27 Haw. 190 | Haw. | 1923
Lead Opinion
OPINION OF THE COURT BY
This is an appeal from a decision of the tax appeal court sustaining the assessment placed by the assessor upon land of the taxpayer-appellant. The property assessed contains nn area of 519,844 squaye feet but is leased in subdivisions or lots to various tenants. The
Both the return and the assessment are easily susceptible of the construction that they related to the tract of land as a whole and under the circumstances above recited they should be so construed. It is unnecessary either from the point of view of the form of the return and the assessment or in the consideration of the value of the tract as a whole to make any study of or reference to the value of any one or more or all of the separate lots.
The principles involved in the taxation of property have been definitely and firmly established in this jurisdiction. The property must be assessed at its “cash value” as of the assessment date, which in this instance was January 1, 1922. The term “cash value,” as used in the statute, means the highest price which the property will bring for cash whether sold as a whole or in lots,— whichever will bring the higher return — and after reasonable and fair advertisement. It means the cash price as aforesaid obtainable if all the property were sold on
What is the evidence in the case at bar? On behalf of the assessor the following witnesses testified: Messrs. Aona, Beers, Tinker, Vicars and Stone, and for the taxpayer Messrs. Collins and Gurney. The testimony of Messrs. Aona and Beers was to the effect that the County of Hawaii in amicable settlement of judicial proceedings brought by the county for condemnation of certain land in Hilo desired for road-widening purposes had paid for that property from $2 to $2.50 per square foot. The only inference deducible from the record is that the circumstances surrounding.this property and the purchase thereof were not such as to entitle this evidence to any force in connection with the ascertainment of the value of the taxpayer’s property involved in this appeal. No party to the present controversy seems to attach any great weight to this testimony. It is entitled to none. Mr. Tinker testified that he did not know the area of the frontage of the property in question, gave no information as to the total value of the property, said that he thought it worth 50c per square foot “for the whole thing as an average” but added that the “back lots” would sell only “if sold on easy terms.” This last statement of his shows that in forming his estimate of 50c per square foot he had not the correct legal principles in mind. The law contemplated not “easy terms” but a sale for all cash. Mr. Vicars, without knowledge of the frontage of the tract, thought that its front portion; 100 feet in depth, would be worth “around 60c a square foot.”' “Quite a number
The case stands therefore as though no evidence had been adduced by the assessor which can be of assistance to this court in determining the “cash value” of the tract on the assessment date.
For the taxpayer Mr. Collins testified that for five years he had been superintendent of the land department of the Bishop Estate, gave in detail a description of the land involved, including its dimensions, and otherwise showed an entire familiarity with all the facts of the case. He gave it as his opinion that the amount returned “represents the fair cash value of this property.” Mr. G-urney,
In another way also the same result is reached. The evidence is undisputed that there are outstanding on this tract twenty-six “old leases,” as they are called (meaning thereby leases made prior to 1919), covering about 199,000 square feet and expiring in various years from 1922 to 1936. The total rentals in force on the assessment date amounted to $5638 per annum or an income of a little less than 4%% on the amount returned by the taxpayer. The evidence is undisputed that investors purchasing property of this nature would require assurance of a return of 8% per annum on the capital invested. It also appears that if the “old leases” had all expired prior to the assessment date and leases at the same rate secured in the “new leases” were in effect for all of the property the rental would be a return of 6% on a capital value of $179,750 or of 8% on a value of $134,812. The fact remains, however, that the “old leases” were still existing at the assessment date and constituted an encumbrance rendering the total value of the property less than it would be if they had been wholly substituted by new leases. Without resorting to exact or intricate mathematical calculations, it is obvious that the difference be
It cannot be doubted at this date that the income-producing capacity of property is an important consideration in determining its taxable value. In re Tax Assessment Appeals, 11 Haw. 235, 237, and In re Taxes Kapiolani Estate, 21 Haw. 667, 671.
The improvements have all been taxed separately to the lessees and for that reason alone need not be further considered in this case. Moreover, the undisputed evidence is that the buildings are-all wooden structures and of cheap construction. Ordinary experience teaches that they will be of very little, if any, value at the expiration of the leases. The tax court which purports to place some emphasis upon this matter of improvements has not in its decision stated what improvements it found on the property which did not fall within the description given in the testimony here recited. The assessor has presented no evidence tending to show that the improvements will be of any material, salable value at the expiration of the leases or tending to show the present worth of the lessor’s interest in them at the assessment date. From all of the evidence the only finding that can be made is that they do not add to the value of the lessor’s interest in the property.
In view, therefore, of the opinions of the experts who testified for the taxpayer and upon a consideration of the income-producing capacity of the property the judgment should be reversed and the taxpayer’s return sustained.
