Westerville City School Dist. Bd. of Edn. v. Franklin Cty. Bd. of Revision (Slip Opinion) , 154 Ohio St. 3d 308 ( 2018 )

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Westerville City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2018-
Ohio-3855.]
NOTICE
This slip opinion is subject to formal revision before it is published in an
advance sheet of the Ohio Official Reports. Readers are requested to
promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
South Front Street, Columbus, Ohio 43215, of any typographical or other
formal errors in the opinion, in order that corrections may be made before
the opinion is published.
SLIP OPINION NO. 2018-OHIO-3855
WESTERVILLE CITY SCHOOLS BOARD OF EDUCATION, APPELLEE AND CROSS-
APPELLANT, v. FRANKLIN COUNTY BOARD OF REVISION ET AL., APPELLEES;
GC NET LEASE (WESTERVILLE) INVESTORS, L.L.C., APPELLANT AND CROSS-
APPELLEE.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Westerville City Schools Bd. of Edn. v. Franklin Cty. Bd. of
Revision, Slip Opinion No. 2018-Ohio-3855.]
Real-property valuation—R.C. 5713.03—Recent arm’s-length-sale price of real
property is the best evidence of value, but taxing authorities must also
consider any other evidence presented by the parties that is relevant to the
value of the property—Board of Tax Appeals’ decision vacated and cause
remanded.
(No. 2016-0902—Submitted June 12, 2018—Decided September 26, 2018.)
APPEAL and CROSS-APPEAL from the Board of Tax Appeals, Nos. 2015-828 and
2015-1165.
____________________
SUPREME COURT OF OHIO
Per Curiam.
{¶ 1} At issue in this real-property tax case is the 2013 value of a single-
tenant office building occupied by J.P. Morgan Chase under a net lease. Under
R.C. 5713.03 as amended by 2012 Am.Sub.H.B. No. 487 (“H.B. 487”), the fee-
simple estate must be valued as if unencumbered. The question presented is
whether the Board of Tax Appeals (“BTA”) acted reasonably and lawfully by
adopting the property’s sale price without considering the appraisal offered by the
property owner. Under Terraza 8, L.L.C. v. Franklin Cty. Bd. of Revision, 150 Ohio
St.3d 527, 2017-Ohio-4415, 83 N.E.3d 916, it is clear that the BTA did not properly
perform its fact-finding duties in this case. As in Terraza 8, we conclude that the
proper remedy is to vacate the BTA’s decision and remand the case for further
proceedings.
I. Background
{¶ 2} On March 24, 2014, appellee and cross-appellant, the Westerville
City Schools Board of Education (“BOE”), filed a complaint challenging the
auditor’s 2013 value of $35,500,000 for the 388,669-square-foot single-tenant
office building at issue. The building is a multistory structure that was constructed
in 1974, expanded in 1983, and renovated in 1999. The BOE advocated adoption
of a November 2013 sale price of $44,500,000 as the property value based on the
conveyance-fee statement and deed, which the BOE presented at the hearing before
appellee Franklin County Board of Revision (“BOR”).
{¶ 3} At that hearing, the owner, appellant and cross-appellee, GC Net
Lease (Westerville) Investors, L.L.C., presented the appraisal report and testimony
of Samuel D. Koon, a member of the Appraisal Institute. The BOE objected to the
submission of this evidence, arguing that it was not admissible as evidence of value,
because GC Net Lease had not rebutted the presumption that the sale price was the
best evidence of the value of the property. GC Net Lease’s counsel pointed to H.B.
487’s amendments to R.C. 5713.03 and argued that the appraisal evidence was
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January Term, 2018
admissible to establish the value of the unencumbered fee-simple value of the
property, which had been sold subject to an existing lease. The appraiser opined a
fee-simple value of $24,800,000 as of January 1, 2013, based on his reconciliation
of valuations under an income approach and a sales-comparison approach.
{¶ 4} The lease on the property resulted from a February 2010 sale-
leaseback transaction under which the recorded sale price was $32,500,000. In
October 2010, the property transferred for $35,500,000, which evidently formed
the basis for the auditor’s initial valuation.
