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    • Appellate Tax Board Update

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

    February 2008

    THE YEAR 2007 IN REVIEW

    It was a busy year at the Appellate Tax Board which issued 43 "findings of fact and reports" in real estate tax cases. The cases we report in this installment of the Update include a group of decisions dealing with real estate tax exemptions; an important decision in the ongoing telecommunications litigation; two cases involving shopping centers; two cases dealing with valuation of contiguous lots; four cases involving prior-year ATB decisions; and a few others worth noting.

    SIX TRIES, SIX TAX BILLS

    During 2007 the ATB issued six decisions dealing with attempts (all of them unsuccessful) by property owners to claim charitable-use exemptions from real estate taxes.

    In Kings Daughters & Sons Home v. Wrentham Assessors (September 25, 2007) the owner was a non-profit corporation which operated a long-term residential care facility known as Pond Home. In Fiscal Year 2005 the Wrentham Assessors reversed their longstanding exemption for the home and issued a tax bill.

    As is frequently the case with these facilities, the outcome turned on the wealth of the residents. At Pond Home, applicants needed to show sufficient assets to cover a one-time $2,000 administrative fee plus monthly room and personal expenses for five years. Depending on the room rates, residency applicants needed to show assets from about $205,000 to $424,000. Applicants who didn't have sufficient assets needed a third party sponsor to guaranty full payment of all fees and charges since Pond Home did not accept Medicaid reimbursements. In light of those substantial threshold financial requirements, the ATB found that a significant segment of the population would be barred from admission and that the facility was therefore not "charitable" and not entitled to an exemption under General Laws Chapter 59, Section 5, Clause Third.

    The denial of an exemption was also upheld by the ATB in Skating Club of Boston v. Boston Assessors (March 7, 2007). The case involved the Club's facility onSoldiers Field Road valued at about $1.8 Million. The Club, organized in 1912, was unquestionably a tax exempt organization to "promote interest in the art of skating" and "develop amateur figure skaters" for competition. Although the facility was open to both members and non-members, the ATB was concerned that the Club did little if anything to promote this public availability. The ATB concluded that the Club "did not demonstrate that it operated to further a charitable purpose, provide for the benefit of an indefinite number of persons, or lessen the burdens of government." The ATB therefore upheld the assessors' denial of an exemption.

    In Forges Farm, Inc. v. Plymouth Assessors (October 18, 2007) the owner (admittedly a non-profit entity) sought an exemption for about 11 acres of land which it claimed were held for conservation purposes. The assessors denied the exemption because the use of the property did not benefit a large or indefinite class of beneficiaries but rather benefited the owner itself and surrounding land owners. The ATB found (as the owner itself admitted) that the property was not accessible to the public and that the owners offered no educational programs or any other public service. Again, the assessors were upheld.

    Holyoke Hospital, Inc. v. Chicopee Assessors (February 1, 2007) involved a medical office building owned by the hospital but leased to a group medical practice organized as a non-profit corporation. The hospital-owner claimed that the building was used to advance its charitable purposes but the ATB found insufficient evidence to support that claim and therefore upheld the assessors' denial of the exemption application.

    In CFM Buckley North, LLC v. Greenfield Assessors and two companion cases, three nursing homes in Greenfield, Taunton and Quincy (all three decisions were issued on March 20, 2007) did not qualify for the charitable exemption because the owners were limited liability companies and not corporations. The ATB agreed with the assessors that under the terms of General Laws Chapter 59, Section 5, Clause Third an entity needed to be "incorporated" in order to qualify for the exemption. The ATB opined that since the owners chose the limited liability form, "they must live with the burdens of that ownership," in this case, non-qualification for an exemption. If limited liability companies are to qualify for the exemption, the ATB said it was up the legislature to make that change. The cases are now pending before the Appeals Court.

    Finally, Middlesex Retirement System, LLC v. Billerica Assessors (October 3, 2007) involved the unique situation where an office building was owned by a limited liability company which leased part of the space to the Middlesex County retirement system which continued to exist even after county government was abolished by the legislature in 1997. In 2002, the retirement system formed the limited liability company to own, lease and otherwise deal with real estate, including the office building in question. The issue was whether the real estate (valued at about $5.4 Million) and the related personal property (valued at $675,000) should be exempt from tax. Notwithstanding some creative arguments mounted by the owner, the ATB concluded that the limited liability company, and not the retirement system itself, was the owner of the real and personal property and not exempt from local taxes.

