About DWP&M
Our Founders
Our Practice
- Public Service
- Litigation
- Corporate
- Municipal
- Intellectual Property
- Trusts & Estates
- Real Estate
- Environmental
- Employment
Members of the Firm
Your Resources
- Quarterly Newsletter
- Appellate Tax Report
- Litigation Newsletter
- Firm News and Information
Request Info
Employment Opps.
Contact Us
|
Appellate Tax Board Update
A periodic report for property owners, appraisers, assessors and attorneys
February 2000
| | 1999 IN REVIEW During 1999, the Appellate Tax Board issued 44 Findings of Fact and Reports, 20 of which involved real estate. Eight of these 20 dealt with commercial properties, seven involved single family homes and the rest were spread among multi-unit residential properties, a continuing care retirement community and a co-generation power plant. Eight of the cases were resolved by the ATB's simply concluding that the appellant had not overcome the presumption in favor of the validity of the assessed valuation. CONTINUING CARE RETIREMENT COMMUNITY Perhaps the most significant decision of the year was the ATB's final decision of the year, Western Mass. Lifecare Corp. v. Springfield Assessors (Dec. 29, 1999). The case involved a continuing care retirement community operated by a non-profit corporation organized under General Laws, Chapter 180. Given the increasing number of these facilities, their value and the unsettled state of the law on their taxation, the ATB's decision went a long way toward answering important questions for owners and assessors. The Springfield facility, known as Reeds Landing, was operated by the Appellant on land which it leased from Springfield College. The corporation's Articles of Organization said it was formed "to provide housing, nursing care, social and recreational services and other related services designed to meet the special needs of the elderly in order to enable them to maintain their independence" (emphasis added). The design of Reeds Landing followed a fairly typical pattern. The facility included 117 independent living units "for the exclusive use and control of the resident" and "intended to meet the special needs of aging persons by accommodating their physical changes, including decreased sensory acuity and mobility." The independent apartments were one bedroom and two bedroom units while the cottage-type units were all two bedrooms. All units had a fullyequipped kitchen. Reeds Landing also included 54 assisted living units "designed for those individuals who are not in need of full nursing home care but who do require some assistance in their daily activities." All of these units had one bedroom, a private bath and a kitchen alcove with a refrigerator, sink and a small range. There were 15 assisted living units, which did not have kitchens, for the memory-impaired. Finally, Reeds Landing included a 40-bed Level II long-term care skilled nursing facility. Residents of both the independent and the assisted living units could enroll for a "life care benefit" and thereby be guaranteed admission to the nursing facility. Significantly, although the services of the nursing facility were theoretically available to the general public, the ATB stated that the Appellant had failed to produce any evidence that a skilled nursing resident had not previously lived in one of the independent or assisted living units. Reeds Landing had a Medicaid provider agreement for the nursing facility and could not deny admission on the basis of income. But again, the ATB stated that the owner had offered no evidence that the six Medicaid patients were low income individuals. Prospective residents of both the independent and assisted living units were required to make up-front payments ranging from $75,000 to $290,000 and were required to show the ability to pay monthly service fees ranging from $1,300 to $2,300. As for the skilled nursing facility, although it was theoretically open to the public, the ATB said the "most reasonable inference" to be drawn from the evidence is that residents of the nursing facility "must first qualify, financially and otherwise, for admission" into the independent or assisted living units. Turning to the merits, the ATB found that "the potential class of beneficiaries was limited to that group of persons wealthy enough to afford Reeds Landing's substantial entrance fee and monthly service fee." The potential class of beneficiaries, the ATB found, was simply not sufficiently large to qualify for the charitable exemption under General Laws, Chapter 59, Section 5, Clause 3rd. The owner's operation of the skilled nursing facility, which was available without payment of an entrance fee, was not its "dominant activity" and the charitable use of this facility to provide health care "amounted to only an incidental use" of the property. At the outset, the ATB bifurcated the proceedings into one phase when qualification for the charitable exemption would be determined. The second phase would deal with valuation and would take place if all or part of the facility was found to be taxable in the first phase. This second phase