Ohio Tax. Workshop K. Ohio Real Property Tax Valuations Isn t Everyone Contesting Their Tax Value? Thursday, January 27, :00 p.m. to 4:00 p.m.

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1 Ohio Tax Workshop K Ohio Real Property Tax Valuations Isn t Everyone Contesting Their Tax Value? Thursday, January 27, :00 p.m. to 4:00 p.m.

2 Biographical Information Matthew E. Stamp, JD, LLM, Director, State & Local Tax Services GBQ, 230 West Street, Suite 700, Columbus, OH Matt Stamp is the Director of State and Local Taxes for GBQ Partners providing state and local tax services to clients in the manufacturing, contracting, retail, financial and services industries. Mr. Stamp has significant experience managing state and local tax compliance issues, performing tax technical research and assisting clients with transactional analysis, tax controversy and audits. His practice focuses primarily on multistate sales/use tax, income and franchise tax, municipal income tax, personal property tax, tax credits and economic development opportunities. Mr. Stamp also assists clients in the analysis of real property tax valuations and developing strategies, where appropriate, to ensure real estate is properly assessed. Mr. Stamp has lectured on state and local tax topics for the Ohio Society of Certified Public Accountants (OSCPA), Columbus Association of Tax Professionals (CATP), American Subcontractors of Ohio (ASA), Construction Financial Management Association (CFMA Central Ohio Chapter), President s Advisory Committee (PAC Columbus and Cincinnati Chapters), Tax Executives Institute (TEI), Lorman Educational Services and National Business Institute. Mr. Stamp received his B.A. in Accounting from Mount Union College, and his Juris Doctorate and LLM in Taxation from Capital University Law School. Hilary J. Houston, Vorys, Sater, Seymour and Pease LLP 52 East Gay Street, Columbus, Ohio hjhouston@vorys.com Hilary J. Houston is an attorney in the Columbus office of the Vorys law firm where she advises clients regarding state and local taxation, including real property tax valuation and dispute matters, personal property tax issues, as well as sales and use tax planning, compliance and audit defense. Ms. Houston s practice has considerable focus on the certification of tax exempt facilities, real property tax exemptions and Board of Revision complaints. Before joining Vorys, Ms. Houston was an attorney with the Ohio Department of Taxation, where she administered the exempt facility program and reviewed real property tax exemption applications. Ms. Houston was a speaker at the 18 th and 19 th Annual Ohio Tax Conferences. Ms. Houston received her J.D. from the Wake Forest University School of Law in 2003 and her B.S.B.A. with distinction in accounting from the Ohio Northern University in She has been licensed to practice law in the State of Ohio since Kimbol B. Stroud, Deputy Auditor, Franklin County Board of Revision 373 S. High Street, 20 th Floor, Columbus, Ohio kbstroud@franklincountyohio.gov Kimbol B. Stroud is a Deputy Auditor at the Franklin County Auditor s office where he has represented the Auditor on the county s Board of Revision for over 12 years. The Board is comprised of representatives from the Auditor s office with those from two other offices: the County Commissioners and the County Treasurer. This Administrative board primarily hears cases regarding challenges in the valuation of real property as well as other types of cases concerning tax-related issues. Before his employment at Franklin County, Mr. Stroud was an independent fee appraiser locally with Real Property Analysts in Columbus, Ohio. Prior to that, he was a principal with Pinnacle Appraisal Services, a real estate appraisal and consulting firm in Newport Beach, California. Mr. Stroud has been certified as a real estate appraiser in Ohio, California and Arizona. Mr. Stroud received a B.A. cum laude from Kenyon College in Gambier, Ohio and a M.A. from Case Western Reserve University, where he had a teaching assistantship. He is currently an Associate Member of the Appraisal Institute, a designated member of National Association of Realtors, a member of the Ohio Association of Realtors, an appraiser-broker member of the Columbus Board of Realtors, and a member of the International Association of Assessing Officers. He has also been qualified as an instructor for continuing appraisal education by the Ohio Department of Commerce: Division of Real Estate.

3 Real Property Tax Valuations - Isn t Everyone Contesting Their Tax Value? January 27, 2011

4 Presenters Kimbol Stroud Deputy Auditor Franklin County Board of Revision Matthew E. Stamp Director, State and Local Tax Services GBQ Partners Hilary J. Houston, Esq. Attorney Vorys Sater Seymour & Pease

5 Topics for Discussion General Overview Appraisal Process Valuation Appeals Process Real Property Analysis Jurisdiction Rules of Evidence Qualifying the Expert Common Mistakes Things to Keep in Mind Questions

6 General Overview Your Annual Real Estate Tax Bill is based on several factors, including: The appraised value of your real estate The tax rate in your School, City, Village or Township Applicable assessments (e.g.: Street, Lighting) Tax Relief Programs for which you qualify

7 General Overview Your Property s p y Value

8 General Overview Property Tax Distribution - Tax Year 2009 PARCEL ID: TAX YEAR: 2009 ***** ***** GENERAL : 2, TAXABLE LAND: 324,240 FCCS : 6, TAXABLE BLDG: 1,055,920, ADAMH : 2, TAXABLE TOTL: 1,380,160 MR & DD : 9, ADJUSTED VAL: 0 PARKS : 1, CAUV LND TOT: 0 ZOO : ORIG TAXABLE: 1,380,160 SR OP : 1, SCHOOL-COLUMBUS CITY SD : 72, TOWNSHIP : 0.00 ORIGINAL RATE: JVS : 0.00 REDUCT FACTOR: CITY/VIL - CITY OF COLUMBUS : 4, EFFECTVE RATE: LIBR/OTH : 1, : TOTAL : 102, NAME: MASHTEX OHIO LLC LEGAL : CHANNINGWAY BL : ACRES : R21 T12 S23 1/2S40

