PHF II Norfolk, LLC v. City of Norfolk

Full title: Re: PHF II Norfolk, LLC v. City of Norfolk

Court: FOURTH JUDICIAL CIRCUIT OF VIRGINIA CIRCUIT COURT OF THE CITY OF NORFOLK

Date published: Nov 14, 2016

Civil Docket No.: CL15-6886 (Va. Cir. Ct. Nov. 14, 2016)

Opinion

Civil Docket No.: CL15-6886

11-14-2016

Re: PHF II Norfolk, LLC v. City of Norfolk

John S. Norris, Jr., Esq. Norris & St. Clair, P.C. 2840 S. Lynnhaven Road Virginia Beach, Virginia 23452 Adam D. Melita, Esq. Office of the City Attorney, Norfolk 900 City Hall Building 810 Union Street Norfolk, Virginia 23510

DAVID W. LANNETTI JUDGE

John S. Norris, Jr., Esq.
Norris & St. Clair, P.C.
2840 S. Lynnhaven Road
Virginia Beach, Virginia 23452 Adam D. Melita, Esq.
Office of the City Attorney, Norfolk
900 City Hall Building
810 Union Street
Norfolk, Virginia 23510 Dear Counsel:

Today the Court rules on the action brought by Petitioner PHF II Norfolk, LLC ("PHF") against the City of Norfolk (the "City"). PHF challenges the City's real estate tax assessment on certain real property PHF owns within the City of Norfolk (the "Property") for tax years 2011, 2012, 2013, and 2014. PHF contends that the City assessed the Property above its fair market value ("FMV") each year and that the assessments were not uniform in their application. PHF seeks relief in the form of a refund of $866,122, the putative excess real estate taxes paid for the years in question. The Court finds that PHF established a FMV for the Property. With respect to the City's 2011 Property valuation, the Court finds that PHF successfully rebutted the presumption of a correct assessment by proving the City committed manifest error in miscalculating the assessment, which resulted in a tax-assessed value that exceeded fair market value; as a result, PHF is entitled to a real estate tax refund of $160,395. With respect to the City's 2012, 2013, and 2014 Property valuations, the Court finds that PHF failed to prove the following: that the City performed its assessments in a nonuniform manner; that the City's assessed values exceed the Property's FMV as a result of either manifest error or disregarding controlling evidence; and that the City's assessments were not arrived at in accordance with generally accepted appraisal practice. PHF therefore did not successfully rebut the presumption of correctness of the City's 2012-2014 assessments and is not entitled to a real estate tax refund for these years.

Background

PHF owns the Property, located at 777 Waterside Drive within the City of Norfolk, Virginia, on which it operates the Norfolk Waterside Sheraton Hotel. (Compl. ¶ 2.) The City levies a tax on real property annually, with each tax year beginning on July 1. Norfolk, Va., City Code § 24-193 (1979). Pursuant to the Charter of the City of Norfolk and the Norfolk City Code, tax assessments must be complete by the end of February of the year of assessment—essentially four months before the City officially promulgates its assessments. See id.; Norfolk, Va., City Charter § 88(b) (1968).

Elizabeth White ("White") is the Commercial Projects Supervisor in the City's Real Estate Assessor's Office. (Tr. 565.) White testified that she was "aware of all assessment work the City performed during the tax years in question. (Tr. 577.) With respect to the City's assessment of the Property, White supervised the work of two different employees for tax years 2011 and 2012, and she performed the assessments herself for tax years 2013 and 2014. (Tr. 599.)

The City performs assessments on approximately 5,600 properties each year. (Tr. 575.) For improved properties, the City considers three common valuation methods when determining each tax assessment: the cost approach, the comparable sales approach, and the income approach. (Tr. 576.) In support of calculating assessments, the City requests information from the property owners, with the requests tailored depending on the type of property. (Tr. 579-80.) For hotels, the requested information includes the average daily rate ("ADR") per hotel room rented, the revenue collected per available room (RevPAR), and the average occupancy rate of the hotel. (Tr. 580.)

In considering the income approach to determine the FMV of full-service hotels, the City relies on the most recent annual profit-and-loss data provided by each hotel owner. (Tr. 621.) Because hotels typically require several months after year's end to compile such data and send it to the City, data for the immediately preceding year is not available to the City when it calculates the upcoming-year assessments, which are required to be complete by February. (Tr. 578.) Accordingly, the City relies on the taxpayer-provided data from two years prior to the assessment year. (Id.)

From the reported revenues, the City subtracts the hotel's expenses—excepting certain costs, such as amortization, debt service, real estate taxes, and depreciation—to arrive at the net operating income ("NOI") of the hotel. (Tr. 621, 691.) The City also does not subtract a hotel's required reserve fund amount, as the City considers it "not a true expense."¹ (Tr. 625.) The NOI is then divided by a capitalization rate—largely determined based upon rates published by groups such as PricewaterhouseCoopers—to determine the total value of the hotel. (Tr. 626-28.) Finally, to arrive at the property's tax-assessed value, the City deducts the value of furniture, fixtures, and equipment ("FF&E"), which is taxed separately as personal property. (Tr. 636.) The City uses the FF&E value provided by the Commissioner of the Revenue's Office, which reflects the tax previously paid by the taxpayer for this personal property. (Tr. 635, 647.)

1 Additionally, the amount of reserve funds is not uniform within the hotel industry, as individual franchisors determine the amount that must be kept in reserve. See, e.g., IPROC Norfolk, L.L.C. v. City of Norfolk, 86 Va. Cir. 435, 441 (Norfolk 2013).

For the 2012 tax year assessment, the City did not receive income expense information from PHF until well after the submission deadline,² so the City instead substituted pro forma values it derived from the most recent data available—including the vacancy rate, published room rates, and standardized expense ratios. (Tr. 646-47.)

2 PHF apparently did not submit its 2010 financial data until September 24, 2012, when it also submitted its 2011 financial data. (Tr. 663-64.) Of note, this was after the July 1, 2012, assessment date for tax year 2012.

The City generally uses the cost approach only as a crosscheck reference—or as a backup valuation when reliable income data cannot be gathered—for full-service hotels such as the Property. (Tr. 596, 602, 606.) The City relies upon an online program to arrive at this cost valuation but does not consider the value reliable enough to use as an assessment tool. (Tr. 595, 606.) The City also looks for comparable sales of hotels in Norfolk, but in this case, it could not find any such sales within Norfolk for the tax years at issue. (Tr. 601.) The only reference to comparable sales in the City's assessment work file for the Property was a list of three hotel sale prices. (Tr. 670.)

PHF exercised its option—as provided by the City—to appeal its assessment for each tax year in question. (Tr. 646.) After its appeals were denied by the Board of Equalization, PHF filed this suit, challenging the City's tax assessment for the Property for tax years 2011 through 2014. A trial was held on July 15-17, 2016, and the parties were provided an opportunity to submit post-trial briefs.

Positions of the Parties

PHF's Position

PHF challenges the City's tax assessments of the Property on multiple, and at times overlapping, grounds. As a preliminary matter, PHF argues that the City's assessments are not entitled to a presumption of correctness. Citing Keswick Club, L.P. v. County of Albemarle, 273 Va. 128, 639 S.E.2d 243 (2007), PHF contends that, because the City "failed to consider and properly reject" the sales approach to property valuation—one of three standard valuation approaches—the presumption vanishes, and PHF need only prove the City's assessment is erroneous. (Pet'r's Post-Trial Br. 9; Pet'r's Br. in Resp. to Resp't's Post-Trial Br. 2-3.)

PHF also challenges the City's assessments on several grounds that could, in theory, succeed even if the assessments were granted a presumption of correctness. PHF argues that the City miscalculated the hotel's expenses for tax year 2011. According to PHF, the City's underestimated expense numbers resulted in an inflated NOI, which in turn produced a vastly inflated assessment. To support this claim, PHF asked the City's tax assessment supervisor, White, to run calculations at trial using the profit and loss ("P&L") statement provided to the City by PHF; this resulted in an expense number significantly higher than the one appearing on the City's tax assessment worksheet. A former City employee—whom White supervised at the time—had calculated the 2011 expense number that appears on the worksheet, and White was unable to explain the disparity.

PHF also asserts that the large disparity between the FMVs of the Property—as determined by its expert, Gregory Hartmann ("Hartmann")—and the City's assessed values constitutes manifest error. In fact, PHF contends that the City failed to offer any FMV whatsoever for the Property. Therefore, according to PHF, there can be no "reasonable difference of opinion" regarding the FMV of the Property. PHF also claims that the City's failure to conduct a physical inspection of the Property during any of the four years in question constitutes a failure to use proper methodology, another type of manifest error.

PHF alleges that the City disregarded several items of controlling evidence. These include the City's failure to consider the sales approach, failure to use actual expense data, and use of pro forma inputs in its 2012 assessment calculation for the Property. PHF further faults the City for not including as Property expenses the cost of a franchisor-required property improvement plan ("PIP") and franchisor-established mandatory reserve funds, and for not inspecting the Property. PHF also asserts that the City should have considered as part of the Property assessments several offers made by prospective purchasers of the Property.

PHF contends that the City's simultaneous use of actual revenue data and presumed expense data violates the assessment uniformity requirement found in Section 58.1-3984.

With respect to an amendment to Section 58.1-3984 of the Code of Virginia (the "Amended Statute"), which went into effect in 2012, PHF interprets the added clause regarding generally accepted appraisal practice ("GAAP")³—in Part B of the statute—as establishing a new, independent ground for challenging a tax assessment. PHF asserts that the City's failures to inspect the Property, use current revenue and expense data, include reserves and PIP as expenses, and perform a comparable sales valuation each violate GAAP. According to PHF, a tax assessor's failure to abide by GAAP is sufficient by itself to warrant judgment in its favor.

