IN THE MATTER OF: APPEAL OF: OCEAN ISLE PALMS LLC from the decision
    of the Brunswick County Board of Equalization and Review concerning the
             valuation and taxation of real property for tax year 2010
                                    No. 128A12

                              (Filed 25 January 2013)

Taxation – real property – county reassessment of value – improper
     reappraisal – permitted only in specified years

               The North Carolina Property Tax Commission did not err by entering
        judgment in favor of Ocean Isle Palms LLC (Ocean Isle) arising from
        Brunswick County’s (County) reassessment of the tax value of Ocean Isle’s
        real property. Although the County argued that it was merely correcting an
        error in an existing appraisal that arose from a misapplication of its 2007
        schedule of values of land in the county, its 2008 action constituted an
        improper reappraisal. 2008 was not a year in which a general reappraisal
        was permitted. A North Carolina county may appraise property for taxation
        purposes only in specified years.

        Justices HUDSON and BEASLEY did not participate in the consideration or
        decision of this case.


        Appeal pursuant to N.C.G.S. § 7A-30(2) from the decision of a divided panel

of the Court of Appeals, ___ N.C. App. ___, 723 S.E.2d 543 (2012), reversing an

order entered on 24 June 2011 by the North Carolina Property Tax Commission and

remanding for further proceedings. Heard in the Supreme Court on 15 October

2012.

        Nelson Mullins Riley & Scarborough LLP, by Charles H. Mercer, Jr. and
        Reed J. Hollander; and Elaine R. Jordan, General Counsel, The Coastal
        Companies, for taxpayer-appellant.

        Parker Poe Adams & Bernstein LLP, by Charles C. Meeker and Jamie
        Schwedler, for respondent-appellee.


        EDMUNDS, Justice.
                           IN RE OCEAN ISLE PALMS LLC

                                 Opinion of the Court




      A North Carolina county may appraise property for taxation purposes only in

specified years. Brunswick County (“the County”) conducted such an authorized

appraisal of all property in the County in 2007. In this case, we consider whether

the County acted lawfully when it reassessed the tax value of real property

belonging to taxpayer Ocean Isle Palms LLC (“Ocean Isle”) in 2008, which was not a

statutorily designated year for setting property values for tax purposes. Although

the County argues that it was merely correcting an error in an existing appraisal

that arose from a misapplication of its 2007 schedule of values of land in the

County, we conclude that the County’s 2008 action constituted an improper

reappraisal.   Because 2008 was not a year in which a general reappraisal was

permitted, the North Carolina Property Tax Commission correctly entered

judgment in favor of Ocean Isle. Accordingly, we reverse the decision of the Court of

Appeals reversing the Commission’s decision.

      We begin our analysis by considering the statutes pertinent to the valuation

of real property and the County’s application of those statutes. To ensure accurate

and uniform taxation of real property across North Carolina, the General Assembly

has established “Standards for Appraisal and Assessment” of property that each

county must implement, N.C.G.S. §§ 105-283, -284 (2011), along with a framework

setting out the “Time for Listing and Appraising Property for Taxation,” id. §§ 105-

285 to -287 (2011). Under these statutory standards, all real property must be



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appraised or valued “at its true value in money.” Id. § 105-283. “True value” is

defined as “market value,” the price

             at which the property would change hands between a
             willing and financially able buyer and a willing seller,
             neither being under any compulsion to buy or to sell and
             both having reasonable knowledge of all the uses to which
             the property is adapted and for which it is capable of
             being used.

Id.

      The General Assembly required each county to conduct an initial valuation of

all real properties within its borders, followed by subsequent revaluations of the

property, in accordance with a schedule set by statute. N.C.G.S. § 105-286. During

a year in which a revaluation is permitted, and only during such years, every

property in a county is reappraised and its current taxable value established,

reflecting any changes that may have occurred since the last revaluation to ensure

that the new true value is accurate. Id.; see also In re Allred, 351 N.C. 1, 5-7, 519

S.E.2d 52, 55-56 (1999). Because of the need for consistency in these reappraisals,

each county must develop and review uniform schedules of values, standards, and

rules that detail the methodology appraisers will apply when determining a

property’s true value. N.C.G.S. § 105-317 (2011). These schedules must be revised

by a county tax assessor and approved by a county board of commissioners before

the arrival of each revaluation year. Id. § 105-317(b), (c). Any reappraisals must be

complete as of the first day of January in a reappraisal year, when the current true



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value of all real property in a county is set. Id. § 105-285(d). These newly set

values are carried forward until the next revaluation year unless specified

circumstances arise that justify reassessment in an intervening year, such as the

need to correct a clerical or mathematical error. Id. § 105-287(a).

