{¶ 1} Appellant, Woda Ivy Glen Limited Partnership (“Ivy Glen”), appeals from a decision of the Board of Tax Appeals (“BTA”) that affirmed the value that Fayette County assigned to the parcels at issue for the tax year 2004. The parcels are 60 in number and are improved with single-family homes that were built in 2002. The 60 parcels were developed, pursuant to the federal low-income housing tax credit (“LIHTC”) enacted in 1986 and codified at Section 42, Title 26 of the United States Code (“I.R.C. 42”). The auditor utilized a cost-based valuation for tax year 2004 with respect to each of the 60 individual parcels. The true value computations equaled approximately $80,000 per parcel and aggregated to approximately $4,854,970 for all 60 parcels.
{¶ 2} On March 30, 2005, Ivy Glen filed its complaint against the auditor’s valuation with respect to all 60 parcels, alleging a total true value of $2,400,000. At the board of revision (“BOR”) and at the BTA, Ivy Glen sought to value the 60 parcels as an economic unit based on rent-income analysis and comparable sales of rental properties, but both those tribunals rejected that approach. In evaluating the appraisal that Ivy Glen prepared for the BTA hearing, the BTA disregarded the effect of use restrictions imposed under the federal tax-credit program and found that Ivy Glen’s appraisal report was deficient and not probative in certain crucial respects. This finding led the BTA to adopt the county’s cost-based valuation.' The BTA regarded the fact that the houses on the lots were only two years old as supporting the cost-based valuation.
{¶ 3} On appeal to this court, Ivy Glen makes two main contentions. First, Ivy Glen asserts that our case law precludes the adoption of a cost-based valuation because the federal tax subsidy induced the investment in the development, and under pure market conditions, the developer would not have expended such
{¶ 4} In response, the county argues that the court should defer to the BTA’s rejection of Ivy Glen’s appraisal. The county asserts that reverting to the auditor’s cost-based valuation is justified by three circumstances: (1) Ivy Glen’s failure to offer probative evidence that satisfied its burden of persuasion, (2) the doctrine that the BTA should ignore any restrictions on the transfer and use of the property that were imposed in connection with the federal tax subsidy, and (3) the recency of the construction of the development.
{¶ 5} We hold that under our case law, the BTA erred by failing to consider the federally mandated use restrictions imposed in connection with the LIHTC. That erroneous exclusion led the BTA to reject the appraiser’s highest-and-best-use determination, and as a result, the BTA reverted to the county’s cost-based valuation. Because it rests on an erroneous legal premise, the BTA’s decision must be vacated and the case remanded for additional proceedings as described below.
Background
{¶ 6} The Ivy Glen development is located in the northwestern portion of Washington Court House in Fayette County near State Route 41. The tract at issue was acquired as two separate parcels, which were then subdivided into 60 individual parcels in connection with the construction and leasing of single-family residences. Ivy Glen includes 59 rental units — modest single-family residential homes with two, three, or four bedrooms — and a manager’s unit with an adjoining community building/office.
{¶ 7} At the BTA, Ivy Glen presented the appraisal report and testimony of David E. McConahy. McConahy’s report determined that the highest and best use of the property as though vacant is “for residential utilization if special funding is made available,” but if such funding were lacking, “then general residential, institutional or secondary commercial utilizations are maximally productive.” With the improvements, the highest and best use of the parcels is “[the present] affordable rental housing development, laid out like a detached single-family subdivision.” That is so because an “LIHTC or low-income housing tax credit development is predicated on the rents that are affordable to low income residents and the income available is constrained by affordable standards,” a fact that “results in a project [that] offers limited direct economic return to the partners.”
{¶ 8} The BTA questioned McConahy’s economic-unit valuation in light of the principle that property should be valued in its “ ‘unrestricted form of title.’ ”
{¶ 9} Closely related to the economic-unit issue is the propriety of the BTA’s reverting to a cost-based valuation. The appraiser opined that the cost approach was not tenable in the present case because “this use is not actually feasible or productive as a market rent property and would not be undertaken by a developer.” The BTA stated, “[W]e see no reason why a cost approach could not have been completed for the subject units.” Woda Ivy Glen, BTA No. 2005-A-749, at 8.
{¶ 10} The BTA also faulted McConahy’s income approach. In particular, the BTA concluded that the vacancy and rent-loss elements of the income approach “treat[ed] the subject as subsidized housing, not in its unrestricted form of title” inasmuch as McConahy “expresses concern over the smaller number of eligible individuals based upon income levels.” Woda Ivy Glen, BTA No. 2005-A-749, at 10. In other words, the BTA faulted the income approach for taking into account the use restrictions on the property imposed in connection with the tax subsidy.
{¶ 11} Based on its disagreements with the appraisal and the income studies that Ivy Glen presented to the BOR, the BTA affirmed the county’s cost-based valuation of the property.
