In Re the Appeal of Interstate Outdoor Inc. , 236 N.C. App. 294 ( 2014 )

NO. COA14-223
NORTH CAROLINA COURT OF APPEALS
Filed: 16 September 2014
IN THE MATTER OF:
THE APPEAL OF:
Interstate Outdoor Incorporated North Carolina
from the decision of the Johnston Property Tax Commission
County Board of Equalization and PTC Nos. 11 PTC 1062
Review regarding the valuation of 12 PTC 1683
certain business personal property
for tax year 2012.
Appeal by Interstate Outdoor Incorporated from Final
Decisions entered on or about 19 September 2013 by the North
Carolina Property Tax Commission. Heard in the Court of Appeals
12 August 2014.
Spence & Spence, P.A., by Robert A. Spence, for appellant
Interstate Outdoor Incorporated.
David F. Mills, P.A., by David F. Mills, for appellee
County of Johnston.
STROUD, Judge.
Interstate Outdoor, Inc. (“Interstate”) appeals from two
final decisions of the Property Tax Commission. It argues that
the Commission erroneously affirmed ad valorem tax assessments
for 2011 and 2012 made by Johnston County regarding 69
billboards it owns. We affirm the Commission’s decisions because
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Interstate failed to produce substantial evidence that the
valuation method used by Johnston County was arbitrary or
illegal.
I. Background
Interstate is a corporation that owns and rents out
billboards in 40 counties in North Carolina, including
approximately 80 billboards in Johnston County. Interstate
appealed Johnston County Tax Administration’s valuation of 60
billboards it owned in Johnston County for tax years 2011 and
2012, as well as nine new billboards it bought in 2012. For tax
year 2011, the county valued Interstate’s property at
$2,547,577. Interstate asserts its property was actually worth
$1,923,746. For tax year 2012, the county valued Interstate’s
property at $2,786,200. Interstate asserted that its property
was actually worth $1,790,691. To value the billboards, Johnston
County relied on the Billboard Structures Valuation Guide
published by the North Carolina Department of Revenue, which is
updated annually.
On appeal to the Property Tax Commission, Interstate argued
that the county had significantly overestimated the value of its
property and introduced what it considered the proper estimate
for each billboard. To do so, it asked one of its normal
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billboard contractors for ten quotes on different types of
billboards. It then used one of the ten quotes for each of the
billboards of contested value. Additionally, Interstate
highlighted that the 2011 and 2012 tax values were approximately
eighteen percent higher than those for 2010. In 2010, Interstate
had appealed the valuation of its billboards. The parties
reached a negotiated settlement, which valued its property at
$1,923,746. Interstate argued that the value should remain the
same for the 2011 and 2012 tax years.
The Property Tax Commission found that Interstate failed to
show that the quotes it used “included all the costs that make
the property ready for its intended uses,” or a substantial
connection between the quotes and the actual costs of
constructing the billboards at issue. It therefore affirmed
Johnston County’s valuation for both tax years, with one
dissent. Interstate timely appealed to this Court.
II. Standard of Review
In reviewing the decision of the Property Tax Commission,
the court shall decide all relevant
questions of law, interpret constitutional
and statutory provisions, and determine the
meaning and applicability of the terms of
any Commission action. The court may affirm
or reverse the decision of the Commission,
declare the same null and void, or remand
the case for further proceedings; or it may
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reverse or modify the decision if the
substantial rights of the appellants have
been prejudiced because the Commission’s
findings, inferences, conclusions or
decisions are:
(1) In violation of constitutional
provisions; or
(2) In excess of statutory authority or
jurisdiction of the Commission; or
(3) Made upon unlawful proceedings; or
(4) Affected by other errors of law; or
(5) Unsupported by competent, material and
substantial evidence in view of the entire
record as submitted; or
(6) Arbitrary or capricious.
N.C. Gen. Stat. § 105–345.2(b) (2011). “In making the foregoing
determinations, the court shall review the whole record or such
portions thereof as may be cited by any party and due account
shall be taken of the rule of prejudicial error.” N.C. Gen.
Stat. § 105–345.2(c).
The court may not consider the evidence
which in and of itself justifies the
Commission’s decision without also taking
into account the contradictory evidence or
other evidence from which conflicting
inferences could be drawn. . . . Therefore,
under N.C. Gen. Stat. § 105–345.2(b),
questions of law receive de novo review,
while issues such as sufficiency of the
evidence to support the Commission’s
decision are reviewed under the whole-record
test.