9 Appraisal Process The Auditor is required by law to establish the Fair Market Value for each parcel of real estate in the County

10 Appraisal Process Property Values are adjusted every three (3) years through the State-Mandated appraisal process

11 Appraisal Process A full Reappraisal which includes on-site inspections and review, is conducted every six (6) years

12 Appraisal Process Three (3) years after a reappraisal, values are adjusted based on a computerized sales ratio study

13 Appraisal Process What is being appraised? Unencumbered Fee Simple Title As of a point in time: Assessment purposes Always January 1 Fee purposes as of the date of inspection

14 Appraisal Process Bundle of Rights (Sticks) or What is Fee Simple Title? Right to Use Right to Sell Right to Lease or Rent Right to Enter or Leave Right to Give Away Right to Not to Do Any of the Above

15 Appraisal Process Fee Simple Title is subject only to: Taxation Eminent Domain (Taking for a Public Process Police Power (zoning, regulations for health & safety) Escheat (property reverts to state for non-payment of taxes

16 Appraisal Process Private Encumbrances (May not be taken into consideration covenants, conditions and restrictions in deeds) Mortgages Easements (except scenic) Liens and Judgments Other than Market Leases

17 Valuation Three Traditional Approaches to Valuation Sales Comparison Approach (Market approach) Income Approach Cost Approach

18 Valuation Sales Comparison Approach considers Sales of similar properties Adjustments made to comparable sales Most reliable for Residential

19 Valuation Income Approach considers Property s POTENTIAL to generate income Vacancy & credit loss Expense of ownership Debt Service (Mortgage Payments) Return on the Owner s Investment (Equity)

20 Valuation Cost Approach considers. Cost to acquire land, plus Cost to construct improvements, less depreciation and obsolescence (physical, functional, external)

21 Appeals Process Informal and Formal Appeals

22 Appeals Process Informal Appeals Values as of January 1 st each year Reappraisal & Update Years Reviews held August and September Annual New Construction values available for discussion September 1 st to Mid-November

23 Appeals Process Formal Appeals Board of Revision Case may be filed: December Tax Billing Thru Following March 31st

24 Appeals Process ORC 5715 Boards of Revision Tax Commissioner Supervise Assessment Process Promulgate Rules Maximum level of Assessment = 35% Sales Ratio Studies

25 Appeals Process Boards of Revision - Defined The Board of Revision is a quasi-judicial administrative hearing body engaged in the setting of a record which May become the basis for a further appeal, therefore it is a court of record rather than a court of law.

26 Appeals Process Boards of Revision - Membership County Auditor Secretary & Administrator County Treasurer President of the County Commission (or their representatives) Exceptions: Summit County Cuyahoga County

27 Appeals Process Mandatory Meetings Organizational Meeting Second Monday in January Elect Chairperson Approval of Abstracts of Value Taxable Abstract CAUV Abstract (Upon approval of the abstracts, jurisdiction for current year valuations change from the Auditor to the BOR) Hearings

28 Appeals Process Property Tax Distribution - Tax Year 2009 Taxable Land 324,240 Taxable Bldg: 1,055,920 Taxable Total: 1,380, Original Rate: Reduction Factor: Effective Rate:

29 Appeals Process BOR Notifications OWNERS MUST be notified if filing was made by Board of Education BOARD OF EDUCATION MUST be notified if owner s requested reduction > $17,500 assessed

30 Real Property Analysis True Value All real property is appraised at its true value (Ohio Rev. Code ) The best evidence of true value is a recent armslength sale transaction

31 Real Property Analysis True Value True Value is defined as the price at which property should change hands on the open market between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having a knowledge of all the relevant facts OAC (A)(1) Case Law Berea City School Dist. Bd. Of Edn. V. Cuyahoga Cty Bd. Of Revision (2005), 106 Ohio St. 3d 269

32 Real Property Analysis Considerations under Berea: Was the sale arm s length? Related party transactions Sheriff s sales Economic coercion

33 Real Property Analysis Considerations under Berea (continued): What was the timing of the sale? What is considered recent? 1 year, 3 years? Sale / Leaseback transactions Case Law HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision (2010), 124 Ohio St.3d 481

34 Real Property Analysis Considerations under Berea (continued): What was the consideration for the sale? Sale price indicated on conveyance fee statement Bulk sale transactions Tangible personal property p Goodwill

35 Real Property Analysis Considerations under Berea (continued): Case Law FirstCal Indus. 2 Acquisitions, L.L.C. v. Franklin Cty. Bd. of Revision, (2010) 125 Ohio St. 3 rd 485 St. Bernard Self-Storage, L.L.C. v. Hamilton Cty. Bd. of Revision, (2007) 115 Ohio St. 3 rd 365

36 Real Property Analysis If no sale transaction, true value is determined using the following valuation concepts: Cost Approach Income Approach Comparable Sales Approach All three methods should be considered to determine a single estimate of true value

37 Real Property Analysis Cost Approach Estimate replacement or reproduction costs of improvements; Deduct: Estimated physical depreciation / obsolescence Add: Market value of land Assumes reproduction or replacement cost sets upper limit of value as long as improvement represents highest and best use of the land (Principle of Substitution)

38 Real Property Analysis Cost Approach Building permits New Construction Auditor / BOE utilize application amounts to properly p account for changes in valuation Does the amount include tangible property? Does the amount properly p reflect highest and best use? (e.g. parking lot vs. developed land)

39 Real Property Analysis Cost Approach Construction reports / Cost Segregation report May assist with the identification of real versus personal property for valuation purposes Construction-in-Progress Dated pictures at lien date provide evidence of value and percentage of completion

40 Real Property Analysis Income Approach Gross income from rental / income producing activities; Deduct: Normal operation expenses including normal vacancies and credit losses. Operating expenses should be reduced by real estate taxes. Multiply: Adjusted net income by market capitalization rate (includes effective tax rate or tax additur)

41 Real Property Analysis Income Approach Capitalization rate should be determined from market data Tax additur equals real property taxes currently assessed, expressed as a percentage rate in terms of current assessed value Long-term leases Actual versus market rents

42 Real Property Analysis Comparable Sales Approach True value is estimated on the basis of similar or comparable properties p in the market area or similar market areas Perform square footage and value per acre analysis to compare valuation to similar properties and auditor s current valuation Related party, owner-occupied, manufacturing facilities, etc.

