In Re Appeal of Pace/Dowd Properties Ltd.

NO. COA13-759
NORTH CAROLINA COURT OF APPEALS
Filed: 18 March 2014
IN THE MATTER OF: North Carolina Property Tax
APPEAL OF: Pace/Dowd Properties Commission
Ltd. from the decisions of the No. 10 PTC 638
Union County Board of Equalization
and Review regarding the
valuations of certain property for
tax year 2010.
Appeal by Union County from final decision entered 24
January 2013 by the North Carolina Property Tax Commission.
Heard in the Court of Appeals 20 November 2013.
K&L Gates LLP, by Samuel T. Reaves, for Pace/Dowd
Properties, Ltd.
Hamilton Stephens Steele & Martin, PLLC, by Rebecca K.
Cheney, for Union County.
McCULLOUGH, Judge.
Union County appeals from a decision by the North Carolina
Tax Commission, holding that Union County used an arbitrary
method of valuation in assessing two parcels of land owned by
Pace/Dowd Properties, Ltd. Based on the following reasons, we
affirm the decision of the North Carolina Tax Commission.
I. Background
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Union County appeals from a 24 January 2013 “Final
Decision” of the North Carolina Property Tax Commission
(“Commission”) concerning the tax value of two parcels of land
located within Union County. The two parcels of land at issue,
purchased by appellee Pace/Dowd Properties Ltd. (“Pace/Dowd”),
consist of Union County Tax Parcel Number 06-135-003 (“Parcel
3”) and Parcel Number 06-135-003A (“Parcel 3A”). Parcel 3 is
comprised of 216 acres of land. Pace/Dowd purchased it in 2005
for $11,212,500, with the intent to develop Parcel 3 as the
second and third phases of a residential development called
“Lawson” with 245 lots. Parcel 3A is comprised of 173.85 acres
of land. It was purchased in 2003 for $7,375,298, with the
intent to develop Parcel 3A as the fourth phase of the Lawson
development with 404 lots.
During Union County’s 2008 countywide general reappraisal,
Parcel 3 was valued by Union County at a property tax value of
$10,201,240 and Parcel 3A was valued at $1,135,420. In 2009,
Pace/Dowd did not appeal the tax valuations. However, in 2010,
Pace/Dowd contested the value of both parcels by filing an
appeal with the Union County Board of Equalization and Review
(“County Board”).
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Union County became aware it had wrongly classified Parcel
3A as a subdivision common area and notified Pace/Dowd that it
was increasing the tax value of Parcel 3A to $9,166,280
effective 1 January 2008 for tax years 2008, 2009, and 2010.
The County Board heard Pace/Dowd’s challenges to Union County’s
assessments on 22 June 2010 and declined to consider Pace/Dowd’s
appeal on Parcel 3 for tax years 2008 and 2009. Furthermore,
the County Board reduced the value of Parcel 3 from $10,201,240
to $7,975,200 effective 1 January 2010 and affirmed the
valuation of Parcel 3A at $9,166,280.
Subsequently, Pace/Dowd appealed to the Commission,
presenting several issues. First, Pace/Dowd argued that the
subject parcels were appraised in excess of the true value of
the subject property as of 1 January 2008. Pace/Dowd asserted
that the assigned values exceeded fair market value (“FMV”) as
defined in N.C. Gen. Stat. § 105-283 and that the FMV of Parcel
3 should be $2,400,000 and the FMV of Parcel 3A should be
$1,837,500. Next, Pace/Dowd argued that Union County applied an
arbitrary method of appraisal in reaching the following values:
Parcel 3 valued at $10,201,240 and later reduced to $7,975,220;
Parcel 3A valued at $1,135,420 and later increased to
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$9,166,280. Lastly, Pace argued that Union County improperly
“discovered” Parcel 3A for tax years 2008, 2009, and 2010.
Following hearings held on 15 February 2012 and 18 April
2012, the Commission entered the “Final Decision” on 24 January
2013. The Commission made the following findings of fact, in
pertinent part:
4. Under orders of the State of North
Carolina (the “State”), Union County
imposed a moratorium on new sewer taps in
February 2007. Thereafter, the State
denied Union County’s request to expand
its largest sewer treatment plant, and
the moratorium continued.
