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November 2020

All Hail Jeff Hoag


By Harvey Silverman

If you drive a car, I’ll tax the street
If you try to sit, I’ll tax your seat
If you get too cold, I’ll tax the heat
If you take a walk, I’ll tax your feet

‘Cause I’m the taxman, yeah, I’m the taxman The Beatles, 1966, Revolver album.

And if you own a golf course in Michigan, I’ll tax your property based on a “highest and best use” calculation.

That’s what the taxman tried on Jeff and Paul Hoag’s Scott Lake Golf and Practice Center in Comstock Park, MI. The Beatles likely lost to the taxman. The Hoags won. Here’s their story, and what you need to know.

Fairness in taxation is reasonably straightforward in Michigan. The property shall not be assessed more than 50% of its actual cash value. The Hoags initiated a property tax appeal in 2015 and came to a negotiated settlement. It wasn’t much of a savings, but the team handling the appeal felt that was the best they could do.

Then someone came to Scott Lake, who said they could do better. This attorney convinced the Hoags that they had been overpaying for years, and he had handled many successful cases in front of the State Tax Tribunal. He said he could save them as much as $30K per year and take the case on a contingency basis.
The Hoags appealed the 2017 assessment. And then they waited. This case lingered as they usually do. Jeff provided the financials to their new attorney and his appraiser. This agreement would have the Hoags pay for the appraisal, trial costs, expert testimony and professional services. If they lost the case, there would be no cost to them.

The Township Assessor approached Jeff and advised that the Township’s case would go for highest and best use, as there had been some 100-acre parcels in the Township that had sold for near $1M. That could result in an actual tax increase if the Tax Tribunal judge decided to go with that option.
Keep in mind that this was one portion of the tax bill. Personal property was not appealed (this included all equipment, carts, and furnishings).

Hoag’s attorney and his team presented a strong case that the property needed to be assessed as an ongoing business, and by using cap rates and such, were able to establish a value. The golf course makes a profit as a daily fee golf course. The highest and best use of the property is a daily fee golf course. The valuation disclosure was in the form of a narrative appraisal report by an appraiser who appraised dozens of golf courses in Michigan. The team considered all three approaches to value but developed the sales and income approach.

The Township submitted a valuation disclosure but did not offer an appraisal, and only considered the sales comparison approach. The Township only concluded a going concern value in the belief that the property is most valuable as residential development. The assessor had assessed five golf courses in the Township but did not use data or information to analyze the subject property. Five courses had closed in the market, but the assessor did not cite any of this market data in its valuation disclosure.

Neither party rendered a feasibility study of discounted cash flow analysis for the subject’s use as a single-family residential development.

The Tax Tribunal judge ruled in Scott Lake’s favor, reducing the Assessed Taxable Value from $907,800 for 2017 to $423,700. The ruling resulted in savings of $26,103 for 2017, $25,927 for 2018 and $26,549 for 2019 after paying the attorney’s contingency fee, which was settled from refunds returned for 2017 and 2018 (about $54,200).

And then the Township decided to appeal. It lost that case too.

Thanks to Rob Harris of Golf Dispute Resolution, here is a summary of the ruling by the Michigan Court of Appeals:

The Michigan Court of Appeals was required to determine whether the Tax Tribunal erred in determining the value of property being profitably operated as a 27-hole, public, daily fee golf course. The court affirmed the Tribunal’s decision, rejecting the tax assessor’s view that Scott Lake Golf and Practice Center should be valued as development property rather than a golf course.

The court reasoned as follows:

In this case, the tribunal found that the property’s highest and best use was as a public, daily-fee golf course. Evidence in the record supported the tribunal’s findings. Petitioner’s appraiser testified that the highest and best use of the property was continued use as a daily-fee golf course. He opined that the property was too large and there was insufficient demand to feasibly convert it to residential development. The property would reasonably accommodate 673 residential units, but respondent averaged only 100 building permits a year, and it was not reasonable to assume that petitioner would capture the entire market for development. Petitioner’s appraiser opined that the development project was not financially feasible because it would take many years to absorb and would not be closed out in a reasonable time, which created an unreasonable risk that developers would not assume.

In contrast, respondent’s assessor offered no evidence to support the feasibility of a residential development. Respondent’s assessor generally opined that a residential development was financially feasible because there was a demand for housing in the area. When asked why he did not attach data to his valuation disclosure to support his statement that there was an increase in housing demand, respondent’s assessor testified that, “being a valuation disclosure I was just trying to give a synopsis of what I believe and what my opinion is and what my experience is in the market that I’m operating in.” Respondent’s assessor was not aware of any going-concern golf course in respondent’s Township that had been converted to residential development.

We conclude that competent, material, and substantial evidence supported the tribunal’s finding that the highest and best use of the property was a public, daily-fee golf course. A reasonable person would accept the evidence as sufficient to support the tribunal’s conclusion that petitioner established that residential development was not financially feasible.

The decision reduced actual taxes by about $25,000 each year going forward. Michigan state law
allows the assessment to go up by the Inflation multiplier rate or 5%, whichever is lowest. The 2018 rate was 1.021%; in 2019 was 1.024%.

Time was the drag on this whole thing. Hoag filed in May of 2017 and continued to pay property tax during the case so they wouldn’t be behind in case they lost. After getting the refund and paying the attorney fees, having the Township file an appeal was shocking. Hoag’s attorney counseled that there was no basis for the appeal and not to worry. When the appeal was decided in the Hoags’ favor, it had been a three-year process.

Needless to say, saving $25,000 per year is significant savings. It has a big impact on the P & L. But expect municipalities to more aggressively pursue tax strategies to make up for lost revenues due to the pandemic, and to this point, no help from the federal government. Making sure you are taxed fairly and equitably will be a more significant challenge than many have faced before.

Jeff Hoag hosts an annual gathering of the “Masterminds of Golf” at the NGCOA Golf Business Conference. I was lucky to be invited to my first in 2020. It was a standing-room-only crowd fueled a bit by a bar in the room. Jeff makes the meeting about the audience, letting them ask for and offer advice on any number of golf business topics. Jeff didn’t mention his tax case, but I expect he might when the Masterminds meet again. And with his tax savings, maybe Jeff will host the bar.


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