43 Real Property Analysis Recommendations: Obtain valuation card from County Auditor Review items and basis for valuation Determine estimate of true value (cost, sales, and income methods) Calculate tax effect of possible decrease in valuation

44 Real Property Analysis Additional Considerations: Possibility of tax increase For non-residential cases, BOE likely to file a counter-complaint Current year of the appraisal cycle Cost benefit analysis Before an appeal is filed, should consider legal fees, appraisal costs, expert testimony

45 Jurisdiction : The BOR may NOT be able to hear the case if: The complaint is not filed timely: March 31 ST of the year following the tax year at issue The Complaint does not list the CORRECT owners and complainants names? The Complaint is not completely l filled-out Property not identified Requested decrease NOT stated No reason stated justifying complaint The Complaintant s registration with the Secretary of State is not active, where the complainant is not an individual

46 Jurisdiction The BOR may not have Jurisdiction if the complaint was signed by someone other than those individuals set forth in R.C : Individual Owner (A PERSON AS OPPOSED TO AN ENTITY) Attorney Licensed in Ohio (OR TEMPORARILY ADMITTED TO PRACTICE FOR THIS CASE) Individual id having Fiduciary i Relationship to the owner/ entity (EXAMPLE: TRUSTEE, CORPORATE OFFICER, ETC.)

47 Jurisdiction Case Law: Sharon Village Ltd. v. Licking Cty. Bd. of Revision (1997), 78 Ohio St. 3d 479 Dayton Supply & Tool Co., Inc. v. Montgomery Cty. Bd. of Revision (2006), 111 Ohio St.3d 367 Buckeye Foods v. Cuyahoga Cty. Bd. of Revision (1997), Ohio St.3d. 245

48 Jurisdiction \ If multiple parcels are involved in a complaint: All MUST be in same Tax District MUST form a Single Economic Unit MUST have identical ownership

49 Jurisdiction Only ONE FILING allowed per 3 years unless: SALE occurred after 1 st lien date unless the sale is considered in the earlier case LOSS in value due to casualty Substantial IMPROVEMENT added Change in OCCUPANCY of 15% or more between lien dates

50 Rules of Evidence Boards of Revision and the Board of Tax Appeals are not strictly bound by the Ohio Rules of Evidence as are the courts Certain rules provide structure and guidance to assist in properly weighting the evidence

51 Rules of Evidence HEARSAY A STATEMENT BY ONE PERSON AS TO WHAT ANOTHER PERSON SAID OR THINKS. Critical documents need first hand testimony Hearsay is only acceptable from an expert who has relied on others information when preparing the report of findings.

52 Rules of Evidence Recent Arm s Length Sale Purchase contract Deed Conveyance fee form Case Law

53 Rules of Evidence Owner s opinion of value Appraisal presented by qualified expert appraiser

54 Qualifying the Expert VOIR DIRE - Getting the full resume of a new expert into the record Quick Qualification of experts already known to you

55 Qualifying the Expert Things to consider when qualifying or disqualifying a witness who has been put forward as an expert appraiser: 1. Is the appraiser certified or licensed in Ohio? 2. Years of experience in real estate field(s)? 3. Types of properties appraised? 4. Education? 5. Membership in professional organizations? 6 Fee structure for the subject assignment? 6. Fee structure for the subject assignment? *Must not be contingent on the outcome of the case.

56 Common Mistakes Incorrect Owner s Name on the complaint Complaint filed by someone without standing (i.e., a lessee) Arguing taxes instead of value at the BOR Tax bills of similar properties are irrelevant Presenting appraisal evidence at the BOR with effective dates other than the tax lien date for the year at issue Tax Year 2009 Tax Lien Date: JAN. 1, 2009

57 Things to Keep in Mind There are 88 different BORS throughout Ohio Each BOR has their own ideas regarding jurisdiction and rules of evidence Each BOR has their own rules and procedures regarding submission of evidence (i.e., appraisal reports) and hearing procedures

