The Ohio Board of Tax Appeals (BTA) must reconsider the tax-year-2013 valuation of a Lowe’s Home Center in Marietta, the Ohio Supreme Court ruled today. Previously, the Supreme Court required the BTA to reconsider a tax-year-2010 challenge brought by Lowe’s for the same property.

In a 4-3 per curiam opinion, the Supreme Court found the BTA may have been mistaken when it evaluated an appraiser’s comparison of the Lowe’s property with other lease-encumbered properties. One of the decisions the BTA must consider is the Court’s 2016 Lowe’s Home Ctrs., Inc. v. Washington County Board of Revision decision. (See Board Must Reconsider Property Tax Valuation of Marietta Lowe’s.)

Chief Justice Maureen O’Connor and Justices Terrence O’Donnell, Judith L. French, and Patrick F. Fischer joined the majority opinion.

Justice Sharon L. Kennedy dissented with a written opinion, which was joined by Justices R. Patrick DeWine and Mary DeGenaro. In her dissent, Justice Kennedy wrote that the $8.8 million property tax valuation presented to the BTA by an appraiser hired by the county auditor was consistent with the Court’s directives and that the BTA’s decision was supported by the evidence.

Appraisers Offer Competing Valuations
The Washington County auditor appraised roughly 16 acres of land used by Lowe’s for a Marietta store constructed in 2002. The auditor valued the property at about $9.6 million, and Lowe’s challenged the valuation, before the Washington County Board of Revision. An appraiser representing Lowe’s valued the property at about $5.7 million. The board of revision retained the auditor’s $9.6 million valuation and Lowe’s appealed to the BTA.

At the BTA hearing, the county presented an appraisal report by Thomas Sprout, whose conclusion of $8.8 million was based on comparable sales and incomes earned by other “big box” stores. The BTA accepted Sprout’s estimate. Lowe’s then appealed the decision to the Supreme Court, which was required to hear the case.

The opinion noted that in evaluating Lowe’s argument, the BTA did not take into account the Court’s trilogy of decisions in Steak ‘N Shake v. Warren Cty. Bd. of Revision (2015), Rite Aid of Ohio Inc. v. Washington Cty. Bd. of Revision (2016), and the 2016 Lowe’s decision. The Court observed that it was understandable for the BTA to not account for those decisions, stating that at the time the BTA ruled, only the Steak ‘N Shake opinion had been issued and the other two were still pending.

One of the main issues in those decisions involved the proper way to compare a property not subject to a lease with properties that are subject to a lease. According to those decisions, an adjustment must be made to account for the presence of the lease as part of an attempt to make an apples-to-apples comparison when comparing commercial properties.

Expert Used Leased Properties to Determine Tax Value
Most of the comparable properties Sprout used to determine the value of the Lowe’s property were encumbered by leases when they were sold. But Sprout testified that he adjusted the values based on the leases to try to assess them as if they were unencumbered by a lease.

Lowe’s objected to Sprout’s analysis, claiming that his adjustments were insufficient.

Lowe’s first argued that changes to R.C. 5713.03 invalidated Sprout’s analysis. But the Court rejected this argument, stating that R.C. 5713.03 applies to the “valuation of the property itself — it does not prescribe any standards to be applied in a comparable-sales analysis.”

Board Did Not Follow Necessary Cases
The Court then turned to consider if Lowe’s was correct in claiming that Sprout’s analysis ran afoul of the directives of the Steak ‘N Shake and Rite Aid casesand the previous Lowe’s case. The Court explained that because the BTA did not engage in the necessary fact-finding associated with Sprout’s analysis, it was unclear whether his analysis conformed to those cases.

The Court observed that “[a]t bottom, the BTA’s key job in a battle-of-the-appraisals dispute is to weigh evidence and assess the credibility of the appraisals.” The Court stated that “[t]he BTA must engage in sufficient discussion of the evidence to permit the court on appeal to determine whether the BTA acted reasonably and lawfully.”

To address the flaws in the BTA’s decision, the Court vacated the BTA’s decision and remanded the case for further proceedings.

2015-2109. Lowe’s Home Ctrs. Inc. v. Washington Cty. Bd. of Revision, Slip Opinion No. 2018-Ohio-1974.

Listen to oral argument video of this case.

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