In State ex rel. Park Invest. Co. v. Bd. of Tax Appeals, 175 Ohio St. 410, 195 N.E.2d 908 (1964), we held that Article XII, Section 2, along with R.C. 5713.01, establishes the criterion for the assessment of real property in Ohio.Summary of this case from Terraza 8, L. L.C. v. Franklin Cnty. Bd. of Revision
Decided January 22, 1964.
Taxation — Assessment of real property by uniform rule — Board of Tax Appeals — Duty to review assessments — To order equalization by county auditor.
The Board of Tax Appeals has a statutory duty to review the tax assessments in any county in relation to whether such assessments were made by uniform rule and, if it finds that discrepancies exist in the tax assessments, as a whole or among the various classes of property, to direct such an order to the county auditor as is necessary to equalize such assessments.
This is an action in mandamus originating in this court. Relator seeks an order directing the Board of Tax Appeals to make a determination that the real property in Cuyahoga County has not been and is not being assessed by an equal and uniform rule according to true value in money and directing the Board of Tax Appeals to issue orders to the Auditor of Cuyahoga County to decrease the aggregate assessed value of "commercial" real property in Cuyahoga County.
Relator bases its right to relief on statistical records of real estate transactions in every county of the state, compiled by the Board of Tax Appeals, which admittedly show that "commercial" real estate in Cuyahoga County has a higher assessed valuation in relation to sales price than real estate in other classifications, and real estate generally without breakdown as to classification. These records do not include sales under $1,500; sales from or to a city or county or other political subdivision; forced sales of any kind; and sales where a relationship between seller and buyer is determined.
The Board of Tax Appeals, hereinafter referred to as respondent, contends that relator has shown no right to relief since sales price is only a single factor in the determination of real estate value, and, standing alone, it is not conclusive of true value.
Messrs. Rager, Forrester, Kovanda Lord, for relator.
Mr. William B. Saxbe, attorney general, and Mr. Daronne R. Tate, for respondent Board of Tax Appeals.
Mr. John T. Corrigan, prosecuting attorney, Mr. A.M. Braun, Mr. George W. Leddon and Mr. John L. Dowling, for respondent Ralph J. Perk, Auditor of Cuyahoga County.
Two basic questions are raised in this case. First, is the market value of real property the basis upon which true value is determined for the purpose of tax assessment? Second, where it is apparent that real property in the various classes and counties are being assessed on different percentages of value, is there a duty on the Board of Tax Appeals to order the county auditors to equalize such assessments?
The determination of the first of these questions requires an examination of the constitutional and statutory provisions relating to the taxation of real property.
The criterion for the assessment and taxation of real property is set forth in Section 2, Article XII of the Ohio Constitution, and Section 5713.01, Revised Code.
Section 2, Article XII of the Constitution, provides:
"Land and improvements thereon shall be taxed by uniform rule according to value."
Section 5713.01, Revised Code, provides:
"The auditor shall assess all the real estate situated in the county at its true value in money."
There is no provision in the Constitution for a classification of real property according to use, rather the rule is that all real property must be taxed according to its value.
It is clear that under the Ohio law all real property, regardless of its nature or use, may be assessed and taxed only by a uniform rule on the basis of value.
Thus, the determinative issue is: What is the value or true value in money of real property?
In the last analysis the value or true value in money of any property is the amount for which that property would sell on the open market by a willing seller to a willing buyer. In essence, the value of property is the amount of money for which it may be exchanged, i.e., the sales price.
Respondent urges that the sales price is only one of many things which must be taken into account in determining value.
The confusion in the area of valuation arises from a failure to differentiate between the ultimate result which is sought to be attained, namely, the value of the property in question, and the methods which may be used to determine such value in the absence of an actual sale.
