COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
KIMBERLY-CLARK CORPORATION & v. COMMISSIONER OF REVENUE
KIMBERLY-CLARK GLOBAL SALES, INC.
Docket Nos.: C282754 Promulgated:
C295077 January 31, 2011
C299008
These are appeals under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the appellee, the Commissioner of Revenue (“Commissioner”), to grant an abatement of corporate excise sought by the appellants for the tax years ended December 31, 2001, December 31, 2002, and December 31, 2003 (“tax years at issue”).
Chairman Hammond heard these appeals. Commissioners Egan, Rose and Mulhern joined him in the decision for the appellee. Commissioner Scharaffa issued a separate opinion concurring in part and dissenting in part, disagreeing with the standard of proof applied by the majority for the tax years ended December 31, 2002, and December 31, 2003.
These findings of fact and report are made at the requests of the appellants and the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.
Philip S. Olsen, Esq. and Natasha Varyani, Esq. for the appellants.
John DeLosa, Esq. and Christopher M. Glionna, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
Based on a “Stipulation of Facts and Admissibility of Exhibits,” as well as testimony and exhibits entered into evidence at the hearing of these appeals, the Appellate Tax Board (“Board”) made the following findings of fact.
Procedural History
During the tax years at issue, Kimberly-Clark Corporation (“Kimberly-Clark”), a Delaware corporation headquartered in Dallas, Texas, maintained corporate locations in Wisconsin, Georgia and Tennessee. Kimberly-Clark Global Sales, Inc. (“Global”), also a Delaware corporation, was incorporated in May, 2002, and was a wholly owned subsidiary of Kimberly-Clark.
On November 18, 2002, Kimberly-Clark filed a Massachusetts corporate excise return for the tax year ended December 31, 2001. Based on the results of an audit initiated by the Massachusetts Department of Revenue, the Commissioner issued a Notice of Intention to Assess Corporate Excise to Kimberly-Clark on August 19, 2007, for the 2001 tax year. On October 2, 2007, the Commissioner issued a Notice of Assessment in the amount of $817,797.25, inclusive of interest. The assessment related to the Commissioner’s disallowance of claimed interest expense associated with Kimberly-Clark’s cash-management system. On February 5, 2008, Kimberly-Clark filed an Application for Abatement, seeking abatement of the additionally assessed corporate excise. The Commissioner issued a Notice of Abatement Determination on April 15, 2008, denying Kimberly-Clark’s abatement application, and on May 29, 2008, Kimberly-Clark filed a Petition Under Formal Procedure with the Board with respect to tax year 2001.
On September 19, 2003, Kimberly-Clark filed a Massachusetts corporate excise return for the tax year ended December 31, 2002.[1] Based on an audit, the Commissioner issued a Notice of Intention to Assess Corporate Excise to Kimberly-Clark on September 11, 2005, for the 2002 tax year. On October 25, 2005, the Commissioner issued a Notice of Assessment in the amount of $1,089,700, inclusive of interest and penalties. The assessment related to the Commissioner’s disallowance of royalty expenses paid by Kimberly-Clark to an affiliated corporation, as well as interest expenses associated with its cash-management system. On December 6, 2005, Kimberly-Clark filed an Application for Abatement, seeking abatement of the additionally assessed corporate excise. The Commissioner issued a Notice of Abatement Determination on December 16, 2005, denying the abatement application, and on January 20, 2006, Kimberly-Clark filed a Petition Under Formal Procedure with the Board with respect to tax year 2002.
On September 13, 2004, Global filed a Massachusetts corporate excise return for the tax year ended December 31, 2003.[2] Based on an audit, the Commissioner issued a Notice of Intention to Assess Corporate Excise to Global on August 19, 2007, for the 2003 tax year. On October 2, 2007, the Commissioner issued a Notice of Assessment in the amount of $1,113,418, inclusive of interest. The assessment related to certain payments among affiliated entities which the appellants had characterized as “rebate” payments, as well as interest expense incurred by Global resulting from Global’s participation in Kimberly-Clark’s cash-management system.[3] On February 5, 2008, Global filed an Application for Abatement, seeking abatement of the additionally assessed corporate excise. The Commissioner issued a Notice of Abatement Determination on April 15, 2008 denying Global’s abatement application and on May 29, 2008, Global filed a Petition Under Formal Procedure with the Board with respect to tax year 2003.
On the basis of the foregoing, the Board found that it had jurisdiction to hear and decide these appeals.
Factual Background
Kimberly-Clark began doing business in the 1870s, making newsprint from garments. Soon after World War I, it introduced a line of feminine products and later a facial tissue line. Kimberly-Clark became a publicly traded company in 1928 and, during the ensuing decades, substantially expanded its business through investment and acquisitions, leading to operations in more than thirty countries and sales in more than one hundred countries.
By 1995, Kimberly-Clark was a leading manufacturer of facial tissues, diapers, and adult incontinence products. Although it maintained a substantial market presence in these product segments, Kimberly-Clark had not made significant headway in the “away from home” business, which consisted of paper and tissue products that were not typically used by their purchasers, but by customers of businesses that purchased the products, such as restaurants and hotels. By this time, Kimberly-Clark had developed a significant presence in North America and Northern Europe, but had not realized similar success in Southern Europe.
To complement its market strengths and mitigate its weaknesses, Kimberly-Clark sought potential merger partners. Ultimately, the company entered into negotiations with Scott Paper Company (“Scott”), an unrelated business that produced paper towel products, facial tissue and value-priced bath tissue. Scott, which had been in business since 1922, had a substantial “away from home” business, and held a significant market share in certain European markets which had not been successfully exploited by Kimberly-Clark.
On July 16, 1995, Kimberly-Clark and Scott entered into an “Agreement and Plan of Merger” that reflected Kimberly-Clark’s agreement to acquire all of the outstanding shares of Scott. Scott became a wholly owned subsidiary of Kimberly-Clark on December 12, 1995, upon consummation of the Plan of Merger effected among Kimberly-Clark, Rifle Merger Co., a wholly owned subsidiary of Kimberly-Clark, and Scott. On February 14, 1996, Scott’s name was changed to Kimberly-Clark Tissue Company (“KCTC”).
Cash-management System
For each of the tax years at issue, the appellants utilized a centralized cash-management system. The system had been in place since the mid-1990s and according to Kimberly-Clark was established to manage cash deposits centrally and to minimize costs among multiple legal entities. In the alternative, these entities would have managed cash deposits and borrowed independently, incurring greater expenses than within the context of a cash-management system. Thus, according to the appellants’ witness, by eliminating individual company bank loans and consolidating banking arrangements, Kimberly-Clark was able to enhance efficiency and increase profitability.
Within Kimberly-Clark’s cash-management system, all subsidiaries’ cash receipts were deposited into a lock box maintained by Kimberly-Clark Financial Services, Inc. (“Financial”) on a daily basis. The cash was swept up to Kimberly-Clark and made available to the subsidiaries from a single pool from which the subsidiaries’ various expenses were paid.[4] To the extent that the cash collected from a given subsidiary exceeded the subsidiary’s expenses, a net payable was recorded from Kimberly-Clark on Kimberly-Clark’s general ledger. Because the cash was swept to Kimberly-Clark through Financial, Financial recorded a receivable from Kimberly-Clark and Kimberly-Clark recorded a payable to Financial.
The movement of cash was documented with daily ledger entries, resulting in a net payable to or net receivable from each entity. Interest on the net payable or receivable was calculated on the last day of each calendar month. The interest rate was typically 130% of the monthly Applicable Federal Short Term Rate as determined under § 1274(d) of the Internal Revenue Code (“I.R.C.”).[5]
No evidence presented indicated that any subsidiary requested or received a return of advances to Kimberly-Clark which exceeded disbursements made to pay the subsidiaries’ expenses (“excess advances”) at any time prior to or during the tax years at issue. In fact, Kimberly-Clark was in a net borrowing position at the end of each of the tax years at issue. Thus, the Board found that the appellants failed to prove that Kimberly-Clark had any intention of repaying the excess advances received from the subsidiaries.
Mr. Michael Todd Azbell, Kimberly-Clark’s Vice President and Corporate controller, who testified regarding the appellants’ cash-management system, discussed an “Amended and Restated Loan Agreement” (“Loan Agreement”) between Kimberly-Clark and Kimberly-Clark Worldwide, Inc. (“Worldwide”) to which promissory notes were attached, all dated December 31, 1998.[6] Mr. Azbell indicated that these agreements were representative of agreements within the cash-management system between Kimberly-Clark and its subsidiaries, except that the amount of the promissory notes varied from entity to entity. The Loan Agreement states the parties’ intention and agreement to make “loans” to each other on an ongoing basis, essentially in the form of a credit line, not to exceed two billion dollars at any one time if made to Worldwide by Kimberly-Clark and three billion dollars if to Kimberly-Clark by Worldwide. Two of the promissory notes, appended to the Loan Agreement as Exhibits A and B, reflect promises to pay, on demand, the amounts agreed to in the Loan Agreement. The notes provide for interest, as discussed above, at 130% of the monthly Applicable Federal Short Term Rate.
Also appended to the Loan Agreement as Exhibit C is a promissory note in the principal sum of five hundred million dollars payable by Kimberly-Clark to Worldwide on December 31, 2003. This note provides for interest at 130% of the monthly Applicable Federal Short Term Rate. Exhibit D is a promissory note identical to Exhibit C in all material respects except that it is payable by Kimberly-Clark on December 31, 2008.
Neither the Loan Agreement nor the promissory notes contained collateral provisions, default provisions or any other security provisions. Having examined the Loan Agreement and the promissory notes, Mr. Azbell made no comment regarding the two fixed maturity date five hundred million dollar promissory notes (“Notes”). In particular, there was no testimony or other evidence presented to explain how the Notes fit within the operation of the cash-management system. Moreover, the appellants offered no evidence that the Notes were repaid by Kimberly-Clark.
Further, the Board found that the appellants failed to establish that the interest rate charged to the subsidiaries was arm’s-length in each instance. No testimony was offered indicating that the various subsidiaries were equally creditworthy or that in a third-party lending transaction each would have been able to negotiate a loan at 130% of the monthly Applicable Federal Short Term Rate. In fact, Mr. Azbell testified that the company uniformly charged “the rate that would be published by the IRS as what is representative of an arm’s-length transactional rate as opposed to going into individual negotiations . . . .”
Based on the evidence presented, and with substantial emphasis placed on the factors indicating the excess cash advances made within the appellants’ cash-management system were not intended to be repaid, including the absence of requests for or effort toward repayment, or actual repayment in whole or in part, the Board found that the advances did not constitute bona-fide debt. This conclusion was reinforced by other factors such as the absence of security, default or collateral provisions attendant to the purported debt, as well as the appellants’ failure to establish that the promissory notes represented arm’s-length transactions. Accordingly, the Board upheld the Commissioner’s disallowance of the claimed interest expenses associated with the appellants’ cash-management system for each of the tax years at issue.
The 1996 Reorganization and Tax Year 2002 Royalty Expenses
Mr. Paul McGuire, Kimberly-Clark’s assistant controller for tax accounting, testified that once the merger of Scott and Kimberly-Clark was complete, the company faced the challenge of integrating the operations of two previously large and distinct entities into a single efficient organization. Toward this end, Kimberly-Clark began to consolidate and centralize several operational functions including management, sales, distribution, and research and development.
Mr. McGuire noted that after the merger, intangible assets, including trademarks, patents, and proprietary know-how, were owned and managed by more than one entity in the Kimberly-Clark family. According to Mr. McGuire, there was an imminent need to centralize ownership and control of these assets, absent which significant inefficiencies would remain and intellectual property could be unprotected.[7] Kimberly-Clark developed “Project Partners” to achieve the desired centralization, a plan that would result in contribution of intellectual property and certain other assets to a newly formed Delaware corporation, Worldwide, a wholly owned subsidiary of KCTC.[8]
On December 3, 1996, Kimberly-Clark issued an internal document entitled “Project Partners Communication Guide” with a cover memo explaining that the document was an “announcement for those teams affected by the creation of [Worldwide].” The Guide, which explained in simple and direct terms the purpose of Project Partners and the structure of Worldwide, began with an overview of Project Partners. Answering the question “What is Project Partners and why are we creating it?,” the Guide states, in part:
Project Partners combines our intangible assets into one company called Kimberly-Clark Worldwide. Up until now, as a result of the merger with Scott Paper, intangible assets were owned and/or managed by several different companies in the Kimberly-Clark Family. This change centralizes the ownership of intangible assets of three companies – Kimberly-Clark, Kimberly Clark Tissue Company and Kimberly-Clark Worldwide . . . into one company. . . .
This project is another example of our continuing effort to improve our financial returns. It will produce better asset management and operational, administrative and financial efficiencies, including significant tax savings. (Emphasis added).
Pursuant to the Project Partners plan, effective November 30, 1996, Kimberly-Clark and KCTC each executed substantially similar agreements with Worldwide as follows:[9] 1) an “Agreement for Conveyance of Assets and Appointment of Trademark Agent,” by which each company contributed substantially all of its patents and proprietary know-how that it had developed and owned (collectively, the Patents”) to Worldwide. The agreements also provided for appointment of Worldwide as the exclusive agent with respect to all of Kimberly-Clark’s and KCTC’s “trademarks,” which included, inter-alia, trademarks, tradenames, service marks, and logos (collectively, the “Trademarks”) ownership of which was retained by Kimberly-Clark and KCTC; 2) a “Trademark License and Assistance Agreement” granting Worldwide a non-exclusive license to the Trademarks to use in manufacturing operations. The agreement also granted an exclusive license to sublicense the Trademarks owned by Kimberly-Clark to KCTC and those owned by KCTC to Kimberly-Clark and to sublicense the Trademarks worldwide. The license grants made under these agreements were royalty-free; 3) an “Asset Contribution Agreement” by which certain real property and operations
were transferred to Worldwide; and 4) a “License and Technical Assistance Agreement” whereby Worldwide granted to Kimberly-Clark and KCTC licenses to the Patents that had been contributed to Worldwide and a sublicense to the Trademarks which had been licensed to Worldwide and for which Worldwide had been appointed exclusive agent by Kimberly-Clark and KCTC. In consideration of the patent license and trademark sublicense, Kimberly–Clark was to pay Worldwide a royalty of three percent of “sales,” as defined in each agreement, and KCTC a royalty increasing from 3.1% of “sales” for the month of December, 1996, to 3.3% for the periods commencing January 1, 1999.[10] The royalty difference reflected the conclusion that Kimberly-Clark’s trademarks were more valuable than those belonging to KCTC, and thus KCTC should pay more for Kimberly Clark’s trademarks under the licensing arrangement.[11]
Following these transactions, Worldwide had numerous employees, substantially all of whom had previously been employees of affiliates of Kimberly-Clark. The employees were involved in manufacturing, research and development, and patent and legal protection services. As reflected in the cited agreements, Worldwide owned and managed the Patents that had previously belonged to Kimberly-Clark and KCTC and managed Kimberly-Clark’s and KCTC’s Trademarks.
Notably, the appellants explained in great detail the need to consolidate the Patents and Trademarks within one newly created entity, Worldwide. Yet despite the articulated “reasons” for consolidation, there was no explanation offered for the rationale underlying the retention of the Trademarks by Kimberly-Clark and KCTC. Presumably, the appellants could have achieved their stated goals of increasing efficiencies and enhancing protection of the intellectual property by employing similar arrangements for both the Trademarks and the Patents. Yet for no apparent reason, the Patents were transferred to Worldwide, thereby generating substantial royalty payments and consequent expense deductions for Kimberly-Clark, while the Trademarks were not. The Board thus found that Kimberly-Clark’s unexplained inconsistent treatment of the Patents and the Trademarks undermined its assertion that tax reduction was not a principal purpose underlying the 1996 reorganization. The Project Partners Communication Guide, which explicitly references “significant tax savings” as an “efficiency” that will be realized as part of the reorganization further reinforces other facts supporting the inference that tax reduction was inextricably tied to the reorganization.
The Board also found significant the extent to which those involved in company tax matters were responsible for development, implementation and oversight of the reorganization. For example, not only did Mr. McGuire sign the cover memorandum of a draft of the “Project Partners Communication Guide,” but he was the signatory to an inter-office document entitled “Project Partners Work Plan,” which delineates some 348 tasks associated with implementation of Project Partners. Many of these tasks relate directly to tax considerations and were to be completed by company tax personnel and representatives of Ernst & Young. Further, in his testimony, Mr. McGuire confirmed Ernst & Young’s ongoing involvement with Project Partners as it related to the multiplicity of tax issues intertwined with the reorganization. In contrast, the record does not reflect any level of planning or oversight of the reorganization by operational personnel, corporate managers or even employees responsible for addressing intellectual property issues, the very issues the appellants claim were the driving force for the reorganization. Moreover, just as tax personnel played the principal role in the development and execution of Project Partners, the only witnesses presented in support of the appellants’ case in these appeals held positions within Kimberly-Clark as director of tax defense, assistant controller for tax accounting, and controller; no witness responsible for the appellants’ business operations or intellectual property management was offered by the appellants.
Next, despite statements by the appellants to the contrary, the record does not indicate that Worldwide negotiated or entered into third-party licensing agreements with respect to the Patents or the Trademarks. While the license agreements relating to this property purported to be non-exclusive, there was no evidence to suggest that Worldwide sought out or entered into agreements with third-party licensees. Absent such licensing activity, the Board found that the license agreements among Kimberly-Clark, Worldwide and various affiliated entities were de facto exclusive licenses. The Board thus found that these licenses were not arm’s-length transactions.
Finally, although Kimberly-Clark and KCTC ostensibly paid a royalty to Worldwide for the use of intellectual property they had transferred to Worldwide, as well as for the licensed trademarks, these payments were immediately returned to Kimberly-Clark by virtue of the operation of the company’s cash-management system. The Board found that such a circular flow of funds undermined the appellants’ assertion that the 1996 reorganization was supported by economic substance.
On the basis of the foregoing, the Board found that the appellants did not provide clear and convincing evidence to demonstrate that reduction of tax was not a principal purpose underlying the 1996 reorganization; neither did the appellants sustain their burden of demonstrating that the add back of royalty expenses associated with the transfer and license-back transactions at issue for tax year 2002 was unreasonable within the meaning of G.L. c. 63, § 31I. Accordingly, the Board found that the Commissioner properly disallowed these royalty expenses.
Tax Year 2003 – Purported Rebate Payments
Mr. Richard Beauvais, Kimberly-Clark’s director of tax defense and assistant treasurer, testified that as part of the corporate consolidation and streamlining process following the merger with Scott, Kimberly-Clark undertook to examine and improve its “supply-chain management,” the process of purchasing raw materials, manufacturing product, maintaining inventory, and selling and distributing product. According to Mr. Beauvais, following the merger, individual entities bought their own raw materials, attempted to determine their own production needs, to match those needs with customer demand, and controlled the sale and distribution of the product. This arrangement resulted in several inefficiencies including overproduction, excess inventory, and inefficient shipping. Beginning in Europe in 2000, and subsequently in the United States, Kimberly-Clark sought to centralize and increase efficiencies associated with its supply-chain management. The Company purchased and put in place an “SAP information system,” a software system that provided Kimberly-Clark with a central information source for the entire supply-chain management process that replaced thirty loosely connected systems.
Mr. Beauvais testified that the SAP system would only work if the entire process, from procurement to ultimate sale, was coordinated from within a single entity. To accomplish this in the United States, Global was formed in May of 2002, and a series of agreements, effective January 1, 2003, was executed by and among Kimberly-Clark,
Worldwide and Global.[12] Ultimately, during 2003, Global was responsible for controlling Kimberly-Clark’s entire supply-chain management process and had several thousand employees. Global sold, marketed and distributed Worldwide branded products, provided centralized administration services, and operated national distribution centers. Global also owned raw materials, work in progress and finished goods.
Within the new operating structure, manufacture was performed on a contract basis, primarily by Kimberly-Clark, but also by Worldwide and other affiliated entities qualified by Worldwide as “certified suppliers.”[13] Each of the certified suppliers was guaranteed a return for the manufacturing services performed equal to the costs of manufacturing plus a mark-up on assets of approximately 11%. Global was also guaranteed a return of approximately 3.9% on its distribution costs, 6% on its costs of carrying inventory and 4% on any incurred engineering costs. The rates of return were initially determined by Kimberly-Clark and were adjusted somewhat based on a Transfer Pricing Analysis performed by KPMG in December of 2003.
Under the various agreements relating to the 2003 reorganization, neither Kimberly-Clark nor any other certified supplier paid a royalty, defined or described as such, for the use of the Patents for which Worldwide had previously been compensated. Rather, the sole identified royalty within this new structure was paid by Global to Worldwide in the annual sum of approximately one million dollars. Global, in turn, sublicensed the technology to the certified suppliers without specified charge.
Unlike the prior royalty arrangement, no evidence was submitted regarding how the royalty paid by Global, which represented a tiny fraction of the royalty payments made by Kimberly-Clark for use of the same property during 2002, was derived or why it represented an arm’s-length payment for the technology.
Pursuant to First Amended and Restated Supply and Service Agreements, each certified supplier, having received its guaranteed return, was to remit payment to Global in the amount of any “cost savings.” These savings were realized by the suppliers through use of the Patents. The First Amended and Restated Supply and Services Agreements define “cost savings” as “any cost efficiencies obtained by [a certified supplier] in manufacturing, producing, converting, packaging, supplying or delivering [][p]roducts to [Global] including, but not limited to reduced input costs, increased volume, and increased efficiency” derived from the use of the Patents. At the end of each month, the cost savings were paid by the suppliers to Global, which accounted for the savings as part of its cost of goods sold and remitted them to Worldwide in the form of “rebate” payments.
By way of example, payments relating to sales of goods under the “rebate program” flowed as follows. Kimberly-Clark or another certified supplier produced a product for Global. Global sold the product to a customer for ten dollars and then, using the agreed-upon mark-up, calculated its rate of return to be two dollars. The remaining eight dollars was remitted to the certified supplier, and the supplier’s guaranteed return was calculated to be five dollars based on the pre-determined mark-up. The remaining balance of three dollars was characterized by the appellants as “cost savings” and was returned by the supplier to Global, which paid the sum to Worldwide as a “rebate” payment.[14]
Throughout 2003, Worldwide continued to own and manage the Patents.[15] Worldwide also had ongoing manufacturing operations and funded research and development. Worldwide was the only entity in the 2003 reorganization that was not guaranteed a rate of return. According to the appellants, this structure was designed to remove business risk from Kimberly-Clark, other contract manufacturers, and Global. In turn, Worldwide was intended to and did assume all of the risk associated with product sales.
The appellants assert that the “rebate” payments were not related to the certified suppliers’ use of Worldwide’s Patents, and therefore cannot be characterized as a royalty or intangible expense within the meaning of G.L. c. 63, § 31I. Rather, according to the appellants, the “rebate” payments represent compensation paid to Worldwide for its assumption of business risk. The Board found that these assertions lacked credibility.
The Board found untenable the appellants’ claim that Worldwide bore all the business risk associated with the sale of products, or lack thereof, within the appellants’ multi-faceted operational structure. Kimberly-Clark is a publicly traded corporation, and the risks and rewards of its business activities and those of its affiliates, which are almost exclusively derived from the manufacture and sale of its products, flow directly to Kimberly-Clark and are periodically reported in various public documents. The Board therefore found implausible the appellants’ assertion that Kimberly-Clark and other affiliated entities were isolated from these risks, which as of 2003 were purportedly borne by a single subsidiary with significant albeit limited activity.
Moreover, beginning with the 1996 reorganization and continuing throughout 2002, Worldwide was compensated at a rate of between 3% and 3.3% of billions of dollars of sales for use of the Patents, a sum which the appellants characterized as reflecting fair value. During 2003, that property was used by substantially the same entities to perform the same tasks – produce Worldwide’s branded products. In his testimony, Mr. Beauvais stated not only that the “manufacturing know-how” owned by Worldwide allowed the certified suppliers to “produce a product at a cost that should be less absent having the availability of [the] technology,” but that the certified suppliers’ production was not possible without this “know-how.” Indeed, the “cost savings” and consequent “rebate” payments made to Worldwide were made possible only through use of the Patents sublicensed by Global to the certified suppliers. These facts notwithstanding, the sole declared royalty payment for 2003, made by Global to Worldwide, amounted to a tiny fraction of royalties paid to Worldwide during 2002. Further, Worldwide continued to perform much the same functions it had prior to the 2003 reorganization.
The Board found that the “rebate” payments represented payment for use of the Patents, and this use constituted an embedded royalty. These findings were based on: the effective discontinuance of substantial royalty payments during tax year 2003, which the appellants’ had previously characterized as fair compensation for use of Worldwide’s Patents; the certified suppliers’ continued use of the Patents, without which production would not have been possible; and the appellants’ untenable assertion that the “rebate” payments represented compensation to Worldwide for its full assumption of risk associated with the sale of products.
Based on the Board’s finding that the nature of the “rebate” payments was fundamentally mischaracterized by the appellants, and that the payments also constituted embedded royalties, the Board also found that the add-back provisions of G.L. c. 63, § 31I applied to the payments. The appellants, having unequivocally denied that the “rebate” payments represented royalties paid for use of the Patents, presented no evidence to support the assertion that the payments qualified for an exception from add back under § 31I. Absent such evidence, the Board found that the Commissioner’s add back of the sums associated with the purported rebate payments was proper.
OPINION
Appellants’ Burden of Proof
With the exception of interest expenses associated with Kimberly-Clark’s cash-management system incurred during tax year 2001, the disposition of the contested issues in these appeals is dependent upon application of G.L. c. 63, §§ 31I, and 31J (collectively, the ”Add Back statutes”).[16] Generally, and as discussed in greater detail below, the Add Back statutes, subject to certain exceptions, require a taxpayer to add back to net income deductions for related member interest and intangible expenses and costs. Id. The exceptions, in pertinent part, apply if a taxpayer “establishes by clear and convincing evidence, as determined by the commissioner, that the disallowance of the deduction is unreasonable. . .” G.L. c. 63, §§ 31I(c)(i)(A) and 31J(a)(1).
Citing the well-settled principle that courts are generally constrained to follow the plain language of a statute, see, e.g., White v. Boston, 428 Mass. 250 (1998), the appellants assert that the plain language of the Add Back statutes inevitably leads to the inference that the “clear and convincing” standard is confined to decisions made by the Commissioner and does not extend to appeals of those decisions to the Board. In support of this conclusion, the appellants note that in each instance in which the statutes reference “clear and convincing evidence,” the language is followed by the qualifying phrase, “as determined by the commissioner.” The appellants next contend that had the Legislature intended to extend the clear and convincing standard of proof to appeals before the Board, the qualifying phrase, which the appellants characterize as “limiting language,” would not have been made part of the statute. Thus, the appellants conclude that the plain language of the statutes mandate application of the clear and convincing standard only to the Commissioner’s decisions, and that the standard of proof at the Board is the “preponderance of the evidence” standard.
Unlike the appellants, the Commissioner reads the phrase “as determined by the Commissioner” as an instruction to the Commissioner to provide guidance regarding the meaning of “clear and convincing evidence” within the Add Back statutes. The Commissioner essentially argues that she is generally to determine the quality and type of evidence that will constitute “clear and convincing” evidence, and will decide whether a particular taxpayer has met that standard in the context of an abatement application. On appeal, the Board will then make an independent determination of whether the taxpayer has met the clear and convincing standard based on evidence offered at a de novo hearing.
Where, as here, a statute is “capable of being understood by reasonably well-informed persons in two or more different senses,” it is ambiguous. Fred Cohen v. Liberty Mutual Insurance Company, 41 Mass. App. Ct. 748, 753 (1996). Long settled principles of statutory construction require that ambiguous statutory language be construed so as to avoid absurd or unreasonable results and to give effect to the Legislature’s intent. See, e.g., EMC Corp. v. Commissioner of Revenue, 433 Mass. 568, 570 (2001); Manning v. Boston Redevelopment Authority, 400 Mass. 444, 453 (1987).
Applying these principles of construction to the relevant language of the Add Back statutes, the Board rejected the appellant’s interpretation of the meaning and import of the phrase “as determined by the commissioner.” First, the appellants’ interpretation leads to the anomalous result that a taxpayer would bear two different standards of proof in challenging the disallowance of a deduction under the Add Back statutes, with a more demanding “clear and convincing” standard applicable during the Commissioner’s review and a less onerous “preponderance” standard applicable to the appeal of the Commissioner’s abatement determination to the Board. In fact, the appellants’ view would effectively nullify the Commissioner’s review of add-back transactions for any taxpayer willing to appeal to the Board: a taxpayer could produce scant or no evidence before the Commissioner and later receive a de novo hearing at the Board under the less burdensome preponderance of the evidence standard. This result plainly contravenes the intent of the statute and renders the “clear and convincing” language in the Add Back statutes meaningless for any taxpayer that prosecutes an appeal before the Board.
In contrast, the Commissioner’s interpretation that the phrase “as determined by the Commissioner” directs her to provide guidance regarding the meaning of clear and convincing evidence is a sensible construction. The Commissioner has in fact provided such guidance, both in Technical Information Release (“TIR”) 03-19 and 830 C.M.R. 63.31.1, each of which states that clear and convincing evidence is “evidence that is so clear, direct and weighty that it will permit the Commissioner to come to a clear conviction without hesitancy of the validity of the taxpayer’s claim.” The Commissioner’s regulation adds that “[t]his evidentiary standard requires a strong showing of proof that instills a degree of belief greater than is required under the preponderance of evidence standard.” 830 C.M.R. 63.31.1(2).
Because the appellants’ interpretation of the phrase “as determined by the Commissioner” leads to an absurd result, while the Commissioner’s interpretation is reasonable and sensible, the Board determined that the Commissioner’s interpretation is correct. See Manning, 400 Mass. at 453 (“A statute or ordinance should not be construed in a way that produces absurd or unreasonable results when a sensible construction is readily available”); see also Flemings v. Contributory Retirement Appeal Board, 431 Mass. 374, 376 (2000) (“If a sensible construction is available, [courts] shall not construe a statute to make a nullity of pertinent provisions”).
Moreover, “[a] statute ‘must be interpreted according to the intent of the Legislature ascertained from all its words construed by the ordinary and approved usage of the language, considered in connection with the cause of its enactment, the mischief or imperfection to be remedied and the main object to be accomplished, to the end that the purpose of its framers may be effectuated.’” Wheatley v. Massachusetts Insurers Insolvency Fund, 456 Mass. 594, 601 (2010)(quoting Hanlon v. Rollins, 286 Mass. 444, 447 (1934)). The Add Back statutes were enacted in part in response to the Supreme Judicial Court’s decision in The Sherwin-Williams Co. v. Commissioner of Revenue, 438 Mass. 71 (2002). See 830 C.M.R. 63.31.1. In Sherwin-Williams, discussed in greater detail below, the Court upheld the transfer and license-back of intangible property to a related corporate member, focusing on whether the disputed transactions “had any practical economic effects beyond the creation of . . . tax benefits.” Sherwin-Williams, 438 Mass. at 85. Approximately five months after the Court’s decision in Sherwin-Williams, the Legislature strengthened the judicially sanctioned inquiry, presumptively disallowing deductions for expenses paid to related parties, including those considered by the Court in Sherwin-Williams. The Add Back statutes require a taxpayer to demonstrate by clear and convincing evidence that add-back adjustments are unreasonable, and the Legislature explicitly “clarif[ied] its original intention that the taxpayer is required to possess for a transaction, both: (1) a valid, good-faith business purpose, other than tax avoidance; and (2) economic substance apart from the asserted tax benefit in order to claim a deduction, exemption or other tax benefit.” St. 2003, c. 4, § 84; G.L. c. 63 §§ 31I(c) and 31J(b).
Against this backdrop, the notion that the Legislature would have intended that appeals relating to disputed add-back transactions be considered under a standard of proof more favorable to a taxpayer than upon review by the Commissioner is without logical support. In passing the Add Back statutes, the Legislature explicitly incorporated a heightened standard of proof into the review of transactions involving related member interest and intangible expenses and costs. Inclusion of the heightened standard of proof evinces an unmistakable intent to subject the transactions to closer scrutiny and provides a mechanism to effectuate this purpose. Yet, if the appellants’ view were to prevail, a taxpayer could easily frustrate the Legislature’s intent simply by offering the Commissioner nothing and then appealing an adverse decision from the Commissioner to meet a preponderance of the evidence standard at the Board. Further, as tax deductions are a matter of legislative grace, see, e.g., South Boston Savings Bank v. Commissioner of Revenue, 418 Mass. 695 (1994), the Legislature could have repealed the deductions affected by the Add Back statutes in their entirety. Instead, the Legislature chose to impose a higher standard in an area marked by significant abuse and litigation. See, The TJX Companies, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2007-790, 881, aff’d in part, remanded in part, Mass. App. Ct., No. 07-P-1570, Memorandum and Order under Rule 1:28 (April 3, 2009), aff’d, Mass. App. Ct., No. 09-P-1841, Memorandum and Order under Rule 1:28 (July 23, 2010); Cambridge Brands, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 2003-358, aff’d, 62 Mass. App. Ct. 1118 (2005); The Sherwin-Williams Co. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2000-468, rev’d 438 Mass. 71 (2002); Syms Corp. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2000-711, aff’d 436 Mass. 505 (2002).
The appellants also emphasize that when the Legislature passed the Add Back statutes, it left unchanged the Board’s enabling statute, G.L. c. 58A, § 8, which allows the Board to determine its own rules of practice and procedure. The appellants then conclude that the Commissioner has asked the Board “to introduce a higher standard of proof to proceedings before the Board that the Legislature saw fit to leave unchanged.”
General Laws, chapter 58A, section 8 provides, in relevant part, that proceedings before the Board “shall be conducted in accordance with such rules of practice and procedure as the board may make and promulgate.” G.L. c. 58A, § 8. It does not dictate a standard of proof to be applied in proceedings before the Board. Rule 1.37 of the Board’s Rules of Practice and Procedure is instructive in this regard and provides, in pertinent part:
Except as herein otherwise provided, the practice and procedure before the Board shall conform to that heretofore prevailing in equity causes in the courts of the Commonwealth prior to the adoption of the Massachusetts Rules of Civil Procedure; but the Board reserves the right to make hearings and proceedings as informal as possible, to the end that substance and not form shall govern . . . .
830 CMR 1:37. Practice and procedure in equity causes prosecuted in Massachusetts prior to adoption of the Massachusetts Rules of Civil Procedure in 1973 generally required that the party with the burden of proof establish that the relevant facts were more likely true than not. See Sullivan v. Hammacher, 339 Mass. 190, 194 (1959); Black v. Boston Consolidated Gas Co., 325 Mass. 505, 508 (1950). Thus, pursuant to Rule 1.37, a taxpayer appearing before the Board typically bears the burden of proving its case by a “preponderance of the evidence.” See, e.g., Bayer Corp. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 2005-491. However, general equity practice and procedure do not control in the presence of a specific legislative mandate regardless of whether the statute requires a result contrary to the rule generally used before the statute was enacted. See Hurley v. Flanagan, 313 Mass. 567, 572 (1943) (noting that the burden of proof on a particular issue was traditionally on the plaintiff, but adopting a statutory rule that placed the burden on the defendant); see also Keith Mengel v. Justices of the Superior Court, 313 Mass. 238, 244 (1943) (adopting a statute’s accelerated appeals process for injunctions in labor cases because the statute created a new procedure superseding the prevailing practice in equity).
In the instant appeals, the Add Back statutes provide an explicit statutory mandate requiring that a taxpayer who disputes the add back of related member interest or intangible expenses provide clear and convincing evidence to sustain its burden of proof. This specific statutory mandate controls notwithstanding the general application of the preponderance standard under equity practice.
Further, the Board has previously applied a heightened standard of proof without modifying its rules. Under U.S. Supreme Court and Supreme Judicial Court precedent, when disputing application of Massachusetts apportionment law, “the taxpayer has the ‘distinct burden of showing by “clear and cogent evidence” that [the state tax] results in extraterritorial values being taxed.’” The Gillette Company v. Commissioner of Revenue, 425 Mass. 670, 680 (1997)(quoting Container Corporation of America v. Franchise Tax Board., 463 U.S. 159, 164 (1983)). The Board has applied this heightened standard on many occasions. See, e.g., W.R. Grace & Co.-Conn. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 2009-261; Advance Logic Research, Inc v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2008-19; NES Group, Inc. & Robert J. Tomsich v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 2008-1242; The Gillette Company v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 1996-362. It cannot be reasonably suggested that the Board should have ignored a clear judicial mandate and refused to apply a heightened standard of proof in those appeals by declaring that its rules only allowed it to apply the preponderance standard applicable in equity cases. It would be equally unreasonable for the Board to ignore the clear legislative mandate in these appeals.
In sum, neither G.L. c. 58A, §8, the Board’s enabling statute, nor Rule 1.37 prevents the Board from applying the clear and convincing standard of proof prescribed by the Add Back statutes. Moreover, there is ample precedent to show that the Board has not hesitated to apply a heightened standard of proof pursuant to applicable judicial precedent.
Finally, the appellants argue that by seeking application of the clear and convincing standard at the Board, the Commissioner seeks to limit the discretion granted the Board by the Legislature. Noting that a proceeding before the Board is a de novo hearing of the facts and issues in dispute, see Commissioner of Corporations and Taxation v. J.G. McCrory Company, 280 Mass. 273 (1932), the appellants claim that, contrary to the Board’s obligation to conduct a de novo hearing in the present appeals, the Commissioner “would have the Board confine its examination to a review of her determination that the appellants did not sustain their burden of proof by ‘clear and convincing’ evidence.”
The Board found that its obligation to conduct a de novo hearing is entirely consistent with application of the clear and convincing standard. In J.G. McCrory Company, the Court considered the Commissioner’s contention that the function of the Board was limited to a review of the Commissioner’s action, and that the Board was not entitled to try a matter anew. Id. at 277. The Court disagreed, finding that a taxpayer’s appeal to the Board meant “a full new trial or an entire rehearing upon all matters of fact and questions of law.” Id. The Court made no mention of the standard applicable to proceedings before the Board. Indeed, there is no precedent to support the conclusion that application of the clear and convincing standard by the Board to the evidence presented by the appellants in these appeals would in any way impair “a full new trial or an entire rehearing upon all matters of fact and questions of law.” The Board in fact conducted a de novo hearing in the present appeals and did not merely review the propriety of the Commissioner’s action. Rather, having considered all the testimony and exhibits presented at the hearing of these appeals, together with the parties’ stipulation of facts, the Board ruled that the appellants failed to produce clear and convincing evidence in support of their claims for abatement.
Based on the foregoing, the Board found and ruled that the “clear and convincing” standard applies to appeals involving application of the Add Back statutes.
Cash-management System
Pursuant to G.L. c. 63, § 30(4), a corporation’s net income generally consists of gross income less the deductions, but not credits, allowed under the I.R.C. Pursuant to I.R.C. § 163(a), a corporation may deduct “all interest paid or accrued within the taxable year on indebtedness.” For each of the tax years at issue in these appeals, the parties dispute whether claimed interest expenses associated with the appellants’ cash-management system should be allowed.
There is no dispute that G.L. c. 63, § 31J, (“§ 31J”) which presumptively disallows interest expense “paid, accrued or incurred to a related member,” is applicable to claimed interest deductions relating to tax years 2002 and 2003. The deductions for tax year 2001, which precedes the effective date of the Add Back statutes, must be considered under prior law.
Tax Year 2001
For a transaction to give rise to a valid interest deduction, the transaction must constitute true indebtedness. Knetsch v. United States, 364 U.S. 361, 364-365 (1960). “Related but separate entities can freely enter into contracts including debt transactions, like any corporations or individuals.” Overnite Transportation Company v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1999-353, 370 (citing Bordo Products Co. v. United States, 476 F.2d 1312, 1323 (Ct. Cl. 1973)). However, courts examine these transactions with greater scrutiny because the transactions “do not result from arm’s length bargaining.” Overnite Transportation Company, Mass. ATB Findings of Fact and Reports at 1999-370 (citing Kraft Foods Co. v. Commissioner, 232 F.2d 118, 123-124 (2nd Cir. 1956)); see also, Overnite Transportation Company v. Commissioner of Revenue, 54 Mass. App. Ct. 180, 186 (2002) (“When ‘the same persons occupy both sides of the bargaining table, form does not necessarily correspond to the intrinsic economic nature of the transaction, for the parties may mold it at their will with no countervailing pull’”)(quoting Fin Hay Realty Co v. United States, 398 F.2d 694, 697 (3d Cir. 1968)). Under these circumstances, which are present in the current appeal, less emphasis is placed on the formal indicia of a debt instrument, which can be “meticulously made to appear” at the sole discretion of the parent. Id. at 697. Furthermore, the parties’ characterization of the debt instrument in their books and records is not a controlling factor because the records are a product of the parties and are therefore not necessarily “a reliable reflection of the true nature of the transaction.” New York Times Sales, Inc. v. Commissioner of Revenue, 40 Mass. App. Ct. 749, 753 (1996). “Rather, ‘the indebtedness must be indebtedness in substance and not merely form.’” Overnite Transportation Company, Mass. ATB Findings of Fact and Reports at 1999-371 (quoting Midkiff v. Commissioner, 96 T.C. 724, 735 (1991)).
While “the issue of whether transfers between a subsidiary and its parent constitute debt has been extensively litigated, courts have not established a bright-line rule for making such a determination but have instead employed a case-by-case analysis based on the specific facts and circumstances of a particular case.” The TJX Companies, Mass. ATB Findings of Fact and Reports at 2007-881. “The Board must review the facts and circumstances surrounding a purported inter-company loan to determine whether a true debt obligation exists.” Id. at 882. Within the context of this review, “[i]t is well settled that a distribution by a subsidiary corporation to its parent is a loan and not a dividend if, at the time of its payment, the parties intended it to be repaid. Whether the parties actually intended the transaction to be a loan or dividend is an issue of fact. To resolve the issue, the courts apply a multi-factor analysis. No single factor is determinative; rather, all the factors must be considered to determine whether repayment or indefinite retention is intended.” New York Times Sales, 40 Mass. App. Ct. at 752. (internal citations omitted).
In New York Times Sales, the Massachusetts Appeals Court upheld the Board’s decision that sums transferred from a subsidiary to its parent were dividends and not loans. The Board had determined that the parties did not intend the transaction to be a loan in light of factors previously set forth in Alterman Foods, Inc. v. U.S., 505 F.2d 873 (5th Cir. 1974), and Alterman Foods, Inc. v. U.S., 611 F.2d 866 (Ct. Cl. 1979), and on appeal, the court sanctioned the Board’s reasoning involving:
[S]everal factors [which] demonstrated that the parties intended that the cash transactions be dividends and not loans. They included (1) the amounts transferred were not limited in any manner; (2) there was no repayment schedule and no fixed dates of maturity; (3) the amounts ‘upstreamed’ to Times Company were intended to remain with the Times Company for use in fulfilling its various corporate purposes; (4) no interest was charged; (5) no notes or other evidences of indebtedness existed; (6) the transferred cash was not secured in any manner; (7) at no time did Times Sales request repayment; (8) there was no evidence that Times Sales had any expectations of repayment; and (9) at no time did Times Company make any effort to repay the amounts transferred to it by Times Sales.
New York Times Sales, 40 Mass. App. Ct. at 752. In the present matters, the appellants argue that the transactions within the cash-management system reflected bona-fide debt, citing loan agreements and associated promissory notes executed by Kimberly-Clark and participating subsidiaries that contained fixed ceilings on the loan amounts and set forth terms for borrowing over a period of time similar to a credit line. The appellants also emphasize that an “arm’s-length” interest rate was charged, which was tied to a federal rate that under the I.R.C. qualified as an “adequate arm’s-length interest rate” for federal tax purposes. Finally, the appellants note that the transactions at issue were treated as debt on the books of Kimberly-Clark via detailed ledger entries documenting the movement of cash among Kimberly-Clark and its subsidiaries.
Observing that the Loan Agreements and associated promissory notes make no mention of the appellants’ cash-management system, the Commissioner disputes their relevance to the present analysis. The Board, however, accepted the appellants’ testimony that the provided documentation reflected elements of the arrangement among Kimberly-Clark and its subsidiaries within the cash-management system. This conclusion notwithstanding, the Board found and ruled that the purported intercompany loans did not constitute bona-fide debt.
In The TJX Companies, having examined the facts and circumstances surrounding certain intercompany advances, “the Board found and ruled that . . . inter-company loans were not true debt because the advances were permanent in nature, were intended to remain indefinitely with TJX, and were unsecured. Additionally, TJX never made any effort to repay the loan princip[al] and the subsidiaries never requested repayment.” The TJX Companies, Mass. ATB Findings of Fact and Reports at 2007-890. These same features characterized the appellants’ cash-management system and were central to the Board’s finding that the claimed loans did not constitute true debt.
All cash received by the participating subsidiaries was swept up to Kimberly-Clark on a daily basis. Having issued disbursements to the subsidiaries only to satisfy their operating needs, excess balances remained with Kimberly-Clark indefinitely. Notwithstanding the appellants’ assertion that on any given day a participating entity could be in a net borrowing or lending position, at the end of each of the tax years at issue, Kimberly-Clark was in a net borrowing position.
No evidence presented indicated that any entity expected or received return of excess advances made to Kimberly-Clark during the tax years at issue. Similarly, there was no evidence to support a finding that Kimberly-Clark made any effort to repay those advances. Instead, interest simply continued to accrue on outstanding payable positions. The fact that excess balances remained with Kimberly-Clark indefinitely, coupled with the subsidiaries’ failure to request or receive repayment of principal, led the Board to find that the advances were permanent. Thus, the Board could not conclude on the present record that the parties intended repayment of the excess advances.
As with the taxpayer’s cash transfer agreements in The TJX Companies, the Loan Agreement and associated promissory notes made no provision for security, and contained no default or collateral provisions. Thus, the repayment provisions of the notes lacked substance because the subsidiaries did not have specified recourse to compel Kimberly-Clark to repay the claimed loans. Further, “[a]lthough some loans are made ‘on signature,’ the absence of a provision for security in a loan of [six hundred million dollars] is telltale that a ‘loan’ is not real, and so, also for the absence of meaningful enforcement mechanisms.” Overnite Transportation Company, 54 Mass. App. Ct. at 189-90 (internal citations omitted). Under this precedent, the demand notes between Kimberly-Clark and Worldwide, valid for sums up to three billion dollars, and the Notes representing fixed sums of five hundred million dollars each, none of which provided for security or contained enforcement mechanisms, were certainly of sufficient magnitude to justify doubt regarding their substance.
Further, although Kimberly-Clark and its affiliates executed notes that provided for interest at a rate that may have passed muster for federal tax purposes, the appellants did not provide evidence to demonstrate that an independent third party lender would have extended loans at the same interest rate and on the same terms as the rate employed among Kimberly-Clark and its subsidiaries. These facts bolstered the conclusion that the various promissory notes did not represent arm’s-length transactions. See, e.g. Overnite Transportation Company, Mass. ATB Findings of Fact and Reports at 1999-371.
The Board also found the appellants’ failure to offer any explanation regarding the Notes telling. The Notes, which were ostensibly part of the appellants’ cash-management system, represented obligations totaling one billion dollars and had specified repayment dates that preceded the hearing of these appeals. Yet the appellants offered no evidence as to whether or when the outstanding debt was retired, and if payment was not made, why the lack of payment does not undermine the appellants’ assertion that all of the purported loans made under their cash-management system constituted bona-fide debt. The Board, therefore, found that the appellants’ failure to submit such evidence further reinforced the finding that the purported loan arrangements that comprised the appellants’ cash-management system did not constitute bona-fide debt.
Finally, although the appellants treated the cash-management transactions as debt on their books, as noted above, “the method by which two related businesses account for cash transfers on their internal financial records is not deemed to be a controlling factor in determining the nature of the transaction . . . such records, being the product of the parties, do not necessarily constitute a reliable reflection of the true nature of the transaction.” New York Times Sales, 40 Mass. App. Ct. at 753.
In sum, with primary focus on the factors which indicated the permanent nature of the excess cash advances made within the appellants’ cash-management system, including the absence of requests for, effort toward, or expectation of repayment or actual repayment, the Board found and ruled that the advances did not constitute bona-fide debt. This conclusion was reinforced by other factors such as the absence of security, default or collateral provisions attendant to the purported debt, as well as the appellants’ failure to establish that the promissory notes represented arm’s-length transactions. Accordingly, the Board upheld the Commissioner’s disallowance of the interest expenses associated with the appellants’ cash-management system for the tax year 2001.
Tax years 2002 and 2003
Having concluded that the interest expenses for tax year 2001 relating to the appellants’ cash-management system should be disallowed, the same result is compelled for tax years 2002 and 2003. As previously noted, the nature of the transactions within the cash-management system did not change during the tax years at issue. The only potentially dispositive change for the latter tax years, therefore, is the application of § 31J. Section 31J requires add back of “otherwise deductible interest paid, accrued or incurred to a related member,” unless, as relevant to these appeals, “the taxpayer establishes by clear and convincing evidence, as determined by the commissioner, that the disallowance of the deduction is unreasonable.” G.L. c. 63, §§ 31J(a) and 31J(a)(1). There is no dispute that the interest at issue was “paid, accrued or incurred to a related member” within the meaning of § 31J, and is therefore subject to add back. Neither do the parties dispute that an obligation underlying a claimed interest expense must be bona-fide debt. See, e.g., 830 C.M.R. 63.31.1(2). Here, the only additional disputed issue is the heightened standard of proof to be borne by a taxpayer under the Add Back statutes. Having ruled that the “clear and convincing” standard should apply, and given that the appellants did not prevail under the less burdensome “preponderance of the evidence” standard for tax year 2001, the Board found and ruled that the appellants’ case for tax years 2002 and 2003 must also fail. Accordingly, the Board upheld the Commissioner’s disallowance of the claimed interest expenses associated with the appellants’ cash-management system for tax years 2002 and 2003.
Royalty Expense – Tax Year 2002
The I.R.C. allows a deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” I.R.C. § 162(a). For tax year 2002, the Commissioner disallowed expenses claimed by Kimberly-Clark for royalties paid to Worldwide, its wholly owned subsidiary.
The Board and Massachusetts courts have on several occasions, and with differing results, addressed whether royalty payments paid to an affiliated entity were deductible. See The TJX Companies, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2007-790, 881, aff’d in part, remanded in part, Mass. App. Ct., No. 07-P-1570, Memorandum and Order under Rule 1:28 (April 3, 2009), aff’d, Mass. App. Ct., No. 09-P-1841, Memorandum and Order under Rule 1:28 (July 23, 2010); Cambridge Brands, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 2003-358, aff’d, 62 Mass. App. Ct. 1118 (2005); The Sherwin-Williams Co. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2000-468, rev’d 438 Mass. 71 (2002); Syms Corp. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2000-711, aff’d 436 Mass. 505 (2002). The analysis in each of these cases centered upon application of the “sham transaction doctrine,” which the Supreme Judicial Court has affirmed “gives the commissioner the authority ‘to disregard, for taxing purposes, transactions that have no economic substance or business purpose other than tax avoidance.’” Sherwin-Williams, 438 Mass. at 79 (quoting Syms Corp., 436 Mass. at 509-10). This doctrine has for decades been applied to matters in which abusive tax avoidance mechanisms have been employed and “prevents taxpayers from claiming the tax benefits of transactions that, although within the language of the tax code, are not the type of transaction the law intended to favor with the benefit.” Syms Corp., 436 Mass. at 510. “[T]he application of the doctrine is, of necessity, primarily a factual one, on which the taxpayer bears the burden of proof in the abatement process.” Id. at 511. “Analyzing these decisions, and applying them to subsequent appeals, thus requires careful attention to the specific facts in each appeal.” Fleet Funding, Inc. & Fleet Funding II, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2008-117, 163-64.
In Sherwin-Williams, the Supreme Judicial Court applied the sham transaction doctrine to the transfer and license-back of trademarks among a parent and its wholly-owned subsidiaries and traced the history of the doctrine, beginning with Helvering v. Gregory, 69 F.2d 809 (2d Cir. 1934), “the seminal case establishing the sham transaction doctrine.” Sherwin-Williams, 438 Mass. at 81. The Court discussed varying judicial approaches to the doctrine, noting that “a number of Federal courts have adopted a ‘two prong’ sham transaction inquiry. The first prong of the inquiry examines whether the transaction has economic substance other than the creation of a tax benefit. . . . The second prong examines whether the transaction was motivated by any business purpose other than the creation of a tax benefit. . . .” Id. at 84.(citations omitted).[17] Declining to adopt such “a rigid two step process,” the Court favored a line of cases in which courts “opt[ed] instead to treat economic substance and business purpose as ‘more precise factors to consider in the application of [the] traditional sham analysis; that is whether the transaction had any practical economic effects other than the creation of income tax losses.” Id. at 85 (quoting Sochin v. Commissioner of Internal Revenue, 843 F.2d 351, 354 (9th Cir.), cert denied 488 U.S. 824 (1988)). In this regard, the court stated:
We agree with those courts that have concluded that whether a transaction that results in tax benefits is real, such that it ought to be respected for tax purposes, depends on whether it has had practical economic effects beyond the creation of those tax benefits. In the context of a business reorganization resulting in new corporate entities owning or carrying on a portion of the business previously held or conducted by the taxpayer, this requires inquiry into whether the new entities are “viable,” that is, “formed for a substantial business purpose or actually engaging in substantive business activity.” In making this inquiry, consideration of the often interrelated factors of economic substance and business purpose, is appropriate.
Sherwin-Williams, 438 Mass. at 85-86 (internal citations omitted). Applying these standards to the facts of Sherwin-Williams, the Court found that transfer and license-back arrangements among a parent and its subsidiaries “[were] a product and intended part of a business reorganization, and their economic substance and business purpose must be assessed not in the narrow confines of the specific transactions between the parent and the subsidiaries, but in the broader context of the operation of the resultant business.” Id. at 86 (citing Northern Ind. Pub. Serv. v. Commissioner of Internal Revenue, 115 F.3d 506, 512 (7th Cir. 1997)). The court then held that “the reorganization, including the transfer and licensing back of the marks, had economic substance in that it resulted in the creation of viable business entities engaging in substantive business activity.” Id.
As previously noted, in March of 2003, approximately five months after the Court’s decision in Sherwin-Williams, the Legislature enacted the Add Back statutes, which presumptively disallow certain transactions among related members, including the type considered in Sherwin-Williams. In so doing, the Legislature also drew an explicit contrast with the analytic approach taken by the Court in Sherwin-Williams “clarif[ying] its original intention that the taxpayer is required to possess for a transaction, both: (1) a valid, good-faith business purpose, other than tax avoidance; and (2) economic substance apart from the asserted tax benefit in order to claim a deduction, exemption or other tax benefit.” St. 2003, c. 4, § 84.
General Laws chapter 63, § 31I, (“§ 31I”), which addresses the add back of intangible expenses and is relevant to the contested royalty expenses relating to tax year 2002, provides in pertinent part:
(b) For purposes of computing its net income under this chapter, a taxpayer shall add back otherwise deductible interest expenses and costs and intangible expenses and costs directly or indirectly paid, accrued or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with, one or more related members.
(c) (i) The adjustments required in subsection (b) shall not apply if: (A) the taxpayer establishes by clear and convincing evidence, as determined by the commissioner, that the adjustments are unreasonable; or (B) the taxpayer and the commissioner agree in writing to the application or use of an alternative method of apportionment under section 42.
The present appeals represent the first instance in which a taxpayer appeal relating to intercompany expense deductions has been considered under § 31I. As such, the Board, while mindful of the judicial application of the sham transaction doctrine in Massachusetts, analyzed the facts and issues presented in these appeals in the context of the explicit provisions of § 31I, with consideration given to relevant public written statements issued by the Commissioner.
Kimberly-Clark did not agree in writing to the application of an alternative method of apportionment under Section 42. Thus, to assert an exception under § 31I, the appellants must “establish[] by clear and convincing evidence, as determined by the commissioner, that the adjustments are unreasonable.” G.L. c. 63, § 31I(c)(i)(A). In 830 CMR 63.31.1 (the “Regulation”), the Commissioner has provided substantive guidance regarding the applicable exception to add back as follows:[18]
The add back will . . . be considered unreasonable where the taxpayer establishes by clear and convincing evidence that it incurred the interest or intangible expense as a result of a transaction (1) that was primarily entered into for a valid business purpose and (2) that is supported by economic substance. However, a taxpayer will not carry its burden of demonstrating by clear and convincing evidence that a disallowance is unreasonable unless the taxpayer demonstrates that reduction of tax was not a principal purpose for the transaction. . . .
830 C.M.R. 63.31.1(4)(b). In the abstract, the appellants’ proffered reasons for contributing intangible property to Worldwide and executing the various agreements attendant to the 1996 reorganization could evince both economic substance and business purpose, notwithstanding that a tax benefit may have accrued to the appellants. See Sherwin-Williams, 438 Mass. at 81 (quoting Gregory v. Helvering, 293 U.S. 465, 469 (1935))(“The legal right of a taxpayer to decrease the amount of what would otherwise be his tax . . . by means which the law permits, cannot be doubted.”). Regardless, when the various elements of the reorganization were scrutinized and viewed as a whole, the Board found that the disputed royalty expenses were subject to add back under § 31I.
Although Kimberly-Clark and KCTC ostensibly paid a royalty for use of the Patents which they had transferred to Worldwide, as well as for the licensed Trademarks, these payments were immediately returned to Kimberly-Clark by virtue of the operation of the company’s cash-management system. The Board in The Talbots Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2009-786, noted its previous finding, and the Supreme Judicial Court’s affirmation that “[s]uch a circular flow of funds among related entities does not indicate a substantive economic transaction for tax purposes.” Id. at 2009-815 (quoting Syms Corp., Mass. ATB Findings of Fact and Reports at 2000-760)(additional citations omitted); see also The TJX Companies, Memorandum and Order Under Rule 1:28 (April 3, 2009) at 12 (affirming the Board’s finding that the circular flow of funds between TJX and its subsidiary, which “allow[ed] TJX to claim royalty-expense deductions while receiving back the funds used to pay the royalties on a tax-free basis,” indicated that the transfer and license-back transaction lacked economic substance).
The Court in Sherwin-Williams focused on the absence of a circular flow of funds and placed considerable weight on the subsidiaries’ ability to invest royalties received from Sherwin Williams as an indication that the reorganization had economic substance:
Sherwin-Williams relinquished control over monies it previously retained but now paid to the subsidiaries as royalties. These monies were not returned to it as dividends. They were invested (and therefore placed at risk) by the subsidiaries, under their own investment guidelines and with third parties outside of Sherwin-Williams’ control.
Sherwin-Williams, 438 Mass. at 87. Worldwide, of course, had no such discretion, as royalties were immediately returned to Kimberly-Clark under the cash-management system. Moreover, to the extent that this return of capital exceeded operational disbursements from Kimberly-Clark, interest expense deductions indefinitely accrued to Kimberly-Clark.
Also central to the Court’s holding that the reorganization in Sherwin-Williams had economic substance was that the subsidiaries to which the trademarks had been transferred “entered into genuine obligations with unrelated third parties for use of the marks.” Id. Such is not the case in the present appeals. Despite statements by the appellants to the contrary, the record does not reflect that Worldwide negotiated or entered into third party licensing agreements with respect to the intellectual property it owned or managed. Absent such third party license agreements, licensing agreements among Kimberly-Clark, Worldwide and various affiliated entities were de facto exclusive licenses. As the Board found in The TJX Companies, “a transfer and license-back transaction between a parent and its wholly-owned subsidiary which results in a de facto exclusive license arrangement is not an arm’s-length transaction.” The TJX Companies, Mass. ATB Findings of Fact and Reports at 2007-854. See also Syms Corp., Mass. ATB Findings of Fact and Reports at 2000-767 (“If the subsidiary was truly independent, it could have licensed the Marks to whomever would pay it the highest royalty rates.”).
A substantial part of the appellants’ argument relating to the disputed royalties is dedicated to their assertion that the facts of the present appeal compare favorably with those in Sherwin-Williams. In particular, the appellants emphasize the following: as did the marks in Sherwin-Williams, legal title to and possession of the Patents passed to Kimberly-Clark’s subsidiary; Sherwin-Williams had two part-time employees, whereas Worldwide had many; and the activities of the subsidiaries in Sherwin-Williams to which the marks had been transferred were confined to maintenance and management of intangibles by a single employee while Worldwide had several functional operating groups. The appellants assert that these comparisons indicate that the facts and circumstances of the present matter far exceed the threshold for economic substance established in Sherwin-Williams. This assertion, coupled with what the appellants characterize as sound business purposes underlying the formation of Worldwide and the transfer and licensing of the Patents and Trademarks, lead the appellants to conclude that the royalty expenses incurred by Kimberly-Clark for tax year 2002 were improperly disallowed.
Despite the appellants’ attempts to draw favorable comparisons between the present case and Sherwin-Williams, they disregard countervailing considerations relevant to the analysis in Sherwin-Williams and virtually ignore the impact of § 31I.
While discussing Sherwin-Williams, the appellants make no reference to either the circular flow of funds evident between Kimberly-Clark and Worldwide during 2002 or the lack of licenses negotiated by Worldwide with independent third parties. In Sherwin-Williams, the absence of a circular flow of funds and the presence of third-party licenses were two of the three factors that the Court found supported a finding of economic substance underlying Sherwin-Williams’ reorganization.[19] This distinction is important not only because it argues strongly against a finding for the appellants under the tests articulated in Sherwin-Williams, but because those tests have been modified and strengthened by the Add Back statutes. More specifically, since passage of § 31I, to avoid add back of the royalty expenses at issue here, a taxpayer must demonstrate, by clear and convincing evidence, the presence of both economic substance and valid business purpose as well as that tax reduction was not a principal purpose of the transaction.
After the 1996 reorganization, the appellants’ business structure evinced a circular flow of funds and the absence of third party license agreements entered into by Worldwide. The Board found that, taken together, these factors substantially undermine the appellants’ assertion of economic substance supporting the 1996 reorganization as required by § 31I.
The Board was also influenced by the appellants’ inconsistent treatment of the Patents and the Trademarks within the 1996 reorganization. The appellants provided great detail regarding their claimed need to consolidate Kimberly-Clark’s and KCTC’s intellectual property within one entity, as well as the need to contribute the Patents to Worldwide as part of that consolidation. Yet the record offers no explanation as to why Kimberly-Clark and KCTC contributed the Patents to Worldwide but retained ownership of the Trademarks. Had Kimberly-Clark and KCTC retained ownership of the Patents as they did with the Trademarks, the substantial royalty payments and consequent expense deductions currently at issue would not have accrued to Kimberly-Clark. The Board thus found that Kimberly-Clark’s unexplained inconsistent treatment of Patents and the Trademarks undermined its assertion that a principal purpose of the 1996 reorganization was not tax reduction. This finding is buttressed by Kimberly-Clark’s explicit statement in the Project Partners Communication Guide that the reorganization would result in “significant tax savings,” as well as the dominant role played by company tax personnel and Ernst & Young in the development, implementation and oversight of the reorganization.
The heightened standard of proof also weighs upon the appellants. The Regulation defines “clear and convincing evidence” as “evidence that is so clear, direct and weighty that it will permit the Commissioner to come to a clear conviction without hesitancy of the validity of the taxpayer’s claim. This evidentiary standard requires a strong showing of proof that instills a degree of belief greater than is required under the preponderance of evidence standard.” 830 C.M.R. 63.31.1(2).
As discussed above, the present appeal is characterized by: a circular flow of funds surrounding the transfer and license back arrangement; the absence of third party license agreements negotiated by Worldwide; unexplained inconsistent treatment of the Patents and the Trademarks; and specific acknowledgement of significant tax savings attendant to the 1996 reorganization. The Board found that, cumulatively, these factors substantially impaired the appellants’ assertions that the reorganization which gave rise to the disputed royalties was supported by economic substance, was motivated primarily by a valid business purpose, and lacked tax reduction as one of its principal purposes. Particularly when viewed in light of the requirement that the appellants present “clear and convincing” evidence supporting their assertions, the various and significant facts bearing negatively upon the appellants’ case lead the Board to rule that the appellants failed to sustain their burden of demonstrating that the add back of the disputed royalty expense was unreasonable within the meaning of § 31I.
Purported Rebate Payments – Tax Year 2003
For tax year 2003, the appellants undertook to reduce inefficiences in their “supply-chain management” process. Toward this end, Kimberly-Clark purchased and put in place an “SAP information system” that provided the company with a central information source for the entire supply-chain management process. The SAP system was coordinated from within a single newly formed entity, Global. For tax year 2003, Global controlled Kimberly-Clark’s supply-chain management process. Within the new operating structure, “certified suppliers” including Kimberly-Clark, Worldwide and other affiliated entities manufactured products on a contract basis.
Each of the certified suppliers and Global were guaranteed a specified rate of return. Worldwide alone was not guaranteed a rate of return, but received compensation based on “cost savings.” These savings were designed to approximate the savings realized by the certified suppliers through use of the Patents. The purported cost savings were remitted monthly to Worldwide by Global in the form of “rebate” payments after Global and the certified suppliers had received their guaranteed returns from sales proceeds. Worldwide received this compensation, according to the appellants, for bearing the entire business risk associated with sale, or lack thereof, of products.
Not one of the certified suppliers paid a royalty, defined or described as such, for the use of the Patents. Rather, the sole identified royalty within this structure was paid by Global to Worldwide in the annual sum of approximately one million dollars. No evidence was submitted regarding how this sum was derived or why it represented an arm’s-length payment for the Patents. Global sublicensed the Patents to the certified suppliers without specified charge.
The Board found the appellants’ assertion that Worldwide bore the business risks associated with product sales untenable. Kimberly-Clark is a publicly traded corporation, and the risks and rewards of its business activities and those of its affiliates, which are almost exclusively derived from the manufacture and sale of its products, flow directly to Kimberly-Clark. The Board therefore found unpersuasive the argument that Kimberly-Clark and other affiliated entities were isolated from business risks, and that as of 2003 those risks were borne by Worldwide.
The Board was similarly not persuaded by the appellants’ unequivocal assertion that “rebate” payments for “cost savings” were not related to use of Worldwide’s Patents. Beginning with the 1996 reorganization and continuing throughout 2002, Worldwide was compensated at a rate of between 3% and 3.3% of billions of dollars of sales for use of the Patents, sums which the appellants characterized as reflecting fair value. During 2003, the Patents were used by substantially the same entities to perform the same tasks – produce Worldwide’s branded products. In his testimony, Mr. Beauvais stated that the certified suppliers’ production was not possible without the Patents. Similarly, the “cost savings” and consequent “rebate” payments made to Worldwide were made possible only through use of the Patents sublicensed by Global to the certified suppliers who were all affiliates of Kimberly-Clark. These facts notwithstanding, the sole declared royalty payment for 2003, made by Global to Worldwide, amounted to a tiny fraction of royalties paid to Worldwide during 2002. Further, Worldwide continued to perform much the same functions it had prior to the 2003 reorganization.
The Board found that the “rebate” payments in fact represented payment for use of the Patents based on: the effective discontinuance of royalty payments during tax year 2003, which the appellants had previously characterized as fair compensation for use of Worldwide’s Patents; the certified suppliers’ continued use of the Patents, without which production would not have been possible; and the appellants’ untenable assertion that the “rebate” payments represented compensation to Worldwide for its full assumption of business risk associated with the sale of products.
Having concluded that the “rebate” payments were made for the use of the Patents, the Board also found and ruled that the payments were subject to add back under § 31I. Section 31I defines “intangible property” as patents, patent applications, trade names, trademarks, service marks, copyrights, mask works, know-how, trade secrets, and similar types of intangible assets.” See also 830 C.M.R. 63.31.1(2). The rebate payments, which were made for use of “intangible property” as the term is defined in § 31I and the Regulation, were not identified as royalty payments by the appellants. The Regulation, however, defines an “embedded royalty” as a “portion of a cost or expense paid, accrued or incurred by a taxpayer for property received from or services rendered by a related member that relates to intangible property owned by such related member or to an intangible expense paid, accrued or incurred by said related member in a direct or indirect transaction with one or more other related members.” 830 C.M.R. 63.31.1(2) and (3). Having concluded that the “rebate” payments represented payment for use of the Patents, the Board found that the “rebate” payments were embedded royalties, to which the intangible expense add back applies. See 830 C.M.R. 63.31.1(3).
The appellants, having unequivocally denied that the “rebate” payments represented sums associated with use of the Patents, presented no evidence to support the conclusion that the payments qualified for an exception from add back under § 31I. Absent such evidence, the Board found and ruled that the Commissioner’s add back of the sums associated with the purported rebate payments was proper.
Conclusion
On the basis of the foregoing, the Board found and ruled as follows: for those issues involving application of the Add Back statutes, the appellants bore the burden of proving their case by “clear and convincing evidence”; interest deductions associated with the appellants’ cash-management system were properly disallowed by the Commissioner under § 31J and prior law; the appellants failed to establish that royalties paid by Kimberly-Clark to Worldwide were not subject to add back under § 31I; and purported rebate payments, which the Board found were in fact embedded royalties, were properly subject to add back under § 31I.
Accordingly, the Board issued a decision in favor of the appellee in these appeals.
THE APPELLATE TAX BOARD
By: ________________________________
Thomas W. Hammond, Jr., Chairman
Commissioner Scharaffa issued the following Opinion,concurring in part and dissenting in part:
I. Introduction
I concur in part and dissent in part, and I write separately to express my reasons because of the significant issue involved and its potential impact on numerous future tax appeals. I concur in the decision as it relates to tax year 2001 because, in making its findings and rulings for tax year 2001, the majority applied the correct standard of proof, the preponderance of the evidence standard (“preponderance standard”). However, with respect to tax years 2002 and 2003, which involve additional issues and evidence not considered for tax year 2001, I dissent from the decision because it was reached using an incorrect standard of proof. For those tax years, the majority, purporting to follow the mandate of G.L. c. 63, §§ 31I and 31J (together, “Add Back Statutes”) applied a clear and convincing standard of proof (“clear and convincing standard”) in making its decision. I decline to join the majority in its statutory construction as I am guided by the plain language of the Add Back Statutes, the Board’s enabling statute, its own rules, and vast precedent in tax law and administrative law, which require the Board to apply the preponderance standard.
Because the majority applied the wrong standard of proof in reaching its decision with respect to the tax year 2002 and 2003 appeals, those appeals should be remanded to the Board for determination using the preponderance standard, which is the proper standard of proof.
II. The Majority’s Interpretation Ignores the Plain Language of the Add Back Statutes
General Laws c. 63, § 31I (“§ 31I”) provides, in relevant part: “[f]or purposes of computing its net income under this chapter, a taxpayer shall add back otherwise deductible interest expenses and costs and intangible expenses and costs directly or indirectly paid, accrued or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with, one or more related members.” Section 31I further states that these adjustments shall not apply if:
(A) the taxpayer establishes by clear and convincing evidence, as determined by the commissioner, that the adjustments are unreasonable; or (B) the taxpayer and the commissioner agree in writing to the application or use of an alternative method of apportionment under section 42. Nothing in this subsection shall be construed to limit or negate the commissioner’s authority to otherwise enter into agreements and compromises otherwise allowed by law. (emphasis added).
Similarly, G.L. c. 63, § 31J (“§ 31J”) provides “[f]or purposes of computing its net income under this chapter, a taxpayer shall add back otherwise deductible interest paid, accrued or incurred to a related member.” Section 31J further provides that a deduction shall be permitted when either:
(1) the taxpayer establishes by clear and convincing evidence, as determined by the commissioner, that the disallowance of the deduction is unreasonable, or (2) the taxpayer and the commissioner agree in writing to the application of an alternative method of apportionment under Section 42. Nothing in this subsection shall be construed to limit or negate the commissioner’s authority to otherwise enter into agreements and compromises otherwise allowed by law. (emphasis added).
Section 31J also provides that the adjustments shall not apply if the taxpayer establishes several factors “by clear and convincing evidence, as determined by the commissioner,” including that a principal purpose of the transaction giving rise to the payment of interest was not to avoid payment of taxes and that the interest was the result of an arm’s-length transaction.
Thus, the Add Back Statutes provide that the adjustments will not apply if the taxpayer proves “by clear and convincing evidence, as determined by the commissioner” that they are “unreasonable,” and both statutes provide that the adjustments will not apply if the taxpayer and the Commissioner agree in writing to an alternate method of apportionment under G.L. c. 63, § 42. In addition, the Add Back Statutes expressly state that they do not “limit or negate the commissioner’s authority to make adjustments under [G.L. c. 63] sections 33 and 39A.”
Likewise, G.L. c. 62C, § 3A (“§ 3A”), which the Legislature enacted along with the Add Back Statutes, provides that:
the commissioner may, in his discretion, disallow the asserted tax consequences of a transaction by asserting the application of the sham transaction doctrine or any other related tax doctrine, in which case the taxpayer shall have the burden of demonstrating by clear and convincing evidence as determined by the commissioner that the transaction possessed both: (i) a valid, good-faith business purpose other than tax avoidance; and (ii) economic substance apart from the asserted tax benefit. . . . [T]he taxpayer shall also have the burden of demonstrating by clear and convincing evidence as determined by the commissioner that the asserted nontax business purpose is commensurate with the tax benefit claimed. Nothing in this statute shall be construed to limit or negate the commissioner’s authority to make tax adjustments as otherwise permitted by law. (emphasis added).
As is evident from the statutory language, the focus of the Add Back Statutes and of § 3A is on administrative stages prior to review by the Board, namely, the tax return filing stage and the Commissioner’s review during the examination and abatement stages. Nothing in the language of the Add Back Statutes or in § 3A indicates an intent to raise the standard of proof in proceedings before the Board. Rather, the plain language of the statutes confines the clear and convincing standard to determinations made by the Commissioner, and the statutes must be so interpreted and applied. See White v. City of Boston, 428 Mass. 250, 253 (1998) (“The statutory language is plain and unambiguous, and we are constrained to follow it.”)
The majority’s use of legislative intent to buttress its interpretation is unavailing. Where, as here, the statutory language is plain and unambiguous, an inquiry into the legislative intent behind it is inappropriate. It is “[a] salient principle of statutory construction . . . that where the language of a statute is plain and unambiguous, legislative history is not ordinarily a proper source of construction.” New England Medical Center Hospital, Inc. v. Commissioner of Revenue, 381 Mass. 748, 750 (1980) (citing Hoffman v. Howmedica, Inc., 373 Mass. 32, 37 (1977)).
Further, the authority cited by the majority, St. 2003, c. 4, § 84, does not support its contention. Following the Supreme Judicial Court’s decision in Sherwin-Williams Co. v. Commissioner of Revenue, 438 Mass. 71 (2002), the Legislature enacted the Add Back Statutes together with § 3A, which codified the sham transaction doctrine, purportedly to “clarif[y] its original intention that the taxpayer is required to possess for a transaction, both: (1) a valid, good-faith business purpose, other than tax avoidance; and (2) economic substance apart from the asserted tax benefit in order to claim a deduction, exemption or other tax benefit.” St. 2003, c. 4, § 84. That language reflects the Legislature’s intent to expressly require taxpayers to demonstrate that transactions possess both economic substance and a valid business purpose, not just one or the other, a requirement which may have changed the result in Sherwin-Williams.
Although the sham transaction doctrine was developed by federal and state courts and is often referred to as part of the common law of tax, see IDC Research, Inc. et al. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2009-404, 502, aff’d, 2010 Mass. App. LEXIS 1530 (Mass. App. Ct. Nov. 30, 2010), legislative bodies may enact statutes to heighten the requirements necessary to avoid the imposition of the sham transaction doctrine. For instance, statutes may specify additional factors that must exist or be proven by the taxpayer, as in § 3A and the Add Back Statutes, and in Internal Revenue Code (“I.R.C.”) § 7710(o), which Congress recently enacted to codify the sham transaction doctrine.
However, nowhere in St. 2003, c. 4, § 84, in § 3A, or in the Add Back Statutes does the Legislature express an intent to raise the Board’s standard of proof in reviewing such matters from the preponderance standard to a clear and convincing standard. Assuming arguendo that the language contained in St. 2003, c. 4, § 84 reflected an intent to have a clear and convincing standard apply to the Board, the statutory language did not give effect to that intent. “Where, as here, the language of the statute is clear, it is the function of the judiciary to apply it, not amend it.” Commissioner of Revenue v. Cargill, Inc., 429 Mass. 79, 82 (1999), (citing King v. Viscoloid, Co., 219 Mass. 420, 425, (1914) (“[W]e have no right to . . . read into the statute a provision which the Legislature did not see fit to put there, whether the omission came from inadvertence or of set purpose.”)). If the Add Back Statutes and § 3A embody the Legislature’s attempt to raise the standard of proof in certain proceedings before the Board, that attempt was botched. The plain language of the Add Back Statutes and § 3A limits the application of a clear and convincing standard to determinations made by the Commissioner, and, absent express statutory authority, it is not the place of the Courts or this Board to use a clear and convincing standard when it was not made the applicable standard of proof.
Further, the view shared by the appellee and the majority, that the language “as determined by the commissioner” is merely an instruction to the Commissioner to provide “guidance,” is both novel and strained. When the Legislature intends to instruct the Commissioner to provide “guidance,” it knows exactly how to do so. See G.L. c. 62C, § 37C(c) (“The commissioner shall promulgate rules and regulations to carry out the provisions of this section, which rules and regulations shall include procedures for determining and approving of all settlements.”); G.L. c. 63, § 32E(d) (“The commissioner shall promulgate regulations or other guidelines as he deems necessary to implement this section.”); G.L. c. 63, § 31L(d) (“The commissioner shall promulgate rules and regulations relative to the administration and enforcement of this section.”). The Legislature knows how to direct the Commissioner to issue regulations or other guidance, and, contrary to the majority’s view, it did not do so in the Add Back Statutes or in § 3A.
Moreover, had the Legislature intended for a clear and convincing standard to be applied in determinations other than those made by the Commissioner, it could have used less restrictive language by omitting the words “as determined by the commissioner.” For example, G.L. c. 62C, § 33(f) (“§ 33(f)”) allows for the abatement of tax penalties “[i]f it is shown that any failure to file a return or to pay a tax in a timely manner is due to reasonable cause and not due to willful neglect.” Unlike the Add Back Statutes and § 3A, § 33(f) does not say reasonable cause “as determined by the commissioner,” nor does it specify to whom reasonable cause must be shown. The absence of specific or limiting language in § 33(f) indicates that reasonable cause must be shown at each and every level of review, and the Board has in fact made determinations as to reasonable cause in numerous penalty cases. See Commissioner of Revenue v. Wells Yachts South, Inc., 406 Mass. 661, 663 (1990); Sign of the Surf, Inc. v. Commissioner of Revenue, 47 Mass. App. Ct. 830 (1999), rev. denied, 430 Mass. 1111 (1999); Littlefield Management, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2008-1160, 1166. The specific and restrictive language used by the Legislature in the Add Back Statutes and in § 3A evidences its intent to limit a clear and convincing standard to determinations made by the Commissioner. See Anderson Street Associates v. City of Boston & another, 442 Mass. 812, 817 (2004) (“Had the Legislature intended G.L. c. 121A to guarantee tax concessions to be permanent, it could have included statutory language to that effect. It has done so elsewhere.”); Cargill, Inc., 429 Mass. at 82 (“Had the Legislature intended to limit the credit in the manner advocated by the commissioner, it easily could have done so.”). The statutory construction employed by the majority is not supported by the language used in the Add Back Statutes or in § 3A.
III. The Majority’s Interpretation Ignores The Board’s Statutory Authority, its Own Rules, and Well- Established Legal Precedent
The majority’s application of a clear and convincing standard in these appeals is erroneous because, among other reasons, it ignores the Board’s statutory authority and its own rules. The Board is authorized by its enabling statute, G.L. c. 58A, § 8, to promulgate its own “rules of practice and procedure.” 831 CMR 1.37 of the Board’s Rules provides that “practice and procedure before the Board shall conform to that heretofore prevailing in equity causes in the courts of the Commonwealth prior to the adoption of the Massachusetts Rules of Civil Procedure.” The standard rule in equity cases prior to the adoption of the Massachusetts Rules of Civil Procedure was that the party bearing the burden of proof was required to meet its burden by a preponderance of the evidence, which means that the party must show that the facts necessary to prevail in its claim were more likely true than not. See Gates v. Boston and Maine Railroad, 255 Mass. 297, 301 (1926); Black v. Boston Consol. Gas Co., 325 Mass. 505, 508 (1950); Sullivan v. Hammacher, 339 Mass. 190, 194 (1959). The Board’s decisions are, in turn, reviewed for substantial evidence, that is, such evidence as a reasonable mind would accept as adequate to support a conclusion. New Bedford Gas & Edison Light Co. v. Assessors of Dartmouth, 368 Mass. 745, 749 (1975); Tenneco, Inc. v. Commissioner of Revenue, 401 Mass. 380, 383 (1987).
Further, the majority’s use of a clear and convincing standard ignores both the Board’s history and abundant legal precedent which clearly establish that the preponderance standard is the proper standard of proof. Created by the Legislature in 1930 as the Board of Tax Appeals, the Board was modeled on the federal Board of Tax Appeals, which was established in 1924 and is now the United States Tax Court. The preponderance standard adopted by the Board is the same standard employed by its federal counterpart, on which it was modeled, as well as the other federal courts in which tax appeals may be brought, the United States Court of Claims and the United States District Court. See Gerald A. Kafka & Rita A. Cavanaugh, Litigation of Federal Civil Tax Controversies, § 8.01 (2nd ed. 1997); U.S. Tax Court Rule 142(a); Danville Plywood Corp. v. United States, 16 Cl. Ct. 584, 601 (Cl. Ct. 1989).
Moreover, the preponderance standard is the standard of proof generally applicable in administrative proceedings in Massachusetts. Administrative decisions, like the Board’s, are in turn reviewed for substantial evidence. See Craven v. State Ethics Commissioner, 390 Mass. 191, 200, 202 (1983); City of Gloucester v. Civil Service Commission, 408 Mass. 282, 297 (1990). Although the Board is exempted from the provisions of Massachusetts’ Administrative Procedures Act, G.L. c. 30A, it is nonetheless “bound by ‘general principles affecting administrative decisions and judicial review of them.’” New Bedford Gas & Edison Light Co., 368 Mass. at 749 (quoting Assessors of New Braintree v. Pioneer Valley Academy, Inc., 355 Mass. 610, 612, n. 1 (1969)). Consistent with these principles, and in accordance with its own rules, the Board conducts independent, de novo hearings and uses the preponderance standard in making its decisions to ensure procedural due process. Assessors of New Braintree, 355 Mass. at 612; Space Building Corporation v. Commissioner of Revenue, 413 Mass. 445, 450 (1992).
Courts have been reluctant to apply a standard of proof greater than the preponderance standard in civil proceedings. See Department of Public Health v. Cumberland Cattle Co., 361 Mass. 817, 830 (1972); Craven, 390 Mass. at 200; Herman & MacLean v. Huddleston, 459 U.S. 375, 389 (1983); Medical Malpractice Joint Underwriting Assoc. of Mass. v. Commissioner of Insurance, 395 Mass. 43, 46-47 (1985). “[T]he adoption of an intermediate standard of proof, such as the ‘clear and convincing’ standard, too often serves ‘as the functional equivalent for the more familiar “reasonable doubt” standard.’” Medical Malpractice Joint Underwriting Assoc. of Mass., 395 Mass. at 47 (citations omitted). “[S]uch intermediate standards of proof in civil cases should not be extended.” Cumberland Cattle, 361 Mass. at 830. See also P.J. Liacos, Massachusetts Evidence 201 (6th Ed. 1994). The burden of proof is typically placed on the party in possession of the facts or the party seeking relief or change. See Moore v. Kulicke & Soffa Industries, Inc., 318 F.3d 561, 571 (3rd. Circ. 2003); United States v. Denver & R.G.R. Co., 191 U.S. 84, 91-92 (1903). However, “while the difficulty of ascertaining where the truth lies may make it appropriate to place the burden of proof on the proponent of an issue, it does not justify the additional onus of an especially high standard of proof.” Cooper v. Oklahoma, 517 U.S. 348, 366-67 (1996) (holding that statute which required proof of incompetence to stand trial by clear and convincing evidence violated due process).
Generally, cases in which a clear and convincing standard has been applied are cases in which the burden of proof is on the government, such as when the government is asserting that a taxpayer engaged in civil fraud or when the government is trying to prove “knowing conduct” on the part of a foundation manager, see U.S. Tax Court Rule 142(b) and (c), or cases involving exceptional – often irreversible – circumstances. For example, a third-party seeking to terminate life-sustaining treatment to an incompetent party may be required to prove by clear and convincing evidence that the incompetent person would so desire. Cruzan v. Director, Mo. Dept. of Health, 497 U.S. 261, 280 (1990). Similarly, an unemancipated, unmarried minor seeking to obtain an abortion without parental notification may be required to show by clear and convincing evidence that she is entitled to bypass parental notification. See Ohio v. Akron Center for Reproductive Health, 497 U.S. 502, 515-516 (1990). These cases illustrate that the imposition of a heightened standard of proof would raise due process concerns, and they underscore that the heightened clear and convincing standard should not be “extended” to ordinary civil cases, Cumberland Cattle, 361 Mass. at 830, but should be reserved for “a very limited number of cases where ‘particularly important individual interests or rights are at stake,’” Craven, 390 Mass. at 200 (quoting Herman & MacLean, 459 U.S. at 389) (other citations omitted), or when the burden of proof is on the government.
Those circumstances were lacking in the present appeals. These appeals involve civil claims for the abatement of tax, exactly the type of claim the Board routinely decides using the preponderance standard. Moreover, the burden of proof in these appeals was not on the Commissioner, but on the appellant, which makes the use of a clear and convincing standard all the more inappropriate. Though none of the circumstances in which it is appropriate to apply a clear and convincing standard in a civil matter was present, the majority applied a clear and convincing standard because it seemed “reasonable” to do so. This was error.
As the majority correctly points out, the Board has applied a heightened standard of proof in certain previous appeals when applicable legal authority required it to do so. In appeals involving a taxpayer’s constitutional challenge under the Commerce Clause on the states’ apportionment method, Supreme Court and Supreme Judicial Court precedent requires the application of a heightened, although slightly different, standard of proof. See Container Corp. of Am. v. Franchise Tax Board, 463 U.S. 159, 164 (1983) (quoting Exxon Corp. v. Department of Revenue of Wisc., 447 U.S. 207, 221 (1980)) (“[T]he taxpayer has the ‘distinct burden of showing by “clear and cogent evidence” that the [state tax] results in extraterritorial values being taxed.’”); See also Gillette Co. v. Commissioner of Revenue, 425 Mass. 670, 680 (1997). In the present appeals, neither the applicable statutes nor any other legal authority requires or even permits the application of a clear and convincing standard. The majority’s allusion to such cases is therefore inapposite. Moreover, neither the appellee nor the majority has cited any other instance in federal or Massachusetts tax law where such a heightened standard of proof has been placed on a taxpayer seeking a tax abatement or refund.
IV. Conclusion
Accordingly, I concur in the majority’s decision insofar as it relates to tax year 2001 because the majority applied the correct standard of proof. However, with respect to tax years 2002 and 2003, the majority’s use of a clear and convincing standard not only misreads the plain language of the statutes at issue but also ignores the Board’s statutory authority, its own rules, and decades of relevant federal and Massachusetts precedent. Because it was reached using an incorrect standard of proof, I dissent from the decision with respect to tax years 2002 and 2003.
By: _________________________________
Frank J. Scharaffa, Commissioner
A true copy,
Attest: _______________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
STEPHEN MORTE v. BOARD OF ASSESSORS OF
THE TOWN OF MATTAPOISETT
Docket No. F303740 Promulgated:
February 10, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Mattapoisett (“assessors” or “appellee”), to abate taxes on real estate owned by and assessed to Stephen Morte (“appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2009 (“fiscal year at issue”).
Commissioner Rose (“Presiding Commissioner”) heard the appeal and, in accordance with G.L. c. 58A, § 1A and 831 CMR 1.20, issued a single-member decision for the appellee.
These findings of fact and report are made at the request of the appellant pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.
Stephen Morte, pro se, for the appellant.
Donald Fleming, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
Based on the testimony and exhibits entered into evidence at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2008, Stephen Morte was the assessed owner of a parcel of real estate located at 0 Holly Woods Road, 5A, in Mattapoisett (“subject property”). The subject property consists of 2.14 acres improved with a two-story, single-family home which the appellant purchased in September of 2005 for $991,750. The dwelling on the subject property has 2,987 feet of finished living area, with seven total rooms, including three bedrooms, and also two full bathrooms and one half bathroom. The subject property also features an in-ground swimming pool and a shed.
The subject property is an oceanview property. The assessors calculated its land value using a special valuation formula, coded as “LC5” on the property record card, to reflect the increase in fair cash value attributable to having ocean views. For the fiscal year at issue, the assessors valued the subject property at $1,084,900. The land value of the subject property was $699,000 while the dwelling was valued at $367,300. The pool and shed were valued at an additional $18,600. Taxes were assessed at the rate of $9.48 per thousand, in the total amount of $10,378.22, which included a surcharge under the Community Preservation Act. The appellant timely paid the taxes due without incurring interest.
On January 26, 2009, the appellant timely filed an Application for Abatement with the assessors. On April 26, 2009, the appellant’s Application for Abatement was deemed denied.[20] The appellant timely filed his appeal with the Appellate Tax Board (“Board”) on July 13, 2009. On the basis of these facts, the Presiding Commissioner found that the Board had jurisdiction to hear and decide this appeal.
The appellant’s primary contention was that the subject property’s land was overvalued. He argued that the land was valued at double its fair cash value. In support of this argument, the appellant introduced property record cards for eight purportedly comparable properties in Mattapoisett, including two properties also located on Holly Woods Road. He also introduced information from the assessors’ on-line database for two other properties, both of which are located on Holly Woods Road.
The appellant relied most heavily on the assessed values of three properties on Holly Woods Road to demonstrate that the land value of the subject property was excessive. Specifically, the appellant pointed to the assessed values of 24, 30, and 46 Holly Woods Road as evidence that the subject property was overvalued. However, each of those properties is located on the opposite side of Holly Woods Road from the subject property. They are not oceanview properties and therefore were not assessed using the “LC5” valuation formula used by the assessors to calculate the land values of oceanview properties, including the subject property.[21] The Presiding Commissioner found that these properties were not sufficiently comparable to the subject property to provide probative evidence of its fair cash value.
Both the appellant and the assessors introduced property record cards for a number of properties in Mattapoisett into evidence, most of which involved oceanview properties whose land values were calculated by the assessors using the “LC5” valuation formula. The evidence showed that the assessed land values of all of the oceanview properties were calculated consistently. For example, both the assessors and the appellant offered property record cards for 3 Holly Woods Road and 11 Holly Woods Road. 3 Holly Woods Road is a 1.53-acre parcel of land improved with a single-family dwelling. Its land was valued at $677,500. 11 Holly Woods Road is a 2.11-acre parcel of land improved with a single-family dwelling. Its land was valued at $697,750, nearly the same as the subject property’s 2.14 acres, which were valued at $699,000.
Furthermore, the sales data in the record supported the assessors’ valuation of oceanview properties. For example, 4 Hilton Avenue is a 0.46-acre parcel of land improved with a single-family dwelling. It is an oceanview property which sold in May of 2008 for $890,000. Its overall assessed value for the fiscal year at issue was $873,700 and its land value was $629,750. Similarly, 17 Avenue B is 0.20-acre parcel of land improved with a single-family dwelling. It is an oceanview property which sold in April of 2007 for $1,000,000. Its overall assessed value for the fiscal year at issue was $912,450 and its land value was $585,250.
On the basis of all of the evidence, the Presiding Commissioner found that the appellant did not meet his burden of proving that the subject property’s fair cash value was lower than its assessed value. In sum, the appellant’s contention that the land value of the subject property was excessive failed because it was premised largely on a comparison of properties that were not oceanview properties and therefore were not comparable to the subject property. The Presiding Commissioner found that the sales and assessment data entered into the record regarding oceanview properties supported both the land valuation and overall assessed value of the subject property. Based on these findings of fact, the Presiding Commissioner found that the appellant failed to meet his burden of proving that the assessors overvalued the subject property for the fiscal year at issue. Accordingly, the Presiding Commissioner issued a decision for the appellee.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The taxpayer has the burden of proof to make out his right to an abatement of the assessed tax as a matter of law. Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974). The assessed value of a parcel of real estate is presumed to be valid until the taxpayer sustains his burden of proving otherwise. Id.
In appeals before the Board, the taxpayer “may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.” Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983). “[A]ctual sales of property generally furnish strong evidence of market value, provided they are arm’s-length transactions.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982). “Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date contain credible data and information for determining the value of the property at issue.” Giard v. Assessors of Colrain, Mass. ATB Findings of Fact and Reports 2009-115, 123 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)). The assessed values of comparable properties may also be presented as evidence of fair cash value. G.L. c. 58A, § 12B. However, “[r]eliable comparable sales data will ordinarily trump comparable assessment information for purposes of finding a property’s fair cash value.” Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2007-321, 403, aff’d, 73 Mass. App. Ct. 1107 (2008). Whether offering assessed values or actual sales, the taxpayer “bears the burden of ‘establishing the comparability of . . . properties [used for comparison] to the subject property.'” Wood v. Assessors of Fall River, Mass. ATB Findings of Fact and Reports 2008-213, 225.
In the present appeal, the Presiding Commissioner found and ruled that the properties most heavily relied upon by the appellant to establish the overvaluation of subject property were not comparable to the subject property because they were not oceanview properties, like the subject property. Although the appellant also offered evidence involving several oceanview properties, the Presiding Commissioner found and ruled that that evidence actually provided support for the assessment. Specifically, the evidence in the record regarding oceanview properties in Mattapoisett showed that the land values of oceanview properties were calculated consistently. Further, the assessors’ valuations of oceanview properties were supported by the sales data reflected on the property record cards. For example, 4 Hilton Avenue is a 0.46-acre parcel of land improved with a single-family dwelling. It is an oceanview property which sold in May of 2008 for $890,000. Its overall assessed value for the fiscal year at issue was $873,700 and its land value was $629,750. Similarly, 17 Avenue B is a 0.20-acre parcel of land improved with a single-family dwelling. It is an oceanview property which sold in April of 2007 for $1,000,000. Its overall assessed value for the fiscal year at issue was $912,450 and its land value was $585,250. The Presiding Commissioner found and ruled that the sales and assessment data of comparable oceanview properties served to support, rather than undermine, the assessed value of the subject property.
On the basis of all of the evidence, the Presiding Commissioner found and ruled that the appellant failed to establish that the assessed value of the subject property was greater than its fair cash value, and, therefore, found and ruled that the appellant failed to establish his right to an abatement of the tax. Accordingly, the Presiding Commissioner issued a decision for the appellee in this appeal.
APPELLATE TAX BOARD
By: _____ ________________ James D. Rose, Commissioner
A true copy,
Attest: ___________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
MAIN STREET PROPERTY, INC. BOARD OF ASSESSORS OF
THE TOWN OF WAYLAND
Docket Nos. F287964, F294446 Promulgated:
F299560 March 9, 2011
These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Wayland (“appellee” or “assessors”) to abate taxes on certain real estate in Wayland owned by and assessed to Main Street Property, Inc. (“appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal years 2007, 2008 and 2009 (“fiscal years at issue”).
Commissioner Mulhern heard these appeals and was joined by Chairman Hammond and Commissioners Scharaffa, Egan and Rose in the decisions for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Matthew A. Luz, Esq., for the appellant.
Mark J. Lanza, Esq., for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2006, January 1, 2007, and January 1, 2008, the appellant was the assessed owner of a 4.925-acre parcel of real estate in the Town of Wayland improved with two, one and two-story, retail/office buildings, with a total leasable area of 47,238 square feet (“subject property”).
For fiscal year 2007, the assessors valued the subject property at $5,169,600 and assessed a tax thereon, at the rate of $13.82 per thousand, in the amount of $71,443.87. On December 29, 2006, Wayland’s Collector of Taxes sent out the town’s actual real estate tax bills for fiscal year 2007. In accordance with G.L. c. 59, § 57C, the appellant paid the tax without incurring interest. On January 11, 2007, in accordance with G.L. c. 59, § 59, the appellant timely filed its abatement application with the assessors. The assessors denied the appellant’s application on February 12, 2007, and on March 16, 2007, the appellant timely filed an appeal with the Board.
For fiscal year 2008, the assessors valued the subject property at $5,282,800 and assessed a tax thereon, at the rate of $14.98 per thousand, in the amount of $79,136.34. On December 20, 2007, Wayland’s Collector of Taxes sent out the town’s actual real estate tax bills for fiscal year 2008. In accordance with G.L. c. 59, § 57C, the appellant paid the tax without incurring interest. On January 18, 2008, in accordance with G.L. c. 59, § 59, the appellant timely filed its abatement application with the assessors. The assessors denied the appellant’s application on April 7, 2008, and on April 23, 2008, the appellant timely filed an appeal with the Board.
For fiscal year 2009, the assessors valued the subject property at $5,323,200 and assessed a tax thereon, at the rate of $16.37 per thousand, in the amount of $87,140.78. On December 29, 2008, Wayland’s Collector of Taxes sent out the town’s actual real estate tax bills for fiscal year 2009. In accordance with G.L. c. 59, § 57C, the appellant paid the tax without incurring interest. On January 12, 2009, in accordance with G.L. c. 59, § 59, the appellant timely filed its abatement application with the assessors. The assessors denied the appellant’s application on April 10, 2009, and on May 8, 2009, the appellant timely filed an appeal with the Board. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
The subject property is located at 35 Main Street in the Town of Wayland, a residential suburb located in Middlesex County and situated approximately 17 miles west of Boston. Wayland is served by a network of local highways including Routes 20, 27, 30 and 126, which also provide access to Routes 9, I90 (Mass Pike) and I95/128. The subject property is located in the southwestern section of Wayland, known as Cochituate, at the intersection of Main Street (Route 27) and Commonwealth Road (Route 30) near the Natick and Framingham municipal borders. Located across Main Street from the subject property is a multi-tenant retail building. Located across Commonwealth Road are a bank branch office building, a bridal shop, and an animal hospital. A gas station abuts the front of the subject property and a professional office building and undeveloped land abut to the rear. Other properties in the immediate area include another bank branch office building, a post office, professional office buildings, retail buildings, and single family homes. As a result of its location, the subject property is considered to have an active location for commercial uses.
The subject property consists of a 4.925-acre parcel of property improved with two multi-tenant retail and office buildings. The subject property is identified by the assessors as Parcel 21 on Map 51D, and is located in the Business A and Business B zoning districts. Although the subject property does not meet the current zoning requirements, it was constructed prior to the existing zoning regulations and therefore is considered a legal nonconforming use. Access to the site is via curb cuts on both Main Street and Commonwealth Road. There is about 274.31 feet of frontage along the easterly side of Main Street, 485.06 feet of frontage along the southerly side of Commonwealth Road, and 47.70 feet at the corner of Main Street and Commonwealth Road. The site is reported to be level at grade with Commonwealth Road and above the grade of Main Street in its northwest corner and slopes downward in the area that fronts along Main Street. The existing structures occupy about 18.6% of the parcel’s total area. The remainder of the site is asphalt-paved to provide parking for about 274 vehicles. Utilities available include municipal water, gas and telephone, and there is an on-site septic system.
The two multi-tenant, retail/office buildings located on the parcel were constructed in stages during 1960, 1968, and 1986. The buildings are wood and masonry frame over a concrete foundation. The roofs are partially flat with rubber membrane and partially pitched with an asphalt shingle cover. The exteriors are a mix of facades which include brick, concrete panel, stone, and vinyl siding. The interior finishes include suspended acoustical tile ceilings, carpet or ceramic tile floor covers, and sheetrock walls with plaster and paint, with some walls covered with wallpaper. The lighting throughout is fluorescent panel, fluorescent strip, and recessed lighting fixtures. Heating is gas-fired, forced hot-air, with each rentable unit separately zoned. Both buildings are served by a wet sprinkler system. The two building have a combined total leasable area of 42,840 square feet.
Building 1 has approximately 29,692 square feet of gross building area. The building contains two rentable retail units on the first floor that range in size between 1,000 and 16,200 square feet. The first floor includes Donelan’s Supermarket (“Donelan’s”), the anchor tenant for this building. The second floor is accessed from two interior staircases and is subdivided into nine office suites which range in size from 350 to 1,850 square feet. There are two lavatories in the common area of the first floor, two lavatories in the common area of the second floor, and also three lavatories in the space occupied by Donelan’s Supermarket.
Building 2 is a smaller retail/office building with a gross floor area of 17,546 square feet. The layout is similar to that of Building 1. The first floor has four retail units and one office unit ranging in size from 800 to 6,000 square feet. The anchor tenant is RiteAid Pharmacy which is located on the first floor. Other retail users include a barber shop, J.J. McKay’s Restaurant, and a Bank of America bank branch. The second floor is subdivided into eight office suites, ranging in size from 300 to 1,000 square feet. There are two lavatories in the ground floor common area, two lavatories in the second level common area, and two lavatories in the first floor retail space occupied by RiteAid Pharmacy.
The appellant presented its case-in-chief through the testimony of its commercial real estate valuation expert, Eric Wolff, and the introduction of his summary appraisal report. Based on his education and experience, the Board qualified Mr. Wolff as an expert witness in the field of real estate valuation. Given the location and zoning requirements of the subject property, Mr. Wolff concluded that the subject property’s highest and best use was its current use as a mix of retail and office buildings.
To ascertain the subject property’s potential gross income, Mr. Wolff first reviewed the subject property’s actual rents provided by the owner of the subject property. According to Mr. Wolff, the subject property’s average retail rent, excluding Donelan’s, was $19.83 per square foot as of January 1, 2006, $19.44 per square foot as of January 1, 2007, and $22.60 per square foot as of January 1, 2008. The Donelan’s space rented at $11.11 as of January 1, 2006, $12.00 as of January 1, 2007, and $13.09 as of January 1, 2008. The subject property’s average office rent was $22.84 per square foot as of January 1, 2006, $23.33 per square foot as of January 1, 2007, and $26.82 as of January 1, 2008.
To determine if these rents were consistent with the market, Mr. Wolff researched rents of similar retail and office space in the Wayland area. His research revealed that for fiscal year 2007, retail rents ranged from $18.50 to $24.45 per square foot and office rents ranged from $13.00 to $21.00 per square foot; for fiscal year 2008 retail rents ranged from $16.54 to $30.00 per square foot and office rents ranged from $15.30 to $19.50 per square foot; and, for fiscal year 2009, retail rents ranged from $13.00 to $25.00 per square foot and office rents ranged from $13.00 to $23.00 per square foot.
Relying on these purportedly comparable rents, Mr. Wolff estimated market rents for the subject property’s retail space, excluding Donelan’s, at $20.00 per square foot for fiscal years 2007 and 2008, and at $23.00 for fiscal year 2009. He estimated market rents for the subject property’s office space at $23.00 for fiscal years 2007 and 2008 and at $26.00 per square foot for fiscal year 2009. Lastly, Mr. Wolff estimated market rent for the Donelan’s retail space at $11.00 per square foot for fiscal year 2007, $12.00 per square foot for fiscal year 2008, and $13.00 per square foot for fiscal year 2009.
All of Mr. Wolff’s purportedly comparable leases were for properties located in Framingham, Sudbury and Natick. He cited no leases for properties in Wayland. In addition, a majority of the retail leases offered in his study had triple-net terms, with the tenant bearing most of the expenses. A majority of the office leases he cited were rented on a modified gross basis, with the tenant bearing the responsibility for only some of the expenses. He reported that in the case of the subject property, the spaces were leased on a gross basis, requiring the landlord to pay all expenses.
He then multiplied his projected market rents by the applicable leasable areas to calculate potential gross income (“PGI”) for the fiscal years at issue. To reach his effective gross income (“EGI”) amounts, Mr. Wolff deducted a vacancy rate of 10%, which he asserted was based on conversations with local brokers and consistent with the market. Mr. Wolff conceded, however, that during the fiscal years at issue, the subject property’s actual vacancy was less than 2%.
For expenses, Mr. Wolff noted that within the subject property’s competitive market area, the landlord is responsible for all operating expenses of the building, including those associated with the management and structural maintenance of the building. Actual operating expenses for the subject property included insurance, utilities, repairs and maintenance, landscaping, snow removal, trash removal, cleaning, and legal and profession fees. A study of the subject property’s expenses as provided by the owner revealed that the subject property’s expenses totaled approximately 21% of the subject property’s effective gross income. Mr. Wolff found this to be reasonable and consistent with market averages in the area and he therefore utilized actual expenses in his projections. In addition, he deducted from the subject property’s EGI a management fee equal to 5% of EGI, a replacement reserve allowance equal to 3% of PGI, and a commission expense equal to 1% of PGI to derive a stabilized net operating income (“NOI”).
The final step in Mr. Wolff’s income-capitalization analysis was the selection of a capitalization rate. Mr. Wolff developed his capitalization rates using a band-of-investment technique. In his analyses, Mr. Wolff assumed interest lending rates ranging from 6.75% to 7% and equity yield rates ranging from 13% to 14.5%. He also reviewed rate ranges for “non-investment” grade retail and office properties located in suburban markets published in industry surveys such as the with support from the Price-Waterhouse Coopers-Korpacz Report (“Korpacz Report”). From his assumptions, Mr. Wolff selected a capitalization rate of 9.0% for fiscal year 2007, 8.75% for fiscal year 2008, and 9.5% for fiscal year 2009. Finally, to his base capitalization rates he added the applicable tax factor to derive his overall capitalization rates of 10.382%, 10.248% and 11.137%, respectively.
Mr. Wolff’s income-capitalization calculations are reproduced in the following tables.
Fiscal Year 2007
|
|
|
|
|
|
|
| INCOME |
Size |
Rate |
Potential Income |
||
| Retail Space (Donelan’s)Retail Space
Office Space Potential Gross Income (“PGI”) |
14,400 18,240 10,200 42,840 |
$11.00 $20.00 $23.00 |
$158,400 $364,800 $234,600
|
$ 757,800 |
|
| Less Vacancy @ 10% |
|
|
|
|
-$ 75,780 |
| Effective Gross Income (“EGI”) |
$ 719,910 |
||||
| EXPENSES
Operating Expenses @ 21% of EGI |
$ 143,224 |
||||
| Management Fee @ 5% of EGI |
$ 34,101 |
||||
| Reserves for Replacement @ 3% of PGI |
|
|
$ 22,734 |
||
| Commissions @ $1% of PGI |
|
|
|
|
$ 7,578 |
| Less Total Expenses |
-$207,637 |
||||
| Net-Operating Income (“NOI”) |
$ 474,383 |
||||
| Capitalization Rate |
9.000% |
||||
| Tax Factor |
1.382% |
||||
| Total Capitalization Rate |
10.382% |
||||
| Capitalized Value (rounded) |
|
|
|
|
$ 4,570,000 |
Fiscal Year 2008
|
|
|
|
|
|
| INCOME |
Size |
Rate |
Potential Income |
|
| Retail Space (Donelan’s)Retail Space
Office Space Potential Gross Income (“PGI”) |
16,200[22] 16,660 9,980 42,840 |
$12.00 $20.00 $23.00 |
$194,400 $333,200 $229,540 |
$ 757,140 |
| Less Vacancy @ 10% |
|
|
|
-$ 75,780[23] |
| Effective Gross Income (“EGI”) |
$ 681,426 |
|||
| EXPENSES
Operating Expenses @ 21% of EGI |
$ 143,099 |
|||
| Management Fee @ 5% of EGI |
$ 34,071 |
|||
| Reserves for Replacement @ 3% of PGI |
|
|
$ 22,714 |
|
| Commissions @ $1% of PGI |
|
|
|
$ 7,571 |
| Less Total Expenses |
-$207,456 |
|||
| Net-Operating Income (“NOI”) |
$ 473,970 |
|||
| Capitalization Rate |
8.750% |
|||
| Tax Factor |
1.498% |
|||
| Total Capitalization Rate |
10.248% |
|||
| Capitalized Value (rounded) |
|
|
|
$ 4,625,000 |
Fiscal Year 2009
|
|
|
|
|
|
| INCOME |
Size |
Rate |
Potential Income |
|
| Retail Space (Donelan’s)Retail Space
Office Space Potential Gross Income (“PGI”) |
16,200 16,660 9,980 42,840 |
$13.00 $23.00 $26.00 |
$210,600 $383,180 $259,480 |
$ 853,260 |
| Less Vacancy @ 10% |
|
|
|
-$ 37,268[24] |
| Effective Gross Income (“EGI”) |
$ 767,934 |
|||
| EXPENSES
Operating Expenses @ 21% of EGI |
$ 161,266 |
|||
| Management Fee @ 5% of EGI |
$ 38,397 |
|||
| Reserves for Replacement @ 3% of PGI |
|
|
$ 25,598 |
|
| Commissions @ $1% of PGI |
|
|
|
$ 8,533 |
| Less Total Expenses |
$ 233,793 |
|||
| Net-Operating Income (“NOI”) |
$ 534,141 |
|||
| Capitalization Rate |
9.500% |
|||
| Tax Factor |
1.637% |
|||
| Total Capitalization Rate |
11.137% |
|||
| Capitalized Value (rounded) |
|
|
|
$ 4,800,000 |
The assessors presented no affirmative evidence of value but instead relied on the presumed validity of the assessment.
Based on the evidence presented, the Board agreed with the appellant’s expert that the income capitalization approach was the appropriate method to use in valuing the subject property for the fiscal years at issue. The Board found, however, that Mr. Wolff’s analysis was flawed in several respects and was, therefore, unreliable.
In his analysis, Mr. Wolff used projected retail and office rents derived from a review of the subject property’s existing leases. In his analysis, however, Mr. Wolff did not provide, nor did he know the start dates or duration of the subject property’s existing leases. Without this information, the Board found that it was unable to determine whether or not the subject rents were reflective of the market rentals for the fiscal years at issue. Also, Mr. Wolff included in his analyses listings of numerous retail and office rents in the surrounding area. All of these leases were located outside of Wayland. Although Mr. Wolff testified that the majority of his rental comparables had a superior location compared to the subject property, he failed to offer an explanation for any adjustments made but instead simply chose a lower per square value, compared to the average rental rate of his chosen comparables, to attribute to the subject property. Further, Mr. Wolff did not claim that there were no Wayland rents available, but instead stated that he was unable to obtain the information in his research.
Further, Mr. Wolff stated in his report that the subject property’s retail and office spaces were leased on a gross basis, with the landlord responsible for the payment of all expenses. His comparables, however, were primarily triple-net and modified-gross leases with the tenant responsible for at least some of the operating expenses. Despite the disparity in lease terms, Mr. Wolff made no adjustments in his analyses.
Mr. Wolff further testified that according to conversations with real estate brokers in the Wayland area the vacancy rate for retail and office space similar to the subject property ranged between 5% and 10%. From these discussions, he determined that 10% was an appropriate vacancy rate to use for all of the fiscal years at issue. However, the Board found that Mr. Wolff’s use of a 10% vacancy factor, at the high end of the range and despite the subject property’s actual vacancy rate of less than 2% for each of the fiscal years at issue, was overstated and resulted in an understatement of the subject property’s EGI for each of the fiscal years at issue.
The Board further found that Mr. Wolff’s adoption of the subject’s property’s reported operating expenses, as a percentage of EGI, without providing substantiating market evidence beyond his personal statement that it was “reflective of the market,” lacked reliability and further undermined the validity of his analysis. Finally, the Board found that Mr. Wolff’s capitalization rates, which presumed equity returns ranging from 13.0% to 14.5%, were unsubstantiated.
Moreover, the Board found other errors in Mr. Wolff’s appraisal report, including mathematical and typographical errors. For example, Mr. Wolff stated in his report that for fiscal year 2009 the subject property’s office rents ranged from $21.60 to $35.56 per square foot with an average of $23.33 per square foot. At trial, however, Mr. Wolff testified that the average office rent was in fact $26.82 per square foot. He did not, however, make any adjustments to his income-capitalization analysis to reflect this discrepancy. Also, in his income-capitalization analyses, for all fiscal years at issue, Mr. Wolff stated that the vacancy allowance was 10% of PGI. For fiscal years 2008 and 2009, however, Mr. Wolff used the same number that was used for fiscal year 2007, despite the differences in PGI.
On this basis, the Board found that the appellant failed to meet its burden of proving that the subject property was overvalued for the fiscal years at issue. Accordingly, the Board issued decisions for the appellee in these appeals.
OPINION
The assessors are required to assess real estate at its “fair cash value.” G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to ascertain the fair cash value of property: income capitalization; sales comparison; and cost of reproduction. Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978). “The Board is not required to adopt any particular method of valuation.” Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986). Regardless of which method is employed to determine fair cash value, the Board must determine the highest price which a hypothetical willing buyer would pay to a hypothetical willing seller in an assumed free and open market. Irving Saunders Trust v. Board of Assessors of Boston, 26 Mass. App. Ct. 838, 845 (1989). The validity of a final estimate of market value largely depends on how well it can be supported by market data. The Appraisal Institute, The Appraisal of Real Estate 134 (12th Ed., 2001).
The income capitalization method “is frequently applied with respect to income producing property.” Taunton Redevelopment Associates v. Assessors of Taunton, 393 Mass. 293, 295 (1984). Under this approach, a valuation figure is determined by dividing net operating income by a capitalization rate. Board of Assessors of Brookline v. Buehler, 396 Mass. 520, 522-23 (1986). The net income figure is computed by deducting operating expenses from gross rental income. General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 609 (1984).
In applying the income-capitalization method, the income stream used must reflect the property’s earning capacity or market rental value. Pepsi-Cola Bottling, 397 Mass. at 451. Imputing rental income to the subject property based on fair market rentals from comparable properties is evidence of value if, once adjusted, the rents are indicative of the subject property’s earning capacity. See Correia v. New Bedford Redevelopment Authority, 5 Mass. App. Ct. 289, 293-94 (1977), rev’d on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Authority, 9 Mass. App. Ct. 877, 878 (1980) (rescript); AVCO Manufacturing Corporation v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1990-142. It is the earning capacity of real estate, rather than its actual income, which is probative of fair market value. Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 64 (1941). Vacancy rates must also be market based when determining fair cash value. Donovan v. City of Haverhill, 247 Mass. 69, 71 (1923).
