[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Worthington City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2018-
Ohio-2909.]




                                         NOTICE
     This slip opinion is subject to formal revision before it is published in an
     advance sheet of the Ohio Official Reports. Readers are requested to
     promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
     South Front Street, Columbus, Ohio 43215, of any typographical or other
     formal errors in the opinion, in order that corrections may be made before
     the opinion is published.



                         SLIP OPINION NO. 2018-OHIO-2909
      WORTHINGTON CITY SCHOOLS BOARD OF EDUCATION, APPELLEE, v.
  FRANKLIN COUNTY BOARD OF REVISION ET AL., APPELLEES; THE KROGER
                                COMPANY, APPELLANT.
  [Until this opinion appears in the Ohio Official Reports advance sheets, it
 may be cited as Worthington City Schools Bd. of Edn. v. Franklin Cty. Bd. of
                   Revision, Slip Opinion No. 2018-Ohio-2909.]
Taxation—Real-property valuation—R.C. 5713.03—Real property must be valued
        based on “the true value of the fee simple estate, as if unencumbered”—
        Appraisal presented by property’s owner complied with R.C. 5713.03—
        Decision of Board of Tax Appeals reversed.
    (No. 2017-0003—Submitted February 14, 2018—Decided July 25, 2018.)
               APPEAL from the Board of Tax Appeals, No. 2016-414.
                                 __________________
        FRENCH, J.
        {¶ 1} This property-tax appeal involves the tax-year-2014 valuation of a
parcel of land with a supermarket owned by appellant, the Kroger Company. The
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supermarket sits on an unusually small parcel of real property compared to parcels
owned by similar retail establishments. Kroger does not have a parking lot on its
parcel, but it does have the benefit of a parking easement that allows its patrons to
park on adjacent property. The ultimate question is how to value the parcel Kroger
owns. And the answer to that question hinges on how we understand an adjustment
to the property’s valuation made by Kroger’s appraiser.
          {¶ 2} The Franklin County Board of Revision (“BOR”) reached a tax-year-
2014 valuation of $2,390,000 by relying on Kroger’s appraiser’s valuation, which
was primarily based on using the sale prices of comparable retail properties and
then making adjustments to reflect the unique characteristics of the smaller Kroger
property.
          {¶ 3} The Board of Tax Appeals (“BTA”) reversed the decision of the BOR
and determined the true value of the property to be $3,950,000.           The BTA
concluded that Kroger’s appraiser’s adjustment to account for the parking situation
improperly removed the benefit of the parking easement from the value of Kroger’s
parcel.
          {¶ 4} We hold that the BTA erred and that Kroger’s appraiser’s valuation
conforms to R.C. 5713.03, which requires a determination of “the true value of the
fee simple estate, as if unencumbered.” We reverse the BTA’s decision and
reinstate the BOR’s tax-year-2014 valuation.
          COURSE OF PROCEEDINGS AND APPRAISAL EVIDENCE
          {¶ 5} Kroger’s property is located adjacent to the Shops at Worthington
Place, a shopping mall in northern Franklin County. For tax year 2014, a triennial
update year in Franklin County, the Franklin County auditor assigned a value of
$3,000,000 to the subject property, which is a 1.699-acre site improved with a
56,154-square-foot store building. Kroger filed a complaint seeking a tax-year-
2014 valuation of $2,000,000. Appellee Worthington City Schools Board of




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Education (“BOE”) filed a countercomplaint seeking to retain the auditor’s
valuation.
        {¶ 6} The BOR convened a hearing on February 8, 2016, and both sides
presented appraisal reports along with testimony of the appraisers.
                                 Hannah’s appraisal
        {¶ 7} Kroger presented the testimony and written appraisal of Curtis P.
Hannah, a member of the Appraisal Institute. To value Kroger’s property, Hannah
used two approaches to value: the sales-comparison approach and the income-
capitalization approach. His sales-comparison analysis yielded a tentative value of
$3,930,780; his income-capitalization analysis yielded a tentative value of
$3,995,247. He then adjusted each value to account for the fact that Kroger’s parcel
did not contain the same amount of land as comparable properties. This adjustment
is the main subject of controversy in this appeal.
        {¶ 8} For his land valuation, Hannah examined recent sales of five
comparable properties with retail stores and parking on the store’s own property.
The values of those properties ranged from $270,291 per acre to $414,938 per acre.
Based on comparable use, Hannah determined the value of Kroger’s land to be
$380,000 per acre.
        {¶ 9} Hannah then determined that Kroger’s parcel was 4.102 acres smaller
than the average site for a retail property of its size. To adjust for this difference in
land size, Hannah multiplied his per-acre valuation of $380,000 by the 4.102 acres
that Kroger lacked to arrive at a rounded discount of $1,560,000. Hannah then
made that adjustment to his tentative valuations to arrive at a comparable-sales
value of $2,370,000 and an income-capitalization value of $2,440,000. Hannah
gave primary weight to the sales-comparison approach for a final reconciled
valuation of $2,390,000 as of January 1, 2014.