    DÉJÀ VU ALL OVER AGAIN

    The usual rule is that the property owner has the burden of proving that the property has a value lower than the assessed value. In other words, there is a presumption in favor of the validity of the assessment. Pursuant to General Laws Chapter 58A, Section 12A, this burden shifts when the ATB has issued a decision establishing the value of the property for either of the two fiscal years prior to the year in question. In that case, the burden is on the assessors to show that an increase over the ATB's value is warranted. These principles came into play in four decisions issued during 2007.

    In Sands v. Bourne Assessors (October 2, 2007) the assessors valued the property for Fiscal Year 2005 at about $1.3 Million. An ATB decision had valued the property at $841,000 for Fiscal Year 2004. The owners claimed that the increase was at a disproportionately higher rate than the increase for assessed values of what they viewed as "comparable" properties. The ATB found, however, that the owners failed to adequately document comparability, that the sales were not "sufficiently near" the assessment date and that the owners failed to make adequate time adjustments for the date of those sales. On the other hand, the ATB concluded that the assessors did in fact meet their burden of producing evidence to justify the substantial increase in value over the value found by the ATB for the previous year.

    The assessors were also successful in carrying their burden in Frost v. Burlington Assessors (October 2, 2007) where an ATB decision set the value of a single family home at $450,000 for Fiscal Year 2005 and assessors had moved the value up to $508,600 for Fiscal Year 2006. The ATB concluded that the assessors showed that the increase was consistent with the general increase in values in the town. As a side issue, the owner stipulated that the total value of the property was appropriate for Fiscal Year 2006 but claimed that the building was disproportionately valued. The ATB pointed out that the value on a parcel of land and the building located on it is "one tax" although, "for statistical purposes" the assessors might value the land and building separately. Finally, the ATB pointed out that a successful claim of disproportionate assessment requires a finding of "an intentional widespread scheme" on the part of the assessors.

    The assessors were not as fortunate in Finlayson v. Billerica Assessors (June 22, 2007) where the ATB had valued the single family home at $185,500 for Fiscal Year 2004 and the assessors increased this value to $267,500 for Fiscal Year 2006. The ATB concluded that the assessors had failed to adequately adjust for the property's location in a flood plain and also held the assessors to their own testimony that there had been a general increase in property values of only about 10% per year, which would translate to about $224,000 for the subject property, the amount which the ATB concluded was appropriate for Fiscal Year 2006.

    Finally, in Bodwell Extension, LLC v. Avon Assessors (November 19, 2007) the ATB had decided that the five acres of land improved with an industrial building were properly assessed at about $2.8 Million for Fiscal Year 2004. In the present case, for Fiscal Year 2005, the assessors had increased the value to $3.9 Million, about a 37% increase. Based on the testimony at the hearing, the ATB concluded that a 4% increase was on target and valued the property at $3 Million.

    SHOPPING CENTERS

    Two cases decided in 2007 involved retail shopping centers. By far the most significant was Mayflower Emerald Square, LLC v. North Attleborough Assessors (June 24, 2007) involving the Emerald Square Mall, consisting of about 28 acres of land and retail stores with about 564,000 square feet of rental area. The case involved Fiscal Years 2002 through 2005 with the assessed value at about $176 Million for the first three years and about $210 Million for the fourth year. Predictably, the case involved a battle of the experts with the ATB finding that the property owner's witness was much more credible than the assessors'. In assessing the credibility of the witnesses, the ATB's decision is particularly helpful for its discussion of the factors which are important (and missing from the owner's expert's testimony) such as an expert's frequent site visits; reliance on published sources but without placing undue weight on any one of them; evaluation of the competitive stature of the mall; and scrutiny of operating statements provided by the owners. Although the ATB found that the assessors' expert did measure up in several of these respects, at the end of the day the ATB concluded that the mall should be valued at $167 Million for Fiscal Year 2002, $162 Million for 2003, $169 Million for 2004 and $189 Million for 2005, a package of valuation reductions totaling over $50 Million. The capitalization rates used by the ATB gradually decreased from a high of 9.5% in 2002 to a low of 8% for 2005.