After accounting for vacancy and rent losses, the net operating income is obtained by deducting the landlord’s appropriate expenses. General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 610 (1984). The expenses should reflect the market. Id. Real estate taxes are not considered operating expenses for purposes of determining net operating income. Alstores Realty Corporation v. Assessors of Peabody, 391 Mass. 60, 70 (1984). “The expense of local taxation turns on the very point in dispute, the fair cash value of the property. Logically, therefore, income should be capitalized before taxes.” Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 700 n.2 (1972). See also, Board of Assessors of Lynn v. Shop-Lease Co., Inc., 364 Mass. 569, 572 (1974) (property’s net operating income is determined before real estate taxes). Real estate taxes are accounted for by use of an effective tax factor in the capitalization rate. Taunton Redevelopment, 393 Mass. at 295.
The capitalization rate should consider the return necessary to attract investment capital. Taunton Redevelopment, 393 Mass. at 295. The “tax factor” is a percentage added to the capitalization rate “to reflect the tax which will be payable on the assessed valuation produced by the [capitalization] formula.” Assessors of Lynn v. Shop-Lease Co., 364 Mass. 569, 573 (1974). “Logically, therefore, income should be capitalized before taxes ‘with the capitalization rate increased to yield the return the investor expects plus the amount of local taxes payable.’” Alstores, 391 Mass. at 70 n. 19, quoting New England Oyster House, Inc. 362 Mass. at 700 n. 2.
Generally, in multiple tenancy properties like the subject property, it is appropriate to add a tax factor to the capitalization rate because the landlord is assumed to be responsible for paying the real estate taxes, and the tenants’ contribution toward the real estate tax, if any, is included in the landlord’s gross income. Taunton Redevelopment, 393 Mass. at 295-96; see also General Electric Co., 393 Mass. at 610.
The Board is entitled to presume that the assessment is valid until the taxpayer sustains his or her burden of proving otherwise. Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974). 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. Id. The taxpayer must demonstrate that the assessed valuation of his or her property was improper. See Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 691 (1982). In appeals before this Board, a taxpayer “may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.” General Electric Co., 393 Mass. at 600, (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
“The board [can] accept such portions of the evidence as appear to have the more convincing weight. The market value of the property [can] not be proved with mathematical certainty and must ultimately rest in the realm of opinion, estimate, and judgment . . . . The board [can] select the various elements of value as shown by the record and from them form . . . its own independent judgment.” Assessors of Quincy v. Boston Consolidated Gas Company, 309 Mass. 60, 72 (1941). See also, North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984); New Boston Garden Corp. v. Board of Assessors of Boston, 383 Mass. 456, 473 (1981); Jordan Marsh Co. v. Assessors of Malden, 359 Mass. 106, 110 (1971).
In the present appeals, the Board found that Mr. Wolff’s income capitalization analyses were flawed. First, the Board found that by utilizing the subject property’s actual rents without knowing the start dates and duration, Mr. Wolff was unable to ascertain if in fact these rents were reflective of the market. The Board also found that Mr. Wolff’s research of area rents, while failing to include any rents from Wayland, was flawed. Further, the Board found that a majority of Mr. Wolff’s comparable leases had triple-net or modified-gross terms compared to the subject property’s purportedly gross leases whereby the landlord was responsible for all operating expenses. Despite the significant difference in lease terms, Mr. Wolff failed to make any adjustments when determining his suggested market rate rents. The Board further found that Mr. Wolff’s vacancy rate of 10%, which was at the top of the range provided to him by area brokers and was more than five times the subject property’s actual vacancy during the fiscal years at issue, was excessive and resulted in an understatement of the subject property’s EGI for each of the fiscal years at issue.
Next, the Board found that Mr. Wolff’s adoption of the subject property’s operating expenses, as a percentage of EGI, based solely on his personal statement that they were reflective of the market and without offering any substantiating market data, lacked reliability. Finally, the Board found that Mr. Wolff’s capitalization rates, which presumed equity returns ranging from 13.0% to 14.5% lacked supporting evidence and therefore were unreliable.
Based on the foregoing facts, the Board found that appellant failed to meet its burden of proving that the subject property was overvalued for the fiscal years at issue. Accordingly, the Board entered decisions for the appellee in these appeals.
THE APPELLATE TAX BOARD
By: ___________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
AQUIDNECK INVESTMENTS, INC. v. COMMISSIONER OF REVENUE
Docket No. C298158 Promulgated:
March 17, 2011
This is an appeal under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the appellee to abate corporate excise assessed against Aquidneck Investments, Inc. under G.L. c. 63, § 32 for the tax years ending December 31, 2001 through December 31, 2006 (“tax years at issue”).
Commissioner Rose heard this appeal. Chairman Hammond and Commissioners Scharaffa and Mulhern joined him in the decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
Jeffrey S. Entin, Esq., for the appellant.
Julie A. Flynn, Esq. and Timothy R. Stille, Esq., for the appellee.
FINDINGS OF FACT AND REPORT
Based on the testimony and exhibits offered into evidence at the hearing, the Appellate Tax Board (“Board”) made the following findings of fact.
Aquidneck Investments, Inc. (“Aquidneck” or “corporation”), formerly known as Star Wash, Inc., was organized on November 15, 1979. In 1991, its Articles of Organization were amended to change the corporate name and also to change the purpose of the corporation from an automobile service station to the operation of a gasoline station and a convenience store selling beer and wine. During the tax years at issue, Jeffrey S. Entin served as president and clerk of the corporation and Theresa Entin served as treasurer. On December 18, 1991, Aquidneck was issued a license to sell beer and wine in the Town of Somerset.
On April 29, 1997, Aquidneck, Jeffrey S. Entin and Theresa A. Entin, entered into a lease agreement with Somerset Energy, Inc. (“Somerset Energy” or “lessee”) to lease the premises of Aquidneck’s gas station and convenience store during the period May 1, 1997 through April 30, 2002. In accordance with the lease agreement, Somerset Energy was required to make monthly rental payments. Pursuant to paragraph 14.2 of the lease agreement, Aquidneck allowed Somerset Energy to use its liquor license and “in consideration of the rent paid,” Somerset Energy was allowed to “keep the profit derived from the sale of the beer and wine.” Aquidneck, however, was responsible for the payment of all fees associated with the beer and wine license. The lease agreement was twice renewed, through August 2009, when the real estate, which was owned by an unrelated third party, was foreclosed upon. For each of the tax years at issue, Aquidneck submitted a liquor license renewal application to the Town of Somerset. Each application was filed in the name of Aquidneck, signed by Jeffrey S. Entin as president, and listed Theresa A. Entin as Manager. Mr. Entin testified that during the tax years at issue, Ms. Entin checked in regularly with the owner of Somerset Energy to make sure that the liquor license was being used appropriately and in accordance with license regulations.
On or about August 31, 1998, Aquidneck was involuntarily dissolved by the Commonwealth for failure to file Annual Reports with the Secretary of State. On November 29, 2006, Aquidneck filed an Application for Revival pursuant to G.L. c. 156B, § 108. Question #8 on the appellant’s Application for Revival asks the applicant to “describe fully the activities, if any, of the corporation since dissolution.” The appellant’s response, signed by Mr. Entin under the pains and penalties of perjury, was that the “corporation leases a business in Somerset, Massachusetts.” On January 19, 2007, the Secretary of State’s Office issued a “Revival Certificate” stating “[Aquidneck] is revived for all purposes and without limitation of time with the same powers, duties and obligations as if the corporation had not been dissolved.”
Subsequently, on September 28, 2007, Jeffrey S. & Theresa A. Entin entered into a purchase and sale agreement with Red’s Somerset, Inc., d/b/a Red’s Somerset, for the sale of the liquor license held in the name of Aquidneck for the sum of $115,000.
On May 20, 2008, Aquidneck filed Form 355S S Corporation Excise Returns for the tax years at issue. On each of the tax returns, Aquidneck reported a Massachusetts corporate excise liability of $456, the minimum corporate excise liability. The appellant paid the tax associated with the returns for the tax years at issue. Subsequently, the appellant filed an Application for Abatement with the Commissioner of Revenue (“Commissioner”), which she denied on June 18, 2008.[25] On July 9, 2008, Aquidneck timely filed an appeal with the Board. On this basis, the Board found that it had jurisdiction to hear and decide this appeal.
Based on the evidence presented, including the appellant’s sworn statement on its Application for Revival, the Board found and ruled that during the tax years at issue, Aquidneck was doing business in the commonwealth and therefore was subject to the corporate excise under G.L. c. 63, § 32. At all material times, Aquidneck leased its gas station and convenience store, including the use of its liquor license, to a third party for consideration. In accordance with the rental agreement, Jeffrey Entin, in his capacity as president of Aquidneck, annually renewed the liquor license which, in turn, was leased to Somerset Energy, Inc. Theresa Entin was listed as Manager on the liquor license and regularly checked in with Somerset Energy, Inc. to ensure that the liquor license was being used properly and in accordance with all regulations. Further, pursuant to the rental agreement, Aquidneck received rental payments that ranged from $2,500 to $5,000 per month. Accordingly, the Board found that during the tax years at issue, Aquidneck’s leasing of the gas station and convenience store and the exercise of its rights under the liquor license constituted “doing business” in the commonwealth for purposes of § 32 and, Aquidneck therefore, it was liable for the corporate excise.
OPINION
The first issue in the present appeal is whether, for the tax years at issue, Aquidneck was liable for the Massachusetts corporate excise. During the tax years at issue, G.L. c. 63, § 32 imposed on “every domestic corporation . . . exercising its charter, or qualified to do business or actually doing business in the commonwealth.”[26] G.L. c. 63, § 32 (2006). The term “doing business” includes,
each and every act, power, right, privilege, or immunity exercised or enjoyed in the commonwealth, as an incident to or by virtue of the powers and privileges acquired by the nature of such organizations, as well as, the buying, selling or procuring of services or property.
G.L. c. 63, § 32.
Mr. Entin testified that Aquidneck sold its entire business and all assets in 1997 and that, during the tax years at issue, the appellant was not doing business in the Commonwealth. Therefore, the appellant argued, it was not subject to the corporate excise.
However, during the tax years at issue, the appellant leased its gas station and convenience store to Somerset Energy for consideration. Pursuant to the terms of the lease agreement, Aquidneck annually renewed its liquor license, in accordance with G.L. c. 138, § 15, and allowed Somerset Energy to sell beer and wine under the umbrella of its liquor license.
Pursuant to G.L. c. 138, § 15, corporations organized under the laws of the commonwealth may be granted a liquor license. Aquidneck, in its corporate capacity, annually applied for and was granted a liquor license. It is well established that a liquor license is a “personal privilege.” Jubenville v. Jubenville, 313 Mass. 103, 106 (1942). In the present appeal, the Board found that by annually renewing its liquor license and executing and renewing leases, the appellant exercised its powers, rights and privileges as a Massachusetts corporation and therefore, was “doing business” within the commonwealth pursuant to § 32.
The second issue is whether a corporation that was involuntarily dissolved prior to the tax year at issue but was later revived pursuant to G.L. c. 156B, s. 108, is liable for the corporate excise.
If a corporation has failed to comply with the provisions of law requiring the filing of reports with the Secretary of State (“Secretary”), the Secretary may dissolve the corporation, subject to the provisions of G.L. c. 156B, §§ 101, 102, 104 and 108. See Urban Computer Systems, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1988-286, 291. Once dissolved, a corporation may subsequently file an Application for Revival; if the Secretary approves such an application the corporation shall:
stand revived with the same powers, duties and obligations as if it had not been dissolved, and all acts and proceedings of its officers, directors and stockholders, acting or purporting to act as such, which would have been legal and valid but for such dissolution shall stand ratified and confirmed.
G.L. c. 156B, § 108.
Aquidneck was involuntarily dissolved in 1998 for failure to file Annual Reports with the Secretary office. Subsequently, on January 19, 2007, the Secretary issued to Aquidneck a Revival Certificate reviving the corporation “for all purposes and without limitation of time with the same powers, duties and obligations as if the corporation had not been dissolved.”
Where there is no evidence that the corporation or its officers acted in a corporate capacity during its period of dissolution, the corporation may not be liable for corporate excises. Urban Computer, Mass. ATB Findings of Fact and Reports at 1988-292-293. Conversely, if there is evidence of “any active business . . . carried on in the name of the corporation,” or “any known acts . . . of its officers, directors, or stockholders purporting to act as such,” the corporation is liable for corporate excises. Id.
In the present appeal, subsequent to its involuntary dissolution, Aquidneck twice renewed the lease agreement with Somerset Energy for the lease of Aquidneck’s gas station and convenience store and received monthly rental payments pursuant to that agreement. In addition, for each of the tax years at issue, Mr. Entin, in his capacity as president of Aquidneck, applied for the renewal of Aquidneck’s liquor license. Theresa Entin, also a corporate officer of Aquidneck, was listed as the Manager on the liquor license and routinely checked in with the lessee to ensure that the liquor license was being utilized appropriately and in accordance with the license regulations. The Board found that the above-mentioned actions constituted active business carried on by the corporation and were “known acts” by the appellant’s corporate officers during the period of dissolution.
The Board therefore found that Jeffrey Entin and Theresa Entin, in their roles as officers and directors of Aquidneck, regularly conducted business in the name of Aquidneck during the period of dissolution. The acts of a dissolved corporation’s officers, conducted during dissolution, are ratified and confirmed as acts of the corporation upon revival. Urban Computer, Mass. ATB Findings of Fact and Reports at 1988-293. Therefore, the Board found that Aquidneck was liable for the corporate excise for the tax years at issue.
In conclusion, the Board found that Aquidneck was doing business and also using its property in the Commonwealth, pursuant to G.L. c. 63, § 32, during the tax years at issue. The Board further found that the actions of Jeffrey Entin and Theresa Entin during the period of dissolution were known acts of Aquidneck’s officers and directors and, therefore, were ratified and confirmed as acts of the corporation. Accordingly, the Board found that Aquidneck was liable for corporate excise for the tax years at issue.
APPELLATE TAX BOARD
By: ____
Thomas W. Hammond, Jr., Chairman
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
AUSTIN & SUSAN KOLBERT v. BOARD OF ASSESSORS OF
THE TOWN OF PELHAM
Docket Nos. F305956 Promulgated:
March 17, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Pelham (“assessors” or “appellee”) to abate taxes on certain real estate located in the Town of Pelham owned by and assessed to Austin & Susan Kolbert (“appellants”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2010.
Chairman Rose (“Presiding Commissioner”) heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20 and issued a single-member decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
Austin Kolbert, pro se, for the appellants.
Martha Leamy, assistant assessor, for the appellee.
FINDINGS OF FACT AND REPORT
Based on the testimony and exhibits offered into evidence at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2009 the appellants were the assessed owners of a 34.5-acre parcel of landlocked land in Pelham identified on the assessors’ Map 6 as Lot 33. For fiscal year 2010, the assessors valued the subject property at $59,000 and assessed a tax thereon, at the rate of $18.34 per thousand, in the amount of $1,082.06. On February 1, 2010, in accordance with G.L. c. 59, § 59, the appellants timely filed an Application for Abatement with the assessors, which the assessors denied on February 9, 2010. The appellants seasonably filed an appeal with the Appellate Tax Board (“Board”), which the Board received on May 12, 2010 in an envelope postmarked May 8, 2010.[27] On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
The appellants testified that the subject property is a landlocked parcel which is utilized as a wood lot by the original owner. The appellants further testified that there is no access to the property other than over a legal right of way and that little use has occurred on the land other than occasional wood cutting or clearing. The appellants argued that similar landlocked parcels of land in Pelham are valued at a lower rate compared to the subject property and that the subject property is more appropriately valued at $500 per acre, for a total of $17,250. The appellants presented no evidence concerning these other parcels and presented no exhibits or witnesses other than Mr. Kolbert. The assessors rested on the presumed validity of their assessment.
On the basis of the evidence presented at the hearing, the Presiding Commissioner found that the appellants failed to meet their burden of proving that the subject property was overvalued for the fiscal year at issue. Accordingly, the Presiding Commissioner issued a decision for the appellee.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956). The appellants have the burden of proving that the property has a lower value than that assessed. “‛The burden of proof is upon the petitioner[s] to make out [their] right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‛presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245). In appeals before this Board, taxpayers “‛may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.’” General Electric Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
In the present appeal the appellants offered no evidence of overvaluation beyond mere assertions. The appellants testified that the subject property is a landlocked parcel of land which is used occasionally for wood cutting or clearing and argued that the subject property was overvalued in comparison to other landlocked parcels in Pelham. However, the appellants offered no evidence to support their assertion and to prove that the subject assessment exceeded the fair cash value. Therefore, the Presiding Commissioner found and ruled that the appellants failed to meet their burden of proving that the subject property was overvalued for fiscal year 2010.
Accordingly, the Presiding Commissioner issued a single-member decision for the appellee.
APPELLATE TAX BOARD
By: _
James D. Rose, Commissioner
A true copy,
Attest:
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
JAMES D. & CHERLYN FLANAGAN v. BOARD OF ASSESSORS OF
THE TOWN OF MILFORD
Docket No. F303417 Promulgated:
March 17, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Milford (“appellee” or “assessors”) to abate taxes on real estate located in the Town of Milford, owned by and assessed to James D. & Cheryln Flanagan (“appellants”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2009 (“fiscal year at issue”).
Commissioner Mulhern (“Presiding Commissioner”) heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20 and issued a single-member decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellants under G.L. c. 58A, § 13 and 831 CMR 1.32.
James D. Flanagan, pro se, for the appellants.
Priscilla Hogan, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the exhibits and testimony offered into evidence during the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2008, the appellants were the assessed owners of a parcel of real estate improved with a single-family dwelling located at 8 Whispering Pine Drive in Milford (“subject property”). For the fiscal year at issue, the assessors valued the subject property at $454,700 and assessed a tax, at the rate of $12.53 per thousand, in the total amount of $5,697.39. The Milford Collector of Taxes mailed the fiscal year 2009 tax bills on December 29, 2008. In accordance with G.L. c. 59, § 57C, the appellants paid the tax due without incurring interest. On January 23, 2009, in accordance with G.L. c. 59, § 59, the appellants timely filed an abatement application with the assessors. The assessors denied the abatement application on April 23, 2009. On July 7, 2009, the appellants seasonably filed an appeal with the Appellate Tax Board (“Board”). On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
The subject property is a 1.037-acre parcel of land improved with a single-family, wood-frame, Colonial-style dwelling. The subject dwelling, which was built in 1997, has a clapboard exterior and an asphalt, gable-style roof. The dwelling contains 2,129 square feet of living area and has a total of eight rooms, including four bedrooms, as well as two full bathrooms and one half bathroom. The living room, family room and dining room have hardwood floors. The entry way, kitchen and baths have ceramic tile, and the bedrooms have carpet flooring. The master bath has double sinks, a separate shower and a Jacuzzi tub. The dwelling is heated by a forced-hot-water, oil-fueled heating system. Other amenities include one fireplace, central air conditioning, an attached two-car garage, an enclosed porch, an in-ground pool, and a shed. Overall the subject dwelling is in good condition. The subject property is located on a dead-end drive in a sub-division of reasonably similar properties.
In an attempt to prove that the subject property was overvalued, the appellants offered into evidence the “parcel summary” printouts, downloaded from the assessors’ website, of six properties that sold between April 13, 2007 and November 6, 2007 with sale prices that ranged from $400,000 to $425,000, and also four purportedly comparable properties that had lower assessed values than the subject property. The appellants did not, however, offer into evidence the property record cards for these properties nor did they provide a reasonably detailed description of each property, including finished living area and location. Moreover, the appellants failed to offer any charts or other evidence comparing the characteristics of the purportedly comparable properties to those of the subject property with reasonable adjustments for differences.
In support of their assessment, the assessors offered into evidence the testimony of Priscilla Hogan, as well as sales data from five purportedly comparable properties that sold during 2007. The five properties ranged in size from 0.346 to 1.915 acres, and all were improved with Colonial-style homes with finished living areas that ranged from 1,800 to 2,774 square feet. After making adjustments for differences in lot size, total living area, location, and overall condition, the adjusted sale prices of the assessors’ comparable properties ranged in value from $402,000 to $519,500.
On the basis of all of the evidence, the Presiding Commissioner found that the appellants failed to demonstrate that the fair cash value of the subject property was less than its assessed value. The Presiding Commissioner found that while the parcel summary printouts provided basic information about the appellants’ purportedly comparable properties, they did not supply the necessary detailed information contained in property record cards, which would allow the Presiding Commissioner to properly establish basic comparability with the subject property. Further, the appellants failed to make adjustments for differences between their purportedly comparable properties and the subject property.
Based on these findings, and after considering all of the evidence, the Presiding Commissioner ultimately found that the appellants failed to meet their burden of proving that the subject property was overvalued for the fiscal year at issue. The Presiding Commissioner, therefore, decided this appeal for the appellee.
OPINION
Assessors are required to assess real estate at its fair cash value as of the first day of January preceding the fiscal year at issue. G.L. c. 59, §§ 11 and 38. The fair cash value of property is defined as the price upon which a willing buyer and a willing seller would agree if both were fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956). The burden of proof is upon the taxpayers to make out their right to an abatement. Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974). The assessment is presumed to be valid unless the taxpayers meet their burden of proving otherwise. Id. A right to an abatement can be proven by either introducing evidence of fair cash value or by proving that the assessors erred in their method of valuation. General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984).
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to determine the fair cash value of property: income capitalization, sales comparison, and cost reproduction. Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978). “The board is not required to adopt any particular method of valuation.” Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).
Actual sales of the subject “are very strong evidence of fair market value, for they represent what a buyer has been willing to pay to a seller for [the] particular property [under appeal].” New Boston Garden Corp. v. Board of Assessors of Boston, 383 Mass. 456, 469 (1981) (quoting First Nat’l Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971). “Evidence of the sale prices of ‘reasonably comparable property’ is the next best evidence to the sale of the property in question.” Lattuca v. Robsham, 442 Mass. 205, 216 (2004). Properties are “comparable” to the subject property when they share “fundamental similarities” with the subject property, including similar age, locations, sizes and date of sale. Id. at 216. The appellants bear the burden of “establishing the comparability of . . . properties [used for comparison] to the subject propert[ies].” Wood v. Assessors of Fall River, Mass. ATB Findings of Fact and Report 2008-213, 225. “Once basic comparability is established, it is then necessary to make adjustments for the differences, looking primarily to the relative quality of the properties, to develop a market indicator of value.” New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981).
“At any hearing relative to the assessed fair cash valuation or classification of property, evidence as to fair cash valuation or classification of property at which assessors have assessed other property of a comparable nature or class shall be admissible.” G.L. c. 58A, § 12B. “The introduction of such evidence may provide adequate support for either the granting or denial of an abatement.” John Alden Sands v. Assessors of Bourne, Mass. ATB Findings of Fact and Reports 2007-1098, 1106-07, (citing Chouinard v. Assessors of Natick, Mass. ATB Findings of Fact and Reports 1998-299, 307-308.
In the present appeal, the Presiding Commissioner found that the appellants failed to demonstrate that the fair cash value of the subject property was less than its assessed value. The Presiding Commissioner found that while the parcel summary printouts provided basic information about the appellants’ purportedly comparable properties, they did not supply the detailed information contained in property record cards, which would allow the Presiding Commissioner to properly establish basic comparability with the subject property. See Lareau v. Assessors of Norwell, Mass. ATB Findings of Fact and Reports 2010-879, 890-91 (ruling that the appellants’ failure to submit property record cards and other fundamental evidence containing corroborating and detailed information about their purportedly comparable properties compromised the appellants’ ability to prove that their property was overvalued). In addition, the Presiding Commissioner found that the appellants failed to make any adjustments for differences that existed between their purportedly comparable properties and the subject property. See New Boston Garden Corp., 383 Mass. at 470.
“The board [is] not required to believe the testimony of any particular witness but [may] accept such portions of the evidence as appear to have the more convincing weight.” Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 72 (1941). “The credibility of witnesses, the weight of evidence, and inferences to be drawn from the evidence are matters for the board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
Accordingly, the Presiding Commissioner issued a single-member decision for the appellee.
APPELLATE TAX BOARD
By: ____________
Thomas J. Mulhern, Commissioner
A true copy,
Attest: ______ _____ _____
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
HOWARD D. HAYNES v. BOARD OF ASSESSORS OF THE TOWN OF MIDDLETON
Docket Nos. F291427 (FY 2007) Promulgated:
F294631 (FY 2008) March 30, 2011
F303547 (FY 2009)
F294630 (FY 2008)
F303548 (FY 2009)
These are appeals under the formal procedure, pursuant to G.L. c. 59, §§ 64 and 65 and 831 CMR 1.03 and 1.04, from the refusal of the Board of Assessors of the Town of Middleton (“assessors” or “appellee”) to abate taxes on two parcels of real estate in the Town of Middleton owned by and assessed to Howard D. Haynes (“appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal years 2007, 2008, and 2009 for the improved parcel located at 11 Averill Road and for fiscal years 2008 and 2009 for the improved parcel located at 9 Averill Road (collectively, “fiscal years at issue”).
Commissioner Egan heard these appeals. Chairman Hammond and Commissioners Scharaffa, Rose, and Mulhern joined her in decisions for the appellant in docket numbers F294631 and F303547, which relate to the 11 Averill Road property for fiscal years 2008 and 2009, respectively, and decisions for the appellee in docket numbers F291427, F294630, and F303548, which relate to the 11 Averill Road property for fiscal year 2007 and to the 9 Averill Road property for fiscal years 2008 and 2009, respectively.
These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
Mark F. Murphy, Esq. for the appellant.
James F. Sullivan, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2006, 2007, and 2008, the appellant was the assessed owner of a parcel of real estate located at 11 Averill Road in the Town of Middleton and, on January 1, 2007 and January 1, 2008, was also the assessed owner of a parcel of real estate located at 9 Averill Road in Middleton (collectively, “subject properties”). The 11 Averill Road parcel contains approximately 4.18 acres of land and is improved with a two-family home (“11 Averill Road property”). The 9 Averill Road parcel contains approximately 1.86 acres of land and is also improved with a two-family home (“9 Averill Road property”). The relevant assessment information for the subject properties for the fiscal years at issue is contained in the following two tables.
11 Averill Road Property
|
Docket Number |
Fiscal Year |
Assessment |
Tax Rate/$1,000 |
Tax Assessed* |
|
F291427 |
2007 |
$595,600 |
$ 9.81 |
$5,842.84 |
|
F294631 |
2008 |
$687,400 |
$ 9.69 |
$6,660.91 |
|
F303547 |
2009 |
$575,200 |
$10.99 |
$6,321.45 |
*The tax assessed does not include a Community Preservation Act (“CPA”) tax of $56.92 for fiscal year 2008 and $52.22 for fiscal year 2009. There was no CPA tax for fiscal year 2007.
9 Averill Road Property
|
Docket Number |
Fiscal Year |
Assessment |
Tax Rate/$1,000 |
Tax Assessed* |
|
F294630 |
2008 |
$611,500 |
$ 9.69 |
$5,925.44 |
|
F303548 |
2009 |
$507,200 |
$10.99 |
$5,574.13 |
*The tax assessed does not include a CPA tax of $49.56 for fiscal year 2008 and $44.75 for fiscal year 2009.
The pertinent payment and other jurisdictional information, including relevant filing dates, for the subject properties for the fiscal years at issue are contained in the following two tables.
11 Averill Road Property
|
Docket Number |
Fiscal Year |
Tax Bill Mailed |
Tax Payment |
Abatement Application |
Assessors’ Denial |
Petition to Board |
|
F291427 |
2007 |
12/29/2006 |
timely |
02/01/2007 |
03/27/2007 |
06/21/2007 |
|
F294631 |
2008 |
12/31/2007 |
timely |
01/30/2008 |
03/11/2008 |
05/01/2008 |
|
F303547 |
2009 |
12/31/2008 |
timely |
01/28/2009 |
04/28/2009 |
07/10/2009 |
9 Averill Road Property
|
Docket Number |
Fiscal Year |
Tax Bill Mailed |
Tax Payment |
Abatement Application |
Assessors’ Denial |
Petition to Board |
|
F294630 |
2008 |
12/31/2007 |
timely |
01/30/2008 |
03/11/2008 |
05/01/2008 |
|
F303548 |
2009 |
12/31/2008 |
timely |
01/28/2009 |
04/28/2009 |
07/10/2009 |
Based on these facts and in accordance with G.L. c. 59, §§ 57C, 59, and 64 and 65, the Appellate Tax Board (“Board”) found and ruled that it had jurisdiction over these appeals.
At the hearing of these appeals, the appellant argued that the subject properties were overvalued. He attempted to prove this contention through the testimony of a licensed real estate appraiser, Rebecca Kilborn of Kilborn Property Consultants, whom the Board qualified, over the objection of the assessors’ counsel, as a real estate valuation expert for purposes of these appeals. The appellant also introduced numerous exhibits into evidence, including Ms. Kilborn’s summary appraisal reports.
In support of the assessments, the assessors presented their case-in-chief through the testimony of three witnesses, namely, their licensed real estate appraiser, Scott McKeen of Grasso Appraisal Services, Inc., whom the Board also qualified, without objection, as a real estate valuation expert for purposes of these appeals, Brad Swanson, Middleton’s assistant assessor and Patricia Ohlson, a member of the assessors. In addition, the assessors entered various documents into evidence, including Mr. McKeen’s general purpose appraisal reports and all necessary jurisdictional documents. At the hearing, the 11 Averill Road property was tried first, followed by the 9 Averill Road property. Based on this record, a summary of the salient evidence relating to both subject properties and then to each property individually, as well as the Board’s subsidiary and ultimate findings of fact for each, follow.
I. Introduction
Middleton is located in the northeastern section of the Commonwealth, about twenty miles north of Logan International Airport. Middleton is bordered by North Andover to the north, North Reading and Lynnfield to the west, Peabody and Danvers to the south, and Boxford and Topsfield to the east. Middleton contains approximately 14.28 square miles and had a population approaching 7,000 persons as of 2000. The town is conveniently located between Routes 1 and I-495 with access to I-95 and Route 1 via state Routes 62 and 114, as well as access to I-495 via state Route 114.
Middleton, which was originally part of Salem Village, was incorporated in 1728. It is so named because it lies halfway between the Andover/Lawrence area and Salem. Once a farming community, Middleton is now predominantly residential with commercial and retail establishments along the Route 114 corridor.
The subject properties are located on Averill Road, which is situated off School Street in the northern section of town. The area is rural with considerable open space and wetland. Averill Road is an approximately one-quarter-mile-long, cul-de-sac with a mix of single-family and two-family homes, which were built within the past twenty years.
According to Ms. Kilborn, the appellant’s real estate valuation expert, the area real estate market for two-family properties about the size of the subject properties began to decline toward the latter part of 2005. Mr. McKeen, the assessors’ real estate valuation expert, believed that this market was stable between 2005 and 2006 and did not begin its decline until 2007.
II. 11 Averill Road Property
Description
The 11 Averill Road property’s home is a center entrance, two-family, two-story, Colonial-style, side-by-side, duplex house located on a 4.18-acre parcel. The parcel contains extensive wetlands and, because of its composition and conservation restrictions, only about one-half acre is buildable. The appellant constructed the dwelling on this parcel in 2004 only after obtaining a special permit from Middleton’s Zoning Board of Appeals and an Order of Condition from the Massachusetts Department of Environmental Protection, which limited his ability to fully utilize much of the parcel. The parcel’s topography slopes slightly from the front to the back, and it is heavily wooded providing significant privacy and a natural setting. The area around the duplex has average landscaping and paved parking areas adjacent to each side of the duplex.
The subject duplex contains two equally sized living areas of 1,258 square feet each, plus two eleven-by-thirteen-foot screened porches attached to each side of the duplex in the back of the house, as well as a 36-square-foot shared front entry. Each side also has an unfinished full basement and an unfinished attic. The duplex’s exterior siding is vinyl, and the roof is finished with asphalt shingles. Each unit has an identical layout of an eat-in kitchen with a bar area, a living room, one half bathroom, and a family room on the first floor, plus two bedrooms and a full bathroom on the second level. The interior is finished with painted sheetrock walls and ceilings, carpeted floors and stairs, and several rooms with recessed lighting. There are no fireplaces, but there is a cathedral ceiling and skylight in the family room on each side. The utilities servicing the duplex include propane gas and private water and septic. The electric line is underground. Each of the units in the duplex has its own heating, electrical, and air-conditioning systems and meters. The duplex is in overall good condition with no items of deferred maintenance.
Appellant’s Real Estate Valuation Expert
Ms. Kilborn determined that the highest and best use of the 11 Averill Street property for the fiscal years at issue was its existing use as a two-family residential property. To estimate its fair cash value, she relied principally on a sales-comparison approach. For fiscal year 2007, she selected, and applied some adjustments to, four purportedly comparable properties located at: 2-4 Summer Street in Andover (Sale 1); 265-267 Middlesex Street in North Andover (Sale 2); 25 Clark Street in Danvers (Sale 3); and 7-9 Washington Street in Andover (Sale 4). She did not select any comparable sales from Middleton because she claimed none existed. The following two tables contain a summary of her sales-comparison methodology for fiscal year 2007.
11 Averill Road Property
Fiscal Year 2007
Sales 1 & 2
|
Subject |
Sale 1 |
Adj ($) |
Sale 2 |
Adj ($) |
|
|
11 Averill Rd Middleton
|
2-4 Summer St Andover |
265-267 Middlesex No Andover |
|||
| Proximity (miles) |
9 miles |
10 miles |
|||
| Sale Price (“SP”) |
$595,600* |
$492,000 |
$473,000 |
||
| SP/Gross Living |
Area (“LV”)
$164.00
$178.80
Date of Sale
01/01/2006**
03/31/2005
-16,400
07/11/2005
Location
Good
Good
Good
View
Neighborhood
Neighborhood
Neighborhood
Site
19,602 SF (useable)
5,520 SF
4,792 SF
Year Built
2004
1893-updates
1900-updates
Condition
Good
Good
+5,000
Good
+5,000
Bedrooms
2 & 2
3 & 3
2 & 3
Baths
1½ & 1½
1½ & 1½
1 & 1
Finished LA
2,552 SF
3,000 SF
-13,440
2,855 SF
-9,090
Fireplace
No
No
No
Separate Utilities
Yes
Yes
Yes
Screened Porch
Yes
No
Enclosed Porch
Garage/Carport
No
1-Car Garage
-5,000
2-Car Garage
-10,000
Patio/Deck
No
No
Deck
Comments
Duplex
Duplex
Net Adjustment ($)
-29,840
-14,090
Adj Sale Price
$462,160
$458,910
*Assessed Value
**Valuation Date
11 Averill Road Property
Fiscal Year 2007
Sales 3 & 4
|
Subject |
Sale 3 |
Adj ($) |
Sale 4 |
Adj ($) |
|
|
11 Averill Rd Middleton
|
25 Clark St Danvers |
7-9 Washington Andover |
|||
| Proximity (miles) |
6 miles |
9 miles |
|||
| Sale Price (“SP”) |
$595,600* |
$445,000 |
$442,500 |
||
| SP/Gross Living |
Area (“LV”)
$184.42
$201.50
Date of Sale
01/01/2006**
12/16/2005
12/23/2005
Location
Good
Good
Good
View
Neighborhood
Neighborhood
Neighborhood
Site
19,602 SF (useable)
7,550 SF
7,160 SF
Year Built
2004
1900-updated
1900-updated
Condition
Good
Good
+5,000
Good
+5,000
Bedrooms
2 & 2
2 & 2
3 & 3
Baths
1½ & 1½
2 & 1
1 & 1
Finished LA
2,552 SF
2,413 SF
+4,170
2,196 SF
+10,680
Fireplace
No
No
No
Separate Utilities
Yes
Yes
Yes
Screened Porch
Yes
Yes
No
Garage/Carport
No
No
2-Car Garage
-10,000
Patio/Deck
No
Porch
Porch
Comments
Duplex
Net Adjustment ($)
+9,170
+5,680
Adj Sale Price
$454,170
$448,180
*Assessed Value
**Valuation Date
Based on this data and placing the most reliance on Sale 1, Ms. Kilborn estimated the value of the 11 Averill Street property at $462,000 for fiscal year 2007.
For fiscal year 2008, Ms. Kilborn selected, and applied some adjustments to, a different set of four purportedly comparable properties located at: 31-33 Phillips Court in North Andover (Sale 1); 50-52 Marblehead Street in North Andover (Sale 2); 25 School Street in Danvers (Sale 3); and 262 Andover Street in North Andover (Sale 4). As in her sales-comparison approach for fiscal year 2007, she did not select any comparable sales from Middleton for fiscal year 2008 because she claimed none existed. The following two tables contain a summary of her sales-comparison methodology for fiscal year 2008.
11 Averill Road Property
Fiscal Year 2008
Sales 1 & 2
|
Subject |
Sale 1 |
Adj ($) |
Sale 2 |
Adj ($) |
|
|
11 Averill Rd Middleton
|
31-33 Phillips Ct No Andover |
50-52 Marblehead No Andover |
|||
| Proximity (miles) |
9 miles |
10 miles |
|||
| Sale Price (“SP”) |
$687,400* |
$421,000 |
-10,000*** |
$467,500 |
|
| SP/Gross Living |
Area (“LV”)
$171.32
$136.25
Date of Sale
01/01/2007**
05/22/2006
08/28/2006
Location
Good
Good
Average
+10,000
View
Neighborhood
Neighborhood
Neighborhood
Site
19,602 SF (useable)
10,890 SF
10,454 SF
Year Built
2004
1901-updated
1905-updated
Condition
Good
Good (+5%)
+20,550
Good
Bedrooms
2 & 2
3 & 3
3 & 3
Baths
1½ & 1½
2 & 1
2 & 2
Finished LA
2,552 SF
2,399 SF
+4,590
3,431
-26,370
Fireplace
No
No
No
Separate Utilities
Yes
Yes
Yes
Screened Porch
Yes
No
No
Garage/Carport
No
No
2-Car Garage
-10,000
Patio/Deck
No
Deck
Porch
Comments
Duplex
Duplex
Duplex
Net Adjustment ($)
+15,140
-26,370
Adj Sale Price
$436,140
$441,130
*Assessed Value
**Valuation Date
***Adjusted for a concession at closing
11 Averill Road Property
Fiscal Year 2008
Sales 3 & 4
|
Subject |
Sale 3 |
Adj ($) |
Sale 4 |
Adj ($) |
|
|
11 Averill Rd Middleton
|
25 School St Danvers |
262 Andover St No Andover |
|||
| Proximity (miles) |
6 miles |
8 miles |
|||
| Sale Price (“SP”) |
$687,400* |
$465,000 |
$375,000 |
||
| SP/Gross Living |
Area (“LV”)
$196.04
$173.93
Date of Sale
01/01/2007**
09/28/2006
06/08/2007
+6,250
Location
Good
Good
Good
View
Neighborhood
Neighborhood
Neighborhood
Site
19,602 SF (useable)
5,012 SF
12,632 SF
Year Built
2004
1905-updated
1978
Condition
Good
Good
Average (+10%)
+37,500
Bedrooms
2 & 2
2 & 3
2 & 2
Baths
1½ & 1½
1 & 2
1½ & 1½
Finished LA
2,552 SF
2,372 SF
+5,400
2,156 SF
+11,880
Fireplace
No
No
No
Separate Utilities
Yes
Yes
Yes
Screened Porch
Yes
No
No
Garage/Carport
No
2-Car Garage
-10,000
No
Patio/Deck
No
Porch
No
Comments
Duplex
Duplex
Net Adjustment ($)
-4,600
+49,380
Adj Sale Price
$460,400
$424,380***
*Assessed Value
**Valuation Date
***The Board noted that Ms. Kilborn erred in her calculations with respect to Sale 4. Based on her individual adjustments, the net adjustment and adjusted sale price should be +$55,630 and $430,630, respectively.
Based on this data and relying on all of these sales, including Sale 4 which was a bank sale, Ms. Kilborn estimated the value of the 11 Averill Street property at $440,000 for fiscal year 2008.
For fiscal year 2009, Ms. Kilborn selected, and applied some adjustments to, another set of four purportedly comparable properties located at: 415-417 Winter Street in North Andover (Sale 1); 36 Cherry Street in Danvers (Sale 2); 63 Lawrence Street in Danvers (Sale 3); and 12-14 Summit Street in North Andover (Sale 4). As in her sales-comparison approaches for fiscal years 2007 and 2008, she did not select any comparable sales from Middleton for fiscal year 2009 because she claimed none existed. The following two tables contain a summary of her sales-comparison methodology for fiscal year 2009.
11 Averill Road Property
Fiscal Year 2009
Sales 1 & 2
|
Subject |
Sale 1 |
Adj ($) |
Sale 2 |
Adj ($) |
|
|
11 Averill Rd Middleton
|
415-417 Winter St No Andover |
36 Cherry St Danvers |
|||
| Proximity (miles) |
8 miles |
6 miles |
|||
| Sale Price (“SP”) |
$575,200* |
$417,000 |
|
$405,000 |
|
| SP/Gross Living |
Area (“LV”)
$165.22
$149.11
Date of Sale
01/01/2008**
08/31/2007
-8,687
11/30/2007
-3,375
Location
Good
Good
Good
View
Neighborhood
Neighborhood
Neighborhood
Site
19,602 SF (useable)
44,431 SF
20,865 SF
Year Built
2004
1974
1900
Condition
Good
Good
Good (+5%)
+20,250
Bedrooms
2 & 2
3 & 2
2 & 3
Baths
1½ & 1½
2 & 1
1 & 1
Finished LA
2,552 SF
2,268 SF
+8,520
2,716
-4,920
Fireplace
No
No
2
Separate Utilities
Yes
Yes
Yes
Amenities-A/C
Yes
No
No
Screened Porch
Yes
Yes
Yes
Garage/Carport
No
2-Car Garage
-10,000
No
Patio/Deck
No
Deck
Porch
Comments
Duplex
Duplex
Net Adjustment ($)
-1,480
+15,330
Adj Sale Price
$415,520***
$420,330***
*Assessed Value
**Valuation Date
***The Board noted that Ms. Kilborn erred in her calculations with respect to Sales 1 & 2. Based on her individual adjustments, the net adjustments and adjusted sale prices should be -$10,167 and $406,833, and +$11,955 and $416,955, respectively.
11 Averill Road Property
Fiscal Year 2009
Sales 3 & 4
|
Subject |
Sale 3 |
Adj ($) |
Sale 4 |
Adj ($) |
|
|
11 Averill Rd Middleton
|
63 Lawrence St Danvers |
12-14 Summit St No Andover |
|||
| Proximity (miles) |
7 miles |
10 miles |
|||
| Sale Price (“SP”) |
$575,200* |
$404,900 |
-5,000*** |
$407,000 |
-5,000*** |
| SP/Gross Living |
Area (“LV”)
$135.70
$139.10
Date of Sale
01/01/2008**
08/31/2007
-8,312
08/31/2007
-8,375
Location
Good
Average
+10,000
Good
View
Neighborhood
Neighborhood
Neighborhood
Site
19,602 SF (useable)
5,000 SF
10,019 SF
Year Built
2004
1920
1976
Condition
Good
Good (+5%)
+19,950
Good
Bedrooms
2 & 2
2 & 2
3 & 2
Baths
1½ & 1½
1 & 1
1 & 1½
Finished LA
2,552 SF
2,947 SF
-11,850
2,890 SF
-10,140
Fireplace
No
No
No
Separate Utilities
Yes
No
Yes
Amenities-A/C
Yes
No
No
Screened Porch
Yes
No
No
Garage/Carport
No
No
1-Car Garage
-5,000
Patio/Deck
No
Porch/Deck
Deck/Patio
Comments
Duplex
Duplex
Net Adjustment ($)
+13,100
-20,140
Adj Sale Price
$418,000****
$386,860****
*Assessed Value
**Valuation Date
***Adjusted for a concession at closing
****The Board noted that Ms. Kilborn erred in her calculations with respect to Sales 3 & 4. Based on her individual adjustments, the net adjustments (exclusive of concessions, which is how she did them) and adjusted sale prices should be +$4,788 and $409,688, and -$28,515 and $378,485, respectively.
Based on this data and placing the most reliance on Sale 1, Ms. Kilborn estimated the value of the 11 Averill Street property at $415,000 for fiscal year 2009.
During cross-examination, Ms. Kilborn acknowledged that she assisted the appellant in preparing at least two of the subject abatement applications and all three of the subject petitions. She also conceded that she signed the fiscal year 2008 and 2009 abatement applications and attempted to negotiate a settlement of these appeals on behalf of the appellant with the appraiser in the assessors’ office. She further admitted that she prepared and submitted supporting documentation to the assessors’ appraiser in furtherance of settlement. Ms. Kilborn also listed herself on the subject petitions as “agent” and contact person for the Board. Her written “Agency Agreement” with the appellant characterizes her relationship with him “as an agent for [Mr. Haynes] in connection with real estate assessment appeal(s) to the Local Tax Assessors or the Appellate Tax Board, regarding [the subject properties].” There was no clear testimony or documentary evidence to show that this Agreement was ever rescinded. The agreement specifically authorizes Ms. Kilborn “to file on behalf of [Mr. Haynes] any documents relating to an appeal of the [subject] assessment[s].” On the basis of these facts, the Board found that, at all material times, including the preparation of her appraisal report for the subject appeals and her testimony before the Board, Ms. Kilborn was acting as the agent of the appellant.
In addition, Ms. Kilborn did not disclose any of her foregoing involvement with the appellant in her summary appraisal reports. Her appraisal report specifically states in her “Certification” section that: “I have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved.” Lastly in this regard, Ms. Kilborn testified that the appellant paid her on an hourly basis for completing the abatement applications and petitions but she charged a set amount for the appraisal report for which, at the time of the hearing, the appellant had not yet paid. There was no evidence pertaining to any fees or payments for her time spent seeking the settlement of, or for testifying in, these appeals. From the record, the Board could not determine if any fees applied for the performance of these activities and services, but inferred from the business setting and the relationship between the appellant and Ms. Kilborn that some fee likely did attach, but that Ms. Kilborn had not been paid for them before testifying.
The parties agreed and the Board found that Ms. Kilborn was similarly involved with the abatement application, settlement, petition, and hearing process for the 9 Averill Road property.
Assessors’ Real Estate Valuation Expert
The assessors’ real estate valuation witness, Mr. McKeen, also determined that the 11 Averill Street property’s highest and best use was its continued use as a two-family residential dwelling. Like Ms. Kilborn, he relied primarily on a sales-comparison approach for estimating the value of the 11 Averill Street property for the fiscal years at issue. Unlike Ms. Kilborn, however, he found and incorporated sales of two-family dwellings from Middleton into his methodology for fiscal years 2008 and 2009. For fiscal year 2007, his six purportedly comparable properties include: three two-family properties located at 12-14 Berkley Street in North Andover (Sale 1), 31 Bradstreet Avenue in Danvers (Sale 2), and 7 Chase Street in Danvers (Sale 3); plus three single-family properties, all of which are located in Middleton at 5 Watkins Way (Sale 4), 234 Essex Street (Sale 5), and 10 Stanley Road (Sale 6). He included certain single-family properties in his methodology because he speculated that they were in competition with hypothetical sales of the subject properties. In other words, buyers considering the purchase of the subject properties would likely compare them to certain nearby single-family properties. The following two tables contain a summary of his sales-comparison methodology for fiscal year 2007.
11 Averill Road Property
Fiscal Year 2007
Sales 1, 2 & 3
|
Feature |
Subject |
Sale 1 |
Adj ($) |
Sale 2 |
Adj ($) |
Sale 3 |
Adj ($) |
|
11 Averill Rd Middleton
|
12-14 Berkley St No Andover |
31 Brad- street St Danvers |
7 Chase St Danvers |
||||
| Proximity (+/-) |
4 miles |
7 miles |
6 miles |
||||
| Sale Price (“SP”) |
$595,600* |
$615,000 |
$530,000 |
$537,000 |
|||
| SP/Gross Bldg Area (“GBA”) |
$193.70/SF |
$212.51/SF |
$184.28/SF |
||||
| Concessions |
None |
None |
None |
||||
| Date of Sale |
01/01/2006** |
06/25/2006 |
10/12/2005 |
05/31/2005 |
|||
| Location |
Good |
Superior |
-25,000 |
Inferior |
+75,000 |
Inferior |
+75,000 |
| Site |
182,005 SF |
10,019 SF |
+50,000 |
11,792 SF |
+50,000 |
9,400 SF |
+50,000 |
| View |
Nbhd*** |
Nbhd |
Nbhd |
Nbhd |
|||
| Design |
2 Family |
2 Family |
2 Family |
2 Family |
|||
| Construction Quality |
Average |
Average |
Average |
Average |
|||
| Age (+/-) |
5 years |
26 years |
55 years |
107 years |
|||
| Condition |
Good |
Inferior |
+25,000 |
Inferior |
+25,000 |
Inferior |
+25,000 |
| GBA |
2,550 SF |
3,175 SF |
-25,000 |
2,494 SF |
2,914 SF |
-14,600 |
|
| Rooms: Total/Bed/Bath |
Total/Bed/Bath
5/2/1.5
5/2/1.5
4/2/1
6/3/2
+3,000
-2,000
8/3/2
4/2/1
-2,000
+3,000
7/4/2
4/2/1
-2,000
+3,000
Basement
Full
Full
Full
Full
Finished Basement
Unfinished
Unfinished
Part/Bath
-20,000
Unfinished
Functional Utility
Adequate
Adequate
Adequate
Adequate
Heating/Cooling
FWA/C-Air
FHW/None
+5,000
FHW/None
+5,000
FHW/None
+5,000
Parking
Driveway
Driveway
Driveway
2-Car Garage
-10,000
Porch/Patio/Deck
Scrn Porch
Deck
+500
Deck
+500
Deck/Porch
-500
Amenities
None
Fireplaces
-3,000
None
None
None
None
None
None
Net Adjustment ($)
+28,500
+136,500
+130,900Adj Sale Price
$643,500
$666,500
$667,900
*Assessed Value
**Valuation Date
***Neighborhood
11 Averill Road Property
Fiscal Year 2007
Sales 4, 5 & 6
|
Feature |
Subject |
Sale 4 |
Adj ($) |
Sale 5 |
Adj ($) |
Sale 6 |
Adj ($) |
|
11 Averill Rd Middleton
|
5 Watkins Way Middleton |
234 Essex St Middleton |
10 Stanley Rd Middleton |
||||
| Proximity (+/-) |
1.5 miles |
1 mile |
0.75 miles |
||||
| Sale Price (“SP”) |
$595,600* |
$660,000 |
$739,000 |
$650,000 |
|||
| SP/Gross Bldg Area (“GBA”) |
$244.44/SF |
$208.23/SF |
$243.45/SF |
||||
| Concessions |
None |
None |
None |
||||
| Date of Sale |
01/01/2006** |
07/27/2005 |
07/14/2005 |
11/23/2005 |
|||
| Location |
Good |
Good |
Good |
Good |
|||
| Site |
182,005 SF |
87,120 SF |
+12,500 |
59,400 SF |
+25,000 |
46,174 SF |
+25,000 |
| View |
Nbhd*** |
Nbhd |
Nbhd |
Nbhd |
|||
| Design |
2 Family |
1 Family |
1 Family |
1 Family |
|||
| Construction Quality |
Average |
Average |
Average |
Average |
|||
| Age (+/-) |
5 years |
11 years |
1 year |
13 years |
|||
| Condition |
Good |
Inferior |
+12,500 |
Good |
Inferior |
+12,500 |
|
| GBA |
2,550 SF |
2,700 SF |
-6,000 |
3,549 SF |
-40,000 |
2,670 SF |
|
| Rooms: Total/Bed/Bath |
Total/Bed/Bath
5/2/1.5
5/2/1.5
9/3/2.5
-5,000
+8,000
9/4/2.5
-5,000
+8,000
8/4/2.5
-5,000
+8,000
Basement
Full
Full
Full
Full
Finished Basement
Unfinished
Unfinished
Unfinished
Unfinished
Functional Utility
Adequate
Adequate
Adequate
Adequate
Heating/Cooling
FWA/C-Air
FWA C/Air
FWA C/Air
FHW/None
Parking
Driveway
2-Car Garage
-10,000
2-Car Garage
-10,000
2-Car Garage
-10,000
Porch/Patio/Deck
Scrn Porch
Deck
+500
Deck
+500
Deck/Porch
-500
Amenities
None
Fireplace
-1,500
2 Fireplaces
-3,000
2 Fireplaces
-3,000
None
None
None
None
Net Adjustment ($)
+11,000
-24,500
+27,000
Adj Sale Price
$671,000
$714,500
$677,000
*Assessed Value
**Valuation Date
***Neighborhood
Based on the adjusted values ascribed to the three sales of two-family properties in the neighboring communities of North Andover and Danvers and the adjusted values assigned to the sales of the single-family properties near the 11 Averill Road property’s neighborhood in Middleton, Mr. McKeen estimated the value of the 11 Averill Road property at $644,000 for fiscal year 2007.
For fiscal year 2008, Mr. McKeen’s six purportedly comparable properties include: two two-family properties located in Middleton at 36 East Street (Sale 1) and 47 Lake Street (Sale 2); another two-family property located in Danvers at 33 Park Street (Sale 3); plus three single-family properties, located in Middleton at 58 Mill Street (Sale 4), 3 Jersey Lane (Sale 5), and 6 Northwood Road (Sale 6). The following two tables contain a summary of his sales-comparison methodology for fiscal year 2008.
11 Averill Road Property
Fiscal Year 2008
Sales 1, 2 & 3
|
Feature |
Subject |
Sale 1 |
Adj $ |
Sale 2 |
Adj $ |
Sale 3 |
Adj $ |
|
11 Averill Rd Middleton
|
36 East St Middleton |
47 Lake St Middleton |
33 Park St Danvers |
||||
| Proximity (+/-) |
1.75 miles |
1.5 miles |
6.5 miles |
||||
| Sale Price (“SP”) |
$687,400* |
$875,000 |
$600,000 |
$499,900 |
|||
| SP/Gross Bldg Area (“GBA”) |
$188.90/SF |
$227.79/SF |
$149.94/SF |
||||
| Concessions |
None |
None |
None |
||||
| Date of Sale |
01/01/2007** |
05/11/2006 |
11/30/2006 |
09/29/2006 |
|||
| Location |
Good |
Traffic |
+25,000 |
Good |
Inferior |
+125,000 |
|
| Site |
182,005 SF |
162,914 SF |
44,867 SF*** |
+50,000 |
6,000 SF |
+50,000 |
|
| View |
Nbhd*** |
Nbhd |
Part Water |
-25,000 |
Nbhd |
||
| Design |
2 Family |
2 Family |
2 Family |
2 Family |
|||
| Construction Quality |
Average |
Average |
Average |
Average |
|||
| Age (+/-) |
5 years |
25 years |
78 years |
107 years |
|||
| Condition |
Good |
Slight Inf |
+12,500 |
Inferior |
+25,000 |
Inferior |
+25,000 |
| GBA |
2,550 SF |
4,632 SF |
-84,600 |
2,634 SF |
3,334 SF |
-32,700 |
|
| Rooms: Total/Bed/Bath |
Total/Bed/Bath
5/2/1.5
5/2/1.5
10/3/3
4/2/2
-7,000
-2,000
4/1/2
7/3/2
-2,000
-2,000
8/5/1.5
6/3/1
+3,000
Basement
Full
Full
Full
Full
Finished Basement
Unfinished
Pt Fin/Bth
-20,000
Part Finish
-15,000
Unfinished
Functional Utility
Adequate
Adequate
Adequate
Adequate
Heating/Cooling
FWA/C-Air
FHW/None
+5,000
FHW/None
+5,000
FHA/None
+5,000
Parking
Driveway
2-Car Garage
-10,000
3-Car Garage
-15,000
2-Car Garage
-10,000
Porch/Patio/Deck
Scrn Porch
Deck/Porch
-500
Decking
+500
Wrap @ Porch
Amenities
None
Fireplace
-1,500
None
None
None
Barn/Pat/IGPI
-35,000
None
None
Net Adjustment ($)
-118,100
+21,500
+165,300
Adj Sale Price
$756,900
$621,500
$665,200
*Assessed Value
**Valuation Date
***Also Steeply Sloped
****Neighborhood
11 Averill Road Property
Fiscal Year 2008
Sales 4, 5 & 6
|
Feature |
Subject |
Sale 4 |
Adj ($) |
Sale 5 |
Adj ($) |
Sale 6 |
Adj ($) |
|
11 Averill Rd Middleton
|
58 Mill St Middleton |
3 Jersey Ln Middleton |
6 Northwood Rd Middleton |
||||
| Proximity (+/-) |
1 mile |
3 miles |
2.75 miles |
||||
| Sale Price (“SP”) |
$687,400* |
690,000 |
685,000 |
679,800 |
|||
| SP/Gross Bldg Area (“GBA”) |
$255.56/SF |
$255.88/SF |
$247.29/SF |
||||
| Concessions |
None |
None |
None |
||||
| Date of Sale |
01/01/2007** |
05/26/2006 |
10/20/2006 |
08/15/2006 |
|||
| Location |
Good |
Good |
Good |
Good |
|||
| Site |
182,005 SF |
40,685 SF |
+25,000 |
43,821 SF |
+25,000 |
43,357 SF |
+25,000 |
| View |
Nbhd*** |
Nbhd |
Nbhd |
Nbhd |
|||
| Design |
2 Family |
1 Family |
1 Family |
1 Family |
|||
| Construction Quality |
Average |
Average |
Average |
Average |
|||
| Age (+/-) |
5 years |
7 years |
11 years |
21 years |
|||
| Condition |
Good |
Good |
Slight Inf |
+12,500 |
Slight Inf |
+12,500 |
|
| GBA |
2,550 SF |
2,700 SF |
2,677 SF |
2,749 SF |
|||
| Rooms: Total/Bed/Bath |
Total/Bed/Bath
5/2/1.5
5/2/1.5
9/4/2.5
-5,000
+8,000
8/4/2.5
-5,000
+8,000
8/4/2.5
-5,000
+8,000
Basement
Full
Full
Full
Full
Finished Basement
Unfinished
Part Finish
-15,000
Part Finish
-15,000
Unfinished
Functional Utility
Adequate
Adequate
Adequate
Adequate
Heating/Cooling
FWA/C-Air
FWA C/Air
FWA C/Air
FWA C/Air
Parking
Driveway
2-Car Garage
-10,000
2-Car Garage
-10,000
2-Car Garage
-10,000
Porch/Patio/Deck
Scrn Porch
Deck
+500
Deck
+500
Deck/Porch
-500
Amenities
None
Fireplace
-1,500
Fireplace
-1,500
Fireplace
-1,500
None
Pat/IGPI
-20,000
None
Pat/IGPI
-20,000
Net Adjustment ($)
-18,000
+14,500
+8,500
Adj Sale Price
$672,000
699,500
688,300
*Assessed Value
**Valuation Date
***Neighborhood
Based on the adjusted values ascribed to the two sales of two-family properties in Middleton and the adjusted value assigned to the sale of the two-family property in Danvers, as well as the adjusted values attributed to the three sales of the single-family properties in Middleton, Mr. McKeen estimated the value of the 11 Averill Road property at $665,000 for fiscal year 2008, $22,400 less than the assessed value of $687,400.
For fiscal year 2009, Mr. McKeen’s five purportedly comparable properties include: three two-family properties located in Middleton at 75 South Main Street (Sale 1), 47 Lake Street (Sale 2), and 36 East Street (Sale 3); plus two single-family properties, also located in Middleton at 6 Averill Road (Sale 4) and 29 Watkins Way (Sale 5). Mr. McKeen had used the two-family properties located at 47 Lake Street and 36 East Street in Middleton in his sales-comparison methodology for fiscal year 2008. The following two tables contain a summary of his sales-comparison methodology for fiscal year 2009.
11 Averill Road Property
Fiscal Year 2009
Sales 1, 2 & 3
|
Feature |
Subject |
Sale 1 |
Adj ($) |
Sale 2 |
Adj ($) |
Sale 3 |
Adj ($) |
|
11 Averill Rd Middleton
|
75 So Main St Middleton |
47 Lake St Middleton |
36 East St Middleton |
||||
| Proximity (+/-) |
2.25 miles |
1.5 miles |
1.75 miles |
||||
| Sale Price (“SP”) |
$575,200* |
$465,000 |
$600,000 |
$875,000 |
|||
| SP/Gross Bldg Area (“GBA”) |
$179.95/SF |
$227.79/SF |
$188.90/SF |
||||
| Concessions |
None |
None |
None |
||||
| Date of Sale |
01/01/2008** |
06/22/2007 |
-23,200 |
11/30/2006 |
-60,000 |
05/11/2006 |
-87,500 |
| Location |
Good |
Inferior |
+75,000 |
Good |
Good/Traffic |
+25,000 |
|
| Site |
182,005 SF |
40,075 SF |
+25,000 |
44,867 SF*** |
+50,000 |
162,914 SF |
|
| View |
Nbhd**** |
Nbhd |
Part Water |
-25,000 |
Nbhd |
||
| Design |
2 Family |
2 Family |
2 Family |
2 family |
|||
| Construction Quality |
Average |
Average |
Average |
Average |
|||
| Age (+/-) |
5 years |
242 years |
78 years |
25 years |
|||
| Condition |
Good |
Inferior |
+25,000 |
Inferior |
+25,000 |
Slight Inf |
+12,500 |
| GBA |
2,550 SF |
2,584 SF |
2,634 SF |
4,632 SF |
-83,300 |
||
| Rooms: Total/Bed/Bath |
Total/Bed/Bath
5/2/1.5
5/2/1.5
5/1/1
6/3/1.5
+3,000
4/1/2
7/3/2
-2,000
-2,000
10/3/3
4/2/2
-7,000
-2,000
Basement
Full
Partial
Nominal
Full
Full
Finished Basement
Unfinished
Unfinished
Part Finish
-15,000
Part/Bath
-20,000
Functional Utility
Adequate
Adequate
Adequate
Adequate
Heating/Cooling
FWA/C-Air
FHW/None
+5,000
FHW/None
+5,000
FHW/None
+5,000
Parking
Driveway
1-Car Barn
-7,500
3-Car Garage
-15,000
2-Car Garage
-10,000
Porch/Patio/Deck
Scrn Porch
Porch
+500
Decking
+500
Deck/Porch
-1,000
Amenities
None
4 Fireplaces
-6,000
None
Fireplace
-1,500
None
Pat/IGPI
-20,000
None
Barn/Pat/IGPI
-35,000
Net Adjustment ($)
+76,800
-38,500
-204,800
Adj Sale Price
$541,800
$561,500
$670,200
*Assessed Value
**Valuation Date
***Also Steeply Sloped
****Neighborhood
11 Averill Road Property
Fiscal Year 2009
Sales 4 & 5
|
Feature |
Subject |
Sale 4 |
Adj ($) |
Sale 5 |
Adj ($) |
|
11 Averill Rd Middleton
|
6 Averill Rd Middleton |
29 Watkins Way Middleton |
|||
| Proximity (+/-) |
0.15 miles |
1.5 miles |
|||
| Sale Price (“SP”) |
$575,200* |
$615,000 |
$670,000 |
||
| SP/Gross Bldg Area (“GBA”) |
$243.66/SF |
$262.54/SF |
|||
| Concessions |
None |
None |
|||
| Date of Sale |
01/01/2008** |
07/26/2007 |
-25,600 |
07/31/2007 |
-27,900 |
| Location |
Good |
Good |
Good |
||
| Site |
182,005 SF |
46,174 SF |
+25,000 |
87,120 SF |
+12,500 |
| View |
Nbhd*** |
Nbhd |
Nbhd |
||
| Design |
2 Family |
1 Family |
1 Family |
||
| Construction Quality |
Average |
Average |
Average |
||
| Age (+/-) |
5 years |
20 years |
18 years |
||
| Condition |
Good |
Slight Inf |
+12,500 |
Slight Inf |
+12,500 |
| GBA |
2,550 SF |
2,524 SF |
2,552 SF |
||
| Rooms: Total/Bed/Bath |
Total/Bed/Bath
5/2/1.5
5/2/1.5
8/4/2.5
-5,000
+8,000
8/4/2.5
-5,000
+8,000
Basement
Full
Full
Full
Finished Basement
Unfinished
Part Finish
-15,000
Part Fin/Bath
-20,000
Functional Utility
Adequate
Adequate
Adequate
Heating/Cooling
FWA/C-Air
FHW/None
+5,000
FWA C/Air
Parking
Driveway
2-Car Garage
-10,000
2-Car Garage
-10,000
Porch/Patio/Deck
Scrn Porch
Deck/Scrn Pch/Pch
-2,000
Deck
+500
Amenities
None
2 Fireplaces
-3,000
Fireplace
-1,500
None
None
None
Net Adjustment ($)
-10,100
-30,900
Adj Sale Price
$604,900
$639,100
*Assessed Value
**Valuation Date
***Neighborhood
Based on the adjusted values ascribed to the three sales of two-family properties in Middleton, as well as the adjusted values attributed to the two sales of the single-family properties in Middleton, Mr. McKeen estimated the value of the 11 Averill Road property at $565,000 for fiscal year 2009, $10,200 less than the assessed value of $575,200.
Assessors’ Other Witnesses
In addition to Mr. McKeen, Bradford Swanson, the assistant assessor in Middleton and Patricia Ohlson, a member of the assessors, testified. They credibly debunked Ms. Kilborn’s purportedly comparable properties and her methodology by pointing out these properties’ many different characteristics compared to the 11 Averill Road property, particularly with respect to neighborhood and other locational features and Ms. Kilborn’s failure to adequately account for these differences in her methodology, assuming comparability.
Summary of Assessments & Estimated Values for 11 Averill Road Property
The following table summarizes the 11 Averill Road property’s assessments and its values as estimated by Ms. Kilborn and Mr. McKeen for the fiscal years at issue.
Assessments & Estimated Values for the 11 Averill Road Property
|
FY 2007 |
FY 2008 |
FY 2009 |
|
| Assessed Values ($) |
595,600 |
687,400 |
575,200 |
| Ms. Kilborn’s Values ($) |
462,000 |
440,000 |
415,000 |
| Mr. McKeen’s Values ($) |
644,000 |
665,000 |
565,000 |
Board’s Analysis
Based on all of the evidence, the Board found that the 11 Averill Road property was not overvalued by the assessors for fiscal year 2007, but was overvalued for fiscal years 2008 and 2009. In making these findings the Board primarily relied on Mr. McKeen’s comparable-sales methodology and his estimates of value. In particular, the Board found that his comparable two-family sales, particularly those located in Middleton, more closely reflected the 11 Averill Road property’s characteristics than Ms. Kilborn’s purportedly comparable two-family properties, situated in predominantly congested locales in area communities. The Board also found that Mr. McKeen’s adjustments and estimates of value were reasonable and sufficiently supported, while Ms. Kilborn’s were not.
The Board further found that Ms. Kilborn’s methodology contained numerous mathematical errors and inconsistencies that detracted from its reliability. Ms. Kilborn also failed to include any sales from Middleton in her analysis, which further diminished her methodology’s reliability. Moreover, the Board found that Ms. Kilborn’s credibility as an independent fee appraiser was compromised by her continuing agency relationship with the appellant, which created bias.
Accordingly, and relying extensively on Mr. McKeen’s data and analysis as the best evidence of value, the Board found that the 11 Averill Road property was not overvalued by the assessors for fiscal year 2007 and decided that appeal for the appellee. The Board further found, however, again principally based on Mr. McKeen’s analysis, that the 11 Averill Road property’s fair cash values for fiscal years 2008 and 2009 were $665,000 and $565,000, respectively, resulting in overvaluations by the assessors of $22,400 for fiscal year 2008 and $10,200 for fiscal year 2009. The Board, therefore, decided those two appeals for the appellant and granted abatements in the amount of $219.23 and $113.22, respectively.[28]
III. 9 Averill Road Property
Description
The 9 Averill Road property’s home, which is similar to the 11 Averill Road property’s home, is a center entrance, two-family, two-story, Colonial-style, side-by-side, duplex house located on 1.86 acres. The appellant built the dwelling on this parcel in 1990. The parcel’s topography slopes slightly from the front to the back, and its configuration is irregular. The area around the duplex has average landscaping and paved parking areas adjacent to each side of the duplex.
The subject duplex contains two equally sized living areas of 1,184 square feet each, plus two twelve-by-fourteen-foot screened porches attached to each side of the duplex in the back of the house, and a 36-square-foot shared front entry. Each side also has an unfinished full basement and an unfinished attic. The duplex’s exterior siding is wood clapboard, and the roof is finished with asphalt shingles. Each unit has an identical layout of an eat-in kitchen with a bar area, a living room, one half bathroom, and a family room on the first floor plus two bedrooms and a full bathroom on the second level. The interior is finished with painted sheetrock walls and ceilings, carpeted floors and stairs, plus some vinyl flooring in the kitchen and bathrooms, and several rooms with recessed lighting. There are no fireplaces, but there is a cathedral ceiling and skylight in the family room on each side. The utilities servicing the duplex include propane gas and private water and septic. The electric line is underground. Each of the two units in the duplex has its own heating, electrical, and air-conditioning systems and meters. The duplex is in overall good condition with no items of deferred maintenance.
Appellant’s Real Estate Valuation Expert
As with the 11 Averill Road property, Ms. Kilborn determined that the highest and best use of the 9 Averill Street property for the fiscal years at issue was its existing use as a two-family residential property. To estimate its fair cash value, she again relied principally on a sales-comparison approach. For fiscal year 2008, she selected, and applied some adjustments to, the same four purportedly comparable properties that she used in her sales-comparison analysis for 11 Averill Road. These properties are located at: 31-33 Phillips Court in North Andover (Sale 1); 50-52 Marblehead Street in North Andover (Sale 2); 25 School Street in Danvers (Sale 3); and 262 Andover Street in North Andover (Sale 4). She did not select any comparable sales from Middleton because she claimed none existed. The following two tables contain a summary of her sales-comparison methodology for fiscal year 2008.
9 Averill Road Property
Fiscal Year 2008
Sales 1 & 2
|
Subject |
Sale 1 |
Adj ($) |
Sale 2 |
Adj ($) |
|
|
9 Averill Rd Middleton
|
31-33 Phillips Ct No Andover |
50-52 Marblehead No Andover |
|||
| Proximity (miles) |
9 miles |
10 miles |
|||
| Sale Price (“SP”) |
$611,500* |
$421,000 |
-10,000*** |
$467,500 |
|
| SP/Gross Living |
Area (“LV”)
$171.32
$136.25
Date of Sale
01/01/2007**
05/22/2006
08/28/2006
Location
Good
Good
Average
+10,000
View
Neighborhood
Neighborhood
Neighborhood
Site
81,022 SF
10,890 SF
10,454 SF
Year Built
1990
1901-updated
1905-updated
Condition
Good
Good (+5%)
+20,550
Good
Bedrooms
2 & 2
3 & 3
3 & 3
Baths
1½ & 1½
2 & 1
2 & 2
Finished LA
2,404 SF
2,399 SF
+3,960
3,431
-30,810
Fireplace
No
No
No
Separate Utilities
Yes
Yes
Yes
Screened Porch
Yes
No
No
Garage/Carport
No
No
2-Car Garage
-10,000
Patio/deck
No
Deck
Porch
Comments
Duplex
Duplex
Duplex
Net Adjustment ($)
+14,510
-30,810
Adj Sale Price
$435,510
$436,690
* Assessed Value
** Valuation Date
***Adjusted for a concession at closing
9 Averill Road
Fiscal Year 2008
Sales 3 & 4
|
Subject |
Sale 3 |
Adj ($) |
Sale 4 |
Adj ($) |
|
|
9 Averill Rd Middleton
|
25 School St Danvers |
262 Andover St No Andover |
|||
| Proximity (miles) |
6 miles |
8 miles |
|||
| Sale Price (“SP”) |
$611,500* |
$465,000 |
$375,000 |
||
| SP/Gross Living |
Area (“LV”)
$196.04
$173.93
Date of Sale
01/01/2007**
09/28/2006
06/08/2007
+6,250
Location
Good
Good
Good
View
Neighborhood
Neighborhood
Neighborhood
Site
81,022 SF
5,012 SF
12,632 SF
Year Built
1990
1905-updated
1978
Condition
Good
Good
Average (+10%)
+37,500
Bedrooms
2 & 2
2 & 3
2 & 2
Baths
1½ & 1½
1 & 2
1½ & 1½
Finished LA
2,404 SF
2,372 SF
+960
2,156 SF
+7,440
Fireplace
No
No
No
Separate Utilities
Yes
Yes
Yes
Screened Porch
Yes
No
No
Garage/Carport
No
2-Car Garage
-10,000
No
Patio/deck
No
Porch
No
Comments
Duplex
Duplex
Net Adjustment ($)
-9,040
+44,940
Adj Sale Price
$455,960
$419,940***
* Assessed Value
** Valuation Date
***The Board noted that Ms. Kilborn erred in her calculations with respect to Sale 4. Based on her individual adjustments, the net adjustment and adjusted sale price should be +$51,190 and $426,190, respectively.
Based on this data and relying on all of these sales, including Sale 4, which was a bank sale, Ms. Kilborn estimated the value of the 9 Averill Street property at $435,000 for fiscal year 2008.
For fiscal year 2009, Ms. Kilborn selected, and applied some adjustments to, the same four purportedly comparable two-family properties that she used in estimating the value for the 11 Averill Road property. These properties are located at: 415-417 Winter Street in North Andover (Sale 1); 36 Cherry Street in Danvers (Sale 2); 63 Lawrence Street in Danvers (Sale 3); and 12-14 Summit Street in North Andover (Sale 4). She did not select any comparable sales from Middleton because she claimed none existed. The following two tables contain a summary of her sales-comparison methodology for fiscal year 2009.
9 Averill Road Property
Fiscal Year 2009
Sales 1 & 2
|
Subject |
Sale 1 |
Adj ($) |
Sale 2 |
Adj ($) |
|
|
9 Averill Rd Middleton
|
415-417 Winter St No Andover |
36 Cherry St Danvers |
|||
| Proximity (miles) |
8 miles |
6 miles |
|||
| Sale Price (“SP”) |
$507,200* |
$417,000 |
|
$405,000 |
|
| SP/Gross Living Area (“LV”) |
$165.22 |
$149.11 |
|||
| Date of Sale |
01/01/2008** |
08/31/2007 |
-8,687 |
11/30/2007 |
-3,375 |
| Location |
Good |
Good |
Good |
||
| View |
Neighborhood |
Neighborhood |
Neighborhood |
||
| Site |
81,022 SF |
44,431 SF |
20,865 SF |
||
| Year Built |
1990 |
1974 |
1900 |
||
| Condition |
Good |
Good |
Good (+5%) |
+20,250 |
|
| Bedrooms |
2 & 2 |
3 & 2 |
2 & 3 |
||
| Baths |
1½ & 1½ |
2 & 1 |
1 & 1 |
||
| Finished LA |
2,404 SF |
2,268 SF |
+4,080 |
2,716 |
-9,360 |
| Fireplace |
No |
No |
2 |
||
| Separate Utilities |
Yes |
Yes |
Yes |
||
| Screened Porch |
Yes |
Yes |
Yes |
||
| Garage/Carport |
No |
2-Car Garage |
-10,000 |
No |
|
| Patio/deck |
No |
Deck |
Porch |
||
| Comments |
Duplex |
Duplex |
|||
| Net Adjustment ($) |
-5,920 |
+10,890 |
|||
| Adj Sale Price |
|
$411,0800*** |
|
$415,890*** |
|
* Assessed Value
** Valuation Date
*** The Board noted that Ms. Kilborn erred in her calculations with respect to Sales 1 & 2. The net adjustments and adjusted sale prices should be -$14,607 and $402,393, and +$7,515 and $412,515, respectively.
9 Averill Road Property
Fiscal Year 2009
Sales 3 & 4
|
Subject |
Sale 3 |
Adj ($) |
Sale 4 |
Adj ($) |
|
|
9 Averill Rd Middleton
|
63 Lawrence St Danvers |
12-14 Summit St No Andover |
|||
| Proximity (miles) |
7 miles |
10 miles |
|||
| Sale Price (“SP”) |
$507,200* |
$404,900 |
-5,000*** |
$407,000 |
-5,000*** |
| SP/Gross Living Area (“LV”) |
$135.70 |
$139.10 |
|||
| Date of Sale |
01/01/2008** |
08/31/2007 |
-8,312 |
08/31/2007 |
-8,375 |
| Location |
Good |
Average |
+10,000 |
Good |
|
| View |
Neighborhood |
Neighborhood |
Neighborhood |
||
| Site |
81,022 SF |
5,000 SF |
10,019 SF |
||
| Year Built |
1990 |
1920 |
1976 |
||
| Condition |
Good |
Good (+5%) |
+19,950 |
Good |
|
| Bedrooms |
2 & 2 |
2 & 2 |
3 & 2 |
||
| Baths |
1½ & 1½ |
1 & 1 |
1 & 1½ |
||
| Finished LA |
2,404 SF |
2,947 SF |
-16,290 |
2,890 SF |
-14,580 |
| Fireplace |
No |
No |
No |
||
| Separate Utilities |
Yes |
No |
Yes |
||
| Screened Porch |
Yes |
No |
No |
||
| Garage/Carport |
No |
No |
1-Car Garage |
-5,000 |
|
| Patio/deck |
No |
Porch/Deck |
Deck/Patio |
||
| Comments |
Duplex |
Duplex |
|||
| Net Adjustment ($) |
+13,660 |
-19,580 |
|||
| Adj Sale Price |
|
$413,560**** |
|
$382,420**** |
|
* Assessed Value
** Valuation Date
***Adjusted for a concession at closing
****The Board noted that Ms. Kilborn erred in her calculations with respect to Sales 3 & 4. Based on her individual adjustments, the net adjustments (exclusive of concessions which is how she calculated them) and adjusted sale prices should be +$5,348 and $405,248, and -$27,955 and $374,045, respectively.
Based on this data and placing the most reliance on Sale 1, Ms. Kilborn estimated the value of the 9 Averill Street property at $415,000 for fiscal year 2009.
Assessors’ Real Estate Valuation Expert
As with the 11 Averill Road property, the assessors’ real estate valuation witness, Mr. McKeen, also determined that the 9 Averill Street property’s highest and best use was its continued use as a two-family residential dwelling. Like Ms. Kilborn, he too relied on essentially the same sales-comparison approach that he used for estimating the value of the 11 Averill Street property to value the 9 Averill Road property for the fiscal years at issue. Unlike Ms. Kilborn, however, he found and incorporated sales of two-family dwellings from Middleton into his methodology for both fiscal years 2008 and 2009.
For fiscal year 2008, Mr. McKeen used the same six purportedly comparable properties that he used to value the 11 Averill Road property. These properties include two two-family properties located in Middleton at 36 East Street (Sale 1) and 47 Lake Street (Sale 2), another two-family property located in Danvers at 33 Park Street (Sale 3), plus three single-family properties, located in Middleton at 58 Mill Street (Sale 4), 3 Jersey Lane (Sale 5), and 6 Northwood Road (Sale 6). The following two tables contain a summary of his sales-comparison methodology for fiscal year 2008.
9 Averill Road Property
Fiscal Year 2008
Sales 1, 2 & 3
|
Feature |
Subject |
Sale 1 |
Adj $ |
Sale 2 |
Adj $ |
Sale 3 |
Adj $ |
|
9 Averill Rd Middleton
|
36 East St Middleton |
47 Lake St Middleton |
33 Park St Danvers |
||||
| Proximity (+/-) |
1.75 miles |
1.5 miles |
6.5 miles |
||||
| Sale Price (“SP”) |
$611,500* |
$875,000 |
$600,000 |
$499,900 |
|||
| SP/Gross Bldg Area (“GBA”) |
$188.90/SF |
$227.79/SF |
$149.94/SF |
||||
| Concessions |
None |
None |
None |
||||
| Date of Sale |
01/01/2007** |
05/11/2006 |
11/30/2006 |
09/29/2006 |
|||
| Location |
Good |
Traffic |
+25,000 |
Good |
Inferior |
+100,000 |
|
| Site |
81,022 SF |
162,914 SF |
-25,000 |
44,867 SF*** |
+37,500 |
6,000 SF |
+50,000 |
| View |
Nbhd**** |
Nbhd |
Part Water |
-25,000 |
Nbhd |
||
| Design |
2 Family |
2 Family |
2 Family |
2 Family |
|||
| Construction Quality |
Average |
Average |
Average |
Average |
|||
| Age (+/-) |
19 years |
25 years |
78 years |
107 years |
|||
| Condition |
Good |
Good |
Inferior |
+25,000 |
Inferior |
+25,000 |
|
| GBA |
2,516 SF |
4,632 SF |
-84,600 |
2,634 SF |
3,334 SF |
-32,700 |
|
| Rooms: Total/Bed/Bath |
Total/Bed/Bath
5/2/1.5
5/2/1.5
10/3/3
4/2/2
-7,000
-2,000
4/1/2
7/3/2
-2,000
-2,000
8/5/1.5
6/3/1
+3,000
Basement
Full
Full
Full
Full
Finished Basement
Unfinished
Pt Fin/Bth
-20,000
Part Finish
-15,000
Unfinished
Functional Utility
Adequate
Adequate
Adequate
Adequate
Heating/Cooling
FWA/C-Air
FHW/None
+5,000
FHW/None
+5,000
FHA/None
+5,000
Parking
Driveway
2-Car Garage
-10,000
3-Car Garage
-15,000
2-Car Garage
-10,000
Porch/Patio/Deck
Scrn Porch
Deck/Porch
-500
Decking
+500
Wrap @ Porch
Amenities
None
Fireplace
-1,500
None
None
None
Barn/Pat/IGPI
-35,000
None
None
Net Adjustment ($)
-155,600
+9,000
+140,300
Adj Sale Price
$719,400
$609,000
$640,200
* Assessed Value
**Valuation Date
*** Also Steeply Sloped
**** Neighborhood
9 Averill Road Property
Fiscal Year 2008
Sales 4, 5 & 6
|
Feature |
Subject |
Sale 4 |
Adj ($) |
Sale 5 |
Adj ($) |
Sale 6 |
Adj ($) |
|
9 Averill Rd Middleton
|
58 Mill St Middleton |
3 Jersey Ln Middleton |
6 Northwood Rd Middleton |
||||
| Proximity (+/-) |
1 mile |
3 miles |
2.75 miles |
||||
| Sale Price (“SP”) |
$611,500* |
690,000 |
685,000 |
679,800 |
|||
| SP/Gross Bldg Area (“GBA”) |
$255.56/SF |
$255.88/SF |
$247.29/SF |
||||
| Concessions |
None |
None |
None |
||||
| Date of Sale |
01/01/2007** |
05/26/2006 |
10/20/2006 |
08/15/2006 |
|||
| Location |
Good |
Good |
Good |
Good |
|||
| Site |
81,022 SF |
40,685 SF |
+12,500 |
43,821 SF |
+12,500 |
43,357 SF |
+12,500 |
| View |
Nbhd*** |
Nbhd |
Nbhd |
Nbhd |
|||
| Design |
2 Family |
1 Family |
1 Family |
1 Family |
|||
| Construction Quality |
Average |
Average |
Average |
Average |
|||
| Age (+/-) |
19 years |
7 years |
11 years |
21 years |
|||
| Condition |
Good |
Superior |
-25,000 |
Superior |
-25,000 |
Good |
|
| GBA |
2,516 SF |
2,700 SF |
2,677 SF |
2,749 SF |
|||
| Rooms: Total/Bed/Bath |
Total/Bed/Bath
5/2/1.5
5/2/1.5
9/4/2.5
-5,000
+8,000
8/4/2.5
-5,000
+8,000
8/4/2.5
-5,000
+8,000
Basement
Full
Full
Full
Full
Finished Basement
Unfinished
Part Finish
-15,000
Part Finish
-15,000
Unfinished
Functional Utility
Adequate
Adequate
Adequate
Adequate
Heating/Cooling
FWA/C-Air
FWA C/Air
FWA C/Air
FWA C/Air
Parking
Driveway
2-Car Garage
-10,000
2-Car Garage
-10,000
2-Car Garage
-10,000
Porch/Patio/Deck
Scrn Porch
Deck
+500
Deck
+500
Deck/Porch
-500
Amenities
None
Fireplace
-1,500
Fireplace
-1,500
Fireplace
-1,500
None
Pat/IGPI
-20,000
None
Pat/IGPI
-20,000
Net Adjustment ($)
-55,500
-35,500
-16,500
Adj Sale Price
$634,500
649,500
663,300
* Assessed Value
** Valuation Date
*** Neighborhood
Based on the adjusted values ascribed to the two sales of two-family properties in Middleton and the adjusted values assigned to the sale of the two-family property in Danvers, as well as the adjusted values attributed to the three sales of the single-family properties in Middleton, Mr. McKeen estimated the value of the 9 Averill Road property at $640,000 for fiscal year 2008.
For fiscal year 2009, Mr. McKeen’s five purportedly comparable properties are the same properties that he used to estimate the value of the 11 Averill Road property. These properties include three two-family properties located in Middleton at 75 South Main Street (Sale 1), 47 Lake Street (Sale 2), and 36 East Street (Sale 3), plus two single-family properties, also located in Middleton at 6 Averill Road (Sale 4) and 29 Watkins Way (Sale 5). Mr. McKeen also used here the two-family properties located at 47 Lake Street and 36 East Street in Middleton that he had used in his sales-comparison methodology for fiscal year 2008. The following two tables contain a summary of his sales-comparison methodology for fiscal year 2009.
9 Averill Road Property
Fiscal Year 2009
Sales 1, 2 & 3
|
Feature |
Subject |
Sale 1 |
Adj ($) |
Sale 2 |
Adj ($) |
Sale 3 |
Adj ($) |
|
9 Averill Rd Middleton
|
75 So Main St Middleton |
47 Lake St Middleton |
36 East St Middleton |
||||
| Proximity (+/-) |
2.25 miles |
1.5 miles |
1.75 miles |
||||
| Sale Price (“SP”) |
$507,200* |
$465,000 |
$600,000 |
$875,000 |
|||
| SP/Gross Bldg Area (“GBA”) |
$179.95/SF |
$227.79/SF |
$188.90/SF |
||||
| Concessions |
None |
None |
None |
||||
| Date of Sale |
01/01/2008** |
06/22/2007 |
-23,000 |
11/30/2006 |
-60,000 |
05/11/2006 |
-87,500 |
| Location |
Good |
Inferior |
+75,000 |
Good |
Good/Traffic |
+25,000 |
|
| Site |
81,022 SF |
40,075 SF |
+12,500 |
44,867 SF*** |
+37,500 |
162,914 SF |
-25,000 |
| View |
Nbhd**** |
Nbhd |
Part Water |
-25,000 |
Nbhd |
||
| Design |
2 Family |
2 Family |
2 Family |
2 Family |
|||
| Construction Quality |
Average |
Average |
Average |
Average |
|||
| Age (+/-) |
19 years |
242 years |
78 years |
25 years |
|||
| Condition |
Good |
Inferior |
+25,000 |
Inferior |
+25,000 |
Good |
|
| GBA |
2,516 SF |
2,584 SF |
2,634 SF |
4,632 SF |
-84,600 |
||
| Rooms: Total/Bed/Bath |
Total/Bed/Bath
5/2/1.5
5/2/1.5
5/1/1
6/3/1.5
+3,000
4/1/2
7/3/2
-2,000
-2,000
10/3/3
4/2/2
-7,000
-2,000
Basement
Full
Partial
Full
Full
Finished Basement
Unfinished
Unfinished
Part Finish
-15,000
Part/Bath
-20,000
Functional Utility
Adequate
Adequate
Adequate
Adequate
Heating/Cooling
FWA/C-Air
FHW/None
+5,000
FHW/None
+5,000
FHW/None
+5,000
Parking
Driveway
1-Car Barn
-7,500
3-Car Garage
-15,000
2-Car Garage
-10,000
Porch/Patio/Deck
Scrn Porch
Porch
+500
Decking
+500
Deck/Porch
-500
Amenities
None
4 Fireplaces
-6,000
None
Fireplace
-1,500
None
Pat/IGPI
-20,000
None
Barn/Pat/IGPI
-35,000
Net Adjustment ($)
+64,500
-51,000
-243,100
Adj Sale Price
$529,500
$549,000
$631,900
* Assessed Value
** Valuation Date
*** Also Steeply Sloped
**** Neighborhood
9 Averill Road Property
Fiscal Year 2009
Sales 4 & 5
|
Feature |
Subject |
Sale 4 |
Adj ($) |
Sale 5 |
Adj ($) |
|
9 Averill Rd Middleton
|
6 Averill Rd Middleton |
29 Watkins Way Middleton |
|||
| Proximity (+/-) |
0.15 miles |
1.5 miles |
|||
| Sale Price (“SP”) |
$507,200* |
$615,000 |
$670,000 |
||
| SP/Gross Bldg Area (“GBA”) |
$243.66/SF |
$262.54/SF |
|||
| Concessions |
None |
None |
|||
| Date of Sale |
01/01/2008** |
07/26/2007 |
-25,600 |
07/31/2007 |
-27,900 |
| Location |
Good |
Good |
Good |
||
| Site |
81,022 SF |
46,174 SF |
+12,500 |
87,120 SF |
|
| View |
Nbhd*** |
Nbhd |
Nbhd |
||
| Design |
2 Family |
1 Family |
1 Family |
||
| Construction Quality |
Average |
Average |
Average |
||
| Age (+/-) |
19 years |
20 years |
18 years |
||
| Condition |
Good |
Good |
Good |
||
| GBA |
2,516 SF |
2,524 SF |
2,552 SF |
||
| Rooms: Total/Bed/Bath |
Total/Bed/Bath
5/2/1.5
5/2/1.5
8/4/2.5
-5,000
+8,000
8/4/2.5
-5,000
+8,000
Basement
Full
Full
Full
Finished Basement
Unfinished
Part Finish
-15,000
Part Fin/Bath
-20,000
Functional Utility
Adequate
Adequate
Adequate
Heating/Cooling
FWA/C-Air
FHW/None
+5,000
FWA C/Air
Parking
Driveway
2-Car Garage
-10,000
2-Car Garage
-10,000
Porch/Patio/Deck
Scrn Porch
Deck/Scrn Pch/Pch
-2,000
Deck
+500
Amenities
None
2 Fireplaces
-3,000
Fireplace
-1,500
None
None
None
Net Adjustment ($)
-35,100
-55,900
Adj Sale Price
$579,900
$614,100
* Assessed Value
** Valuation Date
*** Neighborhood
Based on the adjusted values ascribed to the three sales of two-family properties in Middleton, as well as the adjusted values attributed to the two sales of the single-family properties in Middleton, Mr. McKeen estimated the value of the 9 Averill Road property at $550,000 for fiscal year 2009.
Assessors’ Other Witnesses
The parties stipulated that Mr. Swanson’s and Ms. Ohlson’s testimony during the hearing of the 11 Averill Road property also applied to the 9 Averill Road property. The parties further agreed that the cross examination of Ms. Kilborn during the hearing for the 11 Averill Road property also pertained to the hearing for the 9 Averill Road property.
Summary of Assessments & Estimated Values for 9 Averill Road Property
The following table summarizes the 9 Averill Road property’s assessments and its values as estimated by Ms. Kilborn and Mr. McKeen for the fiscal years at issue.
Assessments & Estimated Values for the 9 Averill Road Property
|
FY 2008 |
FY 2009 |
|
| Assessed Values ($) |
611,500 |
507,200 |
| Ms. Kilborn’s Values ($) |
435,000 |
415,000 |
| Mr. McKeen’s Values ($) |
640,000 |
550,000 |
Board’s Analysis
Based on all of the evidence, the Board found that the appellant failed to prove that the 9 Averill Road property was overvalued by the assessors for fiscal years 2008 and 2009. In making this finding, the Board found that Ms. Kilborn’s purportedly comparable properties were not sufficiently comparable to the 9 Averill Road property. These properties did not exhibit sufficiently similar characteristics to the 9 Averill Road property, particularly with respect to neighborhood and other locational traits. The Board also found that Mr. McKeen’s comparable two-family properties, particularly those located in Middleton, more closely reflected the 9 Averhill Road property’s characteristics than Ms. Kilborn’s purportedly comparable two-family properties that were situated in congested locales in area communities. In addition, the Board found that Mr. McKeen’s adjustments and estimates of value were reasonable and sufficiently supported, while Ms. Kilborn’s were not.
The Board further found that Ms. Kilborn’s methodology contained numerous mathematical errors and inconsistencies that detracted from its reliability. Ms. Kilborn also failed to include any sales from Middleton in her analysis which further diminished her methodology’s reliability. Moreover, the Board found that Ms. Kilborn’s credibility as an independent fee appraiser was compromised by her continuing agency relationship with the appellant, which created bias.
Accordingly, the Board found that the 9 Averill Road property was not overvalued by the assessors for fiscal years 2008 and 2009 and decided those appeals for the appellee.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellants have the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
The fair cash value of property may be determined by recent sales of comparable properties in the market. Actual sales generally “furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971). When comparable sales are used, however, allowance must be made for various factors which would otherwise cause disparities in the comparable prices. See Pembroke Industrial Park Co., Inc. v. Assessors of the Town of Pembroke, Mass. ATB Findings of Facts and Reports 1998-1072, 1082-83. “Adjustments for differences in the elements of comparison are made to the price of each comparable property. . . . The magnitude of the adjustment made for each element of comparison depends on how much that characteristic of the comparable property differs from the subject property.” Appraisal Institute, The Appraisal of Real Estate 322 (13th ed. 2008).
Based on all of the evidence, the Board found that the 11 Averill Road property was not overvalued by the assessors for fiscal year 2007, but was overvalued for fiscal years 2008 and 2009. In making these findings the Board primarily relied on Mr. McKeen’s comparable-sales methodology and his estimates of value. In particular, the Board found that his comparable two-family sales, particularly those located in Middleton, more closely reflected the 11 Averill Road property’s characteristics than Ms. Kilborn’s purportedly comparable two-family properties, situated in predominantly congested locales in area communities. Ms. Kilborn failed to include any sales from Middleton in her analysis which, in the Board’s view, diminished her methodology’s reliability. The Board also found that Mr. McKeen’s adjustments and estimates of value were reasonable and sufficiently supported, while Ms. Kilborn’s were not. Because Mr. McKeen’s opinions of value for fiscal years 2008 and 2009 were less than the assessed values for those years, the Board found that the appellant was entitled to an abatement for those years. See General Electric Co., 393 Mass. at 600, 608 (holding that the Board is entitled to rely on all of the evidence, and not just that presented by the appellant, to determine whether there is overvaluation); see also Boston Edison Co. v. Assessors of Watertown, 387 Mass. 298, 302 (1982) (“The board’s decision must be supported by substantial evidence considering the entire record before the board.”).
Based on all of the evidence, the Board found that the appellant failed to prove that the 9 Averill Road property was overvalued by the assessors for fiscal years 2008 and 2009. In making this finding, the Board found that Ms. Kilborn’s purportedly comparable properties were not sufficiently comparable to the 9 Averill Road property. These properties did not exhibit sufficiently similar characteristics to the 9 Averill Road property, particularly with respect to neighborhood and other locational traits. The Board also found that Mr. McKeen’s comparable two-family properties, particularly those located in Middleton, more closely reflected the 9 Averhill Road property’s characteristics than Ms. Kilborn’s purportedly comparable two-family properties that were situated in congested locales in area communities. In addition, the Board found that Mr. McKeen’s adjustments and estimates of value were reasonable and sufficiently supported, while Ms. Kilborn’s were not. Ms. Kilborn also failed to include any sales from Middleton in her analysis which, in the Board’s view, diminished her methodology’s reliability.
Moreover, the Board found that the methodology that Ms. Kilborn employed to estimate the values of both subject properties contained numerous mathematical errors and inconsistencies that detracted from its reliability. See May Department Store Co v. Assessors of Newton, Mass. ATB Findings of Facts and Reports 2009-153, 174 (“[T]he Board found that [the real estate valuation expert’s] overall methodology, report, and testimony contained many underlying inconsistencies, errors, and omissions, which, when taken as a whole, seriously compromised the credibility of his estimates of the subject property’s values [for the fiscal years at issue]”).[29]
Evidence of sales may be considered “only if they are free and not under compulsion.” Congregation of the Mission of St. Vincent dePaul v. Commonwealth, 336 Mass. 357, 360 (1957). “A foreclosure sale inherently suggests a compulsion to sell; a proponent of evidence of such sale must show circumstances rebutting the suggestion of compulsion.” DSM Realty, Inc. v. Assessors of Andover, 391 Mass. 1014 (1984). Similarly, a sale by a bank which acquired the property by foreclosure or a deed in lieu of foreclosure also carries indicia of compulsion. G.F. Springfield Management v. Assessors of West Springfield, Mass. ATB Findings of Facts and Reports 2000-228, 242, 251 and the cases cited therein. In these appeals, the Board found and ruled that the bank sales which Ms. Kilborn used in her analyses were inherently suspect and diminished the reliability of her methodology and the estimates of value that she derived from that methodology.
Furthermore, the Board found that Ms. Kilborn’s status as an agent of the appellant undercut her credibility as an independent valuation witness. The evidence clearly established the existence of an agency relationship between Ms. Kilborn and the appellant defined as a “fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.” the Restatement (Third) of Agency (2006) § 1.01; see also Appraisal Institute, The Dictionary of Real Estate Appraisal 8 (4th ed., 2002)(defining “agency” as “[a] fiduciary relationship in which one party, the agent, acts as a representative of the other, the principal, in matters specified in a contract between them.”); Black’s Law Dictionary 72 (9th ed. 2009)(defining “agent” as “[o]ne who is authorized to act for and in place of another; a representative.”). Considering her status as the agent of the appellant, the Board found that, in these appeals, Ms. Kilborn’s credibility as an independent fee appraiser was compromised by her continuing agency relationship with the appellant. See Turners Falls, L.P. v. Assessors of Montague, 54 Mass. App. Ct. 732, 738 (2002)(holding that an expert witness must not be “a party or an agent for the party that employ[s] the expert . . . . [or] under the control of the party . . . [because the expert must] testif[y] impartially to assist the trier of fact about matters not in common knowledge.”).
In addition, the USPAP Ethics Rule (“Rule”) provides that “an appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.” The Rule also cautions appraisers not to “perform an assignment with bias” and not to “advocate the cause or interest of any party or issue.” The Rule requires an appraiser to “disclose . . . in the . . . report certification any current or prospective interest in the subject property or parties involved.” Ms. Kilborn’s appraisal reports specifically state in her “Certification” section that: “I have no present or prospective interest in the property that is the subject of this report, and no personal interest with respect to the parties involved.” The Board found that Ms. Kilborn, as an agent, had a fiduciary duty to advocate the interest of her principal, namely the appellant here, which undermined her role as an independent fee appraiser. The Board further found that she did not disclose this relationship in her appraisal reports and actually certified the opposite.
On these bases, the Board ruled that an agent, like Ms. Kilborn, could not simultaneously act as agent for her principal, the appellant here, and maintain her independent judgment as an independent fee appraiser. Because Ms. Kilborn attempted to do just that, the Board found and ruled that her testimony and report were imbued with bias which adversely impacted her credibility and rendered her estimates of value less reliable. Cf. Pappas v. Assessors of Ipswich, Mass. ATB Findings of Facts and Reports, 1997-599, 629-30 (ruling that, in that case, Ms. Kilborn’s testimony was not tainted or biased because she had demonstrated to the Board that she was no longer acting as that appellant’s agent and did not have a potential interest in that case).
In reaching its opinion of fair cash value, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggested. Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight. Foxboro Associates, 385 Mass. at 682; New Boston Garden Corp., 383 Mass. at 469. “The credibility of witnesses, the weight of evidence, the inferences to be drawn from the evidence are matters for the Board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
Based on all of the evidence and its subsidiary findings above, the Board found and ruled that the 11 Averill Road property was not overvalued by the assessors for fiscal year 2007 (docket no. F291427). The Board, therefore, decided that appeal for the appellee. The Board further found and ruled, however, that the 11 Averill Road property’s fair cash values for fiscal years 2008 and 2009 were $665,000 and $565,000, respectively, resulting in overvaluations by the assessors of $22,400 for fiscal year 2008 (docket no. F294631) and $10,200 for fiscal year 2009 (docket no. F303547). The Board, therefore, decided those two appeals for the appellant and granted abatements in the amount of $219.23 and $113.22, respectively.[30]
The Board also found and ruled that the 9 Averill Road property was not overvalued by the assessors for fiscal years 2008 (docket no. F294630) and 2009 (docket no. F303548) and, therefore, decided those appeals for the appellee.
APPELLATE TAX BOARD
By: ________________________________
Thomas W. Hammond, Jr., Chairman
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
HILLSIDE COUNTRY CLUB v. COMMISSIONER OF REVENUE
PARTNERSHIP, INC.
Docket No. C304547 Promulgated:
April 4, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the appellee, Commissioner of Revenue (“Commissioner”), to abate sales taxes assessed against the appellant, Hillside Country Club Partnership, Inc. (“Hillside” or “appellant”) for the monthly tax periods ending December, 2004 through and including December, 2006 (“tax periods at issue”).
Chairman Hammond heard this appeal and was joined by Commissioners Scharaffa, Egan, Rose, and Mulhern in a decision for the appellee.
These findings of fact and report are made pursuant to requests by the appellant and the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
Albert H. Thornton, Jr., Esq. for the appellant.
David T. Mazzuchelli, Esq. and Timothy R. Stille, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board (“Board”) made the following findings of fact.
At all times relevant to this appeal, Hillside was a Massachusetts entity in the business of operating a country club. The appellant timely filed Massachusetts sales/use tax returns for each of the tax periods at issue and paid in full the taxes due as reflected on those returns. During calendar year 2007, the Massachusetts Department of Revenue (“DOR”) audited Hillside for unpaid sales tax on meals from the monthly tax periods January, 2004 through February, 2007. The DOR subsequently expanded its audit to include other sales and use taxes. At the time of the audit, George Cardono, President of Hillside, had sold the business and was no longer involved with Hillside. At the conclusion of the audit, the Commissioner determined that there was a deficiency for meals taxes for the months of December, 2006 and January, 2007, which the appellant does not contest. The Commissioner determined that sales taxes were due on the rentals of golf carts by Hillside to its customers during the tax periods at issue.
On November 11, 2008, the Commissioner assessed against the appellant $5,943.12 in sales taxes, which she claimed should have been collected on the rental of golf carts to Hillside’s customers, plus interest and penalties. The appellant filed its abatement application with the Commissioner on March 30, 2009. By Notice of Abatement Determination dated June 2, 2009, the Commissioner notified the appellant that she had denied the appellant’s abatement application. On July 29, 2009, the appellant timely filed its Petition Under Formal Procedure with the Board. On the basis of these facts, the Board found and ruled that it had jurisdiction over the instant appeal.
The appellant does not dispute that it did not collect and remit any sales taxes on the rentals of golf carts to Hillside customers during the periods at issue. Instead, the appellant advances equity arguments, claiming that the duty to collect and remit sales tax on the rental of golf carts “has not been adequately publicized” to country club taxpayers, that the DOR is “responsible for educating taxpayers as to their tax obligations,” that the DOR failed in its duty to educate as evidenced by the fact that other Massachusetts country club taxpayers known by Mr. Cardono “are also unaware that they are required to charge sales/use tax on golf cart rentals,” and that Mr. Cardono was “ambushed” after his sale of the business by the liability for “a tax he had no knowledge existed, even after 20 years in business.” Mr. Cardono claims that, when he first became owner of the appellant, he went to the DOR office in Fall River “to be advised and instructed as to his tax reporting requirements” but at no time did the DOR inform him of a sales tax liability on golf cart rentals. Finally, the appellant claims that, by accepting its returns as filed for an almost-20-year period, and by not assessing other country club taxpayers, the DOR has failed to enforce uniformly the sales tax on golf cart rentals.
Regardless of whether the DOR adequately educated the appellant or other taxpayers on their tax obligations or whether other Massachusetts country club taxpayers collected and remitted sales taxes on golf cart rentals during the tax periods at issue, the Board, for the reasons explained in the following Opinion, found and ruled that the appellant was liable for the contested sales taxes as assessed based on the plain meaning of the statute. The Board accordingly issued a decision for the appellee.
OPINION
The rental of a golf cart is subject to the sales tax under G.L. c. 64H, § 1, defining “sale” for purposes of the tax as “any transfer of title or possession or both” for a consideration. (emphasis added). The appellant did not argue that golf cart rentals are not subject to the sales tax; instead, it contended that “DOR is responsible for educating taxpayers as to their tax obligations.” The appellant points out that the Commissioner made no specific statement to the appellant regarding the appellant’s obligation to collect and remit sales taxes on the rental of golf carts, even after the DOR processed the appellant’s sales/use tax returns for nearly twenty years. In essence, the appellant is contending that the Commissioner’s silence should be interpreted as acquiescence with the appellant’s noncompliance with its tax obligations.
There is no precedent to support the appellant’s assertion. The duty to collect and remit sales tax on golf cart rentals falls within the explicit language of the tax statutes. “Statutory authority (like an easement in land) is not subject to atrophy or abandonment merely from nonuse.” Polaroid Corp. v. Commissioner of Revenue, 393 Mass. 490, 496 (1984). The Commissioner’s past failure to assess a tax against the appellant thus does not forever bar future assessment where the item is subject to tax under the applicable statutory provision. See, e.g., Bell Atlantic Mobile of Massachusetts Corporation, LTD. D/B/A Verizon Wireless v. Assessors of Boston, Newton, Springfield and Westborough, Mass. ATB Findings of Fact and Reports 2010-897 (ruling that, contrary to long-standing erroneous practice, corporate cell-phone providers were not entitled to corporate utility exemption).
The appellant further contends that, since it was unaware of its tax obligation, an unfair burden has now been laid upon Mr. Cardono, because with his business closed, the tax obligation now falls upon him personally. In Commissioner of Revenue v. Marr Scaffolding, 414 Mass. 489 (1993), the Supreme Judicial Court ruled that the Board lacks the authority to grant an abatement based on principles of equitable estoppel. In its decision, the Court noted that, “[a]n administrative agency has no inherent or common law authority to do anything. An administrative board may act only to the extent that it has express or implied statutory authority to do so.” Marr Scaffolding, 414 Mass. at 493. Thus, the “board may act only to the extent it has express or implied statutory authority to do so” and may grant an abatement “only if ‘the person making the appeal was entitled to an abatement.’” Id. at 493-94 (quoting G.L. c. 62C, § 39 (c)). In the instant appeal, the Board ruled that it has no express or implied statutory authority to grant an abatement of sales tax on golf cart rentals based on any unfairness or burden imposed on the appellant or on Mr. Cardono. Instead, the Board must uphold the law as written. The duty to collect and remit sales tax on golf cart rentals is imposed by statute, and the Board thus found and ruled that the Commissioner’s assessment was proper.
The Board accordingly issued a decision for the appellee, upholding the assessment.
APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
TSISSA, INC. v. BOARD OF ASSESSORS OF
THE TOWN OF WEST TISBURY
Docket Nos. F298159 Promulgated:
F304179 April 4, 2011
These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the appellee, Board of Assessors of the Town of West Tisbury (“assessors”), to abate taxes on certain real estate located in the Town of West Tisbury, owned by and assessed to the appellant under G.L. c. 59, §§ 11 and 38, for fiscal years 2008 and 2009 (“fiscal years at issue”).
Commissioner Mulhern heard these appeals. He was joined by Chairman Hammond and Commissioners Scharaffa, Egan, and Rose in decisions for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Donald Quinn, Esq., Danielle Justo, Esq. and Dennis P. Crimmins, Esq. for the appellant.
Ellen M. Hutchinson, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2007 and January 1, 2008, the appellant was the assessed owner of a certain parcel of real estate located at 200 Deep Bottom Road in the Town of West Tisbury (“subject property”). As of the relevant valuation dates for the fiscal years at issue, the appellant, Tsissa, Inc. (“Tsissa” or “appellant”), owned an approximately 193-acre lot of land in the southern section of West Tisbury. The 193-acre lot is divided into 5 taxable parcels. Four parcels are separately assessed and taxed to each of the four individual shareholders of appellant who each are leasees of one of the four parcels. The subject property is the remaining 123.08-acre parcel, which is assessed to the appellant.
For fiscal year 2008, the assessors valued the subject property at $10,299,300 and assessed a tax thereon, at the rate of $4.10 per $1,000, in the total amount of $43,481.64.[31] The appellant timely paid the tax in full without incurring interest. On January 31, 2008, the appellant timely applied to the appellee for an abatement, claiming that the subject property was overvalued. By a vote on June 24, 2008, pursuant to an agreement extending its decision date, the appellee granted a partial abatement reducing the valuation to $7,773,200 and abating tax in the amount of $10,836.64.[32] The appellant seasonably filed its petition with the Board on July 22, 2008. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeal for fiscal year 2008.
For fiscal year 2009, the assessors valued the subject property at $7,735,300 and assessed a tax thereon, at the rate of $4.28 per thousand, in the total amount of $34,084.40.[33] The appellant timely paid the tax in full without incurring interest. On January 27, 2009, the appellant timely applied to the appellee for an abatement, claiming that the subject property was overvalued. The abatement application was deemed denied on April 27, 2009. The appellant seasonably filed its petition with the Appellate Tax Board (“Board”) on July 23, 2009. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeal for fiscal year 2009.
The appellant is a domestic corporation duly organized in 1971 under the laws of the Commonwealth of Massachusetts to hold title to land in the Town of West Tisbury, a lightly populated community located on Martha’s Vineyard, that consists of peninsulas jutting into Tisbury Great Pond. Homes in West Tisbury range from modest to substantial. The subject property is a largely unimproved 123.08±-acre parcel of land located at 200 Deep Bottom Road. Its only improvements are a small barn, a small seasonal loft cottage and a tennis court, which together were assessed at $35,000[34] for fiscal year 2008 and at $37,100 for fiscal year 2009. The property record card on file with the appellee reflects the division for assessment purposes of the subject property from the larger 193.08±-acre parcel of land owned by the appellant. However, the subject property is not separately described by recording or endorsement, has never been separately surveyed, and cannot be subdivided without Town approvals. The subject property has never been mapped on the appellee’s maps but was hand drawn by the lessees and the appellant within the body of each of the four leases. The subject property is characterized as a “hypothetical” parcel by the appellant’s own experts.
The subject property is generally bordered to the south by West Tisbury Great Pond, a barrier beach and the Atlantic Ocean; to the east by Long Point Wildlife Refuge; to the west by the Town of Chilmark; and to the north by Edgartown-West Tisbury Road. The subject property is located off Tiah’s Cove Road, approximately three miles away from the West Tisbury village center. The subject property has water frontage and access; it is bordered on the far northeast corner by Deep Bottom Cove for approximately 400 feet and on the far southwest corner by Tsissa Cove for approximately 700 feet. The northern edge of the subject property straddles Deerfield Road, which runs from west to east, for approximately 1,200 linear feet, and the eastern portion of the property straddles Deep Bottom Road for approximately 3,200 linear feet. Deerfield and Deep Bottom Roads are mostly paved, private ways, which serve as the access roads for the five parcels that make up the peninsula upon which the subject property is situated. Immediately adjacent to the west of the subject property is an extensive wildlife preserve owned by the Martha’s Vineyard Land Bank.
The subject property is irregular in shape, and its vast majority consists of rolling woodlands and local vegetation, with a gentle north-to-south slope to Tsissa Cove in the southwest. The subject property is crisscrossed in several locations by dirt roads and footpaths. There is a plot of approximately 5 acres of land along the northern border that has been cleared and is used for farming. On average, the subject property is about thirty feet above sea level in most places, and the subject property is serviced by an underground power line that runs southwest to southeast across the top section of the parcel. The subject property is zoned “RU” for Rural District. Permitted uses in the RU district include: single-family dwelling; two-family dwelling; subordinate dwelling; open space development; preservation of natural areas; and agriculture, fishing, and forestry.[35] The minimum lot area in the RU district is three acres, with minimum lot frontage of between 100 to 200 linear feet. The Town of West Tisbury zoning bylaws state that the purpose of the RU district is to maintain the town’s pattern of rural settlement, which historically has been characterized by large expanses of open space and unspoiled views from the road, a scattering of residences and small businesses, and clustered development surrounded by open space.
At the hearing, the appellant presented its case-in-chief through the testimony of Paul J. Hartel, whom the Board qualified as an expert in the area of real estate valuation, and Douglas R. Hoehn, whom the Board qualified as an expert in the area of land surveying, with an expertise in land planning on Martha’s Vineyard. The appellee did not present witnesses but instead offered exhibits and challenged the appellant’s witnesses on cross-examination.
The appellant’s first witness, Mr. Hartel, testified and presented an appraisal report for each fiscal year at issue. Mr. Hartel presented his opinion as to factors which, he believed, would negatively affect the fair cash value of the subject property. He testified that the subject property was heavily wooded and that this terrain obstructed water views as well as frontage to the water. He also claimed that substantial sandbars impeded boat access to and from Tisbury Great Pond. Mr. Hartel also cited the poor infrastructure of unpaved and gravel roads as a factor affecting fair market value. In his appraisal reports, Mr. Hartel also described the various obstacles to valuing the subject property, several of which are detailed below.
Because it is located in an RU district, development of the subject property is subject to approval by the Martha’s Vineyard Commission (“MVC”), the regional planning agency for Duke’s County. The MVC’s stated goal, according to Chapter 637 of the Acts of 1974, is to manage growth on Martha’s Vineyard so as to “preserve[] and conserve[] for the enjoyment of present and future generations the unique natural, historical, ecological, scientific, and cultural values of Martha’s Vineyard . . . .” The MVC meets this goal by creating Districts of Critical Planning Concern (“DCPC”) and regulating Developments of Regional Impact (“DRI”). West Tisbury has several DCPCs. Two areas of the subject property fall within West Tisbury’s Coastal DCPC. These are the areas within 500 feet of Tsissa Cove and Deep Bottom Cove. Any development in the Coastal DCPC requires a site plan review by the West Tisbury Planning Board. Concerns to be addressed would be permitted uses in the shore zone and the inland zone,[36] and the height of buildings.[37] Further, a potential subdivision of the subject property would prompt its regulation as a DRI on multiple criteria, including that the subject property has been listed by the Commonwealth of Massachusetts Division of Fisheries and Wildlife, Natural Heritage and Endangered Species Program (“NHESP”) as an area of special concern. DRIs must undergo an extensive review process, which includes a public hearing and deliberation by the MVC and final approval by the MVC and the West Tisbury Planning Board. Subdivision of the subject property would be subject to review by the NHESP, as the subject property has been categorized as an area of “Priority Habitat of Rare Species” and an “Estimated and Priority Habitat of Rare Wildlife.” As Mr. Hartel explained in his report, the problem with this designation is that “it can take many months (mating seasons, etc.)” to resolve issues surrounding the potential impact of protected species caused by development of the subject property.
