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  "name_abbreviation": "In re Appeal of IBM Credit Corp.",
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      "IN THE MATTER OF: APPEAL OF IBM CREDIT CORPORATION from the decision of the Durham County Board of County Commissioners concerning the valuation and taxation of personal property for tax year 2001"
    ],
    "opinions": [
      {
        "text": "GEER, Judge.\nIBM Credit Corporation appeals from a final decision of the Property Tax Commission upholding Durham County\u2019s valuation of 40,779 pieces of leased computer equipment for business personal property taxes in tax year 2001. IBM Credit contends that the County\u2019s valuation exceeds the equipment\u2019s \u201ctrue value in money\u201d in violation of N.C. Gen. Stat. \u00a7 105-283 (2005). IBM Credit also argues, however, that the Commission did not properly apply the burden of proof framework mandated by our Supreme Court. Because we agree with this latter contention, we do not address IBM Credit\u2019s arguments regarding \u00a7 105-283, but instead remand this matter so that the Commission may reconsider the evidence in light of the proper burdens of production and persuasion.\nFacts\nThe leased equipment at issue in this case falls into four categories: mainframe computers, mid-range computers, personal computers, and peripheral equipment such as printers and storage devices. Generally, the leasing process was structured so that the IBM Credit customer would negotiate an acquisition price for a particular item with a vendor. IBM Credit would then purchase the item at the price negotiated between the customer and the vendor. After acquiring the equipment, IBM Credit would in turn lease it to the customer, typically for a period of three years, in exchange for monthly payments. IBM Credit would retain whatever residual value the equipment retained at the end of the lease term.\nTo assess the value of the 40,779 pieces of computer equipment, Durham County used Schedule U5 of the 2001 Cost Index and Depreciation Schedules published by the North Carolina Department of Revenue. The Department of Revenue developed Schedule U5 to assist county tax assessors in determining the value of used computers and computer-related equipment. Based on the depreciation tables of Schedule U5, Durham County determined the value of IBM Credit\u2019s equipment to be $144,277,140.00.\nOn 25 January 2002, IBM Credit sought a hearing before the Property Tax Commission to challenge Durham County\u2019s valuation. In its application, IBM Credit contended that the value of its equipment was only $96,458,707.00. On 30 March 2006, following an evidentiary hearing, the Commission entered its final decision, rejecting IBM Credit\u2019s valuation of $96,458,707.00 and upholding Durham County\u2019s valuation of $144,277,140.00. IBM Credit gave timely notice of appeal to this Court.\nDiscussion\nOn appeal, IBM Credit strenuously argues that Durham County\u2019s reliance on the state-promulgated Schedule U5 violates N.C. Gen. Stat. \u00a7 105-283, which requires that \u201c[a]ll property, real and personal, shall as far as practicable be appraised or valued at its true value in money.\u201d The statute further provides:\nWhen used in this Subchapter, the words \u201ctrue value\u201d shall be interpreted as meaning market value, that is, the price estimated in terms of money at which the property would change hands between a willing and financially able buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of all the uses to which the property is adapted and for which it is capable of being used.\nN.C. Gen. Stat. \u00a7 105-283 (emphasis added). IBM Credit contends that use of Schedule U5 is unlawful in this instance, because it is not based on transactional information from the marketplace and thus does not lead to a determination of actual \u201cmarket value,\u201d as required by \u00a7 105-283.\nIBM Credit also argues, however, that the Commission\u2019s decision includes a \u201cmistaken conclusion of law that the burden of proof rested solely on IBM Credit.\u201d We address this issue first since, if the Commission did err with respect to the burden of proof, then its findings of fact could be affected by the misapprehension of the law. See N.C. Dep\u2019t of Justice v. Eaker, 90 N.C. App. 30, 36-37, 367 S.E.2d 392, 397 (remanding when State Personnel Commission made its findings under a misapprehension of law regarding proper burden of proof), disc. review denied, 322 N.C. 836, 371 S.E.2d 279 (1988), overruled on other grounds by Batten v. N.C. Dep\u2019t of Corr., 326 N.C. 338, 389 S.E.2d 35 (1990).\nIn In re Appeal of AMP, Inc., 287 N.C. 547, 562, 215 S.E.2d 752, 761 (1975), our Supreme Court held that it is \u201ca sound and a fundamental principle of law in this State that ad valorem tax assessments are presumed to be correct.