[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as W.
Carrollton City Schools Bd. of Edn. v. Montgomery Cty. Bd. of Revision, Slip Opinion No. 2017-
Ohio-4328.]




                                         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. 2017-OHIO-4328
  WEST CARROLLTON CITY SCHOOLS BOARD OF EDUCATION, APPELLANT, v.
        MONTGOMERY COUNTY BOARD OF REVISION ET AL., APPELLEES.
  [Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as W. Carrollton City Schools Bd. of Edn. v. Montgomery Cty. Bd.
                  of Revision, Slip Opinion No. 2017-Ohio-4328.]
Taxation—Real property—Valuation—Board of Tax Appeals did not act
        unreasonably or unlawfully in retaining auditor’s valuation and acquired
        no duty to perform independent valuation—Neither 2008 land-sale price
        nor property owner’s actual construction costs affirmatively negate
        auditor’s 2011 valuation of land with improvements—Board of Tax
        Appeals’ decision affirmed.
       (No. 2015-0389—Submitted April 4, 2017—Decided June 20, 2017.)
              APPEAL from the Board of Tax Appeals, No. 2012-4862.
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                            SUPREME COURT OF OHIO




       Per Curiam.
       {¶ 1} Appellant, West Carrollton City Schools Board of Education
(“BOE”), challenges the decision of the Board of Tax Appeals (“BTA”), which
retained the auditor’s update-year valuation of $4,716,690 for 2011. The BOE
argues that the subject property, two contiguous parcels developed by appellee
Carmax Auto Superstores, Inc., should be valued by reference to the 2008 purchase
of the land for $5,850,000 along with actual construction costs of $7,015,740 for
subsequent improvements. Appellee Montgomery County Board of Revision
(“BOR”) and the BTA both disagreed and retained the auditor’s value.
       {¶ 2} On appeal to this court, the BOE argues that the BTA acted
unreasonably and unlawfully by refusing either to rely on the land-sale price and
actual-cost evidence to value the property or to perform an independent valuation
of the property. We disagree, and we therefore affirm the decision of the BTA.
                          FACTUAL BACKGROUND
       {¶ 3} On January 9, 2008, the two parcels at issue—vacant land at that time,
amounting to about 15 acres—were purchased by Carmax for $5,850,000. The
BOE filed a complaint seeking an increase in the value for tax year 2008 of the land
from the $578,100 valuation determined by the auditor to its sale price. The BOR
ordered an increase but not to the full amount of the sale price, and the BOE
appealed to the BTA, which found that the sale was a recent arm’s-length
transaction. BTA No. 2009-K-3910, 2012 WL 4338747, *7 (Sept. 11, 2012). On
that basis, the BTA granted the requested increase to $5,850,000. Id. at *8.
       {¶ 4} During 2008 and 2009, Carmax constructed on the subject property a
used-car sales center comprising about 45,435 square feet of interior space.
Construction records indicate actual costs, and Carmax spent a total of
$7,015,740.76 to construct the building and other improvements.
       {¶ 5} 2011 was a triennial update year in Montgomery County, and the
auditor set the value of the subject property at $4,716,690—the components of the




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valuation being $52,460 for the smaller, undeveloped parcel and $4,664,230 for the
main parcel (a land value of $2,476,800 plus improvements valued at a
“replacement cost new” amounting to $2,187,430).
       {¶ 6} The BOE filed a complaint seeking an increase to the 2008 land-sale
price of $5,850,000. At the BOR hearing, the BOE relied on evidence of the sale
and Carmax presented sworn testimony from its counsel. The BOR retained the
auditor’s valuation, and the BOE appealed to the BTA, where the BOE presented
cost evidence along with Carmax’s stipulation that it spent $7,015,740.76 to
construct the building and other improvements. Carmax presented the testimony
of an appraiser, Michael N. Moorhead, who had appraised the unimproved property
as of January 1, 2008. That appraisal had been admitted in the prior case but was
not introduced here.
       {¶ 7} As for the tax-year-2011 valuation, Moorhead did not perform a
complete new appraisal but reviewed additional market data at Carmax’s request.
One comparable land sale for $1,800,000 for approximately 14 acres occurred in
January 2014. As for the value of the improvements, Moorhead testified that a cost
approach would be appropriate only in conjunction with using the market-sales and
income approaches. Moorhead also opined that the facility was a special-purpose
building. Lastly, Moorhead pointed out that additional costs do not necessarily add
to the market value of a property.
       {¶ 8} In its decision, the BTA made no mention of Carmax’s construction
costs as a basis for determining a value for the improvements. The BTA rejected
using the sale price to value the land because the sale occurred more than 24 months
before the January 1, 2011 update valuation, relying on the authority of Akron City
School Dist. Bd. of Edn. v. Summit Cty. Bd. of Revision, 139 Ohio St.3d 92, 2014-
Ohio-1588, 9 N.E.3d 1004. BTA No. 2012-4862, 2015 WL 750651, *2 (Feb. 5,
2015). Finding an absence of competent and probative evidence of value, the BTA
retained the auditor’s original value. Id.