Moreover, based on his visual inspection of the subject property, Mr. Hartel believed, and the appellee did not contest, that the subject property most likely contained some wetlands. West Tisbury’s Conservation Commission would thus require a complete survey and delineation of the wetlands before any development could be undertaken, adding another layer of municipal review.
Mr. Hartel also cited multiple peripheral issues, which would also add uncertainty to valuation, including: (1) the possibility of further archeological study if a review of the shellfish middens on the peninsula uncovers archaeological finds; (2) the uncertainty to a prospective buyer of a view from any development, since tree clearing is limited by the MVC; and (3) the uncertainty as to whether existing roadways are sufficient to support a development or whether upwards of 3,500 linear feet of roadway would need to be enhanced.
In his analysis, Mr. Hartel first struggled with the “highest and best use” analysis for the subject property. Mr. Hartel’s report detailed the four components of a highest and best use analysis: (1) physically possible; (2) legally permissible; (3) financially feasible; and (4) maximally productive. Mr. Hartel was unable to determine any of these criteria. His reports detail the following: (1) he mused that possible uses could include conservation, fishing, and residential, but “[w]ithout a wetland determination, archaeological and National Heritage studies, one has no idea as to the potential physical development footprint.”; (2) legal use is “[c]ompletely undetermined as of the date of valuation, given the jurisdiction of the MVC and the lack of any permitting”; (3) it is “[h]ard to test financial viability if you do not know what you are testing”; and (4) “Given the uncertainty of the Physical and Legal uses, and the time frame to ultimately effectuate said use, although it is likely to be some form of residential development, it is impossible to speculate as to the maximally productive use as of [the relevant assessment dates].” In conclusion, “[i]n the subject’s case, the Highest and Best Use is likely to be some level of residential development; however, the details of which were yet to be determined and as such, a prospective buyer would base their investment decision on a personally established worst case scenario.” (Emphasis in original).
While admitting his inability to affirmatively determine the exact highest and best use, Mr. Hartel premised his appraisal on his assumption that the highest and best use of the subject property was subdivision and development possibly into five lots. Mr. Hartel proposed that each lot would be approximately 24 acres in size, with four “estate lots” each possibly containing a main house and also a guest house, and the fifth “junior lot” containing only the main house. Mr. Hartel based this conjecture on the fact that MVC review and requirement for affordable housing units would be triggered at ten dwelling units for a development.
From here, Mr. Hartel employed a “project development/discounted cash flow analysis” to value the subject property. This technique incorporates certain elements of both the income-capitalization and sales-comparison valuation methodologies. For his analysis, Mr. Hartel performed a sales-comparison analysis employing sales of land. All of Mr. Hartel’s purportedly comparable properties consisted of buildable lots.
Mr. Hartel first used sales of land that did not have significant water influence; he deemed these properties to be reflective of all but the premium subject property lot. Mr. Hartel’s analysis for fiscal year 2008 included twenty-one land sales in West Tisbury from 2004, eleven land sales in West Tisbury from 2005, and seven West Tisbury land sales from 2006. Mr. Hartel’s analysis for fiscal year 2009 used the eleven land sales from 2005, the seven land sales from 2006 and nine West Tisbury land sales from 2007. The median lot sizes for these sales were: 1.70 acres in 2004; 3.01 acres in 2005; 1.69 acres in 2006; and 3.19 acres in 2007. The average sale prices were $397,119 for 2004; $662,818 for 2005; $415,143 for 2006; and $1,101,389 for 2007.
Mr. Hartel then expanded his analysis to include more premium lots. For his fiscal year 2008 analysis, he included two Chilmark land sales with frontage on Tisbury Great Pond. For his fiscal year 2009 analysis, Mr. Hartel again considered the two Chilmark land sales and an additional land sale in Aquinnah with frontage on Menemsha Pond. Mr. Hartel’s analysis listed the sale price and price per acre for his comparable-sales properties. He did not provide adjustments for any of his comparable-sale properties. Mr. Hartel then resolved all of his data and estimated price ranges for the individual lots as follows: the best of the five lots (based on its proximity to Tsissa Cove) would sell between $2.0 and $2.5 million; the second best would sell between $1.25 and $1.75 million; and the three remaining lots would sell between $750,000 and $1.250 million.
Mr. Hartel relied upon several key assumptions in his analysis. For example, he assumed that it would take a developer one year to receive all regulatory approvals for the 5-lot subdivision. He also assumed a 40% open space factor, meaning that the MVC would require at least 40% of the subject property to remain as restricted open space. He next assumed that, for the fiscal year 2008 analysis, the prices of the subject property’s lots would increase by 3% annually, and for the fiscal year 2009 analysis, the prices would increase by 1% annually. He applied a discount rate of 9%, which he calculated based on the risk rate and opportunity costs associated with the project. He also estimated construction costs that the developer would incur, including site preparation, roadway preparation, installation of electric and other utilities, and landscaping. Mr. Hartel’s report stated in general that he had contacted “appropriate real estate brokers, developers, managers and appraisers” as well as reviewed his own files, to identify construction costs. With these assumptions, Mr. Hartel’s discounted cash flow analysis yielded fair cash values of $4,800,000 for fiscal year 2008 and $4,500,000 for fiscal year 2009.
The appellee challenged Mr. Hartel on cross examination as to his inability to determine the legally permissible uses for the subject property. The appellee contended that Mr. Hartel’s inability to make this determination made it impossible for him to determine the highest and best use for the subject property. The appellee pointed out that Mr. Hartel’s appraisal reports themselves classify the highest and best use of the subject property as “undetermined.” The appellee also challenged the method by which Mr. Hartel merely relied on MV LINK, the Martha’s Vineyard equivalent to Multiple Listing Service, for his sales information. Mr. Hartel admitted that he did not review actual sales deeds in creating his analysis and he confirmed the sales only “[i]n some cases.” On cross-examination, Mr. Hartel also acknowledged several mistakes in his comparable-sale listings, including the wrong address, wrong acreage and wrong sales prices for many of the parcels.
The appellant’s next witness was Douglas Hoehn, a land surveyor whom the Board qualified as an expert with respect to the procedures that would be involved in gaining regulatory approvals from the MVC and the West Tisbury Planning Board for subdivision of the subject property. Mr. Hoehn confirmed Mr. Hartel’s testimony that the MVC‘s affordable housing requirement would apply once a development reaches ten units. However, Mr. Hoehn then offered further testimony that “West Tisbury also has an affordable housing component in their bylaws and it is triggered where there is a subdivision of three or more lots.” Further, when asked on direct examination what the “optimal” configuration would be for the 123-acre subject property, Mr. Hoehn testified that the MVC would possibly approve an eleven-dwelling-unit subdivision plan with one of these units being reserved for affordable housing. Mr. Hoehn also testified that Mr. Hartel’s assumption of a 40% open space factor would very likely not be sufficient for the MVC and that the MVC would most likely require at least 75% of the subject property to remain permanently restricted open space. However, Mr. Hoehn’s testimony on this point was somewhat confusing, as he also indicated that the MVC would make exception to this rule to accommodate for the affordable-housing requirement. Finally, Mr. Hoehn testified that Mr. Hartel’s estimate of 12 months to obtain regulatory approval for the subdivision plan was “overly optimistic.” Mr. Hoehn’s opinion was that regulatory approval would actually take at least twice this time, between two to two and one-half years.
Based on the evidence presented, the Board found several flaws in Mr. Hartel’s valuation method. First, the Board found that the 5-lot subdivision plan, upon which the appraisal reports were based, was a purely speculative valuation assumption that lacked proper foundation. Mr. Hartel admitted that he was unable to resolve the issue of the highest and best use of the subject property, and thus, he could not substantiate whether his subdivision plan reflected the optimal use of the subject property. In fact, the appellant’s other expert witness, Mr. Hoehn, undercut Mr. Hartel’s determination that a 5-lot subdivision plan was the highest and best use, when in response to a question regarding an “optimal” plan, he offered a different configuration, an eleven-unit subdivision plan with one affordable-housing unit. As will be explained in the Opinion, the Board thus found that Mr. Hartel’s appraisal lacked the proper foundation to be credible evidence of the subject property’s fair market value.
Second, Mr. Hartel’s valuation was founded upon several premises which were contradicted by Mr. Hoehn. For example, Mr. Hartel believed that the appellant could avoid the additional hurdles required with respect to offering affordable housing by keeping the number of units below ten. However, the appellant’s own expert surveyor, Mr. Hoehn, contradicted this assumption, suggesting that West Tisbury’s affordable housing bylaws may be triggered at a three or four lot subdivision. Mr. Hoehn further contradicted Mr. Hartel’s opinions with respect to the amount of open space required for the subdivision plan, and therefore, the size and configuration of the subject property’s units, and the amount of time likely required to gain approval for the subdivision plan. The Board also found that, because Mr. Hartel was not an engineer, he was not qualified to offer evidence on costs of construction, a critical component of his valuation methodology.
Finally, the Board recognizes that Mr. Hartel’s comparable-sales analysis was based solely on sales of small, developable, single-lot properties, which may be appropriate for a “project development/discounted cash flow analysis.” However, as applied to the subject property, his analysis included no sales of properties like the subject that were large and unpermitted, thus undercutting both the comparability of his comparable-sales properties and the application of the “project development/discounted cash flow analysis” to a large, unpermitted property like the subject. Moreover, Mr. Hartel’s analysis was devoid of adjustments indicating how he arrived at his projected sale prices for the subject property’s projected finished lots. Mr. Hartel failed to specify adjustments for any of his comparable-sales properties where adjustments would have been warranted, particularly for date of sale, location and size of the property. Because Mr. Hartel did not use sales of land that were sufficiently comparable to the subject property, and because he made no adjustments to account for differences between the subject property and the purportedly comparable properties, the Board found that the appellant’s comparable-sales evidence did not constitute persuasive, credible evidence that the subject property was overvalued.
On the basis of the evidence presented, the Board found that the appellant failed to meet its burden of proving that the subject property was overvalued. Accordingly, the Board issued a decision for the appellee in these appeals.
OPINION
Assessors are required to assess all real property at its full and fair cash value. G.L. c. 59, § 38; Coomey v. Assessors of Sandwich, 367 Mass. 836, 837 (1975). Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1954).
An assessment is presumed valid unless the taxpayer sustains its burden of proving otherwise. Schlaiker v. Board of Assessors of Great Barrington, 356 Mass. 243, 245 (1974). Accordingly, the burden of proof is upon the appellant to make out its right as a matter of law to an abatement of the tax. Id. The appellant must show that the assessed valuation of its property was improper. See Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 691 (1982).
“Prior to valuing the subject property, its highest and best use must be ascertained, which has been defined as the use for which the property would bring the most.” Tennessee Gas Pipeline Co. v. Assessors of Agawam, Mass. ATB Findings of Fact and Reports 2000-859, 874 (citing Conness v. Commonwealth, 184 Mass. 541, 542-43 (1903)); see also Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989) (and the cases cited therein). A property’s highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive. Appraisal Institute, The Appraisal of Real Estate 279 (13th ed., 2008). See also Skyline Homes, Inc. v. Commonwealth, 362 Mass. 684, 687 (1972). “In determining the property’s highest and best use, consideration should be given to the purpose for which the property is adapted.” Northshore Mall Limited Partnership et al. v. Board of Assessors of the City of Peabody, Mass. ATB Findings of Fact and Reports 2004-195, 247 (citing Appraisal Institute, The Appraisal of Real Estate at 315-16 (12th ed., 2001) and Tennessee Gas Pipeline Co., Mass. ATB Findings of Fact and Reports at 2000-875), aff’d, 63 Mass. App. Ct. 1116 (2005).
In the present appeals, the appellant’s valuation expert, Mr. Hartel, could not affirmatively determine that his hypothetical five-lot subdivision plan constituted its highest and best use. In fact, the appellant’s other expert, Mr. Hoehn, seemed to contradict its valuation expert when, in response to the question regarding the optimal use of the subject property, Mr. Hoehn proposed an eleven-unit subdivision plan which included affordable housing. The opinion of an expert must be based on a proper foundation. State Tax Commission v. Assessors of Springfield, 331 Mass. 677, 684 (1954). Because a highest-and-best-use determination is a prerequisite to establishing a foundation for a determination of fair market value, the Board found and ruled that Mr. Hartel’s opinions of value, which were based on a proposed five-lot subdivision plan, lacked proper foundation.
Assuming, arguendo, that the five-lot subdivision plan was the highest and best use of the subject property, the Board found that Mr. Hartel’s sales data did not support the appellant’s valuation claims. In appeals before this Board, a taxpayer “‘may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984)(quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to determine the fair cash value of property: income capitalization, sales comparison, and cost reproductions. See Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978). Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue. Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2008-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff’d, 73 Mass. App. Ct. 1107 (2008). The properties used in a comparable-sales analysis must be comparable to the subject property in order to be probative of the fair cash value. See Anne B. Sroka v. Assessors of Monson, Mass. ATB Findings of Fact and Reports 2009-835, 846 (citing Lattuca v. Robsham, 442 Mass. 205, 216 (2004)).
The appellant bears the burden of “establishing the comparability of . . . properties [used for comparison] to the subject property.” Fleet Bank of Mass. v. Assessors of Manchester, Mass. ATB Findings of Fact and Reports 1998-546, 554. Accord New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981). “Once basic comparability is established, it is then necessary to make adjustments for the differences, looking primarily to the relative quality of the properties, to develop a market indicator of value.” Id.
In the instant appeals, the appellant’s expert introduced a comparable-sales analysis based upon data from a number of property sales in West Tisbury, as well as in Chilmark and Aquinnah. Mr. Hartel compared these purportedly comparable properties with the five hypothetical 24-acre lots as envisioned by his proposed subdivision plan. However, none of Mr. Hartel’s purportedly comparable properties was an undeveloped and unpermitted lot like the subject property, nor were any equivalent in size. The Board found that, because Mr. Hartel’s analysis failed to include property sufficiently comparable to the subject property, his analysis was not probative of the subject property’s valuation. See, e.g., Diamond Ledge Properties Corp. v. Assessors of Swansea, Mass. ATB Findings of Fact and Reports 2009-1185, 1192.
Moreover, Mr. Hartel’s comparable-sales properties were diverse in size, location and date of sale, and differed from one another as well as from the subject property in these respects. In fact, all but one of the comparable-sales properties were less than half the size of the proposed 24-acre lots,[38] with the vast majority of these properties being about one-quarter or less the size of Mr. Hartel’s proposed lots. Yet, Mr. Hartel failed to make adjustments to these properties’ sales prices to account for key differences between them and the subject property. Instead, he simply relied upon the unadjusted sales prices of the purportedly comparable properties to form his opinion of value for the subject property. Mr. Hartel also failed to identify other key differences between his purportedly comparable properties and the subject property, such as topography, shape, zoning and available utilities. His report simply gave a generic listing of address, size and sale price. “[G]eneric summaries” of groups of sales, with no adjustment for specific comparison to the subject property, are “devoid of persuasive value” for determining a subject property’s fair market value. Andreozzi v. Assessors of Seekonk, Mass. ATB Findings of Fact and Reports 2010-800, 810.
Because Mr. Hartel’s appraisal reports and testimony failed to employ properties that were sufficiently comparable to the subject property, and because they were devoid of any adjustments to account for obvious differences between the subject property and his comparison properties, the Board placed no weight on Mr. Hartel’s opinion of value.
Furthermore, the testimony and appraisal report of Mr. Hartel estimated costs associated with developing the subject property. However, “[t]he Courts and this Board have found and ruled consistently that only qualified engineers, architects, or contractors should present cost estimates in most circumstances.” Cnossen v. Assessors of Uxbridge, Mass. ATB Findings of Fact and Reports 2002-675, 690 (citing Tiger v. Mystic River Bridge Authority, 329 Mass. 514, 519 (1952) and Maryland Cup Corp. v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1988-169). Mr. Hartel is not a licensed engineer, architect, or contractor. The Board thus found and ruled that Mr. Hartel was not competent to offer evidence of construction costs. See Cnossen, Mass. ATB Findings of Fact and Reports at 2002-690 (finding that the witnesses’ lack of qualifications substantially diminished the probative value of their testimony relating to the reproduction-cost approach); see also Andreozzi, Mass. ATB Findings of Fact and Reports at 2010-808-10; Mason v. Assessors of Winchester, Mass. ATB Findings of Fact and Reports 2004-110, 143.
The Board is guided by the principle that “‘evidence of a party having the burden of proof may not be disbelieved without an explicit and objectively adequate reason.’” New Boston Garden v. Assessors of Boston, 383 Mass. 456, 473 (1981) (quoting L.L. Jaffe, Judicial Control of Administrative Action 607 (1968)). However, the Board has also ruled that the mere qualification of a person as an expert does not endow his testimony with any magic qualities (Boston Gas Co. v. Assessors of Boston, 334 Mass. at 579), particularly where the expert speaks to issues beyond his realm of expertise. See, e.g., Khan and Zasky, Trustees v. Assessors of Brookline, Mass. ATB Findings of Fact and Reports 2004-403, 435-6 (finding that, because the assessors’ real estate valuation expert lacked the expertise to estimate certain development costs, his approach to valuing the property based on those costs lacked merit). In the instant appeal, the Board found objective reasons for disregarding the value that Mr. Hartel derived for the subject property for the fiscal year at issue, namely: Mr. Hartel’s failure to determine whether his hypothetical five-lot subdivision plan was the highest and best use for the subject property; his lack of qualification to offer construction costs for the potential development of the subject property; his failure to offer for comparison sales of sufficiently large, unpermitted and unapproved land more akin to the subject property and thus sufficiently comparable to the subject property; and the generic unadjusted nature of his comparable-sales analysis.
Moreover, the appellant’s other witness, Mr. Hoehn, contradicted the appellant’s valuation expert with respect to key features of the hypothetical subdivision, including the amount of open space required for the subdivision plan (and therefore, the size and configuration of the subject property’s units); the amount of time likely required to gain approval for the subdivision plan; and the requirement for affordable housing units. The Board thus ruled that Mr. Hartel’s opinion of value lacked adequate foundation or persuasive value.
On the basis of the evidence provided, the Board found and ruled that the appellant failed to meet its burden of proving a fair market value for the subject property that was lower than that assessed for the fiscal years at issue. The Board therefore decided these appeals for the appellee.
APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
FARMHOUSE LANE REALTY TRUST, v. BOARD OF ASSESSORS OF
JOHN R. SERAFINI, JR. AND THE TOWN OF ROWLEY
JOHN E. DARLING, TRUSTEES
Docket Nos. F294842-F294854, Promulgated:
F299674-F299686 April 5, 2011
These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the appellee, Board of Assessors of the Town of Rowley (“assessors” or “appellee”), to abate taxes on certain real estate located in the Town of Rowley, owned by and assessed to the appellant, Farmhouse Lane Realty Trust (“Trust” or “appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal years 2008 and 2009 (“fiscal years at issue”).
Commissioner Egan heard these appeals. Chairman Hammond and Commissioners Scharaffa, Rose and Mulhern joined her in decisions for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
John R. Serafini, Jr., Esq. for the appellant.
Gary S. Brackett, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of these appeals, the Appellate Tax Board (“Board”) made the following findings of fact.
On January 1, 2007 and January 1, 2008, the appellant was the assessed owner of a 53.8-acre parcel of real estate located in the Town of Rowley, which was separately assessed and taxed as thirteen residential building lots (collectively, the “subject property”). For fiscal year 2008, the assessors separately assessed the subject property’s individual lots in the total amount of $2,801,200.00 and assessed a tax thereon, at the rate of $10.38 per $1,000, in the total amount of $29,948.75.[39] The appellant timely paid the tax in full without incurring interest. On January 31, 2008, the appellant timely applied to the assessors for abatement, claiming that the subject property was overvalued. By a vote on February 11, 2008, the assessors granted a partial abatement reducing the subject property’s valuation to $1,038,100.00, resulting in final taxes of $11,098.78.[40] By written notice dated February 12, 2008, the assessors notified the appellant of their decision. The appellant seasonably filed petitions with the Board on May 8, 2008. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeals for fiscal year 2008.
For fiscal year 2009, the assessors separately assessed the subject property’s thirteen individual lots in the total amount of $972,200.00 and assessed a tax thereon, at the rate of $11.34 per thousand, in the total amount of $11,355.50.[41] The appellant timely paid the tax in full without incurring interest. On January 30, 2009, the appellant timely applied to the assessors for abatement, claiming that the subject property was overvalued. By notice dated February 9, 2009, the assessors informed the appellant that its abatement application had been denied by vote on that same day. The appellant seasonably filed petitions with the Board on April 30, 2009. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeals for fiscal year 2009.
The appellant presented its case-in-chief through the testimony of the following witnesses: Charles Wear, a Massachusetts Registered Professional Engineer and Vice President of Meridian Associates, Inc., whom the Board qualified as an expert in the field of civil engineering and subdivision and land-use planning; Ann Marton, Director of Ecological Services and President of LEC Environmental Consultants, Inc., whom the Board qualified as an expert in the areas of wetlands and rare species covered under the Massachusetts Endangered Species Act (“MESA”) as these subjects affect land development; and Robert Noone, Appraiser and Chairman of the Board of Assessors of Peabody, Massachusetts, whom the Board qualified as an expert in the field of real estate valuation.
The parties agreed that the subject property had previously received approval for a 4-lot subdivision plan in 1994, the year that the appellant acquired the property. On September 13, 2000, the Rowley Planning Board (“Planning Board”) granted subdivision approval, under G.L. c. 41, § 81L et seq., for the subject property to be divided into thirteen separate residential building lots (“13-lot subdivision plan”). The appellant filed Notices of Intent under the Massachusetts Wetlands Protection Act, G.L. c. 131, § 40, with the Rowley Conservation Commission (“Conservation Commission”) for the roads and subdivision lots, but the Conservation Commission never approved them. Rowley subsequently adopted its own set of wetlands bylaws in 2004 (“Rowley Wetlands Bylaws”).
As a result of the concerns raised by the Conservation Commission with respect to wetlands surrounding the access point at Wilson Pond Road, the appellant sought amendment of the 13-lot subdivision plan. In the fall of 2000, the Planning Board approved the amendment, which shifted the internal access road, known as “Road A” or “Farmhouse Lane,” about twenty feet to the south near the Wilson Pond crossing, in order to use part of the historic location of Meetinghouse Road. However, an abutter to the subject property appealed the amendment to the Land Court.
The 13-lot subdivision plan expired in September, 2006, and the appellant filed at the Land Court for an extension of the plan. However, after the abutter’s appeal, the appellant withdrew the Notices of Intent from the Conservation Commission and never pursued any other permits. The Planning Board refused to extend endorsement of the 13-lot subdivision plan by letter dated October 2, 2006. The abutter’s appeal at the Land Court was still active as of the date of the hearing of these appeals.
The subject property is assessed and taxed as 13 separate lots, each classified as class 131 “potentially developable” property. It is undisputed that the 13-lot subdivision plan has expired and its appeal is pending at the Land Court. The appellant contends that the subject property is overvalued, because given the history of the appellant’s efforts to develop the subject property, as well as the application of regulations under MESA, the appellant would not be able to obtain permits to develop the subject property at any time in the foreseeable future. Therefore, the argument continues, the subject property should be assessed as equivalent in value to conservation land, regardless of its designation. The appellant does not challenge the subject property’s designation as class 131 “potentially developable.”
The appellant’s first witness, Mr. Wear, testified to the history and challenges surrounding development of the subject property. Mr. Wear opined that the expired 13-lot subdivision plan could not be duplicated as of the subject assessment dates, because the current zoning, wetlands and MESA regulations were different or did not originally apply to the subject property at the time of the 13-lot plan’s development. He also detailed the multiple permits that would be required to cross Wilson Pond, including a “Chapter 91 License” to be issued by the Massachusetts Department of Environmental Protection (“DEP”) under G.L. c. 91, a “Section 401 water quality certification” to be issued by DEP, an additional permit to be issued by the U.S. Army Corps. of Engineers, a permit to be issued under MESA, and one under the Massachusetts Environmental Protection Act (“MEPA”). Mr. Wear projected that the many permits required at the local, state and federal levels would be nearly impossible to obtain and, even if they were approved, the project would be very expensive. He further opined that accessing the subject property from alternate directions posed additional challenges, including the refusal of an abutting owner to grant a right to pass over adjoining property, steep grade changes in the subject property, and the requirement for a dimensional variance from the Rowley Board of Appeals. He further testified that access from Cindy Lane was not viable, because it was a private way.
Mr. Wear detailed further issues, including: the requirement that a subdivision plan meet the Rowley Wetlands Bylaw, which is more restrictive than the standards under the Massachusetts Wetlands Protection Act; physical changes to Wilson Pond caused by extensive beaver activity, resulting in the expansion of the wetlands area as part of the subject property has become submerged; changes to the Rowley zoning bylaws, which, at the time of the original 13-lot subdivision’s approval, required 125 feet of frontage and 60,000 feet of lot area but now require 150 feet of frontage and 40,000 feet of lot area; issues relating to septic systems, including the percolation tests which revealed that Title V septic system requirements are not met in some areas of the subject property; and finally, the MESA restriction on development of the subject property to protect the habitat of the blue-spotted salamander, which has been discovered on the property. Mr. Wear acknowledged, however, that the Trust never proceeded with the Notices of Intent before the Commission nor with any of the permits required for development of the subdivision.
Ms. Marton next testified with respect to the permitting procedures that applied to development of the subject property. She explained that extensive procedures would apply to development, including at least six permits from the Conservation Commission, the DEP, and the Army Corps. of Engineers to cross Wilson Pond to provide access to the subject property, as well as three other permits with respect to interior wetlands. Ms. Marton opined that permitting requirements have become more complex with the adoption of the Rowley Wetlands Bylaw in 2004 and the inclusion of the property under MESA. Like Mr. Wear, Ms. Marton explained that in 2006, the subject property was designated as a priority habitat for the blue-spotted salamander under MESA, and this designation has a direct impact on permitting processes before the Conservation Commission and under MESA. She testified that the planned areas for the road crossing of Wilson Pond and the cul-de-sac were closest to a vernal pool where a blue-spotted salamander breeding area was located.
Ms. Marton acknowledged on cross-examination that, while the subject property’s MESA designation presents permitting issues, the application of MESA would not necessarily result in the inability to develop the site, and in fact, it is not common for there to be a disqualification of development for an entire site. Ms. Marton also admitted that she had not measured the size of the vernal pool on the subject property. Documentation from the Conservation Commission admitted into evidence reveals that the size of the certified vernal pool occupied only 0.19 acres out of the 53-acre site. Ms. Marton also admitted that the Division of Fisheries and Wildlife has never made a determination of a “take” (a potential destruction) of an endangered species on the subject property. With respect to the extensive permitting procedures, Ms. Marton admitted that the Trust did not seek the permits which would be needed for completion of the crossing at Wilson Pond Road, and further, that the Conservation Commission never stated that it would deny the permit for the wetlands but only that it wanted the Trust to propose a means of access to the site other than Wilson Pond Road. Like Mr. Wear, Ms. Marton testified that Cindy Lane was not a viable means of access to the site, because it was a private way. Finally, Ms. Marton acknowledged that she had not been asked by the Trust to consider the development of the subject property as an Open Space Residential District.
The appellant’s third witness, Mr. Noone, prepared an appraisal report for the subject property for each fiscal year at issue. Mr. Noone opined that the subject property’s development potential was speculative and remote, because of the many restrictions on the land. He cited the restrictions imposed by MESA, because of the subject property’s classification as a habitat for endangered species, as particularly limiting. Therefore, in his opinion, the “highest and best use” of the subject property was as one large parcel of residentially zoned land having a possible, but speculative, potential for development as a residential subdivision with an undetermined number of lots. Accordingly, Mr. Noone regarded the subject property as equivalent in value to conservation land, even though it had been classified as potentially developable.
Mr. Noone’s appraisal reports for both tax years at issue each included an identical comparable-sales analysis. The comparable-sales analysis did not include any sales of land located in Rowley because Mr. Noone could not find any such comparable sales. Instead, the analysis included four sales of land in neighboring communities –Ipswich, Salisbury, Newbury, and Newburyport at the Newbury/Newburyport line.
Sale One in Ipswich is comprised of two contiguous parcels of land that contain a total of 44.2 acres, which were purchased by Ipswich for conservation purposes on December 20, 2006. The total sale price for both parcels was $110,000, which yields a price of $2,489 per acre. The land features some wetland and some areas of upland. The land is not equipped with utilities, and it has no street frontage. It is zoned for residential use.
Sale Two is comprised of 43.39 acres located in Salisbury. Sale Two was actually a two-part sale, made from a family group of grantors to a private developer. The various sales occurred on June 22, 2006 and July 12, 2006, for a total sale price of $46,593, which yields a price of $1,074 per acre. The land has about 118 feet of frontage along Forest Road and also abuts the Little River. The land near the river features salt marsh, while the upland portions are rolling and are covered with heavy scrub and tree vegetation. Available utilities are water, electric, telephone and cable. The land is zoned for Residential/Agricultural uses. Mr. Noone testified that this comparable-sales property was “generally very inferior” to the subject in overall location, features and amenities and thus required “a substantial plus adjustment” for comparison with the subject property. Mr. Noone did not specify any particular adjustments that he made with respect to Sale Two’s sale price.
Sales Three and Four were both part of a large parcel of vacant land that is within both Newbury and Newburyport. The total area of the large parcel is 170.168 acres, 46.734 acres of which are in Newbury and the remaining 123.434 acres of which are in Newburyport. Mr. Noone describes the tract as a “wet meadow,” a term of art referring to a meadow that is a wetland for much of the time, as large portions of the property feature wetlands. The land was purchased on December 29, 2006 for conservation purposes. Water, electric and telephone are available in certain portions of the property. Sale Three, the 46.734-acre parcel in Newbury, was purchased by the Essex County Greenbelt Association, Inc. for $113,700, which yields a price of $2,861 per acre. Sale Three has no road frontage and is zoned for residential/agricultural purposes. Sale Four, the 123.434-acre parcel in Newburyport, was purchased by the City of Newburyport’s Conservation Commission for $366,300, which yields a price of $2,968 per acre. Sale Four has 451.62 feet of street frontage and is zoned for agricultural/open space purposes.
Mr. Noone’s report noted that the comparable-sales properties had sale prices ranging from $1,074 per acre to $2,968 per acre. After applying his adjustments, which he did not detail, Mr. Noone’s comparable sales yielded adjusted-sale values between $2,500 and $3,000 per acre. He settled on $2,750 per acre and applying this value to the subject’s 52.91 acres, his comparable-sales analysis yielded a fair market value of $145,503, which he rounded to $145,500. Mr. Noone’s final estimate of value was $145,500 for the subject property for both fiscal years at issue.
Mr. Noone acknowledged on cross-examination that his comparable-sales properties were conservation properties having as their highest and best use being held as conservation land; only Sale Two was sold for the potential of future development, but he admitted that that property was “very inferior” to the subject. Mr. Noone also admitted that the decision of the Planning Board denying the extension of the 13-lot subdivision was still being appealed before the Land Court and therefore was not final. He further admitted that the subject property had sufficient frontage along Wilson Pond Lane and it satisfied the lot size requirement for a single building lot. Finally, Mr. Noone was unaware of the existence of a so-called “tripartite agreement,” detailed in a letter from the Chairman of the Planning Board to the Chairman of the Conservation Commission, by which a developer of a subdivision called Meetinghouse Village was required to extend Cindy Lane (referred to in the tripartite agreement as “Road A”) to the boundary of the subject property, thereby providing an alternative access to the subject property. This letter, admitted into evidence, continues as follows:
In the Planning Board’s opinion, Road A could be used as a means of accessing the Farmhouse site, regardless of whether access from Tenney Road would be feasible or economical. Moreover, while the Planning Board’s rules and regulations limit the length of a cul-de-sac to 500 feet, the [Planning] Board can grant a waiver of this limitation if the property is developed as an Open Space Residential Subdivision under section 6.4 of the Rowley Protective Zoning Bylaw.
Mr. Noone ultimately admitted that, although it may be “a long time coming,” “the land at some point in time could be developed.”
The appellee presented its case-in-chief through the testimony of Sean McFadden, Principal Assessor for Rowley. Mr. McFadden first testified to the method by which the assessors abated the subject property for fiscal year 2008. He explained that he considered the subject property to be potentially developable property, which qualified for a 30% reduction from the assessors’ previously determined fair cash value, but upon receiving the appellant’s abatement request, he decided to adjust the subject’s taxable value to approximately 70% of its fair cash value, in consideration of the appellant’s arguments regarding the constraints on development. However, Mr. McFadden rejected Mr. Noone’s claim that the subject property should be valued on the basis of a highest-and-best use as conservation land. He explained that the 13-lot subdivision plan and the earlier 4-lot subdivision plan would never have been filed if the 53-acre subject property were completely incapable of being developed. He surmised that, at the very least, the subject property could be developed as a single-lot plan with Tenney Road as an access point.
Mr. McFadden based the abatement for fiscal year 2009 on his own research, which included a comparable-sales analysis using eleven sales of individual residential lots, occurring during 2006 and 2007, which, collectively, he determined were comparable to the 13-lot subject property. Mr. McFadden submitted a spreadsheet listing: the map/block/lot and address of each of his comparable properties; the size, date of sale, sale price and class of the properties; and the properties’ assessments for fiscal years 2008 and 2009. His spreadsheet did not include any adjustments. As a result of his analysis, Mr. McFadden determined that property values had declined by about 3% from fiscal year 2008 to fiscal year 2009. He thus decided to reduce the subject property’s fiscal year 2009 assessment to $972,200.00.
On the basis of the evidence, the Board found that the appellant failed to prove that subject property could not be developed. After the abutter’s appeal, the Trust never proceeded with the Notices of Intent before the Commission, and it never pursued any of the several other permits which were required for the development of the subdivision. All three of the appellant’s witnesses were mistaken in their assumptions that Cindy Lane was a private road and unable to be used to access the subject property; as evidenced by the tripartite agreement, the use of Cindy Lane as an access point was, at the very least, a possibility. Furthermore, Mr. Wear never developed a conceptual plan for development of the subject property based upon the changes to the Rowley Zoning Bylaw. The Board thus found that he was not in a position to state definitively that development under those new guidelines was prohibited. Moreover, Mr. Wear acknowledged that he thought it was still possible to reconfigure the thirteen lots on the site, or at the very least, to develop the subject property with at least one residential lot. In addition, the prior 4-lot development supported the conclusion that the subject property has development potential.
Ms. Marton also did not establish that the subject property was unbuildable. She, in fact, acknowledged that it was not common to disqualify development of an entire site under MESA requirements. Like Mr. Wear, Ms. Marton also conceded that the Trust never sought the permits needed to develop the subject property. She further admitted that no application was filed with MESA regarding the subject property and that Massachusetts Fisheries and Wildlife never made a determination of a “take” of an endangered species on the subject property. Ms. Marton also acknowledged that the Commission never stated that it would deny the wetlands permit for the subject property, but only that it wanted the Trust to propose a means of access to the site other than Wilson Pond Road. Finally, Ms. Marton conceded that she was never asked by the Trust to consider the development of the subject property as an Open Space Residential District under the Rowley Zoning Bylaw.
On the basis of these findings, the Board found that the appellant failed to prove that the subject property was unbuildable and thus should be valued as conservation land.
Additionally, the Board was not persuaded by the appellant’s valuation evidence, specifically Mr. Noone’s comparable-sales analysis. The Board found that three of Mr. Noone’s four purportedly comparable properties were purchased specifically for conservation purposes, with one of the properties, Sale One, being land-locked. Only one property, Sale Two, was purchased for future development, and Mr. Noone admitted that that property was “very inferior” to the subject property and required substantial adjustment. Moreover, Mr. Noone did not specify any of his adjustments to his purportedly comparable-sales properties for size, topography, frontage and other factors. Because Mr. Noone did not use sales of land that were sufficiently comparable to the subject property, and because he failed to specify adjustments to account for differences between the subject property and the purportedly comparable properties, the Board found that the appellant’s comparable-sales evidence did not constitute persuasive, credible evidence that the subject property was overvalued.
On the basis of the evidence presented, the Board found that the appellant failed to meet its burden of proving that the subject property was overvalued. Accordingly, the Board issued a decision for the appellee in these appeals.
OPINION
Assessors are required to assess real estate at its fair cash value as of the first day of January preceding the fiscal year at issue. G.L. c. 59, §§ 11 and 38. The fair cash value of a property is defined as the price upon which a willing buyer and a willing seller would agree if both are fully informed and under no compulsion. Boston Gas. Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
An assessment is presumed valid unless the taxpayer sustains its burden of proving otherwise. Schlaiker v. Board of Assessors of Great Barrington, 356 Mass. 243, 245 (1974). Accordingly, the burden of proof is upon the appellant to make out its right as a matter of law to an abatement of the tax. Id. The appellant must show that the assessed valuation of its property was improper. See Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 691 (1982). In appeals before this Board, a taxpayer “‘may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984)(quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
“Prior to valuing the subject property, its highest and best use must be ascertained, which has been defined as the use for which the property would bring the most.” Tennessee Gas Pipeline Co. v. Assessors of Agawam, Mass. ATB Findings of Fact and Reports 2000-859, 874 (citing Conness v. Commonwealth, 184 Mass. 541, 542-43 (1903)); see also Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989) (and the cases cited therein). A property’s highest and best use is one that is legally permissible, physically possible, financially feasible, and maximally productive. Appraisal Institute, The Appraisal of Real Estate 279 (13th ed., 2008). See also Skyline Homes, Inc. v. Commonwealth, 362 Mass. 684, 687 (1972); Northshore Mall Limited Partnership et al. v. Board of Assessors of the City of Peabody, Mass. ATB Findings of Fact and Reports 2004-195, 247 (“In determining the property’s highest and best use, consideration should be given to the purpose for which the property is adapted.”) (citing Appraisal Institute, The Appraisal of Real Estate at 315-16 (12th ed., 2001); Tennessee Gas Pipeline Co., Mass. ATB Findings of Fact and Reports at 2000-875).
In the instant appeals, the appellant, while not challenging the subject property’s classification as potentially developable, nonetheless contended that the subject property should be valued as akin to conservation property. However, the Trust did not establish that the Commission definitively denied its 13-lot subdivision plan, much less any development of the subject property; it established only that the Trust needed to draw up a plan with an alternative point of access. All three of the appellant’s witnesses were mistaken in their belief that Cindy Lane could not be used as a point of access, yet as evidenced by the tripartite agreement, the use of Cindy Lane for access was at least a possibility. Furthermore, after the abutter’s appeal, the Trust never pursued the permits required for development of the subject property, and apparently never considered alternative development plans, like reconfiguration of the 13-lot development, revisiting the prior 4-lot subdivision plan, a one-lot residential development, or an Open Space Residential District. The Board thus found and ruled that the appellant failed to meet its burden of proving that the subject property was in fact incapable of development and thus should be valued as akin to conservation land.
The appellant’s valuation evidence was also deficient. Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to determine the fair cash value of property: income capitalization, sales comparison, and cost reproduction. Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978). Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue. Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2008-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff’d, 73 Mass. App. Ct. 1107 (2008). The properties used in a comparable-sales analysis must be comparable to the subject property in order to be probative of the fair cash value. See Anne B. Sroka v. Assessors of Monson, Mass. ATB Findings of Fact and Reports 2009-835, 846 (citing Lattuca v. Robsham, 442 Mass. 205, 216 (2004)). The appellant bears the burden of “establishing the comparability of . . . properties [used for comparison] to the subject property.” Fleet Bank of Mass. v. Assessors of Manchester, Mass. ATB Findings of Fact and Reports 1998-546, 554. Accord New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981). “Once basic comparability is established, it is then necessary to make adjustments for the differences, looking primarily to the relative quality of the properties, to develop a market indicator of value.” Id.
In the instant appeals, Mr. Noone performed a comparable-sales analysis. Three of Mr. Noone’s four comparable-sales properties were conservation lands with no potential for development. Yet, Mr. Noone admitted at the hearing that the 13-lot subdivision was still being appealed and therefore, denial was not final. Mr. Wear also admitted that the subject property had sufficient frontage along Wilson Pond Lane and satisfied the lot size requirement for a one-lot development. As for Mr. Wear’s only potentially developable comparable-sales property, Sale Two, that property was, in his own words, “very inferior” to the subject property. Therefore, the Board found and ruled that Mr. Noone’s analysis failed to include a property sufficiently comparable to the subject property. Moreover, Mr. Noone’s analysis failed to specify adjustments to account for obvious differences between the subject property and its comparison properties where adjustments would have been required for meaningful comparison. The Board thus found and ruled that Mr. Noone’s comparable-sales analysis was not probative evidence of the subject property’s valuation. See, e.g., Diamond Ledge Properties Corp. v. Assessors of the Town of Swansea, Mass. ATB Findings of Fact and Reports 2009-1185, 1192.
On the basis of the evidence provided, the Board found and ruled that the appellant failed to meet its burden of proving a fair market value for the subject property that was lower than that assessed for the fiscal years at issue. The Board therefore decided these appeals for the appellee.
APPELLATE TAX BOARD
By: __________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
KARL W. & ISABEL S. RYAVEC v. BOARD OF ASSESSORS OF
THE TOWN OF PELHAM
Docket No. F306085 Promulgated:
April 6, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Pelham (“assessors” or “appellee”) to abate taxes on certain real estate owned by and assessed to Karl W. & Isabel S. Ryavec (“appellants”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2010.
Commissioner Rose (“Presiding Commissioner”) heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20 and issued a single-member decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
Isabel S. Ryavec, pro se, for the appellants.
Martha Leamy, assistant assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2009, the appellants were the assessed owners of a 4.01-acre parcel of land improved with a Cape Cod-style dwelling located at 29 South Valley Road, Pelham (“subject property”). The subject dwelling has a total of six rooms, including four bedrooms and also two full bathrooms and one half bathroom, with a total finished living area of 1,917 square feet. The exterior is clapboard with an asphalt-shingled, gable roof. The home is heated by radiant, electric heat. Additional features of the home include two fireplaces, an attached two-car garage, and also an unfinished basement.
For the fiscal year at issue, the assessors valued the subject property at $341,000 and assessed a tax thereon, at the rate of $18.34 per thousand, in the amount of $6,253.94. In accordance with G.L. c. 59, § 57C, the appellants paid the tax due without incurring interest. On January 19, 2010, in accordance with G.L. c. 59, § 59, the appellants timely filed an Application for Abatement with the assessors, which the assessors denied on March 3, 2010. In accordance with G.L. c. 59, §§ 64 and 65, the appellants seasonably filed an appeal with the Appellate Tax Board (“Board”) on May 19, 2010. On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
The appellants presented their case through the testimony of Ms. Ryavec, an appraisal report prepared by a professional appraiser, Lisa Lopuk, who was not present and therefore did not testify at the hearing of this appeal, and also a listing of the fiscal year 2008 and fiscal year 2009 assessed values of other properties located in Pelham. Ms. Lopuk’s appraisal report, which was prepared for mortgage refinancing purposes, cited sales of six comparable properties that are located between one-half mile and 1.74-miles away from the subject property. After making adjustments for differences between her purportedly comparable properties and the subject property, Ms. Lopuk arrived at a final estimate of value of $319,000 as of December 2, 2009. The appellants also offered into evidence a listing of the fiscal year 2008 and fiscal year 2009 assessed values of other properties located in Pelham. The assessors offered no evidence of value but instead rested on their assessment.
On the basis of the evidence presented, the Presiding Commissioner found and ruled that the appellants failed to meet their burden of proving that the subject property was overvalued for fiscal year 2010. Because the appellants’ real estate appraiser was not present at the hearing and was, therefore, unavailable for cross-examination by the assessors, the Presiding Commissioner gave no weight to Ms. Lopuk’s opinion of value. Moreover, the Presiding Commissioner found that Ms. Lopuk’s appraisal report contained serious errors and flaws and therefore was unreliable. First, Ms. Lopuk failed to provide the listing of adjustments made and the adjusted sale prices for comparables number one, two and three. Next, Ms. Lopuk failed to provide the sale dates for comparables number five and six. Lastly, Ms. Lopuk failed to include in her appraisal report copies of deeds of her purportedly comparable properties.
Further, the Presiding Commissioner found that the appellants’ listing of the fiscal years 2008 and 2009 assessed values of other Pelham properties lacked any descriptive evidence to establish basic comparability with the subject property. Moreover, the assessed values were not for the fiscal year at issue in this appeal.
The Presiding Commissioner thus found and ruled that the appellants failed to meet their burden of proving that the subject assessment was excessive. Accordingly, the Presiding Commissioner issued a decision for the appellee in this appeal.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed. “‛The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‛presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
In appeals before this Board, a taxpayer “‛may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.’” General Electric Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
“[S]ales of property usually furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 682 (1982). Sales of comparable realty should be within the same geographic area and within a reasonable time of the assessment date to be probative evidence for determining the value of the property at issue. Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2008-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff’d, 73 Mass. App. Ct. 1107 (2008). Moreover, when comparable sales are used, allowances must be made for various factors which would otherwise cause disparities in the comparable properties’ sale prices. See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082 (and the cases cited therein).
In the present appeal, the Presiding Commissioner found that the comparable sales analysis presented in Ms. Lopuk’s appraisal report did not provide reliable or credible evidence of overvaluation. First, she was not present at the hearing and as a result she was not subject to cross-examination. The Presiding Commissioner therefore gave no weight to her opinion of value. See John D. & Jean A. Walachy v. Assessors of Holyoke, Mass. ATB Findings of Fact and Reports 2009-620, 624. Further, the Presiding Commissioner found that the facts contained in Ms. Lopuk’s appraisal report were materially flawed. The Presiding Commissioner found that in her appraisal report Ms. Lopuk failed to provide the sales dates of two of her purportedly comparable properties and also failed to provide copies of the deeds for any of her purportedly comparable properties. Further, Ms. Lopuk’s report failed to include an adjustment analysis for comparable sales number one, two and three. The Presiding Commissioner also found that the appellants’ listing of assessments of other properties for the prior two fiscal year lacked probative weight, both because they failed to provide a sufficient description of the properties to establish basic comparability and because the assessed values were not for the fiscal year at issue.
After evaluating all of the evidence, the Presiding Commissioner found and ruled that the appellants failed to meet their burden of proving that the subject assessment exceeded its fair cash value. Accordingly, the Presiding Commissioner issued a single-member decision for the appellee in this appeal.
APPELLATE TAX BOARD
By: __ James D. Rose, Commissioner
A true copy,
Attest:
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
S. ALTON SMYTH, III & v. BOARD OF ASSESSORS OF
SUSAN C. SMYTH THE TOWN OF UXBRIDGE
Docket No. F307071 Promulgated:
April 13, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Uxbridge (“assessors” or “appellee”) to abate taxes on certain real estate owned by and assessed to S. Alton & Susan C. Smyth (“appellants”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2010 (“fiscal year at issue”).
Chairman Hammond (“Presiding Commissioner”) heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20 and issued a single-member decision for the appellants.
These findings of fact and report are made pursuant to a request by the appellants under G.L. c. 58A, § 13 and 831 CMR 1.32.
S. Alton Smyth, pro se, for the appellants.
Paula Dumont, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
Based on the testimony and exhibits offered into evidence at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2009, the appellants were the assessed owners of a 15.24-acre parcel of real estate, improved with a ranch-style residential dwelling located at 594 Blackstone Street in the Town of Uxbridge (“subject property”). For fiscal year 2010 (“fiscal year at issue”), the assessors valued the subject property at $443,900 and assessed a tax thereon, at the rate of $12.55 per thousand, in the amount of $5,570.95. In accordance with G.L. c. 59, § 57C, the appellants paid the tax due without incurring interest. On February 18, 2010, in accordance with G.L. c. 59, § 69, the appellants filed an Application for Abatement with the assessors, which the assessors denied on March 10, 2010. In accordance with G.L. c. 59, §§ 64 and 65, the appellants seasonably filed their appeal with the Appellate Tax Board (“Board”) on June 1, 2010. On the basis of these facts, the Presiding Commissioner found that the Board had jurisdiction to hear and decide this appeal.
The subject property consists of an approximately 15.24-acre parcel, which is almost rectangular in shape with approximately 299 feet of frontage. The parcel is located at the intersection of Blackstone Street and Millville Road (State Route 122). The parcel is sloping to the rear and is vegetated with grass, shrubs and trees. The parcel is improved with a single-family, one-story, ranch-style home, originally constructed in 1958, with subsequent additions. The subject dwelling has a stone foundation, vinyl siding, and an asphalt-shingle roof. The dwelling has a total of eight rooms, including three bedrooms, as well as two full bathrooms, with a total finished living area of 2,676 square feet. The home also has one fireplace, a one-car attached garage, a full, unfinished basement, and a 432-square-foot porch. The home is heated by an oil-fired, forced hot-air system, and there is also a central air-conditioning system. Electric and telephone utilities are available to the site and the property is served by a private well and septic system. The subject property is also improved with a 936-square-foot free-standing garage building, and also a 2,800-square-foot “Quonset” hut.
The appellants presented their case through the testimony of Mr. Smyth and also the testimony and appraisal report of William F. Curley, whom the Presiding Commissioner qualified as a real estate valuation expert. Mr. Curley’s appraisal report included a comparable-sales analysis using four properties that he deemed comparable to the subject property. Sale number one, located at 73 Ironstone Road, is a 1.4-acre parcel improved with a split-entry style dwelling with a total of six rooms, including three bedrooms and also two bathrooms, with a total living area of 1,445 square feet. There is a two-car under garage. The remainder of the basement is finished and includes a workshop and also a full bathroom. This property sold on April 16, 2008 for $261,000.
Sale number two, located at 139 Oak Street, is a 5.5-acre parcel improved with a Colonial-style home built circa 1880. The dwelling has a total of seven rooms, including four bedrooms and one bathroom, with a total living area of 1,954 square feet. There is a one-car detached garage. This property sold in an estate sale on December 31, 2007 for $290,000.
Sale number three, located at 234 Douglas Street, is a 3.68-acre parcel improved with a gambrel-style log cabin. The dwelling has a total of seven rooms, including four bedrooms and also one full bathroom, with a total living area of 1,760 square feet. There is a two-car detached garage. The property, which was bank owned, sold for $307,500 on June 13, 2008.
Finally, sale number four, located at 580 Blackstone Street, is a 2.04-acre parcel improved with a Colonial-style home, which contains approximately 2,799 square feet of finished living area. The dwelling has a total of nine rooms, including three bedrooms and also two full bathrooms and one half bathroom. There are five fireplaces, a two-car attached garage, and also an in-ground swimming pool and storage shed. The lower level is finished with “in-law” potential and includes a second kitchen, a large family room with a fieldstone fireplace, and a full bathroom. The property sold on March 11, 2009 for $279,000.
Mr. Curley made adjustments to his chosen comparables for various factors including time of sale, living area, age, condition, and number of bedrooms and bathrooms. Having taken these factors into consideration, Mr. Curley arrived at adjusted sale prices for the properties ranging from $265,050 to $322,875, and an indicated value for the subject property of $290,000.
In support of their assessment, the assessors relied on the testimony of Paula Dumont, chief assessor for Uxbridge. Ms. Dumont offered into evidence a list of seven sales of ranch-style homes that sold during 2008 with sale prices that ranged from $188,500 to $440,000. The finished living areas for these properties ranged from 960 square feet to 1,240 square feet. No other information, such as lot size or additional features, was provided. The assessors also offered into evidence a sales-comparison analysis of three ranch-style properties that sold during the period January 25, 2008 through July 29, 2010. These properties ranged in size from 2.16 acres to 7.45 acres, with finished living areas that ranged from 1,240 square feet to 2,916 square feet. The purportedly comparable properties’ sale prices ranged from $315,000 to $440,000, with assessed values that ranged from $336,100 to $504,700.
Based on the evidence presented, the Presiding Commissioner found that the appellants met their burden of proving that the subject property was overvalued for the fiscal year at issue. The Presiding Commissioner found that the best evidence of the subject property’s fair market value as of January 1, 2009, was the March 11, 2009 sale of 580 Blackstone Street. The Presiding Commissioner found that this property, which is located adjacent to the subject property, has a similar location and, although the dwelling is a different style, the condition and finished living area are similar to that of the subject property. The Presiding Commissioner further found, however, that the subject property’s excess acreage and the additional garage and “Quonset” hut warranted an upward adjustment to the sale price.
Accordingly, the Presiding Commissioner determined that the fair cash value of the subject property for the fiscal year at issue was $365,500. The Presiding Commissioner therefore issued a decision for the appellants in this appeal and granted an abatement of $983.92.
OPINION
Assessors are required to assess real estate at its fair cash value as of the first day of January preceding the fiscal year at issue. G.L. c. 59, § 38. The fair cash value of a property is defined as the price upon which a willing buyer and a willing seller would agree if both were fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The burden of proof is upon the taxpayer to make out a right to an abatement. Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974). The assessment is considered to be valid unless the taxpayer meets its burden and proves otherwise. Id. A taxpayer “‘may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984) (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983).
Generally, real estate valuation experts and the Massachusetts courts rely upon three approaches to determine the fair cash value of property: income capitalization, sales comparison, and cost reproduction. Correia v. New Bedford Redevelopment, 375 Mass. 360, 362 (1978). “The board is not required to adopt any particular method of valuation.” Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).
Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue. Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2008-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff’d, 73 Mass. App. Ct. 1107 (2008). When comparable sales are used, however, allowances must be made for various factors which would otherwise cause disparities in the comparable-sales properties’ sale prices. See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082 (and the cases cited therein); Appraisal Institute, The Appraisal Of Real Estate 307 (13th ed., 2008) (“After researching and verifying transactional data and selecting the appropriate unit of comparison, the appraiser adjusts for any differences.”)
Based on the evidence presented, the Presiding Commissioner found that the appellants met their burden of proving that the subject property was overvalued for the fiscal year at issue. The Presiding Commissioner found that the best evidence of the subject property’s fair market value as of January 1, 2009, was the March 11, 2009 sale of 580 Blackstone Street. The Presiding Commissioner found that both the location and finished living area of the dwelling are similar to the subject property. The Presiding Commissioner further found, however, that the subject property’s excess acreage and the additional garage and “Quonset” hut warranted an upward adjustment to the sale price.
“The board [is] not required to believe the testimony of any particular witness but [may] accept such portions of the evidence as appear to have the more convincing weight. Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 72 (1941). “The credibility of witnesses, the weight of evidence, and inferences to be drawn from the evidence are matters for the board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
After evaluating all of the evidence, the Presiding Commissioner found and ruled that the fair cash value of the subject property for the fiscal year at issue was $365,500. Accordingly, the Presiding Commissioner found that the appellants met their burden of proving that the subject property was overvalued for fiscal year 2010. The Presiding Commissioner therefore issued a single-member decision for the appellants in this appeal and granted an abatement in the amount of $983.92.
APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: __________ _____
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
BOSTON GAS COMPANY d/b/a v. THE BOARD OF ASSESSORS
KEYSPAN ENERGY DELIVERY OF THE CITY OF BOSTON
NEW ENGLAND
Docket Nos. Promulgated:
F275055, F275056 April 21, 2011
These Findings of Fact and Report are promulgated simultaneously with the reinstated decision of the Appellate Tax Board (“Board”) on remand pursuant to G.L. c. 58A, §13 and 831 CMR 1.32. These appeals were originally filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the City of Boston (“assessors” or “appellee”) to abate taxes on certain real estate and personal property in the City of Boston owned by and assessed to Boston Gas Company d/b/a Keyspan Energy Delivery New England (“appellant”) under G.L. c. 59, §§ 11, 18 and 38, for fiscal year 2004.
Chairman Hammond heard the appeals and was joined in the original decisions for the appellee by Commissioners Scharaffa, Egan, Rose and Mulhern. The appellant appealed the decisions and the Supreme Judicial Court granted an application for direct appellate review. Following the Court’s remand in part, Chairman Hammond and Commissioners Scharaffa, Egan, Rose and Mulhern join in the reinstated decision for the appellee.
John M. Lynch, Esq. and Stephen W. DeCourcey, Esq. for the appellant.
David L. Klebanoff, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
Background
The subject of these appeals is virtually all of the appellant’s personal and real property comprising its natural gas storage and distribution system located within the City of Boston as of January 1, 2003. On December 16, 2009, simultaneously with the issuance of decisions for the assessors, the Board promulgated its initial Findings of Fact and Report relating to the appeals (“Initial Findings”), which are incorporated herein by reference. In so doing, the Board found and ruled that:
the appellant failed to demonstrate that the fair cash value of the property considered in [the] appeals was limited to its net book value, or to sustain its burden of establishing that the property’s value was less than its assessed value for fiscal year 2004; the assessors presented substantial evidence demonstrating that a potential buyer would pay more than net book value for the personal property at issue in [the] appeals; [assessors’] adjusted RCNLD[42] valuation methodology and net book value, at a one-to-one ratio, provided an appropriate method to value the personal property; based on the combination of RCNLD and net book value, the fair cash value of the personal property as of January 1, 2003 . . . exceeded its assessed value; and the evidence of record did not provide a sufficient basis to estimate the fair cash value of the [real] property.
Boston Gas Company d/b/a Keyspan Energy Delivery New England v. Assessors of Boston, Mass. ATB Findings of Fact and Reports, 2009-1195, 1273.
The Supreme Judicial Court affirmed the Board’s findings and rulings relating to the real property at issue and the Board’s consequent “decision to leave the assessed value undisturbed.”[43] Boston Gas Company v. Board of Assessors of Boston, 458 Mass. 715, 740 (2011). The Court also rejected the appellant’s central assertion that the fair cash value of the property at issue was less than or equal to its net book value, and affirmed, in substantial measure, the Board’s findings and rulings relating to the personal property. Finally, the Court, rejecting several other arguments presented by the appellant, held that:
[t]he board did not err in using a valuation method that equally weighted net book value and RCNLD. Further, the board did not err in taking account of evidence from after the assessment date, or in its weighing of evidence related to the assessors’ expert’s credibility, the impact of cast-iron replacement regulations, or the assessments of other utility properties in Massachusetts.
Id.
The Court remanded the personal property appeal with respect to three discrete elements of the assessors’ income-capitalization methodology, which the Board had adopted for the limited purpose of deriving the economic obsolescence component of the RCLND methodology. In particular, the matter was remanded for further consideration, consistent with the Court’s opinion, of the Board’s:
(1) . . . decision not to use a tax factor to account for property taxes in the income capitalization analysis; (2) . . . exclusion of 2001 EBITDA[44] from the average EBITDA generated by the company’s personal property; and (3) the assessors’ expert’s alleged failure to account for Colonial Gas’s EBITDA in Keyspan Corporation’s acquisition of Eastern Enterprises.
Id.
OPINION
Use of a Tax Factor
Having observed that the Board made no reference in the Initial Findings to the absence of a tax factor in the income-capitalization analysis presented by George Sansoucy, the assessors’ valuation expert, the Court noted its prior discussions regarding incorporation of a tax factor in an income-capitalization analysis and made specific reference to “the logic underlying its use.” Id. at 735. While the Court declined to hold that a tax factor must be employed in income-capitalization analyses, the Court concluded that “[g]iven the board’s expressed preference for the use of a tax factor, the frequent use of a tax factor in income capitalization analyses, the consideration of its use by this court, and its potential importance in this case, we conclude that the board should have addressed this issue.” Id.
Although not discussed in the Initial Findings, the Board eschewed the use of a tax factor for several reasons. As a threshold matter, and consistent with its decisions in recent utility company appeals, the Board recognizes here “the inherent difficulty in quantifying economic obsolescence” when estimating the value of utility property using an RCNLD approach. Verizon New England, Inc., Consolidated Central Valuation Appeals, Mass. ATB Findings of Fact and Reports, 2009-851,937; see also MCI Consolidated Central Valuation Appeals, Mass. ATB Findings of Fact and Reports, 2008-855; aff’d in relevant part, 454 Mass. 635 (2009). Over the years, appellants and appellees alike have presented numerous and frequently disparate methodologies in their attempts to quantify this elusive measure. See Verizon New England, Inc., Mass. ATB Findings of Fact and Reports at 2009-882,883, 885-887; MCI, Mass. ATB Findings of Fact and Reports at 2008-301-303, 308-310; Tennessee Gas Pipeline Company v. Assessors of Agawam, Mass. ATB Findings of Fact and Reports, 2000-859, 867.
In the present appeal, to arrive at an estimate of economic obsolescence, the Board adopted the approach used by Mr. Sansoucy, in which he derived an “EBITDA multiplier” from six market sales, which he then applied to an “average” EBITDA associated with the subject property. Mr. Sansoucy then used the product of that calculation, which represented his value under the income-capitalization approach, to determine the percentage difference between his income value and his higher RCNLD value (before economic obsolescence). The difference quantified the amount of external obsolescence that he applied in his RCNLD methodology. For each of the years used to arrive at the average EBITDA, Mr. Sansoucy accounted for the appellant’s property tax expense as a deduction, and his multiplier did not include a tax factor.
When using an income approach to value property for ad valorem tax purposes, it is ordinarily desirable to load the cap rate or multiplier with a tax factor instead of “expensing” the ad valorem tax. This practice is based on the premise that ad valorem taxes are determined by the value of the property at issue. Therefore, it would not be proper to include the disputed tax assessment in the expenses leading to the net income or earnings that are used to estimate the subject property’s value. See Boston Gas Company, 458 Mass at 734, 735 (citations omitted).
In its methodology, the Board did not use an income-capitalization approach to directly value the subject property. Rather, the Board adopted the income method to attempt to quantify one category in its RCNLD methodology – economic obsolescence. Because the Board did not directly value the subject property using an income approach, expensing the personal property taxes was appropriate, particularly where the Board utilized a range of varying EBITDAs over several years, which were coupled with varying personal property ad valorem tax expenses over those same years.
Because the rates that regulated utilities are entitled to charge include reimbursements for previously paid ad valorem personal property taxes, the rate-payers reimburse the appellant for prior years’ taxes. Reducing EBITDA by the ad valorem tax more recently paid adequately accounts for these taxes in a methodology that is intended to quantify economic obsolescence in a RCNLD approach.
Moreover, the economic obsolescence associated with the property’s highly regulated earnings is taken into account by blending the subject property’s net book value with the value derived from the RCNLD approach. Accordingly, if anything, the Board underestimated the value of the subject property by adopting Mr. Sansoucy’s approach to economic obsolescence because Mr. Sansoucy did not use a blended approach, as did the Board, to value the property. Mr. Sansoucy’s sole measure of economic obsolescence was in his RCNLD methodology. The Board used two measures. Consequently, the Board’s estimate of the subject property’s value constitutes a floor.
Exclusion of 2001 EBIDTA
As part of its discussion relating to the development of Mr. Sansoucy’s EBITDA multiplier, the Court observed that:
[r]ather than capitalizing a single year of the company’s EBITDA from the subject property, [Mr. Sansoucy] chose to “smooth” the EBITDA estimate by taking a seven-year sample of the company’s annual EBITDA figures. Those years were calendar years 1997 through 2003. [Mr. Sansoucy] eliminated year 2000, the year for which there was the lowest EBITDA, for reasons that are not challenged by the company. He also eliminated year 2001, the year for which there was the second-lowest EBITDA, on account of the abnormal amounts of deferred income taxes and amortization expenses that were taken that year.
Noting that “neither income taxes nor amortization expenses enter into EBITDA,” a fact that Mr. Sansoucy acknowledged in his testimony, the Court stated that it could “discern no reason from the evidence in the record why abnormal depreciation and amortization expenses [] or a Federal income tax issue . . . should result in the exclusion of the 2001 EBITDA figure, and the board’s statement on the issue does not clarify its decision in that regard.”
While not discussed in the Initial Findings, the Board’s determination was not based on the presence of the anomalous amounts of deferred income taxes and amortization expenses, but by its own observations relating to the company’s figures for 2001, as well as Mr. Sansoucy’s inference that the cited anomalies were indicative of other significant issues which, on balance, rendered the 2001 EBIDTA of no utility in developing the EBITDA multiplier. In particular, the Board was influenced by 2001’s atypical expense ratio, its substantially negative sum relating to income taxes, and perhaps most significantly, the fact that the average EBITDA as a percentage of total operating revenue for the years presented was more than 50% higher than the percentage for 2001. In addition, the Board found that many of the anomalies appeared to be tied to the prior year’s acquisition of Eastern Enterprises. Absent countervailing evidence in the record indicating that the 2001 EBITDA should have been included in the sample, the Board therefore agreed with Mr. Sansoucy’s decision to remove it from his calculation as part of his smoothing process.
Notwithstanding the foregoing, even if the Board had not excluded the 2001 EBITDA from the sample, the subject property’s valuation would still have exceeded its assessed value, as indicated, infra, at p. 278.[45]
EBITDA Ratio
After having discussed the derivation and use of the EBITDA multiplier in Mr. Sansoucy’s income-capitalization analysis, the Court focused on Keyspan Corporation’s acquisition of Eastern Enterprises, one of the six sales used by Mr. Sansoucy to derive the multiplier. Specifically, the Court reiterated the appellant’s assertion that the transaction’s sale price from the year 2000 included the amount paid for Colonial Gas, an entity previously acquired by Eastern Enterprises, but the EBITDA employed by Mr. Sansoucy improperly failed to include the contribution to EBITDA made by Colonial Gas.
The Board agrees with the appellant with respect to this issue. Mr. Sansoucy used an EBITDA of $175,926,000, which related to the year ended 12/31/98. Eastern Enterprises acquired Colonial Gas in August of 1999. Thus, Mr. Sansoucy’s chosen EBITDA failed to appropriately reflect the contribution to earnings of Colonial Gas. The record, however, contains an EBITDA figure for the year ended 12/31/99, which not only reflects the contribution made by Colonial Gas but is proximate in time to the Keyspan/Eastern Enterprises acquisition. The Board thus finds that this sum, $194,812,000, should be employed to calculate the Eastern Enterprises sale price to EBITDA ratio, which reduces the ratio for this transaction from 12.8 to 11.55.[46] In turn, the average of the six ratios used to derive the EBITDA multiplier is reduced from 11.7, which had been adopted by the Board in the Initial Findings, to 11.57.[47]
Incorporation of Adjustment
The product of the EBIDTA multiplier and the adjusted EBITDA yields an indicated value under the income-capitalization approach. In the Initial Findings, as previously noted, the Board adopted $28,791,500 as the adjusted EBITDA and 11.7 as the EBITDA multiplier, the product of which is $336,860,550. The revised EBITDA multiplier of 11.57 multiplied by the adjusted EBITDA of $28,791,500 yields a value of $333,117,655 under the income-capitalization approach. This reduction in value increases the economic obsolescence allowance from 10.2%, as adopted in the Initial Findings, to 11.2%.[48] In turn, the indicated value under the RCNLD approach is reduced from $336,848,000 to the rounded sum of $333,097,000.
The final valuation of the subject property, which affords equal weight to RCNLD and net book value, is $246,127,000,[49] a sum which is slightly less than the $248,000,000 valuation adopted by the Board in the Initial Findings, but which exceeds the subject property’s assessed value of $223,200,000 for fiscal year 2004.[50]
Effect of Blended Valuation Methodology
Lastly, the Board considered the remand an opportunity to review the record anew, as well as its findings relating to its use of economic obsolescence in its RCNLD method. Having done so, the Board now finds that economic obsolescence is likely fully accounted for by including net book value as a 50% component in a blended approach to value, thereby obviating the need to incorporate a category of economic obsolescence in its RCNLD methodology. In fact, on more than one occasion when valuing a regulated utility property using a blended approach that incorporates net book value along with another valuation method which has an economic obsolescence component, the Board has removed the economic obsolescence element from the other valuation method on the theory that the blending of the net book value otherwise and adequately accounts for any economic obsolescence. See, e.g., Tennessee Gas Pipeline Company, Mass. ATB Findings of Facts and Reports at 2000-870-871 & 883; see also Boston Edison Co. v. Board of Assessors of Everett, Mass. ATB Findings of Facts and Reports 1996-759, 808, 810-811 & 849. Had the Board similarly removed the economic obsolescence component in this appeal, the rounded indicated value of the subject property would have been $267,133,000, representing an equal weighting of net book value and $375,109,000, the RCNLD value before incorporation of an allowance for economic obsolescence.
Based on the foregoing, the Board decided this appeal for the appellee.
THE APPELLATE TAX BOARD
By:_______________________________
Thomas W. Hammond, Jr. Chairman
A true copy,
Attest: __________ _____
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
GENZYME CORPORATION, et al.[51] BOARD OF ASSESSORS OF
THE CITY OF CAMBRIDGE
Docket Nos. F277284, F282964, Promulgated:
F287968, F294379, May 4, 2011 F299101
These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the appellee Board of Assessors of the City of Cambridge (“appellee” or “assessors”) to abate taxes on real estate located at 500 Kendall Street in Cambridge (“subject property”). The fiscal year 2005 and 2006 appeals were brought under G.L. c. 59, § 59 by Genzyme Corporation (“Genzyme”) as a tenant paying rent and under an obligation to pay more than one-half of the taxes assessed. The fiscal year 2007 through 2009 appeals were brought by BMR-500 Kendall Street, (“BMR-500 Kendall”) LLC, which was the assessed owner of the subject property as of January 1, 2006, January 1, 2007, and January 1, 2008. Genzyme and BMR-500 Kendall will hereafter collectively be referred to as the appellants.
Commissioner Mulhern heard these appeals, and was joined by Chairman Hammond and Commissioners Scharaffa, Egan, and Rose in the decisions for the appellants in docket numbers F277284, F282964, F287968, and F294379 and in the decision for the appellee in docket number F299101. On its own motion, the Board issued a revised decision for the appellant in Docket No. F282964, which is promulgated simultaneously with these findings. These findings of fact and report are made at the request of the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
John M. Lynch, Esq. and Stephen W. DeCourcey, Esq., for the appellants.
Anthony M. Ambriano, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
The hearing of these appeals took place over ten days, during which numerous exhibits and the testimony of six witnesses were offered into evidence. The appellants’ witnesses were Robert Reardon, Director of Assessment for Cambridge; Lillian Orchard, the commercial review appraiser for the Cambridge Assessing Department; Emmet Logue, President of Hunneman Appraisal & Consulting, Inc. and a licensed real estate appraiser; Joseph P. Flaherty, Executive Vice President of Colliers, Meredith, & Grew, and Steven Moran, Genzyme’s Facilities Operations Manager. The appellee called one witness, Pamela McKinney, President of Byrne McKinney, & Associates and a licensed real estate appraiser. To assist in the fact-finding process, the Appellate Tax Board (“Board”) took a view of the subject property as well as several of the comparable properties selected by the parties’ experts. Based on those views, along with the testimony and exhibits offered at the hearing of these appeals, the Board made the following findings of fact.
The Subject Property
The subject property is a 35,754 square foot parcel of land improved with a 349,325 square foot, 12-story office building, known as Genzyme Center (“Genzyme Center” or “subject building”). It was constructed between 2001 and 2003 to serve as the corporate world headquarters for Genzyme, which has a global work force of approximately 10,000 and is among the world’s foremost biotechnology companies. Genzyme Center was designed to meet the green building standards of the U.S. Green Building Council. That organization has granted Genzyme Center Leadership in Energy and Environmental Design (“LEED”) certification at its highest level, the platinum level. It is one of only 13 buildings in the United States to receive the platinum designation.
Genzyme’s website contains a narrative describing the inspiration for and design of Genzyme Center, and excerpts from that website were entered into evidence. According to the narrative, as Genzyme approached its 20th anniversary, it sought to build a new global headquarters building. Specifically, Genzyme desired “a signature building that would stand as a reflection of its core values and a symbol of its established position . . . a bold building that would make a statement about the values that have driven its success.” Genzyme achieved its goal with the construction of Genzyme Center, which was the winner of the 2008 Boston Society of Architects’ prestigious Parker Medal. The Boston Globe’s architecture critic described Genzyme Center as “the best and most delightful office building, bar none, this writer has seen in the Boston area.”
Genzyme Center features a slab foundation with a steel and reinforced concrete frame. There are tilt-up insulated glass building sidewalls, with some windows featuring operable sashes to allow for fresh air flow. The building’s roof deck is metal and has a rubber membrane cover. There are gardens on the roof, which prevent excessive water run-off and absorb heat, as well as 18 different gardens in the building’s interior.
The doors to the building’s lobby are full view aluminum framed thermal pane revolving units. The building also has loading docks with overhead door entry into a modest shipping and receiving area on the ground floor. Interior finishes include a mix of carpet, hardwoods, concrete pavers, and marmoleum flooring. Interior walls are either sheetrock or glass while the ceilings are predominantly suspended. The first floor contains a large lobby with retail space around its perimeter. The retail area totals 6,325 square feet, and was vacant and in shell condition during the periods at issue. A large formal staircase leads to the second floor, which houses a concierge and building security.
Genzyme Center’s defining interior feature is its large, floor-to-roof core atrium. The atrium is an integral part of the building’s green design. Suspended in the atrium is one of the building’s signature elements, a chandelier-like series of hanging prisms which distribute natural light throughout the building. The atrium’s large size and penetration through the building’s core also promote the circulation of fresh air. As a result of the atrium at the subject building’s core, the upper floors have staggered floor plates, with the center of each floor exposed to the atrium. The interior wall partitions are glass, allowing maximum light within. Floor layouts are primarily open space, with private offices around the perimeter of each floor. Each floor also has a kitchenette and open meeting spaces. There is a company cafeteria on the 12th floor and an amphitheater on the first floor. The subject building is serviced by six passenger elevators, two of which are glass-walled and exposed to the atrium.
Genzyme Center’s mechanical systems are considered state of the art and were designed for maximum energy efficiency. The source of heat for the subject building is steam from a steam plant located adjacent to the subject property. The heating, cooling and lighting systems operate with sensors to minimize use. The roof is equipped with solar panels to help reduce electricity usage. Computer-controlled interior window blinds are located throughout the subject building. They open by day to maximize the use of natural light and close by night to promote the retention of heat and reduce light pollution.
All wood used for the flooring in Genzyme Center was procured from within a 500-mile radius, and concrete used in the subject building contains a substantial amount of recycled materials. Additional green building features include the so-called “smart plumbing” system, which involves low-flow fixtures, waterless urinals, and dual-flush toilets, all of which substantially reduce water use.
Statements published by Genzyme, which were entered into evidence, assert that the subject building’s design, including its atrium, positively impacts the workforce it houses. According to Genzyme’s publications, surveys conducted by Genzyme showed that the vast majority of employees reported that they felt “more alert and productive” while working at Genzyme Center and that the building’s open design increased their “sense of connection with colleagues.”
The subject property is located in Cambridge Research Park (“CRP”), a 1.275 million square-foot mixed-use site that contains six primary development sites. Several of the sites were still under development and were not completed or occupied as of the relevant dates of assessment. CRP is located in East Cambridge, in close proximity to Kendall Square. CRP is a contaminated site, but has been remediated to meet the standards of the Massachusetts Department of Environmental Protection. As a result, the subject property is subject to an Activity and Use Limitation.
CRP is located in a zoning district designated as Office 3A/Planned Unit Development District 3 (“PUD-3”). Development in any PUD-3 area is allowed only by special permit granted by the Planning Board. A copy of the Planning Board’s Final Development Plan Decision (“Decision”) granting a special permit (“special permit”) for the development of CRP was entered into evidence. According to the Decision, approval for the development of CRP was predicated on, among other things, the inclusion of retail uses within the development. This requirement was set to promote the local availability of services and products for people living and working within CRP, which would in turn reduce the overall traffic flow by eliminating the need to procure such products and services off-site. Lillian Orchard of the Cambridge Assessing Department, who testified at the hearing of these appeals, confirmed in her testimony that Cambridge required the subject property to include retail uses. To the extent that it is a finding of fact, the Board found that the special permit required the subject property to have a retail component.
The subject property is an irregularly shaped parcel and is level at grade with the surrounding streets. It has frontage on both Kendall and Athenaeum Streets. Parking for the subject property is located at a nearby underground garage to which the subject property has an easement granting it the right to a number of paid parking spaces. The subject property is also accessible via public transportation, as it is a few blocks from the Kendall Square MBTA stop and approximately one-half mile from the Lechmere MBTA stop, along with various bus routes.
Ownership and Jurisdiction
From 2002 through 2005, the subject property was owned by Kendall Square, LLC or its subsidiary, KS Parcel A/D, LLC, and leased in its entirety by Genzyme. The lease for the subject property was originally signed on August 28, 2000, for commencement on December 1, 2002 for a term of 15 years, with options to extend the lease period. The annual rent paid by Genzyme in accordance with that lease was calculated by dividing the project cost by the total rentable area, and then multiplying that figure by 12%. Genzyme was also responsible for payment of the real estate taxes. The lease was subsequently amended in August of 2003. The terms of the amended lease called for rent to be paid at a rate of approximately $44.00 per square foot for years one through nine of the lease term, increasing to approximately $54.00 per square foot for years ten to 15, with Genzyme again responsible for payment of the real estate taxes.
In May of 2005, the subject property was sold as part of a multi-property portfolio sale to BMR-500 Kendall for an attributed sale price of $191,960,000. Accordingly, on January 1, 2004 and January 1, 2005, Genzyme, was a tenant under obligation to pay 50% or more of the property taxes on the subject property, and on January 1, 2006, January 1, 2007, and January 1, 2008, BMR-500 Kendall was the assessed owner of the subject property.
The following table sets forth the assessed values, tax rates, and total taxes assessed for the subject property for each of the fiscal years at issue.
|
Fiscal Year |
Assessed Value($) |
Tax Rate ($)/$1,000 | Total Taxes Assessed ($)[52] |
|
2005 |
113,843,100 |
18.28 |
2,143,428.59 |
|
2006 |
130,793,100 |
17.86 |
2,405,990.13 |
|
2007 |
130,793,100 |
18.30 |
2,465,264.24 |
|
2008 |
134,544,100 |
17.24 |
2,389,074.77 |
|
2009 |
134,456,100 |
17.97 |
2,488,661.40 |
The appellants timely paid the taxes assessed without incurring interest. The following table sets forth additional relevant jurisdictional information.
|
Fiscal Year |
Abatement Apps. Filed |
Dates of Denials |
Petition Filed with Board |
|
2005 |
12/1/04 |
12/10/04 |
3/10/05 |
|
2006 |
11/14/05 |
12/22/05 |
3/22/06 |
|
2007 |
11/20/06 |
12/14/06 |
3/14/07 |
|
2008 |
11/19/07 |
1/22/08 |
4/22/08 |
|
2009 |
11/24/08 |
12/12/08 |
3/11/09 |
As evidenced by the foregoing, the appellants timely filed their abatement applications with the assessors and also timely filed their petitions with the Board. Accordingly, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
The Appellants’ Valuation Evidence
The appellants subpoenaed Lillian Orchard of the Cambridge Assessing Department to appear and testify. Ms. Orchard prepared the mass appraisal valuation analysis on which the assessors relied in assessing the subject property. She testified that the assessors used the income-capitalization approach to value the subject property.
For fiscal years 2005, 2006, and 2007, the assessors began with a base rent of $35.00 per square foot for the subject property’s office area, but after upward adjustments for such factors as location and condition, they used a rent of $45.15 per square foot, with operating expenses of $8.79 per square foot.[53] For fiscal years 2008 and 2009, the assessors began with a base rent of $36.00 per square foot, but made adjustments for the factors mentioned above, resulting in a rent of $52.70 per square foot for the office portion of the subject property. They used operating expenses of $9.04 per square foot for fiscal year 2008 and $10.51 per square foot for fiscal year 2009.
For the subject building’s retail area, the assessors used a rent of $16.00 per square foot for fiscal years 2005 through 2007, with operating expenses of $2.66 per square foot. For fiscal year 2008, the assessors began with a base rent of $18.00 per square foot, but after adjustments, used a rent of $28.51 per square foot, with operating expenses of $3.31 per square foot. For fiscal year 2009, the assessors began with a base rent of $25.00 per square foot, but after adjustment, they used a rent of $41.25 per square foot, with operating expenses of $5.09 per square foot.
In addition, Ms. Orchard testified that the assessors used a flat vacancy rate of 5%, which was the vacancy rate used across Cambridge for all of the fiscal years at issue.
The appellants’ case-in-chief relied principally on the testimony and self-contained appraisal report of real estate appraiser Emmet Logue, whom the Board qualified as an expert in real estate valuation. At the time of hearing, Mr. Logue had nearly 40 years of experience as an appraiser. A Member and Senior Residential Appraiser of the Appraisal Institute, and also a member of the Counselors of Real Estate, Mr. Logue is the President of Hunneman Appraisal and Consulting Company. During his career, Mr. Logue has appraised numerous office towers in Boston. He also has extensive experience valuing commercial properties in Cambridge. Mr. Logue has conducted appraisals for industrial and research and development properties and more than 30 office properties in Cambridge, some of which have involved fiscal years overlapping with the fiscal years at issue in these appeals.
Mr. Logue inspected the interior of the Genzyme Center on September 22, 2009 and also inspected its exterior on numerous occasions. In addition, to assist in the preparation of his appraisal, Mr. Logue reviewed deeds, site and plot plans, and also consulted with an architect with knowledge of Genzyme Center to assist in estimating its total rentable area. He also reviewed local zoning requirements and conducted discussions with local brokers and property managers.
Mr. Logue considered Genzyme Center to be class A office space and in excellent condition. Based on its size, design, and other salient characteristics, Mr. Logue concluded that the highest and best use of the subject building was its continued use as a single-tenant office building with a small retail component. In so concluding, Mr. Logue noted that Genzyme Center’s large center atrium, its lighting design, and its heating and cooling systems would make it difficult to subdivide for occupancy by multiple tenants. Further, although it is located in an area occupied by labs and other biotechnology companies, in Mr. Logue’s opinion, the subject building was not suited for conversion to lab space because it lacked necessary ventilation and fire protection features and its twelve floors had lower ceiling heights than are generally suitable for housing the mechanical and electrical equipment associated with laboratory operations.
Mr. Logue considered the three basic approaches to value. Although the subject building was essentially new as of the first date of valuation, the relevant dates of valuation followed periods of declining rents, substantial vacancy, and increasing construction costs, making it difficult to estimate economic obsolescence. Mr. Logue therefore ruled out the cost reproduction approach, because it was not, in his opinion, likely to yield a reliable estimate of the subject property’s fair cash value. In reaching this conclusion, Mr. Logue noted that the plans and lease terms for the subject property were established in late 2000, which was the peak of the office/lab market in Cambridge.
Mr. Logue also rejected the sales-comparison approach because he concluded that most of the sales of comparable properties occurring within the relevant time period were sales of properties which were encumbered by leases, and thus involved the transfer of leased-fee interests, rather than fee-simple interests. Mr. Logue therefore concluded that the sales of those properties were not useful in determining fee-simple values for office properties in Cambridge. Similarly, Mr. Logue declined to place weight on the actual sale of the subject property, which sold in May of 2005 as part of a multi-property portfolio sale. Mr. Logue ultimately utilized the income-capitalization method to derive estimates of fair cash value for the subject property.
In applying the income-capitalization methodology, Mr. Logue separately estimated market rents for the retail and office portions of the subject property. To estimate market rent for the 6,325 square feet of retail space at Genzyme Center, Mr. Logue selected seven retail leases from five properties in East Cambridge. Six of the retail leases he reviewed were signed in 2004 while one was signed in 2005. They involved spaces ranging in size from 681 to 3,900 square feet, with rents ranging from $20.39 to $33.50 per square foot.[54] Five of the seven retail leases were triple-net leases.[55] Based upon these rents, and the limited demand for the retail space at the subject property, Mr. Logue estimated the fair market rent of the subject property’s retail space to be $21.00 per square foot, on a triple-net basis. It was Mr. Logue’s opinion that this rent would apply to each of the fiscal years at issue because the retail market in East Cambridge remained fairly stable during that period.
In order to estimate the market rents for the office portion of the subject property, Mr. Logue selected a total of 27 leases for office properties in East Cambridge which he deemed comparable to the subject property. Because these appeals span five fiscal years, Mr. Logue separated his market rent data into two groupings. The first set, which appears in his appraisal report as Table A, contained 14 leases in ten different buildings. The leases in Mr. Logue’s Table A were signed between mid-2003 and late 2006. The second set, which appears in his appraisal report as Table B, contained 13 leases in nine different buildings. The leases in Mr. Logue’s Table B were signed between mid-2006 and early 2008.
The leases contained in Table A involved spaces ranging in size from 8,767 to 73,199 square feet. The leases in Table B involved spaces ranging in size from 11,008 to 193,800 square feet. Table A rents ranged from $23.00 to $38.00 per square foot, while Table B rents ranged from $25.96 to $53.00 per square foot.
Based on his review of market reports, his conversations with brokers and property managers, and his own recent appraisal experience, Mr. Logue formed the opinion that rents in Cambridge declined by 5% between 2004 and 2005, but remained stable between 2005 and 2006. He further concluded that rents increased by 15% during 2006 and by 20% during 2007, before stabilizing in early 2008. Mr. Logue therefore adjusted the rent data from his selected comparable leases to account for differences in time.
After adjustment for time, Mr. Logue’s comparable rents ranged from $21.30 to $38.95 per square foot for fiscal year 2005; $20.25 to $37.00 per square foot for fiscal years 2006 and 2007; $28.00 to $42.61 for fiscal year fiscal year 2008; and $33.60 to $51.45 per square foot for fiscal year 2009. Based on this data, Mr. Logue formed a preliminary opinion of market rent for the subject property in the following amounts: $35.00 per square foot for fiscal year 2005; $33.50 per square foot for fiscal years 2006 and 2007; $39.00 per square foot for fiscal year 2008; and $46.50 per square foot for fiscal year 2009.
However, Mr. Logue made a final adjustment to these rents to account for Genzyme Center’s so-called “add on” factor. This “add on” factor, according to Mr. Logue, was attributable to Genzyme Center’s substantial, 12-story atrium, which rendered much of the building’s area unrentable as office space. Mr. Logue opined that, though it had positive aesthetic and functional qualities, the subject building’s atrium was a “significant drawback.” After reviewing Building Owners and Managers Association (“BOMA”) standards as well as calculations created by an architect familiar with Genzyme Center, Mr. Logue concluded that the disparity between rentable and usable area at Genzyme Center was approximately 30%, in contrast to an average of approximately 10% or less in his selected comparable leases. In addition, Mr. Logue’s discussions with local brokers confirmed that rentable areas in the East Cambridge market generally do not include atrium space. Accordingly, Mr. Logue decreased his estimates of market rent by 5% to account for this “add on” factor. Mr. Logue’s final estimates for fair market rent for Genzyme Center’s office space were: $33.25 per square foot for fiscal year 2005; $32.00 per square foot for fiscal years 2006 and 2007; $37.00 per square foot for fiscal year 2008; and $44.25 per square foot for fiscal year 2009.
Mr. Logue next focused on choosing appropriate vacancy and rent loss estimates. To determine these estimates, Mr. Logue consulted market reports, which indicated that East Cambridge office vacancy rates peaked between January 1, 2004 and January 1, 2005, at which time they were as high as 18%. Mr. Logue further testified that vacancy in the East Cambridge office market began to improve thereafter, with vacancy rates from 6.5% to 8% by January 1, 2008. Based upon this data, Mr. Logue concluded that appropriate vacancy rates for the subject property were: 14% for fiscal year 2005; 13% for fiscal year 2006; 11% for fiscal year 2007; 10% for fiscal year 2008; and 9% for fiscal year 2009.
To determine appropriate operating expenses, Mr. Logue reviewed the actual reported expenses for Genzyme Center, including information provided to him by Steven Moran, who was the Facilities Operations Manager for Genzyme, as well as actual reported expenses for several other East Cambridge office properties. The actual expense figures for Genzyme Center obtained by Mr. Logue were in the $10.00 to $12.00 per square foot range, with the exception of 2004, during which the reported expenses were approximately $7.20 per square foot. Mr. Logue considered the 2004 expenses anomalous and did not include them in his considerations because, according to his appraisal report, they did not include expenses for housekeeping, janitorial, and landscaping, among other categories. Mr. Logue stated that Genzyme Center’s reported expenses were considerably higher than other class A office properties in Cambridge, which he attributed to its status as a headquarters building and its unique, green design.
Mr. Logue’s assumptions were confirmed by the testimony of Steven Moran, who testified at the hearing of these appeals. The Board found him to be credible. Mr. Moran testified that he supervises a team of 11 individuals who collectively maintain and manage three facilities for Genzyme in Cambridge. Those three facilities include the subject building, an office at 55 Cambridge Parkway, and an office at 675 West Kendall Street, a property which is adjacent to the subject property.
Mr. Moran testified about the efforts required to clean and maintain Genzyme Center. Rather than traditional walls, Genzyme Center has many interior windows and glass wall partitions, which allow for the open flow of light and air and which create a more open, accessible atmosphere. Mr. Moran testified that his staff is responsible for cleaning the interior windows, and at certain points, there are as many as 14 layers of windows from one side of the building to the other. Mr. Moran further testified that cleaning these interior walls and windows involves rappelling down the interior of the building. Similarly, Mr. Moran stated that his staff is also responsible for cleaning the interior prism chandelier, which requires a staff member to be suspended from the ceiling. Additionally, Mr. Moran testified that Genzyme Center’s 18 interior gardens require considerable maintenance, as do the waterless urinals, which need to be cleaned more extensively on a periodic basis than full-flow fixtures.
Mr. Moran testified that he provided Mr. Logue with expense figures for the cleaning, maintenance and labor costs attributable to Genzyme Center, which had not been reported by the landlord because the landlord is generally not responsible for those expenses.[56] Because he concluded that the operating expenses at Genzyme were higher than the operating expenses at most class A office buildings in Cambridge, Mr. Logue adopted expense figures which were more in line with the market. Those expenses were: $7.00 per square foot for fiscal year 2005; $7.25 per square foot for fiscal year 2006; $7.50 per square foot for fiscal year 2007; $7.75 per square foot for fiscal year 2008; and $8.00 per square foot for fiscal year 2009. He applied these operating expenses to the office area of the subject building, but not the retail area, because of his assumption that the retail area was leased on a triple-net basis.
Because the subject building was essentially new construction and in excellent condition during the fiscal years at issue, Mr. Logue concluded that $0.25 per square foot was a realistic estimate of replacement reserves, which are amounts allocated for the periodic replacement of items such as roofs, HVAC systems, and the like. In addition, Mr. Logue allowed $0.60 per square foot for leasing commissions, which in his opinion, were likely to be annualized expenses absorbed by the landlord.
Although some of Mr. Logue’s chosen comparable leases were “as is” leases, most of the leases involved allowances for tenant improvements (“TIs”). The TIs in the Table A leases ranged from $7.00 to $70.00 per square foot, while the TIs in Table B leases ranged from $11.00 to $45.00 per square foot. Mr. Logue’s assumptions for market rent assumed a TI allowance of $15.00 per square foot, amortized at 6% over the lease term, which he assumed was five years. He further assumed 35% to 50% tenant rollover probability. With these assumptions, Mr. Logue’s calculated TI allowance ranged from $1.25 to $1.75 per square foot. Given the class A quality of the subject property, among other factors, Mr. Logue considered it appropriate to select from the low end of that range, and he therefore applied a TI allowance of $1.25 per square foot for the 343,000 square feet of office space in the subject building. Mr. Logue did not apply a TI to the retail space because he noted that expenses associated with build-out of retail space are usually borne by the tenant.
The final step in Mr. Logue’s income-capitalization analysis was the selection of appropriate capitalization rates. To determine appropriate capitalization rates, Mr. Logue first used the mortgage equity technique, from which he derived the following capitalization rates: 7.6% for fiscal year 2005; 7.1% for fiscal year 2006; 6.9% for fiscal year 2007; 6.7% for fiscal year 2008; and 6.6% for fiscal year 2009. Mr. Logue also consulted the Korpacz Real Estate Investor Survey (“Korpacz Survey”) for the fourth quarter immediately preceding each of the relevant valuation dates. He considered Genzyme Center to be an institutional grade property because of the excellent quality of the building and the strong identity of the East Cambridge office/lab market. According to the Korpacz Survey, capitalization rates declined steadily during the fiscal years at issue, from an average of 9.26% in the fourth quarter of 2003 to an average of 7.21% in the fourth quarter of 2007. Based on the market data and his own appraisal experience, Mr. Logue concluded that realistic capitalization rates for the subject property were: 7.75% for fiscal year 2005; 7.25% for fiscal year 2006; 7.00% for fiscal year 2007; 6.75% for fiscal year 2008; and 6.50% for fiscal year 2009. Mr. Logue noted that these rates were near the low-end of the range of rates suggested by the Korpacz Survey because he took into consideration, among other things, the fact that the net operating incomes which he calculated were capitalized after deductions for leasing commissions and TIs, while the capitalization rates reported in the Korpacz Survey were based on net operating incomes that included leasing commissions and TIs. To each of these rates, Mr. Logue added tax factors, which he prorated to account for his assumption that 1.81% of the building was occupied by retail space leased on a triple-net basis.
The pro forma income and expense analyses offered by Mr. Logue are presented in the following tables:
Logue Income Approach Pro Forma FY 05
Potential Gross Rent: S.F. Rent/S.F. Total
Office 343,000 $33.25 $11,404,750
Retail 6,325 $21.00 $132,825
Total Floor Area 349,325
Total Potential Gross Rent $11,537,575
Vacancy and Collection Loss 14% ($1,615,261)
Effective Gross Rent $9,922,315
Expenses
Operating Expenses $7.00 ($2,401,000)
Leasing Commissions $0.60 ($209,595)
Reserve for Replacement $0.25 ($87,331)
Tenant Improvements $1.25 ($428,750)
Total Operating Expenses ($3,126,676)
Net Operating Income (NOI) $6,795,638
Capitalization
Rate 7.750%
Tax Factor-$18.28/1000*.9819 1.795%
Overall Rate 9.545%
Indicated Value $71,195,791
Rounded $71,200,000
Logue Income Approach Pro Forma FY 06
Potential Gross Rent: S.F. Rent/S.F. Total
Office 343,000 $32.00 $10,976,000
Retail 6,325 $21.00 $132,825
Total Floor Area 349,325
Total Potential Gross Rent $11,108,825
Vacancy and Collection Loss 13% ($1,444,147)
Effective Gross Rent $9,664,678
Expenses
Operating Expenses $7.25 ($2,486,750)
Leasing Commissions $0.60 ($209,595)
Reserve for Replacement $0.25 ($87,331)
Tenant Improvements $1.25 ($428,750)
Total Operating Expenses ($3,212,426)
Net Operating Income (NOI) $6,452,252
Capitalization
Rate 7.250%
Tax Factor-$17.86/1000*.9819 1.735%
Overall Rate 8.985%
Indicated Value $71,808,172
Rounded $71,800,000
Logue Income Approach Pro Forma FY 07
Potential Gross Rent: S.F. Rent/S.F. Total
Office 343,000 $32.00 $10,976,000
Retail 6,325 $21.00 $132,825
Total Floor Area 349,325
Total Potential Gross Rent $11,108,825
Vacancy and Collection Loss 11% ($1,221,971)
Effective Gross Rent $9,886,854
Expenses
Operating Expenses $7.50 ($2,572,500)
Leasing Commissions $0.60 ($209,595)
Reserve for Replacement $0.25 ($87,331)
Tenant Improvements $1.25 ($428,750)
Total Operating Expenses ($3,298,176)
Net Operating Income (NOI) $6,588,678
Capitalization
Rate 7.000%
Tax Factor-$18.30/1000*.9819 1.797%
Overall Rate 8.797%
Indicated Value $74,897,921
Rounded $74,900,000
Logue Income Approach Pro Forma FY 08
Potential Gross Rent: S.F. Rent/S.F. Total
Office 343,000 $37.00 $12,691,000
Retail 6,325 $21.00 $132,825
Total Floor Area 349,325
Total Potential Gross Rent $12,823,825
Vacancy and Collection Loss 10% ($1,282,383)
Effective Gross Rent $11,541,443
Expenses
Operating Expenses $7.75 ($2,658,250)
Leasing Commissions $0.60 ($209,595)
Reserve for Replacement $0.25 ($87,331)
Tenant Improvements $1.25 ($428,750)
Total Operating Expenses ($3,383,926)
Net Operating Income (NOI) $8,157,516
Capitalization
Rate 6.750%
Tax Factor-$17.24/1000*.9819 1.693%
Overall Rate 8.443%
Indicated Value $96,621,032
Rounded $96,600,000
Logue Income Approach Pro Forma FY 09
Potential Gross Rent: S.F. Rent/S.F. Total
Office 343,000 $44.25 $15,177,750
Retail 6,325 $21.00 $132,825
Total Floor Area 349,325
Total Potential Gross Rent $15,310,575
Vacancy and Collection Loss 9% ($1,377,952)
Effective Gross Rent $13,932,623
Expenses
Operating Expenses $8.00 ($2,744,000)
Leasing Commissions $0.60 ($209,595)
Reserve for Replacement $0.25 ($87,331)
Tenant Improvements $1.25 ($428,750)
Total Operating Expenses ($3,469,676)
Net Operating Income (NOI) $10,462,947
Capitalization
Rate 6.500%
Tax Factor-$17.97/1000*.9819 1.764%
Overall Rate 8.264%
Indicated Value $126,601,483
Rounded $126,600,000
As set forth in the above tables, Mr. Logue’s final opinion of the subject property’s fair market value for the fiscal years at issue was: $71,200,000 for fiscal year 2005; $71,800,000 for fiscal year 2006; $74,900,000 for fiscal year 2007; $96,600,000 for fiscal year 2008; and $126,600,000 for fiscal year 2009.
The appellants also offered the testimony of Joseph Flaherty, a commercial real estate broker with extensive experience in, and knowledge of, the Cambridge office market. Mr. Flaherty, who testified not as an expert witness but as a fact witness, largely corroborated Mr. Logue’s testimony that office vacancy rates in Cambridge were extremely high in 2004 and well into 2005, but slowly improved thereafter and continued to improve through January 1, 2008. Likewise, Mr. Flaherty corroborated Mr. Logue’s testimony that office rents in Cambridge declined in 2004 and 2005, before stabilizing and then increasing through the remainder of the periods at issue.
The Appellee’s Valuation Evidence
The assessors presented the testimony and self-contained appraisal report of Pamela McKinney, a licensed appraiser who is the President of Byrne McKinney & Associates. Ms. McKinney is a Member of the Appraisal Institute and also a Member of the Counselors of Real Estate. At the time of the hearing of these appeals, Ms. McKinney had approximately thirty years of appraisal experience. Ms. McKinney has worked for clients in both the public and private sectors, and her diverse appraisal experience includes the appraisal of numerous class A office towers, shopping malls, hotels, apartment buildings, and even the Tobin Bridge. The Board qualified Ms. McKinney as an expert in real estate valuation.
To assist in her appraisal, Ms. McKinney inspected the subject property on June 18, 2009. Ms. McKinney also reviewed a variety of materials, including relevant market data, deeds, building plans, and information gathered from Genzyme’s filings with various governmental entities, as well as Genzyme’s website and that of the architects of the Genzyme Center, Behnisch, Behnisch and Partner.
Like Mr. Logue, Ms. McKinney considered Genzyme Center to be class A office property in excellent condition. Ms. McKinney considered the highest and best use of the subject property to be its continued use as a single-tenant office building. Unlike Mr. Logue, Ms. McKinney opined that the continued use of the retail component of the subject property did not accord with its highest and best use. Rather, she stated that the retail space should be reconfigured and adapted to office uses.
Ms. McKinney considered the three basic approaches to value. Like Mr. Logue, Ms. McKinney relied on the income-capitalization approach to determine the fair cash value of the subject property. Although she did not conduct full cost reproduction or sales-comparison analyses, Ms. McKinney did reference local building sales and the project costs for Genzyme Center to check the reliability of the values which she determined using her income-capitalization approach.
To begin her income-capitalization analysis, Ms. McKinney selected a number of leases from office and lab properties in East Cambridge and elsewhere in Cambridge. To determine fair market rent for fiscal year 2005, Ms. McKinney selected ten commercial leases in nine different buildings in Cambridge. The leases were signed between early 2003 and mid-2004, and were for spaces ranging in size from 21,550 to 98,738 square feet. The average rents in these ten leases ranged from $22.88 to $34.60 per square foot. While some of the leases allowed for TIs, others did not. Where applicable, the TIs ranged from $5.00 to $40.00 per square foot. It was Ms. McKinney’s opinion that TI allowances for the subject property would be comparatively high because of its corporate world headquarters character. Accordingly, for each of the fiscal years at issue, she made adjustments to her selected rents to reflect her assumption of a $50 per square foot TI allowance, amortized over a ten-year lease period. After making this adjustment, and considering all of the relevant information, Ms. McKinney estimated the fair market rent for Genzyme Center to be $40.00 per square foot for fiscal year 2005.
To determine fair market rent for fiscal year 2006, Ms. McKinney selected ten commercial leases from nine different buildings in Cambridge. The leases, which were signed between mid-2004 and mid-2005, were for spaces ranging in size from 19,312 to 124,758 square feet, and had average rents ranging from $29.00 to $36.00 per square foot. TI allowances, where applicable, ranged from $30.00 to $45.00 per square foot. Based on this information, and after making an adjustment to account for TI, Ms. McKinney estimated the fair market rent for Genzyme Center to be $40.00 per square foot for fiscal year 2006.
To determine fair market rent for fiscal year 2007, Ms. McKinney selected six commercial leases from five different buildings in Cambridge. The leases were signed between mid-2005 and early 2006, and were for spaces ranging in size from 17,705 to 81,500 square feet. The average rents ranged from $29.46 to $37.00 per square foot, and the TIs, where applicable, ranged from $20.00 to $70.00 per square foot. Based upon this information, and after making an adjustment to account for TI, Ms. McKinney estimated the fair market rent for Genzyme Center to be $40.00 per square foot for fiscal year 2007.
To determine fair market rent for fiscal year 2008, Ms. McKinney selected ten commercial leases from six different buildings in Cambridge. The leases were signed between mid-2006 and mid-2007, and were for spaces ranging in size from 17,705 to 124,758 square feet. The average rents ranged from $15.83 to $41.04 per square foot, and the TI allowances, where applicable, ranged from $5.00 to $75.00 per square foot. Based on this information, and after making an adjustment to account for TI, Ms. McKinney estimated the fair market rent for the Genzyme Center to be $45.00 per square foot for fiscal year 2008.
Finally, to determine fair market rent for fiscal year 2009, Ms. McKinney selected thirteen commercial leases from twelve different buildings in Cambridge. The leases were signed between mid-2007 and mid-2008 and were for spaces ranging in size from 17,949 to 182,000 square feet. The average rents ranged from $29.00 to $68.00 per square foot and the TI allowances, where applicable, ranged from $5.00 to $60.00 per square foot. Based upon this information, and after making an adjustment to account for TI, Ms. McKinney estimated the fair market rent for Genzyme Center to be $50.00 per square foot for fiscal year 2009.
Unlike Mr. Logue, Ms. McKinney made no adjustment to account for Genzyme Center’s large atrium. Further, Ms. McKinney applied the fair market rents derived from her analysis to all of the subject buildings’ 349,325 square feet because she considered its highest and best use to be office space without a retail component. However, she did make an allowance for extraordinary capital expenses – the cost to convert the space from retail to office – by deducting $300,000 from her initial estimates of the subject property’s fair cash value for each of the fiscal years at issue.
The next step in Ms. McKinney’s income-capitalization analysis was the determination of appropriate vacancy rates. Publications created by CoStar, Inc., an entity which compiles data for the leasing industry, indicated that direct vacancy rates in class A office properties in East Cambridge ranged from 16.2% and 17.4% during the fourth quarters of 2003, 2004, and 2005, but declined to 11.4% by the fourth quarter of 2006 and further decreased to 8.4% by the fourth quarter of 2007. Despite these rates, Ms. McKinney considered it appropriate to use a vacancy and rent loss rate of 5%, due to the excellent quality and condition of the subject property and its character as a single-tenant, headquarters building, for which vacancy rates are likely to be lower.
Ms. McKinney next considered operating expenses. To determine appropriate operating expenses, Ms. McKinney reviewed the actual operating expenses reported for the subject property by its owner pursuant to requests made by the assessors under G.L. c. 59, § 38D (“§ 38D”), as well as BOMA statistics. The actual expenses reported on the § 38D responses ranged from a low of $4.79 per square foot for calendar year 2004 to a high of $6.63 per square foot for calendar year 2007. Because of the subject buildings’ unique, green operating systems, Ms. McKinney considered it appropriate to rely upon the actual operating expenses. However, like Mr. Logue, she opined that the 2004 calendar year expenses were anomalous, and she therefore adjusted them to account for anomalies. Ms. McKinney also made modest adjustments to the reported operating expenses to better reflect the subject building’s “expense curve.” Ultimately, Ms. McKinney selected operating expenses of: $6.00 per square foot for fiscal year 2005; $6.18 per square foot for fiscal year 2006; $6.37 per square foot for fiscal year 2007; $6.63 per square foot for fiscal year 2008; and $6.83 per square foot for fiscal year 2009.
It was Ms. McKinney’s opinion that leasing commissions, replacement reserves, and TI allowances should not be deducted from operating income for purposes of a fee-simple valuation, and she therefore made no deductions for these items in her valuation analyses.
The final step in Ms. McKinney’s income-capitalization analysis was the selection of capitalization rates, which she determined by consulting several sources and using a variety of methodologies. Ms. McKinney conducted a band of investment analysis to determine capitalization rates. Her band of investment analyses yielded the following capitalization rates: 7.76% for fiscal year 2005; 7.15% for fiscal year 2006; 6.86% for fiscal year 2007; 6.87% for fiscal year 2008; and 6.86% for fiscal year 2009. Ms. McKinney also consulted data published by Real Capital Analytics and the Korpacz Survey, which indicated that capitalization rates declined during the fiscal years at issue. Rates published by Real Capital Analytics, for example, ranged from 7.64% to 8.9% in the quarters immediately preceding and following January 1, 2004, but declined to a range between 5.54% and 7.5% in the quarters immediately before and after January 1, 2008. Similarly, the Korpacz Survey reported rates ranging from 6.0% to 11.25% for the quarters immediately before and after January 1, 2004, but reported rates ranging from 4.0% to 10.25% for the quarters immediately prior to and following January 1, 2008. In addition, to assist in the selection of appropriate capitalization rates, Ms. McKinney analyzed local building sales. Ms. McKinney’s local building sale analysis yielded a range of rates – generally between 6.2% and 8.7% – which varied very little over the fiscal years at issue. Ultimately, Ms. McKinney selected the following capitalization rates: 8.0% for fiscal year 2005; 7.5% for fiscal year 2006; 7.0% for fiscal year 2007; 6.5% for fiscal year 2008; and 6.5% for fiscal year 2009. Ms. McKinney also added tax factors to each of her selected capitalization rates.
The pro forma income and expense analyses offered by Ms. McKinney are summarized in the following tables:
McKinney Income Approach Pro Forma FY 05
Area/S.F. Rent/S.F. Total
Potential Gross Rent 349,325 $40.00 $13,973,000
Vacancy and Collection Loss 5% ($698,650)
Effective Gross Rent $38.00 $13,274,350
Total Operating Expenses $6.00 ($2,095,950)
Net Operating Income $32.00 $11,178,400
Capitalization
Rate 8%
Tax Factor 1.828%
Combined Rate 9.828%
Stabilized Value $113,740,334
Rounded Value $113,700,000
McKinney Income Approach Pro Forma FY 06
Area/S.F. Rent/S.F. Total
Potential Gross Rent 349,325 $40.00 $13,973,000
Vacancy and Collection Loss 5% ($698,650)
Effective Gross Rent $38.00 $13,274,350
Total Operating Expenses $6.18 ($2,158,829)
Net Operating Income $31.82 $11,115,522
Capitalization
Rate 7.5%
Tax Factor 1.786%
Combined Rate 9.286%
Stabilized Value $119,701,933
Rounded Value $119,700,000
McKinney Income Approach Pro Forma FY 07
Area/S.F. Rent/S.F. Total
Potential Gross Rent 349,325 $40.00 $13,973,000
Vacancy and Collection Loss 5% ($698,650)
Effective Gross Rent $38.00 $13,274,350
Total Operating Expenses $6.37 ($2,225,200)
Net Operating Income $31.63 $11,049,150
Capitalization
Rate 7.0%
Tax Factor 1.830%
Combined Rate 8.830%
Stabilized Value $125,131,934
Rounded Value $125,100,000
McKinney Income Approach Pro Forma FY 08
Area/S.F. Rent/S.F. Total
Potential Gross Rent 349,325 $45.00 $15,719,625
Vacancy and Collection Loss 5% ($785,981)
Effective Gross Rent $42.75 $14,933,644
Total Operating Expenses $6.63 ($2,316,025)
Net Operating Income $36.12 $12,617,619
Capitalization
Rate 6.5%
Tax Factor 1.724%
Combined Rate 8.224%
Stabilized Value $153,424,356
Rounded Value $153,400,000
McKinney Income Approach Pro Forma FY 09
Area/S.F. Rent/S.F. Total
Potential Gross Rent 349,325 $50.00 $17,466,250
Vacancy and Collection Loss 5% ($873,313)
Effective Gross Rent $47.50 $16,592,938
Total Operating Expenses $6.83 ($2,385,890)
Net Operating Income $40.67 $14,207,048
Capitalization
Market Rate 6.5%
Tax Factor 1.797%
Combined Rate 8.297%
Stabilized Value $171,231,141
Rounded Value $171,200,000
For each of the fiscal years at issue, Ms. McKinney deducted $300,000 from her rounded values to account for the extraordinary capital expenses associated with converting Genzyme Center’s existing retail area to office space. After this deduction, Ms. McKinney’s final opinions of fair cash value for the subject property were: $113,400,000 for fiscal year 2005; $119,400,000 for fiscal year 2006; $124,800,000 for fiscal year 2007; $153,100,000 for fiscal year 2008; and $170,900,000 for fiscal year 2009.
The Board’s Valuation Findings
On the basis of all of the evidence, the Board found that the appellants met their burden of proving that the subject property was overvalued for each of the fiscal years at issue, with the exception of 2009. In making this finding, the Board agreed with Mr. Logue, who opined that the subject property’s highest and best use was its continued use as a single-tenant, class A office building with a small retail component. A property’s highest and best use must be, among other things, legally permissible. The evidence showed that the special permit required the properties in CRP to include retail space. Ms. McKinney’s conclusion that the highest and best use of the subject property was exclusively office space failed to take into consideration the applicable legal restrictions and therefore was not consistent with the principles governing the determination of highest and best use. Accordingly, the Board rejected Ms. McKinney’s opinion of highest and best use and, on the basis of all of the evidence, found that the highest and best use of the subject property was its continued use as a single-tenant office building with a small retail component.
The Board, like the parties, found that the income-capitalization approach was the most reliable method with which to value the subject property. It is the preferred method for valuing income-producing properties such as the subject property. Moreover, the Board concluded that the other two valuation methodologies were less likely to yield reliable estimates of the subject building’s fair market value. The evidence indicated that most of the local sales of comparable office properties which occurred during the relevant period involved the transfer of leased-fee interests, and as such, the Board concluded that they would not provide reliable indicia of the fee-simple value of the subject property. Similarly, the sale of the subject property in 2005 was part of a portfolio sale involving multiple properties, and therefore, did not provide reliable evidence of the subject building’s individual fair cash value. The Board therefore found that the sales-comparison approach was not likely to provide a reliable indication of the subject property’s fair market value.
Further, although the subject building was new construction as of the relevant dates of valuation, as Mr. Logue indicated, there was substantial fluctuation in the market between the commencement of Genzyme Center’s construction and the relevant dates of valuation. Accordingly, the Board found that the cost-reproduction methodology was not likely to yield a reliable indication of the subject property’s fair cash value. Therefore, the Board used the income-capitalization methodology to determine the fair cash value of the subject property.
A major discrepancy between the experts was the treatment of the space consumed by the subject building’s sizeable atrium. Mr. Logue acknowledged that the atrium was an “attractive and desirable feature from the standpoint of natural light, air circulation, aesthetics and other green building elements.” Nevertheless, he concluded that the atrium was a “significant drawback” because of the resultant amount of non-useable space, and accordingly, he discounted his market rents by 5%, the so-called “add on” factor. Ms. McKinney, on the other hand, did not apply an “add on” factor or otherwise reduce her rents to account for the area consumed by the subject property’s atrium.
On the basis of all of the evidence, the Board agreed with Ms. McKinney’s approach on this point. First, it was noteworthy that the lease for the subject property included the atrium space in the total square footage. Further, it was undisputed that the atrium was a key feature in the building’s green design. The atrium’s floor-to-roof penetration facilitated the circulation of air and its elaborate hanging prisms facilitated the distribution of natural light. Genzyme’s own promotional materials touted the subject building’s merits, many of which flow from its core atrium. Moreover, the Board found that the large and dramatic atrium provided the building with its stately world headquarters presence, which is precisely what Genzyme desired when it set out to construct the subject building. While vertical penetrations may be negative factors in multi-tenant office properties, the Board found that Genzyme Center’s atrium served several useful purposes. For these reasons, the Board disagreed with Mr. Logue’s conclusion that the subject building’s atrium was a “drawback.” It therefore declined to adopt his “add on” factor.
The Board found, however, that the appellants’ estimates of market rent were more reliable than the rent estimates offered by the appellee for numerous reasons. First, Mr. Logue’s rent estimates were derived from properties more comparable to the subject property than the properties on which Ms. McKinney relied in her income-capitalization analysis. All of the properties selected by Mr. Logue were located in the East Cambridge area, in close proximity to Genzyme Center, while several of the properties selected by Ms. McKinney were located elsewhere in Cambridge, such as in Harvard Square or the Alewife area. Further, all of Mr. Logue’s leases were leases for class A office space, while Ms. McKinney selected several leases for laboratory space. Additionally, some of Ms. McKinney’s leases were signed many months, and in one case, a full year, from the relevant date of valuation, but Ms. McKinney made no adjustments to her estimates of market rent to account for differences in time, while Mr. Logue made adjustments to account for differences in time where appropriate. For all of these reasons, the Board placed more weight on Mr. Logue’s estimates of market rent because Mr. Logue based those rents on properties more comparable to the subject property and, further, he made appropriate adjustments to account for differences from the subject property.