In re Blue Ridge Housing of Bakersville LLC, ___ N.C. App. ___,
___, 738 S.E.2d 802, 807 (citations, quotation marks, ellipses,
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and brackets omitted), app. dismissed and rev. allowed, ___ N.C.
___, 747 S.E.2d 526 (2013), disc. rev. improvidently allowed,
___ N.C. ___, 753 S.E.2d 152 (2014). “If the court finds
substantial evidence to support the Commission’s decision, the
Commission’s decision may not be overturned.” Matter of Moses H.
Cone Memorial Hosp., 113 N.C. App. 562, 571, 439 S.E.2d 778, 783
(1994), aff’d in part, 340 N.C. 93, 455 S.E.2d 431 (1995).
III. Analysis
Although Interstate frames its arguments on appeal as four
distinct issues, in reality, it raises but one. In essence, it
argues that the County used an illegal and arbitrary method of
valuation because it followed the Department of Revenue
schedules for the valuation of billboards without taking into
account local conditions in Johnston County.
A county’s ad valorem tax assessment is
presumptively correct. However, the taxpayer
may rebut this presumption by presenting
competent, material, and substantial
evidence that tends to show that (1) either
the county tax supervisor used an arbitrary
method of valuation; or (2) the county tax
supervisor used an illegal method of
valuation; and (3) the assessment
substantially exceeded the true value in
money of the property. Simply stated, it is
not enough for the taxpayer to show that the
means adopted by the tax supervisor were
wrong, he must also show that the result
arrived at is substantially greater than the
true value in money of the property
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assessed, i.e., that the valuation was
unreasonably high.
Once the taxpayer rebuts the initial
presumption, the burden shifts back to the
County which must then demonstrate that its
methods produce true values. The critical
inquiry in such instances is whether the
County’s appraisal methodology is the proper
means or methodology given the
characteristics of the property under
appraisal to produce a true value or fair
market value. To determine the appropriate
appraisal methodology under the given
circumstances, the Commission must hear the
evidence of both sides, to determine its
weight and sufficiency and the credibility
of witnesses, to draw inferences, and to
appraise conflicting and circumstantial
evidence, all in order to determine whether
the Department met its burden.
In re Parkdale Mills, ___ N.C. App. ___, ___, 741 S.E.2d 416,
419-20 (2013).
Thus, we must first consider whether there is substantial
evidence in the record, considering it as a whole, to support
the Commission’s conclusion that Interstate failed to carry its
burden of showing that Johnston County used an arbitrary or
illegal method of valuation.
N.C. Gen. Stat. § 105-291(g) (2011) authorizes the
Department of Revenue to “develop and recommend standards and
rules to be used by tax supervisors and other responsible
officials in the appraisal of specific kinds and categories of
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property for taxation.” The Local Government Division of the
Department of Revenue created a Billboard Structures Valuation
Guide (“Billboard Guide”) for tax years 2011 and 2012. Johnston
County used the guide to appraise Interstate’s billboards for
the relevant tax years.
The Billboard Guide recommended applying a replacement cost
approach to valuation because of the difficulty of acquiring the
information necessary to accurately value billboards using
either the income or sales comparison approaches.1 The schedule
was created based on data “extracted from material costs, labor,
and other integral components of billboard construction.”
George Hermane, the personal property manager for Johnston
County Tax Administration, testified that use of a sales or
income approach would not be possible because the necessary
information is not normally available. As a result, the
Billboard Guide suggests that “[t]he valuation of each sign . .
. be determined by calculating the replacement cost new (RCN)
and then deducting depreciation based on an effective age
depreciation schedule.”
The Billboard Guide divides billboards into four general
categories: (1) wood structures, (2) steel “A-Frame”
1
Replacement cost is a valid method of appraising personal
property under N.C. Gen. Stat. § 105-317.1(a)(1) (2011).
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structures, (3) multi-mast structures, and (4) monopole
structures. It then further divides the various classes of
billboards into subclasses based on the size, height, and number
of panels and design. The Billboard Guide also established
special guidelines for electronic displays, tri-fold, and tri-
vision billboards. Each one of these categories is assigned an
RCN value. There is also a schedule of depreciation which takes
into account the age of the billboard.
