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County of Webster v. Nebraska Tax Equalization and Review Commission

Supreme Court of Nebraska

May 26, 2017

County of Webster, appellant,
Nebraska Tax Equalization and Review Commission, appellee.

         1. Taxation: Judgments: Appeal and Error. By statute, an appellate court reviews an order from the Tax Equalization and Review Commission that is defined as a "final decision" under Neb. Rev. Stat. § 77-5019(5) (Cum. Supp. 2016) for error on the record.

         2. Judgments: Appeal and Error. When reviewing a judgment for errors appearing on the record, an appellate court's inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.

         3. Administrative Law: Words and Phrases. An administrative agency's decision is arbitrary when it is made in disregard of the facts or circumstances without some basis which would lead a reasonable person to the same conclusion.

         4. Administrative Law. Agency action taken in disregard of the agency's own substantive rules is also arbitrary and capricious.

         5. Taxation: Appeal and Error. Questions of law arising during appellate review of Tax Equalization and Review Commission decisions are reviewed de novo on the record.

         6. Administrative Law: Judgments. Whether an agency decision conforms to the law is by definition a question of law.

         7. Statutes. Statutory interpretation presents a question of law.

         8. Statutes: Legislature: Intent. A court gives statutory language its plain and ordinary meaning and will not look beyond the statute to determine the legislative intent when the words are plain, direct, and unambiguous.

         9. __: __: __ . Components of a series or collection of statutes pertaining to a certain subject matter are in pari materia and should be conjunctively considered and construed to determine the intent of [296 Neb. 752] the Legislature, so that different provisions are consistent, harmonious, and sensible.

         10. Taxation. The procedures for a hearing to show cause why an adjustment should not be made to a county's valuation of a class or subclass of real property are not governed by Neb. Rev. Stat. § 77-5016(4) (Cum. Supp. 2016).

         11. . Neb. Rev. Stat. § 77-5027(3) (Cum. Supp. 2016) does not require the Property Tax Administrator to set out every property sale that the assessment division has included in its statistical analyses.

         12. Taxation: Evidence. The Property Tax Administrator's annual narrative and statistical reports are sufficient competent evidence to support the Tax Equalization and Review Commission's equalization orders without including the sales file information for each real property transaction.

         13. __:__. If necessary to determine the level of value and quality of assessment in a county, the Property Tax Administrator may use sales of comparable real property in market areas similar to the county or area in question or from another county as indicators of the level of value and the quality of assessment in a county.

         14. Taxation: Words and Phrases. A comparable real property is one that is similar to the property being assessed in significant physical, functional, and location characteristics and in its contribution to value.

         15. Taxation: Evidence. Because the Property Tax Administrator's reports are sufficient competent evidence to support a change in valuation, Neb. Rev. Stat. § 77-5026 (Reissue 2009) requires a county to demonstrate that the Tax Equalization and Review Commission should not rely on the reports.

         16. Public Officers and Employees: Presumptions. Absent contrary evidence, public officers are presumed to faithfully perform their official duties.

         Appeal from the Tax Equalization and Review Commission. Affirmed.

          Sara J. Bockstadter, Webster County Attorney, for appellant.

          Douglas J. Peterson, Attorney General, and L. Jay Bartel for appellee.

          Heavican, C.J., Wright, Miller-Lerman, Cassel, Stacy, Kelch, and Funke, JJ.

          [296 Neb. 753] FUNKE, J.


         Webster County appeals from a May 2016 order adjusting value issued by the Tax Equalization and Review Commission (TERC) which increased the "Majority Land Use Grass" subclass of the agricultural and horticultural land class of real property not receiving special value within Webster County in the amount of 6 percent. Webster County timely appealed. We affirm.


         Before discussing TERC's order, we explain the reporting requirements and equalization procedures that are relevant to the parties' dispute.

