                             NO. COA13-1224

                   NORTH CAROLINA COURT OF APPEALS

                           Filed:    15 July 2014

IN THE MATTER OF:
APPEAL OF:
Villas at Peacehaven, LLC                  From the North Carolina
from the decisions of the Forsyth          Property Tax Commission
County Board of Equalization and           No. 10 PTC 011
Review concerning the valuations
of certain real property for tax
year 2009.



      Appeal by taxpayer from final decision entered 16 May 2013

by the North Carolina Property Tax Commission.                 Heard in the

Court of Appeals 5 March 2014.


      Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by S.
      Leigh Rodenbough, IV, Robert W. Saunders, and Craig D.
      Schauer, for taxpayer-appellant.

      Assistant County     Attorney      B.   Gordon    Watkins,   III,    for
      Forsyth County.


      McCULLOUGH, Judge.


      Villas at Peacehaven, LLC, (“taxpayer”) appeals from the

Final Decision of the North Carolina Property Tax Commission

(the “Commission”) dismissing its appeal from the decision of

the   Forsyth   County   Board      of   Equalization    and   Review     (the

“Board”).   For the following reasons, we reverse.

                             I. Background
                                             -2-
        This case concerns the revaluation of property in Winston-

Salem that taxpayer owns and operates as a                            rental      community

known     as     Villas    at    Peacehaven.            The    property      at    issue    is

comprised of 121 adjacent tax parcels spanning approximately 25

acres.         Of the 121 separate tax parcels, 120 are residential

lots,     each       improved    with    a   detached      single-family          residence.

The remaining lot is improved with a clubhouse and amenities for

tenants, including a pool and a tennis court.

        During the revaluation, effective as of 1 January 2009, a

Forsyth     County       Tax    Assessor     (“the      Assessor”)      determined         the

aggregate value of all 121 lots to be $16,945,800.1                                Taxpayer

appealed       the     Assessor’s       valuation    to       the   Board,    which      heard

taxpayer’s appeal on 10 December 2009 and notified taxpayer in

writing of its decision to affirm the Assessor’s valuation on 15

December 2009.          Taxpayer then initiated an appeal of the Board’s

decision        by    submitting        an   Application        For    Hearing      to     the

Commission on 12 February 2010.                     The Commission held a final

pre-hearing conference on 31 August 2012 and filed an Order On

Final     Pre-hearing          Conference     on    4     September     2012.         On    13

September 2012, taxpayer’s appeal came on for hearing before the




1
    The County later stipulated to a reduced value of $16,647,200.
                                            -3-
Commission,     sitting       as   the   State    Board    of    Equalization      and

Review.

    At    the      hearing,     taxpayer      framed   the    issue     as   follows:

“[W]hether    or    not   separately        platted    lots     with   single-family

residential homes constructed on them that are held by a common

owner and have continuously been owned, operated, financed and

managed as a single, income-producing rental property should be

assessed as an income-producing property and assessed using the

direct capitalization approach . . . .”                   Taxpayer then referred

to the approach as an income approach as a unified whole rather

than on an individual basis and argued for its use.                          Taxpayer

further   contended       the      method    of   valuation      employed     by   the

Assessor, in which the Assessor determined the value of each

parcel separately on a cost basis using the County’s schedule of

values and totaled the values assigned to each parcel to reach

the aggregate value, was             an arbitrary and illegal method of

valuation that resulted in value far in excess of the true value

of the property.       In support of its argument, taxpayer relied on

a South Carolina Supreme Court case and the testimony of two

witnesses, its managing member, and an appraiser who performed a

valuation of the property using the income approach.
                                   -4-
    At the close of taxpayer’s evidence, the County moved to

dismiss taxpayer’s appeal on the ground that taxpayer failed to

carry its burden of production.           Upon considering both sides’

arguments, the Commission granted the County’s motion in open

court.   A Final Decision was later entered on 16 May 2013.

    Taxpayer filed Notice of Appeal and Exceptions from the

Final Decision on 13 June 2013.

                       II. Standard of Review

    This   Court’s   standard   of   review    of   a   decision   by   the

Commission is governed by statute.        When reviewing a decision of

the Commission:

           the   court   shall   decide    all   relevant
           questions of law, interpret constitutional
           and statutory provisions, and determine the
           meaning and applicability of the terms of
           any Commission action. The court may affirm
           or reverse the decision of the Commission,
           declare the same null and void, or remand
           the case for further proceedings; or it may
           reverse or modify the decision if the
           substantial rights of the appellants have
           been prejudiced because the Commission's
           findings,    inferences,     conclusions    or
           decisions are:

           (1)   In    violation         of    constitutional
                 provisions; or

           (2)   In excess of statutory authority           or
                 jurisdiction of the Commission; or

           (3)   Made upon unlawful proceedings; or
                               -5-
         (4)   Affected by other errors of law; or

         (5)   Unsupported by competent, material and
               substantial evidence in view of the
               entire record as submitted; or

         (6)   Arbitrary or capricious.

