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HomeMy WebLinkAbout93-3725 CivilALLENBERRY, INCORPORATED : Petitioner : : v. : : CUMBERLAND COUNTY BOARD OF : ASSESSMENT APPEALS, : Respondent : : Vo CUMBERLAND VALLEY SCHOOL : DISTRICT, : Intervenor : IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - LAW No. 93-3725 CIVIL TERM IN RE: TAX ASSESSMENT APPEAL BEFORE OLER, J. ORDER OF COURT AND NOW, this ~day~ of February, 1997, upon consideration of the tax assessment appeal filed herein, following a hearing and in accordance with the accompanying opinion, it is ORDERED as follows: THE MARKET VALUE as of September 1, 1993, for the 53.23 acre parcel owned by Petitioner and bearing tax parcel number 22-11- 0284-017 is fixed at $1,941,500.00. THE COMMON LEVEL RATIO for Cumberland County, published on or before July 1, 1993, was 7.8 percent. The predetermined ratio was 25 percent. THERE BEING A DIFFERENCE of more than 15 percent between the common level ratio and the predetermined ratio, as a result of which assessments are to be determined by application of the common level ratio to market value, the assessment with respect to the 53.23 acre parcel owned by Petitioner and bearing tax parcel number 22-11-0284-017 is fixed at $151,437.00, as of September 1, 1993 and will continue as such until July 1, 1995. THE PARTIES HAVING STIPULATED that $17,840.00 is to be added to the assessment as of July 1, 1995,* the assessment is fixed at $169,277.00 as of July 1, 1995 and years thereafter. Bert M. Goodman, Esquire Paul W. Shoup, Jr., Esquire Counsel for Petitioner Stephen D. Tiley, Esquire Counsel for Respondent Richard C. Snelbaker, Esquire Counsel for Intervenor BY THE COURT, * Vol. I, N.T. 5-6, Hearing, March 1, 1996. ALLENBERRY, INCORPORATED Petitioner V® CUMBERLAND COUNTY BOARD OF ASSESSMENT APPEALS, Respondent Ve CUMBERLAND VALLEY SCHOOL DISTRICT, Intervenor IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - LAW No. 93-3725 CIVIL TERM IN RE: TAX ASSESSMENT APPEAL BEFORE OLER, J. OPINION AND ORDER OF COURT Oler, J., February 11, 1997. This case is a tax assessment appeal filed on behalf of Allenberry, Inc., owner of certain real estate in Cumberland County.~ A hearing was held on March 1, 1996, and August 7, 1996. Based on the pleadings and evidence presented at the hearing, the following Statement of Facts, Discussion, and Order of Court are made and entered: STATEMENT OF FACTS Petitioner, Allenberry, Inc., is a Pennsylvania corporation with its place of business located along Route 174, Boiling Springs, Monroe Township, Cumberland County, Pennsylvania.2 Respondent, the Board of Assessment Appeals of Cumberland County, ~ See Act of May 21, 1943, P.L. 571, § 704, as amended, 72 P.S. §5453.704. 2 Vol. I, N.T. 17, Hearing, March 1, 1996 (hereinafter Vol. I, N.T. ). NO. 93-3725 CIVIL TERM is located at 1 Courthouse Square, Carlisle, Cumberland County, Pennsylvania.3 Intervenor, the Cumberland Valley School District, is the public school district in which the parcel constituting the subject of this appeal is located.4 Petitioner, Allenberry, Inc., is the owner of a 53.23 acre parcel of land located at the aforesaid address, and bearing tax parcel number 22-11-0284-017.s The land is utilized for operation of the Allenberry Resort Inn and Playhouse (hereinafter the Allenberry).6 The Allenberry consists of 20 buildings and includes rooms for overnight rental, restaurant and banquet facilities, a 412-seat playhouse, tennis courts, a swimming pool, a picnic pavilion, employees' and owners' quarters, and maintenance facilities.7 .According to testimony, the Allenberry is located approximately ten miles west of Harrisburg, six miles from Carlisle, 100 miles west of Philadelphia, 80 miles north of Baltimore, 110 miles northwest of Washington, D.C., and 170 miles Petition for Review, paragraph 2. 4 Notice of Intervention, filed December 23, 1993. The local municipality, Monroe Township, did not intervene or otherwise participate in the proceedings. Intervening School District's Post-Trial Brief, at 2 n.1. Petition for Review, paragraph 3; Vol. I, N.T. 17. Vol. I, N.T. 26. Vol. I, N.T. 17, 21; Petitioner's Exhibit 2, at 16-19; Intervenor's Exhibit 1, at 7. 2 NO. 93-3725 CIVIL TERM southwest of New York City.8 The Allenberry property was assessed by the county tax assessor at $300,910.00, indicative of a market value appraisal of $3,857,820.00.9 Petitioner filed notices of its intention to appeal this assessment to the Board of Assessment Appeals of Cumberland County, Respondent herein.~° By agreement of counsel it is not disputed that the appeal was filed on September 1, 1993.~ Following a hearing, the Board affirmed the assessment, concluding that the market value was in fact $3,857,820.00.