ORDERS:
FINAL ORDER AND DECISION
This matter came before me on November 5, 2003, pursuant to a request for a contested case
hearing filed by Charleston County (“County”) concerning property owned by the City of Charleston
(“City”) and leased to the Charleston Yacht Club, Inc. (the “Yacht Club”). At the call of the case
the parties were present as shown above.
BACKGROUND
The property at issue is TMS No. 460-14-00-010, commonly referred to as the Charleston
Yacht Club property. It is located at 17 Lockwood Drive on the west side of the Charleston
peninsula and lies along the Ashley River. The City of Charleston owns the property in the City
Marina at this site. In 1984, the Charleston Yacht Club, Inc. signed a 35 year lease, with two
additional ten year extensions, and an additional option on the extension. The lease could extend
through 2040.
The property was appraised in 1997 by state certified appraiser Stephen C. Attaway, of
Attaway, Thompson and Associates, Inc., Real Estate Appraisers and Counselors, for the purpose
of applying for a mortgage loan on the property. (Hereafter “Attaway Appraisal.”) The appraiser
determined the market value of the leasehold estate to be $545,000. The Assessor determined the
fair market value assessment of the Yacht Club’s leasehold interest for the 2001 tax year to be
$936,000. The Yacht Club appealed to the Board of Assessment Appeals, claiming that the value
stated in the Attaway appraisal [$545,000, with a 1.5% increase for the time since the appraisal was
made in 1997, for a total of $553,200], was the correct figure based on the restrictions in the lease.
The Board of Assessment Appeals agreed with the Yacht Club’s assessment of $553,200. The
Charleston County assessor filed this action.
ISSUE
What is the appropriate market value for tax year 2001 of a leasehold interest of a parcel of
real property located in Charleston County, South Carolina, with structures and improvements
thereon, which is owned by a municipality and has restrictions on the use of the property in the
lease?
FINDINGS OF FACT
Having observed the witnesses and exhibits presented at the hearing and closely passed upon
their credibility, taking into consideration the burden of persuasion by the parties, I make the
following Findings of Fact by a preponderance of evidence:
General Findings
1.Notice of the time, date, place and nature of the hearing was timely given to all
parties.
2.The City owns the Marina tract in Charleston County located at 17 Lockwood Drive.
The property is in a commercial area. South of the property is the Historic District; the Medical
Complex with the Medical University of South Carolina is to the East. The subject property, which
is treated as one tax parcel, is actually comprised of four adjacent parts: (1) the Yacht Club building,
(2) the boatyard, (3) the deck corridor, and (4) the waterside corridor. The first two portions are
leased from the City of Charleston, while the latter two are leased from the City Marina Company.
3.The parties agreed that the Attaway appraisal, completed in 1997 for the purpose of
obtaining a mortgage loan, was a valid appraisal of the subject property.
4.S.C. Code Ann. §12-37-950 (2002) states:
When any leasehold estate is conveyed for a definite term by any grantor whose
property is exempt from taxation to a grantee whose property is not exempt, the
leasehold estate shall be valued for property tax purposes as real estate. (Emphasis
added.)
Appraisal Approaches
5.The Assessor valued the Yacht Club using the cost approach. The Assessor contends
that approach was appropriate to determine the fair market value of the property. The Yacht Club,
and the Board of Assessment Appeals, however, utilized the income approach. The income
approach is used to determine the market value of income-producing property because it looks at
property value through the eyes of a typical investor and seeks to determine the present value of the
income the property will produce during its remaining useful life. See The Appraisal of Real Estate
413 (10th ed. 1992). The cost approach is pertinent for the utility and function of a building. Under
the cost approach, the value of the leasehold interest was rounded to $640,000; while the value of
the leasehold site was rounded to $900,000. (Attaway Appraisal, pg. 67, 66.)
Because the improvements and buildings have a value-in-use and the Yacht Club’s
membership can adequately support the current facilities and any future expansion, the cost approach
can be considered. It is not generally used for a leasehold interest, however, because the lessee has
no ownership rights once the term of the lease ends.(Attaway appraisal, page 76.) It may, however,
be useful in valuing property that is not frequently exchanged on the market. The Appraisal of Real
Estate 90 (11th Edition, 1996).
CONCLUSIONS
Based upon the above findings of fact, I conclude as a matter of law the following:
1.S.C. Code Ann. §12-60-2540 (2002) authorizes the Division to hear this contested
case pursuant to Chapter 23 of Title 1 of the 1976 Code of Laws, as amended. The taxable status of
real property for a given year is to be determined as of December 31 of the preceding tax year. S.C.
