The Ohio Supreme Court recently reconsidered a prior decision and ruled (in a 4–3 decision) that while the Board of Tax Appeals (BTA) may not revert to the value originally determined by the county auditor when evidence has been presented that places the value in question, it is not required to defer to the value found by the Board of Revision (BOR). Instead, the BTA must make an independent determination of value, and where it does not, the case will be remanded for that purpose. Further, the court held that the BTA could take additional evidence for that purpose. Dublin City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2014-Ohio-1940.

Facts:

The owner of a condominium complex filed a complaint regarding the valuation of 21 unsold units in the complex. The county auditor had determined the value of each unit as a separate parcel. However, the auditor’s records did not reflect whether the auditor took into account the fact that the units were in varying stages of construction and were not complete as of the tax lien date. The owner filed complaints as to each parcel, and the board of education filed counter complaints.

At the hearing conducted by the BOR, the owner presented an appraisal that determined the value of the 21 units as a single economic unit. Deductions were made for the costs of finishing the units and a further reduction was made to arrive at a “net present value” of the units to reflect the price that an investor would pay for the 21 units. The Board of Education presented no evidence to the BOR, which adopted the appraiser’s valuation.

The Board of Education appealed to the BTA. At the BTA, the Board of Education again presented no evidence. Rather, it attached the appraisal methodology used, in particular the bulk discount that was taken. The BTA determined the bulk-appraisal method was improper, reversed the order of the BOR, and reinstated the original value of the county auditor.

The property owner appealed to the Supreme Court. In its original opinion, ___ Ohio St. 3d ___, 2013-Ohio-4543, the Court reversed the BTA and ruled that it was an error to revert to the auditor’s determination of value when evidence indicated the auditor’s value was in error. The majority concluded that the only evidence of value in the record supported the decision of the BOR, and ordered that value to be reinstated. However, the Court did not consider whether or not the bulk-valuation approach, which was the basis for the lower value, was appropriate.

The Board of Education moved the Court to reconsider its decision. The Court granted the motion in part.

When Reconsideration is Appropriate:

First, the Court explained that reconsideration was appropriate only with respect to matters that had not been previously argued to or addressed by the Court. Rejecting two arguments on the basis that they were mere restatements of issues previously addressed, the Court noted that the propriety of the bulk-valuation process had not been addressed in its prior decision, and that it would be appropriate to do so. Thus, it granted the motion to reconsider that narrow issue.

Propriety of Bulk-Valuation Method:

The Court moved on to determine whether or not the BOR (and hence the BTA) could rely upon the bulk-valuation methodology that the owner used. It noted first that R.C. 5311.11 provides that each unit of a condominium property is deemed a separate parcel for all purposes of taxation and assessment. Hence, the bulk-valuation approach violated this legal mandate, notwithstanding the appraiser’s claim that the owner would not be able to sell the units individually.

Moreover, the approach was considered inconsistent with the record that was developed. The highest and best-use conclusion contained in the appraisal report concluded that the highest and best use of the properties was as owner-occupied individual units. The development was designed for individual ownership, and the owner admitted that while it had received several offers to purchase various individual units, it had not received any offers to purchase all 21 units. And, within approximately three years of the tax lien date, the owner had sold 14 of the 21 units.

Finally, the Court opined that the appraisal methodology did not comply with statutory purposes of real property taxation. R.C. 5713.01(B) mandates that county auditors are to determine the “true value” of real property, which means either the amount the property sold for in a recent transaction, or the amount of an appraisal predicting what such a sales price would be. Instead of predicting the price at which the parcels would sell for on the open market, the appraisal expressed a valuation based upon the investment value of all 21 parcels, rather than a real market value of each individual parcel.

For these reasons, the Court held the BTA appropriately rejected the bulk-valuation method employed by the owner.

Remedy:

As noted, the BTA had simply reinstated the auditor’s value. In its original opinion, the Court had ruled this to be in error and reinstated the decision of the BOR. Rejecting the value determined by the auditor was appropriate because the record suggested the auditor had failed to take into account the unfinished state of many of the units. Thus, there was evidence suggesting that the auditor’s value was in error. However, the court pointed out that the value determined by the BOR was not proper because it was based on an improper valuation method. The Court noted the BTA has a statutory duty to determine value and may order an investigation and gather additional evidence for that purpose pursuant to R.C. 5717.01. Therefore, it remanded the case back to the BTA to make such a determination.

Dissent:

In a pointed dissent, Justice O’Donnell, writing on behalf of himself and two colleagues, opined that reconsideration should not have been granted. He noted that the only evidence of value in the entire record came from the property owner. Evidence in the record indicated that due to their unfinished state, the owner could not sell the units individually and could only sell them as a whole. The Board of Education failed to present any evidence that the approach taken by the appraiser was inappropriate or contained errors. Thus, in the view of the dissent, the BOR had competent evidence of value on which to base its decision.

On appeal to the BTA, the Board of Education again failed to present any evidence. The owner submitted additional evidence that supported an even lower value for all 21 units. In the view of the dissent, the Board of Education had the burden of producing evidence to demonstrate that the value determined by the BOR was in error.

Based on prior decisions, the dissent summarized that (a) where the Board of Education presented no evidence; (b) the owner presented evidence negating the auditor’s determination of value; and (c) the BTA failed to make an independent determination of value, it was an error for the BTA to reverse the decision of the BOR and to reinstate the auditor’s original value. The Court specifically held that it did not have to consider the bulk-appraisal issue because the BTA failed to carry out its duty to determine value on an independent basis.

The dissent noted that both parties had the opportunity to present evidence to both the BOR and the BTA. The owner had presented expert-opinion evidence of value that tended to negate the auditor’s value. The Board of Education had the opportunity and the burden to present evidence supporting a different value. Since it failed to avail itself of that opportunity in the first instance, the dissent argued it should not be given an additional opportunity on remand. Since the only competent evidence in the record was that of the property owner, the dissent argued that the value of the BOR, which was based upon that evidence, should be reinstated.

Conclusion:

This case presents the latest ruling on a common situation: a property owner presents evidence that tends to negate the auditor’s value; the BOR makes a reduction in value based upon that evidence; the Board of Education appeals the decision to the BTA but presents no evidence to contradict that of the property owner. This decision suggests that in such an instance, the BTA may not reinstate the auditor’s value, but rather should make an independent determination of value. If the property owner has demonstrated some error on the part of the auditor, but has not presented competent evidence of value, the decision required the BTA to nevertheless make a determination of value. What remains unsaid is what will happen if the BTA finds nobody has presented any competent evidence of value, as happened in this case in the view of the majority.

On the other hand, the decision seems to signal that Boards of Education can no longer rely solely upon legal arguments to defend auditors’ valuations. Instead, when a Board of Education takes an appeal to the BTA, it should as the appellant be prepared to present competent evidence of value. This common-sense approach has been often ignored in the past. However, this decision may signal a change in that practice.