Missouri Supreme Court affirms decision on hotel tax assessment in school district dispute

Summary

• Missouri Supreme Court unanimously upheld the hotel property tax assessment decision
• Court ruled no violation of the Missouri Constitution under Section 137.115.1
• Assessor and Park Hill School District lacked legal standing to challenge valuation
• Long-running dispute involved fluctuating hotel valuation from $13.4M to $0 to $6.1M

In a unanimous decision issued on April 21, the Missouri Supreme Court affirmed a lower court’s decision that the tax assessment for a hotel in Kansas City did not violate the state’s constitution.

The court added that the assessor and the Park Hill School District both lacked standing to challenge the assessment.

Central to the case was a question of whether a 2016 property tax assessment for the Marriot Hotel located at the Kansas City International Airport violated the Missouri Constitution.

In 2015, Grady Hotel Investments purchased the property for $8.5 million. This amount is integral to understanding the property’s value as its assessed value changed several times as the dispute made its way from local courts to the appellate court, back to local court and now before this court.

“Because the hotel lies within airport boundaries, the land remains titled as property of the City of Kansas City,” the court stated in its opinion. “Grady purchased a possessory interest to the improvements on that parcel — meaning Grady does not own the land but, instead, owns the hotel building situated on airport property.”

As a political subdivision of the state, the city is exempt from paying property taxes, but Grady is not exempt, according to the court. Grady is required by law to pay property taxes on the property improvements for the hotel building that it owns. For tax purposes, real property includes any improvements that are “permanently affixed to land.”

Originally, the Platte County assessor valued the hotel at $11,222,000. Grady disputed this amount and appealed to the Platte County Board of Equalization. The board increased the property’s assessed value to $13,447,000 and Grady appealed again, this time to the State Tax Commission.

The commission reduced the assessed value to $7.3 million. According to the court, the reduction was because the hearing officer applied Section 137.115.1 by taking the price of the sale of the improvements — $8.5 million — less the cost paid toward new construction of the improvements — $1.2 million.

Grady again appealed the decision, this time to the full commission, who again changed the valuation to $0. In their reasoning, the commission claimed Grady “held a leasehold interest in the hotel and valued the property as the difference between economic rent and the contract rent for use and occupancy of the premises.”

This time, the assessor appealed to the Platte County Circuit Court and the Park Hill School District moved to intervene, which the court allowed. After a hearing, the court reversed the commission’s decision calling the $0 evaluation “arbitrary, capricious and unsupported by law.”

“Specifically, the circuit court found Grady owned the property’s improvements, which made the STC’s (commission’s) valuation method inapplicable, because it applied only to leasehold interests,” the court wrote.

Grady appealed, and the case went to the court of appeals who affirmed the circuit court’s decision and remanded the case back to the commission. This time the commission valued the hotel at $6,139,505.

The assessor and Park Hill jointly appealed to the full commission, which affirmed the decision, according to the court. Both parties then turned again to the circuit court and the assessor challenged the constitutional validity of Section 137.115.1.

“Assessor argued the provision violated the Missouri Constitution because the statute: (1) was void for vagueness in violation of Article I, Section 10; (2) gave Grady an unconstitutional tax exemption in violation of Article X, Section 6; (3) violated the uniformity provision of Article X, Section 3; and (4) granted an irrevocable special privilege in violation of Article I, Section 13,” according to the court. “Park Hill mirrored assessor’s Article I, Section 13, and Article X, Sections 6 and 3 claim.”

This time the court sided with the commission and found “Section 137.115.1 affected how ‘true value in money’ was determined but did not create an unconstitutional tax exemption under Article X, Section 6,” the court wrote. “It also found Section 137.115.1 did not violate the uniformity clause because Article X, Section 3 did not apply to valuations of property.”

The lower court expressed doubt at both the assessor and Park Hill’s standing, adding that Section 137.115.1 was not “vague or ambiguous, or irrational and arbitrary, in violation of Article I, Section 10.”

“Lastly, the circuit court found Section 137.115.1 was not an irrevocable special privilege in violation of Article I, Section 13 because the legislature had revised the statute several times since its enactment and the legislature had a rational basis to distinguish property located on airport boundaries from property that was not,” this court wrote.

Still, assessor and Park Hill appealed to this court.

Park Hill claimed standing to challenge the assessment because of the loss of funding from tax revenue it would suffer if the hotel is undervalued. In the opinion, authored by Judge Mary R. Russell, the court disagreed citing the case law in State ex rel. Kan. City Power & Light Co. v. McBeth.

“While Park Hill has an interest in protecting its funding, that interest is not sufficient to grant direct standing to challenge the assessment value of a third party’s property,” Russell wrote. “Standing for this interest may exist when a school district brings a declaratory judgment action to determine its own rights under a statute it alleges is unconstitutional, but not when the school district is challenging the assessed value of another’s property.”

The assessor’s standing was more complicated, presenting new questions for the court.

“Until this point, this court has not been presented with the question of whether other political actors — such as assessor — are more akin to ‘persons’ able to bring due process and equal protection claims or more akin to ‘political subdivisions’ that do not possess such rights,” Russell wrote.

Russell turned to State ex rel. Brentwood School District v. State Tax Commission to inform the court’s decision that the assessor is more similar to a political subdivision than a person. The case determined school districts should be viewed “as creatures of the state established to perform governmental functions.” Meaning, it did not have the same rights as a person and could not charge the state with violations of due process.

This principle applies to all creatures of the state. From the court’s point of view, the assessor is such a creature. While the assessor may have standing to challenge the state as an individual, he brought this claim of a due process violation in his official capacity and does not have standing. This claim was dismissed.

Similarly, the court dismissed the assessor’s claim that Section 137.115.1 violates Article I, Section 13 of the Missouri Constitution due to a lack of standing. The assessor does have standing on the two Article X cases, but his arguments failed and the court affirmed the circuit court’s decision.

The case is: David Cox and Park Hill School District v. Grady Hotel Investments LLC and Missouri State Tax Commission, Case no. SC101131.