the Donnellson Health Center, and $885,000 for the Montrose Health Center.
Ehler analyzed the sales of twenty-three nursing homes across the state of Iowa during the period of 1996 to 2002. After comparing the twenty-three nursing homes to the three properties owned by the taxpayers, Ehler concluded six properties were the most similar to the taxpayers' properties. Ehler applied upward and downward adjustments to ultimately determine the market values of the three properties. He then validated his figures by using a cost approach and income approach.
The taxpayers, relying on Maytag Co. v. Partridge, 210 N.W.2d 584, 594-95 (Iowa 1973), contend Ehler improperly considered comparable sales of nursing home businesses from outside the taxing district. We conclude the taxpayers' reliance on Maytag for the proposition that only comparable sales within the taxing district should be considered is misguided. In Maytag, the taxpayers argued the assessed values, not the sale prices, of properties outside of the taxing district should be compared in order to ascertain the fair market value of the property at issue. Maytag Co., 210 N.W.2d at 594-95. The Maytag court determined the assessed value of property in another district could not be used for comparative purposes because an assessor cannot acquire information about or correct the valuations of properties located outside the relevant taxing district. Id. The court did not, however, discuss whether sales data from property outside the taxing district could be used for comparative purposes. See id. Contrary to the taxpayers' assertion, the issue of whether sales data from property situated outside the taxing district could be used for comparative purposes was addressed in Bartlett Co. Grain v. Board of Review, 253 N.W.2d at 88-89, and more recently in Carlon Co. v. Board of Review, 572 N.W.2d 146, 150 (Iowa 1997). In both Bartlett Co. Grain and Carlon Co., the Iowa Supreme Court specifically held sales of property do not need to be within the assessor's geographical area to be comparable. Carlon Co., 572 N.W.2d at 150; Bartlett Co. Grain, 253 N.W.2d at 88-89. In light of the well-established supreme court precedent on this issue, we find the taxpayers' argument with respect to Ehler's use of sales data throughout the state of Iowa to be wholly without merit.
The taxpayers further aver Ehler's appraisals of the three properties cannot be relied upon because they include "special use" value in contravention to Iowa Code section 441.21(2). We disagree. The taxpayers correctly state the assessor is prohibited from considering "special value or use value of the property to its present owner, and the good will or value of a business which uses the property as distinguished from the value of the property as property." Iowa Code § 441.21(2). However, the taxpayers' argument overlooks section 441.21(1)(b), which provides that the "[s]ale prices of the property or comparable property in normal transactions reflecting market value, and the probable availability or unavailability of persons interested in purchasing the property, shall be taken into consideration in arriving at its market value." Ehler's assessments of the taxpayers' facilities were based upon sales comparison data of comparable nursing homes in accordance with the statutory text of section 441.21(1)(b). Contrary to the taxpayers' assertion, the proscription against considering special use in arriving at the market value of a particular parcel of property is not implicated simply because Ehler looked at the sale of other nursing homes, as opposed to vacant buildings. Rather, the inclusion of special value or use value of a particular parcel of property only becomes an issue when the market value of a specific property cannot be ascertained through the employment of the sales comparison method. See Iowa Code § 441.21(2).
What the taxpayers are really arguing is that the assessed values of the properties did not adequately account for the probable availability or unavailability of persons interested in purchasing the property. See id. § 441.21(1)( b). We disagree. Ehler's appraisal took into account myriad factors, including area data and local statistics. He also accounted for market conditions, location, age and condition of the buildings, and size of the buildings. Consequently, we find the taxpayers' argument with respect to this issue to be nonpersuasive. In light of the foregoing, we conclude the taxpayers established by a preponderance of the evidence the board of review's assessments of the three properties were excessive. However, based upon our de novo review of the record, we agree with the district court that Ehler's testimony was the only credible, reliable, and competent testimony establishing the market values of the three properties. Consequently, we affirm the decision of the district court.