N.C. Gen. Stat. § 105-345.2(b) (2013).     “In making the foregoing

determinations, the court shall review the whole record or such

portions thereof as may be cited by any party and due account

shall be taken of the rule of prejudicial error.”            N.C. Gen.

Stat. § 105-345.2(c).

         The “whole record” test does not allow the
         reviewing      court     to       replace     the
         [Commission's]    judgment    as    between   two
         reasonably conflicting views, even though
         the court could justifiably have reached a
         different result had the matter been before
         it de novo.     On the other hand, the “whole
         record”   rule     requires    the    court,   in
         determining the substantiality of evidence
         supporting the [Commission's] decision, to
         take into account whatever in the record
         fairly detracts from the weight of the
         [Commission's] evidence. Under the whole
         evidence rule, the court may not consider
         the   evidence    which   in    and   of   itself
         justifies the [Commission's] result, without
         taking into account contradictory evidence
         or    evidence     from     which     conflicting
         inferences could be drawn.

In re Parkdale Mills, _ N.C. App. _, _, 741 S.E.2d 416, 419

(2013) (citation omitted).

                         III. Discussion
                                   -6-
       “It is . . . a sound and a fundamental principle of law in

this State that ad valorem tax assessments are presumed to be

correct.”    In re Appeal of Amp, Inc., 287 N.C. 547, 562, 215

S.E.2d 752, 761 (1975).      Yet, “the presumption is only one of

fact and is therefore rebuttable.”          Id. at 563, 215 S.E.2d at

762.

            [I]n order for the taxpayer to rebut the
            presumption   he  must   produce  competent,
            material and substantial evidence that tends
            to show that: (1) [e]ither the county tax
            supervisor used an arbitrary method of
            valuation; or (2) the county tax supervisor
            used an illegal method of valuation; AND (3)
            the assessment substantially exceeded the
            true value in money of the property. Simply
            stated, it is not enough for the taxpayer to
            show that the means adopted by the tax
            supervisor were wrong, he must also show
            that the result arrived at is substantially
            greater than the true value in money of the
            property assessed, i.e., that the valuation
            was unreasonably high.

Id.    (quotation   marks   and    citations   omitted)     (emphasis   in

original).      “In   attempting     to    rebut   the    presumption   of

correctness, the burden upon the aggrieved taxpayer ‘is one of

production and not persuasion.’”         In re Blue Ridge Mall LLC, 214

N.C. App. 263, 267, 713 S.E.2d 779, 782 (2011) (quoting In re

IBM Credit Corp., 186 N.C. App. 223, 226, 650 S.E.2d 828, 830

(2007), aff'd. per curiam, 362 N.C. 228, 657 S.E.2d 355 (2008)).

            [If]   the  taxpayer  rebuts  the   initial
            presumption, the burden shifts back to the
                                   -7-
             County which must then demonstrate that its
             methods produce true values.     The critical
             inquiry in such instances is whether the
             County's   appraisal   methodology   “is   the
             proper   means  or   methodology   given   the
             characteristics   of   the    property   under
             appraisal to produce a true value or fair
             market value.” To determine the appropriate
             appraisal   methodology    under   the   given
             circumstances, the Commission must “‘hear
             the evidence of both sides, to determine its
             weight and sufficiency and the credibility
             of witnesses, to draw inferences, and to
             appraise   conflicting   and    circumstantial
             evidence, all in order to determine whether
             the Department met its burden.’”

In re Parkdale Mills, _ N.C. App. at             _, 741 S.E.2d at 420

(citations omitted).

      In the present case, the Commission granted the County’s

motion to dismiss taxpayers’ appeal “for failure of [taxpayer]

to   rebut   the   initial   presumption   of   correctness   as   to   the

county’s tax assessments . . . .”          Specifically, the Commission

found the following:

             15. In this appeal, Appellant argued that
                 Forsyth   County   overvalued   the    units
                 because it used an arbitrary method to
                 value the property by not estimating a
                 value for all of the parcels taken as a
                 whole.    When granting Forsyth County's
                 motion to dismiss at the conclusion of
                 Appellant's   evidence,    the   Commission
                 determines that Forsyth County did not
                 use an arbitrary method to value the
                 subject   individual   parcels    when   our
                 Supreme Court has noted that "[a]n act is
                 arbitrary   when   it   is   done    without
                 adequate determining principle."       In re
                               -8-
             Hous. Auth. Of City of Salisbury, Project
             NC 16-2, 235 N.C. 463, 468, 70 S.E.2d
             500, 503 (1952). When Appellant did not
             provide    competent,    material,    and
             substantial evidence as to the individual
             values of all the parcels, then there was
             no evidence tending to show that the
             Forsyth County Assessor used an arbitrary
             method regarding his values for the
             subject parcels when his values were
             determined during the revaluation process
             and were not substantially higher than
             the values called for by the statutory
             formula.

The Commission then issued the following pertinent conclusions:

         3. Since Appellant failed to rebut the
            presumptive   validity  of   the  County’s
            individual assessments of the subject
            residential parcels, then the burden did
            not shift back to the County and no
            further analysis is necessary as to the
            County’s appraisal methodology (i.e. the
            county is not required to demonstrate that
            its method produce[d] true values).