Second, there were several indicia in the record that the rents used by the assessors and Ms. McKinney were overstated. First, the rents used by both Ms. McKinney and the assessors were significantly greater than the actual rents at One Memorial Drive and 675 West Kendall Street. The former is a class A office building in East Cambridge with stunning views of the Charles River and the Boston skyline. Both Mr. Logue and Mr. Flaherty extolled the virtues of the building located at One Memorial Drive, including its views. Ms. McKinney testified that One Memorial Drive is an “excellent” building, and that, of all of her comparable lease properties, it contained the “attributes . . . most in line with” the subject property. The former property contains office, lab and retail space and is located directly adjacent to the subject property. The evidence contained data from two leases at One Memorial Drive, which were entered into in late 2004 and early 2005, with rents ranging from $30.42 to $32.75 per square foot. Also in 2005, Genzyme itself entered into a sub-lease for 65,070 square feet of class A office space at 675 West Kendall Street for $35.00 per square foot. By contrast, Ms. McKinney’s estimate of the subject property’s market rent for fiscal year 2006 was $40.00 per square foot, while the assessors used a rent of $45.15 per square foot for that year. The Board found that the record did not support such increased rents for Genzyme Center, and further found this disparity in rents to be a persuasive indicator that the rents used by Ms. McKinney and the assessors were overstated.
On the basis of all of the evidence, the Board found that Mr. Logue’s rent estimates provided persuasive evidence of fair market rent for Genzyme Center, and it therefore gave more weight to his opinion of fair market rent. Both experts utilized some of the same leases as comparable leases, and, placing particular reliance on these overlapping leases, the Board found the following fair market rents for the subject property’s office area: $37.50 for fiscal year 2005; $37.00 for fiscal year 2006; $37.00 for fiscal year 2007; $42.00 for fiscal year 2008; and $46.50 for fiscal year 2009.
Because the Board, like Mr. Logue, considered the subject property’s highest and best use to be its continued use as a single-tenant office building with a small retail component, the Board made a separate finding of fair market rent for the subject building’s retail area. The Board found Mr. Logue’s retail rent of $21.00 per square foot on a triple-net basis to be supported by the market data entered into evidence, and it therefore adopted that rent for each of the fiscal years at issue.
The experts differed significantly in their selection of appropriate vacancy rates. Mr. Logue utilized vacancy rates which largely tracked prevailing commercial vacancy rates in Cambridge during the relevant time periods. Ms. McKinney used a lower vacancy rate of 5% across the board, which she believed was realistic for a single-tenant, world headquarters type of property. The assessors also used a 5% vacancy rate for each of the fiscal years at issue. The Board agreed with the assessors and Ms. McKinney as to vacancy rates. The Board found that the subject building’s character as a single-tenant, world headquarters office property made it likely to have lower vacancy rates than the properties from which Mr. Logue derived his vacancy estimates, many of which were multi-tenant properties. Indeed, with the exception of the retail area, the subject building was fully occupied during the fiscal years at issue. The Board therefore adopted the 5% vacancy rate used by Ms. McKinney and the assessors for the subject building’s office areas. However, the retail portion of the subject property was 100% vacant during the fiscal years at issue. The Board therefore found it appropriate to use market vacancy rates for that area, and further, it found that Mr. Logue’s vacancy rates were supported by the evidence. The Board therefore adopted those rates, which were: 14% for fiscal year 2005; 13% for fiscal year 2006; 11% for fiscal year 2007; 10% for fiscal year 2008; and 9% for fiscal year 2009.
Though there was a significant dispute between the experts as to the determination of appropriate operating expenses, there was little discrepancy between the expense figures used by them. Both experts purported to rely, at least in part, on the actual operating expenses reported for Genzyme Center. However, there was a dispute as to exactly what the actual operating expenses were. Ms. McKinney relied on the expense figures reported by the owner of the subject building in the responses it filed with the assessors pursuant to § 38D. The expenses reported by the owner ranged from a low of $4.79 per square foot for calendar year 2004 to a high of $6.63 for calendar year 2007. Ms. McKinney made only minor adjustments to the reported expenses, ultimately utilizing operating expenses ranging from a low of $6.00 per square foot for fiscal year 2005 to a high of $6.83 per square foot for fiscal year 2009. Mr. Logue also purported to rely on the subject building’s actual operating expenses. However, the expenses obtained by Mr. Logue included information provided to him by Mr. Moran, and, ranging from $10.00 to $12.00 per square foot, were higher than the expenses reported by the subject building’s owner in the § 38D responses. Mr. Logue opined that the subject building’s actual expenses were significantly higher than average operating expenses in comparable office properties in Cambridge. Accordingly, Mr. Logue selected operating expenses which were lower than the actual expenses reported to him for the subject property. Mr. Logue’s operating expenses were: $7.00 per square foot for fiscal year 2005, with annual increases of $0.25, ending with expenses of $8.00 per square foot in fiscal year 2009. The assessors for their part calculated expenses as a percentage of income, but the percentages used by them for the subject property’s office areas translated into operating expenses of $8.79 per square foot for fiscal years 2005 through 2007; $9.04 per square foot for fiscal year 2008; and $10.51 per square foot for fiscal year 2009.
On the basis of all of the evidence, the Board found that Mr. Logue’s expenses were the most reliable estimates of the subject building’s operating expenses. The expenses used by Ms. McKinney were lower than the expenses used by the assessors and were also lower than the median operating expenses reflected in the BOMA statistics offered into evidence. Moreover, the subject building is a trophy- caliber property with a substantial amount of open space, qualities which the Board found made it likely to have higher than average cleaning costs. Additionally, the Board found credible Mr. Moran’s testimony that Genzyme’s unique green design and systems actually increased certain expenses because they required additional labor to clean and maintain. Because it found that they were better supported by the evidence, the Board adopted Mr. Logue’s operating expense figures of $7.00 for fiscal year 2005, $7.25 for fiscal year 2006, $7.50 for fiscal year 2007, $7.75 for fiscal year 2008, and $8.00 for fiscal year 2009. The Board applied these expenses to only the office areas of the subject building, and not to the retail area, because operating expenses in retail leases are typically borne by the tenants.
It was Ms. McKinney’s opinion that leasing commissions, replacement reserves, and TI allowances should not be deducted from potential gross income for purposes of a fee-simple valuation, and she therefore made no deductions for these items in her valuation analyses. Mr. Logue, on the other hand, adopted leasing commissions in the amount of $0.60 per square foot, replacement reserves of $0.25 per square foot, and TI in the amount of $1.25 per square foot for each of the fiscal years at issue. On the basis of all of the evidence, the Board found it appropriate to make allowances for these items, consistent with market practices. However, because of the subject building’s single-tenant layout, class A status, and its excellent condition, the Board found that comparatively minimal deductions for these items were appropriate. The Board therefore deducted leasing commissions in the amount of $0.40 per square foot, replacement reserves in the amount of $0.20 per square foot, and TIs in the amount of $1.00 per square foot. The Board applied the leasing commission and replacement reserve figures to the whole building, but applied the TI deduction to only the office areas, not the retail area, because, as Mr. Logue testified, expenses associated with the build out of retail space are usually borne by the tenants.
Lastly, the experts differed very little in their selection of capitalization rates. Ms. McKinney adopted capitalization rates ranging from 6.5% to 8.0%, while Mr. Logue’s selected rates ranged from 6.5% to 7.75%. The assessors, on the other hand, used higher rates, ranging from 7.2% to 8.88%, before the addition of a tax factor. The Board found that both Mr. Logue’s and Ms. McKinney’s capitalization rates were generally supported by the evidence. Considering that it adopted allowances for leasing commissions, replacement reserves, and TIs, the Board found that capitalization rates on the lower end of the range were warranted. The Board therefore adopted Mr. Logue’s selected capitalization rates of 7.75% for fiscal year 2005; 7.25% for fiscal year 2006; 7.0% for fiscal year 2007; and 6.5% for fiscal year 2009. For fiscal year 2008, the Board adopted Ms. McKinney’s selected capitalization rate of 6.5%, which was slightly lower than Mr. Logue’s rate of 6.75% for fiscal year 2008. To these rates the Board added applicable tax factors, which were prorated to apply to only the office areas of the subject property.
On the basis of these subsidiary findings, the Board found the fair cash value of the subject property to be $98,271,000 for fiscal year 2005; $101,429,000 for fiscal year 2006; $102,871,000 for fiscal year 2007; $129,310,000 for fiscal year 2008; and $144,921,000 for fiscal year 2009. The following tables set forth the Board’s valuation findings for each of the fiscal years at issue.
Board Income Approach Valuation Analysis FY 05
Potential Gross Rent: S.F. Rent/S.F. Total
Office 343,000 $37.50 $12,862,500
Retail 6,325 $21.00 $132,825
Total Floor Area 349,325
Total Potential Gross
Rent $12,995,325
Vacancy and Collection Office 5% ($643,125)
Loss Retail 14% ($18,595.50)
Effective Gross Rent $12,333,604.50
Expenses
Operating Expenses 343,000 $7.00 ($2,401,000)
Leasing Commissions 349,325 $0.40 ($139,730)
Reserve for Replacement 349,325 $0.20 ($69,865)
Tenant Improvements 343,000 $1.00 ($343,000)
Total Operating Expenses ($2,953,595)
Net Operating Income (NOI) $9,380,009.50
Capitalization
Rate 7.750%
Tax Factor-$18.28/1000*.9819 1.795%
Overall Rate 9.545%
Indicated Value $98,271,445.78
Rounded Fair Cash Value $98,271,000
Board Income Approach Valuation Analysis FY 06
Potential Gross Rent: S.F. Rent/S.F. Total
Office 343,000 $37.00 $12,691,000
Retail 6,325 $21.00 $132,825
Total Floor Area 349,325
Total Potential Gross
Rent $12,823,825
Vacancy and Collection Office 5% ($634,550)
Loss Retail 13% (17,267.24)
Effective Gross Rent $12,172,007.75
Expenses
Operating Expenses 343,000 $7.25 ($2,486,750)
Leasing Commissions 349,325 $0.40 ($139,730)
Reserve for Replacement 349,325 $0.20 ($69,865)
Tenant Improvements 343,000 $1.00 ($343,000)
Total Operating Expenses ($3,039,345)
Net Operating Income (NOI) $9,132,662.75
Capitalization
Rate 7.25%
Tax Factor-$17.86/1000*.9819 1.7537%
Overall Rate 9.004%
Indicated Value $101,428,951
Rounded Fair Cash Value $101,429,000
Board Income Approach Valuation Analysis FY 07
Potential Gross Rent: S.F. Rent/S.F. Total
Office 343,000 $37.00 $12,691,000
Retail 6,325 $21.00 $132,825
Total Floor Area 349,325
Total Potential Gross
Rent $12,823,825
Vacancy and Collection Office 5% ($634,550)
Loss Retail 11% ($14,610.75)
Effective Gross Rent $12,174,664.25
Expenses
Operating Expenses 343,000 $7.50 ($2,572,500)
Leasing Commissions 349,325 $0.40 ($139,730)
Reserve for Replacement 349,325 $0.20 ($69,865)
Tenant Improvements 343,000 $1.00 ($343,000)
Total Operating Expenses ($3,125,095)
Net Operating Income (NOI) $9,049,569.25
Capitalization
Rate 7.00%
Tax Factor-$18.30/1000*.9819 1.797%
Overall Rate 8.797%
Indicated Value $102,871,083.89
Rounded Fair Cash Value $102,871,000
Board Income Approach Valuation Analysis FY 08
Potential Gross Rent: S.F. Rent/S.F. Total
Office 343,000 $42.00 $14,406,000
Retail 6,325 $21.00 $132,825
Total Floor Area 349,325
Total Potential Gross
Rent $14,538,825
Vacancy and Collection Office 5% ($720,300)
Loss Retail 10% ($13,282.50)
Effective Gross Rent ($13,805,242.50)
Expenses
Operating Expenses 343,000 $7.75 ($2,658,250)
Leasing Commissions 349,325 $0.40 ($139,730)
Reserve for Replacement 349,325 $0.20 ($69,865)
Tenant Improvements 343,000 $1.00 ($343,000)
Total Operating Expenses ($3,210,845)
Net Operating Income (NOI) $10,594,397.50
Capitalization
Rate 6.5%
Tax Factor-$17.24/1000*.9819 1.693%
Overall Rate 8.193%
Indicated Value $129,310,356.40
Rounded Fair Cash Value $129,310,000
Board Income Approach Valuation Analysis FY 09
Potential Gross Rent: S.F. Rent/S.F. Total
Office 343,000 $46.50 $15,949,500
Retail 6,325 $21.00 $132,825
Total Floor Area 349,325
Total Potential Gross
Rent $16,082,325
Vacancy and Collection Office 5% ($797,475)
Loss Retail 9% ($11,954.25)
Effective Gross Rent $15,272,895.75
Expenses
Operating Expenses 343,000 $8.00 $2,744,000
Leasing Commissions 349,325 $0.40 $139,730
Reserve for Replacement 349,325 $0.20 $69,865
Tenant Improvements 343,000 $1.00 $343,000
Total Operating Expenses $3,296,595
Net Operating Income (NOI) $11,976,300.75
Capitalization
Rate 6.50%
Tax Factor-$17.64/1000*.9819 1.693%
Overall Rate 8.193%
Indicated Value $144,921,354.67
Rounded Fair Cash Value $144,921,000
For fiscal years 2005 through 2008, the Board found that the appellants met their burden of proving that the assessed value of the subject property exceeded its fair cash value. Accordingly, the Board issued decisions for the appellants in docket numbers F277284, F282964, F287968, and F294379, and ordered abatements as follows:
|
Fiscal Year |
Assessed Value ($) |
Fair Cash Value ($) |
Over-valuation ($) |
Tax Rate ($/$1,000) |
Abatement ($)[57] |
|
2005 |
113,843,100 |
98,271,000 |
15,572,100 |
18.28 |
293,197.73 |
|
2006 |
130,793,100 |
101,429,000 |
29,364,100 |
17.86 |
540,172.11 |
|
2007 |
130,793,100 |
102,871,000 |
27,922,100 |
18.30 |
526,303.66 |
|
2008 |
134,544,100 |
129,310,000 |
5,234,100 |
17.24 |
92,942.96 |
For fiscal year 2009, the Board found that the fair cash value of the subject property was $144,921,000, an amount which exceeded its assessed value of $134,456,100. The Board therefore issued a decision for the appellee in docket number F299101.
OPINION
Fair cash value is the standard for assessing real property for tax purposes in Massachusetts. See G.L. c. 59, § 38. “Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion . . . . Accordingly, fair cash value means . . . fair market value.” Northshore Mall Limited Partnership v. Assessors of Peabody, Mass. ATB Findings of Fact and Reports 2004-195, 246, (citing Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956)), aff’d 63 Mass. App. Ct. 1116 (2005).
The ascertainment of a property’s highest and best use is a prerequisite to valuation analysis. See Peterson v. Assessors of Boston, 62 Mass. App. Ct. 428, 429 (2004); Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989). “A property’s highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive.” Northshore Mall Limited Partnership, Mass. ATB Findings of Fact and Report at 2004-246. The Board agreed with the expert witnesses that, because of its design and layout, the subject building was best suited to use by a single-tenant. Further, the Board found that the special permit required the subject building to have dedicated retail space. Accordingly, the Board found and ruled that the highest and best use of the subject property was its continued use as a single-tenant office building with a small retail component.
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to ascertain the fair cash value of property: income capitalization; sales comparison; and cost of reproduction. Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978). In the present appeals, the Board found and ruled that the cost reproduction approach was not likely to yield a reliable indication of the subject property’s fair market value, given the fluctuation in the market from the commencement of the subject building’s construction through the fiscal years at issue. See Vertex Pharmaceuticals, Inc., v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports at 2009-1090, 1121. (“Market conditions during the relevant assessment periods . . . made the cost approach an unreliable valuation method.”). Similarly, although sales of property generally “furnish strong evidence of market value,” Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 682 (1982), the evidence showed that sales of office properties in the vicinity of the subject property during the relevant time period involved the transfer of leased-fee interests, while the question for decision in these appeals is the value of the fee-simple interest. See Olympia & York State Street Co. v. Assessors of Boston, 428 Mass. 236, 247 (1998) (“The assessors must determine a fair cash value for the property as a fee simple estate, which is to say, they must value an ownership interest in the land and the building as if no leases were in effect.”) As it has in past appeals, the Board found and ruled that such leased-fee sales did not provide probative evidence of fee-simple value. Id. Further, the actual sale of the subject property in 2005 did not provide reliable evidence of its individual fair cash value because it was sold in a portfolio sale involving multiple properties. See Vertex Pharmaceuticals, Inc., Mass. ATB Findings of Fact and Reports at 2008-1136 (citing Northshore Mall Limited Partnership, Mass. ATB Findings of Fact and Reports at 2004-249) (“[T]he most recent sales of the subject properties were part of a portfolio sale of multiple properties and did not present reliable evidence of the fair cash value of the subject properties individually.”) The Board therefore found and ruled that the sales-comparison approach was not a reliable method with which to determine the market value of the subject property.
When reliable sales data are not available and when the subject is income-producing property, the use of the income-capitalization approach is appropriate. Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 807, 881 (1975); Assessors of Lynnfield v. New England Oyster House, 362 Mass. 696, 701-702 (1972); Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 67 (1941). Here, both experts and the assessors used the income-capitalization approach to determine the fair market value of the subject property. The Board agreed with the parties that the subject property’s fair cash value could most reliably be estimated by using the income-capitalization approach, and the Board therefore adopted that approach.
“[T]he direct capitalization of income method analyzes the property’s capacity to generate income over a one-year period and converts the capacity into an indication of fair cash value by capitalizing the income at a rate determined to be appropriate for the investment risk involved.” Olympia & York State Street Co., 428 Mass. at 239. The task of valuing a property based on this methodology requires that “appraisers analyze competitive facilities and determine market rents, market vacancy and credit loss rates, market expenses, market capitalization rates, and general market conditions.” Olympia & York State Street Co., 428 Mass. at 239.
To provide probative evidence of market rent, leases must be from properties similar in location and other qualities to the subject property, and must be signed reasonably close in time to the relevant date of assessment. All of Mr. Logue’s selected leases were leases for class A office space in East Cambridge, like the subject property. Where appropriate, Mr. Logue made adjustments to account for differences in time from the relevant date of assessment. In contrast, Ms. McKinney selected a number of leases from properties that were not in the immediate vicinity of the subject property. Further, unlike Mr. Logue, Ms. McKinney failed to adjust her comparable lease data for time, despite differences between the dates of execution of her chosen leases and the relevant dates of valuation. Moreover, several of Ms. McKinney’s selected leases were leases for lab space, rather than class A office space. The Board therefore found and ruled that Ms. McKinney’s estimates of rent were less persuasive as they were based in part on leases from properties not particularly comparable to the subject property, and, further, she failed to make adjustments to account for critical differences where appropriate. See State Mutual Life Assurance Co. of America v. Assessors of Worcester, Mass. ATB Findings of Fact and Reports 1986-151, 164, aff’d 25 Mass. App. Ct. 1114 (1988) (“failure to properly adjust for the obvious differences in the properties [make] imputation of a market rent from the ‘comparables’ to the subject property devoid of probative worth.”).
In addition, the rents adopted by both the assessors and Ms. McKinney were significantly higher than actual rents at One Memorial Drive, a class A office property in East Cambridge, which several witnesses testified was an excellent building with spectacular skyline and river views. For example, the market rent used by the assessors for fiscal year 2006 exceeded the actual rent in one lease at One Memorial Drive by approximately 50%, and the Board found that the record did not support such an increased rent for Genzyme Center. Likewise, the rents adopted by Ms. McKinney and the assessors far exceeded the actual rent paid by Genzyme for class A office space at 675 West Kendall Street, a building located adjacent to the subject property. The Board found this evidence to be an indication that the rents used by the assessors and Ms. McKinney exceeded the fair market rents for the subject property.
Because they were better supported by the evidence, the Board placed greater weight on Mr. Logue’s estimates of market rent. However, the Board did not adopt Mr. Logue’s estimates of market rent across the board. “That a person qualifies as an expert does not endow his testimony with magic qualities.” Boston Gas Co., 334 Mass. at 579. The Board is “not required to accept the opinion expressed . . . by [an] expert witness,’” and, further, it is “entitled to “‘accept such portions of the evidence as appeared to have the more convincing weight.’” Foxboro Associates, 385 Mass. at 683; Medical Malpractice Underwriting Ass’n of Massachusetts v. Commissioner of Insurance, 395 Mass. 43, 56 (1985)(citations omitted). After considering all of the evidence, placing particular reliance on the leases chosen by Mr. Logue and Ms. McKinney which overlapped, the Board formed its own estimates of market rent for the subject property.
Ms. McKinney and the assessors used a vacancy rate of 5% for each of the years at issue, while Mr. Logue’s vacancy rates were nearly two to three times that rate. Mr. Logue’s rates were based on vacancy and availability rates in Cambridge during the relevant time periods. Although commercial vacancy rates in Cambridge may have been greater than 5%, the Board found and ruled that the vacancy rate used by Ms. McKinney and the assessors was more appropriate for the subject property.
As an initial matter, the subject property was fully occupied during each of the fiscal years at issue. Genzyme’s 15-year lease for the subject property commenced in 2002 and included options to renew. The Board found and ruled that the subject property was unlikely to experience collection loss or significant periods of vacancy during the fiscal years at issue. In addition, in determining an appropriate vacancy rate, the Board considered the subject property’s characteristics as a single-tenant, world headquarters trophy-caliber building. As it has in past appeals, the Board concluded that such buildings are less likely to experience tenant turnover or prolonged periods of vacancy. New England Tel. & Tel. Co. v. Assessors of Framingham, Mass. ATB Findings of Fact and Reports 1988-95, 108 (adopting a 2% vacancy rate for an owner-occupied building built to the owner’s specifications); State Mutual Life Assurance Co. of America, Mass. ATB Findings of Fact and Reports at 1986-173 (finding that a low vacancy rate was appropriate for an opulent corporate headquarters building). The Board found and ruled that the use of a lower vacancy rate, which more “closely corresponded with the actual experience” of the subject property was appropriate, and it therefore declined to apply Mr. Logue’s vacancy rates to the subject building’s office areas. Olympia & York State. St. Co., 428 Mass. at 242. The Board did, however, adopt Mr. Logue’s vacancy rates for the retail portion of the subject property, which remained vacant during the fiscal years at issue.
Further, the Board declined to apply Mr. Logue’s 5% “add on” factor, which supposedly accounted for the reduction in the subject building’s usable area created by its large core atrium. The Board disagreed with Mr. Logue’s conclusion that the subject building’s atrium was a “significant drawback.” The Board found the facts of the present appeals analogous to those in State Mutual Life Assurance Co. of America, Mass. ATB Findings of Fact and Reports at 1986-151. In that appeal, a large corporation approaching a milestone anniversary sought to build a new headquarters building which would “allow employees the easiest practical access to those with whom they work most closely” and provide working conditions which facilitated maximum “workflow, communications, light and comfort.” Id. at 1986-156. To that end, the company commenced the construction of an opulent, multi-story office building, the interior design of which featured multiple lobbies as well as large open areas, aimed at facilitating “rapid workflow and management communication.”[58] Id. In that case, the Board found and ruled that, as indicated by industry publications, calculations based on “usable office space” were “not helpful in determining the value of a single tenant or owner-occupied corporate headquarters.” Id. at 1986-160. The Board found and ruled in that case that the building’s design made it well-suited to its purpose as a corporate headquarters building. Id. at 1986-162. Likewise, in the present appeals, the Board found and ruled that Genzyme Center’s large atrium was not only essential to the building’s green design, but also added considerably to its stately, world headquarters ambience. The Board found that, rather than a “drawback,” the subject property’s large atrium was a feature which made the building well-suited to its use as a corporate world headquarters. For these reasons, the Board declined to apply Mr. Logue’s “add on” factor.
With respect to expenses, the evidence showed that the operating expenses used by Ms. McKinney were understated. Ms. McKinney’s operating expense estimates were lower than the expenses used by the assessors and were also lower than the median market expenses reported by BOMA. Further, the expenses used by Ms. McKinney were reported by the subject building’s owner and did not take into consideration many of the expenses for which Genzyme was responsible, including significant cleaning and maintenance expenses resulting from Genzyme Center’s unique green design. Mr. Logue’s expense estimates adequately accounted for these additional costs and also took into account the relevant market data. Because they were supported by the market data and by credible, testimonial evidence, the Board adopted Mr. Logue’s estimated operating expenses.
The Board also adopted Mr. Logue’s approach in allowing for TIs, replacement reserves and leasing commissions “above the line”, i.e. before arriving at net operating income, because evidence of the relevant market data indicated that making allowances for these items was the prevailing practice in Cambridge during the relevant time periods. As explained in The Appraisal of real estate, “[t]enant improvements are driven by the market—i.e., they are only done if the market dictates it.” Id. at 480. It is appropriate to make “above-the-line” allowances for items like TIs, replacement reserves, and leasing commissions where market data so warrant, and the Board found and ruled that they did so in the present appeals. See Olympia & York State Street Co., 428 Mass. at 243. See also Cambridge Park 125 Realty Corp. v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports 2008-746, 791, aff’d, 74 Mass. App. Ct. 1119 (2009). Although the Board adopted Mr. Logue’s approach in this respect, it did not adopt his estimates for TIs, replacement reserves, and leasing commissions, which it found were overstated. Given the age and excellent condition of the subject property, and its single-tenant, world headquarters characteristics, the Board found that more conservative estimates for TIs, replacement reserves, and leasing commissions were appropriate. The Board therefore selected its own lower allowances for these items.
The capitalization rates selected by the experts were close and, in some cases, identical, and the Board found their selected capitalization rates to be generally supported by the market data. Mr. Logue’s range of rates was slightly lower than the range of rates selected by Ms. McKinney. Considering that it adopted allowances for leasing commissions, replacement reserves, and TIs “above the line,” the Board found and ruled that capitalization rates on the lower end of the range were warranted. See Cambridge Park 125 Realty Corp., Mass. ATB Findings of Fact and Reports at 2008-779-81. The Board therefore adopted Mr. Logue’s selected capitalization rates, with the exception of fiscal year 2008. Ms. McKinney’s selected rate of 6.5% for fiscal year 2008 was slightly lower than Mr. Logue’s rate of 6.75%, and accordingly, the Board adopted Ms. McKinney’s capitalization rate for that year.
In reaching its opinion of fair cash value in these appeals, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggested. Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight. Foxboro Associates, 385 Mass. at 683; New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 473 (1981); New England Oyster House, Inc., 362 Mass. at 702. In evaluating the evidence before it, the Board selected among the various elements of value and formed its own independent judgment of fair cash value. General Electric v. Assessors of Lynn, 393 Mass. 591, 605 (1984); North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984). Moreover, ‘the board is entitled to, and did, give weight to the view of the subject property . . . in determining the fair cash value of the real estate.’” Antonino v. Assessors of Shutesbury, Mass. ATB Findings of Fact and Reports 2008-54, 2008-71 (citation omitted.)
The Board need not specify the exact manner in which it arrived at its valuation. Jordan Marsh v. Assessors of Malden, 359 Mass. 106, 110 (1971). The fair cash value of property cannot be proven with “mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment.” Assessors of Quincy, 309 Mass. at 72. “The credibility of witnesses, the weight of the evidence, and inferences to be drawn from the evidence are matters for the board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977). “The essential requirement is that the Board exercise judgment.” New Boston Garden, 383 Mass. at 473.
“‘The burden of proof is upon the [appellant] to make out its right as a matter of law to abatement of the tax.’” Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974), quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922). The appellant must show that it has complied with the statutory prerequisites to its appeal, Cohen v. Assessors of Boston, 344 Mass. 268, 271 (1962), and that the assessed valuation of its property was improper. See Foxboro Associates, 385 Mass. at 691. The assessment is presumed valid until the taxpayer sustains its burden of proving otherwise. Schlaiker, 365 Mass. at 245.
The Board applied these principles in reaching its conclusion that the appellants met their burden of proving that the subject property was overvalued for each of the fiscal years at issue, with the exception of 2009. Accordingly, the Board issued decisions for the appellants in docket numbers F277284, F282964, F287968, and F294379 and granted abatements as follows:
|
Fiscal Year |
Assessed Value ($) |
Fair Cash Value ($) |
Over-valuation ($) |
Tax Rate ($/$1,000) |
Abatement ($)[59] |
|
2005 |
113,843,100 |
98,271,000 |
15,572,100 |
18.28 |
293,197.73 |
|
2006 |
130,793,100 |
101,429,000 |
29,364,100 |
17.86 |
540,172.11 |
|
2007 |
130,793,100 |
102,871,000 |
27,922,100 |
18.30 |
526,303.66 |
|
2008 |
134,544,100 |
129,310,000 |
5,234,100 |
17.24 |
92,942.96 |
Lastly, for fiscal year 2009, the Board found that the fair cash value of the subject property was $144,921,000. As this amount was greater than its assessed value of $134,456,100, the Board decided the fiscal year 2009 appeal for the appellee. Accordingly, the Board issued a decision for the appellee in docket number F299101.
APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
JOHN J. GIURLEO v. BOARD OF ASSESSORS OF
THE TOWN OF RAYNHAM
Docket No. F299668 Promulgated:
May 3, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the appellee, Board of Assessors of the Town of Raynham (“assessors”), to abate taxes on certain real estate in the Town of Raynham, owned by and assessed to John J. Giurleo (“appellant” or “Mr. Giurleo”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2009 (“fiscal year at issue”).
Commissioner Egan (“Presiding Commissioner”) heard this appeal under G.L. c. 58A, § 1 and 831 CMR 1.20 and issued a single-member decision for the appellant.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
John J. Giurleo, pro se, for the appellant.
Michael Lalli, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2008, the appellant was the assessed owner of a 40,050 square-foot parcel of real estate located at 200 Wilbur Street in Raynham (“subject property”). The subject property is improved with a single-family, ranch-style home, which contains 1,082 square feet of living area. The dwelling has a total of five rooms, including three bedrooms. There is also a twelve square-foot front porch, a twenty-four square-foot side porch, and a shed.
For fiscal year 2009, the assessors valued the subject property at $265,700 and assessed taxes thereon, including a district tax, in the total amount of $3,238.88. In accordance with G.L. c. 59, § 57C, the appellant paid the tax due without incurring interest. On January 27, 2009, in accordance with G.L. c. 59, § 59, the appellant timely filed an abatement application with the assessors, which they denied that same day. On April 14, 2009, the appellant timely filed a petition with the County Commissioners. On April 22, 2009, the assessors timely transferred the case to the Appellate Tax Board (“Board”), pursuant to G.L. c. 59, § 64. On May 6, 2009, the appellant seasonably perfected his appeal with the Board by paying the required entry fee under G.L. c. 58A, § 7. On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear this appeal.
The issue in this appeal is whether the assessed value of the subject property, $265,700, exceeded its fair cash value as of January 1, 2008, which was the relevant date of assessment for the fiscal year at issue. The subject property has been the topic of several recent appeals. Mr. Giurleo filed appeals with the Board disputing the subject property’s assessment for fiscal years 2005, see John J. Giurleo v. Assessors of Raynham, Mass. ATB Findings of Fact and Reports 2006-449 (“Giurleo I”), and 2006, see John J. Giurleo v. Assessors of Raynham, Mass. ATB Findings of Fact and Reports 2007-615 (“Giurleo II”), but those appeals were dismissed based on Mr. Giurleo’s refusal to comply with the Board’s Orders allowing the assessors to inspect the subject property, as required by G.L. c. 58A, § 8A. Additionally, Mr. Giurleo appealed the subject property’s fiscal year 2008 assessment, but the Presiding Commissioner issued a decision for the appellee in that appeal after finding and ruling that Mr. Giurleo did not meet his burden of proving that the subject property’s assessed value was greater than its fair cash value. See John J. Giurleo v. Assessors of Raynham, Mass. ATB Findings of Fact and Reports 2009-644 (“Giurleo III”). [60]
Following the Board’s decisions in Giurleo I and Giurleo II, Mr. Giurleo allowed an independent third-party appraiser to conduct an inspection of the subject property on behalf of the assessors. That inspection was conducted on September 20, 2009. According to the testimony and documents entered into the record, the independent appraiser measured the subject property and opined that its total square footage was 1,040 square feet, rather than 1082 square feet, as listed on the property record card for the subject property. This reduction in square footage was attributed to a 42-square-foot portion of the subject property which protrudes from the main part of the house and which does not have basement beneath it, unlike the rest of the home. In addition, the independent appraiser suggested other adjustments, such as increasing the depreciation factor to be applied to the dwelling and reducing the value assigned to the shed due to its poor condition.
Through the testimony of Michael Lalli, assessor for Raynham, along with their documentary submissions, the assessors conceded at the hearing of this appeal that the assessed value of the subject property exceeded its fair cash value for the fiscal year at issue. After reviewing the independent inspector’s report, the assessors applied a greater depreciation factor to the subject property, and also decreased the value of the shed by $200 to account for its poor condition. Further, the assessors reclassified the entrance to the subject property’s basement as a shed after taking into consideration its poor condition.
Additionally, the assessors initially decreased the value assigned to the dwelling from $133,600 to $131,100 to account for the 42-square-foot decrease in finished living area with basement beneath. However, they added another category for living area without a basement beneath to account for those 42 square feet, to which they assigned a value of $3,200. In so doing, the assessors actually increased the value assigned to the dwelling from $133,600 to $134,300.
After making these adjustments, the assessors’ final opinion of the subject property’s fair cash value for the fiscal year at issue was $251,200, or $14,500 less than its assessed value for the fiscal year at issue.
Mr. Giurleo, who testified on his own behalf at the hearing of this appeal, detailed various perceived errors made by the assessors, including the fact that two structures designated by the assessors as porches were not, in his opinion, porches but were merely “entrances.” Mr. Giurleo also contested the $5,300 value assigned to the dwelling’s fireplace, which had been boarded up and was located in the dwelling’s basement. In his abatement application, Mr. Giurleo asserted that the fair cash value of the subject property was $232,200. At the hearing, he proposed a fair cash value of $244,240, but he introduced no affirmative evidence of value, such as comparable sales or assessment data, to support his opinion. The evidence offered by Mr. Giurleo consisted exclusively of his testimony, which was truncated when he abruptly left the hearing before it was concluded.
On the basis of all of the evidence, the Presiding Commissioner found that the subject property’s assessed value exceeded its fair cash value for the fiscal year at issue. The Presiding Commissioner found that the evidence presented by the assessors, which reflected adjustments to the subject property’s valuation made by the assessors following the inspection of the subject property by an independent, third-party appraiser, constituted the best evidence of the subject property’s fair cash value. However, the Presiding Commissioner found that the assessors erred when adjusting the value of the dwelling to account for the 42 square feet of living area without an underlying basement. Mr. Lalli testified that the assessors were merely attempting to be more precise in accounting for this area, but in actuality they increased the value of the dwelling from $133,600 to $134,300. The Presiding Commissioner agreed with the assessors that the 42 square feet of space was properly considered living area even though it has no basement beneath it, but she found that there was no support in the record for this $700 increase in value to the dwelling.
The Presiding Commissioner found that Mr. Giurleo, for his part, failed to offer evidence to support his opinion of fair cash value, which he initially expressed to be $232,200, but later asserted was $244,240. Mr. Giurleo’s evidence consisted of his testimony regarding errors made by the assessors in valuing various features of the subject property, including its fireplace and porches. The Presiding Commissioner found that, to the extent that the assessors made errors in their original assessment of the subject property for the fiscal year at issue, those errors were adequately remedied by the subsequent adjustments made by the assessors after they took into consideration the report of the independent appraiser. Specifically, the Presiding Commissioner found that the assessors adequately accounted for the poor overall condition of the subject property by increasing the depreciation value, and more particularly, they accounted for the poor condition of the shed and basement entrance by decreasing the value assigned to those structures. The appellant’s assertions about the valuation of the subject property’s various individual features did little to establish that the fair cash value of the subject property was less than the assessors’ revised opinion of value. Moreover, the appellant offered no recent sales of comparable properties or any comparable assessment data into evidence. Accordingly, the Presiding Commissioner found that there was no support in the record for Mr. Giurleo’s opinions of value for the subject property, which ranged from $232,200 to $244,240.
On the basis of all of the evidence, the Presiding Commissioner found and ruled that the fair cash value of the subject property for the fiscal year at issue was $250,500, an amount which was calculated by adopting the assessors’ revised opinion of fair cash value, which was $251,200, and subtracting therefrom the $700 that was erroneously added by the assessors to the value of the dwelling. Accordingly, the Presiding Commissioner decided this appeal for the appellant, and ordered an abatement of $185.28.[61]
OPINION
“All property, real and personal, situated within the commonwealth . . . shall be subject to taxation.” G.L. c. 59, § 2. Assessors have a statutory obligation to assess real estate at its fair cash value as of the first day of January of the year preceding the fiscal year at issue. G.L. c. 59 §§ 11 and 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and neither is under compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The taxpayer has the burden of proving that the subject property has a lower value than that assessed. Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974). The assessment is presumed to be valid unless the taxpayer is able to sustain his or her burden of proving otherwise. General Electric Co. v. Assessors of Lynn, 393 Mass. at 591, 598 (1984) (citing Schlaiker, 365 Mass. at 245). The taxpayer may sustain this burden by introducing evidence of fair cash value, or by proving that the assessors erred in their method of valuation. General Electric, 393 Mass. at 600.
In the present appeal, the assessors conceded that the assessed value of the subject property exceeded its fair cash value for the fiscal year at issue. After taking into consideration the information gathered by an independent appraiser during a recent inspection of the subject property, the assessors’ revised opinion of the subject property’s fair cash value was $251,200, rather than its assessed value of $265,700. The Presiding Commissioner found and ruled that the evidence introduced by the assessors constituted the most reliable evidence of the subject property’s fair cash value, with the exception that they made an error which resulted in the overvaluation of the dwelling by $700.
The Presiding Commissioner found and ruled that the evidence presented by the appellant did little to erode the credibility of the assessors’ revised opinion of value. Mr. Giurleo introduced no affirmative evidence of value, such as comparable sales or assessment data. Mr. Giurleo’s testimony focused primarily on the perceived flaws committed by the assessors in valuing various individual components of the subject property, such as its porches, which he claimed were merely entrances, and its fireplace. Even assuming arguendo that Mr. Giurleo’s assertions about the subject property were true, such facts alone would not establish that the fair cash value of the subject property was less than the assessors’ revised opinion of value. A taxpayer “does not conclusively establish a right to an abatement merely by showing that [individual components of the property are] overvalued.” Assessors of Brookline v. Prudential Insurance Co., 310 Mass. 300, 317 (1941). In abatement proceedings, “the question is whether the assessment for the parcel of real estate, including both the land and the structures thereon, is excessive.” Massachusetts General Hospital v. Belmont, 238 Mass. 396, 403 (1921). Although the value of a property’s component parts “are each open to inquiry,” the ultimate question for the Board is “whether [the] single assessment is excessive.” Massachusetts General Hospital, 238 Mass. at 403; see also Buckley v. Assessors of Duxbury, Mass. ATB Findings of Fact and Reports 1990-110, 119; Jernegan v. Assessors of Duxbury, Mass. ATB Findings of Fact and Reports 1990-39, 44. Accordingly, the Presiding Commissioner found and ruled that there was no evidence in the record to support Mr. Giurleo’s opinions of the subject property’s fair cash value, which ranged from $232,200 to $244,240.
On the basis of all of the evidence, the Presiding Commissioner found and ruled that the fair cash value of the subject property for the fiscal year at issue was $250,500. Accordingly, the Presiding Commissioner issued a single-member decision for the appellant in this appeal, and ordered an abatement of $185.28.
APPELLATE TAX BOARD
By: _____ _______
Nancy T. Egan, Commissioner
A true copy,
Attest: _____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
HOME FOR AGED PEOPLE v. BOARD OF ASSESSORS OF
IN FALL RIVER THE CITY OF FALL RIVER
Docket Nos. F288407 Promulgated:
F296842 May 4, 2011
F300683
These are appeals under the formal procedure, pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the appellee Board of Assessors of the City of Fall River (“assessors” or “appellee”) to abate real estate taxes on certain real estate located in Fall River, owned by and assessed to the appellant, Home for Aged People in Fall River (“appellant” or “Home”), under G.L. c. 59, §§ 11 and 38 for fiscal years 2007 through 2009 (“fiscal years at issue”).
Commissioner Mulhern heard these appeals. Chairman Hammond and Commissioners Scharaffa, Egan, and Rose joined him in the decisions for the appellant, which are promulgated simultaneously with these findings of fact and report.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Stephen W. Kidder, Esq. and Diane C. Tillotson, Esq. for the appellant.
Burton Peltz, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
I. Introduction and Jurisdiction
On the basis of the stipulated facts and documents, testimony and exhibits offered into evidence at the hearings of these appeals, the Appellate Tax Board (“Board”) made the following findings of fact.[62]
At all times relevant to these appeals, the appellant was a Massachusetts non-profit corporation organized under G.L. c. 180. It was exempt from federal income taxes under Internal Revenue Code § 501(c)(3). The appellant’s Articles of Organization stated that its purpose was “to contribute to the well-being and financial security of primarily elderly individuals by providing nursing, housing, health-care, recreational and social services in a charitable manner, in the Greater Fall River area.”
Home was the owner of two parcels of real estate located in Fall River. The first parcel, located at 1168 Highland Avenue, was improved with a facility known as Adams House (“subject property” or “Adams House parcel”). Adams House was a nursing home which was licensed by the Department of Public Health as a Level III/IV long-term care facility.
The second parcel, located at 4380 North Main Street (“Bay View parcel”), was improved with a facility known as Bay View. Bay View was an independent-living community, available to individuals age sixty-two or older, consisting of a forty-six unit apartment building and twenty-two townhouse-style units, referred to as cottages (“cottages”). Residents of Bay View had the option to contract for certain services such as house cleaning, meals, and transportation, but Bay View was not licensed as an assisted-living facility.
For fiscal year 2007, the appellant timely filed with the assessors its Form 3 ABC and a copy of its Form PC and paid the taxes due without incurring interest. The appellant timely filed an Application for Abatement with the assessors on January 31, 2007. The assessors denied the Application for Abatement on February 7, 2007, and the appellant timely filed its petition with the Board on May 4, 2007.
For fiscal year 2008, the appellant timely filed its Form 3 ABC and a copy of its Form PC with the assessors and paid the taxes due without incurring interest. The appellant timely filed an Application for Abatement with the assessors on January 30, 2008. The assessors denied the Application for Abatement on April 17, 2008, and the appellant timely filed its petition with the Board on June 19, 2008.
For fiscal year 2009, the appellant timely filed its Form 3 ABC and a copy of its Form PC with the assessors and paid the taxes due without incurring interest. The appellant timely filed its Application for Abatement on January 29, 2009, and that application was denied by the assessors on March 4, 2009. The appellant timely filed its petition with the Board on May 29, 2009.
On the basis of these facts, the Board found that it had jurisdiction to hear and decide these appeals.
II. Procedural History
There were two issues in these appeals: (1) whether the assessed value of the subject property exceeded its fair cash value and (2) whether the subject property was exempt from tax under G.L. c. 59, § 5, Clause Third (“Clause Third”). Prior to the fiscal years at issue, the assessors considered the Adams House parcel to be exempt under Clause Third and assessed no real estate or personal property taxes upon it. Beginning in fiscal year 2007, the assessors ceased treating the Adams House parcel as an exempt property and assessed taxes based on its fair cash value.
These appeals were originally heard by the Board on June 25, 2008. The Board issued a Decision for the appellee on January 26, 2009. Subsequently, on August 19, 2009, the appellant filed a Motion for Reconsideration of the Board’s decision, following the Appeals Court’s decision in Mary Ann Morse Healthcare Corp. v. Assessors of Framingham, 74 Mass. App. Ct. 701, 705 (2009), which was promulgated on July 27, 2009. In that case, the Appeals Court reversed the Board’s finding that a corporation which operated an assisted-living facility was not a charitable organization for the purposes of Clause Third. In consideration of this development in relevant case law, the Board allowed the appellant’s Motion for Reconsideration and re-opened the hearing of these appeals to receive further evidence and hear additional arguments by the parties. A second hearing was held before the Board on January 20, 2010.
Following that hearing, but before the Board issued its decision, the parties reached an agreement as to the second issue, the valuation of the subject property. The parties stipulated that the subject property’s assessed value for each of the fiscal years at issue exceeded its fair cash value. The parties’ stipulations on the valuation issue are summarized in the following table:
|
Fiscal Year |
Assessed Value ($) |
Fair Cash Value ($) |
Over-valuation ($) |
Tax Rate ($/$1,000) |
Abatement Amount ($) |
|
2007 |
3,794,000 |
2,200,000 |
1,594,000 |
16.37 |
26,093.78 |
|
2008 |
3,784,300 |
2,000,000 |
1,784,300 |
16.31 |
29,101.93 |
|
2009 |
3,771,300 |
1,800,000 |
1,971,300 |
17.49 |
34,478.04 |
III. The Exemption Issue
At the June 25, 2008 hearing, the appellant offered the testimony of David Westgate, a longtime member of Home’s Board of Trustees and Finance and Executive Committee, and the testimony of William Girrier, Home’s Chief Executive Officer. At the January 20, 2010 hearing, the appellant offered the testimony of James H. Kay, who was serving on a volunteer basis as the Chairman of Home’s Board of Trustees. On the basis of the stipulated facts and documents, testimony and exhibits offered into evidence at the hearings of these appeals, the Board made the following subsidiary findings of fact.
A. Adams House
Adams House was established in 1891 and has provided care for the elderly continuously since that time. The current Adams House building was built in 1898, and is a three-story, brick Victorian-style building. At all relevant times, its residential floors were organized by varying levels of care. The first floor housed the most independent residents, those who received some assistance with activities of daily living, but who could “pretty much get along on their own,” according to Mr. Girrier. The second floor housed residents needing more extensive assistance with activities of daily living, and the third floor was home to residents needing the most intensive level of care.
Although Adams House was licensed for up to fifty-nine beds, Mr. Westgate testified that Adams House operated at a fifty-four bed capacity. In 2007, Adams House had forty-one residents. In 2008, it had forty-seven residents.
Mr. Westgate testified that the philosophy of Adams House was “to provide care that is extraordinary in nature and is of the highest quality that we can do.” Part of that “extraordinary” care involved maintaining very low staff-to-resident ratios. Because of the superior staffing ratios which it maintained, Adams House was able to provide on average 4.6 hours of daily care to each resident, in comparison to the statewide average at long-term care facilities of 3.8 hours.
Adams House did not accept Medicaid. Mr. Westgate testified that Adams House declined to participate in the Medicaid program because the low reimbursement rates associated with that program would prevent Adams House from maintaining the level of staffing it wished to maintain.
Mr. Westgate described the admission process at Adams House. Individuals seeking admission to Adams House were screened by an admissions committee to ensure that they were appropriate candidates for admission. The health of the applicant was an important consideration in the admission process. Mr. Westgate explained that health was an important consideration because of the need to ensure that Adams House could provide the appropriate level of care for all residents.
Once it was determined that the applicant was an appropriate candidate for residency at Adams House, Home requested financial information so that it could determine whether the applicant had sufficient assets to pay the fees charged by Adams House. Upon admission to Adams House, residents were required to pay a one-time admission fee of $10,000; after admission, the daily fee at Adams House was $270, or approximately $8,000 per month. Mr. Girrier testified that Adams House tried “to be competitive in the market rate. [Home tried] to make sure that we’re not overpriced so that, you know, we alienate people from coming in who would otherwise go to another nursing home. We feel our rates are competitive.”
Mr. Westgate stated that Adams House generally drew its residents from the greater Fall River area and that the residents came from diverse backgrounds. A roster of residents entered into evidence showed that, during the years at issue, Adams House residents included people retired from a variety of professions.
Home had an endowment totaling nearly $7 million, which allowed it to subsidize the care of those residents whose assets had been depleted and who therefore could not pay the full daily rate. Mr. Westgate testified that Home’s goal was to have thirty-two of its beds occupied by full-paying residents, with the remaining twenty-two beds earmarked for residents needing financial assistance – the so-called “supported” residents.[63] However, no written policy to that effect was introduced into evidence. In 2007, approximately 29% of the care provided at Adams House was supported care. In 2008, approximately 33% of the care provided at Adams House was supported care.
Prior to 2007, the Adams House Admission Agreement (“Admission Agreement”) expressly provided that “once admitted, a Resident will not be discharged for reasons of financial ability.” Mr. Westgate testified that Adams House had never evicted a resident because of an inability to pay. However, in 2007 the Admission Agreement was amended and that language was removed. The language inserted into the Admission Agreement, as amended in 2007, provided: “once admitted to Adams House under this Agreement, a RESIDENT becomes eligible for charitable assistance from [Home] in the event that RESIDENT becomes financially unable to pay for his or her own care for reasons beyond his or her own control and [Home] determines in its sole discretion that sufficient . . . funds for such charitable assistance are available.” The amended Admission Agreement also provided for a right of recovery of funds – with interest – from a resident who received supported care, or the estate of such a resident, in the event that the resident terminated occupancy at Adams House.
Further, Mr. Westgate testified that it was Home’s goal that incoming residents have the financial resources to sustain at least three years worth of living expenses at Adams House. However, no written policy to that effect was offered into evidence. Although Mr. Westgate testified that “there have been times in [Home’s} history” when people with no assets were admitted,” he did not elaborate on this statement, or even approximate how many times in Home’s more than 115-year history that people with no assets were admitted.[64] In addition, no documents evidencing such admissions were introduced into evidence. Both the original and amended Admission Agreements stated that incoming residents should have sufficient resources to pay for their care for their entire life expectancy:
The Resident shall have furnished information to [Home] with respect to the Resident’s financial resources demonstrating that the Resident has the financial ability to pay the nonrefundable Application Fee, the daily Residency Rate for the accommodation provided, charges for additional services, and personal living expenses for the life expectancy of the Resident.
The evidence showed that no residents admitted in 2007 or 2008 received supported care immediately upon admission. The record indicated that the vast majority of Adams House residents had sufficient funds to pay the $10,000 admission fee and $270 daily fee and did not receive financial assistance.
B. Bay View
Bay View was an independent-living community consisting of a forty-six unit apartment building and twenty-two cottages. Residency at Bay View was available to individuals age sixty-two or older.[65]
Home first acquired Bay View’s apartment building in 1991. The apartment building had been a condominium project which failed. Most of the units were two-bedroom, two-bathroom units with approximately 1,300 square feet of gross living area. Mr. Girrier testified that Bay View was conceived as an independent-living community offering limited services to its residents. As its resident population aged, Bay View began to offer a more comprehensive menu of optional services, including meals, transportation, cleaning services and social and recreational activities, for additional fees. However, Bay View was not licensed as an assisted-living facility, and the services that it offered did not include assistance with activities of daily living.
In light of these changes at Bay View, Home decided to expand its offerings to include housing for more active adults. In 2005, Home began construction on twenty-two independent-living units, known as cottages. As of the June 25, 2008 hearing of these appeals, five of the cottages were occupied and a sixth cottage was being utilized as a “model” unit; the remaining sixteen units were not yet completed or occupied.
The entrance fees for the apartment complex at Bay View ranged from $125,000 to $350,000, depending on the unit. The entrance fees for the cottages ranged from $425,000 to $500,000, depending on the unit. Optional services were available for prices ranging from $1,600 to $2,500 per month. A mandatory, monthly fee of $390 was charged for residence in the cottages, which the “Residence and Use Agreement” described as covering concierge services. Utilities were separately metered for each unit, and were not covered by the entrance or monthly fees. Bay View did not accept Medicaid, and it was undisputed by the parties that Bay View was not exempt from tax under Clause Third during the fiscal years at issue.
- C. Home’s Dominant Purposes and Methods Were Not Traditionally Charitable
On the basis of all of the evidence, the Board found that Home provided housing and other services to a variety of individuals in two different settings, Bay View and Adams House. With respect to Adams House, the Board found that Home provided housing and nursing care to the elderly. The Board found that the residents of Adams house had varying levels of need. Some residents were relatively independent and active, while others required considerable support for medical issues and assistance with activities of daily living.[66] The majority of residents had sufficient financial means to pay for their care. A minority of residents received subsidized care from Home, usually after having lived at, and paid full fees to, Adams House for a number of years. Neither Adams House nor Bay View accepted Medicaid, and therefore the population served by Home did not include individuals dependent on Medicaid.
With respect to Bay View, the Board found that it was an independent-living community primarily for independent individuals age sixty-two or older. Bay View was not licensed to operate as an assisted-living facility, and the Board found that it was not an assisted-living facility. Entrance fees at Bay View ranged from $125,000 to $500,000, depending on the unit. Bay View offered to its residents certain services, such as house cleaning, meals, and transportation, but those services were optional and residents were required to pay additional fees for them. The optional services were available for between $1,600 and $2,500 per month. Further, a mandatory, monthly fee of $390 for concierge services was charged to residents of the cottages. Based on the foregoing, the Board found that the accommodations and amenities offered at Bay View made it more akin to a luxury living milieu than a facility which provided assistance with activities of daily living, such as dressing and bathing. Therefore, the Board found that the operation of Bay View was not a traditionally charitable activity.
In making its determination as to Home’s dominant purposes and methods, the Board looked at Home’s overall operations and the population which it served. Bay View was the larger of Home’s two facilities. The apartment building at Bay View contained forty-six apartments and there were twenty-two cottages, for a total of sixty-eight units at Bay View. Adams House, in contrast, operated on a fifty-four bed capacity.[67] Bay View’s residents did not require assistance with activities of daily living or other medical issues, nor did Home offer those services at Bay View. Even within Adams House, the evidence showed that a number of its residents were relatively physically independent, and the majority of its residents were financially independent. Home’s dominant purposes and methods were to provide housing and other services at both Bay View and Adams House, and the Board found that the majority of the persons served by Home were not traditional objects of charity. Rather, the population served by Home largely consisted of comparatively independent persons who paid market-rate fees for Home’s services.[68] Based on these facts, the Board concluded that, although some of the services provided by Home at Adams House may have been traditionally charitable, Home’s dominant purposes and methods were not traditionally charitable.
The Board next considered and weighed the established factors relevant to the determination of an organization’s charitable status in light of its finding that Home’s dominant purposes and methods were not traditionally charitable. Entrance fees for Bay View ranged from $125,000 to $350,000 in the apartment building and $425,000 to $500,000 for the cottages, depending on the unit. In addition, a $390 mandatory monthly fee for concierge services was charged to residents of the cottages. That fee did not cover utilities, which residents were responsible for and which were separately metered for each unit. The Board found that the fees charged at Bay View barred access to individuals of limited financial means, and therefore, it was not accessible to a large and fluid class of people.
In addition, Bay View offered to its residents a menu of optional services, such as meals, transportation, and house cleaning, for prices ranging from $1,600 to $2,500 per month. As stated above, a mandatory monthly fee of $390 was charged for concierge services at the cottages. The Board found that the charging of these fees did not advance a charitable purpose, but instead merely facilitated the delivery of premium lifestyle services akin to services available in a luxury living setting.
Residents at Adams House paid $10,000 for admission and $8,000 per month thereafter. Despite their diverse professional backgrounds, the Board found that the residents at Adams House by and large shared one commonality, i.e., the financial means to pay for their care at Adams House. The vast majority of the individuals on the resident roster had assets totaling hundreds of thousands of dollars upon admission to Adams House. Most residents also had monthly incomes between $1,000 and $3,000. The financial information of some residents listed on the resident roster was omitted and replaced with the notation that their financial resources were adequate or that their family members were paying for their care.
Although Home subsidized the care of a minority of Adams House residents, the evidence indicated that the residents receiving subsidized care at Adams House were not elders of limited financial means upon entry to Adams House. Rather, they were persons who had resided at, and paid full fees to, Adams House for a number of years prior to receiving subsidized care. The Board found that the fact that Home subsidized the care of a minority of residents at Adams House did not prove that its services were accessible to a large and fluid class of persons. In fact, Mr. Girrier essentially conceded in his testimony, excerpted below, that it was not:
[Mr. Peltz]: By placing more emphasis on admitting people with means, hopefully meeting the three-year litmus test that you mentioned, are you not prejudicing admission for people of limited or no means?
[Mr. Girrier]: Yes.
[Mr. Peltz]: You’re then limiting the scope of the community that can be admitted?
[Mr. Girrier]: At that point in time, because of the necessity with the business, we have no other recourse.
Based on all of the evidence, the Board found that the fees charged by Home barred access to elders of limited financial means, and, therefore, its services were not accessible to a large and fluid class of people.
In addition, the Board found that Home did not benefit the public or serve to relieve a burden of government in the manner intended by Clause Third. Neither Bay View nor Adams House accepted Medicaid, and the Board found that they were not accessible to elders dependent on government assistance. The evidence indicated that a majority of the residents at Bay View and Adams House either had sufficient resources to pay for their care and lodging, or had family members who were able to pay for them. The Board found that the residents of Adams House and Bay View were primarily individuals with many options for their care, not individuals who would otherwise be dependent upon government support.
Moreover, the evidence established that the accommodations and fees at Adams House were designed to make it an attractive alternative to other area nursing homes. The Board found that the fees and policies in place at Adams House were guided by a desire to remain competitive with other local nursing homes, rather than to relieve the government of any burden. The Board found that Home operated more like a typical commercial enterprise, by charging market-rate fees for its services, rather than a charitable organization. Only a minority of residents at Adams House received subsidized care, and those residents comprised just a fraction of the overall population served by Home. Furthermore, some of the residents receiving supported care received only modest financial assistance from Home; many of the subsidized residents continued to pay a portion of the daily fee. The record further established that, typically, residents of Adams House were eligible to receive subsidized care only after residing at, and paying full fees to, Adams House for a number of years.
The Board therefore found that any benefit provided to the public by Home was merely incidental to Home’s dominant purposes and methods, which were the provision of housing and services in return for market-rate fees. Accordingly, the Board found that Home did not benefit the public or relieve a burden of government in the manner intended by Clause Third.
IV. The Board’s Ultimate Findings of Fact
After considering and weighing the relevant factors in light of its finding that Home’s dominant purposes and methods were not traditionally charitable, the Board found that Home was not a charitable organization for the purposes of Clause Third. The Board therefore found that the subject property was not exempt under Clause Third for the fiscal years at issue because it was not owned by a charitable organization.
Additionally, as stipulated by the parties, the Board found that the subject property’s assessed value for each of the fiscal years at issue exceeded its fair cash value. The Board’s findings of fair cash value and the corresponding abatement amounts are set forth in the following table:
Fiscal Year
Assessed
Value ($)
Fair Cash Value ($)
Over-valuation ($)
Tax Rate ($/$1,000)
Abatement Amount ($)
2007
3,794,000
2,200,000
1,594,000
16.37
26,093.78
2008
3,784,300
2,000,000
1,784,300
16.31
29,101.93
2009
3,771,300
1,800,000
1,971,300
17.49
34,478.04
Based on the foregoing, the Board decided these appeals for the appellant and granted abatements as set forth above.[69]
OPINION
Clause Third provides an exemption for “real estate owned by or held in trust for a charitable organization and occupied by it or its officers for the purposes for which it is organized or by another charitable organization or organizations or its or their officers for the purposes of such other charitable organization or organizations.” Thus, a taxpayer claiming exemption under Clause Third must prove first that the property is owned by a charitable organization, and second, that a charitable organization occupies it for charitable purposes. See Jewish Geriatric Services, Inc. v. Longmeadow, Mass. ATB Findings of Fact and Reports 2002-337, 351, aff’d, 61 Mass. App. Ct. 73 (2004) (citing Assessors of Hamilton v. Iron Rail Fund of Girls Club of America, 367 Mass. 301, 306 (1975)).
Merely espousing a recognized charitable purpose does not mean that an organization is a charitable organization for the purposes of Clause Third. See American Inst. For Economic Research v. Assessors of Great Barrington, 324 Mass. 509, 513 (1949). The organization “must prove that it is in fact so conducted that in actual operation it is a public charity.” Jacob’s Pillow Dance Festival, Inc. v. Assessors of Becket, 320 Mass. 311, 313 (1946).
I. Home’s Dominant Purposes and Methods Were Not Traditionally Charitable
An organization will be considered a charitable organization for the purposes of Clause Third if
“the dominant purpose of its work is for the public good and the work done for its members is but the means adopted for this purpose. But if the dominant purpose of its work is to benefit its members or a limited class of persons it will not be so classed, even though the public will derive an incidental benefit from such work.”
Harvard Community Health Plan v. Assessors of Cambridge, 384 Mass. 536, 544 (1981) (quoting Mass. Medical Soc’y v. Assessors of Boston 340 Mass. 327, 332 (1960)). For several decades, courts have used the following factors to determine whether an organization is operating as a public charity:
[W]hether the organization provides low-cost or free services to those unable to pay, see New England Legal Found. v. Boston, 423 Mass. 602, 610 (1996); whether it charges fees for its services and how much those fees are, see Assessors of Boston v. Garland Sch. of Home Making, 296 Mass. 378, 390, (1937); whether it offers its services to a large or “fluid” group of beneficiaries and how large and fluid that group is, see New England Legal Found., 423 Mass. at 612; Cummington Sch. of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 601, (1977); whether the organization provides its services to those from all segments of society and from all walks of life, see Harvard Community Health Plan, Inc., 384 Mass. at 544; and whether the organization limits its services to those who fulfil certain qualifications and how those limitations help advance the organization’s charitable purposes, see Western Mass. Lifecare Corp. v. Assessors of Springfield, 434 Mass. 96, 103-104 (2001); Boston Symphony Orchestra, Inc. v. Assessors of Boston, 294 Mass. 248, 256 (1936).
New Habitat, Inc. v. Tax Collector of Cambridge, 451 Mass. 729, 732 (2008).
In 2008, the Supreme Judicial Court decided the New Habitat case, in which it considered whether a non-profit organization providing long-term housing for persons with acquired brain injury was a charitable organization for the purposes of Clause Third. It was undisputed that the residents served by New Habitat, Inc. were unable to care for themselves or live independently, and required 24-hour support. Moreover, there was no question that the provision of housing and services to persons with acquired brain injury was New Habitat, Inc.’s dominant purpose because that was its sole activity. “[I]n light of these facts, [the Court] conclude[d] that New Habitat’s dominant purposes and methods were traditionally charitable.” Id. at 734 (internal citations omitted).
Because New Habitat’s dominant purposes and methods were traditionally charitable, the Court placed less significance on the above-referenced factors in concluding that it qualified for the exemption. Thus, although New Habitat, Inc. served only a small number of individuals and charged considerable fees,[70] the Court held that it was a charitable organization for purposes of Clause Third. Compare Boston Symphony Orchestra, 294 Mass. at 256 (holding that organization which charged significant fees for admission and whose services were not accessible to a large segment of the public was not a charitable organization for purposes of Clause Third).
In 2009, the Appeals Court had its first opportunity to decide a case involving the Clause Third exemption following the New Habitat decision. In Mary Ann Morse Healthcare, the Appeals Court considered whether property owned and used by the taxpayer as an assisted-living facility, a substantial portion of which served Alzheimer’s and dementia residents, was entitled to the Clause Third exemption. Id. at 702. The Appeals Court held that New Habitat provided a new “interpretive lens” with which to view cases arising under Clause Third. Mary Ann Morse Healthcare, 74 Mass. App. Ct. at 703. The Appeals Court noted that, although New Habitat left intact the previously-established factors, it “emphatically condition[ed] the importance of previously established factors on the extent to which the ‘dominant purposes and methods of the organization’ are traditionally charitable.” Mary Ann Morse Healthcare, 74 Mass. App. Ct. at 703 (citing New Habitat, 451 Mass. at 733) (“The closer an organization’s dominant purposes and methods are to traditionally charitable purposes and methods, the less significant these factors will be in our determination of the organization’s charitable status . . . [t]he farther an organization’s dominant purposes and methods are from traditionally charitable purposes and methods, the more significant these factors will be.”). Thus, the Appeals Court in Mary Ann Morse Healthcare ruled that, where the majority of the taxpayer’s activities were dedicated to serving the needs of Alzheimer’s and dementia residents, it was entitled to the Clause Third exemption because it was indisputably performing a “traditional public charitable function.” Id. at 705.
Reviewing the facts of the present appeals in light of the analysis of New Habitat and Mary Ann Morse Healthcare, the Board found and ruled that Home’s dominant purposes and methods were to provide housing and other services to a variety of individuals in two settings, Bay View and Adams House. The larger of the two facilities, Bay View, was an independent-living community, as distinguished from the assisted-living facility at issue in Mary Ann Morse Healthcare. Bay View’s residents did not require assistance with activities of daily living, and Home did not provide such assistance. Rather, Bay View’s residents were relatively healthy and independent persons, age sixty-two and older, who could opt and pay for additional services such as house cleaning, meals, and transportation. The Board thus found and ruled that Bay View was more akin to a luxury-living setting than an assisted-living facility or nursing home, and the operation of Bay View was not a traditionally charitable activity. See Western Mass. Lifecare, 434 Mass. at 105.
With respect to Adams House, the Board found and ruled that Home was engaged in the operation of a long-term care facility which provided housing, meals, nursing care, social opportunities, and assistance with activities of daily living to its residents, most of whom paid market-rate fees for those services. Although the Board is cognizant that “the operation of a nursing home for the elderly and infirm” has been found to be the work of a charitable corporation, H-C Health Services, Inc. v. Assessors of S. Hadley, 42 Mass. App. Ct. 596, 599 (1997), the work conducted by Home at Adams House must be viewed within the context of Home’s “dominant purposes and methods.” New Habitat, 451 Mass. at 733. Home’s dominant purposes and methods involved operating both Bay View and Adams House, and the Board found and ruled that, between Bay View and Adams House, the majority of the population served by Home consisted of financially and physically independent individuals rather than traditional objects of charity. See Western Mass. Lifecare, 434 Mass. at 105.
These appeals are therefore distinguishable from Mary Ann Morse Healthcare, 74 Mass. App. Ct. 701. The Appeals Court ruled in Mary Ann Morse Healthcare that the taxpayer, which used seventy-one percent of its assisted-living facility to service the needs of its Alzheimer’s and dementia residents (id. at 702), was “indisputabl[y] perform[ing] a traditional public charitable function.” Id. at 705. However, because the Board heard and issued its Decision in Mary Ann Morse Healthcare before the New Habitat case was decided[71], the assessors in that case did not emphasize the proximity of the taxpayer’s “dominant purposes and methods” to traditional charitable purposes. New Habitat, 451 Mass. at 733.[72] In contrast, the assessors in these appeals offered ample evidence demonstrating that the majority of Home’s activities were devoted to the operation of Bay View, which was a luxury independent-living community. Although the provision of services to Alzheimer’s and dementia residents such as those offered by the taxpayer in Mary Ann Morse Healthcare may constitute the “indisputable performance of a traditional public charitable function,” the provision of luxury housing and services for seniors does not. See Western Mass. Lifecare, 434 Mass. at 105. Where, as here, the majority of the appellant’s efforts were devoted to non-charitable purposes, the Board found and ruled that the dominant purposes and methods of the appellant were not traditionally charitable.
Moreover, the evidence offered by the appellant failed to persuade the Board that Home was operating as a public charity. Much of that evidence consisted of testimony regarding Home’s goals and unwritten policies, some of which were directly contradicted by the written policies introduced into evidence.
In making its determination, the Board was mindful of the fact that organizations need not serve exclusively the poor or needy to be considered charitable, nor does the charging of fees preclude a finding that an organization is charitable. See Western Mass. Lifecare, 434 Mass. at 104 (citing New England Legal Found., 423 Mass. at 609; Garland Sch. of Home Making, 296 Mass. at 389) (other citations omitted). However, it is also true that many activities and services that “are commendable, laudable and socially useful [do] not necessarily come within the definition of ‘charitable’ for purposes of the exemption.” Western Mass. Lifecare, 434 Mass. at 103 (citing Massachusetts Med. Soc’y, 340 Mass. at 333). Though Home undoubtedly provided “commendable, laudable and socially useful” services, the Board could not find on the record before it that the dominant purposes and methods of Home were traditionally charitable. Western Mass. Lifecare, 434 Mass. at 103. Accordingly, the Board gave greater weight to the traditional factors used for determining whether an organization is operating as a public charity. See New Habitat, 451 at 732.
II. Home Did Not Relieve a Burden of Government for Purposes of Clause Third
One of the factors to be considered in determining whether an organization is operating as a public charity is whether it “perform[s] activities which advance the public good, thereby relieving the burdens of government to do so.” Sturdy Memorial Foundation v. Assessors of North Attleborough, Mass. ATB Findings of Fact and Reports 2002-203, 224, aff’d 60 Mass. App. Ct. 573 (2004) (citing Molly Varnum Chapter DAR v. City of Lowell, 204 Mass. 487 (1909)). “The fact that an organization provides some service that would, in its absence, have to be provided by the government, ‘is frequently put forward as the fundamental reason for exempting charities from taxation.’” Western Mass. Lifecare, 434 Mass. at 105 (quoting Assessors of Springfield v. Cunningham Foundation, 305 Mass. 411, 418 (1940)).
Thus, in Straight Ahead Ministries, Inc. v. Assessors of Hubbardston, the Board found that a corporation which ran a non-profit academy for young males who had just been released from a juvenile detention center operated as a public charity, despite the fact that the academy housed less than a dozen young men at any given time and was only available to males between the ages of sixteen and twenty. Straight Ahead Ministries, Inc. v. Assessors of Hubbardston, Mass. ATB Findings of Fact and Reports 2009-1, 13-14. In that case, a state agency placed the young men in the academy and paid for a portion of their attendance costs; governmental grants, private gifts and donations made up the remainder of the academy’s budget. Id. at 2009-12-13. Because the academy was partly funded by the government, because the population which it served entered the academy directly from a government-care setting, and because its goal was to prevent re-entry of the men it served into the criminal justice system, the Board found and ruled that the academy served to relieve a burden of government. Id. at 2009-12-14.
Unlike in Straight Ahead Ministries, there was no direct correlation between the work done by Home and the work of the government. Adams House and Bay View were expressly off-limits to those dependent on Medicaid, as Home did not accept Medicaid payments. Contrast H-C Health Services, 42 Mass. App. Ct. at 598, William B. Rice Eventide Home v. Assessors of Quincy, Mass. ATB Findings of Fact and Reports 2006-457, 481, rev’d on other grounds, 69 Mass. App. Ct. 867 (2007). Because of the fees which Home charged, Adams House and Bay View were not accessible to elders of limited means, and the majority of their residents were not in the class of persons who would otherwise be dependent on government assistance.
Further, Mr. Girrier stated that Adams House strove to maintain competitive market rates in order to avoid losing potential residents to other nursing homes. Similarly, Mr. Westgate testified that Adams House strove to deliver “extraordinary” care, which included maintaining low staff-to-resident ratios and providing more individualized care than most nursing homes. Mr. Westgate testified that one of the reasons that Home did not accept Medicaid was that the low reimbursement rates would have made it impossible to maintain superior staffing ratios. Thus, the Board found that the policies and fees in place at Adams House were not dictated by a concern with preventing residents from becoming dependent upon the government, but by a desire to prevent them from going to Home’s competitors.
Lastly, Home provided subsidized care to only a minority of residents at Adams House and the amount of subsidy varied for each “supported” resident. The care of some “supported” residents was subsidized almost completely, while other “supported” residents received only modest financial assistance. No subsidized care was provided for residents of Bay View, which was the larger of Home’s two facilities. The Board found and ruled that, although Home provided subsidized care to a minority of residents at Adams House, the provision of subsidized care was incidental to Home’s dominant purposes and methods, which was the provision of housing and other services in return for market-rate fees. See The Mediation Group v. Assessors of Brookline, Mass. ATB Findings of Fact and Reports 2003-64, 78-79 (finding that entity which charged market-rate fees to the majority of its clients and conferred only an incidental benefit to the general public was not a charitable organization). The Board therefore found and ruled that the appellant failed to demonstrate that it “advance[d] the public good, thereby relieving the burdens of government to do so.” Sturdy Memorial Foundation, Mass. ATB Findings of Fact and Reports at 2002-224.
III. Home’s Services Were Not Available to a Large and Fluid Class of People
Residents at Adams House paid $10,000 for admission and approximately $8,000 per month thereafter. Entrance fees at Bay View ranged from $125,000 to $500,000, depending on the unit. A mandatory fee of $390 per month was charged for residence at the cottages, while a menu of optional services was available for prices ranging from $1,600 to $2,500 per month. The Board found and ruled that the considerable fees charged by Home, along with its failure to accept Medicaid, limited the class of persons eligible to receive its services.[73] “The class of elderly persons who can pay [such entrance and monthly fees] is a limited one, not a class that has been ‘drawn from a large segment of society or all walks of life.’” Id. (quoting New England Legal Found., 423 Mass. at 612).
Although Home subsidized the care of a minority of Adams House residents, the Board found and ruled that this fact did not prove that Adams House was accessible to a large and fluid class of persons. The evidence indicated that the residents receiving subsidized care at Adams House were not elders of limited means upon entry to Adams House. Rather, they were persons who had resided at, and paid full fees to, Adams House for a number of years prior to receiving subsidized care. The Board found that the fees charged by Adams House barred access to elders of limited financial means, and, therefore, it was not accessible to a large and fluid class of people.
Accordingly, the Board found and ruled that Home’s services were not accessible to a large and fluid class of persons.
IV. The Appellant’s Arguments Were Unavailing
The appellant introduced evidence into the record showing that Home operated at a loss during the fiscal years at issue. However, the Board did not find this evidence to be a persuasive indication that it was a charitable organization. Adams House was licensed for up to fifty-nine beds, yet it housed only forty-one residents in 2007 and forty-seven residents in 2008. Similarly, during the years at issue, many of the cottages were unoccupied. Though the appellant asserted that Home operated at a loss, there was no testimony or other evidence which addressed the impact of the significant vacancies at Adams House and Bay View upon its finances.[74] As there were myriad possible reasons why Home operated at a loss, the Board did not find the fact that it operated at a loss to be persuasive evidence that it was a charitable organization.
Similarly, the facts that Home was organized under chapter 180, tax-exempt under § 501(c)(3) of the Internal Revenue Code, and that its Articles of Organization stated that its purpose was to serve the elderly in a charitable manner did not prove that Home was a charitable organization. These facts, though germane, did not persuade the Board that Home was “conducted . . . in actual operation . . . as a public charity.” Jacob’s Pillow Dance Festival, Inc., 320 Mass. at 313. Because substance and not form must control, the Board’s determination that Home was not a charitable organization was based on its findings as to Home’s actual operations, the population which it served, and its dominant purposes and methods. The Board therefore rejected the appellant’s arguments.
“Any doubt must operate against the one claiming an exemption, because the burden of proof is upon the one claiming an exemption from taxation to show clearly and unequivocally that he comes within [its] terms . . . .” Boston Symphony Orchestra, 294 Mass. at 257. “It is well established that a party claiming exemption bears a grave burden of proving the claim.” Kings’ Daughters and Sons Home v. Board of Assessors of Wrentham, Mass. ATB Findings of Fact and Reports 2002-427, 452, (citing Meadowbrooke Daycare Center, Inc. v. Assessors of Lowell, 374 Mass. 509, 513 (1978)). On the basis of all of the evidence, the Board found and ruled that the appellant did not meet its burden of proving that it was a charitable organization for purposes of Clause Third. Accordingly, the Board found that the subject property was not “owned by a charitable organization,” and therefore it was not exempt under Clause Third.
Conclusion
Although it found and ruled that the Adams House parcel was not exempt under Clause Third, the Board found and ruled that, as stipulated by the parties, the Adams House parcel was assessed at greater than its fair cash value for each of the fiscal years at issue. Accordingly, the Board decided these appeals for the appellant and granted abatements as follows:
|
Fiscal Year |
Assessed Value ($) |
Fair Cash Value ($) |
Over-valuation ($) |
Tax Rate ($/$1,000) |
Abatement Amount ($) |
|
2007 |
3,794,000 |
2,200,000 |
1,594,000 |
16.37 |
26,093.78 |
|
2008 |
3,784,300 |
2,000,000 |
1,784,300 |
16.31 |
29,101.93 |
|
2009 |
3,771,300 |
1,800,000 |
1,971,300 |
17.49 |
34,478.04 |
THE APPELLATE TAX BOARD
By: _____ ____
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ______ _______
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
EDWARD BLANCHARD, TRUSTEE BOARD OF ASSESSORS OF
ASNACOMET POND REALTY TRUST v. THE TOWN OF HUBBARDSTON
Docket No. F294101 Promulgated:
May 6, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of Hubbardston (“assessors” or “appellee”) to abate taxes assessed on certain property located in the Town of Hubbardston, owned by and assessed to Edward Blanchard, Trustee of the Asnacomet Pond Realty Trust (“appellant”) under G.L. c. 59, §§ 11 and 38 for fiscal year 2007.
Commissioner Mulhern (“Presiding Commissioner”) heard the appeal and, in accordance with G.L. c. 58A, § 1A and 831 CMR 1.20, issued a single-member decision for the appellant.
These findings of fact and report are promulgated at the request of the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.
Edward Blanchard, Trustee, pro se, for the appellant.
Ellen M. Hutchinson, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
Based on the evidence and testimony offered at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2006, the appellant was the assessed owner of a 1.65-acre parcel of unimproved real estate located at 19 East Comet Pond Access Road in Hubbardston identified on the assessors’ Map 11A as Parcel 19 (“subject property”). Although the subject property does not meet the minimum zoning requirements of 2 acres and 200 feet of road frontage, it is nonetheless classified as a buildable lot because it is a grandfathered lot. For fiscal year 2007, the assessors valued the subject property at $195,200 and assessed taxes thereon, at the rate of $9.69 per $1,000, in the amount of $1,905.33.[75] On May 24, 2007, the Collector of Taxes for Hubbardston mailed out the actual fiscal year 2007 tax bills. In accordance with G.L. c. 59, § 57, the appellant timely paid the taxes due without incurring interest.
The appellant timely filed an abatement application with the assessors on June 21, 2007. Pursuant to G.L. c. 59, § 64, the assessors had until September 21, 2007 to act on the appellant’s abatement application. On September 10, 2007, the appellant filed a written consent which granted the assessors “an additional three months beyond the three months provided by application for abatement.” As a result, the assessors had until December 21, 2007 to act on the appellant’s abatement application. On December 10, 2007, the assessors sent notice to the appellant that his abatement application was “deemed denied.” The Presiding Commissioner found and ruled that the assessors’ December 10, 2007 notice was defective and that the appellant’s abatement application, with a valid consent to extend, was deemed denied on December 21, 2007. Therefore, in accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed his appeal with the Appellate Tax Board (“Board”) on March 21, 2008. On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
The appellant argued that the increase in the subject property’s assessment from $107,000 for fiscal year 2006 to $195,200 for fiscal year 2007 was unwarranted and therefore the subject property was overvalued for fiscal year 2007. The appellant presented his case primarily through his own testimony and that of Maria Hopkins, whom the Board qualified as a real estate valuation expert. The appellant also offered into evidence numerous exhibits, including a land map of Asnacomet Pond and the surrounding area, the subject property’s deed, the subject property’s property record cards for the fiscal year at issue and also the preceding fiscal year, a written explanation of Hubbardston’s revaluation process, letters and emails from both the assessors and the Hubbardston Building Commissioner, and also an appraisal report prepared by Ms. Hopkins.
The subject property is located to the rear of several residential waterfront properties situated on that portion of Asnacomet Pond more specifically identified as East Comet Pond, (“the pond”), which is reported to be the best of the several ponds in Hubbardston. The 127-acre pond, which is spring fed and feeds into the Quabbin Reservoir, is protected by the Watershed Protection Act, G.L. c. 92, § 107A. Pursuant to § 107A, development of the area within 400 feet of the shore line of the pond is restricted. The subject parcel is generally rectangular in shape with the exception of a heavily wooded, ten-foot wide strip of land that runs between two abutting parcels, identified on the assessors’ map as parcel 24 and parcel 25, and provides access to the pond.[76] The parcel is encumbered by a twenty-foot wide easement, known as East Comet Pond Access Road, which travels the length of the parcel in a north-southeasterly direction and cuts the parcel’s usable width from 110 feet to 90 feet. Both parties agreed that the subject property is a buildable lot.
East Comet Pond Access Road is an unpaved, private way subject to the oversight of the Massachusetts Department of Conservation and Recreation (“DCR”). Access to the road is via a gate, which at times is locked by DCR employees, located off of Old Boston Turnpike (otherwise known as State Route 20). Mr. Blanchard testified that the road is basically one way with only a few turnouts. He further testified that the road is not maintained by the DCR and, as the only year-round resident within the area, he must plow the road in the winter months to gain access to the subject property.
Ms. Hopkins performed a comparable-sales analysis. She cited sales of four purportedly comparable properties. The following table outlines the four sales that Ms. Hopkins relied upon in her analysis, and the adjustments she made.
| Subject Property | 2B Gardner Rd, |
Hubbardston24 Narrow Ln,
Phillipston9 Comet Pond Access,
Hubbardston140 Seminole,
HubbardstonProximity
2-3 mi
8 mi
¼ mi
1-2 mi
Sale Price
$150,000
$ 65,000
$ 70,000
$ 98,500
Date of Sale
5/25/2005
8/30/2005
8/6/2004
1/29/2004
Adjustment
+2,000
+5,500
Location
Gd/Avg
Superior
Avg – Superior Access
Gd/Avg-Sup
Superior-Subdivision
Adjustment
-5,000
+5,000
-5,000
+10,000
Site ViewWV/ROW Access
WV/WF
Sawyers Pond
WV-BR
Queen Lake
Proximate to Pond
WF
Cushman Pond
Adjustment
+5,000
+10,000
+5,000
Lot Size
1.65
4.82/
3.9 WF
1.16
3.96
2.18
Adjustment
-6,000
+1,000
-4,000
-1,000
Street AccessPrivate/
Gravel
Public/
Paved
Public/
Paved
Private/
Gravel
Public/
Paved
Adjustment
-5,000
-5,000
0
-5,000
Topography/
Water FrontageMostly level/
10’+/-
Sloping/
2500’
Sloping/
None
Rolling/
None
Sl. Sloping/
450’ +/-
Adjustment
-10,000
+5,000
+5,000
-10,000
Features
None
2 Lots
Septic Design
4BR Design
Septic Design
Adjustment
-50,000
-5,000
-5,000
-5,000
Total Adjustments
-76,000
6,000
3,000
-20,500
Indicated Value of
Subject
$74,000
$71,000
$73,000
$78,000
Ms. Hopkins also developed a land residual approach to value based on the sale of 51 Grimes Road, which is a 2.2-acre parcel improved with a ranch-style home with a finished living area of 1,100 square feet. This sale is a waterfront property with approximately 200 feet of frontage on Lovewell Pond. The property sold on October 19, 2005 for $260,000. Using a building cost of $110 per square foot, totaling $121,000, plus additions of $25,000 for the two-car garage, $6,000 for the fireplace, $5,000 for the finished basement, and $5,000 for the porch, Ms. Hopkins calculated a total cost new of $162,000. She then allowed a twenty-five percent deduction for depreciation and a $20,000 deduction for the cost of site improvements, to arrive at a total site/building value of $141,500. Finally, she deducted this amount from the property’s sale price of $260,000 to arrive at a residual land value of $118,500.
Ultimately, Ms. Hopkins relied on her comparable-sales analysis in forming her opinion of value of the subject property as of January 1, 2006 of $75,000.
The assessors presented their case through the testimony of Dianne Lanney, assessor. Ms. Lanney testified that the increase in the subject property’s assessed value from fiscal year 2006 to fiscal year 2007 was attributable to the yearly revaluation and revised neighborhood factors that placed East Comet Pond at the uppermost end of the range for waterfront properties. She conceded, however, that no sales of property on the pond had occurred during calendar year 2006.
The assessors also presented a comparable-sales analysis which relied on four sales of purportedly comparable properties, all located within Hubbardston. Comparable sale number one, located at 45 Seminole Avenue, is a 3.31-acre parcel of waterfront land located on Cushman Pond. This parcel sold on February 25, 2004 for $88,500. The parcel satisfies the zoning requirements which requires a minimum lot size of 2 acres and 200 feet of road frontage and therefore is classified as a buildable lot. Ms. Lanney testified that she did not make a time adjustment because she found the market to be flat from the date of sale to the relevant date of assessment. She did make a positive adjustment of $115,100 to account for the inferior location on Cushman Pond, and a negative $6,300 adjustment to account for the parcel’s larger lot size to arrive at an adjusted sale price of $197,300.
Comparable sale number two is a 1.45-acre waterfront parcel located at 21 Seminole Avenue, which sold on January 29, 2004 for $98,500. Despite the fact that this parcel does not meet the minimum zoning requirements, it is a grandfathered lot and is therefore buildable. The only adjustment made was a positive adjustment of $128,100 for inferior location, to arrive at an adjusted sale price of $226,600.
Comparable sale number three is a 4.78-acre parcel of non-waterfront property located at Birches Road. This property sold on February 6, 2004 for $75,000. Ms. Lanney made a positive adjustment of $141,000 to account for the inferior location and also a negative adjustment of $16,800 to account for the excess acreage to calculate an adjusted sale price of $199,200.
Finally, comparable sale number four, located at Ed Clark Road, is a 3.40-acre buildable parcel of non-waterfront property. This property sold for $80,000 on October 31, 2006. Ms. Lanney made a positive adjustment of $150,400 for the property’s inferior location and a negative adjustment of $8,500 for the excess acreage, to arrive at an adjusted sale price of $221,900. Ms. Lanney determined that comparable sale number two, 21 Seminole Avenue, was the most comparable to the subject property and therefore concluded that the subject property’s fair market value as of January 1, 2006 was $226,600.
Based on the evidence, the Presiding Commissioner found and ruled that the appellant met his burden of proving that the subject property was overvalued for the fiscal year at issue. In reaching this decision, the Presiding Commissioner gave some weight to the comparable sales evidence offered by both parties. The Presiding Commissioner, however, modified the adjustments which Ms. Hopkins and Ms. Lanney used to reach his determination of fair cash value. After modifying the parties’ adjustments, the Presiding Commissioner found, on the basis of all the evidence of record, that the fair cash value of the subject property for fiscal year 2007 was $132,000. Accordingly, the Presiding Commissioner found that the subject property was overvalued by $63,200 and granted an abatement of $621.60.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956). Generally, real estate valuation experts and the Massachusetts courts rely upon three approaches to determine the fair cash value of property: income capitalization, sales comparison, and cost reproduction. Correia v. New Bedford Redevelopment, 375 Mass. 360, 362 (1978). “The board is not required to adopt any particular method of valuation.” Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).
The appellant has the burden of proving that the property has a lower value than that assessed. “‛The burden of proof is upon the petitioner to make out [his] right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‛presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245). In appeals before this Board, a taxpayer “‛may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.’” General Electric Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue. Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2008-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff’d, 73 Mass. App. Ct. 1107 (2008). “Once basic comparability is established, it is then necessary to make adjustments for the differences, looking primarily to the relative quality of the properties, to develop a market indicator of value.” New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981).
In the present appeal, both the appellant’s real estate valuation expert and the assessors presented sales data of comparable properties and made adjustments for differences between the subject property and the purported comparables. On the basis of the parties’ analyses, together with necessary modifications to their adjustments, the Presiding Commissioner found that the fair cash value of the subject property for fiscal year 2007 was $132,000.
“In reaching its opinion of fair cash value in this appeal, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation . . . . Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight.” Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 683 (1982); New Boston Garden Corp., 383 Mass. at 473; Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 701-02 (1972). “The credibility of witnesses, the weight of evidence, the inferences to be drawn from the evidence are matters for the Board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
The Board need not specify the exact manner in which it arrived at its valuation. Jordan Marsh v. Assessors of Malden, 359 Mass. 196, 110 (1971). The fair cash value of property cannot be proven with “mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment.” Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 72 (1941).
Based on the foregoing facts and findings, the Presiding Commissioner found and ruled that the appellant met his burden of proving that the subject property was overvalued for fiscal year 2007. Accordingly, the Presiding Commissioner issued a single-member decision for the appellant in this appeal and granted an abatement in the amount of $621.60.
APPELLATE TAX BOARD
By: ______ _____
Thomas J. Mulhern, Commissioner
A true copy,
Attest: ______ _____
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
JOHN MARTINS v. COMMISSIONER OF REVENUE
Docket No. C298758 Promulgated:
May 17, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39(c), from the refusal of the Commissioner of Revenue (“Commissioner” or “appellee”) to abate personal income tax assessed to John Martins (“appellant”) for the tax years 1992 through 1994 and 1996 through 2001 (“tax years at issue”).
Chairman Hammond heard the Commissioner’s Motion to Dismiss the appellant’s appeal for lack of jurisdiction, and Commissioners Scharaffa, Egan, Rose, and Mulhern joined him in the decision for the appellee.
These findings of fact and report are made pursuant to requests by the appellant and appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
Michael S. Marino, Esq. and Melissa Curley, Esq. for the appellant.
Mireille T. Eastman, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
The Commissioner filed a Motion to Dismiss the appellant’s appeal for lack of jurisdiction on March 2, 2009, alleging that the appellant failed to file his appeal with the Appellate Tax Board (“Board”) within the statutory time period prescribed by G.L. c. 62C, § 39. On March 9, 2009, the Board held a hearing relating to the Commissioner’s motion. Based on the arguments presented during the hearing, supporting memoranda and various documents submitted during the discovery process, including sworn statements from the parties, the Board made the following findings of fact.
Having been issued a Notice of Failure to File a Massachusetts personal income tax return for the tax year 1999 during January of 2003, the appellant filed a Form 1 – Massachusetts Resident Personal Income Tax Return for each of the tax years at issue. On these returns, the appellant listed his address as 390 Broadway, Somerville, MA 02145 (the “Somerville address”). On February 20, 2004, the appellant filed a Form CA-6, Application for Abatement/Amended Return (“abatement application”), claiming that his income tax returns had been filed in error because he was not a Massachusetts resident during the tax years at issue.[77] The address appearing on the application for abatement was 13844 SW 106 TERR., MIAMI, FL 33186 (the “Miami address”).[78]
Accompanying the abatement application, which was signed by attorney Michael S. Marino, was a Form M-2848, Power of Attorney and Declaration of Representative (“Form M-2848”) appointing Mr. Marino as the appellant’s attorney in fact (“POA”).[79] [80] Also attached was a “Durable Power of Attorney” appointing the appellant’s brother, Joe Martins, as his POA.[81] By letter to the Department of Revenue (“DOR”) dated May 10, 2004, Mr. Marino requested that all future correspondence relating to the appellant be sent to Mr. Marino.
In his abatement application, the appellant requested both a statutory hearing and settlement consideration. Consequently, the matter was transferred by the DOR’s Customer Service Bureau to the DOR’s Office of Appeals, which conducted a statutory hearing on November 28, 2005. The Office of Appeals issued a determination letter on April 18, 2006, setting forth the basis for the DOR’s impending denial of the appellant’s abatement application.[82]
On April 25, 2006, the DOR issued a Notice of Abatement Determination denying the appellant’s abatement application (“Notice”). The Notice was addressed to the appellant and his brother, Joe Martins, at the Somerville address. A copy of the Notice was sent to Mr. Marino on April 27, 2006.
During the discovery phase of the proceedings relating to this appeal, the appellant submitted Responses to Commissioner’s Request for Admissions (“Admissions”).[83] Among his responses, the appellant acknowledged that he had received the Notice during 2007. Further, the responses included Mr. Marino’s acknowledgement that he had received a copy of the Notice in 2006 and 2007.[84]
On January 11, 2007, having received a request for information relating to the Notice from Mr. Marino, the hearing officer at the Office of Appeals who had conducted the hearing sent Mr. Marino a copy of the Notice via facsimile. Mr. Marino acknowledged that he received the facsimile the day it was sent. The record does not reflect subsequent communication from the appellant until nearly twenty-one months later, on October 2, 2008, when the appellant’s counsel sent a letter to the DOR purporting to withdraw the appellant’s consent for the Commissioner to act on his abatement application more than six months from the date of its filing. The next day, the appellant mailed his petition, which was received by the Board on October 6, 2008.
Based on the foregoing, and for reasons which are explained in the Opinion section of these findings, the Board found and ruled that: Mr. Marino was authorized to receive the Notice on behalf of the appellant, and such receipt served as actual notice to the appellant; and the appellant’s receipt of the Notice in 2007, at the latest, separately served to satisfy applicable notice requirements. The Board thus found and ruled that the appellant’s October 2008 appeal to the Board was not timely and, therefore, it lacked jurisdiction over the appeal.[85] Accordingly, the Board issued a decision for the appellee.
OPINION
Appeals to the Board from the Commissioner’s refusal to abate a tax are governed by G.L. c. 62C, §39, which provides, in pertinent part that “[a]ny person aggrieved by the refusal of the Commissioner to abate a tax, in whole or in part, may appeal therefrom, within sixty days after the notice of the decision of the commissioner . . . by filing a petition with the clerk of the appellate tax board.”
The Board does not have jurisdiction to hear an appeal that is filed after the statutorily prescribed time period. Commissioner of Revenue v. Pat’s Super Market Inc., 387 Mass. 309, 311 (1982); see also Peterson v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1994-305. Neither the courts nor the Board have the authority to create an exception to the time limit specified by statute. Sears Roebuck & Co. v. State Tax Commission, 370 Mass. 127, 130 (1976).
This appeal centers upon the timeliness of the appellant’s petition to the Board. The appellant does not dispute that the Notice was sent to Mr. Marino and to the Somerville address. Neither does the appellant dispute that both he and Mr. Marino received the Notice, in Mr. Marino’s case in 2006 and 2007, and in the appellant’s case, 2007 at the latest. Rather, the appellant’s argument depends entirely upon the Commissioner’s failure to mail the Notice to the appellant at the Miami address. This lapse, according to the appellant, rendered the Notice a nullity. On this basis, the appellant asserts that “on October 2, 2008, having not heard from the Commissioner on his application for abatement . . . [he] withdrew his consent pursuant to c. 58A, § 6.” Appellant’s Opposition to the Commissioner of Revenue’s Motion to Dismiss, p. 2-3. The appellant then claims to have timely filed his petition with the Board on October 6, 2008. The Board was not persuaded by the appellant’s arguments or his conclusion that his petition was timely.
Pursuant to G.L. c. 62C, § 37, “[t]he commissioner shall give notice to the applicant of [her] decision upon the [abatement] application.” Under 830 C.M.R. 62C.37.1(7), the Commissioner “shall mail or deliver written notice of the decision to grant or deny the abatement application to the taxpayer or his representative.” G.L. c. 62C, § 71 provides that “[a]ny notice authorized or required under the provisions of [chapter 62C] may be served personally or may be given by mailing the same, postage prepaid, to the person for whom it is intended, addressed to such person at his address as it appears in the records of the commissioner.”
The appellant argues that pursuant to the cited notice provisions, the only person to whom the Notice should have been sent was the appellant, and that his “address of record” within the meaning of § 71 was the Miami address. To reach this conclusion, the appellant, implicitly acknowledging that receipt of a notice of abatement determination by an authorized representative may satisfy applicable notice requirements, places particular emphasis on the contents of the Form M-2848, and his choice not to check the box on the form requesting that copies of notices and other communications be sent to Mr. Marino.[86] Thus, the appellant concludes that any notice sent to and received by Mr. Marino is ineffective. The appellant, however, makes no reference to Mr. Marino’s letter of May 10, 2004, in which Mr. Marino requested that he receive all subsequent correspondence from the DOR relating to the appellant. By the explicit terms of Form M-2848, Mr. Marino was empowered to make this request. Specifically, Form M-2848 provides that subject to its revocation, which did not occur, or other limitations not relevant to this appeal, Mr. Marino “c[ould] perform any and all acts that the [appellant] [could] perform. . . .” Mr. Marino was therefore entitled to request that he receive all future correspondence, including the Notice, on the appellant’s behalf. Having found that Mr. Marino was authorized to receive the Notice, the Board found and ruled that the DOR correctly sent the Notice to Mr. Marino and his receipt of the same served as actual notice to the appellant. See Theodore and Joan Levitt v. Commissioner of Revenue, Mass. ATB Findings of Facts and Reports 1997-38, 41-44 (having explicitly declined to make a finding as to whether a notice of abatement denial was mailed to the appellants, the Board found that the appellants received notice of the denial on the date the notice was received by their attorney); see also Syms Corp. v. Commissioner of Revenue, Mass. ATB Findings of Facts and Reports 2000-711, 719, aff’d 436 Mass. 505 (2002) (finding that the appellant received notice of an abatement denial when its representative received a copy of the denial notice).
The Board also found and ruled that even if the Notice had not been properly sent to and received by Mr. Marino, the appellant’s receipt of the Notice was dispositive. As noted, supra, the appellant unequivocally acknowledged that he received the Notice during 2007. He did not subsequently disavow this acknowledgement. Rather, the appellant asserted only that he did not receive the Notice at a particular location, the Miami address, or directly from the Commissioner. The appellant then focused on the failure of the Commissioner to send the Notice to him at the Miami address, leading him to conclude that the notice requirements of c. 62C had not been met. By the appellant’s reasoning, notwithstanding that he received actual notice of the Commissioner’s abatement denial, and having not yet withdrawn consent for the Commmissioner to act on his abatement application, he would be able to file a timely appeal with the Board into the indefinite future. Indeed, in oral argument during the motion hearing relating to this appeal, counsel for the appellant argued that “[a]ctual notice is not relevant.” Hearing Transcript, p. 12. The appellant cites no authority, and the Board knows of none, to support the counterintuitive proposition that actual notice of an abatement denial does not serve to satisfy the notice requirements of G.L. c. 62C. In fact, notice provisions such as those contained in G.L. c. 62C, §§ 37 & 71 are by design intended to ensure that a taxpayer receives actual notice of material information. See, e.g. SCA Disposal Services of New England, Inc. v State Tax Commission, 375 Mass. 338, 341 (1978) (holding that it is “logical to infer” that relevant notice provisions were “included to indicate that compliance with those provisions provides some evidence of actual notice.”)
Finally, as previously noted, a taxpayer generally must file an appeal with the Board “within sixty days after the notice of the decision of the commissioner.” G.L. c. 62C, § 39. Consistent with the Court’s holding in SCA Disposal, if the Board were to find that the appellant did not receive the Notice within this statutory time limit, the appellant would be afforded a “reasonable time to appeal which [could not] be longer than the statutory period itself, measured from the date of receipt.” SCA Disposal, 375 Mass. at 342. Given Mr. Marino’s actual receipt of copies of the Notice in 2006 and 2007, and the appellant’s actual receipt of the Notice in 2007, allowance for the sixty day statutory appeal period pursuant to SCA Disposal would not nearly suffice to render the appellant’s October 2008 petition timely.
Accordingly, the Board allowed the Commissioner’s Motion to Dismiss the appellant’s appeal for lack of jurisdiction and issued a decision for the appellee.
THE APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: __________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
RICHARD S. & v. BOARD OF ASSESSORS OF
CYNTHIA JO NULL GOODOF THE TOWN OF NEEDHAM
Docket No. F299670 Promulgated:
May 24, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Needham (“assessors” or “appellee”) to abate taxes on certain real estate owned by and assessed to Richard S. and Cynthia Jo Null Goodof (“appellants”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2009 (“fiscal year at issue”).
Commissioner Egan heard this appeal and was joined by Chairman Hammond and Commissioners Scharaffa, Rose, and Mulhern in the decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellants under G.L. c. 58A, § 13 and 831 CMR 1.32.
Richard S. Goodof, pro se, for the appellants.
Chip Davis, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
Based on the testimony and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board (“Board”) made the following findings of fact.
On January 1, 2008, the appellants were the assessed owners of a 12,140-square-foot-parcel of real estate, improved with a two-story, single-family dwelling located at 57 Birds Hill Avenue in Needham (“subject property”). For fiscal year 2009, the assessors valued the subject property at $957,800, and assessed a tax thereon, at the rate of $9.96 per thousand, in the total amount of $9,539.69. The appellants timely paid the tax due without incurring interest. On January 29, 2009, the appellants timely filed an Application for Abatement with the assessors. The assessors denied the appellants’ abatement application on February 6, 2009. The appellants timely filed their appeal with the Board on April 30, 2009. Based on the foregoing, the Board found and ruled that it had jurisdiction to hear and decide this appeal.
The dwelling on the subject property was built in 1996. It is a Colonial-style dwelling with 3,000 square feet of finished living area above-grade. It has eight rooms in total, including four bedrooms. The subject property also has three full bathrooms and one half bathroom. Additional features include a three-car garage, two fireplaces, a 9-foot-by-5-foot open front porch, and a deck. The subject property has an additional 728 square feet of finished living area in the basement.
The appellants purchased the subject property in 1999 for $601,500. In 2007, the appellants added a small addition and made several renovations to the subject property. The renovations included updating the kitchen and master bath and adding a bathroom in the basement. The appellants also added a third garage bay along with the 9-foot-by-5-foot front porch. The addition added 160 square feet to the subject property’s finished living area. The total cost of the addition and renovations was $250,000.
The appellants, who presented their case through documentary submissions along with the testimony of Mr. Goodof, asserted that the assessed value of the subject property exceeded its fair cash value. In an attempt to support their assertions, the appellants introduced evidence comparing the assessed value of the subject property to the assessed values of other nearby properties. Specifically, the appellants introduced information and property record cards for four purportedly comparable properties. All of the properties were, like the subject property, located in neighborhood “305” for assessing purposes; three of them were located on the same street as the subject property. The appellants’ comparable properties featured dwellings which were constructed between 1995 and 2007 and ranged in size from 3,291 square feet to 4,705 square feet. Their assessed values for fiscal year 2009 ranged from $885,300 to $1,294,300.
The appellants’ primary argument was that the subject property was overvalued because its dwelling was valued at a higher per-square-foot value than their four selected comparable properties. The appellants argued that the subject property’s higher per-square-foot valuation was not warranted, particularly considering that at least one of the comparables – located at 105 Birds Hill Avenue – was much newer construction. Additionally, the appellants contended that the dwelling located at 63 Birds Hill Avenue, which was built in 1995 by the same builder who built the subject property and renovated in 2007 by the same contractor who renovated the subject property, was valued at approximately 15 percent less per square foot than the subject property’s dwelling. The appellants contended that the building value of the subject property as assessed did not reflect the fact that only 20 percent of the subject property was updated in 2007. The appellants’ opinion of the subject property’s fair cash value for the fiscal year at issue was $875,000.
The assessors presented their case-in-chief through the testimony of assessor Chip Davis, and through the submission of exhibits containing a comparable-assessment analysis and a comparable-sales analysis, along with property record cards for each of their selected comparable properties. The assessors’ comparable-assessment analysis featured assessment data for four comparable properties located, like the subject property, in neighborhood “305” for assessment purposes. The dwellings on the assessors’ comparable-assessment properties were built between 1998 and 2000, and ranged in size from 2,969 square feet to 3,186 square feet. The fiscal year 2009 assessed values of the assessors’ comparable-assessment properties ranged from $964,400 to $978,300.
The assessors’ comparable-sales analysis contained five properties which sold in Needham between March and August of 2007. Two of the properties were located in neighborhood “305.” Each of the assessors’ comparable-sales properties featured Colonial-style dwellings which ranged in size from 2,969 square feet to 3,351 square feet. The sales prices ranged from $985,000 to $1,090,000.
On the basis of all of the evidence, the Board found that the appellants did not meet their burden of proving that the assessed value of the subject property was greater than its fair cash value. The appellants’ primary argument was that the subject property’s dwelling was assessed at a higher per-square-foot value than their four selected comparable properties. However, with finished living areas ranging from 3,291 square feet to 4,705 square feet, the appellants’ four purportedly comparable properties were larger than the subject property; certain of them were significantly larger. In making their argument, the appellants overlooked the familiar principle of real estate valuation that smaller dwellings often have a higher per-square-foot value than similar but larger dwellings. The Board therefore did not find the appellants’ evidence to be a persuasive indication that the assessed value of the subject property exceeded its fair cash value as of the relevant date of assessment.
In contrast, the assessors presented ample, credible evidence in support of their assessment. The assessors presented sales data for five sales in Needham which occurred close in time to the relevant date of assessment. The assessors’ comparable-sales properties were Colonial-style dwellings which ranged in size from 2,969 square feet to 3,351 square feet, and the Board found that they were sufficiently comparable to the subject property to provide probative evidence of its fair cash value. The sales prices of the assessors’ comparable-sales properties ranged from $985,000 to $1,090,000, a range which, even at its low-end, exceeded the subject property’s assessed value of $957,800. The Board found the assessors’ comparable-sales analysis to be persuasive evidence that the subject property’s assessed value did not exceed its fair cash value.
In addition, the assessors offered a comparable-assessment analysis which the Board found provided further support for the assessment. The four comparable-assessment properties offered by the assessors were, like the subject property, located in neighborhood “305” for assessment purposes, and their dwellings were close in age and size to the subject property’s dwelling. The Board therefore found that they were sufficiently comparable to the subject property to provide probative evidence of its value. The fiscal year 2009 assessed values of the assessors’ comparable-assessment properties ranged from $964,400 to $978,300; like the range of prices that the assessors offered in their comparable assessment analysis, this range, even at its low end, exceeded the subject property’s assessed value of $957,800. The Board found that the assessors’ comparable-assessment analysis provided additional evidence that the subject property was not overvalued.
Thus, on the basis of all of the evidence, the Board found and ruled that the appellants did not meet their burden of proving that the assessed value of the subject property was greater than its fair cash value for the fiscal year at issue. Accordingly, the Board issued a decision for the appellee.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellants have the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
The fair cash value of property may be determined by recent sales of comparable properties in the market. Actual sales generally “furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971). Further, properties are “comparable” to the subject property when they share “fundamental similarities” with the subject property, including similar age, locations, sizes and date of sale. Lattuca v. Robsham, 442 Mass. 205, 216 (2004). “Once basic comparability is established, it is then necessary to make adjustments for the differences, looking primarily to the relative quality of the properties, to develop a market indicator of value.” New Boston Garden Corp., 383 Mass. at 470.
Additionally, evidence of the assessed values of comparable properties may provide probative evidence of fair cash value. G.L. c. 58A, § 12B. “The introduction of such evidence may provide adequate support for either the granting or denial of an abatement.” John Alden Sands v. Assessors of Bourne, Mass. ATB Findings of Fact and Reports 2007-1098, 1106-07, (citing Chouinard v. Assessors of Natick, Mass. ATB Findings of Fact and Reports 1998-299, 307-308. However, “[r]eliable comparable sales data will ordinarily trump comparable assessment information for purposes of finding a property’s fair cash value.” Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2007-321, 403, aff’d, 73 Mass. App. Ct. 1107 (2008).
In the present appeal, the appellants introduced assessment data and property record cards for four properties located in the same neighborhood as the subject property. Their primary argument was that the subject property’s dwelling was assessed at a higher per-square-foot value than their four purportedly comparable properties. However, the appellants’ comparable properties had larger finished living areas than the subject property, certain of them significantly larger. As it has in past appeals, the Board recognized the familiar principle of real estate valuation that smaller properties often have a higher per-square-foot value than similar but larger properties. See Ricky L. Seto v. Assessors of Quincy, Mass. ATB Findings of Fact and Reports 2006-585, 590 (“In making this finding and ruling, [the Board] also recognized that all other things being equal, smaller condominium units ordinarily have a higher value per square foot than larger ones”). See also appraisal institute, the appraisal of real estate 212 (13th ed. 2008) (“Size differences can affect value . . . . Generally, as size increases, unit prices decrease. Conversely, as size decreases, unit prices increase.”). Because it is to be generally expected that smaller homes will have greater per-square-foot values than similar larger homes, the Board did not find the appellants’ arguments to be a persuasive indication that the subject property was overvalued.
The assessors, for their part, introduced ample, credible comparable-assessment and comparable-sales data supporting the assessment. The Board found and ruled that the properties submitted for comparison by the assessors were sufficiently comparable to the subject property to provide probative evidence of its fair cash value. Moreover, the Board found and ruled that the range of sale prices and assessed values encompassed in the assessors’ analyses provided reliable evidence that the assessed value of the subject property did not exceed its fair cash value. Accordingly, on the basis of all of the evidence, the Board found and ruled that the appellants did not meet their burden of proving that the assessed value of the subject property was greater than its fair cash value for the fiscal year at issue. The Board therefore issued a decision for the appellee in this appeal.
APPELLATE TAX BOARD
By: _______________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ______ __________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
ROBERT J.& MARLENE CORKERY v. BOARD OF ASSESSORS OF
THE TOWN OF WAREHAM
Docket No. F294231 Promulgated:
May 27, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the Town of Wareham (“assessors”), to abate taxes on certain real estate located in Wareham, owned by and assessed to Robert J. and Marlene Corkery (“appellants”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2008.
Commissioner Egan heard this appeal. Chairman Hammond and Commissioners Scharaffa, Rose and Mulhern joined her in the decision for the assessors. These Findings of Fact and Report are made pursuant to a request by the appellants under G.L. c. 58A, § 13 and 831 CMR 1.32.
Robert J. Corkery, pro se, for the appellants.
Richard Gonsalves, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board (“Board”) made the following findings of fact.
On January 1, 2007, the appellants were the assessed owners of an improved parcel of real estate located at 28 Mark’s Cove Road in the Cromesett neighborhood of Wareham (“subject property”). For fiscal year 2008, the assessors initially valued the subject property at $634,000. In accordance with G.L. c. 59, § 57C, the appellants paid the tax due without incurring interest and in accordance with G.L. c. 59, § 59, timely filed an Application for Abatement with the assessors on January 7, 2008. The assessors granted a partial abatement on April 3, 2008, having reduced the subject property’s assessed value to $616,000. On April 11, 2008, the appellants seasonably filed an appeal with the Board. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide this appeal.
The subject property consists of a salt-waterfront 0.29-acre parcel of real estate improved with a single-family, contemporary-style home in average condition containing 1,434 square feet of finished living area. The parcel is close to rectangular in shape, slopes slightly downward toward the rear, and has panoramic water views as well as a private beach area. The dwelling consists of six rooms and features an open floor plan on the first floor and a spiral staircase leading to the second floor. There are three bedrooms, one full bath and one half bath. The dwelling is not heated.
The appellants argued that the subject property was overvalued for fiscal year 2008. In support of their argument, the appellants submitted a book largely composed of a collection of numerous approximately two-inch square advertisements for the sale of properties purportedly in the general area of the subject property.[87] Although the advertisements included each property’s offering price and often touted certain amenities, crucial information was lacking. More specifically, the appellants failed to present evidence relating to the properties’ addresses, the desirability, or lack thereof, of each property’s location, the condition of the dwellings situated on the purportedly comparable properties, or the physical attributes of each parcel. Further, and most importantly, no data reflecting actual sale prices was included in the presentation. Lacking this information, the Board could not determine if the properties were comparable to the subject property, much less consider adjustments to account for differences between the properties and the subject property. Consequently, the Board found that the “sales offering” data presented by the appellants were not sufficiently probative to establish the subject property’s fair cash value.
The appellants also submitted property record cards relating to approximately a dozen properties to support their assertion that the subject property’s assessed value was excessive relative to these properties’ assessed values. The Board found that this evidence did not undermine the value placed upon the subject property by the assessors.
As a threshold matter, the Board found that the appellants failed to establish comparability between their chosen properties and the subject property. In particular, the cited properties’ parcel sizes varied dramatically, from 0.07 acre to 4.17 acres. Similarly, dwellings varied in size, style and condition. Moreover, the majority of the cited properties, unlike the subject property, were not waterfront properties. The appellants failed to address, in any respect, the substantial differences between these properties and the subject property. In sum, as was the case with the “sales offering” data, the appellants failed to demonstrate the comparability of their chosen properties or a method to make adjustments to account for differences between these properties and the subject property.
Finally, the appellants argued that the presence of “toxic bloom” in the waters surrounding the subject property adversely affected the value of the property, ultimately resulting in rescission of the only offer for the property that the appellants received when they placed it on the market during 2006 and 2007. The appellants, however, did not substantiate when or for how long the property had been offered for sale. Nor did they substantiate the terms of the offering or that they had received only one offer, which they stated was for “between $300,000 and $400,000.” Similarly, their asserted reason for rescission of the offer was undocumented. Further, the assessors submitted into evidence a letter from the Wareham Harbormaster Department responding to an inquiry relating to water quality and the presence of “Bay foam” in the area. The Harbormaster Department stated that Bay foam, which typically occurs after a heavy rain, poses no threat, and noted no conditions, such as toxic bloom, that might adversely affect water quality.
For their part, the assessors submitted four sales of salt-waterfront properties, which the Board found were comparable to the subject property. Among these, the Board found that the property at 241 Cromesett Road, which is located within half a mile of the subject property in the Cromesett neighborhood, and which sold on December 3, 2007 for $675,000, was most comparable to the subject property and therefore provided the most probative evidence of the subject property’s value.[88] Like the subject property, 241 Cromesett Road is salt-waterfront property, although its water views were somewhat obscured by foliage. The ranch-style dwelling at Cromesett Road is in average condition, has six rooms, three bedrooms, one full bath and one half bath, all attributes shared by the dwelling on the subject property. The Cromesett Road dwelling is smaller, containing 982 square feet of finished living area, but the dwelling offers electric heat. The parcel on Cromesett Road is approximately 0.33 acres, slightly larger than the subject property’s parcel.
On balance, the property at 241 Cromesett Road is similar to the subject property in numerous respects, and the differences, certain of which favored each property, did not affect the Board’s finding of comparability or warrant significant adjustment to the Cromesett Road property’s sale price to estimate an indicated value for the subject property. Thus, the Board found that the sale price of the Cromesett Road property, taking into account the value of the adjoining parcel, supported the assessed value of the subject property.
Having considered the evidence of record, the Board found that neither the “sales offering” nor the comparable-assessment evidence presented by the appellants provided a reliable basis to establish the fair cash value of the subject property. The Board therefore found and ruled that the appellants failed to meet their burden of demonstrating that the subject property’s assessed value exceeded its fair cash value for fiscal year 2008. The Board also found and ruled that the comparable-sales evidence presented by the assessors, particularly with respect to the property located at 241 Cromesett Road, supported the contested assessment. On this basis, the Board issued a decision for the assessors in this appeal.