Concurrence Opinion
This appeal involves blocks B, C, D and E of the Piopio tract in the city of Hilo, Hawaii County, having an aggregate taxable area of 519,844 square feet. They abut in the order named upon the mauka or northerly side of Kamehameha avenue, formerly known as Front street, with an aggregate frontage, according to the blue print in evidence, of approximately 2110.89 feet and are separated by intervening spaces suitable for streets. The rear of blocks B, C and D adjoins Punahoa street which runs parallel to Kamehameha avenue, terminating at the Wailoa river where it flows past the northeast corner of block D. Punahoa street is unimproved but capable of traffic. Block E is bounded on the rear in part by the north bank of the Wailoa river and in part by a detached piece of government land bordering upon the north side of the river. Its easterly end forms a gore between the tracks of the Hilo Consolidated Eailway Company and a small government piece on the north side of the river. The northwesterly corner of block B is about 110 feet easterly from the northeasterly corner of Kamehameha avenue and Piopio street. The dimensions of these blocks, beginning with the Kamehameha avenue frontage and proceeding around as the hands of a clock, are: Block B: 242.3 ft. x 293 ft. x 242.3 ft. x 280 ft.; block C: 600.82 ft. x 258.4 ft. x 600.82 ft. x 289.9 ft.; block D: 597.77 ft. x 290 ft. x 597.77 ft. x 255 ft.; block E: on Kamehameha avenue 670 ft., then follows an irregular line from the northeasterly corner to the southwesterly corner and the westerly side is 250 feet long. The tract narrows at the center and then widens until it intersects the Wailoa river and narrows' tngain. All of these blocks are subdivided into lots. "'Phe Subdivision of blo.cte;B, C)Vand.,I),., was effected by practically dividing the blocks in two'by lines parallel to Kamehameha avenue and Punahoa street and running lines across the blocks approximately at
The taxpayer pursuant to the provisions of section 1253, E. L. 1915, made a return upon a form entitled “Lessor’s Eeturn of Eeal Property Leased” and therein detailed the royal patent, grant or land commission award in which the land subject to each lease was included, the date, term, annual rental and name of the lessee in each lease, and a description of the premises demised by lot and block number and area. The cash value of each piece of property subject to the respective leases was set forth separately. These separate values aggregated $125,693. This averages 24.2c plus per square foot throughout the tract.
The assessor raised the assessment in each individual case, resulting in an aggregate assessment of $258,266. This averages 49.6c plus per square foot throughout. The taxpayer appealed from the assessment as a whole. No claim was made by the Territory either before the tax
The return of the taxpayer, according to the evidence of Mr. Collins who has been manager of the estate for a period of about five years, was upon a valuation of 40c a square foot for the frontage on Kamehameha avenue to a depth of 100 feet, 20c a square foot on the balance of the front lots and 10c a square foot on the lots facing Punahoa street. In his opinion the return constituted a fair valuation of the premises. The record is silent as to the value of the rear of block E but classifying it with Punahoa street lots we have as a result of the method pursued by the taxpayer 211,089 square feet at 40c; 56,747 square feet at 20c and 252,008 square feet at 10c, aggregating $120,985. If the value of block E were computed on the basis of 40c per square foot for a depth of 100 feet, 20c per square foot for an additional depth of 40 feet (corresponding to the average depth of lots fronting on Kamehameha avenue in the other blocks) and 10c for the remainder in the rear, the valuation of the property would be increased to $123,754.66. As said the return was $125,693. The net annual rental from the property is $5638, which figures a little less than 4%% net on the value returned for assessment. Mr. Collins testified that the estate usually expects a net rental of 6% and the rentals were figured on that basis, being the highest rental obtainable — as put by him, “the most the traffic would bear.”
There are twenty-six “old leases,” so called, dating as far back as 1906, one of which expired in 1922; four of which will expire in 1923, eight in 1924, six in 1925, two in 1926, two in 1928, one in 1930 and two in 1936. All of these leases were for terms of fifteen years with the
Within two and one-half years prior to the taxation period (to be exact, beginning May 1, 1919,) the estate has granted seventeen leases, which will be hereafter referred to as “new leases,” each for a term of fifteen years with rentals based on a net 6% return upon a valuation of 40c per square foot for lots fronting on Kamehameha avenue to a depth of 100 feet; the balance of the front lots at 20c per square foot and the lots fronting on Punahoa street at 10c per square foot, the same basis as the return for taxation. Mr. Collins testified that all further leases would be made upon a valuation of 50c a square foot for the front lots and 25c a square foot for the rear lots. From the tax return and from the itemized statement, filed by the taxpayer in this court upon appeal, of the number, date, date of expiration, area and rental of the twenty-six old leases referred to it would appear that the rental of old leases of lots on Kamehameha avenue in ■blocks B, C and D is 6% on from 33c to 35c per square foot, according to location, while the rental of lots facing on Punahoa street is 6% on a valuation of 10c a square foot. The rental reserved in both the new and the old leases of lots in block E is 6% on from 28c to 31c a square foot, according to the location.