{¶ 5} According to Koon, the November 2013 sale was a “portfolio sale” of
18 properties located in multiple states; Koon noted that GC Net Lease’s parent
company reported to the Securities and Exchange Commission that $44,500,000 of
the aggregate sale price was allocated to the subject property. The BOE objected
on hearsay grounds to the appraiser’s testimony regarding the specific
circumstances of the 2013 sale. Neither the BOR nor the BTA specifically ruled
on that objection. In any event, GC Net Lease has not challenged the allocation of
$44,500,000 to the sale of the property at issue.
II. Procedural history
{¶ 6} The record contains the June 11, 2015 BOR deliberation adopting the
$44,500,000 sale price as the tax-year-2013 property value. Nonetheless, the
BOR’s June 18, 2015 decision letter indicated a property value of $27,928,600; the
BOE appealed that decision to the BTA on July 10, 2015.
{¶ 7} On July 15, 2015, the BOR issued a “corrected” decision letter
indicating a property value of $44,500,000, which GC Net Lease appealed to the
BTA. The BTA consolidated the two cases and held a hearing. The BOE appeared
at the hearing in order to ask for a briefing schedule. GC Net Lease waived a
hearing, but according to the BTA’s decision, GC Net Lease did submit a statement
arguing that the BOR lacked jurisdiction to issue the July 15 decision.
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{¶ 8} In its decision, the BTA held that the BOR lacked jurisdiction to issue
the corrected decision letter because the BOE had already prosecuted an appeal to
the BTA from the first letter. BTA Nos. 2015-828 and 2015-1165, 2016 WL
3401901, at *2 (May 19, 2016). There was no appeal from that determination.
{¶ 9} Turning to the merits, the BTA noted that the applicable version of
R.C. 5713.03, that is, R.C. 5713.03 as amended by H.B. 487, calls for valuing the
“fee simple estate, as if unencumbered.” Nonetheless, the BTA adhered to caselaw
that applied an earlier version of R.C. 5713.03 and that emphasized the use of the
sale price to determine value. Thus, the BTA rebuffed GC Net Lease’s contention
that appraisal evidence should be considered to ensure that the property was valued
“as if unencumbered” by the existing lease; the BTA relied heavily on the caselaw
relating to tax years before H.B. 487 became effective for the pronouncement that
“ ‘it would never be proper to adjust a recent arm’s-length sale price because of an
encumbrance.’ ” 2016 WL 3401901 at *4, quoting HIN, L.L.C. v. Cuyahoga Cty.
Bd. of Revision, 138 Ohio St. 3d 223, 2014-Ohio-523, 5 N.E.3d 637, ¶ 24.
Accordingly, the BTA adopted the November 2013 sale price, $44,500,000, as the
property value for tax year 2013. GC Net Lease appealed from that decision. The
BOE cross-appealed, arguing that the pre–H.B. 487 version of R.C. 5713.03 applies
in this case.
III. Analysis
A. The H.B. 487 version of R.C. 5713.03 applies in this case, and
appraisal evidence is admissible and relevant
{¶ 10} We can easily resolve the issue raised by the BOE on cross-appeal
regarding which version of R.C. 5713.03 applies here. In Terraza 8, we held that
“the H.B. 487 version [of R.C. 5713.03] applies to valuations for tax year 2013.”
150 Ohio St. 3d 527, 2017-Ohio-4415, 83 N.E.3d 916, at ¶ 18. GC Net Lease
correctly contends that the BTA’s analysis conflicts with this court’s construction
and application of R.C. 5713.03 set forth in Terraza 8. In Terraza 8, we held that
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January Term, 2018
the H.B. 487 amendments to R.C. 5713.03 overrode 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, under which a voluntary, recent arm’s-length sale was taken to be an
absolute and irrebuttable criterion of value. Terraza 8 at ¶ 26-30. At the same time,
however, we held that the H.B. 487 amendments to R.C. 5713.03 did not change
the sale-price-as-best-evidence-of-value standard that predates Berea and is
traceable to Conalco, Inc. v. Monroe Cty. Bd. of Revision, 50 Ohio St. 2d 129, 363
N.E.2d 722 (1977); State ex rel. Park Invest. Co. v. Bd. of Tax Appeals, 175 Ohio
St. 410, 195 N.E.2d 908 (1964); and Ratner v. Stark Cty. Bd. of Revision, 23 Ohio
St.3d 59, 491 N.E.2d 680 (1986), overruled, Berea. We stated in Terraza 8 that
“[n]othing suggests that [in amending R.C. 5713.03] the General Assembly
intended to depart from [the] longstanding rule” that the best evidence of real-
property value “ ‘is an actual, recent sale of the property in an arm’s-length
transaction.’ ” Terraza 8 at ¶ 33, quoting Conalco at paragraph one of the syllabus.
