All TERC Appellants Bear Dual Burdens; Verified Actual Rents Are Permissible in the Mass‑Appraisal Income Approach

Introduction

In Pinnacle Enterprises, Inc., and Midland Heights Apartments, L.L.C. v. Sarpy County Board of Equalization and Danny Pittman, 320 Neb. 303 (Neb. Nov. 7, 2025), the Nebraska Supreme Court reversed a decision of the Tax Equalization and Review Commission (TERC) that had set aside the Sarpy County Board of Equalization’s (Board) lowered valuations of two apartment parcels. The Board had accepted a referee’s income-approach valuation that used the owner’s actual rents—verified against market indications—while holding other inputs (vacancy, expenses, capitalization rate) to market-typical levels. TERC rejected that approach as inconsistent with professionally accepted mass appraisal methods and reinstated the Assessor’s higher valuations based on market-typical rents.

The Supreme Court reinstated the Board’s values, and in doing so announced two important holdings. First, it clarified that under Neb. Rev. Stat. § 77‑5016(9) the dual burdens of proof in TERC appeals fall on the appellant—whether a taxpayer or an assessor. Second, it held that using verified actual rent data within the income approach, alongside market‑typical vacancy, expense, and capitalization inputs, is permissible under professionally accepted mass appraisal methods where the actuals are verified or shown consistent with typical figures.

Summary of the Opinion

Standard of appellate review: The Supreme Court reviewed TERC’s decision for errors appearing on the record—i.e., whether it conformed to law, was supported by competent evidence, and was not arbitrary, capricious, or unreasonable. Questions of law were reviewed de novo.
Dual burdens clarified for TERC appeals: The Court held that the two-step burden structure in § 77‑5016(9) applies to “the appellant,” whoever that is. Thus, when an assessor appeals a county board’s decision to TERC, the assessor bears (1) the burden to rebut the presumption that the board acted properly and on sufficient evidence, and, if successful, (2) the burden to prove the board’s valuation was unreasonable or arbitrary.
Use of actual rents: TERC erred in rejecting the Board’s valuation on the premise that actual rents could not be used under mass appraisal methods. Industry materials recognized by TERC permit use of actual or reported figures when verified or consistent with typical figures. The referee provided verification (owner confirmation and an online rental market database), so the Board’s decision was not unreasonable or arbitrary.
Competent evidence: The referee’s testimony and analysis constituted competent evidence. The fact that the referee did not perform a fee appraisal or specialize in mass appraisal did not disqualify his recommendation, particularly where he used the same income-approach framework as the Assessor and only differed on the rent input.
Alternative arguments rejected: The Assessor’s equalization and unclean hands contentions did not supply an alternative basis to affirm TERC; the equalization argument was conclusory and undeveloped, and the record did not support unclean hands.
Disposition: The Court reversed TERC and remanded with directions to affirm the Board’s valuations ($7,450,829 and $3,559,566 for the two parcels for tax years 2020 and 2021).

Analysis

Precedents and Authorities Cited and Their Influence

Platte River Crane Trust v. Hall County Board of Equalization, 298 Neb. 970, 906 N.W.2d 646 (2018): Reaffirmed the appellate standard of review for TERC decisions—errors on the record. This framed the Court’s review lens in evaluating TERC’s substitution of judgment for the Board’s.
County of Webster v. Nebraska Tax Equalization & Review Commission, 296 Neb. 751, 896 N.W.2d 887 (2017): Confirmed that questions of law in TERC appeals are reviewed de novo, enabling the Court to announce the new clarification on who bears the second burden under § 77‑5016(9).
Cain v. Custer County Board of Equalization, 315 Neb. 809, 1 N.W.3d 512 (2024): Articulated the presumption of validity for county board actions and the burden to overcome it. The Court extended this presumption to apply against assessor-appellants as well, not just taxpayers.
Lancaster County Board of Equalization v. Moser, 312 Neb. 757, 980 N.W.2d 611 (2022): Described the stringent showing taxpayers must make to prove a valuation is unreasonable or arbitrary (e.g., “grossly excessive” relative to comparables due to systematic will or failure of duty). The Court observed that this specific framing does not neatly map onto assessor appeals that typically challenge values as too low, but the overarching requirement to prove “unreasonable or arbitrary” applies to any appellant.
Ideal Basic Industries v. Nuckolls County Board of Equalization, 231 Neb. 653, 437 N.W.2d 501 (1989): Earlier statement that taxpayers bear the burden to prove unreasonableness. The Court clarified the principle’s extension to all appellants under § 77‑5016(9).
Phelps County Board of Equalization v. Graf, 258 Neb. 810, 606 N.W.2d 736 (2000): Demonstrated an assessor successfully rebutting the presumption, but left the second-burden question unresolved. This case provided the springboard for the Court’s express clarification that assessors must satisfy the second burden as well.
Statutes and administrative authority:
- Neb. Rev. Stat. § 77‑201(1) (Cum. Supp. 2024): All non-exempt real property is taxed at “actual value.”
- Neb. Rev. Stat. § 77‑112 (Reissue 2018): Defines actual value as market value and lists accepted mass appraisal approaches (sales, income, cost). The Court emphasized nothing in § 77‑112 precludes using verified actual income figures within the income approach.
- Neb. Rev. Stat. § 77‑5016(9) (Reissue 2018): Establishes the two-step burden structure for TERC appeals; critical to the Court’s holding that both burdens fall on “the appellant.”
- Neb. Rev. Stat. § 77‑5016(3): Permits TERC to utilize pre-identified treatises and reference materials outside the record. The Court acknowledged TERC’s authority to consult International Association of Assessing Officers (IAAO) publications but found TERC misread them.
- 442 Neb. Admin. Code, ch. 2, § 001.45 (2011): Identifies the IAAO materials as professionally accepted sources for mass appraisal methods.
- Neb. Rev. Stat. § 77‑1502.01 (Reissue 2018): Describes referee duties; relevant to endorsing the referee’s role and analysis as competent evidence.

