South Carolina              
Administrative Law Court
Edgar A. Brown building 1205 Pendleton St., Suite 224 Columbia, SC 29201 Voice: (803) 734-0550

SC Administrative Law Court Decisions

CAPTION:
Old Citadel Associates, LLC vs. Charleston County Assessor

AGENCY:
Charleston County Assessor

PARTIES:
Petitioner:
Old Citadel Associates, LLC

Respondent:
Charleston County Assessor
 
DOCKET NUMBER:
03-ALJ-17-0149-CC

APPEARANCES:
For the Petitioners: Cynthia S. Morton, Esq. and Morris A. Ellison, Esq.

For the Respondent: Joseph Dawson, III, Esq. and Bernard E. Ferrara, Jr., Esq
 

ORDERS:

In response, the Assessor asserted that it used the same method to value the Properties as it used in valuing all other hotel properties and, that all were valued fairly. The income approach was initially applied in the CAMA model to all hotel properties, and it was applied with fair and consistent modifications by the Assessor in the review process on appeal.Contrary to Taxpayers’ argument, their Properties were appraised at market value and were equitably appraised. The Assessor performed an equity analysis to ensure that the Properties were not over-appraised when compared to other similar properties in the competing area. The Assessor considered other limited service hotels and in comparing similar properties, it looked at the gross room multiplier and revenue per available room as the units of comparison. However, the Assessor did not use gross room revenues or gross room multipliers to value any limited service or full service hotels in Charleston County, although, “occasionally appraisers may apply a gross room multiplier or rooms revenue multiplier in the sales comparison approach.” Stephen Rushmore, Hotels and Motels, Valuations and Market Studies, p. 317.

The Assessor did use the 1999 actual gross room revenues which were provided to the BLUF to determine if the CAMA room revenue figures it used were accurate and to analyze the equitable treatment of the Properties compared to other properties in the area. The1999 room revenue used for the Hampton Inn was $5,196,344, or 98.7 % of the 1999 room revenue it reported to the BLUF. The room revenue used to value the Embassy Suites was $5,570,764, or 98.8 % of the 1999 room revenue it reported to the BLUF. The room revenues used by the Assessor were less than the actual revenue received by both Properties. The 98.7% and 98.8% ratios of CAMA income to BLUF income are accurate and within the range of the ratios for other limited service hotels which vary from 93.8% to 1.04%.

The revenue per available room (“REVPAR”) compared to the values produced per room, as shown in the Assessor’s Equity Analysis, is:

REVPARValue/RoomTotal Value # RmsProperty Name

$16,315$ 47,159$ 8,300,000176Hampton Inn Ripley

$18,104$ 49,593$ 6,100,000123Springhill Suites

$17,885$ 52,546$ 6,253,000119Residence Inn

$18,776$ 58,594$ 7,500,000128Comfort Inn

$22,995$ 79,460$ 9,853,000124Days Inn Historic

$30,748$ 88,757$15,000,000169Hampton Inn

$31,799$107,967$19,650,000182Doubletree Suites

$36,410$109,150$16,700,000153Embassy Suites

$29,383$110,143$10,023,00091King Charles Inn

$37,962$125,925$ 6,800,00054Meeting Street Inn

For limited service hotels (those which obtain most of their income, i.e, 95% to 98%, from room revenues), the comparison of the revenue per room to the value per room is striking. The property that has the most similar REVPAR to the Embassy Suites is the Meeting Street Inn. Its REVPAR is 4.3% higher than the subject’s REVPAR, but its value is 15.37 % higher than the subject. The property that has a value per room that is most similar to the Embassy Suites is the Doubletree Suites. The REVPAR of the Doubletree is 12.6% below that of the Embassy Suites, but its value is only 1.08% below that of the subject. It would thus appear from these comparisons that the Embassy Suites is undervalued, not overvalued.

The property that has the most similar REVPAR to the Hampton Inn is the Doubletree Suites. The REVPAR of the Doubletree is 3.4% higher than the REVPAR of the Hampton Inn, but the value of the Doubletree is 21.6% higher than the Hampton Inn. Again, it would appear from these comparisons that the Hampton Inn is undervalued. However, it is noted that both the Doubletree Suites and the Meeting Street Inn are within the heart of the city of Charleston’s historic district, while the Properties are in a neighborhood on the outer edges of the historic district. Taxpayers’ witness testified that she believed the locations of the Properties were less desirable than properties which were closer to the heart of the historic district.

The room multipliers for the Hampton Inn and the Embassy Suites are at 2.89 and 3.00, respectively. The range of multipliers for the limited service hotels is from 2.74 to 3.75; the average multiplier is 3.06, and the median is 3.15. The subject properties fall well within the range of multipliers, which indicates that the value for the Properties is within the range for equity purposes.

The range of expenses as a percentage of the total revenue for the Hampton Inn and Embassy Suites is 68% and 69% respectively, while the range of expenses for the limited service hotels is from 61% to 69%, with only the expense ratios of the Properties as high as 68% to 69%. The average expense ratio is 65.3%; the median is 65.3; and the mode, or most frequently occurring instance, is 63%.

The capitalization rate range of the Properties is from 10.5% to 10.9%. They are within the range of capitalization rates of their comparables, which range from10.4% to 11%, with an average of 10.8%. Footnote The Assessor noted the expectations of the Properties and assigned different rates to each. No standard capitalization rate was used. Although the Properties are similar, they have different risks, just as do the Westin Francis Marion, the Holiday Inn and other similar hotels in the general vicinity. Accordingly, any argument by Taxpayers that there was some intentional failure by the Assessor to value all similar hotel properties equitably by applying a “standard” capitalization rate versus a “property specific” capitalization rate is lacking in proof and is not credible.

