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    • Appellate Tax Board Update

    A periodic report for property owners, appraisers, assessors and attorneys

    February 2009

    THE YEAR 2008 IN REVIEW

    It was a busy year at the Appellate Tax Board which issued 83 Findings of Fact and Reports. Of that total, about 60 dealt with some aspect of real estate taxation although most of those involved single family homes. While there were several cases involving highly-valued commercial properties (such as three in Cambridge and one in Boston), those ATB decisions didn't involve novel points of law, procedure or valuation. We have selected the following decisions as worthy of comment.

    A WHOLE BUNCH OF CONDOS

    One hundred fifteen condominium units in a prime location in Weymouth provided the grist in Joseph Iantosca, et al v. Weymouth Assessors. The units were contained in two buildings and were apparently owned by six different owners who rented them to third parties as apartments although there were 38 units which were owner-occupied at some point during the five fiscal years (2002-2006) at issue. One of the buildings was valued at about $18 Million and the other for about $10 Million. In an effort to prove overvaluation, the appellants' expert testified that, in his view, the highest and best use of the buildings was for what he called a "condominium conversion", that is a sale to a single investor who would initially treat the units as rental apartments but gradually bring them to market for sale as individual condominiums. The ATB faulted this expert for his failure to account for "certain crucial facts", particularly the undisputed reality that, as a matter of law, the units were fully documented condominium units and that, during the period in question, 37 had been sold and some had even been re-sold. Against that backdrop, the ATB said it was not realistic to value the two buildings essentially as apartment houses.

    The owners' expert's primary valuation approach was what he called a "discounted cash flow technique" which incorporated certain elements of both the income-capitalization and sales-comparison methodologies, treating the units initially as income-producing apartments as they transitioned towards sales as condominiums for owner-occupancy.

    The ATB found numerous defects in this approach, including the expert's reliance on actual income and expense data without marketplace verification. In addition, a number of sales of actual units in these buildings were to existing tenants without exposure to the marketplace. At the end of the day, the ATB concluded that the owners had not carried their burden of proving overvaluation. In what turned out to be a shrewd tactical move, the assessors presented no evidence and simply relied on the validity of the assessed valuations.

    REVISED ASSESSMENT

    An unsuccessful attempt at imposing a revised assessment was the background to Zitzkat and Larue, Trustees v. Truro Assessors. As of January 1, 2001, the assessors had discounted the value of the property because its lack of a septic tank (it did have a cesspool) meant the dwelling could not be occupied. As a point of fact, however, the owners had been able to live on the property through waivers from the Board of Health. In a notice to the owners just prior to issuing a revised assessment (pursuant to Chapter 59, Section 76) on August 3, the assessors acknowledged that they had been meaning to discontinue the reduction in value for the septic issue but essentially never got around to it.

    In upholding the owners' challenge of the new tax, the ATB pointed out the prerequisite for a revised assessment, specifically that the property be unintentionally "valued or classified in an incorrect manner" because of "clerical, data processing or other good faith reason."

    To the contrary, the ATB found that the assessors' original valuation decision was made on "a reasoned and intentional decision to discount the subject property's assessment." The ATB went on to say that just because assessors eventually discovered that an occupancy issue did not exist "does not render its original decision unintentional due to a clerical error."

    ODOR CONTROL

    The owner of the property in Montello Street Carver Nominee Trust v. Carver Assessors certainly had some problems operating a waste treatment facility on its 30-acre parcel. The Massachusetts Department of Environmental Protection issued an enforcement order which required the owner to close the plant until a chief operator was hired and until odor-control equipment was functioning correctly.

    The owner argued that the shut-down order "hindered" its ability to make the facility profitable. The assessed value for fiscal year 2007 was about $2.5 Million, slightly more than the purchase price in 2001 of about $2.3 Million. The owner claimed the property, in light of its operational difficulties, was worth only about $1.3 Million.