    The other shopping center case was much more modest in scope and involved a three-store complex (with a Christmas Tree Shop as its anchor) with about 100,000 square feet of space and another seven-tenant complex with about 60,000 square feet. In a somewhat unusual step, the ATB addressed both complexes in a single decision (Christmas Tree Shops Plaza, LLC and Cumberland Avenue Plaza, LLC v. North Attleboro Assessors (April 11, 2007). The larger complex was assessed for about $12 Million and the smaller for about $9 Million for Fiscal Year 2004. The ATB first noted that no evidence was offered to support a finding that the consideration in the deeds represented fair cash value of each property since the deeds were executed on the same day with the same seller and the same buyer of both properties. This scenario supported the implication that the sales were part of a single transaction with the parties deciding between themselves on the allocation of the sale price. The ATB therefore gave "little weight" to the sale prices of the properties. The ATB also concluded that the income capitalization approach was appropriate for valuation but, in that regard, found that the owners' expert's analysis was "seriously flawed." Faced with "substantial, credible evidence" from the assessors, the ATB upheld the assessed valuations.

    SEPARATE PARCELS

    It can be a tough call on how to value contiguous parcels under common ownership. Two cases addressing this point, with different outcomes, were handed down in 2007. First there was Trustees of DSR Realty Trust and Trustees of AIAS Realty Trust v. Hudson Assessors (February 27, 2007) which involved contiguous parcels which together comprised an automobile dealership. One parcel was about three acres with a free standing new car dealership building and the other parcel, of about the same size, featured a smaller building used in connection with used car sales. The first was valued at about $1.7 Million and the other for about $500,000 in Fiscal Years 2004 and 2005. The ATB agreed with the owner's expert that the highest and best use of both parcels was their existing use as an "integrated automobile dealership" which should be initially valued together and then have separate values allocated to each of the two parcels. At the same time, the owner's expert's report came up short in several respects to the point that the ATB found that the owners had failed to prove overvaluation. The ATB allowed the assessed values to stand.

    The assessors also prevailed in Salem Traders Way Realty, LLC v. Salem Assessors (April 11, 2007) although the ATB concluded in this case that the contiguous parcels should be valued separately from start to finish. Both parcels were undeveloped, one about two acres in size, the other about seven acres, valued at about $600,000 and $1.5 Million for fiscal year 2004.

    The owner relied on the valuation testimony of the general counsel and clerk/secretary of the owner's parent corporation. This witness was not a real estate appraiser and the ATB found his analysis "flawed in several respects". Those deficiencies included his decision to value the two parcels as a single unit even though each was "capable of being sold to unrelated third parties and developed independently".

    The case also involved the evidentiary rule of a property owner's right to testify to an opinion of value. The usual rule is that only an expert appraiser may give an opinion of value. There is an exception which allows a property owner to render an opinion, an exception based on an owner's usual familiarity with the property's characteristics and uses and experience in dealing with it. A corporate officer may testify to value of business assets, the ATB held, "but only if he has knowledge of and familiarity with the property at issue which qualifies him to express an opinion". In this case, the corporate officer came up short of that standard. The ATB held for the assessors.

    next column

    TELCOM UPDATE

    The year 2007 offered up a victory to the City of Newton in the latest installment of the telecommunications litigation. City of Newton v. Bell Atlantic Mobile Corporation, LTD/LLC d/b/a Verizon Wireless and the Commissioner of Revenue (February 27, 2007). Broadly stated, this latest round of litigation presented the question of whether a cellular wireless provider was a "telephone company" for property tax purposes. The broad question gives rise to three specific questions: (1) should the Commissioner treat a wireless provider as a telephone company and centrally value its poles, underground conduits, wires and pipes, and machinery used in manufacturing under General Laws Chapter 59, Section 39? (2) Should an incorporated wireless provider be entitled to the exemptions afforded an "incorporated telephone company" under General Laws Chapter 59, Section 5, Clause 16(d)(1)? (3) Had the specific taxpayer, Verizon Wireless, converted itself from a limited liability company into a corporation in time to qualify as an incorporated telephone company when it made the switch after January 1, but before July 1 of the taxable year? Heeding the arguments of Newton, the ATB answered 'No' to the first two questions and never reached the third.