The Properties have higher room revenues than most of the other limited service hotels. The Embassy Suites has the highest room revenue of any of the limited service hotels. However, the Embassy Suites is not valued the highest on a per room basis. The Hampton Inn has the third highest room revenue of the limited service hotels and is valued considerably less than another property with a similar room rate. The room multiplier is in line with the other properties in the analysis. The expense rate is the highest given to any of the limited service hotels and the capitalization rate is similar to the other properties in the analysis.

In addition, Taxpayers argue that the method used by the Assessor to calculate the income of the Properties was highly problematic. They posit that the Assessor should only value the income attributable to the underlying real property and not assign any value to the income generated by the business value factor or “going concern” factor of either Property.

It is known that the valuation of a hotel may depend on many factors other that the underlying real property. The valuation of hotels generally differs from that of other types of income-producing real estate, such as an apartment complex, whose value generally depends primarily on the real estate. In hotel properties, there is usually a “going concern” factor which equates to a personal property interest. That portion of value allocated to the personal property value is not subject to ad valorem taxation. Here, Taxpayers argue that the Assessor improperly included in the assessment value for the Properties a monetary amount for their “business value.” However, Taxpayers did not provide any specific data or figures to this court to support their position. Accordingly, this court can ascribe no merit to this argument.

Taxpayers’ evidence does not support their contention that the Properties were not equitably appraised at fair market value. Taxpayers provided no empirical data to support their contentions that the “per key” value assigned by the Assessor to the other hotels should be assigned to the Properties. Taxpayers’ sole argument is that the per key value of the Properties is much higher than that of other comparable hotels and thus the Properties are not equitably valued. However, even though Taxpayers questioned the Assessor’s appraiser concerning the CAMA model and the various figures contained therein, they failed to establish that any other properties in the area were undervalued and accordingly, that the Properties might be overvalued. The Appraisal Report submitted by the Assessor is the most credible reflection of the value of the Properties. Taxpayers did not meet their burden of showing that the Properties were overvalued.

Also, the evidence does not reflect an intentional and systematic under-valuation of hotel properties in Charleston County. The values assigned by the Assessor to the Properties are well within the equitable values of property in their general area.

The Assessor’s valuation of the Hampton Inn at $15,000,000 is reasonable. The Assessor’s valuation of the Embassy Suites at $16,700,000 is reasonable. The Assessor’s determination of the value of the hotels based on the income approach and equitable value of the hotels is supported by market data in the record.

CONCLUSIONS OF LAW

Based upon the foregoing Findings of Fact, applicable law, and the evidence, this court concludes, as a matter of law, the following:

General

1.S.C. Code Ann. § 12-60-2540 (Supp. 2002) authorizes the Division to hear this contested case pursuant to Chapter 23 of Title I of the 1976 Code, as amended.

2.S.C. Code Ann. § 12-4-30(D) (Supp. 2002) provides that an Administrative Law Judge, after February 1, 1995, shall hear all contested cases as defined by S.C. Code Ann. §1-23-310 (Supp. 2002) previously heard by the Commission. The Administrative Law Judge Division assigns each case as filed to an Administrative Law Judge who hears the case in accordance with the rules of procedure of the Division. S.C. Code Ann. § 1-23-650 (1976)(as amended).

3.This contested case proceeding before an Administrative Law Judge is in the nature of a de novo hearing. Sea Pines Plantation Co., Inc. v. Beaufort County Assessor, 2002 WL 1486969, Docket No. 01-ALJ-17-0018-CC (June 20, 2002).

4.After conducting a hearing, the assigned Administrative Law Judge issues a final decision in a written order containing separate findings of fact and conclusions of law. S.C. Code Ann. § 1-23-350 (1976) and ALJD Rule 29(c).

5.The standard of proof in weighing the evidence and making a decision on the merits of a contested case hearing is by a preponderance of the evidence. Anonymous v. State Board of Medical Examiners, 329 S.C. 371, 796 S.E.2d 17 (1998); National Health Corp. v. South Carolina Department of Health and Environmental Control, 298 S.C. 373, 380 S.E.2d 841 (Ct. App. 1989).

6.An agency decision must be reached utilizing reasoned judgment and must be based upon

adequate determining principles and a rational basis. City of Columbia v. Board of Health and Environmental Control, 292 S.C. 199, 355 S.E.2d 536 (1987).

7.The trier of fact must weigh and pass upon the credibility of the evidence presented. S.C. Cable Television Association v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992). The trial judge who observes a witness is in the best position to judge the witness’ demeanor and veracity and evaluate his testimony. McAlister v. Patterson, 278 S.C. 481, 299 S.E.2d 322 (1982).

8.A court construing a statute must first seek to ascertain and effectuate legislative intent.

Koenig v. South Carolina Dep’t of Public Safety, 325 S.C. 400, 480 S.E.2d 98, 99 (Ct. App.1996). The cardinal rule of statutory construction is to give words used in a statute their plain and ordinary meaning without resort to subtle or forced construction. Id. The language must be read to harmonize its subject matter with its general purpose. Id. “In construing statutory language, the statute must be read as a whole, and sections which are part of the same general statutory law must be construed together and each one given effect, if it can be done by any reasonable construction.” Higgins v. State, 307 S.C. 446, 449, 415 S.E.2d 799, 801 (1992). However, our courts have also held that statutes, as a whole, must receive practical, reasonable, and fair interpretation, consonant with the purpose, design, and policy of lawmakers. TNS Mills, Inc., v. South Carolina Department of Revenue, 331 S.C. 611, 503 S.E.2d 471(1998); James A. Gildstrap, Jr. v. South Carolina Budget and Control Board, 310 S.C. 210, 423 S.E.2d 101 (1992).

