IN THE SUPREME COURT OF ()HIC) REPLY BRIEF OF APPELLANT BOARD OF EDUCATION OF THE OLENTANGY LOCAL SCH:UtJI. DISTRICT

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1 IN THE SUPREME COURT OF ()HIC) BOARD ()F EDUCATION OI^ TIIE OLEN:I'ANGY LOCAI:. SCHOOLS, Case No vs. Appellant, Appeal from the Ohio Board of Tax Appeals BTA Case No DELAWARE COL>NTY AUllITOR., et al,, vs. Appellees, TADA INVESTMENTS, LLC, Appellee. f-(er' 0. l^.:f^l; s «,%e..,f r.'^^ r,^'^ 0 ^. ^,1^ P ^rt...isi..ds^ E ^f ^fis^?^fr../^f,^5 r O REPLY BRIEF OF APPELLANT BOARD OF EDUCATION OF THE OLENTANGY LOCAL SCH:UtJI. DISTRICT Mark H. Gillis ( ) COUNSEL OF RECORD Rich & Gillis Law (iroup, LLC 6400 Riverside Drive, Suite :D Dublin, Ohio Attorney for Appellant Olentarzgy Local School District Board of Education Christian. M. Bates ( ) COUNSEL OF RECORD Corsaro & Associates Co, LPA Clemens Rd Westlake, OI-I A.ttorney, for Appellee TaDa Investments, LLC The Ilonorable Mike Dewine COiPN SEL OF RECORD Ohio Attorney General 30 East :E3road Street Columbus, Ohio Attorney for Appellee 7u.x CUnamissionea of the State of Ohio Carol O'Brien ( ) MarJ^:^ W. Fowler ( ) COUNSEL OFRECORD 140 N. Sandusky St., 3d Floor Delaware, Ohio AttoYneys,f»' Appellees Del<rwat e County Auditor and Board of Revision

2 TABLE OF CONTENTS Section Pa e (s TABLF, OF AUTI-IORITIES ii A. An auction sale is not evidence of value, regardless of whether the property at issue transferred in an auction......> B. The opponent of an auction does not have the burden to prove that the transaction was a forced sale CONCLUSIC)N... 6 APPENDIX ALix.f?ae R.C O. A. C i

3 TAi3LE OF AUTHORITIES Cases Cincinnati &.h. Dis't. I3d. of E, dzec. v: Hcrnailton County Bd. of Revision, 127 Ohio St. 3d 63, 2010 Ohio 4907, 936 N.E.2d ,5,S`atullo v< Wilkins, 111 Ohio St.3d 399, 2006 Ohio 5856, 856 N.E.2d State ex rel. Park Invest. Co. v:bd, of 7ixx Appeals, 175 Ohio St. 410, 195 N d 908 (1964)... 2 Constitutional Provisions; Statutes; Administrative Code Article XII, Section 2 of the Ohio C'onstitution >... 2 R.C , 4 R.C R.C _..., R.C ,6 R.C O.A.C ii

4 A. An auction sale is not evidence of value, regardless of whether the property at issue transferred in an auction. The parties to the present matter agree that the assessment of real property must be conducted in accordance with the rules set forth in Chapter 5713 of the Ohio Revised Code, and that the plain language of the statutes control. See Appellees Brief, pgs. 9, 10. The parties also agree that county auditors are prohibited from utilizing auctions as comparable sales under R.C Id. at 3, 11, 14. Appellees argue in response to the first proposition of law, however, that R.C does not apply to properties that have actually transferred. They claim that R.C only applies to "hypothetical future transactions" and not "consiunmated past transactions." Id. at 10. Appellees state, "In other words, R.C merely prohibits the auditor from predicting what an unsold property `would sell' for at auction and using that value as the true value; it does not prohibit the price fetched at a recent consummated auction sale from being the true value." Id. at 11 (emphasis deleted). This argument fails for multiple reasons. First, this Court has intezpreted R.C differently than Appellees and it has already applied the language to what Appellees call a"consummated past transaction." See Cincinnati Sch. Dist: Bd a.f'edzic. v. 1-lamilton County 13d. clf Revision, 127 Ohio St. 3d. 63, 2010 Ohio 4907, 936 N.=E;.2d 489. This Court addressed an actual sale that had oecurred in Cincinnati and found: First, the docurcientation of the sale on its face refers to the sale as a"foreclosure." Such a sale falls under the rubric of a"forced sale" that may not be regarded as the "criterion of * * * value" of the property pursuant to R.C * * * The evidence regarding the exposure of the property to the public and the competitive bidding process did not rebut the usual prest.imption that a foreclosure sale does not furnish the "criterion of *** value" for the property [pursuant to R.C ]. Id. at fi 25-26, citing R.C (emphasis added). Second, the Auditor is not charged with determiziing a"fizture' value, as Appellees claim in their Brief: See Appellees Brief, pg. 11. Real property values are determined retrospectively for ad valorem taxation purposes. T'he I