      Although revaluations are required every eight years, a county may elect to

increase their frequency.    Id. § 105-286.     The record indicates that Brunswick

County conducted revaluations in 1999, 2003, and 2007.            For each of these

revaluations, Brunswick County developed and approved a schedule of values

setting out the methodologies its appraisers could apply. Under one methodology,

known as the “sales comparison” or “lot price” method, true value is calculated

using recent sales price data for similarly situated parcels.         However, because

available sales data predominantly captured the value of developed parcels sold

with completed infrastructure, the sales comparison method in its pure form failed

accurately to reflect the true value of an undeveloped parcel.

      To account for the difference in value between developed and undeveloped

parcels, the County approved, and appraisers applied, a “condition factor” to the

sales comparison method.      The condition factor is an adjustment that allowed

appraisers to account for the lower true value of undeveloped property. To derive

the true value for an undeveloped parcel, the appraiser would first use the sales

comparison method to determine a base value for the parcel. The appraiser would

then calculate the condition factor, in the form of a decimal fraction, reflecting the


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                                 Opinion of the Court



property’s degree of development. The base value of the property in question would

be multiplied by the condition factor, yielding a lower amount that represented the

value of the property in its undeveloped state. The condition factor (shorn of its

decimal and treated as a whole number) would be entered on the property’s tax card

to adjust the value of the parcel to compensate for its undeveloped state.        For

example, a property without water, sewer, other utilities, or paved roads could be

assigned a condition factor of .20, which would be entered on the property’s tax card

as “20.” The sales comparison value of a developed but otherwise similarly situated

parcel would be multiplied by .20, yielding a true value for the undeveloped lot of

20% of the base value of comparable developed property.        Appraisers generally

assigned a condition factor of 20 when vacant property in an area intended for

residential use lacked water and sewer services, paved roads or curbing, or other

amenities. As infrastructure was added to such property, the condition factor would

increase, reflecting the rising true value of the property.    This condition factor

method had been used in Brunswick County since “at least since 1976” and was

applied in a manner consistent with past practices during the 2007 revaluation.

      To prepare for the 2007 revaluation, which was completed in February of that

year, the County began appraising property eighteen months earlier.               The

Brunswick County Board of Commissioners also began reviewing the 2007 schedule

of values and adopted it in November 2006. This 2007 schedule was compiled after




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reviewing schedules that had been approved for the revaluation years 1999 and

2003.

        Between 2005 and 2006, the number of undeveloped parcels sold in the

County rose, increasing the sales data available for assessing the true value of such

parcels. Even so, as in past years, the schedule adopted by the Board contained no

details discussing the propriety of applying the condition factor, which was neither

required nor prohibited in any particular situation. Instead, the schedule’s text

only described the numerical format of the condition factor and explained how the

factor entered into the calculation of the total adjusted unit price. The schedule’s

text further stated that “[t]here exists no ‘all encompassing’ set of rules” to ensure

accuracy and that ultimately, the County relies on appraisers’ “experience and

expertise . . . as well as their personal judgment” when applying the schedule.

        During the 2007 revaluation, the appraisal supervisor was Marlon Long, who

had worked as an appraiser in the County since 1996. The primary appraiser for

vacant parcels, Jim Callahan, had worked as an appraiser for the County for eight

or nine years. Both men had used the condition factor method to determine the true

value of undeveloped property throughout their employment with the County.

Callahan visited the undeveloped lots, observed the degree to which development

had progressed, determined the condition factor in a manner consistent with its

application in the revaluation years 1999 and 2003, and assigned a condition factor

based on his observations. The County tax office was aware that condition factors


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                                   Opinion of the Court



ranging from 20% to 40% were being applied to unfinished properties and that the

2007 schedule of values was adopted in 2006 with an intention of maintaining

consistency with this appraisal practice.

         Against this background, we turn now to the property at issue in this action.

Callahan appraised each of Ocean Isle’s one hundred nine undeveloped parcels.

Except for areas designated for common use, he assigned each parcel a condition

factor of .20, causing the true values of those properties to be set at 20% of the base

values of comparable developed properties. This approach to the appraisal of Ocean

Isle’s undeveloped lots resulted in the assignment of true values for the 2007

revaluation ranging from $45,000 to $60,000 per parcel.

         Following the conclusion of the revaluation, Callahan continued to apply the

condition factor in assessments of property value through the remainder of 2007.