3 Although "GAAP" is a common acronym for "Generally Acceptable Accounting Principles," in this Letter Opinion the Court defines "GAAP" as "generally accepted appraisal practices, procedures, rules, and standards as prescribed by nationally recognized professional appraisal organizations such as the International Association of Assessing Officers (IAAO) and applicable Virginia law relating to valuation of property," as used in Section 58.1-3984(B) of the Code of Virginia. See Va . Code Ann. § 58.1-3984 (2012 Repl. Vol.).

The City's Position

The City avers that PHF has failed, as a threshold matter, to establish a FMV for the Property that meets the requirements of the Virginia Constitution. The City characterizes Hartmann's valuation process as too speculative to arrive at the type of concrete valuation required by Virginia law. The City relies on this Court's opinion in IPROC Norfolk, L.L.C. v. City of Norfolk, 86 Va. Cir. 435 (Norfolk 2013),⁴ to argue that the inclusion of PIP and reserve funds in Hartmann's valuations renders PHF's valuations invalid under Virginia law. The City contends that it properly considered the sales valuation approach, but that it also properly rejected that approach because there were insufficient comparable sales to produce a reliable valuation. The City therefore asserts that its valuations are entitled to a presumption of correctness.

4 As is appropriate, the Court does not consider Virginia Circuit Court opinions—even its own—to hold precedential value. The Court instead considers the rationale offered by the courts to the extent that this Court finds it persuasive.

With respect to the alleged miscalculation of the 2011 expense amount, the City contends that White's inability to explain how the City arrived at the expense figure in the City's records is insufficient to establish an error. In the City's view, the onus was on PHF to prove whether such error existed—most likely by calling the former employee who calculated the 2011 Property assessment to explain his calculation. Moreover, the City takes the position that a miscalculation of this type does not satisfy any method of proving a tax assessment erroneous under the pre-2012 rubric.

The City argues that, even if the Court were to accept Hartmann's valuations, Virginia case law regards the disparity between Hartmann's valuations and the City's assessments as within the broad range courts must allow for "reasonable differences of opinion" and therefore not as evidence of manifest error. The City also takes issue with PHF's claim that the City's decision not to conduct physical inspections of the Property over the four years in question constitutes manifest error. According to the City, applicable appraisal standards do not require yearly physical inspections where localities have in place an effective system of monitoring building permits, and PHF failed to provide any evidence that Norfolk does not have such a system in place.

The City also denies that it disregarded controlling evidence. The City asserts that it used actual income and expense numbers every year for which PHF supplied such information. Only when PHF failed to supply the requested expense data for the 2012 assessment before the submission deadline did the City insert pro forma values to complete its calculations. The City asserts that it was not required to include PIP and reserve fund expenses, and points out that PHF's expert, Hartmann, also did not include these expenses for two of the three methods he employed to calculate the Property's FMV.

The City rejects PHF's view that a taxpayer can invoke the uniformity requirement of Section 58.1-3984 to allege internally inconsistent practices with respect to the assessment of one property. The City instead insists that the nonuniformity ground only applies where a tax assessor treats properties within the same class differently.

Regarding the 2012-2014 assessments, the City interprets the Amended Statute to include an additional requirement to be proved by the taxpayer. Under the City's theory, the challenger must prove that the assessor violated GAAP in order to prevail under any method of challenging a tax assessment. The City insists that its assessments conform to GAAP and that PHF's failure to prove otherwise represents a second fatal flaw.

Analysis

Legal Standard

The Virginia Constitution requires that, in general, the levying and collection of all taxes be "uniform upon the same class of subjects within the territorial limits of the authority levying the tax." Va. Const. art. X, § 1. It further mandates that real estate assessments "shall be at their fair market value, to be ascertained as prescribed by law." Id. § 2.

Virginia Courts define FMV of a property as the "sale price when offered for sale 'by one who desires, but is not obliged, to sell it, and is bought by one who is under no necessity of having it.'" Keswick Club, L.P. v. County of Albemarle, 273 Va. 128, 136, 639 S.E.2d 243, 247 (2007) (quoting Tuckahoe Woman's Club v. City of Richmond, 199 Va. 734, 737, 101 S.E.2d 571, 574 (1958)). In determining FMV, courts consider "all the capabilities of the property and all the uses to which it may be applied," but they will not uphold valuations based upon "prospective, speculative, or possible value, based on future expenditures and improvements." IPROC Norfolk, L.L.C. v. City of Norfolk, 86 Va. Cir. 435, 438 (Norfolk 2013) (quoting Tuckahoe, 199 Va. at 738, 101 S.E.2d at 574, and Fruit Growers Express Co. v. City of Alexandria, 216 Va. 602, 609, 221 S.E.2d 157, 162 (1976)).

Section 58.1-3984 of the Code of Virginia grants aggrieved taxpayers the right to seek relief in circuit court from erroneous local tax assessments. Va. Code Ann. § 58.1-3984 (2012 Repl. Vol.). A prior version of Section 58.1-3984 (the "Prior Statute"), which governed 2011 tax assessments, required a taxpayer challenging an assessment to prove that "the property in question is valued at more than its fair market value or that the assessment is not uniform in its application, or that the assessment is otherwise invalid or illegal." Va. Code Ann. § 58.1-3984 (2011).

Part B of Section 58.1-3984 of the Amended Statute, effective as of January 1, 2012, supplants the above-quoted language for real property assessments⁵ and states, in pertinent part:

5 Part A of the Amended Statute is almost identical to the Prior Statute but limits its proof requirements to tax assessment "proceedings, except for proceedings seeking relief from real property taxes." Compare Va . Code Ann. 58.1-3984 (2012 Repl. Vol.), with Va . Code Ann. 58.1-3984(B) (2011).

B. In circuit court proceedings to seek relief from real property taxes, there shall be a presumption that the valuation determined by the assessor or as adjusted by the board of equalization is correct. The burden of proof shall be on the taxpayer to
rebut such presumption and show by a preponderance of the evidence that the property in question is valued at more than its fair market value or that the assessment is not uniform in its application, and that it was not arrived at in accordance with generally accepted appraisal practices, procedures, rules, and standards as prescribed by nationally recognized professional appraisal organizations such as the International Association of Assessing Officers (IAAO) and applicable Virginia law relating to valuation of property. Mistakes of fact, including computation, that affect the assessment shall be deemed not to be in accordance with generally accepted appraisal practice.

Va. Code § 58.1-3984(B) (2012 Repl. Vol.).

"In order to satisfy the statutory requirement of showing that real property is assessed at more than its fair market value . . . , a taxpayer must necessarily establish the property's fair market value." W. Creek Assocs., LLC v. Cty. of Goochland, 276 Va. 393, 417, 665 S.E.2d 834, 847 (2008), superseded on other grounds by statute as stated in Staunton Mall Realty v. Bd. of Supervisors, No. 13002412-00, 2015 Va. Cir. LEXIS 202, at *19-20 (Augusta Cty. July 8, 2015).

A tax assessor's valuation is ordinarily presumed to be correct. Va. Code § 58.1-3984(B). Where feasible, a tax assessor should use all three of the common valuation approaches when calculating the assessment: cost approach, income approach, and comparable sales approach. See Keswick, 273 Va. at 137, 639 S.E.2d at 248. The assessor's valuation is entitled to the presumption of correctness only if each approach was "consider[ed] and properly reject[ed]." Id.

To rebut the presumption of a correct valuation, a taxpayer must "show by a preponderance of the evidence that the property in question is valued at more than its FMV or that the assessment is not uniform in its application. Va. Code § 58.1-3984(B). Further, a taxpayer claiming that the valuation is more than the property's FMV must prove "that the taxing authority committed manifest error or disregarded controlling evidence in making the assessment." Keswick, 273 Va. at 136-37, 639 S.E.2d at 247-48. In this context, "[m]anifest error may be shown by proving that the taxing authority employed an improper methodology in arriving at a property's assessed value or by establishing 'a significant disparity between fair market value and assessed value . . . so long as the assessment [does not come] within the range of a reasonable difference of opinion, . . . when considered in light of the presumption in its favor.'" TB Venture, LLC v. Arlington Cty., 280 Va. 558, 563, 701 S.E.2d 791, 794 (2010) (quoting W. Creek, 276 Va. at 414, 665 S.E.2d at 845).

"The effect of this presumption is that even if the assessor is unable to come forward with evidence to prove the correctness of the assessment this does not impeach it since the taxpayer has the burden of proving the assessment erroneous." W. Creek, 276 Va. at 409, 665 S.E.2d at 843 (quoting R. Cross, Inc. v. City of Newport News, 217 Va. 202, 207, 228 S.E.2d 113, 117 (1976)).

"If the court is satisfied from the evidence that the assessment is erroneous . . . the court may order that the assessment be corrected and that the applicant be exonerated from the payment so much as is erroneously charged." Va. Code § 58.1-3987.

Discussion

The Court has considered the pleadings; evidence and oral argument presented at trial; the parties' pre- and post-trial briefs; and applicable authorities. The Court now rules on the issues before it.

As discussed in more detail infra, in order to successfully challenge a tax assessment, PHF must do the following: (1) establish a FMV for the Property; (2) prove any one of the following: (i) the City's assessment is not entitled to a presumption of correctness—in which case PHF must merely prove error on the City's part; (ii) the assessed value exceeds FMV because the City committed manifest error or totally disregarded controlling evidence; or (iii) the assessed value has not been calculated in a manner uniform with similar properties; and (3) as of tax year 2012, prove that the City did not comply with GAAP when calculating the assessment.