5. On September 17, 2007, Union County
adopted the “Policy for Allocating
Wastewater Treatment Capacity (“SAP”),
after which the State allowed Union
County to lift the moratorium.
6. Pursuant to the SAP, 50 lots within
Parcel [3] and 100 lots within Parcel
[3A] were included within the first
priority of properties to receive sewer
and permits and 449 lots from Parcel [3]
and [3A] were placed in the last priority
of properties to receive sewer permits.
Notwithstanding that [Pace/Dowd]
purchased the subject parcels at purchase
prices which included water and sewer
capacity for residential development, the
parcels were never developed.
7. As of the January 1, 2008 countywide
general reappraisal of all real property
in Union County, Parcel [3] was assessed
at a value of $10,210,240, and, based
upon [Pace/Dowd’s] 2010 appeal, the
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County Board reduced the assessment to a
value of $7,975,220; and, based upon
[Pace/Dowd’s] 2010 appeal, Union County
increased the assessed value of parcel
[3A] from $1,135,420 to $9,166,280 and
assigned the increased value of
$9,116,280 for tax years 2008, 2009 and
2010. Further, Union County has
collected taxes from [Pace/Dowd] based on
the increased value of Parcel [3A]
($9,166,280) for tax years 2008, 2009 and
2010.
8. Union County is required to value all
property for ad valorem tax purposes at
its true value in money, which is “market
value.” N.C. Gen. Stat. § 105-283. . . .
9. An important factor in determining the
property’s market value is its highest
and best use. The highest and best use
of the subject property, as improved,
would be residential development. . . .
10. However, under orders of [the State],
Union County imposed a moratorium on new
sewer taps in February 2007, which caused
declines in the market values of the
subject parcels. Accordingly, Union
County shall, whenever any real property
is appraised, consider the factors set
forth in N.C. Gen. Stat. § 105-317. In
particular, Union County shall consider
how the county’s sewer allocation policy
affects the market value of the subject
parcels, and the availability of water
and sewer to Parcels [3 and 3A].
11. Consequently, [Pace/Dowd] did rebut the
initial presumption of correctness as to
Union County’s assessments of the subject
parcels by offering evidence tending to
show that Union County used an arbitrary
method of assessment and that Union
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County’s assessments of the subject
parcels substantially exceeded the market
values of the parcels when the county
assessed Parcel [3] at a value of
$7,975,220; and by increasing the
valuation of Parcel [3A] from $1,135,420
to $9,166,280, and when Union County did
not consider the factors set forth in
N.C. Gen. Stat. § 105-317 (i.e. the
availability of water and sewer to
Parcels [3 and 3A]).
12. Accordingly, the burden then shifts to
Union County to go forward with the
evidence and to demonstrate that its
methods would in fact produce true
value[.]
13. [T]he Commission . . . determines that
Union County did not meet its burden
regarding the valuations of the subject
parcels when Union County did not
consider certain relevant factors, as
required by N.C. Gen. Stat. § 105-317[.]
14. Accordingly, the Commission, when
considering the expert testimony of Mr.
Willcox [sic], finds that the true value
in money, which is “market value,” as
that term is defined in N.C. Gen. Stat. §
105-283, for Parcel [3] was $3,987,600,
and the true value in money of Parcel
[3A] was $4,583,140.
The Commission concluded that Pace/Dowd rebutted the
presumption that Union County’s ad valorem tax assessment was
correct by showing that the county tax supervisor used an
arbitrary method of valuation and that the assessments
substantially exceeded the true value in money of the parcels.
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Furthermore, the Commission determined that the true value in
money of Parcel 3 was $3,987,600 and the true value in money of
Parcel 3A was $4,583,140 as of the 1 January 2008 appraisal.
Union County appeals.
II. Standard of Review
In reviewing a decision from the North Carolina Property
Tax Commission:
[this] 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
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) (2013).
