IN THE COURT OF APPEALS OF IOWA
No. 15-1562 Filed December 21, 2016
KOHL’S DEPARTMENT STORES, INC., Plaintiff-Appellant,
vs.
BOARD OF REVIEW OF DALLAS COUNTY, Defendant-Appellee. ________________________________________________________________
Appeal from the Iowa District Court for Dallas County, Richard B. Clogg,
Judge.
Kohl’s Department Stores, Inc. challenges the Dallas County Board of
Review’s 2013 assessment of its West Des Moines property. AFFIRMED.
Bret A. Dublinske of Fredrikson & Byron, P.A., Des Moines, and Judy S.
Engel and Phillip S. Bubb of Fredrikson & Byron, P.A., Minneapolis, Minnesota,
for appellant.
M. Brett Ryan of Watson & Ryan, P.L.C., Council Bluffs, for appellee.
Heard by Vaitheswaran, P.J., and Potterfield and Bower, JJ. 2
VAITHESWARAN, Presiding Judge.
Kohl’s Department Stores, Inc. challenges the Dallas County Board of
Review’s 2013 assessment of its West Des Moines property at $8,357,450. The
district court affirmed the valuation. On appeal, Kohl’s contends the court (1)
failed “to exercise its own independent judgment” in reviewing the property tax
assessment, (2) should not have found its witnesses incompetent, and (3) should
not have found the Board’s witnesses more credible.
I. Exercise of Judgment
At the outset, Kohl’s argues the district court “adopted nearly verbatim
large portions of the [Board’s] post trial brief . . . resulting in a decision that is not
supported by the evidence in the record or consistent with Iowa law.” But Kohl’s
concedes “[t]he nearly verbatim adoption of one party’s [p]ost [t]rial [b]rief does
not dictate that a different or separate standard of review should apply.”
Our standard of review is de novo. See Compiano v. Bd. of Review, 771
N.W.2d 392, 395 (Iowa 2009). While the court’s adoption of a party’s brief would
normally require us to “scrutinize the record more closely and carefully when
performing our appellate review,” our de novo standard essentially incorporates
this level of scrutiny and no additional scrutiny is required. See Soults Farms,
Inc. v. Schafer, 797 N.W.2d 92, 97 (Iowa 2011) (citation omitted).
II. Competency of Kohl’s Witnesses
The burden is on the taxpayer to prove one of the statutory grounds for
protest by a preponderance of the evidence. See Iowa Code § 441.21(3)(b)
(2013); Compiano, 771 N.W.2d at 396. If the taxpayer “offers competent
evidence by at least two disinterested witnesses that the market value of the 3
property is less than the market value determined by the assessor, the burden of
proof thereafter shall be upon the officials or person seeking to uphold such
valuation to be assessed.” Iowa Code § 441.21(3)(b). “Evidence is competent
under the statute when it complies ‘with the statutory scheme for property
valuation for tax assessment purposes.’” Compiano, 771 N.W.2d at 398 (citation
omitted).
Kohl’s offered the testimony and reports of two valuation witnesses, Dane
Anderson and Kyran Cook. Kohl’s also called Kohl’s employee Scott Schnuckel
as a witness. The district court found all three witnesses incompetent. On our
de novo review, we disagree with this finding.
Anderson. The district court found Anderson made “only ‘mental
adjustments’ to account for differences in size and location between his
comparable sales and the subject property” and “did not translate these
adjustments into specific dollar amounts so the Court could make the necessary
adjustments without further evidence.” The court concluded his appraisal failed
“to comply with Iowa law.”
In fact, Anderson used the comparable sales approach to valuation of the
property, as required by our legislature. In other words, he followed the statutory
scheme. See Hy-Vee Food Stores, Inc. v. Carroll Cty. Bd. of Review, No. 12-
1526, 2013 WL 5498137, at *1 (Iowa Ct. App. Oct. 2, 2013) (noting board did
“not seriously dispute that the experts followed the statutory scheme for valuing
property for tax assessment purposes”); cf. Compiano, 771 N.W.2d at 399 (“[T]he
opinions on market value expressed by [the complainant’s two experts] did not
comply with the statutory scheme for valuing property for the purposes of tax 4
assessment.”); Dowden v. Dickinson Cty. Bd. of Review, 338 N.W.2d 719, 723
(Iowa Ct. App. 1983) (questioning competency of the complainant’s witnesses
because they “relied solely on the income method in reaching their final
valuations on all three properties”).
Applying statutory dictates, Anderson valued the property at $6,000,000.
