An Ohio Appeals Court has held that when parcels of vacant land are evaluated for property tax purposes, legally imposed use restrictions — designation as part of a federally protected wetlands and the existence of a cease and desist order from the Army Corps of Engineers restricting the use of the property — must be considered in arriving at the value. In Madison Route 20, LLC v. Lake Cty. Bd. of Revision, 2014-Ohio-3183 (11th District), the Court of Appeals remanded the case to the Board of Tax Appeals (BTA) to affirmatively determine the value of the property and, if necessary, to take additional evidence to do so.

Facts: The property owner owned several separate parcels of land that were part of a larger area of land. In 2004, this larger area of land was the object of a cease and desist order for all activities from the Army Corps of Engineers due to the alleged destruction of wetland areas in violation of federal laws. The property owner attempted to have the order modified or vacated, to no avail. The owner filed complaints against the value of the parcels for tax year 2009, claiming that the cease and desist order prevented them from developing or selling the land, thereby reducing its value.

The owner provided testimony regarding the cease and desist order and its impact on efforts to develop the land before the Board of Revision (BOR); however, the owner provided no specific evidence of the value of the land. The BOR declined to reduce the value of the property and the owner appealed to the BTA.

The owner again presented testimony about the order and its impact upon efforts to develop or sell the property before the BTA. Once again, although the owner’s witness opined that it believed the property was practically worthless, the owner introduced no specific evidence regarding the value of the property. The BTA found that although the cease and desist order would “likely affect the value of the property,” the owner had introduced no evidence that allowed the BTA to determine the value of the property. Therefore, it affirmed the decision of the BOR, which had upheld the value placed on the property by the auditor.

Decision: The Court of Appeals agreed with the BTA that there was no evidence in the record to establish that the value of the property was zero. However, it noted that the BTA had acknowledged the cease and desist order had an impact on the value of the property. Although the BTA upheld the auditor’s valuation of the property, it was not clear from the record whether the auditor had taken the restrictions into account in determining the value of the property. Therefore, the question was whether it was “reasonable and lawful” to uphold the auditor’s valuation in the face of evidence that suggests it did not do so.

The Ohio Supreme Court recently held that where evidence is presented that tends to bring the valuation established by the auditor into question, it is reversible error for the BTA to defer to the auditor’s valuation. In the case ofDublin City Schools Bd. of Educ. v. Franklin Cty. Bd. of Revision, __ Ohio St. 3d __, 2013-Ohio-4543, ___ N.E.2d ___, the Supreme Court held that where evidence was introduced that tends to negate the value determined by the auditor, it is error for the BTA to reinstate the auditor’s value. Instead, the BTA must engage in its statutory duty to determine value and should take additional evidence if it determines additional evidence is necessary to make a determination.

The Court of Appeals noted the logic employed in the Dublin City Schoolscase applied to the case before it. In this case, the cease and desist order clearly had a negative impact on the value of the property. There was no evidence that the auditor took that order into account, or even knew of its existence. Likewise, the evidence presented by the board of education failed to take into account the impact of the order.

The Court of Appeals noted that generally the BTA may retain the auditor’s valuation where a taxpayer fails to provide evidence that supports its claimed valuation. However, as the Court stated in Dublin City Schools, there is an exception to this rule where evidence clearly negates the auditor’s valuation. In that case, the BTA has a duty to determine the value of the property in question. Consequently, the Court of Appeals reversed the decision of the BTA here and remanded the matter to the BTA to determine the value of the properties. If necessary, the BTA was instructed to take additional evidence to assist in making that determination.

Dissent: The dissent agreed that the decision of the BTA was unlawful insofar as it reinstated the auditor’s value. However, it would have placed a value of $0 on the property. In the view of the dissent, the cease and desist order, by its terms, forbade all activity on the land. Consequently, the dissenting position was that the property had no value to the owners.

Thoughts: This case involves two important issues, one of them substantive and the other procedural in nature. The first is the recognition that legally imposed use restrictions must be considered in determining the value of real property. The Ohio Supreme Court previously recognized that while Ohio law requires the value of property to be determined as if the property were unencumbered, governmentally imposed restrictions — as opposed to restrictions voluntarily assumed by an owner — must be considered. Woda Ivy Glen L.P. v. Fayette Cty. Bd. of Revision, 121 Ohio St. 3d 175; 2009-Ohio-762; 902 N.E.2d 984. Indeed, R.C. 5713.03 was recently amended to include specific language to this effect.

On a procedural basis, the decision reiterates the decision in Dublin City Schools that if a party presents evidence that negates the auditor’s value of the property in question, the BTA must make an independent determination of value. The practical problem for the BTA, as illustrated by this case, is that the evidence provided by the parties may not provide a sufficient basis for doing so. R.C. 5717.01 specifically provides that the BTA has three options with respect to the evidence to be considered. It may base its decision on the evidence submitted to the BOR; it may order the hearing of additional evidence; and it may “make such investigation concerning the appeal as it deems proper.” Thus, where the parties do not submit the requisite evidence, the question becomes the “investigation” the BTA may be required to conduct. That answer is left to another day.