Dublin City School District Board of Education v. Franklin County Board of Revision ( 1997 )

DUBLIN CITY SCHOOL DISTRICT BOARD OF EDUCATION, APPELLANT, v. FRANKLIN
COUNTY BOARD OF REVISION ET AL., APPELLEES.
[Cite as Dublin Bd. of Edn. v. Franklin Cty. Bd. of Revision (1997), 80 Ohio St. 3d
450.]
Taxation — Real property valuation — True value of 340-unit apartment complex
— Board of Tax Appeals’ finding that allocated purchase price did not
correspond with property’s fair market value reasonable and lawful, when.
(No. 97-34 — Submitted July 22, 1997 — Decided December 31, 1997.)
APPEAL from the Board of Tax Appeals, No. 95-J-948.
On November 18, 1994, Merry Land & Investment Company, Inc., appellee,
purchased a portfolio of twelve properties from Fogelman Secured Equity, L.P.,
for $154,413,500. This portfolio included Saw Mill Village, a 340-unit apartment
complex in the Dublin City School District. Merry Land and Fogelman allocated
$19,591,212.81 of the total purchase price to Saw Mill Village.
For tax year 1994, the Franklin County Auditor, appellant, had valued Saw
Mill Village at $15,400,000. Noting the November sale, the Dublin City School
District Board of Education (“Dublin”), appellant, filed a complaint with the
Franklin County Board of Revision (“BOR”), appellee, asserting that the true
value of the property for tax year 1994 was the amount Merry Land had allocated
to it. Merry Land filed a counter-complaint seeking to maintain the auditor’s
value. The BOR affirmed the auditor’s value, and Dublin appealed to the Board of
Tax Appeals (“BTA”).
At the BTA’s hearing, Dublin presented a certified copy of the real property
conveyance fee statement for the sale and a certified copy of the warranty deed.
These documents indicated that the purchase price for the property was
$19,591,212.81.
Merry Land presented as a witness Dorrie Green, its vice-president of
administration, to refute Dublin’s claim that the BTA should treat the allocated
price as the true value of Saw Mill Village. Green testified about Merry Land’s
strategy in purchasing the properties and allocating the purchase amount to Saw
Mill Village. Green testified that Merry Land established an artificially high
allocated price for Saw Mill Village because it planned to sell the property shortly
after the purchase. It planned to do this because it owned and operated apartment
properties in the southern United States and did not desire to operate a northern
property. A high allocated price, according to Green, would place it in a better
negotiating position with potential buyers. Furthermore, Merry Land was a real
estate investment trust, and any gain on a sale of property within four years of its
purchase would result in the gain being taxed for federal income taxes at one
hundred percent. A high allocated price would, thus, lessen Merry Land’s income
tax exposure. Finally, Merry Land had the option to delete any properties from the
purchase if the cost to repair any property’s defects exceeded a certain figure.
Merry Land hoped to delete Saw Mill Village from the purchase for this reason. A
high allocated amount would, consequently, reduce the overall purchase price
disproportionately.
Dublin objected to Green’s testimony, claiming that he lacked personal
knowledge of Merry Land’s strategy in allocating the purchase price because he
did not directly negotiate the sale. The BTA, however, overruled Dublin’s
objection and ruled that it would give this testimony “whatever weight we may
afford it.” The BTA afforded his testimony considerable weight in deciding this
case.
The BTA found, in accord with the witness’s testimony, “that the price
allocated to the subject property was based on the business needs of the company,
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and not upon market value. * * * In this instance, therefore, the Board finds that
the allocated purchase price does not correspond with the property’s fair market
value. The allocation was based upon factors which had no connection with the
property’s true value. Although the purchase price of the entire package may have
been negotiated, the price of the subject was not.”
After finding that the allocated price was not the value of the property, the
BTA reviewed, but rejected, an appraisal presented by Merry Land. The BTA
declared that Dublin had the burden of going forward to establish a value different
from the value found by the BOR and found that Dublin had not sustained this
burden. The BTA concluded that the evidence supports the conclusion reached by
the auditor and the BOR. Accordingly, the BTA adopted the BOR’s value,
$15,400,000.
This cause is now before this court upon an appeal as of right.
__________________
Teaford, Rich & Wheeler, Jeffrey A. Rich and Carol Cassell Fox, for
appellant.
Ronald J. O’Brien, Franklin County Prosecuting Attorney, and Matthew H.
Chafin, Assistant Prosecuting Attorney, for appellees Franklin County Board of
Revision et al.
Fred Siegel Co., L.P.A., and Annrita S. Johnson, for appellee Merry Land &
Investment Co., Inc.
__________________
Per Curiam. Dublin argues that the BTA based its decision on inadmissible
hearsay testimony and that the BTA unreasonably found that the allocated price
was not the true value of the property. We disagree and affirm the BTA’s
decision.
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In its third proposition of law, Dublin argues that Green did not have
personal knowledge of the facts about which he testified and that, consequently,
the BTA should not have admitted or relied on his testimony. Dublin contends
that Green’s lack of personal knowledge violates Evid.R. 602, which prohibits a
witness from testifying “to a matter unless evidence is introduced sufficient to
support a finding that he has personal knowledge of the matter.”
As we ruled in Orange City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd.
of Revision (1996), 74 Ohio St. 3d 415, 417, 659 N.E.2d 1223, 1224, the BTA need
not comply with the Rules of Evidence, but the rules may guide the BTA in
conducting its hearings. Yet, as Dublin argues, personal knowledge by a witness
of facts about which he testifies is a substantive rule of law that the BTA should
observe. Bucyrus v. Dept. of Health (1929), 120 Ohio St. 426, 430, 166 N.E. 370,
371.
