The Ohio Board of Tax Appeals reasonably concluded that the value of Thistledown Racetrack was $13.8 million, rather than the $43 million price it sold for in bankruptcy, and that it could use the lower figure to calculate property taxes, the Ohio Supreme Court ruled today.

In a unanimous decision, the Supreme Court affirmed the decision of the BTA that used an appraisal commissioned by purchaser Harrah’s Ohio Acquisition Company rather than the price Harrah’s paid Magna Entertainment in 2010. In a per curiam opinion, the Court rejected Warrensville Heights City School District’s challenge to the value and its argument that the sale price was required to be used in calculating the property taxes.

Racetrack Sold
Thistledown Racetrack, now Thistledown Racino, is a 128-acre thoroughbred-racing facility in Cuyahoga County. In 2009, Magna Entertainment, the parent company of the track’s owners, sought Chapter 11 bankruptcy relief and to sell Thistledown. That year it received three bids, including an $89.5 million bid from Harrah’s with $47.5 million of the price contingent on Harrah’s ability to place video lottery terminals (VLTs) at the track and Ohio voters’ rejection of a statewide ballot issue to establish four casinos. The ballot issued passed, and the sale did not happen. In 2010, at a second bankruptcy auction, Harrah’ s paid $43 million to take ownership of the track’s facilities and operations on the condition it was able to acquire Magna’s racing license from the state.

With the completion of the sale, the Cuyahoga County fiscal officer valued the property for real-estate tax purposes at $14.3 million, and the Warrensville Heights board of education filed a complaint with the county’s Board of Revision seeking to increase the value to $89.5 million based on Harrah’s initial offer. The school district produced evidence of the agreement between Harrah’s and Magna as well as the bankruptcy court’s authorization of the sale that $43 million “constitutes reasonable equivalent value” of the Thistledown assets. Harrah’s responded that the price was calculated heavily on the ability to obtain the racing license so it could operate VLTs, and it urged the board to value the real estate at $5.5 million. The board retained its $14.3 million value, and the school district appealed to the BTA.

BTA Finds Bulk of Price for VLT Rights
At the BTA, Harrah’s asked the value be decreased to $13.8 million based on an appraisal by David Sangree. Sangree testified that 65 percent of the purchase price, about $28 million, could be attributed to acquiring the racing license in order to install VLTs. Another $1.2 million was attributed to furniture and equipment, making the real estate value $13.8 million. The BTA ruled the sale price was not sufficient to value the property because it was sold at bankruptcy, and the tax board considered Sangree’s appraisal to be “reasonable and well supported.” It adopted the $13.8 million value.

State Law Questions Bankruptcy Sale Values
In its opinion, the Court noted it will defer to the ruling of the BTA if it finds the board correctly applies state law. The decision indicates that former R.C. 5713.03 determined how real estate is valued for tax year 2010. That statute provided that price paid in an arm’s length sale between a willing buyer and willing seller within a reasonable time of when taxes are being calculated will be the value used for taxation. However the following statute, R.C. 5713.04, directs the price paid “at auction or forced sale” not be used to establish the value. The Court explained based on its 2014 Olentangy Local Schools Bd. Of Edn. v. Delaware Cty. Bd. of Revision ruling that if the BTA determines the Thistledown sale was a forced sale, then the school district would have to provide some additional proof of an arm’s length transaction if it wants to claim the $43 million sale price should be used. The Court noted the district did not offer any further proof.

The Court reasoned that the sale in bankruptcy was a forced sale under R.C. 5713.04, and “sufficient evidence shows that the bankruptcy sale occurred at least in part to liquidate assets for the benefits of Magna Entertainment’s creditors.” Sangree based his value of Thistledown on comparisons with the sales of other racetracks, and the Court found the BTA followed the law when it used his appraisal to make its decision.

2014-0515. Warrensville Hts. City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, Slip Opinion No. 2016-Ohio-78.

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