OPINION
Assessors have a statutory obligation to assess real estate at its fair cash value as of the first day of January of the year preceding the fiscal year at issue. G.L. c. 59 §§ 11 and 38. Fair cash value is defined as the price upon which a willing buyer and a willing seller would agree if both were fully informed and neither was under compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The burden of proof is upon the taxpayer to make out a right to an abatement as a matter of law. Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974). An assessment is presumed to be valid unless the taxpayer is able to sustain his or her burden of proving otherwise. Id. The taxpayer may sustain this burden by introducing affirmative evidence of fair cash value, or by proving that the assessors erred in their method of valuation. General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984). “The introduction of ample and substantial evidence in this regard may provide adequate support for abatement.” Chouinard v. Assessors of Natick, Mass. ATB Findings of Fact and Reports 1998-299, 307-308 (citing Garvey v. Assessors of West Newbury, Mass. ATB Findings of Fact and Reports 1995-129, 135-36; Swartz v. Assessors of Tisbury, Mass. ATB Findings of Fact and Reports 1993-271, 279-80).
To support their assertion that the subject property was overvalued for fiscal year 2008, the appellants submitted a variety of information, including a book primarily composed of advertisements for the sale of properties purportedly in the general area of the subject property. The Board found that this presentation did not provide affirmative evidence of the subject property’s value or support the assertion that the assessors had erred in their valuation method, because it lacked crucial information. In particular, there was no evidence relating to the properties’ addresses, the quality of each property’s location, the condition of the dwellings, or the physical attributes of each parcel. Further, no data reflecting actual sale prices was included in the presentation. Without this information, the Board could not determine if the properties were comparable to the subject property or consider adjustments to account for differences between the advertised properties and the subject property.
G.L. c. 58A, § 12B provides, in pertinent part, that “at any hearing relative to the assessed fair cash valuation or classification of property, evidence as to fair cash valuation or classification of property at which assessors have assessed other property of a comparable nature or class shall be admissible.” “The admissibility under G.L. c. 58A, § 12B, of evidence of assessments imposed on other property claimed to be comparable in nature to the subject property is largely a matter within the discretion of the board.” Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 703 (1972).
The Board, in its discretion, allowed into evidence various property record cards, which the appellants had submitted to bolster their argument that the subject property’s assessed value was excessive. However, the Board found that the appellants failed to establish comparability between their chosen properties and the subject property. There were dramatic variations among the properties with regard to parcel size, the dwellings varied in size, style and condition, and the majority of the properties were not waterfront properties. The appellants failed to address in any way the substantial differences between these properties and the subject property. Therefore, the Board found that the appellants failed to demonstrate the comparability of their chosen properties or offer a method to make adjustments to account for differences between these properties and the subject property.
Finally, the Board found unsubstantiated the appellants’ claims regarding the duration, terms and outcome of their attempt to sell the subject property, as well as the presence or effect of “toxic bloom.” The Board therefore found that these claims were not probative of the subject property’s fair cash value.
“[S]ales of property usually furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982). Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue. Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2008-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff’d Graham v. Assessors of West Tisbury, 73 Mass. App. Ct. 1107 (2008). Properties are “comparable” to the subject property when they share “fundamental similarities” with the subject property, including similar age, locations, sizes and dates of sale. Lattuca v. Robsham, 442 Mass. 205, 216 (2004). When comparable sales are used, allowances must be made for various factors which would otherwise cause disparities in the comparable property’s sale prices. See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082.
In the present appeal, the assessors submitted data relating to sales of four salt-waterfront properties, each of which the Board found comparable to the subject property. Among these, the Board found that the property at 241 Cromesett Road, which is located within half a mile of the subject property in the Cromesett neighborhood, and which sold on December 3, 2007 for $675,000, was most comparable to the subject property and therefore provided the most probative evidence of the subject property’s value. The property at 241 Cromesett Road was similar to the subject property in numerous respects, and the differences between the properties did not affect the Board’s finding of comparability or warrant significant adjustment to the Cromesett Road property’s sale price to estimate an indicated value for the subject property. Thus, the Board found that the sale price of the Cromesett Road property supported the assessed value of the subject property.
On the basis of the evidence presented, the Board found and ruled that the appellants did not provide sufficient evidence to support their claim that the subject property was overvalued. As discussed, supra, the appellant’s evidence relating to properties for sale in the area lacked crucial data, and their comparable-assessment submissions did not undermine the contested assessment. The Board thus found and ruled that the appellants failed to meet their burden of demonstrating that the subject property’s assessed value exceeded its fair cash value for fiscal year 2008. Moreover, the Board found and ruled that the comparable-sales data provided by the assessors, and in particular the data relating to the property at 241 Cromesett Road, supported the contested assessment. On the basis of the foregoing, the Board issued a decision for the assessors in this appeal.
APPELLATE TAX BOARD
By: ________________________________
Thomas W. Hammond, Jr., Chairman
A true copy:
Attest: _________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
VERIZON NEW ENGLAND, INC. v. COMMISSIONER OF REVENUE
Docket Nos. C293850-C293856 Promulgated:
June 7, 2011
These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the Commissioner of Revenue (“Commissioner” or “appellee”), to abate sales taxes assessed against Verizon New England, Inc. (“Verizon” or “appellant”) for the monthly tax periods beginning January 1, 1999 and ending December 31, 2001, and the monthly tax periods beginning October 1, 2003 and ending September 30, 2006 (collectively, the “tax periods at issue”).
Commissioner Scharaffa heard these appeals and was joined by Chairman Hammond and Commissioners Egan, Rose, and Mulhern in decisions for the appellant.
These findings of fact and report are made pursuant to requests by the appellant and the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
William A. Hazel, Esq., James F. Ring, Esq., and Brad G. Hickey, Esq. for the appellant.
Timothy R. Stille, Esq. and Frances M. Donovan, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
- I. Introduction
On the basis of a Statement of Agreed Facts, the testimony, and the exhibits offered into evidence at the hearing of these appeals, the Appellate Tax Board (“Board”) made the following findings of fact. The appellant was incorporated under the laws of New York in 1883. It has been qualified to do business in the Commonwealth since 1884. The appellant was originally incorporated as New England Telephone & Telegraph Company but changed its name to “Verizon” in 2001. Verizon provides telecommunications services to customers in Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont.
For each of the tax periods at issue, the appellant timely filed monthly sales tax returns with the Commissioner. In 2001, the Commissioner commenced an audit of the appellant’s monthly sales tax returns filed for periods beginning January 1, 1999 and ending December 31, 2001 (the “first audit cycle”). During the course of the audit, the appellant and the Commissioner entered into agreements extending the time for the assessment of taxes, and on October 7, 2006, the Commissioner issued to the appellant a Notice of Intention to Assess (“NIA”) proposing the assessment of additional sales taxes in the amount of $876,132 for the first audit cycle. Also, in October of 2006, the Commissioner began auditing the appellant’s monthly sales tax returns for the periods beginning October 1, 2003 and ending September 30, 2006 (the “second audit cycle”). Again, the Commissioner and the appellant entered into agreements extending the time for the assessment of taxes, and on December 22, 2006, the Commissioner issued to the appellant an NIA proposing the assessment of additional sales taxes in the amount of $622,297 for the second audit cycle.
The appellant requested and received a hearing with the Department of Revenue’s Office of Appeals to discuss the Commissioner’s proposed additional assessments. On June 4, 2007, the Office of Appeals issued a Letter of Determination upholding the Commissioner’s proposed additional assessments in full. On July 3, 2007, the Commissioner issued to the appellant a Notice of Assessment indicating that the additional sales taxes proposed on the October 7, 2006 NIA and on the December 22, 2006 NIA had been assessed on July 1, 2007.
On July 31, 2007, the appellant filed an Application for Abatement with the Commissioner requesting abatements of the additional sales taxes assessed for each of the periods at issue. By Notices of Abatement Determination dated October 1, 2007, the Commissioner denied the appellant’s request for abatements for each of the tax periods at issue. The appellant timely filed its petitions with the Board on November 29, 2007. On the basis of the foregoing, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
During the periods relevant to these appeals, G.L. c. 64H, § 2 (“64H, § 2”) imposed a tax, at the rate of 5 percent, upon sales at retail in the Commonwealth, by any vendor, of tangible personal property or of telecommunications services performed in the Commonwealth. There was no dispute between the parties that Verizon was a vendor making retail sales of telecommunications services. The primary issue presented in these appeals was whether the Commissioner properly disallowed the exemption found in G.L. c. 64H, § 6(i)(4) (“§ 6(i)(4)”) on certain sales of telephone services made by the appellant. Section 6(i)(4) provides an exemption from the sales tax imposed by 64H, § 2 for up to $30.00 of “residential main telephone services” billed on a monthly recurring basis (“$30.00 exemption”). On audit, the Commissioner disallowed the claimed $30.00 exemption in instances in which there were more than one account with the same customer name and billing address and in instances in which it appeared that an account was being used for business, rather than residential purposes, leading to the deficiency assessments at issue.
The Commissioner made no additional assessments with respect to the second issue, which was whether charges made by the appellant for voice mail services were subject to the sales tax imposed by 64H, § 2. The appellant had reported sales taxes on its returns, and it therefore had self-assessed all such taxes for the tax periods at issue, which it collected and remitted to the Commissioner. The appellant contended in its Applications for Abatement and in its petitions with the Board that voice mail was not subject to the sales tax imposed by 64H, § 2 because it was not a “telecommunications service” as defined by G.L. c. 64H, § 1 (“64H, § 1”), and therefore it should not have been included in its tax returns.
The appellant called two witnesses to testify at the hearing of these appeals. Those witnesses were Mr. Vinod Motwani, who was the manager of Verizon’s transaction tax audit group, and Mr. Michael Anglin, who, as of the time of the hearing, had been employed in various positions at Verizon and its predecessors for 38 years. The Commissioner offered the testimony of one witness, Mr. Dale Morrow of the Massachusetts Department of Revenue. Mr. Morrow was the regional director in charge of the audits which generated the deficiency assessments at issue.
II. Audit Methodology
The Commissioner conducted her audit of the appellant’s sales tax returns using what is known as a sampling methodology. For the first audit cycle, the Commissioner selected a sample of 579 customer bills, all of which were issued during October of 1999. The Commissioner determined that nine of the 579 bills contained erroneous applications of the $30.00 exemption, resulting in $204.78 of telecommunications services that were, in the Commissioner’s opinion, erroneously exempted from tax. The Commissioner then calculated an error rate by taking the $41,198.05 of total sales shown in the sample bill pool and dividing it by the $204.78 of sales that should have been subject to tax in the Commissioner’s opinion. The error rate was then applied to the net taxable amount reported for October of 1999, less coin revenue, and then multiplied by the number of months in the audit period to arrive at a total additional tax due of $836,430 relating to the $30.00 exemption issue.[89] The Commissioner applied the same methodology and error rate for the second audit cycle, arriving at a total additional tax due of $582,595 relating to the $30.00 exemption issue.[90]
The appellant did not dispute the Commissioner’s use of the sampling methodology in general, but did dispute certain calculations and adjustments made by the Commissioner in the course of the audit. Prior to the hearing of these appeals, the parties reached an agreement with respect to the audit methodology issues, and that agreement, as reflected in the Statement of Agreed Facts, was that regardless of the Board’s determinations on the issues presented in these appeals, the appellant is entitled to abatements totaling $176,139 for the first audit cycle and abatements totaling $89,581 for the second audit cycle. The amount remaining at issue with respect to the $30.00 exemption issue for the first audit cycle was $660,291, and the amount remaining at issue with respect to the $30.00 exemption issue for the second audit cycle was $493,014.
III. The $30.00 Exemption
Section 6(i)(4) provides an exemption from sales tax for up to $30.00 of “residential main telephone services billed on a monthly recurring basis or billed as message units.” During the course of the audit, the Commissioner identified nine customer bills (“nine bills”) from the total sample which, in her opinion, were improperly treated by Verizon as eligible for the $30.00 exemption. The Commissioner therefore disallowed the $30.00 exemption on those nine bills.
The Commissioner denied four of the nine bills after concluding that the accounts were being used for business, not residential, purposes. Prior to the hearing of these appeals, the parties were able to reach agreements with respect to three out of those four bills, leaving only one bill, the Todd Richman bill (“Todd Richman bill”), in dispute. The remaining five bills (“five bills”) each reflected an account billed to a billing address at which an additional account was also billed to the same individual. The Commissioner denied the $30.00 exemption for each of the five bills because they did not reflect, in the Commissioner’s opinion, sales of “residential main telephone services.”
Substantial evidence was entered into the record regarding the meaning of the phrase “residential main telephone services.” Mr. Anglin testified that the phrase “residential main telephone services” is a telecommunications industry term. He explained that the phrase is used in the telecommunications industry to describe basic, local residential telephone services, which include the provision of a dial tone and the ability to make and receive local telephone calls. He stated that additional services, such as long distance service and toll calls, are not “residential main telephone services.” Mr. Anglin testified that Verizon offers several varieties of “residential main telephone service” packages and that each of the bills at issue reflected charges for Verizon’s “residential main telephone service” packages.
Mr. Anglin’s testimony was supported by documentary evidence entered into the record. Mr. Anglin explained that Verizon is an incumbent local exchange carrier (“ILEC”), and that each of Verizon’s customers purchases services within a specific calling area, known in the telecommunications industry as a local access and transport area (“LATA”). As an ILEC, Verizon is required to file a local exchange tariff (“tariff”) with the Massachusetts Department of Telecommunications and Energy, and a copy of that tariff was entered into the record. The tariff states that “[m]ain telephone exchange service consists of basic exchange services.”
The Commissioner, on the other hand, interpreted the phrase “residential main telephone services” as used in § 6(i)(4) to mean the primary telephone account at a residence. It was for this reason that the Commissioner disallowed the claimed exemption in the five bills, each of which reflected an account billed to a billing address at which an additional account was also billed to the same customer.
On the basis of all of the evidence, the Board found that, for purposes of § 6(i)(4), the phrase “residential main telephone services” meant basic local residential telephone services. The testimony and documentary evidence entered into the record reflected that the phrase “residential main telephone services” was commonly understood and used within the telecommunications industry to mean basic local residential telephone services. The Board found it apparent from the statutory language that the Legislature intended to adopt the phrase’s established industry meaning, as the Legislature used additional industry terminology, such as “local access and transport area,” and “message units”[91] within § 6(i)(4).
The Board found that the Commissioner’s interpretation of the phrase “residential main telephone services,” was not supported by the statutory language. The Commissioner’s construction of the phrase appeared to read the word “main” to modify the word “residential;” however, that construction is backwards. The word “main” does not precede the word “residential;” rather, it follows, and therefore does not modify, that word.
Moreover, the Commissioner’s reading of § 6(i)(4) to impose a limit of one $30.00 exemption per service address was not supported by the language used elsewhere in the statute. Unlike § 6(i)(4), which exempts “sales . . . of . . . residential main telephone services,” G.L. c. 64H, § 6(u) (“§ 6(u)”) exempts the “sale of a motor vehicle” to permanently disabled veterans and others with certain disabilities, and expressly states that the exemption “shall apply to one motor vehicle only owned and registered for the personal, noncommercial use of such person.” It was evident from this statutory language that if the Legislature intended to limit the $30.00 exemption to one per customer, it knew how to and could have. The Board concluded that the Legislature’s use of plural terms, coupled with its failure to use express limiting language as it did in § 6(u), indicated its intent not to limit the $30.00 exemption in the manner suggested by the Commissioner.
Further, the guidance issued by the Commissioner on the sale of telecommunications services offered no support for her argument. Within one year of the enactment of § 6(i)(4), the Commissioner promulgated 830 CMR 64H.1.6, her regulation on the taxability of telecommunications services, as well as Technical Information Release (“TIR”) 90-8, each of which explained the parameters of the $30.00 exemption. Nowhere in either 830 CMR 64H.1.6 or TIR 90-8 did it state that only one $30.00 exemption would be allowed per customer per service address. The Commissioner first asserted this position in TIR 99-2, which was issued nine years after the enactment of § 6(i)(4). However, the Board found that TIR 99-2 was not entitled to deference because it did not comport with § 6(i)(4) and because it was issued long after the statute’s enactment.
Further, assuming arguendo that the Commissioner’s statutory interpretation was correct, the Board found that the Commissioner’s denial of the $30.00 exemption for the five bills was improper. The Commissioner denied the $30.00 exemption because she concluded that the bills were secondary accounts billed to the same individual for the same residence, in contravention of the statute as she interpreted it. However, the evidence did not support the Commissioner’s conclusion regarding the bills. As an initial matter, the Commissioner’s assumption equated billing addresses with service addresses, which are not necessarily one and the same. Certain of the bills had billing addresses that were different than the service addresses, as evidenced by the area codes and exchange numbers reflected in the account numbers, many of which did not correspond geographically with the billing location. Mr. Anglin testified that it was fairly common for a customer to have different billing and service addresses. For example, he testified that an individual may prefer to have all bills sent to an office address rather than a residential address. In addition, the billing address for some of the bills was a post office box. Mr. Anglin testified that Verizon never provided telephone service to post office boxes, so those bills did not support the Commissioner’s conclusion that they represented a secondary account at a single residence because there was no indication as to where the telephone services were actually provided.
In sum, the Board found serious flaws in both the factual assumptions made by the Commissioner and in her statutory interpretation. The evidence established that Verizon applied the $30.00 exemption in a manner consistent with the dictates of statute. Accordingly, the Board found that the Commissioner improperly disallowed the $30.00 exemption with respect to the five bills.
Likewise, the Board found that the Commissioner’s disallowance of the $30.00 exemption for the Todd Richman bill was improper. The billing address for that bill read “Todd Richman, Broad Reach Consulting, 183 Willis Rd., Sudbury, MA.” Although Broad Reach Consulting was listed beneath Mr. Richman’s name on the billing address, the customer name on the account was listed only as Todd Richman. Further, the bill reflected charges for unlimited local residential service and residential voice mail service. According to the Statement of Agreed Facts submitted by the parties, the service for the Todd Richman account was installed at a residence, but was subsequently used primarily for business purposes, with occasional personal use.
Mr. Anglin testified that, when ordering telephone services from Verizon, customers must indicate whether they want residential or business telephone service. He also testified that, before installing residential service, it was Verizon’s practice to confirm that the account would be used for residential purposes. For example, Mr. Anglin testified that if a technician arrived to install a residential line at a building that appeared to be commercial, the technician would be instructed to inform the customer that residential service could not be installed. It was in Verizon’s best interest to verify that a customer who ordered residential service would be using it for that purpose, because, as Mr. Anglin explained, business service was priced differently – and was usually more expensive than – residential service.
The Commissioner denied the $30.00 exemption for the Todd Richman account because, as Mr. Morrow testified, “it looked like a business to us.” Verizon argued in these appeals that once it installs residential service to a residence, it is not responsible for monitoring subsequent use of the account to determine eligibility for the $30.00 exemption. Rather, Verizon contended that, as indicated by the Commissioner’s regulation, a customer who uses residential telephone services for business purposes must file a use tax return with the Commissioner and pay the appropriate taxes. 830 CMR 64H.1.6(5)(b) provides, in relevant part, “[t]elephone service provided to a business is not residential service even if the business is located in an individual’s home. If an otherwise residential telephone is used for business purposes, the business must file a use tax return and pay tax on the services that it used.”
On the basis of all of the evidence, the Board found that Verizon installed residential main telephone service at a residential address to a customer listed as “Todd Richman.” Therefore, the Board found that Verizon properly applied the $30.00 exemption to the Todd Richman account, and that nothing in the language of § 6(i)(4) required Verizon to continuously monitor how individual accounts were being used to determine eligibility for the $30.00 exemption. Rather, consistent with 830 CMR 64H.1.6(5)(b), the Board found that if a customer subsequently used residential telephone service for business purposes, it was the obligation of the customer to file a use tax return, and not Verizon’s obligation to deny the exemption. The Board therefore found that the Commissioner’s denial of the $30.00 exemption for the Todd Richman bill was improper.
- IV. Voice Mail Services
64H, § 1 defines “telecommunications services” as:
any transmission of messages or information by electronic or similar means, between or among points by wire, cable, fiberoptics, laser, microwave, radio, satellite or similar facilities but not including cable television.
That same section states that telecommunications services are taxable services for purposes of Chapter 64H. Voice mail services were among the services provided by Verizon to its customers during the periods relevant to these appeals. Verizon reported the sales taxes associated with voice mail services on its tax returns for the periods at issue. In these appeals Verizon sought an abatement of the sales taxes which it self-assessed on its tax returns, arguing that voice mail charges are not telecommunications services for purposes of Chapter 64H and therefore should not have been included in its tax returns.
According to Mr. Anglin, charges made by Verizon for its voice mail services were not charges for the transmission of messages or information, but rather, were charges for the recording and storage of messages on Verizon’s voice mail system. Mr. Anglin testified that a subscription to Verizon’s voice mail service provided a customer with the ability to store recorded messages or to retrieve them from the system. He further stated that a person leaving a message on or retrieving a message from the voice mail system makes a phone call for which they incur charges separate and apart from the voice mail charges. The appellant contended that any “transmission of messages or information” occurred only at such time as an individual made the phone call for which they were separately charged, and thus, the appellant contended that the fees it charged for voice mail services were not fees for telecommunications services as defined by 64H, § 1.
On the basis of all of the evidence, the Board found that Verizon’s voice mail services constituted “the transmission of messages . . . by electronic or similar means, between or among points by wire, cable, fiberoptics, laser, microwave, radio, satellite or similar facilities.” The evidence indicated that a message was transmitted from one point, a caller, to another point, the voice mail system, when a caller recorded the message on the voice mail system. The message was then stored on the voice mail system, and later, transmitted from the voice mail system to a party retrieving the message. Although there were separate charges associated with calling into the voice mail system to record or retrieve messages, that fact in no way altered the reality that voice mail served to transmit messages from one point to another. The mere ability to store messages without the ability to retransmit and retrieve them would be valueless, and the Board therefore rejected the appellant’s arguments that voice mail charges were solely charges for the storage, not transmittal, of messages. Accordingly, the Board found that charges made by Verizon for voice mail services were charges for the “transmission of messages or information by electronic or similar means, between or among points” and that Verizon properly reported sales taxes on its voice mail services. The Board therefore found that Verizon was not entitled to an abatement of those sales taxes.
In conclusion, on the basis of all of the evidence, the Board found that, for each of the bills at issue, the Commissioner’s denial of the $30.00 exemption was improper. However, because the Board found that Verizon properly charged and collected sales taxes on its voice mail services, it was not entitled to an abatement of those amounts. Accordingly, the Board issued decisions for the appellant, and, taking into consideration the parties’ stipulation, granted abatements totaling $836,430, along with statutory additions, for the first audit cycle and abatements totaling $582,595, along with statutory additions, for the second audit cycle.
OPINION
Two issues were presented for the Board’s consideration in these appeals: (1) whether the Commissioner properly disallowed the $30.00 exemption from sales tax on certain sales of telephone services made by the appellant pursuant to § 6(i)(4); and (2) whether the appellant’s voice mail services were subject to the sales tax under 64H § 2.
- I. The Commissioner Improperly Disallowed the $30.00 Exemption for Each of the Bills at Issue
At all times relevant to these appeals, pursuant to 64H, § 2, Massachusetts imposed a sales tax of five percent upon sales by a vendor of telecommunications services not otherwise exempt. There was no dispute between the parties in these appeals that Verizon was a vendor and that at least some of the sales of telecommunications services made by Verizon were subject to the sales tax. Verizon contended in these appeals that certain of its sales were eligible for the exemption provided by § 6(i)(4), which exempts from sales tax up to $30.00 of “residential main telephone services billed on a monthly recurring basis or billed as message units.”
After concluding her audit of Verizon for the periods at issue, the Commissioner disallowed the $30.00 exemption for two categories of sales: (1) sales of residential telephone services which were billed to a customer at a billing address to which another bill was also issued to the same customer; and (2) sales of residential telephone services which appeared to have been used for business purposes.
With respect to the first category, the Board found and ruled that the Commissioner’s adjustments were improper, as there was neither legal nor factual support for the Commissioner’s conclusions. The Commissioner interpreted the phrase “residential main telephone services” to mean main residential telephone services, i.e., the primary account at a service address. Thus, the Commissioner denied the $30.00 exemption for accounts for which an additional bill was issued to the same customer at the same billing address because the Commissioner interpreted the statute to permit only one $30.00 exemption per customer per service address. The Board disagreed.
Based on the ample evidence of record, the Board found and ruled that, for purposes of § 6(i)(4), the phrase “residential main telephone services” meant basic local residential telephone services, which was its established meaning within the telecommunications industry. The Board found and ruled that the Legislature’s liberal use of telecommunications industry terminology within § 6(i)(4) indicated its intent to give the phrase “residential main telephone services” the same meaning for purposes of § 6(i)(4) that it had within the telecommunications industry. See Eaton Financial Corporation v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2000-526, 536 (finding that the Legislature’s repeated use of financial accounting terminology within a statute indicated its intent to incorporate standard accounting practice and concepts into the statute). See also Web Industries, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1999-122, 129; Winslow Brothers & Smith Co. v. Hillsborough Mills, 319 Mass. 137, 141 (1946) (quoting Hoffman v. Palmer, 129 F.3d 976, 984 (2d Cir. 1942)) (“Each trade has its peculiar jargon and courts rely on that jargon when it finds its way into a statute dealing with that trade.”).
The Commissioner’s arguments to the contrary were unavailing. The Commissioner’s construction appeared to read the word “main” to modify the word “residential,” but that construction is backwards. The term “residential” precedes the term “main,” and therefore it does not modify that word. Moreover, the Commissioner’s reading of § 6(i)(4) to impose a limit of one $30.00 exemption per customer per service address was not supported by the language used elsewhere in the statute. Unlike § 6(i)(4), which exempts “sales . . . of . . . residential main telephone services,” § 6(u) exempts the “sale of a motor vehicle” to permanently disabled veterans and others with certain disabilities, and expressly states that the exemption “shall apply to one motor vehicle only owned and registered for the personal, noncommercial use of such person.” (emphasis added). It was evident from the statutory language that if the Legislature intended to limit the $30.00 exemption to one per customer per service address, it could have done so. See Commissioner of Revenue v. Cargill, Inc., 429 Mass. 79, 82 (1999) (“Had the Legislature intended to limit the credit in the manner advocated by the commissioner, it easily could have done so.”) The Board concluded that the Legislature’s use of plural terms, coupled with its failure to use express limiting language as it did in § 6(u), indicated its intent not to limit the $30.00 exemption in the manner suggested by the Commissioner.
Further, the Board afforded no weight to the authority cited by the Commissioner. The Commissioner cited TIR 99-2, in which she asserted for the first time, nine years after the enactment of § 6(i)(4), that it permitted only one $30.00 exemption per customer per service address. However, TIR 99-2 represented a departure from 830 CMR 64H.1 and TIR 90-8, the regulation and TIR issued by the Commissioner within one year after the enactment of § 6(i)(4), neither of which referenced the limitation asserted by the Commissioner in TIR 99-2. The Board found and ruled that TIR 99-2 was entitled to no weight, both because it was issued long after the enactment of § 6(i)(4), and because it sought to impose limitations not authorized by the statutory language. See Miller Studio, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1992-48, 61 (citing Xtra., Inc. v. Commissioner of Revenue, 380 Mass. 277, 282-83 (1980)); Wellington v. Comm’r of Corps. & Tax’n, 359 Mass. 448, 451-52 (1971) (holding that administrative interpretation issued long after the statute’s enactment was not entitled to deference); Bureau of Old Age Assistance of Natick v. Commissioner of Pub. Welfare, 326 Mass. 121, 124 (1950) (“[A]n administrative board or officer has no authority to promulgate rules and regulations which are in conflict with the statutes or exceed the authority conferred by the statutes by which such board or office was created.”). Accordingly, the Board rejected the Commissioner’s arguments.
Additionally, the Board found and ruled that there was no factual support for the Commissioner’s adjustments. Each of the five bills reflected, in the Commissioner’s opinion, accounts for which an additional account was billed to the same customer at the same service address. Because the Commissioner interpreted § 6(i)(4) to permit only one $30.00 exemption per customer per service address, the Commissioner disallowed the $30.00 exemption for each of the five bills. However, the evidence did not support the Commissioner’s conclusions. The Commissioner equated billing addresses with service addresses, which are not necessarily one and the same. For example, one of the bills for which the $30.00 exemption was denied was mailed to a post office box. Since Verizon does not provide residential telephone service to post office boxes, the Commissioner’s conclusions regarding that bill were incorrect. Several of the bills had different billing and service addresses, as evidenced by area codes and exchange numbers which did not correspond geographically with the billing addresses. Further, as Mr. Anglin testified, it was not unusual for customers to have different billing and service addresses, as, for example, in the case of an individual who preferred to have bills mailed to an office address rather than a residence. In sum, even if the Board agreed with the Commissioner’s conclusion that § 6(i)(4) permitted only one $30.00 exemption per customer per service address, which it did not, the Board found and ruled that there was insufficient evidence in the record to support the Commissioner’s adjustments.
Likewise, the Board found and ruled that the Commissioner’s disallowance of the exemption for the Todd Richman bill was improper. Section 6(i)(4) exempts up to $30.00 of sales of “residential main telephone services billed on a monthly recurring basis or billed as message units, and residential intra local access and transport area service billed on a recurring monthly basis.” There was ample evidence in the record establishing that the services sold by Verizon to Todd Richman were “residential main telephone services billed on a monthly recurring basis.” Thus, the Board found and ruled that Verizon correctly applied the $30.00 exemption in accordance with the language of the statute.
Although it appeared from the record that Mr. Richman used the account at issue primarily for business purposes, the Board found nothing in the language of § 6(i)(4) that required Verizon to monitor accounts for use to determine eligibility for the $30.00 exemption. In fact, 830 CMR 64H.1.6(5)(b) expressly places the obligation on a customer who uses residential telephone services for business purposes to file a use tax return and pay the appropriate taxes. Accordingly, the Board found and ruled that Verizon properly applied the $30.00 exemption to the Todd Richman bill because it was a sale of residential main telephone services. The Board therefore found and ruled that the Commissioner’s disallowance of the $30.00 exemption for that account was improper.
The burden of proof is on the party seeking an abatement. Staples v. Commissioner of Corporations and Taxation, 305 Mass. 20, 26 (1946). A “taxpayer is not entitled to an exemption unless he shows that he comes within . . . the express words” of the statute. Animal Rescue League of Boston v. Assessors of Bourne, 310 Mass. 330, 332 (1941). In the present appeal, the Board found and ruled that the appellant demonstrated that the sales at issue fell within the express language of the statute because they were sales of “residential main telephone services” as set forth in § 6(i)(4). Moreover, the Commissioner’s assessments were based on faulty factual assumptions and on an incorrect interpretation of the relevant statute, and could not be upheld. See Food Service Associates, Inc. and Dennis G. Maxwell v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 2001-341, 363-64 (quoting Chef Chang’s House, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1996-738, 751) (“[T]he [Commissioner’s] analysis was predicated on . . . dubious assumptions and was thus unreliable and invalid.”). Accordingly, the Board found and ruled that the appellant met its burden of proving its right to an abatement, and decided this issue for the appellant.
- II. Verizon’s Voice Mail Services were Taxable Telecommunications Services
In addition to abatements of the deficiency assessments made by the Commissioner in these appeals, Verizon sought abatements of sales taxes which it reported for its voice mail services during the periods at issue. 64H, § 1 defines “telecommunications services” as:
any transmission of messages or information by electronic or similar means, between or among points by wire, cable, fiberoptics, laser, microwave, radio, satellite or similar facilities but not including cable television.
Verizon argued that the voice mail fees which it charged its customers were not fees for the “transmission of messages,” but rather, were fees charged for the ability to store messages. Verizon contended that the transmission of messages occurred only when a customer placed a call to the voice mail system to retrieve a stored message, at which time a separate charge, not encompassed by the voice mail charges, would be incurred by the customer.
On the basis of all of the evidence, the Board found and ruled that Verizon’s voice mail services were “telecommunications services” as defined by 64H, § 1 because they constituted “the transmission of messages . . . by electronic or similar means, between or among points by wire, cable, fiberoptics, laser, microwave, radio, satellite or similar facilities.” The evidence indicated that a message was transmitted from one point, a caller, to another point, the voice mail system, when a caller recorded the message on the voice mail system. The message was then stored on the voice mail system, and later, transmitted from the voice mail system to a party retrieving the message. Although there were separate charges associated with calling into the voice mail system to record or retrieve messages, that fact in no way altered the reality that voice mail served to transmit messages from one point to another. The mere ability to store messages without the ability to retransmit and receive them would be valueless, and the Board therefore rejected the appellant’s arguments that voice mail charges were solely charges for the storage, not transmittal, of messages. Accordingly, the Board found that charges made by Verizon for voice mail services were charges for the “transmission of messages or information by electronic or similar means, between or among points” and that Verizon properly reported sales taxes on its voice mail services. The Board therefore found that Verizon was not entitled to an abatement of those sales taxes.
Several other states which have considered the taxability of voice mail charges have reached the same conclusion. In Paging Network of Ariz. v. Department of Revenue, No. 1058-93-S, 1995 Ariz. Tax Lexis 19 at *1, (Ariz. B.T.A. March 21, 1995), the Arizona Board of Tax Appeals rejected a taxpayer’s claim that voice mail was not a taxable telecommunications service. Id. at 4-5. In so ruling, the Board of Appeals stated that the purpose of the taxpayer’s voice mail service was to “pass on or enable the sending or passing of messages from one person to another.” Id. at 5. The Board of Appeals noted that there “would be no revenue to [the Taxpayer] if the messages were only stored and never transmitted.” Id.
Similarly, in BellSouth Telecommunications, Inc. v. Johnson, No. M2005-00865-COA-R3-CV, 2006 Tenn. App. Lexis 699 at *1, (Tenn. Ct. App. Oct. 27, 2006), the Tennessee Court of Appeals concluded that voice mail services were taxable telecommunications services because it concluded that “the true object of the voice mail services . . . is to facilitate, albeit delayed, the transmission and receipt of a telephone communication.” Id. at 10. The court further noted that “the fact that the oral message is held in abeyance in a computer memory does not change the service provided, that is, the customer can communicate with a specific person or persons through telephonic means.” Id. at 11.
The appellant’s attempts to distinguish these cases were unavailing. In both cases, as here, the relevant inquiry was whether voice mail services involved the transmission of messages, and in both cases, the courts concluded that they did. The Board agreed with the reasoning in these cases, and found and ruled that the appellant’s voice mail services were telecommunications services as defined by 64H, § 1. The Board therefore found and ruled that Verizon had properly reported sales taxes for its voice mail services, and that it was not entitled to abatements of those taxes.
CONCLUSION
On the basis of all of the evidence, the Board found and ruled that the appellant met its burden of proving that the deficiency assessments at issue resulted from the Commissioner’s improper disallowance of the $30.00 exemption. Accordingly, the Board issued a decision for the appellant in these appeals and, after taking into consideration the parties’ agreements as reflected in the Statement of Agreed Facts, granted abatements totaling $836,430, along with statutory additions, for the first audit cycle and abatements totaling $582,595, along with statutory additions, for the second audit cycle. Additionally, the Board found and ruled that the appellant’s voice mail services were subject to the sales tax imposed by 64H, § 2 because they were “telecommunications services” as defined by 64H, § 1. Accordingly, the Board found and ruled that the appellant was not entitled to abatements of the sales taxes which it reported for its voice mail services.
APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ________________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
SUSAN J. LEFAVER v. BOARD OF ASSESSORS OF
THE CITY OF NORTH ADAMS
Docket No. F306880 Promulgated:
June 7, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the appellee Board of Assessors of the City of North Adams (“assessors”) to abate a tax on certain real estate in North Adams assessed to Susan J. Lefaver (“appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2010.
Commissioner Mulhern (“Presiding Commissioner”) heard this appeal under G.L. c 58A, § 1 and 831 CMR 1.20 and issued a single-member decision for the appellant.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Susan J. Lefaver, pro se, for the appellant.
Thomas Manuel, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of exhibits and testimony offered at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2009, the appellant was the assessed owner of an improved parcel of real estate located at 690 State Road in North Adams (“subject property”). For fiscal year 2010, the assessors valued the subject property at $147,000 and assessed a tax thereon, at a rate of $12.44 per $1,000, in the amount of $1,828.68. In accordance with G.L. c. 59, § 57C, the appellant paid the tax due without incurring interest, and in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors on January 26, 2010. The assessors denied the appellant’s abatement application on March 17, 2010, and on June 1, 2010, the appellant seasonably filed an appeal with the Appellate Tax Board (“Board”). On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
The subject property, which faces State Road, a major thoroughfare also known as Route 2, consists of a 0.453-acre parcel of real estate improved with a two-family home containing 2,159 square feet of finished living area. The dwelling, which is in average condition, has eight rooms divided between two units, one of which has two bedrooms, and the other, one bedroom. Each unit has a kitchen and a full bath. The dwelling’s exterior is clad in wood shingles, and it has an asphalt roof.
The appellant argued that the subject property had no monetary value. The appellant based her conclusion almost exclusively on her belief that contamination affecting the properties at 700 and 708 State Road, which are contiguous parcels separated from the subject property by a street known as Chantilly Avenue, had spread to the subject property, rendering it valueless.
The appellant submitted various documents to support her argument, certain of which indicated that the property at 708 State Road, a former gas station currently operating as an auto repair shop, had been contaminated by gasoline leakage from a storage tank in the early 1990s. Other documents relating to 708 State Road included a copy of a letter dated August 9, 2009, to the Massachusetts Department of Environmental Protection (“DEP”) from Norfolk-Ram, an engineering firm involved with environmental testing and remediation efforts at the property. The letter referenced a “Response Action Outcome Report” relating to 708 State Road (“RAO”) dated February 8, 2006, that Norfolk-Ram had prepared after completion of post-remediation sampling at the property.[92] The RAO, which was combined with a “Release Abatement Measure Report” to form a single document, discussed in detail testing and remediation activities performed at 708 State Road and concluded, based on several considerations, that “a ‘Condition of no Significant Risk’ to public safety exist[ed] at the Site [then] and into the foreseeable future.”
The appellant also submitted a copy of a report dated December 14, 2009, from the engineering firm of Tighe & Bond to DEP detailing “site assessment activities performed in response to a historical release of chlorinated solvents” from the drycleaners at 700 State Road. The report described placement of several “monitoring wells” and noted detection of vinyl chloride in a monitoring well “approximately 60 feet from a . . . residential property listed at 690 State Road.”[93] The report also stated that “additional assessment would be required to evaluate the potential for indoor air quality impacts from vapor intrusion into the buildings” at 708 State Street and the subject property.
In a memorandum to the Mayor of North Adams, the city’s Chief Administrative Officer (“CAO”) described “any contamination or clean-up activity” at 708, 700 and 690 State Road. Regarding contamination at and emanating from 700 State Road, the CAO stated:
[DEP] supervised investigative work performed between October 2009 and February 2010. The data from this work showed that although the contamination was moving away from the property, it was also naturally degrading. One of the sampling wells located on Chantilly Avenue contained vinyl chloride[94]. . . . Because this product has the potential for vapor intrusion, indoor air samples were collected from the LeFaver household at 690 State Road on February 16-17, 2010. No contaminants associated with the documented contamination were detected in the indoor air samples. Based on these findings, [DEP] has no current plans for additional assessment or clean-up activity related to the [drycleaners’] site at this time.
As for 708 State Road, the CAO stated:
[DEP] monitored a release of gasoline from a leaking underground storage tank to soil and groundwater in September, 1993. Two underground storage tanks were removed and contaminated soil has been removed from the parcel. A DEP “Response Action Outcome” (RAO) statement was submitted . . . closing that site . . . [DEP] performed a “screening level” audit of the RAO in October 2009 and no further action was taken by [DEP] following that review.
The memorandum made no reference to activity at the subject property beyond its description of air sample testing performed during February of 2010.
Based on the record before it, the Presiding Commissioner found that the properties at both 700 and 708 State Road had been and to some degree remained contaminated. However, the evidence presented also indicated that remediation had been performed at 708 State Road, and that there was no ongoing or contemplated DEP action at either 700 or 708 State Road. Absent additional data or an expert opinion, neither of which was provided, the Presiding Commissioner could not determine if there remained contamination issues at 700 or 708 State Road which posed any risk to public safety or diminished the value of these properties, let alone the subject property. Moreover, the Presiding Commissioner found that the appellant provided insufficient evidence to establish that the subject property had been contaminated. Indeed, the only direct evidence relating to contamination of the subject property, the air samples tested during February of 2010, pointed to the opposite conclusion.
The appellant also argued that contamination of the subject property resulted in denial of her applications for home equity loans which otherwise would have been approved. In support of this argument, the appellant submitted a “Statement of Credit Denial” from the Hoosac Bank dated July 14, 2009, which stated that the appellant’s request for a line of credit had been denied “based on disclosed potential for hazardous contamination that has not been officially determined.” The denial statement also explicitly stated, however, that the appellant herself disclosed the “potential for hazardous contamination.” The Presiding Commissioner therefore found that the credit denial, which resulted from the appellant’s own unsubstantiated beliefs, was of little probative value.
Finally, the Presiding Commissioner found that the appellant presented no evidence to establish that the subject property suffered a diminution in value resulting from the contamination at 700 and 708 State Road or from the operation of the auto repair shop at 708 State Road, which the appellant claimed violated local zoning laws. Given this finding and the appellant’s failure to demonstrate contamination of the subject property, the Presiding Commissioner found and ruled that the appellant failed to offer persuasive evidence that the subject property’s assessed value exceeded its fair cash value on the relevant assessment date.
Notwithstanding the foregoing, the Presiding Commissioner found that evidence provided by the assessors indicated that the subject property was overvalued for fiscal year 2010. In particular, the assessors submitted property record cards for nine purportedly comparable properties in the area. Of these, the Presiding Commissioner found that six of the properties, each of which featured a two-family dwelling, were comparable to the subject property.[95] The properties were in similar condition, their finished living areas ranged from 1,788 square feet to 2,944 square feet and, with the exception of one significantly larger property, their parcel sizes from 0.11 acres to 0.26 acres. The properties’ average sale price was $128,500. Taking into account various differences between these properties and the subject property and, in particular the subject property’s location on a busy thoroughfare, the Presiding Commissioner derived an indicated value for the subject property of $125,000 for fiscal year 2009. Thus, the Presiding Commissioner found and ruled that the fair cash value of the subject property was $22,000 less than its assessed value of $147,000.
Accordingly, the Presiding Commissioner issued a decision for the appellant in this appeal and ordered an abatement in the amount of $273.68.
OPINION
Assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)).
In the present case, the Presiding Commissioner found and ruled that the appellant’s evidence failed to establish that the subject property had a lower value than its assessed value for fiscal year 2010. While the appellant revealed that there was contamination at 700 and 708 State Road, she did not demonstrate ongoing contamination issues that posed a risk to public safety, nor did she establish that any form of contamination had spread to her property. Finally, the appellant did not present evidence to establish that the value of the subject property had been diminished as a result of contamination at 700 and 708 State Road or the operation of an auto repair shop at 708 State Road.
Notwithstanding the appellant’s failure to establish the subject property’s lower value, the Presiding Commissioner, relying on the entire record, found and ruled that the assessed value of the subject property exceeded its fair cash value for fiscal year 2010. See, e.g., General Electric Co. v. Assessors of Lynn, 393 Mass 591, 599-600 (1984).
As with decisions of the Board, the Presiding Commissioner’s “determination must be made ‘upon consideration of the entire record.’” New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 466 (1981) (quoting Cohen v. Board of Registration in Pharmacy, 350 Mass. 246, 253 (1966), quoting from G.L. c 30A, § 14 (8) (State Administrative Procedure Act)). Further, the Presiding Commissioner is “entitled to ‘select the various elements of value as shown by the record and from them form . . . [his] own independent judgment.’” General Electric Co. 393 Mass. at 605 (quoting North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984))(additional citation omitted).
The fair cash value of property may be determined by recent sales of comparable properties in the market. Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue. Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2008-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff’d, 73 Mass. App. Ct. 1107 (2008). When comparable sales are used, allowances must be made for various factors which would otherwise cause disparities in the comparable properties’ sale prices. See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082.
Consistent with the cited authority, the Presiding Commissioner considered evidence submitted by the assessors relating to six multi-family properties in the area, which the Presiding Commissioner found were comparable to the subject property. The record indicated the properties’ condition, finished living areas, sale prices, and parcel sizes. The Presiding Commissioner took into account various differences between the properties and the subject property, with emphasis on the subject property’s location on a busy thoroughfare, and derived an indicated value for the subject property of $125,000 for fiscal year 2010. Thus the Presiding Commissioner found and ruled that the subject property’s assessed value exceeded its fair cash value by $22,000.
Accordingly, the Presiding Commissioner issued a decision for the appellant in this appeal and ordered an abatement in the amount of $273.68.
APPELLATE TAX BOARD
By:_______________________________
Thomas J. Mulhern, Commissioner
A true copy,
Attest: __________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
AT&T CORP. v. COMMISSIONER OF REVENUE
Docket No. C293831 Promulgated:
June 8, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the appellee, Commissioner of Revenue (“Commissioner”), to grant an abatement of public service corporate franchise taxes assessed against the appellant, AT&T Corp. (“AT&T” or “appellant”) for tax years ending December 31, 1996 through December 31, 1999 (“tax years at issue”).
Commissioner Scharaffa heard this appeal and was joined by Chairman Hammond and Commissioners Egan, Rose, and Mulhern in the decision for the appellant.
These findings of fact and report are made pursuant to requests by the appellant and the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
David S. Ruskin, Esq., Megan M. Mathias, Esq. and Kathleen King Parker, Esq. for the appellant.
Jeffrey S. Ogilvie, Esq. and Daniel Shapiro, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of a Statement of Agreed Facts and the testimony and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board (“Board”) made the following findings of fact.
At all times relevant to this appeal, AT&T was a New York corporation with its administrative headquarters located in New Jersey. AT&T was in the business of providing interstate and international network telecommunications services. The receipts at issue in this appeal were from its interstate and international voice and data telecommunications services.[96]
The appellant timely filed Massachusetts public service corporation franchise tax returns for each of the tax years at issue and paid the tax due as reflected on those returns in full. The total tax due on the original returns was $7,706,624. After an audit based on an issue unrelated to this appeal, the Commissioner assessed additional public service corporation franchise taxes against the appellant in the amount of $276,746 for the tax years at issue by Notice of Assessment dated July 19, 2005. The appellant did not contest this assessment. On October 17, 2005, the appellant timely filed a Form CA-6 Application for Abatement/Amended Return requesting abatements of the assessments in the total amount of $2,108,137 for the tax years at issue based upon what it deemed to be the proper calculation of its sales-factor numerator, the issue in this appeal.[97] On October 2, 2007, the Commissioner issued a Notice of Abatement Determination denying AT&T’s abatement application. On November 15, 2007, AT&T seasonably filed its Petition Under Formal Procedure with the Board. On the basis of these facts, the Board found and ruled that it had jurisdiction over this appeal.
The central issue in this appeal is whether certain receipts from interstate and international telecommunications services provided by the appellant should be included in the numerator of the appellant’s sales factor for purposes of determining its Massachusetts taxable income for the tax years at issue. As will be explained more fully in the Opinion, when a taxpayer is engaged in the sale of services, calculation of its sales factor requires a determination first of the taxpayer’s so-called “income-producing activity.” Once the income-producing activity is determined, then the “costs of performance” of that activity are analyzed to determine if the taxpayer incurred more of those costs in Massachusetts than in any other single state. This two-part determination ultimately establishes whether the taxpayer’s receipts are Massachusetts sales and thus included in the numerator of its sales factor.
The Commissioner contended that AT&T’s income-producing activity was its provision of each individual telephone call and data transmission (collectively, “transmission”) for each of its customers located in Massachusetts, the performance of which created an obligation of the individual customer to pay specific consideration to AT&T. In support of her argument, the Commissioner cited the fact that AT&T’s bills to its customers were based on discrete transactions, and it received its revenue by means of this transaction-based billing process. The Commissioner would thus analyze AT&T’s receipts, derived from its customers located in Massachusetts, on a per-transmission basis. The Commissioner asserted that, when analyzed under this “transactional approach,” AT&T’s costs of performance incurred in Massachusetts, in serving its customers located in Massachusetts, were greater than the costs of performance incurred in any other single state.
AT&T, however, contended that its income-producing activity was its business of providing a national, integrated telecommunications network, which it operated and managed from its Global Network Operations Center located in Bedminster, New Jersey. In support of its position, AT&T presented evidence detailing how transmission signals were connected from one end of a transaction to the other via AT&T’s global, integrated network. As will be explained below, AT&T demonstrated that it engaged in numerous activities (so-called “core processes,” which will be described further in these Findings) both within and without Massachusetts that were necessary to the overall activity of operating and managing the network. The appellant contended that these core processes together enabled AT&T to create and make available a viable long-distance telecommunications network, which was designed to be 99.99% reliable at all times. When analyzed under this “operational approach,” AT&T’s costs of performance incurred in Massachusetts were less than its costs of performance incurred in another single state, namely, New Jersey.
A subsidiary issue raised in this appeal was the Commissioner’s inclusion as AT&T’s costs of performance the so-called “access fees” which AT&T paid to local exchange operating companies (“LEOCs”). Relying on 830 CMR § 63.38.1(9)(d)(2), AT&T excluded these costs from its analysis, considering them to be third-party costs, and thus not reflective of the appellant’s costs of performance. 830 CMR § 63.38.1(9)(d)(2) provides that, in determining a taxpayer’s income-producing activity, the “transaction, procedure or operation” must be an activity which is “directly engaged in by a taxpayer [and] which results in a separately identifiable item of income.” Further on in the regulations, 830 CMR § 63.38.1(9)(d)(4) defines “costs of performance” as the taxpayer’s “direct costs,” which “do not include costs of independent contractors or services by subcontractors.”
AT&T’s first witness, Robert Holleron, a retired 36-year employee of AT&T, testified with respect to the evolution and functioning of AT&T’s global network and to the workings of the Global Network Operations Center. Mr. Holleron explained that, in 1984, as a result of an anti-trust lawsuit, AT&T was required to be separated into seven regional LEOCs, known as the Bell Operating Companies, and one long-distance company called AT&T, the appellant. The result of this divestiture was that one LEOC was given monopoly rights over a specific regional “local access transport area,” which was a relatively small geographic area in which the LEOC operated its own “access network.” Long-distance carriers, like AT&T and its competitors, provided a global network over which long-distance transmissions traveled between customers located in different local access transport areas. However, completing a long-distance transmission between two different local access transport areas required the connection and termination of that transmission from one end, i.e., “point of presence,” to another. AT&T did not own or control the access network, so this “first mile” and “last mile” service, respectively, was provided to long-distance carriers by the separate LEOCs. AT&T contracted with, and paid access fees to, the LEOCs for their provision of “first mile” and “last mile” service over their access networks. Access could not be purchased in bulk but instead was charged per transmission.
Mr. Holleron thoroughly described the complex nature of AT&T’s global telecommunications network, depicting it as “a very large web” of fiber optic cable together with electronic switching devices known as “points of interface,” data routers, test equipment and control devices. At the center of this network was the control hub known as the Global Network Operations Center, located in Bedminster, New Jersey. This signaling facility determined the best path for each transmission and sent messages to the LEOCs to alert them to the incoming transmissions.
Mr. Holleron next established the intricate functioning of AT&T’s network in providing long-distance service to AT&T’s customers. The network used Real Time Network Routing in its signaling system to find the best route for each of the transmissions traveling along AT&T’s network – which he estimated at billions annually – based upon current traffic patterns. AT&T submitted into evidence a DVD explaining how its patented Real Time Network Routing System would determine the best path (from over 140 possible paths) for the completion of any given transmission, and how workers at each switching location could manually intervene and re-route transmissions. The DVD presented an example of how, in the event of heavy network traffic, a call originating in Boston and destined for Atlanta could actually travel by way of a switch located in Los Angeles. As demonstrated by this example, a transmission was not always completed over the path that was the shortest distance between two points but instead could travel cross-country and then to its destination.
AT&T’s network also used SONET ring configuration for its fiber, which enabled the network to self-correct in the event of a failure in order to minimize service interruption. Mr. Holleron testified that the path of a transmission could actually change during its duration, depending upon network congestion or an unexpected disruption of service, in order to prevent the transmission from being disconnected or “dropped.” He explained, “AT&T’s network . . . [wa]s built to avoid [the scenario] where any single point of failure would result in an outage.” Another DVD submitted into evidence detailed how, in the event of a service failure of significant proportions, AT&T’s Network Disaster Recovery Team (“Recovery Team”) could rapidly transport modular equipment to the disaster site to restore service to customers. The Recovery Team would report to and coordinate with the Global Network Operations Center in New Jersey to restore service to the area.
AT&T’s primary witness was James Allen, a consultant with BI Solutions Group, which provides accounting services related to cost and performance management topics. The Board qualified Mr. Allen as an expert in the area of cost accounting. Based on his study and observation of AT&T’s business, Mr. Allen testified that AT&T’s network was designed to be 99.99% reliable at all times, notwithstanding power failures or other calamities.
Mr. Allen presented a report to the Board,[98] which utilized an operational-approach analysis, referred to as the “costing view” in accounting jargon. Mr. Allen’s analysis started with the premise that the entire integrated network, not just the proportion of the network located in Massachusetts, was needed to service customers residing in Massachusetts. Therefore, all costs of performance related to operating and maintaining the network should be included in a costs-of-performance analysis. Mr. Allen explained that AT&T did not track costs by both product and jurisdiction, so AT&T hired him to perform that analysis for purposes of this appeal. For his analysis, Mr. Allen first identified AT&T’s items of income as the receipts from its network telecommunications services. He then identified seven income-producing activities, called “core processes,” that were necessary for AT&T to operate its network: (1) service activation; (2) service assurance; (3) service creating (research and development); (4) service execution; (5) network capacity and servicing; (6) billing; and (7) support and guidance. Mr. Allen then identified the costs associated with those core processes. Following the regulations at 830 CMR § 63.38.1(9)(d)(2) and (4), Mr. Allen excluded what he deemed to be third-party costs from his direct-cost analysis.
Next, Mr. Allen determined where the direct costs were incurred. He then separated direct costs incurred in New Jersey from those incurred in Massachusetts and compared the two groups of costs. Mr. Allen concluded that more direct costs were incurred in New Jersey than in Massachusetts during the tax years at issue. Mr. Allen maintained that his costing-view analysis was consistent with generally accepted accounting principles.[99]
Mr. Allen’s analysis did not include as costs of performance the access fees that AT&T paid to the LEOCs. He explained that the access fees represented AT&T’s payment to the LEOCs for their provision of “first mile” and “last mile” service over the LEOCs’ networks. He then explained that his understanding of Massachusetts law and the regulations at 830 CMR 63.38.1(9)(d)(2) and (4) was that third-party costs were to be excluded from the taxpayer’s costs of performance. He opined that, because the access fees represented services provided to AT&T by the LEOCs, they thus did not reflect AT&T’s costs incurred in AT&T’s performance of any income-producing activities. In any event, he testified that, when analyzed under the operational approach, costs of performance in New Jersey exceeded those in Massachusetts even when these access fees were included as AT&T’s costs of performance.
AT&T also called two additional expert witnesses to support Mr. Allen’s costing-view report. First, Robert Eiler, whom the Board qualified as an expert in cost accounting, with a particular expertise in the area of telecommunications cost accounting, confirmed that Mr. Allen’s report correctly followed established principles of cost management and cost modeling, used the best available data,[100] and correctly identified direct costs. He further opined that Mr. Allen’s analysis of costs of performance was consistent with generally accepted principles of accounting. In Mr. Eiler’s opinion, Mr. Allen analyzed the correct level of income-producing activity (the operational level), and concluded that an analysis of direct costs at the transactional level would be “impractical” and “economically infeasible.”
Next, Professor Pomp, whom the Board qualified as an expert in the area of state taxation, further confirmed that Mr. Allen’s analysis under the operational/costing-view approach was correct under the Massachusetts statute, regulations and case law. He opined that it would be “inconsistent” with unitary-business principles to identify items of income at the “micro level.”[101] He explained that the Board’s and the Supreme Judicial Court’s opinions in Boston Professional Hockey Association v. Commissioner of Revenue[102] confirmed this principle by refusing to analyze the unitary taxpayer’s activities at the micro level. Then, citing the U.S. Supreme Court case, Goldberg v. Sweet,[103] Professor Pomp also opined that an analysis of the appellant’s direct costs at the transactional level would be particularly arduous, if not impossible, given the volume of transmissions and the ability of AT&T’s network to route and re-route them, often not along the most direct paths. He further noted that, because the Global Network Operations Center and administrative headquarters were located in New Jersey, “it’s just sort of obvious” that New Jersey would have more costs of performance than Massachusetts. Finally, Professor Pomp criticized the Commissioner’s transactional approach — which analyzes costs of performance associated with “income from sales to [AT&T’s] customers in Massachusetts”[104] — as contrary to Massachusetts law. He pointed out that G.L. c. 63, § 38(f) started with “all gross receipts of the corporation” and then determined which sales were “in this commonwealth” based on income-producing activity and costs of performance. He concluded that the Commissioner’s premise of starting with “Massachusetts sales” and analyzing their costs of performance assumed away the very issue that the statute is intended to answer – which of AT&T’s receipts should be viewed as Massachusetts receipts.
AT&T’s final witness was Beth Sosidka, a tax director for AT&T who worked on the appellant’s state income tax audits. Ms. Sosidka filed the subject abatement application, which removed AT&T’s interstate and international sales income from the numerator of its sales factor. Ms. Sosidka had experience working as a liaison between AT&T’s tax department and its business operations area to ensure that “the tax department ha[d] an understanding of AT&T’s business and [could] reflect taxes accordingly.” She emphasized the complex nature of a telecommunications transaction and the need for a functioning network to complete it: “making a phone call is not . . . two tin cans connected by a string, you are paying for that network to be reliable.” She explained that the rationale behind the abatement application was her understanding, based on her experience, that the business of AT&T was the operation of its long-distance network, not the provision of individual transmissions. With this as her premise, Ms. Sosidka determined that AT&T incurred more costs in New Jersey than in Massachusetts for the tax periods at issue. In fact, AT&T had “significant operations” in numerous states and thus “there could have been other states as well where you would compare your costs in those states” with those incurred in Massachusetts and would have reached the same determination that costs in one of those other states were greater than costs incurred in Massachusetts.
For its case-in-chief, the Commissioner called as a witness Michael Starkey, an economist who acts as a consultant specializing in telecommunications. The Board qualified Mr. Starkey as an expert in the area of telecommunications cost analysis. Mr. Starkey did not perform his own study, but his report offered several critiques of Mr. Allen’s May, 2006 study,[105] and in his testimony he offered several critiques of the September, 2009 study.[106] Mr. Starkey essentially criticized the appellant’s lack of evidence demonstrating how AT&T’s geographical network costs supported the services it sold to its Massachusetts customers. His report cited the following example: “consider an operator who sits in a call center in Chicago but spends part of his/her time supporting calls from Massachusetts or other jurisdictions.” From this, Mr. Starkey opined that by focusing on AT&T’s costs of operating its network as a whole, AT&T failed to establish its costs of performance for providing services specifically to its Massachusetts customers.
Mr. Starkey offered the “communities of interest” theory, which suggests that a person’s community will dictate the pattern of calls that will be made, and these calls will supposedly travel along the same assets repeatedly, and because states on the east coast in particular “are so closely packed, a good part of interstate traffic may never travel a hundred miles much of which rely on assets that never leave Massachusetts.” Mr. Starkey’s report also included a “traffic factors adjustment” to Mr. Allen’s original demand-view report based on, as he testified, “how [actual transactions] happened.” However, Mr. Starkey did not explain how he was able to deduce this information.
Mr. Starkey further contended that including access fees into Mr. Allen’s cost study would have resulted in Massachusetts having a greater amount of costs of performance than any other single state with respect to items of income derived from customers located in Massachusetts. In response, AT&T re-called Mr. Allen to testify after Mr. Starkey concluded his testimony. Unlike Mr. Starkey, Mr. Allen did not analyze the costs of performance associated with income derived from so-called “Massachusetts customers” under a transactional approach. He instead analyzed the costs of performance associated with AT&T’s operation and management of its national integrated network, i.e., the operational approach. Mr. Allen testified that, under the operational approach, even when including access fees together with all other costs of performance, the total cost of performance in Massachusetts was still less than the total cost of performance in New Jersey.
On the basis of the foregoing, the Board found that the manner in which AT&T provided its long-distance transmission services to its customers was over its long-distance network. The Board in particular noted the example of the transmission originating in Boston and traveling to Atlanta via a switch located in Los Angeles in the event of heavy network traffic. The Board found that the appellant proved that this cross-country routing of transmissions was both a frequent and an unpredictable occurrence. This example illustrated that the entire integrated network, not just the proportion of the network located in Massachusetts, was needed for AT&T to provide its long-distance service with 99.99% reliability and virtually no interruption, and moreover, that the tracking of the exact path of each of the millions of transmissions per year would be a next-to-impossible endeavor. On the other hand, the Board found that the Commissioner’s expert, Mr. Starkey, failed to support his bare assumptions that “communities of interest” could create predictable “calling patterns,” and he did not attempt to explain whether heavy network traffic or network outages would affect those patterns. Moreover, he failed to explain his “traffic factors adjustment,” based on a supposed ability to parcel out unpredictable telecommunications traffic according to “how [actual transactions] happened.” The Board thus found that the appellant provided ample evidence demonstrating that its income-producing activity was its operation and management of a long-distance telecommunications network, with its hub in New Jersey at the Global Network Operations Center.
The Board next found that the appellant met its burden of proving that, when analyzing its income-producing activity under the operational approach, AT&T’s costs of performance incurred in New Jersey were greater than its costs of performance incurred in Massachusetts during the tax years at issue. Therefore, the Board found that AT&T met its burden of proving that it incurred greater costs of performance in one single state other than in Massachusetts during each of the tax years at issue.
The Board also found that the access fees paid by AT&T were for services that were provided to AT&T by independent contractors or subcontractors — the origination and termination of long-distance transmissions by LEOCs over access networks that the LEOCs owned and controlled. Therefore, for the reasons discussed more fully in the Opinion, the Board found that the access fees were for third-party services and thus were not properly includable as AT&T’s costs of performance for purposes of calculating the numerator of its sales factor. Even assuming for the sake of argument that access fees were AT&T’s costs of performance, the Board found that an analysis under the operational approach still resulted in less cost of performance incurred in Massachusetts than in another single state, namely New Jersey, during the tax years at issue.
Accordingly, on the basis of its findings, and as will be explained in the following Opinion, the Board issued a decision for the appellant abating a total of $2,108,137 in taxes, plus statutory additions.
OPINION
At all times relevant to this appeal, AT&T was a utility corporation subject to the excise imposed by G.L. c. 63, § 52A, the public service franchise tax. Pursuant to § 52A(3), as in effect during the tax years at issue, AT&T’s net income should have been apportioned under the standard rules in G.L. c. 63, § 38 (“§ 38(f)”), except that the sales factor should have been single-weighted.[107]
- Whether certain of AT&T’s receipts from its interstate and international telecommunications services were Massachusetts sales and thus included in the numerator of its Massachusetts sales factor.
The central issue in this appeal is whether certain receipts from interstate and international telecommunications services provided by AT&T should have been included in the numerator of AT&T’s sales factor as calculated under § 38(f).
Pursuant to § 38(f) as in effect during the tax years at issue, receipts from sales other than sales of tangible personal property (including sales of telecommunications services) were Massachusetts sales if:
- the income-producing activity [wa]s performed in this commonwealth; or
- the income-producing activity [wa]s performed both in and outside this commonwealth and a greater proportion of this income-producing activity [wa]s performed in this commonwealth than in any other state, based on costs of performance.
For the tax years at issue, the characterization of AT&T’s “income-producing activity” determined how its costs of performance were to be analyzed, which ultimately determined which of its sales were Massachusetts sales to be included in the numerator of its sales factor. The appellant contended that its income-producing activity was the operation of its long-distance telecommunications network, which consisted of interconnected equipment located in every state of the United States and with both its Global Network Operations Center and administrative headquarters located in New Jersey (“operational approach”). In contrast, the Commissioner determined that AT&T’s income-producing activity was each individual long-distance transmission placed by a customer (“transactional approach”).
Section 38(f) does not define “income-producing activity.” The Commissioner has promulgated a regulation, 830 CMR § 63.38.1(9)(d)(2), which generally describes an “income-producing activity” as:
a transaction, procedure, or operation directly engaged in by a taxpayer which results in a separately identifiable item of income. In general, any activity whose performance creates an obligation of a particular customer to pay a specific consideration to the taxpayer is an income-producing activity.
(emphasis added). The regulation might appear to offer a choice between a transaction or a procedure or an operation. However, it does not offer a choice. Instead, the statute requires a determination of the correct income-producing activity, based on a close analysis of the particular facts presented. See Boston Professional Hockey Ass’n, Inc. v. Commissioner of Revenue, 443 Mass. 276, 286 (2005).
In Boston Professional Hockey Association v. Commissioner of Revenue, the Board analyzed the above regulation to determine the taxpayer’s income-producing activity. In that appeal, the taxpayer, Boston Professional Hockey Association, the owner and operator of the Boston Bruins Professional Hockey Club (“Bruins”), had its corporate headquarters in Boston, where a group of twenty employees performed such duties as media relations, payroll, accounts payable, financial, secretarial, travel arrangements, and equipment purchases. Boston Professional Hockey Ass’n v. Commissioner of Revenue, Mass. ATB Findings of Facts and Reports 2003-273, 279. The General Manager for the Bruins also maintained his office at the Boston headquarters, where he negotiated contracts for players, broadcasters and insurance, and registered BPHA trademarks and Bruins logos and trademarks. Id. at 2003-279. The taxpayer argued for the transactional approach, i.e., analyzing its costs of performance on a per-game basis, which resulted in the greater proportion of income-producing activities being performed in jurisdictions other than Massachusetts for each separate away game. Id. at 2003-298-99. Accordingly, the taxpayer claimed that the numerator of its sales factor should exclude the costs of performance associated with those games, resulting in the exclusion from its sales factor of the revenue associated with all of its away games. Id. at 2003-299-300.
The Board, however, emphasized the importance to the Bruins franchise of all of the activities performed by the taxpayer, including those performed at headquarters: “these subsidiary activities, most of them performed by the administrative and office staff on Causeway Street, were necessary in creating a viable NHL franchise.” Id. at 2003-284. The Board thus ruled that many of the costs, which the taxpayer tried to exclude from its costs-of-performance analysis, “like salaries to BPHA’s executive and administrative staff working at the Causeway Street office and the correlating payroll and pension tax expenditures on these salaries,” were necessary to creating the obligation in the customers to pay consideration for Bruins tickets, and that only the operational approach would capture these costs of performance. Id. at 2003-301, 302, aff’d, 443 Mass. at 284. Accord General Mills, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2001-474, 528 (citing Clipper Express v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1986-409).
Similarly, the taxpayer in The Interface Group v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2008-1343, 1356-57, a Massachusetts public charter tour operator that created and marketed vacation travel packages to destinations primarily in the Caribbean Islands and Mexico, also argued for a transactional approach, which would have required analyzing its costs of performance on a per-trip basis. The effect of a transactional-approach analysis would have been the exclusion from the numerator of its Massachusetts sales factor of the revenue from all of the trips sold by the taxpayer. In that appeal, the importance of the activities performed at the taxpayer’s headquarters in Massachusetts also factored strongly into the Board’s decision – the Board found that it was the negotiating of travel accommodations in bulk which secured the taxpayer’s competitive prices on those packages, in keeping with its business model of selling discounted travel packages. Interface, Mass. ATB Findings of Fact and Reports at 2008-1364-65.
Under the facts of this appeal, the Board found that AT&T’s income-producing activity was not the connection of an individual transmission over a specifically designated wire. Through detailed and convincing evidence, the appellant instead established that AT&T’s income-producing activity was providing a long-distance transmission service by means of operating a complex and comprehensive network that routed and completed those transmissions, very often over unpredictable paths that were not necessarily the shortest geographic distance. Simply put, AT&T could not provide its long-distance service without operating its entire long-distance network. The Board found that the Commissioner’s expert’s proposed “calling patterns” and “traffic factors adjustment” theories, which lacked specific evidentiary foundation, were not sufficient to support the Commissioner’s transactional approach. Moreover, these theories could not be supported, particularly in the event of heavy network traffic or unforeseen network outages, both of which, the appellant proved, were common occurrences. The Board thus found and ruled that, in accordance with the statute and the regulations, AT&T’s income-producing activity was its operation of its global network. This finding:
fits comfortably within the text of the regulation that states that “an income-producing activity is a transaction, procedure, or operation directly engaged in by a taxpayer which results in a separately identifiable item of income”. . . . [quoting 830 CMR § 63.38.1 (9)(d)(2)(emphasis provided by Supreme Judicial Court)]. This construction of the regulation is neither “patently wrong, unreasonable, arbitrary, whimsical, or capricious.
Boston Professional Hockey Ass’n, 443 Mass. at 286 (quoting Box Pond Ass’n v. Energy Facilities Siting Bd., 435 Mass. 408, 416 (2001) (other citation omitted)).
Moreover, while AT&T engaged in numerous subsidiary activities, both within and outside Massachusetts, that were an essential part of its income-producing activity, it provided ample evidence establishing the importance of the activities performed at its Global Network Operations Center, where employees operated and managed a network capable of routing and re-routing each transmission in order to ensure its successful completion. Because of the work there, AT&T was able to maintain its reported 99.99% reliability rating, notwithstanding events like natural disasters and national emergencies. Appellate courts have consistently upheld the Board in rejecting adoption of a transactional approach when doing so would have trivialized the actual income-producing activities performed at a taxpayer’s Massachusetts headquarters. See, e.g., Interface and Boston Professional Hockey Ass’n, supra. Just as it has recognized the importance of a taxpayer’s Massachusetts headquarters, the Board here must equally recognize the importance of AT&T’s centralized network hub, which was located outside of Massachusetts. The Commissioner cannot have it both ways and argue for the transactional approach when the taxpayer’s headquarters happen to be located outside of the Commonwealth. See Interface, Mass. ATB Findings of Fact and Reports at 2008-1360 (recognizing that the regulation does not permit either party to “cherry-pick” from among a taxpayer’s activities to reach a tax-favored result) (citing Boston Professional Hockey Ass’n, 443 Mass. at 284). It bears repeating that 830 CMR § 63.38.1(9)(d)(2) does not offer a choice of an income-producing activity but requires a determination of the correct income-producing activity based on a specific set of facts.
With respect to personal services, when the service is rendered partly within the Commonwealth and partly without, the Commissioner’s regulation provides that the receipts are attributed to Massachusetts “if, based upon costs of performance, a greater proportion of the services is rendered in Massachusetts than in any other state.” 830 CMR § 63.38.1(9)(d)(3)(a). See Surel International, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1998-494, 505. The Board found that the appellant met its burden of proving that, when including its expenses incurred at its Global Network Operations Center and its administrative headquarters, both located in New Jersey, AT&T’s costs to maintain its network, which were incurred in Massachusetts, were less than those costs incurred in New Jersey. The Board thus ruled that, under the facts of this appeal, because a greater proportion of AT&T’s services were rendered in one single state other than Massachusetts, then its receipts from these services should not be apportioned to Massachusetts.
The Board also agreed with AT&T’s expert, Professor Pomp, that the Commissioner’s overall analysis was contrary to the Massachusetts statute and case law. The Commissioner began with what she claimed to be “income from sales to [AT&T’s] customers in Massachusetts” and then analyzed the costs of those sales. However, the purpose of § 38(f) is to analyze a taxpayer’s costs of performance associated with its income-producing activity and then to use that analysis in order to determine which sales are in Massachusetts. Starting with a predisposed assumption that certain sales are “Massachusetts sales” forces a conclusion before allowing the cost-of-performance evidence to lead to the correct result.
While not central to its decision, the Board also recognized the problems associated with adoption of the transactional approach for analyzing AT&T’s costs of performance under the facts of this appeal. In particular, the costs of maintaining particular switches could not be allocated to individual transmissions unless it were known which particular switches that those transmissions had used. Determining this information would be a monumentally challenging task, both given the volume of AT&T’s transmissions and the fact that a transmission would frequently be re-routed during its transmittal. The United States Supreme Court, over twenty years ago, recognized the complex path of telecommunications signals:
[T]he path taken by the electronic signals [for interstate telephone calls] is often indirect and typically bears no relation to state boundaries. The number of possible paths, the nature of the electronic signals, and the system of computerized switching makes it virtually impossible to trace and record the actual paths taken by the electronic signals which create an individual telephone call.
Goldberg v. Sweet, 488 U.S. 252, 255 (1989). To require AT&T to track these signals, or attempt to do so, under a transactional analysis would cause an undue administrative burden under the facts of this appeal. More to the point, a micro-level analysis of the path of individual transmissions would not be useful in determining AT&T’s costs of performing its business, which the Board found to be the provision of telecommunications services over its long-distance network.
- 2. Whether access fees should be included as AT&T’s costs of performance.
The Commissioner’s regulation at 830 CMR 63.38.1(9)(d)(2) defines an income-producing activity as “a transaction, procedure, or operation directly engaged in by a taxpayer which results in a separately identifiable item of income.” (emphasis added). The regulation further instructs that “income-producing activity includes only the activities of the taxpayer whose income is being apportioned.” The regulation then provides this caveat:
Income-producing activity does not include activities performed on behalf of a taxpayer by another person, such as services performed on its behalf by an independent contractor or by any other party whose activities are not attributable to the taxpayer for the purposes of determining tax jurisdiction under 830 CMR 63.39.1.
830 CMR 63.38.1(9)(d)(2) (emphasis added). The regulation later defines “cost of performance” as a taxpayer’s “direct costs,” which specifically “do not include costs of independent contractors or services by subcontractors.” 830 CMR 63.38.1(9)(d)(4) (emphasis added).
It is undisputed that AT&T did not own or control the access networks and that the access fees it paid to the LEOCs were for services provided to AT&T by the LEOCs, i.e., the origination and termination of long-distance transmissions over the LEOCs’ networks. The Commissioner contended that, because AT&T was required to pay these access fees in its provision of long-distance telecommunications services, they thus became part of AT&T’s costs of performance. This argument is based on the Commissioner’s understanding that “costs of independent contractors” in 830 CMR 63.38.1(9)(d)(4) refers to those costs that the independent contractor incurs in performing its own activities. The appellant, on the other hand, cites the remainder of (d)(4), which specifies that direct costs “do not include costs of independent contractors or services by subcontractors”; the appellant also cites the regulation at (d)(2) which specifically excludes from income-producing activity “services performed on its behalf by an independent contractor.” (emphasis added).
The Board agreed with the appellant. The Board found that the originations and terminations of long-distance transmissions by the LEOCs reflected costs for services by the LEOCs, whom the Board found to be acting independently of AT&T for purposes of completing AT&T’s long-distance transmissions. Whether the LEOCs were independent contractors or subcontractors of AT&T, their activities were not attributable to AT&T for purposes of determining corporate nexus. The Board thus found and ruled that, because the access fees paid by AT&T represented payment for “activities performed on [AT&T’s] behalf by [the LEOCs],” the access fees should not have been included as AT&T’s costs of performing its income-producing activity for purposes of calculating the numerator of its sales factor.
Assuming for the sake of argument, however, that access fees were properly considered AT&T’s costs of performance, the net result would be unchanged. The Board was further persuaded by Mr. Allen, who showed that, even when access fees were included in a costs-of-performance analysis under the operational approach, the total cost of performance incurred in New Jersey still exceeded the total cost of performance incurred in Massachusetts. Therefore, the Board found and ruled that adding access fees into the costs-of-performance analysis would not change the result, which is that AT&T incurred more costs of performance in one single state other than Massachusetts, namely New Jersey, during the tax years at issue.
Conclusion
The Board found and ruled that the operational approach was the proper method for determining AT&T’s costs of performance for purposes of calculating its sales factor. Under the operational approach, the greater proportion of AT&T’s costs was incurred in New Jersey, not in Massachusetts. Therefore, the Board found and ruled that AT&T met its burden of proving that the Commissioner improperly denied its abatement application for the tax years at issue. Accordingly, the Board granted abatements of taxes to AT&T in the total amount of $2,108,137 as follows:
|
Tax year ending 12/31/1996 |
$337,450 |
|
Tax year ending 12/31/1997 |
$137,256 |
|
Tax year ending 12/31/1998 |
$977,790 |
|
Tax year ending 12/31/1999 |
$655,641
|
plus statutory additions.
THE APPELLATE TAX BOARD
By: ___________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ______________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
GD FOX MEADOW, LLC v. BOARD OF ASSESSORS OF
THE TOWN OF WESTWOOD
Docket No. F303504 Promulgated:
June 8, 2011
This is an appeal under the formal procedure, pursuant to G.L. c. 59, §§ 64 and 65 and c. 58A, § 7, from the refusal of the appellee to abate taxes on certain real estate in the Town of Westwood assessed under G.L. c. 59, §§ 11 and 38 for fiscal year 2009.
Commissioner Rose heard this appeal. Commissioners Scharaffa and Egan joined him in the decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Stephen W. Kidder, Esq., Diana C. Tillotson, Esq., and Andrew Eberle, Esq. for the appellant.
Deborah Robbins, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
The parties submitted this appeal for decision on two Stipulations of Facts with exhibits attached, the representations of Deborah Robbins, a member of the Town of Westwood’s Board of Assessors (the “assessors”), and several additional exhibits entered into evidence by the assessors. Based on this evidence and reasonable inferences drawn therefrom, the Appellate Tax Board (“Board”) made the following findings of fact.
On March 26, 2008, almost three months after the January 1, 2008 valuation and assessment date for fiscal year 2009, the appellant, GD Fox Meadow, LLC (the “appellant”), became the owner of a near turn-key subdivision which contained a completed drive with a base coat of asphalt, underground utilities, and nineteen unimproved, contiguous residential parcels of real estate located on Fox Meadow Drive in Westwood (collectively, the “subject property”).[108] At all relevant times, the subject property consisted of a total of approximately 53.55 acres, and included the nineteen remaining subdivision lots ranging in size from 1.19 acres to 8.32 acres.
Westwood is a town in north-central Norfolk County located less than 15 miles to the southwest of Boston’s central business district. Westwood has a total area of approximately 11.1 square miles, and according to a valuation report in evidence which references the 2000 United States Census, it has a population of 13,651. Westwood borders the communities of Walpole, Dover, Needham, Norwood, Canton, and Dedham. Originally called “West Dedham,” Westwood was first settled in 1640 as part of the Town of Dedham and officially incorporated in 1897. In July, 2005, CNN/Money and Money Magazine ranked Westwood 13th on its list of the “100 Best Places to Live in the United States.” During the relevant time period, Boston Magazine listed Gay Street in Westwood, which is situated in the subject property’s neighborhood, on its list of the “Best Streets in the Boston Area.”
The appellant acquired the subject property for $10,532,000[109] through a Membership Interest Purchase and Sale Agreement (the “Agreement”).[110] Mr. Duffey, the seller, was not related to any other party to the transaction, and the sale was an arm’s-length transaction. The appellant and its parent company, Gilbane Development Company (“Gilbane”) are in the business of purchasing raw land or developed but unimproved lots to sell to builders or individuals who build homes on them. The subject subdivision lots were held for sale in the ordinary course of the appellant’s business.
The relevant assessment information for the subject property’s nineteen remaining lots on Fox Meadow Drive is contained in the following table.
|
Assessors Map/Lot
|
Street # |
Area in Acres |
Original Assessed Value ($) |
Original Tax @ $12.01/ $1,000 |
Assessed Value ($) After Any Abatement |
Amounts of Partial Abatements ($) |
|
15-003 |
1 |
1.98 |
880,600 |
10,576.00 |
874,300 |
6,300 |
|
15-048 |
2 |
1.45 |
696,250 |
8,361.96 |
696,250 |
0 |
|
15-030 |
3 |
2.36 |
894,400 |
10,741.74 |
879,350 |
15,050 |
|
15-004 |
5 |
6.01 |
907,700 |
10,901.48 |
907,700 |
0 |
|
15-033 |
6 |
1.32 |
638,400 |
7,667.18 |
638,400 |
0 |
|
15-031 |
7 |
4.43 |
1,003,100 |
12,047.23 |
1,003,100 |
0 |
|
15-038 |
8 |
1.45 |
696,250 |
8,361.96 |
696,250 |
0 |
|
15-034 |
9 |
3.61 |
944,400 |
11,342.24 |
708,050 |
236,350 |
|
15-039 |
10 |
1.19 |
579,900 |
6,964.60 |
579,900 |
0 |
|
15-035 |
11 |
6.11 |
1,044,400 |
12,543.24 |
742,600 |
301,800 |
|
15-047 |
12 |
1.32 |
638,400 |
7,667.18 |
638,400 |
0 |
|
15-036 |
13 |
2.01 |
874,450 |
10,502.14 |
700,050 |
174,400 |
|
15-037 |
15 |
2.11 |
874,950 |
10,508.15 |
700,550 |
174,400 |
|
15-040 |
17 |
2.85 |
704,250 |
8,458.04 |
704,250 |
0 |
|
15-041 |
19 |
8.32 |
731,600 |
8,786.52 |
731,600 |
0 |
|
15-042 |
21 |
1.54 |
741,850 |
8,909.62 |
741,850 |
0 |
|
15-043 |
23 |
1.80 |
857,250 |
10,295.57 |
857,250 |
0 |
|
15-045 |
27 |
1.97 |
880,100 |
10,570.00 |
880,100 |
0 |
|
15-046 |
29 |
1.72 |
819,100 |
9,837.39 |
819,100 |
0 |
|
TOTAL |
19 lots |
53.55 |
15,407,350 |
185,042.24 |
14,499,050 |
908,300 |
In accordance with G.L. c. 59, § 57C, the real estate tax was timely paid without incurring interest. On January 29, 2009, in accordance with G.L. c. 59, § 59, the appellant, having acquired title to the subject property a few months after the assessment and valuation date of January 1, 2008, timely filed its applications for abatement for each of the lots or tax parcels contained within the subject property.[111] On March 31, 2009, the assessors denied the abatement applications for thirteen of the tax parcels, namely 15-048, 15-004, 15-033, 15-031, 15-038, 15-047, 15-039, 15-040, 15-041, 15-042, 15-043, 15-045, and 15-046; and granted partial abatements for six of the tax parcels, namely 15-003, 15-030, 15-034, 15-035, 15-036, and 15-037. On June 29, 2009, in accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed its appeal of all of these denials and partial abatements with the Board by joining the tax parcels on one Petition Under Formal Procedure.
Based on these facts and in accordance with G.L. c. 59, §§ 57C, 59, and 64 and 65, the Board found and ruled that it had jurisdiction over this appeal.
The appellant contended that the $10,532,000 purchase price for the subject property, which was for a bulk purchase of the entire remaining subdivision and was paid in an arm’s-length transaction within three months of the assessment date, created a rebuttable presumption that $10,532,000 was the fair market value of the subject property as of January 1, 2008. Therefore, the appellant asserted, the assessors had overvalued the subject property, as abated, by approximately $4,000,000.
In valuing the subject property, the assessors essentially ignored the sale of the subject property, as the bulk sale of nineteen subdivision parcels and related infrastructure to one purchaser, and instead valued each of the lots as separate unimproved buildable parcels available for sale to multiple purchasers. In challenging the assessors’ approach, the appellant did not deny that the “retail value” assigned to each of the nineteen lots by the assessors was reasonable if considered for sale separately to multiple purchasers; rather, the appellant maintained that the lots, now being the appellant’s inventory and having been purchased in bulk by the appellant, should have been assessed at their “wholesale value,” which was the equivalent of the subject property’s sale price appropriately allocated to each of the nineteen lots.
The appellant bolstered its contention that the sale price represented the fair cash value of the subject property with an appraisal report which was attached as an exhibit to one of the Stipulations and which valued the subject property as of March 26, 2009, almost fifteen months after the assessment date, at $9,000,000 using a discounted-cash-flow or “development” approach that assumed an income of over $16 million, expenses of over $3.5 million, a 20% discount rate, and a six-year total sell-off period.[112] The self-contained appraisal report was prepared by two Principals and one Senior Associate of Birch/REA Partners, Inc. for Sovereign Bank to use for mortgage collateral valuation purposes. The authors of the appraisal report did not testify at the hearing of this appeal. The appraisal report also indicated that, as of March 26, 2009, the nineteen lots were for sale with asking prices ranging from $895,000 to $1,295,000. However, based on an analysis of sales data and conversations with brokers and developers, the authors of the Birch/REA Partners, Inc. appraisal report suggested that the asking prices should be reduced by 15% leaving “an average lot value (rounded) for the subject subdivision of $900,000.”[113]
Ms. Robbins, appearing for the assessors, represented that the assessors valued and taxed the remaining nineteen parcels as separate buildable lots for sale to multiple parties because, as of January 1, 2008, the relevant assessment date for fiscal year 2009, the nineteen lots were essentially ready to be sold and were being marketed separately to builders or individuals for the construction of homes. Several of the subdivision lots had been retained by or sold to others before the bulk sale of the remaining nineteen to the appellant, including one sale for $899,000 on January 7, 2008, within one week of the relevant assessment date, and more than two-and-one-half months before the bulk sale. Ms. Robbins also noted that the subdivision’s infrastructure was basically complete, including a base coat of asphalt on Fox Meadow Drive and the delivery of utilities. Construction of a home on one of the nineteen lots began in October, 2008. She confirmed that the assessors used a comparable-sales approach to derive the values that they placed on the nineteen tax parcels. The Board noted that the sales or listings upon which the assessors relied in setting the assessments corresponded to three of the thirteen sales or listings upon which the authors of the Birch/REA Partners, Inc. appraisal report also relied to establish an average lot value of $900,000 for the subdivision.
Based on all of the evidence, and as explained more fully in its Opinion below, the Board found that the appellant did not prove that the nineteen remaining lots associated with the subject property were overvalued for fiscal year 2009. The Board found that for ad valorem tax purposes, the subject property’s highest and best use, as of January 1, 2008, was as nineteen separate retail building lots that were presently being marketed and were currently ready to be sold to and utilized by multiple purchasers at retail prices. The Board based its highest-and-best-use determination on numerous factors including the retention by or sale to others of three of the subdivision’s original twenty-two lots and the fact that the sale of one of these three lots for $899,000 occurred within a week of the assessment date and two-and-one-half months before the bulk sale. The Board also recognized that the infrastructure associated with the subject nineteen lots was essentially completed, including the delivery of utilities and the basecoat on the road. Further, the appellant and its parent, Gilbane, were in the business of selling lots separately to builders or other individuals for home construction. The lots had been separately marketed prior to the relevant assessment date. At all relevant times, the subject property was not a mere paper subdivision without tangible embodiment, but rather was one that had reached near full physical fruition. Because of these facts and subsidiary findings, the Board found, notwithstanding the bulk sale of the subject property to one purchaser, that the retail use of the subject nineteen lots — that is their sale to and utilization by multiple purchasers — best corresponded to the criteria for determining highest and best use articulated in the Appraisal Institute’s authoritative real estate treatise on valuation, The Appraisal of Real Estate (13th ed. 2008). That treatise provides in pertinent part that a property’s highest and best use is “[t]he reasonably probable and legal use of vacant land . . . that is physically possible, appropriately supported, and financially feasible and that results in the highest value.” Ibid. at 277-78.
The Board found that its highest-and-best-use finding for the subject property best met all of the Appraisal Institute’s criteria for determining highest and best use. A succinct review of those criteria and related facts for the relevant time period reveals that: (1) the subdivision’s approval, its essentially finished development, and the sale and retention of some of the lots shows that the Board’s highest and best use was legally permissible; (2) the actual physical embodiment and sale of the lots demonstrates that the Board’s highest and best use was physically possible; (3) the value of the lots compared to the costs incurred to develop them shows that the Board’s highest and best use was financially feasible; and (4) the sale prices and values associated with lots, particularly when compared to the subject property’s bulk-sale value, confirms that the Board’s highest and best use was maximally productive.
Consequently, the Board did not regard an allocation of the purchase price for the subject property among the remaining nineteen lots as being equivalent to the fair cash value of the remaining nineteen lots for separate sale to and utilization by multiple purchasers at retail prices. The Board found that the purchase price reflected a value based on a different use – the bulk sale value of the subject property’s lots and infrastructure to one purchaser – but not the total retail value of the nineteen separate building lots that were presently being marketed and were currently ready to be sold to and utilized by multiple purchasers at retail prices, which the Board found to be the subject property’s highest and best use.
Another authoritative treatise on real estate valuation, D. Emerson, Appraisal Institute, Subdivision Valuation (2008), distinguishes between the bulk sale value of lots when sold to a single purchaser and the retail value of lots marketed and sold to multiple purchasers:
Subdivision valuation considers the value of the entire group of lots to one purchaser . . . . Accordingly, bulk sale value really is the market value for a group of lots . . . . In subdivision valuation, the retail value is the market value of one lot . . . . [T]he bulk sale value is not a separate type of value; rather it is a market value for a group of lots, which reflects a bulk sale scenario.
Ibid. at 15 (emphasis in original). Because the Board determined that, as of January 1, 2008, the highest and best use of the subject property was as nineteen separate buildable but as yet unimproved parcels, which were presently being marketed and currently being offered for sale to and utilization by multiple purchasers at retail prices, and was not as a subdivision of nineteen lots to be sold in bulk along with infrastructure to just one purchaser, the Board also found that the proper way to value the parcels in the subdivision was as retail lots using a comparable-sales analysis. Accordingly, the Board rejected a valuation methodology that relied on the actual bulk sale or a bulk-sale scenario that employed a development analysis treating the lots as inventory within a subdivision to be sold in bulk to one purchaser. The Board observed that the appellant did not meaningfully dispute the retail values assigned to the subject lots, and the evidence, including comparable sales and comparable-sales analyses in evidence, supported those amounts, but it argued that, under the circumstances, the wholesale or bulk value should be applied instead.
On this basis, and particularly in light of the Board’s highest and best use determination, the Board decided this appeal for the appellee.
OPINION
The assessors are required to assess real estate at its fair cash value as of the first day of January preceding the start of the fiscal year. G.L. c. 59, §§ 2A and 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellants have the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
In determining fair market value, all uses to which the property was or could reasonably be adapted on the relevant assessment date should be considered. Newton Girl Scout Council, Inc. v. Massachusetts Turnpike Authy., 335 Mass. 189, 193 (1956); Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989). The goal is to ascertain the maximum value of the property for any legitimate and reasonable use. Id. If the property is particularly well-suited for a certain use that is not prohibited, then that use may be reflected in an estimate of its fair market value. Colonial Acres, Inc. v. North Reading, 3 Mass. App. Ct. 384, 386 (1975). “In determining the property’s highest and best use, consideration should be given to the purpose for which the property is adapted.” Peterson v. Assessors of Boston, Mass. ATB Findings of Fact and Reports 2002-573, 617 (citing The Appraisal Institute, The Appraisal of Real Estate (12th ed., 2001) 315-316)), aff’d, 62 Mass. App. Ct. 428 (2004).
In the present appeal, the Board found that for ad valorem tax purposes, the subject property’s highest and best use was as nineteen retail building lots currently being marketed and ready to be sold to and utilized by multiple purchasers and not as a subdivision composed of infrastructure and a bulk inventory of lots to be sold to a single purchaser. The Board found that, at all relevant times, the nineteen remaining parcels were essentially ready to be sold and were being marketed separately to builders or individuals for the construction of homes at retail prices. Indeed, several of the original twenty-two parcels had been retained by or previously sold to others before the bulk sale. One of those parcels sold for $899,000 within a week of the relevant assessment date and more than two-and-one-half months before the bulk sale. The Board also noted that the subdivision’s infrastructure was basically complete, including a base coat of asphalt on Fox Meadow Drive and the delivery of underground utilities. The subject property was in no way a mere paper subdivision; it was virtually turn-key with lots that were ready to be sold to and utilized by multiple purchasers at retail prices.
The Board found that its highest-and-best-use determination embraced the factors contained in the definition of highest and best use in The Appraisal Institute, The Appraisal of Real Estate 277-78 (13th ed. 2008): “The reasonably probable and legal use of vacant land . . . that is physically possible, appropriately supported, and financially feasible and that results in the highest value.” The fact that the nineteen remaining lots were commonly owned and part of a bulk transaction did not change the Board’s perspective – the lots were, notwithstanding ownership and the bulk sale, buildable and located on a street with a base coat of asphalt, and they were currently being marketed and ready to be sold to and utilized by multiple purchasers at retail prices. In the Board’s view, these facts and subsidiary findings inexorably led it to its highest-and-best-use determination and finding that the lots be valued at retail. The lots could not be valued in bulk for ad valorem tax purposes because a bulk sale was not the subject property’s highest and best use. The Board found that its highest-and-best-use finding for the subject property met all of the Appraisal Institute’s criteria for determining highest and best use and rendered the subject property maximally productive.
On this basis, the Board ruled that the highest and best use for the subject property was as nineteen separate building lots that were developed but unimproved and were presently being marketed and were currently ready to be sold to and utilized by multiple purchasers at retail prices.
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to determine the fair cash value of property: income capitalization; sales comparison; and cost reproduction. Correia v. New Bedford Redevelopment Auth., 375 Mass. 360, 362 (1978). However, “[t]he [B]oard is not required to adopt any particular method of valuation.” Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986).
Actual sales of the subject property generally “furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971). The sale price recited in the deed, however, is not conclusive evidence of fair cash value. Foxboro Associates at 682-83. The burden of proof that the price was fixed fairly rests with the proponent of the sale; but there is a rebuttable presumption that the price was freely established. Epstein v. Boston Housing Authy., 317 Mass. 297, 300-01 (1944); see Thorndike Properties of Massachusetts II, LLC v. Assessors of Plymouth, Mass. ATB Findings of Fact and Reports 2006-127, 135 (“[The evidence revealed that] the sale price recited in the deed was not indicative of [the subject lots’] fair cash value and . . . the appellant had not met its burden showing [otherwise; accordingly, the Board did not rely on price in the deed].”).
In the present appeal, the Board did not rely on the sale of the subject property to the appellant to determine the fair cash value of the nineteen remaining lots because the Board found that the subject property’s highest and best use as of the relevant assessment date was not the bulk sale of the nineteen lots and related infrastructure to one purchaser, but rather was separate sales of the developed but unimproved nineteen lots to multiple purchasers at retail prices averaging approximately $900,000 per lot. The Board found and ruled that the sale price recited in the deed did not represent the fair cash value of the nineteen remaining lots for sale to and utilization by multiple purchasers at retail prices; it instead represented the value of the subject property in a bulk-sale scenario to one purchaser.
For buildable but as yet unimproved lots within an existing subdivision, a comparable-sales approach is an appropriate method for estimating their value. The Appraisal of Real Estate at 300 (“The sales comparison approach is applicable to all types of real property interests when there are sufficient recent, reliable transactions to indicate value patterns or trends in the market.”). In Cnossen v. Assessors of Uxbridge, Mass. ATB Findings of Fact and Reports 2002-675, the Board found that a sales-comparison analysis was the appropriate methodology to use to value the lots in a subdivision that were ready to be separately sold to and utilized by multiple purchasers:
[T]he Board found that eight of the lots contained in the Park were adjacent to Road A, which was in existence and finished as of the relevant assessment dates. Accordingly, these eight lots were essentially salable and ready for improvements without any further development of the Park’s infrastructure. Because of this, the Board found that a sales comparison approach might have been the most appropriate technique to use to value these eight lots. Using the [retail] value for the lots that the appellants’ valuation expert developed for use in step one of his development approach, the Board found that the total value of these eight lots [was the sum of their retail values].
Id. at 2002-686. See generally Thorndike Properties of Massachusetts II, LLC, Mass. ATB Findings of Fact and Reports 2006-127 (using appropriately adjusted comparable sales to determine the fair case value of lots in a fully completed area of a subdivision). Furthermore, the sales-comparison approach was used to estimate the retail value of the subject lots in the Birch/REA Partners, Inc. appraisal report upon which the appellant relied to support its case.[114]
“[S]ales of property usually furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates, 385 Mass. at 682. Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date contain credible data and information for determining the value of the property at issue. McCabe v. Chelsea, 265 Mass. 494, 496 (1929). Based on the comparable sales and the comparable-sales analyses in evidence, the Board found that, as of the relevant assessment date, the average value of the nineteen remaining lots was no less than approximately $900,000, which supported the total assessment amount, as abated, placed on the nineteen remaining lots. The Board further found that the appellant did not introduce substantial valuation evidence consistent with the Board’s finding of highest and best use, which could refute the individual assessments, as abated, that the assessors had placed on the nineteen remaining lots for fiscal year 2009.
The Board also found and ruled that the development approach described in the Birch/REA Partners, Inc. appraisal report was not a suitable methodology to use to value the nineteen remaining lots because of the Board’s highest-and-best-use determination. As explained in The Appraisal of Real Estate: “The subdivision development method . . . is most useful for reporting the market value for a group of subdivision lots. The method uses what is known as a bulk sale scenario to develop the value of all lots to one purchaser.” Ibid. at 370. Where as here, the highest-and-best-use determination is as building lots ready to be sold separately to and utilized by multiple purchasers at retail prices, a valuation methodology that relies on a development approach for valuing a group of lots to be sold to a single purchaser is improper. Cf. Khan v. Assessors of Brookline, Mass. ATB Findings of Fact and Reports 2004-403, 444-45 (“[T]he development approach . . . was not appropriate for determining the value of the property’s real estate considering the Board’s finding regarding the subject’s highest and best use.”).
In making its various findings and rulings in this appeal, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation suggested. Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight. Foxboro Associates, 385 Mass. at 682; New Boston Garden Corp., 383 Mass. at 469. “The credibility of witnesses, the weight of evidence, the inferences to be drawn from the evidence are matters for the Board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
The Board applied these principles in reaching its ultimate finding and ruling that the appellant failed to demonstrate that the subject property, which, for ad valorem tax purposes, consisted of the nineteen tax parcels, was overvalued for fiscal year 2009. On this basis, the Board decided this appeal for the appellee.
APPELLATE TAX BOARD
By: __________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
WILLIAM F. CARNEY v. BOARD OF ASSESSORS OF
THE TOWN OF ASHLAND
Docket No. F306879 Promulgated:
June 10, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Ashland (“assessors”) to abate a tax on certain real estate in Ashland assessed to William F. Carney (“appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2010.
Commissioner Rose (“Presiding Commissioner”) heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20 and issued a single-member decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
William F. Carney, pro se, for the appellant.
Jason Talerman, Esq., for the assessors.
FINDINGS OF FACT AND REPORT
On the basis of exhibits and testimony offered at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2009, the appellant was the assessed owner of an improved parcel of real estate located at 224 Pond Street in Ashland (“subject property”). For fiscal year 2010, the assessors valued the subject property at $224,600 and assessed a tax thereon, at a rate of $15.10 per $1,000, in the amount of $3,391.46. In accordance with G.L. c. 59, § 57C, the appellant paid the tax due without incurring interest, and in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors on January 27, 2010. The assessors denied the appellant’s abatement application on March 8, 2010, and on June 1, 2010, the appellant seasonably filed an appeal with the Appellate Tax Board (“Board”). On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide the appeal.
The subject property consists of a 0.31-acre parcel of real estate improved with a single-story home containing 864 square feet of finished living area. The dwelling has five rooms including two bedrooms, a kitchen and a full bathroom.
The appellant argued that the assessed value of the subject property exceeded its fair cash value by almost $100,000 for fiscal year 2010. The appellant based his claimed valuation of $115,000 entirely upon the sale of the property at 226 Pond Street, which abuts the subject property. According to a Multiple Listing Service (“MLS”) report printed on May 11, 2010, the only evidence presented by the appellant relating to 226 Pond Street, the property sold on March 21, 2009, for $172,900.
The appellant asserted that the 226 Pond Street property “contains more than double the amount of living area as does my house, along with a separate building that is almost equal to the size of my house. Clearly this abutting property is worth twice as much as mine.” These claims, together with the MLS report, comprised the whole of the appellant’s case.
As a threshold matter, the Presiding Commissioner found that the appellant’s assertion regarding the relative size of the dwellings on the subject property and at 226 Pond Street was inaccurate. According to the MLS report, the dwelling at 226 Pond Street contains 1232 square feet of living area, approximately forty-three percent more finished living area than the subject property’s dwelling. Further, the only “separate building” referenced on the MLS report is a garage, the size of which is not indicated. The parcel at 226 Pond Street is 0.28 acres, slightly smaller than the subject property’s lot.
The appellant also failed in any way to address that 226 Pond Street had been foreclosed upon long before its sale. Consistent with this fact, the “Disclosures” section of the MLS report states that the property was “CORPORATE OWNED/SOLD AS IS./NO CHANGES TO CONTRACTS . . .” (emphasis in original). While offering certain basic data relating to the property, the MLS report provided scant information regarding the condition of the property’s dwelling or the physical characteristics of the parcel upon which it was situated. Absent such detail regarding the dwelling and parcel at 226 Pond Street, the Presiding Commissioner could not determine if the property was comparable to the subject property.
Irrespective of the factually inaccurate comparison drawn by the appellant between the dwellings at the subject property and 226 Pond Street, the Presiding Commissioner found that the appellant failed to demonstrate that the subject property’s assessed value exceeded its fair cash value for fiscal year 2010. More specifically, the appellant presented only one purportedly comparable sale of property for consideration, and that property had been subject to foreclosure, thereby calling into question whether the sale was made under compulsion, an issue the appellant did not address. Further, the appellant failed to provide sufficient detail regarding 226 Pond Street to demonstrate that the property was comparable to the subject property, thereby rendering any comparison of negligible probative value.
Accordingly, the Presiding Commissioner decided this appeal for the assessors.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayer . . . prov[es ] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
In the present appeal, the appellant sought to sustain his burden through presentation of a single purportedly comparable sale of property. The Presiding Commissioner, however, found the appellant’s evidence lacking in several important respects.
The fair cash value of property may be determined by recent sales of comparable properties in the market, as actual sales generally “furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971). The burden of proof that the price was fixed fairly rests with the proponent of the sale. See, Epstein v. Boston Housing Authority, 317 Mass. 297, 300-01 (1944). Further, evidence of sales may be considered “only if they are free and not under compulsion.” Congregation of the Mission of St. Vincent dePaul v. Commonwealth, 336 Mass. 357, 360 (1957). “A foreclosure sale inherently suggests a compulsion to sell; a proponent of evidence of such sale must show circumstances rebutting the suggestion of compulsion.” DSM Realty, Inc. v. Assessors of Andover, 391 Mass. 1014 (1984)(rescript opinion). Similarly, a sale by a bank which acquired property by foreclosure or a deed in lieu of foreclosure also carries indicia of compulsion. G.F. Springfield Management v. Assessors of West Springfield, Mass. ATB Findings of Facts and Reports 2000-228, 242, 251 (additional citations omitted). The property at 226 Pond Street had been foreclosed upon, and consistent with the cited authority, its sale “carri[ed] indicia of compulsion.” Id. The appellant, however, presented virtually no evidence to “rebut[] the suggestion of compulsion.” DSM Realty, Inc., 391 Mass. at 1014. Consequently, the Presiding Commissioner found that the appellant failed to demonstrate that the sale of the property at 226 Pond Street was arm’s-length and under no compulsion. In turn, the Presiding Commissioner found that the sale was of little probative value.
The Presiding Commissioner also found that even if the sale of 226 Pond Street had qualified as an arm’s-length transaction free of compulsion, the sale of a single purportedly comparable property is generally not sufficient to establish the fair cash value of property. “The sales comparison approach is applicable . . . when there are sufficient recent, reliable transactions to indicate value patterns or trends in the market.” appraisal institute, the appraisal of real estate 300 (13th ed. 2008). Moreover, the appellant did not offer evidence regarding the condition of the dwelling or the physical characteristics of the parcel at 226 Pond Street. The Presiding Commissioner therefore found that the appellant failed to demonstrate that the property at 226 Pond Street was comparable to the subject property, and that absent such showing, the 226 Pond Street sale was not a reliable indicator of the fair cash value of the subject property.
On this basis, the Presiding Commissioner found and ruled that the appellant did not provide sufficient evidence to support his claim that the subject property was
overvalued for fiscal year 2010 and decided this appeal for the assessors.
APPELLATE TAX BOARD
By: ____________________________
James D. Rose, Commissioner
A true copy,
Attest: ____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
JOHN GURVITCH v. BOARD OF ASSESSORS OF
THE CITY OF HOLYOKE
Docket No. F308586 Promulgated:
June 10, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the City of Holyoke (“assessors” or “appellee”) to abate taxes on certain real estate owned by and assessed to John Gurvitch (“appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2010 (“fiscal year at issue”).
Commissioner Egan (“Presiding Commissioner”) heard the appeal under G.L. c. 58A, § 1 and 831 CMR 1.20 and issued a single-member decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
John Gurvitch, pro se, for the appellant.
Anthony Dulude, chief assessor, for the appellee.
FINDINGS OF FACT AND REPORT
Based on the testimony and exhibits offered into evidence at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2009, the appellant was the assessed owner of a 9,148 square-foot parcel of real estate, improved with a one-story, single-family dwelling located at 294 Cabot Street in Holyoke (“subject property”). For fiscal year 2010, the assessors valued the subject property at $133,500, and assessed taxes thereon, at the rate of $14.98 per thousand, in the total amount of $1,999.83. The appellant paid the taxes due, incurring $8.28 of interest, which he also paid.[115] On February 1, 2010, the appellant timely filed an Application for Abatement with the assessors. The assessors denied the appellant’s abatement application on April 7, 2010. The appellant timely filed his appeal with the Board on July 7, 2010.[116] Based on the foregoing, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
The dwelling on the subject property was built in 1950. It is a brick ranch with 1,740 square feet of finished living area. It has five rooms in total, including three bedrooms. The dwelling also has one full bathroom, one half bathroom, two fireplaces, and a one-car garage. Interior features include drywall and hardwood flooring, while the exterior is brick with a concrete foundation and a gabled, asphalt-covered roof.
For the fiscal year at issue, the assessors rated the subject property’s dwelling as being in “average” condition, and accordingly, gave it a depreciation factor of 35 percent. The assessors gave an additional depreciation of 10 percent to account for what they referred to as the subject property’s “mis-improvements.”
In addition to his own testimony, the appellant offered into evidence several photographs of the subject property’s exterior, as well as a written statement detailing the subject property’s condition. The appellant’s primary contention was that the subject property was overvalued because it was in a state of disrepair, including: missing and sagging gutters; damaged fascia and soffits; an aging roof; cracking and crumbling retaining walls; and peeling exterior windows. The appellant’s contentions regarding the subject property’s condition were corroborated by the photographs that he entered into evidence, which showed damaged gutters, cracked paint around the dwelling’s windows and gutters, cracked and crumbling retaining walls, and several missing roof tiles. The appellant did not advance his own opinion of the subject property’s fair cash value, nor did he provide other affirmative evidence of its fair cash value.
The assessors presented their case through the testimony of Anthony Dulude, chief assessor, and through the submission of several exhibits, including, among other items, a photograph of the subject property, a tax map of the subject property’s immediate area, and a multiple listing service sales listing for the subject property from 2000. The assessors also introduced comparable-sales and comparable-assessment data for several properties in Holyoke, along with the property record cards for the subject property and each of their selected comparable properties.
For their comparable-sales data, the assessors presented two comparable-sales properties. Sale Number One was 604 Pleasant Street, which was a 6,080 square-foot parcel of land improved with a single-family brick ranch built in 1953, with approximately 1,780 square feet of finished living area. Sale Number One sold on March 30, 2009 for $156,900. The Presiding Commissioner found that Sale Number One, which occurred in close proximity to the relevant date of assessment, was highly comparable to the subject property and thus it provided reliable evidence of the subject property’s fair cash value. Comparable Sale Number Two was 608 Pleasant Street, which was an 8,024 square-foot parcel of land improved with a single-family brick ranch built in 1950, with approximately 1,064 square feet of finished living area. Sale Number Two sold on May 28, 2010 for $133,000. The Presiding Commissioner placed no reliance on Sale Number Two because it was significantly smaller in finished living area than the subject property, and its sale, which occurred on May 28, 2010, was remote in time from the relevant date of assessment. Thus, the Presiding Commissioner placed considerable weight on Sale Number One but no weight on Sale Number Two.
Sale Number One and Sale Number Two were also among the assessors’ comparable-assessment properties. Sale Number One was assessed for $142,600 for fiscal year 2010, and Sale Number Two was assessed for $122,400 for fiscal year 2010. Additionally, the assessors presented assessment data for 600 Pleasant Street, which was an 8,260 square-foot parcel of land improved with a single-family, brick ranch built in 1950, with approximately 1,140 square feet of finished living area. Its assessed value for fiscal year 2010 was $139,600.
On the basis of all of the evidence, and its foregoing subsidiary findings, the Presiding Commissioner found that the appellant did not prove that the assessed value of the subject property exceeded its fair cash value as of the relevant date of assessment. The appellant did not introduce any affirmative evidence of the subject property’s value, such as evidence of recent, comparable-sales or assessment data for other comparable properties. The appellant’s evidence consisted primarily of photographs and a written statement documenting the subject property’s condition. Although the photographs corroborated the appellant’s testimony about the subject property’s condition, including its deteriorated gutters, windows, and retaining walls, there was no evidence showing that these items had not been taken into consideration by the assessors in valuing the subject property. In fact, the assessors graded the subject property as being in “average” condition, and gave it a depreciation factor of 35 percent. Further, they discounted its value by an additional 10 percent to account for what they called “mis-improvements.” Based on the evidence, the Presiding Commissioner found that the assessors adequately accounted for the condition of the subject property when setting its assessed value.
Moreover, the assessors presented credible evidence demonstrating that the assessed value of the subject property did not exceed its fair cash value. The Presiding Commissioner found that Sale Number One provided highly probative evidence of the subject property’s fair cash value. Sale Number One was a brick ranch with 1,780 square feet of finished living area, and the Presiding Commissioner found it to be highly comparable to the subject property. Sale Number One sold for $156,900 on March 30, 2009, just months after the relevant date of assessment, and the Presiding Commissioner found this evidence the be a persuasive indication that the subject property’s assessed value for the fiscal year at issue did not exceed its fair cash value.
Moreover, the subject property’s assessed value was within the range of assessed values introduced by the assessors. The assessed value of Sale Number One, which the Presiding Commissioner found to be highly comparable to the subject property, was $142,600, as compared to the subject property’s assessed value of $133,500. In addition, another of the assessors’ comparable-assessment properties, 600 Pleasant Street, had a higher assessed value than the subject property, even though it had approximately 600 fewer square feet of finished living area than the subject property. The Presiding Commissioner found that the assessors’ comparable-assessment properties provided additional support for the assessment.
On the basis of all of the evidence, the Presiding Commissioner found and ruled that the appellant did not meet his burden of proving that the fair cash value of the subject property was less than its assessed value for the fiscal year at issue. Accordingly, the Presiding Commissioner issued a single-member decision for the appellee in this appeal.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayer[] . . . prov[es] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984)(quoting Schlaiker, 365 Mass. at 245).
The fair cash value of property may be determined by reviewing recent sales of comparable properties in the market. Actual sales generally “furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971).
Additionally, evidence of the assessed values of comparable properties may provide probative evidence of fair cash value. G.L. c. 58A, § 12B. “The introduction of such evidence may provide adequate support for either the granting or denial of an abatement.” John Alden Sands v. Assessors of Bourne, Mass. ATB Findings of Fact and Reports 2007-1098, 1106-07, (citing Chouinard v. Assessors of Natick, Mass. ATB Findings of Fact and Reports 1998-299, 307-08).
In the present appeal, the appellant introduced his testimony and a written statement, which detailed the condition of the subject property, along with several photographs of the exterior of the subject property. Although the photographs corroborated the appellant’s testimony about the condition of the subject property’s exterior, there was no evidence indicating that the assessors failed to take its condition into consideration when valuing the subject property. See Paul B. Cocchi d/b/a Hick-O-Rock Farm v. Assessors of Ludlow, Mass. ATB Findings of Fact and Reports 2010-861, 876 (“[T]o the extent there [was such damage to the subject property], there was no evidence suggesting that the assessors did not take this issue into consideration in valuing the subject real property.”) On the contrary, the evidence showed that the assessors gave the subject property a 35 percent deprecation rate as well as an additional 10 percent reduction in value for “mis-improvements.” Further, the appellant failed to offer his own opinion of the subject property’s fair cash value or any other affirmative evidence of value, such as comparable-sales or assessment data. Accordingly, the appellant’s evidence failed to persuade the Presiding Commissioner that the subject property’s assessed value exceeded its fair cash value for the fiscal year at issue.
The assessors, on the other hand, produced credible evidence in support of the assessment, including comparable-assessment and comparable-sales data. The Presiding Commissioner found the assessors’ Sale Number One to be highly comparable to the subject property, and placing particular reliance on the sale price and assessed value of Sale Number One, the Presiding Commissioner found and ruled that the assessed value of the subject property did not exceed its fair cash value for the fiscal year at issue.
The Presiding Commissioner therefore issued a single-member decision for the appellee in this appeal.
APPELLATE TAX BOARD
By: ___________________________
Nancy T. Egan, Commissioner
A true copy,
Attest: __________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
MARIA C. LETASZ v. BOARD OF ASSESSORS OF
THE CITY OF WESTFIELD
Docket No. F306014 Promulgated:
June 21, 2011
This is an appeal under the formal procedure, pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the appellee to abate taxes on certain real estate in the City of Westfield owned by and assessed to the appellant under G.L. c. 59, §§ 11 and 38, for fiscal year 2010.
Commissioner Rose heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20, and issued a single-member decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Maria C. Letasz, pro se, for the appellant.
James M. Pettingill, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
Based on the testimony and exhibits offered into evidence at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2009, Maria C. Letasz (the “appellant”) was the assessed owner of a parcel of real estate located at 4 College Park Lane in the City of Westfield (the “subject property”). The parcel contains approximately 0.50 acres of land and is improved with a single-family, 2,226-square-foot, Cape Cod style house. The dwelling was built in 1991 and contains six above-grade rooms, including three bedrooms, as well as two full bathrooms. On the first floor, there is a fully applianced kitchen with a dining area, pantry, and cherry cabinets; a carpeted living room with a fireplace; a family room with hard wood floors; a carpeted master bedroom; and one full bathroom with granite countertops. On the second floor, there are two additional carpeted bedrooms and a second full bathroom also with granite countertops. There is a recreation room in the below-grade finished basement, along with a utility area with a washer and dryer. The home is heated by a forced hot air, natural-gas heating system and cooled by central air conditioning. The exterior of the dwelling has vinyl siding and an asphalt roof. The grounds are accented with some picket fencing and attractive landscaping. There is also an attached two-car garage. The subject property is serviced by town water but has a private septic system.