~2 On November 22, 1993, Petitioner appealed the Board's decision to this court.TM At the hearing held by the court on the appeal, Petitioner presented the expert testimony of Maureen Mastroieni, a self- employed real estate appraiser and consultant.TM Ms. Mastroieni Vol. I, N.T. 129. 9 Petition for Review, paragraphs 4, 7; Answer to Petition, paragraphs 4, 7; Vol. I, N.T. 4. ~0 Petition for Review, paragraph 5. Vol. I, N.T. 160. ~2 Petition for Review, paragraph 6; Answer to Petition, paragraph 6. ~3 By stipulation of the parties, $17,840.00 is to be added to the assessment as of July 1, 1995. Vol. I, N.T. 5-6. This increase reflects the construction of additional improvements to the Allenberry which occurred in the summer of 1995. Vol. I, N.T. 6. Petitioner's Exhibit #1 Mastroieni). (Curriculum Vitae of Maureen 3 NO. 93-3725 CIVIL TERM worked in Florida and New York before starting her own company in the Philadelphia area in 1992.~s According to Ms. Mastroieni, her area of special knowledge is hotel valuation and the majority of her business involves valuing hotels.~6 Intervenor presented the expert testimony of Steven W. Barrett. Mr. Barrett operates an appraisal firm which conducts appraisals of residential and commercial properties in Cumberland County and central Pennsylvania.~? The majority of Mr. Barrett's business deals with banking and he performs appraisal work for almost all the banks in Cumberland County.~8 Both experts prepared appraisal reports which have been very helpful to the court, as have the briefs submitted on behalf of the parties. Intervenor's expert (i.e., the school district's expert) contends that the cost approach to valuation should be used to value the Allenberry. According to Intervenor's expert, the cost approach is most relevant in this case because an informed purchaser would not pay more for a property than the cost to obtain a similar site and build a comparable property with the same use.19 15 16 17 18 19 II, N.T. Vol. I, N.T. 8. Vol. I, N.T. 10-11. Vol. I, N.T. 154. Vol. I, N.T. 155. Vol. II, N.T. 22, Hearing, August 7, 1996 (hereinafter Vol. 4 NO. 93-3725 CIVIL TERM In addition, Intervenor's expert describes the Allenberry as a special purpose property and, according to Intervenor's expert, the cost approach is especially useful when dealing with special purpose properties.2° Petitioner's expert, on the other hand, contends that it would be highly unusual for someone to build a property like the Allenberry today, and that the cost approach is therefore irrelevant.2~ Petitioner's expert further asserts that the cost approach is not appropriate in this case because there is too much depreciation and obsolescence involved in a property such as the Allenberry in which most of the buildings were built over 50 years ago, and some were built over 200 years ago.2~ Intervenor's expert recognizes that one of the major limitations of the cost approach is the difficulty encountered in "developing an accurate estimate of accrued depreciation from all sources."23 Despite the age of the Allenberry's buildings and the fact that some buildings on the property would not comport with modern building codes, Intervenor's expert reports that he observed no functional or external obsolescence in any of the Allenberry's Vol. I, N.T. 193. Vol. I, N.T. 32-33. Vol. I, N.T. 33, 87. Vol. II, N.T. 22. 5 NO. 93-3725 CIVIL TERM structures.24 Instead, Intervenor's expert contends that the antiquity of the structures (evidenced, for instance, by the lack of indoor plumbing in the playhouse) added to the ambiance of the Allenberry, thereby enhancing the value of the property.2s Petitioner's expert contends that the income approach to valuation should be used to determine the market value of the Allenberry.26 Petitioner's expert contends that potential buyers of the Allenberry would be people who either wanted to work for themselves or to be involved in theater.27 This type of buyer would, according to Petitioner's expert, be most concerned with whether the property could generate enough income to support the staff necessary to operate the property; as a consequence, Petitioner's expert concludes that the income approach would be the most relevant method of valuation in this case.28 Petitioner's expert notes that the Allenberry's room occupancy rate was 50% overall, which is "extremely high," and that the Allenberry's inn and restaurant operations were both "doing quite well."29 Intervenor's expert describes income from the hotel and Vol. II, N.T. 44-46. Vol. II, N.T. 45, 78-79. Vol. I, N.T. 37, 162. Vol. I, N.T. 36-37. Vol. I, N.T. 37. Vol. I, N.T. 38-39. 