Green v. Schuylkill County Board of Assessment Appeals

730 A.2d 1017, 1999 Pa. Commw. LEXIS 373

• Court: Commonwealth Court of Pennsylvania
• Decided: May 7, 1999
• Status: Published

Opinions

LEADBETTER, Judge.

Schuylkill County Board of Assessment Appeals (Board) appeals from the order of the Court of Common Pleas of Schuylkill County (trial court) determining that the real estate owned by Robert and Judith Green (Greens) had a fair market value in 1997 of $360,000.00. At issue is whether the trial court misconstrued this Court’s decision in 841 Associates v. Board of Revision of Taxes, 674 A.2d 1209 (Pa.Cmwlth.1996) in evaluating and accepting the Greens’ expert testimony regarding the fair market value of their property, and if not, whether 841 Associates should be overruled.

Pursuant to a countywide reassessment for 1997, the Greens’ home, a 6,344 square foot residence situated on 1.8 acres, was assessed based upon a fair market value of $612,580.00! The Greens appealed the assessment to the Board, which denied the appeal following a hearing. The Greens again appealed and a hearing de novo before the trial court followed.

At the subsequent hearing, the Board presented its assessment record into evidence and then rested. In response, the Greens presented the testimony of an expert witness, Anthony Matsell, who opined that the property had a fair market value of $360,000.00. Matsell testified that he relied primarily on the comparable sales method in reaching this conclusion. According to Matsell, the property was over-improved given its geographical location¹ and, therefore, the cost method was not a reliable indicator of the property’s fair market value.²

In using the comparable sales method, Matsell testified that he had difficulty finding comparable sales for the Green property due to its size and location. He further stated that he did not find any properties that sold at a price over $400,000.00 or $450,000.00. Matsell ultimately chose three comparables, which ranged in size from 3,000 to 3,900 square feet and in price from $252,500.00 to $415,000.00. After computing adjusted sales prices for the comparables, Matsell relied on these to calculate his valuation of $360,000.00.

Based on the evidence presented, the trial court determined that the Green property had a fair market value of $360,-000. In doing so, the trial court stated:

Although we found the testimony of Mr. Matsell to be somewhat suspect, we are unable to conclude that it completely lacks credibility. Thus, because the [Greens’] evidence is unrebutted, we are constrained to accept the valuation of the [Greens’] expert. 841 Associates v. Board of Revision, [674 A.2d 1209 (Pa.Cmwlth.1996)].

Green v. Schuylkill County Bd. of Assessment Appeals, No. S-2253-1996 (Schuylkill Cty., filed May 30, 1997) (emphasis supplied). In its subsequent opinion pursuant to Pa. R.A.P.1925, the trial court opined that while it accepted Matsell’s testimony that the property was super-improved given its location, it found suspect Matsell’s testimony that it was impossible to find a comparable in excess of the fair market value that he had placed upon the property. In this regard, the court noted that Matsell’s third comparable, a similar sized property with fewer improvements, had an unadjusted sales value of $415,000.00, and an adjusted sales value of $444,000.00. The court also noted, inter alia, that Mat-sell’s reasons for relying more heavily on the first two comparables rather than on the third comparable were not compelling. Despite the aforesaid credibility findings, the trial court, interpreting 841 Associates to mandate that the valuation of an unre-butted expert who is found to provide some credible testimony must be accepted in toto, concluded that it was compelled to accept Matsell’s valuation. According to the trial court, if it were free to accept only part of Matsell’s testimony, as it could with any other witness, it would find a fair market value somewhat above Matsell’s opinion. See Green v. Schuylkill County Bd. of Assessment Appeals, No. S-2253-1996 (Schuylkill Cty., filed July 30, 1997) (opinion pursuant to Pa. R.A.P.1925). The instant appeal followed.

On appeal, the Board maintains that the trial court erred as a matter of law in interpreting 841 Associates to provide that in an assessment case, the unrebutted testimony of the taxpayer’s expert must be accepted if such testimony is not completely lacking in credibility. According to the Board, the trial court’s reading of 841 Associates creates an entirely new standard of credibility to be applied to expert witnesses as it precludes the traditional standard, which allows the fact-finder to accept all, part or none of an expert’s testimony.

Before reviewing 841 Associates, we first note the burdens of proof in a tax assessment case. In Deitch Company v. Board of Property Assessment, 417 Pa. 213, 209 A.2d 397 (1965), our Supreme Court described the de novo proceedings as follows:

[T]he taxing authority first present[s] its assessment record into evidence. Such presentation makes out a prima facie case for the validity of the assessment in the sense that it fixes the time when the burden of coming forward with evidence shifts to the taxpayer. If the taxpayer fails to respond with credible, relevant evidence, then the taxing body prevails. But once the taxpayer produces sufficient proof to overcome its initially allotted status, the prima facie significance of the Board’s assessment figure has served its procedural purpose, and its value as an evidentiary devise is ended....