{¶ 11} But we noted in Terraza 8 that the H.B. 487 amendments to R.C.
5713.03 make the presumption that a sale price indicates the market value of the
unencumbered fee-simple estate a rebuttable presumption:
The statutory amendment thus allows taxing authorities to consider
non-sale-price evidence—particularly evidence of encumbrances
and their effect on sale price—in determining the true value of
property that has been the subject of a recent arm’s-length sale.
Terraza 8 at ¶ 27.
{¶ 12} Just as the BTA did in its decision on appeal in Terraza 8, the BTA’s
approach to the value issue in the present case perpetuates the Berea rule in
contravention of the H.B. 487 amendments to R.C. 5713.03. Citing caselaw that
relied on Berea, the BTA stated that the sale price constituted true value unless the
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SUPREME COURT OF OHIO
sale’s voluntary, recent, and arm’s-length character had been impugned. In
particular, the BTA emphasized our pronouncement in HIN, 138 Ohio St. 3d 223,
2014-Ohio-523, 5 N.E.3d 637, at ¶ 24, citing Cummins Property Servs., L.L.C. v.
Franklin Cty. Bd. of Revision, 117 Ohio St. 3d 516, 2008-Ohio-1473, 885 N.E.2d
222, ¶ 25-26, that “ ‘it would never be proper to adjust a recent arm’s-length sale
price because of an encumbrance.’ ” 2016 WL 3401901 at *4.
B. Under R.C. 5713.03, no threshold showing is required
before a tax tribunal must give full consideration to appraisal
evidence
{¶ 13} The BOE argues that Terraza 8 does not call for vacating the BTA’s
decision and remanding here, because the BTA relied on pre-Berea caselaw in
declining to consider Koon’s appraisal. Namely, in rejecting the appraisal and
upholding the sale price, the BTA quoted and relied on Pingue v. Franklin Cty. Bd.
of Revision, 87 Ohio St. 3d 62, 64, 717 N.E.2d 293 (1999), to conclude that “ ‘[i]t
is only when the purchase price does not reflect the true value that a review of
independent appraisals based upon other factors is appropriate.’ ” 2016 WL
3401901 at *6. According to the BOE, this precept requires the proponent of non–
sale-price evidence to impugn the sale in some way before appraisal evidence
becomes relevant and admissible. Indeed, in cases decided while the holding of
Berea was in effect, the evidence of a qualifying sale precluded consideration of an
appraiser’s opinion of value unless the recency, arm’s-length character, or
voluntariness of the sale had been rebutted. Columbus City Schools Bd. of Edn. v.
Franklin Cty. Bd. of Revision, 146 Ohio St. 3d 470, 2016-Ohio-757, 58 N.E.3d
1126, ¶ 5-8, 14, 19-20. And at oral argument, the BOE’s counsel asserted that
under Terraza 8, “the burdens with respect to an arm’s-length sale had not changed”
in this respect.
