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Appellate Tax Board Update
A periodic report for property owners, appraisers, assessors and attorneys
January 2007
| THE YEAR 2006 IN REVIEW During 2006, the Appellate Tax Board issued 40 "findings of fact and reports", with almost half of these involving routine single-family homes. The rest of the decisions included elderly residential facilities, an absolutely unbuildable lot, a stubborn property owner and application of a seldom-seen valuation statute. This Update summarizes a dozen of the more interesting and/or significant cases decided during the year. CHARITABLE EXEMPTIONS Two cases decided during the year offered contrasting fact patterns -- and contrasting ATB results -- for elderly residential facilities operated by non-profit organizations. The almost "perfect case" for an exemption came forward in William B. Rice Eventide Home, Inc. v. Quincy Assessors (June 30). Eventide was a non-profit, tax exempt organization which operated a 60-bed skilled nursing facility. The ATB was persuaded by testimony that "there were no selection requirements, financial or otherwise, that limited a potential resident's admission, so long as Eventide could meet their personal and medical needs." This was in contrast with the fees and charges at two facilities which were found to be fully taxable in recent appellate court decisions: Western Mass. Life Care v. Springfield Assessors, 434 Mass. 96 (2001), and Jewish Geriatric Services v. Longmeadow Assessors, 61 Mass. App. Ct. 73 (2004). At Eventide, financial information was requested from the applicants but "only for purposes of setting Eventide's budget, not to screen and eliminate potential residents."About two-thirds of Eventide's residents were Medicaid recipients and Eventide needed to subsidize these residents by as much as $73 per day. The ATB concluded that Eventide had proved that its skilled nursing facilities "were available to a sufficiently large segment of the elderly population and that it provided a relief of a burden to government to care for the elderly." The case is now pending before the Appeals Court.The facts in Eventide contrasted with the facts in the other 2006 exemption case, John Bertram House of Swampscott, Inc. v. Swampscott Assessors (May 4). The operator of this facility was also not-for-profit and tax exempt, but admission called for monthly service fees from about $3,300 to $5,200 and entrance fees of about $6,000 to $10,000. The ATB particularly took note that the living units all had locks on the doors and that staff people had limited rights to enter the units. The ATB concluded that the residents, not the non-profit corporation itself, had the right to occupy the premises. Although Bertram House did set aside 20% of the 60 units for low to moderate-income persons and offered "minimal financial assistance to residents," these features were "insufficient to demonstrate the affordability of the facility for a broad spectrum of the elderly population." The exemption was therefore denied.PAYING THE PRICE A series of cases late in 2005 and four more early in 2006 (all involving properties in Boston) showed the consequences of a property owner's failure to comply with discovery requests from assessors pursuant to General Laws Chapter 59, Section 38D. This law is aimed at providing assessors with the information which they need during the valuation process. An additional law, Chapter 59, Section 61A, is aimed at providing assessors with the valuation information which they need to deal with an abatement application. In addition, Section 61A also requires an owner to "exhibit" the property to the assessors. The consequences of an owner's refusal to let the assessors in the door came through loud and clear in Giurleo v. Raynham Assessors (June 27). In this case, the owner filed an abatement application and allowed one of the assessors to perform an exterior-only inspection. When the abatement application was denied, the owner asked the assessors to reconsider, but again denied a request for an interior inspection. The owner claimed he could get by simply through production of "a sworn statement, photographs and a viewing of the dwelling through open doors as substitutes for the interior entry inspection." The assessors denied the owner's request for reconsideration and he then appealed to the ATB, which ordered the owner to allow the inspection within 30 days. Again, the owner refused and ultimately the ATB allowed the assessors' motion to dismiss for failure to comply with the ATB's order. The ATB also drew support for its conclusion from Chapter 58A, Section 8A, which governs discovery procedure at the ATB. This section requires an appellant to allow the assessors to "enter upon such real estate...and inspect such real estate...." Failure of an owner to do so provides the ATB with another basis for dismissing an appeal. Mr. Giurleo has taken the case to the Appeals Court. NO GOOD DEED The celebrated Pinehills development in Plymouth was the setting for a group of nine cases which showed once again that the consideration recited in the deed is not the last word on value. The case was Thorndike Properties of Massachusetts II, LLC v. Plymouth Assessors (February 27) and involved nine lots in the "Hawks Perch" neighborhood at Pinehills. This was one of several neighborhoods in the complex, each of which was assigned to a specific builder and each of which fit a different "niche" in terms of type, size and sale price of the eventual home. In this case, the owner purchased the vacant lots for $75,000 each (the consideration recited in the deed) but there was an understanding that there would be additional "back-end payments" based on the ultimate sale prices of the homes which were built on the lots. The assessors used