was important since the ATB had found that the entire facility was taxable. Unfortunately, things took a bad turn for the Appellant's expert valuation witness who was forced to acknowledge on cross examination that he was not "competently qualified to handle this assignment" and, even worse, went on to withdraw his opinion of value. Given this turn of events, the ATB struck all opinions of value from the expert's testimony and, in the absence of any further competent evidence, simply found that the Appellant had failed to meet its burden of proof that the property was overvalued. In reaching its conclusion, the ATB distinguished a number of prior cases relied on by the Appellant. For example, although the Appellant was exempt from federal income taxation, this was "relevant" but "not controlling" (see, H-C Health Services, Inc. v. South Hadley Assessors, 42 Mass. App. Ct. 596 (1997)). While "providing living quarters" for needy persons is a charitable purpose (see, Milton Residences for the Elderly, Inc. v. Milton Assessors, 3 Mass. App. Tax Bd. Rep. 147 (1983)), the Reeds Landing residents were "for the most part, both physically and financially independent"; in fact one of the purposes of the corporation was to enable these residents to "maintain their independence." The availability of services such as housekeeping, laundry, transportation and meals were not shown by the Appellant as being actually required by the residents rather than simply being a benefit of residence. Finally, the ATB needed to deal with its own troubling precedent in Island Elderly Housing, Inc. v. Tisbury Assessors (1997) which found that even an essentially independent living facility could be exempt. The ATB pointed out, however, that in Island Elderly the assessors conceded that the owner was a charitable organization and that the owner provided affordable housing and related services to very low and moderate income persons. There was no evidence that this was the clientele at Reeds Landing. The size of the entrance fees and the apparent wealth and independence of the residents at Reeds Landing provided a comfortable setting for the ATB to reach its decision. A more difficult case would involve a facility with less affluent residents and no independent living units. Such guidance, however, will wait for another day. TENANT'S ABATEMENT RIGHTS General Laws Chapter 59, Sec. 59 permits a tenant, "under obligation to pay more than one half of the taxes" to seek an abatement. This rarely - seen clause was the focus of Cambridge Trust Company v. Cambridge Assessors (September 28, 1999). The building in question, known as Holyoke Center, was a retail-office-parking complex which was almost entirely occupied and used by Harvard College although about 7% of the office space was occupied by Cambridge Trust (there was no dispute that the part occupied by Harvard was exempt). The lease arrangement called for the bank to pay basic rent plus additional rent for operating expenses and real estate taxes exceeding a base year amount. The central issue was whether only the tax escalation payments should be considered in determining whether the bank paid half the taxes. The bank argued that part of its basic rent was used by the owner to pay real estate taxes and that these payments plus the escalation payments exceeded half the taxes. The ATB allowed the assessors' motion to dismiss the petition. The ATB reasoned that the mere fact that the landlord took real estate taxes -- as well as all other costs -- into consideration in fixing the rent did not mean that the tenant was under an obligation to pay real estate taxes any more than the tenant was under an obligation to pay the landlord's utility bills or any other expenses. Since there was no dispute that the tax escalation payments alone fell short of one half the total tax, the ATB dismissed the petition. HOME OWNERSHIP PROGRAM The state Homeownership Opportunity Program ("HOP"), administered by the Massachusetts Housing Finance Agency, is designed to enable low and moderate income families to purchase homes through discount opportunities such as a maximum purchase price and interest rate mortgage subsidies. The valuation of these homes was the issue in Truehart, et al v. Montague Assessors (April 21, 1999) where the maximum purchase price was $95,000. At the time of purchase, the program called for an appraisal of the dwelling as if it were not in the program. This value, compared to the maximum purchase price, resulted in a discount rate which would be utilized later when the dwelling was proposed to be sold. If the discount rate, for example, was 25% (meaning that the appraised value was 125% of the maximum HOP price) and the appraised value was $200,000,kl the maximum resale price of the unit would be $150,000. One feature of the program was the MHFA's right of first refusal to purchase the property at the discounted price ($150,000 in the foregoing example). If the MHFA did not exercise its right of first refusal, the owner was free to market the house at any price. The owner could only keep, however, the discounted