|Lionel Trains, Inc.,||MTT Docket No. 219538|
|Township of Chesterfield,||Tribunal Judge Presiding|
|Respondent.||Norman D. Shinkle|
This personal property tax assessment dispute was heard on February 2, 1996, in Lansing, Michigan. Petitioner Lionel Trains, Inc. was represented by agent Michael Skorija and Respondent Township of Chesterfield was represented by Lawrence W. Dloski. Petitioner appeals the personal property tax assessments for tax years 1994 and 1995. The parties have filed post hearing briefs and Petitioner filed an additional response to Respondent's post hearing brief.
The Tribunal is asked to decide whether Respondent's reliance on the State Tax Commission's (STC) mass appraisal model, as set out in Chapter 15 of the STC's Michigan Assessor's Manual (hereinafter referred to as the STC Manual), is proper to determine the value of Petitioner's personal property.
This question can be divided into two issues. First, whether the inclusion of freight, installation, and sales tax in a personal property assessment improperly raises the assessment beyond market value.
Second, whether the Chapter 15 tables of the STC Manual properly consider negative market influences, beyond physical depreciation, such as functional and/or economic obsolescence.
Petitioner's appeal relates to the 1994 and 1995 personal property tax assessments by the Township of Chesterfield. Petitioner has paid the relevant taxes for both tax years 1994 and 1995. Information pertinent to the contested assessments is as follows:
|PARCEL #||YEAR||SEV & AV||CONTENTION||CONTENTION(1)|
|996-385-072-52||1994$ 228,427||$114,214||$ 456,854|
|1995||$ 219,703||$109,851||$ 439,405|
|908-332-675-01||1994||$ 256,947||$128,474||$ 513,894|
|1995||$ 244,515||$122,258||$ 489,031|
The Tribunal has redetermined Petitioner's true cash value contentions, as listed above, to align the contended values with the valuation method Petitioner asserts.
The STC Manual recommends procedures to value personal property. Generally, the tables in the STC Manual reflect the cost-less-depreciation over a period of years. Most personal property falls under table four (4), which is average-lived depreciation, and is alternatively titled "In-Use." State Tax Commission, Michigan Assessors Manual, Vol 3, Ch 15, p 33 (1991). The title should be distinguished from the "value-in-use" concept as recognized by this Tribunal in APTCO Auto Auction v City of Taylor and County of Wayne, MTT Docket No. 163076, p 5 (1996), C/A No. 193753, when it stated:
Petitioner based another argument on the STC property classification labeled "In-Use" as an unconstitutional attempt to allow taxation of value-in-use. Petitioner confuses the term "In-Use" as applied by the STC to mean fulfillment of an intended function, with its own flawed application of "value-in-use" to mean the value to a particular user. "In-Use" has market value, "value-in-use" does not have market value. Further, value-in-use is prohibited from taxation under the Michigan Constitution, Article IX, Section 3, as interpreted by First Federal Savings & Loan v City of Flint, 415 Mich 702; 329 NW2d 755 (1982).
Table four (4) values personal property at 93% of the original costs in year one (1), 79% in year two (2), and bottoms out to 30% in year fifteen (15). The STC Manual also contains a separate table for computer equipment that reduces the value of the personal property at a greater rate than table four (4). This separate table indicates an impact on value more than physical depreciation. The STC Manual recommends further adjustments beyond this table when the personal property changes use for the taxpayer. The STC Manual tables recommend a 50% reduction from the tables if the property is "idled" OR a 75% reduction from the tables if the property is considered "obsolete or surplus." The STC Manual defines "idled" as either "equipment which has been disconnected and is stored in a separate location . . . [or] 'idle-in-place' because storage in a separate location is not feasible." Id. at 15-5. The STC Manual defines "obsolete or surplus" as equipment which either:
(1) requires rebuilding for continued economic use and is in the possession of a machine rebuilding firm on tax day, or (2) has been declared as surplus by an owner who is abandoning a process plant and is being disposed of by means of an advertisement sale or through an agent. [Id.].
Petitioner did not present a valuation disclosure of the subject personal property to support its assertion for true cash values represented with market data. Petitioner relies on the "obsolete or surplus" category in the STC Manual to be the proper indicator of true cash value. Petitioner did not delineate what type of personal property was at issue in this trial other than the general categories of office furniture, office equipment, computers, and manufacturing equipment.
Petitioner instead contends an underlying fault with the whole mass appraisal system as contained in the STC Manual.Petitioner contends that Respondent's utilization of the multipliers, located on page 33 in Chapter 15 of the STC Manual, to value the personal property at issue is unconstitutional because it does not accurately determine its true cash or market value. Petitioner instead contends that the Cost Approach using the Obsolete-Economic Residual multipliers, or the "obsolete or surplus" category as explained above, appropriately values the personal property at issue; notwithstanding the fact that the personal property was either being used or classified in a higher valuation category than "obsolete or surplus" property during the tax year. Petitioner presented no evidence to indicate any of the property was "obsolete or surplus," as defined in the STC Manual.
