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In re Protest of Premier Petroleum, Inc.

Tax Court of Kansas

September 11, 2013

IN THE MATTER OF THE PROTEST OF PREMIER PETROLEUM, INC. FOR THE YEAR 2005 IN JOHNSON COUNTY, KANSAS

ORDER

Now the above-captioned matters come on for consideration and decision by the Court of Tax Appeals of the State of Kansas. The Court conducted a hearing in these matters on January 23, 2009. The taxpayer, Premier Petroleum, Inc. ("Premier"), appeared by and through its attorney of record, James McIntyre. Johnson County appeared by and through its attorney of record, Kathryn Myers.

This court has jurisdiction pursuant to KS.A 2008 Supp. 79-2005.

I.

These consolidated appeals involve the valuation, for purposes of ad valorem taxation, of two owner-occupied convenience store/fuel station properties. The tax years in question are 2005, 2006 and 2007. The parcels under appeal are described as follows:

Real estate and improvements known as 13705 College Blvd, Johnson County, Kansas; County Parcel ID: DP07800000 0001A (hereinafter the "College Boulevard property")
and
Real estate and improvements known as 16610 W, 135th Street, Olathe, Johnson County, Kansas; County Parcel ID: DP48220000 0001A (hereinafter the "W. 135th Street property")

Following are the docket numbers, property addresses, tax years at issue, and original appraisal values for each appeal:

COTA Docket #

Property

Tax Year

Value Appealed

2006-8560-PR

W. 135th Street

2005

$758, 500

2007-10I46-PR

W. 135th Street

2006

$772, 590

2007-7319-EQ

W. 135th Street

2007

$795, 730

2006-8559-PR

College Blvd

2005

$919, 100

2007-10145-PR

College Blvd

2006

$830, 000

2007-7318-EQ

College Blvd

2007

$951, 190

II.

The county appraised both the W. 135th Street and College Boulevard properties using the Kansas Department of Revenue, Property Valuation Division's approved computer assisted mass appraisal (CAMA) system. At the hearing, the county introduced CAMA appraisal reports for both properties. The county prepared these reports in accordance with K.S.A. 2008 Supp. 79-504, invoking jurisdictional exceptions to the 1992 Uniform Standards of Professional Appraisal Practice (USPAP) under Standards 6-7 and 6-8 of that publication. The county's reports were prepared by Linda Clark, CAE, RMA, with assistance from other personnel in the Johnson County Appraiser's office.

The county valued both properties using the same methodology. The county determined the highest and best use of the properties to be the current use, as there was no evidence that an alternative use would yield a higher net return to the properties. Both properties are currently used as convenience and fuel retail stores. Premier provided no evidence that the properties' highest and best use was anything other than their current use.

According to Ms. Clark, retail buildings in Johnson County are ordinarily bought and sold as income producing investment properties and thus the income approach is generally considered the most reliable method for estimating fair market value. The county did not utilize the income approach in valuing the subject properties, citing a lack of relevant market information. The county also did not perform a complete sales comparison approach because its mass appraisal system does not include an automated sales comparison module for commercial properties. The county nevertheless did consider comparison sales in an effort to determine whether the county's appraisements were in line with similar properties. Ms. Clark testified that her analysis of comparison sales raised no concerns with respect to valuation uniformity or equality.

The county relied on the cost approach in valuing both properties for all three tax years in issue. According to the county, the cost approach is often used for retail buildings in the absence of reliable income and expense information, or if there is insufficient reliable sales data.

Ms. Clark explained how the cost approach is applied by the county through the CAMA system. First, the county determines the current cost of replacing the improvements, and estimates the degree of depreciation, including physical depreciation as well as functional and economic obsolescence. Next, the county deducts the amount of accrued depreciation from the cost of replacing the improvements. The resulting figure is added to the land, or site, value to obtain an estimate of value for the entire real estate parcel.

The table below summarizes the county's cost-approach data for the subject properties for all three years at issue.

Property

Tax Year

Land Value

Improvement Value

Total Value Appealed

W. 135th St.

2005

$430, 910

$339, 190

$770, 100

W. 135th St.

2006

$430, 910

$357, 230

$788, 140

W. 135th St.

2007

$430, 910

$389, 170

$820, 080

College Blvd.

2005

$374, 080

$394, 500

$768, 580

College Blvd.

2006

$374, 080

$395, 800

$769, 880 :

College Blvd.

2007

$374, 080

$405, 260

$779, 340

In addition to its CAMA-based appraisal evidence, the county also presented independent appraisal reports for the subject properties prepared by Laird Goldsborough, MAI, of Shaner Appraisals, Inc. The appraisal reports had been prepared on behalf of Peoples Bank in connection with Premier's financing for a July 2005 transaction involving the subject properties. The effective date of both appraisals is June 1, 2005.

Premier objected to admission of the independent appraisals on the basis of hearsay and foundation, noting that the reports were not introduced through the appraiser who prepared the reports and that the appraiser was not present at the hearing for cross examination. This court overrules the taxpayer's objection.

Under the Kansas Administrative Procedures Act (KAPA), technical rules of evidence need not apply, and "evidence need not be excluded solely because it is hearsay." K.S.A. 77-524(a); Winston v. State Dept. of Social and Rehabilitation Serv., 49 P.3d 1274 (2002). In the interest of giving the parties reasonable opportunity to be heard and to present relevant evidence, we find it appropriate to admit the independent appraisal reports over Premier's objection. The reports were prepared by an MAI-licensed appraiser for purposes unrelated to the present tax appeal and were certified in accordance with USPAP. The signed certifications evidence the appraiser's recognition of his professional ethical obligations, prescribed by USPAP, in developing and reporting his appraisal work product. It also should be noted that the county offered the independent appraisal reports as corroborative evidence, not as the sole evidentiary basis for the county's case. We find that the independent appraisal reports, although technically hearsay, bear satisfactory indicia of reliability to be admitted and considered as evidence of fair market value. The fact that the appraiser who prepared the reports was not present at the hearing to provide testimony goes to the weight, not the admissibility, of the evidence.

We also note, and give consideration to, the limiting language contained in the letters of transmittal attached to the independent appraisals reports, cautioning that the reliability of the appraisements may be impacted by the degree of departure from USPAP guidelines. In particular, the letters note that an income approach analysis was not included in the appraisal report because of a lack of pertinent information.

The independent appraisals are fee simple appraisals. They state in the "General Assumptions and Limiting Conditions" section that the appraiser's opinion of value applies to land and improvements only and that trade fixtures and other personal property are not included. According to the reports, as of June 1, 2005, the value of the W. 135th Street ...


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