IN THE SUPREME COURT OF OHIO

Transcription

1 IN THE SUPREME COURT OF OHIO."'^F ^. J Network Restorations III, LLC Case No.: Appellant, V. Appeal from Board of Tax Appeals Franklin County Board of Revision, Franklin County Auditor, Board of Education of the Columbus City Schools, and. the Tax Commissioner of Ohio Appellees. MERIT BRIEF OF APPELLANT NETWORK RESTORATIONS III, LLC Timothy A. Pirtle ( ) 2935 Kenny Road, Suite 225 Columbus, Ohio (614) / Fax: timpirtle@aol.com Attorney for Appellant Property Owner Williain Stehle Assistant Prosecuting Attorney 373 South High Street, 20th Floor Columbus, OH Attorney for County Appellees Mark Gillis ( ) Rich & Gillis Law Group, LLC 6400 Riverside Drive, Suite D Dublin, Ohio Attorney for Board of Education Mike DeWine Ohio Attorney General 30 East Broad Street, 17th Floor Columbus, OH /Fax Attorney for Tax Commissioner ij i.6 :._ ,.._:_1 ^^ { I j ;.^ ; ^ F. p. n^^ ;, o >, ;^^.. ^. %^ Q:. f Y 1.q f rj6;f, 0s460

2 TABLE OF CONTENTS STATEMENT OF FACTS ARGUMENT 4 Proposition of Law No. I: 4 The value of real estate for ad valorem taxation must be based upon its "true value in money" pursuant to Section 2, Article XII Ohio Constitution; R.C Proposition of Law No. II: 5 Subsidized apartments must be valued in conformity with Ohio law as set forth in Canton Towers, Ltd v. Stark Cty: Bd ofrevision, (1983), 3 Ohio St. 3d 4; Alliance Towers, Ltd. v. Stark Cty. Bd. OfRevision, (1988) 37 Ohio St.3d 16; Oberlin Manor, Ltd v. Lorain County Bd. of Revision (1989), 45 Ohio St.3d. 56; and Colonial Village Ltd. v. Washington Cty. Bd. ofrevision (2007), 114 Ohio St.3d 493, 2007-Ohio Proposition of Law No. III: 7 Low Income Housing Tax Credit property must be valued in conformity with Ohio law as set forth in Woda Ivy Glen Ltd. Partnership v. Fayette Cty. Bd ofrevision, 121 Ohio St.3d 175, 2009-Ohio-762. Proposition of Law No IV: 8 The decision of the BTA is unreasonable and unlawful for the reason that it rejected Miller's appraisal when he "took into account" the restrictions. Proposition of Law No. V: 11 In contravention to Colonial Village Ltd. v. Washington County Bd ofrevision, 114 Ohio St.3d 493, 2007-Ohio-4641, the B'TA committed a legal error when it unreasonably and unlawfully rejected Mr. Miller's appraisal and reverted to the Auditor's valuation when the record contained ample information to determine the taxable value of the subject property.

3 CONCLLTSION 13 CERTIFICATE OF SERVICE APPENDIX Notice of Appeal to the Ohio Supreme Court Decision of the Board of Tax Appeals Dated April 21, 2014 Ohio Constitution, Article XII, Section TABLE OF AUTHORITIES Cases Alliance Towers, Ltd v. Stark Cty. Bd ofrevision, (1988) 37 Ohio St.3d 16 Canton Towers, Ltd, v. Bd. OfRevision (1983), 3 Ohio St.3d 4 Colonial Village Ltd. v. Washington County Bd. of Revision, 114 Ohio St.3d 493, 2007-Ohio-4641 Conalco v. Board ofrevision (1977), 50 Ohio St. 2d 129, 363 N.E. 2d 722 Llilliard City School Board of Education v. Wayne County Board of Revision (1990), 53 Ohio St. 3d 57, 558 N.E. 2d 1170 Oberlin Manor, Ltd v. Lorain County Bd of'revision (1989), 45 Ohio St.3d 56 State, ex rel. Park Investment Co. v. Board of Tax Appeals (1964), 175 Ohio St. 410, 195 N.E. 2d 908 Woda Ivy Glen Ltd. Partnershap v. Fayette Cty. Bd of'revision, 121 Ohio St.3d 175, 2009-Ohio-762 Zazwor sky v. Licking County Board ofrevision ( 1991), 61 Ohio St. 3d 604, 575 N.E. 2d , 6 6,7, 11, 13 4, 5 5 6, Statutes R.C R.C Constitutional Provisions Section 2. Article XII, OhioConstitution 4

4 STATEMENT OF FACTS Network Restorations III, LLC, (hereinafter "Property Owner") filed a complaint against the valuation of real property for the 2008 tax year seeking a decrease in the value of a 42 parcel, 150 rental unit project with the Franklin County Board of Revision. (Supp. 1) For the 2008 tax year, the Franklin County Auditor (hereinafter "Auditor") valued the subject property at a fair market value of $4,456,514, or a taxable value of $1,559,780. (Supp. 1) The subject property operates as a low income housing tax credit (LIHTC) project. (Supp. 5, 10, 13,15, 85) (BOR Hearing 14:41:00, 14:44:40) However, it also receives HUD subsidized rents, because the residents are unable to afford the LIHTC rents. (Supp. 15) (BOR Hearing 14:44:40) The HUD/HAP contract is included in the addendum to the appraisal. (Supp. 68) The subject property would not have not been built but for the low income tax credit program. (BOR Hearing 14:46:00) No other financing could have been obtained at in this part of town. (BOR Hearing 14:46:10) The subject property including 42 parcels and 150 rental units operates as one economic unit in Columbus, Ohio. (Supp. 10) The site has a total land area of approximately 7.5 acres. (Supp. 26) The subject improvements were built from the mid 1800s to the mid 1900s, and most were renovated in the 2000s. (Supp. 10) There are 20 one-bedroom units with an average size of 725 square feet, 115 two-bedroom units with an average of 861 square feet, and 15 three-bedroom units with an average of 986 square feet. (Supp. 28) 1