The best method of determining value, when such information is available, is an actual sale of such property between one who is willing to sell but not compelled to do so and one who is willing to buy but not compelled to do so. Paragraph two of the syllabus in In re Estate of Sears, 172 Ohio St. 443, 178 N.E.2d 240. This, without question, will usually determine the monetary value of the property. However, such information is not usually available, and thus an appraisal becomes necessary. It is in this appraisal that the various methods of evaluation, such as income yield or reproduction cost, come into action. Yet, no matter what method of evaluation is used, the ultimate result of such an appraisal must be to determine the amount which such property should bring if sold on the open market.
Therefore, the value, or true value in money of property for the purpose of taxation, is that amount which should result from a sale of such property on the open market. The board, in compiling the sales prices, refined them in order to more closely approximate true market value. All forced sales, sales from or to a political subdivision and sales between related persons were excluded.
This brings us to a consideration of a question which is ancillary to the question of value. It is and has been the practice in this state for taxation purposes to establish an assessed value of less than actual value, in other words, to assess property for taxation only for a percentage of the actual value. This raises the question of uniformity. Taxation by uniform rule within the requirement of the constitutional provision requires uniformity in the mode of assessment. Thus, inasmuch as property is not assessed on the basis of full value, the percentage of such value which is the basis of taxation or, in other words, the tax basis must be relatively uniform not only throughout the state but also as to the various classes of real property. As pointed out above, there is no constitutional authorization for classification of real property for taxation in relation to its nature or use. All property, whether commercial, residential or vacant, must be assessed on the basis of the same uniform percentage of actual value.
Thus, if the ratio between sales price and assessed value in general differs to any appreciable extent, either throughout the state as a whole or as to various classes of property in particular, then property is not being taxed by uniform rule as required by Section 2, Article XII of the Ohio Constitution.
The second problem raised by this case is the duty of the Board of Tax Appeals when such condition exists.
Under the provisions of Section 5715.24, Revised Code, the Board of Tax Appeals is made the board of equalization for the state, with the duty of supervising the assessment of real property in order to ensure that every class of real property is listed and valued for taxation by an equal and uniform rule at its true value in money. Under this section, if an inequality exists it is the board's duty to so determine and, under Section 5715.25, Revised Code, to direct the county auditor to adjust the assessments so that the assessments are by uniform rule.
The equalization itself is a matter for the attention of the Board of Tax Appeals upon a proper presentation of evidence.
The board, therefore, is directed to perform its statutory duties by reviewing the tax assessments in Cuyahoga County in relation to whether such assessments were made by uniform rule and, if it finds that discrepancies exist in the tax assessments, as a whole or among the various classes of property, to direct such an order as is necessary to the county auditor to equalize such assessments. The writ of mandamus is allowed.
TAFT, C.J., O'NEILL and HERBERT, JJ., concur.
ZIMMERMAN and GRIFFITH, JJ., concur in the syllabus.
GIBSON, J., dissents.
In the absence of evidence to the contrary, it is generally assumed that an administrative agency, such as the Board of Tax Appeals, has acted, is acting and will continue to act in compliance with the statutes and laws of this state. 1 Ohio Jurisprudence (2d), 607, Administrative Law and Procedure, Section 216; 42 American Jurisprudence, 680, Public Administrative Law, Section 240. I, therefore, fail to comprehend what this court expects to accomplish by a mandate requiring the board to perform its statutory duties. To issue a writ to compel the board generally to observe its statutory duties, without a finding that the board did not and will not observe such duties, appears to be a mere duplication of the command of the General Assembly in the applicable statutes. 35 Ohio Jurisprudence (2d), 263, Mandamus, Section 17.
Although the court refers to certain statistical data possessed by the board, which allegedly show that real property of various classes in various counties of the state and in Cuyahoga County has been assessed unequally, it does not state whether such data are reliable or sufficient to show discrimination. In fact, the court in its syllabus and the concluding paragraph of the opinion clearly indicates that the board must find "discrepancies" in the tax assessment before it is to direct such an order "as is necessary" to the county auditor to equalize assessments.