value and, in this example, would have to pay any proceeds in excess of $150,000 to MHFA. The ATB found that the actual discounted value of the dwellings at issue was in fact the fair cash value. The assessors were wrong, the ATB found, in ignoring the deed restrictions which gave MHFA the right of first refusal to purchase the property at the discounted price. Recognizing the restriction was particularly appropriate, the ATB found, since the MHFA, during the time period in question, consistently exercised its right of first refusal except in two cases of administrative oversight. ZONING LIMITATIONS The determination of whether a vacant lot is actually "buildable" clearly has an impact on value. In Silbert v. Brookline Assessors (March 25, 1999) the building inspector concluded that, based on square footage and frontage, the lot in question was a separate buildable lot from the adjoining lot on which the dwelling was located. The owners argued that even though the lot met the zoning by-law requirements from the standpoint of dimensions, it would take special permits and/or variances to actually develop the lot. There were, for example, set-back compliance issues with respect to the adjacent dwelling which arguably impacted the lot. In addition, access to the garage for the adjacent dwelling required travelling over part of the vacant lot. These conditions, the ATB found, "created uncertainties relating to potential expenditures and delays, and required variances before the two lots could be legally separated." Merely looking at the minimum lot size and street frontage requirements of the vacant lot, the ATB went on, was "simplistic and simply inappropriate." An added wrinkle to the case involved the prior three fiscal years (1994, 1995, 1996) for which the ATB had ruled in an earlier case that $150,000 was the fair cash value. For 1997, the year at issue, the assessors had increased the valuation to $208,700. In such a situation, under General Laws Chapter 58A, Sec. 12A, the burden is on the assessors to satisfy the ATB that the increase over the value previously established by the ATB was warranted. In this case, the ATB found that the assessors had not met their burden of proving that the increase from $150,000 to $208,700 was justified and found that a value of $185,000 was appropriate. next column | PERSONAL PROPERTY Although real estate was not involved, the ATB did take on a novel question involving the tax status of structures, machinery and equipment used to generate electricity from gas emitted by a former sanitary landfill (Browning-Ferris Gas Services, Inc. v. Chicopee Assessors (October 7, 1999)). BF was the owner of a long-time landfill which was "closed" on the assessment date, January 1, 1994. One of the burdens of owning a landfill is the need to dispose of methane and related gases which result when compacted refuse decomposes in the absence of oxygen. Back in 1986, the Department of Environmental Protection approved a system of wells and pipes which collected the gases and carried them to a 25 foot stack where they were ignited or "flared." The flaring facility was an emergency measure to address the DEP's concerns for migrating gases to homes in the neighborhood. Around 1993 it apparently occurred to BF that it could use the gas to fuel internal combustion engines which would drive generators to produce electricity. BF obtained DEP approval for this system. This new gas-to-energy facility was included on the tax rolls for the first time in Fiscal Year 1995. This taxation effort called into play General Laws Chapter 59, Section 4, Clause 44th which exempts structures, machinery and equipment used to abate or eliminate industrial air pollution. That basic tax exemption, however, does not cover "facilities installed for the primary purpose of salvaging materials which are usable in the manufacturing process or are marketable." The Assessors argued that the flaring system disposed of the gases more effectively than the gas-powered generators and that the gas-to-energy facility simply manufactured electricity by salvaging the landfill gas. BF countered that the energy facility was a "natural progression of the pollution control process", particularly since the flaring system had only been conditionally approved by the DEP as a temporary approach pending a study on the feasibility of a gas-to-energy system. The ATB agreed with BF that the facility was not installed for the primary purpose of salvaging usable materials; rather, the system was, in the eyes of the DEP, "the most effective method of reducing air pollution at the landfill." This was a major victory for BF since it was spared the need to pay more than $78,000 in personal property taxes for the facility which was valued at $3.4 Million. The Chicopee Assessors have appealed the decision to the Appeals Court. The case was also noteworthy because it prompted a rarely-seen dissent in an ATB decision, this one from former Chairman Kenneth Gurge. In Mr. Gurge's view, the flaring system was the more effective pollution abatement approach while the new system