5 On September 20, 2010, the Franklin County Board of Revision (hereinafter "BOR") conducted a hearing on the merits of the Property Owner's complaint. At the BOR hearing, the Property Owner submitted the testimony of MAI appraiser Donald Miller (hereinafter "Miller") of Crown Appraisal Group. Counsel for the Board of Education stipulated to M. Millers' qualifications. (BOR Hearing 14:43:30) The Property Owner also submitted Miller's appraisal. (Supp ) The Property Owner requested a value of $2,830,000 based upon an income capitalization approach. (Supp. 11, 47) Sharon Griffith with the management coanpany that oversees the subject property also testified at the BOR hearing, discussing the operation of the subject and testifying to the authenticity of the documents in the addendum to the appraisal. (BOR Hearing 14:39:00 to 14:43:00) Mr. Miller is an MAI appraiser. (Supp. 8) Mr. Miller appraised the subject rental units based upon their highest and best use, which is for continued use with governmental funding. (Supp. 30) Mr. Miller reviewed the three traditional approaches to value the subject property. (Supp. 31) The three approaches to value include the income capitalization approach, sales comparison approach, and the cost approach. Mr. Miller considered the income capitalization approach the most applicable, and used the sales comparison approach to support the primary approach. (Supp. 31) Using the income capitalization approach to value the subject property, Mr. Miller deternlined economic rent based upon a market survey of eight (8) apartment rentals in Columbus near the subject properties. (Supp ) Mr. Miller's income approach 2

6 utilized market rentals, market vacancy and credit loss, market expenses and a capitalization rate based upon market terms as of January 1, (Supp ) Mr. Miller determined the market expenses for each expense category. (Supp ) Mr. Miller then determined an overall capitalization rate from four sources, comparable sales, the Korpacz Survey, debt coverage ratios, and the band of investment. (Supp. 46) Mr. Miller's income approach indicated a value of $2,830,000 for the subject property as of January 1, (Supp. 47, 56) As a check on his income approach to value, Mr. Miller also prepared a sales coinparison approach by analyzing five comparable sales. (Supp ) Mr. Miller's sales comparison approach indicated a value of $2,810,000 for the subject proper ty as of January 1, Mr. Miller testified to his appraisal methodology, citing subsidized housing cases, as well as LIHTC case law. (Supp ) (BOR Hearing 14:46:50) On March 4, 2011, the Franklin County Board of Revision rendered its decision finding value consistent with Miller's appraisal, $2,830,000. There are forty-two separate decision letters in the Ohio Board of Tax Appeals (hereinafter "BTA") record, one for each parcel. The Board of Education filed an appeal to the BTA on Apri15, Hearing Examiner Higgins conducted a hearing on the appeal for the 2008 tax year. At the BTA hearing, the Board of Education presented the testimony of Susan Ziegler, who worked for an entity owning the general partner of the property owner in the subject case. The Board of Education presented no other evidence of the value of the property. On April 21, 2014 the BTA rendered its decision. (Appx. 4) The BTA unlawfully and unreasonably rejected the Miller appraisal and reinstated the values originally assessed by 3

7 the Auditor. Since the BTA's decision was unreasonable and unlawful, the Property Owner appealed the BTA's decision to the Ohio Supreme Court. The Notice of Appeal was timely filed on May 16, 2014 with the Ohio Supreme Court. (Appx. 1) Proposition of Law No. I: ARGUMENT The value of real estate for ad valorem taxation must be based upon its "true value in money" pursuant to Section 2, Article XII Ohio Constitution; R.C In Ohio, real estate is to be valued based upon its "true value in money." See Section 2, Article XII, Ohio Constitution and R.C True value in money and fair market value are synonymous terms. The definition of true value in money was set forth by this court in the landmark case of State, ex rel. Park Investment Co. v. Board of Tax Appeals (1964), 175 Ohio St. 410, 195 N.E. 2d 908. True value in money is defined as the "amount of money" or "cash price" a property would sell for in the open market between willing parties in an arm's length sale. See State, ex rel. Park Investnzent Co. id; Conalco v. Board of Revzsion 50 Ohio St. 2d 129, 363 N.E. 2d 722. The basic principle of true value in money is embodied in R.C : "In determining the true value of any tract, lot, or parcel of real estate under this section, if such tract, lot or parcel has been the subject to an arm's length sale between a willing seller and a willing buyer within a reasonable length of time, either before or after the tax lien date, the auditor shall consider the sale price of such tract, lot, or parcel to be the true value for taxation purposes. (This section was amended September 6, 2012) 4