    The owner offered no evidence of value other than its income tax returns. The assessors, on the other hand, used sales of other comparable commercial properties which justified the assessed value. In addition, the assessors argued that the environmental issues "directly related to lack of business oversight" by the owner and were not indicative of fair market value.

    The ATB, in denying relief to the owner, acknowledged that the temporary closure of the facility "impacted the business profit" but it did not affect the marketability of the property or prevent the current owner or a purchaser from using the property for its highest and best use. Finally, the ATB faulted the owner for its lack of any evidence, such as comparable sales data, to show that the property was overvalued.

    RFP NOT OK

    A request for proposals to purchase city-owned condominiums was the backdrop to Concerned Citizens for Springfield v. Springfield Assessors. In 2005 the City of Springfield issued an RFP to purchase condominium units in a much-troubled housing complex. Concerned Citizens purchased the unit in question, along with four others, for $1,000 each plus outstanding condo fees totaling about $27,000. Concerned Citizens challenged the $24,000 assessed value of the single unit for Fiscal Year 2007. The group argued that the complex was on a former landfill site which later settled and caused extensive damage to the buildings. In addition, Concerned Citizens claimed there was lead paint in the common areas "as well as litter, broken locks and missing screens." The owner argued that the value should be the $1,000 purchase price.

    The assessors came in with evidence of the bulk sale of 177 units in November 2004 for an average price of about $30,000 as well as evidence of individual unit sales in 2005 for prices ranging from $12,000 to $22,000. First, the ATB was impressed with the assessors' comparable sales data. Second, and perhaps most importantly, the owner's purchase through the RFP process "was not a transaction that was free from compulsion and was not a reliable indication of the fair market value of the property." As for the problems in the common areas, the ATB concluded that these deficiencies prevailed throughout the building, were "not unique to the subject property" and applied equally to the assessors' comparable properties. The ATB upheld the $24,000 assessed value.

    TWO WRENCHING CHAPTERS

    Two ATB decisions dealt with procedural technicalities of "chapter land" valuation and taxation.

    First there was Gonthier v. Amesbury Assessors, involving an appeal from a $9,000 Chapter 61A "roll-back" tax. On October 11, 2006 Mr. and Mrs. Gonthier filed their petition with the ATB to abate the tax. Unfortunately for the owners, the ATB was really left with no choice but to dismiss the appeal because of a little-known trap for the unwary buried in Chapter 61A, Section 19. That section provides that an appeal to the ATB may be taken within 60 days of the date of the assessors' notice of their decision on the roll-back tax or, if later, within three months of the date of the application. That deadline stands in contrast for the deadline in a typical real estate overvaluation case which is three months after the actual denial or deemed denial. In an overvaluation case, if the assessors fail to give any notice of their denial or deemed denial the way is cleared for a petition for late entry.

    Chapter 61A, Section 19 obviously requires applicants to get their appeal to the ATB within three months of their abatement application even if they have heard nothing from the assessors. A strong precedent from the Massachusetts Appeals Court and the ATB's own prior cases supported the ATB's decision in the Gonthier matter. In a rarely-seen expression of sharing a litigant's pain, the ATB stated that it "recognizes the harshness of the results" in the prior cases as well as the Gonthier matter. Clearly, any relief will need to come from the legislature.

    On the other hand, the taxpayers in Adams v. Westport Assessors got a good scare on their Chapter 61A (agricultural) exemption before ultimately getting relief from the ATB. Mr. and Mrs. Adams timely filed their Chapter 61A classification application for land on which they would raise alfalfa. Although the application was incorrectly completed as to the amount of land to be devoted to agriculture, the assessors allowed the favorable classification on the entire 13.41 acre parcel in December 2005. A year later, the owners applied for and later obtained a building permit to construct a home on a 1.4 acre parcel within the 13.41 total tract. The building permit prompted the assessors to impose a conveyance tax of about $62,000 based on a value of about $686,000. The ATB admitted that it could not figure out exactly how the assessors went about their calculations, i.e. how they arrived at the value of $686,000. Chapter 61A, Section 12 states that the conveyance tax is to be imposed only on that part of the land on which the use has been changed from agricultural.