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“[A]n act is arbitrary when it is done without adequate
determining principle.” In re Parkdale Mills, __ N.C. App. __,
__, 741 S.E.2d 416, 419 (2013) (citation omitted).
Our 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.G.S. § 105-
345.2(c).
The “whole record” test does not allow the
reviewing court to replace the
[Commission’s] judgment as between two
reasonably conflicting views, even though
the court could justifiably have reached a
different result had the matter been before
it de novo. On the other hand, the “whole
record” rule requires the court, in
determining the substantiality of evidence
supporting the [Commission’s] decision, to
take into account whatever in the record
fairly detracts from the weight of the
[Commission’s] evidence. Under the whole
evidence rule, the court may not consider
the evidence which in and of itself
justifies the [Commission’s] result, without
taking into account contradictory evidence
or evidence from which conflicting
inferences could be drawn.
In re Parkdale Mills, __ N.C. App. at __, 741 S.E.2d at 419
(citation omitted).
However, “the ‘whole record’ test is not a tool of judicial
intrusion; ‘instead, it merely gives a reviewing court the
capability to determine whether an administrative decision has a
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rational basis in the evidence.’” In re Appeal of Owens, 132
N.C. App. 281, 286, 511 S.E.2d 319, 323 (1999) (citation
omitted). “[T]his Court cannot reweigh the evidence presented
and substitute its evaluation for the Commission’s.” In re
Parkdale Mills, __ N.C. App. at __, 741 S.E.2d at 419 (citation
omitted). “If the Commission’s decision, considered in the
light of the foregoing rules, is supported by substantial
evidence, it cannot be overturned.” In re Appeal of Philip
Morris, 130 N.C. App. 529, 533, 503 S.E.2d 679, 682 (1998)
(citation omitted).
III. Discussion
On appeal, Union County argues that the Commission erred
by: (A) concluding that Pace/Dowd had rebutted the presumption
that Union County’s ad valorem tax assessment was correct by
finding that Union County used an arbitrary method of valuation,
resulting in a valuation of the parcels substantially exceeding
the true values; (B) finding that as of 1 January 2008, the true
values of the parcels were $3,987,600 for Parcel 3 and
$4,583,140 for Parcel 3A; and (C) concluding, in conclusion of
law number 3, that Pace/Dowd does not owe additional 2008 and
2009 taxes for Parcel 3A.
A. Union County’s Method of Valuation
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First, Union County asserts that the Commission erred by
concluding that Pace/Dowd had rebutted the presumption set out
in In re Appeal of Amp, Inc., 287 N.C. 547, 215 S.E.2d 752(1975). Union County argues that the Commission erroneously
found that Union County used an arbitrary method of valuation,
resulting in a valuation of the parcels which substantially
exceed the true value in money. We disagree.
In In re Appeal of Amp, Inc., 287 N.C. 547, 215 S.E.2d 752(1975), our Supreme Court stated that it is a “sound and []
fundamental principle of law in this State that ad valorem tax
assessments are presumed to be correct.” Id. at 562, 215 S.E.2d
at 761 (citation omitted). “[T]he presumption is only one of
fact and is therefore rebuttable.” Id. at 563, 215 S.E.2d at
762 (hereinafter “the Amp presumption”).
[I]n order for the taxpayer to rebut the
presumption he must produce 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.
Id. (citations and quotation marks omitted) (emphasis in
original). “[I]t is not enough for the taxpayer to show that
the means adopted by the tax supervisor were wrong, he must also
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show that the result arrived at is substantially greater than
the true value in money of the property assessed, i.e., that the
valuation was unreasonably high.” Id. (citation omitted)
(emphasis in original).
N.C. Gen. Stat. § 105-286(a) (2013) provides:
(a) Octennial Cycle. - Each county must
reappraise all real property in
accordance with the provisions of G.S.
105-283 and G.S. 105-317 as of January 1 of
the year set out in the following
schedule and every eighth year
thereafter[.]