6 NO. 93-3725 CIVIL TERM restaurant operations as "substantial."3° According to Petitioner's expert, the Allenberry is in the nature of a country inn.3~ Petitioner's expert defines a country inn as a "property that [is] larger than a bed and breakfast inn, that ha[s] a more seasonal kind of business than a hotel or motel, [and] that [is] frequently a destination property ... and tend[s] to be owner occupied [and operated].''32 Despite the fact that Petitioner's expert distinguished country inns from hotels, the data used in her appraisal tends to come almost entirely from national hotel surveys.TM Intervenor's expert has also determined that the income approach might be relevant in the present case and has prepared calculations for valuation using the income approach.34 In contrast to Petitioner's expert, however, Intervenor's expert generally uses data derived directly from the Allenberry's operations or from the local area in his calculations.3s For example, Intervenor's expert has received actual income and expense statements for the Allenberry from the Allenberry's accountant for use in deriving Vol. I, N.T. 162. Vol. I, N.T. 89, 108. Vol. I, N.T. 83. Vol. I, N.T. 42, 82-86, 94. Vol. I, N.T. 162. Vol. I, N.T. 163, 172. NO. 93-3725 CIVIL TERM data for his income valuation.36 In addition, three extensive private residences are located at the Allenberry, two of which are occupied by managers of the Allenberry and one of which is vacant.37 These residences are apparently supplied to the Allenberry's managers rent-free. To determine the imputed income received by the Allenberry for these residences Intervenor's expert utilizes research conducted on comparable rental properties within the local market.38 Using this local data, Intervenor's expert calculates that the residences had a rental value of $30,780.00 per year.39 Petitioner's expert does not consider the value of the imputed income from these residences when computing her income figures for the Allenberry.4° Also, in determining the value of furniture, fixtures, and equipment (hereinafter FF&E) Intervenor's expert analyzes an actual FF&E statement for the Allenberry for 1993 and a depreciation expense report for the Allenberry dated March 10, 1994, both of which were provided by the Allenberry's accountant, to determine Vol. I, N.T. 163; Intervenor's exhibit 1, at 47. 37 Vol. I, N.T. 49. 38 Vol. I, N.T. 172; (residential rental survey). 39 Vol. I, N.T. 173. 40 Vol. I, N.T. 50, 52. see Intervenor's exhibit 2, at 58 NO. 93-3725 CIVIL TERM that the value of the FF&E should be set at $49,608.00.4~ Petitioner's expert, in contrast, utilizes data from a hotel industry publication to value the FF&E, opining that it would be too expensive to get a cost estimator to value the FF&E.42 Both Petitioner's expert and Intervenor's expert use a band- of-investment analysis in determining the capitalization rate for the Allenberry.43 Intervenor's expert employs a 10% rate of return and a loan-to-value ratio of 75% in establishing a capitalization rate of 9.23%.44 According to Intervenor's expert, the 10% rate of return is the typical rate of return for "normal investment-type loans" in the local marketplace.4~ The rate of return and loan-to- value ratio employed by Intervenor's expert are derived from local market data and based on the expert's personal experience in the local marketplace.4~ Petitioner's expert uses data derived from national hotel publications to establish a rate of return and loan-to-value ratio 4~ Vol. I, N.T. 165; Intervenor's exhibit 1, at 52-53, 59. 42 Vol. I, N.T. 93, 123. Total FF&E for the Allenberry under the calculations of Petitioner's expert was $330,000.00. Id. 43 Vol. I, N.T. 65, 175; Intervenor's exhibit 1, at 61; Petitioner's exhibit 2 at 57. Vol. I, N.T. 176-78; Intervenor's exhibit 1, at 61. Vol. I, N.T. 178. Vol. I, N.T. 176-78. NO. 93-3725 CIVIL TERM for her calculations.47 Petitioner's expert opines that potential buyers of the Allenberry would not demand the same rate of return on their investment as professional real estate investors.48 Therefore, Petitioner's expert asserts that the rate of return for the Allenberry should be placed in the mid-range of those set by the national surveys.49 As to loan-to-value ratio, Petitioner's expert uses a 60% ratio, employing data from national hotel surveys, and noting that hotels tend to have lower loan-to-value ratios,so Petitioner's expert did not use any data from any country inn type resort centers which are family operated in setting her loan-to-value ratio,s~ Intervenor's expert contends that the Allenberry has a market value of $2,358,000.00 under the cost approach and a market value of $1,941,500.00 under the income approach,s2 Petitioner's expert contends that the Allenberry has a market value of $1,220,000.00 under the income approach,s3 After careful consideration of the record in this case, and for the reasons set forth in the Vol. I, N.T. 67, 108, 115. Vol. I, N.T. 65. Vol. I, N.T. 59, 65, 115. Vol. I, N.T. 65, 67. Vol. I, N.T. 118. Vol. I, N.T. 184; Intervenor's exhibit 1, at 64. Vol. 1, N.T. 71-72; see also Petitioner's Exhibit 2, at 58. 