APPEAL from a judgment of the Superior Court of Nevada County, Thomas M. Anderson, Judge. Reversed with directions. (Super. Ct. No. T08/3176C)
The opinion of the court was delivered by: Cantil-sakauye, J.
CERTIFIED FOR PUBLICATION
This is an appeal by a property owner, John M. Farr, of a judgment upholding the property tax assessment decision of the Nevada County Assessment Appeals Board (Board) for his owner-occupied, single-family home. We conclude the Board's failure to apply the statutory presumption affecting the burden of proof in favor of the homeowner, Farr, at the hearings before it (Rev. & Tax. Code, § 167, subd. (a) (§ 167(a)) requires reversal of the judgment and a remand to the Board for a new hearing.
Although our reason for reversing the judgment is based on the Board's failure to correctly apply the burden of proof and the presumption of correctness in favor of the homeowner, a recitation of pertinent evidence is helpful in understanding the effect of the error.
In 2004, Farr began construction on a new main house on property his family had owned for a number of years on Donner Lake in the Truckee area. At the end of 2004, the house was assessed a 40 percent completion property tax assessment of $265,000. In 2006, after completion of the home, the Nevada County Assessor issued a supplemental assessment of $1,335,000, bringing the total assessment for the newly constructed house to $1.6 million for the 2005/2006 tax year. The assessment value of the underlying land and a previously constructed garage and guest house were not at issue and not reassessed.
Disagreeing with the supplemental assessment for his new house, Farr contacted the Assessor's office to arrange for an informal review. During the informal review process, Farr claimed the senior appraiser for the Assessor admitted the value of the earlier constructed garage and guest house was erroneously included in the supplemental assessment for the main home. According to Farr, the senior appraiser also admitted he erroneously assumed in his analysis that the basement storage area of the main house was fully finished living space. Farr and the senior appraiser could not, however, resolve other disputes regarding valuation of the property by market analysis of comparable homes and/or cost analysis and Farr filed a formal appeal of the assessment.
An initial hearing was held before the Board on October 23, 2006. The supervising appraiser for the Assessor told the Board at the beginning of the hearing Farr should give his presentation first because the property was not Farr's principal place of residence. In accordance with this comment, Farr proceeded first, submitting a prepared report to the Board in which he claimed the total value of his newly constructed home was $715,000. Farr then explained his dispute with the Assessor's senior appraiser over the supplemental assessment for the newly constructed main house on his property. Farr reviewed where he and the senior appraiser disagreed on the use of the Board of Equalization (BOE) cost method of analysis for the property. Farr also provided his analysis of the comparable sales prepared by the senior appraiser to support the assessment figure complaining, among other things, that the senior appraiser had erased the 1975 base year value for all pre-existing site improvements. Farr offered analysis and photos of sales comparables he felt were appropriate to use for determining the value of his home. Farr submitted an appraisal of $994,500 for his home that he obtained from a Truckee licensed appraiser, Jeff Hartley, but outlined a number of points on which he thought Hartley had overvalued the home.
The senior appraiser then submitted the staff report of the Assessor and reviewed how he had now arrived at a reduced value for the house of $1,473,000. The senior appraiser submitted new supporting comparable sales information. He and the supervising appraiser for the Assessor's office answered questions from the Board. When it became evident on questioning that no interior inspection of Farr's home had been done by the Assessor, a motion was made and passed by the Board that the Assessor be permitted to make a thorough inspection of the home and, if the Assessor felt it was warranted, the Assessor should review the estimate of quality, and if the level of quality was less than previously determined, the Assessor should make appropriate adjustments and come back with another recommendation. The hearing was continued until January 22, 2007.
By the time of the January hearing, Farr had appealed the 2006/2007 regular assessment for his property and at the hearing, the Board approved the consolidation of the two appeals. The supervising appraiser for the Assessor's office then noted an interior inspection of Farr's home had been completed. The senior appraiser submitted a new staff report with different comparable sales and the Assessor's analysis of mountain cost data to support a further reduced recommended assessment value for Farr's home of $1,212,000. The Board questioned the senior appraiser and discussed some parts of the report. As this was the first time Farr had seen the Assessor's new staff report and recommendation, the Board asked Farr if the new value met with his approval. It did not.
Farr introduced a binder of material, broken down into multiple sections, which provided further information regarding the comparable sales claimed by the Assessor and Hartley at the prior hearings and the quality of construction in Farr's home. Farr's binder also included copies of the BOE's quality and cost tables and of Farr's résumé as a professional groundwater hydrologist and licensed civil engineer. Farr proceeded to review much of the material contained in his binder, focusing on a number of differences between his home and the previously offered comparable sales properties. Farr argued for application of his cost method analysis. After some questioning by the Board, the Board moved to take the case under submission. Farr objected that he had not had a chance to ask any questions of the Assessor's office regarding all the new information he just received. The Board adjourned.