58 Real Property Tax Valuations - Isn t Everyone Contesting Their Tax Value? QUESTIONS

59 YEAR OF SEXENNIAL REAPPRAISAL AND TRIENNIAL UPDATE FOR OHIO'S 88 COUNTIES REAPPRAISAL COUNTIES 2011 REAPPRAISAL COUNTIES 2012 REAPPRAISAL COUNTIES 2013 REAPPRAISAL COUNTIES 2014 REAPPRAISAL COUNTIES 2015 REAPPRAISAL COUNTIES ADAMS COLUMBIANA HANCOCK HOCKING HOLMES LAWRENCE MEIGS MONROE PAULDING SCIOTO TUSCARAWAS WASHINGTON 2010 UPDATE COUNTIES CARROLL CHAMPAIGN CLARK FAIRFIELD LOGAN MARION MEDINA MIAMI ROSS UNION WYANDOT AUGLAIZE CLINTON DARKE DEFIANCE DELAWARE FRANKLIN GALLIA GEAUGA HAMILTON HARDIN HARRISON HENRY JACKSON LICKING MAHONING MERCER MORROW PERRY PICKAWAY PIKE PREBLE PUTNAM RICHLAND SENECA SHELBY TRUMBULL VAN WERT WOOD 2011 UPDATE COUNTIES ASHLAND ASHTABULA ATHENS BUTLER CLERMONT FULTON GREENE KNOX MADISON MONTGOMERY NOBLE SUMMIT WAYNE BELMONT BROWN CRAWFORD CUYAHOGA ERIE FAYETTE HIGHLAND HURON JEFFERSON LAKE LORAIN LUCAS MORGAN MUSKINGUM OTTAWA PORTAGE STARK WARREN WILLIAMS 2012 UPDATE COUNTIES ALLEN COSHOCTON GUERNSEY SANDUSKY VINTON CARROLL CHAMPAIGN CLARK FAIRFIELD LOGAN MARION MEDINA MIAMI ROSS UNION WYANDOT 2013 UPDATE COUNTIES ADAMS COLUMBIANA HANCOCK HOCKING HOLMES LAWRENCE MEIGS MONROE PAULDING SCIOTO TUSCARAWAS WASHINGTON ASHLAND ASHTABULA ATHENS BUTLER CLERMONT FULTON GREENE KNOX MADISON MONTGOMERY NOBLE SUMMIT WAYNE 2014 UPDATE COUNTIES AUGLAIZE CLINTON DARKE DEFIANCE DELAWARE FRANKLIN GALLIA GEAUGA HAMILTON HARDIN HARRISON HENRY JACKSON LICKING MAHONING MERCER MORROW PERRY PICKAWAY PIKE PREBLE PUTNAM RICHLAND SENECA SHELBY TRUMBULL VAN WERT WOOD ALLEN COSHOCTON GUERNSEY SANDUSKY VINTON 2015 UPDATE COUNTIES BELMONT BROWN CRAWFORD CUYAHOGA ERIE FAYETTE HIGHLAND HURON JEFFERSON LAKE LORAIN LUCAS MORGAN MUSKINGUM OTTAWA PORTAGE STARK WARREN WILLIAMS

60 [Cite as Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio-4979.] BEREA CITY SCHOOL DISTRICT BOARD OF EDUCATION, APPELLEE; MANLAW INVESTMENT COMPANY, LTD., APPELLANT, v. CUYAHOGA COUNTY BOARD OF REVISION ET AL., APPELLEES. [Cite as Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio-4979.] Real-property taxation Appraisal R.C Price of recent arm slength sale to be considered true value Long-term lease at rate unfavorable to owner Ratner v. Stark Cty. Bd. of Revision overruled. (No Submitted May 10, 2005 Decided October 5, 2005.) APPEAL from the Board of Tax Appeals, Nos J-143, 2003-J-144, and 2003-J O DONNELL, J. { 1} The principal issue presented to this court concerns the proper method for determining the taxable value of a acre parcel of property located at and Bagley Road in Middleburg Heights, a suburb of Cleveland, Ohio. { 2} The property at issue contains two buildings: one, constructed in 1968 or 1969, contains approximately 113,000 square feet and houses a Kmart store and an in-line store; the other, constructed in 1986, is a separately standing 3,454-square-foot Burger King restaurant. { 3} Further, the parcel is subject to two long-term leases. The first of these, entered into on August 9, 1967, between the original owner and the Kmart Corporation for an initial term ending in 1992, offered Kmart the option of extending the lease for three additional five-year periods to May 1, Kmart s annual base rent is $205,806, or $1.82 per square foot, plus an overage

61 SUPREME COURT OF OHIO rent of one percent of the gross sales. The second, entered into on July 1, 1985, between Kmart and a Burger King franchisee, offers Burger King the option of extending the sublease for four additional five-year periods to June 20, { 4} The record here reflects and the parties agree that in March 1996, Manlaw Investment Company, Ltd. ( Manlaw ) purchased the property, encumbered by the two leases, for $2,600,000. After the Cuyahoga County Auditor valued the property at the $2,600,000 sale price for tax year 1997, the Berea City School District Board of Education ( BOE ) filed a complaint with the Cuyahoga County Board of Revision ( BOR ) seeking to increase that valuation to $5,500,000 based on its contention that the existing leases on the property do not reflect current economic rental potential because they were entered into in 1967 and 1985 respectively. In response, Manlaw filed a countercomplaint requesting the BOR to maintain the auditor s initial valuation based on the sale price of the property. After its review, the BOR increased the property valuation to $4,200,000, and both the BOE and Manlaw appealed that determination to the Board of Tax Appeals ( BTA ). { 5} At a hearing before the BTA, Manlaw offered testimony from its appraiser, Robert J. Weiler, who valued the property at $2,130,000 based on the actual rent paid by Kmart; in contrast, the BOE presented its appraiser, Richard G. Racek, who valued the property at $4,800,000 using economic or market rent as the basis for his appraisal. Relying on Alliance Towers, Ltd. v. Stark Cty. Bd. of Revision (1988), 37 Ohio St.3d 16, 523 N.E.2d 826, the BTA concluded that the property must be valued as a fee-simple estate unencumbered by the Kmart and Burger King leases. As a result, the BTA rejected Manlaw s actual-rent approach and valued the property at $4,800,000 based primarily on the BOE s calculation of the fair-market rental rate for comparable Cleveland-area properties. { 6} Manlaw then appealed to this court, asserting that the recent arm slength sale between a willing seller and a willing buyer, i.e., the 1996 sale for 2