\u201d A taxpayer may rebut this presumption by \u201cproducfing] competent, material and substantial evidence that tends to show that: (1) Either the county tax supervisor used an arbitrary method of valuation; or (2) the county tax supervisor used an illegal method of valuation; AND (3) the assessment substantially exceeded the true value in money of the property.\u201d Id. at 563, 215 S.E.2d at 762 (emphasis omitted) (internal quotation marks omitted).\nIn In re Appeal of S. Ry. Co., 313 N.C. 177, 328 S.E.2d 235 (1985), the Supreme Court explained further that once a taxpayer produces the evidence required by AMP, the burden of proof then shifts to the taxing authority: \u201cThe burden of going forward with evidence and of persuasion that its methods would in fact produce true values then rest[s] with the [taxing authority].\u201d Id. at 182, 328 S.E.2d at 239. Southern Railway involved a challenge by two railroad companies to the Department of Revenue\u2019s appraisal of the companies\u2019 market value. Id. at 178-79, 328 S.E.2d at 237. According to the Supreme Court:\nWhen the Railroads offered evidence that the appraisal methods used by the Department would not produce true values for the Railroads and that the values actually produced by these methods were substantially in excess of true value, they rebutted the presumption of correctness. The burden of going forward with evidence and of persuasion that its methods would in fact produce true values then rested with the Department. And it became the Commission\u2019s duty to hear the evidence of both sides, to determine its weight and sufficiency and the credibility of witnesses, to draw inferences, and to appraise conflicting and circumstantial evidence, all in order to determine whether the Department met its burden.\nId. at 182, 328 S.E.2d at 239.\nSouthern Railway thus clarifies that the burden upon the aggrieved taxpayer, set forth in AMP, is one of production and not persuasion: the taxpayer must offer evidence that the government\u2019s appraisal relies on illegal or arbitrary valuation methods. Other decisions of the North Carolina appellate courts are consistent on this point. See In re Appeal of the Greens of Pine Glen Ltd. P\u2019ship, 356 N.C. 642, 647, 576 S.E.2d 316, 319 (2003) (\u201ca taxpayer may rebut th[e] [AMP] presumption if it produces \u2018competent, material and substantial\u2019 evidence ...\u201d (emphasis added)); In re Appeal of Murray, 179 N.C. App. 780, 783, 635 S.E.2d 477, 479 (2006) (\u201cTo rebut th[e] [AMP] presumption, the taxpayer must produce \u2018competent, material and substantial\u2019 evidence . . . .\u201d (emphasis added)); In re Appeal of Lane Co., 153 N.C. App. 119, 127, 571 S.E.2d 224, 229 (2002) (\u201cthe substantial rights afforded by the presumption of correctness are lost when the taxpayer offers substantial rebutting evidence\u201d (emphasis added)). Indeed, AMP itself states that \u201cfor the taxpayer to rebut the presumption he must produce \u2018competent, material and substantial\u2019 evidence that tends to show\u201d an arbitrary or illegal method of valuation. 287 N.C. at 563, 215 S.E.2d at 762 (emphasis added).\nIn this case, the Commission\u2019s decision does not reflect this burden shifting. In the opening \u201cStatement of Facts and Case\u201d contained in the decision below, the Commission stated: \u201cIn order to rebut the presumption of correctness, the taxpayer must prove that Durham County used an arbitrary or illegal method of valuation and that the assessment of the subject property substantially exceeded the true value in money of the property as of January 1, 2001.\u201d (Emphasis added.) In addition, in the section discussing the issues presented by the hearing, the Commission, after citing AMP, stated that \u201cIBM Credit has the burden of establishing: 1. The County employed an arbitrary or illegal method of appraisal. . . .\u201d (Emphasis added.) Conclusion of Law 3 of the decision contains substantially the same articulation of the burden of proof: \u201cIn order for the taxpayer to rebut the presumption of correctness, the taxpayer must prove that the county tax assessor employed an arbitrary or illegal method of valuation and that the assessment of the property substantially exceeded the true value in money of the subject property.\u201d (First emphasis added.)\nIn these three statements, the Commission has imposed a burden of persuasion on IBM Credit rather than a burden of production, contrary to the express requirements of Southern Railway. Curiously, the Commission never referred to the Supreme Court\u2019s decision in Southern Railway, although it did reference the Court of Appeals decision in that case, indicating that the Court of Appeals opinion had been reversed \u201con other grounds.