IN THE COURT OF APPEALS OF NORTH CAROLINA
2021-NCCOA-138
No. COA20-300
Filed 20 April 2021
North Carolina Property Tax Commission, No. 17 PTC 0246
IN THE MATTER OF THE APPEAL OF UNIFI MANUFACTURING INC., Appellee.
Appeal by Yadkin County from the Final Decision of the North Carolina
Property Tax Commission entered 21 November 2019 by Chairman Robert C. Hunter
at the North Carolina Property Tax Commission. Heard in the Court of Appeals 26
January 2021.
J. Clark Fischer, Attorney for Appellant Yadkin County.
Collier R. Marsh, Attorney for the Appellee.
GORE, Judge. ¶1 Yadkin County (“the County”) appeals from the final Decision of the North
Carolina Property Tax Commission (“the Commission”) reversing the County’s 2017
ad valorem property tax valuation of Unifi Manufacturing, Inc.’s (“taxpayer”) textile
manufacturing facility.
I. Background
¶2 This case arises from the County’s 2017 ad valorem tax assessment of the
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2021-NCCOA-138
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taxpayer’s textile manufacturing facility. In disagreement with the County’s
assessment, taxpayer filed a Notice of Appeal and Application for Hearing with the
North Carolina Property Tax Commission. The Commission heard the appeal on its
merits at a hearing on 1 October 2019. ¶3 The taxpayer’s evidence before the Commission included the following. M.
Scott Smith, an expert in real property appraisal, testified that he conducted the
valuation of the property using three approaches to value (cost, sales comparison, and
income) and reconciled all three approaches to arrive at his opinion of value of
$16,060,000 (the same value as produced by the sales comparison approach) and that
the net value of the property was $14.75 per square foot. Mr. Smith testified that the
best use of the property would be continued industrial use and that the property
suffered from significant obsolescence, in part because a substantial square footage
of the property was a tower (the “F1 tower”) custom built to house older technology
that is no longer in use. ¶4 Douglas M. Faris, an expert in real estate brokerage, testified that in his
opinion the subject property would be a challenge to resell because the property would
be difficult to adapt to an alternate use; due to factors such as the F1 tower being
“useless” in a different manufacturing operation and the property being much larger
than most manufacturing operations require. Mr. Faris testified that the layout and
other characteristics of the facility made it inappropriate for alternative uses, such
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2021-NCCOA-138
Opinion of the Court
as warehouse or office space. In Mr. Faris’s opinion a valuation of $14-$15 per square
foot would be appropriate. ¶5 Sohan Mangaldas, an expert in textile global markets, testified that there has
been a decline in U.S. based production of the polyester yarn produced at the facility
and that there would be “no demand to purchase” the subject property for the purpose
of continuing its current operation. ¶6 The County’s evidence included testimony from Ronald S. McCarthy, an expert
in ad valorem appraisal of industrial property, who conducted the appraisal of
taxpayer’s property. Mr. McCarthy testified that, in his opinion, the cost approach
and the sales comparison approach would be most appropriate for valuation of the
subject property. Mr. McCarthy further testified that he only relied on the cost
approach; he had not prepared a sales comparison approach or an income approach
in developing his appraisal of the subject property. Mr. McCarthy’s report listed
various features for the property and discussed how each feature contributed to the
County’s total value of $27,450,241. To support its valuation the County offered five
sales as comparable to the subject property; the average sales price for these
properties was $31.04 per square foot. Mr. Faris, one of the taxpayer’s witnesses,
testified that he was personally involved in each sale offered by the County, and that
none of the properties was comparable to the subject property. ¶7 The Commission found that, of the three valuation approaches recognized in
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Opinion of the Court
North Carolina, the income approach is the least relevant here because the subject
property is not income-producing. Additionally, the Commission concluded the cost
approach is more challenging to develop accurately, and thus, should only be used as
a test of reasonableness for a value developed by one of the other methods. The
Commission found that the sales comparison approach is the most likely to produce
a true value for the subject property. ¶8 The Commission recognized that a county’s ad valorem tax assessment is
presumptively correct. However, the Commission found that the taxpayer rebutted
the presumption by offering competent, material, and substantial evidence that the
County used an illegal appraisal method, and that the County’s assessment of the
subject property substantially exceeded its true value. Further, the Commission
found that the County was not able to demonstrate that its method in appraising the
subject property produced true value because it did not sufficiently explain how any
of the three approaches to value supported the County’s tax value. As a result, the
Commission ordered that the 2017 tax value of the subject property be changed to
$16,060,000.
II. Discussion
¶9 The County challenges the Commission’s Final Decision asserting that the
Commission failed to properly apply the presumption of correctness and that the
whole record does not support the conclusion that the County’s assessment of the
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property was illegal. For the reasons discussed below, we disagree.