N.C. Gen. Stat. § 105-283 (2013), entitled “Uniform appraisal
standards,” states that:
[a]ll property, real and personal, shall as
far as practicable be appraised or valued at
its true value in money. When used in this
Subchapter, the words "true value" shall be
interpreted as meaning market value, that
is, the price estimated in terms of money at
which the property would change hands
between a willing and financially able buyer
and a willing seller, neither being under
any compulsion to buy or to sell and both
having reasonable knowledge of all the uses
to which the property is adapted and for
which it is capable of being used.
When real property is being appraised, our General Assembly has
mandated that
it shall be the duty of the persons making
appraisals:
(1) In determining the true value of
land, to consider as to each
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tract, parcel, or lot separately
listed at least its advantages and
disadvantages as to location;
zoning; quality of soil;
waterpower; water privileges; . .
. adaptability for agricultural,
timber-producing, commercial,
industrial, or other uses;. . . .
and any other factors that may
affect its value except growing
crops of a seasonal or annual
nature.
N.C. Gen. Stat. § 105-317(a)(1) (2013) (emphasis added).
At the hearing before the Commission, Pace/Dowd called four
witnesses: Steven Pace, principal and president of Pace/Dowd who
was tendered as an expert in real property acquisition and
residential development; Robert Palmer Wilcox, Jr., an expert in
soil science; Alfred Tucker, an appraiser; and Phillip Every,
serving as an adverse witness.
Steven Pace testified that Pace/Dowd purchased the parcels
with the intention to develop Parcel 3 as phases 2 and 3 of the
Lawson development, with 245 lots, and to develop Parcel 3A as
phase 4 of the Lawson development, with 404 lots. When
Pace/Dowd purchased the parcels, Pace/Dowd did not have sewer
and water permits, but Steven Pace testified that he made the
purchases after he “confirmed [verbally] with Union County that
there would be absolutely no restrictions at all on me having
sewer and water to develop this site[.]” Steven Pace admitted
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that although he did not have written confirmation from Union
County, he did receive reasonable assurances from the Director
of Public Works that he would “be able to get sewer and water
without any restrictions for capacity or moratoriums.” At no
point during his testimony did Steven Pace testify as to Union
County’s method of valuing the parcels.
Robert Palmer Wilcox, Jr., a soil science expert with Soil
and Material Engineers, testified regarding his evaluation of
the septic system needs and sewer capacity of both parcels.
Wilcox testified that in September 2007, he performed a
preliminary soil evaluation of Parcel 3. Wilcox determined that
greater than fifty (50) to sixty (60) percent of Parcel 3 was
“in that category of not being able to be utilized for septic
suitability.” In January 2012, Wilcox separately evaluated
Parcel 3 and testified that there was no chance that the soil
conditions could have changed from 1 January 2008. Wilcox’s
findings in regards to Parcel 3A were “very identical” to the
findings of Parcel 3 “as there is very limited capacity to use
on-site septic systems[.]”
Phillip Every, appraisal manager of Union County and mass
appraiser certified by the State of North Carolina, testified
that he reviewed the final numbers for the 1 January 2008
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revaluation. Every testified, that as a mass appraiser valuing
93,000 parcels, he uses “models to capture valuation – to
reflect valuation in the marketplace and apply that to large
masses of the properties to come up with a, hopefully, rational,
reasonable reflection of the value of the property.” As part of
mass appraisal, a schedule of values (“SOV”) is developed.
Every testified that a SOV is “our means, our methods, our
numbers we’re going to use to determine valuation, and it has to
be approved by our commissioners.” “The objective of the
schedules is to develop standards by which all property is
valued at market value.” Every agreed that “for a property to
be developed residentially, you would have to have some sewer
and water available” and also agreed that all other things being
equal, “the value of property with access to sewer and water . .
. is greater than the value of the same property without the
access.”
In regards to the 1 January 2008 valuation, Every testified
that Union County was required by statute to appraise the
parcels at its true and actual value in money, which meant that
Union County “is required to consider each parcel separately
listed as to its particular advantages and disadvantages and its
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adaptability to particular uses.” Nonetheless, Every testified
to the following:
[Pace/Dowd:] Do you make a determination in
carrying out that analysis of what the
highest and best use of the property is?
