SAM SOIFER, THE ESTATE OF BARBARA J. SOIFER, Deceased, by SAM SOIFER and JOANN ROBINSON, Co-Executors, and FRANCHISE REALTY INTERSTATE CORP., Plaintiffs-Appellants, vs. FLOYD COUNTY BOARD OF REVIEW, Defendant-Appellee. ------------------------------ ------------------------- SAM SOIFER, THE ESTATE OF BARBARA J. SOIFER, Deceased, by SAM SOIFER and JOANN ROBINSON, Co-Executors, and FRANCHISE REALTY INTERSTATE CORP., Plaintiffs-Appellants, vs. FLOYD COUNTY BOARD OF REVIEW, Defendant-Appellee.
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IN THE COURT OF APPEALS OF IOWA
No. 7-050 / 05-1641
Filed March 28, 2007
SAM SOIFER, THE ESTATE OF
BARBARA J. SOIFER, Deceased, by
SAM SOIFER and JOANN ROBINSON,
Co-Executors, and FRANCHISE
REALTY INTERSTATE CORP.,
Plaintiffs-Appellants,
vs.
FLOYD COUNTY BOARD OF REVIEW,
Defendant-Appellee.
------------------------------------------------------SAM SOIFER, THE ESTATE OF
BARBARA J. SOIFER, Deceased, by
SAM SOIFER and JOANN ROBINSON,
Co-Executors, and FRANCHISE
REALTY INTERSTATE CORP.,
Plaintiffs-Appellants,
vs.
FLOYD COUNTY BOARD OF REVIEW,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Floyd County, John S. Mackey,
Judge.
Taxpayers and property owner appeal from a district court order
dismissing their appeals from the board of review’s assessments of their
property. REVERSED.
Judith O’Donohoe of Elwood, O’Donohoe, Stochl, Braun & Churbuck,
Charles City, for appellants.
Jesse Marzen and Kimberly Birch, Assistant Floyd County Attorneys,
Charles City, for appellee.
Heard by Huitink, P.J., and Zimmer and Baker, JJ.
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ZIMMER, J.
Taxpayers Sam and Barbara Soifer and property owner Franchise Realty
Interstate Corporation appeal from a district court order dismissing their appeals
from the Floyd County Board of Review’s assessments of a McDonald’s fast food
restaurant for tax purposes. Upon review, we reverse the district court order
dismissing the appeals.
I. Background Facts and Proceedings.
Sam and Barbara Soifer own a franchise for a McDonald’s fast food
restaurant located at 506 Allison Street in Charles City, Iowa. The real estate
and building are owned by Franchise Realty Interstate Corporation. The Soifers
have leased the building from Franchise Realty since its construction in 1978.
The building is approximately 4000 square feet. The property has no frontage on
the main commercial street in Charles City, which is known as Gilbert Street or
Highway 218. In July 2000 the Highway 218 bypass opened. The bypass routes
out-of-town traffic around Charles City, which has resulted in a decrease in sales
for businesses located on Highway 218. The Soifers are required to pay real
estate taxes on the building pursuant to their lease with Franchise Realty.
The Floyd County Board of Review assessed the property’s value at
$399,950 in 2001. The Soifers and Franchise Realty protested this assessment.
Following the appeal, the Board reduced the assessed valuation to $368,650.
The Soifers and the Board thereafter agreed to decrease the assessed valuation
to $351,780. In 2002 the Board assessed the property’s value at $368,650. The
Soifers and Franchise Realty challenged that assessment in 2003. The Board
ruled the assessed value should be reduced to $352,990.
The Soifers and
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Franchise Realty filed a notice of appeal from the Board’s action on June 13,
2003. The property was again assessed at $352,990 in 2004 and 2005. The
Soifers and Franchise Realty filed a protest to the 2005 assessment. The Board
determined the assessed value should not be changed.
The Soifers and
Franchise Realty filed a notice of appeal from the Board’s action on June 30,
2005. The 2003 and 2005 appeals were consolidated and tried before the district
court.
The Soifers and Franchise Realty argued in district court that the 2003
and 2005 assessments were inequitable and in excess of the property’s fair
market value. The district court rejected their arguments and found the 2003 and
2005 assessments of $352,990 were not excessive because said assessments
fell between the 2001 settlement value of $351,780 and an Iowa Department of
Revenue random appraisal of the property of $353,990.