A. Standard of Review
¶ 10 On appeal a decision of the Property Tax Commission is reviewed under the
“whole record” test. In re McElwee, 304 N.C. 68, 87, 283 S.E.2d 115, 127 (1981). “The
Court must decide all relevant questions of law de novo, and review the findings,
conclusions and decision to determine if they are affected by error or are unsupported
‘by competent, material and substantial evidence in view of the entire record.’” In re
Appeal of Parsons, 123 N.C. App. 32, 38–39, 472 S.E.2d 182, 187 (1996) (quoting In
re Appeal of Perry-Griffin Foundation, 108 N.C. App. 383, 393, 424 S.E.2d 212, 218
(1993)). “The ‘whole record’ test is not a tool of judicial intrusion; instead, it merely
gives a reviewing court the capability to determine whether an administrative
decision has a rational basis in the evidence.” McElwee at 87, 283 S.E.2d at 127
(quoting In re Rogers, 297 N.C. 48, 253 S.E.2d 912 (1979)).
B. Presumption of Correctness
¶ 11 “[A]d valorem tax assessments are presumed to be correct.” In re AMP, Inc.,
287 N.C. 547, 562, 215 S.E.2d 752, 761 (1975). This presumption is rebuttable. Id. at
563, 215 S.E.2d at 762. To rebut the presumption the taxpayer “must produce
‘competent, material and substantial’ evidence tend[ing] to show that: (1) Either the
county tax supervisor used an [a]rbitrary method of valuation; or (2) the county tax
supervisor used an [i]llegal method of valuation; AND (3) the assessment
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[s]ubstantially exceeded the true value in money of the property.” Id. (emphasis
added) (internal citations omitted). ¶ 12 “A property valuation methodology is arbitrary and illegal if it fails to produce
‘true value’ as defined in N.C. Gen. Stat. § 105-283.” In re Matter of Appeal of Harris
Teeter, LLC, __ N.C. App. __, 845 S.E.2d 131, 139 (2020) (citation omitted). ¶ 13 “Once the taxpayer rebuts the initial presumption, the burden shifts back to
the County which must then demonstrate that its methods produce true values.” In
re Parkdale Mills, 225 N.C. App. 713, 717, 741 S.E.2d 416, 420 (2013). ¶ 14 Here, the County argues that the Commission erred because its “findings of
fact are insufficient to support its conclusions of law that Yadkin County illegally
valued the [property] in a manner that resulted in a substantially inflated value.”
This assertion is incorrect. The Commission found that the taxpayer “rebutted the
presumption of correctness of the assessment of the subject property by the County
when the [taxpayer] offered competent, material, and substantial evidence that the
County used an illegal appraisal method, and that the County’s assessment of the
subject property substantially exceeded its true value.” Once the taxpayer rebutted
the presumption, the burden then shifted to the County to prove that its methods
demonstrated the true value of the property. The Commission found that the County
failed to demonstrate its methods produced the true value of the property. ¶ 15 The taxpayer presented evidence from three expert witnesses who provided
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evidence why the value of the property was lower than the County assessed. One of
taxpayer’s experts, Mr. Smith, conducted his own valuation of the property, using all
three valuation methods accepted in North Carolina, to conclude that the value of the
property was in fact $16,060,000, or $11,390,241 lower than the County’s valuation
of $27,450,241. Further, Mr. Smith testified that the discrepancy between the
County’s and Mr. Smith’s valuations was a result of his valuation considering the
functional obsolescence of the property. This evidence mirrors that offered in Harris
Teeter, where the taxpayer offered an expert appraiser’s testimony of his own
individual appraisal that resulted in an appraised value of the property which was
$7,771,313 lower than the County’s appraised value. __ N.C. App. at __, 845 S.E.2d
at 140. The Court found that this evidence was sufficient to rebut the presumption
that the County’s appraisal methodology produced true value, even though the
County presented expert testimony to support its valuation. Id. The taxpayer’s
evidence is similarly sufficient here.
C. Shifted Burden
¶ 16 Because the taxpayer rebutted the presumption of correctness of the County’s
valuation, the burden then shifted to the County to show its assessment produced the
true value of the property. Once the burden has shifted, the critical inquiry is
“whether the County’s appraisal methodology ‘is the proper means or methodology
given the characteristics of the property under the appraisal to produce a true value
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or fair market value.’” In re Parkdale Mills, 225 N.C. App. at 717, 741 S.E.2d at 420
(citations omitted). The County did not accomplish this in this case. While the County
offered sales information as a comparison to the current property, it did not develop
a sales comparison approach to produce an appraised value. Therefore, the
Commission could not determine whether the sales were comparable to the subject
property. The County’s reconstructed cost estimate of the subject property included
virtually no acknowledgment of its obsolescence and provided no explanation for how
that factor affected the validity of the cost approach. Further, the County did not offer
evidence that the cost approach was more appropriate in valuing this property than
one of the other approaches. In fact, the County’s expert, Mr. McCarthy, testified that
neither the cost approach or sales comparison approach would be appropriate.
Therefore, the Commission was reasonable in concluding that the cost approach
should not be used as a test of reasonableness and that the sales approach is the most
likely to produce the true value of the property. ¶ 17 The County’s limited evidence failed to satisfy its burden to show that its
appraisal methodology was proper or produced the true value of the subject property.
III. Conclusion
¶ 18 For the foregoing reasons, we affirm the Commission’s Final Decision.
AFFIRMED.
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Opinion of the Court Chief Judge STROUD and Judge INMAN concur.