a land sales analysis from other neighborhoods at Pinehills, such as Chipping Hills, to justify assessed values for the nine subject lots from about $212,000 to $295,000. The ATB faulted the assessors for failing to adjust for the size of the Chipping Hills lots which were two to three times larger than the lots in Hawks Perch. Furthermore, the ATB concluded that the Chipping Hills neighborhood was more desirable than Hawks Perch because the houses there, under the rules for Pinehills, were considerably larger than those in Hawks Perch. At the end of the day the ATB disregarded the $75,000 sales price recited in the deed, but also discounted the assessed valuation by about 15% for each lot.SELDOM SEEN A rarely used statute and a rare 3 to 2 vote at the ATB were featured in W. B. & T. Mortgage Company, Inc. v. Boston Assessors (June 7, 2006). The law in question was Chapter 59, Section 2C, which requires the use of 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. The property in question was sold by the Roman Catholic Archdiocese of Boston to an abutter for $4.5 million on December 17, 1999. The property was no longer exempt and, under Section 2C, the property became subject to a pro rata tax based on its sale price for the remaining 197 days of fiscal year 2000. There were procedural complications arising out of a late-mailing of the FY 2000 tax bill, but essentially the new owner argued that Section 2C's use of sale price, rather than fair cash value, resulted in its paying more than its fair share of property taxes, thereby violating the principle that all taxes be "constitutionally proportional." This principle demands that each taxpayer's share of a public expense be in the same proportion as his property bears to all taxable property used to defray the expense. Application of this principle gave rise to the majority and dissenting opinions from the ATB. The use of purchase price under Section 2C reflects the reality that property returning to the tax rolls has not been subject to the triennial valuation process for some period of time. Section 2C spares the assessors the administrative burden of determining cash value outside the normal valuation schedule and therefore allows the use of purchase price as the basis for valuation. The three-member majority concluded that Section 2C was not "on its face" unconstitutional because its application could lead to a proportionate tax in some circumstances. The majority did allow, however, that in certain circumstances Section 2C could be unconstitutional "as applied." The majority concluded that there was insufficient evidence that Section 2C "as applied" was unconstitutional because the ATB lacked sufficient evidence of the property's fair cash value as of the sale date to compare against the sale price. The two-member dissent first claimed that the tax should have been voided because the tax bill was not mailed by the end of the applicable fiscal year. As for the requirement for proportional assessment, the dissenters reasoned that, regardless of when the property came back on the tax rolls, it should be valued like all other properties -- through fair cash value as of the January 1 preceding the fiscal year in question.The Supreme Judicial Court has taken the case for direct appellate review.NOT THAT OFTEN 2006 featured that rarest of situations where the ATB agreed with a property owner that a parcel of land was absolutely unbuildable and therefore essentially worthless. The case was Kunz v. Middleton Assessors (April 4) which dealt with a 9.33 acre vacant parcel, the only one of 14 lots in a subdivision which had not been sold by the Appellant developer. Much smaller, two-acre lots in the subdivision had sold for prices ranging from $118,000 to $194,000. The lot in question was assessed for $126,400. As the ATB found, the subject lot was "significantly impacted by wetlands" and the upland portion, located to the rear of the lot, was essentially inaccessible from its frontage. The owner was unsuccessful in obtaining a conservation commission order of conditions to build a 600 foot driveway from the street through the wetlands and was also unsuccessful in purchasing abutting land to use for access. The ATB sided with owner's expert who concluded that the potential market for the lot was limited to abutters who might want to purchase the land as a "buffer." Using this methodology, the owner's expert concluded that $2,000 per acre was appropriate, resulting in a value of $19,000 for the locus, the value which was ultimately adopted by the ATB.In the process, the ATB took the assessors to task for offering no evidence concerning the circumstances (such as sales to abutters) surrounding the sales which they attempted to use to support the assessed value. The ATB also faulted the assessors for their failure to show whether there were access limitations on those lots which the assessors treated as comparable. CALL OFF THE VICTORY PARTY It's written that "there's been many slip 'twixt the cup and the lip" and this adage played out in Paul Cocchi v. Ludlow Assessors (September 21). This was not a high-stakes appeal and the main attraction was 10 chainsaws valued for a total of $2,410. Mr. Cocchi claimed that his status as a tree surgeon qualified him as a "mechanic" and that the chainsaws were therefore exempt under General Laws Chapter 59, Section 5, Clause 20 as "the tools of his trade." Initially, the presiding ATB Commissioner issued a single-member decision for the assessors. Mr. Cocchi then requested findings of fact and a report and "upon further review and on his own motion" the presiding Commissioner issued a revised decision for Mr. Cocchi, concluding that the chainsaws were exempt. The Commissioner ultimately concluded that a tree surgeon was an occupation "which required