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                                  Koon’s appraisal
        {¶ 10} After cross-examining Hannah, the BOE presented the report and
testimony of Samuel D. Koon, also a member of the Appraisal Institute. Koon
characterized his appraisal report as an “abbreviated report” that did not include
underlying data that remained in his files. Because Kroger had not provided certain
specific information he had requested and had not afforded him a formal site visit,
Koon made his report expressly contingent on the “extraordinary assumption” that
the property was in similar physical condition as of the tax-lien date as it was at the
time of a visit he made to view the exterior of the property in December 2015.
        {¶ 11} Koon performed a sales-comparison analysis that generated a
tentative value of $4,900,000 and an income analysis that generated a tentative
value of $5,000,000. He viewed those tentative values as establishing a range and
did not state a specific value figure.
                                The BOR’s decision
        {¶ 12} The BOR gave “all weight” to Hannah’s appraisal “because he had
complete access to the subject property” and adopted Hannah’s opinion of value
for 2014: $2,390,000.
                                 The BTA’s decision
        {¶ 13} The BOE appealed to the BTA, which considered the case on the
BOR record and on the parties’ briefs.         The BTA discussed the competing
appraisals and found that overall, “Hannah’s analysis provides more reliable
evidence of the subject’s true value than that performed by Koon.” BTA No. 2016-
414, 2016 Ohio Tax LEXIS 2708, *11 (Dec. 5, 2016). The BTA found that Hannah
“gave more thorough details about the comparable properties used in both his sales
comparison and income approaches to value” while also supplying “more specific
discussion about the adjustments made to those properties and how the differences
affected the properties’ values.” Id. at *11-12.




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                                January Term, 2018




       {¶ 14} But the BTA rejected Hannah’s $1,560,000 adjustment as
improperly removing the benefit of the parking easement from the value of
Kroger’s parcel. The BTA acknowledged that in some circumstances, “the effect
of a voluntary encumbrance, such as a private easement, should not be considered
in the valuation of a property.” Id. at *8, citing Muirfield Assn., Inc. v. Franklin
Cty. Bd. of Revision, 73 Ohio St.3d 710, 654 N.E.2d 110 (1995). But it held that
that precept did not apply here, because “[t]he directive to avoid the effects of an
easement does not * * * apply to the dominant parcel.” Id. The BTA concluded
that “Hannah’s deduction for the lack of parking on the subject property was
improper.” Id. at *7-8.
       {¶ 15} The BTA then added that “[e]ven if the benefit of an easement may
be excluded from the value of the dominant parcel,” Hannah’s deduction was not
allowable because it was in the nature of a “blanket deduction for a cost to cure”
that the caselaw had rejected. Id. at *9-10.
       {¶ 16} Based on these two alternative rationales, the BTA rejected
Hannah’s adjustment to account for the parking situation. But because it found that
Hannah’s appraisal generally was more reliable than Koon’s appraisal, the BTA
adopted Hannah’s reconciliation value—$3,950,000—as the property’s true value
without incorporating Hannah’s $1,560,000 adjustment. Kroger appeals.
                                   ANALYSIS
The BTA erred by treating Hannah’s adjustment as the removal of the effect of
                                   the easement
       {¶ 17} The statutory framework under which the property is to be valued is
set forth in R.C. 5713.03:


               The county auditor, from the best sources of information
       available, shall determine, as nearly as practicable, the true value of
       the fee simple estate, as if unencumbered but subject to any effects




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       from the exercise of police powers or from other governmental
       actions, of each separate tract, lot, or parcel of real property * * *.


