ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter comes before me pursuant to S.C. Code Ann. § 12-60-2540 (Supp. 1998) upon Petitioner's request for a
contested case hearing. Respondent ("Taxpayer") contests the valuation of his property for the 1998 tax year by Petitioner
Berkeley County Assessor ("Assessor"). The parties exhausted all prehearing remedies with the Assessor and the Berkeley
County Appeal Board ("Board").
After notice to the parties, a hearing was conducted on December 1, 1998. Based upon the evidence presented, I find and
conclude that the true value of the subject property for the 1998 tax year is $305,000. Any motions or issues raised in the
proceedings, but not addressed in this Order are deemed denied pursuant to ALJD Rule 29(C).
FINDINGS OF FACT
I make the following Findings of Fact, taking into consideration the burden on the parties to establish their respective cases
by a preponderance of the evidence, and taking into account the credibility of the witnesses:
1. The Taxpayer is an owner of a 10.28 acre tract located at 916 Red Bank Road, Goose Creek, South Carolina.
2. The subject property is identified as Tax Map # 252-06-00-001.
3. Other owners of the subject property are Mary Ann Calhoun and John and Sandra Cantrell.
4. Each owner has an equal undivided fee simple interest in the subject property.
5. Improvements to the subject property consist of the following: (1) a 3,375 square foot commercial building used as a
furniture store; (2) a 2,247 square foot residential rental unit; (3) a 475 square foot residential rental unit; (4) five storage
buildings; and (5) twenty-one camper spaces for recreational vehicles.
6. There is an agreement between the Cantrells and the Calhouns regarding the use or lease of the commercial building.
Monthly income of $200 is generated from that agreement.
7. The Assessor originally valued the subject property at $307,700 using the cost method of valuation.
8. On January 2, 1998, Taxpayer protested the Assessor's valuation and submitted to the Assessor a written appraisal of the
subject property which was performed by Mr. Fred J. Attaway, Jr., an MAI appraiser.(1)
9. The Taxpayer's appraisal estimated the value of the subject property to be $150,000 using the income approach to
valuation.
10. On April 28, 1998, the Assessor reduced his valuation to $305,000 using the income approach to valuation.
11. On April 28, 1998, the Assessor offered to record the subject property's value at $275,000 for taxation purposes. The
Taxpayer rejected the Assessor's proposal and requested a hearing before the Berkeley County Appeal Board.
12. At the hearing before the Board, the parties came to an agreement on the following:
1. The most meaningful method of valuation for the subject property is the income approach.
2. Additional value should be attributed to the excess land on the subject property.
3. Annual expenses of $28,749 presented by the owner are reasonable.
4. The capitalization rate of 16.30% is acceptable for use in valuing the subject property.
5. Annual rental income attributable to the twenty-one camper spaces is $63,000.
6. Annual rental income attributable to the 2,247 square foot residential unit is $7,200.
7. Annual rental income attributable to the 475 square foot residential unit is $3,480.
8. Estimated vacancy losses for the improvements to the subject property total $28,630.
13. These stipulations before the Board are adopted by this tribunal as uncontested findings.
14. The remaining issues for the Board to determine were the amount of income attributable to the 3,375 square foot
commercial building, and the value of the six acres of excess land. These are also the only issues contested before the
Administrative Law Judge Division.
15. The Assessor's valuation attributed $7.00 per square foot to the commercial building, while the Taxpayer estimated the
building's income value to be $.71 per square foot.
16. The Board attributed $3.75 per square foot to the building, which is approximately one-half of the difference between
the two values asserted by the parties. The Assessor appealed the Board's decision on this finding.
17. The Board agreed with the Assessor's valuation of the excess land at $60,000. 18. After the Board determined the total
value of the subject property to be $250,000, the Assessor requested a contested case hearing before this tribunal, based
upon the $3.75 per square foot income value attributed to the commercial building.