A. PHF Established a Valid Fair Market Value for the Property.

Principles enshrined in the Virginia Constitution provide the foundation for tax law in the Commonwealth. See Va. Const. art. X, §§ 1-2. Virginia case law makes clear that, to successfully challenge a tax assessment of real estate, a taxpayer must as an initial matter establish the FMV of the property. W. Creek Assocs., LLC v. Cty. of Goochland, 276 Va. 393, 417, 665 S.E.2d 834, 847 (2008), superseded on other grounds by statute as stated in Staunton Mall Realty v. Bd. of Supervisors, No. 13002412-00, 2015 Va. Cir. LEXIS 202, at *19-20 (Augusta Cty. July 8, 2015). The failure to establish FMV is fatal to the taxpayer's claim. See id.

At the outset, an appreciation of the somewhat chimerical concept of FMV is necessary. Virginia courts rely on a straightforward definition of FMV: the "sale price when offered for sale 'by one who desires, but is not obliged, to sell it, and is bought by one who is under no necessity of having it.'" Keswick Club, L.P. v. County of Albemarle, 273 Va. 128, 136, 639 S.E.2d 243, 247 (2007) (quoting Tuckahoe Woman's Club v. City of Richmond, 199 Va. 734, 737, 101 S.E.2d 571, 574 (1958)). In other words, FMV is the agreed price in an arm's-length transaction occurring without the participants being under any extraordinary pressure to enter the transaction. See id. at 140, 639 S.E.2d at 249. Although this definition appears simple to apply, any "sale price" is inherently uncertain until an actual sale, or an agreement to sell, is consummated. The difficult job of an appraiser—at least in the absence of a pending sale—is to manipulate available data regarding the nature and quality of the property, as well as the conditions of the market, in order to arrive at the best possible estimated sale price for a transaction that has not occurred and, in fact, may never take place. This reality somewhat belies the dictate that FMV represents the "present, actual value" of a given property. Fruit Growers Express Co. v. Alexandria, 216 Va. 602, 609, 221 S.E.2d 157, 162 (quoting Appalachian Power Co. v. Anderson, 212 Va. 705, 708, 187 S.E.2d 148, 152 (1972)).

Author William Poundstone aptly articulated the illusory nature of precise valuation: "The numbers that make our world go round are not so solid, immutable, and logically grounded as they appear . . . . [V]alues are slippery and contingent, as fluid as the reflections in a fun-house mirror." William Poundstone, Priceless: The Hidden Psychology of Value 9 (2010). Although Poundstone was commenting on market values generally, and in the modern world particularly, the complex facts presented in this case—and the large valuation disparities typically present when challenging tax assessments—demonstrate the difficulty, if not impossibility, of arriving at a single, certain FMV for real estate. Given the complex and nebulous nature of FMV, the seeming clarity of the Virginia Constitution's dictate that "[a]ll assessments of real estate...shall be at their fair market value" is distorted somewhat by the funhouse-mirror quality of the term. Va. Const. art. X, § 2 (emphasis added). In fact, the very next constitutional phrase contains the substantial modifier "to be ascertained as prescribed by law." Id. (emphasis added).

Several facets of Virginia law—taken together—demonstrate unambiguously that when a court adopts a valuation or recognizes one as legally valid, it is not suggesting that the assessed valuation is the only valid FMV—or even the most accurate estimate of FMV. Virginia courts have long held, for example, that when the twin constitutional dictates regarding assessments—that they be both based on FMV and performed uniformly—are in tension, uniformity prevails. Bd. of Supervisors v. Leasco Realty, Inc., 221 Va. 158, 166, 267 S.E.2d 608, 613 (1980). Indubitably, a uniform process of assessments will sometimes mean that a taxing authority's assessment is not the most accurate estimate of FMV.

In addition, Section 58.1-3250 of the Code of Virginia allows cities to perform real estate tax assessments every other year; in fact, cities with populations of 30,000 or less may perform assessments as infrequently as every four years. Va. Code § 58.1-3250 (2012 Repl. Vol.). Given that the FMV of a given property usually changes year to year, the statute plainly validates assessments that are proxies of FMV. A competent assessor—performing a contemporaneous assessment—therefore is in a better position to calculate a more accurate valuation than one performed three years prior. Virginia law nevertheless will uphold a properly performed, and perhaps less accurate, valuation that is dated.

Moreover, Virginia courts have consistently recognized that there are a variety of methods to calculate FMV, which is one reason taxing authority assessments are granted a presumption of correctness. City of Norfolk v. Snyder, 161 Va. 288, 291-92, 170 S.E. 721, 722 (1933) ("[D]ifferent persons, equally well qualified, use different methods in fixing a value on property."). As the Virginia Supreme Court opined in Richmond v. Gordon, "[B]ecause fixing property values is a matter of pure opinion, the courts must be hesitant, within reasonable bounds, to set aside the judgment of assessors; otherwise, the courts will become boards of assessment 'thereby arrogating to themselves the function of the duly constituted tax authorities.'" 224 Va. 103, 110-11, 294 S.E.2d 846, 850 (1982) (quoting Richmond, Fredericksburg and Potomac R.R. v. State Corp. Comm'n, 219 Va. 301, 313, 247 S.E.2d 408, 415 (1978)). The presumption of correctness favoring the taxing authority's valuation, then, is the byproduct of judicial modesty in the complex area of tax law and not a judicial affirmation that the assessed value—even though legally valid—is actually correct.

The upshot of these legal principles is this: a court's recognition that a proposed FMV has been "ascertained as prescribed by law" is not confirmation that that the valuation is the actual FMV. This concept applies equally to valuations by both the taxing authority and the taxpayer. The initial inquiry before this Court, then, is not whether PHF has managed to divine the conclusive, indisputable value of the Property for each of the years at issue. Rather, the Court views the relevant issue as whether PHF has produced a reasonable estimate of the Property's FMV that complies with the dictates of Virginia law. The Court finds that it has.

The City avers that the valuations produced by Hartmann, PHF's expert appraiser, were unduly speculative. It finds particular fault with Hartmann's deduction of the cost of a presumed PIP from his valuation under the discounted cash flow ("DCF") methodology, relying on this Court's opinion in IPROC Norfolk, L.L.C. v. City of Norfolk, 86 Va. Cir. 435 (Norfolk 2013). The City misreads and improperly extends the holding in IPROC. At issue in that case was the city's exclusion from expenses of a hotel's reserve funds—money set aside, pursuant to the terms of a franchise agreement, to be available to pay for ongoing renovations and improvements to "maintain a level of quality that a consumer expects from a property bearing the franchisor's name." 86 Va. Cir. at 440. The cost of a PIP may be paid for in part by reserve funds, but the two terms are not identical. A PIP is a more comprehensive renovation plan that is required periodically to "bring the hotel back up to [the] standards" of the hotel's flagship. (Tr. 73.) Although the discussion at trial regarding how these two expenses interact with each other for purposes of property valuation was somewhat murky, one thing is clear: the fact that the IPROC court found valid a City tax assessment that excludes reserve funds does not ipso facto mean that the case stands for the proposition that a valuation methodology that includes reserve funds (or PIP) is necessarily invalid. The Court therefore finds that a taxing authority's uniform exclusion of PIP and reserve fund expenses is not improper.

The City also contends that the speculative nature of the DCF approach violates the Virginia Supreme Court's holding in Fruit Growers Express Co. v. Alexandria. 216 Va. 602, 221 S.E.2d 157 (1976). In performing the DCF valuation for each assessment year, Hartmann relied upon his prediction of revenues over the next five years. The City points out that, in Fruit Growers, the court rejected a "[v]aluation based upon an estimate of the potential income which might be realized" from speculative uses once undeveloped land was developed. See 216 Va. 602, 607, 221 S.E.2d 157, 160 (1976) (quoting 4 Nichols, The Law of Eminent Domain § 12.312[2], at 12-150 to 12-151 (3d ed. rev. 1975)). The holding in Fruit Growers is readily distinguishable from the case at bar, however. The taxpayer in Fruit Growers advanced the appraisals of several experts who produced valuations based on the expected income that eventually would be derived from the undeveloped land in question—once it was developed. The court held that while "the capabilities of the property . . . for which it is adapted, are to be considered," Fruit Growers, 216 Va. at 606, 221 S.E.2d at 160 (quoting Tuckahoe Woman's Club v. City of Richmond, 199 Va. 734, 738, 101 S.E.2d 571, 574 (1958)), potential income to be derived from a use of "which [the owner] has not yet availed himself . . . is too uncertain and conjectural to be acceptable," id. at 607, 221 S.E.2d at 160 (quoting 4 Nichols, The Law of Eminent Domain § 12.312[2], at 12-150 to 12-151).

Hartmann's estimates of future income do involve some degree of speculation. To arrive at the hotel's estimated income, he analyzed various factors affecting the Norfolk market as they would have appeared to a prospective buyer during each of the years in question. Hartmann's income estimates also reflect his opinion regarding the potential cost of a PIP—offset to the extent that a PIP might generate future revenue. The Court recognizes that Hartmann's DCF valuation includes numerous pieces of guesswork, and even Hartmann acknowledged that his approach "certainly [had] that subjective view to it." (Tr. 300.) But whereas the expert assessors in Fruit Growers guessed at values based upon uses for which the property had not yet been developed, Hartmann synthesized a number of factors to predict income for a business enterprise to which the Property had long been dedicated.

Also important to the Court's conclusion is the fact that two of Hartmann's three valuation methods did not include the costs of a PIP. Hartmann's final valuation represents a synthesis of three methods, none of which produced valuation disparities of more than 9% for any of the years in question. (Pl's. Exs. 21-24.)

While the Court finds questionable certain aspects of Hartmann's methodology—including, but not limited to, the efficacy of the comparable sales approach—the Court reviews Hartmann's valuation in its totality. The Court finds that Hartmann's depth of experience and knowledge in the field of hotel appraisal, the thoroughness of his reports regarding the valuations calculated, and his generally credible testimony provide ample reason to conclude that his overall valuation has merit. Stated differently, nowhere does the Court find a flagrant error that would render Hartmann's valuation legally invalid. Without adopting Hartmann's valuation as its own, the Court therefore finds that PHF has established a legally valid FMV for the Property.