Assessment of Real Property

9.Prior to its amendment in 2000 by the General Assembly, S.C. Code Ann. § 12-37-610 read:

“Every person is liable to pay taxes and assessments on the real estate which he owns or may have the care of as guardian, executor, trustee, or committee.” This statute was amended by 2000 Act 399, effective January 1, 2001, to read:

Each person is liable to pay taxes and assessments on the real property that, as of December thirty-first of the year preceding the tax year, he owns in fee, for life, or as trustee, as recorded in the public records for deeds of the county in which the property is located, or on the real property that, as of December thirty-first of the year preceding the tax year, he has care of as guardian, executor or committee or may have the care of as guardian, executor, trustee, or committee.

10.S.C. Code Ann. § 12-43-210 (A) requires all counties in South Carolina to assess properties “uniformly and equitably throughout the State.” It further directs the South Carolina Department of Revenue to promulgate regulations to ensure equalization which must be adhered to by all assessing officials in the State. S.C. Code Ann. § 12-43-210 (B) provides that no reassessment program may be implemented “unless all real property in the county...is reassessed in the same year.”

In addition to other powers and duties required by law, the department, in order to administer effectively the equitable assessment of property for taxation, “shall order reassessment of real and personal property....or when, in the judgment of the department, the reassessment is advisable or necessary to the end that all classes of property in the assessment district are assessed in compliance with the law.” S.C. Code Ann. § 12-4-510 (3).

11. Charleston County implemented a county-wide reassessment program for its real property

in the year 1993, using values as of December 31, 1992. Glover v. Charleston County Assessor, 1997 WL 816206, Docket No. 97-ALJ-17-0296-CC, at *1-2 (Dec. 19, 1997); Crocker v. Lindsey, 1995 WL 929863, Docket No. 95-ALJ-17-0367-CC, at *1,3 (Aug. 31, 1995).

12.In 1995, the South Carolina General Assembly enacted quadrennial reassessment, which required all counties to equalize and appraise properties under their jurisdiction. The statute did not state whether it was to be applied retroactively or prospectively. S.C. Code Ann. § 12-43-217 (A) (Supp. 2002). The amendment mandated that:

Property valuation must be completed at the end of December of the fourth year and the county or State shall notify each taxpayer of any change in value or classification if the change is one thousand dollars or more. In the fifth year, the county or State shall implement the program and assess all property on the newly appraised values.

As a practical matter, counties applied the 1995 statute retroactively as evidenced by the many reassessment programs held in successive years since its passage. If the counties had treated the statute as being operable prospectively, they would have all implemented a county-wide reassessment program throughout our State during the same year, some five years after its passage. That did not happen. It is obvious to this court that all the county officials, required by statute to conduct reassessment programs in their respective counties, felt that the South Carolina General Assembly, in drafting this amendment, intended that it would be applied retroactively. To interpret it otherwise would have created a nightmare for the South Carolina Department of Revenue since it is charged by statute to oversee each of the 46 counties as they prepare for and conduct their reassessments. Footnote

13.On February 3, 1997, the Director of the South Carolina Department of Revenue, pursuant to general authority contained in S.C. Code Ann. § 12-4-510 (3), issued an Order to Charleston County which postponed the implementation of the 1999 annual reassessment in Charleston County and directed the county to complete its county-wide reassessment program by December 31, 1999. Further, the Order directed the county to implement the program in tax year 2000 and directed the Assessor to mail assessment notices to all taxpayers by February 1, 2000.

14.The South Carolina General Assembly passed Act No. 93 in 1999, which became effective on July 1, 1999. This Act amended S.C. Code Ann. § 12-43-217 by adding paragraph (B). It authorized a county by ordinance to postpone for not more than one property tax year the implementation of revised values resulting from its equalization program (which § 12-43-217 required to be implemented every five years).

15.On December 14, 1999, pursuant to authority contained in Act 93, Charleston County adopted Ordinance No.1125 (“Ordinance”) which postponed the implementation of the revised assessed values resulting from the 1999 county-wide appraisal and equalization program from implementation in the tax year 2000 (as ordered by the Department) to tax year 2001.

Responsibility of the Assessor and Credibility of his Assessment16.S.C. Code Ann. § 12-37-90 (Supp. 2002) provides that each county shall have a full-time

assessor, whose responsibility is to appraise and list property. Further, the assessor shall:

a)maintain a continuous record of recorded deed sales transactions, building permits, tax maps and other records necessary for a continuing reassessment program;

b)diligently search for and discover all real property not previously returned by the owners or agents thereof or not listed for taxation by the county auditor and list such property for taxation in the name of the owner or person to whom it is taxable;

c)when values change, reappraise and reassess any or all real property so as to reflect its proper valuation in light of changed conditions, except for exempt property and real property required by law to be appraised and assessed by the commission, and furnish a list of these assessments to the county auditor;

d)determine assessments and reassessments of real property in such a manner that the ratio of assessed value to fair market value Footnote shall be uniform throughout the county.