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                                     ANALYSIS
   R.C. 5713.03 Bars the Direct Use of the Land-Sale Price Because of the
                       Subsequently Added Improvements
       {¶ 9} R.C. 5713.03 addresses the use of a sale price to value real property
and creates exceptions to the general rule in favor of using a recent, arm’s-length
sale price to determine value. Relevant here is the exception providing that a sale
price “shall not be considered the true value of the property sold if subsequent to
the sale * * * [a]n improvement is added to the property.” R.C. 5713.03(B).
       {¶ 10} Between Carmax’s 2008 acquisition of the property and the January
1, 2011 lien date, Carmax spent more than $7 million constructing the used-car
facility on the formerly vacant land. Under the statute’s plain terms, the 2008 land-
sale price “shall not be considered” the property’s value as of 2011.                 R.C.
5713.03(B).
       {¶ 11} Moreover, the improvement exception is itself a factor that relates to
the recency of the sale. This court has stated that the recency rule of R.C. 5713.03
“encompasses all factors that would, by changing with the passage of time, affect
the value of the property.” Cummins Property Servs., L.L.C. v. Franklin Cty. Bd.
of Revision, 117 Ohio St.3d 516, 2008-Ohio-1473, 885 N.E.2d 222, ¶ 35. Adding
an improvement is a factor intrinsic to the property itself that affects its value.
       {¶ 12} Instead of relying on the improvement exception of R.C. 5713.03,
however, the BTA invoked a more general proposition set forth in Akron City
School Dist. Bd. of Edn., 139 Ohio St.3d 92, 2014-Ohio-1588, 9 N.E.3d 1004, at
¶ 26: “a sale that occurred more than 24 months before the lien date and that is
reflected in the property record maintained by the county auditor or fiscal officer
should not be presumed to be recent when a different value has been determined
for that lien date as part of the six-year reappraisal.” Because the improvement
exception more specifically bars direct use of the sale price to value the property,
we need not determine whether the holding of Akron applies here.




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                                January Term, 2017




     Neither the 2008 Land-Sale Price nor the Actual Construction Costs
                “Affirmatively Negate” the Auditor’s Valuation
       {¶ 13} The BOE argues that evidence in the record “affirmatively negates”
the auditor’s valuation as of 2011 and that the BTA therefore should have
performed an independent valuation of the property. See Colonial Village Ltd. v.
Washington Cty. Bd. of Revision, 123 Ohio St.3d 268, 2009-Ohio-4975, 915 N.E.2d
1196, ¶ 24-25. The BOE is mistaken.
       {¶ 14} First, the 2008 sale price of $5,850,000 for the land does not
“affirmatively negate” the auditor’s 2011 valuation of the land and improvements
in the aggregate at $4,716,690. For one thing, the land-sale price is not recent, for
the reasons discussed already. Second, the appraiser testified at the BTA hearing
that he had developed the opinion that the vacant land was worth $2,600,000 as of
2008. Also, a comparable property indicated a value of $1,800,000. Under the
circumstances, the 2008 sale price cannot be taken at face value as a refutation of
the auditor’s valuation.
       {¶ 15} Second, the actual construction costs that Carmax incurred do not
negate the auditor’s valuation. Although Carmax stipulated to having incurred over
$7 million in construction costs for its facility, those historical costs do not
necessarily establish what the property would have sold for in 2011. The cost
approach involves estimating “what a potential buyer would expect to pay in
constructing a replacement for the existing building,” a significant number because
the “ ‘prospective purchaser will not rationally pay $15,000 for a house, or for 100
shares of stock, or for a shipment of wheat if, without serious delay, he can build
or buy equally satisfactory substitutes for $10,000.’ ” Dayton-Montgomery Cty.
Port Auth. v. Montgomery Cty. Bd. of Revision, 113 Ohio St.3d 281, 2007-Ohio-
1948, 865 N.E.2d 22, ¶ 12, quoting 1 Bonbright, The Valuation of Property 157
(1937). A buyer might not look to his seller’s actual costs because the seller may
have overspent, and the buyer could therefore conclude that a property of equal




