Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision (Slip Opinion)
2017 Ohio 7578
| Ohio | 2017Background
- State Farm owned and occupied an office building; for tax year 2011 it sought valuation reduction from the auditor’s $18,540,000 to $14,000,000 (appraiser Pickering). BOR adopted $14,000,000 for 2011 and carried it to 2012.
- In November 2013 State Farm sold the building as part of a 23-property sale/leaseback (absolute net leases) for $25,092,326; a subsequent April 2014 sale was for $26,100,000.
- Pickering and State Farm witnesses testified the 2013 sale was a sale/leaseback driven by State Farm’s investment-grade credit and prearranged leases, making the price unrepresentative of fee-simple market value.
- The BTA upheld the BOR’s 2011 valuation but treated the November 2013 sale as a recent arm’s-length sale and raised the 2012 value to $25,092,330.
- State Farm appealed; the Supreme Court of Ohio held that a sale/leaseback sale price does not qualify as an arm’s-length market-sale presumption and reinstated the BOR’s $14,000,000 carryover for 2012.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the sale price from a sale/leaseback qualifies as a presumptive arm’s-length market value for property-tax valuation | BOE: The ordinary presumption applies; the November 2013 sale is recent and parties acted in self-interest so price reflects market value | State Farm: Sale/leaseback inherently creates relatedness and atypical motivations (credit-backed rent stream), so sale price is not arm’s-length or indicative of fee-simple market value | Sale price from a sale/leaseback does not qualify for the Berea arm’s-length presumption; BTA’s increase reversed |
| Whether appraisal evidence may be relied on when a sale/leaseback price is contested | BOE: Berea presumption displaces contrary appraisals when a recent arm’s-length sale exists | State Farm: Appraisal evidence is probative to show sale price was influenced by lease terms and not market value | When sale/leaseback price is disputed, appraisal evidence may be considered and can outweigh the sale price presumption |
| Whether a subsequent sale (post sale/leaseback) should be treated differently than the original sale/leaseback for presumption purposes | BOE: Subsequent sale can invoke Berea presumption and be used to value property | State Farm: The lease’s economic effect persists; subsequent sale price may also be skewed by lease | Court distinguished but did not adopt a categorical rule for all subsequent sales; refused to apply Berea to the sale/leaseback itself and declined to address the 2014 sale due to BOE’s failure to cross-appeal BTA’s recency finding |
| Whether court should apply amended R.C. 5713.03 (H.B. 487) arguments raised by State Farm | State Farm: amended statute would bar use of encumbered sale price | BOE: N/A | Court: Statute not effective for tax-lien date; rejected statutory argument and applied pre-amendment law |
Key Cases Cited
- Conalco, Inc. v. Monroe Cty. Bd. of Revision, 50 Ohio St.2d 129 (Ohio 1977) (recent arm’s-length sale is best evidence of true value)
- Kroger Co. v. Hamilton Cty. Bd. of Revision, 67 Ohio St.3d 145 (Ohio 1993) (BTA may reject sale/leaseback when transaction effectively functions as financing rather than market sale)
- Cleveland Hts./Univ. Hts. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 72 Ohio St.3d 189 (Ohio 1995) (same principle rejecting sale/leaseback as indicative of market value)
- S. Euclid/Lyndhurst Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 74 Ohio St.3d 314 (Ohio 1996) (sale/leaseback price can be tailored to below-market rent and thus be unreliable as market value)
- Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269 (Ohio 2005) (presumption that a recent arm’s-length sale establishes true value)
- Cummins Property Servs., L.L.C. v. Franklin Cty. Bd. of Revision, 117 Ohio St.3d 516 (Ohio 2008) (sale/leaseback elements may deprive transaction of arm’s-length character; appraisals may remain relevant)
- AEI Net Lease Income & Growth Fund v. Erie Cty. Bd. of Revision, 119 Ohio St.3d 563 (Ohio 2008) (distinguishes application of Berea to a subsequent sale from application to the original sale/leaseback)
- CCleveland OH Realty I, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 121 Ohio St.3d 253 (Ohio 2009) (applies AEI to reject attack on a subsequent sale’s arm’s-length character)
- HIN, L.L.C. v. Cuyahoga Cty. Bd. of Revision, 138 Ohio St.3d 223 (Ohio 2014) (arm’s-length sale price of a fee interest should not be adjusted merely for an encumbrance, but sale/leaseback context remains examinable)