[Every:] Yes.
[Pace/Dowd:] And did you make a
determination – did the County make a
determination with respect to the Pace
parcels as to what the highest and best use
of those parcels were as of the date of
revaluation?
[Every:] We valued it as raw land. Large
acreage, raw land.
[Pace/Dowd:] Did you value it as raw land
for residential construction or not for
residential construction?
[Every:] Just say large acreage of raw
land. We didn’t go any further than that.
. . . .
[Every:] We did not parse it down that
fine, no. We valued the land all of the
parts. We made no premium – put no premium
on it to be a subdivision.
. . . .
[Pace/Dowd:] Okay. Now, did you – did the
County, in conducting the reappraisal of
these lots in connection with the countywide
revaluation in January of 2008, take the SAP
into account?
[Every:] Directly, no.
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[Pace/Dowd:] When you say, “Directly, no,”
what do you mean?
[Every:] In that this problem had been
well-known for a great period of time, I
believe back to 2003, that the County was
our [SIC] sewer and water. I believe that
the sales we used, the majority of the sales
in this list were sold and bought knowing
that sewer and water was an issue. So I
believe that this problem was already
accounted for in these land sales. So I
believe in that way, yes, we did. Did we
then go out and do something in addition
after the sale? No, we didn’t.
Furthermore, Every testified that in selecting comparable
parcels to assist in valuing the parcels at issue, Union County
did not take sewer and water availability into account.
[Every:] [W]e weren’t going and looking
at these large-acreage tracts and go,
which ones have sewer and water, which
ones don’t. We just were looking at, we
have sales, and there are large-acreage
tracts, and we’ll use them for the
valuation of other large-acreage tracts.
The comparables Every used concerned sales of property made from
2004 through 2006. None of the comparables used were from dates
on or after Union County adopted the SAP in 2007. Also, in
selecting comparables, Every testified that Union County
selected comparables that were within the same school district.
When questioned regarding this method of selecting a comparable,
the following exchange occurred:
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[Pace/Dowd:] And, Mr. Every, do you have
any evidence that you’re prepared to present
that would say that the market value, the
school zones of raw, undeveloped land would
affect market value so significantly that
you’re only going to consider comparables in
the same school zone?
[Every:] I believe that location is a very
well-established appraisal principle. You
can get fairly close [geographically], and
we did that. . . . And I believe, again,
that in our – in our situation, schools are
a prime driver. . . .
[Pace/Dowd:] But – but beyond just that
general statement, you don’t have anything
specifically that would correlate property
value to the school zone?
[Every:] Do I have anything prepared for
you today? No.
Every explained that he did not rely on any data that supported
the idea that a specific school zone had a greater increase in
value over a property located in another school zone but rather
limited comparables to school zones because it was “the simplest
solution.”
Alfred Louis Tucker, Jr., also testified at the hearing.
Tucker, an expert witness for Pace/Dowd, testified that he owned
his own appraisal company, A.O. Tucker and Associates. Tucker
completed two appraisals of the properties; one on 29 June 2007
valued as of 12 June 2007, and one on 10 May 2011 valued as of 1
January 2008. The purpose of the June 2007 appraisal was for
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mortgage loan financing. As of 12 June 2007, Tucker appraised
Parcel 3 at $14,565,000 and Parcel 3A at $15,321,750, with both
of these values reflecting his assumption that sewer and water
would be available.
Tucker also performed an appraisal of the parcels in May of
2011 valued as of 1 January 2008, the date of the last Union
County tax revaluation. Parcel 3 was valued at $2,400,000 and
Parcel 3A was valued at $1,837,500. Tucker’s 2008 appraisal
took into consideration the SAP, providing that “[a]ccording to
local developers and officials in the Union County Public Works
Department, no water or sewer taps are expected to be available
to the [parcels] for some 6 to 8 years from January 1, 2008, the
date of the last Union County tax revaluation.” Union County
argues, and Pace/Dowd concedes, that the Commission extensively
questioned Tucker’s 2007 appraisal and ultimately did not adopt
his valuation or cite his opinion in the 24 January 2013 Final
Decision.
