Tax appeals board must considers school district’s appraisal of Thistledown Racino at $44.5 million, more than twice the value approved by the board.

Tax appeals board must considers school district’s appraisal of Thistledown Racino at $44.5 million, more than twice the value approved by the board.

The Ohio Board of Tax Appeals (BTA) wrongly refused to consider Warrensville Heights City School District’s appraisal of Thistledown Racino at $44.5 million, instead accepting the property owner’s $22 million valuation for 2013 property tax purposes, the Ohio Supreme Court ruled today.

In a 5-2 per curiam opinion, the Supreme Court noted this was the third time the Warrensville Heights school district has challenged the value of Thistledown Racino since its purchase by Harrah’s Ohio Acquisition Company in 2010. The school district has consistently argued that the racino’s value is closer to the $43 million Harrah’s paid for the property at auction.

Unlike its prior two challenges, the school district did not argue to the BTA that the sale price should set the tax value. Instead, it produced its own appraisal, but the BTA questioned the validity of the district’s report. The Court wrote that the BTA’s refusal to consider the appraisal was an error.

The Court directed the BTA on remand to fully consider and address the school district’s appraisal.

Chief Justice Maureen O’Connor and Justices Judith L. French, Patrick F. Fischer, R. Patrick DeWine, and Mary DeGenaro joined the majority opinion. Justices Terrence O’Donnell and Sharon L. Kennedy dissented without a written opinion.

Track Transformed to Racino
Thistledown is a 128-acre horse racing facility in northeastern Ohio that includes a track, a large enclosed grandstand, and numerous structures. Harrah’s estimated that between its July 2010 purchase date and January 2013, it spent about $7 million to improve the property. In early 2013, it paid the state $50 million to obtain a video-lottery-terminal (VLT) license and began operating video slot machines at the racino in April 2013.

Warrensville Heights schools first challenged the valuation of the Thistledown horse track for the 2010 tax year assessment. The district agued the purchase of the horse track at a bankruptcy sale for $43 million was the property’s true value. The BTA had ruled the value was $13.8 million based on an appraisal by the property owner, and the Supreme Court affirmed the decision (See Warrensville Heights Schools Lose Property-Tax Challenge of Thistledown Racino).The school district also challenged the 2012 valuation of the property, again arguing the value should be based on the sale price. The BTA adopted a $16.3 million value, which the Court affirmed.

District Submits Appraisal
For the 2013 tax year, the Cuyahoga County fiscal officer valued the property at $37.7 million, and Harrah’s asked the Cuyahoga County Board of Revision to reduce the value to about $23.3 million, which was the sum of the $7 million it made in improvements and the $16.3 million 2012 valuation.

The school district asked the board of revision to increase the value to the July 2010 $43 million sale price. The board retained the county’s appraisal, and both sides appealed to the BTA.

At the BTA, the school board presented certified appraiser Douglas F. Bovard’s appraisal of the racino. Bovard indicated the best way to value the property was to assume it was being leased to a racino operator at market rent, and that would include the property owner receiving a percentage of the amount placed in bets at the facility. Based on an estimate that included the owner receiving 4 percent of the net revenue generated by the VLTs, Bovard valued the property at $44.5 million.

Harrah’s Contests District’s Approach
Harrah’s relied on certified appraiser David J. Sangree’s report. Sangree disagreed with valuing the property as if it were leased to a racino operator. Sangree testified that he did not believe casinos are commonly leased and was not aware of any current leases in Ohio involving a racino property. Sangree’s approach valued the property at $22 million.

Three months after the hearing, the school district asked the BTA to take notice of information it gathered regarding casinos in other states that operated through property leases. The BTA declined to accept the new evidence. The BTA also concluded that Bovard’s lease-fee approach “tainted the validity of the entire report.” The BTA stated it would not consider Bovard’s conclusions and adopted Sangree’s valuation.

The school district appealed to the Supreme Court, which at the time was obligated to hear the case.

Court Examines Appraisal Approaches
The school district argued to the Court that the BTA accepted faulty adjustments made by Sangree to reduce the value of Thistledown, and that Bovard’s appraisal was unfairly rejected. The Court concluded that the BTA could reasonably accept Sangree’s appraisal, but the Court also concluded that the BTA should have fully considered Bovard’s appraisal.

In its opinion, the Court stated that Bovard’s approach was legally permissible. Relying on a 2009 decision (Meijer Stores Ltd. v. Franklin Cty. Bd. of Revision), the Court explained that an appraiser may determine the value of an owner-occupied property by assuming the value as if it were leased. The Court wrote that appraising property this way is consistent with R.C. 5713.03 as long as the appraisal assumes lease prices that reflect the real-estate market at the time.

“Although the BTA ultimately may disagree with Bovard’s factual assumptions about the lease terms, his methodology was not defective as a matter of law, and the BTA should have considered it,” the opinion stated.

2016-0568. Harrah’s Ohio Acquisition Co. LLC v. Cuyahoga Cty. Bd. of Revision, Slip Opinion No. 2018-Ohio-4372.

Hear oral argument audio of this case.

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