              IN THE COURT OF APPEALS OF NORTH CAROLINA

                                   No. COA19-125

                               Filed: 7 January 2020

Property Tax Commission, Nos. 17 PTC 0146-48

IN THE MATTER OF THE APPEAL OF: LOWE’S HOME CENTERS, LLC



      Appeal by Union County from Final Decision entered 24 October 2018 of the

Property Tax Commission sitting as the State Board of Equalization and Review.

Heard in the Court of Appeals 5 June 2019.


      Parker Poe Adams & Bernstein LLP, by Charles C. Meeker and Collier R.
      Marsh, and Perry, Bundy, Plyler & Long, L.L.P., by Terry Sholar and Ashley
      McBride, for Union County-appellant.

      Bell, Davis & Pitt, P.A., by John A. Cocklereece and Justin M. Hardy, for Lowe’s
      Home Centers, LLC-appellee.


      MURPHY, Judge.


      Our statutes bar county boards of equalization and review from changing the

appraisal value of—i.e. revaluating—real property in years in which general

reappraisal is not made, except under certain specifically defined circumstances. One

such reason for revaluation is 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.” N.C.G.S. § 105-287(a)(2) (2017). The only genuine issue in this

case is whether the Union County Board of Equalization and Review’s revaluation of

Lowe’s property values in a non-reappraisal year was, in fact, for the purpose of
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                                  Opinion of the Court



correcting a misapplication of the schedule of values. The revaluation did not correct

a misapplication of the schedule of values and was not authorized under our statutes.

We affirm the decision of the Property Tax Commission below in favor of Lowe’s.

                                  BACKGROUND

      At the beginning of 2015, the Union County Board of Equalization and Review

(“the Board”) revaluated three properties belonging to Appellee Lowe’s Home

Centers, LLC (“Lowe’s”) during a countywide revaluation pursuant to N.C.G.S. § 105-

286(a)(1). During the revaluation process, property values were appraised according

to the “Cost Approach,” one of three assessment methods allowed by Union County’s

2015 Uniform Schedule of Values, Standards, and Rules (“Schedule of Values”) to

assess market price:

             1. Cost Approach: (also known as Depreciated
                Replacement Cost). This approach is based on the
                proposition that the informed purchaser would not pay
                more than the cost of producing a substitute property
                with the same use as the subject property. This
                approach is particularly applicable when the property
                being appraised is utilized at its highest and best use.
                It also applies when unique or specialized
                improvements are located on a site for which there exist
                no comparable properties in the market.

             2. Market Data Approach: (also known as the
                Comparative Approach). This appraisal method is used
                to estimate the value of real property through a market
                search to ascertain the selling prices of similar
                properties. In this process, the appraiser compares the
                subject property to those which have sold, and



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                  estimates the value of the property by using those
                  selling prices as a comparison.

               3. Income Approach: [Not discussed in this case.]

The Board evaluated the three properties owned in fee simple by Lowe’s according to

the   Cost   Approach    at   $12,362,100.00,    $9,204,600.00,   and   $14,667,400.00,

respectively, and reported the proposed values to Lowe’s.          This was the first

evaluation relevant to this case, and we will refer to it hereinafter as “the Initial

Evaluation.”

      Later that same year, Lowe’s properly appealed the evaluations with the

assistance of an appraiser.     Utilizing the Market Data Approach, it submitted

documentation evincing that the properties were worth approximately half as much

as the Board’s initial assessment suggested—$6,492,000.00, $4,386,800.00, and

$6,555,100.00, respectively. Lowe’s presented comparisons of properties ostensibly

similar to those owned by Lowe’s, all of which were represented as “big box” retail

properties owned in fee simple. Satisfied that the properties owned by Lowe’s were,

in fact, analogous to those in the appeal, the Board accepted the appeal at “face value”

and revaluated the listed values to exactly those proposed by Lowe’s (“the 2015

Revaluation”). From 8 April 2015 to 7 April 2017, the three properties belonging to

Lowe’s were taxed according to these amended assessed values.

      In 2017, a non-revaluation year under N.C.G.S. § 105-286(a)(1), the Board

discovered what it deemed to be an error in the Lowe’s property revaluations. During


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a hearing in which a separate retailer appealed its property values by comparison

with the Lowe’s properties, the Board recognized that the values assessed according

to the 2015 Revaluation were abnormally low. In a five-minute hearing on 4 April

2017, the Board voted to restore the three Lowe’s properties to their values under the

Initial Evaluation—calculated according to the Cost Approach—as a matter of equity

(“the 2017 Revaluation”), notifying Lowe’s of its decision several days later.

      As the basis for the unseasonable 2017 Revaluation, the Board cited N.C.G.S.

§ 105-322(g)(1)(c), which it alleged “permits a change in value of any property that,

in the board’s opinion, has been listed and appraised at a figure that is below or

above” true market value. It was later discovered that Lowe’s had compared its

properties in the appeal which led to the 2015 Revaluation with properties subject to

deed restrictions severely impairing their market value, while the Lowe’s properties

themselves had no such restrictions.