Union County argues that even if Pace/Dowd was able to
rebut the Amp presumption, Union County was able to establish
that its method of valuing the parcels produced true values.
Union County relies on Every’s testimony to support its
contention that there was no evidence to support the conclusion
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that Union County used an arbitrary appraisal method. However,
we find this argument to be without merit. The evidence
discussed above sufficiently supports the Commission’s finding
that Pace/Dowd rebutted the Amp presumption “by offering
evidence tending to show that Union County used an arbitrary
method of assessment . . . when Union County did not consider
the factors set forth in N.C. Gen. Stat. § 105-317 (i.e. the
availability of water and sewer to Parcels [3] and [3A]).”
Applying the whole record test, we conclude that the
Commission’s finding is rationally based on testimony provided
by Every, which established that Union County failed to consider
water and sewer availability in its valuation of the parcels.
Because the challenged findings and conclusions of the
Commission have a rational basis in the evidence and it is not
our duty to substitute our judgment for that of the Commission,
we overrule Union County’s arguments.
B. True Value of Parcel 3 and Parcel 3A as of 1 January 2008
Next, Union County argues that the Commission erred by
finding the true value of Parcel 3 to be $3,987,600 and Parcel
3A to be $4,583,140 as of the 1 January 2008 general reappraisal
where there was no competent evidence in the record to support
this valuation. We disagree.
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In the 24 January 2013 “Final Decision,” the Commission
found the following:
14. Accordingly, the Commission, when
considering the expert testimony of Mr.
Willcox [sic], finds that the true value in
money, which is “market value,” as that term
is defined in N.C. Gen. Stat. § 105-283, for
Parcel [3] was $3,987,600, and the true
value in money of Parcel [3A] was
$4,583,140.
In a footnote to finding of fact 14, the Commission stated that:
Based upon the expert testimony of Mr.
Robert P. Willcox [sic], Jr., L.S.S., an
expert in soil sites, Union County should
reduce the county’s values of Parcels [3]
and [3A] by fifty percent (50%). (See
Stipulation 3(w) stating that the county
contends the value of Parcel [3] to be
$7,975,200. ($7,975,200 divided by 50% =
$3,987,600 for Parcel [3] and $9,166,280
divided by 50% = $4,583,140 for Parcel
[3A]).
After thorough review, we conclude that the record
sufficiently supports the Commission’s finding that Union
County’s arbitrary method of assessment resulted in an
assessment of the parcels that substantially exceeded the market
values of the parcels. The Commission relied on Wilcox’s
testimony, which provided that greater than fifty (50) to sixty
(60) percent of the parcels was “in that category of not being
able to be utilized for septic suitability.” Based on Wilcox’s
expert testimony, the Commission reduced Union County’s values
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of the parcels by fifty percent (50%) resulting in values of
$3,987,600 ($7,975,200 divided by 50%) for Parcel 3 and
$4,583,140 ($9,166,280 divided by 50%) for Parcel 3A.
Accordingly, we overrule Union County’s arguments.
C. Conclusion of Law Number 3
In its last argument, Union County contends that the
Commission erred by concluding the following:
3. . . . Union County improperly “discovered”
Parcel [3A] for tax years 2008 and 2009
when N.C. Gen. Stat. § 105-287 is the
applicable statute regarding [Pace’s]
appeal.
Originally, after Pace/Dowd challenged Union County’s
property tax values of Parcel 3A in 2010, Union County sent
notice to Pace/Dowd that it had “discovered” Parcel 3A by
increasing the value to $9,166,280 for tax years 2008 and 2009.
This “discovery” implicates N.C. Gen. Stat. § 105-312 (2013),
titled “Discovered property; appraisal; penalty.” Union County
now argues that N.C.G.S. § 105-287 is not applicable to the case
sub judice and that N.C. Gen. Stat. § 105-394 is the correct
statute regarding Pace/Dowd’s appeal, allowing Union County to
recover taxes on the corrected value of Parcel 3A for years 2008
and 2009. We disagree.