17.An assessor’s valuation is presumed correct and made in conformity with the law. Joe W. Hiller, Architect, Inc. v. Colleton County Assessor, 1996 WL 909131, Docket No. 95-ALJ-17-231-CC (ALJ Feb. 16, 1996). The burden is on the property owner to disprove the Assessor's valuation. See Cloyd v. Mabry, 295 S.C. 86, 367 S.E.2d 171 (Ct. App. 1988). “A taxpayer contesting an assessment has the burden of showing that the valuation of the taxing authority is incorrect. [Citations omitted.] Ordinarily, this will be done by proving the actual value of the property.”Id. “The taxpayer may, however, show by other evidence that the assessing authority's valuation is incorrect. If he does so, the presumption of correctness is then removed and the taxpayer is entitled to appropriate relief.” Id.

18.[A] taxing statute must be construed most favorably to the taxpayer, and any doubt should be resolved against the taxing authority. Ryder Truck Lines, Inc. v. S.C. Tax Comm’n, 248 S.C. 148, 149 S.E.2d 435, 437 (1966); Richland County Assessor v. Walker, 1997 WL 725106, Docket No. 97-ALJ-17-0206-CC (Nov. 6, 1997).

Challenge to Assessment by a Taxpayer

19.S.C. Code Ann. §§ 12-43-300 and 12-60-2510 through 12-60-2530 (Supp. 2002) provide the procedure whereby a taxpayer, upon receipt of a notice from the Assessor of the valuation which places a valuation and assessment on his property, may file written notice of objection to the valuation and assessment within certain time frames. Failure to serve the written notice of objection within the statutory time limitations is a waiver of the owner’s right to appeal. If the objection is timely filed, the owner may have a conference with the assessor and, if still aggrieved, may appeal that decision to the county’s Board of Assessment Appeals. The correct procedure was followed in this case.

Burden of Taxpayer

Intentional and Systematic Undervaluation Claim

20.Complete equity and uniformity are not practically attainable when valuing property. Wasson v. Mayes, 252 S.C. 497, 167 S.E.2d 304 (1967). "Appraisal is, of course, not an exact science and the precise weight to be given to any factor is necessarily a matter of judgment, for the court, in the light of the circumstances reflected by the evidence in the individual case." Santee Oil Co. v. Cox, 265 S.C. 270, 217 S.E.2d 789 (1975). South Carolina courts, as well as other jurisdictions, have relied on the Appraisal Institute's standards for valuation as published and updated in the several editions of The Appraisal of Real Estate. See, e.g., South Carolina Tax Comm’n v. South Carolina Tax Bd. 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). Even if the Assessor had not substantially complied with The Appraisal of Real Estate, South Carolina law does not require complete accuracy in property tax assessment.

The standard for a claim based on the inequitable valuation of property is the intentional and

systematic undervaluation of certain properties while other properties in the same class are valued at fair market value. Joe W.Hiller, Architect, Inc. v. Colleton County Assessor, supra, citing Sunday Lake Sun Co. v. Wakefield Taxpayer, 247 U.S. 350 (1918). The burden of proving an intentional and systematic undervaluation rests with the complaining party. Sunday Lake Sun Co. v. Wakefield Taxpayer, supra.

The burden is not met by a mere showing that some properties are undervalued; there must be shown some intentional and systematic undervaluation of property in the county. Allegheny Pittsburgh Coal Co. v. County Commission, 488 U.S. 336 (1989). For instance, where it was shown to the court by the taxpayer that the county assessor deliberately established a county-wide procedure whereby all property values were based upon their most recent purchase price, the court held that such amounted to an intentional and systematic undervaluation of real property. Id.

In an effort to ensure that Taxpayers’ properties were equitably appraised, the Assessor performed an equity analysis to determine whether they were over-appraised when compared with similar limited service hotels in the competing area. This court agrees with the Assessor that Taxpayers’ properties were valued during the review and appeal process in the same manner other properties in the Charleston peninsular area were evaluated. Even without the benefit of income or expense data from the Taxpayers, the Assessor made adjustments to the value of Taxpayers’ properties which were consistent with the changes made to other properties on appeal in that area. South Carolina law is clear that equity is not a basis for reducing a property’s value when the property is otherwise valued at fair market value. Further, an owner of real property is not entitled to have the value of his property reduced solely on the grounds that properties of other taxpayers are undervalued. The mere fact that an inequity exists at one point in time, is not the determinative factor. Rather, the effort to provide uniformity over a period of time is all that can be required. Thus, even if the taxpayer could show inequities, the inequities are not dispositive of the issue. Rather, the inequities must be intentional and must be ones that will not be cured within a reasonable period. The arguments by the Taxpayers herein are unsubstantiated and cannot provide a basis for a finding of inequity.Even where it is shown that a property is correctly valued but other properties in the area are valued too low, the owner is not entitled to a reduced value solely on that ground. It is necessary that the taxpayer show an intentional violation of the essential principle of practical uniformity. C.J.S. Taxation, § 557; S.C. Tax Commission Decision No. 92-89 (finding concerning valuation of property owned by a medical society). No such violation has been shown here.

Taxpayers have not met their burden. They failed to provide any empirical data showing that

their properties were inequitably valued as compared to other limited service hotels in the general area as a result of any intentional or systematic act by the Assessor. They have merely suggested that since the “per key” room assignment of revenue was greater for the Properties than that assigned to some other hotel properties, the assessed values of their properties were too high and should be reduced. Taxpayers’ arguments are many and inconsistent. The testimony and the evidence clearly indicate to this court that the valuations made by the Assessor, as affirmed by the Board, are fair and reasonable and must be affirmed as the valuations of Taxpayer’s properties for purposes of ad valorem taxation for the tax year 2001.

ORDER

Based on the above Findings of Fact, Discussion and Conclusions of Law, it is hereby:

ORDERED that the fair market value of the Hampton Inn for tax year 2001 is $15,000,000 and the fair market value for the Embassy Suites for tax year 2001 is $16,700,000.