         Reporting and Compiling of Real Property Transactions

         Every person who records a transfer of real property with a county register of deeds must file a real estate transfer statement prescribed by the Tax Commissioner.[1] The record shows that the transfer statement contains the type of transfer that was made and the type of property that was transferred. The register of deeds forwards the transfer statement to the county assessor, who processes it according to rules promulgated by Nebraska's Property Tax Administrator (Administrator) and sends the statement to the Tax Commissioner.[2] The Administrator is the chief administrative officer of the Department of Revenue's property assessment division.[3]

         The record also shows that county assessors must use the transfer statements to provide the following information to the assessment division within 45 days of a recorded transfer: a nine-digit code that identifies the parcel of property, a sales [296 Neb. 754] number that the county assigns to the transaction, and a code that indicates whether the assessor has qualified the transfer as an arm's-length transaction, with or without adjustments to the sales price. The Administrator uses the transfer statement information to maintain a "sales file" of all arm's-length real property transactions in the state.[4]

         By statute, to overturn a county assessor's determination about a sale's qualification as an arm's-length transaction, the assessment division must review the sale and determine that the assessor is incorrect.[5] By regulation, if an assessor fails to provide any reason to adjust a sales price or disqualify a sale, the assessment division can include the sale in the sales file without adjustment.[6] If the assessor provides a reason for an adjustment or disqualification that complies with accepted mass appraisal techniques, the property assessment division cannot include or exclude the property until it verifies the sale and determines that it does not agree with the assessor.[7] When the assessment division disagrees with the assessor, it must notify the assessor within 7 days that it will include or exclude a property sale from the sales file.[8] The assessor then has 30 days to file a protest with the Tax Commissioner.[9]

         The Administrator is required to make the sales file available to county assessors, as well as the data used to develop and maintain the sales file.[10] Twice a year, the assessment division provides county assessors with rosters that show real property transactions by county and by class and subclass [296 Neb. 755] of property.[11] An assessor can request additional rosters and additional information.[12] Upon request, the assessment division must also provide the sales file database to TERC, county boards of equalization, and county assessors for use in the assessment and equalization of property valuations.[13]

         After an assessor receives a sales file roster, he or she can protest the assessment division's inclusion, exclusion, adjustment to a sale, or failure to adjust a property sale.[14] An assessor must file the protest within 30 days of receiving the roster and is entitled to a hearing before the Tax Commissioner.[15] The burden of proving that a sales roster should be altered is on the assessor.[16]

         Tax Assessment Reporting Requirements

         Nebraska's property tax equalization laws require all county assessors to annually prepare and file "an abstract of the property assessment rolls of locally assessed real property" on forms prescribed by the Tax Commissioner.[17] The assessor must file the abstract with the Administrator, [18] and the form must include the county's assessed tax valuations for real property, by class and subclass.[19] Agricultural and horticultural land is a class that includes several subclasses, including irrigated cropland, dryland cropland, grassland, and wasteland.[20]

         [296 Neb. 756] The Administrator files annual reports regarding these abstracts with TERC. The reports contain the assessment division's statistical analyses and the Administrator's opinion on the level of value and quality of assessment for each type of real property, by class and subclass, in each county.[21] For agricultural and horticultural land, the study period of each county's sales data is 3 years.[22] The assessment division performs assessment ratio studies, based on the sales file, of a county's average level of assessment, the degree of assessment uniformity, and the overall compliance with assessment requirements for each major class.[23] The Administrator can require tax assessors and other taxing authorities to report an assessed value and other features of property assessment.[24]

         Statutory Equalization Procedures

         After receiving the Administrator's reports, TERC must annually equalize the value or special value of assessed real property as submitted by the county assessors.[25] For the purpose of assessing property taxes, nonexempt agricultural and horticultural land, "as defined in section 77-1359, " is valued at 75 percent of its actual value.[26]

Actual value of real property for purposes of taxation means the market value of real property in the ordinary course of trade. . . . Actual value is the most probable price . . . that a property will bring if exposed for sale in the open market, or in an arm's length transaction, between a willing buyer and willing seller, both of whom are knowledgeable concerning all the uses to which the [296 Neb. 757] real property is adapted and for which the real property is capable of being used.[27]

