TAXATION ‑- PROPERTY ‑- VALUATION ‑- "TRUE AND FAIR VALUE."
The "true and fair value of property in money" for property tax valuation purposes is its market value or the amount of money a buyer willing, but not obligated to buy would pay for it to a seller willing, but not obligated to sell. In arriving at a determination of such value the assessing officer can consider only those factors which can within reason be said to affect the price in negotiations between a willing purchaser and a willing seller, and he must consider all of such factors.
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December 31, 1965
Honorable George Kinnear
Chairman, State Tax Commission
General Administration Building
Cite as: AGO 65-66 No. 65
By a previously acknowledged letter you have requested an opinion from this office on the meaning of the phrase "true and fair value" as used in the 17th Amendment to the state constitution, RCW 84.40.030, and RCW 84.52.050 with respect to the valuation of property for tax purposes.
The answer to your question is contained in the following analysis.
The 17th Amendment to the state constitution and RCW 84.52.050,supra, are concerned with the forty mill limit on property taxation. Both provide that the valuation of real and personal property for purposes of taxation shall be based upon ". . . the true and fair value of such property in money. . . ."
The legislature, by a statute which has remained virtually unchanged for nearly seventy years, has established certain guides to determine true and fair value. The statute, now codified as RCW 84.40.030, reads:
"All property shall be assessed fifty percent of its true and fair value in money. In determining the true and fair value of real or personal property, the assessor shall not adopt a lower or different standard of value [[Orig. Op. Page 2]] because the same is to serve as a basis of taxation; nor shall he adopt as a criterion of value the price for which the said property would sell at auction, or at a forced sale, or in the aggregate with all the property in the town or district; but he shall value each article or description of property by itself, and at such price as he believes the same to be fairly worth in money at the time such assessment is made. The true cash value of property shall be that value at which the property would be taken in payment of a just debt from a solvent debtor. In assessing any tract or lot of real property, the value of the land, exclusive of improvements, shall be determined; also, the value of all improvements and structures thereon and the aggregate value of the property, including all structures and other improvements, excluding the value of crops growing on cultivated lands. In valuing any real property on which there is a coal or other mine, or stone or other quarry, the land shall be valued at such price as such land would sell at a fair, voluntary sale for cash; any improvements thereon shall be separately valued and assessed as hereinabove provided; and any personal property connected therewith shall be listed, valued and assessed separately as other personal property is assessed under general law. Taxable leasehold estates shall be valued at such price as they would bring at a fair, voluntary sale for cash."
InOzette R. Co. v. Grays Harbor County, 16 Wn.2d 459, 133 P.2d 983 (1943), the court construed this statute and in particular the sentence ". . . The true cash value of property shall be that value at which the property would be taken in payment of a just debt from a solvent debtor. . . ." as follows:
". . . Since 1897, every law concerning assessments has included the specific sentence in question as the test of value for assessment purposes. See Laws of 1897, p. 155, § 42; Laws of 1913, p. 438, § 1; Laws of 1919, p. 393, § 4; Laws of 1925, Ex. Sess., p. 259, § 52. During these years, this court has had frequent occasion to construe the statute and has held that the sentence under consideration means 'market value.' Spokane & I.E.R. Co. v. Spokane County, 75 Wash. 72, 134 Pac. 688;National Lbr. & Mfg. Co. v. Chehalis County, 86 Wash. 483, 150 Pac. 1164;Hillman's S.C.L. & R. Co. v. Snohomish County, 87 Wash. 58, 151 Pac. 96; Bellingham Community Hotel Co. v. Whatcom County, 190 Wash. 609, 70 P.2d 301. In theHillman's case, supra, this court construing a statute having almost identical terms, said:
[[Orig. Op. Page 3]]
"'The governing statute, Rem. & Bal. Code, § 9112 P.C. 501, § 113), provides that "all property shall be assessed at its true and fair value in money," that the assessor shall value each description of property "by itself, and at such sum or price as he believes the same to be fairly worth in money at the time such assessment is made," and that "the true cash value of property shall be that value at which the property would be taken in payment of a just debt from a solvent debtor." In its simplest terms, this means that property shall be assessed at its fair market value at the time the assessment is made.' (Italics ours.)
