Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Virginia International Gateway, Inc. v. City of Portsmouth

Supreme Court of Virginia

October 31, 2019

VIRGINIA INTERNATIONAL GATEWAY, INC.
v.
CITY OF PORTSMOUTH

          FROM THE CIRCUIT COURT OF THE CITY OF PORTSMOUTH James C. Hawks, Judge.

          OPINION

          WILLIAM C. MIMS, JUSTICE.

         In this case, we consider whether a real estate appraiser must be licensed in Virginia to offer expert testimony in a tax-assessment dispute. We also consider whether the taxpayer met its burden of proving that the assessment overvalued the subject property.

         I. BACKGROUND AND MATERIAL PROCEEDINGS BELOW

         Virginia International Gateway, Inc. ("VIG") owns a marine container terminal in the City of Portsmouth fronting the Elizabeth River. The terminal consists of 610 acres including a wharf, buildings, eight "ship-to-shore" ("STS") cranes, and other improvements. When container ships dock at the wharf, the STS cranes unload shipping containers onto a large container yard. Surrounding the container yard is a system of 30 remotely operated rail-mounted gantry cranes. These gantries straddle the container yard, moving along the rails to pick up and place containers onto waiting trucks. The terminal also uses four rubber-tire gantry cranes for this task. The rubber-tire gantries differ from the rail-mounted gantries in that they are diesel-powered rather than electric, require an onboard driver to operate, and have tires permitting them to move freely around the yard.

         For taxation purposes, VIG's real property includes the land, buildings and improvements on the land, the wharf, and the eight STS cranes which are considered fixtures. For the 2015-16 tax year, the City assessed the total value of VIG's real property at $361, 084, 820 with the following valuations:

Land:

$72, 946, 280

Buildings:

$34, 357, 850

Improvements:

$98, 425, 460

Wharf:

$92, 998, 850

STS Cranes:

$62, 322, 200

Other Real Property:

$34, 180

         The rail-mounted gantries and rubber-tire gantries are considered personal property for tax purposes. The City assessed the 30 rail-mounted gantries at $27, 467, 070 and the four rubber-tire gantries at $2, 809, 250 in both 2015 and 2016.

         VIG believed the assessments for its real and personal property were above fair market value. It filed separate applications to correct the 2015-16 real estate and personal property assessments pursuant to Code § 58.1-3984. The City answered, denying that the assessments exceeded fair market value. In addition, the City filed a counterclaim to the real property application contending that the fair market value was actually several hundred thousand dollars more than the assessment. The trial court consolidated the two cases for trial, which occurred in late 2017.

         A. Evidence of Real Property Valuation

         At trial, VIG offered expert testimony to support its position that the actual fair market value of the real property was $197, 217, 000. It relied on Glen Fandl, a taxation consultant and real estate appraiser with experience evaluating complex industrial properties, to establish the value of the land, buildings, improvements, and wharf-every aspect of the real property except the STS cranes. Fandl held an active New York real estate appraisal license for all times relevant to this appeal. His work with VIG began in 2015, when he reviewed the City's assessments, visited the property, and arrived at a preliminary valuation of the real estate "in the hope of settling the case informally." When litigation became inevitable, Fandl obtained a temporary Virginia license active from January 28, 2016 to January 27, 2017, then conducted a formal appraisal of the property's value. Fandl acknowledged that he based his formal appraisal on the initial valuation he developed in 2015 but testified that once he obtained Virginia licensure, he updated his findings to comply with the Uniform Standards of Professional Appraisal Practice ("USPAP") and other requirements for formal appraisals. He completed his appraisal report in October 2016.

         The City objected to Fandl's testimony and expert qualification because he lacked Virginia licensure at the time of trial. After hearing argument, the trial court overruled the objection. It explained: "I understand that, you have to be licensed to work as an appraiser. But to qualify as an expert in this court is my determination, and I recognize Mr. Fandl as [eminently] qualified to testify both as to personal and real estate issues before this [c]ourt."

         Fandl relied on a combination of the cost and sales-comparison methods to appraise the property. He followed the City's practice of assessing the unimproved land, buildings, improvements, and the wharf separately. Fandl appraised the unimproved land by comparing the property to commercial property sales around Portsmouth as well as sales of similar, though undeveloped, waterfront parcels around the country. He divided the unimproved land into the same categories used by the City, concluding that the waterfront acreage was worth $9, 030, 000; the commercial land was worth $16, 117, 000; the wetlands were worth $1, 284, 000; and the remaining land was worth $34, 000. He opined that the unimproved land was worth a total of $26, 465, 000. Fandl employed the Marshall & Swift Valuation Service-a standard costing manual for commercial real estate appraisal-to estimate the replacement cost of the buildings and account for their depreciation. He concluded that the buildings had a total fair market value of $18, 508, 000.

