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Appellate Tax Board Update
A periodic report for property owners, appraisers, assessors and attorneys
February 2002
| | THE YEAR 2001 IN REVIEW In 2001 the Appellate Tax Board issued 33 findings of fact and reports dealing with real estate cases, a fairly typical output for recent years. It was a good year for assessors who prevailed in 19 cases and saw property owners get only modest relief in a few of the others. If the year lacked "blockbuster" decisions -- involving huge office towers and power plants -- it did deal with a number of fine points of real estate taxation, including omitted and revised assessments; underground storage tanks; Chapter 61A roll-back taxes; and the significance of the amount of consideration recited in a deed. Fourteen of these cases have been selected for review and comment in this issue. LATE BUT SAFE There were a few shaky moments but when it was all over the taxpayer was allowed to return from the dead and have his case heard at the Appellate Tax Board. The case, Cardaropoli v. Springfield Assessors (December 7, 2001), involved several parcels and two years of taxes but for purposes of the drama and result only one parcel and two years were at stake. It all started when the Assessors were 11 days late in one year and 26 days late the next year in sending out the "deemed denial" notices required by Chapter 59, Section 63 when assessors take no action within three months of receipt of an abatement application. In such a situation, the taxpayer can seek relief under Section 65C by filing a Petition for Late Entry "within two months after the appeal should have been entered." In this case, however, Mr. Cardaropoli, within that two month period, did not file a Petition for Late Entry but instead simply filed the usual Petition under Formal Procedure. The Assessors moved to dismiss the case and Commissioner Gorton allowed the motions for both years. After allowing the motions, however, Mr. Gorton became aware of the ATB's "established practice" of allowing late-filed petitions such as Mr. Cardaropoli's without first receiving and acting on a Petition for Late Entry as contemplated by Section 65C as well as Rule 1.05 of the ATB's Rules of Practice and Procedure. On learning of this practice, Mr. Gorton referred the matter to the full Board which went on to decide that the motions to dismiss should not have been allowed, clearing the way for Mr. Cardaropoli's case to go forward. In its decision, the full Board noted that its practice "has been to treat the petition [under formal procedure] filed as a petition for late entry and to treat the motion to dismiss hearing as the hearing of the petition for late entry." At that hearing, if the Board finds that the conditions for allowing the Petition for Late Entry actually exist then an appropriate order is entered whereby the Board exercises jurisdiction over the case and allows it to go forward. This is exactly what the Board did with Mr. Cardaropoli. Relief under Section 65C requires a taxpayer to show, when the assessors are late in sending their deemed denial notice, that "by mistake or accident" the taxpayer fails to file his petition on time. To get around the strict language of Section 65C and Rule 1.05, the full Board urged against a narrow construction of a remedial statute (such as Section 65C) and concluded that Section 65C was intended to give the Board jurisdiction for taxpayers in exactly Mr. Cardaropoli's position, i.e., those taxpayers who receive no timely notice of the assessors' inaction. To give Section 65C a strict reading by requiring an actual Petition for Late Entry, "would frustrate the legislative purpose behind Section 65C and unduly complicate procedures designed to simplify review of tax assessments." Despite having learned of the Board's "established practice," Mr. Gorton stood by his original position in a rarely-seen dissenting opinion in an ATB case. To Mr. Gorton, Rule 1.05 "by its plain terms prescribes a procedure which must be followed before the remedy is triggered." Mr. Cardaropoli's Petition under Formal Procedure failed to provide the statement contemplated by Rule 1.05 showing the "accident or mistake upon which the Petition for Late Entry is based." Very simply, Mr. Cardaropoli "did not avail himself of the remedy in the very straightforward, common-sense manner the Rule contemplates." MORE LESSONS IN CHARITY It can rub a business (in this case a health club) the wrong way when it runs a facility and pays taxes and sees another organization down the road doing the same thing on a tax-exempt basis. This was the argument made in Healthtrax International, Inc. v Hanover Assessors and South Shore YMCA (May 14, 2001). Relying on Chapter 59, Section 5B, Healthtrax challenged the Assessors' decision to grant a tax exemption for the YMCA's facility. Healthtrax claimed that the facility was "athletic property" used for other than the YMCA's charitable purposes and "in direct competition" with Healthtrax and therefore not exempt from tax under Chapter 59, Section 5(3)(b). The ATB found that the corporate purpose of the YMCA was to "build Christian character, by building the spiritual, intellectual, and physical condition