In a prior post, I wrote about the IBM property tax cases, which went from the Property Tax Commission to the Court of Appeals on three different occasions before being finally resolved. The IBM cases are significant because (1) they articulate a clear burden-shifting analysis the Commission must follow in determining value; and (2) they require the Commission to explain in detail its rationale for its decision.
Following closely on the heels of the IBM cases are the Parkdale cases. The Parkdale cases followed a similar tortuous road, going before the Commission and up to the Court of Appeals on three separate occasions. After the Court of Appeals affirmed the Commission decision in favor of Parkdale, the county filed a petition for discretionary review with the NC Supreme Court. Recently, the NC Supreme Court denied the petition, so the Parkdale case is finally at an end.
In addition to affirming the concepts articulated in the IBM cases, the Parkdale cases also address several other significant issues. I recommend these decisions to anyone appealing a property tax case.
I. Parkdale Facts
The Parkdale cases arose from an appeal of the value of two textile manufacturing facilities in Lexington and Thomasville, Davidson County, North Carolina. The Lexington facility contains approximately 460,000 square feet situated on approximately 15.5 acres, the vast majority of which was built around 1913. As a part of Davidson County’s revaluation effective January 1, 2007, the Davidson County Board of Equalization and Review valued the Lexington facility at $5,000,000 or approximately $10.87 per square foot. The taxpayer’s appraiser valued the facility at $906,000 or $1.97 per square foot.
The Thomasville facility contains approximately 276,000 square feet, the majority of which was built around 1909, and is located on approximately 9 acres of land. For the 2007 revaluation, the County Board valued the facility at approximately $3,300,000 or $11.96 per square foot. The taxpayer’s appraisal valued the facility at $625,000 or approximately $2.26 per square foot.
II. Parkdale I
The Parkdale case initially went before the Commission in April and May, 2009. In arriving at its values, the taxpayer’s appraiser relied solely on the comparable sales approach. All of his comparable sales were closed plants. On the other hand, the county relied solely on a cost approach to determine its initial value. At the hearing, the county put into evidence comparable sales information. Some of the comparable sales were closed plants, but some were of operating plants. Also included on the county’s comparable sales spreadsheet was one sale entitled “adaptive use,” but the value per square foot indicated by this sale was not included in the county’s average of comparable sale values, nor was there significant discussion by the county of the adaptive use comparable at trial.
The Commission upheld the values determined by the County Board. At the hearing, the Commission chairman made clear his belief that the taxpayer’s comparable sales should not be relied on because they were sales of closed plants while the Parkdale plants continued to operate. Although the decision did not state it as a rationale, one of the findings of fact was that the “appellant’s expert witness relied upon the sales of closed plants to arrive at his opinion of value.” Recognizing the Court of Appeals’ IBM decision, the Commission appeared to go through the burden-shifting analysis and determined the taxpayer had presented sufficient evidence to overcome the presumed correctness of the county’s value. However, after analyzing all of the evidence, the Commission determined the county met its burden and sustained the values determined by the county.
Parkdale appealed to the Court of Appeals, asserting the Commission’s decision did not contain a reasoned analysis (IBM 2) and was unsupported by competent evidence in the record. In a decision written by Judge Robert N. Hunter, the Court of Appeals reversed and remanded the case to the Commission (“Parkdale I”) (In re Parkdale Am., 710 S.E.2d 449 (N.C. Ct. App. 2011)). The court was troubled by the Commission’s failure to articulate clearly its burden-shifting analysis, but the court ultimately concluded the Commission applied the burden-shifting analysis correctly. More significantly, however, the court concluded the Commission had failed to explain through specific findings of fact and conclusions of law how the county had sustained its burden of proof once that burden was shifted to it: “The lack of findings undermines our confidence in the Commission’s conclusion that the county has met its ultimate burden of establishing true value.” The court further stated that the Commission may conduct additional hearings if it deems them necessary and directed that the Commission “shall make specific findings of fact and conclusions of law explaining how it weighed the evidence to reach its conclusions using the burden-shifting framework articulated above and in this Court’s previous decisions.”
III. Parkdale II
On remand to the Commission, no new hearings were held. In its second decision, dated May, 2012, the Commission once again upheld the values determined by the county. The Commission’s second decision was considerably more detailed than the first. Again, however, it emphasized that the facilities continued to be in operation, stating:
Even though the Lexington and Thomasville manufacturing facilities were older plants, these manufacturing facilities were fully automated, productive and operating 24 hours a day and 7 days a week as of the effective day of the general reappraisal. These facilities were well maintained and climate controlled. Along with a number of other plants, Parkdale uses the Lexington and Thomasville facilities to process approximately 10% of the United States cotton crop into yarn.