         Fandl then considered the improvements to the property-what he described as any improvements to the land other than the buildings or wharf, such as concrete pads, asphalt, curbs, and rails. To appraise the improvements, Fandl used the original cost information from when the terminal was first constructed, then trended those costs forward to the relevant date and adjusted for depreciation using schedules in Marshall & Swift as well as supplemental information from sources such as highway department data. He concluded that the fair market value of all the improvements was $61, 125, 650. He used the same approach to assess the wharf, which he appraised at $53, 918, 000. Fandl appraised the total fair market value of all real property other than the STS cranes at $163, 017, 000.

         VIG then called Maarten Verheijen, a broker specializing in buying and selling container-handling equipment used by marine ports, to testify regarding the value of the STS cranes and other port equipment. The trial court qualified Verheijen as an expert in the field of valuing specialized marine terminal equipment, including STS cranes, rail-mounted gantries, and rubber-tire gantries. Verheijen acknowledged that he was unfamiliar with USPAP, International Valuation Standards, or the sales-comparison, income, and cost methods, the three primarily accepted appraisal methods in Virginia. When asked on cross-examination whether he was familiar with those valuation methods, he responded: "[I]f you are referring to any standards of appraising in the United States, then, no, we've never heard of them. We've never-we do not adhere to those standards because we are not from the United States." When asked whether he was familiar with "the actual steps that are required by appraisal organizations in Virginia and the United States," Verheijen testified that he was "not familiar with any steps that any appraisal organization here would use." Instead, he said that he used a "customer-centric approach" that incorporated elements of the sales-comparison method in valuing VIG's property.

         Verheijen considered a variety of factors in assessing the value of the STS cranes, including market trends, the relative value of different currencies, the cranes' size and age, the cost of a new crane, modification costs, and warranty costs. He determined that the primary market for the STS cranes would be overseas. Consequently, the valuation would have to account for transportation costs and electrical conversion costs because North America uses an electrical system incompatible with any other location in the world. Verheijen emphasized that transporting an STS crane is a risky and expensive proposition, sometimes costing more than the value of the crane itself. For this reason, he opined, transportation costs must be included in the overall valuation of the crane. Moreover, he testified that because buyers of STS cranes always bear the cost of transportation, those costs factor into sales prices. Concluding that a buyer would pay no more than sixty percent of the value of a new crane and applying his analysis to the specific characteristics of VIG's eight STS cranes, he testified that their total fair market value was $34, 200, 000.

         Thus, through the testimony of Fandl and Verheijen, VIG presented evidence that the total fair market value of all of the terminal's real property was $197, 217, 000-a figure $163, 867, 820 lower than the City's assessment.

         B. Evidence of Personal Property Valuation

         VIG also challenged the City's assessment of its personal property, primarily contesting the value of the rail-mounted and rubber-tire gantries. The City used a standard formula of fifty percent of original cost to assess the personal property. VIG maintained that this default approach resulted in overvaluation.

         Verheijen also served as VIG's personal property valuation expert, testifying as to the value of both types of gantries. He determined that there was little, if any, domestic market for the rail-mounted gantries, so-as with the STS cranes-he discounted their valuation by the transportation and technological refitting costs necessary for them to become operational in a foreign market. Accounting for these additional costs, Verheijen concluded that the rail-mounted gantries had a fair market value of $19, 500, 000 in 2015 and $16, 500, 000 in 2016. Unlike the STS cranes and rail-mounted gantries, Verheijen determined that there was a domestic market for the rubber-tire gantries and thus no corresponding need to discount for transportation-related expenses. He opined that VIG's four rubber-tire gantries had a fair market value of $1, 900, 000 in 2015 and $1, 600, 000 in 2016.

         The City called David Cole, an appraiser specializing in machinery and equipment valuations, as its personal property valuation expert. The trial court qualified him as an expert based on his "vast knowledge of different items of equipment," noting that his inexperience with marine terminal equipment went only to the weight of his opinion. Cole relied on the cost approach for valuing the rail-mounted gantries and both a cost and sales-comparison approach for the rubber-tire gantries. He concluded that, after accounting for depreciation and functional obsolescence, the 30 rail-mounted gantries had a total fair market value of $34, 800, 000 in 2015 and $27, 300, 000 in 2016. He appraised the four rubber-tire gantries at a total value of $2, 255, 000 in ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.