Court Affirms Disputed Reduction in Apartment Complex’s Tax Value
The Ohio Supreme Court today approved a $4.3 million reduction in the property tax value of a New Albany area apartment complex, ending a nearly decade-old dispute between the owners and the Columbus city schools.
The Supreme Court unanimously affirmed the Ohio Board of Tax Appeals (BTA) decision to accept the $9,338,000 appraised value of the 240-unit Albany Commons complex for tax year 2005. The county auditor originally valued the property at $13.6 million in a property-tax reappraisal year for Franklin County.
The property lists itself as sitting on the edge of New Albany, and has a Westerville mailing address, yet is in the Columbus City Schools district. The Columbus Board of Education’s primary complaint was that the BTA and the Franklin County Board of Revision approved a value reduction based on a report by an Albany Commons-hired appraiser who conducted a “market data” survey of incomes and expenses of comparable properties. The report excluded the comparable figures, claiming the information was “proprietary.”
The Court’s per curiam decision stated the county and state taxing authorities have wide discretion in determining what information can be used to set property value, and it found there was nothing unreasonable or unlawful about the BTA’s conclusion.
Valuation Challenge Starts in 2009
Albany Commons was constructed in two phases with the first units opening in 2002 and the remainder in 2004. Albany Commons filed a complaint with the board of revision for two appraisals, 2005 and 2008, and the board consolidated the two into one proceeding in 2009. The Columbus Board of Education opposed the reductions in value sought by the apartment complex.
In 2011, James Horner, an appraiser for Albany Commons, presented to the board a report that valued the property at about $9.4 million in 2005 and $11.4 million in 2008. The value was based primarily on the “income approach,” where he used the actual revenue and expenses of Albany Commons over the years. He supported his findings with a sale of comparable property approach, using information from the sales of 10 apartment complexes from 2003 to 2010.
The sales comparables did not adjust Horner’s estimated value, and he testified that any sale of an apartment complex such as Albany Commons would not be based on comparables because of all the differences in properties, such as apartment sizes, garages, and property amenities. Rather, purchase decisions are made almost exclusively on the “quality and quantity of income,” he testified.
Horner also testified the income and expenses of the complex closely tracked the market, and that his review of complex expenses came mostly from other appraisal projects he worked on. He did not include the expense data in his written report, stating it was “proprietary,” and he stated he was not allowed to share the information.
The board of revision adopted Horner’s value for 2005. It reduced the value for 2008 to $12.9 million, and the schools did not dispute that finding. The schools appealed the 2005 value to the BTA, which conducted two hearings and adopted the findings of the board of revision. The school district appealed to the Supreme Court, which by law must hear this type of BTA decision appeal.
School Claims Insufficient Data
Columbus schools claimed the BTA made errors when approving the appraisal, including that Horner’s income approach and sales comparable approach did not contain sufficient data to allow a reasonable decision to be made.
The opinion noted that the Supreme Court “does not sit as a super BTA” or independently try the facts of the case, and the Court will only overrule a BTA decision on property value if from the record it appears the board’s decision was “unreasonable or unlawful.”
The opinion refers to Columbus schools as the “BOE,” and the board of revision as “BOR,” and noted the schools face a difficult burden in proving the taxing authorities were wrong.
“The daunting nature of that challenge lies in the deferential standards that we apply to the type of argument the BOE is advancing here,” the opinion stated. “As a result, the burden on the BOE is to demonstrate an abuse of discretion on the part of the BOR and the BTA.”
The Court noted the school objected to the appraisal’s reliance on Albany Commons’ revenue and expenses, which in Ohio law is considered “contract rent.” The rent commonly charged in the marketplace is called “economic rent,” and state law indicates when contract rent is given as a justification for value, economic rent must be considered, too.
Horner’s report only contained the complex’s income and expenses, and because he testified that he reviewed other properties, the BOR and BTA credited his testimony as reflecting the market rates, the opinion stated. The school district argued that without the market data in the written report, the appraisal was defective and unfair because it prevented opponents from questioning the inputs and it did not offer the tax authorities the data that would support the appraiser’s conclusion.
The Court indicated that there is no state law that prevents of the BTA from considering the testimony and report without written market data, and that it was not unreasonable or unlawful for the boards to rely on the appraisal.
“The BOE had every opportunity to present evidence of its own to impugn the Horner appraisal but failed to do so,” the opinion stated. “Horner gave his reasons for leaving data out of the appraisal report along with his reasons for using that data in forming his opinion of value, and the BOE has not established the unreasonableness or unlawfulness by showing an abuse of discretion in the BTA’s decision to credit Horner’s testimony and report.”
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