5 Auditor must look to the past in order to determine what the value of the property would have been as it "existed" on the tax lien date, not what the property cvill be worth in the "hypothetical future." See Appellees Brief, pg. 10; O.A.C (B). Third, the Auditor is charged with determining the true value of the property, regardless of whether the property "would sell" under R.C or "has been" sold under R.C The true value may be based upon a recent ar.m's-length sale price, if one exists; however, it can never be the price paid at auction or a forced sale. This is not a conflict. The language of R.C goes further than the language of R.C It prohibits an auction sale from being evidence of value for any real property, regardless of whether it "has been" sold. Lastly, Appellees' proposed interpretation of R.C would violate uniform rule. Article XII, Section 2 of the Ohio Constitution provides in relevant part that "[1]and and improvements thereon shall be taxed by uniform rule according to value***." This Court has explained that "[t]a.xation by uniform rule within the requirement of the constitutional provision requires uniformity in the mode of assessment." State ex yel. Park.Irtvest. Co. v. Bd. of Tax 14ppeals, 175 Ohio St. 410, 413, 195 N.E.2d 908, 910 (1964). To this end, the statutes require the Tax Commissioner to "adopt, prescribe, and promulgate rules for the deternlination of true value and taxable value of real property by uniform rule***." R.C (A) (See Appellees Appendix, pg. 9). Appellees interpretation of R.C would violate uniforn-i rule, as demonstrated by the example set forth in their Brief. Under their example, the Auditor would be required to value identical properties using two completely different definitions of true value. See Appeilees Brief, pgs. 12, Under one definition, auction sales would be the best evidence of true value and under the other definition, the same auctions could never be tised as any indication of true value. This does not harmonize the statutes or the current "scheme of real property assesscnent." See Appellees Iirief; pg. 9. It does 1)

6 not even provide a permissible interpretation of R.C , because it would create a systematic and intentional departure from uniforni rule. If two properties are truly identical, they will have the same true valtie. It does not matter that one sold and the other did not. The price paid for one is the same as the price someone "would" pay for the other identical property. Even if the properties were slightly different, the sale of one should be considered as a comparable sale for the other within the county's appraisal. Otherwise, identical properties and nearly identical properties would be valued under completely different definitions of true value and property owners would be taxed inequitably. As a second argument in reply to the first proposition of law, Appellees claim that the sale of the Subject Property does not constitute an "auction" within the meaning of R.C Appellees direct this Court to Section of the Ohio Revised Code. That section and the quoted subsections relate to the regulation of appraisers as a profession. Appellees specifically point to R.C (E) and (F), which define "absolute auctions" and "reserve auctions." It is important to note that the statute at issue in the present matter, R.C , does not differentiate between types of auctions. R.C applies to auctions generally, izicluding the atiction of the Subject Property. The facts of this case show that Appellee TaDa Investments, LLC purchased the Subject Property at an auction, where an auctioneer was present and accepting bids. Before the I30R and the BTA, Appellee TaDa Investments, LLC maintained that the sale of the Subject Property was an auction. Appellees DelaNvare County Board of Revision and Delaware County Auditor did not dispute the fact that the sale was an auction when the matter was before the BOR and they chose not to submit any arguments to the BTA. Now, before this Court, Appellees collectively assert that the sale at issue is not actually an "auction," because the seller had reserved the right to reject the wiming bid. The transaction at issue is not 3

7 only an auction, but it is one of the two types of auctions discussed by Appellees in their own Brief. A "reserve auction," as defined by Appellees and by statute, is "an auction in which the seller or an agent of the seller reserves* * * the right to reject or accept any or all bids ***." R.C (F) (See Appellees Appendix, pg. 1); Appellees Brief, pg. 16. Contrary to Appellees' assertions, the seller's reservation of rigllts does not change the fact that the auctioneers have the "authority to accept bids." See Appellees Brief, pg. 16. Nor does it change the fact that the transaction qualifies as an "auction," under either R.C or Chapter A "reserve a.uction.," such as the sale of the Subject Property, is actually the defaiilt type of auction by statute. R.C (A) provides: An auction shall be a resexve auctioil unless explicitly stated otherwise in the contract for the auction and in the terms and conditions governing the auction. For purposes of a reserve auction, there need not be an announcement or indication that the reserve is attained. R.C (A). Under the language of the statute, sellers always have some type of reserved right, such as the right to reject or accept any bids, unless it is expressly stated otherwise. This means that the transaction at issue falls squarely within the definition of an auction under Chapter 4707 of the Ohio Revised Code and Appellees arguments with respect thereto lack merit. 'I'he sale of the Subject Property was, without a doubt, an atiction and it cannot be evidence of value pursuant to R.C B. The opponent of an auction does not have the burden to prove that the transaction was a forced sale. The plain language of R.C states that the price paid at an auction shall not be evidence of the property's value. Appellees concede in their Brief that R.C at least prohibits county auditors from utilizing aitetions as comparable sales. See Appellees Brief, pgs. 3, 11, 14. If auctions may not be utilized to estimate the price properties would sell for on the 4