Legal Reasoning

The Court’s analysis proceeded in two main steps: (1) clarifying the burdens in TERC appeals and (2) applying those standards to the evidentiary record, with particular attention to the income approach inputs and the use of industry guidance.

1) Who bears the burdens at TERC under § 77‑5016(9)?

Section 77‑5016(9) speaks in terms of “the appellant” in “all appeals” (except levy appeals). The Court read this text to mean that whoever appeals to TERC—taxpayer or assessor—must shoulder both burdens:

First burden: Present competent evidence to rebut the presumption that the county board faithfully performed its duties and acted on sufficient competent evidence.
Second burden: Establish that the board’s valuation was unreasonable or arbitrary.

Prior cases emphasized these burdens for taxpayer-appellants; Graf showed an assessor rebutting the presumption but did not clearly assign the second burden. The Court expressly resolved that ambiguity: the second burden applies to any appellant subject to § 77‑5016(9). The Court sensibly noted that the “grossly excessive” formulation from taxpayer cases does not fit assessor appeals (which challenge values as too low), but the ultimate inquiry—unreasonable or arbitrary—remains constant.

2) Applying the standard to the record

The parties agreed on the income approach framework and disagreed primarily on the appropriate rent input:

The Assessor used market‑typical rents.
The Board’s referee used the owner’s actual rents, verified for general consistency with ongoing income and cross‑checked against an online rental database’s estimates for the subject’s market for the relevant tax years, while adopting the Assessor’s vacancy, expense, and capitalization rates.

TERC viewed the Board’s acceptance of actual rents as contrary to professionally accepted mass appraisal methods, invoking IAAO materials. The Supreme Court disagreed. Those materials, which TERC properly may consult under § 77‑5016(3), acknowledge that “actual or reported figures can be used as long as they reflect typical figures,” and that assessors may either use reported figures when verified or consistent with typical figures, or consistently employ estimated figures. In short, the IAAO guidance permits the very approach the Board accepted, provided verification or consistency is shown.

The referee’s testimony supplied that verification:

He confirmed with the owner that the one-month pro forma reflected typical operations.
He compared the owner’s rents (from 2017) to an online database’s estimated rents for the properties in 2020 and 2021 and found consistency.
He held all other income-approach inputs equal to the Assessor’s (vacancy, expenses, cap rate), isolating rent as the only disputed input.

That evidence was “competent,” notwithstanding that the referee did not perform a fee appraisal or hold mass-appraisal specialization. Referees are tasked by statute with evaluating protest evidence and making recommendations; the Board was entitled to rely on his analysis. The mere existence of an alternative (Assessor’s) valuation using market rents did not permit TERC to supplant the Board’s valuation absent proof that the Board’s was unreasonable or arbitrary.

Because the Assessor did not carry the second burden—to prove unreasonableness or arbitrariness—TERC erred in reversing the Board. The Court underscored that even if the Assessor rebutted the presumption (first burden), success on appeal required more than showing that the Assessor’s valuation was professionally acceptable; it required demonstrating that the Board’s contrary valuation was unreasonable or arbitrary. That higher showing was not made.

Finally, the Assessor’s alternative equalization and unclean‑hands theories did not salvage TERC’s decision. Equalization was presented in conclusory fashion without coherent analytical support, and the record did not justify unclean hands.

Impact and Implications

A. Burdens in TERC Appeals: Strategic Realignment

Assessors appealing to TERC now face the same dual burdens as taxpayers: they must both rebut the presumption favoring the Board and affirmatively prove the Board’s valuation is unreasonable or arbitrary. Simply proving that the assessor’s value is “reasonable” or consistent with mass appraisal practice is insufficient.
Practically, assessor appellants will need robust, targeted proof that the Board’s approach was methodologically unsound, inconsistent with law, internally incoherent, or lacking minimal verification—something more than a technical disagreement over inputs.