“The use of schedules of values and rules of application
not only makes the valuation of a substantial number of [pieces]
of property feasible, but also ensures objective and consistent
countywide property valuations and corollary equity in property
tax liability.” In re Allred, 351 N.C. 1, 10, 519 S.E.2d 52, 58
(1999). Nevertheless, use of a schedule alone “does not prove
that the valuation and assessment of the subject property was
itself not arbitrary.” In re Lane Company-Hickory Chair Div.,
153 N.C. App. 119, 125, 571 S.E.2d 224, 228 (2002).
Here, Interstate argues the use of the Billboard Guide in
Johnston County is arbitrary and illegal because it fails to
take into account the wind load and soil conditions in the area,
which could affect construction costs. But “the fact that
independent valuations of each [piece of personalty] might be
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more accurate than a mass appraisal does not make the county’s
method arbitrary. Considerations of practicality must enter into
the choice of method.” Appeal of Wagstaff, 42 N.C. App. 47, 49,
255 S.E.2d 754, 756 (1979). As our Supreme Court noted in McLean
Trucking, “[t]he task of examining and appraising each of the
thousands of [pieces of personalty in a given class] would be
almost impossible.” In re McLean Trucking Co., 281 N.C. 375,
387-88, 189 S.E.2d 194, 202 (1972) (citation, quotation marks,
and brackets omitted), app. dismissed and cert. denied, 409 U.S.
1099, 34 L. Ed. 2d 681 (1973).
“To avoid this, the County is justified in using some
recognized dependable and uniform method of valuing them.” Id.;
see also Appeal of Bosley, 29 N.C. App. 468, 471-72, 224 S.E.2d
686, 688 (noting that “[t]he difficulty of estimating the value
of household property makes it impossible to appraise each item
of such property precisely at actual market value”), disc. rev.
denied, 290 N.C. 551, 226 S.E.2d 509 (1976). “A uniform and
dependable method of property appraisal which gives effect to
the various factors that influence the market value of property
and results in equitable taxation does not violate the appraisal
provisions of the Machinery Act.” Bosley, 29 N.C. App. at 472,
224 S.E.2d at 688. Indeed, N.C. Gen. Stat. § 105-317.1(a)
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specifically permits an appraiser of personal property to
appraise either “each item” or a “lot of similar items.”
Interstate is not the only owner of billboards in Johnston
County and it alone owns more than 80 billboards in various
locations across the county. The impracticality of assessing
each and every billboard based on the precise soil conditions at
its base and wind load is a valid consideration for the county.
See Wagstaff, 42 N.C. App. at 49, 255 S.E.2d at 756.
Interstate presented various invoices for what it
considered “similar” signs in an attempt to demonstrate the
application of the Billboard Guide did not result in the true
value of the billboards. But these quotes were not for the
particular signs at issue. Interstate requested 10 estimates to
use for all of the signs. It then used the estimates to argue
that what it considered similar signs should be valued at the
amount quoted.
The estimates produced by Interstate often used dimensions
that did not match the actual billboards. Interstate used quotes
for smaller billboards to provide estimates for larger
billboards, some significantly so. For instance, Interstate
estimated the replacement costs for one 12’x 40’ sign that is
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65’ tall using a quote for a billboard 10’6” by 40’ and 40’
tall.
Moreover, we note that Interstate’s prices are based on
estimates provided by one of its regular suppliers. Mr. Hermane
explained that in “outdoor advertising . . . the structures are
sold in bulk transfers and often through other agreements that
would throw off the valuation.”
The appraisal of property for taxation
cannot be made to depend upon the number of
units of similar properties owned by the
taxpayer or upon the varying abilities of
the several taxpayers to negotiate for
favorable terms in buying or selling such
units. To hold otherwise would depart from
the principle of equality of appraisal which
is fundamental in the Machinery Act.
In re McLean Trucking Co., 281 N.C. at 387, 189 S.E.2d at 202.
Thus, there was substantial reason to doubt that the quotes
reflected the true value of the billboards.
Additionally, Interstate argues that it should have been
evident to the Commission that the 2011 and 2012 appraisals were
arbitrary and illegal because they were so much higher than the
2010 appraisal. But the 2010 appraisal was a compromise reached
between the parties for that tax year. Interstate cites no case
holding that a settlement concerning a prior tax year is
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substantial evidence that the appraisal should remain the same
into the future.
Given these facts, it was not illegal or arbitrary for
Johnston County to appraise Interstate’s billboards in bulk. The
method followed by Johnston County took into account the
relevant properties of the billboards, such as their size,
design, and age. Interstate has failed to show that the method
prescribed by the Billboard Guide produces a value significantly
higher than the true value. Therefore, we affirm the Property
Tax Commission’s Final Decisions as to both the 2011 and 2012
tax years.
IV. Conclusion
We affirm the Commission’s final decisions regarding both
the 2011 and 2012 tax years because Interstate failed to present
substantial evidence that the valuation method used by Johnston
County was arbitrary or illegal.
AFFIRMED.
Chief Judge MCGEE and Judge BRYANT concur.