19. The Taxpayer objected to both values and sought reliance on the appraisal performed by Mr. Attaway.
20. The Assessor attributed an annual rental income of $7.00 per square foot to the commercial building by examining the
rental rates for other retail establishments within approximately one mile of the subject property. These rates ranged from
$6.56 per square foot to $9.77 per square foot.
21. The properties most similar to the subject property rented for $6.56 per square foot and $7.20 per square foot,
respectively.
22. The Taxpayer's appraisal did not examine comparable properties to determine the commercial building's income value.
23. The Taxpayer's appraisal used the contract rent ($200 monthly) on the commercial building to estimate its income
value.
24. The Assessor agreed with the majority of the Taxpayer's appraisal, except (1) the use of the contract rent on the
commercial building to estimate its income value; and (2) the value of the excess land.
25. The Taxpayer's appraisal assigned a value of $30,000 to excess land. This value was based on speculation that the
excess land will not be useable at its highest and best use for another ten years. No market study or feasibility study was
performed to support this assumption.
26. Annual rental income attributable to the commercial building is $23,625 ($7.00 per square foot).
27. The Assessor's valuation of the 6 acres of excess land at $60,000 is reasonable.
28. The Assessor's determination of income value of the commercial building is supported by market data in the record.
DISCUSSION
S.C. Code Ann. § 12-37-930 (Supp. 1998) provides:
All real property shall be valued for taxation at its true value in money which in all cases shall be held to be the price which
the property would bring following reasonable exposure to the market, where both the seller and buyer are willing, are not
acting under compulsion, and are reasonably well informed as to the uses and purposes of which it is adapted and for which
it is capable of being used.
The fair market value is the measure of true value for taxation purposes. Lindsey v. S.C. Tax Comm'n, 302 S.C. 504, 397
S.E.2d 95 (1990).
The income capitalization approach is an accepted means for determining the fair market value of commercial property.
S.C. Tax Comm'n v. S.C. Tax Bd. of Review, 287 S.C. 414, 339 S.E.2d 131 (Ct. App. 1985). "From an investor's
perspective, the earning power of a real estate investment is the critical element affecting its value." Appraisal Institute,
The Appraisal of Real Estate at 424 (10th Ed. 1992). Under the income approach to valuation, the appraiser should
investigate comparable rentals of competitive income-producing properties in the same market to derive income data.
Appraisal Institute, The Appraisal of Real Estate at 157 (10th Ed. 1992).
South Carolina courts, as well as other jurisdictions, have relied on the Appraisal Institute's standards for valuation as
published and updated in several editions of The Appraisal of Real Estate. See, e.g., South Carolina Tax Commission v.
South Carolina Tax Board of Review, 287 S.C. 415, 339 S.E.2d 131 (Ct. App. 1985); Badische Corporation (BASF) v.
Town of Kearny, 288 N.J.Super. 171, 672 A.2d 186, 189 (1996). In this case, the Assessor's determination of income
attributable to the commercial building was properly done in accordance with the standards of the Appraisal Institute set
forth in The Appraisal of Real Estate.
In contrast, the Taxpayer's appraisal, performed by Mr. Attaway, determined that the amount of contributory value from the
improvement did not justify the expense required to examine comparable properties. (Respondent's Exhibit 1, page 38).
The appraisal also stated that the property "owners agreed that considering contract rent on each property type as market
rent would probably be close to the true economic rent and should be acceptable for their purposes."(2) (Respondent's
Exhibit 1, page 38). Because the lessee of the commercial building is one of the owners of the subject property, the
contract rent in this case ($200 per month) is not an accurate indicator of market rent. See Appraisal Institute, The
Appraisal of Real Estate at 436 (10th Ed. 1992) (leases that do not represent a freely negotiated, arm's length transaction
do not provide reliable indications of the rental terms typical in the market).
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). The Taxpayer did not present any evidence to support the
assertion that the contract rent is an accurate indicator of market rent in this case. Further, the Taxpayer failed to produce
any evidence to support the Board's determination of $3.75 per square foot as the building's income value. Likewise, the
Taxpayer did not present any credible evidence to refute the Assessor's determination of value for the six acres of excess
land on the subject property. While the Taxpayer's appraisal assigned a value of $30,000 to excess land, this value was
based on pure speculation that the excess land will not be useable at its highest and best use for another ten years. No
market study or feasibility study was performed to support this assumption. (See Respondent's Exhibit 1, pp. 43-45).