The Board of Assessors of Westfield (the “assessors”) valued the subject property at $354,000 and assessed a tax thereon, at the rate of $14.68 per thousand, in the amount of $5,234.01.[117] On December 31, 2009, Westfield’s Collector of Taxes sent out the city’s actual real estate tax notices. In accordance with G.L. c. 59, § 57C, the appellant timely paid the taxes without incurring interest. On January 28, 2010, in accordance with G.L. c. 59, § 59, the appellant timely filed her application for abatement with the assessors. On March 10, 2010, the assessors denied the appellant’s application, and on May 14, 2010, in accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed her appeal with the Appellate Tax Board (the “Board”). On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
In her abatement application and petition to this Board, the appellant claimed that her property was overvalued. In her abatement application, she sought to have her assessment reduced by $74,000 to $280,000. She explained in her application that the subject property had been listed for sale in calendar years 2008 and 2009, and despite reducing the asking price twice, had not sold. She became discouraged and took the subject property off the market.
At the hearing, both the appellant and her real estate agent, Carolyn Coughlen, testified. They related that they had first listed the subject property for $324,900 in August, 2008, and, after receiving no offers, had reduced the listing price in May, 2009 to $319,500. By the end of October, 2009, the appellant temporarily removed the subject property from the market, again after receiving no offers. In January 2010, the appellant and her real estate agent placed the subject property back on the market with a listing price of $298,000. The listing expired by the end of August, 2010 with only one offer – in July, 2010 for $285,000 – which, according to Ms. Coughlen, the buyer withdrew because the subject property’s real estate taxes were too high.
Ms. Coughlen also introduced six sales of single-family homes in Westfield into the record. The sales took place in 2008 and 2009 and ranged in price from $250,000 to $296,000. The sales, however, were not in a comparable area or setting to the subject property’s, and Ms. Coughlen offered no adjustments for these differences and the many other disparities that the Presiding Commissioner observed from the property record cards between these six properties and the subject property. Ms. Coughlen acknowledged that there were no sales of truly comparable properties during the relevant time period.
In defense of the assessment, the assessors offered several of their own sale properties into the record. These sales occurred in 2008 and ranged in sale price from $240,000 to $405,000. The properties that the assessors deemed most comparable to the subject property were the two with the highest sale prices of $335,000 and $405,000. Like the appellant’s real estate agent, however, the assessors did little to establish the sales’ comparability to the subject property and did not offer any adjustments to account for their obvious differences with the subject property.
Based on all of the evidence, the Presiding Commissioner found that the appellant did not adequately demonstrate that the subject property was overvalued for the fiscal year at issue. The sale properties that her real estate agent introduced into the record did little to help establish the fair cash value of the subject property. Ms. Coughlen acknowledged that their locations and settings were not comparable to the subject property’s, and she did not even attempt to apply any adjustments to their sale prices to account for these and the other many disparities between her sale properties and the subject property. In addition, the Presiding Commissioner found that the listing prices for the subject property did not constitute persuasive evidence of value either.
The Presiding Commissioner further found that the sale properties introduced into the record by the assessors did little to illuminate the fair cash value of the subject property. The assessors never established the comparability of their chosen properties to the subject property and did not adjust for obvious differences between them and the subject property. Accordingly, the Presiding Commissioner found that he was unable to determine from the evidence a value for the subject property lower than the assessment.
On this basis, the Presiding Commissioner found that the appellant failed to meet her burden of proving that the subject property was overvalued for the fiscal year at issue and thereby failed to overcome the presumed validity of the assessment. The Presiding Commissioner, therefore, decided this appeal for the appellee.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayer[] . . . proves the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245)).
In appeals before this Board, a taxpayer “may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.” General Electric Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)). In the present appeal, the appellant attempted to introduce affirmative evidence of value demonstrating that the subject property’s fair cash value was less than the assessment.
The fair cash value of property may often best be determined by recent sales of comparable properties in the market. See Correia v. Assessors of New Bedford Redevel. Auth., 375 Mass. 360, 362 (1978); McCabe v. Chelsea, 265 Mass. 494, 496 (1929). Actual sales generally “furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971). Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date contain credible data and information for determining the value of the property at issue. See McCabe, 265 Mass. at 496. “In the sales comparison approach, an opinion of market value is developed by comparing properties similar to the subject property that have recently sold.” Appraisal Institute, The Appraisal of Real estate 297 (13th ed., 2008). “A major premise of the sales comparison approach is that an opinion of the market value of a property can be supported by studying the market’s reaction to comparable and competitive properties.” Id. When comparable sales are used, however, allowance must be made for various factors which would otherwise cause disparities in the comparable prices. See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082. “After researching and verifying the transactional data and selecting the appropriate unit of comparison, the appraiser adjusts for any differences.” The Appraisal of real estate at 307.
In the present appeal, the appellant, through her real estate agent, introduced six sales of properties in Westfield. The appellant’s real estate agent acknowledged that her sale properties’ locations and settings were not comparable to the subject property’s, and she did not even attempt to apply any adjustments to her properties’ sale prices to account for the many differences between her sale properties and the subject property. The Presiding Commissioner found that those sales were not truly comparable to the subject property and no adjustments had been applied to their sale prices to account for obvious differences with the subject property. Accordingly, the Presiding Commissioner found that the sales that the appellant’s real estate agent introduced into the record did little to help establish the fair cash value of the subject property. In addition, the Presiding Commissioner found that the listing prices for the subject property did not constitute persuasive evidence of value. See Sands v. Assessors of Bourne, Mass. ATB Findings of Fact and Reports 2007-1098, 1103 (“[L]isting prices of unsold properties . . . are not reliable indicators of the fair cash value of a property.”).
The Presiding Commissioner further found that the sale properties introduced into the record by the assessors also did not assist in illuminating the fair cash value of the subject property. The assessors never established the comparability of these properties to the subject property and did not adjust for obvious differences between them and the subject property. Consequently, the Presiding Commissioner found that he was unable to determine from the evidence a value for the subject property lower than the assessment.
In reaching his decision in this appeal, the Presiding Commissioner was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that a witness suggested. Rather, the Presiding Commissioner could accept those portions of the evidence that the Presiding Commissioner determined had more convincing weight. Foxboro Associates, 385 Mass. at 682; New Boston Garden Corp., 383 Mass. at 469. “The credibility of witnesses, the weight of evidence, the inferences to be drawn from the evidence are matters for the Board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
On this basis, the Presiding Commissioner found and ruled that the evidence presented by both the appellant and the assessors did little to assist him in finding a fair cash value for the subject property lower than the assessed value. The Presiding Commissioner further found and ruled that the appellant failed to meet her burden of proving that the subject property was overvalued and thereby failed to overcome the presumed validity of the assessment. See The May Department Store Co. v. Assessors of Newton, Mass. ATB Findings of Fact and Reports 2009-153, 195 (“‘[T]he taxpayer loses when the taxpayer and the assessors present the board with equally footless cases.’”)(quoting Hampton Assoc. v. Assessors of Northhampton, 52 Mass. App. Ct. 110, 119 (2001).
The Presiding Commissioner, therefore, decided this appeal for the appellee.
APPELLATE TAX BOARD
By:
James D. Rose, Commissioner
A true copy,
Attest: ______
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
PAUL D. MURPHY v. BOARD OF ASSESSORS OF
THE TOWN OF SOUTHWICK
Docket No. F307007 Promulgated:
June 21, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Southwick (“assessors” or “appellee”) to abate taxes on certain real estate owned by and assessed to Paul D. Murphy (“appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2010.
Commissioner Rose (“Presiding Commissioner”) heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20 and issued a single-member decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Paul D. Murphy, pro se, for the appellant.
Susan Gore, assessor, and Roy Bishop, assistant assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of this appeal, the Presiding Commissioner made the following findings of fact.
On January 1, 2009, the appellant was the assessed owner of a waterfront parcel of real estate located at 80 Point Grove Road, Southwick (“subject property”). The subject property consists of a 21,780 square-foot parcel of real estate improved with a two-story, Colonial-style dwelling. The subject property is located in a business-zoned district and its present residential use is a legally permissible grandfathered use. Primarily rectangular in shape, the subject property has 80 feet of frontage on Congamond Lakes – North Pond.
According to the property record card, the subject dwelling has a total of six rooms, including three bedrooms and two full bathrooms, with a total finished living area of 1,730 square feet. The residence’s interior walls are primarily painted drywall and the floors are a mix of hardwood and carpeting. The residence has an oil-fired forced hot water heating system. The exterior of the dwelling is clapboard with an asphalt-shingled, gable roof. There are two wood decks, which total 633 square feet, and a 440-square-foot detached garage.
For fiscal year 2010, the assessors valued the subject property at $364,000 and assessed taxes thereon, in the amount of $13.44 per thousand, in the total amount of $4,998.60.[118] Of the subject property’s total assessment, the assessors attributed $242,600 to the land and $117,900 to the dwelling. The detached garage was valued at $3,500. In accordance with G.L. c. 59, § 57C, the appellant timely paid the tax due without incurring interest. On January 20, 2010, in accordance with G.L. c. 59, § 59, the appellant filed an Application for Abatement with the assessors, which they denied on March 8, 2010. On June 3, 2010, the appellant seasonably filed an appeal with the Appellate Tax Board (“Board”). On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
The appellant argued that the subject property was overvalued because the assessors had placed too high a value on both the land and garage components of his assessment. He did not address the valuation of the dwelling on the subject property. In support of his argument that the land was overvalued, the appellant relied on the land assessments of nine properties located within three miles of the subject property. The properties ranged in size from 23,448 square feet to 74,052 square feet. The land assessments for the appellant’s chosen properties ranged from $140,700 to $273,600. The appellant argued that despite the fact that all the parcels were larger than the subject property’s parcel, the land assessments were either less than the subject property’s land assessment or only marginally greater. A majority of the properties were zoned for residential use, and several were zoned for commercial use. Unlike any of these properties, the subject property was zoned for commercial use, but was used for residential purposes, a legally permissible grandfathered use. Based on the distinct combination of zoning and permitted use of the subject property, the Presiding Commissioner found on this record that the properties cited by the appellant were not comparable to the subject property.
As previously noted, the appellant also argued that the assessors overvalued the subject property’s detached garage. To support this argument, the appellant offered into evidence “parcel summary” print-outs, downloaded from Vision Appraisal’s website, of seven properties with detached garages. The garages each had assessed values lower than the garage on the subject property. The data provided, however, did not include information relating to the age or construction of the garages. Therefore, the Presiding Commissioner was not able to determine if the garages were comparable to the garage on the subject property.
For their part, the assessors offered into evidence the relevant jurisdictional documents and rested on the validity of their assessment.
Based on the evidence presented, the Presiding Commissioner found that the appellant failed to prove that the subject property was overvalued for fiscal year 2010. The Presiding Commissioner found that the appellant did not establish comparability between the land and garage components of his chosen properties and these components of the subject property. Moreover, the Presiding Commissioner found that even if the appellant had shown that the subject property’s land and garage assessments were excessive, he failed to demonstrate that the subject property’s overall assessed value exceeded its fair cash value.
Accordingly, the Presiding Commissioner found that the appellant failed to meet his burden of proving that the subject property was overvalued for fiscal year 2010. Accordingly, the Presiding Commissioner issued a single-member decision for the appellee.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayer[] . . . prove[s] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
In appeals before this Board, a taxpayer “may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.” General Electric Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)). “At any hearing relative to the assessed fair cash valuation . . . of property, evidence as to the fair cash valuation . . . at which assessors have assessed other property of a comparable nature . . . shall be admissible.” G.L. c. 58A, § 12B. “The admissibility under G.L. c. 58A, § 12B, of evidence of assessments imposed on other property claimed to be comparable in nature to the subject property is largely a matter within the discretion of the board.” Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 703 (1972). The properties used in a comparable-assessment analysis must be comparable to the subject property to be probative of its fair cash value. See id.
In the present appeal, the appellant argued that the subject property was overvalued for fiscal year 2010 because the land and garage components of the subject property’s assessment were excessive. To support his argument, the appellant submitted purportedly comparable land and garage assessments. The Presiding Commissioner, however, did not find the appellant’s evidence persuasive. Not one of the properties offered for comparison of land valuation shared the subject property’s combination of commercial zoning and legally permitted residential use. Therefore, the Presiding Commissioner found that the properties were not comparable to the subject property. Similarly, although the appellant presented assessed values for seven garages which were lower than the value placed on the subject garage, there was no evidence indicating the age or construction of the garages. Consequently, the Presiding Commissioner could not determine if the cited garages were comparable to the garage on the subject property.
Moreover, even if the appellant had provided sufficient evidence to demonstrate that the land and garage components of his assessment were excessive, the Presiding Commissioner found that the appellant still would not have met his burden of demonstrating that the subject property’s fair cash value exceeded its assessed value.
A taxpayer does not conclusively establish a right to abatement merely by showing that a component of his property is overvalued. “The tax on a parcel of land and the building thereon is one tax . . . although for statistical purposes they may be valued separately.” Assessors of Brookline v. Prudential Insurance Co., 310 Mass. 300, 317 (1941). “[T]he question is whether the assessment for the parcel of real estate, including both the land and the structures thereon, is excessive.” Massachusetts General Hospital v. Belmont, 238 Mass. 396, 403 (1921). See also Lareau v. Assessors of Norwell, Mass. ATB Findings of Fact and Reports 2010-879, 888.
In the present appeal, the appellant failed to present credible evidence relating to the subject property’s assessment as a whole. In particular, the appellant focused only on the subject property’s land and garage valuations and failed to address in any way its dwelling. The Presiding Commissioner therefore found that the appellant failed to demonstrate that the subject property’s overall assessment was excessive.
Based on the foregoing, the Presiding Commissioner found and ruled that the appellant failed to meet his burden of proving that the subject property was overvalued for fiscal year 2010 and therefore issued a single-member decision for the appellee in this appeal.
APPELLATE TAX BOARD
By: _________________________________
James D. Rose, Commissioner
A true copy:
Attest: _____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
MARINA PAPERNIK v. BOARD OF ASSESSORS OF THE TOWN OF SHARON
Docket No. F300017 Promulgated:
June 21, 2011
This is an appeal under the formal procedure, pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the appellee to abate taxes on certain real estate in the Town of Sharon owned by and assessed to the appellant under G.L. c. 59, §§ 11 and 38, for fiscal year 2009.
Commissioner Mulhern heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20, and issued a single-member decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Marina Papernik, pro se, for the appellant.
Mark Mazur, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2008, Marina Papernik (the “appellant”) was the assessed owner of a parcel of real estate located at 17 Jefferson Avenue in the Town of Sharon (the “subject property”). As of the January 1, 2008 assessment and valuation date for fiscal year 2009, the subject property contained approximately 1.26 acres or 54,886 square feet of land and was improved with a single-family dwelling.
The dwelling is a wood-framed, two-story, split-level style house, built in 1960, with approximately 1,456 square feet of finished living space. It has six rooms, including three bedrooms, as well as two full bathrooms. The basement is partially finished, and there is an attached one-car garage. On the main level, the floors are carpeted; on the second level, they are hardwood. The interior walls are drywall. For amenities, there is a fireplace, a rear patio, and central air-conditioning. The dwelling has a forced hot-water gas heating system, town water, and a private septic system. The exterior siding is wood shingle, and the roof is covered with asphalt shingles. The landscaping is mature and typical for the neighborhood.
For fiscal year 2009, the Board of Assessors of Sharon (the “assessors”) valued the subject property at $375,700 and assessed a tax thereon, at the rate of $17.72 per thousand, in the amount of $6,706.25.[119] The subject property’s land and improvement components were valued at $214,000 and $161,700, respectively.
Jurisdiction
On or about November 19, 2008, Sharon’s Collector of Taxes sent out the town’s actual real estate tax notices. In accordance with G.L. c. 59, § 57, the appellant paid the tax assessed on the subject property without incurring interest. On December 8, 2008, in accordance with G.L. c. 59, § 59, the appellant timely filed her application for abatement with the assessors. On February 12, 2009, the assessors denied the appellant’s application, and on May 12, 2009,[120] in accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed a Petition Under Formal Procedure with the Appellate Tax Board (the “Board”). On the basis of these facts and subsidiary findings, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
Merits
At the hearing of this appeal, both the appellant and her husband, Lazar Papernik, as well as the town’s assessor, Mark Mazur, testified and introduced numerous exhibits, including: an assessment report; the subject property’s property record card; several maps depicting the subject property’s location in Sharon and within its neighborhood; information regarding a comparable-sale property; photographs of the subject property and other properties; an assessment analysis; value print-outs from two on-line resources, Zestimate® and eppraisal™; and various jurisdictional documents. The testimony and exhibits offered by the appellant and her husband focused primarily on comparable-assessment data. According to them, the assessors had overvalued the subject property because their property’s overall assessed value ($375,700) divided by what they considered to be their dwelling’s gross area (2,116 square feet) resulted in a square-foot-value of $178, while most other Jefferson Avenue properties had values considerably lower, averaging only $138 per square foot. The following table reproduces the appellant’s comparison.
Appellant’s $/Square Foot Comparison*
|
Address |
Land Size (acre) |
Gross Area (sq.ft.) |
Assessed Value $ |
$/sq.ft. |
| 6 Jefferson Ave. |
1.18 |
3028 |
398,700 |
132 |
| 9 Jefferson Ave. |
0.93 |
3122 |
367,600 |
118 |
| 10 Jefferson Ave. |
0.93 |
3541 |
454,000 |
128 |
| 11 Jefferson Ave. |
1.11 |
3346 |
381,100 |
114 |
| 14 Jefferson Ave. |
0.93 |
2322 |
373,400 |
161 |
| 17 Jefferson Ave. |
1.26 |
2116 |
375,700 |
178 |
| 18 Jefferson Ave. |
0.93 |
4074 |
459,500 |
113 |
| 21 Jefferson Ave. |
1.09 |
2352 |
371,900 |
158 |
| 22 Jefferson Ave. |
0.93 |
2613 |
379,900 |
145 |
| 25 Jefferson Ave. |
0.92 |
2956 |
408,500 |
138 |
| 26 Jefferson Ave. |
0.93 |
2476 |
374,800 |
151 |
|
Average: |
138 |
* The information pertaining to the subject property is italicized
The appellant also compared the subject property’s assessed value, Zestimate® value, and eppraisal™ value to those for the 11 Jefferson Avenue property, which had sold for $337,000 in February, 2009, 13 months after the relevant assessment date. The following table reproduces the appellant’s comparison of these two properties.
Appellant’s Value Comparison*
|
Address |
Assessed Value |
Zestimate® Value |
Eppraisal™ Value |
|
11 Jefferson Ave. |
$381,100 |
$420,000 |
$378,000 |
|
17 Jefferson Ave. |
$375,700 |
$368,000 |
$343,000 |
|
Difference |
$ 5,400 |
$ 52,000 |
$ 35,000 |
* The information pertaining to the subject property is italicized
The appellant did not submit into evidence any property record cards for any of the other Jefferson Avenue properties to verify and corroborate her and her husband’s suppositions for them or a deed to substantiate the sale information for the 11 Jefferson Avenue property.
In support of the assessment, Mr. Mazur submitted his own comparable-assessment analysis, with supporting property record cards, pictures, and a map. His analysis included only split-level style dwellings substantially similar to the subject property and from the same neighborhood. He believed that his analysis, which is reproduced in the table below, confirmed that these style properties had been assessed by the assessors in a similar and consistent manner, particularly concerning what he considered to be the three key adjustments that determine a properties’ assessment — namely the neighborhood, house grade, and depreciation.[121]
Mr. Mazur’s Comparable-Assessment Analysis*
|
Parcel |
Address |
Nbhd |
Area Acres |
HouseGrade |
AYB |
EYB |
ELA |
Bed-rooms |
Bath-rooms |
Cent A/C |
AV $ |
| 104-54 | 10 Madison Ave. |
60 |
1.12 |
5 |
1960 |
1987 |
2743 |
3 |
1.5 |
Yes |
430,100 |
| 104-25 | 9 Lincoln Rd. |
60 |
1.27 |
5 |
1960 |
1987 |
1957 |
3 |
1.5 |
Yes |
387,200 |
| 104-37 | 22 Jefferson Ave. |
60 |
0.93 |
5 |
1961 |
1987 |
1963 |
3 |
1.5 |
Yes |
379,900 |
| 104-41 | 31 Jefferson Ave. |
60 |
0.92 |
5 |
1960 |
1987 |
1942 |
3 |
1.5 |
Yes |
378,200 |
| 94-36 | 23 Madison Ave. |
60 |
0.94 |
5 |
1960 |
1987 |
1904 |
3 |
1.5 |
Yes |
377,500 |
| 104-44 | 17 Jefferson Ave. |
60 |
1.26 |
5 |
1960 |
1987 |
1688 |
3 |
2.0 |
Yes |
375,700 |
| 104-38 | 26 Jefferson Ave. |
60 |
0.93 |
5 |
1960 |
1987 |
1889 |
3 |
1.5 |
Yes |
374,800 |
* The information pertaining to the subject property is italicized
Mr. Mazur also compared the subject property’s assessment to the adjusted sale price of the split-level style property located at 26 Jefferson Avenue, which he also included in his comparable-assessment analysis reproduced in the table above. This property had sold in May, 2007, approximately 7 months before the relevant assessment date, for $425,000. Mr. Mazur adjusted the 26 Jefferson Avenue property’s time-adjusted sale price of $420,240 for various physical differences with the subject property, including effective living area, number and type of bathrooms, and parcel size. The gross adjustments, not including the time adjustment, totaled $37,788 or approximately nine percent of its time-adjusted sale price. After applying the adjustments to the 26 Jefferson Avenue property’s time-adjusted sale price, the indicated value for the subject property, after rounding, equaled $413,100.
Based on all of the evidence, the Presiding Commissioner found that the appellant failed to meet her burden of proving that the subject property’s assessment for fiscal year 2009 exceeded its fair cash value. The Presiding Commissioner found that the appellant’s “$/Square Foot Comparison” contained uncorroborated data and was based on a faulty premise. Without property record cards for the other Jefferson Avenue properties, except for several that the assessors’ submitted when they presented their case, or submissions containing similar information, the Presiding Commissioner was unable to verify the data contained in the appellant’s analysis or the comparability of her chosen properties. Moreover, by dividing her properties’ overall assessment by their dwellings’ gross area to determine a unit of comparison, she incorrectly assumed that all other factors or components between the subject property and these properties were equal. Consequently, she did not adjust for obvious differences between the subject property and these properties. Just a cursory look at the land acreage of the properties in her analysis reveals that the subject property’s land area is as much as 25% more than most of the others. Some of the overlapping properties, contained in both the appellant’s and the assessors’ analyses, where the assessors submitted property record cards into evidence, revealed additional differences between properties. Without property record cards for the other properties contained in the appellant’s analysis, observations, comparisons, and adjustments for them were not possible. Under the circumstances, the Presiding Commissioner found that the appellant’s analysis did not provide credible or reliable evidence of the subject property’s value. Moreover, the Presiding Commissioner found that the assessors’ comparable-assessment and comparable-sale submissions tended to support the subject property’s assessment.
Lastly, the Presiding Commissioner found that the value information which the appellant submitted from two on-line resources, Zestimate® and eppraisal™, was not reliable or credible evidence of the subject property’s fair cash value or the other properties’ values. The Presiding Commissioner found that this hearsay evidence was opinion testimony which, although not objected to by the assessors, was offered without proper foundation, qualification, or underlying factual support, and without providing the assessors with an opportunity for cross-examination. Accordingly, the Presiding Commissioner gave it no weight.
On this basis, the Presiding Commissioner found that the appellant did not sustain her burden of demonstrating that the subject property’s assessment for fiscal year 2009 exceeded its fair cash value. The Presiding Commissioner, therefore, decided this appeal for the appellee.
OPINION
The assessors are required to assess real estate at its fair cash value as of the January 1st preceding the fiscal year under consideration. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
In appeals before this Board, a taxpayer “‘may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.’” General Electric Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
In this appeal, the appellant attempted to demonstrate that the assessors had overvalued the subject property by comparing the subject property’s overall assessed value ($375,700) divided by the dwelling’s gross area (2,116 square feet), resulting in a square-foot-value of $178, to other Jefferson Avenue properties which had values considerably lower, averaging only $138 per square foot. The Presiding Commissioner found, however, that the appellant’s “$/Square Foot Comparison” contained uncorroborated data and was based on a faulty premise. Without property record cards for the other Jefferson Avenue properties, except for several that the assessors submitted when they presented their case, or submissions containing similar information, the Presiding Commissioner was unable to verify the data contained in the appellant’s analysis or the comparability of her chosen properties. Moreover, by dividing her properties’ overall assessment by their dwellings’ gross area to determine a unit of comparison, she incorrectly assumed that all other factors or components between properties were equal. Just a cursory look at the land acreage of the properties in her analysis reveals that the subject property’s land area is as much as 25% more than most of the others. Some of the overlapping properties, contained in both the appellant’s and the assessors’ analyses, where the assessors submitted property record cards into evidence, reveal additional differences between properties. The appellant made no adjustments for these obvious differences between the subject property and the other properties. Without property record cards for the additional other properties contained in the appellant’s analysis, further observations, comparisons or adjustments for those properties were not possible.
The appellant bears the burden of “establishing the comparability of . . . properties [used for comparison] to the subject property.” Fleet Bank of Mass. v. Assessors of Manchester, Mass. ATB Findings of Fact and Reports 1998-546, 1998-554. Accord New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981). “After researching and verifying the . . . data and selecting the appropriate unit of comparison, the appraiser adjusts for any differences.” Appraisal Institute, The Appraisal of real estate 307 (13th ed. 2008).
Similarly, the Presiding Commissioner gave no weight to the 11 Jefferson Avenue sale introduced by the appellant because she failed to establish its comparability to the subject property and failed to apply appropriate adjustments. The appellant additionally neglected to enter the pertinent deed into evidence corroborating any relevant information relating to this sale or its applicable property record card to help establish its comparability to the subject property.
Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue. Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2008-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff’d, 73 Mass. App. Ct. 1107 (2008). Evidence of comparable assessments may also be used to determine a property’s fair cash value. “At any hearing relative to the assessed fair cash valuation . . . of property, evidence as to the fair cash valuation . . . at which assessors have assessed other property of a comparable nature . . . shall be admissible.” G.L. c. 58A, § 12B.
The introduction of assessment evidence may provide adequate support for either the granting or denial of an abatement. Chouinard v. Assessors of Natick, Mass. ATB Findings of Fact and Reports 1998-299, 307-308 (citing Garvey v. Assessors of West Newbury, Mass. ATB Findings of Fact and Reports 1995-129, 135-36; Swartz v. Assessors of Tisbury, Mass. ATB Findings of Fact and Reports 1993-271, 279-80); see also Turner v. Assessors of Natick, Mass. ATB Findings of Fact and Reports 1998-309, 317-18. Purportedly comparable properties used in a comparable-assessment analysis must be adjusted, just like those used in a comparable-sales analysis, for differences with the subject property. See Graham, Mass. ATB Findings of Fact and Reports at 2007-402 (“The assessments in a comparable assessment analysis, like the sale prices in a comparable sales analysis, must also be adjusted to account for differences with the subject.”), aff’d, 73 Mass. App. Ct. 1107 (2008); Lupacchino v. Assessors of Southborough, Mass. ATB Findings of Fact and Reports 2008-1253, 1269 (“[W]ithout appropriate adjustments . . . the assessed values of [comparable] properties [do] not provide reliable indicator[s] of the subject’s fair cash value.”).
In the present appeal, the appellant did not adjust for the differences between the properties that she selected for comparison to the subject property, while the assessors did adjust for differences between their comparable-sale property and the subject property. While one comparable-sale property does not ordinarily make a reliable comparable-sales analysis, see Carney v. Assessors of Ashland, Mass. ATB Findings of Fact and Reports 2011-559, 566 (“the sale of a single purportedly comparable property is generally not sufficient to establish the fair cash value of property”) and The Appraisal of real estate at 141 (“The sale comparison approach is most useful when a number of similar properties have recently been sold . . . in the subject property’s market” (emphasis added)), it is still some evidence of value, and it indicated here that subject property was not overvalued. See id. at 298, n.1 (“[A]s soon as the market consists of only one buyer and one seller, called bilateral monopoly, economic theory can no longer predict a unique price . . . [only] a minimum . . . and a maximum sale price . . . [because the] transaction price depends not on supply and demand but on the negotiating or bargaining skills of the buyer and seller.”); see also Brennan v. Assessors of Manchester, Mass. ATB Findings of Fact and Reports 2004-548, 554 (using a single sale to corroborate the overall appropriateness of the assessment).
Under the circumstances, the Presiding Commissioner found that the appellant’s analysis did not provide credible or reliable evidence of the subject property’s fair cash value, while the adjusted value assigned to the assessors’ comparable-sale property did provide some evidence in support of the assessment. Moreover, the assessors’ comparable-assessment analysis showed consistency in their assessment of split-level properties located in the subject property’s neighborhood.
Lastly, the Presiding Commissioner found that the value information which the appellant submitted from two on-line resources, Zestimate® and eppraisal™, was not reliable or credible evidence of the subject property’s or other properties’ values. The Presiding Commissioner found that this hearsay information was opinion evidence, which, although not objected to by the assessors, was offered without proper foundation, qualification, or underlying factual support and without providing the assessors with an opportunity for cross-examination. Accordingly, the Presiding Commissioner gave it no weight. See, e.g., Pelletier v. Assessors of Oxford, Mass. ATB Findings of Fact and Reports 2010-963, 967, n.1 (“the opinions [contained in] on-line sources were unsupported and not subject to cross-examination by the assessors, further diminishing the evidentiary weight of the opinions.”); Cornetta v. Assessors of Topsfield, Mass. ATB Findings of Fact and Reports 2010-543, 546, n.1 (“[T]he valuation [from an on-line resource] . . . contained no valuation date or explanation as to the basis of the value and constituted inadmissible hearsay, with no opportunity for cross-examination by the assessors. Accordingly, the Board gave no weight to this data.”). The Presiding Commissioner also gave no weight to the 11 Jefferson Avenue sale introduced by the appellant because she failed to establish its comparability to the subject property, see Fleet Bank of Mass., Mass. ATB Findings of Fact and Reports at 1998-554, and to apply appropriate adjustments. See The Appraisal of Real Estate at 307.
In reaching its decision in this appeal, the Presiding Commissioner was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that a witness suggested. Rather, the Presiding Commissioner could accept those portions of the evidence that the Presiding Commissioner determined had more convincing weight. Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp., 383 Mass. at 469. “The credibility of witnesses, the weight of evidence, the inferences to be drawn from the evidence are matters for the Board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
On this basis, the Presiding Commissioner decided this appeal for the appellee.
APPELLATE TAX BOARD
By: _______________________________
Thomas J. Mulhern, Commissioner
A true copy,
Attest: _____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
TADEUSZ & JANINA SUROWIEC v. BOARD OF ASSESSORS OF
THE CITY OF CHICOPEE
Docket No. F305246 Promulgated:
June 21, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the appellee to abate a tax on real estate in the City of Chicopee owned by and assessed to the appellants under G.L. c. 59, §§ 11 and 38, for fiscal year 2010.
Commissioner Egan heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20, and issued a single-member decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellants under G.L. c. 58A, § 13 and 831 CMR 1.32.
Tadeusz Surowiec, pro se, for the appellants.
Laura McCarthy, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2009, Tadeusz and Janina Surowiec (the “appellants”) were the assessed owners of a parcel of real estate, improved with a four-family house, located at 76 Park Street in the City of Chicopee (the “subject property”). For fiscal year 2010, (the “fiscal year at issue”) the Board of Assessors of Chicopee (the “assessors”) valued the subject property at $157,900 and assessed a tax thereon at the rate of $13.63 per thousand, in the amount of $2,152.18. The assessors attributed $44,300 to the subject property’s land component and $113,600 to its building component.
On November 14, 2009 and April 1, 2010, Chicopee’s City Collector mailed the first- and second-half real estate tax bills, respectively. The appellants timely paid the first-half tax, but incurred $13.62 of interest on the second-half tax. The Presiding Commissioner ruled, however, that where, as here, the yearly tax payment is $3,000 or less, timely payment is not a prerequisite for the jurisdiction of the Appellate Tax Board (the “Board”). See G.L. c. 59, §§ 64 and 65 (providing, in pertinent part that: “if the tax due for the full fiscal year on a parcel of real estate is more than $3,000, said tax shall not be abated unless the full amount of said tax due has been paid without the incurring of any interest charges.”). On December 4, 2009, the appellants timely filed with the assessors an Application for Abatement. The assessors denied the abatement application on December 22, 2009, and on March 22, 2010, the appellants seasonably filed a Petition Under Formal Procedure with the Board. On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction over this appeal.
The subject property consists of a 0.115-acre parcel of real estate improved with a 2,710-square-foot, two-story four-family house that was built circa 1900. The house contains a total of two two-bedroom and two one-bedroom units. There is one two-bedroom unit and one one-bedroom unit on each 1,355-square-foot floor. There is also a 1,446-square-foot unfinished basement. The bathrooms and kitchens were renovated about ten years ago. The exterior has asbestos siding.
The appellants claimed that the subject property was overvalued by $37,000. However, the Presiding Commissioner found that they failed to introduce sufficient evidence to support that contention. They simply relied on testimony that one unit was vacant, another was rented for a nominal amount to their son, the third was owner occupied, and the fourth was rented for $600 per month. They did not introduce any documentary evidence – no comparable-sale or comparable-assessment information, no complete actual or market income and expense data, no deeds, and no property record cards for the subject property or other properties.
In support of their assessment, the assessors offered into evidence testimony, property record cards, and photographs pertaining to the subject property and several other multi-family properties in Chicopee. The Presiding Commissioner found that two of these properties, 21 and 42 Abbey Street, were sufficiently comparable to the subject property. Those two properties were assessed at $203,600 and $179,100, respectively, compared to the subject property’s assessment of $157,900. The assessors also supported the subject property’s assessment with an income approach which assumed a market rent of $550 per unit, based on income and expense submissions from other local taxpayers with purportedly comparable properties. The assessors’ income approach resulted in an indicated value in excess of the assessment.
Based on the testimony and exhibits offered into evidence, the Presiding Commissioner found that the appellants failed to meet their burden of proving that the subject property was overvalued for the fiscal year at issue. The appellants offered no documentary evidence and essentially relied on the near bare assertion that the property was overvalued. To the extent that they tried to demonstrate that the property earned little income and should therefore have a lower value, the Presiding Commissioner found that they did not show that any of the units were uninhabitable, unrentable, subject to governmentally imposed or deed restrictions, or only capable of earning below-market rent. Rather, the Presiding Commissioner found that they only showed that one unit was vacant, a second unit earned below-market rent because it was rented to their son, and a third unit had no income because the appellants used it as their home. The fourth unit earned more than the fair market rental that even the assessors had attributed to it in their income approach. Moreover, the Presiding Commissioner found that the comparable-assessment information relating to at least two other multi-family rental properties in Chicopee offered into evidence by the assessors supported the subject property’s assessment, as did the value derived from the assessors’ income approach.
Based on all of the evidence, the Presiding Commissioner found that the appellants failed to meet their burden of proving that the subject property was overvalued for the fiscal year at issue. The Presiding Commissioner further found that the evidence submitted by the assessors supported the assessment. Accordingly, the Presiding Commissioner issued a decision for the appellee.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The assessment is presumed valid unless the taxpayers sustain their burden of proving otherwise. Shlaiker v. Board of Assessors of Great Barrington, 356 Mass. 243, 245 (1974). Accordingly, the burden of proof is upon the appellants to make out their right as a matter of law to an abatement of the tax. Id. The appellants must show that the assessed valuation of their property was improper. See Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 691 (1982). In appeals before this Board, appellants “may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation or by introducing affirmative evidence of value which undermines the assessors’ valuation.” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984).
In their attempt to prove that the subject property was overvalued for the fiscal year at issue, the appellants offered no documentary evidence, and the Presiding Commissioner found that they essentially relied on the near bare assertion that the property was overvalued. Unsubstantiated assertions do not carry the day. See e.g., Brook Road Corp. v. Assessors of Needham, Mass. ATB Findings of Fact and Reports 2001-648, 657 (finding and ruling that the taxpayer’s analysis was flawed and unreliable because it failed “to present any deeds or any other documentation to substantiate its . . . suppositions.”).
To the extent that the appellants tried to demonstrate that the property earned little income and should therefore have a lower value, the Presiding Commissioner found that they did not show that any of the units were uninhabitable, unrentable, subject to governmentally imposed or deed restrictions, or only capable of earning below-market rent. Rather, the appellants simply showed that one unit was vacant, a second unit earned below-market rent because it was rented to their son, and a third unit earned no income because the appellants used it as their home. The subject property’s fourth unit earned more than the fair market rental value that even the assessors had attributed to it in their income approach. Based on this record, the Presiding Commissioner found and ruled that the appellants did not adequately demonstrate that the subject property was incapable of earning market rents and therefore should have a lower value than its assessment.
In making her finding and ruling, the Presiding Commissioner was guided by the now familiar principal that in determining the fair cash value of a property’s fee-simple interest, the assessors and this Board should not reduce the fee-simple value of real property to account for below-market leases. See Donovan v. City of Haverhill, 247 Mass. 69, 72 (1923) (“We do not think a determination of the fair cash valuation of real estate requires the assessors to make such a deduction [for the surrender value of a below-market lease].”); see also, Sisk v. Assessors of Essex, 426 Mass. 651, 654 (1998) (“[W]e have previously rejected a taxpayers’ argument that a lease constituted an encumbrance that diminished the property’s value for tax assessment purposes.”)(citing Donovan, 247 Mass. at 71); accord Pepsi-Cola Bottling Co., 397 Mass. at 450. It is the earning capacity of real estate, rather than its actual income, which is probative of fair market value. See Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 64 (1941).
The Presiding Commissioner further found that the comparable-assessment information for at least two properties in Chicopee and the income-approach value offered into evidence by the assessors were reliable indicators of the subject property’s fair cash value and supported the subject property’s assessment for the fiscal year at issue. “At any hearing relative to the assessed fair cash valuation . . . of property, evidence as to the fair cash valuation . . . of property at which the assessors have assessed other property of a comparable nature or class shall be admissible.” G.L. c. 58A, § 12B. The introduction of assessment evidence may provide adequate support for either the granting or denial of an abatement. Chouinard v. Assessors of Natick, Mass. ATB Findings of Fact and Reports 1998-299, 307-308 (citing Garvey v. Assessors of West Newbury, Mass. ATB Findings of Fact and Reports 1995-129, 135-36; Swartz v. Assessors of Tisbury, Mass. ATB Findings of Fact and Reports 1993-271, 279-80); see also Turner v. Assessors of Natick, Mass. ATB Findings of Fact and Reports 1998-309, 317-18. Additionally, an income approach is an acceptable method to use to value an income-producing property, like a multi-family residential dwelling. See Finer Realty Trust, Philip Finer, Trustee v. Assessors of Mansfield, Mass. ATB Findings of Fact and Reports 2008-1009, 1037-40 (acknowledging the acceptability of using an income approach to value a five-family dwelling, but instead using a sales-comparison approach because of better underlying market data); cf. Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 698-701 (1972); Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 810 (1975) (rescript).
“The Board is not required to believe the testimony of any particular witness nor to adopt any particular method of valuation that an expert witness may suggest, but can accept those portions of the evidence which the Board determines have the more convincing weight.” Foxboro Associates, 385 Mass. at 683; New Boston Garden Corp. v. Board of Assessors of Boston, 383 Mass. 456, 473 (1981); Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 701-702 (19721). “The credibility of witnesses, the weight of evidence, and the inferences to be drawn from the evidence are matters for the Board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
Based on this record, these facts, and her subsidiary findings, the Presiding Commissioner found and ruled that the appellants failed to meet their burden of proving that the subject property was overvalued for the fiscal year at issue and, moreover, the evidence submitted by the assessors supported the assessment.
Accordingly, the Presiding Commissioner issued a decision for the appellee.
APPELLATE TAX BOARD
By: _
Nancy T. Egan, Commissioner
A true copy,
Attest: _____
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
JOAN L. SCHAUB v. BOARD OF ASSESSORS OF
THE CITY OF BOSTON
Docket Nos. F301282 (FY 09) Promulgated:
F307061 (FY 10) June 22, 2011
These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the appellee, Board of Assessors of the City of Boston (“assessors” or “appellee”), to abate taxes on certain real estate in the City of Boston, owned by and assessed to the appellant under G.L. c. 59, §§ 11 and 38, for fiscal years 2009 and 2010.
Commissioner Scharaffa heard these appeals and was joined by Chairman Hammond and Commissioners Egan and Mulhern in the decisions for the appellee.
These findings of fact and report are made pursuant to the appellant’s request under G.L. c. 58A, § 13 and 831 CMR 1.32.
Joan L. Schaub, pro se, for the appellant.
Laura Caltenco, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of these appeals, the Appellate Tax Board (“Board”) made the following findings of fact.
On January 1, 2008 and January 1, 2009, Joan L. Schaub (“Ms. Schaub” or “appellant”) was the assessed owner of a parcel of real estate located at 35 Appleton Street, in the South End neighborhood of Boston. The parcel was improved with a single-family brick row house, which contained approximately 2,052 square feet of living area (“subject property”). The dwelling had a total of seven rooms, including two bedrooms. It also had two full bathrooms and one half bathroom.
For fiscal year 2009, the assessors valued the subject property at $844,900 and assessed to the appellant a tax thereon, at the rate of $10.63 per $1,000, in the amount of $7,605.93,[122] which the appellant timely paid without incurring interest. On February 2, 2009, in accordance with G.L. c. 59, § 59, the appellant timely filed an abatement application with the assessors. On March 13, 2009, the assessors granted a partial abatement, reducing the assessed value of the subject property by $78,800 to $766,100. The appellant seasonably filed an appeal with the Board on June 4, 2009.
For fiscal year 2010, the assessors valued the subject property at $766,100 and assessed to the appellant a tax thereon, at the rate of $11.88 per $1,000, in the amount of $7,615.20,[123] which the appellant timely paid without incurring interest. On February 1, 2010, in accordance with G.L. c. 59, § 59, the appellant timely filed an abatement application with the assessors, which was denied on March 5, 2010. On June 4, 2010, the appellant seasonably filed an appeal with the Board.[124] On the basis of the foregoing facts, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
The subject property has been the topic of recent appeals. Ms. Schaub appealed the subject property’s assessment for fiscal years 2007 and 2008. See Joan L. Schaub v. Assessors of Boston, Mass. ATB Findings of Fact and Reports 2009-763 (“Schaub I”).[125] In Schaub I, the Board ruled that the subject property was overvalued for fiscal years 2007 and 2008, largely because the assessors failed to take into account its condition, which included water damage, spalling brick, and non-functioning bathroom fixtures, among other deficiencies. Id. at 2009-770. The Board found in Schaub I that the assessors overvalued the subject property by $100,000 for both of the fiscal years at issue in that appeal. For fiscal year 2009, the assessors originally valued the subject property at $844,900, but after partial abatement, reduced its assessed value to the fair cash value found by the Board for the preceding fiscal year, which was $766,100.[126] Likewise, the assessors valued the subject property at $766,100 for fiscal year 2010.
The appellant’s main argument in these appeals was that the subject property was overvalued for the fiscal years at issue because the assessors failed to consider the subject property’s poor condition, which was documented extensively in Schaub I. Additionally, the appellant argued that the subject property’s assessed value for the fiscal years at issue was not reduced to reflect the declining real estate market, as were the assessments for other nearby, purportedly comparable properties.
In addition to her own testimony, Ms. Schaub offered a Memorandum in Support of Abatement, which included as attachments several photographs of the subject property along with assessment data for fourteen properties located within a few blocks of the subject property in the South End. She highlighted the fact that the assessed values of all fourteen properties had been reduced between fiscal year 2009 and fiscal year 2010. Ms. Schaub also made assertions about decreases in assessed values for four additional properties but offered no documentary evidence to support her assertions with respect to those properties, and the Board therefore gave no weight to those four properties.
Ms. Schaub’s opinion of value for the subject property for both of the fiscal years at issue was $626,550, an estimate which she based on the assessed value of 8 Cazenove Street for fiscal year 2010, a property which Ms. Schaub opined was in “far superior condition” than the subject property.
In support of the assessment, the assessors offered the testimony of assessor Craig Riegle, who testified that, based on recent sales of comparable properties in the South End, the assessed value of the subject property did not exceed its fair cash value for the fiscal years at issue. Specifically, Mr. Riegle testified regarding the sale of two properties in the South End, 10 Bond Street and 19 Hanson Street, which he stated were both sold in “shell” condition, and thus, were uninhabitable at the time of sale.
10 Bond Street was a 1,260 square-foot parcel of land improved with a single-family dwelling totaling 2,389 square feet in finished living area. Notes on the property record card for 10 Bond Street corroborated Mr. Riegle’s testimony regarding its condition at the time of its sale. Building permit information contained on the property record card reflected that 10 Bond Street had undergone extensive renovations throughout much of the previous decade. Additional notes contained on the property record card indicated that a “stop work” order was issued on February 28, 2008 and that there were no functional utilities at the property following that time. 10 Bond Street was sold in “as is” condition on November 24, 2008 for $930,000.
19 Hanson Street was a 1,332 square-foot parcel of land improved with a single-family dwelling totaling 2,812 square feet of finished living area. It sold on March 31, 2008 for $985,000. Notes contained on 19 Hanson Street’s property record card indicated that, following its sale in the spring of 2008, 19 Hanson underwent a gut renovation and was listed for sale in the fall of 2008 at a price of $2,395,000.
In addition to the property record cards for both of these properties, the assessors introduced the property record card for 8 Cazenove Street, which was Ms. Schaub’s proffered comparable property. Ms. Schaub asserted that 8 Cazenove Street was in “far superior condition” to the subject property, and yet, unlike the subject property, 8 Cazenove Street had undergone a sizeable decrease in assessed value in recent years. According to Mr. Reigle, 8 Cazenove Street was located near Back Bay Station, and, like most buildings in that area, was built on pilings because of poor soil quality. The assessors asserted that 8 Cazenove Street’s 25 percent reduction in assessed value was attributable to piling deterioration, a problem that can compromise a building’s structural integrity. 8 Cazenove Street’s piling issues were noted on its property record card. There was no indication in the record that the subject property had piling issues. Mr. Reigle testified that but for the piling issues, 8 Cazenove Street’s assessed value for fiscal year 2009 would have been $877,000; its fiscal year 2010 assessed value would have been $835,400.
On the basis of all of the evidence, the Board found that the appellant failed to prove that the assessed value of the subject property exceeded its fair cash value for the fiscal years at issue. Ms. Schaub’s primary argument was that the assessors failed to take into consideration the condition of the subject property when valuing it. However, the Board found that assertion to be unsupported by the evidence. Rather, the property record cards for both of the fiscal years at issue noted that the subject property’s interior was in “poor” condition and that its overall condition was also “poor.” The property record cards noted that the subject property’s kitchen and bathrooms were not remodeled, and further, they noted the subject property’s many deficiencies, including that it had “extensive water damage”; was in need of “plumbing/electrical” updates; its fireplace did not work; and it had no ceilings on the third floor. In sum, the Board found that, contrary to Ms. Schaub’s contention, the assessors accurately characterized the condition of the subject property for both of the fiscal years at issue.
Ms. Schaub additionally contended that the assessed value of the subject property should be reduced to reflect the decline in the real estate market during the periods relevant to these appeals. In support of this argument, Ms. Schaub introduced assessment data for fourteen other single-family properties located in the South End, all of which had experienced decreases in assessed value between fiscal years 2009 and 2010. However, Ms. Schaub did not introduce property record cards for any of these properties, and thus the Board could not determine the conditions of these properties or whether the properties were comparable to the subject property.
Moreover, the Board found that, if anything, the assessment evidence introduced by Ms. Schaub actually supported the assessments at issue. The fiscal year 2010 assessed values for the fourteen properties introduced by Ms. Schaub ranged from $626,550 to $1,049,400; of those, only four properties were assessed for less than $900,000. The assessed value of the subject property for both of the fiscal years at issue – $766,100 – was at the low end of the range of assessed values of these fourteen properties, and the Board considered this evidence to be an indication of the reasonableness of the assessments at issue.
Further, the lowest value in the range of assessed values offered by Ms. Schaub was that of 8 Cazenove Street, which was assessed at $657,750 for fiscal year 2009 and at $626,550 for fiscal year 2010. Ms. Schaub argued that the fair cash value of the subject property should be reduced to $626,550, to bring it more in line with 8 Cazenove Street. However, the evidence established that 8 Cazenove Street’s assessed value had been reduced by 25 percent for each of the fiscal years at issue because of piling issues. But for the 25 percent reduction for piling issues, 8 Cazenove Street would have been assessed for $877,000 for fiscal year 2009 and $835,400 for fiscal year 2010. Therefore, the Board found that the assessed value of 8 Cazenove Street did not support the appellant’s contention that the subject property was overvalued. In fact, the Board found that, if anything, the assessed value of 8 Cazenove Street provided further support for the assessments at issue.
In addition, the Board found the comparable sales introduced by the assessors to be persuasive evidence that the assessed value of the subject property did not exceed its fair cash value for either of the fiscal years at issue. 10 Bond Street sold on November 24, 2008 for $930,000 and 19 Hanson Street sold on March 31, 2008 for $985,000. Both properties were sold in “shell” condition, and one of them was extensively renovated after its sale. Although the subject property was smaller in finished living area than 10 Bond Street and 19 Hanson Street, its assessed value, $766,100, was also considerably less than the sale prices of either property. The Board found these sales, which occurred reasonably close in time to both of the relevant dates of assessment, to be persuasive evidence that the assessed value of the subject property did not exceed its fair cash value for the fiscal years at issue.
On the basis of all of the evidence, the Board found that the appellant failed to prove that the assessed value of the subject property exceeded its fair cash value for either of the fiscal years at issue. Accordingly, the Board issued decisions for the appellee in these appeals.
OPINION
Assessors are required to assess real estate at its fair cash value as of the first day of January preceding the fiscal year at issue. G.L. c. 59, § 38. The fair cash value of a property is defined as the price upon which a willing buyer and a willing seller would agree if both are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The burden of proof is ordinarily upon the taxpayer to make out a right to an abatement. Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974). The assessment is considered to be valid unless the taxpayer meets its burden and proves otherwise. Id. A right to an abatement can be proven by either introducing evidence of fair cash value, or by proving that the assessors erred in their method of valuation. General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984). However, if the Board has made a finding of fair cash value for the property at issue for either of the two fiscal years preceding the fiscal year at issue, and the assessors have assessed the property at a value which exceeds the value found by the Board, then the burden of proving that the increase was warranted lies with the assessors. G.L. c. 58A, § 12A.
In the present appeals, the assessed value of the subject property, as abated, for fiscal year 2009 and its assessed value for fiscal year 2010 was the fair cash value found by the Board for fiscal year 2008 in Schaub I. Thus, the assessors did not increase the assessed value to an amount greater than the fair cash value found by the Board, and the burden of proof remained with the appellant.
The fair cash value of property may be determined by recent sales of comparable properties in the market. Actual sales generally “furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971). Further, properties are “comparable” to the subject property when they share “fundamental similarities” with the subject property, including similar age, location, size and date of sale. Lattuca v. Robsham, 442 Mass. 205, 216 (2004).
Additionally, evidence of the assessed values of comparable properties may provide probative evidence of fair cash value. G.L. c. 58A, § 12B. “The introduction of such evidence may provide adequate support for either the granting or denial of an abatement.” John Alden Sands v. Assessors of Bourne, Mass. ATB Findings of Fact and Reports 2007-1098, 1106-07, (citing Chouinard v. Assessors of Natick, Mass. ATB Findings of Fact and Reports 1998-299, 307-308). However, “[r]eliable comparable sales data will ordinarily trump comparable assessment information for purposes of finding a property’s fair cash value.” Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2007-321, 403, aff’d, 73 Mass. App. Ct. 1107 (2008).
Although comparable sales generally provide the best evidence of fair cash value, the appellant in these appeals offered no evidence of recent, comparable sales to establish the fair cash value of the subject property. Instead, her evidence consisted mainly of photographs of the subject property and assessment information for other, nearby properties. The photographs introduced by the appellant documented the poor condition of the subject property. However, the Board found and ruled that, contrary to the appellant’s contention, the assessors properly took into consideration the subject property’s poor condition when valuing the subject property for both of the fiscal years at issue. See Paul B. Cocchi d/b/a Hick-O-Rock Farm v. Assessors of Ludlow, Mass. ATB Findings of Fact and Reports 2010-861, 876 (“[T]o the extent there [was damage to the subject property], there was no evidence suggesting that the assessors did not take this issue into consideration in valuing the subject real property.”). Additionally, the poor condition of the subject property was detailed at length in Schaub I, and played a large part in the Board’s determination that the fair cash value of the subject property was $766,100. Id. at 2009-770. In these appeals, there was no evidence indicating that the condition of the subject property had deteriorated further or otherwise changed, and the Board found that the same fair cash value of $766,100 was warranted.
Similarly, the comparable-assessment evidence introduced by the appellant failed to persuade the Board that the assessed value of the subject property exceeded its fair cash value. As an initial matter, the appellant failed to introduce evidence of the relative quality and characteristics of her fourteen comparable-assessment properties, and thus, failed to establish their condition or the basic comparability between the subject property and those properties. See James & Claudia English v. Assessors of Winthrop, Mass. ATB Findings of Fact and Reports 2009-1302, 1304 (finding that, where appellants failed to provide property record cards or other information about their comparison properties, they failed to establish basic comparability between the properties and ultimately did not meet their burden of proof). The assessed values of the fourteen properties therefore did not provide particularly probative evidence of the fair cash value of the subject property.
Further, the Board found that the assessed value of 8 Cazenove Street, Ms. Schaub’s proffered comparable property, had been reduced by 25 percent for both of the fiscal years at issue because it had piling issues, unlike the subject property. But for the 25 percent reduction, 8 Cazenove Street would have been assessed at $877,000 for fiscal year 2009 and $834,500 for fiscal year 2010. The Board found and ruled that, contrary to Ms. Schaub’s arguments, the assessed value of 8 Cazenove Street did not establish that the subject property was overvalued. Rather, it provided additional support for the assessments at issue.
Similarly, the Board found that, if anything, the appellant’s fourteen comparable-assessment properties provided support for the assessments at issue. The assessments at issue were at the low end of the range of assessed values introduced by the appellant, and the vast majority of the fourteen properties had assessed values which were significantly higher than the subject property’s assessed value for both of the fiscal years at issue. The Board found this evidence to be an indication that the assessments at issue were not excessive.
Finally, the assessors introduced credible evidence supporting the assessments at issue. The assessors introduced two sales of properties located near the subject property which sold in close proximity to the relevant dates of assessment. Both of those properties sold for amounts far greater than the assessed value of the subject property, even though they were sold in “shell” condition. The Board therefore found and ruled that the assessors’ comparable sales provided reliable evidence that the subject property’s assessed value did not exceed its fair cash value.
Thus, on the basis of all of the evidence, the Board found and ruled that the appellant failed to establish that the assessed value of the subject property exceeded its fair cash value for either of the fiscal years at issue. Accordingly, the Board issued decisions for the appellee in these appeals.
THE APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: __________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
CHELMSFORD MOBILE HOME PARK v. BOARD OF ASSESSORS OF
PROPERTIES, LLC, Successor THE TOWN OF CHELMSFORD
to CJD REAL ESTATE, LP[127]
Docket Nos. F298316 Promulgated:
F304236 June 24, 2011
These are appeals under the formal procedure, pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the appellee to abate taxes on certain real estate in the Town of Chelmsford assessed under G.L. c. 59, §§ 11 and 38 for fiscal years 2008 and 2009.
Commissioner Mulhern heard these appeals. Chairman Hammond and Commissioners Scharaffa, Egan, and Rose joined him in the decisions for the appellant.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Gregg S. Haladyna, Esq. for the appellant Chelmsford Mobile Home Park Properties, Inc.
Robert Kraus, Esq. for intervener Massachusetts Manufactured Housing Association, Inc.
Richard P. Bowen, Esq. and Jeffrey Honig, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2007 and January 1, 2008, the appellant, Chelmsford Mobile Home Park Properties, LLC successor to CJD Real Estate Limited Partnership (the “appellant”), was the assessed owner of a number of contiguous parcels of real estate located at 270-288 Littleton Road in the Town of Chelmsford (the “subject property”). At all relevant times, the appellant operated the subject property as a manufactured home park, named Chelmsford Mobile Home Park (the “Park”). The subject property consists of approximately 37.75 acres, improved with roads, 254 site pads, and other infrastructure necessary for the operation of a manufactured home park. There are also four residential cabins and a commercial building, the second floor of which is used as an office and the first floor as a Laundromat.
For fiscal years 2008 and 2009, the Board of Assessors of Chelmsford (the “assessors”) valued the subject property at $11,530,500 and $11,635,300, respectively. The assessors assessed taxes on the subject property at the rates of $13.50 per $1,000 for fiscal year 2008 and $14.07 per $1,000 for fiscal year 2009, resulting in tax assessments of $155,661.75, plus a Community Preservation Act (“CPA”) surcharge in the amount of $2,314.68, for fiscal year 2008 and $163,708.67, plus a CPA surcharge in the amount of $2,434.53, for fiscal year 2009. On December 26, 2007 and December 29, 2008, the Tax Collector for Chelmsford caused the town’s actual tax bills to be mailed for fiscal years 2008 and 2009, respectively. In accordance with G.L. c. 59, § 57C, the appellant timely paid each fiscal year’s taxes without incurring interest.
On January 30, 2008 and January 30, 2009, in accordance with G.L. c. 59, § 59, the appellant timely filed Applications for Abatement with the assessors for fiscal years 2008 and 2009, respectively. The assessors denied the appellant’s abatement application for fiscal year 2008 on April 30, 2008; the appellant’s abatement application for fiscal year 2009 was deemed denied on April 30, 2009. In accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably appealed these denials by filing Petitions Under Formal Procedure with the Appellate Tax Board (the “Board”) on July 28, 2008 for fiscal year 2008 and July 24, 2009 for fiscal year 2009. On the basis of these facts, the Board found and ruled that it had jurisdiction over these appeals.
The appellant couched the issue in these appeals as one of exemption. It claimed that the assessors valued the subject property at $3,873,600 in fiscal year 2007, but then raised the assessment to $11,530,500 in fiscal year 2008 and to $11,635,300 in fiscal year 2009, by improperly including in the assessments the value of some 255 exempt manufactured homes located in the Park.[128] According to the appellant, these manufactured homes qualified for the statutory exemption for manufactured homes under G.L. c. 59, § 5, cl. 36 (“Clause 36”)[129] and, therefore, should not have been included in the appellant’s real estate tax assessment or assessed a personal property tax. The appellant further contended that the hearing of these appeals should therefore be limited to evidence necessary for a determination of whether the $7,650,000 portion of the assessment, which the appellant claimed the assessors attributed to the manufactured homes located at the Park, should be abated in full because of the exemption.
The assessors asserted that the appellant’s view of the scope of the hearing was unduly restricted. The assessors claimed that the Board should admit evidence relevant and material to the more general issue of whether the assessors had overvalued the subject property for the fiscal years at issue.[130] They further argued that, even if the appellant’s burden of proof required it to prove here that the manufactured homes were exempt, the appellant still had to show that the subject property’s fair cash value for each of the fiscal years at issue was less than its assessed value.
As a threshold matter, and as more fully explained in its Opinion below, the Board agreed with the assessors regarding the scope of the hearing. The issues here were not limited to a mere determination of exemption, but necessarily included a finding on overvaluation. Even if the Board found that the manufactured homes were exempt, it could not abate the $7,650,000 portion of the assessment purportedly allocated to the manufactured homes unless the assessment that the assessors had placed on the subject property as a whole for fiscal years 2008 and 2009 actually included values for the manufactured homes and exceeded the subject property’s fair cash value, excluding the value of the exempt manufactured homes for those fiscal years. It is undisputed that, at all relevant times, the assessors never sent real estate or personal property tax bills to the individual owners of the manufactured homes or personal property tax bills for the manufactured homes to the appellant. Accordingly, the only assessments at issue in these two appeals are the two on the subject property – the Park – for the two fiscal years at issue. To the extent that the value of the manufactured homes might have been included in the subject property’s assessments, it would have had to have been as a component of those two assessments.
In deciding whether to abate an assessment, the Board must consider the value of the property as a whole and not just the property’s component parts. Only if it is proven that the fair cash value of the property as a whole is less than the assessment will the Board order abatement, even if the methodology that the assessors used for establishing the assessment is flawed or improper. If the evidence shows that the assessment is less than or equal to the subject property’s fair cash value, the assessment stands.
The appellant called two witnesses to testify in its case-in-chief. The first witness was Francis Reen, the Chief Assessor for Chelmsford. Mr. Reen readily conceded that, at all relevant times, the Park was a manufactured housing community licensed by the Chelmsford Board of Health under G.L. c. 140, § 32B and that the operator of the Park paid the requisite monthly licensing fee pursuant to G.L. c. 140, § 32G. Accordingly, the assessors considered the manufactured homes located in the Park to be exempt under Clause 36, and did not assess a personal property tax on the manufactured homes located at the Park.
Mr. Reen also testified about the various valuation components on the subject property’s fiscal year 2008 property record card. According to Mr. Reen, the assessors assessed the subject property’s land at $3,655,100, four residential cabins at $159,200, a commercial office and laundry building located at the Park for $66,200, and the site pads for the manufactured homes at $7,650,000, for a total valuation of $11,530,500. For fiscal year 2009, the assessors set those values at $4,142,400, $159,200, $66,200, and $7,267,500, respectively, for a total valuation of $11,635,300. Mr. Reen insisted that the assessors did not value the manufactured homes themselves for real estate tax purposes but rather were valuing the site pads for the manufactured homes, which the assessors had neglected to assess before fiscal year 2008. Certain other evidence suggested that the assessors may have misconstrued or misspoken about the taxability of the manufactured homes as real estate when preparing the Park’s fiscal year 2008 assessments before clarifying their rationale.[131] There is no dispute that the assessors did not maintain property record cards for the manufactured homes.
Mr. Reen further testified that the assessors used an income approach to value the Park. Because the appellant failed to provide the assessors with income and expense information, the assessors relied on “secondary sources,” such as the monthly license fee statements and expenses and income from other rental properties, for that data. The assessors’ income approach, which is based on the average monthly site-pad rental that the appellant charged the owners of the manufactured homes, is summarized in the following table.
Summary of the Assessors’ Income Approach
| Gross Income ($500/month x 255 units x 12 months) |
$ 1,530,000 |
| Vacancy @ 4% |
(61,200) |
| Expense Allowance @ 20% |
(293,760) |
| Net Income |
$ 1,175,040 |
| Capitalization Rate (including tax factor) |
9.50% |
| Value |
$12,368,842 |
The appellant’s second witness was David G. Piper, Jr.[132] At the time of his appearance, Mr. Piper was operating two manufactured housing communities and was the President of the Massachusetts Manufactured Housing Association. He had recently completed a four-year term on the Commonwealth’s Manufactured Housing Commission. Before testifying, he had inspected the exterior of the manufactured homes in the Park and, relying on his familiarity with manufactured homes and related state laws and regulations, confirmed that the Park’s manufactured homes complied with the definition of “manufactured homes” under G.L. c. 140, § 32Q. In his capacity as an experienced operator of parks for manufactured homes, Mr. Piper also testified that expenses associated with the operation of manufactured housing parks are ordinarily one-third of the park’s gross income, while occupancy rates now approach one-hundred percent because of the scarcity of parks, particularly in the eastern part of the state, and the downturn in the economy. The leases at the parks which he operated included in their rent clauses provisions requiring the lessees to pay base rent, real estate taxes, licensing fees, and water and sewer charges. He related that increases in his parks’ taxes, fees, and charges were usually passed on to the tenants in the form of increased rent. On cross-examination, he acknowledged that he never reviewed the subject Park’s financials and was not familiar with the specific details relating to the Park’s categories of income and expenses. The appellant did not present any testimony or other evidence from a real estate valuation expert.
The assessors called William A. LaChance to testify as their real estate valuation expert. Based on his education, appraisal designations, experience, and background appraising and researching manufactured housing communities,[133] the Board qualified Mr. LaChance to testify in these appeals as a real estate valuation expert. Using income-capitalization and sales-comparison approaches, Mr. LaChance valued the Park, as of January 1, 2007, at $10,000,000 and $9,950,000, respectively. Ultimately he relied predominantly on his income-capitalization approach in reconciling these estimates at $10,000,000. Mr. LaChance also indicated that the market was stable between January 1, 2007 and January 1, 2008.
In his sales-comparison approach, Mr. LaChance examined five manufactured-housing-park sales in Massachusetts and New Hampshire, which occurred from January, 2002 to April, 2007. The sale prices ranged from $3,000,000 for a 117-pad site to $15,485,700 for a 392-pad site. A summary of the manufactured housing communities’ sales data appears in the following table.
Summary of the Assessors’ Real Estate Valuation Expert’s Sales-Comparison Approach
Sale 2 Sale 1 Sale 3 Sale 4 Sale 5
|
Lindenshire MH Park Exeter, NH |
SUBJECT Chelmsford, MA |
Oakhill Home-town America Attleboro, MA |
Rocky Knoll West Taunton, MA |
Forest Park Estates Jaffrey, NH |
Pine Ridge Estates Loudon, NH |
|
Sale Date*
April
2007
January
2007
January
2006
January 2005
April
2005
January
2002
Sale Price*
$15,485,700
$11,530,500
$6,990,000
$3,450,000
$3,000,000
$4,500,000
Area in Acres
89
37.75
49
68.6
50.16
148
# of Site Pads
392
254
175
125
117
148
Site Pads/Acre**
4.4
3.6
1.8
2.3
1.0
Occupancy
98%
98%
100%
98%
100%
99%
Net Oper. Inc.**
$1,238,850
$510,000
$280,000
$219,384
$418,523
Cap. Rate**
6.5%
7.3%
8.0%
7.3%
9.3%
Sale Price/Pad**
$39,504
$39,943
$27,600
$25,641
$30,405
*For the subject property, the sale date and price are the assessment date and amount for fiscal year 2008.
**The rows left blank correspond to Mr. LaChance’s pro forma.
Mr. LaChance concluded that his comparable sales’ characteristics and the Park’s were sufficiently similar to warrant adjustments only for location and physical attributes. The pertinent differences in physical characteristics that he deemed important were the availability of public sewer, the density of the pads, and the condition of the infrastructure. He found that Sale 1 in Attleboro, Massachusetts and Sale 2 in Exeter, New Hampshire shared comparable locations with the Park. Recognizing the age of Sale 5, he only included it to illustrate “the existence of a multi-million dollar market for such properties as well as showing that capitalization rates had declined from 2002 to 2007.”
Instead of making explicit adjustments to his comparables, Mr. LaChance instead placed them in an array from best (Sale No. 2) to worst (Sale No. 5) and then inserted the Park in “its perceived position” within the array. He used this qualitative analysis because in his view these types of properties do not lend themselves to a quantitative analysis. Given its placement in the array, Mr. LaChance concluded that the Park’s value was about $39,000 per site pad or a total of $9,906,000. Instead of then adding the values for the other improvements in the Park, he instead theorized that the cabins would be converted into site pads at a cost of $3,200 to $8,000 per site pad, which would add an estimated $50,000 in value to the Park, after accounting for expenses. Accordingly, using a sales-comparison approach, he valued the Park at $9,956,000 which he rounded to $9,950,000.
Mr. LaChance also performed an income-capitalization approach in which he first developed an estimate of market rents for the Park’s site pad and one of the cabins[134] using actual rents and rents from what he considered comparable properties. This exercise allowed him to develop a gross potential income for the Park which he then compared to the Park’s effective gross rental incomes reported for calendar years 2005, 2006, and 2007 of $1,510,691, $1,540,308, and $1,546,776, respectively. Ultimately, in his methodology, Mr. LaChance relied on the Park’s actual effective gross income, which included an implied vacancy/credit loss rate of less than 5%.
For operating expense, Mr. LaChance analyzed three years of actual expenses and adjusted and categorized them in accordance with the Industry Standard Chart of Accounts for Manufactured Homes. For 2005, 2006, and 2007, this exercise resulted in respective expense ratios of 36.9%, 30.4%, and 34.4% of effective gross income, which Mr. LaFrance then compared to industry operating expense ratios reported in the 2006 Allen Report. He concluded that the Park’s range of expense ratios compared favorably to industry standards, as well as to another nearby park’s expense ratio with which Mr. LaChance was familiar. Based on these investigations and conversations with other manufactured housing park operators, Mr. LaChance selected an operating expense ratio of 35% to use in his income-capitalization approach.
To derive an appropriate capitalization rate to use in his methodology, Mr. LaChance spoke with industry investors and operators and reviewed the capitalization rates associated with the sales that he had incorporated into his sales-comparison approach. This investigation resulted in his approximation of a capitalization-rate range of 7.5% to 8.5%. Recognizing that the Park’s rents were already on the high side with little room for immediate growth, Mr. LaChance selected a capitalization rate on the higher end of the range, 8.5%, to which he added a tax factor of 1.35% to reflect the fiscal-year-2008 tax rate of $13.50 per $1,000. After capitalizing the net-operating income, Mr. LaFrance deducted what he estimated to be the value of several non-realty items that had contributed to the Park’s net-operating income but should not be part of the real estate valuation (“FF&E”).[135] A summary of Mr. LaChance’s income-capitalization approach is contained in the following table.
Summary of the Assessors’ Real Estate Valuation Expert’s Income-Capitalization Approach
| Effective Gross Income* |
$ 1,543,730Less Operating Expenses (35%)
$ 540,306Net-Operating Income
$ 1,003,424Capitalization Rate (8.5% + 1.35% = 9.85%)
$10,187,051Less Value of FF&E$ 187,051 Indicated Market Value$10,000,000
*Accounts for vacancy and credit loss.
Based on all of the evidence, the Board found that the income-capitalization method that Mr. LaChance employed to estimate the value of the Park for fiscal year 2008 produced the best evidence of the Park’s value for that fiscal year. The Board found that each step in his methodology was adequately supported by relevant market information and actual data that reflected the market or the Park’s place in the market. Mr. LaChance’s expense ratio and treatment for vacancy and credit loss were also supported by the testimony of the appellant’s witness, Mr. Piper. While the Board had reservations about Mr. LaChance’s handling of the Park’s FF&E in his income-capitalization methodology to account for the effect of the Park’s personal property on income and value, his approach had some logical appeal. In addition, it was not without precedent, was not specifically challenged by the appellant, and may have been his only option given the unavailability of actual data for creating reserves for the items. Under the circumstances and lacking any better evidence, the Board adopted it.
The Board further found that, given the stability in the market reported by Mr. LaChance, Mr. LaChance’s methodology also produced the best evidence of the Park’s value for fiscal year 2009 once the tax factor used in the capitalization rate was adjusted to reflect the tax rate for fiscal year 2009. The Board’s adjustment to Mr. LaChance’s methodology is reflected in the following table.
Summary of the Board’s Income-Capitalization Approach
For Fiscal Year 2009
| Effective Gross Income |
$ 1,543,730Less Operating Expenses (35%)
$ 540,306Net-Operating Income
$ 1,003,424Capitalization Rate (8.5% + 1.41% = 9.91%)
$10,125,368Less Value of FF&E$ 187,051 Indicated Market Value$ 9,938,317 Rounded$ 9,938,300
In addition, the Board found, as the parties had, that the manufactured homes in the Park were exempt under Clause 36 from personal property and real estate taxes because they were “[m]anufactured homes located in [a] manufactured housing community subject to the monthly license fee provided for under section thirty-two G of chapter one hundred and forty.” The Board also found that for fiscal years 2008 and 2009, the assessors had not assessed personal property or real estate taxes on the manufactured homes located at the Park. Rather, the Board found that the increase in the subject property’s assessment from fiscal year 2007 to fiscal year 2008, and continuing into fiscal year 2009, resulted from the inclusion of values for the 254 site pads starting in fiscal year 2008, which the assessors had previously and erroneously excluded. The Board therefore found that the assessors had not improperly assessed taxes on the exempt manufactured homes but merely included the value produced by the site pads for manufactured homes in the valuation and assessment of the Park. The Board also found that the assessors were not bound to continue their failure to assess the value of site pads into perpetuity just because they had erroneously neglected to do so in earlier fiscal years.
In making these findings, the Board additionally found that it was appropriate for the assessors to include in their overall assessment for the Park values for the various components of the Park, including values for its land, cabins, office/laundry, and site pads; moreover, if the values allocated to one or more of the components were excessive, the subject property was still not overvalued unless the subject property’s overall assessment exceeded its fair cash value. The Board further found that an income-capitalization approach was the best technique to use to value the Park because, at all relevant times, the Park was an income-producing property where the rental of its site pads produced the Park’s income, not manufactured homes owned by third parties. Because of the limited number of timely and meaningfully comparable sales of manufactured housing communities during the relevant time period, the Board found that values derived from a comparable-sales approach were useful only as checks. The Board further found that the qualitative analysis which Mr. LaChance adopted in his sales-comparison approach lacked precision because he only used a limited number of comparables, he rated only one property out of five superior to the subject, and he made no quantitative adjustments before undertaking his qualitative analysis. The assessors’ reliance on an income-capitalization methodology in setting their assessment on the subject property and Mr. LaChance’s almost total reliance on the income-capitalization technique in his reconciliation both provided additional support for the Board’s finding in this regard.
Because the assessments for fiscal years 2008 and 2009 were $11,530,500 and $11,635,300, respectively, and the values developed using Mr. LaChance’s methodology were $10,000,000 and $9,938,300 respectively, the Board found that the Park was overvalued for both fiscal years and therefore decided these appeals for the appellant and granted tax abatements in the amount of $20,971.68 for fiscal year 2008 and $24,234.95 for fiscal year 2009.[136]
OPINION
The assessors have a statutory and constitutional obligation to assess all real property at its full and fair cash value. Part II, c. 1, § 1, art. 4, of the Constitution of the Commonwealth; art. 10 of the Declaration of Rights; G.L. c. 59, §§ 38, 52. See Coomey v. Assessors of Sandwich, 367 Mass. 836, 837 (1975) (citations omitted). “Real property” is statutorily defined to include “all land within the commonwealth and all buildings . . . unless otherwise exempted from taxation under other provisions of law.” G.L. c. 59, § 2A (a). Fair cash value means fair market value, which is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974)(quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayer[] . . . prov[es] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984)(quoting Schlaiker, 365 Mass. at 245).
In appeals before this Board, a taxpayer “may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.” General Electric, 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
With respect to “exposing flaws or errors in assessors’ method of valuation,” taxpayers do not conclusively establish a right to abatement merely by showing that their land, or a portion of it, is overvalued. “The tax on a parcel of land and the building thereon is one tax . . . although for statistical purposes they may be valued separately.” Assessors of Brookline v. Prudential Insurance Co., 310 Mass. 300, 316-17 (1941). In abatement proceedings, “the question is whether the assessment for the parcel of real estate, including both the land and the structures thereon, is excessive. The component parts, on which that single assessment is laid, are each open to inquiry and revision by the appellate tribunal in reaching the conclusion whether that single assessment is excessive.” Massachusetts General Hospital v. Belmont, 238 Mass. 396, 403 (1921). See also Buckley v. Assessors of Duxbury, Mass. ATB Findings of Fact and Reports 1990-110, 119; Jernegan v. Assessors of Duxbury, Mass. ATB Findings of Fact and Reports 1990-39, 48-49; Everhart v. Assessors of Dalton, Mass. ATB Findings of Fact and Reports 1985-49, 54.
In the present appeals, the appellant asserted that the assessors had included the value of exempt manufactured homes in their assessment of the subject property for fiscal years 2008 and 2009 and that this addition explained the dramatic $7,650,000 increase in the subject property’s assessment from fiscal year 2007 to fiscal year 2008. To prove this point, the appellant attempted to use Mr. Reen’s conduct prior to the hearing as evidence against the assessors at the hearing. “Evidentiary admissions are the ‘conduct of a party while not on the stand used as evidence against him at trial. The conduct may be in the form of an act, a statement, or a failure to act or make a statement.’” General Electric Co., 393 Mass. at 603 (quoting P.J. Liacos, Massachusetts Evidence 275-276 (5th ed. 1981)). While the Bourd found that this evidence of Mr. Reen’s prior conduct was probative, the Board also found that it did not carry the day. Based on Mr. Reen’s testimony, the subject property’s property record cards, and Mr. Reen’s income-capitalization methodology, as well as other evidence and inferences, the Board found that the weight of the evidence established that in valuing the subject property for fiscal years 2008 and 2009, the assessors had valued the site pads for the manufactured homes, which they had erroneously omitted in prior fiscal years, not the manufactured homes; the manufactured homes were neither taxed as personal property or real estate to either their actual owners or the appellant.
The fair cash value of property may often best be determined by recent sales of comparable properties in the market. See Correia, 375 Mass. 360, 362 (1978); McCabe v. Chelsea, 265 Mass. 494, 496 (1929). Actual sales generally “furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971). Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date contain credible data and information for determining the value of the property at issue. See McCabe, 265 Mass. at 496. “In the sales comparison approach, an opinion of market value is developed by comparing properties similar to the subject property that have recently sold.” Appraisal Institute, The Appraisal of Real estate 297 (13th ed., 2008). “A major premise of the sales comparison approach is that an opinion of the market value of a property can be supported by studying the market’s reaction to comparable and competitive properties.” Id. When comparable sales are used, however, allowance must be made for various factors which would otherwise cause disparities in the comparable prices. See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082. “After researching and verifying the transactional data and selecting the appropriate unit of comparison, the appraiser adjusts for any differences.” The Appraisal of real estate at 307.
Because of the limited number of timely and meaningfully comparable sales of manufactured housing communities during the relevant time period, the Board found that values derived from a comparable-sales approach were useful only as checks. The Board further found that the qualitative analysis which Mr. LaChance adopted in his sales-comparison approach lacked precision because he only used a limited number of comparables, he rated only one property out of five superior to the subject, and he made no quantitative adjustments before undertaking his qualitative analysis. Consequently, the Board found and ruled that this method was not the best available methodology to use to determine the value of the subject property.
“The board is not required to adopt any particular method of valuation,” Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986), but the income-capitalization method “is frequently applied with respect to income-producing property.” Taunton Redev. Assocs. v. Assessors of Taunton, 393 Mass. 293, 295 (1984). Use of the income-capitalization method is appropriate when reliable market-sales data are not available. Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 810, 811 (1975); Assessors of Lynnfield v. New England Oyster House, 363 Mass. 696, 701-702 (1972); Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 67 (1942). Under the income-capitalization approach, valuation is determined by dividing net-operating income by a capitalization rate. See Assessors of Brookline v. Buehler, 396 Mass. 520, 522-23 (1986). Net-operating income is obtained by subtracting market expenses from a market-derived gross income. Id. at 523. The capitalization rate should reflect the return on investment necessary to attract capital. Taunton Redev. Assoc., 393 Mass. at 295. Generally, it is appropriate to add a tax factor to the capitalization rate in most multiple tenant scenarios because the landlord is assumed to be responsible for paying the real estate taxes, and the tenant’s contribution toward the real estate tax is included in the landlord’s gross income. Id. at 295-96.
In the present appeals, the Board ruled that the capitalization of net income was the best method for determining the fair cash value of the Park. There were too few comparable sales within the relevant time period to use that technique for anything more than a check on values derived from an income-capitalization approach. The Board found that Mr. LaChance’s income-capitalization methodology was suitably supported by relevant market information and actual data and, accordingly, with one alteration regarding the tax factor for fiscal year 2009, adopted it. The Board, however, only reluctantly approved Mr. LaChance’s approach for accounting for the effect of FF&E on the Park’s value. Instead of deducting the income attributable to the FF&E from the Park’s net income by multiplying either the current value or the replacement cost of the FF&E by factors that represent returns on and of the personal property, see, e.g. Cambridge Hyatt Joint Venture v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports 1990-182, 218-20, Mr. LaChance deducted his estimate of the current value of the FF&E from his preliminary determination of the Park’s value. While not ordinarily preferred, that approach is not without precedent. See, e.g. District of Columbia v. Washington Sheraton Corp., 499 A.2d 109, 114 (D.C. App. 1985) (reporting that the assessors’ witness deducted the value of personal property after applying the capitalization rate to the total stabilized net income of the enterprise) and Analogic Corp. v. Assessors of Peabody, Mass. ATB Findings of Fact and Reports 1999-267, 296 (adopting an enterprise valuation approach in which the hotel enterprise was first valued as a whole using an income-capitalization approach and then values for non-realty items, including personal property, were deducted to obtain a value for the real estate alone). The Board found that Mr. LaChance’s approach had some logical appeal, was not without precedent, was not specifically challenged by the appellant, and may have been his only option given the unavailability of actual data for expensing or creating reserves for the items. Therefore, under the circumstances and lacking any better evidence, the Board adopted it.
“‘The board [i]s not required to accept the opinion expressed, or the valuation principles used by [an expert witness.]’” Foxboro Associates, 385 Mass. at 683 (citation omitted.) Rather, “[t]he essential requirement is that the Board exercise judgment.” New Boston Garden Corp., 383 Mass. at 473. The Board may rely upon any method of valuation that is reasonable and supported by the record.” Analogic Corp. v. Assessors of Peabody, 45 Mass. App. Ct. 605, 609 (1998) (quoting Blakely v. Assessors of Boston, 391 Mass. 473, 477 (1984)). The Board found and ruled here that Mr. LaChance’s income-capitalization approach was reasonable and sufficiently supported.
The Board further found and ruled that the appellant’s attempt to limit the scope of the hearing for these appeals to the exempt status of the manufactured homes located in the Park and an abatement commensurate with any value allocated or assigned to them was misplaced. First, G.L. c. 59, § 59, provides, in pertinent part, that:
A person upon whom a tax has been assessed . . . if aggrieved by such tax, may . . . apply in writing to the assessors . . . for an abatement thereof, and if they find him taxed at more than his just proportion or upon an improper classification, or upon an assessment of any of his property in excess of its fair cash value, they shall make a reasonable abatement.
Accordingly, an appellant has three grounds for appeal under c. 59: (1) disproportionate assessment, (2) misclassification, or (3) overvaluation. The appellant, here, has not brought its appeals under either of the first two grounds. It has brought its appeal under the third ground, overvaluation, by alleging that part of the assessed property was exempt. In overvaluation appeals, the Board will allow competent and relevant evidence of value and examine the entire record before rendering findings or rulings on valuation. See General Electric Co., 393 Mass. at 600 (“[T]he board’s decision [on whether] the taxpayer ha[s] met its burden of persuasion, [is] made upon all of the evidence.”)(emphasis in original).
Second, the assessors did not contest that the manufactured homes were exempt under Clause 36. Consistent with that determination, the assessors did not assess personal property taxes or real estate taxes on the manufactured homes or send tax bills to the owners of them, nor did the assessors prepare and maintain property record cards for the manufactured homes. Notwithstanding the appellant’s assertions to the contrary, the Board found that the dramatic increase in the Park’s assessment from fiscal year 2007 to fiscal year 2008, and continuing into fiscal year 2009, was for the value added by the site-pad components which the assessors had neglected to value and assess in the earlier fiscal years. The Board further found that, at all relevant times, the assessors were not assessing the manufactured homes located at the Park; they were simply including in the Park’s overall assessment an appropriate value for the 254 site pads. Accordingly, the appellant’s complaint amounted to a challenge to the methodology that the assessors used to value the Park. The Board found, however, that an income-capitalization approach was the appropriate methodology to use to capture the value that the site pads added to the Park and to ascertain an overall value for the Park for fiscal years 2008 and 2009. By using this methodology, the Board found values, based on the analysis provided by the assessors’ real estate valuation expert, that resulted in abatements for each of the fiscal years at issue. To the extent that the assessors may have overvalued one component of the Park, the Board found and ruled that it could not make a finding of overvaluation unless the Park as a whole had been overvalued.
In reaching its opinion of fair cash value, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggested. Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight. Foxboro Associates, 385 Mass. at 682; New Boston Garden Corp., 383 Mass. at 469. “The credibility of witnesses, the weight of evidence, the inferences to be drawn from the evidence are matters for the Board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
Lastly, the appellant’s suggestions that the assessors cannot from fiscal year to fiscal year change their assessment strategy, correct a previous assessment error, or even retreat from a prior public pronouncement by an official with apparent or perhaps even actual authority are without merit. The invocation of principles of equitable estoppel against the government has long been disfavored in Massachusetts. See Municipal Light Co. of Ashburnham v. Commonwealth, 34 Mass. App. Ct. 162, 167, cert denied, 510 U.S. 866 (1993) (“Generally, the principles of estoppel are not applicable against the government in connection with its exercise of public duties.”). Moreover, the courts are very “‛reluctant to apply principles of equitable estoppel to public entities where to do so would negate requirements of law intended to protect the public interest.’” Holahan v. Medford, 394 Mass. 186, 191 (1985)(quoting Phipps Prods. Corp. v. Massachusetts Bay Transp. Auth., 387 Mass. 687, 693 (1982). “If [a taxing authority] has made a mistake in determining [a] classification . . . , unless specifically prohibited by statute or constitutional principles, [the taxing authority] should not be estopped from correcting that mistake and from assessing a tax that is otherwise lawfully due.” John S. Lane v. Commissioner of Revenue, 396 Mass. 137, 140 (1985). “Statutory authority (like an easement in land) is not subject to atrophy or abandonment merely from nonuse.” Polaroid Corp. v. Commissioner of Revenue, 393 Mass. 490, 496 (1984). Furthermore, equitable estoppel is not a bar to correction by a taxing authority of a mistake of law. Automobile Club v. Commissioner, 353 U.S. 180, 183-84 & n.7 (1957).
Here, the assessors are merely performing their statutory duty by attempting to value the Park at its fair cash value and ensure that the appellant is assessed its proportional and just amount of real estate tax. It is in the best interests of all taxpayers that the assessors be allowed to timely correct errors or misconceptions particularly where those most affected are only being asked to pay what is constitutionally, statutorily, and otherwise legally required. See, e.g., Bell Atlantic Mobile of Massachusetts Corporation, LTD. d/b/a Verizon Wireless v. Assessors of Boston, Newton, Springfield and Westborough, Mass. ATB Findings of Fact and Reports 2010-897 (ruling that, contrary to long-standing erroneous practice, corporate cell-phone providers were not entitled to corporate utility exemption). Moreover, a taxpayer is entitled to abatement under G.L. c. 59, §§ 59 and 64 and 65, only if they are aggrieved as a result of disproportionate assessment, misclassification, or overvaluation. Based on the Board’s findings and rulings, supra, the appellant here was aggrieved only by overvaluation, for which the Board granted abatements. “Equitable considerations, not prescribed by statute, are not major players in tax matters (and, indeed, often do not even enter the game).” Commissioner of Revenue v. Marr Scaffolding, 414 Mass. 489, 495 (1993).
On this basis, the Board decided these appeals for the appellant and granted tax abatements in the amounts of $20,971.68, including the CPA surcharge, for fiscal year 2008 and $24,234.95, including the CPA surcharge, for fiscal year 2009. The Board’s bases of computation of abatement for fiscal years 2008 and 2009 are summarized in the following two tables, respectively.
|
Docket No.
|
Fiscal Year |
Assessed Value ($) |
Tax Assessed ($) |
Fair Cash Value ($) |
Over- Valuation ($) |
|
F298316 |
2008 |
11,530,500 |
157,976.43* |
10,000,000 |
1,530,500 |
|
Docket No.
|
Fiscal Year |
Assessed Value ($) |
Tax Assessed ($) |
Fair Cash Value ($) |
Over- Valuation ($) |
|
F304236 |
2009 |
11,635,300 |
166,143.20* |
9,938,300 |
1,697,000 |
*Includes the CPA Surcharge
THE APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
INDIANHEAD PENNY LP v. BOARD OF ASSESSORS OF THE TOWN OF EDGARTOWN
Docket Nos.: F298945, F298948 (FY 08)
F304194, F304196 (FY 09)
F308987, F308990 (FY 10)
Promulgated:
June 24, 2011
These are appeals under the formal procedure, pursuant to G.L. c. 59, §§ 64 and 65 and G.L. c. 59, § 7, from the refusal of the Board of Assessors of the Town of Edgartown (the “assessors” or “appellee”) to abate taxes on two adjacent parcels of real estate located at 8 Ocean View Avenue and 6 Menamsha Avenue in the Town of Edgartown (collectively, the “subject assessing parcels”), owned by and assessed to Indianhead Penny LP (the “appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal years 2008, 2009, and 2010.
Commissioner Rose heard these appeals. Chairman Hammond and Commissioners Scharaffa, Egan, and Mulhern joined him in the decisions for the appellee.
The Appellate Tax Board (the “Board”) promulgates these findings of fact and report on its own motion under G.L. c. 58A, § 13 and 831 CMR 1.32. The Board’s decisions are promulgated simultaneously herewith.
Donald P. Quinn, P.C., Esq. and Danielle Justo, Esq. for the appellant.
Ellen M. Hutchinson, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
Introduction
The two subject assessing parcels are owned by and assessed to the appellant and are located at 8 Ocean View Avenue and 6 Menamsha Avenue in the Town of Edgartown on Martha’s Vineyard. They are part of a larger tract of land which is identified on more recent deeds as “Parcel Two: Unregistered Land” (“Parcel Two”). The 8 Ocean View Avenue assessing parcel is unimproved and contains approximately 2.45 acres; the assessors identify it as Parcel ID 29-145. The 6 Menamsha Avenue assessing parcel is also unimproved, and it contains approximately 1.50 acres of land. The assessors identify this assessing parcel as Parcel ID 29-151. Parcel Two also contains two additional unimproved assessing parcels: the 9 Menamsha Avenue assessing parcel (Parcel ID 29-152), which contains 1.38 acres and the 15 Menamsha Avenue assessing parcel (Parcel ID 29-153), which contains 1.38 acres.[137] The parties settled the appeals related to these two additional assessing parcels, and they are not before the Board (the “settled parcels”).
The subject assessing parcels — as well as the two settled parcels that form the rest of Parcel Two — are located in a neighborhood that is close to Edgartown Harbor in the Tower Hill area of town and is less than one mile from the historic downtown. The neighborhood is comprised of mostly large, luxurious homes on parcels ranging from 1.5 to 3 acres in size. The area is predominantly wooded and contains the unpaved roads that are typical of areas outside of the island town centers. The beach is approximately two miles away.
The relevant assessment information for the subject assessing parcels for the fiscal years at issue is contained in the following two tables.
The 8 Ocean View Avenue Assessing Parcel
| Docket Number |
Fiscal Year
Assessment
Tax Rate /$1,000
Tax Assessed*F2989452008$807,900
$ 2.73
$2,263.55F3041962009$807,900
$ 2.91
$2,417.79F3089872010$781,200
$ 3.09
$2,477.06
*The tax assessed includes a Community Preservation Act (“CPA”) charge.
The 6 Menamsha Avenue Assessing Parcel
| Docket Number |
Fiscal Year
Assessment
Tax Rate /$1,000
Tax Assessed*F2989482008$1,274,300
$ 2.73
$3,575.02F3041942009$1,274,300
$ 2.91
$3,815.73F3089902010$1,227,900
$ 3.09
$3,898.77
*The tax assessed includes a CPA charge.
The pertinent payment[138] and other jurisdictional information, including relevant filing dates, for the subject assessing parcels for the fiscal years at issue are contained in the following table.
The 8 Ocean View Avenue & 6 Menamsha Avenue
Assessing Parcels
|
Docket Number |
Fiscal Year |
Tax Bill Mailed |
Tax Payment |
Abatement Application |
Assessors’ Denial |
Petition to Board |
| F298945/48 | 2008 | 05/06/2008 | timely | 06/04/2008 | 10/30/2008 | 01/26/2009 |
| F304196/94 | 2009 | 12/30/2008 | timely | 01/28/2009 | 04/28/2009 | 07/24/2009 |
| F308987/90 | 2010 | 12/30/2009 | timely | 01/21/2010 | 04/20/2010 | 07/15/2010 |
For fiscal year 2008, there is no evidence that the appellant granted the assessors an extension of time, under G.L. c. 59, §§ 64 & 65, within which to act on its abatement applications. Consequently, the appellant’s applications were deemed denied on September 4, 2008, and the assessors’ purported denials on October 30, 2008 are ineffectual. There is also no evidence that the assessors sent timely notices of inaction to the appellant under G.L. c. 59, § 63 or that the appellant filed Petitions for Late Entry under G.L. c. 59, § 65C. However, where, as here, the assessors fail to send written notice of their inaction to a taxpayer within ten days of the deemed denial date, this Board, in accordance with G.L. c. 59, § 65C, may extend the deadline for filing an appeal by two months. See American House, LLC v. Assessors of Greenfield, Mass. ATB Findings of Fact and Reports 2005-41-42, 54-59.
In the present appeals, extension of the appeal period by two months results in a filing deadline of February 4, 2009. The appellant filed its petitions on January 26, 2009, well within the two-month extension period allowed under § 65C. Accordingly, the Board finds that the filing of the fiscal year 2008 petitions is seasonable. See Attilio F. Cardaropoli v. Assessors of Springfield, Mass. ATB Findings of Fact and Reports 2001-913, 925 (“If it is determined that the conditions for allowing a petition for late entry exist, then the Board [will allow] the petition[s] to be entered nunc pro tunc and exercise jurisdiction over the appeal[s].”).
Based on these subsidiary findings and rulings and the jurisdictional information contained in the above table, the Board finds and rules that it has jurisdiction over these appeals.
Summary of the Evidence
The appellant entered numerous exhibits and called two witnesses to testify in these appeals.[139] The appellant called attorney Dennis Crimmins as its first witness to testify in support of its position that the subject assessing parcels should be valued and taxed as part of a single parcel which also includes the two settled parcels. Responding to the assessors’ attorney’s objection and testimony on voir dire, the Board refused to qualify Mr. Crimmins as an expert witness in the field of conveyancing. Among the reasons supporting this ruling include: the witness’s lack of independence and the proposed testimony concerned a legal issue for which expert testimony was not necessary.
First, it was established on voir dire that Mr. Crimmins has worked and continues to work with appellant’s co-counsel on matters litigated and currently before the Board concerning assessments on other properties on Martha’s Vineyard and in Edgartown. The Board found that Mr. Crimmins’s on-going association with appellant’s counsel on other Martha’s Vineyard and Edgartown appeals called his independence into question. Second, the Board did not believe that it was necessary to receive testimony from an expert witness to assist it in determining whether, as a matter of law, the two subject assessing parcels coupled with the two settled parcels should be valued and taxed as a single assessing parcel. The Board is capable of deciding this question without the aid of an expert witness in the field of conveyancing. The Board, however, did allow Mr. Crimmins to testify conditionally as a fact witness.
After examining the various deeds, plans, and zoning regulations, but not having spoken with any town zoning, planning, building, or assessing officials, Mr. Crimmins concluded that Parcel Two should be treated as a single lot for purposes of building a residence and assessing it. He believed that the continuous description of Parcel Two as a single tract of land since 1965 was the primary reason for this conclusion, as well as his determination that Parcel Two could not now be divided into and conveyed as smaller parcels with what he termed “marketable title.”
Mr. Crimmins also testified that the 6 Menamsha Avenue assessing parcel (Parcel ID 29-151) was not a buildable lot, without a zoning variance or a waiver of certain deed restrictions, because this assessing parcel’s dimensions did not conform to the relevant zoning set-back requirements or certain deed restrictions. Mr. Crimmins did believe, however, that it would be possible to obtain a building permit for the 8 Ocean Avenue assessing parcel (Parcel ID 29-149), but if obtained, it would likely be subjected to a lengthy legal challenge by abutters.
The appellant called Jo-Ann Resendes, the assistant assessor in Edgartown, as its second and final witness. Ms. Resendes verified certain information on the subject assessing parcels’ property record cards, including the area encompassed by the primary site designation, the sea factors for the first and second landlines, the unit value for excess land, and the neighborhood adjustments.
The assessors’ case-in-chief consisted of an appraisal report that Ms. Resendes had prepared, which contained three comparable-sales analyses for estimating the value of the 8 Ocean View Avenue assessment parcel for each of the fiscal years at issue. In her analysis for fiscal year 2008, she used three purportedly comparable sale properties and derived an adjusted value of $1,075,000, and for fiscal years 2009 and 2010, she used three other purportedly comparable sale properties and derived adjusted values of $1,075,000 and $1,000,000, respectively.
Summaries of her analyses are contained in the following three tables.
Fiscal Year 2008
|
Subject 8 Ocean View Ave.
|
Comp. 1 31 Slough Cove Rd. |
Comp. 2 242 Katama Rd. |
Comp. 3 96 Edgartown Bay Rd. |
||
| Sale Price* |
$807,900 |
$831,250 |
$535,000 |
$830,000 |
|
| Sale Date* |
01/01/2007 |
05/19/2006 |
11/28/2006 |
10/21/2005 |
|
| Proximity to Subject |
n/a |
1.5 miles SW |
0.3 miles |
1.8 miles S |
|
| Verification |
Deed |
Deed |
Deed |
Deed |
|
| Time Adjustment |
n/a |
4% |
0.5% |
8% |
|
| Time Adjusted Sales Price |
n/a |
$864,500 |
$537,675 |
$896,400 |
|
| Location |
Tower Hill Edgartown Harbor |
Katama |
Katama |
Edgartown Bay Road |
|
| Location Adjustment |
n/a |
30% |
20% |
15% |
|
| Lot Size (acres) |
2.45 |
1.5 |
0.59 |
0.54 |
|
| Lot Size Adjustment |
n/a |
20% |
30% |
30% |
|
| Shape Adjustment |
n/a |
-25% |
-25% |
-25% |
|
| Net Adjustment (excl. time) |
25% |
25% |
20% |
||
| Net Dollar Adjustment (“) |
$216,125 |
$134,419 |
$179,280 |
||
| Adjusted Value |
$1,080,625 |
$672,094 |
$1,075,680 |
||
* For the subject, the sale price and date are the assessed value and assessment date
Fiscal Year 2009
|
Subject 8 Ocean View Ave.
|
Comp. 1 12 Coffins Field Rd. |
Comp. 2 3 Bitter-sweet Lane |
Comp. 3 128 Herring Creek Rd. |
|
| Sale Price* |
$807,900 |
$745,000 |
$795,000 |
$885,000 |
| Sale Date* |
01/01/2008 |
05/10/2007 |
05/30/2008 |
12/04/2008 |
| Proximity to Subject |
n/a |
5 miles W |
1.1 miles SW |
1.1 miles SW |
| Verification |
Deed |
Deed |
Deed |
Deed |
| Time Adjustment |
n/a |
0% |
2.5% |
5.5% |
| Time Adjusted Sales Price |
n/a |
$745,000 |
$814,875 |
$933,675 |
| Location |
Tower Hill Edgar Harbor |
Coffins Field |
Katama |
Katama |
| Location Adjustment |
n/a |
40% |
30% |
30% |
| Lot Size (acres) |
2.45 |
0.85 |
1.5 |
1.56 |
| Lot Size Adjustment |
n/a |
30% |
20% |
20% |
| Shape Adjustment |
-25% |
-25% |
-25% |
|
| Net Adjustment (excl. time) |
45% |
25% |
25% |
|
| Net Dollar Adjustment (“) |
$335,250 |
$203,719 |
$233,419 |
|
| Adjusted Value |
$1,080,250 |
$1,018,594 |
$1,167,094 |
* For the subject, the sale price and date are the assessed value and assessment date
Fiscal Year 2010
|
Subject 8 Ocean View Ave.
|
Comp. 1 12 Coffins Field Rd. |
Comp. 2 3 Bitter-sweet Lane |
Comp. 3 128 Herring Creek Rd. |
|
| Sale Price* |
$807,900 |
$745,000 |
$795,000 |
$885,000 |
| Sale Date* |
01/01/2009 |
05/10/2007 |
05/30/2008 |
12/04/2008 |
| Proximity to Subject |
n/a |
5 miles W |
1.1 miles SW |
1.1 miles SW |
| Verification |
Deed |
Deed |
Deed |
Deed |
| Time Adjustment |
n/a |
-6% |
-3.5% |
-0.5% |
| Time Adjusted Sales Price |
n/a |
$700,300 |
$767,175 |
$880,575 |
| Location |
Tower Hill Edgar Harbor |
Coffins Field |
Katama |
Katama |
| Location Adjustment |
n/a |
40% |
30% |
30% |
| Lot Size (acres) |
2.45 |
0.85 |
1.5 |
1.56 |
| Lot Size Adjustment |
n/a |
30% |
20% |
20% |
| Shape Adjustment |
-25% |
-25% |
-25% |
|
| Net Adjustment (excl. time) |
45% |
25% |
25% |
|
| Net Dollar Adjustment (“) |
$315,135 |
$191,794 |
$220,114 |
|
| Adjusted Value |
$1,015,435 |
$958,969 |
$1,100,719 |
* For the subject, the sale price and date are the assessed value and assessment date
The two witnesses’ testimony and the various exhibits, including deeds, plans, and property record cards, reveal that in 1998, the two subject assessing parcels were conveyed to the appellant by David Brown for nominal consideration. The descriptions in that deed refer to two larger parcels: “Parcel One: Registered Land” and “Parcel Two: Unregistered Land,” which were mentioned, supra. It is the description for Parcel Two that contains not only the two subject assessing parcels, but also the two settled parcels on which the parties previously reached a settlement. The metes and bounds description in the deed for Parcel Two describes the perimeter of these four contiguous assessing parcels without defining them as separate and distinct.[140]
From a historical perspective, it was in January, 1876, that an 1875 “Plan of Ocean View Cliffs” by John H. Mullin (the “Mullin Plan”) was recorded in the Dukes County Registry of Deeds. This plan, which shows the area where Parcel One and Parcel Two (and some neighboring parcels) are now located, does not define the subject assessing parcels, the two settled parcels or Parcel One or Parcel Two. Rather, it defines the boundaries of numerous contiguous camp-ground parcels, which, for the most part, are only 50-by-100 feet in size. Various roads, including Ocean View and Menamsha Avenues, are also shown on this plan. According to the Mullin Plan, the 8 Ocean View Avenue assessing parcel is composed of 21 contiguous camp-ground lots (numbered 92 through 112) which are configured in the shape of the number “7,” and the 6 Menamsha Avenue assessing parcel is composed of 13 such lots (numbered 16 through 28) which extend, side-by-side, in the shape of a long, thin ruler. Both of the subject assessing parcels are only 1 camp-ground parcel (or 100 feet) in depth.[141] The two settled parcels, which form the rest of Parcel Two but are not subject to these appeals, are each approximately 1.38 acres in size and each contains 12 contiguous camp-ground lots configured as 2 rows of 6 lots, in the shape of an approximately 200-by-300 foot rectangle.
In September, 1993, David Brown acquired both Parcel One, the registered land, and Parcel Two, the unregistered land, from Katama Kyles Properties, Inc. for $2,050,000. The description of Parcel Two in this deed is the same perimeter description contained in the deed from Mr. Brown to the appellant. In December, 1985, Katama Kyles Properties, Inc. acquired Parcels One and Two from the estate of Margaret Jones Purvis for $1,088,500. The description of Parcel Two in this deed is the same perimeter description as the one contained in the deeds from Katama Kyles Properties, Inc. to Mr. Brown and from Mr. Brown to the appellant.
Ms. Purvis acquired title to Parcel Two by deed from George Coffin dated December, 1965 for “consideration paid” (the “Coffin deed”). The Coffin deed appears to be the first deed to assemble the 58 camp-ground lots from the Mullin Plan into a single tract of land, using the perimeter metes and bounds description which is later referred to, in the aforementioned deeds, as Parcel Two. The Coffin deed does not mention Parcel One or any of the smaller camp lots that become part of Parcel One. The Coffin deed does, however, refer to Plan 11887A which was likely prepared in the 1920s in connection with the assemblage of other camp-ground lots for registered Parcel One. There are no additional deeds in the record reflecting how Ms. Purvis acquired title to the registered parcel termed Parcel One.
The Coffin deed for Parcel Two also contains, among other things, numerous conditions and restrictions which prohibit the construction of any building within 50 feet of the enveloping boundary — that is, the perimeter — of Parcel Two. There is a similar restriction for the construction or use of cesspools or septic systems. The evidence does not reveal any amendments or modifications to these restrictions. The Coffin deed also provides that the restrictions “shall remain in effect for a period of ninety-nine (99) years from the date hereof,” which extends the effective period to 2064.
In September, 1993, apparently in conjunction with Katama Kyles, Inc.’s sale of Parcel Two — along with Parcel One — to Mr. Brown, Douglas Hoehn, a professional land surveyor, prepared a plan of land for Mr. Brown, which not only defined Parcel One and Parcel Two, but also labeled the four assessing parcels and private ways that comprise Parcel Two, delineated the relevant camp-ground lots and the private ways shown on the Mullin plan, and traced a narrow right-of-way meandering through Parcel Two to property owned by an unrelated abutter. This plan was never recorded, and although the appellant used it as a chalk, it was not admitted into evidence.
For all of the fiscal years at issue, the subject assessing parcels were located in a residential “R60” zone, which requires a minimum of 1.5 acres for a buildable parcel. Setbacks are 50 feet for the front yard and 25 feet for the back and side yards. All lots created after 1985 must have a minimum 50 feet of frontage on a street. The Zoning By-laws define “street” as “a public way or a way, having in the opinion of the Planning Board, sufficient width, suitable grades and adequate construction to provide for the proposed use of the land abutting thereon or served thereby.”
The property record cards and Ms. Resendes’ testimony reveal that the assessors use a two-line land assessment model for assessment purposes. After accounting for an approximately 1.5-acre primary building site in the first line, any additional land is valued in the second line at $25,000 per acre, and then adjusted for various factors. If the 6 Menamsha Avenue assessing parcel were to be valued using only the second line land valuation with the same adjustments which the assessors had used in the actual first-line land valuation, its second-line land value would be $123,750. The evidence, however, does not establish that the 6 Menamsha Avenue assessing parcel would or should necessarily be valued and assessed for this amount if considered unbuildable.
Discussion and the Board’s Ultimate Findings
(1)
The appellant urges the Board to consider and value the two subject assessing parcels, along with the two settled parcels, as part of a single tract of land, termed Parcel Two. The appellant claims that, for assessment purposes, Parcel Two should be valued as a single primary lot with the remainder regarded as excess land. The predominant reason upon which the appellant relies for deeming the four assessing parcels a single tract of land is the perimeter description of Parcel Two contained in a series of deeds beginning in 1965. Based on all of the evidence, its subsidiary findings, and reasonable inferences drawn therefrom, the Board finds that the appellant failed to prove that the assessors were obliged to value and assess the subject assessing parcels as part of a single tract of land, termed Parcel Two.
First, from a conveyancing standpoint, none of the deeds conveying Parcel Two refers to any plan actually depicting Parcel Two. The only relevant plan of land on record and in evidence is the 1875 Mullin Plan which shows camp-ground lots along with actual and paper streets. Because no plan depicting Parcel Two is on record in the appropriate Registry and for the reasons discussed below, the Board finds that the appellant did not sufficiently demonstrate that the camp-ground lots had been properly assembled into one new parcel. The Board also finds that the appellant failed to demonstrate that it no longer retains the right to convey even individual camp-ground lots that it owns in accordance with the Mullin Plan.
Second, there is little, if any, evidence to establish that the appellant’s or any of its predecessors’ actual use of the assessing parcels that comprise Parcel Two indicates a use consistent with the appellant’s single-parcel theory. A representative or partner of the appellant never testified, Mr. Crimmins had no first-hand knowledge, and Ms. Resendes’ testimony was silent on this issue. If such a single use could have been established, the Board finds that it would be a factor that it could consider for valuation purposes.
Third, the assessors elected to value Parcel Two as four separate assessing parcels, two of which are the subject of these appeals. The assessors used what appear to be actual and paper streets shown on the Mullin Plan as assessing parcel demarcation lines or borders. Because of these streets, the apparent vitality of the Mullin Plan, and the lack of evidence on the use to which the appellant and its predecessors have put Parcel Two, the Board finds that neither the camp-ground lots, nor the assessing parcels have necessarily merged for valuation purposes, notwithstanding common ownership. The assessors must value property according to its highest and best use, and they may make reasonable assumptions and determinations in that regard. In the present appeals, the assessors determined, consistent with the Mullin Plan, that the appellant could convey or develop the camp-ground lots as four separate primary parcels, which the assessors defined as four separate assessing parcels.
Lastly, the parties settled the appeals relating to two of the four assessing parcels that comprise Parcel Two, leaving appeals relating only to the remaining two subject assessing parcels. If, arguendo, the Board were to find that the appellant’s proposition of valuing Parcel Two as a single assessment parcel were correct, based on the existing record, the Board would be unable to determine a reliable value for the two subject assessing parcels and an appropriate abatement. The absence of the two settled parcels, which are not subject to these appeals but nonetheless comprise the remainder of Parcel Two, precludes the Board from being able to reliably value Parcel Two and then allocate values to, or separately value, the two subject assessing parcels.
Based on all the evidence, its subsidiary findings, and reasonable inferences drawn therefrom, the Board further finds that the 8 Ocean View Avenue assessing parcel, which is 2.45 acres in size and has a small area, at the bend in its 7-shape, that is more than one hundred feet in depth and more than 50 feet from the perimeter boundary of Parcel Two, is a buildable lot, as even Mr. Crimmins seemed to concede. The Board also finds, however, that the appellant established that the 6 Menamsha Avenue assessing parcel, which is 1.5 acres in size and in the shape of a ruler, is not a buildable lot without a waiver of deed and possibly zoning restrictions because it is dimensionally substandard. The Board therefore finds that the assessors, by valuing the 6 Menamsha Avenue assessing parcel as a buildable lot, have erred. The Board finds, under the circumstances here, that this assessing parcel is more appropriately valued as an unbuildable lot. But, the Board also finds that the appellant did not establish a value for this assessing parcel as an unbuildable lot. Neither Mr. Crimmins’ nor Ms. Resendes’ testimony nor the exhibits provide adequate evidence in this regard. The appellant did not introduce evidence from a real estate valuation expert or a partner or representative of the appellant on this or any valuation question. Consequently, the Board finds that it is unable to determine a reliable value different from the presumptively valid assessed value for this assessing parcel.
Based on the adjusted values that Ms. Resendes derived in her appraisal report, she concluded that the assessments for the 8 Ocean View Avenue assessing parcel were appropriate. The Board, however, did not find the properties that she selected for her comparable sales analyses to be particularly comparable to the 8 Ocean View Avenue assessing parcel. Her gross adjustments for these properties, not including any modifications for time, totaled between 70% and 95%, and even this range may not be adequate to account for their apparent differences with the 8 Ocean View Avenue assessing parcel. Consequently, the Board finds that Ms. Resendes’ adjusted values are not reliable indicators of the 8 Ocean View Avenue assessing parcel’s value for the fiscal years at issue.
(2)
Mr. Crimmins is an attorney who testified that he specializes, at least to some extent, in conveyancing. The Board did not qualify him as an expert in these appeals because he lacked the requisite independence and his testimony concerned a question of law for which expert testimony was unnecessary. The Board nonetheless allowed him to testify conditionally about the relevant deeds, plans, zoning, and assessment parcel configuration. The Board considers Mr. Crimmins’s opinions or interpretations of the facts and evidence to be merely argument, and the Board therefore finds them to be persuasive only to the extent that the Board also finds facts from the available evidence proving them. Otherwise the Board accords them no evidentiary weight.
Conclusion
In conclusion, the Board finds that the appellant did not prove that the assessors were obliged to value and assess the subject assessing parcels together with the two settled parcels, as a single assessing parcel — Parcel Two. The Board also finds that while the evidence supports the conclusion that the 8 Ocean View Avenue assessing parcel is a buildable lot, it also establishes that the 6 Menamsha Avenue assessing parcel is not. However, the appellant did not provide the Board with adequate evidence upon which to rely to merge it into the 8 Ocean View Avenue assessing parcel or otherwise or to value the 6 Menamsha Avenue assessing parcel as an unbuildable lot. The appellant introduced virtually no relevant valuation evidence for the subject assessing parcels. Accordingly, the Board finds that the appellant failed to meet its burden of proving that the subject assessing parcels were overvalued for the fiscal years at issue. The Board, therefore, decides these appeals for the appellee.
OPINION
(1)
The assessors have a statutory and constitutional obligation to assess all real property at its full and fair cash value. Part II, c. 1, § 1, art. 4, of the Constitution of the Commonwealth; art. 10 of the Declaration of Rights; G.L. c. 59, §§ 38, 52. See Coomey v. Assessors of Sandwich, 367 Mass. 836, 837 (1975)(citations omitted). Fair cash value means fair market value, which is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974)(quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayer[] . . . prov[es] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984)(quoting Schlaiker, 365 Mass. at 245).
In appeals before this Board, a taxpayer “may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.” General Electric Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
In the present appeals, the appellant attempted to demonstrate that the assessors should not have separately valued the subject assessing parcels as two buildable lots, but should instead have valued them as part of a larger parcel that had one primary building site and excess land. The Board found, however, that the appellant failed to adequately demonstrate that the assessors should have treated the subject assessing parcels as part of Parcel Two. The Board found that there was no recorded plan depicting Parcel Two, and there was essentially no evidence relating to the use of the subject or settled assessing parcels or Parcel Two. Consequently, the Board found no persuasive evidence to support a finding that the affected camp-ground lots, defined in the Mullin Plan, had been properly assembled into one new parcel. Further, on this record, it appears that the appellant retains the right to convey even individual camp-ground lots that it owns in accordance with the Mullin Plan. See Siddharth v. Reid, 21 Mass. L. Rep. 715 (2006) (“The crucial inquiry . . . is whether the lot[s] retain[] separate identit[ies].”).
In addition, the assessors elected to value Parcel Two as four separate assessing parcels, two of which are the subject of these appeals. The assessors used what appear to be actual and paper streets shown on the Mullin Plan as assessing parcel demarcation lines or borders. Because of these streets, the apparent vitality of the Mullin Plan, and the lack of evidence on the use to which the appellant and its predecessors have put Parcel Two, the Board found that neither the camp-ground lots, nor the assessing parcels have necessarily merged for valuation purposes, notwithstanding common ownership. The assessors must value property according to its highest and best use, and they may make reasonable assumptions and determinations in that regard. See Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989). In the present appeals, the assessors determined, consistent with the Mullin Plan, that the appellant could convey or develop the camp-ground lots as four separate primary parcels, which the assessors defined as four separate assessing parcels. See Town of Lenox v. Oglesby, 311 Mass. 269, (1942)(holding that “[t]here is no hard and fast rule to be applied universally to guide assessors in determining whether parcels of land were to be assessed separately or together”; it is essentially a question of fact). Based on all of the evidence, its subsidiary findings, and reasonable inferences drawn therefrom, the Board finds and rules that the appellant failed to prove that the assessors should have valued the subject assessing parcels as part of a larger parcel that had one primary building site with the remainder consisered excess land.
