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HomeMy WebLinkAbout19-09-C Anderson Machine Shop, Inc.Jefferson County Board of Equalization Board Clerk's Record of Hearing Petition No: BOE 19-09-C Taxpayer's Name: Anderson Machine Shop/Port of Port Townsend/Halla Njalsson Mailing Address: 2702 Jefferson Street City: Port Townsend State: WA. Zip Code: 98368 Taxpayer's Parcel No: 991 403 002 Hearing Was Held On: Tuesday, February 25, 2020 Board Members Present: Dave Garing and Daryl Gillette Decision of Board: Value Sustained: Value Changed From Other: $69,399.00 To: $11,500 Recorded on Tape No: BOE 022520 Hearing Began at (time): 11:02 a.m. Ended at (time): 11:47 a.m. Chairperson (or Authorized Designee) Date To ask about the availability of this publication in an alternate format for the visually impaired, please call (360) 705-6715. Teletype (TTY) users, please call (360) 705-6718. For tax assistance, call (360) 534-1400. REV 60 0002e (w) (2/9/12) ORDER OF THE JEFFERSON COUNTY BOARD OF EQUALIZATION Property Owner: Anderson Machine Shop, Inc. Parcel Number(s): 991 403 002 Assessment Year: 2019 Case Number: BOE 19-09-C Date(s) of Hearing: 2/25/2020 Having considered the evidence presented by the parties in this appeal, the board herebySustains X❑ Overrules the determination of the Assessor. Assessor's Determination FILand Improvements F-ITimber/Minerals OPersonal Property $69,399 Total $69,399 This decision is based on our finding that: 11 this 7 day of 1, 2020, Dave Garing, BOE Determination: F]Land 7 Improvements Timber/Minerals FRIPersonal Property $11,500 Total $11,500 (See Attached) NOTICE Maile Q- Jufie Shannon, txecutive Assistant s order can be appealed to the State Board of Tax Appeals by filing a notice of appeal with them at P.O. Box 40915, mpia, WA 98504-0915, or at their website at bta.state.wa.us/appeal/forms.htm within thirty days of the date of ling of this order. The appeal forms are available from either your County Assessor or the State Board of Tax Appeals. To ask about the availability of this publication in an alternate format for the visually impaired call 1-800-647-7706. Teletype (TTY) users use the Washington Relay Service by calling 711. Distribution: * Assessor * Petitioner * BOE File FORM REV 64 0058 (5/25/2017) ORDER OF THE JEFFERSON COUNTY BOARD OF EQUALIZATION Appellant(s): Anderson Machine Shop, Inc. Appeal No.: BOE 19-09-C Parcel No.: 991 403 002 Issue Under appeal is a metal commercial building that is located on land leased from the Port of Port Townsend in the Boathaven. In 2002, the appellants constructed a 1200 square foot metal building as they began a 25 -year lease with the Port. The lease requires the appellant to return the use of the land and any tenant owned alterations to the Port at the termination of the lease which will expire in 2027. In 2019 the Assessor's office became aware that the building had been missed in previous assessments and sent a valuation notice to the appellants for improvements in the amount of $69,399. The appellants assert the true and fair market value of the property to be $0. Appellants Argument and Evidence The appellants argue that because their lease does not allow them to sell or transfer the building and must relinquish ownership at the end of the lease, they should not have to pay tax on the building. They testified the building was purchased for $14,000 and they did the work to set it up. Assessor's Argument and Evidence The Assessor's commercial appraiser provided an aerial photograph of the subject property, a copy of the subject's appraisal field worksheet, a scale drawing of the subject with photograph, the Marshall & Swift Commercial Calculation Estimate for the subject, a copy of page 5 of the Washington Department of Revenue Property Tax Review (Vol 4, Issue 2), and a copy of the land lease issued by the Port of Port Townsend. He explained that while state law exempts governmental entities from real estate tax, tenant improvements are not. Improvements made by the tenant are classified as leasehold improvements and must be taxed as personal property. He used a Marshall & Swift software program to estimate the value of a 1200 square foot metal on steel frame building with no HVAC using cost data as of 7/1/2018 for a total valuation of $77,976 and then applied an 11 % depreciation factor resulting in an assessed value of $69,399 or $57.83 per square foot. Decision The appellants' appeal generated three central questions for the Board of Equalization's consideration. 1. Are the appellants responsible for property taxes on a building they purchased and installed, but the terms of the lease preclude them from selling on the open market, transferring rights, or moving the structure? Washington law is clear; tenant improvements a lessee makes to a leased space are taxable as leasehold improvements. Leasehold improvements may be assessed as real property when they are of a permanent nature and remain with the lessor at the end of the lease. 2. Did the Assessor accurately establish a fair cost basis as of 7-1-18 for the subject which was purchased and constructed in 2002? The appellants testified they purchased the metal building components for $14,000 in 2002 and did the installation themselves. The Assessor's representative calculates the original cost of the building was $77,976 ($64.98 per square foot) leaving a disputed difference of $63,976 ostensibly for additional costs related to installation of the structure. Recent (2018) testimony by the Assessor's office using Marshall & Swift Commercial calculations maintain that the cost basis for new metal on steel buildings with no HVAC ranges from $25 to $40 per square foot. During previous hearings the Assessor's office has also provided the Board with documents from a manufacturer of steel buildings supporting the $25 to $40 per square foot with indications this cost could be reasonably applied to buildings of various sizes. It appears that testimony provided by the Assessor's office in previous hearings, as well as documents submitted during those hearings are highly inconsistent with the Assessor's current valuation of the subject. The Board believes that a total cost basis of $36,000 or $30.00 per square foot more accurately reflects the total acquisition cost of the subject in 2002. 3. Does the Assessor's current valuation account for the loss of taxable property as the lease nears termination? The Assessor's representative provided the Board with page 5 of the Washington Department of Revenue Property Tax Review (Vol 4, Issue 2). It states that, "When termination of the lease and loss of taxable property rights is probable, the value of the property rights may be reduced. This reduction should be reflected in the assessment of tenant improvements. When those improvements are near or at the end of their economic life, there is no need for an adjustment because there is probably very little value remaining." Approximately one-third of the appellants' lease remains until they will have to either abandon the building or renegotiate a new lease. As its best alternative, the Board has decided to use straight line depreciation over the life of the lease to determine taxable value on the remaining useful life of the improvement. Eight years are left on the twenty-five year lease (8/25) resulting in a factor of .32 x $36,000 (cost basis) = $11,500. After thoughtful consideration the Board of Equalization overrules the Assessor's original determination and finds that clear, cogent, and convincing evidence supports a taxable value of $11,500 on the subject/leasehold improvements.