\u201d\nIn Conclusion of Law 9, the Commission does state: \u201cIBM Credit did not produce competent, material and substantial evidence to show that Durham County employed an arbitrary or illegal method of valuation to determine the valuation of subject business personal property. IBM Credit failed to show that use of the Department of Revenue\u2019s Cost Index and Depreciation Schedules for computer and computer-related equipment resulted in a valuation that substantially exceeded the true value in money of the subject property for tax year 2001.\u201d (First two emphases added.) Although this conclusion substantially parrots AMP, it differs from AMP in a significant way.\nThe Commission \u2014 consistent with its earlier stated view that a burden of proof rested on IBM Credit \u2014 required in this conclusion of law that IBM Credit produce evidence \u201cto show\u201d that Durham County\u2019s valuation method was arbitrary and capricious. AMP, however, only requires the production of evidence that \u201ctends to show\u201d that the method was arbitrary and capricious. 287 N.C. at 563, 215 S.E.2d at 762. Thus, even in Conclusion of Law 9, the Commission has placed a burden of proof on IBM Credit rather than a burden of production. In any event, given the prior three articulations improperly placing a burden of proof on IBM Credit, we cannot be assured by this single ambiguous statement that the Commission applied the burden-shifting framework mandated by Southern Railway, especially given the Commission\u2019s failure to reference that opinion.\nN.C. Gen. Stat. \u00a7 105-345.2(b) (2005) sets forth the applicable scope of review in this case and requires this Court, \u201c[s]o far as necessary to the decision and where presented... [to] decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning and applicability of the terms of any Commission action.\u201d After deciding essential questions of law, this Court is authorized, if necessary, to \u201cremand the case for further proceedings.\u201d Id.\nWe believe it is necessary to remand this case so that the Commission may apply the proper burden of proof framework. As this Court stated in a similar context:\nBecause the [State Personnel] Commission acted under a misapprehension of the law, this case must be remanded. The rule fixing the burden of proof constitutes a substantial right of the party upon whose adversary the burden rests and must be rigidly enforced. The law relating to the burden of proof is equally applicable to proceedings which are not conducted before a jury. We cannot say, as a matter of law, that the Commission\u2019s finding was not affected by its misapprehension of the law. Therefore, we vacate the findings and conclusions and remand this case to the Commission for reconsideration of the evidence in additional proceedings in which petitioner has the burden of proof.\nEaker, 90 N.C. App. at 36-37, 367 S.E.2d at 397 (emphasis added) (internal citations omitted). Here, too, we cannot determine with certainty whether the Commission\u2019s misunderstanding of the relevant burdens set forth in AMP and Southern Railway affected its findings and conclusions.\nTherefore, we remand this case to the Property Tax Commission for reconsideration of the evidence in accord with this opinion. Given our resolution of this appeal, we do not address IBM Credit\u2019s remaining arguments.\nRemanded.\nJudge ELMORE concurs.\nJudge TYSON dissents in a separate opinion.",
        "type": "majority",
        "author": "GEER, Judge."
      },
      {
        "text": "TYSON, Judge\ndissenting.\nThe majority\u2019s opinion holds the Commission erroneously imposed a burden of persuasion on IBM Credit rather than a burden of production, contrary to the express requirements of In re Southern Railway, 313 N.C. 177, 328 S.E.2d 235 (1985). The majority\u2019s opinion argues the Commission impermissibly placed the burden of proof on IBM Credit. I disagree and vote to affirm the Commission\u2019s final decision. I respectfully dissent.\nI. Standard of Review\nThis Court reviews the Commission\u2019s decision under the whole record test. The whole record test is not a tool of judicial intrusion and this Court only considers whether the Commission\u2019s decision has a rational basis in the evidence. We may not substitute our judgment for that of the Commission even when reasonably conflicting views of the evidence exist.\nIn re Weaver Inv. Co., 165 N.C. App. 198, 201, 598 S.E.2d 591, 593 (emphasis supplied) (internal citations and quotations omitted), disc. rev. denied, 359 N.C. 188, 606 S.E.2d 695 (2004).