In determining a property’s fair cash value, it is important initially to consider all uses to which the property was or could reasonably be adapted on the relevant assessment dates. Newton Girl Scout Council, Inc. v. Massachusetts Turnpike Authy., 335 Mass. 189, 193 (1956); Irving Saunders Trust, 26 Mass. App. Ct. at 843. The goal is to ascertain the maximum value of the property for any legitimate and reasonable use. Id. The Board found that the evidence supporting the assessor’s determination regarding the highest and best use of the 8 Ocean View Avenue assessing parcel as a buildable lot was credible and substantial; however, the Board also found that the evidence did not support such a determination regarding the 6 Menamsha Avenue assessing parcel. Rather, the Board finds and rules that the 6 Menamsha Avenue assessing parcel would be better valued as not buildable as a matter of right.
Real estate valuation experts, the Massachusetts courts, and this Board rely primarily upon three approaches to determine a property’s fair cash value: income-capitalization, sales comparison, and depreciated reproduction or replacement cost. Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978). “The board is not required to adopt any particular method of valuation.” Pepsi-Cola Bottling Co. v. Assessors of Boston, 397 Mass. 447, 449 (1986). The fair cash value of property may often best be determined by recent sales of comparable properties in the market. See Correia, 375 Mass. at 362; McCabe v. Chelsea, 265 Mass. 494, 496 (1929). Actual sales generally “furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971). Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date contain credible data and information for determining the value of the property at issue. See McCabe, 265 Mass. at 496. “A major premise of the sales comparison approach is that an opinion of the market value of a property can be supported by studying the market’s reaction to comparable and competitive properties.” Appraisal Institute, The Appraisal of Real estate 297 (13th ed., 2008). When comparable sales are used, however, allowance must be made for various factors which would otherwise cause disparities in the comparable prices. See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082. “Comparative analysis of properties focuses on similarities and differences that affect value. . . . [T]he appraiser adjusts for any differences.” The Appraisal of real estate at 297, 307.
The appellant introduced little affirmative evidence of the subject assessing parcels’ fair cash values as of the relevant assessment dates. The appellant offered no opinions of fair cash value of its own through representatives or partners, and it did not introduce testimony or appraisal reports from real estate valuation expert witnesses proposing fair cash values for Parcel Two or the subject assessing parcels for the fiscal years at issue. The appellant’s limited valuation submissions consisted of equivocal testimony from Ms. Resendes and data on property record cards. From this information, the Board is not able to ascertain a value for an unbuildable lot like the 6 Menamsha Avenue assessing parcel.
The assessors submitted an appraisal report prepared by Ms. Resendes into evidence, which used a comparable-sales approach to value the 8 Ocean View Avenue assessing parcel for the fiscal years at issue. The Board found, however, that the magnitude of the adjustments applied to the purportedly comparable properties that Ms. Resendes used in her report strongly suggested that the properties were not comparable to the 8 Ocean View Avenue assessing parcel. “[E]xcessive adjustments ‘raise serious questions regarding initial comparability.’” The May Department Store Co. v. Assessors of Newton, Mass. ATB Findings of Fact and Reports 2009-153, 191 (quoting The Trustee of the Charles Cotesworth Pinckney Trust v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2007-621, 630-31). The Board therefore finds and rules that the properties chosen for the Resendes’ comparable-sales analysis were not comparable and the values derived from them were unreliable.
The Board is not required to believe the testimony of any particular witness or to adopt any particular method of valuation that a witness suggested. Rather, the Board can accept those portions of the evidence that the Board determines has more convincing weight. Foxboro Associates, 385 Mass. at 683; New Boston Garden Corp., 383 Mass. at 473; Board of Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 701-702 (1972). In evaluating the evidence before it in these appeals, the Board formed its own independent judgment that the fair cash value of the subject assessing parcels could not be reliably ascertained. See General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984). Accordingly, the Board finds and rules that the appellant did not overcome the presumed validity of the assessments.
The fair cash value of property cannot be proven with “mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment.” Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 72 (1941). “The credibility of witnesses, the weight of evidence, and inferences to be drawn from the evidence are matters for the board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
(2)
The Board found that, at all relevant times, Mr. Crimmins was an attorney who testified that he specialized, at least to some extent, in conveyancing. The Board did not qualify him as an expert in these appeals for several reasons. First, it was established on voir dire that Mr. Crimmins had worked and continues to work with appellant’s attorney as co-counsel on matters litigated and currently before the Board concerning assessments of other properties on Martha’s Vineyard and Edgartown. See generally Turners Falls, L.P. v. Assessors of Montague, 54 Mass. App. Ct. 732, 738 (2002)(“[an expert witness must not be] a party or an agent for the party that employ[s] the expert . . . . [or] under the control of the party . . . [because the expert must] testif[y] impartially to assist the trier of fact about matters not in common knowledge.”). On this basis, the Board rules that Mr. Crimmins’s on-going association with appellant’s counsel called his independence into question. See Haynes v. Assessors of Middleton, Mass. ATB Findings of Fact and Reports 2011-143, 188 (finding and ruling that the testimony and appraisal report submitted by a real estate valuation witness who was also acting as appellant’s agent “were imbued with bias which adversely impacted her credibility and rendered her estimates of value less reliable.”). Cf. Pappas v. Assessors of Ipswich, Mass. ATB Findings of Facts and Reports, 1997-599, 629-30 (ruling that, in that case, a real estate valuation witness’s testimony was not tainted or biased because she had demonstrated to the Board that she was no longer acting as that appellant’s agent and did not have a potential interest in that case).
Second, the witness was called to offer an opinion regarding whether, as a matter of law, the two subject assessing parcels coupled with the two settled parcels should be valued and taxed as a single assessing parcel. The Board is capable of determining this issue without the aid of an expert witness. See Hon. Paul J. Liacos, Handbook of Massachusetts Evidence 382 (6th ed. 1994)(“[E]xpert testimony may be essential in some areas; in others it may not be necessary although appropriate. In these latter situations the discretion of the trial judge seems to be given great weight on the question of the propriety of such evidence.”).
Even agreeing with Mr. Crimmins concerning the conveyancing history of the parcels, the Board determined, based on, among other things, the lack of evidence as to use, the absence of a recorded plan depicting Parcel Two, the apparent vitality of the Mullin Plan, the appellant’s likely retained ability to convey individual camp-ground lots, and the discretion given to assessors in drawing parcel lines, that the appellant failed to prove that the subject assessing parcels, along with the two settled parcels, were merged into a single parcel for purposes of valuation and assessment.
Finally and as a result of its findings and rulings regarding Mr. Crimmins’s status as a non-expert witness, the Board considers any of Mr. Crimmins’s testimony that contains opinions or interpretations of the facts and evidence to be merely argument, and the Board therefore finds them to be persuasive only to the extent that the Board also finds facts from the available evidence proving them. Otherwise the Board rules that they are entitled to no evidentiary weight.
Conclusion
In conclusion, the Board finds and rules that the appellant failed to prove that the assessors were obliged to value and assess the subject assessing parcels together with the other two assessing parcels, which the parties previously settled and are not part of these appeals, as a single assessing parcel, termed Parcel Two. The Board also finds and rules that the evidence supports a finding that the 8 Ocean View Avenue assessing parcel is a buildable lot, but the 6 Menamsha Avenue assessing parcel is not. However, the appellant did not provide the Board with adequate evidence upon which to rely to value this latter assessing parcel as an unbuildable lot or to merge it into the 8 Ocean View Avenue assessing parcel or otherwise. The appellant introduced virtually no relevant valuation evidence relating to the subject assessing parcels. Accordingly, the Board rules that the appellant failed to meet its burden of proving that the subject assessing parcels were overvalued for the fiscal years at issue.
The Board, therefore, decides these appeals for the appellee.
THE APPELLATE TAX BOARD
By: ___________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: _____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
COMMUNITY CARE SERVICES, INC. v. BOARD OF ASSESSORS OF
THE TOWN OF BERKLEY
Docket No. F293959 Promulgated:
June 29, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the Town of Berkley (“assessors” or “appellee”) to grant an exemption under G.L. c. 59, § 5, Third (“Clause Third”) and abate taxes on certain real estate located in Berkley owned by and assessed to Community Care Services, Inc. (“appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2008 (“fiscal year at issue”).
Commissioner Mulhern heard the appeal. A decision was issued on October 14, 2010 which was, because of an administrative error, incorrectly issued in favor of the appellee. Chairman Hammond and Commissioners Scharaffa, Egan and Rose now join Commissioner Mulhern in this Revised Decision in favor of the appellant, which is promulgated simultaneously with this Findings of Fact and Report.
This Findings of Fact and Report is issued at the request of the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
David C. Mangoonian, Esq. for the appellant.
David T. Gay, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
Based on the testimony and exhibits offered into evidence in this appeal, the Appellate Tax Board (“Board”) makes the following findings of fact.
On July 1, 2007, the relevant date for qualification for the exemption under G.L. c. 59, § 5, Third (“determination date”), the appellant was the owner of a 282,593-square-foot parcel of land improved with a single-family residential dwelling located at 1 Vary Way in Berkley (“subject property”). For the fiscal year at issue, the assessors valued the subject property at $756,800 and assessed taxes thereon, at the rate of $7.55 per $1,000, in the total amount of $5,713.84. The appellant did not pay the assessed taxes and on February 11, 2008, within three months of the date of the tax bill, seasonably filed a direct appeal with the Board, pursuant to G.L. c. 59, § 5B.[142] On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide this appeal.
The parties stipulated that the appellant was at all material times a Massachusetts not-for-profit corporation organized and operated for charitable purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code. On June 16, 2006, the appellant purchased the subject property for $595,000.00. At the time of the purchase, the appellant intended to use the subject property for its residential program known as the “Lindencroft program.” The Lindencroft program, which was operating on another property owned by the appellant in Berkley when the subject property was purchased, is a residential program offering behavioral interventions for adolescent girls.
Shortly after it purchased the subject property, the appellant contracted with an architect for architectural services in late July, 2006 and with engineering firms in late August and mid-September, 2006. The proposed renovations included a new septic system, parking, upgraded kitchen facilities, office space, and additional living space. The appellant undertook the renovations to adapt the dwelling to a 14-bed facility which would be able to accommodate up to 14 adolescent girls, as well as the necessary staff.
As of the determination date, the appellant was proceeding with the preliminary measures necessary for the establishment of the program at the subject property. A letter from the Building Commissioner and Zoning Officer for Berkley indicates that no Occupancy Permit had yet been issued as of April 29, 2008, and that the building renovations were “not complete” as of that date. However, the appellant established that it had entered into contracts for architectural services, engineering services, and had proceeded with the necessary permitting procedures, including filings with the Town’s Conservation Commission and Board of Health and with the Massachusetts Division of Fisheries and Wildlife. The appellant also chose a contractor for the renovation of the existing structure on the subject property, mediated settlements of two appeals by abutters and had gained approval to commence work on the
subject property as of the hearing date of this appeal.[143]
The appellant contended that its active and diligent pursuit of permits and other preliminary measures necessary to establish the program at the subject property qualifies as its “occupancy” of the subject property for purposes of the Clause Third exemption. The appellee disagreed and cited the fact that no permit of occupancy had been issued as of the relevant determination date as evidence that the appellant was not occupying the subject property during the fiscal year at issue.
The Board found that the appellant purchased the subject property with the intent to use it in the furtherance of its charitable purpose, which was to operate a residential facility offering a program of behavioral services to adolescent girls, known as the “Lindencroft program.” The Board further found that, as of the relevant determination date, the appellant was diligently pursuing the preliminary measures that were necessary for establishing its Lindencroft program at the subject property, including entering into contracts for architectural and engineering services, proceeding with necessary filings with the various Town and Commonwealth boards, and settling lawsuits that would have otherwise prevented construction and use of the subject property for its intended purpose. Therefore, for the reasons stated in the following Opinion, the Board found and ruled that, despite the fact that no Occupancy Permit had yet been issued, the appellant did “occupy” the subject property for purposes of the Clause Third exemption. Accordingly, the Board issued a revised decision for the appellant and granted an abatement in the amount of $5,713.84.
OPINION
The Clause Third exemption applies to “[r]eal estate owned by or held in trust for a charitable organization and occupied by it or its officers for the purposes for which it is organized.” (emphasis added). The organization bears the burden of proving the elements necessary to qualify for the exemption, including its occupation of the property in furtherance of the charitable purposes for which it was organized. See Assessors of Hamilton v. Iron Rail Fund of Girls Club of America, Inc., 367 Mass. 301, 306 (1975); Mary Ann Morse Healthcare Corp. v. Assessors of Framingham, 74 Mass. App. Ct. 701, 703 (2009).
In the instant appeal, it is undisputed that the appellant’s use of the property was its preparation of that property for use in its charitable endeavors. The appellant contended that the use of the property, as of the determination date of July 1, 2007, extended beyond “simple ownership and possession” and qualified as an active appropriation of the subject property for its charitable purposes, thus qualifying as an “occupation” of the property for purposes of the Clause Third exemption.
The issue in the instant appeal – whether the appellant’s occupancy can include its presence at the subject property during preparations for use in its charitable endeavor – was addressed by the Supreme Judicial Court in New England Hospital for Women and Children v. City of Boston, 113 Mass. 518 (1873). The appellant there, a charitable organization, purchased the property “for the purposes of establishing and maintaining a hospital for the treatment of the diseases of women and children, and of giving therein clinical instruction to female students of medicine, and of training nurses.” Id. The relevant date for determining qualification for the exemption, which was the predecessor of the Clause Third exemption, was May 1, 1871. Within a period of about a month from its purchase in April, 1871, the appellant had hired an architect, who had prepared plans and specifications for the hospital, which the appellant approved, and by May 27, 1871, the architect had staked off the property in preparation for digging the foundation. Id. The Supreme Judicial Court found that the appellant, as of the relevant determination date, was “diligently proceeding with the preliminary measures necessary to the erection” of the hospital, and accordingly, did “occupy” the property in accordance with the statute[144] as of that time. Id. at 521.
In Trinity Church v. City of Boston, 118 Mass. 164 (1875), the subject property was purchased to house a church to replace one that had been destroyed by fire. Trinity Church sought exemption for its property as a “house of religious worship”[145] although, as is the case in the present appeal, work was on-going on the property at issue. As of the relevant determination date in that appeal, the work done consisted of driving piles for the foundation, which was all that could be accomplished before the winter. According to the agreed statement of facts, “[i]t was then, and is now, the intention of the proprietors of the plaintiff corporation to use the lot on St. James Avenue for purposes of religious worship only; and they have caused the work of building the new church to be carried on with all reasonable diligence.” Id. Citing New England Hospital, the Court declared that actual use was not required by the statute, and under the facts of that case, sufficient steps had been taken towards actual use of the property to qualify it for the real estate exemption. Id. at 165-66. More recently, the Massachusetts Appeals Court, in Mt. Auburn Hospital v. Assessors of Watertown, cited New England Hospital as reflecting “a less rigid formulation [with respect to occupancy] focusing on the organization’s intentions and diligence.” Mt. Auburn Hospital v. Assessors of Watertown, 55 Mass. App. Ct. 611, 622, n.11 (2002) (“although construction had not commenced yet, planning had been undertaken with due diligence and the hospital had not leased the premises or derived a profit therefrom; exemption allowed”). See also The Children’s Hospital Medical Center v. Assessors of Boston, 353 Mass. 35, 37-8 (1967) (finding that, even prior to the conversion of the subject property from a garage to a hospital laundry facility, “[a]ctual occupation by Children’s was made . . . when two employees of Children’s moved into the premises and supervised arrangements for the conversion.”).
The appellee cited Boston Society of Redemptionist Fathers v. City of Boston, 129 Mass. 178 (1880) to support its contention that an organization’s intent to use a property for charitable purposes at some time in the future is not sufficient to qualify for the exemption. In that case, a religious organization owned property adjacent to the property upon which its church was erected. The plaintiff found the property to be unsuitable for its church, but claimed that it intended to use the property at some time in the future “for school purposes.” Id. at 181. In denying the application of the charitable exemption, the Court found that the plaintiff’s intent to occupy for a specific charitable purpose was not sufficiently formulated at of the relevant assessment date:
The most that can be said is that the plaintiff intends that it shall be so occupied at some time; but to all appearance the time of such occupation is left wholly indefinite, and there is nothing to prevent the plaintiff from changing its plans and alienating the property whenever it pleases. Without insisting on the strictest and most literal interpretation of the word “occupied,” as found in the third clause, we cannot avoid the belief that some actual appropriation of the land to the purpose for which the plaintiff was incorporated must be unequivocally shown, in order to exempt it from taxation, and that an intent to do so at some wholly indefinite future time is not sufficient for that purpose. It should at least appear that it had begun to build.
Id. at 181-82 (emphasis added) (citing New England Hospital v. Boston, 113 Mass. 518 (1873)). In the instant appeal, by contrast, the Board found several instances of the appellant taking active steps to prepare the property for use in its Lindencroft program, including engaging architectural and engineering services for necessary renovations of the property and seeking permits with the appropriate Town and Commonwealth boards. The Board found that these steps sufficiently demonstrated the appellant’s appropriation of the subject property for its use as soon as possible for the appellant’s charitable purpose, and thus established the “occupation” of the property for purposes of the Clause Third exemption.
The parties agreed that the appellant purchased the subject property for the operation of its Lindencroft program, which at the time of purchase was operating on a different parcel of land. To be used for the Lindencroft program, the subject property, which contained a single-family residence at the time of purchase, required significant modifications. The Board found that the appellant was actively pursuing the necessary modifications as of the relevant determination date for the Clause Third exemption. The Board thus found that the appellant established occupation of the subject property as of the determination date in furtherance of its charitable purpose, the operation of the Lindencroft program. The Board further found that, while no Occupancy Permit had been issued as of the relevant determination date, the appellant was nevertheless “diligently proceeding with the preliminary measures necessary” to establish the Lindencroft program as soon as possible at the subject property, and thus occupied the subject property for purposes of the Clause Third exemption. New England Hospital, 113 Mass. at 521.
On the basis of its findings and rulings, the Board issues a Revised Decision in favor of the appellant.
APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
CHRISTINE M. FLORIO, TRUSTEE v. BOARD OF ASSESSORS OF WANDA J. NOVAK, TRUSTEE[146] THE TOWN OF NEWBURY
Docket No. F287875 (FY 2007)
Docket No. F294075 (FY 2008)
Docket No. F299082 (FY 2009)
Docket No. F305469 (FY 2010)
JOSEPH DINAPOLI v. BOARD OF ASSESSORS OF THE TOWN OF NEWBURY
Docket No. X302672 (FY 2010)
STEPHEN A. & CATHERINE T. DeSALVO v. BOARD OF ASSESSORS OF THE TOWN OF NEWBURY
Docket No. X302664 (FY 2010)
CANDACE & PETER ERICKSON v. BOARD OF ASSESSORS OF THE TOWN OF NEWBURY
Docket No. X302689 (FY 2010)
DONALD ACCETTA, TRUSTEE[147] v. BOARD OF ASSESSORS OF THE TOWN OF NEWBURY
Docket No. X302682 (FY 2010)
HENRY A. & SUSAN S. CHRIST[148] v. BOARD OF ASSESSORS OF THE TOWN OF NEWBURY
Docket No. X302656 (FY 2010)
Promulgated:
June 29, 2011
These are appeals under the formal and informal procedures, pursuant to G.L. c. 59, §§ 7 and 7A and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the Town of Newbury (the “assessors” or “appellee”) to abate taxes on certain real estate in the Plum Island section of the Town of Newbury assessed under G.L. c. 59, §§ 11 and 38 for fiscal years 2007, 2008, 2009 and 2010. The six parcels located along Northern Boulevard (collectively, the “subject properties”) are owned by and assessed to the parties captioned on the preceding page and identified below in Table One (collectively, the “appellants”). A summary of some of the basic identifying information related to each of the subject properties is contained below in Table One.
Table One
|
Fiscal Year
|
Docket No.
|
Appellant
|
Property Address
|
Assessors Map/Lot |
Parcel Size |
Square Feet
2007
F287875
Florio, TE
58 Northern Blvd.
U03-187
9,429
2008
F294075
“
“
“
“
2009
F299082
Novak, TE
“
“
“
2010
F305469
“
“
“
“
2010
X302672
DiNapoli
46 Northern Blvd.
U03-191
18,206
2010
X302664
DeSalvo
16 Northern Blvd.
U02-12
8,429
2010
X302689
Erickson
48 Northern Blvd.
U03-190
21,306
2010
X302682
Accetta, TE
76 Northern Blvd.
U03-182
16,945
2010
X302656
Christ
26 Northern Blvd.
U02-4
17,195
Chairman Hammond heard these appeals. Pursuant to G.L. c. 58A, §§ 7A and 8 and 831 CMR 1.19(5) and 1.37(1) and (2), and without objection from the parties, the Chairman joined and consolidated these appeals. Commissioners Scharaffa, Egan, Rose, and Mulhern joined him in the decisions for the appellee in docket numbers F287875, F294075, and F299082, which relate to the 58 Northern Boulevard property for fiscal years 2007, 2008, and 2009, respectively, and the decisions for the appellants in the remaining docket numbers F305469, X302672, X302664, X302689, X302682, and X302656, which relate to the 58 Northern Boulevard, 46 Northern Boulevard, 16 Northern Boulevard, 48 Northern Boulevard, 76 Northern Boulevard, and 26 Northern Boulevard properties for fiscal year 2010, respectively.
The Appellate Tax Board (the “Board”) promulgates this Findings of Fact and Report on its own motion under G.L. c. 58A, § 13 and 831 CMR 1.32. The Board’s decisions are promulgated simultaneously with this Findings of Fact and Report.
Joseph DiNapoli, pro se, Stephen A. DeSalvo, pro se, Peter Erickson, pro se, Donald Accetta, pro se, Susan Christ, pro se, and Paul Novak, Esquire, for the appellants.
Frank Kelley, assessor, E. Peter Murphy, assessor, Sanford Wechsler, assessor, and Carrie Keville, administrative assessor, for the appellee.
FINDINGS OF FACT AND REPORT
Basic Assessment and Jurisdictional Information
On January 1, 2006, 2007, 2008, and 2009, the appellants were the assessed owners of their respective parcels of real estate located along Northern Boulevard in the Plum Island section of Newbury. The relevant assessment information for the subject properties for the fiscal years at issue is contained below in Table Two.
Table Two
|
Fiscal Year
|
Docket No.
|
Appellant
|
Northern Boulevard Address
|
Tax Rate $/1,000 |
Overall Assessment ($)
|
Real Estate Tax ($) |
Land Assessment ($) |
|
2007 |
F287875 |
Florio, TE |
58 |
8.23 |
963,800 |
7,932.06* |
645,900 |
|
2008 |
F294075 |
“ |
“ |
8.57 |
935,700 |
8,018.94* |
645,900 |
|
2009 |
F299082 |
Novak, TE |
“ |
9.16 |
859,900 |
7,876.68* |
581,300 |
|
2010 |
F305469 |
“ |
“ |
9.52 |
830,400 |
7,905.40* |
569,900 |
|
2010 |
X302672 |
DiNapoli |
46 |
9.52 |
823,900 |
7,843.52* |
699,000 |
|
2010 |
X302664 |
DeSalvo |
16 |
9.52 |
782,500 |
7,449.40* |
625,700 |
|
2010 |
X302689 |
Erickson |
48 |
9.52 |
837,300 |
7,971.10* |
722,300 |
|
2010 |
X302682 |
Accetta, TE |
76 |
9.52 |
819,000 |
7,796.88 |
689,700 |
|
2010 |
X302656 |
Christ |
26 |
9.52 |
1,070,400 |
10,190.20* |
691,500 |
* In addition to real estate tax, a betterment charge appeared on these appellants’ tax bills.
The pertinent payment and other jurisdictional information, including relevant filing dates, for the subject properties for the fiscal years at issue are contained below in Table Three.
Table Three
|
Fiscal Year
|
Docket No. |
Appellant
|
Tax Bill Mailed |
Tax Payment |
Abatement Application |
Assessors’ Denial |
Petition or Statement to Board
|
|
2007 |
F287875 |
Florio, TE |
12/29/2006 |
timely |
01/17/2007 |
02/06/2007 |
02/23/2007 |
|
2008 |
F294075 |
“ |
12/26/2007 |
timely |
01/24/2008 |
02/19/2008 |
03/18/2008 |
|
2009 |
F299082 |
Novak, TE |
12/31/2008 |
timely |
01/26/2009 |
02/17/2009 |
03/09/2009 |
|
2010 |
F305469 |
“ |
12/28/2009 |
timely |
01/25/2010 |
02/12/2010 |
04/20/2010 |
|
2010 |
X302672 |
DiNapoli |
12/28/2009 |
timely |
01/28/2010 |
02/12/2010 |
05/12/2010 |
|
2010 |
X302664 |
DeSalvo |
12/28/2009 |
timely |
01/26/2010 |
02/12/2010 |
05/11/2010 |
|
2010 |
X302689 |
Erickson |
12/28/2009 |
timely |
01/26/2010 |
02/12/2010 |
05/12/2010** |
|
2010 |
X302682 |
Accetta, TE |
12/28/2009 |
timely* |
01/25/2010 |
02/12/2010 |
05/12/2010** |
|
2010 |
X302656 |
Christ |
12/28/2009 |
timely |
01/27/2010 |
02/12/2010 |
05/11/2010 |
* The appellant timely paid the average of the previous three years’ tax assessments. See G.L. c. 59, §§ 64 & 65 (“a sum not less than the average of the tax assessed . . . for the three years next preceding the year of assessment may be deemed to be the tax due.”)
** The appellants timely mailed Statements Under Informal Procedure on May 12, 2010, which the Board received on the following day. See G.L. c. 59, §§ 64 and 65 (“If any complaint under this section is, after the period or date prescribed by this section, . . . delivered by United States mail, to the clerk of the . . . board, the date of the United States postmark . . . affixed on the envelope or other appropriate wrapper in which such complaint is mailed or delivered shall be deemed to be the date of delivery.”).
Based on these facts and in accordance with G.L. c. 59, §§ 57C, 59, and 64 and 65, the Board found and ruled that it had jurisdiction over these appeals.
Summary of Valuation Evidence
Introduction
Plum Island, named after the plethora of beach plum bushes once found there, is an approximately eleven-mile long barrier island and beach, composed of sand and sediment and formed after the last ice age, some 18 thousand years ago, when the great glaciers receded. The island, which varies in width from about one-quarter mile to over one-half mile, extends from the south side of the mouth of the Merrimack River in Newburyport southward, through the towns of Newbury, Rowley, and Ipswich, to the mouth of the Ipswich River and Ipswich Bay. The western boundary of Plum Island is formed by the Plum Island River and Plum Island Sound; the eastern boundary is the Atlantic Ocean. A little over two miles of the island’s most northern stretch is densely developed with about 1,200 year-round and seasonal homes and cottages, all in the Newburyport and Newbury sections. The remaining three-quarters of the island is comprised of a 4,662-acre federal wildlife refuge, named the Parker River National Wildlife Refuge, and, at the very southern tip, called Sandy Point, a small state reservation, named Sandy Point State Reservation.
For reference and for illustrative purposes only, a map of Plum Island is provided below.[149]
|
|
|
Geological and historical evidence reveals that the island, or various oceanfront parts of it, have undergone periods of accretion and erosion throughout its history. In the past, however, when property was lost to the ocean, it usually only involved undeveloped sand dunes or sections of beach, or, in the more recent past, seasonal cottages. Presently, however, and similar to numerous other locales located along the Massachusetts shoreline, such as Salisbury and Scituate and various other communities on Cape Cod and the Islands, Plum Island is experiencing what engineers now refer to as “severe coastal erosion” affecting relatively expensive beachfront properties. Current efforts to curb that process have focused on stop-gap, but still costly solutions, such as dredging and sand replenishment projects, which have provided at best only temporary relief from the increased erosion.
Overview
Based on the combined testimony and documentary evidence that forms the record in these consolidated appeals, the Board makes the following findings of fact. In December 2008 and January 2009, the town installed massive sand bags to protect Plum Island center, which is the southern boundary of Northern Boulevard (the “Dune Stabilization Project”). In September 2009, nine months after the relevant assessment date for fiscal year 2010, the U.S. Army Corps of Engineers (“Corps”) completed a so-called §204 Detailed Project Report and Environmental Assessment for Newburyport Harbor and Plum Island and Salisbury Beaches (“§204 Report”).[150] In its study, the Corps reported, inter alia, that: “Plum Island . . . ha[s] experienced localized, acute, erosion rates along the beach face exposed to the Atlantic Ocean. [Based on previous studies conducted in 2000 and 2007], [t]he [average] annual coastal erosion rate has been estimated at 13 feet per year at Newbury, far in excess of the long term average for this region.” The study further reveals that some areas along Northern Boulevard in Newbury nearest to Plum Island Center are receding at an even more accelerated rate of over 21 feet per year, as are some other properties located south of the center along Fordham and Annapolis Ways. To help ameliorate the rapid reduction of the remaining beach buffer ostensibly protecting some 26 residences located on Northern Boulevard and believed to be in imminent danger from the acute erosion, the Corps recommended that the majority of the sand removed from the Merrimack River dredging project, equivalent to roughly 120,000 cubic yards, be directed to that 2,500-foot-long section of the Newbury beach on Plum Island (the “Replenishment Project”). The Replenishment Project was started and completed by the Corps in calendar year 2010. To participate, the affected property owners were required to sign easements which ceded substantial rights to the town while significantly restricting each property owner’s access to and use of the area of nourishment on their property.[151] Originally projected to prevent or delay coastal erosion damages for approximately four to five years, it now appears that this estimate is overly optimistic. According to published accounts, some argue that a more permanent solution necessitates the repair of the compromised southern jetty at the mouth of the Merrimack River, which may have created off-shore currents and drifts that are scouring the shoreline to its south. Local officials are currently lobbying for the institution of such a project.
According to the testimony and other accounts in evidence, it appears that over the past several years, numerous newspaper articles and television news broadcasts have disseminated pictures and accounts of the severe beach erosion problem and the concomitant loss of property on Plum Island’s Newbury and Newburyport beachfronts, including the November 2008 loss of an imperiled single-family home located at 4 5th Street, off Northern Boulevard and along the same beachfront where the subject properties are located. Local, regional, and even national news media continue to report and broadcast accounts of erosion on Plum Island.
Recent sales of beachfront property located on Northern Boulevard in the Newbury section of Plum Island, which the Corps has identified as subject to “severe erosion,” have been few and far between. On May 8, 2008, an undeveloped oceanfront parcel of approximately 9,350 square feet or 0.215 acres, located at 60 Northern Boulevard in Newbury, which the Corps considers to be within the severe erosion area, sold for $150,000. According to the property record card, this property is undevelopable and was assessed at $126,500 for fiscal year 2010 and at $129,100 for fiscal year 2009. The purchaser — in the form of an LLC — was an abutter and one of the appellants in these appeals. On June 11, 2010, 25 months later, an undeveloped oceanfront parcel of approximately 15,660 square feet or 0.36 acres, located at 30 Northern Boulevard in Newbury, which the Corps also considers to be within the “severe erosion” area, sold for $136,000, approximately 9½% less than the prior sale, despite its considerably larger size. According to that property record card, it too is undevelopable and was assessed at $136,000 for fiscal year 2010 and at $138,700 for fiscal year 2009. The purchaser — this time as trustee of a nominee trust — is essentially the same appellant in these appeals who purchased 60 Northern Boulevard approximately two years earlier.
In addition, the appraiser who estimated the value of the 76 Northern Boulevard property for one of the appellants in these appeals did not testify or appear before the Board. The appellant submitted the appraiser’s report, which contained three purportedly comparable-sale properties, into evidence. The only oceanfront property is his first sale, which is located at 4 Grant Street in Newburyport, about ½ mile north of that appeal’s subject property. This purportedly comparable property sold for $760,000 on February 2, 2008 and required less than 10% in gross adjustments for the appraiser to determine an adjusted sale price or indicated value for the 76 Northern Boulevard property of $720,500. This purportedly comparable property is close to but not in the severe erosion area, and it is not directly on the beach and subject to the ocean’s fury in the same way that the subject properties are because it is buffered by a substantial dune and beach area.
In the four appeals which relate to the 58 Northern Boulevard property for fiscal years 2007, 2008, 2009, and 2010, discussed in greater detail below, the assessors introduced eight sales of oceanfront property in the Newbury section of Plum Island that occurred from August 15, 2005 to June 22, 2007.[152] These sales include 5 on Northern Boulevard, one on 41st Street, and two on Fordham Way, which are all within about one mile of one another. Table Four below summarizes the salient information pertaining to these sales.
Table Four
|
Property |
Sale Date |
Sale Price $ |
Ass’d. Val. at Sale $ |
Curr. Ass’d. Value $ |
Parcel Size SF |
Improve Fin. Area SF
|
| 68 Northern Blvd |
08/15/2005 |
1,600,000 |
1,293,400 |
1,193,300 |
18,308 |
2,225 |
| 50 Northern Blvd |
08/19/2005 |
1,685,000 |
1,438,300 |
1,328,200 |
19,850 |
2,852 |
| 72 Northern Blvd |
09/02/2005 |
1,640,000 |
1,176,800 |
1,108,300 |
16,310 |
3,548 |
| 6 Fordham Way |
01/04/2006 |
900,000 |
910,400 |
910,400 |
8,100 |
1,729 |
| 7 41st Street |
11/08/2006 |
1,200,000 |
1,078,900 |
990,000 |
14,383 |
1,865 |
| 10 Fordham Way |
01/22/2007 |
749,000 |
708,400 |
641,000 |
8,100 |
620 |
| 4 Northern Blvd |
04/18/2007 |
720,000 |
670,000 |
612,300 |
2,340 |
2,113 |
|
100 Northern Blvd |
06/22/2007 |
1,350,000 |
1,038,700 |
963,700 |
15,871 |
2,307 |
Several of the appellants testified and introduced a flyer which stated that “[t]o settle the Estate of Helen C. Loyko,” an auction, subject to seller’s confirmation, was to be held in July 2009 to attempt to sell an oceanfront property composed of an approximately ¼-acre parcel improved with a 1,674-square-foot, single-family, 2-story, year-round residence built in the 1950s and located at 37 Southern Boulevard in the Newbury section of Plum Island. The testimony revealed that the property, which is presently assessed for $764,900, did not garner the minimum bid of $585,000.
Another oceanfront property located at 27 Annapolis Way in the Newbury section of Plum Island, south of Plum Island Center but still within an area experiencing severe erosion, was listed, as of November 12, 2010, as being “under agreement” for $299,000. According to the MLS report, it originally had been listed in December 2009 for $779,000, and it went under agreement in July 2010, with an anticipated sale date of December 2010. The listing describes the home as uninhabitable and advises prospective purchasers that it will have to be moved or demolished at the buyer’s expense or the buyer may obtain a building permit for a 1,570-square-foot home to be built further from the ocean. This property’s fiscal year 2009 assessment was $820,000. The improvement on this property was recently demolished after its cement-block foundation was compromised by surf and erosion. The two neighboring properties’ improvements are also currently on the brink. For safety, one of those property owners was ordered to vacate the premises.
For fiscal year 2009, the assessors granted an abatement of $930.93 — which equates to $101,630 of value — to the owner of the property located at 4 5th Street in the Newbury section of Plum Island pursuant to an Act that specifically authorized them to do so. This property is the improved oceanfront parcel just south of Plum Island center that presumably received significant publicity when the home was demolished in late 2008 due to erosion. The owner is presently seeking permits for reconstruction at the portion of the parcel furthest from the ocean.
Several of the appellants testified that federal flood insurance only covers up to $250,000 of their improvements’ values. Private property insurance is essentially unavailable, and the cost of private flood insurance, if it is available at all, is exorbitant. Several appellants also stated that lenders refuse to offer mortgages on Plum Island properties located along Northern Boulevard in excess of the federal flood insurance limit.
In a journal article written by Warren Kriesel and Robert Friedman, entitled Coping with Coastal Erosion: Evidence for Community-Wide Impacts, and published in Shore & Beach Vol. 71, No. 3, July 2003, pp. 19-23 (“Coping with Coastal Erosion”), the authors discovered that oceanfront properties located along ten Atlantic and Gulf Coast counties that are threatened by an erosion rate of 3 feet per year lose about 25% of their value, while comparable properties in communities that nourish their beaches can reclaim approximately one-half of this loss.[153] The Board notes that the subject properties are threatened by an erosion rate in excess of the one used in this study and it now appears that the Replenishment Project on Plum Island is not meeting its expected goals.
The Appeals
All of the appellants in these consolidated appeals similarly assert, at least to some extent, that the values of their properties have been adversely affected by: erosion, both actual and threatened, of the upland portion of their parcels; the restrictive easements; the limited availability and, in their opinions, outrageous pricing of private property insurance; the FEMA flood insurance limit of $250,000; the reluctance or even refusal of lenders to loan funds beyond the $250,000 federal flood insurance limit; and the stigmas related to both the presence of their properties in the §204 Report, as well as the mention of their properties’ general location in news reports and broadcasts.
Fifty-eight Northern Boulevard, which is identified by the assessors as Map/Lot U03-187, consists of an approximately 0.216-acre or 9,429-square-foot parcel improved with a conventional, 2-story, year-round home built in 1998. The house has a finished area of 2,584 square feet, and a total of seven rooms, including four bedrooms plus one full bathroom and two half bathrooms. The house also has a 60-square-foot open porch, a 204-square-foot deck, and a 308-square-foot unfinished attic area. The interior walls are drywall, and the floors are hardwood or carpeted. The home is centrally heated with a gas-fired forced hot water system. The exterior of the cottage has vinyl siding and an asphalt-shingled gable roof. The property is serviced by town water and sewer. The assessment history for fiscal years 2007 through 2010 is summarized below in Table Five.
Table Five
|
Fiscal Year 2007 |
Fiscal Year 2008 |
Fiscal Year 2009 |
Fiscal Year 2010 |
|
| Date of Assessment |
01/01/2006 |
01/01/2007 |
01/01/2008 |
01/01/2009 |
| Land Assessment ($) |
645,900 |
645,900 |
581,300 |
569,900 |
| Improvement Assessment ($) |
317,900 |
289,800 |
278,600 |
260,500 |
| Total Assessment ($) |
963,800 |
935,700 |
859,900 |
830,400 |
On her abatement applications for fiscal years 2007 and 2008, the appellant asserted that her property lost 38% of its land from erosion. On her petitions, the appellant suggested that the value of the parcel associated with the 58 Northern Boulevard property for fiscal year 2007 was $400,458 and for fiscal year 2008, it was $391,288, which may have been a typo considering her suggested figure for fiscal year 2009 was $331,288. On her abatement application and petition for fiscal year 2009, the appellant requested that the assessment attributable to the land be reduced from $581,300 to $331,288. On her abatement application for fiscal year 2010, the appellant again asserted that her property had lost about 38% of its area from erosion and, for the first time, she also raised the issue of the easement devaluing her property. In her petition, she suggested that the value of the land component of the assessment be reduced to $150,000.
At the hearing of these appeals, the appellant requested alternative overall values for her property premised on either reductions in the assessments attributable to the land component or on a straight 25% reduction in the overall assessment based on the Coping with Coastal Erosion study referred to above. Table Six below summarizes these values for the property located at 58 Northern Boulevard.
Table Six
|
Docket No. |
Fiscal Year |
Assessed Values ($) |
Requested Values ($) |
25% Reduced Values ($)
|
|
F287875 |
2007 |
963,800 |
718,358 |
722,850 |
|
F294075 |
2008 |
935,700 |
681,088 |
701,775 |
|
F299082 |
2009 |
859,900 |
609,888 |
644,925 |
|
F305469 |
2010 |
830,400 |
410,560 |
622,800 |
Forty-six Northern Boulevard, which is identified by the assessors as Map/Lot U03-191, contains an approximately 0.418-acre or 18,206-square-foot parcel improved with an old-style, wood-framed, two-level, cottage built in 1930. The cottage has a finished area of 1,020 square feet and a total of seven rooms, including four bedrooms plus one bathroom. The cottage also has an unfinished concrete basement/foundation and a 584-square-foot open porch. The interior walls are painted drywall, and the floors are carpeted. The cottage has oil heat. The exterior of the cottage has vinyl siding and an asphalt-shingled hip roof. The property is serviced by town water and sewer. The assessors valued the property at $823,900, as of January 1, 2009, allocating $124,900 to the property’s cottage and $699,000 to its land.
On his abatement application and at the hearing, the appellant asserted that his property should be valued at $411,950, essentially one-half its assessment.
Sixteen Northern Boulevard, which is identified by the assessors as Map/Lot U02-12, consists of an approximately 0.194-acre or 8,429-square-foot parcel improved with an old-style, wood-framed, two-level, cottage built in 1905. The cottage has a finished area of 1,211 square feet and a total of six rooms, including three bedrooms plus one full bathroom and one half bathroom. The cottage also has an unfinished concrete-block basement/foundation along with a 492-square-foot enclosed porch and 468-square-feet in wood decking. The interior walls are painted drywall, and the floors are carpeted. The cottage has electric heat. The exterior of the cottage has wood shingle siding and an asphalt-shingled gable roof. The property is serviced by town water and sewer. The assessors valued the property at $782,500, as of January 1, 2009, allocating $156,800 to the property’s cottage and $625,700 to its land.
On his abatement application and at the hearing, this appellant asserted that his property should be valued at $391,250, essentially one-half its assessment.
Forty-eight Northern Boulevard, which is identified by the assessors as Map/Lot U03-190, consists of an approximately 0.489-acre or 21,306-square-foot parcel improved with a seasonal cottage on piers originally built around 1890. The cottage has a finished area of between 960 and 1,130 square feet, depending on the source, and a total of five rooms, including two bedrooms plus one full bathroom and one half bathroom. The cottage also has a 558-square-foot enclosed porch, an 882-square-foot deck, and a 374-square-foot storage area below the deck. There is also a 336-square-foot, single-car detached garage along with another deck. The interior walls are primarily plywood panels, and the floors are vinyl or carpeted. There is also a wood stove. The exterior of the cottage has clapboard siding and an asphalt-shingled gable roof. The property is serviced by town water and sewer. The assessors valued the property at $837,300, as of January 1, 2009, allocating $108,600 to the property’s cottage, $722,300 to its land, and an additional $6,400 to the other improvements.
On their Statement Under Informal Procedure, the appellants asserted that their property should be valued at $460,515, and at the hearing, they sought to have the part of the assessment attributed to the land value reduced proportionately by the portion of the parcel affected by the easement — from $722,300 to $453,821, a 37% reduction.
Seventy-six Northern Boulevard, which is identified by the assessors as Map/Lot U03-182, contains an approximately 0.389-acre or 16,945-square-foot parcel improved with an old-style, wood-framed, two-level, cottage built in 1910. The year-round cottage has a finished area of 1,229 square feet and a total of six rooms, including three bedrooms plus one full bathroom and one half bathroom. The cottage also has a concrete block foundation. The interior walls are plywood panel, and the floors are soft wood, vinyl, and carpeted. The cottage has a forced-hot-water heating system. The exterior of the cottage has wood clapboard siding and an asphalt-shingled hip roof. The property is serviced by town water and sewer. The assessors valued the property at $819,000, as of January 1, 2009, allocating $129,300 to the property’s cottage and $689,700 its land.
At the hearing, the appellant asserted that his property should be valued at $595,867 — about 73% of its overall assessment — because the portion of the assessment attributed to the property’s cottage was too high given its condition, the portion of the assessment attributed to the subject property’s land assessment was excessive compared to other nearby properties and considering the subject parcel’s decreasing area, and the Corps identified the property as one of 26 structures along Northern Boulevard in imminent danger of land loss and structural damage due to storm surge and accelerated erosion. The appellant also asserted that the property is now subject to a “permanent federal storm damage reduction easement.”
Twenty-six Northern Boulevard, which is identified by the assessors as Map/Lot U02-4, consists of an approximately 0.395-acre or 17,195-square-foot parcel improved with a contemporary-style, wood-framed, two-story year-round home built in about 1977. The house has a total of six rooms, including two bedrooms. There are two full bathrooms and one half bathroom. The interior is painted drywall, and the floors are carpeted or ceramic tile. The house has oil heat along with one fireplace and a one-car garage under. The basement has a concrete floor. The exterior of the home had wood-shingle siding and an asphalt-shingled gable roof. The property is serviced by town water and sewer. The assessors valued this property at $1,070,400, as of January 1, 2009, allocating $378,900 to the improvement and $691,500 to the land.
On her abatement application, Statement Under Informal Procedure, and at the hearing, the appellant asserted that the overall value of her property should be reduced by 50% to $535,200.
Time-Table of Related Events and Circumstances
The dates when various value-affecting events occur are important considerations for determining a property’s value as of a specific valuation date. For the subject appeals, the Board found that it was necessary to evaluate the evidence and ascertain when stigma, property loss, diminished marketability, and any combination thereof first began to affect the value of the subject properties. The following time-table attempts to summarize and relate those events or circumstances in evidence that could affect the values of the subject properties to the subject fiscal year 2007, 2008, 2009, and 2010 appeals’ valuation and assessment dates of January 1, 2006, January 1, 2007, January 1, 2008, and January 1, 2009, respectively.[154]
Time-Table
January 1, 2006 Valuation/Assessment Date
for Fiscal Year 2007
(1) August and September, 2005 – Sales of three 16,300- to 19,850-square-foot oceanfront properties on Northern Boulevard for $1,600,000 (assessed at sale for $1,293,400), $1,685,000 (assessed at sale for $1,438,300), and $1,640,000 (assessed at sale for $1,176,800);
January 1, 2007 Valuation/Assessment Date
for Fiscal Year 2008
(2) January and November, 2006 – Sales of two oceanfront properties on Fordham Way (8,100 square feet) and 41st Street (14,383 square feet) located within a mile of the subject properties for $900,000 (assessed at sale for $910,400) and $1,200,000 (assessed at sale for $1,078,900), respectively;
January 1, 2008 Valuation/Assessment Date
for Fiscal Year 2009
(3) January, April, and June, 2007 – Sale of a 8,100-square-foot oceanfront property located on Fordham Way for $749,000 (assessed at sale for $708,400) and sales of a 2,340-square-foot oceanfront property and a 15,871-square-foot oceanfront property both on Northern Boulevard in the amounts of $720,000 (assessed at sale for $670,000) and $1,350,000 (assessed at sale for $1,038,700), respectively;
(4) April, 2007 – The so-called Patriots Day storm pounds coast & takes away several feet of dune & in late 2007 additional erosion at Plum Island center is evident, however, there is insufficient evidence of widespread reporting;
January 1, 2009 Valuation/Assessment Date
for Fiscal Year 2010
(5) Early 2008 – Plum Islanders and local officials begin to lobby for Federal help to dump sand from the Merrimack River dredging project on the eroding beach;
(6) Spring, 2008 – Commercial structure & 4 residential homes lost decks and/or steps due to storm/erosion;
(7) May, 2008 – Sale of 9,350-square-foot unimproved & undevelopable beachfront parcel located at 60 Northern Boulevard to abutter for $150,000 (assessed for $129,100 for fiscal year 2009);
(8) November, 2008 – Loss of an imperiled single-family home located at 4 5th Street, off Northern Boulevard and along the same beachfront;
(9) November, 2008 – Boston Globe article describing the loss of the above home on Plum Island;
(10) December, 2008 through January, 2009 – Dune Stabilization Project involved the installation of massive sandbags by the Town of Newbury to protect Plum Island center, which is the southern boundary of Northern Boulevard;
January 1, 2010 Valuation/Assessment Date
for Fiscal Year 2011
Not at Issue in These Appeals
(11) July, 2009 – Auction for oceanfront property located at 37 Southern Boulevard did not fetch bid of $585,000 (assessed at time of auction for $764,900);
(12) September, 2009 – U.S. Army Corps of Engineers completes the so-called §204 Detailed Project Report and Environmental Assessment for Newburyport Harbor and Plum Island and Salisbury Beaches which identifies 26 homes — most along Northern Boulevard — as environmentally imperiled & in a severe erosion zone;
(13) September – December, 2009 – Permanent Public Access and Beach Management Easement agreements, which cede substantial rights to the town and restrict each property owner’s access to and use of the area of nourishment on their property, are signed by and obtained from owners;
(14) Late October, 2009 – Date of survey of the 58 Northern Boulevard property showing area on that property consumed by easement; certified plot plan dated May, 2005 also submitted for the 48 Northern Boulevard property but undated portion depicting “Area of Public Easement” was apparently added to plan by appellants, and not by registered surveyor;
(15) Late October, 2009 – Newbury town meeting appropriates $135,000 for the town’s share of the beach replenishment project;
(16) October, 2009 – Start of many newspaper articles & radio and television broadcasts and reports regarding property damage, evacuation by some property owners, & beach Replenishment Project on subject or related areas of Plum Island, as well as articles & broadcasts with every pending storm & ocean surge questioning whether imperiled properties on Plum Island will survive impending event;
January 1, 2011 Valuation/Assessment Date
for Fiscal Year 2012
Not at Issue in These Appeals
(17) March, 2010 – Installation of large commercial bales of hay reinforced with snow fencing with proposed re-vegetation to temporally abate coastal dune erosion and protect approximately 19 homes and 1,500 feet of coastal dune;
(18) June, 2010 – Sale of 15,660-square-foot unimproved & undevelopable beachfront parcel located at 30 Northern Boulevard to the same party who purchased 60 Northern Blvd. two years earlier, for $136,000 (assessed for $138,700 for fiscal year 2009);
(19) September, 2010 – Sale of non-oceanfront improved parcel of approximately 4,900 square feet located at 150 Northern Boulevard, in the Newburyport section of Plum Island, for $268,780 (assessed for $322,100 in fiscal year 2010). Previously in May, 2006 (a little more than 4 years prior), the property sold for $405,000. The latest sale is a 33% reduction in value;
(20) Fall, 2010 – Plum Island beach Replenishment Project started and completed;
(21) December, 2010 – Sale of uninhabitable oceanfront property (improvement demolished after sale) located at 27 Annapolis Way for $299,000 (assessed in FY 2009 for $820,000) to developer;
In addition to the events and circumstances described in the above time-table, several of the appellants testified that Federal flood insurance, up to a maximum of only $250,000, is available to insure their properties’ improvements. They further testified that private flood insurance is prohibitively expensive, if available at all. Several of the appellants also stated that banks were unwilling to loan funds over the $250,000 Federal flood insurance limit if the loans were secured solely by mortgages on the subject properties. The parties did not submit any evidence regarding insurance or banking practices relating to Plum Island directly from insurance agents, brokers, or underwriters, or from bank officials or personnel. The parties did not provide the Board with any definitive start dates for these purported limitations and restrictions. One of the appellants introduced an article, Coping with Coastal Erosion, which is referred to above. This study evaluated the diminution of property values in ten counties along the Atlantic and Gulf coasts as a result of stigma. The article concluded, inter alia, that the affected properties lost up to 25% of their pre-stigmatization values. However, after replenishment, property values rebounded, reclaiming about one-half the original value lost.
Board’s Ultimate Findings
First, with respect to the two appeals for fiscal years 2007 and 2008 relating to the 58 Northern Boulevard property, the comparable sales of oceanfront property entered into evidence by the assessors for calendar years mid-2005 to mid-2007 support the assessments for fiscal years 2007 and 2008. While the appellant alleged that her property lost 38% of its area from erosion by January 1, 2006 and January 1, 2007, the valuation and assessment dates for fiscal years 2007 and 2008, respectively, she did not introduce adequate demonstrative evidence substantiating this claim. The §204 Report, which on one map shows two defined shorelines — one in 2000 and another in 2007 — depicts high total recession rates but does not reveal how much was lost or gained during any period in between. In addition, the 2007 shoreline study referred to in the §204 report is after the January 1, 2006 and January 1, 2007 valuation and assessment dates for fiscal years 2007 and 2008, respectively. Moreover, another map in that same report reveals that the area’s historic shoreline, from 1928 to 1994, went through differing periods and degrees of accretion and erosion depending on the location, supporting the proposition that the shoreline is unpredictably dynamic.
Also the certified easement plan introduced into evidence by this appellant that shows the area of the 58 Northern Boulevard property that is affected by the easement, and presumably the area of erosion, is dated October 2009, almost three and four years beyond the respective valuation and assessment dates for fiscal years 2008 and 2007, and even beyond the valuation and assessment date of January 1, 2009 for fiscal year 2010. Additionally, given the evidence pertaining to recent erosion in the area, it is difficult to accept the notion advanced by the appellant that the amount of erosion related to this property remained stagnant from January 1, 2006 to January 1, 2009. Moreover, there is no additional engineering or other reliable evidence to directly connect the October 2009 easement plan to the 58 Northern Boulevard property’s condition on January 1, 2006 or January 1, 2007.
Lastly in this regard, the appellant did not provide adequate evidence on how to properly adjust the value of the 58 Northern Boulevard property assuming a 38% diminution in its parcel’s area. As explained more fully below, it is not appropriate valuation practice to simply reduce, proportionately, the subject property’s overall assessment or the portion of the assessment allocated to the land to account for the loss. Accordingly, the Board finds that the appellant has not met her burden of demonstrating that the 58 Northern Boulevard property was overvalued for this reason for fiscal years 2007 and 2008.
Second, for the fiscal-year-2009 appeal relating to the 58 Northern Boulevard property, the Board finds that the appellant similarly alleged that the 58 Northern Boulevard property’s parcel lost 38% of its area from erosion by January 1, 2008, the valuation and assessment date for fiscal year 2009. However, for this fiscal year, the Board finds that she did introduce some credible demonstrative evidence substantiating this claim. The §204 Report reveals that at least by the end of calendar year 2007, the 58 Northern Boulevard property had lost a substantial portion of its parcel. However, the certified easement plan introduced into evidence by the appellant and discussed above is dated almost two years beyond the January 1, 2008 valuation and assessment date for fiscal year 2009. The appellant did not submit any additional engineering or other reliable evidence to directly connect this plan to the 58 Northern Boulevard property’s condition on January 1, 2008.
Lastly in this regard, and as with the fiscal-year-2007 and fiscal-year-2008 appeals, the appellant once again did not provide adequate evidence on how to properly adjust the 58 Northern Boulevard property’s value assuming a substantial diminution in its parcel’s size. As was the case for the fiscal year 2007 and 2008 appeals and as more fully explained below, it is not appropriate valuation practice to simply reduce, proportionately, the subject property’s overall assessment or the portion of the assessment allocated to the land to account for the loss. Accordingly, the Board finds that the appellant has not met her burden of demonstrating that the 58 Northern Boulevard property was overvalued for this reason for fiscal year 2009.
Third, for all of the fiscal-year-2010 appeals, the Board finds that the appellants did introduce some demonstrative evidence substantiating their claims that the subject properties suffered from the effects of erosion. The §204 Report reveals that at least by the end of calendar year 2007, essentially all of the subject properties had lost a portion of their parcel. However, the certified easement plan introduced into evidence for the 58 Northern Boulevard property and discussed above is dated almost one year beyond the January 1, 2009 valuation and assessment date for fiscal year 2010, and there is no additional engineering or other reliable evidence to directly connect this plan to the 58 Northern Boulevard property’s condition on January 1, 2009. The appellants who are appealing the assessment on the 48 Northern Boulevard property recently drew the area affected by the easement onto a 2005 plot plan for their property. No additional evidence was submitted to certify that the area encompassed by the easement was equivalent to the 48 Northern Boulevard property’s condition on January 1, 2009.
In addition, the easements were signed in the fall of 2009, more than 9 months after the relevant January 1, 2009 valuation and assessment date for fiscal year 2010. The Corps’ Replenishment Project did not occur until 2010. Therefore, the easements were not in effect until after the January 1, 2009 valuation and assessment date for fiscal year 2010. Moreover, and as with the 58 Northern Boulevard property’s appeals for fiscal years 2007, 2008, and 2009, the appellants with appeals for fiscal year 2010 failed to introduce adequate evidence on how to reasonably reduce the subject properties’ values assuming a certain amount or degree of diminution in their parcels’ areas due to erosion. As was the case for the prior fiscal years’ appeals and as explained more fully below, it is not appropriate valuation practice to simply reduce, proportionately, the subject property’s overall assessment or the portion of the assessment allocated to the land to account for the loss. Accordingly, the Board finds that the appellants did not met their burden of demonstrating that the subject properties were overvalued for this reason for fiscal year 2010.
Fourth, with respect to the claim that the 76 Northern Boulevard property was overvalued because, among other reasons, the assessors did not adequately take its dilapidated condition into consideration, the Board agrees with the appellant. Based on his description of his property and placing some weight on repair estimates, the Board finds that it is appropriate to reduce his building assessment by 10%, from $129,300 to $116,370, before accounting for a possible reduction resulting from stigma.
The Board, however, did not rely on the comparable-sales analysis prepared by his appraiser because the Board found that the properties which the appraiser used in his analysis were not comparable to the subject property; they were not oceanfront or not located in a comparable area. In addition, the appraiser did not testify at the hearing and was not available for voir dire or cross-examination. The Board also finds that the appellant’s rationale for reducing the assessment allocated to his parcel –- a smaller-sized parcel should have a smaller per-square-foot value than nearby larger-sized parcels –- is simply incorrect. See Appraisal Institute, The Appraisal of Real Estate 212 (13th ed. 2008) (“Size differences can affect value and are considered in site analysis. Reducing sale prices [or assessments] to consistent units of comparison facilitates the analysis of comparable sites. . . . Generally, as size increases, unit prices decrease. Conversely, as size decreases, unit prices increase.”).
Fifth, as for presence and possible effects of stigma on the subject properties for fiscal year 2010, the Board finds that, as of January 1, 2009, the valuation and assessment date for fiscal year 2010, the appellants demonstrated that the subject properties were adversely affected by stigma. The factors supporting a finding of stigma include, among others: the actual destruction and loss of properties from erosion in the immediate vicinity of the subject properties; the actual erosion on and property loss suffered by the subject properties themselves; the necessity for and implementation of immediate remediation to at least forestall the problem; the discussions regarding the desirability of and mechanism for both additional short-term and long-term solutions; the widely disseminated and prominent negative publicity about the erosion problem on Plum Island and in the area where the subject properties are located; the anticipated identification of the subject properties in the §204 Report; and the complete lack of sales of developed or developable oceanfront property in the area during the relevant fiscal-year-2010 time period, which indicates an abnormally diminished marketability that is presumably at least partially the result of and further proof of the existence of stigma relating to environmental risk.
Based on the timing of the events discussed in its findings and listed in the foregoing timetable, the Board finds that the appellant for the 58 Northern Boulevard property failed to show stigma or diminished marketability for the 58 Northern Boulevard property fiscal years 2007, 2008, and 2009, just as she failed to prove property loss from erosion for fiscal years 2007 and 2008 and failed to properly value presumed property loss for fiscal years 2007, 2008, and 2009. The single piece of demonstrative stigma evidence is a submission relating to fiscal year 2009, which consists of a Newburyport Daily News article that merely outlines or lists the timing of certain events. The Board finds that this lone newspaper piece does not constitute wide-spread and notorious or prominent publicity and is insufficient to support a finding of stigma. Moreover, the sales that occurred from September, 2005 to June, 2007 support the assessments on the subject oceanfront property for at least two of these earlier fiscal years. Not until the spring of 2008 does the evidence begin to convincingly reflect the beginning of widespread property loss, the initiation of extensive mitigation measures, the possibility of diminished marketability, and the concomitant negative publicity. Notwithstanding this finding, the Board also finds that after January 1, 2009, the valuation and assessment date for fiscal year 2010, the evidence demonstrates more frequent and widespread media reports of erosion and property damage.
On this basis, the Board finds that the evidence reflects that by January 1, 2009, conditions on and reported about Plum Island clear the hurdle for a finding that an environmental stigma, in the form of severe erosion and ocean surges coupled with property loss and damage and extensive media reports, exists in the area where the subject properties are located and is adversely impacting the marketability and value of the subject properties. The lack of any relevant sales occurring in calendar year 2008, the storm and erosion damage to a commercial and several residential structures in 2008, reports in the Boston Globe and Newburyport Daily News about the property damage, the start of the Dune Stabilization Project, and continuing discussions for both additional short- and long-term solutions, all contribute to this adverse impact and finding of stigma. After January 1, 2009, the valuation and assessment date for fiscal year 2010, the evidence reveals, among others things, more frequent and widespread media reports of erosion and property damage, the actual listing of the subject properties in the §204 Report, and the signing and implementation of the easements.
Accordingly, for fiscal year 2010, the Board finds that a stigma, measured by a percentage of the subject properties’ overall assessed values — and not limited to just their land values — exists. The Board further finds that 15% is a sufficient adjustment to apply to the subject properties’ overall assessed values to compensate for the existence of stigma as of January 1, 2009. The Board used the available evidence to help it determine this percentage, including, among other things, the article, Coping with Coastal Erosion, the start of the Dune Stabilization Project, the anticipated start and completion of the Corps’ Replenishment Project, the lack of relevant sales of improved or buildable oceanfront properties in the area in 2008, the two sales of unimproved and unbuildable Northern Boulevard lots, and sales of other Plum Island properties, as well as the Board’s own expertise. This percentage does not reflect the actual listing of the subject properties in the §204 Report and additional widespread and even more negative publicity in 2009, and thereafter.
Conclusion
Based on all of the evidence and reasonable inferences drawn therefrom, the Board finds, with respect to all of the appeals for all of the fiscal years at issue -– fiscal years 2007, 2008, 2009, and 2010 — that the appellants did not met their burden of proving that the subject properties were overvalued because of the direct effects of erosion diminishing the size of the subject properties’ parcels. The Board also finds, however, with respect to the 76 Northern Boulevard property, that it was overvalued in fiscal year 2010 because that appellant proved that the assessors did not adequately account for his property’s dilapidated condition. Based on that appellant’s description of his property and placing some weight on repair estimates, the Board finds that it is appropriate to reduce his building assessment by 10%, from $129,300 to $116,370, thereby reducing the 76 Northern Boulevard property’s overall value for this reason for fiscal year 2010 to $806,070.
As for the presence and possible effects of stigma on the subject properties for fiscal year 2010, the Board finds that, as of January 1, 2009, the valuation and assessment date for fiscal year 2010, but not for the earlier valuation and assessment dates for fiscal years 2007, 2008, and 2009, the appellants demonstrated that the subject properties were adversely affected by stigma. Accordingly, for fiscal year 2010, the Board finds that a stigma, measured by a percentage of the subject properties’ overall assessed values — and not limited to just their land values — existed. The Board further finds that 15% is a sufficient adjustment to apply to the subject properties’ overall assessed values to compensate for the existence of stigma-related issues as of January 1, 2009.
Moreover, the Board recognizes the difficulty in accounting for the diminished size of the subject properties’ parcels due to erosion but does not adopt the appellants’ suggestion of reducing the amount of a subject property’s assessment or the portion of the assessment allocated to an affected property’s parcel in proportion to the amount of land lost because it is not an appropriate valuation methodology under the circumstances. Rather, the Board suggests that it may be appropriate in future fiscal years to re-determine the size of each of the affected parcels by subtracting the square footage of the actual erosion or replenishment measurements from the assessors’ parcel measurements (assuming the assessors have not already done so) and then, using the assessors’ land-valuation tables, land assessments for comparably sized parcels, or other comparable tools, re-determine the subject properties’ values. Based on the present record, however, this approach cannot be implemented.
The following two tables, Table Seven and Table Eight, summarize the Board’s decisions in these appeals.
Table Seven
|
Fiscal Year
|
Docket No.
|
Appellant
|
Northern Boulevard Address
|
Overall Assessment ($)
|
Decision |
15% Value Abated Stigma |
FCV* ($) |
Tax Abated @ $9.52 per $1,000 |
|
|
2010 |
X302672 |
DiNapoli |
46 |
823,900 |
Appellant |
123,585 |
700,315 |
1,176.53 |
|
|
2010 |
X302664 |
DeSalvo |
16 |
782,500 |
Appellant |
117,375 |
665,125 |
1,117.41 |
|
|
2010 |
X302689 |
Erickson |
48 |
837,300 |
Appellant |
125,595 |
711,705 |
1,195.66 |
|
|
2010 |
X302656 |
Christ |
26 |
1,070,400 |
Appellant |
160,560 |
909,840 |
1,528.53 |
|
|
2007 |
F287875 |
Florio, TE |
58 |
963,800 |
Assessors |
N/A |
N/A |
N/A |
|
|
2008 |
F294075 |
“ |
“ |
935,700 |
Assessors |
N/A |
N/A |
N/A |
|
|
2009 |
F299082 |
Novak, TE |
“ |
859,900 |
Assessors |
N/A |
N/A |
N/A |
|
|
2010 |
F305469 |
“ |
“ |
830,400 |
Appellant |
124,560 |
705,840 |
1,185.81 |
|
*“FCV” is an acronym for fair cash value.
Table Eight
|
Fiscal Year
|
Docket No.
|
Appellant
|
Northern Boulevard Address
|
Overall Assessment ($)
|
Decision |
10% Value Abated Condition |
15% Value Abated Stigma |
FCV* ($) |
Tax Abated @ $9.52 per $1,000 |
|
2010 |
X302682 |
Accetta, TE |
76 |
819,000 |
Appellant |
12,930 |
120,910 |
685,160 |
1,274.16 |
*“FCV” is an acronym for fair cash value.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellants have the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayers . . . prov[e] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
In appeals before this Board, a taxpayer “‘may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.’” General Electric Co., 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)). In the present appeals, the appellants focused primarily on perceived errors in the assessors’ valuation of the land component associated with the subject properties, and the assessors’ failure to recognize the concept of stigma in their assessments.
A taxpayer, however, does not conclusively establish a right to abatement merely by showing that his land is overvalued. “The tax on a parcel of land and the building thereon is one tax . . . although for statistical purposes they may be valued separately.” Assessors of Brookline v. Prudential Insurance Co., 310 Mass. 300, 317 (1941). In abatement proceedings, “the question is whether the assessment for the parcel of real estate, including both the land and the structures thereon, is excessive. The component parts, on which that single assessment is laid, are each open to inquiry and revision by the appellate tribunal in reaching the conclusion whether that single assessment is excessive.” Massachusetts General Hospital v. Belmont, 238 Mass. 396, 403 (1921). See also Duquette v. Hinsdale, Mass. ATB Findings of Fact and Reports 2008-1494, 1502-03 (citations omitted).
In these appeals, the Board found that for fiscal years 2009 and 2010, but not before, the appellants successfully demonstrated that the sizes of the subject properties’ parcels were diminished by erosion. The appellants also showed that, as of the fall, 2009 and the completion of the Corps’ Replenishment Project in January, 2010, their access to and use of the areas of nourishment on their properties were significantly restricted by the easement. However, the Board also found that the appellants failed to provide a reasonable means to measure how the reduction in the subject properties’ parcel area affected the subject properties’ values. The Board found that it is not appropriate valuation practice to simply reduce, proportionately, the subject property’s overall assessment or the portion of the assessment allocated to the land to account for the loss. See Finigan v. Assessors of Belmont, Mass. ATB Findings of Fact and Reports 2004-533, 537 (“One cannot take a unit of value for a given parcel and apply that unit value to increase the value of a larger parcel or decrease the value of a smaller one.”). The Board suggests that a better way might be to use the assessors’ land-valuation tables, land assessments for comparably-sized properties, or other comparable tools to value the remaining land in accordance with that size parcel’s value. Such information, however, was not part of the record. See Reliable Electronic Finishing Co. v. Assessors of Canton, 410 Mass. 381, 382-83 (1991)(holding that abatement not warranted where taxpayer did not prove impact on fair cash value from contamination of site); Novak v. Assessors of Newbury, 73 Mass. App. Ct. 1112 (2008)(affirming, under Rule 1:28, the Board’s decision to uphold the assessment on the 58 Northern Boulevard property for fiscal year 2006 because “there was no evidence presented as to the effect of the erosion on the subject property’s value.”).
In addition, the Board determined that the easements did not affect the subject properties as of January 1, 2009, the valuation and assessment date for fiscal year 2010, because they were not in existence or effect until at least 9 months later. The Board, therefore, did not factor them in to the subject properties’ valuation for fiscal year 2010 or before then.
With respect to the claim that the 76 Northern Boulevard property was overvalued because, among other reasons, the assessors did not adequately take its dilapidated condition into consideration, the Board agreed with the appellant. Based on his description of his property and placing some weight on repair estimates, the Board found that it was appropriate to reduce his building assessment by 10%, from $129,300 to $116,370.
The Board did not rely on the comparable-sales analysis prepared by his appraiser because the Board found that the properties which the appraiser used in his analysis were not comparable to the 76 Northern Boulevard property; they were not oceanfront or not located in a comparable area. The appellant bears the burden of “establishing the comparability of . . . properties [used for comparison] to the subject property.” Fleet Bank of Mass. v. Assessors of Manchester, Mass. ATB Findings of Fact and Reports 1998-546, 1998-554. Accord New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981). In addition, the appraiser did not testify at the hearing and was not available for voir dire or cross-examination. The Board also found that the appellant’s rationale for reducing the assessment allocated to his parcel -– a smaller-sized parcel should have a smaller per-square-foot value than nearby larger-sized parcels -– is simply incorrect. See Appraisal Institute, the Appraisal of Real Estate 212 (13th ed. 2008)(“Size differences can affect value and are considered in site analysis. Reducing sale prices [or assessments] to consistent units of comparison facilitates the analysis of comparable sites. . . . Generally, as size increases, unit prices decrease. Conversely, as size decreases, unit prices increase.”).
While the Board found that the evidence was insufficient to support the appellants’ claims for a direct and proportional reduction in the subject properties’ overall assessments, or the part of the assessment allocated to their land, to account for a certain amount or degree of diminution in their parcels’ areas due to erosion, the Board did determine that the evidence supported a finding that the subject properties suffered from stigma for fiscal year 2010. According to Appraisal Institute, The Dictionary of Real Estate Appraisal (4th ed. 2002), “stigma” is defined as “[a]n adverse public perception regarding a property; the identification of a property with some type of opprobrium (environmental contamination, a grisly crime), which exacts a penalty on the marketability of the property and hence its value.” Id. at 277. In Woburn Services, Inc. v. Assessors of Woburn, Mass. ATB Findings of Fact and Reports 1996-553, which involved valuation appeals of income-producing contaminated and uncontaminated properties within a Superfund site, the Board similarly defined “stigma” as “the negative impact on real estate values that results from public perception.”
Id. at 1996-565.[155] In Woburn Services, Inc., the Board identified two kinds of stigma – locational stigma and direct contamination stigma. The Board observed that:
Locational stigma is the negative impact to value suffered by property located in an existing Superfund site[, and] [d]irect contamination stigma is the negative impact on the value of property that is not only located within a Superfund site, but is also directly contaminated beyond federal maximum contaminant levels. The stigma engendered by a property’s location within a Superfund site and its actual excessive direct contamination, diminishes that property’s value due to impaired mortgageability, greater risk and uncertainty, and the possibility of associated costs.
Id.
A property’s identity with some type of ignominy which diminishes its value through stigmatization is usually precipitated by wide-spread negative publicity. See Wayland Business Center Holdings, LLC v. Assessors of Wayland, Mass. ATB Findings of Fact and Reports 2005-557, 573, 596-97 (finding that negative publicity concerning an income-producing property’s environmental contamination was “wide-spread and notorious” and adversely affected its value because newspaper articles, broadcasts, state designations, testimony, and the like publicized the contamination resulting in high vacancies); see also Woburn Services Inc., Mass. ATB Findings of Fact and Reports at 1996-565 (finding that the locational and direct contamination stigmas lowered the values of associated properties because of negative publicity that was “prominent and notorious” thereby adversely affecting public perception). To value property so afflicted, “[t]raditional appraisal techniques, which are appropriately modified to account for the effects of stigma caused by environmental [risk] are satisfactory for determining a property’s fair cash value.” Woburn Services, Inc., Mass ATB Findings of Fact and Reports at 1996-574.
The Board’s finding of stigma in these appeals is premised on the above definitions and on analogous reasoning and factors for which the Board found stigma in Woburn Services, Inc. In general, the parallel reasoning and factors as applied to these appeals include: the actual destruction and loss of properties from erosion in the immediate vicinity of the subject properties; the actual erosion on and property loss suffered by the subject properties themselves; the necessity for and implementation of immediate remediation to at least forestall the problem; the discussion regarding the desirability of and mechanism for both additional short-term and long-term solutions; the widely disseminated and prominent negative publicity about the erosion problem on Plum Island and in the area where the subject properties are located; the anticipated identification of the subject properties in the §204 Report; and the complete lack of sales of developed or developable oceanfront property in the area during the relevant fiscal-year-2010 time period, which indicates an abnormally diminished marketability that is presumably the result of and further proof of the existence of stigma relating to environmental risk.
Based on the timing of the events discussed in its findings and listed in the foregoing timetable, the Board found that the appellants failed to demonstrate stigma or diminished marketability for fiscal years 2007, 2008, and 2009. The single piece of evidence relating to fiscal year 2009, which is a Newburyport Daily News article that merely outlines or lists the timing of certain events, is insufficient to support a finding of stigma. Moreover, the sales that occurred from September, 2005 to June, 2007 support the assessments on the subject oceanfront properties for at least two of these three earlier fiscal years. Not until the spring of 2008 does the evidence begin to convincingly reflect property loss, the initiation of mitigation measures, the possibility of diminished marketability, and concomitant negative publicity.
The evidence reflects that as of January 1, 2009 conditions on or reported about Plum Island clear the hurdle for a finding that an environmental stigma, in the form of severe erosion and ocean surges coupled with property loss and damage and prominent and notorious media reports, exists in the area where the subject properties are located and is likely adversely impacting the marketability and value of the subject properties. The lack of any relevant sales occurring in calendar year 2008, the storm and erosion damage to a commercial and several residential structures in 2008, reports in the Boston Globe and Newburyport Daily News about the property damage, the start of the Dune Stabilization Project, and continuing discussions for both short- and long-term solutions, all contribute to this adverse impact and finding of stigma. After January 1, 2009, the valuation and assessment date for fiscal year 2010, the evidence reveals, among other things, more frequent and widespread media reports of erosion and property damage, the actual listing of the subject properties in the Corps’ §204 Report, and the signing and implementation of the easements.
Accordingly, for fiscal year 2010, and consistent with the notion of stigma first discussed by the Board in Woburn Services, Inc., supra, the Board finds that a stigma, measured by a percentage of the subject properties’ assessed values – and not limited to just their land values – exists. The Board further finds that 15% is a sufficient adjustment to apply to the subject properties’ overall assessed values to compensate for the existence of stigma as of January 1, 2009. The Board used the available evidence to help it determine this percentage, including, among other things, the article, Coping with Coastal Erosion, the start and anticipated completion of the Dune Stabilization Project, the anticipated start and completion of the Corps’ Replenishment Project, and the lack of relevant sales of ocean-front properties in the area in 2008. This percentage does not reflect the actual listing of the subject properties in the Corps’ §204 Report and additional widespread and even more negative publicity in 2009, and thereafter.
In reaching its decision in these appeals, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that a witness suggested. Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight. Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp., 383 Mass. at 469. “The credibility of witnesses, the weight of evidence, the inferences to be drawn from the evidence are matters for the Board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
Conclusion
Based on all of the evidence and reasonable inferences drawn therefrom, the Board finds and rules, with respect to all of the appeals for all of the fiscal years at issue -– fiscal years 2007, 2008, 2009, and 2010 — that the appellants did not met their burden of proving that the subject properties were overvalued because of the effects of erosion diminishing the size of the subject properties’ parcels. The Board also finds and rules, however, with respect to the 76 Northern Boulevard property, that it was overvalued in fiscal year 2010 because that appellant proved that the assessors did not adequately account for his property’s dilapidated condition. Based on that appellant’s description of his property and placing some weight on repair estimates, the Board reduced his building assessment by 10%, from $129,300 to $116,370, thereby reducing the 76 Northern Boulevard property’s overall value for this reason for fiscal year 2010 to $806,070, before accounting for a reduction resulting from stigma.
As for the presence and possible effects of stigma on the subject properties, the Board finds and rules that, as of January 1, 2009, the valuation and assessment date for fiscal year 2010, but not for the earlier valuation and assessment dates for fiscal years 2007, 2008, and 2009, the appellants demonstrated that the subject properties were adversely affected by stigma. Accordingly, for fiscal year 2010, the Board finds and rules that a stigma, measured by a percentage of the subject properties’ overall assessed values — and not limited to just their land values — existed. The Board further finds and rules that 15% is a sufficient adjustment to apply to the subject properties’ overall assessed values to compensate for the existence of stigma as of January 1, 2009.
Furthermore, the Board recognizes the difficulty in accounting for the diminished size of the subject properties’ parcels due to erosion but does not adopt the appellants’ suggestion of reducing the subject properties’ overall assessment or the amount of the assessment allocated to an affected property’s parcel in proportion to the amount of land lost because it is not an appropriate valuation methodology under the circumstances. Rather, the Board suggests that it may have been appropriate to re-determine the size of each of the affected parcels by subtracting the square footage of the actual erosion or replenishment measurements from the assessors’ parcel measurements — assuming the assessors have not already done so — and then, using the assessors’ land-valuation tables, land assessments for comparably-sized parcels, or a comparable tool, re-determine the subject properties’ values. Based on the record in these appeals, the Board could not implement this approach.
On this basis, the Board decides the appeals relating to the 58 Northern Boulevard property for fiscal years 2007, 2008, and 2009 for the appellee and decides all of the fiscal-year-2010 appeals for the appellants.
The following two tables, Table Seven and Table Eight, summarize the Board’s decisions in these appeals.
Table Seven
|
Fiscal Year
|
Docket No.
|
Appellant
|
Northern Boulevard Address
|
Overall Assessment ($)
|
Decision |
15% Value Abated Stigma |
FCV* ($) |
Tax Abated @ $9.52 per $1,000 |
|
|
2010 |
X302672 |
DiNapoli |
46 |
823,900 |
Appellant |
123,585 |
700,315 |
1,176.53 |
|
|
2010 |
X302664 |
DeSalvo |
16 |
782,500 |
Appellant |
117,375 |
665,125 |
1,117.41 |
|
|
2010 |
X302689 |
Erickson |
48 |
837,300 |
Appellant |
125,595 |
711,705 |
1,195.66 |
|
|
2010 |
X302656 |
Christ |
26 |
1,070,400 |
Appellant |
160,560 |
909,840 |
1,528.53 |
|
|
2007 |
F287875 |
Florio, TE |
58 |
963,800 |
Assessors |
N/A |
N/A |
N/A |
|
|
2008 |
F294075 |
“ |
“ |
935,700 |
Assessors |
N/A |
N/A |
N/A |
|
|
2009 |
F299082 |
Novak, TE |
“ |
859,900 |
Assessors |
N/A |
N/A |
N/A |
|
|
2010 |
F305469 |
“ |
“ |
830,400 |
Appellant |
124,560 |
705,840 |
1,185.81 |
|
*“FCV” is an acronym for fair cash value.
Table Eight
|
Fiscal Year
|
Docket No.
|
Appellant
|
Northern Boulevard Address
|
Overall Assessment ($)
|
Decision |
10% Value Abated Condition |
15% Value Abated Stigma |
FCV* ($) |
Tax Abated @ $9.52 per $1,000 |
|
2010 |
X302682 |
Accetta, TE |
76 |
819,000 |
Appellant |
12,930 |
120,910 |
685,160 |
1,274.16 |
*“FCV” is an acronym for fair cash value.
APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond., Jr., Chairman
A true copy
Attest: __________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
BOSTON COMMUNICATIONS v. BOARD OF ASSESSORS OF
GROUP, INC. THE CITY OF WOBURN
Docket No. F304869 Promulgated:
August 15, 2011
This is an appeal under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the City of Woburn (“assessors” or “appellee”) to abate taxes on certain personal property located in Woburn and assessed to Boston Communications Group, Inc. (“BCGI” or “appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2009 (“fiscal year at issue”).
Chairman Hammond heard the appellee’s Motion to Dismiss for Lack of Jurisdiction (“Motion to Dismiss”). He was joined in granting the Motion and deciding this appeal for the appellee by Commissioners Scharaffa, Egan, Rose and Mulhern.
These findings of fact and report are made at the request of the appellant pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.
John W. MacSweeney, Esq. for the appellant.
John D. McElhiney, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
At all times relevant to this appeal, BCGI was a Massachusetts corporation engaged in the business of providing billing services for the mobile telecommunications industry. BCGI’s principal place of business was in Bedford, Massachusetts, but it also had a facility in Woburn. On January 1, 2008, BCGI was the assessed owner of personal property, consisting of machinery and equipment (“personal property at issue”), located at its Woburn facility. For the fiscal year at issue, the assessors valued the personal property at issue at $5,273,950, and assessed taxes thereon, at the rate of $24.54 per $1,000, in the total amount of $129,422.73. It was undisputed that the appellant paid at least half of the taxes so assessed prior to filing its appeal with the Appellate Tax Board (“Board”), and therefore, under G.L. c. 59, § 64, the appellant’s failure to pay the remaining taxes due was not a jurisdictional bar to its appeal.[156]
On January 30, 2009, the appellant filed an Application for Abatement with the assessors. The appellant’s abatement application was denied by vote of the assessors on April 18, 2009, but it appeared from the record that the assessors did not sign and mail the notice of abatement denial until May 1, 2009, more than ten days after the assessors’ decision on the application. See G.L. c. 59, § 63 (“§ 63”). The appellant received the notice of abatement denial on May 2, 2009.[157]
The evidence further established that, following the appellant’s receipt of the notice of denial, there was a series of telephone calls, meetings, and correspondence between the appellant and the assessors regarding the valuation of the personal property at issue for the fiscal year at issue and subsequent fiscal years. These discussions commenced in the beginning of May of 2009 and continued into the fall of 2009. Notes taken by counsel for the appellant at one such meeting on June 4, 2009, were entered into evidence. Those notes reflected that:
[Counsel for the appellant] suggested that in the interest of efficiency for all concerned, it might make sense for the parties to settle the Fiscal 2009 valuation/abatement issue at the level of [BCGI’s] current short payment . . . [Chief Assessor] responded that while he is not in an internal (political/financial/prior year budgetary position to agree to same) and would be forced to exercise rights and defend status quo position at the Appellate Level, he . . . would be willing to work with me on a significantly lower fiscal 2010 Woburn personal property valuation . . . . (emphasis added).
Additionally, the evidence showed that, during this same time period, the appellant desired to obtain a building permit for another of its properties located in Woburn, and that its failure to pay in full the taxes assessed for the personal property at issue had created an impediment to receiving such a permit. After additional meetings and discussions, the appellant entered into an agreement (“agreement”) with Woburn’s Tax Collector (“Tax Collector”), dated September 30, 2009, in which the Tax Collector agreed not to oppose the issuance of the building permit provided the appellant made monthly installment payments of the remaining taxes due associated with the personal property at issue. In particular, the agreement stated:
It is understood that BCGI has contested the Fiscal Year 2009 personal property assessment and that an appeal of the April 18, 2009 decision of the City Board of Assessors to SPRINT PCS which was mailed to Boston Communications Group will be formally filed with the Appellate Tax Board on or before October 16, 2009. During the pendency of the BCGI’s appeal, BCGI desires to make installment payments toward the unpaid balance of the Fiscal Year 2009 Personal Property taxes remaining due to the City.
The appellant filed its petition with the Board for the fiscal year at issue on October 19, 2009. The assessors thereafter filed a Motion to Dismiss. The appellant opposed the assessors’ Motion to Dismiss, arguing that principles of equitable estoppel prohibited the assessors from raising a jurisdictional issue because, it claimed, the assessors induced the appellant not to timely file an appeal with the Board by engaging in discussions with the appellant following the issuance of the notice of abatement denial. The appellant further asserted that it was induced not to file an appeal with the Board because of the agreement it entered into with the Tax Collector.
On the basis of the foregoing facts, the Board found that, although the assessors voted to deny the appellant’s abatement application on April 18, 2009, they did not sign or mail the notice of abatement denial until May 1, 2009, which was more than ten days later. Because the assessors failed to give notice of their denial within ten days, as required by § 63, the Board found that the date of the notice of abatement denial was “ineffective for the purpose of determining when to commence the running of the three-month appeal period.” Stagg Chevrolet, Inc. v. Bd. of Water Comm’rs, 68 Mass. App. Ct. 120, 121 (2007). The Board further determined that, because the assessors failed to comply with the requirements of § 63, the appellant had a “reasonable time [to file an] appeal based on the most relevant statutory standards.” Id. at 126.
The Board found that the relevant statutory standards were those found in G.L. c. 59, § 65 (“§ 65”), which allows taxpayers three months to file an appeal following a notice of abatement denial or a deemed denial, and those found in G.L. c. 59, § 65C (“§ 65C”), which grants taxpayers up to an additional two months to file an appeal in the event that the assessors fail to send notice of a deemed denial within ten days from the deemed denial. The Board found that both of these statutes were relevant because they operate to preserve a taxpayer’s appeal rights in circumstances where the assessors have failed to act promptly on an application for abatement or have failed to give notice in a manner that complies with the requirements of § 63. Additionally, the Board found that the filing periods provided by these statutes were reasonable, particularly where the appellant admitted to receiving the notice of abatement denial in early May of 2009.
The appellant’s appeal was not timely under either standard. Had there been a deemed denial of the appellant’s abatement application, it would have occurred on April 30, 2009, and § 65 would have allowed the appellant three months from the date of deemed denial, or until July 30, 2009, to file an appeal with the Board. Further, § 65C would have allowed the appellant an additional two months, or until September 30, 2009, to file an appeal. Under the relevant statutory standards, the latest date the appellant could have timely filed its appeal was September 30, 2009, but the appellant did not file its petition until October 19, 2009. The appellant therefore did not timely file its appeal within a reasonable time period based on the relevant statutory standards, and the Board found that it did not have jurisdiction to hear and decide this appeal.
Additionally, the Board found that the appellant’s equitable estoppel argument was misplaced. First, the Board does not have the authority to act based on principles of equitable estoppel; it has only that authority to act which has been granted to it by statute. Second, the Board found no merit in BCGI’s claim that it was induced by the assessors not to file an appeal with the Board. Contemporaneous notes taken by counsel for BCGI reflected the assessors’ unequivocal statement that they did not intend to settle with the appellant for the fiscal year at issue, and would instead defend the assessment at the Board. Similarly unavailing was the appellant’s assertion that the agreement reached between the appellant and the Tax Collector caused the appellant not to timely file an appeal with the Board. The agreement related to the issuance of a building permit, not the merits of the assessment at issue. Moreover, parties cannot consent to extend the time for filing at the Board, nor can they confer
jurisdiction upon the Board.[158] The deadline for filing an appeal at the Board is set by statute, and appeals filed later than the deadline set by statute must be dismissed. Based on the foregoing, the Board rejected the appellant’s equitable estoppel argument.
On the basis of all of the evidence, the Board found that it did not have jurisdiction to hear and decide this appeal because the appellant failed to timely file its petition with the Board. Accordingly, the Board allowed the assessors’ Motion to Dismiss and issued a decision for the appellee in this appeal.
OPINION
Section 65 provides that:
[a] person aggrieved . . . with respect to a tax on property in any municipality may, subject to the same conditions provided for an appeal under section sixty-four, appeal to the appellate tax board by filing a petition with such board within three months after the date of the assessors’ decision on an application for abatement as provided in section sixty-three, or within three months after the time when the application for abatement is deemed to be denied as provided in section sixty-four.
Further, Section 63 provides that:
[a]ssessors shall, within ten days after their decision on an application for an abatement, send written notice thereof to the applicant. If the assessors fail to take action on such application for a period of three months following the filing thereof, they shall, within ten days after such period, send the applicant written notice of such inaction.
Thus, the statutory scheme generally requires the taxpayer to file an appeal with the Board within three months of the assessors’ decision on an abatement application or, if the assessors fail to timely act on an abatement application, within three months of the date of deemed denial. Assessors are required under § 63 to give notice of their decision on an abatement application, or of its deemed denial, within ten days of the decision or deemed denial date. Courts have ruled that a notice of abatement decision issued in a manner that does not comply with the relevant statute is insufficient to trigger the appeal period, and the Board so found and ruled in the present appeal. See Stagg Chevrolet, 68 Mass. App. Ct. at 124-26; SCA Disposal Servs. of New England, Inc. v. State Tax Commission, 375 Mass. 338, 376 (1978). Here, because the notice of abatement denial did not comply with the requirements of § 63, the Board found and ruled that the denial date reflected in the notice did not trigger the statutory appeal period. Instead, the appellant had a “reasonable time for appeal based on the most relevant statutory standards.” Stagg Chevrolet, 68 Mass. App. Ct. at 126.
The Board found and ruled that the most relevant statutory standards were those found in §§ 65 and 65C, and further found and ruled that these statutes provided a reasonable period of time for the appellant to file an appeal, particularly in light of the fact that the appellant conceded that it received the notice of abatement denial in early May of 2009. Under §§ 65 and 65C, the appellant had, at the latest, until September 30, 2009 to file its appeal. The appellant did not file its appeal with the Board until October 19, 2009, which was nineteen days past the latest day for the filing of the appeal.
“The Board has only that jurisdiction conferred on it by statute.” Stilson v. Assessors of Gloucester, 385 Mass. 724, 732 (1982). “Since the remedy of abatement is created by statute, the [B]oard lacks jurisdiction over the subject matter of proceedings that are commenced at a later time or prosecuted in a different manner from that prescribed by statute.” Nature Church v. Assessors of Belchertown, 384 Mass. 811, 812 (1981) (citing Assessors of Boston v. Suffolk Law School, 295 Mass. 489, 495 (1936)). Because the appellant failed to file its appeal within the timeline set forth in the relevant statutes, the Board found and ruled that it did not have jurisdiction to hear and decide this appeal.
The Board further found and ruled that the appellant’s equitable estoppel argument was misplaced. The Board does not have the authority to act based on principles of equitable estoppel; it has only that authority granted to it by statute. See Stilson, 385 Mass. at 732; Commissioner of Revenue v. Marr Scaffolding, 414 Mass. 489, 493 (1993) (“An administrative agency has no inherent or common law authority to do anything. An administrative board may act only to the extent that it has express or implied statutory authority to do so.”); see also Hillside Country Club Partnership, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2011-191, 196 (“[T]he Board lacks the authority to grant an abatement based on principles of equitable estoppel.”).
In addition to being misplaced, the appellant’s argument was without merit. The appellant contended that it was induced not to file a formal petition with the Board because of the actions of the assessors and other Woburn officials. The Board disagreed. Contemporaneous notes taken by counsel for the appellant reflected the unequivocal statements of the assessors that they would not settle the fiscal year 2009 appeal, but would instead defend the assessment at the Board. Further, the agreement entered into between the appellant and Woburn’s Tax Collector related to the issuance of a building permit, and contained no indication that the assessors would settle the appeal for the fiscal year at issue. Even if any of the evidence cited by the appellant could be construed as reflecting the assessors’ attempts to induce the appellant not to file an appeal with the Board, which the Board found that it did not, such evidence would not carry the day for the appellant. The Board’s jurisdictional requirements are set by statute, and neither agreements entered into between the parties nor any actions taken by the assessors can confer jurisdiction upon the Board where it does not exist. “[A] statutory prerequisite to jurisdiction cannot be waived by any act of the assessors.” Suffolk Law School, 295 Mass. at 494; Old Colony R. Co. v. Assessors of Quincy, 305 Mass. 509, 511-12 (1940). “The time limit provided for filing the petition is jurisdictional and a failure to comply with it must result in dismissal of the appeal.” Doherty v. Assessors of Northborough, Mass. ATB Findings of Fact and Reports 1990-372, 373 (citing Cheney v. Inhabitants of Dover, 205 Mass. 501, 503 (1910)); Suffolk Law School, 295 Mass. at 495. In sum, the Board found and ruled that the appellant’s argument was misplaced and without merit, and it therefore rejected that argument.
On the basis of the evidence presented, the Board found and ruled that the appellant failed to timely file its appeal with the Board for the fiscal year at issue. Accordingly, the Board allowed the assessors’ Motion to Dismiss and entered a decision for the appellee in this appeal.
THE APPELLATE TAX BOARD
By: __________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: _____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
FAIRLANE HOMES REALTY TRUST, v. BOARD OF ASSESSORS OF
PETER KNOX, TRUSTEE THE TOWN OF SHIRLEY
Docket No. F304235 Promulgated:
September 22, 2011
This is an appeal under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the Town of Shirley (“assessors” or “appellee”) to abate taxes on certain real property located in Shirley and assessed to Fairlane Homes Realty Trust, Peter Knox, Trustee (“Fairlane Trust” or “appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2009 (“fiscal year at issue”).
Commissioner Rose heard the appeal. He was joined in the decision for the appellee by Commissioners Scharaffa, Egan, and Mulhern.
These findings of fact and report are made at the request of the appellant pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.
Gregg S. Haladyna, Esq. for the appellant.
Rebecca Caldbeck, principal assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board (“Board”) made the following findings of fact.
On January 1, 2008, Fairlane Trust was the assessed owner of a 2.38-acre parcel of land known as Briarwood Mobile Home Park (“subject property”), which contained 40 mobile home units. The subject property was located in Shirley, a community of about 6,118 residents which is located 39 miles northwest of Boston. For zoning purposes, the subject property was located in the Shirley Village and Residential R3 zoning districts, which permitted a wide range of business, retail, and residential uses, as well as religious, municipal, educational and agricultural uses. The subject property’s use as a mobile home park was a legal, nonconforming use.
For the fiscal year at issue, the assessors valued the subject property in the total amount of $674,600, and assessed a tax thereon, at the rate of $11.43 per thousand, in the total amount of $7,710.68. Of the total $674,600 assessed value, $290,300 was allocated to the subject property’s land value and $384,300 was allocated to “yard items,” or the value of the mobile home pads. Although the appellant’s fourth quarter tax payment was late, the appellant had paid an amount in excess of the average of its assessed property taxes for the preceding three fiscal years by May 1, 2009, and therefore late payment of the taxes was not an impediment to the Board’s jurisdiction in this appeal. G.L. c. 59, §§ 64 and 65.[159]
The appellant filed an Application for Abatement with the assessors on January 29, 2009. The appellant’s abatement application was denied by vote of the assessors on April 27, 2009, and the assessors gave notice of their denial to the appellant on the same day. The appellant filed an appeal with the Board on July 24, 2009. The Board therefore found that it had jurisdiction to hear and decide this appeal.
In its abatement application and petition, the appellant argued that the assessors improperly assessed the subject property’s 40 mobile homes which were exempt from taxation under G.L. c. 59, § 5, cl. 36 (“Clause 36”); however, the appellant did not advance that argument at the hearing and appears to have abandoned it. In any event, the Board found and ruled that the argument was without merit because the assessors did not assess the subject property’s mobile homes. Rather, in addition to its land, the assessors assessed the subject property’s 40 mobile home pad sites as “yard items,” which they valued at $384,300. Although mobile homes are exempt from tax under Clause 36, the pad sites are not, and the Board found that the assessors properly assessed the pad sites. See Chelmsford Mobile Home Park Properties, LLC, successor to LJR Real Estate, LP v. Assessors of Chelmsford, Mass. ATB Findings of Fact and Reports 2011-646, 662.
The appellant additionally argued that the assessors overvalued the subject property. The evidence presented by both parties on this point is set forth below.
The Appellant’s Valuation Evidence
The appellant presented its case primarily through the testimony and summary appraisal report of Jonathan Avery, a certified real estate appraiser who is a member of the Counselors of Real Estate and the Appraisal Institute. At the time of the hearing of this appeal, Mr. Avery had more than 40 years of appraisal experience and was a principal of the real estate appraisal firm Avery Associates. The Board qualified him as an expert real estate appraiser.
To prepare for his appraisal, Mr. Avery conducted an inspection of the subject property on August 28, 2009 and on several occasions thereafter. Mr. Avery also reviewed relevant deeds and land plans. To begin his appraisal, Mr. Avery determined the highest and best use of the subject property, both as vacant and as improved. Mr. Avery concluded that the highest and best use of the subject property was its continued use as a mobile home park, in part because such use was a legal non-conforming use, allowing for greater density of development than would be permitted under current zoning laws.
To value the subject property, Mr. Avery considered the three usual approaches to value, the cost-reproduction approach, the sales-comparison approach, and the income-capitalization approach. Mr. Avery rejected the cost-reproduction approach because it is usually used for new, nearly new, or special-purpose properties, and he rejected the sales-comparison approach because of the lack of available comparable-sales data. He ultimately selected the income-capitalization approach because of the subject property’s long history as an income-producing property.
To determine appropriate market rents for his income-capitalization analysis, Mr. Avery examined rents at fourteen other mobile home parks located in Shirley or in towns located in close proximity to Shirley. The fourteen mobile home parks selected for comparison by Mr. Avery ranged in size from 13 units to 176 units. Some of the parks restricted residence to adults age 55 and over. During the period relevant to this appeal, rent at the subject property was $595 per month, and that fee included the rental of both the pad site and mobile home. Rents at the fourteen mobile home parks examined by Mr. Avery were rents for pad sites alone, and did not include the rental of a mobile home. Rents for pad sites at these parks ranged from $253 per month to $461 per month. Based on this data, Mr. Avery formed a base opinion of market pad site rent of $300 per month.
In determining his estimated fair market rent for the subject property, Mr. Avery relied heavily on the first of his fourteen selected comparison properties (“comparable number one”). Comparable number one was a 39-unit mobile home park located on a two-acre parcel of land in Ayer, a community that abuts Shirley. Mr. Avery opined that comparable number one provided a good indication of fair market rent for the subject property because of their similarities in size and density. Comparable number one’s rent was $253 per month, and this comparatively low rent reflected, in Mr. Avery’s opinion, the lack of desire in the market for high-density mobile home parks in suburban settings. Because the subject property also was a high-density mobile home park located in a suburban setting, Mr. Avery opined that the fair market rent for the subject property would be considerably lower than his base market rent of $300 per month.
Additionally, after discussion with the subject property’s owner, Mr. Avery concluded that it experienced some functional obsolescence due to the fact that it restricted the size of its mobile homes to 50 feet in length. According to Mr. Avery, the current market trend is for larger mobile homes which span up to 70 feet in length, and Mr. Avery concluded that the subject property’s size restriction would have a negative impact on rents for pad sites. Specifically, Mr. Avery concluded that rents at the subject property should be reduced by 29 percent because 50-foot mobile homes were 29 percent smaller than 70-foot mobile homes. Thus, Mr. Avery deducted 29 percent, or $87, from his $300 estimated fair market rent to arrive at a final, rounded fair market rent of $215 per month for the subject property.
The next step in Mr. Avery’s income-capitalization analysis was to estimate appropriate operating expenses for the subject property. To determine appropriate expenses, Mr. Avery consulted several industry publications, including The 16th Annual Allen Report and The Texas A&M Survey, which reported expenses for mobile home communities. The publications cited by Mr. Avery indicated that typical expense ratios in the industry ranged from 37.5% to 40%.
To further assist in his determination of operating expenses for the subject property, Mr. Avery reviewed the subject property’s reported operating expenses for fiscal years 2006 and 2007. For fiscal year 2006, the reported expenses were $1,905 per pad site, and for 2007, they were $1,935 per pad site. After reviewing the subject property’s reported expenses and the market data, Mr. Avery ultimately used expenses of $1,507 per pad site.[160]
The next step in Mr. Avery’s income-capitalization analysis was the selection of appropriate vacancy and collection loss rates, management fees, and replacement reserves. Mr. Avery’s appraisal report noted that national surveys indicated vacancy rates at mobile home parks ranging from 5% to 10%, while the subject property had experienced vacancy rates between 8% and 12%. Mr. Avery further indicated that other competing mobile home parks experienced little vacancy. Accordingly, Mr. Avery selected a vacancy rate of 5%. Mr. Avery used a figure of 7.5% for management fees, which he noted also included administrative expenses. These figures were based on the industry surveys that he consulted, which indicated that management fees for mobile home parks were usually around 5% and administrative costs were typically around 2.5%. Mr. Avery additionally estimated 3% for replacement reserves.
After deducting all of these items and operating expenses from gross income, Mr. Avery calculated a net-operating income (“NOI”) of $37,748 for the subject property. The final step in Mr. Avery’s income-capitalization analysis was the selection of an appropriate capitalization rate. Mr. Avery chose a capitalization rate by looking at six mobile home park sales which occurred between January 31, 2003 and April 16, 2008. Five of the six mobile home parks were located in the Massachusetts towns of Westboro, Attleboro, Plainville, Easton, and Chesire, and the sixth was located in Jaffrey, New Hampshire. The capitalization rates derived from these sales ranged from 6.0% to 13.7%. Mr. Avery testified that the subject property was a slightly riskier investment because of its legal non-conformity and its smaller size. Mr. Avery therefore selected a capitalization rate of 10.5%, which was toward the higher end of that range, to account for the subject property’s increased risk. To this capitalization rate, Mr. Avery added the Shirley 2009 tax rate of $11.43 per thousand for a loaded capitalization rate of 11.64%. After applying that rate to his NOI, Mr. Avery’s final opinion of the subject property’s fair cash value for the fiscal year at issue was $320,000.
The Assessors’ Valuation Evidence
The assessors presented their case-in-chief through the testimony of principal assessor Rebecca Caldbeck and the submission of a valuation report prepared by her, along with relevant jurisdictional documents and current marketing materials for mobile homes from a number of mobile home manufacturers. The marketing materials introduced by the assessors showed mobile homes available in a variety of styles with varying layouts, finishes, and amenities. The sizes of the mobile homes featured in the marketing materials ranged from under 40 feet in length to over 80 feet in length.
Ms. Caldbeck’s valuation report included an “Income & Expense Worksheet,” which featured five separate income-capitalization analyses, including (1) an analysis using the subject property’s reported income and expense data for calendar year 2007; (2) an analysis using market data; (3) an analysis using the average rents for mobile home park pad sites located in Shirley along with the subject property’s reported expenses for calendar year 2007; (4) an analysis using market income data and the subject property’s reported expenses for calendar year 2007; and (5) an analysis using the average rents for mobile home park pad sites located in Shirley along with market expenses.
Of their derived estimates of fair cash value, it was the assessors’ opinion that the value derived by using the townwide average pad site rent and the expenses reported for the subject property provided the most reliable indication of the subject property’s fair cash value. Thus, the assessors’ opinion of fair market rent for the subject property was $350 per pad site. Further, as discussed in their valuation report, the capitalization rate used by the assessors was selected after consulting a variety of sources, including several national industry surveys, as well as a variety of methods, including the market extraction and mortgage equity methods. On average, these sources and methods produced capitalization rates ranging from 7.5% to 10.5%. The assessors ultimately selected a capitalization rate of 9.5%, to which they added the applicable tax factor, for a loaded capitalization rate of 10.643%. After incorporating their selected rent estimate, a vacancy rate of 5%, the subject property’s reported expenses, and their selected capitalization rate into their income-capitalization analysis, the assessors’ opinion of the subject property’s fair cash value was $872,498.36, an amount which exceeded its assessed value.
The assessors’ income-capitalization analyses are substantially reproduced in the following chart:
Assessors’ Income & Expense Analyses[161]
Town Ave. MH Site
Rental Rate/
SP’s Reported Data Market Data Reported Expenses
Monthly rental rate 200.00 599.00 350.00
Total rental income 96,000.00 287,520.00 168,000.00
Less vacancy/collection loss (5%) – 14,376.00 8,400.00
Effective gross income 96,000.00 273,144.00 159,600.00
Management 9,600.00 9,600.00
Utilities 15,348.00 15,348.00
Common area maintenance 5,940.00 5,940.00
Snow removal 3,190.00 3,190.00
Trash removal 7,576.00 7,576.00
Betterment interest 3,999.00 3,999.00
Betterment principal 12,497.00 12,497.00
Fire insurance 1,090.00 1,090.00
Total expenses 59,240.00 81,943.20 59,240.00
(30% egi)
Less replacement reserves 7,500.00 13,657.20 7,500.00
(5% egi)
Net Operating Income 29,260.00 177,543.60 92,860.00
Cap Rate 0.10643 0.10643 0.10643
Fair Cash Value 274,922.48 1,668,172.51 872,498.36
Town Ave. MH Site
Market Income/ Rental Rate/
Reported Expenses Market Expenses
Monthly rental rate 599.00 350.00
Total rental income 287,520.00 168,000.00
Less vacancy &
Collection loss (5%) 14,376.00 8,400.00
Effective gross income 273,144.00 159,600.00
Management 9,600.00
Utilities 15,348.00
Common area maintenance 5,940.00
Snow removal 3,190.00
Trash removal 7,576.00
Betterment interest 3,999.00
Betterment principal 12,497.00
Fire insurance 1,090.00
Total expenses 59,240.00 47,880.00
(30% egi)
less replacement reserves 7,500.00 7,980.00
(5% egi)
Net Operating Income 206,404.00 103,740.00
Cap Rate 0.10643 0.10643
Fair Cash Value 1,939,340.41 974,725.17
In further support of the assessment, the assessors offered assessment data for seven mobile home parks located in the vicinity of the subject property. The table of summary assessment data for these properties is substantially reproduced below.
Park Subject Shirley Fairlane Hillside Suburban Green Clarks
Name Shirley, MA Wayside Acme Park Park Village Acres Retirement
Location Shirley Shirley Shirley Lunenburg Ayer Pepperell Pepperell Pepperell
Proximity – 1.1 4.38 5.05 3.79 11.21 11.17 11.24
to Subject
(mi)
Circa 1960 1964 1970 1963 1970 1960 1985 1985
Acres 2.38 19 7.16 11.1 11.1 11.28 2.6 30.46
Number of
Pad Sites 40 64 13 18 39 60 20 73
FY 2009 674,000 1,134,000 366,100 452,400 615,100 432,100 317,300 1,149,500
Assessment
($)
Per Site 16,850 17,731 28,162 25,133 15,722 7,202 15,865 15,747 Value
($)
The Board’s Valuation Findings
In reaching its conclusion of fair cash value, the Board found that the highest and best use of the subject property was its continued use as a mobile home park. This use was financially feasible and physically possible because the subject property had been so used for decades and it was a legal, non-conforming use under applicable zoning laws. This use was also maximally productive because it allowed for a greater density of residential units than would otherwise be allowed by zoning laws. Additionally, the Board, like the parties, found that the income-capitalization approach was the most reliable method with which to value the subject property, given its long history as an income-producing property.
On the basis of all of the evidence, the Board found that the appellant failed to prove that the assessed value of the subject property exceeded its fair cash value for the fiscal year at issue. In particular, the Board found the appellant’s estimate of fair market rent for the subject property’s pad sites – $215 – to be severely understated.
The appellant’s expert witness, Mr. Avery, began with a base rent estimate of $300 per month, which was at the low-end of the range of his comparable rents. He further reduced this base estimate by an additional 29%. The Board found that there was insufficient support in the record for this dramatic reduction in rent. Mr. Avery’s fair market rent was based in part on his conclusion that because the subject property restricted the size of its mobile homes to 50 feet in length, as opposed to allowing more modern mobile homes of up to 70 feet in length, rents at the subject property would be negatively impacted. Thus, Mr. Avery reduced his estimates of fair market rent by 29%, an amount which he arrived at because 50-foot mobile homes are 29% smaller than 70-foot mobile homes.
As an initial matter, Mr. Avery’s bare assertion that the modern trend in mobile homes was for larger, 70-foot mobile homes was not in itself adequate evidence of this fact. He introduced no additional evidence to corroborate this statement, nor did he offer evidence establishing that any of his 14 comparison mobile home parks in fact permitted 70-foot mobile homes, unlike the subject property. In fact, the marketing materials introduced by the assessors undercut Mr. Avery’s assertion about modern mobile home trends, as those materials showed mobile homes ranging in size from under 40 feet in length to over 80 feet in length. Even assuming arguendo that Mr. Avery had sufficiently demonstrated the negative impact on rent created by the subject property’s size restriction, there was no evidence in the record to support a reduction in value corresponding directly to the size difference between 50-foot mobile homes and 70-foot mobile homes, and the Board is not aware of any appraisal principles supporting such an adjustment. Moreover, assuming arguendo that the subject property’s size restriction created functional obsolescence, the Board found that Mr. Avery accounted for this fact by selecting a rent from the lower end and a capitalization rate from the higher end of the range of rates. The Board found that by both decreasing his market rent and using a higher capitalization rate, Mr. Avery in effect double counted for the supposed functional obsolescence attributable to the subject property’s size restriction.
Furthermore, Mr. Avery selected an expense ratio which far exceeded both market expense ratios and the subject property’s reported expense ratios for fiscal years 2006 and 2007. Again, the Board found that there was insufficient evidence in the record to support the use of such increased expense estimates. The Board thus found that Mr. Avery’s estimate of the subject property’s fair cash value, $320,000, was premised upon unreliable estimates of fair market rent and expenses and therefore was not a reliable estimate of the subject property’s fair cash value.
In contrast, the Board found that the evidence offered by the assessors provided ample support for the assessment. Like the appellant, the assessors used the income-capitalization approach to value the subject property, and the Board found that there was adequate support in the record for the data used by the assessors, including their selected capitalization rate and market rent of $350 per pad site. With the exception of the analysis using the subject property’s reported data, the assessors’ income-capitalization analyses produced fair cash values significantly higher than the assessed value of the subject property. Additionally, the comparable-assessment data offered by the assessors revealed that the subject property’s per-unit assessed value was squarely within the range of per-unit assessed values of other local mobile home parks.
Moreover, the sales data included by Mr. Avery in his appraisal report provided further evidence that the assessed value of the subject property did not exceed its fair cash value. Of the six mobile home parks which Mr. Avery analyzed in order to determine the capitalization rate, the park most comparable to the subject property was a park with 47 units on five acres of land located in Westboro. That park sold on April 16, 2008, relatively close in time to the relevant date of assessment, for a sale price of $1,050,000. The Board found that the sale price of this park provided a reliable indication that the assessed value of the subject property did not exceed its fair cash value.
In conclusion, on the basis of all of the evidence, the Board found that the appellant failed to prove that the assessed value of the subject property exceeded its fair cash value for the fiscal year at issue. Accordingly, the Board issued a decision for the appellee in this appeal.
OPINION
The assessors have a statutory and constitutional obligation to assess all real property at its full and fair cash value. Part II, c. 1, § 1, art. 4, of the Constitution of the Commonwealth; art. 10 of the Declaration of Rights; G.L. c. 59, §§ 38, 52. See Coomey v. Assessors of Sandwich, 367 Mass. 836, 837 (1975) (citations omitted). Fair cash value means fair market value, which is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974)(quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayer[] . . . prov[es] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984)(quoting Schlaiker, 365 Mass. at 245). In appeals before this Board, a taxpayer “may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.” General Electric, 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
The ascertainment of a property’s highest and best use is a prerequisite to valuation analysis. See Peterson v. Assessors of Boston, 62 Mass. App. Ct. 428, 429 (2004); Irving Saunders Trust v. Assessors of Boston, 26 Mass. App. Ct. 838, 843 (1989). “A property’s highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive.” Northshore Mall Limited Partnership v. Assessors of Peabody, Mass. ATB Findings of Fact and Reports 2004-195, 246, aff’d, 63 Mass. App. Ct. 1116 (2005). In the present appeal, the Board agreed with the parties that the subject property’s highest and best use was its continued use as a mobile home park. This use was financially feasible and physically possible because the subject property had been so used for decades, and it was a legal, non-conforming use under applicable zoning laws. This use was also maximally productive because it allowed for greater density of housing units than would otherwise be allowed under current zoning laws. Accordingly, the Board found and ruled that the subject property’s highest and best use was its continued use as a mobile home park.
The fair cash value of property may often best be determined by recent sales of comparable properties in the market. See Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978); McCabe v. Chelsea, 265 Mass. 494, 496 (1929). Actual sales generally “furnish strong evidence of market value, provided they are arm’s-length transactions and thus fairly represent what a buyer has been willing to pay for the property to a willing seller.” Foxboro Associates v. Assessors of Foxborough, 385 Mass. 679, 682 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981); First National Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1971).
However, the income-capitalization method “is frequently applied with respect to income-producing property.” Taunton Redev. Assocs. v. Assessors of Taunton, 393 Mass. 293, 295 (1984). In the present appeal, the Board, like the parties, used the income-capitalization approach to determine the subject property’s fair market value. The Board found and ruled that the income-capitalization approach was the most reliable method with which to value the subject property given its long history as an income-producing property.
Under the income-capitalization approach, valuation is determined by dividing net-operating income by a capitalization rate. See Assessors of Brookline v. Buehler, 396 Mass. 520, 522-23 (1986). Net-operating income is obtained by subtracting market expenses from a market-derived gross income. Id. at 523. Income and expense figures and capitalization rates, therefore, are the essential building blocks of the income-capitalization method; the ultimate reliability of an estimate of fair cash value depends in large part on the individual reliability of these components.
In the present appeal, the Board found that neither Mr. Avery’s market rents nor his expense estimates for the subject property were supported by the market data. The evidence showed his market rent of $215 per pad site to be significantly lower than even the lowest market rent, while it showed that his expense estimate far exceeded both market expense ratios and the reported expenses for the subject property for prior fiscal years. Moreover, Mr. Avery selected a slightly higher capitalization rate of 10.5% to account for the functional obsolescence supposedly created by the subject property’s size restriction. However, the Board found and ruled that Mr. Avery had already significantly reduced his estimates of fair market rent to account for the alleged negative impact of the subject property’s size restriction, and was effectively double counting for this factor by using an increased capitalization rate. Accordingly, the Board found and ruled that Mr. Avery’s opinion of fair cash value, $320,000, was not a reliable estimate of the subject property’s fair cash value because it was premised on largely unsupported and unreliable data.
In contrast, the Board found that the assessors presented ample evidence to support the assessment. The assessors’ evidence included numerous income-capitalization analyses, each of which used reliable market data, which yielded fair cash values in excess of the subject property’s fair cash value. The Board found and ruled that the assessors’ income-capitalization analyses provided persuasive evidence that the subject property’s assessed value did not exceed its fair cash value for the fiscal year at issue.