B. The City's Assessment Is Entitled to a Presumption of Correctness.

The valuations of a taxing authority ordinarily are presumed correct. Va. Code § 58.1-3984(B) (2012 Repl. Vol.); TB Venture, LLC v. Arlington Cty., 280 Va. 558, 563, 701 S.E.2d 791, 794 (2010). PHF correctly points out, however, that when a taxpayer demonstrates that the taxing authority failed to "consider and properly reject" one of the recognized methodologies for calculating FMV, the presumption is rebutted. Keswick Club, L.P. v. County of Albemarle, 273 Va. 128, 140, 639 S.E.2d 243, 250 (2007).

Both parties agree that, to properly calculate FMV of the Property, it is necessary to consider all three standard methods of valuation: comparable sales, income, and cost. With respect to the Property, the parties agree that it was proper to consider and reject the cost approach in assessing the value of a hotel. But while the City's tax assessor and Hartmann both utilized the income approach, only PHF's expert incorporated the comparable sales method when calculating FMV. PHF alleges that the City did not "consider and properly reject" the comparable sales approach, and the City's assessments therefore are not entitled to a presumption of correctness. The Court disagrees.

White testified that the City "would do [its] best to look for sales," but explained the City's challenges in gathering relevant information about hotels outside Norfolk in order to evaluate comparable recent property sales. (Tr. 600.) She further testified that several sales outside Norfolk were noted in the City's tax file, but that "we didn't have any good sales to use within the City." (Tr. 601 (emphasis added).) Of note, none of the comparable sales used by Hartmann in any of the four years in question involved properties within Norfolk; although some were from other cities in Virginia, others were from North Carolina, Georgia, and Florida. (Pl.'s Ex. 21, at 45-48; Pl.'s Ex. 22, at 46-49; Pl.'s Ex. 24, at 44-47.) In addition to the broad geographic range of these sales, the disparity in the conditions of the considered hotels—as well as the fact that the sales took place over several years—required Hartmann to "make adjustments" to the sale prices in order to arrive at comparable valuations. (Tr. 367; Pl's Ex. 24, at 53-54.) White testified convincingly that the City "would have a difficult time adjusting" sales from various places without the benefit of detailed information similar to what Hartmann was able to gather. (Tr. 605.) Even assuming, arguendo, Hartmann's adjusted sale prices are reliable, the Court declines to find that a taxing authority is required to undertake the onerous task of gathering data from hotel sales near and far—and to then perform complex adjustments to render incomparable sales comparable.

In addition, the key facts in Keswick Club, the case cited by PHF, can be readily distinguished from those present here. In Keswick Club, Albemarle County had made a "categorical determination" not to use the income and sales methods in its valuations of all area golf clubs. Keswick Club, L.P. v. Cty. of Albemarle, 273 Va. 128, 138, 639 S.E.2d 243, 248-49 (2007). The county also made no attempt to obtain the financial information necessary to perform an income-based valuation—despite specific statutory authority to do so. Id. at 139, 639 S.E.2d at 249. Perhaps even more startling was the county's failure to consider the sale of the very property in question the prior year. Id. The county assessor testified that he did not consider that sale an arms-length transaction but could provide no basis for this viewpoint. Id. at 134-35, 639 S.E.2d at 246. The Keswick court believed that the county had an obligation to "carefully scrutinize the factual circumstances of such a sale before determining that it does not meet the criteria for an arms-length transaction." Id. at 140, 639 S.E.2d at 249.

In contrast, PHF produced no evidence showing the City made a similar categorical determination. Nor did the City fail to gather or consider evidence plainly within its grasp. Rather, White testified that the City did in fact look for comparable sales—but found only sales of hotels too dissimilar in quality and too remote in location to perform a reliable comparison. The Court finds that the City was not in a position to gather enough reliable data from properties in remote locations to perform an accurate comparison, as supported by White's testimony. See IPROC Norfolk, L.L.C. v. City of Norfolk, 86 Va. Cir. 435, 439 (2013).

The Court finds that the City reasonably determined that a strict comparable sales approach was not feasible and that it reasonably used several nearby sales as "benchmarks" for its valuation. The Court finds that the City properly considered and rejected the comparable sales approach to valuation. The City's assessment of the Property therefore is entitled to a presumption of correctness.

C. The City's Assessments Exceed PHF's Calculations of the Property's Fair Market Value.

Although the City's assessments are entitled to a presumption of correctness, there remain several potential avenues for PHF to prove the Property assessments erroneous, thus affording PHF the relief available through Section 58.1-3987 of the Code of Virginia. The four tax years in question straddle a change to the statute regarding the methods by which a taxpayer can prove a tax assessment erroneous. Leaving aside, for the moment, the added GAAP requirement of the Amended Statute, most of the prima facie elements necessary to prove a tax assessment erroneous per Section 58.1-3984 apply to all four years at issue.

The City correctly summarizes the four ways to successfully challenge a tax assessment as established by Virginia case law prior to enactment of the Amended Statute. For tax assessments conducted before 2012, the taxpayer—having established the FMV of the property in question—will prevail if it proves any of the following:

(1) The assessor used an improper methodology, constituting manifest error;
(2) There is a significant disparity between the FMV and the assessed value that is outside the range of a reasonable difference of opinion, constituting manifest error;
(3) The taxing authority disregarded controlling evidence in developing its assessment; or
(4) The taxing authority did not assess the property in a manner uniform with other properties in the same class.

(Resp't's Post-Trial Br. 3.) The first three methods correspond to proving that "the property is valued at more than its fair market value," as expressly provided for in Section 58.1-3984. The fourth method—proving "the assessment is not uniform in its application"—is a category unto itself, which is also expressly prescribed by the statute.

1. PHF proved that the City employed an improper methodology to develop its 2011 Property tax assessment, which constitutes manifest error.

Only PHF's challenge to the City's 2011 assessment is governed by the Prior Statute, thereby obviating the need to apply the Amended Statute's new rubric to prove error.

The Prior Statute requires a taxpayer challenging an assessment to prove that "the property in question is valued at more than its FMV or that the assessment is not uniform in its application, or that the assessment is otherwise invalid or illegal." Va. Code Ann. § 58.1-3984 (2011). A taxpayer claiming that the assessed value is more than the property's FMV must prove "that the taxing authority committed manifest error or disregarded controlling evidence in making the assessment," Keswick Club, L.P. v. Cty. of Albemarle, 273 Va. 128, 136-37, 639 S.E.2d 243, 247-48 (2007), and manifest error includes, inter alia, "that the taxing authority employed an improper methodology in arriving at a property's assessed value," TB Venture, LLC v. Arlington Cty., 280 Va. 558, 563, 701 S.E.2d 791, 794 (2010).

PHF contends that the data the City included in its 2011 tax assessment worksheet cannot be reconciled with the values that appear on the relevant P&L statement provided to the City by PHF. At trial, White was asked to add the relevant expense numbers, subtract (or exclude) inapt expense figures consistent with the City's assessment procedures, and calculate the resultant value for the Property's total 2009 expenses—the most current data available to the City when it performed its 2011 assessment. (Tr. 692-96.) The total computed expense value was $11,126,279. (Tr. 696.) Despite testifying that she was responsible at the time for reviewing tax assessments, White was unable to explain the sizeable discrepancy between that figure and the total expense value recorded by the City on its assessment worksheet: $9,826,705. (PHF Ex. 14.) White acknowledged that undervaluing expenses produces an inflated NOI, which in turn results in an excessive property value. (Tr. 697.) She also testified that, although she supervised the City's 2011 assessment determinations, another City employee—who no longer works for the City—actually performed the original calculations. (Tr. 599.)

PHF points out that the City did nothing to rehabilitate the testimony of White, e.g., by calling the former employee to explain how he calculated the value that appears on the City's worksheet. (PHF Post-Trial Br. 7.) The City, on the other hand, insists that the burden was on PHF to call the employee and establish through his testimony that an error had been made. In the absence of such testimony, the Court cannot be certain that the City made a miscalculation or other methodological error in producing the total expense figure. Nevertheless, in light of the trial testimony and in the absence of any colorable explanation by the City as to how the referenced assessment expense figure was produced, the Court finds that PHF has satisfied its burden of proving by a preponderance of the evidence that the City's assessor used an improper methodology—which constituted manifest error—that yielded an erroneous 2011 Property assessment. See W. Creek Assocs., LLC v. Cty. of Goochland, 276 Va. 393, 413, 665 S.E.2d 834, 847 (2008) (finding that "the circuit court erred by holding that, in order to show manifest error, a taxpayer must prove what information the taxing authority considered and how it arrived at the assessment in question"), superseded on other grounds by statute as stated in Staunton Mall Realty v. Bd. of Supervisors, No. 13002412-00, 2015 Va. Cir. LEXIS 202, at *19-20 (Augusta Cty. July 8, 2015).

PHF's characterization of this miscalculation as a violation of GAAP is somewhat peculiar, as the statutory GAAP-compliance requirement—which took effect in 2012—did not apply to the 2011 assessment. Even under the Prior Statute rubric, however, demonstrating a methodological error is one way to prove manifest error, as discussed supra.⁶ It is self-evident that a miscalculation—or even a proper calculation using incorrect values—is not a proper method to assess a property's value. In light of this, PHF—having established FMV—has successfully rebutted the presumption of correctness afforded the City's assessed value. PHF therefore is entitled to judgment with respect to the 2011 assessment.⁷

6 The new language in the Amended Statute—requiring the taxpayer to prove that the assessment "was not arrived at in accordance with generally accepted appraisal practices, procedures, rules, and standards"—appears to substantially overlap with the Prior Statute's requirement that the taxing authority use proper methodology. The new provision is more specific, citing organizations such as the IAAO as a source of such appraisal standards and naming "[m]istakes of fact, including computation, that affect the assessment" as specific violations of GAAP. PHF's evidence presumably would satisfy this prong had the Amended Statute applied to the City's 2011 miscalculation.