B. Mass Appraisal and Actual Rents

Verified actual rents are fair game within the income approach in mass appraisal when they are shown to be consistent with market-typical figures. TERC cannot categorically reject actuals; its own recognized IAAO materials permit their use on verification.
Verification can include a mix of owner confirmation and external market checks (e.g., reputable rental databases), even where the actual data originates in a prior year, so long as evidence supports consistency for the valuation years.
This is especially consequential for properties with rents that differ from model assumptions (e.g., negotiated below-market rates, stabilized rent strategies, concessions). Verified actuals can sharpen accuracy while preserving the mass appraisal framework through continued use of market-typical vacancy, expense, and cap rates.

C. Role of Referees and Evidence Quality

County boards may rely on referee analyses that use standard valuation formulas and provide reasonable verification of disputed inputs. Referees need not perform fee appraisals to generate competent evidence in protest proceedings.
Minor inaccuracies in a referee’s report (e.g., a mistaken statement about receiving expense data) will not invalidate the recommendation where the referee explains the mistake and the actual inputs used.

D. Use of Treatises by TERC

TERC may consult identified appraisal treatises under § 77‑5016(3), but must apply them faithfully. Here, industry guidance expressly allowed using verified actuals; treating that as prohibited was error.

E. Equalization Claims Require Substance

Equalization arguments must be supported with concrete comparative analysis and a coherent legal framework (see Moser). Conclusory assertions will not suffice to overturn a board’s valuation.

F. Open Questions and Cautions

While the Court clarified that assessors must prove “unreasonable or arbitrary,” it did not delineate a comprehensive test for when a “too low” valuation meets that standard. Future cases may refine what kinds of methodological flaws or evidentiary deficits suffice for assessor appellants.
Verification of actuals: This decision accepted owner confirmation plus market database checks as sufficient in context. Future litigants should still build robust verification records (e.g., multi-month data, leases, rent rolls, independent market surveys) to avoid disputes over sufficiency.

Complex Concepts Simplified

TERC: The Tax Equalization and Review Commission is Nebraska’s specialized tribunal for property tax disputes. It reviews county board decisions under statutory standards.
Mass appraisal vs. fee appraisal:
- Mass appraisal: Valuation of many properties using standardized models and typical market inputs.
- Fee appraisal: Property-specific appraisal, often more granular and customized.
Mass appraisal commonly uses typical market rents, but professionally accepted methods allow actual rents when verified as typical.
Income approach: Estimates value using a property’s income stream. Steps typically include:
- Potential gross income (PGI): Income if fully occupied at expected rents.
- Less vacancy and collection loss: To get effective gross income.
- Less operating expenses: To get net operating income (NOI).
- Divide NOI by a capitalization rate: To convert income to value.
Presumption of validity: County boards’ valuations are presumed correct. The appellant must present competent evidence to overcome this presumption.
Dual burdens in TERC appeals (§ 77‑5016(9)):
- Burden 1: Rebut the presumption that the board acted properly and on sufficient evidence.
- Burden 2: Prove the board’s valuation was unreasonable or arbitrary.
Both burdens apply to any appellant—taxpayer or assessor.
“Unreasonable or arbitrary”: A legal standard asking whether the decision lacked a rational basis, ignored competent evidence, or reflected an improper methodology—not just whether a different value could also be supported.
Equalization: The constitutional and statutory requirement that similarly situated properties be valued uniformly and proportionately. Proving an equalization violation requires substantive comparative evidence and analysis.
Unclean hands: An equitable doctrine barring relief to a party who has acted inequitably concerning the subject of the dispute. It is rarely applicable in statutory tax valuation proceedings absent clear, material misconduct tied to the valuation issue.

Conclusion

Pinnacle Enterprises establishes two significant guideposts for Nebraska property tax litigation. First, it definitively assigns the dual burdens in § 77‑5016(9) to any TERC appellant, including assessors: they must not only rebut the presumption of the county board’s correctness but also prove the board’s valuation was unreasonable or arbitrary. Second, it confirms that professionally accepted mass appraisal methods allow use of verified actual rents within the income approach when those figures are consistent with market-typical levels; TERC may not categorically reject such evidence or supplant the board’s reasonable valuation with its own preferences absent a showing of unreasonableness or arbitrariness.

By reinstating the Board’s valuations, the Court underscored judicial deference to county board determinations supported by competent evidence and faithful methodology. Going forward, assessor appeals will require a more exacting evidentiary showing to overturn local equalization decisions, and both assessors and taxpayers should be prepared to document the verification and market consistency of rent inputs when deploying the income approach in mass appraisal contexts.