    First, the ATB determined that a wireless provider is not a telephone company entitled to central valuation by the Commissioner. Following extensive expert testimony, the ATB distinguished telephone from cellular wireless technology. Telephone technology traces back to Alexander Graham Bell in the late 19th century and involves the transmission of signals over wire. On the other hand, cellular wireless technology is in fact radio technology tracing its origins back to Heinrich Hertz and Guglielmo Marconi in the early twentieth century and involving the transmission of signals through the air on radio frequencies. The ATB found a wireless provider's lack of physically interconnected infrastructure and accompanying regulation prevented qualification as a telephone company.

    The ATB next determined that a cellular wireless provider is not entitled to property tax exemptions afforded incorporated telephone companies. The ATB noted that wireless providers lacked poles, wires, conduits and pipes, i.e., a physically interconnected infrastructure. The ATB found that incorporated telephone companies received their property tax exemption along with a list of other entities through a corporate utility exemption. The common characteristic of the other utilities on the list (such as electric, water and railroad companies) was that they all had physically interconnected infrastructures. The ATB found that wireless companies were not like the others and therefore just didn't belong on the list of utility companies. The ATB ultimately concluded that not only were wireless companies not entitled to central valuation, they were also not entitled to the corporate utility exemption afforded incorporated telephone companies.

    The case has been taken on a direct appeal to the Supreme Judicial Court where oral argument has been scheduled for the first week in March.

    ON HIGHER AUTHORITY

    Perhaps the most interesting case of the year didn't come from the ATB but rather from the Appeals Court in its review and reversal in part of a 2006 ATB decision (William B. Rice Eventide Home v. Quincy Assessors, 69 Mass. App. Ct. 867). Eventide, a charitable organization, operated a 60-bed skilled nursing facility with "no selection requirements, financial or otherwise" for admission of residents. As the Appeals Court put it, on June 14, 2004 Eventide "entered the tax 'twilight zone.'" That was the day when Eventide received its first property bill (about $106,000) after 80 years of exemption. There were other key dates: December 30, 2003 when Quincy mailed bills to the general public (but not to Eventide); February 2, 2004 when payments and abatement applications were due; July 15, 2004 when Eventide filed an abatement application (but didn't pay the tax); October 15, 2004 when the abatement application was deemed denied; and November 26, 2004 when Eventide filed an appeal with the ATB.

    There are two avenues of appeal for a taxpayer who claims its property should be exempt. First, the property owner can take the exemption/abatement route under General Laws Chapter 59, Section 59 which requires paying the tax and filing an abatement application by the due date for the tax bill (February 1 in a city sending quarterly bills). An alternate route, and one which does not require payment of the tax, is a direct appeal to the ATB under Chapter 59, Section 5B. This appeal must be taken within three months of the "determination" by the assessors that the property is not exempt.

    Previous ATB decisions have held that the "determination" is made on the date that the tax bills are sent. In this case, the assessors didn't tax Eventide at the usual time; instead, they sent out an omitted tax bill on June 14 when they decided, for the first time, that Eventide should not be exempt. Eventide filed an abatement application based on the omitted bill but it didn't pay the tax. But what was Eventide to do? A taxpayer has three months to file an abatement application after an omitted tax bill but, again, the abatement route requires payment of the tax, which Eventide hadn't done. If the "determination" date is the mailing of the bills in general, then the date for a direct appeal to the ATB (without paying the tax) had expired well before Eventide even received the omitted bill at all on June 14.

    Clearly, the Appeals Court was troubled by the "twilight zone" in which Eventide found itself and used some well-deserved creativity to find a basis for relief. The Appeals Court concluded that, in light of the "unique facts" of this particular case, the "determination" date for the non-exemption was October 15, the date on which Eventide's abatement application (filed on July 15) was "deemed denied." Eventide's appeal to the ATB on November 26 was clearly within the three month filing time.