\nII. Burden on the Taxpayer\nThe majority\u2019s opinion holds the Commission\u2019s final decision impermissibly placed the burden of proof on IBM Credit by stating in their findings and conclusions: (1) \u201cIn order to rebut the presumption of correctness, the taxpayer must prove that Durham County used an arbitrary or illegal method of valuation and that the assessment of the subject property substantially exceeded the true value in money of the subject property;\u201d (2) IBM Credit failed to show that use of the Department of Revenue\u2019s Cost Index and Depreciation Schedules for computer and computer related equipment resulted in a valuation that substantially exceeded the trae value in money of the subject property for tax year 2001;\u201d and (3) \u201cIBM has the burden of establishing: 1. [t]he County employed an arbitrary or illegal method of appraisal, and 2. [t]he value assigned by the County Board was substantially greater than the true value in money of the property as of January 1 for the year at issue.\u201d (Emphasis supplied).\nThe majority\u2019s opinion asserts the words, \u201cmust prove,\u201d \u201cfailed to show,\u201d and \u201cburden of establishing,\u201d charged IBM Credit with and increased the burden of persuasion. I disagree.\nOur Supreme Court has held it is \u201ca sound and a fundamental principle of law in this State that ad valorem tax assessments are presumed to be correct.\u201d In re Appeal of AMP, Inc., 287 N.C. 547, 562, 215 S.E.2d 752, 761 (1975). \u201cAs a result of this presumption, when such assessments are attacked or challenged, the burden of proof is on the taxpayer to show that the assessment was erroneous.\u201d Id. at 562, 215 S.E.2d at 762 (emphasis supplied).\n[T]o rebut this presumption [the taxpayer] must produce competent, material and substantial evidence that tends to show that: (1) Either the county tax supervisor used an arbitrary method of valuation; or (2) the county tax supervisor used an illegal method of valuation; and (3) the assessment substantially exceeded the true value in money of the property.\nId. at 563, 215 S.E.2d at 762 (emphasis supplied) (internal quotations omitted).\nThe standard articulated in In re Appeal of AMP, Inc. places the burden of proof upon the taxpayer \u201cto show\u201d that the assessment was erroneous. The word \u201cshow\u201d is defined as \u201c[t]o make (facts, etc.) apparent or clear by evidence; to prove.\" Black\u2019s Law Dictionary (8th ed. 2004) (emphasis supplied). Following this definition, the AMP standard could be read as \u201cthe burden is on the taxpayer to prove that the assessment was erroneous\u201d and the \u201ctaxpayer must produce evidence that tends to prove\" the essential factors needed.\nOur Supreme Court has used similar language to the Commission\u2019s findings and conclusions in articulating the AMP standard. In In re McElwee, our Supreme Court stated, \u201cthe taxpayer has the burden of showing that the assessment was erroneous.\u201d 304 N.C. 68, 72, 283 S.E.2d 115, 120 (1981) (emphasis supplied).\n[T]he presumption is that the county acted with regularity in the valuation process, and the burden is upon the taxpayer to show otherwise. At this point, the taxpayer must show by competent, material and substantial evidence that one of the first two tests enunciated in Amp has not been met, i.e., either that the county employed an arbitrary or an illegal method of valuation.\nId. at 86, 283 S.E.2d at 126 (emphasis supplied).\nIn its final decision, the Commission used substantially similar language to that enunciated by our Supreme Court to place the burden on the taxpayer 'to overcome the presumption that the assessment by the Commission was lawful, correct, and not arbitrary. The Commission did not impermissibly shift the burden of persuasion and properly held IBM Credit failed to overcome the presumption of correctness of Durham County\u2019s valuation. The final decision should be affirmed.\nIII. Presumption of Correctness\nIBM Credit argues the Commission erred by concluding it did not produce competent, material, and substantial evidence to show Durham County employed an arbitrary or illegal method of valuation to determine the value of the property and the assessment substantially exceeded the true value in money of the property. I disagree.\n\u201cThe North Carolina General Assembly has adopted market value or true value in money as the uniform appraisal standard for valuation of property for tax purposes.\u201d Electric Membership Corp. v. Alexander, 282 N.C. 402, 408-09, 192 S.E.2d 811, 816 (1972) (internal citations and quotations omitted).\nN.C. Gen. Stat. \u00a7 105-283 (2005), in relevant part, states:\nAll property, real and personal, shall as far as practicable be appraised or valued at its true value in money. When used in this Subchapter, the words \u201ctrue value\u201d shall be interpreted as meaning market value, that is, the price estimated in terms of money at which the property would change hands between a willing and financially able buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of all the uses to which the property is adapted and for which it is capable of being used.\nIBM Credit argues Durham County\u2019s use of the North Carolina Department of Revenue U-5 Schedule for valuation of their property was illegal because Durham County did not determine actual marketplace value as required by the statute.