Schmidt v. Utah State Tax Commission, et al
Annotate this Casepublication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----oo0oo----
Jeff and Victoria Schmidt,
Petitioners,
v.
Utah State Tax Commission, County
Board
of Equalization of Salt Lake County,
State of Utah,
Respondents.
No. 970588
F I L E D
May 14, 1999
1999 UT 48
---
Original Proceeding in this Court
Attorneys:
Brian J. Romriell, Steven E. Hugie,
Salt Lake City, for petitioners
Jan Graham, Att'y Gen., John C.
McCarrey, Asst. Att'y Gen., Mary Ellen Sloan, Salt Lake City, for respondents.
---
ZIMMERMAN, Justice:
¶1
This matter is before us to review
an order of the Utah State Tax Commission ("the Commission") fixing the
assessed value on residential property owned by Jeff and Victoria Schmidt
and to review the Commission's denial of a request from the Salt Lake County
Board of Equalization ("the Board") for reconsideration. Both the Schmidts
and the Board challenge the Commission's valuation. The Schmidts argue
that their property should be valued at zero due to contamination. The
Board argues that the property's value should be higher than that fixed
by the Commission. We conclude that neither the Schmidts nor the Board
met their burden of showing that the Commission's valuation was not based
on substantial evidence, and therefore, we affirm.
¶2
The property at issue is residential
property located on East Little Cottonwood Road in Sandy, Utah ("the property").
The property consists of a home of approximately 7000 square feet located
on 2.7 acres. The property is located at the mouth of Little Cottonwood
Canyon near the site where a smelter operated briefly in the early 1870's,
refining ore from the mines in the canyon. Tailings from the mill are present
on at least some of the land in varying quantities. The Board valued the
property at $789,370 for the 1995 tax year. The Schmidts then appealed
to the Board to adjust its original valuation and notified the Board of
the contamination on the property. An independent hearing officer for the
Board reduced the value of the property to $706,000. The Schmidts then
appealed to the Commission.
¶3
The Commission held a formal hearing.
The Schmidts argued that because the property was contaminated with high
levels of lead and arsenic, the market value should be reduced to zero.
In support of their motion, the Schmidts offered letters from the Utah
Department of Environmental Quality ("UDEQ") and the United States Environmental
Protection Agency ("EPA"). The UDEQ letter states that the three trial
holes on the 2.7 acres show that the land contains lead and arsenic at
levels well above those UDEQ deems warrant clean-ups or the putting in
place of environmental controls. The Schmidts also offered as evidence
a letter containing a bid from Sitex Environmental, Inc. ("Sitex"), indicating
that the removal of eighteen inches of topsoil from the entire 2.7 acres,
disposal of the contaminated soil, and replacement with clean soil would
cost $1,042,252.05. The Schmidts submitted an appraisal that valued the
property at negative $334,000, a figure reached by deducting the amount
of the Sitex bid from the value that the Board had fixed for the property.
Finally, the Schmidts relied on letters from several banks that had denied
permanent financing for the property after the contamination was discovered.
¶4
In opposition to the evidence proffered
by the Schmidts, the Board submitted several pieces of evidence including
an appraisal from Lisa Martin, an appraiser for the Salt Lake County Assessor's
office. Martin determined that the value of the land should be calculated
by using the $706,000 figure and reducing it by 20 percent due to stigma
from the contamination. A 20 percent reduction for stigma is a standard
appraisal technique. She valued the property at $563,900. The Board also
disputed that it was necessary to remove as much soil as the Sitex bid
suggested. It argued that because only three soil samples had been taken
on the entire 2.7 acres, there was insufficient evidence to prove that
the entire property was contaminated. Furthermore, the Board pointed out
that there was no evidence that the EPA or UDEQ would require any sort
of a clean-up on this residential property. Finally, the Board offered
evidence that the problem had been partially cured when the Schmidts placed
additional topsoil on portions of the 2.7 acres.
¶5
In its findings of fact, conclusions
of law, and final decision, the Commission found that the fair market value
of the land was zero but that the fair market value of the home was $398,166.
It explained this result in the following manner. While "[t]he normal method
of calculating the value of a contaminated property is to deduct the costs
of remediation from the value of the property as calculated before any
deduction for contamination . . . in this case, it would result in a negative
value . . . . If a property had a negative value, that would also imply
that the property was uninhabitable." Because petitioners and their small
children live in the home, and "in very nice circumstances," the Commission
reasoned that the property must have some positive value. The normal valuation
methodology was not used because it produced a number that did not reflect
reality. Since the Commission determined that the property had "value-in-use,"(1)
it came up with an alternative methodology. The Commission treated the
land and the home separately. It did this because the building itself was
not contaminated and the harm to the value of the overall property was
due to the contamination in the soil. It therefore set the value of the
land at zero and the value of the building at $398,166, a figure reached
by using the standard replacement cost new less depreciation method. The
result was a valuation for the house and land of $398,166.