8 See also Zazworsky v. Licking County Board ofrevision (1991), 61 Ohio St. 3d 604, 575 N.E. 2d 842; Hilliard City School Board ofeducation v. Wayne County Board of Revision 53 Ohio St. 3d 57, 558 N.E. 2d 1170; Conalco v. Board ofrevision, supra; State ex. rel. Park Investment Co., supra. There has been no recent arm's length sale of the subject real property. As a result, the Board of Tax Appeals had the duty to determine the true value in money, or fair market value, of the subject property as of January 1, 2008 based upon appraisal evidence. Mr. Miller is a licensed real estate appraiser in Ohio and an MAI. Only the Property Owner presented appraisal evidence to the Board of Revision. The Board of Education did not present any evidence of value. The Miller appraisal valued the subject property in true value in money. It is further submitted that the Board of Tax Appeals in its decision failed to lawfully find value for the property. The errors in the BTA's decision will be explored in the propositions of law to follow. The Appellant will clearly show that the BTA's decision is unreasonable and unlawful and must be reversed. Proposition of Law No. 11: Subsidized apartments must be valued in conformity with Ohio law as set forth in Canton Towers, Ltd v. Stark Cty. Bd ofrevision, (1983), 3 Ohio St. 3d 4; Alliance Towers, Ltd. v. Stark Cly. Bd. OfRevision, (1988) 37 Ohio St.3d 16; Oberlin IlfanoN, Ltd v. Lorain County Bd. of Revision (1989), 45 Ohio St.3d 56; and Colonial Village Ltd v. Washington Cty. Bd of Revision (2007), 114 Ohio St.3d 493, 2007-Ohio In Proposition of Law No. I, the case law which defined "true value in money" was set forth. This case law was further refined for the valuation of subsidized apartinent complexes. The proper methodology in valuing subsidized housing was set forth by the Ohio Supreme Court in Canton Towers, Ltd. v. Bd. OfRevision (1983), 3 Ohio St.3d. 4. 5

9 The Court affirmed their decision in Canton Towers in the cases ofalliance Towers, Ltd. v. Stark Cry. Bd. ofrevision 37 Ohio St.3d 16; Oberlin Manor, Ltd. v. Lorain County Bd ofrevision ( 1989), 45 Ohio St.3d 56; and Colonial Village Ltd. v. Washington Cty. Bd. of Revision (2007), 114 Ohio St.3d 493, 2007-Ohio Canton Towers, supra; Alliance Towers, supra and Oberlin, supra, set forth the criteria that must be utilized in valuing subsidized property. Canton Towers was the first case in Ohio that set forth how to value subsidized properties for ad valorem taxation. 3 Ohio St. 3d at 7. In Canton Towers, the Ohio Supreme Court held that the Ohio Administrative Code requires the use of prevailing market conditions in determining the value of subsidized apartments. Id. at 7. The court went on to hold that it was not appropriate to utilize the cost approach for valuing newly constructed, low-income housing for the reason that market rents obtainable in the area were not high. enough to support construction costs. Id. at 6-7. Therefore, the project would not have been built without the government's subsidy. Id. at 7. The methodology utilized in the Canton Towers case regarding the use of economic rent from conventional apartments, and capitalization rates based upon current returns on mortgages and equities in an income approach, was approved by the Ohio Supreme Court in AllianceTowers. In Alliance Towers, the Supreme Court recognized, as it had in Canton Towers, that the project was constructed at a greater cost than could be justified by market rents. 37 Ohio St.3d at But for the governmental subsidies as to rents and below market mortgages, the property would not and could not be built. Id. at 6

10 The use of actual construction costs to value a subsidized apartment project was specifically rejected. Id, at In Oberlin Manor and Colonial Village, the Supreme Court once again restated and followed the mandates of Alliance Towers. 114 Ohio St3d at 499. Thus, the law in Ohio is quite clear as to the valuation methodology to be utilized in valuing subsidized projects. Subsidized properties must be valued based upon an income approach "with due regard for market rent and current returns on mortgages and equities." Id. Proposition of Law No. III: Low Income Housing Tax Credit property must be valued in conformity with Ohio law as set forth in Woda Ivy Glen Ltd. Partnership v. Fayette Cty. Bd ofrevision, 121 Ohio St.3d 175, 2009-Ohio-762. In Proposition of Law No. I, the case law which deftied "true value in money" was set forth. In Proposition of Law No. II this case law was further refined for the valuation of subsidized apartment coanplexes. This case law was further refined for the valuation of LIHTC properties. The proper methodology in valuing LIHTC housing was set forth by the Ohio Supreme Court in Woda Ivy Glen Ltd. Paa tnership v. Fayette Cty. Bd of Revision, 121 Ohio St.3d 175, 2009-Ohio-762. In Woda, the Court held that: "{^l 30} In light of the foregoing discussion, we hold that in the context of appraising real property for tax purposes, the use restrictions imposed under I.R.C. 42 constitute governmental restrictions for the general welfare that must be taken into account when determining the value of LIHTC property " 7