Of course, the taxpayer still carries the burden of persuading the court of the merits of his appeal, but that burden is not increased by the presence of the assessment record in evidence.

Of course, the taxing authority always has the right to rebut the owner’s evidence and in such a case the weight to be given to all the evidence is always for the court to determine. The taxing authority cannot, however, rely solely on its assessment record in the face of countervailing evidence unless it is willing to run the risk of having the owner’s proof believed by the court. Where the taxpayer’s testimony is relevant, credible and unrebutted, it must be given due weight and cannot be ignored by the court. It must necessarily be accepted.

Id. at 221-22, 209 A.2d at 402 (citations omitted). See also Westinghouse Electric Corp. v. Board of Property Assessment Appeals, 539 Pa. 453, 652 A.2d 1306 (1995).

In 841 Associates, the fair market value of a Philadelphia office building was at issue. During the de novo proceedings, the tax authority introduced its assessment record on the property, indicating a fair market value of $43.2 million, and then rested. In response, the taxpayer presented the testimony of an expert witness who relied primarily on the comparable sales and income approaches to value the property.³ With respect to the income approach, the expert used two different computations, one based upon the stabilized income approach, and the other, the discounted cash flow analysis. Under the stabilized income approach, the expert, using a projected income stream, calculated a net operating income, capitalized the income at a rate of 10.5 percent to convert the income into a present, lump sum value and then applied a tax factor of 2.78 percent (a total of 13.28 percent). The value reached through this method was $25.5 million. 841 Assocs., 674 A.2d at 1212.

Under the discounted cash flow analysis, the expert applied the same capitalization rate and a present worth factor to the net operating income, arriving at a valuation of $25 million. The expert did not apply a tax factor with this method because taxes were deducted as operating expenses. Id. On cross-examination, the tax authority asked the expert to apply a capitalization rate of 13.28 percent (which includes the tax factor) to the net operating income arrived at under the discounted cash flow analysis. The expert responded that such a capitalization rate was inappropriate and specifically violated industry standards, but nonetheless performed the requested calculation and stated that it would yield a value of $32.7 million.

The tax authority then attempted to introduce rebuttal evidence; however, the evidence was rejected by the trial court because the rebuttal witness lacked personal knowledge regarding the property. Based upon the aforesaid testimony, the trial court found that the fair market value of the property was $32.5 million. In doing so, the trial court noted that it credited the expert’s testimony on cross-examination wherein she applied the 13.28 percent eapitalization rate to the net operating income calculated in the discounted cash flow analysis.

This court reversed on appeal, stating:

A trial court in tax assessment cases has the option of not finding the taxpayer’s expert witness credible and relying on the taxing authority’s original assessment. But a trial court does not have the option of determining that the witness was credible and then picking and choosing among the numbers discussed during her testimony to set a new valuation. Here, the trial court found [the expert’s] testimony to be competent and relevant and that she was a credible witness; however, it did not accept her expert valuation of the property, instead, erroneously adopting one number from part of one method of determining fair market value.

If the expert witness is credible, then the unrebutted evidence of valuation given by the witness must be accepted by the trial court. It is the expert’s valuation that the trial court must accept not just a piece of her testimony. This is particularly true here because the expert was merely doing a mechanical calculation as requested by counsel on cross-examination, and she stated that it would be an improper calculation on which to base an opinion of value.

Id. at 1214 (citations and footnote omitted) (emphasis added).

Although it might be argued that the court below painted 841 Associates with too broad a brush,⁴ the plain language of our opinion in that case supports the trial court’s approach. Thus, after panel argument, we listed the case for reargument before the court en banc to revisit the issue of the trial court’s authority regarding expert testimony in tax assessment cases. Followed literally, 841 Associates imposes upon the trial court the Hobson’s Choice that it must either credit or discredit an unrebutted expert’s testimony in its entirety, and mandates that the trial court must accept an expert’s final valuation even where it has found incredible one or more component(s) of the testimony necessary to calculate that value. Upon reargument, we have determined that 841 Associates must be overruled.

Westinghouse Electric Corporation bolsters this conclusion. There, one of the arguments raised by the taxpayer on appeal was that the trial court erred in failing to accept the common level ratio established by its expert since his testimony was unrebutted by the taxing authority.⁵ After quoting Deitch Company for the oft cited proposition that “[w]here the taxpayer’s testimony is relevant, credible and unrebutted, it must be given due weight and cannot be ignored.... It must necessarily be accepted (citations omitted),” the Supreme Court stated as follows:

In the instant case, the testimony of [taxpayer’s] expert was received by the trial court as competent, credible and unrebutted evidence. That evidence, thus, must be accepted and given due weight. However, the weight that is due is for the trial court to determine. We will not, upon this record, insist that the trial court find the common level ratio for the years in question to be what [taxpayer’s] expert said it was. Such a course would be tantamount to this Court’s deciding the common level ratio for the relevant years. Accordingly, this question must be remanded to the trial court for resolution.