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N.C. Gen. Stat. § 105-287, titled “Changing appraised value
of real property in years in which general reappraisal is not
made,” provides the following:
(a) In a year in which a general reappraisal
of real property in the county is not
made under G.S. 105-286, the property
shall be listed at the value assigned
when last appraised unless the value is
changed in accordance with this section.
The assessor shall increase or decrease
the appraised value of real property, as
determined under G.S. 105-286, to
recognize a change in the property’s
value resulting from one or more of the
following reasons . . . .
N.C.G.S. § 105-287(a) (2013). The statute proceeds to list
reasons such as: to correct a clerical or mathematical error; to
correct an appraisal error resulting from a misapplication of
schedules, standards, and rules used in the county’s most recent
general appraisal; to recognize an increase or decrease in the
value of the property resulting from a conservation or
preservation agreement, a physical change in the land or
improvements on the land, and a change in the legally permitted
use of the property, etc. Id.
N.C. Gen. Stat. § 105-394, titled “Immaterial
irregularities,” provides the following:
Immaterial irregularities in the listing,
appraisal, or assessment of property for
taxation or in the levy or collection of the
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property tax or in any other proceeding or
requirement of this Subchapter shall not
invalidate the tax imposed upon any property
or any process of listing, appraisal,
assessment, levy, collection, or any other
proceeding under this Subchapter.
N.C.G.S. § 105-394 (2013). Examples of immaterial
irregularities are listed. Union County argues that “[t]he
failure to list, appraise, or assess any property for taxation
or to levy any tax within the time prescribed by law” is the
applicable subsection to the facts before us. N.C.G.S. § 105-
394(3).
Union County relies on two cases for their arguments: In
re Appeal of Morgan, 186 N.C. App. 567, 652 S.E.2d 655, (2007),
rev’d, 362 N.C. 339, 661 S.E.2d 733 (2008), and In re Appeal of
Dickey, 110 N.C. App. 823, 431 S.E.2d 203 (1993). However, we
find both of the cases to be distinguishable from our present
case and hold neither of these cases to be controlling.
In Morgan, although the taxpayers had listed their
residence on the county tax listing form in 1993 and an
appraiser with Henderson County’s Tax Assessor’s Office visited
the taxpayers’ property during countywide reappraisals in 1999
and 2003, the tax assessor failed to assess any taxes on the
residence from the years 1995 through 2003. Morgan, 186 N.C.
App. at 568, 652 S.E.2d at 656. In 2004, Henderson County’s Tax
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Assessor’s Office finally assessed taxes on the residence and
asserted that the taxpayers owed back taxes and interest in the
amount of $8,533.61 for tax years 1995 through 2003. Id. The
Commission concluded, and our Court affirmed, that the failure
of the tax assessor to assess taxes on the residence was not an
“immaterial irregularity” pursuant to N.C.G.S. § 105-394 and
barred Henderson County from attempting to collect back taxes.
Id. Our Court held that N.C.G.S. § 105-394 was “intended to
cover cases where there is no dispute that but for the clerical
error, the tax would have been valid.” Id. at 571, 652 S.E.2d
at 658 (citation omitted) (emphasis in original). Henderson
County’s failure to assess the residence was not an “immaterial
irregularity” because it was neither a clerical nor
administrative error. Id. at 570, 652 S.E.2d at 657. In a
dissenting opinion, Judge Geer stated that the plain language of
N.C.G.S. § 105-394 did not require that the failure to assess
any property for taxation be due to a clerical or administrative
error. Rather, Judge Geer opined that Henderson County’s
failure to assess the taxpayers’ residence within the time
prescribed by law constituted an immaterial irregularity
pursuant to N.C.G.S. § 105-394 and that it did not invalidate
the tax levied on the property. Id. For the reasons stated in
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Judge Geer’s dissent, our Supreme Court reversed the Court of
Appeal’s opinion in In re Appeal of Morgan, 362 N.C. 339, 661
S.E.2d 733 (2008).