¶6
The issue before this court is whether
the Commission committed reversible error in fixing the property's value
at $398,166. We first address the standard of review. We have held that
the choice of valuation methodology used in fixing the value of a property
is a question of fact. See Beaver County v. Utah State Tax Comm'n,
916 P.2d 344, 355 (Utah 1996) (holding that Commission's decision to reject
a certain valuation methodology is a finding of fact). Therefore, we "grant
the commission deference concerning its written findings of fact, applying
a substantial evidence standard of review." Utah Code Ann. § 59-1-610(1)(a)
(1996). Furthermore, "when reviewing an agency's decision, this court does
not . . . reweigh the evidence." Questar Pipeline Co. v. Utah State
Tax Comm'n, 850 P.2d 1175, 1178 (Utah 1993).
¶7
Under this standard, we uphold the
Commission's findings of fact if they are "'supported by substantial
evidence based upon the record as a whole.'" Cache County v. Property
Tax Div. of Utah State Tax Comm'n, 922 P.2d 758, 767 (Utah 1996) (emphasis
added) (quoting Zissi v. State Tax Comm'n, 842 P.2d 848, 852 (Utah
1992)). "Substantial evidence" is that quantum and quality of relevant
evidence which is adequate to convince a reasonable mind to support a conclusion.
See
Cache County, 922 P.2d at 767; Utah Ass'n of Counties v. Tax
Comm'n of Utah, 895 P.2d 819, 821 (Utah 1995); First Nat'l Bank
v. County Bd. of Equalization, 799 P.2d 1163, 1165 (Utah 1990);
Hercules
Inc. v. Utah State Tax Comm'n, 877 P.2d 169, 172 (Utah Ct. App. 1994).
In addition, a party challenging the Commission's factual findings bears
the burden of marshaling all evidence supporting the findings and showing
that this evidence is insufficient. See Kennecott Corp. v. Utah
State Tax Comm'n, 858 P.2d 1381, 1385 (Utah 1993); First Nat'l Bank,
799 P.2d at 1165.
¶8
Both the Schmidts and the Board
challenge the Commission's factual findings. The Schmidts argue that the
Commission erred in valuing the home and the land separately. The Board
argues that the Commission erred in fixing the land's value at zero and
argues that the Commission should have used the Board's valuation for the
house and land, making a percentage reduction for stigma instead.
¶9
The Commission was not bound to
accept either the Schmidts' or the Board's valuations; it "ha[s] the discretion
to adopt a figure that [falls] somewhere between . . . polarized estimates."
Utah
Ass'n of Counties, 895 P.2d at 823. What is required of the Commission
is that it value the property based on its "fair market value."
See
Utah Code Ann. § 59-2-103(1) (1996).(2)
"Fair market value" has been statutorily defined as: "the amount at which
property would change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or sell and both having reasonable
knowledge of the relevant facts." Id. § 59-2-102(8) (1996).(3)
In arriving at the fair market value, this court has said that the Commission
uses one of the following recognized approaches: cost, income, and market.
See
Beaver County, 916 P.2d at 347. The cost approach determines the
property value based on its replacement cost less depreciation. Seeid.
The income approach determines property value by computing the present
value of anticipated income. See id. The market approach
determines property value by examining the prices at which comparable properties
have been bought and sold. See id.