    The ATB had dismissed the case for Fiscal Year 2004 on the grounds that it lacked jurisdiction to hear the matter due to Eventide's failure to comply with the technical requirements for taking an appeal. The Appeals Court therefore sent the case back to the ATB for reconsideration on the merits of Eventide's claim of an exemption. The outcome should hardly be in doubt since the ATB had previously decided that it had jurisdiction to hear the 2005 appeal and concluded that Eventide should be exempt.

    POT POURRI

    Two Way Deficiencies. There were a few interesting quirks to Charles Cotesworth Pinckney Trust v. West Tisbury Assessors (July 11, 2007) which involved two contiguous parcels totaling about eight acres with about 200 feet of frontage on Vineyard Sound. One parcel was improved with a large home and the other with a much older and smaller cottage. The parties (two different trusts with the same beneficial owners) agreed and, interestingly, the ATB went along, with treatment of the two properties as one large parcel. The total assessed value was about $11 Million. The owners totally relied on a sale of the property for $7.5 Million about 2 ½ years after the January 1, 2004 valuation date. The ATB found that this sale was simply too remote in time, particularly in a declining market, to be meaningful. The assessors' expert appraiser faired no better since the ATB found that his estimate of about $9 Million was "unreliable." The ATB didn't treat this opinion, however, as an admission by the assessors that the property was worth about $2 Million less than its assessed value since the expert witness was an independent appraiser. Had the opinion been rendered by a member of the board of assessors, for example, the ATB could well have ordered an abatement. In this case, however, with the experts on either side equally unreliable, the ATB allowed the assessed value to stand for the simple reason that the property owner had not met its burden of proving otherwise.

    Long Trial, Short Relief. At issue in Graham v. West Tisbury Assessors (June 7, 2007) were seven parcels of real estate on Martha's Vineyard with total assessed values of over $50 Million in Fiscal Years 2003 and 2004. The trial lasted for 36 days spread over four months. The stakes were obviously high but when all was said and done the ATB found that just two of the parcels were overvalued and only to the tune of about $525,000. The owners claimed disproportionate assessment as well as overvaluation. On this front, the ATB found statistical shortcomings in the owner's presentation as well as the absence of "an intentional policy or scheme of valuing properties, or classes of properties, at a lower percentage of fair cash value than the [owner's property]."

    Know When to Hold 'em. The stakes were also high in 45 Rice Street Realty Trust, et al v. Cambridge Assessors (November 20, 2007) and three companion cases which featured four multi-tenant properties with a total assessed value of more than $60 Million. The cases featured an interesting procedural twist since, at the conclusion of the taxpayers' cases, the assessors brought a motion before the ATB to enter "directed findings" in favor of the assessed value for the four properties for all four fiscal years (2002-2005).

    A motion for a directed finding essentially allows the assessors to test the sufficiency of the taxpayer's evidence at the conclusion of the taxpayer's case. If the ATB allows the motion, then the case ends. If the ATB denies the motion, the assessors then present their own evidence. In real estate tax valuation cases there is the well-established proposition that the assessment is entitled to a presumption of validity so that the taxpayer "bears the burden of persuasion of every material fact necessary to prove that its property has been overvalued." If there is "no credible or persuasive evidence" that the property is overvalued then the motion for a directed finding will be allowed.

    In this case, the cross-examination of the taxpayer's expert was apparently so devastating that the ATB referred to his testimony as "death by a thousand cuts." In light of that of that characterization of the taxpayers' evidence, it's hardly surprising that the motion for a directed finding was allowed.

    2007 CAPITALIZATION RATE SURVEY
    CASETYPE OF PROPERTYYEARATB % RATE
    Trolley Square v. Framinghamretail/office2003-0410%
    Scotia Properties v. Hudsonindustrial2004-0610%
    Mayflower Emerald Square v. North Attleboroshopping mall20029.5%
      20039.25%
      20049%
      20058%

    Appellate Tax Board Updates:

    2009 | 2008 | 2007 | 2006 |2005 | 2004 | 2003 | 2002 | 2001 | 2000


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