{¶ 14} But R.C. 5713.03 as amended by H.B. 487 provides no support for
the BOE’s position. Quite simply, the BOE’s argument overlooks the significance
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January Term, 2018
of the twofold change the legislature made when it amended that section in
September 2012. Not only did the legislature codify the proposition that the tax
assessor should value “the fee simple estate, as if unencumbered,” it also changed
the statutory pronouncement that the assessor “shall” consider a recent arm’s-length
sale price “to be the true value for taxation purposes” to say that the assessor “may”
consider the sale price to be the true value. H.B. 487. While Terraza 8 establishes
that this latter change does not overturn the sale-price-as-best-evidence-of-value
rule, changing “shall” to “may” does establish that appraisal evidence is admissible
and competent evidence of value alongside a sale price and that the fact-finder has
a duty to consider whether the appraisal constitutes a more accurate valuation of
the property than the sale price. See Bronx Park S. III Lancaster, L.L.C. v. Fairfield
Cty. Bd. of Revision, ___ Ohio St.3d ___, 2018-Ohio-1589, ___ N.E.3d ___, ¶ 12
(“when property was the subject of a recent arm’s-length sale, the General
Assembly [by amending R.C. 5713.03 in H.B. 487] has directed taxing authorities
to consider not just the sale price but also any other evidence the parties present
that is relevant to the value of the unencumbered fee-simple estate”).
{¶ 15} By making appraisal evidence generally admissible and competent,
the statutory amendments return the approach to valuing real property to what it
was before Berea. Both the BTA and the BOE cite the pre-Berea case Pingue, 87
Ohio St. 3d 62, 717 N.E.2d 293, in support of their position that reliance on appraisal
evidence is not appropriate when there has been a sale whose recency has not been
impugned, but neither mentions that the lead opinion in that case reflected the view
of only three justices. See Kraly v. Vannewkirk, 69 Ohio St. 3d 627, 633, 635 N.E.2d
323 (1994) (noting that an earlier decision of the court was “of questionable
precedential value inasmuch as it was a plurality opinion which failed to receive
the requisite support of four justices of this court in order to constitute controlling
law”). Justice Pfeifer, who provided the fourth vote for the judgment in Pingue,
took a very different approach from the plurality. He made clear that he believed
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that appraisal evidence was the best way to determine value and that he concurred
in the judgment because the appraisal evidence in that case was faulty. Pingue at
66 (Pfeifer, J., concurring).
{¶ 16} A pre-Berea case that garnered four justice votes is Ratner, 23 Ohio
St.3d 59, 491 N.E.2d 680. Ratner made clear that appraisal evidence was
admissible and competent even when a sale price was proposed as establishing the
property’s value. In Ratner, the court reversed a BTA decision that had adopted
the stated sale price without considering the appraisal opinions. This court noted
that “the taxpayer presented testimony from two appraisers using traditional
valuation methods to establish that the contract sale price did not reflect true value.”
Id. at 61. Moreover, we find it significant that Berea explicitly overruled Ratner.
See Berea, 106 Ohio St. 3d 269, 2005-Ohio-4979, 834 N.E.2d 782, at ¶ 13. By
overriding Berea in enacting H.B. 487’s amendments to R.C. 5713.03, the
legislature reinstated Ratner’s approach, under which appraisal evidence is
admissible and competent evidence of value even in cases in which a sale price has
been offered as evidence of value. In other words, H.B. 487’s amendment to R.C.
5713.03 has restored the pre-Berea principle that “the sale price is the best evidence
but not the only evidence of true value.” Ratner v. Stark Cty. Bd. of Revision, 35
Ohio St. 3d 26, 29, 517 N.E.2d 915 (1988).
IV. Conclusion
{¶ 17} For the foregoing reasons, we vacate the decision of the BTA and
remand the cause for further proceedings. On remand, the BTA must consider the
appraisal evidence alongside the sale price as evidence of the property’s value and
give due consideration to whether the sale price reflects the value of the
unencumbered fee-simple estate. The BTA must decide the cause on the existing
record, see Bronx Park, ___ Ohio St.3d ___, 2018-Ohio-1589, ___ N.E.3d ___, at
¶ 13, but must consider any objections that were timely advanced by the BOE
against the evidence offered by GC Net Lease.
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January Term, 2018
Decision vacated
and cause remanded.
O’CONNOR, C.J., and O’DONNELL, KENNEDY, FRENCH, FISCHER, DEWINE,
and DEGENARO, JJ., concur.
_________________
Rich & Gillis Law Group, L.L.C., Mark H. Gillis, Karol C. Fox, Kelley A.
Gorry, Kimberly G. Allison, and Richelle L. Thoburn, for appellee and cross-
appellant.
Sleggs, Danzinger & Gill Co., L.P.A., and Todd W. Sleggs, for appellant
and cross-appellee.
_________________
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