7 Although PHF suggested that the City committed a similar calculation error for the other challenged assessments (Tr. 865), PHF produced specific evidence of such error only for the 2011 tax year assessment, by way of cross-examining White. In its closing argument, PHF stated that "it would have been easy for the City to have asked Ms. White to go through her math on one of those other years." (Tr. 813.) White in fact testified that she would be "happy to walk [the Court] through" her assessment calculations for the years in which she performed them directly—2013 and 2014. (Tr. 700.) The Court notes that it was PHF's burden to demonstrate the error, however, and PHF never called White to explain the City's calculations for the other disputed years.

The Court next must determine the amount of the judgment. "If the court is satisfied from the evidence that the assessment is erroneous . . . the court may order that the assessment be corrected and that the applicant be exonerated from the payment so much as is erroneously charged." Va. Code § 58.1-3987. This is not to say, however, that the Court must necessarily replace the City's erroneous value with the FMV advanced by PHF. As discussed supra, the fact that PHF has established a FMV does not grant that valuation primacy as a matter of law. And as PHF itself points out, the Court is "not bound by the values argued by the parties or those fixed by the witnesses" and may "weigh the evidence and establish a value accordingly." (PHF Post-Trial Br. 13 (quoting Arlington Cty. Bd. v. Ginsberg, 228 Va. 633, 643, 325, S.E.2d, 348, 353 (1985)).)

Despite finding the 2011 FMV determined by Hartmann valid, the Court declines to adopt Hartmann's FMV as its own value. Although the Court found that Hartmann's methods complied with Virginia law, several of his assumptions—including those regarding PIP and reserve expenses, estimation of FF&E, and comparability of sales outside Norfolk—provide reason to doubt that Hartmann's FMVs are authoritative.

At the same time, the Court is mindful of its own lack of expertise in the field of appraisal and assessment. As the Virginia Supreme Court has stated, "Ascertainment of property values are matters of pure opinion and the courts must, within reasonable bounds, permit the exercise of that opinion, lest they be converted into boards of assessment thereby arrogating to themselves the function of the duly constituted tax authorities." Richmond, Fredericksburg and Potomac R.R. v. State Corp. Comm'n, 219 Va. 301, 313, 247 S.E.2d 408, 415 (1978). The Court consequently seeks to establish a FMV that is 1) clearly "based on the evidence" adduced at trial, Va. Code § 58.1-3987, and 2) consistent with Virginia law's paramount concern regarding uniform assessment. With these principles in mind, the Court finds it appropriate to replace the erroneous total expense figure used by the City in its 2011 valuation with the figure arrived at during trial by White. PHF purports—and White did not dispute the assertion—that this figure is the amount at which the City's assessor would have arrived had he incorporated the appropriate expense figures. Although this figure represents expenses from 2009 instead of 2011, the Court adopts this proxy figure because it is consistent with the City's methodology in assessing the Property in other years and, more importantly, is uniform with the City's methodology for assessing other properties in the same class.⁸

8 The City's use of two-year-old expense data, as well as its practice of not including PIP and reserve funds as expenses, is discussed in more detail infra.

By substituting the unexplained total expense number that the City originally used—$9,826,705—with the number White calculated at trial—$11,126,279—the revised NOI is $2,334,958. Dividing the revised NOI by 0.1029—the combined tax rate and cap rate⁹—results in a property value of $22,691,526. Deducting the FF&E value (taxed separately) of $3,938,038 yields a real estate taxable value of $18,753,488. Taxed at a rate of 1.27%, the Property should have been assessed a real estate tax of $238,169. The Court therefore finds that PHF is entitled to a refund of $160,395, the difference between the $398,564 in taxes PHF actually paid and the $238,169 at which the Property should have been assessed.

9 This is the figure used by both the City and Hartmann.

2. PHF failed to prove that the City committed manifest error in assessing the Property for tax years 2012-2014.

As discussed supra, PHF can prove that the City committed manifest error by demonstrating either that the taxing authority used an improper methodology to calculate an assessment—as the Court found with respect to the 2011 assessment—or that there is a significant disparity between the assessed value and the FMV that falls outside the range of a reasonable difference of opinion.

a. PHF failed to prove that the City used an improper methodology to perform its assessments.

With respect to the City's methodology to determine its assessments, PHF contends that the City, among other things, improperly failed to consider the sales valuation approach, did not properly account for PIP and reserve funds, used two-year old financial data, and failed to conduct inspections of the Property. As discussed supra, the Court finds that the City properly considered and rejected the comparable sales approach and that the City's uniform exclusion of PIP and reserve funds as property expenses was not improper.

The Court is satisfied that the City's uniform use of two-year-old financial data when calculating assessments is appropriate. Given the assessor's February deadline for producing an assessment that is sent out in July of the same year—and the inability of hotels to produce P&Ls for the prior year by February—it simply is not feasible for the City to use more recent data. This Court's reasoning in IPROC Norfolk, L.L.C. v. City of Norfolk, upholding an assessment using two-year-old data, is persuasive on this point. See 86 Va. Cir. 435, 439 (Norfolk 2013).¹⁰

10 In fact, this Court in IPROC pointed out that cities in the Commonwealth actually are permitted to conduct general assessments as infrequently as every five years. IPROC Norfolk, L.L.C. v. City of Norfolk, 86 Va. Cir. 435, 439 (Norfolk 2013).

The Court also finds that the City is not required to physically inspect properties being assessed. Conducting physical inspections and incorporating resultant information into assessments undoubtedly is an acceptable practice; it may even be superior to not conducting inspections. The Virginia Supreme Court has specifically recognized that property inspections are not required as part of the assessment process, however. See Perkins v. Albemarle Cty., 214 Va. 416, 418, 200 S.E.2d 566, 568 (1973) (holding that a prior version of the assessment statute did not require that "all parcels within the city or county be visually inspected once each year" and that "the General Assembly was aware, physically and fiscally such a requirement would impose an unreasonable, if not impossible, burden upon both the taxing authority and the taxpayer"). Additionally, as noted infra, the varying condition of hotels over time is reflected in hotel revenue and expenditures.

The Court therefore finds that PHF failed to prove that the City used an improper methodology to develop its assessments of the Property for tax years 2012-2014.

b. PHF failed to prove that there is a significant disparity between the Property's assessed values and FMVs that falls outside the range of a reasonable difference of opinion.

Even without demonstrating that the taxing authority committed a methodological error in assessing the Property, PHF can prevail on the theory of manifest error by "proving a significant disparity between fair market value and assessed value." W. Creek Assocs., LLC v. Cty. of Goochland, 276 Va. 393, 417, 665 S.E.2d 834, 847 (2008). The Virginia Supreme Court has made clear, however, that the taxing authority's assessment will not be set aside on this basis "so long as the assessment comes within the range of a reasonable difference of opinion . . . when considered in light of the presumption in its favor." Id. at 414, 665 S.E.2d at 845 (quoting City of Norfolk v. Snyder, 161 Va. 288, 293, 170 S.E. 721, 723 (1933)).

Having already found the 2011 assessment erroneous due to a methodological error, the Court examines only the disparities between the FMVs established by PHF and the City's assessments for the 2012, 2013, and 2014 tax years. The City's assessment exceeds PHF's established FMV by $15,369,700—or 92%—for 2012; $13,224,200—or 99%—for 2013; and $22,083,000—or 158%—for 2014. (See Pl.'s Ex. 33.) These disparities certainly are substantial; the relevant inquiry, however, is whether the disparities reflect a "reasonable difference of opinion." The Court ultimately finds that they do.

An examination of Virginia case law reveals that there is no threshold amount or percentage that establishes a per se disparity sufficient to set aside a taxing authority's assessment. In fact, it was not until 2008, in West Creek Associates, LLC v. County of Goochland, that the Virginia Supreme Court expressly held that a disparity between FMV and assessed value—without a showing of methodological error—can evidence manifest error. 276 Va. at 417, 665 S.E.2d at 847. Since West Creek, it does not appear that any Virginia court has found an assessment invalid based solely on the significant disparity between the FMV and assessed value. Notably, the court made clear in West Creek that "significant disparity" is not a new doctrine; rather, it held that it was merely affixing a label to a principle long applied by courts. See id. at 413, 665 S.E.2d at 845. Pre-West Creek cases therefore are instructive regarding the inquiry at hand.

In City of Harrisonburg v. Taubman, the Virginia Supreme Court affirmed the trial court's judgment for the taxpayer where the assessed value exceeded FMV by 265%. 212 Va. 28, 30, 181 S.E.2d 654, 656 (1971). The court found that the trial court had sufficient evidence to fix FMV at the sale price for the very property in question, but it did not comment on the import of the magnitude of the disparity between the FMV and the assessed value.¹¹ Id. at 30. The clear evidence regarding the property's FMV appeared to be at least as important as the size of the disparity between the FMV and the assessed value.

11 Although the record is not entirely clear, based on the modern proof rubric, the City of Harrisonburg apparently disregarded the controlling evidence of the sale.

In First & Merchants National Bank v. County of Amherst, the Virginia Supreme Court invalidated an assessment where the assessed value exceeded the FMV by 920%. 204 Va. 584, 132 S.E.2d 721 (1963). As in Taubman, however, the court did not comment on the magnitude of the disparity in finding erroneous the county's assessments of two dams owned by the taxpayer. The court instead found fault with the county's use of depreciated reproduction costs as the standard of assessment of one dam and inclusion of nine acres not owned by the taxpayer in the assessment of the other dam. Id. at 588, 132 S.E.2d at 724.