"The terms 'market value' and 'fair market value' have been defined by this court as meaning the amount of money which a purchaser willing but not obliged to buy the property would pay an owner willing but not obligated to sell it, taking into consideration all uses to which the property is adapted and might in reason be applied. In re Westlake Avenue, 40 Wash. 144, 82 Pac. 279; Ham, Yearsley & Ryrie v. Northern Pac. R. Co., 107 Wash. 378, 181 Pac. 898;Bellingham Community Hotel Co. v. Whatcom County, supra."
The latest judicial interpretation of the statute in question is found inMason County Overtaxed, Inc. v. Mason County, 62 Wn.2d 677, 384 P.2d 352 (1963):
"The purpose of the foregoing statute is clear; it enjoins the assessor to determine the true and fair value of the property in money. Expressed otherwise, he shall make his assessment upon the market value. Market value means the amount of money which a purchaser willing, but not obliged, to buy would pay an owner willing, but not obligated, to sell, taking into consideration all uses to which the property is adapted and might in reason be applied. Ozette R. Co. v. Grays Harbor Cy., 16 Wn.2d 459, 133 P.2d 983.
"This definition of market value, taken in conjunction with the assessor's duty to appraise each parcel of property separately upon its individual merits, leaves no room for sentiment or consideration for the personal feelings, hopes [[Orig. Op. Page 4]] and aspirations of the owners. The assessor cannot yield to whatever gentler impulses may move him when he makes his appraisal. He can give weight only to those factors which could reasonably be said to affect the price in negotiations between a willing seller and a willing buyer."
The foregoing cases explain the meaning of the term "true and fair value," but such cases do not, nor does the statute itself, fully answer the question of how such value is to be ascertained.
InNorthern Commercial Co. v. King Cy., 63 Wn.2d 639, 388 P.2d 546 (1964), the court said:
"The basic yardstick of the assessed value is the true and fair value of the property assessed. The basic function of the assessor is to determine such true and fair value, and our law proceeds upon the theory that he is competent and qualified to evaluate any and all kinds of property. Northwestern Imp. Co. v. McNeil, 100 Wash. 22, 170 Pac. 338. In making an assessment the assessor acts in a quasi-judicial capacity. Ozette R. Co. v. Grays Harbor Cy., 16 Wn.2d 459, 133 P.2d 983. No person or corporation has a vested right to have property assessed in a particular way. Puget Sound Power & Light Co. v. Seattle, 117 Wash. 351, 201 Pac. 449."
The market price at which comparable property is commonly bought and sold is generally accepted as one of the best tests of the market value of land for tax purposes. However, exact similarity between different pieces of property is unusual; thus, other matters must also be taken into account. All factors which might affect the true cash market value of the property must be considered. Dexter Horton Bldg. Co. v. King County, 10 Wn.2d 186, 216, 116 P.2d 507 (1941);Bellingham Hotel Co. v. Whatcom County, 12 Wn.2d 237, 121 P.2d 335 (1942).
Of considerable assistance is Northwest Chem. Sec. Co. v. Chelan Co., 38 Wn.2d 87, 228 P.2d 129 (1951), wherein it was said:
"A number of factors may appropriately be considered in determining fair market value. Among these are original cost, estimated cost of reproduction less depreciation, and rental income (Bellingham Community Hotel Co. v. Whatcom County, supra); capitalization of income (Dexter Horton Building Co. v. King County, 10 Wn.2d 186, 116 P.2d 507; the uses to which the property is adaptable (Ozette Railway Co. v. Grays Harbor County, supra); the sale price of [[Orig. Op. Page 5]] other properties (Dexter Horton Building Co. v. King County, supra); and the burdens and benefits attaching to the property (Dexter Horton Building Co. v. King County, supra).
"Whatever factors are taken into consideration, it is important to bear in mind that the ultimate question for determination is always the same‑-what is the reasonable market value of the property at the time the assessment is made? As this court said, in Bellingham Community Hotel Co. v. Whatcom County, supra:
"'The original cost of construction or the estimated cost of reproduction, less depreciation, may be considered, but only as an aid in arriving at the market value of the building.' (p. 612.)"
In summary, the "true and fair value of property in money" is its market value or the amount of money a buyer willing, but not obligated to buy would pay for it to a seller willing, but not obligated to sell. In arriving at a determination of such value the assessing officer can consider only those factors which can within reason be said to affect the price in negotiations between a willing purchaser and a willing seller, and he must consider all of such factors.
We trust the foregoing will be of assistance to you.
Very truly yours,
JOHN J. O'CONNELL
HENRY W. WAGER
Assistant Attorney General