skill, training and the ability to work with one's hands and with hand tools." In support of this conclusion the Commissioner cited the American Heritage College Dictionary, Ballentine's Law Dictionary and even the 1914 edition of Bouvier's Law Dictionary where a mechanic was defined as "any skilled worker with tools" or "one actually engaged with his own hands in constructive work." Supported by those definitions, the Commissioner found that "the tools of [Mr. Cocchi's] trade" included chainsaws. [In the interest of full disclosure, your editor was the victim, on behalf of the Ludlow Assessors, of the Commissioner's change of heart.]next column | NICE TRY A new concept in property valuation had a short life as a result of the decision in June Shillman, Trustee v. Weston Assessors (February 22). The owner's expert called the novel approach "truly equitable assessed value." The approach was ultimately truly rejected by the ATB. The laboratory for this concept was three lots on Love Lane, on one of which was a 7,000 square foot "mansion" valued at about $3.9 Million for 2002, $3.6 Million for 2003 and $3.8 Million for 2004. In his quest for "truly equitable assessed value," the owner's expert worked his way through a data set which included 233 single family residences in Weston, a second data set with 30 properties selected from the first set in the "general area" of the subject and yet a third set which included 18 single family homes in the "discrete area" near the subject. That exercise was the basis for the expert's claim that the subject was assessed at $539 per square foot of living space. The expert then opined that the property should "equitably" be valued at $431 per square foot, resulting in an indicated value of about $3.1 Million. The ATB was unimpressed with the expert's search for equity. He failed to provide a basis for incremental adjustments for the next two years after establishing his opinion of value for 2002 and he failed to identify the features which characterized a "mansion" which was the centerpiece of his analysis. Finally, the ATB concluded that a determination of "truly equitable" value assumes the presence of a "truly inequitable" value by the assessors. Yet the ATB concluded that there was "no evidence tending to show that any properties in Weston were being valued below their full and fair cash value, either intentionally or otherwise, for any of the years at issue." The ATB upheld the assessors' decision denying the abatement applications. PLAYING CATCH-UP Everyone involved -- particularly the property owners -- agreed that the 84% increase ($240,000) in valuation from Fiscal Year 2002 to 2003 was a whopper. The owners and the assessors split, however, on the question of whether the resulting assessment represented fair cash value. The case was Guernsey v. Williamstown Assessors (March 2) where the assessors ultimately prevailed. The property was a seven room, 2,500 square foot house. Its deciding feature, in the eyes of the ATB, was "breathtaking panoramic views" of the rural countryside and mountains. The assessors had simply failed to take this view factor into account in prior years. When the view was considered, the dramatic increase was amply justified, the ATB concluded. Once again, a substantial increase in the tax bill doesn't necessarily translate into excess valuation. BAD DAY AT THE OFFICE Things didn't go well for the property owner in Bodwell Extension LLC v. Avon Assessors (May 17), a case which illustrates the pitfalls of having a witness testify beyond the range of his expertise. In this case, the limited liability company which owned the property presented its case for overvaluation through the testimony of one of the two members of the LLC. The property in question was primarily a one-story industrial production/warehouse structure assessed for about $2.8 million. As the ATB put it, the witness's credibility was "seriously undermined" on cross-examination when he admitted that he had never done an appraisal report before preparing the one for this case. Even worse, he acknowledged that his tax consultant "helped" prepare the report and that he had an understanding with the tax consultant to pay him a percentage of any abatement received in the case. The absence of the tax consultant from the hearing, the ATB noted, insulated the consultant from cross-examination. That left the LLC member-witness out there alone and he came up short, the ATB said, in explaining "the most basic elements of the valuation analyses" in his report. At the end of the day, the ATB found that his opinion was "unreliable, speculative and lacking in probative value." The assessed value was therefore upheld.THE FOREST FOR THE TREES In Cornish v. Carlisle Assessors (July 26) the ATB refused to apply a "grandfather" clause to allow a taxpayer to withdraw its land from forest land (Chapter 61) classification without penalty. The story goes back to the early 1980's when the legislature completely overhauled Chapter 61. Under the old law, property classified as forest land enjoyed a lower tax rate, but was subject to regulation by the state forester through five year forest management plans. When property was removed from forest land classification, a relatively modest withdrawal tax was imposed. Under the new law, forest management plans were increased to 10 years in length, the withdrawal tax was dramatically increased and, perhaps most significantly, towns where the property was located were given a first refusal option whenever the property was no longer used as forest land. The change in the law was so drastic that when the legislature struck the old and enacted the new, it also put in place a "grandfather" clause. This clause allowed owners of forest land, so classified under the old law, to withdraw their