62 January Term, 2005 $2,600,000, constituted the true value of the property. Further, it claimed that the BTA should not have relied on Alliance Towers and that the actual rent rather than the economic rent should be the proper indicator of the property s true value. Conversely, the BOE contends that a recent arm s-length sale is not conclusive evidence of the true value of the property, arguing that Alliance Towers demonstrates that the property should be valued as if it were unencumbered and further asserting that because the leases on the property do not reflect fair market value, the economic rent, rather than the actual rent, should be used to calculate the property s true value. { 7} We begin our analysis by reviewing R.C , which provides: { 8} 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 of 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. (Emphasis added.) { 9} In State ex rel. Park Invest. Co. v. Bd. of Tax Appeals (1964), 175 Ohio St. 410, 412, 25 O.O.2d 432, 195 N.E.2d 908, we concluded: The best method of determining value, when such information is available, is an actual sale of such property between one who is willing to sell but not compelled to do so and one who is willing to buy but not compelled to do so. This, without question, will usually determine the monetary value of the property. (Citation omitted.) See, also, Conalco Inc. v. Monroe Cty. Bd. of Revision (1977), 50 Ohio St.2d 129, 4 O.O.3d 309, 363 N.E.2d 722, paragraph one of the syllabus, in which this court held: The best evidence of the true value in money of real property is an actual, recent sale of the property in an arm s-length transaction. { 10} For more than 20 years, the law in this area had been well settled: a recent arm s-length sale of property evidenced its true value. However, in Ratner 3

63 SUPREME COURT OF OHIO v. Stark Cty. Bd. of Revision (1986), 23 Ohio St.3d 59, 61, 23 OBR 192, 491 N.E.2d 680 (Ratner I), this court changed that bright-line rule, concluding: Although the sale price is the best evidence of true value of real property for tax purposes, it is not the only evidence. A review of independent appraisals evaluating the cash equivalency of the sale price is appropriate where it is shown that the sale price does not reflect the true value. { 11} In Ratner I, the property at issue, the Mellett Mall shopping center in Canton, Ohio, sold for $12,540,500. Payment consisted of $500,000 cash, a $6,000,000 note and assumption of $6,040,500 in debt. At the time, the Stark County Auditor valued the property at $15,899,710. Although the BTA adjusted the taxable value of the property to $12,530,000, the owner appealed, claiming that it had paid a considerably lesser cash consideration. This court reversed and held: In determining true value for property, the board of revision and the BTA must at least consider and review evidence presented by independent real estate appraisers that adjusts the contract sale price to reflect both the price paid for real estate and the price paid for favorable financing. Ratner I, 23 Ohio St.3d at 62, 23 OBR 192, 491 N.E.2d 680. { 12} Ratner I and its follow-up case, Ratner v. Stark Cty. Bd. of Revision (1988), 35 Ohio St.3d 26, 517 N.E.2d 915 ( Ratner II ), disregard both the plain language of R.C and this court s precedent of consistently adher[ing] to the rule that [t]he best evidence of the true value in money of real property is an actual, recent sale of the property in an arm s-length transaction. Ratner II, 35 Ohio St.3d at 30, 517 N.E.2d 915 (Locher, J., dissenting), quoting Columbus Bd. of Edn. v. Fountain Square Assoc., Ltd. (1984), 9 Ohio St.3d 218, 219, 9 OBR 528, 459 N.E.2d 894, quoting Conalco, 50 Ohio St.2d 129, 4 O.O.3d 309, 363 N.E.2d 722, paragraph one of the syllabus. { 13} In accordance with the plain language of R.C and our decision in Fountain Square, today we overrule Ratner I and Ratner II to the 4

64 January Term, 2005 extent that they direct the board of revision and the BTA to consider and review evidence presented by independent real estate appraisers that adjusts the contract sale price to reflect both the price paid for real estate and the price paid for favorable financing, Ratner I, 23 Ohio St.3d at 62, 23 OBR 192, 491 N.E.2d 680, and hold that when the property has been the subject of a recent arm s-length sale between a willing seller and a willing buyer, the sale price of the property shall be the true value for taxation purposes. R.C Accordingly, because the property at issue in this case had been recently sold in an arm s-length transaction for $2,600,000, the law requires that sale price to be the true value of that property for the tax year { 14} While we recognize that several of our decisions have permitted the BTA to consider market rental value of commercial real property as an indicator of the true value of the property, none of those cases involved a recent arm s-length sale of the property between a willing seller and a willing buyer. For instance, in Wynwood Apts., Inc. v. Cuyahoga Cty. Bd. of Revision (1979), 59 Ohio St.2d 34, 35, 13 O.O.3d 19, 391 N.E.2d 346, this court noted that [t]here was no recent arm s-length transfer of the property to serve as best evidence of the true value in money which the board must rely upon under R.C and the case law of this court. See, also, Alliance Towers, 37 Ohio St.3d 16, 523 N.E.2d 826; and Canton Towers, Ltd. v. Stark Cty. Bd. of Revision (1983), 3 Ohio St.3d 4, 3 OBR 302, 444 N.E.2d 1027, each approving the use of economic rental value of commercial real property as an indicium of value for ad valorem real property taxation purposes where the property had not been sold in a recent arm s-length transaction between willing parties. Alliance Towers, 37 Ohio St.3d at 22, 523 N.E.2d 826. { 15} Consequently, Wynwood Apts. and similar cases addressing whether market rent or actual rent should be used in a property appraisal do not apply to situations in which the property has been recently sold in an arm s-length 5