    Justifiably unhappy, Mr. and Mrs. Adams applied for an abatement. The owners argued that they never intended to have all the land classified as agricultural since their initial application left blank the "acres to be classified" question and their application for a building permit was not that long after filing the classification application. As the ATB noted, Chapter 61A, Section 14 provides that the use of land as a residence for the owners of the agricultural tract "shall not be deemed to be a conversion of land from agricultural to another use." The ATB therefore found that there was no conversion away from agricultural use and that the conveyance tax was "improperly imposed." A close call, but a happy ending, for Mr. and Mrs. Adams.

    STATE-OWNED LAND

    Under General Laws Chapter 58, Section 13 the Commissioner of Revenue, every four years, is required to determine the fair cash value of state-owned land located in municipalities. The commonwealth then uses these valuations to determine its payments to the municipalities where the land is located. The acreage calculations and procedural requirements of Section 13 arose in Town of Ipswich v. Commissioner of Revenue.

    By a letter dated June 1, 2005, the Commissioner notified the Ipswich assessors that she had determined the fair cash value of state-owned land at about $28.5 Million for 2005 and gave the assessors until August 10, 2005 to challenge the valuation. The assessors did not appeal by the August 10 deadline but, thanks to a special act of legislature, were given additional time to file an appeal which could only address the amount, not the value, of the land.

    The ATB's hearing apparently featured testimony of the he-said/she-said variety with respect to the acreage of state parks, forests and preserves in the town. At the end of the day, the ATB found that the town had carried its burden with respect to defects in the Commissioner's methodology for determining the amount of land within certain parks but also for showing that certain tracts should be, but were not, eligible for reimbursement. The ATB also faulted the Commissioner for failing to hold the public hearing required by Chapter 58, Section 14 as part of the certification/valuation process.

    The Ipswich case was also important for its affirmation of the standard of proof imposed on municipalities challenging the Commissioner's acreage determinations. In the typical valuation case, the ATB reaches its own independent judgment of value based on the evidence. On the other hand, in a Section 13 case the ATB looks at whether the method used "is reasonably designed to achieve the statute's objectives, and whether the method was properly implemented in the particular case." The ATB does not substitute its own judgment as to the "most appropriate method of valuation" and the goal is not precision but "only an approximate reimbursement of lost taxes." The Commissioner's procedure will be upheld as long as it is not "arbitrary or capricious."

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    CHARITABLE EXEMPTIONS

    In the realm of real estate tax exemptions for charitable organizations, the most significant development in 2008 came not from the Appellate Tax Board but from the Massachusetts Supreme Judicial Court. The new case was New Habitat, Inc. v. Tax Collector of Cambridge (451 Mass. 729). New Habitat was a "non-profit organization whose stated mission is to provide long-term housing for persons with acquired brain injury and to promote the well being of its residents by providing them with, among other things, educational programs, personal assistance programs and programs to improve their physical and psychological health."

    The facility operated by New Habitat could accommodate a maximum of only four residents. In addition, New Habitat charged substantial fees: $17,000 to $18,000 per month and a $150,000 entrance fee. Potential residents had to provide information on their ability to pay these charges and, in addition, residents were required to have their own health insurance.

    As we have noted in previous issues of the Update, fees of the New Habitat magnitude have been found in ATB and appellate court decisions to be so high that a substantial segment of the population was barred simply because it couldn't afford to pay. In its decision, the SJC floated the concept of "traditionally charitable" purposes. This concept, a new term to charitable exemption cases, was important since the court decided that more leeway in meeting exemption standards should be granted to an entity which undertook "traditionally charitable" purposes. Substantial fees, for example, were less of a factor for a "traditionally charitable" entity than they would be if the purposes of the organization were more remotely charitable. Similarly, the small number of beneficiaries, another area of concern in many exemption cases, was less important for a "traditionally charitable" entity.