The Commission acknowledged the county’s comparable sales for the Lexington plant ranged from $4.82 to $6.75 per square foot, as compared to its assessed value of $10.84 per square foot. With respect to the Thomasville facility, the county’s comparables ranged from $5.15 to $7.56 per square foot, versus the county’s assessed value of $9.21 per square foot. However, the Commission also noted the adaptive use sale comp reflected a value of $13.18 per square foot for the Lexington plant and $14.82 per square foot for the Thomasville plant. Ultimately, the Commission determined the county’s operating plant comparable sales, along with the adaptive use sale, were more comparable to the Lexington and Thomasville facilities than the comparables used by the taxpayer’s appraiser. In its conclusions of law, the Commission articulated the burden-shifting analysis required by IBM, stating the taxpayer clearly rebutted the presumption of correctness given to the original assessments, and the burden of proof had shifted to the county to demonstrate that its methods produced true value. The Commission determined the county carried its burden by showing the taxpayer’s closed plant comparable sales were not comparable, and the county’s open plant comparable sales and the adaptive use sale were more comparable. The Commission additionally relied on the county’s original cost approach. Because the county’s original cost approach indicated a per square foot value that was within the range of the county’s comparable sales when the adaptive use sale was included, the Commission concluded the evidence supported the county’s original assessment.
The taxpayer appealed. The court rendered its decision, again written by Judge Robert N. Hunter, on March 5, 2013 (Parkdale II) (In re Parkdale Mills, 741 S.E.2d 416 (N.C. Ct. App. 2013)). The taxpayer again contended the Commission’s decision was not supported by competent and material evidence in record and, moreover, the county’s own evidence established that its assessment was excessive. The taxpayer pointed to the county’s comparable sales analysis which showed a range of values per square foot substantially below the county’s assessed value. As to the Commission’s reliance on the adaptive use comparable sale, the taxpayer asserted that in presenting its evidence the county spent little time discussing the adaptive reuse sale and certainly provided no specifics from which anyone could make any judgment as to the comparability of the adaptive use sale.
Judge Hunter reviewed in detail the prior history of the case and the court’s previous decision. In his mind, the problems with the prior decision were the Commission’s failure to explain how Parkdale had shifted the burden to the county and how the county had carried the burden to demonstrate its valuation was correct:
Problematically, the Commission’s initial decision made no explicit mention by findings of fact or conclusions of law to show precisely how Parkdale shifted the burden to the county (citations omitted). Even more concerning is that the Commission’s initial decision did not explain the process by which the county carried its newly applied burden to demonstrate that the county’s valuation (and not Parkdale’s) was correct.
In Parkdale II, the court acknowledged the Commission’s second decision clearly explained how the taxpayer had shifted the burden of proof to the county. However, the court concluded the Commission still failed to explain adequately how the county met its newly applied burden. The court reviewed and ultimately rejected all three rationales by which the county purportedly carried its burden. The first rationale was that the comparable sales used by the taxpayer’s appraiser were not in fact comparable. The court concluded this criticism was only relevant in determining whether Parkdale presented significant evidence to shift the burden to the county. Once the burden was shifted to the county, it was up to the county to present evidence sustaining its value, so any criticism of the taxpayer’s evidence was irrelevant. The second rationale was the comparability of the sales the county used. The court found this rationale lacking because the Commission failed to articulate how the county’s comparable sales supported its assessed value since they were (without the adaptive use sale) substantially less than the county’s value. As to the use of the adaptive use sale, the court found that specifics were “substantially lacking.” The third rationale was the use of the county’s original cost approach to carry its burden. The court found that, since the taxpayer had already presented sufficient evidence that tended to show the county’s initial assessment using the cost approach was arbitrary and substantially exceeded true value, the same evidence could not then be used to meet the county’s burden of proof.
Ultimately, the court determined the “Commission’s new findings do nothing to alleviate this Court’s lack of confidence that the county has, in fact, carried its burden.” The court further stated that it was “troubled by the substantial discrepancy between Parkdale’s (appraised) value and the county’s assessed value.” It ordered the case remanded again to the Commission and stated:
“. . . the Commission shall conduct additional hearings as necessary and make further findings of fact and conclusions of law in order to reconcile this discrepancy. If the County cannot carry its assigned burden, or if the Commission again fails to rectify the inadequacies of its Final Decision, this Court may exercise its prerogative to remand for yet a third time with specific instructions for the Commission to adopt Parkdale’s valuation of the property as, unlike the County’s valuation, it has not been held to be “arbitrary.”
Finally, the court addressed the attention given by both the county and the Commission to the fact that the Parkdale facilities were operating plants, while Parkdale’s comparable sales were closed plants. The court emphasized the Machinery Act requires that property be valued at market value for property tax purposes. It is not relevant that the property may have a higher intrinsic value to its current user:
The dictate of ad valorem taxes is that the value of the property is the price at which the property would likely change hands between a willing buyer and equally willing seller. See N.C. Gen. Stat. §105-283 (2011). By emphasizing the fact that Parkdale uses these facilities industrially to produce yarn 24-hours a day, the Commission’s findings implicitly allow the County to measure the value of the properties as their subjective worth to Parkdale. Such a valuation is obviously not the same as adequately determining the objective value of these properties to another willing buyer.