AND IT IS SO ORDERED.

___________________________________

Marvin F. Kittrell

Chief Administrative Law Judge

March 29, 2004

Columbia, South Carolina

              In response, the Assessor asserted that it used the same method to value the Properties as it used in valuing all other hotel properties and, that all were valued fairly. The income approach was initially applied in the CAMA model to all hotel properties, and it was applied with fair and consistent modifications by the Assessor in the review process on appeal. Contrary to Taxpayers’ argument, their Properties were appraised at market value and were equitably appraised. The Assessor performed an equity analysis to ensure that the Properties were not over-appraised when compared to other similar properties in the competing area. The Assessor considered other limited service hotels and in comparing similar properties, it looked at the gross room multiplier and revenue per available room as the units of comparison. However, the Assessor did not use gross room revenues or gross room multipliers to value any limited service or full service hotels in Charleston County, although, “occasionally appraisers may apply a gross room multiplier or rooms revenue multiplier in the sales comparison approach.” Stephen Rushmore, Hotels and Motels, Valuations and Market Studies, p. 317.

            The Assessor did use the 1999 actual gross room revenues which were provided to the BLUF to determine if the CAMA room revenue figures it used were accurate and to analyze the equitable treatment of the Properties compared to other properties in the area. The1999 room revenue used for the Hampton Inn was $5,196,344, or 98.7 % of the 1999 room revenue it reported to the BLUF. The room revenue used to value the Embassy Suites was $5,570,764, or 98.8 % of the 1999 room revenue it reported to the BLUF. The room revenues used by the Assessor were less than the actual revenue received by both Properties. The 98.7% and 98.8% ratios of CAMA income to BLUF income are accurate and within the range of the ratios for other limited service hotels which vary from 93.8% to 1.04%.

            The revenue per available room (“REVPAR”) compared to the values produced per room, as shown in the Assessor’s Equity Analysis, is:

REVPARValue/RoomTotal Value # RmsProperty Name

$16,315$ 47,159$ 8,300,000176Hampton Inn Ripley

$18,104$ 49,593$ 6,100,000123Springhill Suites

$17,885$ 52,546$ 6,253,000119Residence Inn

$18,776$ 58,594$ 7,500,000128Comfort Inn

$22,995$ 79,460$ 9,853,000124Days Inn Historic

$30,748$ 88,757$15,000,000169Hampton Inn

            $31,799     $107,967                     $19,650,000                182                  Doubletree Suites

            $36,410     $109,150                     $16,700,000                153                  Embassy Suites

            $29,383     $110,143                     $10,023,000                91                    King Charles Inn

            $37,962      $125,925                     $ 6,800,000                54                    Meeting Street Inn            

For limited service hotels (those which obtain most of their income, i.e, 95% to 98%, from room revenues), the comparison of the revenue per room to the value per room is striking. The property that has the most similar REVPAR to the Embassy Suites is the Meeting Street Inn. Its REVPAR is 4.3% higher than the subject’s REVPAR, but its value is 15.37 % higher than the subject. The property that has a value per room that is most similar to the Embassy Suites is the Doubletree Suites. The REVPAR of the Doubletree is 12.6% below that of the Embassy Suites, but its value is only 1.08% below that of the subject. It would thus appear from these comparisons that the Embassy Suites is undervalued, not overvalued.

            The property that has the most similar REVPAR to the Hampton Inn is the Doubletree Suites. The REVPAR of the Doubletree is 3.4% higher than the REVPAR of the Hampton Inn, but the value of the Doubletree is 21.6% higher than the Hampton Inn. Again, it would appear from these comparisons that the Hampton Inn is undervalued. However, it is noted that both the Doubletree Suites and the Meeting Street Inn are within the heart of the city of Charleston’s historic district, while the Properties are in a neighborhood on the outer edges of the historic district. Taxpayers’ witness testified that she believed the locations of the Properties were less desirable than properties which were closer to the heart of the historic district.

            The room multipliers for the Hampton Inn and the Embassy Suites are at 2.89 and 3.00, respectively. The range of multipliers for the limited service hotels is from 2.74 to 3.75; the average multiplier is 3.06, and the median is 3.15. The subject properties fall well within the range of multipliers, which indicates that the value for the Properties is within the range for equity purposes.

            The range of expenses as a percentage of the total revenue for the Hampton Inn and Embassy Suites is 68% and 69% respectively, while the range of expenses for the limited service hotels is from 61% to 69%, with only the expense ratios of the Properties as high as 68% to 69%. The average expense ratio is 65.3%; the median is 65.3; and the mode, or most frequently occurring instance, is 63%.

            The capitalization rate range of the Properties is from 10.5% to 10.9%. They are within the range of capitalization rates of their comparables, which range from10.4% to 11%, with an average of 10.8%. Footnote The Assessor noted the expectations of the Properties and assigned different rates to each. No standard capitalization rate was used. Although the Properties are similar, they have different risks, just as do the Westin Francis Marion, the Holiday Inn and other similar hotels in the general vicinity. Accordingly, any argument by Taxpayers that there was some intentional failure by the Assessor to value all similar hotel properties equitably by applying a “standard” capitalization rate versus a “property specific” capitalization rate is lacking in proof and is not credible.

            The Properties have higher room revenues than most of the other limited service hotels. The Embassy Suites has the highest room revenue of any of the limited service hotels. However, the Embassy Suites is not valued the highest on a per room basis. The Hampton Inn has the third highest room revenue of the limited service hotels and is valued considerably less than another property with a similar room rate. The room multiplier is in line with the other properties in the analysis. The expense rate is the highest given to any of the limited service hotels and the capitalization rate is similar to the other properties in the analysis.