In Dickey, the taxpayers purchased a lot and a newly
constructed house in 1988 for $272,500.00. The taxpayers
submitted their “1989 Property Tax Listing” and the 1989 tax
bill from Forsyth County assessed the taxpayers’ real property
valued at $37,500.00. Dickey, 110 N.C. App. at 824, 431 S.E.2d
at 204. In 1990, the tax assessor notified the taxpayers that
their property “ha[d] been taxed improperly” for the year 1989.
The tax assessor, “pursuant to N.C.G.S. § 105-312 (discovered
property), added to the previously assigned value the sum of
$185,500.00, and assessed the [taxpayers] an additional
$2,094.30 in taxes.” Id. at 825, 431 S.E.2d at 204. The
taxpayers appealed to Forsyth County, which dismissed their
appeal. Id. The taxpayers then appealed to the Commission, and
the Commission found that the taxpayers properly listed their
house on the property tax listing dated 17 January 1989 “on a
portion of the listing form which was designed to be torn off if
it was not completed.” The Commission stated that “[a]fter
receipt by the County, this portion of the form was removed and
destroyed even though it had been completed by the [taxpayers.]”
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Id. at 825, 431 S.E.2d at 204. Because the taxpayers submitted
a timely and accurate property tax listing, the improvements on
the taxpayers lot were not considered “discovered” property
under N.C.G.S. § 105-312. Furthermore, the Commission found
that because the tax assessor appraised the house at a value of
$0.00 for the tax year 1989, pursuant to N.C.G.S. § 105-287, the
assessor was authorized to reappraise the house in 1990. Such
reappraisal was effective as of 1 January of the year in which
it is made and was not retroactive. Id. at 825, 431 S.E.2d at
205. Forsyth County appealed. Our Court held that because the
tax assessor never “appraised” the taxpayer’s house for tax
purposes in 1989 as defined in N.C.G.S. § 105-2731, N.C.G.S. §
105-287 had no application. “There is no evidence that the
Assessor prior to 1990 attempted to ascertain the true value of
the [taxpayers’] house, and it is undisputed that the true value
of the house in 1989 was not zero dollars.” Id. at 828, 431
S.E.2d at 206. Forsyth County argued that the tax assessor’s
failure to levy any tax on the house was an “immaterial
irregularity” and our Court agreed that N.C.G.S. § 105-394
applied since it had been previously established that “a
1
N.C. Gen. Stat. § 105-273 (2013) defines “appraisal” as “[t]he
true value of property or the process by which true value is
ascertained.”
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clerical error by a tax supervisor’s office is an immaterial
irregularity under G.S. 105-394 so as not to invalidate the tax
levied on the property.” Id. at 829, 431 S.E.2d at 207 (citing
In re Notice of Attachment, 59 N.C. App. 332, 333-34, 296 S.E.2d
499, 500 (1982)).
In both Morgan and Dickey, the properties at issue had
never been “appraised” as defined in N.C. Gen. Stat. § 105-273or assessed for taxation purposes. The facts in both Morgan and
Dickey support the conclusion that the tax assessors’ actions
constituted an “immaterial irregularity” pursuant to N.C.G.S. §
105-394, in that the assessors failed “to list, appraise, or
assess any property for taxation or to levy any tax within the
time prescribed by law.” N.C.G.S. § 105-394(3) (2013). In the
case sub judice, Union County did not fail to appraise the
parcels for the years 2008 and 2009. To the contrary, Union
County appraised the parcels, but did so using an arbitrary
method of valuation that resulted in an assessment that
substantially exceeded the true value of the parcels.
Based on the foregoing, the Commission did not err by
concluding that N.C.G.S. § 105-287 applied to Pace/Dowd’s
appeal, as Union County attempted to change the value of the
parcels in a year in which a general reappraisal was not made.
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Furthermore, the Commission did not err by holding that Union
County “improperly ‘discovered’ Parcel [3A] for tax years 2008
and 2009” as the General Assembly has stated that “[a]n increase
or decrease in appraised value made under this section is
effective as of January 1 of the year in which it is made and is
not retroactive.” N.C.G.S. § 105-287(c).
Affirmed.
Judges ELMORE and DAVIS concur.