At its February 16, 2007 meeting, the Board acknowledged a request to reopen the hearing on Farr's assessment appeals to allow Farr to question the Assessor's staff on some of the comparable sales they used. At this point, Robert Shulman, county counsel for Nevada County and counsel for the Board, noted that Farr had presented his case first because the Board was under the impression the burden of proof was on Farr because the property was not his principal place of residence. Counsel indicated his research of applicable State Board of Equalization rules (Cal. Code Regs., tit. 18, §§ 313, 321)*fn2 showed that "if a home is owner-occupied and a single-family home, then the presumption would be with the applicant." Counsel advised the Board to rule that the burden was on the Assessor in this case and the presumption was with the applicant.
The Board discussed whether counsel was correct in his reading of the rules and then proceeded to discuss other procedural matters. Returning to the issue of the presumption, one of the Board members stated that he "did not see that the presumption would give one side or the other in this particular matter an advantage." Counsel replied that "it was not so much an advantage. It was just stating absent persuasive evidence to the contrary, the homeowner's opinion is presumed more correct than the Assessor's opinion. Since all this evidence has come in anyway, that will determine the outcome." Counsel went on to indicate that the "basic presumption in most cases is that the Assessor has done his or her duty correctly, and therefore, his or her opinion is the correct one absent sufficient evidence by the other side to overcome that presumption." Another Board member then opined that Farr "was the one who asked for more time to continue a due process," so "he believed it would only be fair to allow him to go first and present whatever evidence he had relevant to the questioning period, not the issue-at-chief, so that the hearing would not be reopened and there would be no need for the Assessor to have any further burden other than to respond to Mr. Farr." After some further discussion, it was concluded the hearing would be reopened for the limited purpose of cross-examination and the Board would accept Farr's additional evidence only as it was relevant to such cross-examination. Farr's additional evidence was distributed to the Board and Farr proceeded with his presentation and questioning of the Assessor's senior appraiser. After final comments by Farr, the Assessor's senior appraiser, and the Assessor's supervising appraiser, the Board recessed for deliberations and then adjourned the hearing.
The minutes of the hearing reflect no formal ruling by the Board regarding the presumption, but the summary of the February hearing contained in the Board's subsequently issued findings of fact and decision reflect that "[t]he Board decided to proceed on the basis that enough evidence had been introduced that neither party was likely to gain much advantage from a presumption." As pertinent to the issue we consider, the summary of the February hearing also states the Board considered a particular exhibit submitted by Farr relevant to the Board's decision, but that it did not "rebut" the information contained in the Assessor's exhibit.
The Board's written findings of fact and decision on Farr's appeals includes seven relatively short findings of fact based on the testimony and exhibits received. In its findings, the Board rejected the BOE cost method of valuation as "inherently less reliable than using relevant and timely comparable sales in the vicinity" once the Assessor had completed the inspection of Farr's house. The Board found Farr's downward adjustment of the average value per square foot given in his appraiser's report "indicates that [Farr] chooses to rely solely on his own analysis and conclusions as to comparable sales" and that Farr's range of values appeared too low "given market conditions in September 2005, based on the totality of evidence in this matter." The Board found the Assessor's last recommended valuation was actually "based on the cost approach, which is less reliable than the comparable sales approach." The Board then found the three comparable sales offered by the Assessor at the last hearing were reliable and appropriate to use. The Board found the average per square foot adjusted improvement value of the three comparables was $335. The Board multiplied 335 by 3,289, the undisputed square footage of Farr's home, for a valuation of "$1,101,815, except for the basement." The Board subtracted $72,000 from its valuation for the basement, then added $38,400 back into the valuation for the basement, based on Hartley's opinion that the basement was worth $100 per square foot (384 sq. ft x $100 per sq. ft.). The Board arrived at a total fair market improvement value for the home of $1,068,215. "As to the remainder of the subject property, the Prop[osition] 13 (Cal. Constitution Art. XIII A) factored value for the detached garage and guest house remains at $171,360 and for the land it remains at $59,084."
In its Decision, the Board directed the Assessor to enroll the following values for the supplemental assessment: "Land - $59,084, Improvements - $1,239,575, with the home and basement valued at $1,068,215, and the detached garage and the guest house valued at $171,360. Property - $1,298,659." For the 2006/2007 regular assessment, the ...