Analysis
1. The BTA’s decision is premised on ignoring LIHTC use restrictions.
{¶ 12} In rejecting Ivy Glen’s economic-unit analysis and affirming the auditor’s cost-based valuation, the BTA relied on the proposition that when valuing subsidized housing, “ ‘it is the fair market value of the property in its unrestricted form of title which is to be valued.’ ” Woda Ivy Glen, BTA No. 2005-A-749, at 4, quoting Alliance Towers, Ltd.,
{¶ 13} Ivy Glen relies heavily on the disfavor of the cost approach in the case law. Beyond that, its appraiser echoes the proposition that “[f]or purpose [sic] of real estate tax assessment, as set forth in Oberlin Manor [Ltd.] vs. Lorain County Board of Revision Supreme Court Case (1989) [
{¶ 14} Thus, the central legal issue in the present case lies in determining whether the appraisal of the 60 parcels should take into account the use restrictions imposed in connection with the federal tax credit. In making that determination, we first examine the nature of the LIHTC program. Thereafter, we discuss how the holdings of our prior cases apply to a case involving an LIHTC project.
2. I.R.C. 42 conditions the federal tax credit on encumbering the property.
{¶ 15} Although the record is sparse in this regard, it does establish that Ivy Glen is an LIHTC development. In particular, the appraiser McConahy recited that as fact in several parts of his report, and we have held that an appraiser’s certification permits a fact-finder to rely on facts asserted in an appraisal report — particularly when, as in this case, those facts are undisputed. AP Hotels of Illinois, Inc. v. Franklin Cty. Bd. of Revision,
{¶ 17} As a trade-off for the valuable tax credits, I.R.C. 42 imposes severe rent restrictions. Owners must elect to assure either that 20 percent or more of the units are occupied by individuals whose income is 50 percent or less of median gross income in the area, or that 40 percent or more of the units are occupied by individuals whose income is 60 percent or less of the median. I.R.C. 42(g)(1)(A) and (B). Rent is restricted to 30 percent of an imputed income figure based on size of household as prescribed by the statute. The restrictions apply through a “compliance period” of 15 years from the first year the credit is available, and then through an additional “extended low-income housing commitment” period prescribed by the agreement with the state, which must be at least 15 years. I.R.C. 42(h)(6)(D). See Rosenblum at 34 (“LIHTC projects are also subject to agreements with state housing agencies to restrict rents for a period of at least 15 years in excess of the 15-year federal restrictions”). The commitments under the LIHTC program are specifically made binding on successors to the owner and must be recorded in the chain of title to the property. I.R.C. 42(h)(6)(B)(vi); Rosenblum at 34 (to receive the tax credits, the “owner must enter into a recorded regulatory agreement restricting the use of the property”). Violations of the restrictions lead to recapture of the tax credits previously enjoyed, the repayment of taxes previously offset by credits, plus penalties and interest. I.R.C. 42(j); Rosenblum at 36.
{¶ 18} The result is that “LIHTC properties are operating under limited gross potential income because of the restrictions imposed both by the [IRS] and state agencies associated with LIHTC regulations.” Rosenblum at 36; see also George Jordan, Appraising the Assets of Low-Income Housing Tax Credit Properties (1999), 67 Appraisal Journal 41, 46 (the “LIHTC stipulations adversely affect the value of the fee simple conditional interest in the tangible asset and do not simply divide the benefits or value between the leasehold and leased fee estates.” (Emphasis sic)).