Code Ann. §12-37-900 (2002); Atkinson Dredging Company v. Thomas, 266 S.C. 361, 223 S.E.2d
592 (1976).
2.“A taxpayer contesting an assessment has the burden of showing that the valuation
of the taxing authority is incorrect.” Cloyd v. Mabry, 295 S.C. 86, 367 S.E.2d 171 (Ct. App. 1988).
In S.C. Code Ann. §12-37-930 (2002), the legislature set forth how real property must be valued:
All property must be valued for taxation at its true value in money which in all cases
is the price which the property would bring following reasonable exposure to the
market, where both the seller and the buyer are willing, are not acting under
compulsion, and are reasonably well informed of the uses and purposes for which it
is adapted and for which it is capable of being used.
Therefore, the measure of value for taxation purposes is fair market value. Lindsey v. S.C. Tax
Comm'n, 302 S.C. 504, 397 S.E.2d 95 (1990). While not conclusive, comparisons of the sales price
of other properties of the same character, location, and physical characteristics may be utilized to
determine this fair market price. See Appraisal Institute, The Appraisal of Real Estate 367 (10th ed
1992)
; Cloyd v. Mabry, 295 S.C. 86, 367 S.E. 2d 171 (Ct. App. 1988); See 84 C.J.S. Taxation § 411
(1954). Furthermore, in estimating the value of property, all of the factors which affect market value
or would influence the mind of a purchaser should be considered, such as location, quality, condition
and use. See 84 C.J.S. Taxation § 410 at 784; § 411 at 794 (1954).
The cardinal rule of statutory construction is that the legislative intent must be ascertained
and prevail. Gardner v. Biggart, 308 S.C. 331, 417 S.E.2d 858 (1992). Furthermore, an act is to be
read as a whole and not section by section. “A statute is passed as a whole and not in parts or
sections and is animated by one general purpose and intent. Consequently, each part or section
should be construed in connection with every other part or section so as to produce a harmonious
whole.” Statutes and Statutory Construction, 6th Edition, (2000), § 46.05, p. 154. See Koenig. v.
South Carolina Dept. of Pub. Safety, 325 S.C. 400, 480 S.E.2d 98 (Ct. App. 1996). Finally, it is
well established that the construction given a statute should be rational and reasonable and not lead
to an absurd result. Bolton v. Doe, 266 S.C. 344, 223 S.E.2d 187 (1976).
3.While it is impossible to predict with certainty what a particular property will sell for,
utilizing comparable sales is a good indicator of what a potential purchaser will likely pay, and it
provides probative evidence of the market value of the subject property, if the comparables are
similar in character, location and physical characteristics. See 84 C.J.S. Taxation § 411 (1954). The
income capitalization approach is also an accepted means for valuing commercial property. S. C.
Tax Comm’n v. South Carolina Tax Bd. of Review, 287 S.C. 414, 339 S.E.2d 131 (Ct. App. 1985).
“In the income capitalization, the present value of the future benefits of property ownership is
measured.” See The Appraisal of Real Estate 81 (10th ed. 1992). Furthermore, because expenses
vary from year to year, “in projecting the probable future expenses, it is necessary to analyze more
than one year’s experience and to confirm the indicated conclusions by comparison with known
figures for similar properties.” Id. at 345-346. Upon ascertaining the net income a property will
produce during its remaining useful life, an appraiser can project the price an informed buyer would
pay for the property. Id at 81.
Although the cost approach is favored by the county assessor, I find that the assessor failed
to meet its burden of proof. Even though the parties stipulated to the facts and to the validity of the
Attaway appraisal, and agreed to proceed with the hearing more as an appellate argument than an
evidentiary hearing, the record submitted by the county failed to address sufficiently the preferability
of the cost approach. There were no separate comparable properties submitted, other than those
included in the appraisal. In addition, the County failed to provide any precedent for proceeding as
it requested. The Respondent and the Board of Assessment Appeals agree that the appropriate
appraisal technique for arriving at the fair market value of the subject property is the income
approach. Therefore, I find that the income capitalization approach is the best method for
determining the market value of The Yacht Club.
ORDER
Based upon the above Findings of Fact and Conclusions of Law, It is hereby:
ORDERED that the Assessor value the Petitioner’s property based upon the income
capitalization approach for tax year 2001 at $553,200.
AND IT IS SO ORDERED.
___________________________________
CAROLYN C. MATTHEWS
Administrative Law Judge
September 15, 2004
Columbia, South Carolina |