Petitioner analogizes the American Society of Appraisers' (ASA) definition for Fair Market Value (FMV) in Continued Use with the STC Manual In-Use category, the ASA definition for FMV Installed with the STC Manual Idle Category, and the ASA definition for FMV Removal with the STC Manual Economic Residual category. Using these definitions as a foundation, Petitioner argues that freight, installation, and sales tax have no market value in relation to personal property because personal property is moveable and the costs are specific to the user rather than the purchaser. Petitioner concludes that the inclusion of freight, installation, and sales tax in the STC Manual Chapter 15 multipliers are erroneous and not representative of actual value.
Petitioner further contends that the STC mass appraisal system, as contained in the STC Manual, does not calculate economic and/or functional obsolescence. Petitioner's witness, Mr. William Widener, testified that, generally speaking, the "obsolete or surplus" calculation as contained in the STC Manual does reflect the true cash value of the personal property irrespective of whether or not the property is currently being used. Thus, Petitioner requests the obsolete category be applied to all of the subject property.
Respondent contends that the cost-less-depreciation approach, as contained in Chapter 15 of the STC Manual, provides the most accurate measure of the value of the personal property at issue. Respondent called on Ms. Violet Stratichuk, the assessor for Respondent Township, to explain how she applied the STC Manual to the personal property. Respondent's witness testified that the assessments for 1994 and 1995 were based on the personal property statements filed by Petitioner, which did not indicate any idle, obsolete, or surplus equipment. Respondent's witness testified that the personal property statement was signed and sworn to as being true and accurate by a representative of Petitioner. Thus, Respondent had no reason not to use the multipliers in Chapter 15 of the STC Manual.
Respondent also contends that the personal property tax statements clearly inform Petitioner that idle, obsolete, and surplus equipment may qualify for additional depreciation. Respondent also contends the tax statements inform the taxpayer to contact the Assessor's Office for more information if the taxpayer is confused as to the proper application of the "idled" and/or "obsolete or surplus" tables.
Respondent further contends that Petitioner did not meet its burden to prove the true cash value of the property by the greater weight of the evidence, as required by MCL 205.737(3); MSA 7.650(37)(3); Consolidated Aluminum Corporation, Inc v Township of Richmond, 88 Mich App 229; 276 NW2d 566 (1978); and also ALHI Development Co v Orion Township, 110 Mich App 764, 767; 314 NW2d 479 (1981). Respondent argues that since Petitioner did not present a valuation disclosure or any reliable evidence of the personal property at issue Petitioner did not meet its burden of proof.
The Constitution of the State of Michigan requires the legislature to provide for the uniform general ad valorem taxation of tangible personal property, to provide for the determination of true cash value of such property, and assess a tax not exceeding 50% of the true cash value determined. Const 1963, Art 9, Sec 3.
The Tax Tribunal is under a duty to determine the appropriate method of arriving at the true cash value of property, utilizing an approach that provides the most accurate valuation under the circumstances. Jones and Laughlin Steel Corp v City of Warren, 193 Mich App 348, 353; 483 NW2d 416 (1992). "True cash value" is defined as:
the usual selling price at the place where the property to which the term is applied is at the time of assessment, being the price that could be obtained for the property at private sale, and not at auction sale except as otherwise provided in this section, or at forced sale. [MCL 211.27(1); MSA 7.27(1)]
Further, "true cash value" is synonymous with "fair market value." CAF Investment Co v State Tax Commission, 392 Mich 442, 450; 221 NW2d 588 (1974); Safran Printing Co v City of Detroit, 88 Mich App 376; 276 NW2d 602 (1979). The STC Manual represents guidelines that are appropriate to value property except "when there is overwhelming reliable evidence of differing market value presented." IBM Credit Corp v City of Detroit, 7 MTT 850, 853 (1993); IBM Credit Corp v City of Grand Rapids, 8 MTT 261, 265 (1994), C/A No. 181519; AEG Mictron, Inc v City of Troy, MTT Docket No. 192743 at 19-20 (1996), C/A No. 195012. Petitioner has the burden of proof in establishing the true cash value of the property. MCL 205.737(3); MSA 7.650(37)(3); MCL 211.27(1); MSA 7.27(1); Meadowlanes Limited Dividend Housing Ass'n v City of Holland, 437 Mich 473, 483-484; 473 NW2d 636 (1991).
Petitioner did not provide a valuation disclosure with market evidence for the subject property. Instead, Petitioner challenges the STC's mass appraisal model, as set out in Chapter 15 of the STC Manual, and advocates the "obsolete or surplus" category should be used at all times. The Tribunal notes that assessments are generally presumed valid until proven otherwise. The Tribunal finds that Petitioner did not show that the "obsolete or surplus" category should be used to determine true cash value in all cases for all personal property, and thereby fails to meet its burden of proof.