However, a newly appointed County tax assessor ordered that, effective 1 January

2008, a nonrevaluation year, the condition factor be removed from all tax cards and

the value of all undeveloped properties be reset to 100% of their assigned base

value.    As a result, for the year 2008, Ocean Isle’s parcels were reassessed at

taxable values ranging from $191,250 to $718,630 per parcel.

         Ocean Isle did not challenge the reassessment, but promptly approached the

County and, after discussion between the parties, the tax values of the undeveloped

parcels were decreased slightly. These values were carried forward for tax years

2009 and 2010. However, in 2010 Ocean Isle disputed the 2010 tax values before


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the Brunswick County Board of Equalization and Review, arguing that the values

were unlawful because they were based on an invalid reassessment. Specifically,

Ocean Isle argued that 2008 was not a year in which a general reappraisal was

authorized and that the County used improper, arbitrary, and illegal methods while

failing to follow the applicable statutes.

       The County Board of Equalization and Review heard Ocean Isle’s challenge

and declined to change the valuations. On 26 July 2010, Ocean Isle appealed the

Board’s decision to the North Carolina Property                 Tax Commission (“the

Commission”), where it moved for summary judgment, arguing that the 2008

reassessments were not permissible because they did not occur in a designated

reappraisal year, in violation of N.C.G.S. §§ 105-286(c) and 105-287(a).1              The

County opposed Ocean Isle’s summary judgment motion, arguing that the

reassessment was proper under section 105-287(a)(2), which permits reappraisals in

off years to “[c]orrect an appraisal error resulting from a misapplication of the

schedules, standards, and rules used in the county’s most recent general

reappraisal.” According to the County, application of the condition factor to Ocean

Isle’s undeveloped lots in 2007 constituted a misapplication of the schedule of


       1 When the challenged reassessment took place in 2008, section 105-286(c) addressed
the value to be assigned to real property during a year when that property was not subject
to reappraisal and provided in pertinent part that “[i]n years in which real property within
a county is not subject to appraisal or reappraisal under subsections (a) or (b), above, or
under G.S. 105-287, it shall be listed at the value assigned when last appraised under this
section or under G.S. 105-287.” N.C.G.S. § 105-286(c) (repealed 2009) (codified as amended
at N.C.G.S. § 105-287(a)).

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                                  Opinion of the Court



values, thereby justifying changing the appraised value of property in a

nonreassessment year pursuant to the statute.

      On 24 June 2011, the Commission found that the 2007 schedule of values had

not been misapplied.     As a result, the Commission determined that the 2008

revaluation was unlawful and the values then set had not been carried forward

legally in 2009 and 2010. The Commission granted Ocean Isle’s summary judgment

motion and ordered the County to value the parcels as of 1 January 2010 using the

same condition factor adjustment applied for the 2007 revaluation.

      The County appealed, arguing among other issues that the Commission erred

in granting summary judgment for Ocean Isle because genuine issues of material

fact exist as to whether the schedule of values was misapplied in 2007 and whether

the 2008 assessment constituted a lawful correction.      On 21 February 2012, a

divided panel of the Court of Appeals reversed the Commission’s order. In re Ocean

Isle Palms, ___ N.C. App. at ___, 723 S.E.2d at 551.

      The majority found that a genuine issue of material fact existed as to

whether a misapplication of the schedule had occurred under section 105-287(a)(2).

Id. at ___, 723 S.E.2d at 550. Although the panel unanimously held that application

of a condition factor was not itself erroneous, the majority focused on allegations

that the factor had not been applied uniformly. Id. at ___, 723 S.E.2d at 550. The

majority concluded that conflicting evidence had been presented as to whether

application of the condition factor in 2007 had resulted in uniform, consistent, and


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accurate assessments of the true value of the lots. Id. at ___, 723 S.E.2d at 550.

Accordingly, the majority reversed and remanded the Commission’s order for

further proceedings to determine whether the procedures used by the County, as

established in the schedule of values, had been “applied in a uniform and equitable

manner,” id. at ___, 723 S.E.2d at 551, or whether the procedures had resulted “in

lots being valued far below or far above their true values and in a manner

inconsistent with the valuation of other lots in the same county,” id. at ___, 723

S.E.2d at 550-51.      The majority concluded that inaccurate and inconsistent

application of a condition factor “is a misapplication of the schedule.” Id. at ___, 723

S.E.2d at 551.