of persons of all ages." About 57% of the participants at the facility were 17 years old or younger and, during the fiscal year in question, the YMCA awarded $322,000 in financial assistance for participants in various programs. Healthtrax, on the other hand, "operated a full-service health club and wellness center, primarily focused on exercise." Healthtrax offered no financial aid to needy people, had no equipment for children under 12, had no members under the age of 17 and had few children's programs outside the activities of a babysitting center. Importantly, the ATB found that Healthtrax provided no evidence that any member had left to join the YMCA facility. Healthtrax' challenge to the YMCA's exemption was therefore disallowed. (As an interesting jurisdictional sidelight, the ATB held that the date of the mailing of the tax bill which reflected the exemption was the measuring date for the appeal by Healthtrax, rather than the date the Assessors voted to grant YMCA the exemption. In a further twist to that procedural plot, the ATB also held that it had jurisdiction even though Healthtrax filed its appeal several days prior to the mailing of the bill.) Healthtrax has taken the case to the Appeals Court. Another variation on the exemption theme arose in Bay Path College v. Longmeadow Assessors (July 11, 2001) in which your editor (unsuccessfully, so far) represented the Assessors. The issue was the tax status of a dwelling used as the residence for the college's athletic director. The house was located on the college's so-called "South Campus" which was one-third of a mile from the college's "Main Campus," the intervening space being occupied by residential property not owned by Bay Path. The South Campus only consisted of the AD's dwelling, another former single-family home used as an athletic clubhouse and 12 acres of land used as athletic fields. The Main Campus was a single parcel of land which contained all the college's classrooms dormitories, administrative offices and other facilities. The entire Main Campus was exempt from real estate tax, as was all of the South Campus except for the AD's house. The Assessors felt the AD's house was not exempt since it was used as the residence for an officer of the College which was "not part of or contiguous to real estate which is the principal location [of the college]" and therefore within the scope of the exception in Chapter 59, Section 5, Clause 3(e) to the usual exemption for an educational institution. In the eyes of the ATB, the one-third of a mile from the South Campus to the Main Campus was "easy walking distance" and thus close enough to be "contiguous" to the Main Campus and therefore covered by the same exemption that spared the Main Campus. The Assessors have appealed to the Appeals Court where the matter is awaiting oral argument. BACK TO SCHOOL The omitted and revised assessment procedure does give assessors an opportunity to correct past mistakes and omissions by sending bills after the usual time. But as the Assessors learned the hard way in Sithe New Boston, LLC v. Boston Assessors (December 11, 2001), this remedial procedure is hardly an open door to play catch-up. In Footnote 3 of its decision, the ATB provided as good a primer as you'll find on the limited availability of and the distinctions between these two remedies. Under Chapter 59, Section 75, assessors get a second chance to assess a property provided that the property had been "unintentionally omitted" from the original assessment. Similarly, Section 76 gives assessors a second shot where the property was "not properly valued or classified" the first time around. Both laws require the assessors to file with the Commissioner of Revenue by June 30 of the year in question a statement showing the amount of additional taxes assessed by means of the omitted or revised assessment. In Sithe New Boston, the taxes were "transition payments" imposed on an electricity generating plant under the Electric Utility Restructuring Act. The only basis that the ATB needed to dispose of the case was the failure of the Assessors to file the return with the Commissioner by June 30. The Assessors didn't contest this lapse but argued that the taxpayer wasn't prejudiced by this failure and that the taxpayer's rights were fully protected through the abatement process (in fact the Assessors had granted a partial abatement of the tax in question). This contention gave the ATB the opening to dust off the principle that the assessment of taxes is not strictissimi juris, meaning that the strictest letter of the law does not normally apply. The ATB concluded, however, that this flexible standard does not apply to omitted or revised assessments. What's more, beyond the failure to satisfy the June 30 filing requirement, the Assessors failed to show that any property was "unintentionally omitted from the annual assessment of tax" or that it had been unintentionally "valued or classified in an incorrect manner." The ATB concluded that the Assessors "simply neglected to include a transition payment in the appellants' tax bill." The taxpayer's motion for judgment was therefore allowed. BIG TICKET The high stakes case of the year involved 53 acres of land improved with five