In arriving at his valuation, he engaged in a detailed “adjustment discussion and
analysis.” He specifically considered “selected demographic and traffic count
data when evaluating each comparable sale” and made “[u]pward qualitative
adjustment[s]” based on this data. Although the Board faulted him for failing to
quantify his adjustments, Anderson testified “mark[ing] them qualitatively” was
“an accepted methodology, peer tested and reviewed through the Appraisal
Institute and in the 14th Edition, which is the authoritative source for
methodology.”
We conclude Anderson’s methodology was consistent with generally
accepted appraisal methodology and was not grounds to find his testimony and
report incompetent.
Cook. Like the other appraisers, Cook used the comparable sales
approach and other approaches to value the Kohl’s store. The district court took
issue with the adjustments he made in connection with his comparable sales
analysis. However, the appropriateness of his adjustments goes to the
persuasiveness of the ultimate valuation figures rather than witness competency.
See Soifer v. Floyd Cty. Bd. of Review, 759 N.W.2d 775, 784 (Iowa 2009) (“[I]n
determining whether the Soifers offered competent testimony from two
disinterested witnesses, we examine whether this evidence was admissible on 5
the question of value, not whether we find it persuasive.”). For example, one of
the sales Cook used was concededly between related parties. The district court
reasonably found his testimony less credible on this basis. See Wellmark, Inc. v.
Polk Cty. Bd. of Review, 875 N.W.2d 667, 682 (Iowa 2016) (“The mere fact that
sales might be considered comparable, however, did not necessarily mean that
valuation based on them was credible.”). But wholesale rejection of his opinion
was inappropriate because the properties he used for comparison purposes were
“sufficiently similar to support admission” of his testimony. See Soifer, 759
N.W.2d at 785.
Schnuckel. The district court found Kohl’s employee Scott Schnuckel’s
testimony incompetent on the ground that it “was not based upon a comparable
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IN THE COURT OF APPEALS OF IOWA
No. 15-1562 Filed December 21, 2016
KOHL’S DEPARTMENT STORES, INC., Plaintiff-Appellant,
vs.
BOARD OF REVIEW OF DALLAS COUNTY, Defendant-Appellee. ________________________________________________________________
Appeal from the Iowa District Court for Dallas County, Richard B. Clogg,
Judge.
Kohl’s Department Stores, Inc. challenges the Dallas County Board of
Review’s 2013 assessment of its West Des Moines property. AFFIRMED.
Bret A. Dublinske of Fredrikson & Byron, P.A., Des Moines, and Judy S.
Engel and Phillip S. Bubb of Fredrikson & Byron, P.A., Minneapolis, Minnesota,
for appellant.
M. Brett Ryan of Watson & Ryan, P.L.C., Council Bluffs, for appellee.
Heard by Vaitheswaran, P.J., and Potterfield and Bower, JJ. 2
VAITHESWARAN, Presiding Judge.
Kohl’s Department Stores, Inc. challenges the Dallas County Board of
Review’s 2013 assessment of its West Des Moines property at $8,357,450. The
district court affirmed the valuation. On appeal, Kohl’s contends the court (1)
failed “to exercise its own independent judgment” in reviewing the property tax
assessment, (2) should not have found its witnesses incompetent, and (3) should
not have found the Board’s witnesses more credible.
I. Exercise of Judgment
At the outset, Kohl’s argues the district court “adopted nearly verbatim
large portions of the [Board’s] post trial brief . . . resulting in a decision that is not
supported by the evidence in the record or consistent with Iowa law.” But Kohl’s
concedes “[t]he nearly verbatim adoption of one party’s [p]ost [t]rial [b]rief does
not dictate that a different or separate standard of review should apply.”
Our standard of review is de novo. See Compiano v. Bd. of Review, 771
N.W.2d 392, 395 (Iowa 2009). While the court’s adoption of a party’s brief would
normally require us to “scrutinize the record more closely and carefully when
performing our appellate review,” our de novo standard essentially incorporates
this level of scrutiny and no additional scrutiny is required. See Soults Farms,
Inc. v. Schafer, 797 N.W.2d 92, 97 (Iowa 2011) (citation omitted).