The statistical data, to which reference is made, apparently were gathered by a small number of board employees for the years 1946 through 1959, in the following manner:
1. In the larger counties during four months out of the year every recorded sale of real estate was checked. In the smaller counties all recorded sales during the year were checked.
2. Sales of under $1,500 were excluded.
3. Sales from or to a city, county or other political subdivision or forced sales of any kind were excluded.
4. Where a family relationship existed between the buyer and seller, the sales were excluded.
5. The sales price was determined by the amount of revenue stamps on the deed. Deeds were also checked for any mortgages which continue.
Since 1954, the board's requirement that the annual abstracts submitted by county auditors be segregated to show the various classes of real property has supplied the board with additional statistical information.
Without a detailed analysis of the statistical data, it is apparent that such do not constitute a valid method of ascertaining value of property. It is common knowledge that in many counties the relationship between the price paid and the amount of revenue stamps affixed is theoretical only. Even if it is assumed that all vendors affix not less than the statutorily required revenue stamps, there is nothing to prevent a vendor from affixing more stamps than required. A sample of real estate transactions consummated during one-third of the year is of doubtful statistical validity. Further, the law has long recognized that each piece of real estate is unique, and that no two pieces of realty are the same in location, quality, or value.
Before the court, in this action in mandamus originating here, finds that the board has failed to perform its clear legal duty, it surely should find on the basis of the evidence presented that there has been a discriminatory assessment of relator's property. See Rollman Sons Co. v. Board of Revision of Hamilton County (1955), 163 Ohio St. 363. In view of the unreliable character of the statistical data presented, this would appear to be impossible to do.
Certain language used by the court in rationalizing its order to the board to obey the law will, in my opinion, cause endless difficulties. The effect of the majority opinion is to substitute "sales price" or "market value" for the constitutional and statutory standards of "value" and "true value in money". On its face, a rule that the meaning of "value" (as used in Section 2, Article XII, Ohio Constitution) or "true value in money" (as used in Chapter 5713, Revised Code) is only the amount of money for which property may be exchanged, i.e., the sales price, seems to have the elusive virtue of simplicity. But, as is so often true, the social, economic and political nuances of the problem presented here are neither simple nor subject to simple solution.
Neither the Constitution nor the statutes fix any method for the valuation of property. The Constitution requires only that land and improvements thereon shall be taxed "by uniform rule according to value", and the statutes provide for separate listing of the land and the buildings thereon at their "true value in money". This court in a series of cases has considered a number of methods of valuing real estate for tax purposes.
In State, ex rel., v. Jones, Aud. (1894), 51 Ohio St. 492, 505, this court, in finding that goodwill of a business establishment tends to increase the earning capacity of the property and hence its value, noted that "taxation by a uniform rule does not necessarily demand that there should be the same mode of assessment for every species of property, without regard to any classification." This court, in considering the various elements making up "true value in money," stated the law in the third paragraph of the syllabus of State, ex rel., v. Halliday (1899), 61 Ohio St. 352, as follows:
"In ascertaining the true value in money of such [personal] property in the hands of its owner, every fact or circumstance, brought to the attention of the person or officer who is charged with the duty of fixing that value, and which in its nature bears on the question, should be considered by him. One of those circumstances is the earnings or rental of such article."
The brief of the Board of Revision in American Steel Wire Co. of New Jersey v. Board of Revision of Cuyahoga County (1942), 139 Ohio St. 388, suggested that there were three methods of valuing real estate, viz., (1) reproduction cost less depreciation or "physical", (2) comparative sales or "market", and (3) "economic" or capitalized income. In discussing these methods of valuing property for tax purposes, this court, at page 391, said:
"With respect to these methods, it should be observed that, while reproduction cost, depreciation, opinions as to market value, and income may be given proper consideration, true value is a question of fact to be determined by the taxing authorities. It does not appear from the record that the Board of Tax Appeals applied any particular method exclusively but merely determined the true value of the buildings on each parcel from all the evidence. This course was in conformity to law.