interconnected buildings and two free standing buildings with a total building area of about 729,000 square feet (Textron Systems v. Wilmington Assessors (November 27, 2001). The property was owned and occupied by Textron for its research, development, testing, manufacturing and fabrication operations, most of which was built around 1957. The total assessed value was about $20 million, resulting in a tax of about $593,000. Textron presented seven witnesses, including one real estate developer who said the highest and best use was to demolish the existing structures and renovate the site into four new office/research and development buildings. Textron's expert real estate appraiser testified that the complex was affected by external obsolescence since demand for this type of property, in his view, was "virtually non-existent." He felt the highest and best use was to renovate the property for re-use as a multi-tenanted complex. He concluded that the property was worth $7.5 million and $8 million on the two assessment dates, less than half its assessed values. Interestingly, Textron also called as a witness the Assessor's expert appraiser who was forced to acknowledge that he had committed, in the words of the ATB, "glaring mathematical errors" in using his income approach to valuing the property. As a result, the expert's report showed $5.9 million in effective gross income, rather than $4.1 Million, and, when the net income was capitalized, and rehabilitation costs were deducted, his corrected figures showed a value of about $3.9 million instead of the $19.4 million and $19.5 million for the two years in his appraisal report. When the expert later testified during the presentation of the Assessor's case, the ATB found that his credibility had been "severely undermined" so that his attempts to change and correct his valuation methodology` "were self-serving and fundamentally unreliable." Although the ATB agreed with Textron that the sales approach was acceptable, the ATB suggested that another seldom-seen approach for a "limited-market property" might very well have been appropriate although not developed by either party. This concept is best applied to an owner-occupied, single-tenanted, custom-built facility occupied during all pertinent times by the same owner. Typically these properties, like the Textron property, are large manufacturing or research and development facilities which have relatively few potential buyers or renters at a particular time. In the words of the ATB, "when a limited-market property is viably used and that use is likely to continue, and the property conforms to competitive standards, that is, remains functionally and financially feasible, then the owner-occupant may represent a typical potential purchaser or renter in that presumptive market." In those circumstances, an income-capitalization approach could properly be used. Although Textron did not develop a value using that approach, the ATB found that it nevertheless offered substantial evidence of overvaluation and reduced the values to $11.7 Million and $12.4 Million (from $19.7 Million and $19.9 Million) for the two years in question. next column | ROLL-BACK TAX Two helpful lessons emerge from Meachen v. Sudbury Assessors (March 21, 2001) which dealt with the roll-back tax due under Chapter 61A, Section 13. Under Chapter 61A, when land classified as agricultural is sold for some other use it is subject to a roll-back tax or, if more, a conveyance tax. The tax is essentially a recovery by the town of what the taxes would have been for the previous five years if the real estate had been valued at its highest and best use rather than the discounted value as agricultural land under Chapter 61A. The first lesson from Meachen is that the tax rate to be used in calculating the roll-back tax for agricultural land is the commercial rate in a municipality with multiple tax rates and not the residential rate simply because the land was located in the residential zone. This is because Chapter 59, Section 2A classifies "commercial property" as property used for "agricultural" purposes as well as more traditional commercial uses such as retail, trade or service. The second lesson involves valuation of the property for Fiscal Year 1996, one of the four years in dispute. For Fiscal Year 1995, the non-agricultural part of this large tract was valued at only about $330,000. The Assessors increased the value to about $1.8 Million for Fiscal Year 1996 because the Assessors "discovered that its was developable." The taxpayer argued that a subdivision plan for the tract wasn't submitted to the Planning Board until early 1996, over a year after the valuation date for Fiscal Year 1996. Even in the absence of the subdivision plan, the ATB found that "an informed buyer would have known it was so developable." In other words, "the development concepts contained in that plan were just as viable on the assessment date as the date the plan was prepared or later submitted to the local Planning Board." This "development approach", the ATB said, may be just as appropriate under certain circumstances as the traditional income capitalization, sales comparison and cost reproduction approaches. LAND IN TRUST Back in 1755, old