65 SUPREME COURT OF OHIO transaction. Indeed, as this court has often observed, [a]ppraisals based upon factors other than sales price are appropriate for use in determining value only when no arm s-length sale has taken place, or where it is shown that the sales price is not reflective of the true value. (Emphasis added; citations omitted.) Columbus Bd. of Edn. v. Fountain Square Assoc., Ltd. (1984), 9 Ohio St.3d 218, 219, 9 OBR 528, 459 N.E.2d 894. See, also, N. Olmsted Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision (1990), 54 Ohio St.3d 98, 561 N.E.2d 915, in which we held that [i]n the absence of evidence of a recent arm s-length sale between a willing buyer under no compulsion to buy and a willing seller under no compulsion to sell, the testimony of expert witnesses becomes necessary ; and Dublin Senior Community Ltd. Partnership v. Franklin Cty. Bd. of Revision (1997), 80 Ohio St.3d 455, 459, 687 N.E.2d 426, in which we held that when an actual sale is not available, an appraisal becomes necessary, quoting Park Invest. Co., 175 Ohio St. at 412, 25 O.O.2d 432, 195 N.E.2d 908. { 16} Since the property at issue here had been sold in a recent arm slength transaction, we do not need to determine whether actual rent or market rent should have been used in the property appraisal. Accordingly, the decision of the BTA is reversed, and the matter is remanded to the BTA for further proceedings consistent with this opinion and our instruction that pursuant to R.C , the sale price in a recent arm s-length transaction between a willing seller and a willing buyer shall be considered the true value of the property for taxation purposes. Decision reversed and cause remanded. RESNICK, LUNDBERG STRATTON, O CONNOR and LANZINGER, JJ., concur. MOYER, C.J., and PFEIFER, J., concur in judgment only. 6

66 January Term, 2005 PFEIFER, J., concurring in judgment only. { 17} Although the sale price is the best evidence of true value of real property for tax purposes, it is not the only evidence. A review of independent appraisals based upon factors other than the sale price is appropriate where it is shown that the sale price does not reflect true value. (Columbus Bd. of Edn. v. Fountain Square Assoc., Ltd. (1984), 9 Ohio St.3d 218, 219 [9 OBR 528, 459 N.E.2d 894], construed.) Ratner v. Stark Cty. Bd. of Revision (1986), 23 Ohio St.3d 59, 23 OBR 192, 491 N.E.2d 680, syllabus. { 18} This standard has prevailed for almost 20 years. It is reasonable and should not be overturned lightly. Ratner confirmed that a recent sale is the best evidence of value. See R.C That conclusion is reasonable, but it ought not to be etched in stone, because many factors can affect the price a buyer is willing to pay. See R.C The second part of the Ratner standard sensibly recognizes this unremarkable fact by requiring an independent appraisal to establish a valuation different from a recent sales price. { 19} Quite simply, there is no reason to overturn Ratner or to embrace unnecessarily rigid rules to govern valuation. As I wrote in Dublin-Sawmill Properties v. Franklin Cty. Bd. of Revision (1993), 67 Ohio St.3d 575, 578, 621 N.E.2d 693 (Pfeifer, J., dissenting), [b]lind reliance on purchase price to determine fair market value of real estate is simplistic and naïve. Further, strict adherence to the standard advanced in the majority opinion might invite the unscrupulous to attempt to lessen their tax burden with sham transactions. { 20} I am not unmindful of R.C , on which the majority opinion so heavily relies. That provision, however, is not the only one in the Revised Code that addresses real estate valuation. R.C states, The tax commissioner shall direct and supervise the assessment for taxation of all real property. The commissioner shall adopt, prescribe, and promulgate rules for the determination of true value and taxable value of real property * * *. * * * The 7

67 SUPREME COURT OF OHIO rules shall provide that in determining the true value of lands or improvements thereon for tax purposes, all facts and circumstances relating to the value of the property, its availability for the purposes for which it is constructed or being used, its obsolete character, if any, the income capacity of the property, if any, and any other factor that tends to prove its true value shall be used. The Ratner standard reasonably balances the rigid approach of R.C with the more nuanced approach of R.C Ratner should not be overruled. { 21} Despite my disagreement with the majority opinion, I concur in judgment because the recent sale provides the best evidence of true value in this case. MOYER, C.J., concurs in the foregoing opinion. Kadish, Hinkel & Weibel and Kevin M. Hinkel, for appellee Berea City School District Board of Education. Siegel, Siegel, Johnson & Jennings Co., L.P.A., Fred Siegel, and Annrita S. Johnson, for appellant. 8

68 [Cite as HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 124 Ohio St.3d 481, 2010-Ohio-687.] HIN, L.L.C., APPELLEE, v. CUYAHOGA COUNTY BOARD OF REVISION ET AL., APPELLEES; BEDFORD BOARD OF EDUCATION, APPELLANT. [Cite as HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 124 Ohio St.3d 481, 2010-Ohio-687.] Taxation R.C When a property has been the subject of two arm slength sales between a willing seller and a willing buyer within a reasonable length of time either before or after the tax lien date, the sale occurring closer in time to the tax lien date establishes the true value of the property for taxation purposes In determining the date a sale of property occurs for the purpose of establishing the true value of property pursuant to R.C , the auditor should use the date that the real property conveyance fee statement is filed in the auditor s office as the sale date of the property. (No Submitted November 18, 2009 Decided March 4, 2010.) APPEAL from the Board of Tax Appeals, No A-712. SYLLABUS OF THE COURT 1. When a property has been the subject of two arm s-length sales between a willing seller and a willing buyer within a reasonable length of time either before or after the tax lien date, the sale occurring closer in time to the tax lien date establishes the true value of the property for taxation purposes. 2. In determining the date a sale of property occurs, only for purposes of establishing the true value of property pursuant to R.C , the auditor should use the date that the real property conveyance fee statement is filed in the auditor s office as the sale date of the property.