(Emphasis added.)
       {¶ 18} Kroger’s first proposition of law contends that the BTA “erred by
incorrectly treating Mr. Hannah’s land-to-building ratio adjustment as an attempt
to remove an interest in land from taxation.” We agree with Kroger. Our review
of the record demonstrates that Hannah made an adjustment to account for
differences in parcel size between Kroger’s property and the comparable properties.
In other words, Hannah did exactly what R.C. 5713.03 requires: he valued the fee
simple estate.
       {¶ 19} The other retail properties Hannah used in his sales-comparison
approach had more acreage than Kroger’s property. That difference in total acreage
is the basis for the discount Hannah applied to Kroger’s property. Hannah simply
subtracted the value of the extra land owned by most of the comparables to arrive
at a value for Kroger’s property. That is, he appraised the property that Kroger
actually owned. He was not, as the BTA concluded, subtracting the value of
Kroger’s parking easement.
       {¶ 20} To determine “the true value of the fee simple estate,” R.C. 5713.03,
Hannah had to account for the Kroger store’s layout and the fact that Kroger’s
parcel did not contain the same amount of land as the comparable properties. So
Hannah calculated that Kroger’s parcel was 4.102 acres smaller than the average
site that contained a comparable retail store of its size. He separately determined
the value of bare land in the Kroger location—$380,000 per acre—and multiplied
that figure by the 4.102 acres that Kroger lacked to arrive at a rounded discount of
$1,560,000. That discount related not to the value of access to parking but rather
to the extraordinarily small lot size of Kroger’s property in comparison to other like




                                          6
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properties that had sold on the open market. This approach was completely
consistent with the requirements of R.C. 5713.03.
       {¶ 21} The record does not support the BTA’s treatment of the parking
easement in terms of a voluntary encumbrance that Hannah improperly deducted
from the property’s value under R.C. 5713.03.          If Hannah’s adjustment is
considered to be a deduction to account for an encumbrance on Kroger’s property,
then Kroger’s property would have been valued as if it had no benefit of the parking
easement, i.e., as if it had no available parking. That is not the approach taken by
Hannah here. Hannah testified that he “did not value the subject parcel as if it’s
negatively influenced, as if it does not have access to parking.” Rather, he
evaluated Kroger’s 1.699-acre site as a 5.8-acre parcel and “evaluat[ed] the site as
a whole as if it included the associated parking area.” Hannah valued the parcel in
accordance with the statutory scheme—that is, he determined the true value of the
fee simple estate. And in accordance with the statute, he made the adjustment
because Kroger did not own the parking-lot property in fee simple.
     The BTA erred by analyzing Hannah’s adjustment as a “cost-to-cure”
                                    deduction
       {¶ 22} We also find that the BTA erred in concluding that Hannah’s
adjustment is unlawful because it “is similar to a blanket deduction for a cost to
cure that is made separate from the other adjustments in the sales comparison
approach and after capitalization of [net operating income] in the income
approach,” 2016 Ohio Tax LEXIS 2708 at *10. That reasoning was wrong because
Hannah’s adjustment does not reflect any attempt to determine a cost to cure the
lack of parking on the Kroger parcel. Instead, as we explained above, Hannah’s
adjustment was made because Kroger did not own the parking lot. The cost-to-cure
cases the BTA cited have no relevance.




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                     Kroger’s remaining propositions of law
       {¶ 23} In its second proposition of law, Kroger argues in the alternative that
Hannah’s adjustment was proper because the parking easement is an encumbrance
on its parcel and therefore should not be considered under R.C. 5713.03, which
requires a determination of the “true value of the fee simple estate, as if
unencumbered.” We decline to address that issue in light of our reversal of the
BTA’s decision on Kroger’s first proposition of law and our conclusion that
Hannah’s adjustment did not constitute the removal of the benefit of the parking
easement from the value of Kroger’s parcel.
       {¶ 24} Finally, Kroger argues in its third proposition of law that the BTA’s
decision violates Article XII, Section 2 of the Ohio Constitution, which requires
that “[l]and and improvements thereon shall be taxed by uniform rule according to
value.” Because we agree with Kroger that the BTA erred, our ruling moots
Kroger’s constitutional challenge.
                                 CONCLUSION
       {¶ 25} For the foregoing reasons, we reverse the decision of the BTA and
reinstate the BOR’s valuation of the property.
                                                                 Decision reversed.
       O’CONNOR, C.J., and O’DONNELL, KENNEDY, FISCHER, DEWINE, and
DEGENARO, JJ., concur.
                               _________________
       Rich & Gillis Law Group, L.L.C., Mark H. Gillis, and Karol C. Fox, for
appellee Worthington City Schools Board of Education.
       Vorys, Sater, Seymour & Pease, L.L.P., Nicholas M.J. Ray, Steven L.
Smiseck, and Lauren M. Johnson, for appellant.
                               _________________




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