II. Competency of Kohl’s Witnesses
The burden is on the taxpayer to prove one of the statutory grounds for
protest by a preponderance of the evidence. See Iowa Code § 441.21(3)(b)
(2013); Compiano, 771 N.W.2d at 396. If the taxpayer “offers competent
evidence by at least two disinterested witnesses that the market value of the 3
property is less than the market value determined by the assessor, the burden of
proof thereafter shall be upon the officials or person seeking to uphold such
valuation to be assessed.” Iowa Code § 441.21(3)(b). “Evidence is competent
under the statute when it complies ‘with the statutory scheme for property
valuation for tax assessment purposes.’” Compiano, 771 N.W.2d at 398 (citation
omitted).
Kohl’s offered the testimony and reports of two valuation witnesses, Dane
Anderson and Kyran Cook. Kohl’s also called Kohl’s employee Scott Schnuckel
as a witness. The district court found all three witnesses incompetent. On our
de novo review, we disagree with this finding.
Anderson. The district court found Anderson made “only ‘mental
adjustments’ to account for differences in size and location between his
comparable sales and the subject property” and “did not translate these
adjustments into specific dollar amounts so the Court could make the necessary
adjustments without further evidence.” The court concluded his appraisal failed
“to comply with Iowa law.”
In fact, Anderson used the comparable sales approach to valuation of the
property, as required by our legislature. In other words, he followed the statutory
scheme. See Hy-Vee Food Stores, Inc. v. Carroll Cty. Bd. of Review, No. 12-
1526, 2013 WL 5498137, at *1 (Iowa Ct. App. Oct. 2, 2013) (noting board did
“not seriously dispute that the experts followed the statutory scheme for valuing
property for tax assessment purposes”); cf. Compiano, 771 N.W.2d at 399 (“[T]he
opinions on market value expressed by [the complainant’s two experts] did not
comply with the statutory scheme for valuing property for the purposes of tax 4
assessment.”); Dowden v. Dickinson Cty. Bd. of Review, 338 N.W.2d 719, 723
(Iowa Ct. App. 1983) (questioning competency of the complainant’s witnesses
because they “relied solely on the income method in reaching their final
valuations on all three properties”).
Applying statutory dictates, Anderson valued the property at $6,000,000.
In arriving at his valuation, he engaged in a detailed “adjustment discussion and
analysis.” He specifically considered “selected demographic and traffic count
data when evaluating each comparable sale” and made “[u]pward qualitative
adjustment[s]” based on this data. Although the Board faulted him for failing to
quantify his adjustments, Anderson testified “mark[ing] them qualitatively” was
“an accepted methodology, peer tested and reviewed through the Appraisal
Institute and in the 14th Edition, which is the authoritative source for
methodology.”
We conclude Anderson’s methodology was consistent with generally
accepted appraisal methodology and was not grounds to find his testimony and
report incompetent.
Cook. Like the other appraisers, Cook used the comparable sales
approach and other approaches to value the Kohl’s store. The district court took
issue with the adjustments he made in connection with his comparable sales
analysis. However, the appropriateness of his adjustments goes to the
persuasiveness of the ultimate valuation figures rather than witness competency.
See Soifer v. Floyd Cty. Bd. of Review, 759 N.W.2d 775, 784 (Iowa 2009) (“[I]n
determining whether the Soifers offered competent testimony from two
disinterested witnesses, we examine whether this evidence was admissible on 5
the question of value, not whether we find it persuasive.”). For example, one of
the sales Cook used was concededly between related parties. The district court
reasonably found his testimony less credible on this basis. See Wellmark, Inc. v.
Polk Cty. Bd. of Review, 875 N.W.2d 667, 682 (Iowa 2016) (“The mere fact that
sales might be considered comparable, however, did not necessarily mean that
valuation based on them was credible.”). But wholesale rejection of his opinion
was inappropriate because the properties he used for comparison purposes were
“sufficiently similar to support admission” of his testimony. See Soifer, 759
N.W.2d at 785.
Schnuckel. The district court found Kohl’s employee Scott Schnuckel’s
testimony incompetent on the ground that it “was not based upon a comparable
sales analysis,” but a comparison of “per square foot information” with other
Kohl’s retail stores, which the court found to be “neither a recognized appraisal
practice nor a method of valuation recognized by Iowa law.” Kohl’s takes issue
with this finding, noting that Schnuckel was presented as a fact witness rather
than a valuation expert. We agree with Kohl’s on this point. Just as the Board
called the deputy county assessor to testify to foundational facts concerning the
development of the Jordan Creek area, Kohl’s called Schnuckel to testify to
foundational facts concerning retail sales at various Kohl’s stores. See id. at 782
(“[T]he property owner is ‘required to offer a sufficient factual basis for the
[witnesses’] opinions to take them out of the realm of mere speculation and
conjecture.’” (citation omitted)). Because Schnuckel was not called as a
valuation expert, the statutory “competency” requirement did not apply to his
testimony. As for the relevancy of sales-per-square-foot data, one of the Board’s 6
experts conceded the Kohl’s appraisers did not appear to have used a
methodology predicated on pure sales per square foot.