was "primarily for the purpose of manufacturing electricity." Since an effective system was already in place before 1993, it followed that the only purpose for the new facility was to salvage the gas for use in the electricity generating process. In short, he could not ignore the "plain words of the statute" which denied the personal property tax exemption for facilities which may have controlled pollution but which were "installed primarily" to salvage the gas for manufacturing. ONE MORE TIME We reported last year that the Appeals Court had sent back to the ATB the matter of valuing a hotel/manufacturing complex (Analogic Corporation v. Peabody Assessors, 45 Mass. App. Ct. 605 (1998)). In 1999 the ATB issued its revised findings of fact and report pursuant to the Appeals Court's remand. The complexities of the methodology for valuing a hotel couldn't possibly be done justice in these pages. Suffice it to say that the primary directive of the remand was for the ATB to consider deductions from income for the cost of inventory build-up (e.g. food, towels, etc.), certain start-up expenses (e.g. marketing, training) and working capital (to cover valleys in the income stream). These are non-realty, intangible assets which help support the hotel's "going enterprise" value. Since these intangible assets are not part of the realty, their value should not be included in valuing that realty. The Appeals Court left it to the ATB to decide what non-realty assets to consider and the amount of the deduction from income which should be allowed for them. The bulk of the ATB's remand decision addressed these arcane considerations. To oversimplify, the ATB found that the proper approach is to value the hotel enterprise as a whole, then deduct the value attributable to the non-assessable intangible assets to reach a value of the assessable personal property which is then deducted to arrive at a value for the assessable real estate. The issues on remand relating to the manufacturing facility were much more straightforward as they related to revisiting the vacancy and capitalization rates initially used by the ATB and, on a more complex level, the appropriate amounts to deduct for tenant improvements and leasing commissions. After all was said and done, the ATB ordered abatements totaling about $3.8 million for the six years at issue, compared to the $1.5 million ordered the first time around. CO-GENERATION FACILITY Assessors, especially small town assessors, must rue the day that an abatement application for a steam generation/electric power plant comes under the door. Well, it happened in Montague (population 8,400) and the result was the ATB's longest decision of the year (58 pages) (Turners Falls LP v. Montague Assessors (November 1, 1999)). The ATB's decision delves into the technicalities of power pricing in New England, government regulation, power plant construction costs and related issues to which interested parties should resort on a need-to- know basis. At the end of the day, however, the ATB concluded that the Appellant had failed to prove overvaluation but (and that's a big "but") through their own expert witness the Assessors admitted that the property was overvalued. As a result the ATB adopted the conclusion of the Assessors' expert that fair cash value was about $21 Million (based on depreciated replacement cost) as contrasted with the assessed value of about $26 Million, resulting in abatements of about $140,000 for each of 1995 and 1996. The good news for the Assessors was the ATB's dismissal of the 1997 case for late payment, despite predictably creative reasoning by the owner that the ATB should retain jurisdiction. Both sides have appealed the decision and the case is now pending in the Appeals Court. OTHER CASES OF NOTE Auction Sales. Two cases clarified the ATB's view of auction sales for valuation purposes (FP Dev, Inc. and 145 Summer Avenue L.P. v. Springfield Assessors, (August 30 and October 19, 1999)). The owner's principal in both cases, using the sales approach to value, used the sale of four other properties in the neighborhood (both cases involved the same neighborhood). All four properties, however, were sold by the same seller at an auction. Although the principal testified that the auction was well publicized and that there was "spirited bidding" at the sales, the ATB concluded that the sale prices were not "reliable evidence" of fair cash value. The ATB found that the seller was primarily motivated to sell a large number of his real estate holdings very quickly rather than to maximize the sale price. Extensive presale publicity, the ATB found, still "did not provide for a reasonable exposure of the properties in a free and open market." Contingent Fee. The common thread to two cases was an expert appraiser witness for the appellant who conceded that he had been hired on a contingent fee basis (Compass Bank for Savings and Humphrey, Covill and Coleman v. New Bedford Assessors (October 15 and 21, 1999)). The ATB found in both cases that the witness' financial interest in the outcome of the appeal did not disqualify