Arbors E. RE, L.L.C. v. Franklin Cty. Bd. of Revision (Slip Opinion)
100 N.E.3d 379
Ohio2018Background
- In April 2011 Arbors East purchased a nursing-home facility for $7,490,000; the county auditor’s 2011 valuation was $4,000,000. Parties disputed whether the lump-sum price should be allocated among real estate, FF&E, licenses/certificate of need, and business goodwill.
- Arbors East’s appraiser (Koon) treated the sale as an arm’s-length going-concern sale and allocated the price: FF&E $300,000; certificate of need $1,800,000; goodwill $750,000; residual real-estate $4,640,000.
- The Franklin County Board of Revision (BOR) admitted additional documents after the hearing (lease amendments; a federal Schedule D-1) and deducted $287,100 for personal property, arriving at a real-estate value of $7,202,900 for 2011–2013.
- The BOR did not certify some of the post-hearing documents to the Board of Tax Appeals (BTA). At the BTA level neither party submitted new evidence and the BTA considered only the certified record.
- The BTA adopted the full sale price as real-estate value, finding no contemporaneous allocation and concluding goodwill could not be allocated apart from the realty.
- The Ohio Supreme Court vacated the BTA decision and remanded, holding the BTA should have assembled a complete record and that it erred as a matter of law in rejecting potential allocations to goodwill in the nursing-home context.
Issues and Key Positions
| Issue | Plaintiff's Argument (Arbors East) | Defendant's Argument (Columbus City Schools / BTA) | Held |
|---|---|---|---|
| Whether the BTA must obtain omitted BOR evidence before deciding allocation | BTA must consider all BOR evidence (including post-hearing documents); otherwise owner is prejudiced | BTA relied on certified record and absence of contemporaneous allocation to deny allocations | BTA must use its statutory authority to obtain a complete record (vacated and remanded) |
| Whether absence of a contemporaneous allocation precludes later allocation to nonrealty assets | After-the-fact appraisals and other evidence can corroborate allocations; contemporaneous allocation is not dispositive | Lack of contemporaneous allocation and conveyance documents showing only realty weigh against allocation | Court: contemporaneous allocation is not required; BTA misapplied precedent and must evaluate all evidence on remand |
| Whether goodwill is separable from real estate in a nursing-home sale | Goodwill in nursing homes can be a separable business asset distinct from realty and may be allocated | Cited cases (hotels, self-storage) suggest goodwill sometimes inseparable; BTA held goodwill cannot be allocated here as a matter of law | Court: BTA erred treating earlier hotel/self-storage precedents as controlling; goodwill can be separable in nursing-home transactions |
| Whether the BTA may adopt full sale price absent sufficient verification of asset transfers | Owner met burden via appraisal showing going-concern sale and allocation methodology | BTA: owner failed to meet burden because records showed realty only and no contemporaneous allocation | Court: BTA must reexamine with complete record and determine whether allocation is supported; cannot adopt full sale price as a matter of law without further factfinding |
Key Cases Cited
- Conalco, Inc. v. Monroe Cty. Bd. of Revision, 50 Ohio St.2d 129 (recognizes preference for proper allocation of lump-sum purchase price)
- Dublin Senior Community Ltd. Partnership v. Franklin Cty. Bd. of Revision, 80 Ohio St.3d 455 (sale of congregate-care facility involves separable real-estate and business activities)
- Health Care REIT, Inc. v. Cuyahoga Cty. Bd. of Revision, 140 Ohio St.3d 30 (concurrent treatment of business vs real-estate value in healthcare properties)
- Hilliard City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, 128 Ohio St.3d 565 (hotel sale; goodwill may be inseparable where income derives from room rentals)
- St. Bernard Self-Storage, L.L.C. v. Hamilton Cty. Bd. of Revision, 115 Ohio St.3d 365 (self-storage: business value often not separable from realty)
- Cannata v. Cuyahoga Cty. Bd. of Revision, 147 Ohio St.3d 129 (BTA must ensure BOR certified all material evidence; plain error if it relies on incomplete record)
- Buckeye Terminals, L.L.C. v. Franklin Cty. Bd. of Revision, 152 Ohio St.3d 86 (BTA abused discretion by ignoring after-the-fact appraisal evidence that contradicted conveyance allocation)