¶10
The Commission stated that the "normal
method" of calculating the value of contaminated property is to deduct
the costs of remediation from the value of the property as calculated before
any deduction for the contamination. However, the Commission decided not
to apply the "normal method." Instead, it attempted to fix the value of
the property in use. This court has never established a proper method for
fixing the value of contaminated property. Other jurisdictions have. Some
have applied a method similar to the Commission's "normal method." See,
e.g., Almor Corp. v. County of Hennepin, 566 N.W.2d 696, 701
(Minn. 1997) (holding that in cases where property is a Superfund site
and experts agree that clean-up cost should be deducted from appraisal
value, court should deduct clean-up cost from value of property);
Westling
v. County of Mille Lacs, 543 N.W.2d 91 (Minn. 1996) (upholding tax
court's reduction of value to zero based on reduction for clean-up). But
others have not accepted that the cost of clean-up ought to be fully deducted
from the value of the property. See, e.g., Boekeloo v. Bd. of
Review of Clinton, 529 N.W.2d 275, 278 (Iowa 1995) (finding that most
courts that have fixed value of contaminated properties acknowledge
that contamination has an adverse effect and require assessors to consider
effect of contamination on property); Inmar Assoc., Inc. v. Borough
of Carlstadt, 549 A.2d 38, 44-45 (N.J. 1988) (suggesting that appraisers
view properties like special-purpose properties or consider value-in-use
to owner); Bonnie H. Keen, Tax Assessment of Contaminated Property:
Tax Breaks for Polluters?, 19 B.C. Envtl. Aff. L. Rev. 885, 906 (1992)
("For varying reasons, the majority of cases have rejected taxpayers' assertions
of zero or nominal value."); Peter J. Patchin, Valuation of Contaminated
Properties, 56 Appraisal J. 7, 13 (1988) (stating that it is not reasonable
to conclude that contaminated property is unmarketable when it is being
used for its intended purpose, but suggesting consideration of stigma and
value-in-use).(4)
¶11
Here, the Commission made a judgment
about the value-in-use of the home and the land. The evidence before it
valued the property between $706,000 and zero. The Commission has the discretion
to take that conflicting evidence into account and to arrive at a number
in between. See Utah Ass'n of Counties, 895 P.2d at 823.
It did so in this case. The Schmidts and the Board have not carried their
burden of demonstrating that the resulting valuation is without substantial
evidentiary support in the record. There was evidence in the record that
the clean-up would cost over a million dollars. That evidence was not,
however, very persuasive. The Sitex bid was based only on three soil samples
on the entire 2.7 acres. It showed varying degrees of toxicity at the different
sampling sites. The uniform property-wide remedy Sitex suggested was thus
not tailored to the site. The Commission could have reasonably concluded
that the bid was excessive. At the same time, the Commission had other
evidence that the simple mathematical deduction of clean-up costs from
the initial appraisal did not reflect the real usable value of the property,
or the actual impairment that resulted from the contamination. The Schmidts
brought new topsoil onto the property. They live on the property in a large
house with their small children. They have a vegetable garden on the property
and consume the vegetables. No agency had required any clean-up or had
even done an evaluation of the property. Based on all this, we cannot say
that the Commission's valuation was not supported by substantial evidence.
The evidence is sufficient to convince a reasonable mind to accept it as
supporting the Commission's conclusion. This is particularly the case where,
as here, the propriety of the Commission's methodology of valuing the land
and the house separately is a question of fact and not law.
¶12
In conclusion, we affirm the Commission's
valuation of the property at $398,166.
---
¶13
Chief Justice Howe, Justice Russon,
and Judge Jackson concur in Justice Zimmerman's opinion.
¶14
Justice Stewart concurs in the result.
¶15
Having disqualified herself, Associate
Chief Justice Durham does not participate herein; Court of Appeals Judge
Norman H. Jackson sat.
1. "Value-in-use" was defined by the Iowa Supreme Court in Boekeloo v. Board of Review of Clinton, 529 N.W.2d 275 (Iowa 1995), when it held that "[t]he transitory absence of a market does not eliminate value . . . . The mere fact that a property is unmarketable does not mean it has no value, especially when it is being used for its intended purpose." Id. at 278.
2. Section 59-2-103 states: (1) All tangible taxable property shall be assessed and taxed at a uniform and equal rate on the basis of its fair market value, as valued on January 1, unless otherwise provided by law. 3. Section 59-2-102(8) is now codified at section 59-2-102(9). The change to section 59-2-102 occurred in 1998 and does not affect this case.
4. The Board also argues that the Commission erred as a matter of law in reducing the value of the land to zero. It contends that the Commission should only reduce the value of property by the cost of a clean-up where the taxpayer has shown all the following: the land is contaminated, the taxpayer is required to clean up the land, and the taxpayer can show with reasonable certainty the cost of a clean-up. The Board relies on a Washington case, Weyerhaeuser Co. v. Easter, 894 P.2d 1290, 1298 (Wash. 1995). We decline to adopt the Weyerhaeuser test in this case or to mandate an element of the valuation methodology. First, we have heretofore declined to detail a methodology for reaching a fair market value as a matter of law. Second, Weyerhaeuser involved a paper mill which was required to install pollution control devices. Here we are dealing with the fair market value of a residential property. While the lack of a conclusive clean-up estimate may be relevant to fixing the value, we are not persuaded that its absence should mean that the contamination must be ignored, as Weyerhaeuser would require.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.