            In addition, Taxpayers argue that the method used by the Assessor to calculate the income of the Properties was highly problematic. They posit that the Assessor should only value the income attributable to the underlying real property and not assign any value to the income generated by the business value factor or “going concern” factor of either Property.

            It is known that the valuation of a hotel may depend on many factors other that the underlying real property. The valuation of hotels generally differs from that of other types of income-producing real estate, such as an apartment complex, whose value generally depends primarily on the real estate. In hotel properties, there is usually a “going concern” factor which equates to a personal property interest. That portion of value allocated to the personal property value is not subject to ad valorem taxation. Here, Taxpayers argue that the Assessor improperly included in the assessment value for the Properties a monetary amount for their “business value.” However, Taxpayers did not provide any specific data or figures to this court to support their position. Accordingly, this court can ascribe no merit to this argument.

            Taxpayers’ evidence does not support their contention that the Properties were not equitably appraised at fair market value. Taxpayers provided no empirical data to support their contentions that the “per key” value assigned by the Assessor to the other hotels should be assigned to the Properties. Taxpayers’ sole argument is that the per key value of the Properties is much higher than that of other comparable hotels and thus the Properties are not equitably valued. However, even though Taxpayers questioned the Assessor’s appraiser concerning the CAMA model and the various figures contained therein, they failed to establish that any other properties in the area were undervalued and accordingly, that the Properties might be overvalued. The Appraisal Report submitted by the Assessor is the most credible reflection of the value of the Properties. Taxpayers did not meet their burden of showing that the Properties were overvalued.

            Also, the evidence does not reflect an intentional and systematic under-valuation of hotel properties in Charleston County. The values assigned by the Assessor to the Properties are well within the equitable values of property in their general area.

            The Assessor’s valuation of the Hampton Inn at $15,000,000 is reasonable. The Assessor’s valuation of the Embassy Suites at $16,700,000 is reasonable. The Assessor’s determination of the value of the hotels based on the income approach and equitable value of the hotels is supported by market data in the record.

 

CONCLUSIONS OF LAW

         Based upon the foregoing Findings of Fact, applicable law, and the evidence, this court concludes, as a matter of law, the following:

General

1.         S.C. Code Ann. § 12-60-2540 (Supp. 2002) authorizes the Division to hear this contested case pursuant to Chapter 23 of Title I of the 1976 Code, as amended.

2.         S.C. Code Ann. § 12-4-30(D) (Supp. 2002) provides that an Administrative Law Judge, after February 1, 1995, shall hear all contested cases as defined by S.C. Code Ann. §1-23-310 (Supp. 2002) previously heard by the Commission. The Administrative Law Judge Division assigns each case as filed to an Administrative Law Judge who hears the case in accordance with the rules of procedure of the Division. S.C. Code Ann. § 1-23-650 (1976)(as amended).

3.         This contested case proceeding before an Administrative Law Judge is in the nature of a de novo hearing. Sea Pines Plantation Co., Inc. v. Beaufort County Assessor, 2002 WL 1486969, Docket No. 01-ALJ-17-0018-CC (June 20, 2002).

4.         After conducting a hearing, the assigned Administrative Law Judge issues a final decision in a written order containing separate findings of fact and conclusions of law. S.C. Code Ann. § 1-23-350 (1976) and ALJD Rule 29(c).

5.         The standard of proof in weighing the evidence and making a decision on the merits of a contested case hearing is by a preponderance of the evidence. Anonymous v. State Board of Medical Examiners, 329 S.C. 371, 796 S.E.2d 17 (1998); National Health Corp. v. South Carolina Department of Health and Environmental Control, 298 S.C. 373, 380 S.E.2d 841 (Ct. App. 1989).

6.         An agency decision must be reached utilizing reasoned judgment and must be based upon

adequate determining principles and a rational basis. City of Columbia v. Board of Health and Environmental Control, 292 S.C. 199, 355 S.E.2d 536 (1987).

7.         The trier of fact must weigh and pass upon the credibility of the evidence presented. S.C. Cable Television Association v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586 (1992). The trial judge who observes a witness is in the best position to judge the witness’ demeanor and veracity and evaluate his testimony. McAlister v. Patterson, 278 S.C. 481, 299 S.E.2d 322 (1982).

8.         A court construing a statute must first seek to ascertain and effectuate legislative intent.

Koenig v. South Carolina Dep’t of Public Safety, 325 S.C. 400, 480 S.E.2d 98, 99 (Ct. App.1996). The cardinal rule of statutory construction is to give words used in a statute their plain and ordinary meaning without resort to subtle or forced construction. Id. The language must be read to harmonize its subject matter with its general purpose. Id. “In construing statutory language, the statute must be read as a whole, and sections which are part of the same general statutory law must be construed together and each one given effect, if it can be done by any reasonable construction.” Higgins v. State, 307 S.C. 446, 449, 415 S.E.2d 799, 801 (1992). However, our courts have also held that statutes, as a whole, must receive practical, reasonable, and fair interpretation, consonant with the purpose, design, and policy of lawmakers. TNS Mills, Inc., v. South Carolina Department of Revenue, 331 S.C. 611, 503 S.E.2d 471(1998); James A. Gildstrap, Jr. v. South Carolina Budget and Control Board, 310 S.C. 210, 423 S.E.2d 101 (1992).