The Tribunal addresses the first issue and finds that the inclusion of freight, installation, and sales tax in a personal property assessment does not improperly raise the assessment beyond market value. See IBM Credit Corp v City of Grand Rapids, id. In IBM v Grand Rapids, this Tribunal held that "freight and installation are properly included where it is standard practice in an industry to include such costs in arms-length market transactions." Id. at 265. The Tribunal reasoned, in part, that:
[while] 1994 PA 96, which amends 1893 PA 206, MCL 211.1 to 211.157; MSA 7.1 to 7.214 . . . requires personal property statements to reflect an original purchase price which includes sales tax, freight, and installation . . . it does not necessarily change the process for determining the true cash value of property on appeal to the Tribunal. [Id.]
This reasoning reaches a holding that even though the cost approach assumes a true cash value that includes freight, installation, and sales tax, the value may be adjusted by market evidence on appeal to the Tribunal.
This Tribunal has viewed the inclusion of freight, installation, and sales tax in true cash value to be appropriate when it is determined that these costs are reflected in the market. APTCO Auto Auction v City of Taylor and County of Wayne, id.; AEG Mictron, Inc v City of Troy, id. In APTCO, this Tribunal stated:
[t]he statutory definition of "cash value" suggests the value of the usual total costs necessary to situate the property at the place or situs at the time of assessment if those same costs are part of the market. [Emphasis added.] [Id. at 4]
In AEG Mictron, this Tribunal also held that freight, installation, and sales tax were properly considered in true cash value to the extent they influence market value. Id. at 19.
Petitioner specifically objects to sales tax being added to the cost of personal property and made part of the assessment. On page three (3) of its closing brief Petitioner states:
[s]ales tax is [the] amount paid on the acquisition of the property. No reasonable man would expect to recover this transaction cost upon the resale of the property to a third party. It has no tangible value; it only has value to the user. Annually assessing a tax on the amount of another tax having no market value does not meet the constitutional standard.
The question is not whether a reasonable person would recover this cost upon resale of the property, but whether the tax is part of the market value of the property. For example, assume business "X" purchases personal property for $100 and pays a 6% sales tax. Business "X" then decides the personal property is not needed and sells it to business "Y" for $100. Business "Y" will pay $100 to business "X" plus a 6% use tax as required by the State of Michigan. The market value of the personal property is $106 notwithstanding the fact that business "X" received only $100. The total price paid by business "Y," which is $106, represents the market price. The use tax is part of the market price business "Y" must pay.
Given the case law analysis above and the lack of a valuation disclosure presenting market evidence, the Tribunal finds that Petitioner has failed to meet its burden of proof that freight, installation, and sales tax should not be included in the value of the subject property for purposes of personal property taxation.
The Tribunal now turns to the second issue as to whether the STC Manual provides for recognition of negative market influences, beyond physical depreciation, such as functional and/or economic obsolescence. While the column for average-lived property appears to reflect only physical depreciation, the Tribunal finds the STC Manual does additionally take into account functional and/or economic obsolescence by allowing the average-life value to be reduced depending on the status of the personal property (i.e., whether the property is "idled" or "obsolete or surplus"). APTCO, id. at 6-7. In APTCO, this Tribunal stated:
[t]he classifications of "Idle" and "Economic Residual" are utilized in recognition that some personal property loses more value than the "In-Use" classification represent. This additional loss of value recognizes functional and/or economic obsolescence not otherwise addressed by the multipliers. The classification of "Idle" property would assume that utility is reduced by obsolescence, but the marketplace still recognizes that some utility and market value of the property remains. "Economic Residual" recognizes that some property has a higher degree of obsolescence and can deteriorate in value to a point where it becomes "surplus or abandoned" property valued at 25% of what it would otherwise be valued. The STC also has an even more accelerated loss of value policy for specific property such as oil drilling equipment. This equipment will be assigned a 0% value when the well goes dry irrespective of the age of the equipment. These adjustments in addition to physical depreciation go toward recognizing functional and economic obsolescence that is inherent in all personal property at varying degrees. [Id.]
The Tribunal finds the STC Manual is an appropriate method of determining true cash value of personal property. In addition to the value loss contained in the tables, the STC Manual recognizes specific functional and/or economic obsolescence in the marketplace, as this Tribunal has previously determined in APTCO. The Tribunal also recognizes that the true cash value, as determined by the STC Manual, is a guideline. One method to determine true cash value different from this guideline was developed in IBM v Detroit, and applied in IBM v Grand Rapids and AEG Mictron, to determine whether costs such as freight or installation should be included in the assessment. The burden to show the incorrectness of an assessment is on Petitioner. In the present case, the Tribunal finds that Petitioner did not meet its burden of proof without any showing that the subject property fell within the "obsolete or surplus" category.
Petitioner's contention, that the entire mass appraisal system is flawed, is premised on a misunderstanding of the system. The multipliers clearly take into account additional depreciation and obsolescence when proven. Since the STC Manual provides for adjustments, it is Petitioner's burden to prove the adjustments are warranted. Having failed to do so does not lead to the conclusion that the multipliers are unconstitutional or otherwise invalid.
IT IS HEREBY ORDERED that the true cash value(s), as previously assessed, are AFFIRMED.
1. SEV refers to state equalized value, AV refers to assessed value, and TCV to true cash value.
| DELEG | Contact | State
Web Sites | Site Map
Copyright © 2001-2008 State of Michigan