{¶ 19} In Cummins Property Servs., L.L.C. v. Franklin Cty. Bd. of Revision,
{¶ 20} Although Cummins differed because it addressed a situation in which there was a recent, arm’s-length sale, the case does articulate a principle that furnishes the polestar in applying our earlier cases to the situation presented in this case:
{¶ 21} “[T]he uniform rule [in real property taxation] is that property should be valued in accordance with an actual sale price where the criteria of the recency and the arm’s-length character of the sale are satisfied. Where there is no such sale, the uniform rule envisions that an appraisal will be prepared, and constitutional uniformity does not prohibit the differential treatment of encumbrances when property is being appraised in materially different contexts.” Cummins,
{¶ 22} As discussed, the BTA in this case predicated its decision on the premise that LIHTC restrictions should not be taken into account, and the BTA derived that premise from Alliance Towers. Alliance Towers, Ltd.,
{¶ 23} In this case, we need not address the general applicability of the Alliance Towers syllabus, because considering the effect of the use restrictions imposed under I.R.C. 42 on the value of the parcels fully comports with the principle set forth there. That is so because the standards for appraising property call for a valuation of the “fee simple estate” to be performed as if that estate were free from private encumbrances, but they nonetheless require an appraiser to consider “police power” limitations on use. Appraisal Institute, The Appraisal of Real Estate (12th Ed.2001) 71. Even after Alliance Towers, we have acknowledged that governmental restrictions must be taken into account. Cf. Muirfield Assn., Inc. v. Franklin Cty. Bd. of Revision (1995),
{¶ 24} As for “police power,” that term refers to the “right of government through which property is regulated to protect public safety, health, morals, and general welfare.” The Appraisal of Real Estate at 69. Do the use restrictions that accompany LIHTCs qualify as “police power” restrictions? Careful analysis reveals that they do. It is true that the federal government exercises no general police power. United States v. Lopez (1995),
{¶ 25} Finally, we note that viewing LIHTC use restrictions as governmental limitations imposed for the general welfare broadly accords with the decisions of our sister courts in other states. See, e.g., Bayridge Assocs. Ltd. Partnership v. Dept. of Revenue (1995),
{¶ 26} Our conclusion that the tax assessor must consider the effect the LIHTC use restrictions exercise on the value of the property does not disturb the specific holding of Alliance Towers, Ltd.,
{¶ 27} The court discerned a common thread connecting the BTA decisions: the BTA had relied on appraisals that took into account the affirmative benefit of the federal subsidies as part of the value of the respective properties — an approach that increased the value assigned to the properties. Although broadly stating the generalization that “[i]t is the fair market value of the property in its unrestricted form of title which is to be valued,” Alliance Towers, Ltd.,
{¶ 28} All of these considerations led the court to conclude that the BTA should value Section 8 properties in accordance with methods that disregarded the affirmative value of the subsidies conferred by the federal government. Alliance Towers, Ltd.,
{¶ 29} Thus, in spite of the sweeping language of Alliance Towers, the plain import of the decision lies in preventing the affirmative benefit of government subsidies from inflating the value of the property for tax purposes. In the present case, that precept would call into question any attempt to regard the value of the tax credits to the limited partners as part of the value of the real estate. But that does not prevent the tax assessor from considering the effect of concomitant use restrictions imposed under I.R.C. 42 — restrictions that the statute requires to be recorded in the chain of title.
A On remand, the BTA shall consider the effect of the use restrictions on the vahee of the parcels.
{¶ 31} Reading our prior cases, the BTA and the parties misconstrued the pronouncements of Alliance Towers, Ltd.,
{¶ 32} When this court clarifies the legal standards that apply in a particular case and then remands the case to the BTA, the board typically has discretion to hear additional evidence or to decline to do so, as the board deems appropriate. Lakeside Truck Rental, Inc. v. Bowers (1963),
{¶ 33} We therefore vacate the BTA’s decision and remand the case for (1) the hearing of additional evidence concerning the federal restrictions that applied to the property and their effect on the property’s value, if the BTA decides that additional evidence is needed on these points, (2) a redetermination by the BTA of the issue of highest and best use on the basis of all the evidence before it, and (3) a reconsideration of the probative value of all elements of the appraisal, of the income studies presented to the BOR, and of any supplemental evidence taken, in light of the modification- — if any — that BTA makes to its highest-and-best-use determination.
Conclusion
{¶ 34} For all the foregoing reasons, the BTA erred by valuing Ivy Glen’s property without regard to the effect of federally imposed use restrictions. We vacate and remand so that the BTA may conduct further proceedings in accordance with this decision.
Decision vacated and cause remanded.
Notes
. We have held that “[f]or tax valuation purposes, property with a single owner, for which the highest and best use is a single unit, constitutes a tract, lot, or parcel.” Park Ridge Co. v. Franklin Cty. Bd. of Revision (1987),
. As detailed by the South Dakota Supreme Court in Town Square, the principal dispute among the state courts lies not in whether the use restrictions must be accounted for, but whether the tax credits must also figure into the valuation. For the reasons set forth in footnote 4, below, our precedent indicates that the credits should not be viewed as pertaining to the realty.
. See Oberlin Manor, Ltd. v. Lorain Cty. Bd. of Revision (1989),
. As for the tax credits themselves, we discern ample reason to disregard them as constituting a part of the value of the realty to the extent that tax benefits are transferred apart from any transfer of the underlying fee interest in the property. As discussed, the method of pursuing an LIHTC development involves “syndicating” the credit by selling passive investment (in this case limited-partner) interests to entities that can benefit from the tax credit. This means that (1) the proportionate interest in the tax credits themselves is transferred apart from any transfer of the entire legal fee interest in the property, and (2) the value that the purchaser places on the credit is driven primarily by the purchaser’s particular tax considerations rather than any future value anticipated from the real property itself. As a result, the tax credits qualify as intangible interests separable from the real property. Cf. St. Bernard Self-Storage, L.L.C. v. Hamilton Cty. Bd. of Revision,
. In HealthSouth Corp. v. Levin,