Assessment of Real Property

9.         Prior to its amendment in 2000 by the General Assembly, S.C. Code Ann. § 12-37-610 read:

“Every person is liable to pay taxes and assessments on the real estate which he owns or may have the care of as guardian, executor, trustee, or committee.” This statute was amended by 2000 Act 399, effective January 1, 2001, to read:

Each person is liable to pay taxes and assessments on the real property that, as of December thirty-first of the year preceding the tax year, he owns in fee, for life, or as trustee, as recorded in the public records for deeds of the county in which the property is located, or on the real property that, as of December thirty-first of the year preceding the tax year, he has care of as guardian, executor or committee or may have the care of as guardian, executor, trustee, or committee.

   

10.       S.C. Code Ann. § 12-43-210 (A) requires all counties in South Carolina to assess properties “uniformly and equitably throughout the State.” It further directs the South Carolina Department of Revenue to promulgate regulations to ensure equalization which must be adhered to by all assessing officials in the State. S.C. Code Ann. § 12-43-210 (B) provides that no reassessment program may be implemented “unless all real property in the county...is reassessed in the same year.”

            In addition to other powers and duties required by law, the department, in order to administer effectively the equitable assessment of property for taxation, “shall order reassessment of real and personal property....or when, in the judgment of the department, the reassessment is advisable or necessary to the end that all classes of property in the assessment district are assessed in compliance with the law.” S.C. Code Ann. § 12-4-510 (3).

11.       Charleston County implemented a county-wide reassessment program for its real property

in the year 1993, using values as of December 31, 1992. Glover v. Charleston County Assessor, 1997 WL 816206, Docket No. 97-ALJ-17-0296-CC, at *1-2 (Dec. 19, 1997); Crocker v. Lindsey, 1995 WL 929863, Docket No. 95-ALJ-17-0367-CC, at *1,3 (Aug. 31, 1995).

12.       In 1995, the South Carolina General Assembly enacted quadrennial reassessment, which required all counties to equalize and appraise properties under their jurisdiction. The statute did not state whether it was to be applied retroactively or prospectively. S.C. Code Ann. § 12-43-217 (A) (Supp. 2002). The amendment mandated that:

Property valuation must be completed at the end of December of the fourth year and the county or State shall notify each taxpayer of any change in value or classification if the change is one thousand dollars or more. In the fifth year, the county or State shall implement the program and assess all property on the newly appraised values.

 

            As a practical matter, counties applied the 1995 statute retroactively as evidenced by the many reassessment programs held in successive years since its passage. If the counties had treated the statute as being operable prospectively, they would have all implemented a county-wide reassessment program throughout our State during the same year, some five years after its passage. That did not happen. It is obvious to this court that all the county officials, required by statute to conduct reassessment programs in their respective counties, felt that the South Carolina General Assembly, in drafting this amendment, intended that it would be applied retroactively. To interpret it otherwise would have created a nightmare for the South Carolina Department of Revenue since it is charged by statute to oversee each of the 46 counties as they prepare for and conduct their reassessments. Footnote

13.       On February 3, 1997, the Director of the South Carolina Department of Revenue, pursuant to general authority contained in S.C. Code Ann. § 12-4-510 (3), issued an Order to Charleston County which postponed the implementation of the 1999 annual reassessment in Charleston County and directed the county to complete its county-wide reassessment program by December 31, 1999. Further, the Order directed the county to implement the program in tax year 2000 and directed the Assessor to mail assessment notices to all taxpayers by February 1, 2000.

14.       The South Carolina General Assembly passed Act No. 93 in 1999, which became effective on July 1, 1999. This Act amended S.C. Code Ann. § 12-43-217 by adding paragraph (B). It authorized a county by ordinance to postpone for not more than one property tax year the implementation of revised values resulting from its equalization program (which § 12-43-217 required to be implemented every five years).

15.       On December 14, 1999, pursuant to authority contained in Act 93, Charleston County adopted Ordinance No.1125 (“Ordinance”) which postponed the implementation of the revised assessed values resulting from the 1999 county-wide appraisal and equalization program from implementation in the tax year 2000 (as ordered by the Department) to tax year 2001.

 

Responsibility of the Assessor and Credibility of his Assessment16.S.C. Code Ann. § 12-37-90 (Supp. 2002) provides that each county shall have a full-time

assessor, whose responsibility is to appraise and list property. Further, the assessor shall:

a)maintain a continuous record of recorded deed sales transactions, building permits, tax maps and other records necessary for a continuing reassessment program;

b)diligently search for and discover all real property not previously returned by the owners or agents thereof or not listed for taxation by the county auditor and list such property for taxation in the name of the owner or person to whom it is taxable;

c)when values change, reappraise and reassess any or all real property so as to reflect its proper valuation in light of changed conditions, except for exempt property and real property required by law to be appraised and assessed by the commission, and furnish a list of these assessments to the county auditor;

d)determine assessments and reassessments of real property in such a manner that the ratio of assessed value to fair market value Footnote shall be uniform throughout the county.

17.       An assessor’s valuation is presumed correct and made in conformity with the law. Joe W. Hiller, Architect, Inc. v. Colleton County Assessor, 1996 WL 909131, Docket No. 95-ALJ-17-231-CC (ALJ Feb. 16, 1996). The burden is on the property owner to disprove the Assessor's valuation. See Cloyd v. Mabry, 295 S.C. 86, 367 S.E.2d 171 (Ct. App. 1988). “A taxpayer contesting an assessment has the burden of showing that the valuation of the taxing authority is incorrect. [Citations omitted.] Ordinarily, this will be done by proving the actual value of the property.”Id. “The taxpayer may, however, show by other evidence that the assessing authority's valuation is incorrect. If he does so, the presumption of correctness is then removed and the taxpayer is entitled to appropriate relief.” Id.  