    As for New Habitat, the SJC found that it was in fact a "traditional charity" and that status trumped any concerns about the substantial entrance fee, monthly fees and small number of residents. In future cases, the challenge will be to determine just what is a "traditional charity" as assessors and non-profit entities try to figure out if a tax exemption is in order.

    The first post-New Habitat decision from the ATB came early in 2009 (Straight Ahead Ministries, Inc. v. Hubbardston Assessors). This case involved Straight Ahead Academy which served as a temporary group home for young men between the ages of 16 and 20 who were recently discharged from juvenile detention facilities. The Academy was "faith-based" in that it applied Judeo-Christian principles although the ATB found that it employed "no religious test for admission." There were fewer than a dozen students at any one time. The Massachusetts Department of Youth Services paid the tuition although most of the Academy's financial support came from tax-deductible gifts.

    Applying the principles from New Habitat, the ATB found that the Academy was "traditionally charitable", thus easing concerns for the small number, restricted ages and male-only limitations on the students. The ATB took particular note that the Academy "lessened a burden of government" since the students might otherwise be in a state-run facility.

    As for a more conventional (and pre-New Habitat) exemption case decided in 2008, the non-profit facility was unsuccessful in Mary Ann Morris Healthcare Corp. v. Framingham Assessors. The property owner was admittedly a non-profit entity and the facility, Heritage of Framingham, included 48 regular assisted living units and an additional 40 assisted living units for those with Alzheimer's disease. The residents paid a $1,200 entrance fee, needed to undergo a medical evaluation and complete a financial questionnaire to show their ability to pay the monthly fees which ranged from $4,100 to $5,920. Importantly, the rules of the facility required that staff persons give 24 hour notice before entering an apartment, a factor which led the ATB to conclude that residents had "full legal tenancy." That status meant that the residents themselves occupied the property and not the charitable entity itself, as required by General Laws Chapter 59, Section 5, Clause Third. The ATB similarly found that the magnitude of the fees restricted residency to financially well-off tenants and this restriction meant the facility did not serve the large, indefinite class also required by Clause Third. The case has been appealed to the Appeals Court.

    Another unsuccessful exemption case involved land that was beautiful and perfect for bird-watching and dog-walking (Brookline Conservation Land Trust v. Brookline). The ATB concluded that the land trust held the properties for the primary benefit of the immediate neighborhood and not for the general public. These were sufficient grounds to deny the exemption application. The case has been appealed to the Appeals Court.

    OTHER CASES OF NOTE

    Airport Lease. The City of Fitchburg, through its Airport Commission, leased land to a realty trust which constructed hangars on the property. The City issued tax bills for the hangars themselves (but not the underlying land) to the owners who in turn claimed the hangars should be exempt under General Laws Chapter 59, Section 2B as "reasonably necessary to the public purpose of a public airport... available to use of the general public...." The ATB upheld the tax on the hangars in David C. and Rodney A. Smith and Liebfried Realty Trust v. Fitchburg Assessors. Section 2B requires that, to be exempt, the property must be municipally-owned. In this case the hangars -- not the land -- were at issue and these were owned by a private entity. What's more, the hangars were not available to the general public but only to those who rented them from the owners for the storage of private aircraft.

    Under Water. In Northeast Generation Co. v. Northfield Assessors the assessors learned the hard way that land under the Connecticut River isn't taxable even though the abutting property owner has rights to draw the water from over the riverbed land. Northeast owned and operated a pumped-storage electric generating facility on the abutting land and had rights to draw water, to a depth of nine feet, over 687 cares of riverbed located in Northfield. The assessors argued that the use of the water was the equivalent of using the riverbed, thereby subjecting the riverbed land to taxation. The parties stipulated and the ATB found that, as a navigable waterway, title to the Connecticut River was held in trust by the commonwealth for the use of its inhabitants, and this title included the riverbed as well as the water itself. The riverbed could still be subject to taxation under Section 2B if Northeast leased, occupied or used the riverbed in connection with its business. The ATB found that this was not the case since Northeast merely held the right to draw water from the river.