property from classification without incurring a withdrawal tax. The taxpayer in the Carlisle case argued that the plain protective language of the grandfather clause applied whenever the property was removed from classification. The assessors argued that the grandfather clause was only available until the expiration of the property's forest management plan which was in place at the time that the new law supplanted the old. The ATB ruled against the plain language of the grandfather clause. The case is now before the Appeals Court. A REFRESHER ON KEY PRINCIPLES Two cases decided in 2006 involved application of key evidentiary principles which are worth remembering in real estate tax appeals. Columbia Electric Corp. v. Framingham Assessors (June 26) applied the presumption in favor of the validity of the assessed valuation of the property in question. In other words, the Appellate Tax Board "is entitled to presume that the assessment is valid until the taxpayer sustains his or her burden of proving otherwise....Accordingly, the burden of proof is upon the taxpayer to make out his or her right as a matter of law to an abatement of the tax." In an ATB appeal, the assessors are not obligated to put on any evidence if the assessors feel that the taxpayer hasn't produced sufficient evidence to carry its burden of proof of overvaluation. In that situation assessors can simply rest their case on the legal presumption which favors the assessed value. In the Framingham case the ATB found that the taxpayer's expert's opinion of value "was without proper foundation and therefore without merit." The taxpayer therefore failed to meet its burden of proof that the property was overvalued. The Framingham Assessors' made the strategic decision not to put on any evidence and their tough call was therefore vindicated.By way of contrast, when the valuation of property has been the subject of an ATB decision for the preceding year, under General Laws Chapter 58A, Section 12A the burden shifts to the assessors to show that an increase over the ATB's value was warranted. This principle was applied in Coffman and Mulhern v. Brookline Assessors (February 15). This case involved a single-family home which, for Fiscal Year 2003, the assessors valued at $959,000 although the ATB reduced this valuation to $863,000. For Fiscal Year 2004 the assessors increased the valuation to $1,054,900. Brookline's Assistant Assessor testified to 16 recent sales of single-family homes. Four of these sales were presented as being "most comparable to the subject property" with sale prices from about $1 Million to $1.5 Million during the period from 16 months before to 9 months after the January 1, 2003 assessment date. One of the owners testified in his own behalf and suggested that a 10% increase for appreciation in the 2003 value of $863,000 was appropriate. After the evidence was all in the ATB concluded that the assessors had met their initial burden of overcoming the ATB's finding of value for the preceding year and had demonstrated that the subject property was appropriately valued for Fiscal Year 2004. The ATB also found that the taxpayers had "failed to successfully rebut the assessors' showing." CAPITALIZATION RATES The only 2006 case where the ATB clearly had to choose the appropriate capitalization rate was Andrew C. Culbert, Trustee v. Brookline Assessors (September 11). The case involved a multi-tenant commercial building and the ATB concluded that 9.75% was appropriate.ON HIGHER AUTHORITY In three cases (all reported in the 2006 Update) the Massachusetts Appeals Court upheld Appellate Tax Board decisions. In both cases, the Appeals Court specifically referred to the deference which the expertise of the Appellate Tax Board is entitled to receive when its decisions are subjected to scrutiny on further appeal. The first case was Braintree Real Estate Management Company, LLC v. Braintree Assessors (66 Mass. App. Ct. 1112) in which the ATB had concluded that a sale of the subject property was not at "arm's length" and the price should therefore not be taken as indication of the fair market value of the property. Specifically, the taxpayer had purchased the property from a bank which had acquired the property through foreclosure. In upholding the ATB, the Appeals Court commented that "our standard of review of the board's decision is deferential: the board's factual findings will upheld as long as there is substantial evidence to support them." The Appeals Court also upheld the ATB in 472 Main Street Realty Trust v. Wakefield Assessors (66 Mass. App. Ct. 1104) where the ATB had concluded that three contiguous parcels should be separately valued and not treated as an interconnected whole, as the taxpayer urged. In upholding the ATB's conclusion, the Appeals Court noted that "we should respect the board's judgment concerning the feasibility and fairness of alternate proposed methods of property valuation." Note that both of the above Appeals Court decisions were so-called "unpublished opinions" which means that they may not be cited as precedent in other cases. The rationale for the Appeals Court's conclusions in each case is nevertheless worth noting. Finally, the ATB's decision in Lasell Village, Inc. v. Newton Assessors was upheld by the Appeals Court in a formal opinion (67 Mass. App. Ct. 414). In this case the taxpayer, which owned and operated a continuing care retirement community (on the campus of Lasell College) claimed that its educational programs for residents qualified it for a charitable exemption. The Appeals Court agreed with the ATB that the educational and related programs "were so minimal and indirect as to fail to establish that Lasell was, in fact, operated primarily for purposes of a public charity."
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