We conclude Kohl’s presented two competent valuation experts to
challenge the Dallas County assessor’s valuation. Accordingly, the burden
shifted to the Board to uphold the assessment.
III. Credibility of Board’s Valuation Experts
The Board presented two valuation experts, appraisers Ranney Ramsey
and Mark Nelson.
Ramsey. Ramsey valued the Kohl’s store at $8,400,000 under a
comparable sales approach. Kohl’s takes issue with Ramsey’s valuation opinion
on the ground that he was not “a certified Iowa appraiser,” he admitted to
“serious double counting under his income approach analysis,” and he made
unjustified adjustments to his comparable sales.
Kohl’s cites no authority for the proposition that the Board’s experts must
be certified appraisers. Ramsey testified he was an associate appraiser with
more than twenty years of experience, had completed “all the coursework”
required to become certified, and had “completed and passed the test.” All that
was required for him to become certified was a review of his experience. On our
de novo review, we conclude Ramsey was qualified to provide a valuation of the
property.
We turn to Ramsey’s analysis under the income approach. Ramsey
appeared to admit to duplication of operating cost reimbursement revenues but,
on redirect examination, explained precisely how he obtained the per-square-foot
rent used in determining gross potential income. In any event, any admissions 7
he made in connection with his calculations under the income approach did
nothing to impugn his analysis under the sales comparison approach.
With respect to that approach, Ramsey compared seven properties and
prepared a “quantitative adjustment grid” that included location adjustments
ranging from fifteen to twenty-five percent. Ramsey also compared the age and
condition of the properties and made adjustments for market conditions.
Although Ramsey admitted to using his “professional judgment” to make some of
the adjustments, we are not persuaded this concession renders his testimony
unreliable. See Sears, Roebuck & Co. v. Sieren, 484 N.W.2d 616, 617 (Iowa Ct.
App. 1992) (“The heart of most assessment cases is the evidence of experts
applying, at best, their professional judgments within a context of variables which
can in no definite way be objectively conclusive.”).
In the end, Ramsey valued the properties “from $62.48 to $118.27 per
square foot” and assigned Kohl’s a value of $95 per square foot. Ramsey’s
report and testimony support the Dallas County assessment.
Nelson. Nelson valued the Kohl’s store at $8,185,000 under a sales
comparison approach. He added the value of land and improvements to arrive at
a final valuation figure of $8,250,000. Kohl’s contends his valuation was flawed
because he “conducted no analysis of effective age,” made an error in his
calculation of the location adjustment, and “focused only on the demand side of
the location adjustment.”
Nelson compared ten sales of “large-scale retail properties” and made
adjustments based on “location, type of use, age and condition, size of the
building and land to building ratio.” He testified he made age and condition 8
adjustments for the comparable properties. While he did not determine whether
the effective age of the properties was reduced by replacement of certain
building components, he testified “[t]hat would be well outside the norm.”
As for his location adjustment, Nelson disagreed with Kohl’s attorney that
he should have used actual retail sales as a benchmark. He testified, “That is a
comparison of the business performance of specific stores that is not ideally or
even reasonably relevant to the value of the underlying real estate.” Instead,
Nelson looked “at the retail sales potential within . . . the demographic studies.”
This was an entirely appropriate consideration. See Hy-Vee, 2013 WL 5498137,
at *2 (noting that an expert examined annual sales in certain areas to determine
whether the recession affected the value of commercial properties in those
areas).
Finally, Kohl’s concern that Nelson focused only on the demand side of
the equation is unpersuasive. Nelson emphasized, “I’m not valuing the Kohl’s
business here. I’m valuing the underlying real estate.”
After adjustments, Nelson obtained prices for the comparable properties
ranging from $69.50 per square foot to $136.30 per square foot, with the average
price being $96.28 per square foot. He valued the Kohl’s property at $92.50 per
square foot. We conclude Nelson’s valuation supports the Dallas County
assessment. See Wellmark, Inc., 875 N.W.2d at 681 (noting “whether properties
were sufficiently similar to be comparable was generally left to the sound
discretion of the district court”).
We affirm the Board’s assessment of $8,357,450.
AFFIRMED.