IN THE MATTER OF THE EQUALIZATION APPEAL OF PAOLA-SUNDANCE APARTMENTS FOR THE YEAR 2004 FROM MIAMI COUNTY, KANSAS AND IN THE MATTER OF THE EQUALIZATION APPEALS OF MIAMI COUNTY APPRAISER/ PAOLA-SUNDANCE APARTMENTS FOR THE YEAR 2005 FROM MIAMI COUNTY, KANSAS
Now the above-captioned matters come on for consideration and decision by the Board of Tax Appeals of the State of Kansas.
This Board conducted a hearing in these matters on August 10, 2006. By Order of the Board certified January 25, 2006, the Board consolidated these three appeals for purposes of hearing and adjudication. After considering all of the evidence presented, the Board finds and concludes as follows:
The Board has jurisdiction of the subject matter and the parties as equalization appeals have been filed pursuant to K.S.A. 79-1609. The subject matter of these tax equalization appeals is described as follows:
Docket Nos. 2004-8772-EQ & 2005-9276-EQ Real estate and improvements commonly known as 202 E. Sundance Drive, Paola, Miami County, Kansas, also known as Parcel ID# 061-132-09-0-40-06-003.43-0 (hereinafter "Sundance I"); and
Docket No. 2005-9277-EQ Real estate and improvements commonly known as 1010 Industrial Park, Paola, Miami County, Kansas, also known as Parcel ID# 061-132-09-0-40-06-001.01-0 (hereinafter "Sundance II").
The Taxpayer, Paola-Sundance Apartments, appeared by Carol B. Bonebrake, Attorney; Tom Savage, Property Tax Consultant; and Bernie Shaner, Appraiser. The County appeared by David R. Heger, County Counselor; Peggy Stroup, Deputy County Appraiser; and Russ Dillon, Appraiser. The Board admitted County Exhibits #3, part of #5, and #6 through #9 and Taxpayer Exhibits # 1 and #2. The Board did not admit County Exhibits #1, #2, #4 and pages 1-13 of #5.
Sundance I is a 40-unit, frame construction, two story apartment complex built in 1999 and located in Paola, Kansas. Twenty-four (24) units have two bedrooms and sixteen (16) units have three bedrooms. As of 2004, the complex was in average condition.
Sundance I was developed as a Section 42 low-income tax credit housing project. It is subject to a Declaration of Land Use Restrictive Covenants for Low-Income Housing Credits ("Declaration") dated November 24, 1999 between the owner and the Kansas Department of Commerce and Housing ("KDCOH") which is filed of record, runs with the land, and binds future owners. Pursuant to the Declaration, the Taxpayer agreed to lease 100% of its units to persons whose income is 60% or less than the area's median gross income in accordance with Section 42 of the Internal Revenue Code. The Declaration restricts rents for a period of 30 years; the rent structure is $430 per month for the two bedroom units and $483 per month for the three bedroom units. An amendment of the KDCOH agreement to increase the rental rate, if permitted, would result in the imposition of a penalty upon the owner.
The County originally valued Sundance I at $2, 103, 890 for tax year 2003. The County lowered the value to $1, 543, 800 following the informal meeting. The Taxpayer appealed to the Small Claims Division of the Board. The Small Claims Hearing Officer reduced the value to $924, 960 based upon the actual income and expenses of Sundance I. The County received a copy of the 2003 decision on July 13, 2004. Neither party appealed the decision.
The County valued Sundance I at $1, 543, 800 for tax year 2004 and $1, 554, 500 for tax year 2005. The Taxpayer appealed the 2004 value to the Regular Division of the Board. The Taxpayer appealed the 2005 value to the Small Claims Division. The Small Claims Hearing Officer found that the market for subsidized properties is impacted by restrictions on investors' income return and saleability of the property and reduced the 2005 value to $871, 200. The County appealed the Small Claims decision to the Regular Division of the Board of Tax Appeals.
Sundance II is a 40-unit apartment complex constructed in 2003. It is Class D frame, average quality construction consisting of two buildings in a two-story walk-up design. It has thirty-two (32) two bedroom, two bath units and eight (8) three bedroom, two bath units. Sundance II's amenities include a clubhouse, small playground area, laundry room and a manager's office.
Sundance II is a Section 42 project developed for the purpose of providing affordable housing to individuals with low incomes. Sundance II is subject to a Declaration of Land Use Restrictive Covenants for Low-Income Housing Credits ("Declaration") with KDCOH dated June 7, 2001. Pursuant to the Declaration, the Taxpayer and all future owners and operators are subject to restrictions on use, occupancy and transfer of the land and project. KDCOH may void any sale, transfer or exchange if the buyer fails to assume in writing the requirements of the Declaration and Section 42 of the Internal Revenue Code. The owner must comply with the requirements of Section 42 for a 30 year period; all 40 units shall be leased to individuals who qualify as low-income tenants; and the units are rent restricted. The restricted rents are $450 per month for the two bedroom units and $485 per month for the three bedroom units.
The County valued Sundance II at $1, 450, 000 for tax year 2005. The Taxpayer appealed the 2005 value to the Small Claims Division. The Small Claims Hearing Officer found that the market for subsidized properties is impacted by restrictions on investors' income return and saleability of the property and reduced the 2005 value to $923, 600. The County appealed the Small Claims decision to the Regular Division of the Board of Tax Appeals.
Peggy Stroup, Deputy County Appraiser, testified that the County valued the subject properties at fee simple at fair market value. Stroup asserted that fee simple requires that the appraisal be made as unencumbered property including the full bundle of rights. The County's position is that the tax credits or financing should not be considered and that subsidized apartments should be considered no different than any other apartment buildings out there.
The County also called Russell Dillon, a Kansas certified real estate appraiser. Pursuant to the letter of authorization from the County, Dillon was asked to determine the fair market value in fee simple estate of the subject properties without regard to any encumbrances for the years in question. Dillon appraised the properties in fee simple estate utilizing the cost, sales comparison and income approaches. Dillon's opinions of value for Sundance I as of January 1, 2004 was $1, 773, 300 and as of January 1, ...