Parker Lombard left all his land in the Town of Barnstable to be "hired out to the highest bidder" with the proceeds to be applied "for the use and benefit of the poor" in the town. Over the years, the Trustees of the Lombard Trust leased portions of the parcel to various individuals, usually for periods up to 30 years, who built private homes and commercial enterprises on the tract. Eight tenants on the land paid without dispute taxes on the assessed value of the improvements but objected to the taxation of the land itself. They claimed that the land was not subject to local tax because it was owned by the trustees of a charitable testamentary trust and therefore was outside the scope of Chapter 59, Section 2B. The taxpayers lost that debate and the reason for their defeat is found in Davis v. Barnstable Assessors (June 19, 2001). Section 2B provides that "real estate owned in fee or otherwise or held in trust for the benefit of a... city or town...if used in connection with a business conducted for profit or occupied for other than public purpose" shall be taxed in the same way as if the lessee or occupant were the owner. In this case, the Barnstable Selectmen and later the Town Manager, as Trustees of the Trust, were the owner of the real estate in fee; the terms of the Lombard Trust controlled the use of the income derived from the real estate. Since there was no dispute that tenants occupied the real estate for non-public purposes, the ATB concluded that both requirements in Section 2B were met and the land was subject to tax. The taxpayers seized on language in a 1974 amendment to Section 2B (which removed language referring to a charitable testamentary trust) but this effort was rebuffed by the ATB which concluded that the 1974 change actually broadened the class of properties used for non-public purposes which were subject to local taxation. BOGGED DOWN Two cases dealt with valuation of cranberry bogs where the valuation approaches by the two farmers were in sharp contrast but reached the same result before the ATB, i.e., that the property was not overvalued. The first case (Black Cat Cranberry Corporation v. Kingston and Carver Assessors (August 2, 2001)) involved about 26 acres of bogs on about 50 acres of land which the Assessors valued (at $192,200 per acre for the bogs) using the range of values published by the Massachusetts Farm Land Valuation Advisory Commission. The Kingston parcel was valued at $131,300 and the Carver parcel at $332,916. The owner argued that industry-wide overproduction of cranberries linked to declining demand made the FVAC approach inapplicable and that an income capitalization methodology was most appropriate. Although the owner presented evidence of value, based on his own experience with his own property, the ATB faulted him for not supporting the income, expenses or capitalization rates with market data and therefore concluded that the Assessors appropriately utilized the FVAC computations. In Mann v. Plymouth Assessors (November 26, 2001), involving 135 acres of cranberry bogs, the Assessors also relied on the FVAC range of values. In this case, however, the owner-grower testified that the "severe market crisis" in the industry made it inappropriate to use the FVAC calculations which he claimed were applicable only in a "normal economic market." Further testimony was produced by a member of the FVAC "technical subcommittee" who testified as to his misgivings about the ingredients in the valuation formula. The appellant himself testified as to the inappropriateness of the FVAC calculations and, finally, a CPA and certified valuation analyst testified as to the overvaluation. The latter witness, however, according to the ATB, valued the entire business enterprise rather than the earning capacity or use value of the underlying real estate. Despite this array of witnesses, the ATB arrived at the same conclusion as it did after hearing only the appellant in the Black Cat case, i.e. that the FVAC valuation was appropriate in the absence of a credible alternative methodology. The Mann case is now pending in the Appeals Court. OTHER CASES OF NOTE Questionable Deed. The property in PAC Realty Trust v. New Bedford Assessors (January 30, 2000), was a free-standing building used as a liquor store. The purchaser testified that he paid $1 Million for the building, land and the liquor store business. After much deliberation, the parties allocated $650,000 to the real estate and this is the consideration which was recited in the deed. The buyer then filed an abatement application and, in the words of the ATB, "lamented that he had overpaid for the property and business." He argued that the real estate was only worth $350,000 to $400,000. The ATB opined that the consideration in the deed may not always be the best evidence of fair cash value and was persuaded by the owner's comparable sales analysis and reduced the fair cash value to $580,000. Answer the Questions. Last year we reminded assessors of the value of submitting information requests under Chapter 59, Section 38D and the unfortunate consequences for taxpayers who fail to comply. The case of 229 Main Street, LP v. Natick Assessors (March 30, 2001) highlighted the similar value of interrogatories