Based on the foregoing, I find and conclude that the Taxpayer failed to carry his burden of showing that the Assessor's
valuation is incorrect. I further find and conclude that the Assessor established that the Board erred in attributing an
income value of $3.75 per square foot to the commercial building.
CONCLUSIONS OF LAW
Based on the foregoing Findings of Fact, I conclude, as a matter of law:
1. The Administrative Law Judge Division has jurisdiction of this matter pursuant to S.C. Code Ann. § 12-60-2540(A)
(Supp. 1998).
2. "Generally, the proper valuation of realty for taxation is a question of fact, to be ascertained in each individual case in the
manner prescribed by statute." 84 C.J.S. Taxation § 411 at 793 (1954).
3. S.C. Code Ann. § 12-37-930 (Supp. 1998) provides:
All real property shall be valued for taxation at its true value in money which in all cases shall be held to be the price which
the property would bring following reasonable exposure to the market, where both the seller and buyer are willing, are not
acting under compulsion, and are reasonably well informed as to the uses and purposes of which it is adapted and for which
it is capable of being used.
4. The fair market value is the measure of true value for taxation purposes. Lindsey vs. S.C. Tax Comm'n, 302 S.C. 504,
397 S.E.2d 95 (1990).
5. The "willing buyer/willing seller" standard in section 12-37-930 is hypothetical in nature and may be assumed when no
actual market exists for a particular parcel of land. Long Cove Home Owners' Assoc., Inc. v. Beaufort Co. Tax
Equalization Bd., 327 S.C. 135, 488 S.E.2d 857, 861 (1997). Other methods, such as cost or income, may be used to
measure market value when no willing buyer exists. Id.
6. In valuing property, an assessor should take into consideration all relevant factors and circumstances bearing on this
determination which are within his knowledge or brought to his attention. 84 C.J.S. Taxation § 410 at 784-785 (1954).
7. The assessor "should take into consideration all of [the land's] elements or incidents, such as location, . . . quality, [and]
condition . . . which affect market value or would influence the mind of a purchaser." 84 C.J.S. Taxation, § 411 at 794-795
(1954).
8. "Each case of valuation must be determined according to the conditions existing at the time, and the property to be
assessed is to be taken and valued in the actual condition in which the owner holds it. . . ." 84 C.J.S. Taxation § 410 at
784-785 (1954).
9. 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).
10. Where the expert's testimony is based upon facts sufficient to form the basis for an opinion, the trier of fact determines
its probative weight. Berkley Elec. Coop. v. S.C. Public Serv. Comm'n, 304 S.C. 15, 402 S.E.2d 674 (1991); Smoak v.
Liebherr-Am., Inc., 281 S.C. 420, 422, 315 S.E.2d 116, 118 (1984). A trier of fact is not compelled to accept an expert's
testimony, but may give it the weight and credibility she determines it deserves. Florence County Dep't of Social Serv. v.
Ward, 310 S.C. 69, 425 S.E.2d 61 (1992); Greyhound Lines v. S.C. Public Serv. Comm'n, 274 S.C. 161, 262 S.E.2d 18
(1980).
11. South Carolina courts, as well as other jurisdictions, have relied on the Appraisal Institute's standards for valuation as
published and updated in several editions of The Appraisal of Real Estate. See, e.g., South Carolina Tax Commission v.
South Carolina Tax Board of Review, 287 S.C. 415, 339 S.E.2d 131 (Ct. App. 1985); Badische Corporation (BASF) v.
Town of Kearny, 288 N.J.Super. 171, 672 A.2d 186, 189 (1996).