         4. For that reason, the Commission granted
            Forsyth County’s motion to dismiss this
            appeal at the conclusion of Appellant’s
            evidence; by ruling that Appellant failed
            to rebut the presumptive validity of the
            County’s individual assessments of the
            subject   residential    parcels.      When
            granting   Forsyth   County’s   motion   to
            dismiss, no further analysis was necessary
            as to the County’s appraisal methodology
            (i.e. the Commission was not required to
            “hear the evidence of both sides, to
            determine its weight and sufficiency and
            the credibility of witnesses, to draw
            inference, and to appraise conflicting and
            circumstantial evidence, all in order to
            determine whether the County met its
            burden.”)
                                          -9-
       Now   on    appeal,    taxpayer     argues   the     Commission       erred   in

dismissing its appeal because it presented sufficient evidence

to rebut the presumption of correctness.                  We agree.

       North Carolina’s uniform appraisal standards provide the

following:

               All property, real and personal, shall as
               far as practicable be appraised or valued at
               its true value in money. When used in this
               Subchapter, the words “true value” shall be
               interpreted as meaning market value, that
               is, the price estimated in terms of money 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.

N.C.    Gen.      Stat.   §   105-283     (2013).         Thus,    this   Court      has

recognized        that    “[a]n     important    factor     in     determining       the

property's market value is its highest and best use.”                           In re

Appeal of Belk-Broome Co., 119 N.C. App. 470, 473, 458 S.E.2d

921, 923 (1995), aff’d per curiam, 342 N.C. 890, 467 S.E.2d 242

(1996).

       At the hearing before the Commission, taxpayer first called

its    managing     member,       Mr.   Barry   Siegal,    to     testify.     Siegal

testified concerning the nature of the property and how it was

purchased and developed with the intent that it be a rental

complex.       Siegal further testified about how the property was
                                           -10-
managed as a rental complex with taxpayer responsible for the

maintenance        of    the   interior     and   exterior   of    the     residences,

common areas, and amenities.

      Following         Siegal’s     testimony,     taxpayer      called    Mr.    Dick

Foster, who the County stipulated was an expert in appraisal, as

a   witness.        Foster     testified     that   he    determined       the    income

approach was the most appropriate valuation approach to employ

in this case.             Foster testified        that this determination was

based on the use of property as a rental complex, which Foster

found    to   be    the    highest    and    best   use   given    the     history    of

taxpayer’s economic success with the property.                      Foster further

stated that “[he] thought the income approach was basically the

best way to go because it was an investment-grade property, and

the value of it is dictated about [sic] how much income you

bring in.”     After explaining why he believed the income approach

was the most appropriate valuation approach, Foster described

how he employed the income approach to calculate the value of

the property.           Foster then testified that his application of the

income    approach         produced    a    value    of    $10,905,000       for     the

property.

      Despite the testimony elicited by taxpayer supporting use

of the income approach, the County contends taxpayer did not
                                     -11-
produce     sufficient    evidence   that    the    method   employed     by   the

Assessor     was    arbitrary   or   illegal.         Yet,   this      Court   has

explained that:

             [a]n illegal appraisal method is one which
             will not result in “true value” as that term
             is used in [N.C.G.S.] § [105–]283.     Since
             [a]n illegal appraisal method is one which
             will not result in true value as that term
             is used in [N.C.G.S. § 105–283], it follows
             that such method is also arbitrary.

In re Blue Ridge Mall LLC, 214 N.C. App. at 269, 713 S.E.2d at

784 (quotation marks and citations omitted).

       Keeping in mind the burden on the aggrieved taxpayer is one

of production and not persuasion, see Id. at 267, 713 S.E.2d at

782,   we   hold    the   taxpayer   produced      competent,    material,     and

substantial        evidence   tending   to    show    that      the    Assessor’s

valuation was arbitrary or illegal and substantially exceeded

the true value of the property.

       Although we determine taxpayer rebutted the presumption of

correctness, we take no position on the proper valuation method

in this case and explicitly decline taxpayer’s invitation to

provide guidance to the Commission.                 We determine only that

taxpayer produced sufficient evidence to rebut the presumption

of correctness afforded ad valorem tax assessments.                   Because the

Commission held otherwise and dismissed taxpayer’s appeal, we

reverse the Commission’s Final Decision and remand the case for
                                      -12-
the Commission to determine the appropriate valuation method.

Whether it is necessary for the Commission to hear evidence

beyond that already elicited from taxpayer’s witnesses during

direct- and cross-examinations is for the Commission to decide.

We simply hold taxpayer produced sufficient evidence to require

the   Commission    to      address   the    valuation     issue    raised   by

taxpayer.

                               III. Conclusion

      For   the   reasons    discussed      above,   we   reverse   the   Final

Decision of the Commission and remand for further proceedings.

      Reversed and remanded.

      Judges HUNTER, Robert C. and GEER concur.