him from offering an opinion of value. The Board did, however, consider the contingent fee arrangement in assessing the witness' credibility. The ATB ordered modest abatements in both cases. ON HIGHER AUTHORITY During 1999, the Appeals Court dealt with two cases which had previously been noted in the Update. Two years ago we reported the ATB's decision in Sturdy Memorial Foundation, Inc. v. North Attleborough Assessors. The issue was whether a real estate tax exemption was appropriate for an office building which was owned by a charitable corporation but 82% of which was leased to another non-profit corporation which employed a group of physicians. The ATB made the ultimate finding that the dominant purpose of the tenant "was to benefit its physician-members" and not the public at large. The case followed an interesting procedural course after the ATB published its decision on November 17, 1997. On December 2, 1997 the foundation-owner of the building filed a motion for additional findings of fact on the grounds that there was "uncontradicted evidence" that, among other things, the physicians' corporation operated at a deficit, that the foundation-owner paid the funds to cover the losses and that the salaries of the physicians were below market. This motion for additional findings was denied by the ATB, without comment, on December 16, 1997 and the foundation-owner then appealed to the Appeals Court. The Appeals Court (47 Mass. App. Ct. 519 (1999)) held that the ATB's subsidiary findings with respect to the nature of the group physicians' practice did not support the ultimate finding that the dominant purpose of the corporation was to benefit its physician members. The Appeals Court stated that the charitable nature of a group medical practice must satisfy two requirements: first, there is an "absolute prohibition against private inurement." This prerequisite was satisfied since physicians employed by the corporation were not directors or officers, did not determine compensation and had no control over finances. The second requirement is that the group of persons benefiting from the practice must be sufficiently large so that the entire community benefited. In this case, the group handled 18,000 patient visits per year. The Appeals Court went on to conclude that the supplemental findings which were requested, if indeed they were supported by "uncontradicted evidence" as the foundation-owner alleged, would be specifically on point to the prerequisites for a finding that the physician corporation was in fact charitable and did occupy the space in the building in furtherance of its charitable purpose. The Appeals Court therefore remanded the matter to the ATB for reconsideration of its denial of the foundation-owner's motion for additional findings of fact. Another interesting procedural twist to the appeal arose out of the failure of the foundation-owner to provide the Appeals Court with a copy of the trial transcript. This precluded the owner from arguing that the ATB's subsidiary findings were not supported by substantial evidence. As a result the foundation was left to argue that the ATB's ultimate findings could be set aside if they were not supported by the ATB's subsidiary findings, the position taken by the Appeals Court. One other case which was discussed last year was Lyman v. Cambridge Assessors (1998) in which the ATB emphasized the burden placed on an owner to prove actual cleanup costs for environmental contamination. The Appeals Court summarily affirmed the ATB's decision in December 1999. Finally, an ATB personal property tax case which we had not previously reported reached the Supreme Judicial Court for decision in 1999 (Nashoba Communications Limited Partnership v. Danvers Assessors, 429 Mass. 126 (1999)). Nashoba was a limited partnership which owned and operated a cable television system in Danvers. Nashoba applied for an abatement of the personal property tax, claiming that the property was exempt under General Laws Chapter 59, Section 18, Clause 5th which provides that "underground conduits, wires and pipes laid in public ways" by any corporation are exempt. The Assessors denied the application and the ATB agreed. The SJC construed the term "corporation" strictly and held that since the personal property in question was owned by a limited partnership the property was not exempt. This interpretation was particularly appropriate, the SJC said, since the following section (Section 18, Clause 6th) specifically addressed the taxation of tangible personal property to the partners of a partnership. The decision of the ATB was therefore affirmed.
|
| 2001 CAPITALIZATION RATE SURVEY | | CASE | TYPE OF PROPERTY | YEAR | ATB % RATE | | Fleet Bank v. Ludlow | branch bank | 1995 | 10 | | Compass Bank v. New Bedford | commercial | 1998 | 10 | | Humphrey, et al vs. New Bedford | commercial | 1998 | 10 |
Appellate Tax Board Updates:2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997
ONE MONARCH PLACE, SUITE 1900
1414 MAIN STREET
SPRINGFIELD, MA 01144-1900
TELEPHONE | 413-733-3111
FAX | 413-734-3910
 Advertising
|
|