11 The Court them remanded the case back to the BTA for further proceedings in accordance with the decision. However, the Court did not give specific instructions on how to value the properties, only that the restrictions be "taken into account." Proposition of Law No IV: The decision of the BTA is unreasonable and unlawful for the reason that it rejected Miller's appraisal when he "took into account" the restrictions. Miller referenced and discussed numerous times in his appraisal report and his testimony that the property was subject to the LIHTC restrictions. (Supp. 5, 10, 13, 15, 85) (BOR Hearing 14:41:00, 14:44:40) However, it was also subject to I-WD/HAP and Section 8. (Supp. 10, 13, 15, 68) (BOR Hearing 14:44:40) The Board of Tax Appeals decision states in part: "Mr. Miller explained in his report and testimony that he valued the subject properties `under the hypothetical. condition that it receives market rents,' while acknowledging that the properties `currently operates as an affordable (LIHTC), rental property' and `also receives HUD/HAP (Section 8) rents.'5 Appraisal at 4. The BOE argues in its brief that such an approach is improper under the Supreme Court's pronouncements in Woda Ivy Glen Ltd. Partnership v. Fayette Cty. Bd. ofrevision, 121 Ohio St.3d 175, Ohio-762, that LIHTC use restrictions `must be taken into account when determining the value of LIHTC property.' Id. at 130. We agree. In Woda, the court also noted its previous holding in Alliance Towers, Ltd. v. Stark Cty, Bd, qfrevision (1988), 37 Ohio St.3d 16, that Section 8 properties should be valued 'in accordance with methods that disregarded the aff rmative value of the subsidies conferred by the federal government.' Id. at 24. Taken together, we find these tvc.o explicit statements of the court are directly contrary to the approach taken by Mr. Miller. Essentially, by valuing the subject properties using market rents because the owner receives Section 8 rents, Mr. Miller ignores the LIHTC restrictive covenant in place and, instead, takes into account the value of federal government 8

12 subsidies received through Section 8 rent. We therefore do not find his appraisal probative of the subjects' value as they existed on tax lien date." Board of Tax Appeals decision, pgs Miller "took into account" the restrictions. At page 4 of the appraisal (Supp. 13) Miller states that: "The subject currently operates as an affordable (LIHTC), rental property. While it is restricted by a low income housing tax credit (LIHTC) covenant, it also receives HUD/HAP (Section 8) subsidized rents. Given the subsidized rents and the reality that this appraisal may be used in a real estate assessment (tax) appeal, the subject is being appraised under the hypothetical condition that it receives market rents." Also, Miller states in his appraisal report at page 6 (Supp. 15): "Due to the nature of LIHTC properties, the government places rent restrictions, sometimes severe, on these properties. In the case of Woda Ivy Glen, LP v. Fayette County Board ofrevision the Supreme Court of Ohio cited that, "As governmental use restrictions that are imposed for the general welfare, the LIHTC restrictions should be taken into account when valuing a LIHTC property". Therefore, the potential rental revenue in the pro forma is based on rental restrictions on the property." (emphasis added) The BTA bases their ruling upon "two explicit statements of the court." The first is "that LIHTC use restrictions must be taken into account when deterinining the value of LIHTC property." Miller mentioned the LIHTC issue numerous times. He discussed how with the HiJD/HAP Section 8 contract also in place the proper method was to use market rents. The word "account" is defined as "consider or regard in a specified way." Here, Miller considered and regarded the LIHTC restrictions in a specified way, in valuing real property. He determined that since there was a I-IUDIHAP Section 8 contract in place, market rents should be used. 9

13 The second statement of the court the BTA based their ruling upon was "that Section 8 properties should be valued in accordance with methods that disregarded the affirmative value of the subsidies conferred by the federal government." As is stated in Proposition of Law II, "Subsidized properties must be valued based upon an income approach `with due regard for market rent and current returns on mortgages and equities. "' 'That is what Miller did, use market rent. This method disregards the value of the subsidies. In fact, it ignores them. They are not part of the equation. For the BTA to state that Miller "takes into account the value of federal government subsidies received through Section 8 rent" is simply not correct. The BOE in its brief to the BTA criticizes Miller's use of market rents. The BOE states that the proper methodology is to use actual LIHTC restricted rents, with market based expenses. BOE Brief filed with the BTA June 11, 2013, page 4. While that might make sense in a straight LIHTC property, in the instant matter that methodology would lead to an absurd result. The addendum to the appraisal includes an independent auditor's report and financial statements for 2008 and (Supp ) Page 117 of the supplement includes receipts for Note that the LIHTC rental receipts were $85,970. The assistance payments were more than ten times what the LIHTC receipts were. Please see page 81 of the supplement, in the addendum to the appraisal, where it lists the HUD/HAP contract rent. It comes to $943,788 annually in 2003, and of course was adjusted for inflation by The appraisal determines the annual expenses are $497,948. Using actual LIHTC receipts, the property would have a significant negative 10

14 value, an absurd result. And using any of the actual HUD receipts would be clearly inconsistent with Canton Towers, supra; Alliance Towers, supra and bea lin, supra. While the BTA states Millers method is improper, its rationale is flawed. If this were a straight LIHTC property then the use of actual LIHTC rents would make sense. But using the actual LIHTC rents here would lead to an absurd result. And including all the actual rent would. be including HUD payments, which clearly are not to be used, for that would "take into account the value of federal government subsidies received through Section 8 rent." While the BTA states that Miller's use of market rent "takes into account the value of federal government subsidies received through Section 8 rent" actually it would be his use of the HUD rent that would "take into account the value of federal government subsidies received through Section 8 rent." Miller's appraisal and testimony are discussed above. The BTA should have accepted the value found in Miller's appraisal, as did the Board of Revision. Please note that the BOE provided no evidence of value. Proposition of Law No. V: In contravention to Colonial Village Ltd. v. Washington County Ba'. of Revision, 114 Ohio St.3d 493, 2007-Ohio-4641, the BTA committed a legal error when it unreasonably and unlawfully rejected Mr. Miller's appraisal and reverted. to the Auditor's valuation when the record contained ample information to determine the taxable value of the subject property. In Colonial Village, the Supreme Court overturned the BTA's finding that the property owner did not meet its burden of proof due to specific flaws in the appraiser's valuation of a subsidized apartment project. 114 Ohio St.3d at 499. The appraiser in Colonial Village relied on the income approach to value the Colonial Village property; 11