The district court
accordingly dismissed the appeals filed by the Soifers and Franchise Realty.
The Soifers and Franchise Realty appeal. They contend the district court
erred in ruling the 2003 and 2005 assessments were not excessive and
inequitable as compared to like property.
II. Scope and Standards of Review.
This case was tried in equity. Iowa Code § 441.39 (2005). Therefore, our
review is de novo. Iowa R. App. P. 6.4. We give weight to the findings of fact by
the district court, especially when considering the credibility of witnesses, but are
not bound by those findings. Iowa R. App. P. 6.14(6). In addressing valuation
issues, “there shall be no presumption as to the correctness of the valuation of
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assessment appealed from.” Iowa Code § 441.39. The court may increase,
decrease, or affirm the amount of the assessment appealed from. Id. § 441.43.
III. Discussion.
Iowa Code chapter 441 governs the assessment and valuation of property
for tax purposes.
Property subject to taxation must be valued at its “actual
value.” Id. § 441.21(1)(a). Actual value is the “fair and reasonable market value”
of the property. Id. § 441.21(1)(b). Market value is
the fair and reasonable exchange in the year in which the property
is listed and valued between a willing buyer and a willing seller,
neither being under any compulsion to buy or sell and each being
familiar with all the facts relating to the particular property.
Id. When determining market value, the taxing authority is to consider the sale
price of the property to be assessed or comparable property in normal
transactions, as well as the availability of interested purchasers. Id. The statute
expresses a preference for establishing value utilizing a comparable sales
approach. Boekeloo v. Board of Review, 529 N.W.2d 275, 277 (Iowa 1995).
Alternate means of valuation may be used only when market value cannot be
established using the comparable sales approach. Id. If an alternate means of
valuation is used, good will or the value of a business using the property shall not
be taken into consideration. Iowa Code § 441.21(2).
A complaining taxpayer or property owner has the burden of proof to
establish the valuation was excessive or inequitable. Id. § 441.21(3). When a
taxpayer produces competent evidence by two disinterested witnesses that the
assessed market value of the property is excessive, the burden of persuasion
shifts to the Board to uphold its valuation. Id. § 441.21(3); Riso v. Pottawattamie
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Board of Review, 362 N.W.2d 513, 517 (Iowa 1985). Competent evidence is
evidence that complies with the valuation preferences expressed in Iowa Code
section 441.21. Boekeloo, 529 N.W.2d at 279.
The Soifers and Franchise Realty assert they presented competent
evidence from two disinterested witnesses that established the assessed value of
the property is excessive. The Board contends the burden did not shift because
the witnesses’ evidence was not competent. 1 The district court did not directly
address this argument. Instead, the court rejected the appraisals presented by
both parties and concluded the 2003 and 2005 assessments of $352,990 were
appropriate because said assessments fell between the 2001 settlement value of
$351,780 and the Iowa Department of Revenue’s random appraisal of the
property of $353,990. 2 The district court determined the Soifers and Franchise
Realty failed to demonstrate their property was inequitably assessed as
compared to other properties because there were no comparable properties
within the assessment jurisdiction. We disagree.
Appraiser Brett Blanchfield and realtor Connie Parson testified on behalf
of the Soifers and Franchise Realty. Both witnesses utilized the comparable
sales approach to arrive at a value for the subject property.
Blanchfield
examined four sales of franchises in Charles City, Fort Dodge, Storm Lake, and
Marshalltown. The Charles City property was a Hardee’s fast food restaurant at
the time of the sale. The Fort Dodge property was a KFC fast food restaurant,
and the Storm Lake and Marshalltown properties were McDonald’s franchises.
1
The Board does not dispute that Blanchfield and Parson are disinterested witnesses.
The record does not indicate when or how the Iowa Department of Revenue’s random
appraisal of the property was conducted.
2
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The sales took place between 2002 and 2004. Blanchfield considered (1) land to
building ratio; (2) location; (3) access; (4) building age, condition and quality; and
(5) site improvements. Based on his analysis of these properties, he determined
the market value for the McDonald’s property to be $230,000 for 2003, 2004, and
2005.
Connie Parson analyzed the sales of Pizza Hut, Granny’s Kountry
Banquet, Hardee’s, and KFC restaurants in Charles City. The sales took place
between 2002 and 2005. Parson took into consideration the time and location of
the sales and similarity of use.
She concluded the market value of the
McDonald’s building for 2003, 2004, and 2005 was between $193,000 and
$215,000.