    Trailer Talk. The stakes weren't high but an important principle emerged intact in Kabat and Mullins v. Cummington Assessors. Although there was land, various structures and personal property involved in the case, the key battleground was a 35 by 8 foot trailer with a hitch and registered as a motor vehicle. The owners argued that the trailer was small and moveable and should be treated as personal property. The assessors and the ATB disagreed, relying on Chapter 59, Section 2A which allows taxation of land and "all buildings and other things thereon or affixed thereto." There was no question that the trailer was on the land; the "degree of physical attachment to the land" was not an issue. As for the valuation of the trailer, however, the ATB was persuaded by the owners' testimony about the purchase of the trailer in 1986 for $8,000 and about the sale price of comparable used trailers. The ATB found that the $31,500 assessed value was wide of the mark and concluded that the fair cash value was actually just $5,000.

    Wrong Party. A close reading of General Laws Chapter 59, Section 64 brought woe to the Appellant in RNK, Inc. v. Bedford Assessors. RNK was the lessee of personal property consisting of digital telecommunications equipment which was owned by Siemens Information and Technology, Inc., the assessed owner of the property which had filed the required Form of List. RNK paid the taxes but Siemens filed the abatement application and, after the application's denial, RNK filed the ATB petition in its own name. Siemens, as the owner of the personal property, was in fact a "person aggrieved" by the refusal of the assessors to grant the abatement. Although the lease agreement required RNK to pay the taxes, the ATB interpreted Section 64 to mean that only a person aggrieved by denial of the abatement, i.e. the assessed owner, could appeal to the ATB. The ATB's decision in the RNK case only heightens the contrast with another provision in Chapter 59, Section 59 which spells out a number of exceptions (such as a tenant of real estate required to pay real estate taxes) who may seek an abatement and take an appeal. Such an exception does not apply to personal property taxes, as RNK learned the hard way.

    ON HIGHER AUTHORITY

    The Appeals Court upheld the Appellate Tax Board's decision in Graham v. West Tisbury Assessors, reported in last year's Update. This was the case involving seven parcels of real estate on Martha's Vineyard with total assessed values of over $50 Million. After 36 days of trial, the ATB found an overvaluation on just two of the parcels with a value of only about $525,000. The Appeals Court agreed that justice had been done at the ATB.

    No less than the Supreme Judicial Court upheld the ATB's decision in W. B. & T. Mortgage Company, Inc. v. Boston Assessors, reported in the 2007 Update. In this case the property owner challenged the constitutionality of Chapter 59, Section 2C which requires the use of the sale price, rather than fair cash value, when assessing a previously-exempt property for the first time after a transfer of ownership brings the property back on the tax rolls. Once the property is no longer exempt, Section 2C imposes a "pro forma tax" based on the number of days remaining in the fiscal year in which the transfer takes place. The new owner (who had purchased the property from the Roman Catholic Archdiocese of Boston) claimed that the use of the sale price, rather than fair cash value, resulted in an unconstitutional "disproportionate" imposition of the tax since fair cash value is the basis of the tax with non-exempt property. As it turned out, the ATB concluded that the new owner had not presented any evidence that the fair cash value of the property was in fact different than the purchase price. The new owner therefore had failed to show that the "pro forma tax" was disproportionate. The Supreme Judicial Court agreed.

    2007 CAPITALIZATION RATE SURVEY
    CASETYPE OF PROPERTYYEARATB % RATE
    Zuckerman v. CambridgeHotel20059.5%
    Cambridge Park v. Cambridge Office Building20048.5%
    Fawcett Street v. CambridgeOffice Building2005-068.25%
    Fort Hill v. BostonOffice Building20038%

    Appellate Tax Board Updates:

    2008 | 2007 |2006 |2005 | 2004 | 2003 | 2002 | 2001 | 2000


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