10 NO. 93-3725 CIVIL TERM succeeding section of this opinion, the court finds that the market value of the Allenberry as of September 1, 1993, was $1,941,500.00. DISCUSSION In tax assessment cases, the taxing authority's assessment is given a rebuttable presumption of validity. Deitch Co. v. Bd. of Property Assessment Appeals and Review of Allegheny County, 417 Pa. 213, 221, 209 A.2d 397, 402 (1965). The taxpayer, then, must come forward with credible, relevant evidence to overcome this presumption. Id. Once the taxpayer has done so, the taxing authority's presumption of validity ends. Id. at 221-22, 209 A.2d at 402. "In a tax assessment appeal the trial court hears the case de novo and must determine the fair market value of the property based on the competent, credible and relevant evidence." Pittsburgh-Des Moines Steel Co. Inc. v. McLaughlin, 77 Pa. Commw. 565, 568, 466 A.2d 1092, 1094 (1983). The market value is to be determined "as of the date such appeal was filed before the board of assessment appeals." Act of May 21, 1943, P.L. 571, S704(b)(1), as amended, 72 P.S. S 5453.704(b)(1). "Pennsylvania case law has consistently held that actual market value is that price which a purchaser, willing but not obliged to buy, would pay an owner, willing but not obliged to sell, taking into consideration all uses [to] which the property is adapted and might in reason be applied." County of Monroe v. Pinecrest Development Corp., 98 Pa. Commw. 200, 203, 510 11 NO. 93-3725 CIVIL TERM A.2d 1274, 1276~ (1981). "The function of the [court] in a tax assessment case is not to independently value the property ... but to 'weigh the conflictingtestimony and values expressed by the competing experts and arrive at a valuation based on the credibility of their opinions." County of Monroe v. Bolus, 149 Pa. Commw. 458, 463, 613 A.2d 178, 181 (1992). Moreover, the court "is not bound to accept the expert's testimony merely because it is the testimony of someone having special skill or knowledge. All the components that the expert considered are matters which the [court] considers in determining the persuasive quality of the testimony." In Re Appeal of Avco Corp., 100 Pa. Commw. 616, 621, 515 A.2d 335, 338 (1986). The three approaches to valuation are the cost approach, the comparable sales approach, and the income approach. Act of May 21, 1943, P.L. 571, S602(a), as amended, 72 P.S. S5453.602(a). "The cost approach values the property by considering the reproduction or replacement cost of the property, less depreciation and obsolescence." In re Appeal of Property of Cynwyd Investments, 679 A.2d 304, 308 n.2 (1996) (citations omitted),s4 Additionally, s4 "Specifically, this method entails (1) estimating the value of the land assumed vacant and available for its highest and best use; (2) estimating the reproduction cost or cost new of the facility; (3) subtracting from the latter amount the facility's depreciation; and (4) adding to this depreciated balance the value of the land estimated in (1) above." In re Appeal of Property of Cynwyd Investments, 679 A.2d 304, 308 n.2 (Pa. Commw. 1996) (citations omitted). 12 NO. 93-3725 CIVIL TERM "[t]he cost valuation approach must be employed in such a manner that a property's use and resulting value-in-use are not considered." F&M Schaeffer Brewing Co. v. Lehigh County Bd. of Appeals, 530 Pa. 451, 459, 610 A.2d 1, 4 (1992). Under the income approach, the value of a property is calculated by capitalizing the property's annual net income (gross income minus expenses). In Re Appeal of V.V.P. Partnership, 167 Pa. Commw. 282, 285 n.1, 647 A.2d 990, 991 n.1 (1994). Finally, under the comparable sales approach the value of a property is determined by comparing the property to several similar properties, taking into consideration differences in si~e, age, physical condition, location and other relevant factors. In re Appeal of Property of Cynwyd Investments, 679 A.2d 304, 308 n.3 (Pa. Commw. 1996) (citations omitted). "The Assessment Law ... requires that all three approaches 'must be considered in conjunction with one another.'" Serluco v. Cumberland County Bd. of Assessment and Revision of Taxes, 41 Cumberland L.J. 286, 290 n.13 (1991). Moreover, "[i]n considering the weight to be given to various approaches to valuation, the ... court has discretion to determine which of the conflicting methods ... is the fairest and most reasonable for a particular property." Pennypack Woods Home Ownership Assoc. v. Board of Revision of Taxes, 163 Pa. Commw. 