and requests for production of documents under Chapter 58A, Section 8A and Chapter 231, Sections 61-70. The Assessors asked the owner to provide all documents that supported the income approach to valuation, including relevant income and expense statements. The owner took the stonewall approach, failing to offer any substantive information and claiming the information and documents were either privileged, work product, or prepared in anticipation of litigation. The Assessors kept up the pressure in the face of the continuing abstinence by the owner and its counsel. The ATB, after showing patience in the extreme, allowed the Assessors' motion to dismiss. The case is now pending in the Appeals Court. Under Duress. The case of Waters v. Wayland Assessors (June 21, 2001) was straightforward, simply involving the valuation of four commercial condominium units where the opposing expert witnesses relied on the sales approach. Of the comparables used by the Assessors' expert, 20 of the 24 were sales by banks which had apparently acquired the properties through foreclosure or deeds in lieu of foreclosure. In a warning worth remembering, the ATB concluded that "these bank sales carried an indicia of compulsion that was unrebutted." Furthermore, the ATB said, "these sales provided little probative value for estimating the fair cash value of the subject properties." The ATB clearly left the door open to rebut the presumption that such sales were not at arm's length but, in the absence of such evidence, they will be lightly regarded at best. In the Tank. The tax status of eight underground storage tanks worked out well for the owner in Perma, Inc. v. Billerica Assessors (October, 25, 2001). The tanks, ranging in capacity from 2,000 to 8,000 gallons, were used to store chemicals needed for Perma's manufacturing process. Perma was classified by the Department of Revenue as a domestic manufacturing corporation. Each tank rested on a concrete pad, located about 12 feet underground, and each tank was surrounded by sand or peastone so the tanks could be removed quickly in case of an emergency. Other storage tanks inside the manufacturing building were considered by the Assessors to be personal property and therefore exempt from tax under Chapter 59, Section 5, Clause 16(3). The ATB found that the tanks were not affixed to Perma's property with any real permanence, in fact were designed to be easily removed and did not cause any material damage to Perma's property when they were removed. As the ATB put it, "their true nature was more like personalty than realty," and because they played "an integral role in Perma's manufacturing process," they were machinery of a domestic manufacturing corporation. Although the total value of the tanks was only $11,600, the ATB's opinion is long and scholarly and should provide helpful guidance in resolving other real property/personal property controversies. ON HIGHER AUTHORITY Last year the Update reported the ATB's decision in Boylston v. Commissioner of Revenue which dealt with the right of numerous communities to receive payments in lieu of taxes from the Massachusetts Water Resources Authority for the value of watershed land within the municipality under Chapter 59, Section 5G. The Supreme Judicial Court (434 Mass. 398) upheld the ATB's conclusion that Section 5G was not intended to provide for a PILOT payment for the land actually under a reservoir since this land was not within a "watershed". IN THE PIPELINE The ATB has decided another case involving the tax status of a so-called "assisted living" facility operated by a non-profit corporation. The case is Jewish Geriatric Services, Inc. v. Longmeadow Assessors and thus far only the initial one-line decision has been issued in favor of the Assessors (represented by your editor). It is clear, however, that the ATB has decided that the entire facility is subject to local taxation and not entitled to an exemption under Chapter 59, Section 5, Clause 3. The decision was handed down on January 15, 2002 and the Appellant has requested the ATB to issue findings of fact and a report. Once that report is issued, the rationale behind the ATB's decision should be apparent. The facility in Jewish Geriatric Services consisted of 42 assisted-living units for residents with some physical needs and 22 units for residents with Alzheimer's-type diseases. The monthly charges ranged from a low of $1,890 (for a shared room) to $4,290 (for a single room in the Alzheimer's section). The facility required two months' charges as the entrance fee. Some funds were available to partially subsidize needy residents but very few residents were actually receiving subsidies and in an amount which was substantially less than the actual charges.
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| 2001 CAPITALIZATION RATE SURVEY | | CASE | TYPE OF PROPERTY | YEAR | ATB % RATE | | Vermette v. Springfield | commercial | 1992 | 12 | | | 1996-97 | 10 | | D & D Real Estate v. Pembroke | retail condos | 1992 | 10.5 | | | 1993-95 | 10 | | Rosenthal v. Chelsea | auto repair/warehouse | 1995-96 | 10 |
Appellate Tax Board Updates:2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997
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