Login | November 15, 2018

Court orders Board of Tax Appeals to reexamine several property tax cases

DAN TREVAS
Supreme Court
Public Information Office

Published: October 31, 2018

The Ohio Supreme Court recently instructed the Ohio Board of Tax Appeals (BTA) to reconsider the 2014 tax value of a Cleveland area Red Lobster restaurant whose sales price was about $1.4 million more than the county’s appraisal. The restaurant argued the sale price is not an actual indicator of its value because it was part of the restaurant chain’s overall sale for $2.1 billion.

The Supreme Court decided the Red Lobster case and seven others today based on the precedent of two recent rulings. All the property tax disputes are being returned to the BTA for further proceedings and stem from the BTA’s interpretation of a 2012 change to R.C. 5713.03 made by the Ohio General Assembly. The revised law now requires taxing authorities to determine the value of the property as if there were no tenant committed to leasing the space and to not ascertain the value merely from the most recent arm’s-length sale price.

In all eight cases, the Court instructed the BTA to follow its June 2017 Terraza 8 LLC v. Franklin Cty. Bd. of Revision decision (See Board Must Reconsider Fitness Center’s Property Value), and its April 2018 Bronx Park S. III Lancaster, L.L.C. v. Fairfield Cty. Bd. of Revision, decision (See Did $5.61 Million Sale Price of Lancaster Property Reflect its True Value for Tax Purposes? for a preview of the case).

In the unanimous per curiam Red Lobster opinion, the Court ruled that the BTA must consider appraisal evidence, not only to question whether the sale price reflects the true value of the property, but also to provide “evidence of its value in its own right.”

Orange City School District Challenged Valuation

The Red Lobster is located in the village of Orange and was sold in 2014 by N and D Restaurants to Red Lobster Hospitality for about $2.93 million in August 2014. In December, Red Lobster Hospitality sold it to Spirit Master Funding IX LLC for about $3.44 million.

The Cuyahoga County auditor appraised the property for about $2 million for the 2014 tax year, and the Orange City School District Board of Education challenged the value before the county board of revision. The school district argued the value should have been higher based on the August $2.93 million sale.

Spirit Master countered with an appraisal by Richard G. Racek Jr., who testified that the Orange Village restaurant sale was part of Red Lobster’s overall chain sale. Racek noted that Red Lobster did not have a long-term lease on the property at the time of the August sale, but a 20-year lease took effect by the December sale. The potential long-term lease increased the property’s value, but based on the changes to R.C. 5713.03, the property was to be valued as if there was no lease. He valued the location at about $1.54 million.

The board of revision adopted the $2.93 million value, and Spirit Master appealed to the BTA. The BTA maintained the board of revision’s value, and Spirit Master appealed to the Ohio Supreme Court.

Court Discounts Distinction

The school district argued to the Supreme Court that unlike the property in Terraza or Bronx Park, the Red Lobster property was not bound by the long-term lease at the time of the sale that was used to set the tax value.

The Court’s opinion stated the school district reads the Terraza decision “too narrowly,” and that the BTA must consider any other evidence of the property’s value along with a recent arm’s-length sale, regardless of whether the property is under lease at the time.

Other Cases Decided

Along with remanding the case to the BTA, the Court unanimously remanded the following based on this recent decision along with Terraza and Bronx Park:

• 2016-1328: Store Master Funding VI, L.L.C. v. Franklin Cty. Bd. of Revision

• 2017-1345: Icon Owner Pool 3 Midwest/Southeast, L.L.C. v. Franklin Cty. Bd. of Revision

• 2017-1346: Icon Owner Pool 3 Midwest/Southeast, L.L.C. v. Franklin Cty. Bd. of Revision

• 2017-0064: MK Menlo Property Owner, L.L.C. v. Summit Cty. Bd. of Revision

• 2017-0072: Menlo Realty Income Properties 28, L.L.C. v. Franklin Cty. Bd. of Revision

• 2017-0043: Northland-4, L.L.C. v. Franklin Cty. Bd. of Revision

In Beavercreek Towne Station, L.L.C. v. Greene Cty. Bd. of Revision¸ the Court remanded the case based on Spirit Master, Terraza, and Bronx Park, as well as for other reasons.

Chief Justice Maureen O’Connor and justices Terrence O’Donnell, Sharon L. Kennedy, Judith L. French, R. Patrick DeWine, and Mary DeGenaro joined the Beavercreek Towne Station opinion. Justice Patrick F. Fischer concurred in judgment only.

The case is cited 2016-1423. Spirit Master Funding IX, LLC v. Cuyahoga Cty. Bd. of Revision, Slip Opinion No. 2018-Ohio-4302.


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