15 however the BTA rejected the appraisal evidence due to the fact that the vacancy loss and expense figures were unsupported. Id. This court held that: "Our cases that address subsidized housing emphasize the propriety of an income approach calculated with due regard for market rent and current returns on mortgages and equities. The record contains ample information for the BTA to determine the taxable value of the property. The owner's opinion of value presented to the BOR and the appraisal report presented to the BTA contain market rent data. The record also contains evidence of market expenses, which can be used in valuing the property. The BTA faulted the vacancy-loss figure used by the appraiser, but alternatives are available. * * * In valuing subsidized housing for real property taxation, an income approach to valuation that uses market rents and expenses is preferable to a cost approach, even without a full accounting for vacancy loss. Finally, the BTA made no adverse findings as to the appraiser's derivation of a capitalization rate, and the appraisal report contains evidence of the appraiser's direct capitalization and band-of-investment analyses including the discussion of mortgages. Id. at 501. Ultimately, this court held that the appraisal evidence submitted by the property owner contained sufficient evidence to require the BTA to undertake an independent valuation of the property at issue. Id. This Court concluded that the BTA committed a legal error when it reverted back to the Auditor's valuation where there was ample information in the record for the BTA to determine taxable value. Id. In the subject appeal, there is sufficient evidence to trigger the BTA's duty to undertake an independent valuation of the subject property. The record in the subject appeal contains an independent appraiser's opinion of value based upon an income approach, supported by a sales comparison approach. The record contains market rent, market expenses, and a capitalization rate derivation. Furthermore, the record contains LIHTC rent and HUD rent. 12

16 This Court in Colonial Village found that the record contained ample information for the BTA to determine the taxable value of the property at issue even though the BTA rejected portions of the appraiser's income approach. Id. at 501. Specifically, the court in Colonial Village held that the BTA could have relied on other information in the record or adjusted the appraiser's valuation to determine the taxable value of the property at issue. Id. This Court should find that there was sufficient evidence in the record to have triggered the BTA's duty to undertake an independent valuation of the subject property. The record clearly contained sufficient information for the BTA to determine the value of the subject property. Therefore, pursuant to Colonial Village, the BTA had a duty to undertake an independent valuation of the subject property. The BTA committed a legal error when it unreasonably and unlawfully rejected Mr. Miller's appraisal and reverted to the Auditor's valuation when the record contained ample information to determine the value of the subject property. CONCLUSION The Board of Tax Appeals unlawfully rejected Miller's appraisal. The two reasons cited in its decision were shown above to be unreasonable. Miller's value should determine the value of the property on tax lien date. Alternatively, this case should be remanded to the Board of Tax Appeals for it to use the ample information in the record to determine the value of the subject property. 13

17 Respectfully submitted, ^. ^^^.. Timothy A. Pirtle ( ) Attorney for Appellant Property Owner 2935 Kenny Road, Suite 225 Columbus, Ohio (614) / Fax: timpirtle@aol.com CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing Merit Brief and Appendix has been served by US Mail, and also by , this 2nd day of March, 2015 upon the following: Mark Gillis Rich & Gillis Law Group, LLC 6400 Riverside Drive, Suite D Dublin, Ohio William Stehle Assistant Prosecuting Attorney 373 South High Street, 20th Floor Columbus, OH Mike DeWine Ohio Attorney General 30 East Broad Street, 17th Floor Columbus, OH Timothy A. Pirtle 14

18 APPENDIX Notice of Appeal to the Ohio Supreme Court 1-3 Decision of the Board of Tax Appeals Dated Apri121, Ohio Constitution, Article XII, Section

19 IN THE SUPREME COURT OF OHIO Network Restorations III, LLC V. Appellant, Franklin County Board of Revision, Fraffldin County Auditor and Board of Education of the Columbus City Schools, and Tax Commissioner of Ohio Appellees. Case No.: APPEAL FROM OHIO BOARD OF TAX APPEALS BOARD OF TAX APPEALS CASE No. ^ r r 12 F F L MAY 1 ^, 2014 A OF TAX APPEALS COLUMBUS, OH9O NOTICE OF APPEAL OF APPELLANT NETWORK RESTORATIONS IIIg LLC Timothy A. Pirtle ( ) 2935 Kenny Road, Suite 225 Columbus, Ohio (614) / Fax: tiznpirtle@aol.com Attorney for Appellant Property Owner Mark Csilllis Rich & Gillis Law Group, LLC 6400 Riverside Drive, Suite D Dublin, Ohio Attomey for Board of Education William Stehle Assistant Prosecuting Attorney 373 South High Street, 20th Floor Colurnbus, OH Attorney for County Appellees Mike DeWine Ohio Attorney General 30 East Broad Street, 17th Floor Coluinbus, OH / Fax Attorney for Tax Conn^nissi.oner 1