I deem the arbitary subdivision made by the taxpayer for classifying the land for taxation purposes, if of any •value, to be inapplicable to lots 1, 2, 3 and 4 in block E.
It would seem that for taxation purposes classification of the lots as subdivided by the taxpayer would be the most reasonable basis of valuation of the tract as a whole.
Land subject to old leases was returned at $71,480; that subject to new leases at $54,213.
The tax assessor assessed the property at 59c plus per square foot for Kamehameha avenue lots in blocks B, C and D, 49c per square foot in block E and 40c a square foot for all lots facing on Punahoa street. This would average 49.6c plus per square foot throughout the tract. He justified his assessment by evidence of several sales made in the vicinity — -an unimproved lot situate on Kamehameha avenue on the Waiakea side of the Volcano Stables with a frontage of approximately 120 feet and a depth of 100 feet and containing an area of 12,000 square feet sold at private sale for $12,000, or $1 a square foot; an unimproved lot situate on the Waiakea corner of Kamehameha avenue and Piopio street with a frontage of 100 feet and a depth of approximately 100 feet and containing an area of 10,367 square feet sold at private sale for $6000, or 58c a square foot; an unimproved lot situate on Kamehameha avenue between the Volcano Stables and Piopio street with a frontage of 90 feet and an approximate depth of 100 feet and containing an area of 9646 square feet sold at public auction for $7,800, or 80c a square foot, and finally three unimproved lots situate in Waiakea on the east side of the proposed Lihiwai street and the north side of the proposed Kuhio street, generally
The evidence was undisputed that a reasonable return upon a real estate investment was 8% net.
Prom all the evidence in the case I am inclined to feel that the leases provide the safest method of computation of the cash value of the property at the taxation period. The evidence of sales of land made in the immediate vicinity within a reasonable time prior to the taxation period was perhaps of some value to the tax appeal court due -to the fact that it was presumably acquainted with the conditions obtaining at the times of the respective sales and had a knowledge of the general situation and the character of the land subject to these sales with which it could make comparisons and drew upon that acquaintance and knowledge in coming to its conclusion. But the record is so meager it is impossible to determine therefrom to what extent these specific sales may be employed in determining the value of the land subject to assessment. Nothing further appears than the mere location except in the case of one sale where it appears that
Opinions of those qualified to speak are of great assistance to a court in determining values. But it must appear that the opinion of the expert is based upon knowledge of the facts involved. None of the witnesses who gave evidence, with the possible exception of Mr. Collins, had any knowledge of the details of existing leases and their evidence was based,,practically upon the theory of unencumbered ownership "iir;fee. In the instant case, however, there is present evidence of value based upon actualities. The new leases by reason of their number and similarity of land demised remove the question of
Nor should the return of the taxpayer upon lands subject to old leases be disturbed. The old leases by reason of the inadequacy of rent and the return which the ordinary investor would'' expect to receive from the land subject thereto at the taxation period constitute an encumbrance and serve to reduce the value of the property subject to such leases. For instance, lease 1260 is of two lots in block B, one fronting on Kamehameha avenue, size 50 ft. x 162% ft., and one fronting on Punahoa street containing an area of 6740 square feet. Were the Bishop Estate receiving a return similar to what it now receives under its new leases it would receive $228 per annum. The
There are further reasons why the return of the taxpayer of the lots in block E should be sustained. The evidence of values adduced by the taxpayer, if intended to apply to block E, left the value of the rear portion in doubt. Nor did the tax assessor clarify the issues in that regard. The evidence adduced by the latter absolutely failed to take into consideration existing leases. Hence here similarly, as in the case of the lots in the other blocks, one must be guided by the existing leases, both new and old. Two new leases were secured in May,
There remains still to be considered the extent to which the assessment should be affected, if at all, by the value of the improvements upon the premises at the taxation period. The evidence is that the improvements were assessed separately against the lessees. Neither party offered any evidence of what the improvements consisted which were upon the premises subject to leases which revert to the lessor at the expiration of the term, which obviously are the only improvements with which we are • concerned. The only evidence of improvements is that hereinbefore set forth in connection with the uses to which all the premises generally were devoted. Neither the return of the taxpayer nor the assessment of the assess- or contains any reference to improvements. This matter seems to have been an afterthought of the tax appeal court and to have been considered by it in the absence of
I concur in the conclusion reached by the majority.