      After unsuccessfully challenging the 2017 Revaluation before the Board,

Lowe’s appealed the decision to the Property Tax Commission sitting as the State

Board of Equalization and Review (“the Commission”). At the hearing’s conclusion,

the Commission found that the Board did not have the requisite statutory authority

to adjust the values of the properties as it did in the 2017 Revaluation.         The

Commission concluded N.C.G.S. § 105-287(g)(2) only authorizes such an adjustment

if the Board was correcting an error arising from a misapplication of the Schedule of



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Values. Since the Board took Lowe’s evidence at face value and “assigned exactly the

value it intended on the properties,” the Commission held the 2015 Revaluation did

not constitute a misapplication of the Schedule of Values. As such, the Commission

concluded the 2017 Revaluation was improper and ordered the Board to restore the

accepted appraised values set out in the 2015 Revaluation. Union County timely

appeals.

                                    ANALYSIS

      Union County argues the Commission’s order was erroneous in two ways: first,

in concluding there was no evidence that the Schedule of Values was misapplied in

the 2015 Revaluation; and, second, in concluding the Board was not statutorily

authorized to adjust the Lowe’s properties’ values in the 2017 Revaluation. The core

question on appeal, which underlies both of Union County’s arguments, is whether

the Board’s use of the Market Data Approach to compare the Lowe’s properties owned

in fee simple to deed-restricted properties in the 2015 Revaluation constitutes a

misapplication of the Schedule of Values. If the Board’s 2015 Revaluation was a

“misapplication” of the Schedule of Values, the 2017 Revaluation was a proper use of

the Board’s statutory authority to correct misapplications. If not, the Commission’s

Order must be affirmed because the Board acted outside its statutory authority to

change the assessed values.




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      N.C.G.S. § 105-322(g)(1)(c) prevents the Board from adjusting the appraised

value of real property “except in accordance with the terms of [N.C.]G.S. 105-286

[governing revaluation-year adjustments] and 105-287.” N.C.G.S. § 105-322(g)(1)(c)

(2017). N.C.G.S. § 105-287 states, in relevant part:

             (a) In a year in which a general reappraisal of real property
             in the county is not made under G.S. 105-286, the property
             shall be listed at the value assigned when last appraised
             unless the value is changed in accordance with this section.
             The assessor shall increase or decrease the appraised value
             of real property, as determined under G.S. 105-286, to
             recognize a change in the property’s value resulting from
             one or more of the following reasons:

             ...

             (2) Correct 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) (2017).

      Union County contends the record before the Commission contained ample

evidence that the Schedule of Values was misapplied in the 2015 Revaluation; namely

that, in 2017, four witnesses attested to the variance between the three properties at

issue and the properties Lowe’s submitted for comparison under the Market Data

Approach. However, the true issue on appeal is not whether evidence of the variance

existed but whether that variance between the Initial Evaluation and the 2015

Revaluation can be properly characterized under the statute as a “misapplication” of

the Schedule of Values. Again, if the 2017 Revaluation was not to correct an error


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resulting from a “misapplication” in the 2015 Revaluation, the Board acted beyond

its statutory authority by revaluating the appraised value of Lowe’s properties. If,

however, it was correcting a misapplication from the 2015 Revaluation, the 2017

Revaluation was made pursuant to the Board’s statutory authority and the

Commission erred in reaching a conclusion to the contrary. We hold the Board did

not misapply the Schedule of Values in entering the 2015 Revaluation and affirm the

Commission’s decision.

       The question of whether the 2015 Revaluation constituted a misapplication is

an issue of law, which we review de novo. In re Westmoreland-LG & E Partners North

Carolina, 174 N.C. App. 692, 696, 622 S.E.2d 124, 128 (2005) (“Appellate courts

review all questions of law de novo and apply the ‘whole record’ test where the

evidence is conflicting . . . .”).

       Union County advances two arguments as to why the Schedule of Values was

“misapplied” in the 2015 Revaluation.           First, because the properties used for

comparison were deed-restricted such that they could not be used optimally as large

retail stores, the Lowe’s properties were not “similar” to the comparison properties

under the Market Value Approach in the Schedule of Values.                Second, the

Commission improperly characterized the 2015 Revaluation as something other than

a “misapplication,” when it is most accurately classified as a misapplication arising

from incorrect information.



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      In contrast, Lowe’s argues at the time of the 2017 Revaluation “the County and

Board were not aware of the [N.C.G.S. §] 105-287 limitation.” Lowe’s concludes,

“[g]iven that the Board did not even discuss Section 105-287 or the Union County

[S]chedule of [V]alues, the Commission properly concluded that the Board did not

intend to ‘correct an appraisal error resulting from a misapplication’ of the [S]chedule

of [V]alues” at the time of the 2017 Revaluation.