I McCormick on Evidence (4 Ed.1992) 40, in commenting on the
requirement that a witness have firsthand knowledge of facts, states:
“One who has no knowledge of a fact except what another has told him
cannot, of course, satisfy the present requirement of knowledge from observation.
When the witness, however, bases his testimony partly upon firsthand knowledge
and partly upon the accounts of others, the problem is one which calls for practical
compromise. Thus when he speaks of his own age, or of his kinship with a
relative, the court will allow the testimony. And when the witness testifies to facts
that he knows partly at first hand and partly from reports, the judge, it seems,
should admit or exclude according to the reasonable reliability of the evidence.”
This quotation and the holding in Akron-Canton Waste Oil, Inc. v. Safety-
Kleen Oil Services, Inc. (1992), 81 Ohio App. 3d 591, 611 N.E.2d 955, convince us
that Green’s testimony exhibits reasonable reliability and that the BTA did not err
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in admitting and weighting it. In Akron-Canton Waste Oil, the court of appeals
approved admitting the testimony of a secretary who testified about the intention
of her corporate employer. The witness was in contact with the managers and
corporate employees and, basically, ran the office during her tenure. She received
instructions from her superiors to perform operations that disclosed their
intentions. The appeals court, first, ruled that the trial court enjoyed broad
discretion in admitting and excluding evidence, due to its superior vantage, and
that the court of appeals would not reverse admitting evidence absent a clear
showing of abuse, which the court of appeals did not find in that case. Then, the
court of appeals concluded that the secretary had based her testimony on her
personal knowledge. “Her description of her job duties also allowed an inference
that she would be in a position to know the reasons for the various practices of the
corporation.” Id. at 597, 611 N.E.2d at 960.
In this case, Green’s job allowed him similar access to information.
According to his testimony, he attended and participated in corporate management
meetings at which the sale and the strategy for allocating the purchase price were
discussed. He oversaw “property taxes, insurance, financial reporting, corporate,
federal and state income tax filings, among other things.” His duties included
administering the purchased properties. The BTA could infer that he collaborated
in devising the allocation strategy and could find that he incorporated the
allocation decision in his reporting and filing duties. Thus, he had sufficient
personal knowledge of the facts on the strategy of the purchase and the price
allocation. The BTA did not abuse its discretion in admitting the testimony or in
granting it the weight that it did. Orange City School Dist. Bd. of Edn. v.
Cuyahoga Cty. Bd. of Revision.
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In its first two propositions of law, Dublin essentially argues that the BTA’s
decision to reject the allocated purchase price for the given reasons was
unreasonable. In Conalco v. Monroe Cty. Bd. of Revision (1977), 50 Ohio St. 2d
129, 4 O.O.3d 309, 363 N.E.2d 722, paragraph two of the syllabus, we stated:
“In valuing real property sold within three days of the tax lien date in an
arm’s-length transaction, the best evidence of ‘true value in money’ is the proper
allocation of the lump-sum purchase price and not an appraisal ignoring the
contemporaneous sale.”
Later, in a further appeal of that case, Consol. Aluminum Corp. v. Monroe
Cty. Bd. of Revision (1981), 66 Ohio St. 2d 410, 414-415, 20 O.O.3d 357, 360, 423
N.E.2d 75, 78, we stated:
“The Board of Tax Appeals is not required, in every instance, and in all
events, to accept as the true value in money of real property, an allocation of a
portion of a lump-sum purchase price paid for a group of assets which included the
property in question, and where it finds a proper allocation of the lump-sum
purchase price to the property in question is not possible it may consider all of the
evidence which is before it in determining the true value in money of the
property.”
In this case, the BTA reasonably determined that the allocated purchase
price was not the true value of the property. Merry Land allocated a lump-sum
price among twelve properties. It settled on an allocation that benefited it for
business reasons. As the BTA determined, the allocation did not reflect the true
value of the property; instead, the allocation positioned Merry Land to gain a
financial advantage on a planned, quick resale of the property.
Tele-Media Co. of Addil v. Lindley (1982), 70 Ohio St. 2d 284, 24 Ohio Op. 3d
367, 436 N.E.2d 1362, does not govern this case, as Dublin contends. In Tele-
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Media, the taxpayer allocated a lump-sum purchase price to assets to take
advantage of federal income tax rules, claimed the allocation was higher than true
value, and listed a lower value in personal property tax returns filed with the Tax
Commissioner. The Tele-Media court held that the taxpayer, to establish a lower
true value than the sale price, had to prove that the allocation of the recent sale
was not the best evidence of the true value and that another indicator more
accurately represented the value. Ultimately, the court held that the taxpayer had
not presented sufficient, probative evidence to sustain a finding that another
indicator was a more accurate representative of the value.
Here, Dublin, as appellant, had the burden to persuade the BTA to increase
the value. Cincinnati School Dist. Bd. of Edn. v. Hamilton Cty. Bd. of Revision
(1997), 78 Ohio St. 3d 325, 677 N.E.2d 1197. It chose to stand on the allocated
price. As a hedge against the BTA’s rejecting this stand (indeed, the BOR had
rejected this position), it should have set out to prove that another indicator
established the true value of the property. It did not, and the BTA, without any
other credible evidence, correctly adopted the value determined by the BOR.
Cleveland Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision (1994), 68 Ohio St. 3d
336, 626 N.E.2d 933; Westlake Med. Investors, L.P. v. Cuyahoga Cty. Bd. of
Revision (1996), 74 Ohio St. 3d 547, 660 N.E.2d 467.
Accordingly, we affirm the decision of the BTA because it is reasonable and
lawful.
Decision affirmed.
MOYER, C.J., RESNICK, F.E. SWEENEY, PFEIFER, COOK and LUNDBERG
STRATTON, JJ., concur.
DOUGLAS, J., dissents.
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