The applicability of the “special-purpose doctrine” must be considered before a Lowe’s Home Center in Marietta can be appraised at $7.2 million, which is $1.5 million more than Lowe’s claims it is worth, the Ohio Supreme Court ruled today.

In a unanimous per curiam decision, the Supreme Court vacated an Ohio Board of Tax Appeals (BTA) decision to uphold the $7.2 million value determined by the BTA, and sent the case back to the BTA to consider the “special-purpose doctrine” in Ohio tax law before determining the property’s worth.

The Court noted that its decision relies on another ruling today in Rite Aid of Ohio Inc. v. Washington Cty. Board of Revision, where it upheld the BTA’s $1.15 million valuation of a Marietta Rite Aid and explained there was no evidence that the special-purpose doctrine applied in that case. The Court agreed in the Rite Aid case that the BTA acted reasonably in rejecting the $2.4 million appraisal of the drug store that was offered by the county.

Calculating Lowe’s Value
Constructed in 2002, the Marietta Lowe’s is a 142,000-sqaure-foot building on 16.2 acres of land. Appraisers for both the county and the store started with making comparisons to similar “big box” stores that were sold. In coming up with a $7.2 million as the true value of the property, the appraiser for the county compared it to stores when the business might be selling the property, but was going to stay in operation through a lease. Lowe’s appraiser made the opposite assumption and based the price on sales where the current business was leaving, and that led to a true value of $5.7 million.  The BTA adopted the higher valuation, and Lowe’s appealed to the Supreme Court.

The County’s Appraisal Is Only Valid If Special-Purpose Treatment Is Justified
Lowe’s argued that it deserved the same treatment that the owner received in Rite Aid, which led in that case to the adoption of a value less than one-half of the value advocated by the county before the BTA. The Court explained that the county’s appraisal in either case could only be justified under the special-purpose doctrine, which is an exception to the standard rule that property should be valued based on what the sale price would be if the property were sold on the open market. But sometimes a special-purpose property is constructed that suits the needs of a particular owner’s business, and that is configured in a way that impairs its general marketability. The “special-purpose doctrine” applies to a building “in good condition being used currently and for the foreseeable future for the unique purpose of which it was built.” The doctrine is necessary to prevent “the owner of a distinctive, but yet highly useful building” from escaping full property tax because its sale would not attract many potential buyers, the Court stated.

The decision pointed to a prior ruling involving a Meijer store, where the owners sought to lower the sales price based on the market’s interest in the massive 193,000-square-foot facility. The Court upheld a BTA decision in that case not to mark down the value for “economic obsolescence,” given that the building was new and built for Meijer, that it was being used by the company at the time it sought the tax reduction, and that it did not appear Meijer intended to market it for general use by another buyer.

In the Rite Aid case, the county valued the 11,000-square-foot building based on the price of other drugstores for sale around the state, including some in urban areas. In some of those sales, the operators, CVS and Walgreens, signed long-term leases to stay in the property when sold to other owners. In contrast, Rite Aid argued there was no lease on its property, and so the property should be valued the same as other general retail building of the same size. It based the value on a number of similar sized retail operations that were not drug stores in smaller towns around the state and nearby West Virginia cities.

In Rite Aid, the BTA agreed with the owner’s approach, but then adopted the opposite approach in Lowe’s. In the Lowe’s case, the Court ordered the BTA to consider whether the building does qualify for special-purpose treatment, which would justify the higher property value advocated by the county.

2014-0843. Lowe’s Home Ctrs., Inc. v Washington County Board of Revision, Slip Opinion No. 2016-Ohio-372.

Please note: Opinion summaries are prepared by the Office of Public Information for the general public and news media. Opinion summaries are not prepared for every opinion, but only for noteworthy cases. Opinion summaries are not to be considered as official headnotes or syllabi of court opinions. The full text of this and other court opinions are available online.

PDF files may be viewed, printed, and searched using the free Acrobat^® Reader
Acrobat Reader is a trademark of Adobe Systems Incorporated.