69 SUPREME COURT OF OHIO O DONNELL, J. { 1} In this case, two sales of the same property occurred within a few months of the tax lien date, one prior and one subsequent to it, and we are called upon to provide guidance as to which sale better represents the true value of the property and to clarify when each sale occurred and what date the auditor should use to determine true value. Specifically, we address whether the Board of Tax Appeals ( BTA ) correctly determined the true value of the property, consisting of acres improved with a 78,500-square-foot office building, located at Rockside Road in Bedford, Ohio, to be $4,790,000, the amount that the BTA calculated that JBK Cuyahoga Holdings L.L.C. paid for it in December 2003, before the tax lien date, as opposed to $7,400,000, the amount that HIN, L.L.C., paid for it in April 2004, several months after the tax lien date. { 2} R.C provides that in determining the true value of a parcel of real estate that has been the subject of 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 to be the true value for taxation purposes. Two specific issues are presented in this case: first, when a property has been the subject of two transfers within a few months of the tax lien date, which of the two sales should be used by the auditor to establish the property s true value, and second, whether the auditor should consider the date on the purchase agreement, the date the deed was signed, the date of the closing, the date the real property conveyance fee statement is filed in the auditor s office, or the date of recording the transfer of the property as the date of sale for taxation purposes. { 3} For purposes of determining the true value of property according to R.C , the auditor should use the date that the real property conveyance fee statement is filed in the auditor s office as the sale date of the property. In this case, because the December 2003 sale occurred closer in time to the tax lien date 2

70 January Term, 2010 than the April 2004 sale, the BTA reasonably and lawfully determined the true value of the property to be $4,790,000, and we therefore affirm that decision. Facts and Procedural History { 4} Prior to September 8, 2003, Tops Markets, L.L.C. agreed to sell 36 acres, including the property at issue, to U.S. Bank for $4,900,000. Thereafter, U.S. Bank agreed to assign its interest in the purchase contract to JBK Properties, Inc. At the end of September, Tops Markets and JBK Properties signed a purchase and sale agreement at the agreed price of $4,900,000; JBK Properties agreed to purchase the property contingent upon U.S. Bank s agreement to lease it and the bank s ability to obtain various incentives from the city of Bedford. The parties subsequently amended the agreement to require a closing on or before December 30, { 5} On November 1, 2003, U.S. Bank agreed to a 15-year, four-month lease of the property from JBK Cuyahoga Holdings L.L.C. ending on January 31, 2019, with an option to extend the lease for two additional five-year terms. The lease provided that U.S. Bank would be responsible to pay the real estate taxes, insurance, maintenance, and utilities for the property, but it also obligated JBK Cuyahoga to make an upfront, lump-sum payment of $739,470 to the bank for improvements to the premises and relocation expenses. U.S. Bank subsequently agreed to pay more rent for the office building in exchange for JBK Cuyahoga s consent to terminate a separate lease for the warehouse on a acre parcel, which JBK Cuyahoga had agreed to build. { 6} On December 24, 2003, Thomas M. Fitzgerald, an officer of Tops Markets, signed deeds to the acre and acre parcels. JBK Cuyahoga presented the deeds and the real property conveyance fee statement to the auditor on December 30, 2003, two days prior to the January 1, 2004 tax lien date, and recorded the deeds the same day. 3

71 SUPREME COURT OF OHIO { 7} Thereafter, in January 2004, in an unrelated situation, Scott Revolinski, a broker with RFP Commercial, contacted JBK Cuyahoga on behalf of HIN, L.L.C., a corporation interested in purchasing property with a triple net lease 1 to complete a likekind exchange pursuant to Section 1031, Title 26, U.S.Code ( 1031 Exchange ). 2 On February 26, 2004, as amended on March 25, 2004, JBK Cuyahoga accepted an offer from HIN to purchase the acre parcel for $7,400,000, and on April 1, 2004, JBK Cuyahoga accepted an offer from HIN to purchase the acre parcel for $110,000. On April 29, 2004, John Kuhn, principal of JBK Cuyahoga, signed deeds conveying both parcels to HIN. The next day, HIN presented the deeds and the real property conveyance fee statement to the auditor and recorded the deeds. { 8} The auditor of Cuyahoga County, Frank Russo, assessed the true value of the acre parcel for tax year 2004 as $7,848,400. HIN objected and filed an original complaint challenging the valuation of the property with the Cuyahoga County Board of Revision. Subsequently, the Bedford Board of Education filed a counter-complaint seeking to retain the assessed value. After considering the evidence, the Cuyahoga County Board of Revision found the true value to be $7,848,400. HIN then appealed that decision to the BTA. { 9} The BTA found that two sales of the property had occurred. The transfers in the first sale, to JBK Cuyahoga, were recorded on December 30, 1. Under a triple net lease, the tenant is responsible for paying utilities, maintenance, real estate taxes, and insurance. Strongsville Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 112 Ohio St.3d 309, 2007-Ohio-6, 859 N.E.2d 540, 3, fn.1, citing The Appraisal of Real Estate (Appraisal Institute, 12th Ed.2001) The concept behind a 1031 exchange is that, when a property owner sells a property and reinvests its proceeds into another property, any economic gain has not been realized in a way that generates funds to pay any tax. Hilliard City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision (Jan. 13, 2009), BTA No T-1804, at 7. Accordingly, the Internal Revenue Code defers the taxation of any gain from the sale of the property in this situation. Id. at 6. Worthington City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 124 Ohio St.3d 27, 2009-Ohio-5932, 918 N.E.2d 972, 8. 4

72 January Term, , and in the second sale, to HIN, on April 30, HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision (Nov. 18, 2008), BTA No A-712, at 5. Because the December 30, 2003, transfer occurred closer in time to January 1, 2004, the tax lien date, the BTA considered it the better indicator of the true value of the property for taxation purposes. Id. at 6. The BTA therefore ordered the auditor to assess the true value of the property at $4,790,000, which reflected the $4,900,000 sale price minus $110,000 paid for the acre parcel in April Id. at 10, fn. 4. { 10} The Bedford Board of Education appealed the BTA s decision to this court, contending first that the December 2003 sale price does not establish the true value of the property because it does not reflect any property value increase attributable to the long-term lease to U.S. Bank that encumbered the property on the tax lien date. Second, Bedford argues that the BTA improperly relied on the recording dates of the deeds, rather than the dates the parties actually negotiated the sale prices, when it determined that the December 2003 sale occurred closer in time to the tax lien date than the April 2004 sale; thus, Bedford asserts that the sale price which was closer in time to the tax lien date was the sale in Third, Bedford maintains that the BTA s decision is internally inconsistent because it relied on the December 2003 sale price to value the acre parcel but used the April 2004 sale price to value the acre parcel. Lastly, Bedford claims that the BTA has jurisdiction to use the April 2004 sales price of $7,400,000 to determine the true value of the property for tax year 2005 pursuant to R.C (D), which relieves a party of the need to file a new complaint for subsequent tax years until the original complaint is finally determined. { 11} HIN urges that the December 2003 sale, being closer in time to the tax lien date, provides a better indication of the property s value as of the January 1, 2004 tax lien date. It further contends that neither the date that the buyer and 5