\nAs discussed above, \u201c [A] d valorem tax assessments are presumed to be correct. As a result of this presumption, when such assessments are attacked or challenged, the burden of proof is on the taxpayer to show that the assessment was erroneous.\u201d In re Appeal of AMP, Inc., 287 N.C. at 562, 215 S.E.2d at 761-62.\nThe purpose underlying this presumption of correctness arises out of the obvious futility of allowing a taxpayer to fix the final value of his property for purposes of ad valorem taxation. If the presumption did not attach, then every taxpayer would have unlimited freedom to challenge the valuation placed upon his property, regardless of the merit of such challenge.\nId. at 563, 215 S.E.2d 762 (internal citations omitted). To overcome this presumption, the taxpayer must \u201cproduce competent, material and substantial evidence that tends to show that: (1) Either the county tax supervisor used an arbitrary method of valuation; or (2) the county tax supervisor used an illegal method of valuation; and (3) the assessment substantially exceeded the true value in money of the property.\u201d Id. at 563, 215 S.E.2d at 762. \u201c[It] is the function of the [Commission] to determine the weight and sufficiency of the evidence and the credibility of the witnesses, to draw inferences from the facts, and to appraise conflicting and circumstantial evidence.\u201d In re McElwee, 304 N.C. at 87, 283 S.E.2d at 126-27. This Court \u201ccannot substitute [its] judgment for that of the agency when the evidence is conflicting.\u201d Id.\nIV. Conclusion\nIt is incumbent upon IBM Credit to \u201cshow\u201d or prove to the Commission that Durham County\u2019s valuation of its property was not equivalent to the actual value or true value of the property. In re Appeal of AMP, Inc., 287 N.C. at 563, 215 S.E.2d at 762. The Commission found IBM Credit presented no credible evidence of the actual fair market value of its property.\nThe Commission correctly held that IBM Credit failed to present evidence to show \u00e1nd overcome the presumption of correctness and affirmed Durham County\u2019s valuation. The presumption exists to prevent taxpayers from setting their own values to reduce their tax liability, which \u201cincreases the tax burden borne by others.\u201d In re Appeal of Worley, 93 N.C. App. 191, 195, 377 S.E.2d 270, 273 (1989). In light of IBM Credit\u2019s failure to overcome the presumption of correctness, no burden was shifted to Durham County. The Commission\u2019s final decision should be affirmed. I respectfully dissent.",
        "type": "dissent",
        "author": "TYSON, Judge"
      }
    ],
    "attorneys": [
      "Manning Fulton & Skinner P.A., by Michael T. Medford, and Judson A. Welbom, for taxpayer-appellant.",
      "Durham, County Attorney S. C. Kitchen for respondent-appellee."
    ],
    "corrections": "",
    "head_matter": "IN THE MATTER OF: APPEAL OF IBM CREDIT CORPORATION from the decision of the Durham County Board of County Commissioners concerning the valuation and taxation of personal property for tax year 2001\nNo. COA06-1002\n(Filed 2 October 2007)\nTaxation\u2014 business personal property tax \u2014 leased computer equipment \u2014 valuation\u2014burden of proof\nThe Property Tax Commission erred by upholding a county\u2019s valuation of 40,779 pieces of leased computer equipment for business personal property taxes in tax year 2001 based on an improper application of the burden of proof framework mandated by our Supreme Court, and the case is remanded so that the Commission may reconsider the evidence in light of the proper burdens of production and persuasion, because: (1) Southern Railway, 313 N.C. 177 (1985), clarifies that the burden upon the aggrieved taxpayer is one of production and not persuasion; (2) the Commission imposed a burden of persuasion on IBM Credit rather than a burden of production; (3) although the Commission required in a conclusion of law that IBM Credit produce evidence to show that the county\u2019s valuation method was arbitrary and capricious, AMP, 287 N.C. 547 (1975), only required the production of evidence that tends to show that the method was arbitrary and capricious; (4) given three improper articulations placing a burden of proof on IBM Credit, it cannot be determined that the Commission applied the proper burden-shifting framework; and (5) it cannot be determined with certainty whether the Commission\u2019s misunderstanding of the relevant burdens affected its findings and conclusions.\nJudge TYSON dissenting.\nAppeal by taxpayer from final decision entered 30 March 2006 by the North Carolina Property Tax Commission. Heard in the Court of Appeals 7 March 2007.\nManning Fulton & Skinner P.A., by Michael T. Medford, and Judson A. Welbom, for taxpayer-appellant.\nDurham, County Attorney S. C. Kitchen for respondent-appellee."
  },
  "file_name": "0223-01",
  "first_page_order": 253,
  "last_page_order": 262
}