8 tax lien date, they cannot be utilized to determine true valuc for ad valorem tax purposes. The BTA did not specifically address the mandatory language of R.C in its decision. Instead, it required the Board of Education to prove that the auction was not arm.'s-length. Appellees claim that this Court's deternlination in the present matter revolves around a question of fact. See AppelleesBrief, pg. 17. They also claini that there is an "abundance" of evidence to support the BTA's decision, which this Court may not reverse. Id. at 17, 18. On the otller hand, Appellees fail to mention that, "when the record is devoid of evidence to support the BTA's findings, those findings must be set aside [by this Court] on appeal." Cincinnati Sch. Dist. Bd of Educ. v. Hamilton County I3d. of Revision, 127 Ohio St. 3d 63, 2010 Ohio 4907, 936 N.E.2d 489, 1?23 citing Worthington City Schools.13d of Edn. v. Franklin C.'ty. Bd. Uf'Revision, 124 Ohio St.3d 27, 2009-Ohio-5932, 918 N.I;.2d 972, fi 27. In Cincinnati, this Court cited to the statute at issue in the present matter and concluded, "The evidence regarding the exposure of the property to the public and the competitive bidding process did not rebut the usual presumption that a foreclosure sale does not furnish the `criterion of * * * value' for the property." Cincinnati, supra. at 4,26, citing R.C This Court also found that the facts were no more than "ambiguous,' because they failed to show that the seller was typically motivated. Id. at 22, 26. Similar to the case of Cincinnczti, Appellees have argued that market exposure and conipetitive bidding are enough to demonstrate the alleged arnt's-length nature of the sale, but they failed to prove that the seller was typically motivated when it auctioned the Subject Propertv. Appellees have also failed to overcome the usual presumption that the auction may not be used as evidence of value pursuant to R.C The primary question in this matter is a legal issue and this Court has stated that it "will not hesitate to reverse a BTA decision that is based on an incorrect legal conclusion." Satullo v. 5

9 Wilkins, I11 Ohio St.3d 399, 2006 Ohio 5856, 856 N.E.2d 954,^! 14, quoting Gahannu-,Iefferson Local School Dist. Bd. Uf' Edn. v. Zaino, 93 Ohio St.3d 231, 2312, 754 N.E.2d 789 (2001). The BTA reached its determination in the present case by ignoring the plain language of Ohio Revised Code section That section provides that the price paid at an auction or forced sale "shall not be taken as the criterion" of the property's value. R.C Like the forced sale that this Court addressed in Cincinnati, the presumption is that an auction is not evidence of value. Consequently, the BTA erred when it required the Board of Education to rebut the arm'slength nature of the sale, rather than requiring the Appellees to overcome the statutory presumption that an auction may not be used to determine true value. CONCLUSION 'I'he BTA acted unreasonably and unlawfully when it ignored the plain language of R.C and adopted the price paid at an auction as the best evidence of value for the Subject Property. The BTA also acted unreasonably and unlawfully when it placed the burden on the Board of Education to prove that the auction was not arm's-length, because the auction sale is prohibited by statute from being evidence of value. For these reasons, this Court is respectfully requested to reverse the decision of the Board of Tax Appeals and order that the Auditor's original determination of value be reinstated. Respectfully Submitted, ^.: 1.Mark I1. Gillis ( ) Rich ^'z Gillis Law Group, LLC 6400 Riverside Drive, Suite D Dublin, Ohio (614) ; (614) fax mgiliis czrichgillislawgroup.com: Attorney for Appellant Boarcl of 'dzccation of the Olentangy Local School District 6

10 CERTIFICATE OF SERVICE The undersigned hereby certif es that the foregoing Reply Brief and all attachments were served upon tlie following by placing a true and correct copy in the linited States mail, postage prepaid, this 4th day of February, Christian M. Bates, Esq. Corsaro & Associates Co, LPA Clemens Rd Westlake, OH Vlark W. Fowler, Esq. Delaware County Prosecutor's Office 140 N. Sandusky Street, 3d Floor Delawa.re, C?li The Honorable Mike Dewine Ohio Attorney General 30 East Broad Street, 17`h Floor Columbus, OH ^.. Mark I. Gillis ( ) 7

