Creekside at DTC, Ltd. v. Board of Assessment Appeals , 15 Brief Times Rptr. 294 ( 1991 )

Judge DUBOFSKY

dissenting.

I respectfully dissent as to Part II of the majority opinion.

For property tax valuation purposes, actual value is defined as “that value determined by appropriate consideration of the cost approach, the market approach, and the income approach to appraisal.” Section 39-l-103(5)(a), C.R.S. (1990 Cum.Supp.); Colo. Const, art. X, § 3(l)(a).

The majority determines that this requirement is met if the assessor makes a valuation based on the income approach even if, as here, the valuation is not ultimately used in determining the actual value of the property. The majority further determines that the income approach can be rejected if the assessor determines it is not relevant to determining the actual value. Here, the income approach was not used by the assessor because he believed that the sales price of other properties in the vicinity of this property was not substantially influenced by the income from those properties.

After reviewing this record, I believe that the Board of Assessment Appeals (BAA) abused its discretion in accepting the assessor’s valuation which did not factor in the income approach in determining actual value. I conclude the quality and quantity of evidence relied upon by the assessor to justify excluding consideration of the income approach in determining actual value here was inadequate to sustain his decision.

In Board of Assessment Appeals v. E.E. Sonnenberg & Sons, Inc., 797 P.2d 27 (Colo.1990), the court determined that in certain cases one or more of the three approaches, i.e., market, income, cost, might not be applicable in a particular case. In regard, however, to the income approach, the Sonnenberg court in fn. 8 stated:

“The income approach is a common method for calculating the value of commercial properties, especially apartment buildings, office buildings and shopping centers. It generally involves calculating the income stream (rent) the property is capable of generating, capitalized to value at a rate typical within the relevant market.” (emphasis added)

Since the sales price, or market value of most office buildings largely depends on the building’s income, tax valuations of office buildings should typically include the income approach in determining the property’s actual value for tax purposes. See Board of Assessment Appeals v. E.E. Sonnenberg & Sons, Inc., supra. Here, based upon a limited familiarity with a few sales, the assessor indicated that since income was not a significant factor in the sales price of those few office buildings, it could not be considered.

Since the record does not establish that the assessor had made an in depth, broad-based evaluation of other similar transactions, I do not believe there is a sufficient evidentiary basis to support the decision to entirely exclude consideration of the income approach in determining actual value.

Underlying the requirement that an assessor should give appropriate consideration to the income approach is the belief that such approach recognizes the property owner’s actual economic situation in relationship to the property. The income approach also gives some deference to the property owner's right to develop and use the property as he, not the assessor, determines.

I am also concerned that the aesthetic and environmental considerations which may underlie an owner’s development and use of his commercial property may be undercut if the income approach is not considered in determining the actual value of the property. The exclusion of the income approach in evaluating this property effectively punishes the owner for such aesthetic and environmental use of his property.

I am not, of course, suggesting that the income approach should be the exclusive basis for determining actual value in regard to office buildings. I do believe, however, that in virtually all instances involving the taxation of office buildings that the income approach should be a part of the analysis of the assessor in determining actual value.

In my view, the evidence here is insufficient to justify the board’s total exclusion of the income approach to this property. Thus, I would reverse the order of the BAA and would remand for a valuation premised, at least partially, on the income approach.