12. Under the income capitalization approach to valuation, direct capitalization is an acceptable technique. Appraisal
Institute, The Appraisal of Real Estate at 419 (10th Ed. 1992). Direct capitalization involves dividing net operating income
by an overall capitalization rate. Appraisal Institute, The Appraisal of Real Estate at 467 (10th Ed. 1992).
13. The capitalization rate represents the desired yield a purchaser would seek on the capital investment. See South
Carolina Tax Commission v. South Carolina Tax Board of Review, 287 S.C. 415, 339 S.E.2d 131 (Ct. App. 1985). The
rate is extracted from market data and is used in the income approach to property value to calculate the present value of
anticipated future income. Appraisal Institute, The Appraisal of Real Estate at 158, 409 (10th Ed. 1992).
14. Net operating income is the actual or anticipated net income remaining after all operating expenses are deducted from
effective gross income. Appraisal Institute, The Appraisal of Real Estate at 413 (10th Ed. 1992). Effective gross income is
the anticipated income from all operations of the real property adjusted for vacancy and collection losses. Id.
15. To derive pertinent income data for the valuation of investment properties, the appraiser should investigate comparable
rentals of competitive income-producing properties in the same market. The Appraisal of Real Estate at 157.
16. Based on rental data from comparable properties, $7.00 per square foot ($23,625) is a reasonable estimate of annual
income attributable to the commercial building on the subject property.
17. Because the lessee of the commercial building is one of the owners of the subject property, the contract rent is not an
accurate indicator of market rent. See Appraisal Institute, The Appraisal of Real Estate at 436 (10th Ed. 1992).
18. The annual income attributable to all improvements on the subject property totals $97,305. Deducting $28,630 for
estimated vacancies yields an effective gross income of $68,675 for all improvements to the subject property.
19. Deducting total expenses of $28,749 from the effective gross income yields a net operating income of $39,926.
Applying a 16.3% capitalization rate (agreed to by the parties) to this amount results in a market value of $244,945 for the
subject property.
20. The value of excess land should be added to the value of the improvements to arrive at the total fair market value of the
subject property. See Appraisal of Real Estate at 212 (if excess land is marketable or has value for a future use, its market
value as vacant land is added to the estimated value of the economic entity).
21. The Assessor's valuation of the 6 acres of excess land at $60,000 is reasonable.
22. Adding the value of the excess land to the value of the improvements results in a total fair market value of $304,945,
rounded to $305,000, for the subject property under the income approach.
23. The Assessor's application of the income approach was properly done in accordance with the standards of the Appraisal
Institute set forth in The Appraisal of Real Estate.
24. The Taxpayer failed to carry his burden of showing that the Assessor's valuation is incorrect.
25. The true value of the subject property is $305,000, including excess land.
ORDER
Based upon the foregoing Findings of Fact and Conclusions of Law,
IT IS HEREBY ORDERED that the Assessor shall value the Taxpayer's property, identified as 916 Red Bank Road, Tax
Map # 252-06-00-001, at $305,000 for the 1998 tax year.
AND IT IS SO ORDERED.
______________________________________
ALISON RENEE LEE
Administrative Law Judge
February 5, 1999
Columbia, South Carolina.
1. The Taxpayer did not present Mr. Attaway as a witness at the hearing. The Assessor, however, did not raise any
objection to the appraisal's introduction into evidence, but merely disagreed with some of its findings. Therefore, this
tribunal may consider it as evidence. See Toyota of Florence, Inc. v. Lynch, 314 S.C. 257, 442 S.E.2d 611 (1994)
("Evidence received without objection is competent."); Cantrell v. Carruth, 250 S.C. 415, 158 S.E.2d 208 (1967)
(testimony received without objection becomes competent and "its sufficiency must be left to the [finder of fact]."); Rouss
v. King, 74 S.C. 251, 54 S.E. 615 (1906) (testimony based on hearsay will not be excluded from evidence to be weighed
where no objection is raised as to its admission).
2. The appraisal was performed for the expressed purpose of the owners' "asset management and a possible distribution of
assets among the partnership owners." (Respondent's Exhibit 1, page 8). |