Appraiser Robert Ehler testified on behalf of the Board. Ehler employed a
more narrow comparable sales approach than that used by Blanchfield and
Parson. Ehler determined the highest and best use for the McDonald’s property
was as a franchise restaurant. He then confined his appraisal to an examination
of franchise-to-franchise sales. He selected thirty-three such sales in Iowa. His
appraisal focused on eight of those franchise-to-franchise sales to conclude the
market value of the McDonald’s property was $425,000 in 2001 and $381,000 in
2003. The franchise-to-franchise sales analyzed by Ehler took place between
1997 and 1999. None of the properties were located in Charles City or in its
immediate vicinity.
The Board contends Blanchfield and Parson did not present competent
evidence because they did not utilize the correct standard in determining the
market value of the McDonald’s property.
According to the Board, the
appropriate standard for determining the market value of the McDonald’s
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property is the “highest and best use” approach employed by the Board’s
appraiser. The Board asserts that Blanchfield and Parson should have examined
only franchise-to-franchise sales because the highest and best use for the
McDonald’s property is as a franchise restaurant. The district court agreed with
the Board and found the franchise-to-franchise sales comparison would most
accurately establish fair market value because to “obscure the fact that this real
estate is being operated as a viable McDonald’s restaurant, a quite popular
American establishment, would be to ignore reality.” We do not agree.
As previously stated, Iowa Code section 441.21(1)(b) “requires that the
comparable sales approach be used.”
Boekeloo, 529 N.W.2d at 279.
Both
Blanchfield and Parson used the comparable sales approach. This court has
held a property can have characteristics different from the assessed real estate
and still be considered a comparable property. See e.g., Sears, Roebuck & Co.
v. Sieren, 460 N.W.2d 887, 890 (Iowa Ct. App. 1990) (finding large anchor store
space and small retail shop spaces to be comparable properties). Furthermore,
examining only franchise-to-franchise sales under the Board’s highest and best
use approach results in the impermissible consideration of intangibles, such as
good will. Heritage Cablevision v. Board of Review, 457 N.W.2d 594, 599 (Iowa
1990). “[E]xcluding the value of intangibles is critical to the legitimacy of any
method used to value property.” Post-Newsweek Cable, Inc. v. Board of Review,
497 N.W.2d 810, 817 (Iowa 1993). Upon our de novo review, we find Blanchfield
and Parson presented competent evidence that the assessed market value of the
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McDonald’s property is excessive. 3
The burden consequently shifted to the
Board to uphold its valuation. We conclude the Board failed to meet its burden.
The Board’s appraiser did not use comparable sales in the same general
location as the subject property. The eight properties examined by Ehler were
located in Harlan, Shenandoah, Spencer, Mt. Pleasant, Ft. Madison, Red Oak,
Decorah and Waukon. The sales of these properties took place between 1997
and 1999 while the sales of the comparable properties identified by Blanchfield
and Parson occurred between 2002 and 2005.
Ehler’s appraisals did not
quantify any adjustments he may have made for factors such as land to building
ratio,
location,
access,
building
age,
condition
and
quality,
and
site
improvements. We give little weight to valuations made by comparable sales
where adjustments that are purportedly made to those sales are not quantified.
Dowden v. Dickinson County Bd. of Review, 338 N.W.2d 719, 723 (Iowa Ct. App.
1983).
Finally, we believe Ehler’s use of only franchise-to-franchise sales
resulted in the prohibited inclusion of good will in the valuation of the McDonald’s
property. Heritage Cablevision, 457 N.W.2d at 599.
IV. Conclusion.
Having carefully analyzed each of the expert opinions furnished to the
district court, we find the Soifers and Franchise Realty satisfied their burden of
proving the Board’s assessments were excessive. We conclude the Board failed
to adequately rebut the evidence presented by the Soifers and Franchise Realty.
The Board consequently failed to justify its higher valuations of the property. We
3
Although we find it unnecessary to discuss the issue in detail, we also find the Soifers
and Franchise Realty satisfied their burden of proving the Board’s assessments were
inequitable when compared to like property in the same taxing district.
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further conclude, based upon our de novo review, that Blanchfield’s and Parson’s
appraisals of the property are the most credible. We reverse the district court’s
order dismissing the appeals and reduce the assessed value to $230,000 for
2003 and 2005.
REVERSED.
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