73 SUPREME COURT OF OHIO seller agreed to the sale price nor the date that the parties executed the sales contract should be used in determining whether the December 2003 or the April 2004 sale is closer in time to the tax lien date because a sale cannot be deemed to have been completed until a closing occurs. HIN also maintains that this court lacks jurisdiction to consider the value of the property for tax year 2005 because that matter was not part of the notice of appeal and therefore is not properly before the court. { 12} Thus, this court is called upon to decide whether the BTA correctly determined that the December 2003 sale should be used to establish the true value of the property as of January 1, 2004, the tax lien date. Valuation of Real Property for Taxation Purposes { 13} Pursuant to R.C , this court reviews a decision of the BTA to determine whether it is reasonable and lawful. And as we indicated in Strongsville Bd. of Edn. v. Wilkins, 108 Ohio St.3d 115, 2006-Ohio-248, 841 N.E.2d 303, 7, a decision of the BTA will be affirmed if it correctly applies the law. { 14} R.C sets forth how real estate is to be valued for tax purposes: 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 of 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. (Emphasis added.) { 15} In construing a statute, we must ascertain and give effect to the intent of the legislature. Dircksen v. Greene Cty. Bd. of Revision, 109 Ohio St.3d 470, 2006-Ohio-2990, 849 N.E.2d 20, 16. Determining this intent requires the court to read words and phrases in context and construe them in accordance with rules of grammar and common usage. State ex rel. Russell v. Thornton, 111 6

74 January Term, 2010 Ohio St.3d 409, 2006-Ohio-5858, 856 N.E.2d 966, 11. When the statutory text is unambiguous, we apply it as written. Dircksen at 17. { 16} R.C defines the tax lien date as the first day of January annually. Accordingly, as this court stated in Freshwater v. Belmont County Bd. of Revision (1997), 80 Ohio St.3d 26, 29-30, 684 N.E.2d 304, the first day of January of the tax year in question is the crucial valuation date for tax assessment purposes. In this case, January 1, 2004, is the relevant valuation date, and the parties do not differ on this point. { 17} The statutory factors to be considered in determining the true value of property for taxation purposes pursuant to R.C are whether the property has been the subject of an arm s-length sale, whether that sale occurred between a willing seller and a willing buyer, and whether that sale occurred within a reasonable length of time either before or after the tax lien date. { 18} This court has construed R.C in Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio- 4979, 834 N.E.2d 782, and has held that when the property has been the subject of a recent arm s-length sale between a willing seller and a willing buyer, the sale price of the property shall be the true value for taxation purposes. Id. at 13, quoting R.C { 19} While we continue to adhere to the principle of law enunciated in Berea, that case is distinguishable from this case because Berea involved only one sale, which occurred prior to the tax lien date, and our review there chiefly concerned whether that sale had occurred within a reasonable length of time prior to the tax lien date, such that the auditor should be required to consider the sale price to be the true value of property for taxation purposes. Id. at 16. We concluded that the auditor could not use other evidence of value to determine true value when a sale had occurred within a reasonable length of time from the tax lien date; therefore, the recency of the sale provided a basis for the auditor to use 7

75 SUPREME COURT OF OHIO the sale price as the true value of the property. Id. at 13. However, this case involves two sales, one occurring prior to the tax lien date and one occurring subsequent to the tax lien date, and we are called upon to determine which sale should be used as evidence of the true value. { 20} When a property has been the subject of two arm s-length sales between a willing seller and a willing buyer within a reasonable length of time either before or after the tax lien date, the sale occurring closer in time to the tax lien date establishes the true value of the property for taxation purposes. This principle emanates from R.C , which presupposes that an arm s-length sale close in time to the tax lien date accurately indicates the value of property as of that date. It follows that when a property has been the subject of two arm slength sales between willing sellers and willing buyers, the sale occurring closer in time to the tax lien date provides a more accurate indication of the true value of the property as of the tax lien date than does a sale occurring more remotely in time from that date. { 21} Bedford s contention that the date on which the parties agreed to a sale price is a better date to use for determining the proximity of a sale to the tax lien date is not well taken. Legal title to real property transfers from the seller to the buyer with the delivery and acceptance of an executed deed. See Wayne Bldg. & Loan Co. of Wooster v. Yarborough (1967), 11 Ohio St.2d 195, 212, 40 O.O.2d 182, 228 N.E.2d 841; Kniebbe v. Wade (1954), 161 Ohio St. 294, 297, 53 O.O. 175, 118 N.E.2d 833; Baldwin v. Bank of Massilon (1853), 1 Ohio St. 141, 148. As this court long ago recognized in Churchill v. Little (1872), 23 Ohio St. 301, 307, an executory contract for the purchase of land does not convey, or purport to convey, or legally to incumber or affect any estate or interest in land. Further, in McCombs v. Howard (1868), 18 Ohio St. 422, 436, quoting 1 Hilliard, The Law of Vendors and Purchasers of Real Property (1858) 9, this court described it as settled that as a general rule, the purchaser, under a contract for 8