20 NOTICE OF APPEAL OF APPELLANT NETWORK RESTQ R. TI NS III, LLC Appellant gives notice of its appeal of right, pursuant to ORC , to the Supreme Court of Ohio from a Decision and Order (Decision) of the Ohio Board of Tax Appeals (BTA) joumalized in Case No on April 21, 2014, copy attached. Appellant states the errors in the Decision are: l. The Board of Tax Appeals decision using the improper standard of review is unreasonable and unlawful. 2. The Board of Tax Appeals decision and order not relying upon the unrebutted evidence of the Appellant is unreasonable and unlawful. 3. The Board of Tax Appeals decision and order not relying upon the appraisal is unreasonable and unlawful. 4. The Board of Tax Appeals decision to disregard the appraiser's appraisal methodology is unreasonable and unlawful. 5. The Board of Tax Appeals decision to not find value consistent with the Board of Revision's decision is unreasonable and unlawful. 6. The Board of Tax Appeals' decision to reinstate the Auditor's values is 2

21 unreasonable and unlawful. Respectfully submitted, ^ Timothy A. Pirtle ( ) Attorney for Appellant Property Owner 2935 Kenny Road, Suite 225 Columbus, Ohio (614) / Fax: timpirtle@aol.com CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing Notice of Appeal has been sei-ved by Certified US Mail this 16th day of May, 2014 upon the following: li/iark Gillis Rich & Gillis I_,aw Group, LLC 6400 Riverside Drive, Suite D Dublin, Ohio William Stehle Assistant Prosecuting Attorney 373 South High Street, 20th Floor Columbus, OH Mike DeWine Ohio Attorney General 30 East Broad Street, 17"' Floor Columbus, OH ^.._... :/r^. T'tmothy A. hirtle `^`

22 Board of Education of the Columbus City Schools, vs. OHIO BOARD OF TAX APPEALS Appellant, Franklin County Board of Revision, Franklin CVuYSLy Au ditor, and Network Restorations III, LLC, APPEARANCES: Appellees. For the Appellant - ) ) ) ) ) ) ) ) l ) ) ) CASE NO (REA,I.. PROPERTY TAX) DECISION AND ORDER Rich & Gillis Law Group, LLC Mark H. Gillis 6400 Riverside Dr., Suite D Dublin, Ohio For the County Appellees For the Appellee wner Entered A'^^^ 2 120% - Ron O'Brien Franklin County Prosecuting Attorr ey William J. Stehle Assistant Prosecuting Attorney 373 South I-ligh Street, 20th Floor Columbus, Ohio Timothy A. Pirtle Attorney at Law 2935 Kenny Road, Suite 225 Columbus, Ohio Mr. Williamson, Mr. Johrciidt, and 1^1īr. FIarbarger concur. ^.ppellartt appeals decisions of the board of rcvisioii ("BOR") which deterznhied the value of the subject g ropci-ticsl for tax years 2008, 2009, and This matter is now considered upon the noticc of appeal, the transcript certified by the 1 Appellant has appealed decisions pertaining to the following parcels: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , and

23 BOR pursuant to R.C , the record of the hearing before this board, and the parties' briefs. The subjects' total true value was initially assessed at $4,456,910 for tax years 2008, $5,490,700 for tax years 2009 and A decrease complaint was filed by the appellee ovvner for tax year 2008 seeking a reduction in value to $3,600,000; the board of education ("13OE") filed a countercomplaint seeking to retain the avditor's valuations. At the BOR hearing, the owner presentcd the appraisal report and testimony of Donald E. Yfiller, JI, 1V" la1, who opined a value of $2,830,000 as of Janvary 1, 2008, using primarily the incorne capitalization approach to value. The BOR ultimately issued a decision reducing value to $2,830,000 for tax year 2008, and to $3,867,300 for tax years 2009 and 2010.' MTh.en cases are appealed from a board of revisiota to this board, an appellant must prove the adjustmertt in value requested. See, e.g., Shinkle v. Alshtabula Cty. Bd of7zevision, 135 Ohio St.3d 227, 2013-Ohio-397. it has long been held by the Supreine Cour-t fhat "the best evidence of `true value in inoney' of real propegiy is an ac'lual, recent sale of the propeily in an arm's-length transaction." Conalco v. Bd of Revision (1977), 50 Ohio St.2d 129. Then, typically, "thc only rebuttal lies ilg challe.nging whether the elements of recexicy ap-d arin's-leiagth character between a willing seller aiid a vaillang buyer are genu.itiely present for that pal ticvlar sale." CumrninsPYopertyServs., L.L.C. v. Franklin Cty. Bd. 6fl2evision, 117 Ohio St.3d 516,. : hio-14 73, at 713. Here, the subject propetiy has biot recently sold in :an arm's-iength traaisaction.4 A7qje therefore turn to the other evidence of value, in this itastance consisting only of the appellee owner's appraisal evidence. See Pingue v. Franklin Cty. Bd. of Revision (1999), 87 0Iiio St.3d 62. 1\/fr. Mliller explained. in his report and 2 It appears that the subject properties undeiivent renovations during It appears that such renovations were the reason for changes in value of most of the parcels in The BOR hearing worlcsheet included in the statutory transcript indicates that the BOR decided to value the properties in accordance with Mr. Miller's appraisal for tax year 2008, and added the "contrib[utory] value of rehab[ilitation] per Aud[itor]" to Mr. Miller's opinion of value for tax year 2009, which it carried forward to tax _vear Although the parceis.transferred in 2006, testimony at the board's hearing clearly indicated that the 5 transaction was between related parties with the same ownership. 2

