2727 SAN PEDRO LLC, a limited liability company v. BERNALILLO COUNTY ASSESSOR
NO. 34,869
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
September 13, 2016
Denise Barela Shepherd, District Judge
Opinion Number: ____________
Denise Barela Shepherd, District Judge
J. Victor Pongetti
Albuquerque, NM
(Inactive as of 12/31/2015)
for Appellant
Robles, Rael & Anaya P.C.
Vanessa R. Chavez
Marcus J. Rael, Jr.
Albuquerque, NM
for Appellee
WECHSLER, Judge.
{1} This appeal arises from proceedings related to Appellant 2727 San Pedro LLC‘s formal protest of Appellee Bernalillo County Assessor‘s (the Assessor) 2014 notice of value for the subject property for property tax purposes. After considering evidence from both parties, the Bernalillo County Valuation Protests Board (the Protests Board) valued the property at $900,200—the amount proposed by the Assessor. Appellant appealed to the district court, which affirmed.
{2} This Court granted certiorari under
{3} Appellant is the owner of a commercial office building located at 2727 San Pedro NE in Albuquerque, New Mexico. Appellant received the property‘s annual valuation report from the Assessor on or around May 22, 2014. This report valued the property at $1,113,300. Appellant filed a petition protesting the Assessor‘s assessment of value and proposed that the correct value was $753,690. This petition additionally proposed that the income method of valuation was the most appropriate method by which to determine the value of the property. The Protests Board scheduled a hearing for July 8, 2014.
{4} On June 25, 2014, the Assessor recalculated its valuation of the subject property and sent Appellant a new valuation report. This report valued the property at $1,031,500. On July 8, 2014, immediately prior to the protest hearing, the Assessor again recalculated its valuation, further reducing the value to $900,200. Ms. Arlene Jaramillo, an appraiser employed by the Assessor‘s office, represented the Assessor before the Protests Board. Jaramillo conceded during the hearing that properties considered as part of a commercial sales comparison were not sufficiently similar to support a valuation of the property. Because of the lack of sufficiently comparable properties, Jaramillo stated that the Assessor utilized the income method of valuation to determine the value of the property.
{6} With respect to the central issue in this case, Appellant argued that the Assessor, in applying the income method of valuation, should have utilized Appellant‘s actual operating expenses, as reflected in the 2014 projected APOD, rather than limiting its expenses to forty-five percent of the effective gross income. In support of this argument, Appellant introduced the Protests Board‘s 2009 decision and order for the property, in which the Protests Board stated that such an “expense limit is not a generally accepted appraisal technique.”
{7} Jaramillo testified that the Assessor‘s application of the income method of valuation utilized a forty-five percent limitation on operating expenses based upon independent sources of market research. Specifically, Jaramillo stated, “[F]rom what we have seen as far as what people are bringing in, what we‘ve researched from Business Weekly and Co-Star, right now the max[imum] vacancy is at fifteen percent and the max[imum] expenses [are] at forty-five percent, so that‘s what we allowed” and “[We] us[ed] the market vacancies, expenses, reserves, and such that we have
{8} The Protests Board concluded that its preference would be “to see the Assessor‘s actual market studies to support the expense limits imposed[,]” but that “the Assessor‘s approach to value is most reliable.” The Protests Board entered a decision and order that valued the subject property at $900,200. The decision and order additionally noted that the Assessor “offers an income approach valuation employing [Appellant‘s] numbers, but limits vacancy to [thirteen percent],2 management fees to [three percent], reserves to [four percent] and expenses to [forty-five percent], in accordance with the Assessor‘s market research and review of data
{9} Appellant timely filed a notice of appeal and statement of appellate issues. Appellant raised eight issues on appeal to the district court. Five of those issues related directly or indirectly to whether substantial evidence supported the Protests Board‘s implied conclusion that the Assessor‘s valuation of the subject property was based upon generally accepted appraisal techniques. Appellant also asserted that the Protests Board erred in failing to expressly conclude that Appellant had overcome the statutory presumption of correctness. In its statement of appellate issues, Appellant provided an alternative calculation of its total operating expenses, amounting to sixty-two percent of gross operating income.3
{10} The district court affirmed the Protests Board‘s valuation in a memorandum opinion and order filed on June 23, 2015. Due to a clerical mistake, the order was amended and refiled on June 25, 2015. The district court first addressed the Protests Board‘s failure to expressly conclude whether Appellant had overcome the statutory
{11} The district court, quoting First National Bank v. Bernalillo County Valuation Protest Board, 1977-NMCA-005, 90 N.M. 110, 560 P.2d 174, noted that without a presumption of correctness, the burden shifted to the Assessor to “prove that his [or her] method of valuation used a generally accepted appraisal technique.” It also concluded that the Assessor has a policy, based upon market research, that places a forty-five percent limitation on operating expenses when applying the income approach to valuation. It ruled that “substantial evidence supports the use of market data to determine the amount of ordinary and necessary expenses when valuing property for taxation purposes using the income method.” In support of its ruling, the district court stated that Jaramillo‘s “sworn testimony that the Assessor employs a [forty-five percent] cap is itself competent evidence that such a policy exists.” The district court also noted that “there is no evidence in the record to dispute the conclusion that the use of market data to determine the expense ratio is a generally accepted technique[,]” that “Appellant has identified no provision in the statutes or regulations that requires the Assessor to use[] a subject property‘s actual expenses,” and that the Protests
{12} Appellant filed a petition for writ of certiorari to this Court. Appellant‘s writ presented two questions for review:
[1] Was there substantial evidence to support the decision of the [Protests] Board that the method used by the Assessor met the statutory requirement in [
NMSA 1978, Section 7-36-15(B) (1995) ] as a generally accepted appraisal technique?[2] Was the decision of the District Court affirming the decision of the [Protests] Board arbitrary because there was no substantial evidence to support the [Protests] Board‘s decision that the Assessor‘s technique met the requirements of [Section 7-36-15(B)] as a generally accepted appraisal technique?