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                                   SUPREME COURT OF OHIO




utility would cost less. That is why cost valuation relies on the auditor’s consulting
cost schedules to generate a replacement cost new for the improvements at issue.
See Ohio Adm.Code 5703-25-12(A) and (B).
         {¶ 16} The BOE’s attempted reliance on Dayton-Montgomery Cty. Port
Auth. does not advance its cause. In that case, we did not favor actual costs over
costs derived from the auditor’s schedules.                  Instead, we held that the close
correspondence between actual costs and cost-schedule projections negated the
auditor’s use of an upward “grade-factor adjustment.”1 The present case does not
involve a grade-factor adjustment, and for that reason Dayton-Montgomery Cty.
Port Auth. is simply inapposite.
         {¶ 17} Equally unavailing is the BOE’s suggestion that an actual-cost
valuation is proper because the property is a special-purpose property to the extent
that it is specially adapted to Carmax’s needs as a retailer. The special-purpose
doctrine is applicable when the special adaptation to the owner’s currently
successful use has been shown to be detrimental to the property’s marketability—
i.e., the property suffers built-in economic or functional obsolescence or is
constructed with superadequacies2 that make it unattractive in the general market
for that type of property. See Rite Aid of Ohio, Inc. v. Washington Cty. Bd. of
Revision, 146 Ohio St.3d 173, 2016-Ohio-371, 54 N.E.3d 1177, ¶ 29 (recognizing
that the “ ‘ “special purpose exception is applied to a building in good condition
being used currently and for the foreseeable future for the unique purpose for which
it was built” ’ ”), quoting Dinner Bell Meats, Inc. v. Cuyahoga Cty. Bd. of Revision,
12 Ohio St.3d 270, 272, 466 N.E.2d 909 (1984), quoting Fed. Reserve Bank of

1
  A grade-factor adjustment is sometimes performed when the county’s appraiser concludes that the
quality of improvements being appraised is superior or inferior to the model used by the county’s
cost schedules; a factor is developed and applied to increase or decrease the replacement cost new
of the property. Hawk v. Washington Cty. Bd. of Revision, BTA No. 94-B-644, 1995 WL 50724,
*3 (Feb. 3, 1995).
2
  “Superadequacy” refers to an “excess in the capacity or quality of a structure” in relation to “market
standards.” Appraisal Institute, The Dictionary of Real Estate Appraisal 226 (6th Ed.2015).




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                                January Term, 2017




Minneapolis v. State, 313 N.W.2d 619, 623 (Minn.1981); see Meijer Stores Ltd.
Partnership v. Franklin Cty. Bd. of Revision, 122 Ohio St.3d 447, 2009-Ohio-3479,
912 N.E.2d 560, ¶ 24 (“we have also held that the constitutional prohibition [of
legislation requiring consideration of current use to the exclusion of market value
in the valuation of property] does not bar consideration of current-use value in the
context of the ‘special-purpose property’ doctrine”), citing Dinner Bell Meats at
271.
       {¶ 18} There is no finding of “special purpose” by the BTA here, but even
if there were, that would not necessarily justify reliance on actual costs as opposed
to the county’s cost schedules. Although the decisions cited in the BOE’s brief
demonstrate that the BTA in some instances has preferred actual costs to the use of
cost schedules, we are not aware of any binding legal principle that requires actual
costs to be preferred when performing a cost valuation of the property. Indeed,
there is a clear danger in relying on actual costs to the exclusion of cost schedules:
the owner and potential seller of the property may be understood to have spent too
much on the improvements, and a buyer may calculate that it could obtain an
“ ‘equally satisfactory substitute’ ” for the property by paying significantly less,
Dayton-Montgomery Cty. Port Auth., 113 Ohio St.3d 281, 2007-Ohio-1948, 865
N.E.2d 22, at ¶ 12, quoting Bonbright at 157. Moreover, the one special-purpose
decision cited by the BOE that endorses the cost approach is Dinner Bell Meats,
and the record in that case was clear that the appraiser whose cost valuation was
adopted performed his cost approach using cost schedules from the Marshall
Valuation Service.
       {¶ 19} Because the auditor’s value was not negated by the evidence in the
record, the BTA acquired no duty to perform an independent valuation and the BTA
therefore did not act unreasonably or unlawfully in retaining the auditor’s value.




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                           SUPREME COURT OF OHIO




                                CONCLUSION
       {¶ 20} For the foregoing reasons, we reject the BOE’s contentions on
appeal and affirm the decision of the BTA.
                                                             Decision affirmed.
       O’CONNOR, C.J., and O’DONNELL, KENNEDY, FRENCH, O’NEILL, and
FISCHER, JJ., concur.
       DEWINE, J., concurs in judgment only.
                              _________________
       Rich & Gillis Law Group, L.L.C., Mark H. Gillis, and Karol C. Fox, for
appellant.
       John R. Koverman Jr., for appellee Carmax Auto Superstores, Inc.
                              _________________




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