By contrast, in City of Norfolk v. Snyder, the Virginia Supreme Court upheld an assessment that exceeded the taxpayer's proposed FMV by 220%. 161 Va. 288, 170 S.E.721 (1931). The court's ruling was not due to the valuation disparity being "[in]sufficient to justify a change," as the City contends. (Resp't's Post-Trial Br. 28.) The court instead suggested that it would not disturb a taxing authority's assessment without proof that the city committed manifest error or disregarded controlling evidence—a proposition modified somewhat by the court's subsequent ruling in West Creek.

In each of these cases, the court's holding was based at least in part on a qualitative judgment regarding the competing valuations of the property at issue. In other words, courts do not automatically side with the taxpayer when a significant disparity exists between the FMV and the assessed value. See Saul Holdings, L.P. v. Fairfax Cty. Bd. of Supervisors, 43 Va. Cir. 193, 197 (Fairfax Cty. 1997) ("It has long been held that a mere disagreement between appraisers is not sufficient to warrant a finding that the assessment is manifestly in error.").¹² Instead, even where the disparity is large, Virginia courts side with taxpayers only when they find another valuation plainly more credible than that of the taxing authority. See, e.g., Washington Cty. Nat'l Bank v. Washington Cty., 176 Va. 216, 10 S.E.2d 515 (1940) (finding an assessment erroneous where a sale—and even the city's witnesses—strongly indicated the assessment exceeded FMV); Fray v. Culpepper, 212 Va. 148, 183 S.E.2d 175 (1971) (finding error where the only evidence offered by the county demonstrated that the assessment was too high).

12 See supra note 4.

A case cited in West Creek demonstrates that the significant disparity method of proof may allow a taxpayer to prevail even where the taxing authority has not made an affirmative methodological error. In City of Martinsville v. Commonwealth Boulevard Associates, LLC, the Virginia Supreme Court found erroneous an interim tax assessment that was based on a biennial general assessment. 268 Va. 697, 604 S.E.2d 69 (2004). The court did not find error in either the city's general assessment or its practice of levying interim assessments based on that earlier valuation; however, because the property in question—subsequent to the previous general assessment—had been "essentially gutted" and sold for a fraction of its previous value, the court determined that the interim assessment was clearly in excess of its FMV. Id. at 699, 700, 604 S.E.2d at 70, 71.

Also instructive is a recent case from the Circuit Court of Fairfax County, in which the court discussed how the presence of complex, and perhaps conflicting, factors—such as are present here—affect a court's determination of whether competing valuations are "within reasonable bounds":

While these variables may not prevent formation of an opinion regarding the value of the property, they impact the size of the reasonable range of expert opinions regarding value. The logical conclusion is that the greater the uncertainty in variables that affect value, the broader the range of likely opinions. As a result, even if experts exercised sound judgment in identifying and weighing the variables, their ultimate conclusions could be vastly different.

Vienna Metro LLC v. Bd. of Supervisors, 86 Va. Cir. 421, 425 (Fairfax Cty. 2013).¹³

13 Id.

Collectively, these decisions suggest that a tax-assessment challenge based upon significant disparity should be evaluated by indexing the size of the disparity against both the complexities involved in reaching the valuations and the degree to which the court finds the competing valuations persuasive. The upshot of West Creek's designation of "significant disparity" as a distinct method of proving manifest error is that a court may find the property value associated with an otherwise constitutionally valid assessment nonetheless in excess of a property's FMV based on a qualitative judgment of the valuations presented. Furthermore, the court need not adopt either of the proposed valuations, as discussed supra.

The Court, then, is required to make a qualitative judgment about the two legally valid valuations presented to it for each year in question. To begin, the Court rejects PHF's argument that the City has not produced a FMV for the Property. The City's assessment is its estimate of FMV, as the Virginian Constitution demands. Va. Const. art. X, § 2. There is no need for a taxing authority to produce a new valuation at trial or even to introduce evidence regarding how it derived its assessment. W. Creek, 276 Va. at 409, 665 S.E.2d at 843 (quoting R. Cross, Inc. v. City of Newport News, 217 Va. 202, 207, 228 S.E.2d 113, 117 (1976)).

There is no doubt that the City's income-capitalization approach to valuation produces no more than a proxy for FMV; this methodology, however, has the virtues of being both commonly employed to make assessments and uniformly applied by the City to other hotels. And unlike the cases discussed above, there is no glaring fault with the City's valuations; a plausible argument therefore can be made that the City's assessed values actually represent the FMVs of the Property for the years in question.

Without rehashing the details of the appraisals Hartmann performed for PHF, the Court reiterates that although Hartmann's valuations are in accord with Virginia law, certain factors—such as the dubious inclusion of PIP and reserve funds and the equally questionable reliance on comparable sales from far-flung places—ultimately render his FMVs less than authoritative. The parties' robust debate about these and other thorny aspects of appraising the Property also suggests the wisdom of granting wide latitude in demarcating the boundaries of reasonable valuations.

Considering the vagaries and complexities inherent in hotel appraisals—and finding scant reason to prefer PHF's valuations over those of the City—the Court finds that, for each year in question, both valuations are within the range of a reasonable difference of opinion. See Snyder, 161 Va. at 292, 170 S.E. at 723 (holding that "[t]he value of property is a matter of opinion and there must necessarily be left a wide room for the exercise of opinion"). Given the presumption of correctness favoring the City, the Court finds that the assessments are not erroneous based on a significant disparity between the City's assessed values and PHF's FMVs. The Court therefore finds that PHF failed to prove that there is a significant disparity between the Property's assessed values and FMVs that falls outside the range of a reasonable difference of opinion.

3. PHF failed to prove that the City disregarded controlling evidence.

PHF alleges that the City disregarded several items of controlling evidence. The Court is unpersuaded by each of these allegations.

As an initial matter, there appears to be no Virginia case law explicating the phrase "controlling evidence." Virginia courts' application of the term, however, reflects a meaning that fuses the two ordinary definitions of "controlling" as used in legal contexts: "dispositive" and "exercis[ing] authority or influence over." Control, The Am. Heritage Dictionary of the English Language (4th ed. 2004); see also Vann v. Harden, 187 Va. 555, 568, 47 S.E.2d 314, 320 (1948) (discussing the "elementary principles controlling the case"); cf. Hale v. Bd. of Zoning Appeals for Town of Blacksburg, 277 Va. 250, 269, 673 S.E.2d 170, 179 (2009) ("[U]nder settled principles of statutory construction, we are bound by the plain meaning of the statutory language."). Because even information of the highest import is rarely "dispositive" in the realm of real estate valuation, and because Virginia law plainly allows for a wide range of appraisal methodologies—which rely on varying sets of data—the Court understands the test for identifying "controlling evidence" in the real estate valuation context as this: evidence is controlling if its non-inclusion would in all probability lead to an erroneous FMV.

Applying this standard to PHF's multiple contentions that the City disregarded controlling evidence, the Court finds that each argument fails. PHF alleges that the City ignored controlling evidence by not considering a comparable sales valuation, not using actual expense data, not considering letters of intent ("LOISs") regarding the potential sale of the Property, not including PIP and reserve funds as expenses when calculating assessments, and not inspecting the Property. (Pet'r's Post-Tr. Br. 9-11.) The Court addresses each allegation seriatim.

PHF's argument that the City's failure to employ the comparable sales approach constitutes a disregard of controlling evidence is misplaced. As discussed supra, whether the City properly considered and rejected this approach relates only to whether the City's assessment is entitled to a presumption of correctness.¹⁴ Having found that the City properly considered and rejected this approach, the Court need not entertain PHF's attempt to obtain the proverbial second bite of the apple.

14 One could in theory imagine the sale of a property (or properties) so similar to the property at issue as to render that comparable sale price a "controlling" piece of evidence. As no such argument is advanced here, however, the Court need not further explore this issue.

PHF alleges error based on the City's failure to use actual expense data, including the City's use of two-year-old financial data. As an initial matter, PHF's characterization of expense data as "controlling evidence" is suspect, given that two of Hartmann's three valuation approaches—DCF and comparable sales—rely little (DCF) or not at all (comparable sales) on actual data. Virginia case law has found myriad valuation methods acceptable for assessment purposes, and there is no reason to believe that actual expense data is an essential ingredient of a valid assessment. Moreover, White testified that the City did in fact use actual expense data each year PHF provided it. She stated that this data was taken from PHF's P&L, with certain items—such as amortization, debt service, real estate taxes, and depreciation—deducted from the total. For the 2012 assessment, where actual expense data was not used, White testified that the City used a pro forma value—based on actual past data—because PHF did not supply the actual data until well after the submission deadline. Regarding the use of two-year-old financial data, the Court addressed this issue supra, finding that it is not an improper methodology.

The Court likewise finds that the City was not required to consider the three LOIs that PHF received, each representing a potential offer to purchase the Property for a price substantially less than its assessed value. As an initial matter, no evidence was provided that PHF forwarded the LOIs to the City for consideration. The Court also questions the efficacy of using such offers to assess valuation. Significantly, PHF's election not to accept these bids suggests that it perceived the Property's value to be higher than the offers in the LOIs. Even assuming, arguendo, that considering the LOIs were valid, the Court rejects the argument that the City was required to consider them. It is ironic that PHF now argues that the values of these rejected offers have sufficient merit to be "controlling evidence." It also is ironic that PHF's own expert, Hartmann, elected not to use the LOIs in any of his three methodologies when appraising the Property. It bears recalling the definition of FMV as used by Virginia courts: the "sale price when offered for sale by one who desires, but is not obliged, to sell it, and is bought by one who is under no necessity of having it." Keswick Club, L.P. v. County of Albemarle, 273 Va. 128, 136, 639 S.E.2d 243, 247 (2007) (quoting Tuckahoe Woman's Club v. City of Richmond, 199 Va. 734, 737, 101 S.E.2d 571, 574 (1958)). This definition describes a sale price agreed to by two transacting parties, i.e., both an offer and an acceptance. The Court finds that an unaccepted offer simply cannot serve as a proxy for an actual sale price or for FMV. See Fruit Growers Express Co. v. City of Alexandria, 216 Va. 602, 609, 221 S.E.2d 157, 162 (1976) ("[F]air market value is not the theoretical price a particular purchaser might be willing to pay.").