We granted Appellant‘s petition to address these questions.
PRESERVATION
{13} As a general rule, claims of error are reviewed by this Court only if preserved at trial.
STANDARD OF REVIEW
{14}
{15} “Upon a grant of a petition for writ of certiorari under
VALUATION OF PROPERTY FOR TAXATION PURPOSES
{17} The valuation of real property for property tax purposes is governed by the Property Tax Code,
{19} Determinations of valuation by the Taxation and Revenue Department or a county assessor are presumed to be correct.
{20} Whether an appraisal technique is “generally accepted” is a question of fact. See First Nat‘l Bank, 1977-NMCA-005, ¶ 23 (stating that a taxpayer has a “duty to
{21} Prior to addressing Appellant‘s issues on appeal, we must address whether Appellant‘s testimony and admitted evidence were sufficient to overcome the statutory presumption of correctness afforded to the Assessor‘s valuation of the subject property. The Assessor proposed a market value based upon its own application of the income method of valuation; an application that utilized a market research-based, forty-five percent limitation on operating expenses. Appellant did not offer expert testimony indicating that the Assessor‘s application of the income method of valuation did not utilize generally accepted appraisal techniques as outlined in First National Bank. See id. ¶ 23. However, both the Protests Board, impliedly, and the district court, expressly, indicated that Appellant had overcome the statutory presumption of correctness.
{22} During the July 8, 2014 hearing, Appellant proposed a market value based upon its own application of the income method of valuation. This application utilized actual operating expenses, as reflected in the 2014 projected APOD. While Appellant‘s application of the income method of valuation differs from that advocated by the
SUFFICIENCY OF THE EVIDENCE
{23} Because Appellant overcame the statutory presumption of correctness afforded to the Assessor‘s valuation of the subject property, we turn to the issue of whether substantial evidence exists such that a reasonable person could conclude that the Assessor‘s application of the income method utilized generally accepted appraisal techniques. In this inquiry, we account for regulatory language allowing Protests Board members to apply their own experience and knowledge to the admitted evidence.
{24} The income method of real estate valuation derives market value from a formula that multiplies a given capitalization rate by the net operating income for the subject property. Encyclopedia of Real Estate Appraising 54-55 (Edith J. Friedman ed., 1959). Net operating income is calculated “by deducting from gross income all costs of maintenance and operation.” Id. at 55. As discussed above, Jaramillo testified at the July 8, 2014 hearing that, when applying the income method of valuation, the Assessor applies a forty-five percent limitation on operating expenses rather than applying the taxpayer‘s actual reported expenses. Our independent research indicates that such a limitation, based solely on market research, is not universally applied. See, e.g., Willow Valley Manor, Inc. v. Lancaster Cty. Bd. of Assessment Appeals, 810 A.2d 720, 726-27 (Pa. Commw. Ct. 2002) (“In estimating expenses, the appraiser . . . must make a stabilized expense projection, considering actual expenses and industry standards.” (emphasis added)); Smith v. Bd. of Supervisors of Fairfax Cty., 361 S.E.2d 351, 355 (Va. 1987) (“Where an assessment is based on the capitalization of income, contract rent and actual expenses must be considered in arriving at economic income[.]” (emphasis added)).
{26} Furthermore, the Protests Board‘s 2009 decision and order for the subject property, which was admitted as evidence in this case, demonstrates that the Protests
{27} Both the Assessor and the district court note, in reference to
{28} In support of its decision, the district court additionally stated, “Appellant has identified no provision in the statutes or regulations that requires the Assessor to use[] a subject property‘s actual expenses, and the case law does not support his position.” We also do not consider this statement to be convincing. First, the case cited by the district court in support of “mass appraisal[s]” relates to the appraisal of undeveloped lots using the comparable sales method. In re Protest of Cobb, 1991-NMCA-122, ¶ 2, 113 N.M. 251, 824 P.2d 1053. Second, and more importantly, the district court‘s argument incorrectly shifts the burden of proof back to Appellant. See First Nat‘l Bank, 1977-NMCA-005, ¶ 25 (“When a taxpayer overcomes the presumption of the correctness of the assessor‘s method of valuation, the burden shifts to the assessor to prove that his [or her] method of valuation utilized a generally accepted appraisal technique.” (internal quotation marks omitted)). Similarly, in discussing the sufficiency of Jaramillo‘s testimony to carry the burden of proof, the district court stated that Jaramillo‘s “sworn testimony that the Assessor employs a [forty-five percent] cap is itself competent evidence that such a policy exists.” The question at issue in this case, however, is not whether a certain policy exists or is employed by the Assessor. The question at issue, instead, is whether that policy utilizes generally accepted appraisal
CONCLUSION
{29} At oral argument before this Court, Appellant requested that we apply its proposed valuation for the 2014 tax year. Because we lack a sufficient basis to say that Appellant‘s proposed valuation resulted from the application of generally accepted appraisal techniques, we decline to take such action. Instead, we vacate the Protests Board‘s valuation of the subject property and remand to the Protests Board for additional proceedings consistent with this opinion.4
{30} IT IS SO ORDERED.
JAMES J. WECHSLER, Judge
RODERICK T. KENNEDY, Judge
LINDA M. VANZI, Judge