IV. Parkdale III
On remand to the Commission for the third time, the county made clear its intent to reopen the record for the introduction of additional evidence. The taxpayer objected and filed a motion to limit the Commission’s reconsideration to the existing record. The Commission granted the taxpayer’s motion, requesting that the parties file briefs if they so chose and scheduling further oral argument on the case. After hearing oral argument, the Commission held in favor of the taxpayer, setting the values for the Lexington and Thomasville facilities at the values determined by the taxpayer’s appraiser.
In its third decision, the Commission rejected the county’s criticism of the taxpayer’s appraisal and found the taxpayer had presented competent and material evidence tending to show that the county’s assessments were high. Therefore, the burden of proof shifted to the county. In reviewing the county’s comparable sales approach, the Commission concluded the county’s comparables indicated a value substantially less than the assessed value of the properties. The Commission also concluded the adaptive use sale could not be used as an indication of value for the property given that lack of specifics in the record. Given that the county had failed to present evidence to carry its burden of proof, the Commission concluded the taxpayer’s values were correct. The county appealed.
In a decision filed April 7, 2015, Judge Bryant upheld the Commission’s third decision in favor of the taxpayer. (“Parkdale III”) (In re Parkdale Mills, 770 S.E.2d 152 (N.C. Ct. App. 2015)). The county’s principal argument was that the Commission had failed to abide by the dictate of the court in Parkdale II that required a hearing at which new evidence could be introduced. The county’s focus was on the “shall” part of the court’s decision in Parkdale II that stated:
On remand, the Commission shall conduct additional hearings as necessary and make further findings of fact and conclusions of law in order to reconcile this discrepancy.
The taxpayer contended (1) the court in Parkdale II did not require additional hearings, emphasizing the court’s use of the words “as necessary;” and (2) under the Supreme Court’s ruling in Southern Railway (In Appeal of S.Ry.Co., 313 N.C. 177 (1985)), the court could not order a reopening of the record.
The court determined the county’s reliance on the word “shall” rather than the words “as necessary” was misplaced. In the court’s view, it was clear the dictate of the court in Parkdale II was that the Commission should hold a hearing or not hold a hearing as it deemed necessary to resolve the discrepancy between the evidence and the Commission’s determination of value. The court also made clear its opinion that, contrary to the assertions of either the county or the taxpayer, the Commission was not obligated to reopen the record, but in the exercise of its own discretion certainly had the right to do so.
Finally, the court addressed the county’s assertion that the Commission erred by adopting findings that were contrary to the record. The court acknowledged there was conflicting evidence in the record, but emphasized its job was to determine whether there was sufficient evidence in the record to support the determination of the Commission and not to substitute its evaluation of the evidence for that of the Commission. The court determined there was sufficient evidence in the record to support the Commission’s decision in favor of the taxpayer and, therefore, there was no basis for overturning the Commission’s decision.
Of final interest in Parkdale III is Judge Dillon’s concurring opinion. In closing the majority opinion, Judge Bryant referenced the end of the court’s opinion in Parkdale II, which seems to imply that, once the burden has shifted to the county, if the county fails to produce evidence sufficient to carry its burden, the taxpayer’s value is automatically sustained. Judge Dillon in his concurring opinion sets forth a more nuanced approach:
I write separately to address the dicta from Parkdale quoted in the last paragraph of the majority’s opinion:
If the County cannot carry it assigned burden, or if the Commission again fails to rectify the inadequacies of its Final Decision, this Court may exercise its prerogative to remand for yet a third time with specific instructions for the Commission to adopt [taxpayer’s] valuation of the property as, unlike the County’s valuation, it has not been held to be “arbitrary.”
I do not believe that the above dicta should be read as a rule that requires the Commission to accept the taxpayer’s valuation simply because the County may fail to meet its burden (when applicable) that its valuation does not represent the true value of the property.
Judge Dillon goes on to state his view of the Commission’s responsibility when the burden has been shifted to the county and the county fails to meet its burden:
The County’s failure to meet its burden does not necessarily render the taxpayer’s valuation to be correct. Rather, where the County fails to meet its burden, it is up to the Commission to weigh the evidence and to make a determination as to the property’s true (market) value. It may be that the Commission concludes that neither valuation (offered by the County or the taxpayer) accurately reflects the property’s true value and determines the true value to be some other number.
While perhaps not as groundbreaking as the IBM decisions, the Parkdale decisions provide further instruction to the Commission as to its responsibilities by (1) giving an example of how the burden-shifting analysis first articulated in IBM 1 should be applied; (2) making clear the legal standard is “market value,” and any evidence as to “use value” should not be considered; and (3) holding that, on remand from the Court of Appeals, the Commission has the discretion to reopen or not reopen the record to hear further evidence. However, the exact meaning of the court’s conclusion in Parkdale II, is still unclear, i.e. whether the county’s failure to meet it burden of proof means the taxpayer’s value prevails or whether it only means the Commission must further weigh the evidence to determine a value.
Image Circa 1910 from postcard., Public Domain