18.       [A] taxing statute must be construed most favorably to the taxpayer, and any doubt should be resolved against the taxing authority. Ryder Truck Lines, Inc. v. S.C. Tax Comm’n, 248 S.C. 148, 149 S.E.2d 435, 437 (1966); Richland County Assessor v. Walker, 1997 WL 725106, Docket No. 97-ALJ-17-0206-CC (Nov. 6, 1997).

Challenge to Assessment by a Taxpayer

19.       S.C. Code Ann. §§ 12-43-300 and 12-60-2510 through 12-60-2530 (Supp. 2002) provide the procedure whereby a taxpayer, upon receipt of a notice from the Assessor of the valuation which places a valuation and assessment on his property, may file written notice of objection to the valuation and assessment within certain time frames. Failure to serve the written notice of objection within the statutory time limitations is a waiver of the owner’s right to appeal. If the objection is timely filed, the owner may have a conference with the assessor and, if still aggrieved, may appeal that decision to the county’s Board of Assessment Appeals. The correct procedure was followed in this case.

Burden of Taxpayer 

            Intentional and Systematic Undervaluation Claim

20.       Complete equity and uniformity are not practically attainable when valuing property. Wasson v. Mayes, 252 S.C. 497, 167 S.E.2d 304 (1967). "Appraisal is, of course, not an exact science and the precise weight to be given to any factor is necessarily a matter of judgment, for the court, in the light of the circumstances reflected by the evidence in the individual case." Santee Oil Co. v. Cox, 265 S.C. 270, 217 S.E.2d 789 (1975). South Carolina courts, as well as other jurisdictions, have relied on the Appraisal Institute's standards for valuation as published and updated in the several editions of The Appraisal of Real Estate. See, e.g., South Carolina Tax Comm’n v. South Carolina Tax Bd. 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). Even if the Assessor had not substantially complied with The Appraisal of Real Estate, South Carolina law does not require complete accuracy in property tax assessment.

            The standard for a claim based on the inequitable valuation of property is the intentional and

systematic undervaluation of certain properties while other properties in the same class are valued at fair market value. Joe W.Hiller, Architect, Inc. v. Colleton County Assessor, supra, citing Sunday Lake Sun Co. v. Wakefield Taxpayer, 247 U.S. 350 (1918). The burden of proving an intentional and systematic undervaluation rests with the complaining party. Sunday Lake Sun Co. v. Wakefield Taxpayer, supra.

            The burden is not met by a mere showing that some properties are undervalued; there must be shown some intentional and systematic undervaluation of property in the county. Allegheny Pittsburgh Coal Co. v. County Commission, 488 U.S. 336 (1989). For instance, where it was shown to the court by the taxpayer that the county assessor deliberately established a county-wide procedure whereby all property values were based upon their most recent purchase price, the court held that such amounted to an intentional and systematic undervaluation of real property. Id.

            In an effort to ensure that Taxpayers’ properties were equitably appraised, the Assessor performed an equity analysis to determine whether they were over-appraised when compared with similar limited service hotels in the competing area. This court agrees with the Assessor that Taxpayers’ properties were valued during the review and appeal process in the same manner other properties in the Charleston peninsular area were evaluated. Even without the benefit of income or expense data from the Taxpayers, the Assessor made adjustments to the value of Taxpayers’ properties which were consistent with the changes made to other properties on appeal in that area.             South Carolina law is clear that equity is not a basis for reducing a property’s value when the property is otherwise valued at fair market value. Further, an owner of real property is not entitled to have the value of his property reduced solely on the grounds that properties of other taxpayers are undervalued. The mere fact that an inequity exists at one point in time, is not the determinative factor. Rather, the effort to provide uniformity over a period of time is all that can be required. Thus, even if the taxpayer could show inequities, the inequities are not dispositive of the issue. Rather, the inequities must be intentional and must be ones that will not be cured within a reasonable period. The arguments by the Taxpayers herein are unsubstantiated and cannot provide a basis for a finding of inequity.Even where it is shown that a property is correctly valued but other properties in the area are valued too low, the owner is not entitled to a reduced value solely on that ground. It is necessary that the taxpayer show an intentional violation of the essential principle of practical uniformity. C.J.S. Taxation, § 557; S.C. Tax Commission Decision No. 92-89 (finding concerning valuation of property owned by a medical society). No such violation has been shown here.

            Taxpayers have not met their burden. They failed to provide any empirical data showing that

their properties were inequitably valued as compared to other limited service hotels in the general area as a result of any intentional or systematic act by the Assessor. They have merely suggested that since the “per key” room assignment of revenue was greater for the Properties than that assigned to some other hotel properties, the assessed values of their properties were too high and should be reduced. Taxpayers’ arguments are many and inconsistent. The testimony and the evidence clearly indicate to this court that the valuations made by the Assessor, as affirmed by the Board, are fair and reasonable and must be affirmed as the valuations of Taxpayer’s properties for purposes of ad valorem taxation for the tax year 2001.

 

ORDER

 

Based on the above Findings of Fact, Discussion and Conclusions of Law, it is hereby:

            ORDERED that the fair market value of the Hampton Inn for tax year 2001 is $15,000,000 and the fair market value for the Embassy Suites for tax year 2001 is $16,700,000.

            AND IT IS SO ORDERED.

 

 

___________________________________

Marvin F. Kittrell

Chief Administrative Law Judge

March 29, 2004

Columbia, South Carolina


Brown Bldg.

 

 

 

 

 

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