      Our caselaw on this issue begins and ends with one case, In re Ocean Isle Palms

LLC, 366 N.C. 351, 749 S.E.2d 439 (2013), in which our Supreme Court examined

whether Brunswick County had corrected a misapplication of the schedule of values

when it revaluated properties in a non-revaluation year to reflect new information.

Id. at 358, 749 S.E.2d at 443. The new information before the board in Ocean Isle

was twofold: (A) previously unknown market data indicating the properties in

question were more valuable than their revaluation-year assessments indicated, and

(B) information that some of the market data used during the previous revaluation

year had been inaccurate.      Id.     Based on this information, Brunswick County

concluded that the “condition factor” test by which it had previously evaluated the

properties no longer applied and changed the property values accordingly. Id.

      Our Supreme Court reasoned that, despite Brunswick County’s assertions to

the contrary, the revaluation was not implemented to correct a misapplication of the

Schedule of Values, but to apply a different standard altogether—a change that could



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only take place prospectively, not retroactively, under N.C.G.S. 105-287. Id. at 359,

749 S.E.2d at 444. Accordingly, the revaluation was not statutorily authorized. Id.

      We are guided by Ocean Isle in addressing Union County’s arguments on

appeal. Brunswick County’s basic contention in Ocean Isle was that, had it known

during the evaluation year the information it learned later, it would have decided on

different values for the properties. Thus, the schedule of values was misapplied.

Union County’s argument likewise suggests that the Board would not have relied

upon the comparison properties submitted by Lowe’s if it had had all the relevant

information in 2015. There is no way to substantively differentiate this argument

from that which our Supreme Court rejected in Ocean Isle. Here, as in Ocean Isle,

the 2017 Revaluation was not implemented to correct a misapplication, but to

retroactively adjust the property values to reflect newly discovered information.

      Union County’s only argument distinguishing this case from Ocean Isle is that,

while Brunswick County had instituted a new revaluation system altogether in Ocean

Isle, the Board in this case merely reinstated an evaluation system already used in

the Initial Evaluation. In other words, it argues that where Brunswick County was

attempting to impose a new standard onto a previous year, Union County simply

corrected its previous evaluation consistent with its existing standards.           This

argument largely ignores the substance of the Ocean Isle decision and does not render

the Commission’s decision erroneous.



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      The manner in which the standard used in Ocean Isle differed from that of the

foregoing revaluation year is the same manner in which the standard used in the

2017 Revaluation differs from that used in the 2015 Revaluation—the Board’s

understanding of the factual underpinnings changed and that resulted in a different

assessment. Brunswick County’s standard in Ocean Isle differed from that in the

revaluation year because, with new information about the properties at issue and the

surrounding market, its assessment of the properties’ values changed. Id. at 358, 749

S.E.2d at 443. However, because there was no error in the application of its schedule

of values to the facts as they were understood during the previous revaluation year,

there was no misapplication. Consequently, Brunswick County lacked the statutory

authority to adjust the property values. The same is true here.

      Furthermore, our result is consistent with a plain reading of “misapplication.”

In common usage paralleling its use in N.C.G.S. § 105-287(a)(2), “apply” must take

both a direct and an indirect object. The Schedule of Values was not just “applied,”

but applied to a set of facts as understood by the Board. For an assessment of a

property’s value to constitute a “misapplication of the schedules, standards, and

rules,” an error must have taken place in the manner the Schedule of Values was

applied, not in the Board’s apprehension of background facts. N.C.G.S. § 105-

287(a)(2). The Schedule of Values here did not define “similar properties;” rather, it

left the similarity of comparison properties to the discretion of the Board. The fact



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that the Board later came to consider the comparison property to which it applied the

Schedule of Values unsuitable does not indicate that the Schedule of Values was

“misapplied.”    It instead indicates poor discretion in selecting comparison

properties—properties to which the Schedule of Values was properly applied—and

lack of due diligence by the Board in accepting Lowe’s contentions at “face value.”

      Additionally, Union County’s argument that the issue at hand is merely an

alternative type of misapplication ignores the plain meaning of the word

misapplication. What occurred in this case was not a “misapplication” of the Schedule

of Values, but a proper application of the Schedule of Values to poorly selected

comparison properties. Consequently, the evidence does not support a conclusion

that the Schedule of Values was misapplied during the 2015 Revaluation, and the

Board lacked statutory authority to order the 2017 Revaluation.

                                  CONCLUSION

      The only genuine issue in this case is whether the Board, in fact, corrected a

misapplication of the Schedule of Values in the 2017 Revaluation. We agree with the

Commission’s conclusion that it did not. The 2017 Revaluation of Lowe’s properties

was not authorized under N.C.G.S. §§ 105-322(g)(1) and 105-287, and we affirm the

Commission’s Order reversing the 2017 Revaluation.

      AFFIRMED.

      Judges TYSON and YOUNG concur.



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