"A great deal is said by the board of revision about uniformity; but it should be remembered that the fixing of the true value of each lot or tract with improvements thereon is a separate proceeding and does not involve the consideration of all the parcels of land within a given area at the same time. When determinations as to the true value are reached by the taxing authorities as to each tract or lot of land and improvements thereon throughout a taxing district, though in separate inquiries or proceedings, taxation based upon valuations so fixed is essentially by uniform rule within the meaning of the Constitution and statutes. In other words if the true value of each parcel of real estate is fixed separately then there is such uniformity between all parcels as is required by law." (Emphasis supplied.)
The unanimous court, continuing to discuss true value in money, stated, at page 392:
" In determining the value of land or the improvements thereon all the facts and circumstances relating to the nature of the property, its availability for the purpose for which it was constructed or for any other purpose for which it may be used, its obsolete character, if such it has, and every other factor that tends to prove the true value in money of the land and the improvements thereon, and evidence of facts occurring after as well as before the tax lien day of the year involved within reasonable limitations are admissible." (Emphasis supplied.)
This opinion by the court is squarely contrary to its opinion in Ramsey v. Board of Revision of Franklin County (1943), 141 Ohio St. 366, where it is said that sale price is not the controlling factor, but, if the sale is voluntary, it is only one factor. The sale price of the property there was $3,000, yet the assessed true value in money of $7,500, as found by the Board of Tax Appeals, was held not unlawful or unreasonable. See, also, B. F. Keith Columbus Co. v. Board of Revision of Franklin County (1947), 148 Ohio St. 253, where it said that, in determining the value of property for the purpose of taxation, the assessing body must take into consideration all factors, including functional depreciation, which affect the value of the property.
It is also relevant to note that the Board of Tax Appeals, acting pursuant to statutory authority, has promulgated uniform rules and regulations relating to the valuation of real property in the 88 counties. According to such rules, property is classed as (1) residential, (2) industrial, (3) commercial, (4) agricultural, and (5) vacant lots and tracts. "True value in money" of the various classes of real property is defined in such rules and regulations as "the value to be determined, in the first instance, by the county auditor as the assessor of real property in his county on consideration of all the facts relating to the physical nature and construction of the property, its availability for the purpose for which it was acquired or constructed, or for the purpose for which it is, or may be, used, and every other applicable factor which may tend to indicate the value of the property such as actual cost, value as indicated by reproduction cost, physical and functional depreciation and obsolescence, if any, market value, and the income capacity of the property, if any. The assessor shall likewise take into consideration the location of the property and the valuations of similar properties in the same locality." There is no suggestion by relator that these rules and regulations are the result of an unreasonable or unlawful exercise of the rule-making power of the Board of Tax Appeals. The absence of such a suggestion is understandable in view of the fact that they were found not to be unreasonable or unlawful in Carney, Aud., v. Board of Tax Appeals (1959), 169 Ohio St. 445.
Still another reason exists for denying the writ in this case. For each and every taxable year since 1954, the county auditors have made out and transmitted to the Board of Tax Appeals abstracts of all the real property in the taxing districts of the counties, in which have been set forth the aggregate amount and valuation of each class of real property in such counties and in each taxing district. In each of such years, the board, acting pursuant to Section 5715.24, Revised Code, has determined that the various classes of real property in the several counties, municipal corporations and taxing districts have been assessed at true value in money for the years in which Section 5715.24 required assessment at "true value thereof in money" and at "taxable value" for the years in which Section 5715.24 has required assessment at taxable value. There is not now pending before the Board of Tax Appeals an abstract of the real property of Cuyahoga County for the consideration and approval of the board under the provisions of Section 5715.24, Revised Code.
For the foregoing reasons, in my opinion, the writ should be denied in the instant case.