The Expert Witness – Tax Assessment Appeals

One thing about serving as an expert witness is that you always learn something new.  Sometimes it’s as simple as how you say something and other times it’s more complex like understanding the differences between jurisdictions.

Having provided litigation support services in numerous state and federal courts, I’ve observed that tax assessment cases on golf properties vary from state to state.

For instance, in New York, golf course and club properties, according to case law call for the use of a valuation methodology known as the market rent approach, whereby a rental rate for the property is estimated and converted into a value indication by capitalization.  Of particular interest with this method is that in application, in New York, rental estimates are developed from “comparable” leases of daily-fee and municipal facilities – even when the property in question is a private club.  Conversely, in neighboring New Jersey, case law (Bear Brook) suggests the use of the cost approach as primary, at least for non-profit clubs.

There are states where a discounted cash flow analysis is precluded from use and others where any type of income approach is either precluded or at least not considered reliable.  Like New Jersey, there are states where case law indicates a focus on the cost approach despite that approach typically not being representative of marketplace behavior for golf properties.

Another unique characteristic in New York is that a property’s value for tax assessment purposes is based on its continued present use, whereas in most other states, the property is valued based on highest and best use.  Thus, in most states, if zoning allows and there are no covenants and restrictions against alternative development, if an alternative use is financially feasible the highest and best use may be for alternative development.

It is incumbent on the appraiser who may serve as an expert witness to identify and understand the impact of these jurisdictional differences and how they may affect the valuation approach.

The best resources for learning about jurisdictional characteristics are experienced attorneys and some research to read relevant case law.  Often, a review of relevant case law can inform the appraiser on how the judiciary in a specific jurisdiction perceives the valuation issues and help prepare the appraiser for the presentation of the appraisal, as well as potential questions that may arise, especially on cross-examination.

With golf course properties, it is critical to understand the different market segments and avoid comparing golf facilities that don’t compete with each other.  For instance, even though they are both golf properties, the affordable daily-fee course typically has no relevance to the upscale private club.  This is particularly important in a courtroom setting in order to demonstrate the expert’s familiarity with the relevant market dynamics.  It also often serves to distinguish the true expert/specialist from the witness that may not be focused on golf properties.

I will be participating in a seminar on December 19th, 2017 for those in the Northeast and Mid-Atlantic regions in New Jersey that may be of interest.  More information can be found at the following link:  Golf & The Law