PHF also claims that the City disregarded controlling evidence when it failed to incorporate required reserve funds and/or PIP costs into its calculation of the Property's assessed value. In finding that PHF established a valid FMV for the Property, discussed supra, the Court refused to hold that the inclusion of PIP and reserve funds as expenses—in only one of three valuation methods used by PHF's expert—rendered PHF's appraisal invalid. It is altogether different to assert, however, that such evidence is controlling.

IPROC specifically addressed the question of whether the City was required to include reserve funds in its assessments. Judge Poston explained that the percentage for required reserves varies from one hotel chain to another, with some hotels accumulating large balances of unspent funds over a period of years. IPROC Norfolk, L.L.C. v. City of Norfolk, 86 Va. Cir. 435, 441 (Norfolk 2013). He went on to explain, "the absence of a standard percentage to be deducted for the reserve, the failure of some hotels to spend the reserve funds, and the potential misuse of such an account" justified the City's non-inclusion of the replacement reserve. Id. He also noted, importantly, that because most hotels do not report reserve funds, the inclusion of reserves for the property at issue would "lead to a gross lack of uniformity." Id.

PHF presented convincing evidence—through the testimony of the Sheraton's property manager, Tim Peters, and PHF's expert appraiser, Hartmann—that prospective buyers would consider, and in fact did consider, the cost of a looming PIP in determining the price they would pay for the hotel. (Tr. 88, 296-97.) The City counters that PIP costs are captured in the year-to-year profits and expenditures of the hotel. Specifically, the underlying conditions of the hotel are in a constant state of flux—deteriorating over time, but improving when resources are directed toward improving them. The City essentially argues that these varying conditions impact the profits PHF earns over time, and the actual money spent on improving the property is reflected on the P&L. (Tr. 53, 55, 668, 675.) Moreover, Hartmann acknowledged that his direct capitalization approach—which excludes PIP—reflects this principle. (Tr. 476.) Whether PIP is separated out in the valuation process—or simply reflected in profits and expenses—the result ultimately is "sort of a wash," by Hartmann's own account. (Tr. 477, 769.) Given the conflicting evidence regarding how a prospective—yet uncertain—PIP impacts the value of a hotel, the Court finds apt the following dicta—albeit concerning another issue—from IPROC: "[The taxpayer's expert] may be correct that a potential buyer would examine [such] factors . . . . However, such an approach is not mandated by Virginia law and is impractical, if not impossible, for a taxing authority to employ." 86 Va. Cir. at 439.

In sum, with respect to the issue of whether to consider replacement reserve funds and PIP when calculating assessments, the Court notes that it need not determine the preferred approach. It is enough to say that these somewhat uncertain values are not controlling evidence—especially because uniformity is paramount. The City therefore was not required to consider them.

PHF argues that the actual condition of the hotel is controlling evidence and cites the City's failure to conduct a physical inspection during any of the tax years in question as evidence that the City disregarded such controlling evidence. As discussed supra, the Court finds that physical inspections of properties being assessed are not required. Perkins v. Albemarle Cty., 214 Va. 416, 418, 200 S.E.2d 566, 568 (1973). Further, the Court refuses to find that an acceptable practice is mandatory—i.e., that useful evidence necessarily is controlling evidence.

In summary, the Court finds that the City did not disregard controlling evidence with respect to comparable sales, expense data, required reserve funds, the cost of PIP, consideration of LOIs, or the actual condition of the hotel. Although PHF's arguments regarding the advisability of including certain data in appraising the Property's value may have some merit, the Court finds that PHF has failed to carry its burden of proving that the City disregarded controlling evidence necessary to arrive at valid assessments.

D. PHF Failed to Prove that the City Performed Its Assessments of the Property Nonuniformly with Similar Properties.

The Virginia Constitution and Section 58.1-3984 of the Code of Virginia require that taxing authorities perform their assessments in a uniform manner. PHF, advancing a novel argument, avers that the City's assessments are not uniform because the City used "real revenues but projected expenses." (Tr. 29 (emphasis added).) PHF argues, in other words, that by demonstrating an internal nonuniformity when calculating assessments—and despite consistently applying it to all assessments—PHF satisfies its burden of proving that the Property assessments are erroneous. Even assuming, arguendo, that the City did use projected expense data, discussed infra, the Court rejects PHF's argument.

There is no apparent basis in Virginia law for PHF's argument, and PHF's interpretation defies ordinary statutory interpretation. Section 58.1-3984's provision regarding "assessment[s] . . . not uniform in [their] application" is consistent with the Virginia Constitution's requirement that all taxes "shall be uniform upon the same class of subjects." Va. Const. art X. § 1 (emphasis added). The statutory language appears to simply apply the constitutional requirement of uniform assessment methods amongst properties in a given class to the realm of real estate taxes.

This commonsense interpretation is supported by the fact that Virginia courts have discussed uniformity of assessment only in terms of applying equitable valuation methods when comparing "similar properties throughout the [locality]." Bd. of Supervisors v. Leasco Realty, Inc., 221 Va. 158, 167, 267 S.E.2d 608, 613 (1980); see also FFW Enters. v. Fairfax Cty., 79 Va. Cir. 86, 89 (Fairfax Cty. 2009) ("The uniformity requirement mandates uniformity only within a particular class of taxable subjects.");¹⁵ cf. Perkins v. Albemarle Cty., 214 Va. 416, 418, 200 S.E.2d 566, 568 (1973) (describing the assessor's duty to assess different properties in a uniform manner). Finding no foundation to do so, the Court declines to adopt PHF's innovative and unprecedented "internal" nonuniformity theory.

15 See supra note 4.

The City introduced evidence at trial demonstrating that its assessments of the Property were performed in a uniform manner with those of properties in the same class. (Tr. 736.) In light of that evidence, and without PHF producing any evidence to the contrary, the City's assessments of the Property appear to satisfy the constitutional and statutory requirements regarding uniformity. The Court therefore finds that PHF failed to prove that the City performed its assessments of the Property nonuniformly with similar properties.

E. PHF Failed to Prove that the City's Assessments Did Not Comply with Generally Accepted Appraisal Practices.

The drafters of the Amended Statute created a new Part B to Section 58.1-3984 of the Code of Virginia, which applies exclusively to real property. The drafters included the FMV and nonuniformity language from the Prior Statute, but also added a new clause regarding GAAP. The new Part B reads, in pertinent part:

The burden of proof shall be on the taxpayer to rebut such presumption and show by a preponderance of the evidence that the property in question is valued at more than its fair market value or that the assessment is not uniform in its application, and that it was not arrived at in accordance with generally accepted appraisal practices, procedures, rules, and standards as prescribed by nationally recognized professional appraisal organizations such as the International Association of Assessing Officers (IAAO) and applicable Virginia law relating to valuation of property. Mistakes of fact, including computation, that affect the assessment shall be deemed not to be in accordance with generally accepted appraisal practice.

Va. Code § 58.1-3984(B) (2012 Repl. Vol.) (emphasis added).

The first sentence of Part B contains an unusual grammatical construction, the plain reading of which yields arguably surprising results. The use of the disjunctive 'or'—without a comma—between the phrases regarding fair market value and nonuniform application, followed by the conjunctive 'and'—which follows a comma—plainly indicates that the taxpayer is required to prove that the assessment "was not arrived at in accordance with generally accepted appraisal practices" in addition to proving either excessive assessed value or nonuniformity. In other words—and as the City asserts—added to each proof requirement is the further requirement that the taxpayer prove the assessor's nonconformity with GAAP.¹⁶ This is the same conclusion reached by the Augusta County Circuit Court in Staunton Mall Realty v. Board of Supervisors, No. 13002412-00, 2015 Va. Cir. LEXIS 202, at *19-20 (Augusta Cty. July 8, 2015), and in Hershey Chocolate of Virginia v. County of Augusta, No. 14002172-00, 2015 Va. Cir. LEXIS 205, at *12-13 (Augusta Cty. Aug. 21, 2015).¹⁷

16 One of the oddities resulting from this interpretation of the GAAP provision is the apparent requirement for a taxpayer to prove a GAAP violation in addition to proving a lack of uniformity. Yet nonuniformity alone renders an assessment violative of Article X, Section 1 of the Virginia Constitution. The best that can be said of the statute in this regard is that—given that the IAAO promotes uniform assessment—it is redundant.

17 See supra note 4.

PHF asserts that the new GAAP provision in the Amended Statute merely adds an additional avenue by which a taxpayer may prove—without more—an assessment erroneous. Significantly, PHF does not attempt to reconcile its position with the statute's grammatical construction, which clearly is at odds with its interpretation; nor does PHF provide any other support for its position. The Court therefore holds that the Amended Statute adds a significant hurdle—i.e., demonstrating a violation of GAAP—to the taxpayer's prima facie case of proving a tax assessment erroneous, regardless of the method of proof employed.