24 testimony that he valued the subject properties "under the hypothetical condition that it receives market rents," while acknowledging that the properties "currently operates as an affordable (LIHTC), rental property" and "also receives HUD/HAP (Section 8) rents."5 Appraisal at 4. The BOE argues in its brief that such an approach is improper under the Supreme Court's pronouncements in Woda Ivy Glen Ltd Partnership v. Fayette Cty. Bd. of Revision, 121 Ohio St.3d 175, hio-762, that LIHTC use restrictions "must be talcen into account when determining the value of LIHTC property." Id. at We agree. In Woda, the court also noted its previous holding in Alliance Towers, Ltd. v. Stark Cty. Bd of Revision ( 1988), 37 Ohio St.3d 16, that Section 8 properties should be valued "in accordance with methods that disregarded the affirmative value of the subsidies conferred by the federal government." Id. at 24. Taken together, we find these two explicit statements of the coui-t are directly contrary to the approach taken by Mr. Nliller. Essentially, by valuing the subject properties using market rents because the owner receives Section 8 rents, Mr. Miller ignores the LIHTC restrictive covenant in place and, instead, takes into account the value of federal govertzment subsidies received through Section 8 re-nt; -We therefore do not T,.rZd his appraisal probative of the subjects' value as they existed on tax lien date. We aclmovvledge that the 130k reduced value in accordance with A/ir. Miller's appraisal value. However, vahen the value of proper ty is adjusted from that at which it was originally assessed, an adjustrra.ent, whether effected by this board or a board of revision., must be supported by sufficient competent and probative evidence of value. When a board of revision adjusts value which does not meet this criteria or the rationale for the value adopted cannot be discerned, it m^.y be appropriate to reinstate the property's original valuation. Vandalia-Butler City School Dist. Bd. of Edn. v. 1Wontgomery Cty. Bd. of Revision, 106 Ohio St.3d 157, 2005-Ohio-4385; Vandalia-Butler City School.l7ist. Bd. of Edn. v. 1!!lontgomery Cty. Bd of.lievision, In West Lafayette Townhomes, L.P. v. Coshocton Cty. Bd.Uf Revision (Nov. 8, 2011), BTA Nos Q-953 and 2010-Q-1237, unreported, we cited another appraiser's explanation of the Low Income Housing Tax Credit ("LIHTC") program: "`[T]he developer is provided federal tax credits as an incentive to operate affordable housing for persons who meet specific income guidelines. The developer, in turn, typically syndicates these tax credits in order to obtain the equity required the fund the project. The tax credits, paid out over the compliance period, are subject to the property remaining in compliance with [restrictive covenants. "' Id. at fn

25 Ohio St.3d 291, 2011-Ohio-5078, T21 ("It is true that the absence of sufficient evidence requires the BTA to reverse a reduction or increase ordered by a board or' revision."); Sapina v. Cuyahoga Cty. Bd. ofrevision, 136 Ohio St.3d 188, 2013-Ohio- 3028, T35 ("The BTA correctly ruled out using the BOR's reduced value, because it could not replicate it. This court has emphatically held that the BTA's independent duty to weigh evidence precludes a presumption of validity of the BOR's valuation."). Accordingly, upon consideration of the existing record, we are constrained to conclude that there exists insufficient evidence to suppoi-t the BOR's reduction in value and, as a result, we must reinstate those values originally assessed by the auditor. 1t is therefore the order of this board that the subject parcels' ti-ue and taxable values, as of January 1, 2008, were as follows: Parcel no m i_ True Value $126,000 $126,000 $126,000 $126,000 $80,100 $105,000 $126,000 $157,600 $50,400 $105,000 $36,400 $231,000 $126,000 $2,400 $128,900 $195,300 $143,600 $68,300 $315,000 $115,000 $68,600 $79,800 $105,000 $136,500 4 Taxable Value $44,100 $44,100 $44,100 $44,100 $28,040 $36,750 $44,100 $55,160 $17,640 $36,750 $12,740 $80,850 $44,100 $U0 $45,120 $68,360 $50,260 $23,910 $110,250 $40,250 $24,010 $27,930 $36,750 $47,780 ^

26 Parcel no True Value $79,800 $126,000 $136,500 $126,000 $76,300 $5,100 $126,000 $126,000 $126,000 $126,000 $80,100 $94,500 $105,000 $36,400 $36,400 $36,400 $105,000 $4,100 Taxable Value $27,930 $44,100 $47,780 $44,100 $26,710 $1,790 $44,100 $44,100 $LLL 100 $44,100 $28,040 $33,080 $36,750 $12,740 $12,740 $12,740 $36,750 $1,440 and as of January 1, 2009, and January 1, 2010, were as follows: Parcel i1o True Value $165,000 $142,500 $142,500 $148,500 $112,500 $140,000 $150,000 $105,500 $66,800 $140,000 $37,500 $300,000 $127,500 $2,400 $128,900 $236,300 $205,900 $105,000 $350,000 5 Taxable Value $57,750 $49,880 $49,880 $51,980 $39,380 $49,000 $52,500 $64,930 $23,380 $49,000 $13,130 $105,000 $44,630 $840 $45,120 $82,710 $72,070 $36,750 $122,500 8

27 Parcel no $ True Value $147,000 $123,500 $123,000 $134,400 $180,000 $134,400 $157,500 $150,000 $157,500 $93,600 $5,100 $150,000 $135,000.$135,000 $150,000 $112,500 $120,800 $130,000 $37,500 $37,500 $37,500 $140,000 $4,100 Taxable Value $51,450 $43,230 $43,050 $47,040 $63,000 $47,040 $55,130 $52,500 $55,p30 $32,760.$1,790 $52,500 $47,250 $47,250 $52,500 $39,380 $45,080 $45,500 $13,130 $13,130 $13,130 $49,000 $1,440 lt is the order ol' the Board of Tax Appeals that the Fra.ilklin Couiity Auditor list and assess tbe subject parcels in c.oiifoi-rnity with this decision and order. 1 hereby certify the foregoigg to be a true and complete copy of the action talcen by the Board of Tax Appeals of the State of Ohio and entered upon its journal this day, with respect to the captioned matter, li3 W.:^ b " `^ A.J. CTroeber,bi3oard Secretary 6 9