80, 82, 639 A.2d 1302, 1303 (1994), appeal denied, 539 Pa. 669, 652 A.2d 839 (1994). To arrive at an assessed value of property, "[t]he court, 13 NO. 93-3725 CIVIL TERM after determining the market value of the property ..., shall then apply the established predetermined ratio to such value unless the corresponding common level ratio ... varies by more than fifteen per centum (15%) from the established predetermined ratio, in which case the court shall apply the respective common level ratio to the corresponding market value of the property. Act of May 21, 1943, P.L. 571, S 704(c), as amended, 72 P.S. S 5453.704(c). The "established predetermined ratio" is "the ratio of assessed value to market value established by the board of county commissioners .... " Act of May 21, 1943, P.L. 571, § 102, as amended, 72 P.S. ~5453.102. The "common level ratio" is "the ratio of assessed value to current market value used generally in the county as last determined by the State Tax Equalization Board .... " Id. In the present case, the court, after considering all three methods of appraisal, is in agreement with the parties' experts that the direct sales comparison approach is not a useful method of valuation in the present case due to a lack of relevant comparable sales.5s As to the cost approach to valuation, the court feels that its limitations far outweigh any advantages it might present in this case. The court is of the view that the income approach represents the most useful and relevant method of valuation in the instant Vol. I, N.T. 30-31, 74, 80, 162; Vol. II, N.T. 8. 14 NO. 93-3725 CIVIL TERM case. In addition, the court believes that a willing purchaser, not obligated to buy, and a willing owner, not obligated to sell, would consider data derived from the local marketplace to be more relevant and useful in considering the value of the Allenberry than data derived mainly from national hotel surveys. Thus, they would find the figures and analysis of the Intervenor's expert to be relatively more useful and persuasive when making their respective choices on the price at which to purchase and sell the Allenberry. In determining a reasonable rate of return and loan-to-value ratio, Intervenor's expert bases his calculations on his own personal experience in the local marketplace and local market data. Petitioner's expert, on the other hand, is less familiar with the local market and uses data derived from national hotel publications. In the case of furniture, fixtures, and equipment, Intervenor's expert analyzes actual figures provided by the Allenberry's accountant. Petitioner's expert, once again, utilizes hotel industry publications in setting the value. The court also believes that a willing purchaser, not obligated to buy, and a willing owner, not obligated to sell, would not overlook the substantial private residences located on the property. Thus, they would not ignore income derived from or imputed to the managers' residences. For the foregoing reasons, the following order will be entered: 15 NO. 93'3725 CIVIL TERM ORDER OF COURT AND NOW, this llth day of February, 1997, upon consideration of the tax assessment appeal filed herein, following a hearing and in accordance with the accompanying opinion, it is ORDERED as follows: THE MARKET VALUE as of September 1, 1993, for the 53.23 acre parcel owned by Petitioner and bearing tax parcel number 22-11- 0284-017 is fixed at $1,941,500.00. THE COMMON LEVEL RATIO for Cumberland County, published on or before July 1, 1993, was 7.8 percent. The predetermined ratio was 25 percent. THERE BEING A DIFFERENCE of more than 15 percent between the common level ratio and the predetermined ratio, as a result of which assessments are to be determined by application of the common level ratio to market value, the assessment with respect to the 53.23 acre parcel owned by Petitioner and bearing tax parcel number 22-11-0284-017 is fixed at $151,437.00, as of September 1, 1993, and will continue as such until July 1, 1995. THE PARTIES HAVING STIPULATED that $17,840.00 is to be added to the assessment as of July 1, 1995,* the assessment is fixed at $169,277.00 as of July 1, 1995 and years thereafter. BY THE COURT, s/ J. Wesley Oler, Jr. J. Wesley Oler, Jr., J. 16 NO. 93-3725 CIVIL TERM Bert M. Goodman, Esquire Paul W. Shoup, Jr., Esquire Counsel for Petitioner Stephen D. Tiley, Esquire Counsel for Respondent Richard C. Snelbaker, Esquire Counsel for Intervenor * Vol. I, N.T. 5-6, Hearing, March 1, 1996. 17