11 Lawriter - ORG Reserve auction presumed - absentee bidding - agent of owner or consignee Reserve auction presumed - absentee bidding - agent of owner or consignee. (A) An auction shall be a reserve auction unless explicitly stated otherwise in the contract for the auction and in the terrns and conditions governing the auction. For purposes of a reserve auction, there need not be an announcement or indication that the reserve is attained. (B) A person licensed under this chapter shall not use absentee bidding unless the owner of the real or personal property being sold provides prior written permission to use absentee bidding. (C) A person licensed under this chapter shall be an agent of the owner or consignee of the real or personal property for purposes of all aspects of the auction. Effective Date: Appx. Page 1 1/1

12 1130/2014 Lawriter - OAC Appraisals Appraisals. (A) Each general reappraisal of real property in a county shall be initiated by an entry and order of the tax commissioner directed to the county auditor of the county concerned which shall specify the time for beginning and completing the appraisal as provided by section of the Revised Code. In January of each year the commissioner shall adopt a journal entry wherein is set forth the status of reappraisals in the various counties and the tax year upon which the next reappraisal and the next triennial update of real property values in each county shall be completed. (B) Each lot, tract, or parcel of land, and all buildings, structures, fixtures, and improvements to land shall be appraised by the county auditor according to true value in money, as it or they existed on tax lien date of the year in which the property is appraised. It shall be the duty of the county auditor to so value and appraise the land and improvements to land that when the two separate values for land and improvements are added together, the resulting value indicates the true value in money of the entire property. (C) Land shall be valued in accordance with the provision of rule of the Administrative Code. All iand shall be valued according to its true value except where the owner has filed an application under section 5713,31 of the Revised Code for such land to be valued for real property tax purposes at the current value the land has for agricultural use, and the land is qualified to be so valued and taxed as provided in section of the Revised Code. Buildings, structures, fixtures, and improvements to land shall be valued in accordance with the provisions of rule of the Administrative Code. (D) In arriving at the estimate of true value the county auditor may consider the use of any or all of the recognized three approaches to value: (1) The market data approach - The value of the property is estimated on the basis of recent sales of comparable properties in the market area after allowance for variation in features or conditions. The use of the gross rent multiplier is an adaptation of the m-arket approach useful in appraising rental properties such as aparkments. This is most applicable to the types of property that are sold often. (2) The income approach - The value is estimated by capitalizing the net income after expenses, including normal vacancies and credit losses. While the contract rental or lease of a given property is to be considered the current economic rent should be given weight. Expenses should be examined for extraordinary items. In n-iaking appraisals by the income approach for tax purposes in Ohio provision for expenses for real property taxes should be made by calculating the effective tax rate in the given tax district as defined in paragraph (E) of rule of the Administrative Code, and adding the result to the basic interest and capitalization rate, Interest and capitalization rates should be determined from market data allowing for current returns on mortgages and equities. The income approach should be used for any type of property where rental income or income attributed to the real property is a major factor in detenrrtining value. The value should consider both the value of the leased fee and the leasehold. (3) The cost approach - The value is estimated by adding to the land value, as determined by the market data or other approach, the depreciated cost of the improvements to land. In some types of special purpose properties where there is a lack of comparable sales or inconie information this is the only approach. Due to the difficulties in estimating accrued depreciation, older or obsolete buildings value estimates often vary from the market indications. nttp:r/ooaes.onio.g o ^oac/57o3-2s-o7 Appx. Page 2 1/2

13 1130/2014 Lawriter - OAC Appraisals. (E) Ideally, all three approaches should be used but due to cost and time limitations, the cost approach as set forth in these rules is generally an appropriate first step in valuation for tax purposes. Values obtained by the cost approach should always be checked by the use of at least one of the other approaches if possible. In the event the auditor uses approaches of estimating true value other than the cost approach appropriate notations shall be shown on the property record. (F) The appraiser is urged to refer to standard appraisal references as well as the excellent publications by many trade associations, etc., which provide valuable income, expense, and other types of inforniation that may be used as bench marks in making the appraisal. (G) Nothing set out in these rules shall be construed to prohibit the county auditor from the use of advanced techniques, such as computer assisted appraisals, in the application of the three approaches to the appraisal of real property for tax purposes. However, such programs must be submitted to the tax commissioner for the approval on an individual basis. Eff ; ; Rule promulgated under: RC Rule authorized by: RC Rule amplifies: RC , Replaces: R.C review dates: 09/18/2008 Appx. Page