The Court also finds this new statutory requirement puzzling. The statute requires that IAAO provisions be followed, but as this Court pointed out in IPROC, the IAAO "regulations . . . are simply guidelines to assist an assessor as she evaluates a property." IPROC Norfolk, L.L.C. v. City of Norfolk, 86 Va. Cir. 435, 441 (Norfolk 2013). PHF avers that the IPROC language is outdated because the GAAP provision in the Amended Statute was not in effect when IPROC was decided. PHF fails to recognize the context of Judge Poston's words, however; he described the IAAO provisions as "guidelines" not because a Virginia statute characterized them in that way—as they were not mentioned at all in the statute—but rather because the IAAO itself brands them as such.¹⁸ The testimony of the City's expert on IAAO standards, Ivan Romenesko ("Romenesko"), elucidated this point at trial:

18 The IAAO provides as follows: "The recommendations made in this document should be considered for implementation as practical. However, not all recommendations apply in every instance and mass appraisal can be successfully implemented even if some recommendations are not implemented." IAAO, Guidance on International Mass Appraisal and Related Tax Policy 5 (2014), available at http://www.iaao.org/media/Standards/International_Guidance.pdf. "The IAAO standards are advisory in nature and the use of, or compliance with, these standards is purely voluntary. If any portion of these standards is found to be in conflict with the Uniform Standards of Professional Appraisal Practice (USPAP) or state laws, USPAP and state laws shall govern." IAAO, IAAO Technical Standards, available at http://www.iaao.org/wcm/ Resources/Publications_access/Technical_Standards/wcm/Resources_Content/Pubs/Technical_Standards.aspx?hkey=9c330567-135b-4adc-a772-00008232ab90.

The standards of IAAO and USPAP,¹⁹ first of all are national and international standards. They apply to appraisers from all over the globe in many respects: and so the standards cannot be fully applied in every instance and even parts of the standards aren't applicable at all. But within the IAAO and USPAP standards, there's allowance for what's called jurisdictional exception; and that allows each state, each city, town, each governmental agency to—I'll use the term—trump USPAP with respect to what's applicable; so the local laws, state laws, supersede requirements of the USPAP.

(Tr. 733.) White also testified that the IAAO provisions provide "guidelines" for conducting appraisals. (Tr. 676.)

19 USPAP, or Uniform Standards and Professional Appraisal Practices, promulgates standards for assessing real estate properties and is recognized by the IAAO. (Tr. 400, 719.)

19 USPAP, or Uniform Standards and Professional Appraisal Practices, promulgates standards for assessing real estate properties and is recognized by the IAAO. (Tr. 400, 719.)

It is difficult to divine exactly what the General Assembly had in mind when it drafted a provision that in all cases requires compliance with GAAP and, in so doing, cites organizational guidance that itself defers to local law—and whose standards are not always applicable.²⁰ The result is a nebulous statutory proof requirement that apparently can be satisfied either by (1) demonstrating a mistake in fact or miscalculation—a concrete standard that already constituted manifest error under the Prior Statute proof rubric—or perhaps by (2) demonstrating that a practice or omission is a particularly egregious breach of GAAP—by way of reference to the standards of an organization that promulgates guidelines that are only advisory in nature. The Court also cannot comprehend why the General Assembly would require the taxpayer to prove both nonuniformity and a GAAP violation to successfully challenge a real estate tax assessment.

20 Judge Ludwig of the Augusta County Circuit Court theorized that "the fact that the statute was amended after the decision in West Creek Associates lends credence to the proposition that the General Assembly was reacting to that decision" and that Paragraph B "(a) appears to be a direct response to the Court's recognition that its earlier decisions at least implied that any rebuttal of the presumption required evidence that the assessor used an improper methodology in setting the assessed value of real property, but (b) also appears to be in direct response to the Court's rejection (by negative implication) of that proposition by its assertion that it had not 'explicitly held that manifest error cannot be established simply by evidence showing that real property is assessed at more than its fair market value.'" Staunton Mall Realty v. Bd. of Supervisors, No. 13002412-00, 2015 Va. Cir. LEXIS 202, at *18-19 (Augusta Cty. July 8, 2015) (quoting W. Creek Assocs., LLC v. Cty. of Goochland, 276 Va. 393, 414, 665 S.E.2d 834, 845 (2008), superseded on other grounds by statute as stated in Staunton, 2015 Va. Cir. LEXIS 202, at *19-20 (Augusta Cty. July 8, 2015). According to Judge Ludwig: "The result of the 2011 amendment is that what the Court explicitly declined to require, the statute now does. The amendment makes it clear that, despite evidence presented by the taxpayer that the property is valued at more than its fair market value, the taxpayer now must also show that the valuation of the taxing authority was not in accordance with generally accepted practices." Id. at *19.

Regardless, given that the GAAP provision clearly adds another requirement to an already substantial taxpayer burden, the Amended Statute appears to dramatically tilt the current landscape of Virginia real estate assessment law further in favor of taxing authorities.

The Court has found that PHF failed to satisfy its burden of proving that the City's assessed values exceed FMVs due to the City committing manifest error or totally disregarding controlling evidence. The Court also has found that the City's assessed values have been calculated uniformly with similar properties. The Court therefore need not evaluate whether the City complied with GAAP, as that is an additional requirement of the Amended Statute. Nevertheless, because the Court apparently is one of the first courts to dissect the Amended Statute and, hence, may have erred in its interpretation, the Court elects to address PHF's specific allegations regarding the City's noncompliance with GAAP.

PHF argues that the City violated GAAP by failing to inspect the property during any of the years in question, ignoring comparable sales and offers to purchase the Property, and relying on inaccurate and outdated financial data. Based on the discussion of these issues supra, and having evaluated the conflicting expert testimony regarding the City's compliance with GAAP, the Court finds that PHF has not satisfied its burden of proving that the City failed to comply with GAAP.

PHF's expert, Hartmann, testified that "GAAP does suggest that a physical inspection is important and necessary for a credible valuation," and that "an inspection of the property should have taken place." (Tr. 403-04 (emphasis added).) On cross examination, he read the following passage from the IAAO document, Standards for Mass Appraisal: "Periodic field inspections can help ensure that property characteristics data are complete and accurate." (Tr. 525 (emphasis added).) Hartmann also confirmed that the next sentence of the document reads, "Assuming that most new construction activity is identified through building permits or other ongoing procedures, a physical review including an on-site verification of property should be conducted at least every four to six years." Id. He further confirmed that IAAO provides that, after an initial inspection has been completed—and where a locality has a system in place for tracking building permits—"jurisdictions may employ a set of digital imaging tools to supplement field re-inspections with a computer-assisted office review." Id. Asked whether he knew if the City had a system in place to track improvements in property, Hartmann admitted that he did not.²¹ Taken as a whole, the evidence does not establish what, if any, inviolable standard exists regarding physical inspection of assessed properties over a period of four years.²² The evidence adduced at trial also is inconclusive regarding whether the City used "digital imaging tools" to track changes in the property during the years in question.

21 White testified at trial that Norfolk does in fact have a building permit system, which was in effect during the years in question. (Tr. 593.)

22 Although the Virginia Supreme Court has held that property inspections are not required as part of the assessment process, Perkins v. Albemarle Cty., 214 Va. 416, 418, 200 S.E.2d 566, 568 (1973), that holding was under the Prior Statute, which did not include the GAAP requirement. --------

Hartmann also testified that GAAP requires the City to "give full consideration to the comparable sales approach." (Tr. 396.) Language in USPAP Standard 6—which Hartmann testified applies here—states that information regarding comparable sales should be analyzed "when necessary for credible . . . results." (Tr. 401.) Although Hartmann testified that there were "adequate sales available" to conduct a comparable sales approach, the Court finds that the disparity in size, quality, and geographical location among the properties he used—along with conflicting testimony from the City's witnesses, White and Romenesko—casts sufficient doubt on the value of such sales to defeat the claim that they are "necessary for credible . . . results." Regarding PHF's assertion that the City's non-consideration of LOIs constitutes noncompliance with GAAP, PHF provided no substantial proof of such requirement; regardless, as discussed supra, the Court finds that LOIs do not, by definition, serve as a reliable proxy for FMV.

Hartmann further testified that GAAP requires the use of accurate data. On cross examination, however, he testified that he was "not suggesting it's improper using the old data," and he stated, "I understand the City's perspective" regarding the use of two-year-old data. (Tr. 516.) Hartmann instead emphasized that he found fault with the City's failure to use correct expense data, which the Court has addressed supra. Further, Hartmann confirmed that he "[did]n't know specifically what the [C]ity may or may not have done to adjust the P&L number to get their expenses." (Tr. 518.)

Considering the above—and in light of Romenesko's testimony that he believed the City assessor's work met all applicable IAAO standards (Tr. 733)—the Court finds that PHF has not proved that the City's assessments failed to comply with GAAP.

Conclusion

The City's assessed values of the Property are entitled to a presumption of correctness. To successfully challenge these valuations, PHF first must establish a FMV for the Property for each year in question, which it did. With respect to the City's 2011 Property valuation, the Court finds that PHF successfully rebutted the presumption of correctness by proving the City committed manifest error in miscalculating the assessment, which resulted in a tax-assessed value that exceeded FMV. PHF therefore is entitled to a real estate tax refund of $160,395 for tax year 2011. With respect to the City's 2012, 2013, and 2014 Property valuations, the Court finds as follows: PHF failed to prove that the City's assessed values exceed the Property's FMVs due to the City either committing manifest error or disregarding controlling evidence; PHF failed to prove that the City performed its assessments in a nonuniform manner; and PHF failed to prove that the City's assessments were not arrived at in accordance with GAAP. PHF therefore did not successfully rebut the presumption of correctness of the City's assessments and is not entitled to a real estate tax refund for tax years 2012, 2013, or 2014.

The Court directs counsel for Petitioner to prepare and circulate an Order consistent with the ruling in this Opinion and submit it to the Court for entry within fourteen days.

Sincerely,

/s/

David W. Lannetti

Circuit Court Judge DWL/jmk