         But under Neb. Rev. Stat. § 77-5023(1) (Reissue 2009), TERC can adjust the "value of a class or subclass of real property" in any county "so that all classes or subclasses of real property in all counties fall within an acceptable range." "An acceptable range is the percentage of variation from a standard for valuation as measured by an established indicator of central tendency of 'assessment., "[28] TERC's regulations provide that "[i]ndicators of central tendency include the mean, median, and mode."[29]

         TERC's final equalization order states that it uses an "assessment/sales ratio" to measure and evaluate the level and uniformity of assessed values and that the level of value for any class or subclass is indicated by the median ratio. Under regulations promulgated by TERC and the assessment division, an assessment/sales ratio is determined by dividing a property's assessed value by its selling price.[30] For example, a property that has a tax assessment value of $59, 500 and sold for $85, 000 is assessed at 70 percent of its selling price. The real property transactions that are analyzed for a class or subclass are collectively referred to as a "sample."[31]The assessment division's preferred measure of central tendency in a sample is the median (middle) ratio or average of the two median ratios, which ratio is also referred to as the "level of value" for a class or subclass.[32] The division defines "level of value" to mean the "most probable overall opinion of the relationship of assessed value to actual value [296 Neb. 758] for a political subdivision."[33] But "[i]f the sample of sales is not representative of the properties in the county or market area, the Division may expand its analysis to include sales in adjoining counties that share similar market and geographic characteristics."[34]

         In sum, these regulations show that the "level of value" for a class or subclass operates as the "established indicator of central tendency of assessment."[35] The level of value for agricultural and horticultural land must reflect that the county valuates such property at 69 to 75 percent of actual value to fall within the acceptable range of variation.[36]

         If TERC makes an initial determination that the level of value for a class or subclass does not fall within the acceptable range, then it must issue a notice to the county and set a date for a hearing.[37] "At the hearing the county assessor or other legal representatives of the county may appear and show cause why the value of a class or subclass of real property of the county should not be adjusted."[38] Under § 77-5023(3), any increase or decrease that TERC makes to a class or subclass must adjust its level of value to the midpoint of the acceptable range of variation. Under another subsection of that statute, any increase or decrease in property values that TERC makes to a subclass must result in the level of value for the entire class falling within the acceptable range of variation.[39]

         With these simplified statistical methods and procedural requirements set out, we turn to the facts of this case.

         [296 Neb. 759] Administrator's Reports for Webster County

         After the Webster County assessor filed her assessment abstracts with the Administrator, the Administrator filed with TERC the assessment division's reports and her certified opinion that the assessed valuations for the subclass of grassland should be adjusted upward in Webster County by 9 percent. The report stated that in analyzing Webster County's agricultural assessments, the assessment division considered real property in the surrounding counties of Adams, Clay, Nuckolls, Kearney, and Franklin to be comparable. The report stated that because the sales of agricultural property within Webster County were inadequate to produce a reliable analysis, sales from these surrounding counties were also included in the sample.[40] Additionally, the assessment division included three Webster County grassland transactions in the sample that had sold as grassland but were later disqualified by the assessor.

         The report concluded that "[w]ithin the statistical analysis, the 80% majority land use for each class contains a sufficient number of sales." It noted that grassland values in the region, like those in most of the state, had increased in recent years. But it concluded that Webster County's values for grassland were not equalized with the surrounding counties and that the level of value for grassland was below the acceptable range of variation and did not meet generally accepted mass appraisal practices. The administrator recommended a 9-percent upward adjustment to bring the level of value for the grassland subclass up to 72 percent and "result in an overall level of value for agricultural land of 69%."

         Show Cause Order

         After receiving the Administrator's recommendation, TERC issued an order for Webster County to show cause why the [296 Neb. 760] proposed upward adjustment should not be made. The order set out the Administrator's conclusions that the level of value for grassland "by the median for the strata Majority Land Use > 80% Grass ... is 66.07% of actual or fair market value.'' The order stated that the level of value for ...

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