      The dissenting judge disagreed. Observing that the County had used the

condition factor method for decades and that its application had always required

appraisers to use their sound discretion, id. at ___, 723 S.E.2d at 551 (Beasley, J.,

concurring in part and dissenting in part), the dissenting judge stated that she did

“not believe there are any genuine issues of material fact regarding whether the

County’s 2007 Schedule of Values was misapplied” during the 2007 revaluation, id.

at ___, 723 S.E.2d at 551.     Instead, the dissent discerned that the real dispute

between the parties was whether the condition factor could be applied at all. Id. at

___, 723 S.E.2d at 551. The dissenting judge believed that the County’s action in

2008 was not simply a correction of a misapplication of the 2007 schedule of values

but instead constituted “a new standard appraisal practice.” Id. at ___, 723 S.E.2d


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at 551. Because the implementation of a new standard appraisal practice is not one

of the circumstances listed in section 105.287(a) allowing an off-year change of an

appraised value, the dissent would have affirmed the Commission’s decision. Id. at

___, 723 S.E.2d at 551. Ocean Isle filed its notice of appeal based on the dissenting

opinion.

      Before us, the County argues that summary judgment was improper because

genuine issues of material fact exist regarding whether its schedule of values was

misapplied in 2007, permitting the 2008 reassessment. Our review of the record

indicates that no such disputed issues of fact exist and that summary judgment in

favor of Ocean Isle was proper.

      The County contends that more information was available by 2008 as to the

true value of undeveloped lots because Ocean Isle had sold a number of undeveloped

lots between 5 May 2006 and the revaluation date of 1 January 2007, and the

revenue stamps on the deeds to those parcels indicated an average price

significantly higher than the value for similar parcels derived in the 2007

revaluation. In addition, the County contends that some undeveloped lots in the

County located in subdivisions other than Ocean Isle were assessed in 2007 without

application of “an undeveloped lot discount,” resulting in inconsistent valuations of

similar parcels.   As a result, the County argues, the condition factor was not

uniformly applied and, when applied, did not yield an accurate value.          Thus,

according to the County, the off-year reassessment of Ocean Isle’s property was


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permissible because it “[c]orrect[ed] an appraisal error resulting from a

misapplication of the schedules, standards, and rules used in the county’s most

recent general reappraisal.” N.C.G.S. § 105-287(a)(2).

      Although the County attempts to frame its actions in 2008 as the correction

of an error, we find that the County instead instituted a new revaluation system.

According to the record, shortly after the 2007 revaluation, the County’s tax

assessor ordered appraisers to stop using the condition factor method of appraisal

and to reset the value of the parcels at issue here without any consideration of, or

adjustment for, the degree to which the property had been developed. In other

words, the County’s response to the alleged shortcomings of the 2007 appraisals of

Ocean Isle’s lots was not to correct the application of the condition factor to reflect

new information but to throw out the condition factor altogether. Consequently, the

County’s reaction to the perceived erroneous revaluations cannot be seen as a mere

correction of a methodology used with approval in the past. Instead, the County

imposed a revised system of valuation. We must now consider whether doing so in

an off year violated the relevant statutes, a question of law.

      Property values are not set in concrete.            The statutes allow a county

discretion to revise its standards, rules, and schedules to ensure that appraisals

conducted in revaluation years reflect the true value of real property in light of

changing conditions or available data.        Here, if the County did not want the

condition factor method to remain in use in 2007, its remedy was to revise the


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                                  Opinion of the Court



schedule of values for that revaluation year to reflect a change from its previously

approved approach to undeveloped property appraisal.        However, when no such

timely change was made, the County may not retroactively label as error an

historically approved methodology endorsed by the schedule.

      The County also argues that the 2007 revaluation involved a correctable

error because the condition factor, though applied to Ocean Isle’s parcels, was not

applied to all undeveloped properties in the County, resulting in a lack of

uniformity. However, this argument does not affect the valuation of Ocean Isle’s

property, where the only question presented was whether appraisers could apply

the condition factor at all. The Court of Appeals unanimously found no error in the

County’s decision to allow appraisers to use their discretion to decide whether or not

to apply the condition factor during the 2007 revaluation, as had been done with the

County’s approval in past revaluations. Accordingly, if the County seeks to limit

appraisers’ use of their discretion in future revaluations, it may do so only

prospectively.

      Based on the record, we find that no misapplication of Brunswick County’s

schedule of values occurred during the 2007 revaluation.          Consequently, the

reassessment conducted in the nonreappraisal year 2008 violated section 105-

287(a)(2), and the alteration of the taxable value of Ocean Isle’s property under the

2008 reassessment was unlawful.       Therefore, the Commission properly granted




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summary judgment in favor of Ocean Isle. We reverse the decision of the Court of

Appeals.

       REVERSED.

       Justices HUDSON and BEASLEY did not participate in the consideration or

decision of this case.




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