28 ty days for persons to change residence in order to be eligible for election. The governor shall give the persons responsible for apportionment two weeks advance written notice of the date, time, and place of any meeting held pursuant to this section. (1967) CONTINUATION OF PRESENT DISTRICT BOUNDARIES. 14 The boundaries of House of Representatives districts and Senate districts from which representatives and senators were elected to the 107th General Assembly shall be the boundaries of House of Representatives and Senate districts until January 1, 1973, and representatives and senators elected in the general election in 1966 shall hold office for the terms to which they were elected. In the event all or any part of this apportionment plan is held invalid prior to the general election in the year 1970, the persons responsible for apportionment by a majority of their number shall ascertain and determine a plan of apportionment to be effective until January 1, 1973, in accordance with section 13 of this Article. SEVERABILITY PROVISION. (1967) 15 The various provisions of this Article XI are intended to be severable, and the invalidity of one or more of such provisions shall not affect the validity of tk remaining provisions. (1967) ARTICLE : FINANCE AND TAXATION POLL 7AXES PROHIBITED. 1 No poll tax shall ever be levied in this state, or service required, which may be commuted in money or other thing of value. (1851, am. 1912) LdYtITATION ON 7t1X RATE; EXEMPTION. 2 No property, taxed according to value, shall be so taxed in excess of one per cent of its true value in money for all state and local purposes, but laws may be passed authorizing additional taxes to be levied outside of such limitation, either when approved by at least a majority of the electors of the taxing district voting on such proposition, or when provided for by the charter of a municipal corporation. Land and improvements thereon shall be taxed by uniform rule according to value, except that laws may be passed to reduce taxes by providing for a reduction in value of the homestead of permanently and totally disabled residents, residents sixty-five years of age and older, and residents sixty years of age or older who are surviving spouses of deceased residents who were sixty-five years of age or older or permanently and totally disabled and receiving a reduction in the value of their homestead at the time of death, provided the surviving spouse continues to reside in a qualifying homestead, and providing for income and other qualifications to obtain such reduction. Without limiting the general power, subject to the provisions of Article I of this constitution, to determine the subjects and methods of taxation or exemptions therefrom, 100 THE CONSTITUTION OF THE STATE OF OHIO 10

29 general laws may be passed to exempt burying grounds, public school houses, houses used exclusively for public worship, institutions used exclusively for charitable purposes, and public property used exclusively for any public purpose, but all such laws shall be subject to alteration or repeal; and the value of all property so exempted shall, from thne to time, be ascertained and published as may be directed by law. (1851, am. 1906, 1912, 1918, 1929, 1933, 1970, 1974, 1990) A UTIiORITY TO CLASSIFY REAL E,STATE FOR TAXATION; PROCEDURES. 2a (A) Except as expressly authorized in this section, land and improvements thereon shall, in all other respects, be taxed as provided in Section 36, of Article II and Section 2 of this article (B) This section does not apply to any of the following: (1) Taxes levied at whatever rate is required to produce a specified amount of tax money or an amount to pay debt charges; (2) Taxes levied within the one per cent limitation imposed by Section 2 of this article; (3) Taxes provided for by the charter of a municipal corporation. (C) Notwithstanding Section 2 of this article, laws may be passed that provide all of the following: (1) Land and improvements thereon in each taxing district shall be placed into one of two classes solely for the purpose of separately reducing the taxes charged against all land and improvements in each of the two classes as provided in division (C)(2) of this section. The classes shall be: (a) Residential and agricultural land and improvements; (b) All other land and improvements. (2) Witli respect to each voted tax authorized to be levied by each taxing district, the amount of taxes imposed by such tax against all land and improvements thereon in each class shall be reduced in order that the amount charged for collection against all land and improvements in that class in the current year, exclusive of land and irnprovements not taxed by the district in both the preceding year and in the current year and those not taxed in that class in the preceding year, equals the amount charged for collection against such land and improvements in the preceding year. (D) Laws may be passed to provide that the reductions made under this section in the amounts of taxes charged for the current expenses of cities, townships, school districts, counties, or other taxing districts are subject to the limitation that the sum of the amounts of all taxes charged for current expenses against the land and improvements thereon in each of the two classes of property subject to taxation in cities, townships, school districts, counties, or other types of taxing districts, shall not be less than a uniform per cent of the taxable value of the property in the districts to which the limitation applies. Different but uniform percentage limitations may be established for cities, townships, school districts, counties, and other types of taxhig districts. (1980) 3 THE CONSTITUTION OF THE STATE OF OHIO

30 CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing Merit Brief and Appendix has been served by US Mail, and also by , this 2nd day of March, 2015 upon the following: Mark Gillis Rich & Gillis Law Group, LLC 6400 Riverside Drive, Suite D Dublin, Ohio William Stehle Assistant Prosecuting Attorney 373 South High Street, 20th Floor Columbus, OH Mike DeWine Ohio Attorney General 30 East Broad Street, 17th Floor Columbus, OH Timothy A. irtle