539 Pa. at 470, 652 A.2d at 1315 (emphasis added). Thus, as Westinghouse Electric Corporation demonstrates, the fact-finder is not constrained to accept the ultimate opinion of an expert merely because the witness is unrebutted and has provided some credible testimony.⁶

Put another way, the testimony of an expert in an assessment appeal is to be evaluated in the same manner as any other expert witness, and unrebutted expert testimony is to be judged in the same manner as that of conflicting experts. Specifically, the fact-finder may accept all, none or part of an expert’s testimony, part of one expert’s testimony and part of another’s. Appeal of Avco Corp., 100 Pa.Cmwlth. 616, 515 A.2d 335, 338 (1986).⁷ The court’s function is not to independently value the property, but to determine a value based upon competent and credible evidence. Appeal of F.W. Woolworth Co., 426 Pa. 583, 585, 235 A.2d 793, 795 (1967); County of Monroe v. Bolus, 149 Pa.Cmwlth. 458, 613 A.2d 178, 181 (1992). Accordingly, whether drawn from the testimony of one unreb'utted expert or that of multiple experts, the only constraint upon the fact-finder’s determination of fair market value is that it must be supported by expert testimony found to be credible, and may not be based, even in part, upon the assessment record once any expert testimony is credited. Deitch.

Based upon the foregoing, we reverse the trial court’s determination of fair market value. On remand, the trial court must determine the weight to accord the expert’s testimony and, based upon the evidence of record found to be credible, determine the fair market value for the property at issue.

ORDER

AND NOW, this 7th day of May, 1999, the order of the Court of Common Pleas of Schuylkill County in the above captioned matter is reversed and the case is remanded for proceedings consistent with the foregoing opinion.

Jurisdiction relinquished.

Dissenting opinion by Judge PELLEGRINI in which Judge FLAHERTY joins.

1 . Matsell noted that the property was located in an area where most homes were, on the average, 3,000 to 3,500 square feet in size and $150,000.00 to $300,000.00 in price.

2 . According to Matsell, considering the property’s size in relation to its market area, buyers would not be willing to pay the cost of reproducing the home since they would not then be able to recoup that amount in a later sale. Matsell also opined that the income approach was an inappropriate means of valuing the property.

3 . The expert testified that based upon the comparable sales method, the building had a fair market value of $24 million.

4 . In that case, the trial court’s determination was based solely upon a mechanical calculation performed on cross-examination by an expert who disavowed the legitimacy of the numbers she was asked to use in the exercise, and thus was not supported by substantial evidence.

5 . In Westinghouse Electric Corporation, the trial court essentially determined a common level ratio by splitting the difference between the ratio established by the taxing authority's assessment record and that testified to by the taxpayer’s expert. On appeal, the Supreme Court noted that: (1) prior to trial, the trial court intimated that if the parties could not resolve the issue, it would impose a compromise ratio; and (2) the trial court failed to articulate any basis or reason to support its determination of the common level ratio. 539 Pa. at 468-69, 652 A.2d at 1314. Based on the aforesaid, the Supreme Court concluded that the trial court's determination of the common level ratio was arbitrary and unsupported by the evidence. Id. at 469, 652 A.2d at 1314.

6 . Compare Appeal of F.W. Woolworth Co. Tax Assessment Case, 426 Pa. 583, 235 A.2d 793 (1967). There, the Supreme Court held that where the fact-finder specifically commented on the thorough knowledge of the taxpayer’s expert, there was no suggestion in the record that the fact-finder had rejected the expert's testimony, and the expert was unrebutted, the fact-finder erred in failing to accept the expert’s opinion regarding fair market value.

7 . In Avco Corporation, the trial court rejected two of three valuation methods used by the experts and arrived at a fair market value different than that testified to by either expert. On appeal, we concluded that the court had not substituted its own judgment for that of the experts’ because its determination was supported by competent testimony and evidence of record. 515 A.2d at 338. When the fact-finder is presented with conflicting experts, both of whom are found to be competent and credible, the fact-finder may determine that the fair market value of the property lies somewhere in between the values reached by the competing experts. See Westinghouse Electric Corp. (and cases cited therein); Appeal of Duquesne Club, 92 Pa.Cmwlth. 15, 498 A.2d 459 (1985), alloc. denied, 514 Pa. 637, 522 A.2d 1106 (1987).