Additionally, the assessors introduced comparable assessment data for seven mobile home parks located in the vicinity of the subject property. Evidence of the assessed values of comparable properties may provide probative evidence of fair cash value. G.L. c. 58A, § 12B. “The introduction of such evidence may provide adequate support for either the granting or denial of an abatement.” John Alden Sands v. Assessors of Bourne, Mass. ATB Findings of Fact and Reports 2007-1098, 1106-07, (citing Chouinard v. Assessors of Natick, Mass. ATB Findings of Fact and Reports 1998-299, 307-08). The comparable assessment data offered by the assessors showed that the assessed value of the subject property was well within the range of assessed values of other local mobile homes, and the Board found and ruled that this evidence provided additional support for the assessment.
The Board need not specify the exact manner in which it arrived at its valuation. Jordan Marsh v. Assessors of Malden, 359 Mass. 196, 110 (1971). The fair cash value of property cannot be proven with “mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment.” Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 72 (1941). “The credibility of witnesses, the weight of evidence, the inferences to be drawn from the evidence are matters for the Board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
On the basis of all of the evidence, the Board found and ruled that the appellant did not meet its burden of proving that the assessed value of the subject property exceeded its fair cash value for the fiscal year at issue. Accordingly, the Board issued a decision for the appellee in this appeal.
APPELLATE TAX BOARD
By: ___________________________________
Thomas W. Hammond, Jr., Chairman
A true copy:
Attest: ____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
THOMAS S. & CYNTHIA V. v. BOARD OF ASSESSORS OF
CORRADO THE TOWN OF SHARON
Docket No. F307098 Promulgated:
September 22, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the appellee to abate taxes on real estate located in the Town of Sharon, owned by and assessed to the appellants under G.L. c. 59, §§ 11 and 38, for fiscal year 2010 (“fiscal year at issue”).
Commissioner Rose heard this appeal. Chairman Hammond and Commissioners Scharaffa, Egan and Mulhern joined him in the decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellants under G.L. c. 58A, § 13 and 831 CMR 1.32.
Thomas Corrado, pro se, for the appellants.
Mark Mazur, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the exhibits and testimony offered into evidence during the hearing of this appeal, the Appellate Tax Board (“Board”) made the following findings of fact.
On January 1, 2009, the appellants were the assessed owners of an improved parcel of real estate located at 7 Mink Trap Lane in the Town of Sharon (“subject property”). For the fiscal year at issue, the Board of Assessors of Sharon (“assessors”) valued the subject property at $544,500, and assessed a tax thereon, at the rate of $17.92 per thousand, in the total amount of $9,837.09.[162] In accordance with G.L. c. 59, § 57C, the appellants paid the tax due without incurring interest, and in accordance with G.L. c. 59, § 59, the appellants timely filed an Application for Abatement with the assessors on February 9, 2010. The assessors denied the appellants’ abatement application on March 11, 2010, and on June 8, 2010, the appellants seasonably filed an appeal with the Board. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide the appeal.
The subject property consists of a 2.3-acre parcel of land improved with a single-family, Colonial-style home built in 1986. The dwelling, which contains 2,658 square feet of living area and 3,384 square feet of effective living area, has eight rooms, including three bedrooms, two full bathrooms and one half bathroom. The dwelling’s amenities include central air conditioning, a fireplace, a finished basement, a finished enclosed porch, a finished two-car garage, an open porch, and a wooden deck.
The subject property was the focus of an appeal to the Board for fiscal year 2009. See Corrado v. Assessors of Sharon, Mass. ATB Findings of Fact and Reports 2010-825 (“Corrado I”). In Corrado I, which is incorporated herein by reference, the Board issued a decision for the assessors having found that the appellants’ evidence, which consisted of data relating to purportedly comparable sales and assessments, did not provide reliable or persuasive evidence of the subject property’s fair cash value.
For the fiscal year at issue, the appellants presented their case primarily through the testimony of appellant Thomas Corrado, who argued that the subject property was overvalued. In support of his argument, Mr. Corrado disputed elements of the Board’s decision in Corrado I, and submitted various assessment and sales data relating to Sharon for calendar years 2007 through 2010.
As they did for fiscal year 2009, the appellants offered for consideration a purportedly comparable property located at 121 Furnace Street. The appellants claimed that the 121 Furnace Street property was comparable to the subject property and stated that the assessed value of the subject property was approximately 6.2% higher than the assessed value of 121 Furnace Street for fiscal year 1996, a difference which had progressively grown to approximately 12.6% by fiscal year 2010. According to the appellants, this divergence between the assessed values of the two comparable properties indicated that the subject property’s assessment increased without justification, which demonstrated overvaluation of the subject property that was ignored by the Board in Corrado I. The appellants also cited the 2007 sale of 121 Furnace Street for $505,000, arguing that this sale was indicative of the subject property’s fair cash value. Finally, the appellants disagreed with the Board’s finding in Corrado I that the location of 121 Furnace Street was inferior to the subject property’s location, noting both that the average assessed value of properties on Furnace Street was a mere $51,000 lower than on Mink Trap Lane and that two properties on Furnace Street were valued at over one million dollars, more than any property on Mink Trap Lane. The Board found none of these arguments persuasive.
Although the appellants again claimed that the 121 Furnace Street property provided a basis to establish the fair cash value of the subject property, they failed to submit property record cards or other documentary evidence which would allow the Board to verify claimed comparability and to account for differences between the properties. Absent such evidence, neither the progressive divergence between the properties’ assessed values nor the sale of the 121 Furnace Street property provides any basis to establish the fair cash value of the subject property. Further, the appellants failed to demonstrate that the Board’s findings in Corrado I relating to the 121 Furnace Street property were not warranted. More specifically, the appellants’ generalized assertions regarding relative assessed values on Mink Trap Lane and Furnace Street did not serve to contravene the Board’s prior finding that the comparability of the 121 Furnace Street property was greatly compromised because it was in a less desirable neighborhood on a cut-through street and was encumbered by the presence of considerable wetlands and power lines running across its parcel. Corrado I, Mass. ATB Findings of Fact and Reports at 2010-829.
The Board also found that the appellants’ contentions regarding the assessed values of homes on Furnace Street relative to those on Mink Trap Lane are not germane to the subject property’s value. Assuming the assessment figures presented by the appellants are accurate, the data in no way speak to the particular attributes of the subject property, nor do they provide a basis for comparison with other potentially comparable properties. In sum, the Board found that the evidence relating to the 121 Furnace Street property as well as Furnace Street in general was not sufficiently probative to establish the fair cash value of the subject property.
The appellants also presented a summary of assessed values and sale prices for all Sharon single-family properties from 2007 through 2010.[163] The appellants noted that for each of these calendar years, the aggregate assessed values of the homes exceeded their aggregate sale prices. This differential was as large as 8.3% for 2009 and as small as 1.8% for 2010. According to the appellants, these figures indicate that single-family properties in Sharon, including the subject property, have been overvalued. The Board, however, found that the data were not probative of the value of the subject property.
As a threshold matter, the appellants’ argument fails to consider that the relevant assessment date for sales completed in a given calendar year is January first of the preceding year, and the appellants provided no adjustment for market conditions (i.e., sale dates) to account for the temporal disparity between the cited properties’ valuation and sale dates, which varies between one and two years. Moreover, the appellants’ presentation provides no basis to compare any particular property with the subject property to determine if the subject property was overvalued for the fiscal year at issue. Finally, to the extent that the appellants’ presentation may be construed as an allegation of disproportionate assessment, the Board found that it fails for lack of evidence. More specifically, the record contains no evidence to support an assertion that the assessors engaged in a scheme of discriminatory, disproportionate assessment. For all of the foregoing reasons, the Board found that the appellants’ presentation of sale prices and assessed values was unavailing.
For their part, the assessors submitted two sales of properties, located at 38 Knob Hill Street and 5 Canoe River Road, which the Board found were comparable to the subject property. These properties were similar to the subject property in several respects, including neighborhoods, the dwellings’ effective living area and their dates of construction. The assessors’ analysis incorporated adjustments for various elements of each comparable sale including parcel size and topography, time of sale, and each dwelling’s amenities. The Board found that this analysis, including the resultant indicated values, supported the contested assessment.
Having considered the evidence of record, the Board found that the appellants did not provide a reliable basis to establish the fair cash value of the subject property. The Board therefore found and ruled that the appellants failed to meet their burden of demonstrating that the subject property’s assessed value exceeded its fair cash value for the fiscal year at issue. The Board also found and ruled that the comparable-sales evidence presented by the assessors supported the disputed assessment. On this basis, the Board issued a decision for the assessors in this appeal.
OPINION
Assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
An assessment is presumed valid unless the taxpayers sustain their burden of proving otherwise. Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974). Accordingly, the burden of proof is upon the appellants to make out their right as a matter of law to an abatement of the tax. Id. In appeals before this Board, taxpayers “‛may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984) (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
The present appeal relates to property that was the subject of an appeal for the prior fiscal year. In support of their assertion that the subject property was overvalued for the fiscal year at issue, the appellants presented a single purportedly comparable property, located at 121 Furnace Street, and compilations of assessment and sales data. The Board found and ruled that none of this evidence provided “persuasive evidence of overvaluation.” Id.
Sales of comparable realty in the same geographic area and within a reasonable time of the assessment date generally contain probative evidence for determining the value of the property at issue. Graham v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2008-321, 400 (citing McCabe v. Chelsea, 265 Mass. 494, 496 (1929)), aff’d 73 Mass. App. Ct. 1107 (2008). Properties are “comparable” to the subject property when they share “fundamental similarities” with the subject property, including similar age, locations, sizes and dates of sale. Lattuca v. Robsham, 442 Mass. 205, 216 (2004).
The appellant bears the burden of “establishing the comparability of . . . properties [used for comparison] to the subject property.” Fleet Bank of Mass. v. Assessors of Manchester, Mass. ATB Findings of Fact and Reports 1998-546, 554. Accord New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 470 (1981). “After researching and verifying . . . data and selecting the appropriate unit of comparison, [an] appraiser adjusts for any differences.” appraisal institute, the appraisal of real estate 307 (13th ed. 2008). “Adjustments for differences are made to the price of each comparable property to make that property equivalent to the subject in market appeal on the effective date of the opinion of value.” the appraisal of real estate at 430. Further, absent such adjustments various factors would otherwise cause disparities in the comparable prices. See Pembroke Industrial Park Co., Inc. v. Assessors of Pembroke, Mass. ATB Findings of Fact and Reports 1998-1072, 1082.
As they had in Corrado I, the appellants claimed that the 121 Furnace Street property was comparable to the subject property, a comparability which served as the foundation for a significant portion of their overvaluation argument. Yet the appellants failed to provide property record cards or other documentary evidence to establish comparability or provide any basis to make adjustments to account for differences between the properties. Further, the appellants failed to contravene the Board’s prior finding that the comparability of the 121 Furnace Street property was greatly compromised because it was in a less desirable neighborhood on a cut-through street and was encumbered by the presence of considerable wetlands and power lines running across its parcel. Corrado I, Mass. ATB Findings of Fact and Reports at 2010-829. Lacking evidence of comparability or a basis for adjustment to account for differences between the properties, the Board found that any comparison with the 121 Furnace Street property was of little probative value. Similarly, the appellants’ data relating to the assessed values of homes on Furnace Street did not speak to the particular attributes of the subject property or provide a basis for comparison with other potentially comparable properties.
In contrast, the assessors submitted two sales of properties, which the Board found were comparable to the subject property. These properties were similar to the subject property in several respects, and the assessors’ analysis incorporated adjustments for various elements of each comparable sale. The Board thus found that this analysis, including the resultant indicated values, supported the contested assessment.
The appellants also presented sales and assessment data for Sharon single-family properties from 2007 through 2010 indicating that for each of these calendar years the aggregate assessed values of the homes exceeded their aggregate sale prices. The appellants argued that these figures demonstrated that single-family properties in Sharon, including the subject property, had been overvalued. The Board, however, found that the data did not provide probative credible evidence of the subject property’s fair cash value.
First, the appellants failed to consider the temporal disparity between the cited properties’ valuation and sale dates, which varies between one and two years, and the appellants provided no adjustment for market conditions. Market conditions are one of several transactional elements of comparison integral to the sales comparison valuation approach that “help to explain the variances in the prices paid for real property.” the appraisal of real estate at 309. Adjustments for these elements of comparison, in addition to others, are necessary to avoid disparities in comparable properties’ sale prices. See Pembroke Industrial Park Co., Mass. ATB Findings of Fact and Reports at 1998-1082.
The appellants’ submissions also provided no basis to derive an indicated value for the subject property because there is no data relating to any particular property enabling meaningful comparison with the subject property. Absent such comparison, the Board could not determine if the subject property was overvalued for the fiscal year at issue.
Finally, to the extent that the appellants’ presentation may be construed as an assertion of disproportionate assessment, the Board found that it must fail for lack of evidence. “If the taxpayer can demonstrate in an appeal to the [B]oard that he has been a victim of a scheme of discriminatory, disproportionate assessment, he ‘may be granted an abatement . . . which will make . . . [his] assessment proportional to other assessments, on a basis which reaches results as close as is practicable to those which would have followed application by the assessors of the proper statutory assessment principles.’” Coomey v. Assessors of Sandwich, 367 Mass. 836, 838 (1975) (quoting Shoppers’ World, Inc. v. Assessors of Framingham, 348 Mass. 366, 377-78 (1965)). The burden of proof as to existence of a “scheme of discriminatory, disproportionate assessment” is on the taxpayers. First National Stores v. Assessors of Somerville, 358 Mass. 554, 559 (1971). In the present matter, the record contains no evidence to support an assertion that the assessors engaged in a scheme of discriminatory, disproportionate assessment.
On the basis of the foregoing, the Board found and ruled that the appellants failed to meet their burden of demonstrating that the assessed value of the subject property exceeded its fair cash value for the fiscal year at issue. Accordingly, the Board issued a decision for the assessors in this appeal.
APPELLATE TAX BOARD
By: ________________ __
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ______ _________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
DYER INVESTMENT COMPANY, LLC v. BOARD OF ASSESSORS OF
THE TOWN OF GREENFIELD
Docket No. F300439 Promulgated:
October 5, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Greenfield (“assessors” or “appellee”) to abate taxes on certain real estate owned by and assessed to Dyer Investment Company, LLC (“appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2009.
Commissioner Mulhern heard this appeal and was joined by Chairman Hammond and Commissioners Scharaffa, Egan and Rose in the decision for the appellant.
These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
Barry Auskern, Esq. for the appellant.
Ellen M. Hutchinson, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
Based on the testimony and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board (“Board”) made the following findings of fact.
On January 1, 2008 (“the relevant date of assessment”), the appellant was the assessed owner of a 1.41-acre parcel of real estate improved with a multi-level retail/office building (“the subject property”). The subject property was originally built circa 1930 as two separate buildings abutting on the side and rear. Prior to the appellant’s purchase of the subject property, the alley separating the two buildings was enclosed and made into a common hallway and entry; this area is now unheated and locked and not in use. Currently, the subject property operates as a single building with an “east side” and a “west side.”
The east side contains approximately 34,525 square feet of building area. The first floor has about 28,900 square feet of net leasable area, with only 3,000 square feet finished as office space and rented as of the relevant date of assessment. The remaining 25,900 square feet is older vacant retail space; this section has not been occupied for several years due to its poor condition with many areas damaged by water and decaying from lack of maintenance. There are two gas-fired space heaters in this part of the building that were temporarily installed to keep pipes from freezing. The main HVAC system is not in service and is obsolete. The second floor contains roughly 5,625 square feet of vacant, unfinished space. This space has an open utility area and operates as attic storage.
The west side has a gross building area of 27,288 square feet. The first floor contains approximately 13,070 square feet of net leasable space, which is renovated office space built out for use by the Commonwealth of Massachusetts Juvenile Trial Court. The second level is a mezzanine[164] area and contains 2,660 square feet of low-grade office space in a very narrow configuration. The full width of the space is only 13.5 feet with a common hallway that is 4 feet wide. Much of the drywall on the second floor is unfinished and has never been painted. The third floor contains 7,150 square feet of raw unfinished space. This area is heavily damaged with large sections of the ceiling falling and many areas of the wood flooring buckled. The mezzanine and third floor windows have rotted sashes and frames; there is no heat, and the electric service is for minimal lighting only. There is an old elevator that provides access from the first to third floors; however, it has been out of service for at least five years.
The construction of the building is typical for the period with flat roofs with a tar and gravel cover and a mix of exterior wall types, primarily brick and block with sections having older wood siding. The first-floor office spaces have upgraded windows and doors. The interior of the rented office spaces have painted drywall and dropped ceilings with average quality ceiling tiles. The electrical is average, and there is commercial-grade carpeting and vinyl flooring.
For fiscal year 2009, the assessors initially valued the subject property at $3,123,600 and assessed a tax thereon, at the rate of $17.50 per thousand, in the amount of $54,663. On December 29, 2008, Greenfield’s Collector of Taxes sent out the town’s actual real estate tax bills for fiscal year 2009. In accordance with G.L. c. 59, § 57C, the appellant paid the tax without incurring interest. On February 2, 2009, in accordance with G.L. c. 59, § 59, the appellant timely filed an abatement application with the assessors.[165] On March 4, 2009, the assessors granted the appellant a partial abatement, reducing the assessed value of the subject property by $318,000 to $2,805,600 and the tax by $5,565 to $49,098. On May 26, 2009, the appellant timely filed an appeal of the partial abatement with the Board. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide this appeal.
The appellant argued that the subject property was overvalued for the fiscal year at issue because the assessors improperly calculated the square footage of the subject property and also failed to take into consideration the deteriorating condition of the building. In support of its claim that the subject property was overvalued, the appellant offered into evidence numerous photographs of the subject property, which depicted the unfinished and dilapidated condition of much of the property. The appellants also presented the testimony and appraisal report of Kim A. Levitch, a certified real estate appraiser. Based on his certification and experience, the Board qualified Mr. Levitch as an expert real estate appraiser.
Mr. Levitch began his appraisal with a determination of the subject property’s highest and best use. Mr. Levitch noted that although the two sides of the subject property are located in the same zoning district, they are of different construction and have different uses, which do not benefit from their proximity to one another. Moreover, demand in the area is for smaller units. Therefore, Mr. Levitch concluded that the highest and best use of the subject property is for the elimination of the connecting covered alley, returning the subject property to its original condition as two separate buildings.
To estimate the subject property’s fair cash value, Mr. Levitch considered the three standard methods of valuation. He ruled out the cost approach because of the extensive deterioration and depreciation of the east side’s vacant first-floor retail space, the upper floors’ unfinished condition, and questions regarding the functionality of the west side, such as the jail cells, judges’ benches and jury areas. Mr. Levitch determined that the treatment and accounting for each applicable type of depreciation was difficult and prone to error and therefore did not provide a reliable basis for determining the subject property’s fair market value. Mr. Levitch also conducted a sales-comparison analysis for each side of the subject property. However, he used this approach only to support his conclusion of value derived through his income-capitalization analyses.
In arriving at his opinion of value for the subject property, Mr. Levitch relied primarily on the income-capitalization method, which he applied separately to the two sides of the subject property. To determine the potential gross income for each side, Mr. Levitch considered the subject property’s actual income, as evidenced by the existing leases, and also reviewed the appellant’s tax returns for tax years 2005 through 2008, inclusive. He further conducted a survey of existing rents for nearby comparable rental properties.
Based on this information, Mr. Levitch concluded that the actual rent of $11.55 per square foot for the east-side first-floor space leased to Beneficial Finance, and $18.80 per square foot for the west-side first-floor space leased to the Juvenile Court, were appropriate market rents. Given the poor condition of the rear portion of the east-side first floor, and also to account for the lack of demand for large retail spaces, Mr. Levitch determined what he considered to be an appropriate market rent of $2.50 per square foot for this space.
Further, because of the “bowling alley” layout of the west-side second floor, and the overall condition of both the east-side and west-side upper floors, Mr. Levitch assigned no rental value to any of these spaces because in his opinion the spaces were not rentable in their present condition. On this basis, Mr. Levitch calculated a potential gross income of $99,400 for the east side and $245,716 for the west side.
Mr. Levitch next focused on choosing appropriate vacancy and rent loss estimates. To determine these estimates, Mr. Levitch reviewed the subject property’s historical vacancy rates, surveyed the vacancy rates of nearby competing properties, and also considered the annual vacancy studies which he had conducted for the Franklin County Council of Governments. Based on this information, Mr. Levitch determined a vacancy and collection loss rate of 15% for the east side and 6% for the west side of the subject property. Applying these vacancy rates resulted in an effective gross income (“EGI”) of $84,490 for the east side and $230,973 for the west side.
Mr. Levitch next considered operating expenses. Mr. Levitch determined that the subject property’s actual operating expenses for property insurance, utilities, and maintenance and repair, as reported on the appellant’s 2005 through 2008 income tax returns were appropriate. He then allocated these expenses between the east and west side based on size and current use, were appropriate. Mr. Levitch also deducted a management expense of 10% of EGI for the east side and 6% of EGI for the west side. He explained that according to the subject property’s listing broker, Mr. Mark Abramson, management costs typically range from 7% to 10%. Based on the size of the east side, the number of units, and the higher degree of time involved in the management of this property, which is in poor condition, Mr. Levitch allowed a management deduction of 10%. Based on the single-occupancy of the west side, he determined that a lower management fee of 6% was appropriate. Mr. Levitch also allowed a deduction for reserves for replacement calculated at 10% of EGI for the east side and 4% of EGI for the west side, for the same reasons he chose his corresponding management fees. Finally, Mr. Levitch allowed a miscellaneous expense deduction, calculated at 2% for the east side and 1% for the west side. Deducting these expenses from the respective EGI resulted in a net operating income (“NOI”) of $51,833 for the east side and $113,989 for the west side.
The final step in Mr. Levitch’s income-capitalization analysis was the selection of an appropriate capitalization rate. To aid in the selection of a capitalization rate, Mr. Levitch considered the extracted rates from recent sales of comparable properties, the mortgage-equity technique, and also a review of published surveys in the Valuation Insights & Perspectives Journal, which is published by the Appraisal Institute. Based on this data, Mr. Levitch selected a base capitalization rate of 10.0354%. To this capitalization rate he added a tax factor[166] of 1.768% to arrive at an overall capitalization rate of 11.8034% for the west side. For the east side, Mr. Levitch noted that the office tenant is required to pay a prorated share of the total property tax, which equates to approximately 7.8%. Therefore, Mr. Levitch reduced the tax factor to 1.63% to arrive at an overall capitalization rate of 11.6654% for the east side.
Finally, applying his overall capitalization rates to the NOI for each side, Mr. Levitch derived an indicated value, rounded, of $444,000 for the east side and $966,000 for the west side. Mr. Levitch further reduced the east-side value by $150,000 to account for the cost of a new HVAC system, which resulted in a final conclusion of value of $294,000.
Mr. Levitch’s income-capitalization analysis is duplicated in the following tables.[167]
East Side:
Income S.F. Rent/SF Total
1st Floor (Beneficial) 3,000 $11.55 $34,650
1st Floor Retail 25,900 $2.50 $64,750
2nd Floor Office 5,625 None
Gross Potential Income $99,400
Vacancy and Collection Loss 15% -$14,910
Effective Gross Income $84,490
Expenses
Property Insurance $7,000
Utilities $2,000
Management 10% $8,449
Maintenance & Repair 6% $5,069
Reserve for Replacement 10% $8,449
Miscellaneous 2% $1,690
Total Expenses -$32,657
Net Operating Income (NOI) $51,833
Capitalization Rate
Rate 10.0354%
Tax Factor 1.6300%
Overall Capitalization Rate 11.6654%
Indicated Value $444,328
Rounded $444,000
Less HVAC cost $150,000
Conclusion of Value $294,000
West Side:
Income S.F. Rent/SF Total
Juvenile Court (actual) 13,070 $18.80 $245,716
2nd Floor 2,660 n/a None
3rd Floor 7,150 n/a None
Gross Potential Income $245,716
Vacancy and Collection Loss 6% -$14,743
Effective Gross Income $230,973
Expenses
Property Insurance $16,000
Utilities $36,000
Management 6% 6% $13,858
Maintenance & Repair (actual) $39,577
Reserve for Replacement 4% $ 9,239
Miscellaneous 1% $ 2,310
Total Expenses -$116,984
Net Operating Income (NOI) $113,989
Capitalization Rate
Rate 10.0354%
Tax Factor 1.7680%
Overall Capitalization Rate 11.8034%
Indicated Value $965,727
Rounded $966,000
The assessors did not present any witnesses or expert reports at the hearing of this appeal. Instead, they relied on their counsel’s cross-examination of the appellant’s witness and the introduction of several exhibits, including relevant jurisdictional documentation and the subject property’s property record cards. Outlined on the property record cards was the assessors’ income-capitalization analysis. The assessors valued each building separately and then added together the two values to calculate the subject property’s fiscal year 2009 assessment, prior to abatement.
Based on the evidence presented, and reasonable inferences drawn therefrom, the Board found that the appellant met its burden of proving that the subject property was overvalued for the fiscal year at issue. In making this finding, the Board found that the subject property’s highest and best use was its continued use as a single, multi-tenant, mixed-use building. A property’s highest and best use must be, among other things, legally permissible and also financially feasible. Mr. Levitch’s conclusion that the highest and best use of the subject property was as two separate buildings failed to take into consideration any legal restrictions that may exist and also the costs associated with the bifurcation. Accordingly, the Board rejected Mr. Levitch’s opinion of highest and best use and, on the basis of all of the evidence, found that the highest and best use of the subject property was its continued use as a single, multi-tenant, mixed-use building.
The Board, like the parties, found that the income-capitalization approach was the most reliable method to value the subject property. It is the preferred method for valuing income-producing properties such as the subject property. Moreover, the Board concluded that the other two valuation methodologies were less likely to yield reliable estimates of the subject building’s fair market value. Furthermore, the Board, like the parties, found that it was appropriate to develop a separate income-capitalization analysis for each side of the subject property, and add together the two values to arrive at the subject property’s total fair cash value for the fiscal year at issue.
Based on Mr. Levitch’s testimony and also the photographs offered into evidence, the Board found that the appellant’s expert had a better understanding of the subject property than the assessors, including the subject property’s actual square footage and its overall condition. The Board further found that Mr. Levitch’s projected gross income and his vacancy and collection loss rates, which were supported by reliable market data as well as the subject property’s actual rents, were reasonable.
With respect to the operating expenses, the Board found that Mr. Levitch’s expenses, with a few exceptions, were appropriate. Specifically, with respect to the west side, the Board found that Mr. Levitch’s maintenance and repair expense, which amounted to 17.1% of EGI, was excessive and should be reduced to 10%. The Board further found that Mr. Levitch’s management expense and reserve for replacements for the east side, both calculated at 10%, were excessive and should be reduced to 6% and 4%, respectively, which are in line with the west side expenses.
Based on the subject property’s age and condition, the Board found that Mr. Levitch’s base capitalization rate of 10.0354%, plus the fiscal year 2009 tax factor of 1.750%, with an adjustment to the east side to account for the existing tenant’s obligation to pay a prorated share of the property taxes, was appropriate. A summary of the Board’s income-capitalization approach is contained in the following tables.
East Side:
Income S.F. Rent/SF Total
1st Floor (Beneficial) 3,000 $11.55 $34,650
1st Floor Retail 25,900 $2.50 $64,750
2nd Floor (Mezzanine area) 5,625 None
Gross Potential Income $99,400
Vacancy and Collection Loss 15% -$14,910
Effective Gross Income $84,490
Expenses
Property Insurance $7,000
Utilities $2,000
Management 6% $5,069
Maintenance & Repair 6% $5,069
Reserve for Replacement 4% $3,380
Miscellaneous 2% $1,690
Total Expenses -$24,208
Net Operating Income (NOI) $60,282
Capitalization Rate
Rate 10.0354%
Tax Factor 1.614%
Overall Capitalization Rate 11.65% (Rounded)
Indicated Value $517,442
West Side:
Income S.F. Rent/SF Total
Juvenile Court (actual) 13,070 $18.80 $245,716
2nd Floor 2,660 n/a None
3rd Floor 7,150 n/a None
Gross Potential Income $245,716
Vacancy and Collection Loss 6% -$14,743
Effective Gross Income $230,973
Expenses
Property Insurance $16,000
Utilities $36,000
Management 6% $13,858
Maintenance & Repair 10% $23,097
Reserve for Replacement 4% $ 9,239
Miscellaneous 1% $ 2,310
Total Expenses -$100,504
Net Operating Income (NOI) $130,469
Capitalization Rate
Rate 10.0354%
Tax Factor 1.750%
Overall Capitalization Rate 11.79% (Rounded)
Indicated Value $1,106,607
East and West Combined $517,442 + $1,106,607 $1,624,049
Rounded $1,624,000
On this basis, the Board found that the subject property was overvalued by $1,181,600 and, therefore, granted abatement in the amount of $20,678.
OPINION
Fair cash value is the standard for assessing real property for tax purposes in Massachusetts. See G.L. c. 59, § 38. “Fair cash value is defined as the price on which a willing seller and a willing buyer will agree if both of them are fully informed and under no compulsion . . . . Accordingly, fair cash value means . . . fair market value.” Northshore Mall Limited Partnership v. Assessors of Peabody, Mass. ATB Findings of Fact and Reports 2004-195, 246, (citing Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956)), aff’d, 63 Mass. App. Ct. 1116 (2005).
The appellant has the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the [appellant] to make out its right as a matter of law to abatement of the tax.’” Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayer[] . . . prove[s] the contrary.'” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
In appeals before this Board, a taxpayer “‘may present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.'” General Electric, 393 Mass. at 600 (quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)). In this appeal, the appellant demonstrated overvaluation “‘by introducing affirmative evidence of value which undermined the assessors’ valuation.'” Id.
“‘Prior to valuing the subject property, its highest and best use must be ascertained, which has been defined as the use for which the property would bring the most.’” Tsissa, Inc. v. Assessors of West Tisbury, Mass. ATB Findings of Fact and Reports 2011-198, 216 (quoting Tennessee Gas Pipeline Co. v. Assessors of Agawam, Mass. ATB Findings of Fact and Reports 2000-859, 874). A property’s highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive. Appraisal Institute, The Appraisal of Real Estate 279 (13th ed., 2008); see also Skyline Homes, Inc. v. Commonwealth, 362 Mass. 684, 687 (1972). Property cannot be valued on the basis of hypothetical or future uses that are remote or speculative. Id.; see also Tigar v. Mystic River Bridge Authority, 329 Mass. 514, 518 (1952); Salem Country Club, Inc. v. Peabody Redevelopment Authority, 21 Mass. App. Ct. 433, 435 (1986).
In the present appeal, the appellant’s real estate valuation expert opined that the subject property’s highest and best use was as two separate and distinct buildings. However, Mr. Levitch failed to offer any evidence showing that the elimination of the covered, connecting alley would be permitted by the town and if so, the cost of such removal. Accordingly, the Board found that the subject property’s highest and best use was its continued use as a single, multi-tenant, multi-use building.
Generally, real estate valuation experts, the Massachusetts courts, and this Board rely upon three approaches to ascertain the fair cash value of property: income capitalization; sales comparison; and cost of reproduction. Correia v. New Bedford Redevelopment Authority, 375 Mass. 360, 362 (1978). When reliable sales data are not available and when the subject is income-producing property, the use of the income-capitalization approach is appropriate. Assessors of Weymouth v. Tammy Brook Co., 368 Mass. 807, 881 (1975); Assessors of Lynnfield v. New England Oyster House, 362 Mass. 696, 701-702 (1972); Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 67 (1941). In the present appeal, both the appellant’s real estate valuation expert and the assessors used the income-capitalization approach to determine the fair market value of the subject property. The Board agreed with the parties that the subject property’s fair cash value could most reliably be estimated by using the income-capitalization approach, and the Board therefore adopted that approach.
The income-capitalization method “is frequently applied with respect to income producing property.” Taunton Redevelopment Associates v. Assessors of Taunton, 393 Mass. 293, 295 (1984). Under this approach, a valuation figure is determined by dividing net operating income by a capitalization rate. Board of Assessors of Brookline v. Buehler, 396 Mass. 520, 522-23 (1986).
In applying the income-capitalization method, the income stream used must reflect the property’s earning capacity or market rental value. Pepsi-Cola Bottling v. Assessors of Boston, 397 Mass. 447, 451 (1986). Imputing rental income to the subject property based on fair market rentals from comparable properties is evidence of value if, once adjusted, the rents are indicative of the subject property’s earning capacity. See Correia v. New Bedford Redevelopment Authority, 5 Mass. App. Ct. 289, 293-94 (1977), rev’d on other grounds, 375 Mass. 360 (1978); Library Services, Inc. v. Malden Redevelopment Authority, 9 Mass. App. Ct. 877, 878 (1980) (rescript); AVCO Manufacturing Corporation v. Assessors of Wilmington, Mass. ATB Findings of Fact and Reports 1990-142. It is the earning capacity of real estate, rather than its actual income, which is probative of fair market value. Boston Consolidated Gas, 309 Mass. at 64. Vacancy rates must also be market based when determining fair cash value. Donovan v. City of Haverhill, 247 Mass. 69, 71 (1923). The Board found here that the actual rents for the first-floor office space, and Mr. Levitch’s suggested rent for the first-floor retail space, reflected the market and were appropriate.
After accounting for vacancy and collection losses, the net operating income is obtained by deducting the landlord’s appropriate expenses. General Electric Co., 393 Mass. at 609. The expenses should reflect the market. Id. Real estate taxes are not considered operating expenses for purposes of determining net operating income. Alstores Realty Corporation v. Assessors of Peabody, 391 Mass. 60, 70 (1984). “The expense of local taxation turns on the very point in dispute, the fair cash value of the property. Logically, therefore, income should be capitalized before taxes.” New England Oyster House, 362 Mass. at 700 n.2.
The capitalization rate should consider the return necessary to attract investment capital. Taunton Redevelopment, 393 Mass. at 295. Generally, in multiple tenancy properties like the subject property, it is appropriate to add a tax factor to the capitalization rate because the landlord is assumed to be responsible for paying the real estate taxes, and the tenants’ contribution toward the real estate tax is included in the landlord’s gross income. Id. at 295-96; see also General Electric Co., 393 Mass. at 610. The “tax factor” is a percentage added to the capitalization rate “to reflect the tax which will be payable on the assessed valuation produced by the [capitalization] formula.” Board of Assessors of Lynn v. Shop-Lease Co., 364 Mass. 569, 573. If, however, the tenants’ tax payments are not included in gross income then the tax factor must be proportionately reduced. Alstores Realty Corp., 391 Mass. at 69. In the present appeal, the Board found that the east-wing tenant was responsible for payment of a pro-rata share of the subject property’s real property taxes. Accordingly, the Board reduced the tax factor in calculating the east wing’s overall capitalization rate.
In reaching its opinion of fair cash value in this appeal, the Board was not required to believe the testimony of any particular witness or to adopt any particular method of valuation that an expert witness suggested. Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight. Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 683 (1982); New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 473 (1981); New England Oyster House, Inc., 362 Mass. at 702. “The credibility of witnesses, the weight of evidence, and inferences to be drawn from the evidence are matters for the board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).
The Board need not specify the exact manner in which it arrived at its valuation. Jordan Marsh v. Assessors of Malden, 359 Mass. 106, 110 (1971). The fair cash value of property cannot be proven with “mathematical certainty and must ultimately rest in the realm of opinion, estimate and judgment.” Boston Consolidated Gas Co., 309 Mass. at 72. In evaluating the evidence before it, the Board selected among the various elements of value and formed its own independent judgment of fair cash value. General Electric Co., 393 Mass. at 605; North American Philips Lighting Corp. v. Assessors of Lynn, 392 Mass. 296, 300 (1984).
The Board applied these principles in reaching its conclusion that the appellant met its burden of proving that the subject property was overvalued for the fiscal year at issue. Accordingly, the Board issued a decision for the appellant and granted an abatement in the amount of $20,678.
APPELLATE TAX BOARD
By: ___________________________________ Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
CLARANCE W. JONES v. COMMISSIONER OF REVENUE
Docket Nos. C287780 Promulgated:
C299046 October 5, 2011
These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the Commissioner of Revenue (“Commissioner” or the “appellee”), to abate income taxes assessed against Clarance W. Jones (“Mr. Jones” or the “appellant”) for the tax years 2001 through and including 2007 (“tax years at issue”).
Commissioner Scharaffa heard these appeals and was joined by Chairman Hammond and Commissioners Egan, Rose, and Mulhern in decisions for the appellant.
These findings of fact and report are made by the Appellate Tax Board (“Board”) on its own motion under G.L. c. 58A, § 13 and 831 CMR 1.32.
Domenic Finelli, Esq. for the appellant.
John J. Connors, Jr., Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the Statement of Agreed Facts and Stipulated Exhibits and the testimony and exhibits offered at the hearing of these appeals, the Board made the following findings of fact.
At all times relevant to these appeals, the appellant was a Massachusetts resident. The appellant timely filed his Massachusetts Resident Income Tax Returns (“Forms 1”) for tax years 2001, 2002, 2003 and 2004, and timely filed Forms 1 pursuant to valid extensions for tax years 2005, 2006 and 2007. On Schedule C of Form 1 for each tax year at issue, the appellant reported that he was a “professional gambler.”
Jurisdictional facts for tax years 2001 through 2006.
The appellant’s Forms 1 for tax years 2001 through 2006 showed no tax due and requested refunds as follows:
|
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
|
$1,055.00 |
$4,075.00 |
$9,844.00 |
$19,932.00 |
$86,449.00 |
$112,642.00 |
The Commissioner issued refunds to the appellant in the following amounts:
|
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
|
$1,055.00 |
$4,074.60 |
$0 |
$0 |
$0 |
$0 |
On February 4, 2004, the Commissioner sent to the appellant a Notice of Change to Your 2003 Income Tax Return informing the appellant that the Commissioner had changed the tax due on the 2003 Form 1 to $49,976.00 based on an alleged erroneous reporting of Massachusetts Lottery winnings and the elimination of the Limited Income Credit. By Notice of Assessment (“NOA”) dated May 18, 2004, the Commissioner notified the appellant that she had assessed the tax of $49,976.00 as reported on the Notice of Change to Your 2003 Income Tax Return.
Pursuant to validly executed consents extending the time to assess, the Commissioner sent the appellant a Notice of Intent to Assess (“NIA”) dated July 20, 2005, notifying the appellant of her intent to assess additional income taxes, exclusive of interest and penalties, as follows:
|
2001 |
2002 |
2003 |
2004 |
|
$33,665.00 |
$53,872.00 |
$8,470.00[168] |
$77,545.00 |
The appellant requested a conference with respect to the July 20, 2005 NIA. The Commissioner’s Office of Appeals and the appellant and his representatives held a conference by telephone regarding the NIA on December 1, 2005. Following the conference, the Office of Appeals issued its letter of disposition on February 20, 2006. The Commissioner subsequently sent to the appellant an NOA dated March 7, 2006, notifying the appellant of the assessment on March 5, 2006 of additional income taxes, exclusive of interest and penalties, as follows:
|
2001 |
2002 |
2003 |
2004 |
|
$33,665.00 |
$53,872.00 |
$8,470.00[169] |
$77,545.00 |
On March 31, 2006, the appellant timely filed an abatement application regarding the above assessments for tax years 2001 through 2004, in which he also requested a hearing. By letter dated December 1, 2006, the Commissioner denied the request for a hearing because “[y]our Application for Abatement raises no new relevant factual information or new legal precedent that was not available at the time of the pre-assessment conference.” By Notice of Abatement Determination dated December 8, 2006, the Commissioner informed the appellant that the abatement applications for tax years 2001 through 2004 had been denied. The appellant filed a Petition Under Formal Procedure with the Board on January 24, 2007 for tax years 2001 through 2004. Based on these facts, the Board found and ruled that it had jurisdiction over the appeals for tax years 2001 through and including 2004.
The Commissioner issued an NIA dated October 29, 2007 for tax year 2005 and an NIA dated May 11, 2008 for tax year 2006. The Commissioner’s Office of Appeals held a conference by telephone with the appellant’s representatives regarding the October 29, 2007 NIA and the May 11, 2008 NIA on October 2, 2008. By NOA dated October 16, 2008, the Commissioner assessed additional income taxes against the appellant for tax year 2006, in the amount of $140,002.00, exclusive of interest and penalties. By NOA dated October 21, 2008, the Commissioner assessed additional income taxes against the appellant for tax year 2005, in the amount of $102,214.00, exclusive of interest and penalties. On November 10, 2008, the appellant filed an abatement application for tax year 2006, and on November 11, 2008, the appellant filed an abatement application for tax year 2005. The appellant did not request hearings regarding the abatement applications for the 2005 and 2006 tax years. By Notice of Abatement Determination dated January 7, 2009, the Commissioner informed the appellant that the abatement applications for tax years 2005 and 2006 had been denied. On February 26, 2009, the appellant filed a Petition Under Formal Procedure with the Board for tax years 2005 and 2006. Based on these facts, the Board found and ruled that it had jurisdiction over the appeals for tax years 2005 and 2006.
Jurisdictional facts for tax year 2007.
Pursuant to a valid extension, the appellant timely filed his Form 1 for tax year 2007. On Schedule C of the 2007 Form 1, the appellant reported that his gross receipts were $2,888,386, his costs of goods sold were $2,839,686, his total expenses were $23,309, and his gross profits were $25,391. Gambling profits of $25,391 were reported on line 6 of the return, while line 8b for “Mass. lottery profits” was blank. The appellant reported a tax due of $984 and withholdings of $129,329, and he requested a refund of $128,345.00.
The Commissioner sent the appellant a Notice of Change to Your 2007 Income Tax Return, dated September 30, 2008, in which the Commissioner stated:
The Massachusetts Lottery Commission has reported to the Department of Revenue that you received $258,759,150.00[170] of lottery winnings for the tax year 2007. You reported $0.00 of winnings on your tax return. Consequently, we have adjusted your tax return as detailed in this notice. This resulted in change to the amount of tax due for this year.
Following are the “Reason(s) for Change:”
Line 8B – Lottery Claimed Does Not Agree With Lottery Winnings On File
The Commissioner thus changed the appellant’s tax to $13,715,219.00 and also changed the amount of withholdings to $388,087.00.
By NOA dated October 6, 2008, the Commissioner notified the appellant of the assessment, on September 29, 2008, of income taxes for tax year 2007 in the amount of $13,715,219.00 as shown on the Notice of Change to Your 2007 Income Tax Return. The appellant filed an abatement application for tax year 2007 with the Commissioner on October 14, 2008 and a second abatement application on November 4, 2008. The appellant subsequently requested that the Commissioner deny both abatement applications for 2007 so that he could join the 2007 appeal with those from the previous tax years at issue. By Notice of Abatement Determination dated January 27, 2009, the Commissioner informed the appellant that “[y]our application had been denied.” On February 26, 2009, the appellant seasonably filed his Petition Under Formal Procedure for tax year 2007 with the Board.
Prior to the hearing of these appeals, the Commissioner admitted that the assessment for fiscal year 2007 was erroneous because of a misplaced decimal point.[171] Then, after the commencement of these appeals, the Commissioner purported to abate the erroneous assessment by issuing an Abatement Approval Notice, which was unsigned. The following is excerpted from the Board’s Decision dated August 16, 2010:
On February 6, 2010, two days before the hearing of these appeals, the Commissioner’s Customer Service Bureau issued an Abatement Approval Notice, stating that the appellant’s “application filed on [his] INCOME tax account has been approved.” The notice was unsigned and did not state the amount of the abatement. The Commissioner has agreed that the $13,715,219.00 assessment was an error attributable to the placement of a decimal point on the Notice of Change regarding the taxpayer’s lottery winnings.
The Board finds and rules that the so-called Abatement Approval Notice was not sufficient to abate the erroneous assessment. Appellant had previously received a denial of his abatement request, dated January 27, 2009, and was therefore a person aggrieved under G.L c. 62C, § 39 when he filed his appeal with the Board. Although the Commissioner may abate an erroneously assessed tax after the commencement of an appeal to the Board, the February 6, 2010 notice was unsigned and contained no abatement amount and therefore did not constitute a valid abatement.
Because the Board found that the so-called Abatement Approval Notice was not sufficient to abate the Commissioner’s erroneous assessment and that the appellant was still a person aggrieved under G.L. c. 62C, § 39, the Board found and ruled that it had jurisdiction over the appeal for tax year 2007.
Findings with respect to tax years 2001 through 2006.
The appellant claimed that, at all times relevant to these appeals, he was and held himself out as a professional gambler. The appellant’s gambling activities consisted of betting at various horse- and dog-racing tracks where he engaged in both live and simulcast betting, casino betting, and Lottery ticket betting. He explained that during tax year 2004 onward, his business consisted of more Lottery gambling than any other form. The appellant’s gambling revenue constituted his main source of income, aside from Social Security payments and minimal bank interest.
The parties stipulated that the appellant maintained numerous boxes of losing dog and horse racing tickets from both live and simulcast races, along with programs, losing Foxwoods Keno tickets, and losing Massachusetts Lottery tickets, including scratch tickets and various numbers games including, among others, Keno, Daily Numbers Games, Mega Bucks, Mega Millions, Mass Millions, Cash Windfall, Big Game, Powerball and Daily Race Game. The appellant testified that he maintained at least 200 boxes at a storage facility in Lynn, Massachusetts. A sample, as agreed to by both parties, of about fifteen boxes of those records, was submitted to the Board. The boxes were filled with various losing Lottery tickets, losing Foxwoods Casino Keno tickets, losing racing tickets and racetrack programs. All items were bagged and/or bound together in groups and labeled by notations which either included dates, places, number of tickets and total cost of tickets, or a number corresponding to the appellant’s personal numbering system from his records where that same information would be listed.
The appellant presented his case-in-chief through his own testimony as well as the testimony of: Harold Litchfield, a fellow gambler; Louis Ristaino, a racetrack employee; and Edward Sherman, CPA, his accountant.
Mr. Litchfield testified to the appellant’s gambling activities. He testified that the appellant was regularly engaged in gambling, attending the dog or horse racetrack from about eleven in the morning until about midnight, either four or five days a week. He testified that he witnessed the appellant engaging in racetrack betting as well as Keno. Mr. Litchfield also testified that he had placed bets for the appellant. He explained that this was common practice among friends, particularly at a busy gambling establishment with long lines. But Mr. Litchfield emphasized that he always used the appellant’s money, that he followed the express direction of the appellant and that he never accepted compensation from the appellant to place these bets. The Commissioner did not meaningfully challenge Mr. Litchfield’s testimony on cross-examination, and the Board found his testimony credible.
Mr. Ristaino then testified as to how a gambler could place a bet while avoiding a long line at a busy gambling establishment. He explained that regular gamblers curry favor with racetrack window tellers by tipping generously. Then, instead of waiting in line, the gambler calls in the favor by surreptitiously giving the teller a hand signal, which the teller will interpret and then place the bet accordingly. Through the use of hand signals, a regular gambler can thus place multiple bets quickly, using his own money, without having to wait in long lines. Again, the Commissioner did not meaningfully challenge Mr. Ristaino’s testimony on cross-examination, and the Board found his testimony credible.
Mr. Sherman offered detailed testimony with respect to the sufficiency of the appellant’s records. He explained that the appellant maintained more than 200 boxes of records in a storage facility and that he had seen these records and had advised the appellant on his record keeping. Mr. Sherman testified that the appellant had been audited previously by the Commissioner for tax years 1988, 1994 and 1995, as well as by the Internal Revenue Service (“IRS”) in 1994. He stated that for the previous audit conducted by the Commissioner, he and the appellant provided the prior auditor, Jim Reynolds, with 11 boxes of documents. He noted that each of the federal and state audits had resulted in no change to the appellant’s returns.
Mr. Sherman explained that, after the prior audits, the appellant continuously attempted to improve his record-keeping system and to keep more extensive information throughout the years at issue. Mr. Sherman testified further that he had a discussion with the appellant sometime during early 2004 about the new directive issued by the Commissioner with respect to record keeping, Department Directive 03-3 (“DD 03-3”), and that in his opinion, the appellant’s records were in keeping with that directive. For example, Mr. Sherman explained that the appellant maintained personal calendars detailing his gambling activities, and his race track programs, with all of his losing tickets inside the program and a summary on the outside of all of the losing tickets. Mr. Sherman further testified that the appellant also maintained so-called “tax organizers” that listed his income and expenses and the information from the Forms W-2G Certain Gambling Winnings (“W-2G”), the forms issued by the Massachusetts State Lottery to gamblers for reporting lottery winnings over $600. Mr. Sherman explained that the appellant used the tax organizers to organize his tax information for the current tax year based on the income and deductions that he had had for the previous tax year. The appellant maintained tax organizers for each of the tax years at issue, and the stipulated exhibits included each of those tax organizers. The stipulated exhibits also included copies of the contents of three-ring binders that the appellant maintained for each of the tax years at issue, what the appellant and his representatives referred to as his “tax books,” which included: various correspondence between the appellant or his representatives and the auditors; copies of the appellant’s tax returns; listings of the appellant’s gambling losses; and his calendars. Mr. Sherman explained that the entries in these “tax books” corresponded to the receipts that the appellant maintained in storage.
Mr. Sherman next testified to the disagreements between the appellant and the Commissioner’s auditors with respect to the examination of his records during the course of the audit for the tax years at issue. Mr. Sherman explained that the auditor originally assigned to the appellant’s case was replaced by another auditor, Judith D’Auteuil, midway through the audit. He also testified that he had repeatedly requested that the Commissioner’s auditors come to see the appellant’s records at the storage facility, but that the auditors refused all requests for examination. He explained that the auditors sent out form requests seeking certain types of records, such as logs of the appellant’s gambling activities, but that the appellant did not maintain his records in the specific format requested. Mr. Sherman explained, however, that he had advised the appellant to retain all of his racetrack tickets and programs and Lottery tickets because they collectively contained all of the information required for completing and verifying a tax return. Particularly with respect to a Lottery ticket, Mr. Sherman explained that “[a]ll of the information is on the ticket,” including the date and location of purchase and the amount of the wager.
The stipulated evidence contained correspondence between the parties, including a letter dated November 3, 2004 sent by the Commissioner’s Tax Examiner, Sandra Sparrock, requesting, among other items: a daily log or journal showing the name and location of each gambling establishment visited, the dates gambled, and travel times with mileage to and from each gambling activity; records of wagers and winnings and programs from race tracks; names of individuals that participated in his gambling; receipts for food, lodging and air travel; bank records; Forms W-2G; gambling research materials; and losing scratch tickets grouped together by purchase date and locations and correlated to the daily log. By letter dated December 3, 2004, Mr. Sherman sent copies of the appellant’s tax returns for tax years 2001, 2002 and 2003, and representative samples of the appellant’s bank statements. Mr. Sherman’s letter listed the documents that the appellant maintained in storage. These documents included lottery ticket stubs for cashed tickets, which identified the location of the establishment where the ticket was purchased, and twenty-five to thirty boxes per year which contained every program purchased and “all the losing tickets sorted by race number” as well as a list of all losses by date, track and box, and all losing scratch tickets. Mr. Sherman’s letter then offered, “[y]ou may examine this information on site or, if requested, Mr. Jones will make arrangements to deliver them to you.” Mr. Sherman reiterated that, while the appellant’s records were not necessarily maintained in the exact form as requested by the auditors, the information sought by the auditors was nonetheless contained in the records maintained by the appellant.
The stipulated exhibits also included further correspondence between Ms. Sparrock and Mr. Sherman in which Ms. Sparrock requested materials in specific form — business records in chronological order and daily records for all lottery transactions showing date and location of purchase, amount spent and amount of winnings — and Mr. Sherman informed her that the appellant’s records were not maintained in the form requested, but that the information requested could be deduced from an examination of the numerous records that the appellant maintained in storage. At the hearing, Mr. Sherman posited that it was because the records were not in the form requested that the auditors refused to examine them. When asked directly by the Presiding Commissioner whether someone from the Department of Revenue (“DOR”) had actually refused to look at the appellant’s records because they were not maintained as specified by the auditors’ requests, Mr. Sherman responded affirmatively and testified that it was Ms. D’Auteuil who had made this statement to him. The stipulated exhibits also included correspondence between Ms. Sparrock and the appellant’s former attorney, Peter Otis, including one letter in which Attorney Otis specifically suggested to Ms. Sparrock that a field audit be conducted, meaning that the auditor would come to the appellant’s representative’s office “to review the 100 or so boxes” at that location. The Commissioner’s auditors, however, never accepted the appellant’s invitation.
Next, the appellant testified in detail to the types and regularity of his gambling activities. He testified that, since selling his industrial cleaning company in 1986 and up to the tax years at issue, his only source of business income had been gambling. He testified that in a typical week, he would spend between 60 to 80 hours on gambling activities and that Lottery gambling had been his primary activity since about 2004. When asked where he gambled, the appellant responded, “I do the whole state,” as well as out of state. He testified that, in his opinion, Massachusetts has “the easiest lottery system” for a regular gambler to successfully play. He explained some of his methodologies, like buying Lottery tickets in the middle of a pack where, he believed, the winning tickets were grouped, and purchasing tickets at stores that have had recent large winnings, because, in his opinion, those stores have a higher chance of selling winning tickets. The appellant submitted into evidence a manual that he had written entitled “The Gambler,” which contained some of the observations and “trade secrets” for successful gambling that he has accumulated over his gambling career. The appellant also corroborated Mr. Litchfield’s and Mr. Ristaino’s testimony, explaining how he was able to place numerous bets at a racetrack without waiting in line, either through the use of hand signals or by asking a friend to place bets on his behalf. He emphasized that he used his own money to place bets and that he did not compensate anyone to place bets for him. The Commissioner did not meaningfully challenge Mr. Jones’ testimony on cross-examination, and the Board found the appellant’s testimony to be credible.
The appellant next described his system of keeping records. He testified that he recognized that he was not an expert in taxes, and he thus hired an accountant to assist him with his filing and record-keeping duties. He also testified that he heeded his accountant’s advice and that he continuously tried to improve his record-keeping system, particularly after his accountant advised him about DD 03-3. He emphasized that his records contained all of the information required to discern how much he expended on wagers and where he gambled during each tax year. The appellant testified that he maintained three storage rooms at a storage facility in Lynn and that the files in his boxes — which included ticket stubs, programs and his calendars marked with the amounts of small winnings for which no Forms W-2G would have been generated, which he used to compile ledgers of small winnings — corresponded to entries in his “tax books.” On direct examination, the appellant was asked to trace his records from a random date -– January 17, 2002 -– to his “tax book” for that year. The appellant was able to locate the entry using his entry system. The appellant’s explanations of some of his short-hand entries – for example, “Sam means something to me. Sam to me is Summit Variety. . . . It’s in Peabody, Mass.” — indicated that his entry system was not self-explanatory but was personal to him.
The appellant also reiterated Mr. Sherman’s testimony that the Commissioner’s auditors refused to examine his voluminous records, despite his requests. He explained that no auditor had ever taken the records from the storage facility to inspect them, nor did they ever ask to look through them at their offices. With respect to his “tax books,” the appellant testified that “they refused my lawyer to even submit them.” In preparation for the hearing, the attorney for the Commissioner accompanied the appellant and his attorney to the storage facility to choose the sample of records which were brought to the hearing. Prior to that, the appellant explained, no representative of the Commissioner had ever agreed to examine his records. The Board also found this part of the appellant’s testimony to be credible.
The Commissioner presented its case through the testimony of Brian Taylor, a director within the Massachusetts State Lottery, and of Judith D’Auteuil, a tax auditor within the Department of Revenue’s Audit Division.
Mr. Taylor testified regarding the computer system by which the State Lottery tracked frequent cashers of lottery tickets. He testified that the appellant was the highest or second-highest casher of winning tickets in the Commonwealth during each tax year at issue. He next explained that this computer system gleans crucial information from the bar code located on each Lottery ticket, which enables the State Lottery to determine the type of Lottery game played and where the ticket was purchased:
Well, we know it when we scan the ticket. There’s a lot of intelligence on that bar code and that will tell our cashing system immediately where the ticket was issued.
Mr. Taylor’s testimony thus corroborated Mr. Sherman’s testimony that the Lottery tickets contain the relevant information for verifying tax return data.
Mr. Taylor also explained that the odds of winning for each Massachusetts Lottery game and whether a winner had claimed the grand prize were published on the Massachusetts Lottery’s website. Mr. Taylor, however, presented no evidence relating to the odds of any of the particular Massachusetts Lottery games, including those played by the appellant.
Next, Ms. D’Auteuil testified as to her conduct of the audit of the tax years at issue, beginning on October 29, 2007. Ms. D’Auteuil conducted a “correspondence audit” of the appellant, that is, one in which the auditor conducts the audit by seeking records from the taxpayer through remote correspondence, usually form letters. Ms. D’Auteuil explained that she audited tax year 2006 and a portion of tax year 2005 after the file had been to the Office of Appeals. She testified that the audit file was transferred to her after she had been assigned to replace the previous auditor, Zlatan Caticz, and that she received the case after the Office of Appeals had made its determination on tax year 2005. Ms. D’Auteuil testified that she had reviewed the files for tax years 2001 through 2004 in preparation for the hearing at the Board.
The stipulated exhibits included Ms. D’Auteuil’s first letter to the appellant, dated October 29, 2007, requesting certain records from the appellant, including daily logs or journals showing dates when and places where the appellant gambled, losing tickets, and any “patron data logs” from gambling casinos. Ms. D’Auteuil testified that she reviewed the Commissioner’s audit files concerning the appellant, which included the documents that his representative had submitted to the Commissioner’s auditors, and from these she determined “[t]hat Mr. Jones was not in the trade or business of professional gambling.” When asked the reason for her determination, Ms. D’Auteuil replied, “[i]nadequate, incomplete, insufficient records.” Ms. D’Auteuil admitted, however, that she did not look through a single box maintained by the appellant in storage. She claimed that she was willing to pick up the documents but that her offer was refused by the appellant’s prior attorney, Peter Otis. According to Ms. D’Auteuil:
I wanted the tickets at my office and he said the boxes were voluminous. I offered to go out there with someone and a two-wheeled dolly to get them and bring them back to my office. And he told me, no, I had to go out by myself and I had to look at them, but I couldn’t touch them. So I told him, “I can’t do that. I want them in the office as I requested.”
Attorney Otis was not brought into the hearing as a witness to corroborate or deny the above statements. However, his letter in response to Ms. D’Auteuil’s request was admitted into evidence. By letter dated November 28, 2007, Attorney Otis explained that the appellant required additional time to compile his records into the daily-log format requested by Ms. D’Auteuil. The letter further offered to Ms. D’Auteuil that “[a]ll losing scratch tickets amounting to approximately 33 cases of paper can be made available at our office or delivered to you.” Nowhere in the letter did Attorney Otis deny Ms. D’Auteuil access to any records that she had requested, nor did he restrict her access to the appellant’s storage facility where, according to her, she would be permitted to merely “look” but not “touch.” Moreover, Ms. D’Auteuil’s audit log, otherwise very detailed and including notations about other telephone calls with Attorney Otis, contained no notation indicating that Attorney Otis ever refused her access to, or delivery of, the appellant’s records.
Ms. D’Auteuil further admitted that she did not fully understand the records which she received from the appellant pursuant to her request. As the appellant demonstrated on direct examination, the appellant’s entry system consisted of numerous shorthand terms that were not self-explanatory. However, Ms. D’Auteuil never attempted to conduct a “desk audit,” that is, to have the appellant meet with her at her office to allow him the opportunity to explain his record-keeping methods, nor did she conduct a “field audit,” that is, look through the appellant’s boxes at the storage facility or at his attorney’s office to examine the records of his losses. Ms. D’Auteuil also admitted that she did not suggest a sampling of the appellant’s voluminous records as permitted by G.L. c 62C, § 24. She testified that she did not request a sampling because she did not understand the records, so “you didn’t need to do a sampling when you didn’t even know what he had in the boxes based on the file.” However, the Board found that it was impossible for the auditor to make a determination of the sufficiency of the appellant’s records without actually examining the records that he maintained in storage or requesting a sample of those records. When asked on cross-examination, “[h]ow do you know they tie into his records?” Ms. D’Auteuil replied simply, “I don’t.”
On the basis of the testimony and evidence, the Board found that the appellant was engaged in the trade or business of gambling and was thus entitled to take wagering losses as deductions on Schedule C of his Form 1. The Board found that the testimony of the appellant, as well as that of Mr. Litchfield and Mr. Ristaino, established that the appellant was regularly engaged in gambling, that he used his own money to gamble, and that he was the person who paid for and played (either himself or through a friend who played the ticket on the appellant’s direction using the appellant’s money) the tickets for racetracks and Lottery games that he maintained in storage.
The Board further found that the appellant’s records, such as tickets, personal calendars, racetrack programs and his tax books, contained the information needed to substantiate his tax returns, specifically: the dates and places where the appellant gambled; the types and amounts of his wagers; and the amounts that he won and lost. Although the Commissioner alleged, for the first time in her post-trial brief, that the appellant was simply collecting losing Lottery tickets to support fraudulent deductions, the Commissioner failed to support that allegation with any evidence. Given the volume of tickets, programs and other records maintained by the appellant, and the fact that they contained many shorthand notations that were not self-explanatory, the Board found that the auditors could not assume that the records were not adequate based on the extraordinarily small portion of records that they reviewed, particularly when no auditor ever conducted a desk audit with the appellant in order to give the appellant an opportunity to explain those records.
Finally, the Board did not find credible Ms. D’Auteuil’s assertions that the appellant or his representatives were uncooperative with respect to submitting records to the Commissioner during the course of the audit. Ms. D’Auteuil’s claims that Attorney Otis refused to transport any documents to her and that she would be permitted to “look at them but [not] touch them,” amounted to mere uncorroborated statements that were undocumented in her own otherwise detailed audit log. Moreover, these statements were contradicted by a letter by Attorney Otis and by the appellant’s and Mr. Sherman’s testimony, which the Board found credible, that the appellant repeatedly requested a meeting with the Commissioner’s auditors in order to submit and explain his records, but the auditors refused to conduct a field audit or even a desk audit.
Therefore, on the basis of the evidence of record, and as will be explained in the Opinion, the Board found that the appellant’s records and his credible testimony and the credible testimony of his witnesses were sufficient to prove that the appellant was engaged in the trade or business of gambling and thus entitled to take deductions for the cost of his losing wagers and other related business expenses.
Findings with respect to tax year 2007.
The Board found that the unsigned so-called Abatement Approval Notice was not sufficient to abate the Commissioner’s erroneous assessment for tax year 2007. The Commissioner admitted that the amount of the assessment was an error attributable to the misplacement of a decimal point, and the Board so found. The Board further found that the appellant met his burden of proving that he was engaged in the trade or business of gambling for all tax years at issue, including tax year 2007, and that he was thus entitled to take deductions for the cost of his losing wagers and other related business expenses on his return for tax year 2007.
On the basis of its findings for the tax years at issue, the Board issued decisions for the appellant and granted abatements of tax, exclusive of interest and penalties, in the following amounts:
Tax year Abatement
2001 $33,665.00
2002 $53,872.00
2003 $58,272.00
2004 $77,545.00
2005 $102,214.00
2006 $140,002.00
2007 $13,715,912.00
OPINION
For Massachusetts income tax purposes, “[r]esidents shall be taxed on their taxable income.” G.L. c. 62, § 4. The starting point for determining Massachusetts taxable income is Massachusetts gross income, which is “federal gross income” with certain modifications not relevant to these appeals. G.L. c. 62, § 2(a). Federal gross income includes income “from whatever source derived,” and thus includes gambling income. See Internal Revenue Code (“Code”) § 61. Thus, gambling winnings are included in Massachusetts gross income. Id.; see also Technical Information Release (“TIR”) 79-6, DD 86-24 and DD 03-3.
In the present appeals, the appellant claimed deductions for his gambling losses. Massachusetts adopts the deductions allowed in Code § 62, with certain modifications not relevant to these appeals. See G.L. c. 62, § 2(d)(1). Code § 62(a)(1) provides for “deductions allowed by this chapter (other than by part VII of this subchapter) [namely, Code §§ 161 through 199] which are attributable to a trade or business carried on by the taxpayer.” In particular, Code § 162(a) allows a deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” As a deduction allowed under Code § 62(a)(1), the trade or business deduction is in turn allowed to arrive at Massachusetts Part B adjusted gross income under G.L. c. 62, § 2(d)(1). Accordingly, a Massachusetts taxpayer may deduct all ordinary and necessary expenses paid or incurred in carrying on the trade or business of gambling, including wagering losses subject to the limitation of Code § 165(d) discussed below.
In contrast to federal law, Massachusetts has not adopted Code § 212, which allows a deduction for ordinary and necessary expenses paid or incurred for the production or collection of income, even though not connected with a trade or business. Code § 212 is found at part VII of subchapter B, which is explicitly excluded from the deductions allowed under Code § 62(a)(1) and, therefore, not deductible for Massachusetts purposes under G.L. c. 62, § 2(d)(1). Accordingly, a Massachusetts taxpayer may deduct only gambling expenses that constitute ordinary and necessary expenses in the conduct of the trade or business of gambling. See DiCarlo v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1989-119.
In addition, Code § 165(d) specifically allows the deduction of wagering losses but only to the extent of gains from wagering transactions. However, the gambling loss deduction for Massachusetts purposes is subject to the basic restriction of G.L. c. 62, § 2(d)(1) and Code § 62(a)(1) that such losses are deductible only if they are incurred in a trade or business.
Accordingly, gambling expenses are deductible in Massachusetts only if: (1) the taxpayer demonstrates that he or she is in the “trade or business” of gambling; (2) the expenses constitute ordinary and necessary expenses in the conduct of the trade or business of gambling; and (3) gambling losses do not exceed gains from gambling.
In the present appeals, the taxpayer has claimed deductions for his gambling losses which do not exceed his gambling winnings. The parties do not dispute that gambling losses would be “ordinary and necessary” expenses in a gambling trade or business. Accordingly, the only issue in dispute is whether the appellant was engaged in the trade or business of gambling.
The United States Supreme Court has articulated the standard for determining whether a taxpayer is engaged in the trade or business of gambling: “if one’s gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and it is not a mere hobby, it is a trade or business . . . .” Commissioner of Internal Revenue v. Groetzinger, 480 U.S. 23, 35 (1987). For Massachusetts tax purposes, the Commissioner has promulgated DD 03-3, which provides a list of factors which are “not exclusive” but are intended to “provide illustrative guidance” in determining whether a taxpayer meets the criteria to qualify as being engaged in the trade or business of gambling. These factors are as follows:
- gambling activities are entered into and carried on in good faith for the purpose of making a profit;
- gambling activities are carried on with regularity;
- gambling activities are pursued on a full-time basis, or to the fullest extent possible if taxpayer is engaged in another trade or business or has employment elsewhere;
- gambling activities are solely for the taxpayer’s own account and taxpayer does not function as a bookmaker;
- taxpayer maintains adequate records, including accounting of daily wagers, winnings and losses (see I.R.S. Rev. Proc. 77-29);
- the extent and nature of taxpayer’s activities which further the development of a gambling enterprise; and
- taxpayer claims deductions associated with the conduct of a trade or business for gambling-related expenses.
Of these factors, the Commissioner specifically challenged only one, that is, whether the appellant “maintain[ed] adequate records, including accounting of daily wagers, winnings and losses.” The Commissioner, for the first time in her post-trial brief, also raised the suggestion that the appellant may have been a so-called “ten percenter,” an individual who cashes winning tickets on behalf of another gambler in return for a percentage –- generally ten percent -– of the winnings.
As indicated above, the adequate records requirement in DD 03-3 references Revenue Procedure 77-29, promulgated by the IRS (“I.R.S. Rev. Proc. 77-29”). In its description of adequate records, I.R.S. Rev. Proc. 77-29 provides in relevant part:
An accurate diary or similar record regularly maintained by the taxpayer, supplemented by verifiable documentation will usually be acceptable evidence for substantiation of wagering winnings and losses. In general, the diary should contain at least the following information:
1) Date and type of specific wager or wagering activity;
2) Name of gambling establishment;
3) Address or location of gambling establishment;
4) Name(s) of other person(s) (if any) present with taxpayer at gambling establishment; and
5) Amount(s) won or lost.
Like the factors set forth in DD 03-3, those in I.R.S. Rev. Proc. 77-29 are not to be exclusive, but rather are meant as guidelines for taxpayers.
When a taxpayer challenges an assessment made by the Commissioner, “[t]he burden is on the taxpayer to show error in the assessment and impropriety in the method used.” Allied Building Credits, Inc. v. State Tax Comm’n, 344 Mass. 503, 509 (1962) (citing State Tax Comm’n v. John H. Breck, Inc., 336 Mass. 277, 299 (1957)). The Board has previously ruled that that burden “extends only to persuading the Board that the sales reported on his returns are more probable than those calculated by the appellee.” Suprenant v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1991-209, 219. Thus, if the Commissioner’s assessments were based on speculative assumptions, they will not be upheld. For example, in Food Service Associates, Inc. and Dennis G. Maxwell v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 2001-341, 349-51, 354, the auditor made such glaring errors as presuming that all credit card receipts reflected taxable sales (and thus failing to consider nontaxable sales and tips) and presuming that all cash was taxable revenue (and thus failing to consider any cash on hand at the beginning of an analysis period). The Board thus favored the taxpayer’s analysis of tax due over the auditor’s analysis, ruling that the auditor’s conclusion “was predicated on impermissible presumptions and dubious assumptions and was thus unreliable and invalid.” Id. at 2001-363.
Furthermore, the auditor must make a good faith effort to review all of the taxpayer’s records, or at minimum, a sample of those records, before making a determination. For example, in Trodes, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1988-230, the Commissioner’s auditor disregarded the taxpayer’s records of its alcoholic beverage sales, because the taxpayer failed to produce itemized sales records. The auditor based his audit on purchase invoices for liquor, and then assumed that each drink sold contained a one-and-one-half ounce “pour” measure, contrary to the taxpayer’s actual “free pour” method. Id. at 232, 236. The Board found that the records submitted by the taxpayer, while not in strict compliance with the Commissioner’s regulatory record-keeping requirements, nonetheless were “sufficient to satisfy the requirements of record-keeping” imposed by G.L. c. 62C, § 25 and 830 CMR 62C.24(8)(g) on registered vendors of meals and thus “constituted a full compliance with the appellee’s request for books, records and other materials.” Id. at 235. Therefore, on the basis of the witnesses’ credible testimony as to the taxpayer’s business practices and the taxpayer’s business records, the Board found that the taxpayer met its burden of proving that the deficiency assessments were improper. Id. at 239.
In Chef Chang’s House, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1996-738, another appeal pertaining to the sales tax on cash sales of bar liquor, the auditor completely disregarded the restaurant taxpayer’s records because daily records, rather than cash register tapes, were used to record cash transactions at the bar. Id. at 743. The auditor made his assessments using speculative data and unjustified assumptions, such as assuming that all alcohol purchased was sold at retail, thereby ignoring factors like breakage, spillage and complimentary drinks. Id. at 746-48. Comparing the Commissioner’s audit records with the data supplied by the taxpayer, the Board found that “the method used by the Commissioner’s auditor was not justified,” while the records maintained by the taxpayer “were reliable and complete in most respects.” Id. at 756. The Board thus ruled that the amount of sales tax on the appellant’s returns was more probable than the amount as calculated by the auditor. Id. at 758.
“Evidence of a party having the burden of proof may not be disbelieved without an explicit and objectively adequate reason . . . . If the proponent has presented the best available evidence, which is logically adequate, and is neither contradicted nor improbable, it must be credited . . . .” New Boston Garden Corp. v. Board of Assessors of Boston, 383 Mass. 456, 470-471 (1981). In the instant appeals, the Board found and ruled that the appellant’s records, while not maintained in the exact manner as demanded by the auditor, were nonetheless voluminous, related to each of the tax years at issue, and contained key materials, including: personal calendars detailing his gambling activities; race track programs, with his losing ticket stubs from the day attached to the program together with a notation of the date, number of tickets and total amount of wagers; “tax organizers” that list his income and expenses and the information from the Forms W-2G; and the appellant’s “tax books” for each year. These records, taken together, contained the date and type of wagering activity, the name and address of the gambling location, and the amount won or lost; they thus constituted the “diary or similar record” referred to in I.R.S. Rev. Proc. 77-29. Contrast Leite v. Commissioner, Mass. ATB Findings of Fact and Reports 2006-842, 851 (in ruling that taxpayer was not engaged in the trade or business of gambling, Board finds that taxpayer’s “record-keeping with respect to his gambling was sparse, incomplete, and apparently begun after-the-fact [of audit]”).
As Ms. D’Auteuil demonstrated through her testimony, however, the Commissioner’s auditors did not know what these records contained. Yet no auditor ever requested a field audit in which the auditor would go to the taxpayer’s location to review the records maintained by the taxpayer, or a desk audit in which the taxpayer would be invited to the auditor’s office for a meeting in order to review the records with the auditor. Instead, the auditors performed a limited correspondence audit, during which the auditors sent written requests to the appellant seeking records which were to be maintained in a certain format or else the auditors would refuse to review them. Yet nothing in DD 03-3, I.R.S. Rev. Proc. 77-29, or any relevant statute, departmental promulgation or case law required the appellant to keep records in the precise form demanded by the auditor. Each of the previous audits by the Commissioner for tax years 1988, 1994 and 1995, as well as by the IRS in 1994, had resulted in no change to the appellant’s returns based on the records retained by the appellant, and the Board found that the appellant had consistently improved his record-keeping system, following the advice of his accountant after each audit, and especially after being advised of the issuance of DD 03-3. The Board found and ruled that, with a greater understanding of what the taxpayer’s records contained, the auditors could have used these records to verify the appellant’s returns, and therefore, the records met the record-keeping requirement of DD 03-3.
The Board also found credible the appellant’s testimony, which was substantiated by Mr. Sherman’s testimony and letters submitted into evidence, establishing that Mr. Sherman attempted to submit records to the auditors and that the auditors refused to examine them. On the other hand, the Board did not find credible Ms. D’Auteuil’s testimony that she was refused access to the appellant’s records. Therefore, the Board found and ruled that, under the facts of these appeals, the appellant’s voluminous records and the testimony of the appellant and his witnesses constituted the best evidence of the appellant’s regular and consistent gambling activities, which evidence was neither contradicted nor improbable. Accordingly, the Board found and ruled that this evidence established that the appellant was engaged in the trade or business of gambling and therefore was entitled to the deduction of his wagering losses, as well as other related business expenses, against his business income.
“The credibility of witnesses, the weight of the evidence, and inferences to be drawn from evidence are matters for the board.” Cummington School of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977). The appellant’s voluminous records, maintained by him, were the best evidence of the gambling losses to which the appellant was entitled. The Commissioner presented no objectively adequate reason why the appellant’s records should have been disbelieved, and in fact, the auditors lacked a firm understanding of what the records contained and how to interpret their notations, and they lacked a willingness to inquire further. The auditors never conducted a field audit to gain a better understanding of how thorough his records of losses were, nor even a desk audit in order to gain first-hand knowledge from the appellant as to how to interpret his records. Instead, Ms. D’Auteuil summarily deemed the appellant’s records to be inadequate, and she made this arbitrary assumption based on her lack of understanding of the appellant’s organizational system. The Board found and ruled that, because the Commissioner’s auditors virtually ignored the appellant’s records, their conclusions concerning the appellant’s activities, including the Commissioner’s eleventh-hour allegation that the appellant was a “ten percenter,” were not supported by the credible evidence of record.
Conclusion
On the basis of the evidence submitted, with particular weight being given to the credibility of the witnesses, the Board found and ruled that the appellant was engaged in the trade or business of gambling and thus entitled to take his gambling losses and other related expenses as deductions against his business income. The Board also found that the appellant’s evidence, and not the auditor’s conclusions, was the best available evidence with respect to the deductions for his gambling losses. Accordingly, the Board issued decisions for the appellant in these appeals for tax years 2001 through and including 2006.
With respect to tax year 2007, the Board found and ruled that the unsigned so-called Abatement Approval Notice was not sufficient to abate the assessment for that tax year. The Commissioner admitted that the amount of the assessment was an error attributable to the misplacement of a decimal point, and the Board so found and ruled. The Board further found and ruled that the appellant was engaged in the trade or business of gambling for tax year 2007 and was thus entitled to take his gambling losses and other related expenses as business deductions on his 2007 return. The Board thus issued a decision for the appellant for tax year 2007.
Accordingly, the Board granted abatements of tax, exclusive of interest and penalties, in the following amounts:
Tax year Abatement
2001 $33,665.00
2002 $53,872.00
2003 $58,272.00
2004 $77,545.00
2005 $102,214.00
2006 $140,002.00
2007 $13,715,912.00
THE APPELLATE TAX BOARD
By: ________________________________
Thomas W. Hammond, Jr., Chairman
A true copy:
Attest: _________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
INDEPENDENT CONCRETE v. BOARD OF ASSESSORS OF
PUMPING CORPORATION THE TOWN OF WAKEFIELD
Docket No. F300394 Promulgated:
October 20, 2011
This is an appeal under the formal procedure pursuant to G.L. c. 60A, § 2 and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the Town of Wakefield (“assessors” or “appellee”) to abate excise on certain motor vehicles in Wakefield owned by and assessed to Independent Concrete Pumping Corporation (“ICPC” or “appellant”) under G.L. c. 60A, § 1 for 2008.
Commissioner Mulhern heard this appeal. He was joined in the decision for the appellee by Chairman Hammond and Commissioners Scharaffa, Egan, and Rose.
These findings of fact and report are made at the requests of the appellant and the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.
Joseph P. Dever, Esq. and Frederick W. Riley, Esq. for the appellant.
Thomas A. Mullen, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and documents entered into evidence in this appeal, the Appellate Tax Board (“Board”) made the following subsidiary findings of fact.
At all times relevant to this appeal, ICPC was a Massachusetts corporation with its principal place of business in Wakefield, Massachusetts. It was an owner and operator of mobile concrete pumping equipment. A mobile concrete pump consists of a pump unit and boom equipment integrated into a truck chassis. The truck engine supplies power for the pumping equipment, which receives wet concrete from a separate concrete mixing truck. The wet concrete travels through the jointed pipeline attached to the boom and down to its ultimate location within a construction site.
During the periods relevant to this appeal, ICPC owned and operated a fleet of approximately 28 mobile concrete pumps; two such pumps – identified as Truck Number 112 (“Truck No. 112”) and Truck Number 113 (“Truck No. 113”) are the subject of this appeal (together, “Truck Nos. 112 and 113” or the “subject property”).
On February 9, 2009, the assessors issued 2008 motor vehicle excise bills to the appellant for the subject property. The assessors valued Truck No. 112 at $27,200 and assessed an excise thereon, at the rate of $25 per $1,000, in the total amount of $680. The assessors valued Truck No. 113 at $108,800 and assessed an excise thereon, at the rate of $25 per $1,000, in the total amount of $2,720. On February 10, 2009, the appellant filed two Applications for Abatement with the assessors, and those abatement applications were denied by vote of the assessors on February 24, 2009. The appellant filed an appeal with the Board on May 22, 2009. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide this appeal.
The excise at issue in this appeal is imposed by G.L. c. 60A, § 1, which imposes, with certain exceptions not relevant here, an excise in the amount of $25 per $1,000, on “every motor vehicle and trailer registered under chapter ninety, for the privilege of such registration.” The principal issue in this appeal was whether Truck Nos. 112 and 113 were properly classified by the assessors as motor vehicles. General Laws c. 60A, § 1 does not contain its own definition of the term “motor vehicle,” but instead defines the term by reference to G.L. c. 90, § 1, which provides the following definition:
[A]ll vehicles constructed and designed for propulsion by power other than muscular power including such vehicles when pulled or towed by another motor vehicle, except railroad and railway cars, vehicles operated by the system known as trolley motor or trackless trolley under chapter one hundred and sixty-three or section ten of chapter five hundred and forty-four of the acts of nineteen hundred and forty-seven, vehicles running only upon rails or tracks, vehicles used for other purposes than the transportation of property and incapable of being driven at a speed exceeding twelve miles per hour and which are used exclusively for the building, repair and maintenance of highways or designed especially for use elsewhere than on the travelled part of ways, wheelchairs owned and operated by invalids and vehicles which are operated or guided by a person on foot; provided, however, that the exception for trackless trolleys provided herein shall not apply to sections seventeen, twenty-one, twenty-four, twenty-four I, twenty-five and twenty-six . . . .” (emphasis added).
The assessments at issue in this appeal arose after years of internal debate among the assessors and following extensive correspondence by the assessors with the Massachusetts Department of Revenue (“DOR”). The evidence showed that on at least three occasions between 1994 and 2001, the DOR responded to inquiries posed by the assessors regarding the taxability of the appellant’s mobile concrete pumpers. In response to each inquiry, the DOR informed the assessors of its opinion that mobile concrete pumpers are motor vehicles and as such are subject to the motor vehicle excise imposed by G.L. c. 60A, § 1.
The assessors likewise sought the opinion of the Massachusetts Registry of Motor Vehicles (“RMV”) as to the proper classification of mobile concrete pumpers. The RMV responded that in its opinion, mobile concrete pumpers were “special mobile equipment,” defined by G.L. c. 90, § 1 as
motor vehicle[s] which [are] principally designed to conduct excavations or lift building materials at a public or private construction site and [are] operated on a way for the sole purpose of transportation to or from said construction site and [have] a gross vehicle weight of at least twelve thousand pounds. This definition shall not include a motor vehicle which is designed to carry passengers, or any load, on a way.
However, the RMV took no stance on the taxability of mobile concrete pumpers. In fact, in its response to the assessors, the RMV explicitly deferred to the DOR on matters of taxation.
Despite the DOR’s advice, the assessors did not assess motor vehicle excise on the subject property until 2008.[172] Evidence entered into the record indicated that there was significant internal debate among the assessors as to the proper course of action. Ultimately, as something of a test case, the assessors voted to assess motor vehicle excise on just two of ICPC’s 28 mobile concrete pumpers, Truck Nos. 112 and 113. Because the assessors were uncertain whether the excise should be based on the value of the truck chassis alone or the value of the truck chassis as improved by the pump and boom equipment, they assessed excise on the value of the truck chassis alone for Truck No. 112 and on the value of the truck chassis as improved by the pump and boom equipment for Truck No. 113.
Three witnesses testified at the hearing of this appeal. Testifying for the assessors was Paul Faler, who is a member of the assessors. Mr. Faler’s testimony primarily focused on the series of events leading up to the assessment of the subject property, including the aforementioned correspondence between the assessors and the DOR. Testifying for the appellant were William Heinz, a 25-year employee of ICPC who, at the time of the hearing, was serving as its Controller, and Thomas Anderson, a former member of the Board of Directors of the American Concrete Pumping Association who was, for over 25 years, the Chief Operating Officer of Schwing America Corporation, which is a manufacturer of mobile concrete pumpers like the subject property.
Both Mr. Heinz and Mr. Anderson testified about the construction and procurement of mobile concrete pumpers such as the subject property. The assembly of a mobile concrete pumper begins with a Mack truck chassis. Certain elements of the truck are then removed to facilitate the integration of the pump and boom equipment, which is firmly welded onto the truck chassis such that it becomes a complete, integrated unit. Both Mr. Anderson and Mr. Heinz testified that the mobile concrete pumpers are purchased as complete, integrated units. They additionally testified that once a mobile concrete pumper is assembled, it cannot be disassembled without causing substantial damage to the component parts, including the truck chassis. Mr. Anderson also testified that, after the removal of the pump and boom equipment, the truck chassis could only be sold for scrap.
Mr. Heinz testified that ICPC’s operators drive the concrete pumpers from one of ICPC’s four garage sites to the designated construction site, where the operator pumps concrete at the direction of the customer. Upon the completion of each job, the operator drives the concrete pumper back to the garage site. There was no dispute between the parties that ICPC’s mobile concrete pumpers can and do regularly travel safely at speeds well in excess of twelve miles per hour. The evidence showed that they often travel at highway speeds.
The appellant advanced several arguments in support of its position, but the Board found none of them persuasive. The appellant’s primary argument was that its mobile concrete pumpers, including the subject property, were not motor vehicles subject to the excise imposed under G.L. c. 60A, § 1 because they were not “motor vehicles” but instead were “special mobile equipment” as defined by G.L. c. 90, § 1. The appellant argued that mobile concrete pumpers are not merely truck chassis outfitted with pumping equipment. It contended that although the assembly of a mobile concrete pumper begins with a truck chassis, the significant structural alterations made thereto transformed the units into something other than “motor vehicles” for purposes of the excise.
The appellant’s argument failed because it ignored the relevant statutory language. The only exception from the definition of “motor vehicles” contained in G.L. c. 90, § 1 that the subject property could possibly have qualified for is the exception for “vehicles used for other purposes than the transportation of property and incapable of being driven at a speed exceeding twelve miles per hour and which are used exclusively for the building, repair and maintenance of highways or designed especially for use elsewhere than on the travelled part of ways.” However, the evidence showed that the subject property could and did travel safely at speeds far greater than twelve miles per hour. In fact, the evidence showed the appellant’s mobile concrete pumpers often traveled at highway speeds. The Board thus found that the subject property was not among the categories of vehicles carved out of the statutory definition of “motor vehicles.”
Furthermore, the evidence offered by the appellant to support its arguments failed to provide that support. The appellant offered into evidence various items of correspondence issued by the RMV and the DOR, as well as a manual published by the DOR entitled “Motor Vehicle & Trailer Excise Manual.” The “Motor Vehicle & Trailer Excise Manual” indicated that “special mobile equipment” is not subject to the motor vehicle excise and should instead be taxed as personal property. However, in a written response to an inquiry made by the assessors regarding this statement, the DOR clarified the statement to mean only that special mobile equipment that is not also a “motor vehicle” as defined by G.L. c. 90, § 1 is not subject to the motor vehicle excise and should be taxed as personal property. In that same item of correspondence, the DOR reiterated its previously-articulated opinion that mobile concrete pumpers are “motor vehicles” subject to the motor vehicle excise. Further, the items of correspondence from the RMV merely served to confirm that agency’s opinion that the appellant was eligible to receive “owner-contractor” plates for its mobile concrete pumpers because, in the RMV’s opinion, mobile concrete pumpers were “special mobile equipment.” The Board found that this opinion had no bearing on the taxability of the subject property. In fact, in a letter dated December 18, 2001, the RMV declined to opine on the taxability of mobile concrete pumpers, and instead explicitly deferred to the DOR on that matter. The Board therefore found that this evidence was not probative of the subject property’s taxability.
Similarly unpersuasive was the appellant’s attempt to use a 1985 Internal Revenue Service (“IRS”) Letter Ruling, issued to a different taxpayer, to support its contention that mobile concrete pumpers are not subject to the excise imposed by G.L. c. 60A, § 1. As discussed more fully in the Opinion below, the Board found that the applicable legal authority at issue in that Letter Ruling differed materially from the statutes at issue here, and the Board therefore rejected the appellant’s attempt to liken the federal excise to the motor vehicle excise imposed by G.L. c. 60A, § 1.
In sum, though several types of vehicles are carved out of the statutory definition of “motor vehicles,” the Board found that the subject property was not among them. The Board further found that G.L. c. 60A, § 1 contained no express or implied exemption for the subject property. Accordingly, on the basis of all of the evidence, the Board found that Truck Nos. 112 and 113 were subject to the excise imposed by that statute. Because the Board found that Truck No. 112 and Truck No. 113 were motor vehicles, it did not reach a secondary issue presented in this appeal, which was, in the event that Truck No. 112 and Truck No. 113 were not motor vehicles, whether they were exempt from taxes on personal property as the appellant’s “stock in trade.”
The appellant additionally asserted that Truck No. 112 was “primarily garaged” in Greenville, New Hampshire. The Board inferred that the appellant was impliedly asserting that Truck No. 112 was not subject to the excise assessed by the assessors because under G.L. c. 60A, § 6, the excise is to be imposed by the municipality in which the motor vehicle is “customarily kept,” although the appellant did not expressly articulate that argument. To the extent that the appellant intended to make such an argument, the Board found that the evidence did not support its claim. The only evidence offered by the appellant on this point was a statement made by Mr. Heinz during his deposition that Truck No. 112 was garaged in New Hampshire. Although Mr. Heinz testified at the hearing of this appeal, he made no similar assertion at the hearing. Moreover, a sales log for Truck No. 112 was entered into evidence, and that log showed that Truck No. 112 was used primarily for projects in Massachusetts. It was also used for projects in New Hampshire and Vermont, but not as frequently as it was used in Massachusetts. The appellant offered no insurance documents indicating that Truck No. 112 was garaged or insured in New Hampshire, nor did it offer evidence indicating that Truck No. 112 was registered in New Hampshire. Rather, the appellant repeatedly indicated at the hearing of this appeal that both Truck No. 112 and Truck No. 113 had been issued owner-contractor license plates by the RMV. Based on all of the evidence, the Board found that the record did not support the appellant’s assertion that Truck No. 112 was garaged primarily in New Hampshire. Accordingly, the Board found that Truck No. 112, like Truck No. 113, was subject to the motor vehicle excise tax imposed by G.L. c. 60A, § 1.
Lastly, the appellant claimed that it was entitled to an abatement of the excise because the excise was based on an incorrect valuation of the subject property. G.L. c. 60A, § 1, imposes the excise, at a rate of $25 per $1,000, and for the purpose of the excise, the value of each motor vehicle is:
deemed to be the value, as determined by the commissioner, of motor vehicles or trailers of the same make, type, model, and year of manufacture as designated by the manufacturer, but not in excess of the following percentages of the list price established by the manufacturer for the year of manufacture, namely: —
In the year preceding the designated year of manufacture 50%
In the year of manufacture 90%
In the second year 60%
In the third year 40%
In the fourth year 25%
In the fifth and succeeding years 10%.
G.L. c. 60A, § 1. The appellant offered no evidence of overvaluation, nor did it offer evidence demonstrating errors in the assessors’ valuation methodology. The evidence showed that Truck Nos. 112 and 113 were both 2006 Schwing mobile concrete pumps. Each had a manufacturer list price of $349,000. For Truck No. 112, the assessors based the excise on only the value of the truck chassis, which they valued at $27,200. Accordingly, they assessed a total excise of $680. For Truck No. 113, the assessors based the excise on the value of the truck chassis as improved by the pumping equipment. Accordingly they valued Truck No. 113 at $108,800, and assessed an excise thereon in the total amount of $2,720.
As an initial matter, pursuant to G.L. c. 60A, § 1, the motor vehicle excise is based on a vehicle’s manufacturer list price, as reduced by the appropriate percentage indicated in the statute. Nothing in the language of the statute indicated that property such as the subject property should be assessed based on the value of only a component part – a truck chassis – rather than the motor vehicle’s list price, as reduced by the appropriate percentage. To the extent that the assessors assessed excise for Truck No. 112 on only the value of its truck chassis, then Truck No. 112 was undervalued, not overvalued.
With respect to Truck No. 113, the evidence showed that it was a 2006 motor vehicle with a manufacturer list price of $349,000. Under the terms of G.L. c. 60A, § 1, the excise for Truck No. 113 for 2008 should have been based on 40% of its manufacturer list price, which was $139,600. The assessors valued Truck No. 113 at $108,800, which was less than 40% of its manufacturer list price. Once again, the evidence showed that, if anything, the subject property was undervalued, not overvalued, by the assessors. The Board therefore rejected the appellant’s claim that the subject property was overvalued.
On the basis of all of the evidence and its subsidiary findings of fact, the Board found that the appellant failed to meet its burden of proving that it was entitled to an abatement. The Board therefore issued a decision for the appellee in this appeal.
OPINION
General Laws c. 60A, § 1 imposes an excise, with certain exceptions not relevant here, in the amount of $25 per $1,000, on “every motor vehicle and trailer registered under chapter ninety, for the privilege of such registration.” The issue in this appeal was whether Truck Nos. 112 and 113 were “motor vehicles” as defined by G.L. c. 90, § 1. On the basis of all of the evidence, the Board found and ruled that the subject property came within the definition of “motor vehicles” set forth in the statute.
G.L. c. 90, § 1 provides the following definition of “motor vehicles”:
[A]ll vehicles constructed and designed for propulsion by power other than muscular power including such vehicles when pulled or towed by another motor vehicle, except railroad and railway cars, vehicles operated by the system known as trolley motor or trackless trolley under chapter one hundred and sixty-three or section ten of chapter five hundred and forty-four of the acts of nineteen hundred and forty-seven, vehicles running only upon rails or tracks, vehicles used for other purposes than the transportation of property and incapable of being driven at a speed exceeding twelve miles per hour and which are used exclusively for the building, repair and maintenance of highways or designed especially for use elsewhere than on the travelled part of ways, wheelchairs owned and operated by invalids and vehicles which are operated or guided by a person on foot; provided, however, that the exception for trackless trolleys provided herein shall not apply to sections seventeen, twenty-one, twenty-four, twenty-four I, twenty-five and twenty-six. The definition of “Motor vehicles” shall not include motorized bicycles. (emphasis added).
Here, there was no dispute that the appellant’s mobile concrete pumpers, including Truck Nos. 112 and 113, could and did travel safely at speeds exceeding twelve miles per hour. In fact, the evidence indicated that they often traveled at highway speeds. Because the subject property did not fit within any of the categories of vehicles carved out of the statutory definition, the Board found and ruled that they were “motor vehicles” as defined by G.L. c. 90, § 1. The Board further found and ruled that the subject property was not among the categories of vehicles exempted from the excise imposed by G.L. c. 60A, § 1.
The appellant’s arguments to the contrary were unavailing. The appellant’s main contention was that Truck Nos. 112 and 113 were not subject to the motor vehicle excise because they were not “motor vehicles” but instead were “special mobile equipment” as defined by G.L. c. 90, § 1. That section defines “special mobile equipment” as
motor vehicle[s] which [are] principally designed to conduct excavations or lift building materials at a public or private construction site and [are] operated on a way for the sole purpose of transportation to or from said construction site and [have] a gross vehicle weight of at least twelve thousand pounds. This definition shall not include a motor vehicle which is designed to carry passengers, or any load, on a way.
Owner-contractors who own special mobile equipment may be entitled to receive special registration plates under G.L. c. 90, § 5, which permits the issuance of special registration plates to the following categories of owners: (1) manufacturer; (2)dealer; (3)repairman; (4)recreational vehicle and recreational trailer dealer; (5) boat and boat trailer dealer; (6) farmer; (7) owner-contractor; (8) transporter; and (9) person involved in the harvesting of forest products as defined by the regulations of the registry of motor vehicles. G.L. c. 90, § 5. However, the Board found and ruled that the issuance of such plates was not dispositive of the issue presented in this appeal. While Chapter 90 defines “motor vehicles” and sets forth the parameters for registration and operation of motor vehicles, it is G.L. c. 60A, § 1 which imposes the motor vehicle excise, and thus the terms of that statute dictate whether the subject property is subject to the motor vehicle excise. As discussed above, the Board found that G.L. c. 60A, § 1 contained no express or implied exemption for the subject property. Rather, the exemptions enumerated in that statute were limited to vehicles owned by certain categories of individuals or entities, such as disabled veterans, former prisoners of war, and charitable organizations. Of the nine categories of individuals eligible to receive special plates under G.L. c. 90, § 5, it is noteworthy that G.L. c. 60A, § 1 exempts only three of them – farmers, manufacturers, and dealers – from the motor vehicle excise.[173] It is apparent from the statutory scheme that not all of the vehicles eligible to receive special registration plates under G.L. c. 90, § 5 are likewise exempt from the motor vehicle excise under G.L. c. 60A, § 1; vehicles which are “special mobile equipment” under G.L. c. 90, § 1 and therefore eligible for special registration plates under G.L. c. 90, § 5 may be – and in this case are – “motor vehicles” subject to the excise under G.L. c. 60A, § 1. As the subject property fell within the definition of “motor vehicles” provided by G.L. c. 90, § 1 and was not within the class of vehicles exempted by G.L. c. 60A, § 1, the Board found and ruled that it was subject to the motor vehicle excise. In making its argument, the appellant relied in part on various items of correspondence issued by the RMV and the DOR as well as a manual published by the DOR entitled “Motor Vehicle & Trailer Excise Manual.” The Board found that none of these items supported the appellant’s position. The DOR’s “Motor Vehicle & Trailer Excise Manual” indicated that “special mobile equipment” is not subject to the motor vehicle excise and should instead be taxed as personal property. However, in a written response to an inquiry by the assessors regarding this statement, the DOR clarified the statement to mean only that special mobile equipment that is not also a “motor vehicle” as defined by G.L. c. 90, § 1 is not subject to the motor vehicle excise and should be taxed as personal property. In that same item of correspondence, the DOR reiterated its previously-articulated opinion that mobile concrete pumpers are motor vehicles subject to the motor vehicle excise. Additionally, the items of correspondence from the RMV merely served to confirm that agency’s opinion that the appellant was eligible to receive “owner-contractor” plates for its mobile concrete pumpers because, in the RMV’s opinion, mobile concrete pumpers were “special mobile equipment.” The Board found that this opinion had no bearing on the taxability of the subject property. In fact, in a letter dated December 18, 2001, the RMV declined to opine on the taxability of mobile concrete pumpers, and instead explicitly deferred to the DOR on that matter. Similarly unpersuasive was the appellant’s attempt to use a 1985 IRS Letter Ruling, issued to a different taxpayer, to support its contention that mobile concrete pumpers are not subject to the excise imposed by G.L. c. 60A, § 1. That letter ruling pertained to the federal excise on “highway vehicles,” defined under Treas. Reg. § 48.4061(a)-1(d)(1) as “any self-propelled vehicle, or any trailer or semitrailer, designed to perform a function of transporting a load over public highways, whether or not also designed to perform other functions but does not include a vehicle described in section 48.4061(a)-1(d)(2).” Although the IRS determined that mobile concrete pumpers fell into the general definition of “highway vehicles,” it also determined that they fell into the express exception provided by § 48.4061(a)-1(d)(2)(i), which exempted from the excise vehicles that consist of chassis with machinery or equipment permanently mounted thereto, and which engage in construction, manufacturing processes or the like, provided that the chassis serves only as a means of mobility and power source and, by reason of its design, the chassis could not, without substantial structural modification, be used as a vehicle to carry loads other than its specialized equipment or machinery. Not only did the definition of “highway vehicle” differ from the definition of “motor vehicle” at issue here, but, unlike in the present appeal, vehicles such as mobile concrete pumpers were expressly exempted. As discussed above, the Board found and ruled that the relevant statute contained no such exemption for the subject property, and the Board therefore rejected the appellant’s attempt to liken the federal excise to the motor vehicle excise imposed by G.L. c. 60A, § 1. Additionally, under G.L. c. 60A, § 6, the excise is to be imposed by the municipality in which the motor vehicle is “customarily kept.” G.L. c. 60A § 6. The appellant asserted that Truck No. 112 was primarily garaged in New Hampshire, and the Board inferred from this assertion that the appellant impliedly argued that Truck No. 112 was not subject to the excise assessed by the assessors. However, the appellant offered no insurance records, registration information or other documentary evidence indicating that Truck No. 112 was garaged primarily in New Hampshire. To the contrary, the evidence indicated that Truck No. 112 was registered in Massachusetts and used most frequently in Massachusetts. The Board therefore found and ruled that there was insufficient evidence in the record to support the appellant’s assertion, and accordingly, it rejected the appellant’s implied argument. Lastly, the appellant claimed that it was entitled to an abatement of the excise because the excise was based on an incorrect valuation of the subject property. G.L. c. 60A, § 1 imposes the excise, at a rate of $25 per $1,000, and for purposes of the excise, the value of each motor vehicle is:
deemed to be the value, as determined by the commissioner, of motor vehicles or trailers of the same make, type, model, and year of manufacture as designated by the manufacturer, but not in excess of the following percentages of the list price established by the manufacturer for the year of manufacture, namely: —
In the year preceding the designated year of manufacture 50%
In the year of manufacture 90%
In the second year 60%
In the third year 40%
In the fourth year 25%
In the fifth and succeeding years 10%.
G.L. c. 60A, § 1; see also Lily Transportation Corp. v. Assessors of Medford, 427 Mass. 228, 230 (1998). The appellant offered no evidence of overvaluation, nor did it offer evidence demonstrating error in the assessors’ valuation methodology. The excise for Truck No. 112 was based solely on the value of its truck chassis, an amount much lower than its manufacturer list price. The Board found and ruled that there was nothing in the statutory language requiring the assessors to base the excise on the value of a motor vehicle’s chassis alone rather than the applicable percentage of manufacturer list price. See DePesa v. Assessors of Norwell, Mass. ATB Findings of Fact and Reports 2004-484, 491 (ruling that motor vehicle excise was properly based on value of entire motor home, not on chassis alone, exclusive of coach). With respect to Truck No. 113, the evidence likewise showed that the assessors based the excise on a value lower than the value derived by using the formula designated in the statute. The evidence showed that, if anything, the subject property was undervalued, not overvalued. The Board therefore found and ruled that the appellant did not prove that the subject property was overvalued.
The burden of proof is upon the taxpayer to make out its right as a matter of law to abatement of the tax. Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974). A taxpayer claiming exemption from taxation must show clearly and unequivocally that it comes within the terms of the exemption. Town of Milton v. Ladd, 348 Mass. 762, 765 (1965). In the present appeal, the Board found and ruled that the appellant did not establish that the subject property was exempt from the excise imposed by G.L. c. 60A, § 1, nor did it prove that the subject property was overvalued. The Board therefore found and ruled that the appellant did not meet its burden of proving its right to an abatement of the excise. Accordingly, the Board issued a decision for the appellee in this appeal.
APPELLATE TAX BOARD
By: ________________________________
Thomas W. Hammond, Jr., Chairman
A true copy:
Attest: _________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
SYSCO CORPORATION v. COMMISSIONER OF REVENUE
Docket Nos.: C282656 Promulgated:
C283182 October 20, 2011
These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the appellee, the Commissioner of Revenue (“Commissioner”), to grant an abatement of corporate excise sought by the appellant (“Sysco” or “appellant”) for its fiscal years ended June 29, 1996, June 28, 1997, June 27, 1998, July 3, 1999, July 1, 2000, and June 30, 2001 (“tax years at issue”).[174]
Commissioner Scharaffa heard these appeals and was joined by Chairman Hammond and Commissioners Egan, Rose and Mulhern in the decision for the appellee.
These findings of fact and report are made at the requests of the appellant and the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.
Philip S. Olsen, Esq., Craig B. Fields, Esq., and Roberta Moseley Nero, Esq. for the appellant.
Christopher M. Glionna, Esq., Andrew P. O’Meara, Esq., Brett M. Goldberg, Esq., and Thomas J. Leonardo, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
These appeals were presented through a Stipulation of Facts and stipulated exhibits, and the testimony and exhibits entered into evidence at the hearing of the appeals. The appellant offered five witnesses, who were called in the following order: George Mitchell Elmer, Senior Vice President, Controller and Chief Accounting Officer;[175] David Lee Brown, Vice President of Finance, Sysco San Diego; Ms. Jill Weise, Managing Director, Ceteris U.S., LLC; Dr. Brian Cody, Principal, KPMG LLP; and Richard D. Pomp, Professor of Law, University of Connecticut, School of Law. The Commissioner offered the testimony of Michael Johnson, Audit Manager, Multi-State Audit Bureau, Massachusetts Department of Revenue (“DOR”), and Robert W. Alltop, Head of Transfer Pricing Practice, Charles River Associates.
On the basis of the foregoing, the Appellate Tax Board (“Board”) made the following findings of fact.
Procedural History
Throughout the tax years at issue, Sysco was a Delaware corporation that maintained its principal place of business in Houston, Texas. Sysco filed Combined Massachusetts Corporate Excise Returns for each of the tax years at issue.[176] Based on the results of an audit initiated by the DOR, the Commissioner issued a Notice of Intention to Assess Corporate Excise (“NIA”) to Sysco dated February 15, 2004, for the tax years 1996 through 1998. The Commissioner subsequently issued an NIA dated August 14, 2005, for the tax years 1999 through 2001.
On March 16, 2004, Sysco filed a Form DR-1, Appeals Form, seeking a pre-assessment conference with DOR’s Office of Appeals for the tax years 1996 through 1998. Following a conference which was held on May 12, 2004, the Office of Appeals issued a letter of determination dated March 23, 2005, upholding the proposed assessment in full. Sysco did not seek a pre-assessment conference for the tax years 1999 through 2001.
The Commissioner issued a Notice of Assessment (“NOA”) dated April 27, 2005, relating to the tax years 1996 through 1998 and an NOA dated September 27, 2005, for the tax years 1999 through 2001. Sysco protested the NOAs by filing Applications for Abatement on May 27, 2005, for the tax years 1996 through 1998 and on December 8, 2005, for the tax years 1999 through 2001. The Commissioner denied Sysco’s Applications for Abatement by Notices of Abatement Determination dated September 15, 2005, for the tax years 1996 through 1998 and February 22, 2006, for the tax years 1999 through 2001.
Sysco filed a Petition Under Formal Procedure relating to the tax years 1996 through 1998 on November 10, 2005, and a Petition Under Formal Procedure relating to the tax years 1999 through 2001 on April 14, 2006. As originally filed, Sysco’s petitions set forth several issues for consideration by the Board. During February of 2009, the parties executed a settlement agreement resolving all of the contested issues with the exception of the Commissioner’s adjustments relating to the operation of Sysco’s cash-management system. The adjustments included disallowance of interest deductions claimed by Sysco on purported loans resulting from intercompany advances. The Commissioner characterized claimed loan amounts to Sysco as dividends and characterized claimed interest income received by the “loaning” entities from Sysco as capital contributions from Sysco. The amount of taxes remaining at issue for each tax year, exclusive of interest, is as follows:
1996: $ 423,059.37 1999: $1,462,314.50
1997: $ 597,955.00 2000: $ 700,452.48
1998: $3,309,464.63 2001: $ 717,090.76
Total: $7,210,336.74
Based on the foregoing, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
Factual Background
A. Sysco
Sysco was formed in 1969 when nine local food distributors operating in markets across the United States combined their businesses in exchange for Sysco common stock. The new company was taken public and commenced operations in 1970. Over time, Sysco expanded its own operations and acquired smaller family-owned businesses. Through its wholly owned subsidiaries and divisions (the “operating companies”), Sysco distributed food and related products to establishments such as restaurants, nursing homes, hospitals, hotels, motels, schools, colleges, cruise ships, sports parks and summer camps.
All of Sysco’s revenue was generated from the activities of the operating companies. Each operating company that was a corporation had a board of directors and each company that was a limited liability company had a board of managers. Each operating company had its own officers, and the presidents of the operating companies had responsibility for hiring and dismissing employees. While the management of Sysco made suggestions regarding operating company personnel, the operating companies were not obligated to follow Sysco’s suggestions. Sysco’s chief operating officer was responsible for hiring and dismissing the operating companies’ presidents.
Each operating company paid its own operating expenses, made its own purchasing decisions, placed its own orders for supplies and equipment and was responsible for its own operating results. The operating companies were required to obtain approval from Sysco prior to making capital expenditures exceeding fifty thousand dollars, such as major equipment purchases, expansion of a company’s business, or expansion of operating facilities.
B. The Cash-Management System
Soon after its formation in 1969, Sysco implemented a cash-management system in which all of the operating companies were obligated to participate. Mr. Elmer testified extensively about the cash-management system, which he stated was implemented and maintained to function as a “corporate bank” and to achieve various efficiencies including reduction of banking costs and the cost of debt capital.
The cash-management system, which was managed by Sysco’s treasury department, had several components. Each operating company maintained bank accounts with commercial third-party banks, including a main depository account and a disbursement account. The companies deposited all revenue generated from operations into their respective depository accounts. At the daily close of business, Sysco initiated a transfer of funds from the depository accounts to what Sysco referred to as its “concentration accounts.” While cash receipts were transferred on a daily basis, the depository accounts were not left with a zero balance because sums reflected in accounts as a result of check deposits were not transferred to the concentration accounts until the checks had cleared.
The disbursement accounts, through which the operating companies paid their expenses, were “zero balance accounts.” Operating company checks presented for payment on a given day were funded by Sysco, which initiated a transfer of funds from the concentration accounts to the disbursement accounts sufficient to cover the checks. Thus, the disbursement accounts were left with a zero balance at the end of each day. An operating company that desired capital expansion requiring approval from Sysco submitted a capital investment proposal (“CIP”), which Sysco in its sole discretion could approve or reject. If approved, an operating company might receive a fixed interest rate and term for the amount approved. Purported payments relating to the capital funding were made through the accounts comprising the cash-management system.
The difference between the sums swept up to Sysco and the amounts transferred from its concentration accounts to the operating companies’ disbursement accounts was recorded in Sysco’s and each operating company’s books and records, which included an “intercompany account.” Weekly and monthly intercompany statements were generated reflecting amounts transferred to and from Sysco to compare Sysco’s records to those of the operating companies.
During the tax years at issue, when Sysco had disbursed less to an operating company than it received from the company, the excess received by Sysco was accounted for as a loan from the operating company to Sysco, placing Sysco in a “net borrowing position” relative to the operating company. Conversely, when Sysco had disbursed more than it collected from an operating company, it accounted for the excess received by the operating company as a loan from Sysco to the company, placing Sysco in a “net lending position” relative to the company.
Interest was calculated daily on all intercompany account ending balances. Operating companies that were in a net lending position relative to Sysco were “paid” interest at the prime rate minus one percent by Sysco on outstanding balances. Operating companies in a net borrowing position relative to Sysco “paid” interest at the prime rate to Sysco on the balances. Payments of interest were made by accounting entries on a monthly basis, and sums representing interest payments to the operating companies from Sysco were immediately swept up to the concentration accounts. Consistent with this accounting treatment, Sysco deducted interest paid to the operating companies and reported income received from the companies on its state tax returns. Similarly, the operating companies reported interest income received from Sysco and interest paid to Sysco on their tax returns.
The cash-management system was operated according to procedures set forth in an internal guide called the Financial and Accounting Methods Manual (“FAMM”), which was in force before and during the tax years at issue.[177] The FAMM described in detail the various elements of the cash-management system and, inter alia, set forth methods of accounting for transactions, intercompany and otherwise, as well as generating intercompany reports and accounting for the accrual of interest on intercompany balances. The FAMM consistently and explicitly referred to the various intercompany transactions and balances relating to the cash-management system as reflecting “borrowing” and “lending” between Sysco and the operating companies.
Mr. Elmer maintained that the FAMM provided substantial evidence of a debtor/creditor relationship between Sysco and the operating companies. However, while the FAMM provided detailed guidelines relating to operation of the cash-management system, it did not evidence a legal obligation to repay sums it stated were borrowed from or lent to the operating companies. In particular, the FAMM did not provide for execution of any agreements relating to the purported debt. Nor did the FAMM provide for amortization schedules, default or collateral provisions, or any type of security mechanism to ensure timely repayment. Mr. Elmer acknowledged that no such documents existed.
While Sysco in theory could enforce repayment of balances due from the operating companies by virtue of its 100% ownership of the entities, the operating companies had no such ability and were left without recourse should they have sought to enforce Sysco’s claimed obligation to repay outstanding balances. Thus, the Board found that Sysco had no legal obligation to repay transfers of outstanding sums due to the operating companies.
The Board also found that full repayment of purported loans was not intended to and did not in fact occur. In support of its assertion that repayment was intended, Sysco noted that a portion of the funds advanced to Sysco were repaid on a daily basis through disbursements to the operating companies and that a given operating company could go from a net borrowing to a net lending position or the reverse. Mr. Brown testified that Sysco San Diego did just that, having borrowed extensively from Sysco to meet capital needs associated with establishing company operations, thereby placing the company in a net borrowing position. Later, Sysco San Diego achieved profitability, which led it to be in a net lending position. These facts, however, do not indicate that Sysco intended to or did repay the outstanding balances received from the operating companies.
Sysco made payments to the operating companies on the purported loans only on an as-needed basis by funding the companies’ disbursement accounts for the purpose of paying daily operating expenses or by funding approved CIPs. Mr. Elmer confirmed this fact when he responded to the question “[d]oes Sysco Corporation intend to repay the operating companies in any other way besides funding of disbursements?” by answering “I would say no.” Transcript Volume I, pp. 64-65. Further, a substantial portion of sums advanced to Sysco, which Sysco claimed to have intended to repay, was used to pay dividends to shareholders. More specifically, during the tax years at issue, not one of the operating companies paid a dividend to Sysco, but Sysco paid dividends to its shareholders as follows:
1996: $ 87,721,000 1999: $126,691,000
1997: $ 99,574,000 2000: $145,418,000
1998: $110,928,000 2001: $173,701,000
Moreover, Mr. Elmer testified that “the cash-management system functions as the conduit through which the cash flow from the operating subsidiaries is concentrated into Sysco [] so that it can be used for general corporate purposes such as making acquisitions of new companies . . .” Transcript Volume II, p. 20.
Given the structure of the cash-management system, any profitable operating company that did not seek funds from Sysco for capital expansion such that it would revert to a net borrowing position would perpetually be in a net lending position relative to Sysco. In fact, Mr. Elmer, who equated a lending operating company with a “profitable business,” testified that “Sysco expects all of its operating subsidiaries to be profitable companies in the long run and so certainly once a company has become profitable and is able to generate a positive cash flow, the expectation is that the positive cash flow will continue forever and ever and ever . . .” Transcript, Volume II, pp. 13-14. Under these circumstances, which Mr. Elmer characterized as not only desirable but expected, operating companies could not expect return of advanced funds that exceeded disbursements (“excess cash advances”) which had been swept up to Sysco through operation of the cash-management system. Indeed, sums purportedly due from Sysco to the operating companies were never fully repaid during the tax years at issue. To the contrary, not only was Sysco in a net borrowing position relative to the operating companies during these years, its stated obligations to the companies grew significantly. At the end of tax year 1996, Sysco’s net borrowing position was slightly in excess of $700,000,000 and by the end of tax year 2001, it had exceeded $1,800,000,000. Further, not a single operating company requested or received a return of excess cash advances from Sysco.
As previously noted, Sysco’s entire income stream was derived from the operating companies, which according to Sysco contributed their receipts to the cash-management system in the form of loans. Sysco thus paid its dividends and made use of funds for general corporate purposes from the purported loans received from the operating companies. These payments depleted the income pool available for repayment of the loans. The sole source of repayment was excess cash advances from the operating companies, which were accounted for as loans to Sysco. These facts substantially undermine Sysco’s assertion that it intended to repay its outstanding debts to the operating companies.
Sysco’s Expert Testimony
Ms. Jill Weise
Ms. Weise, whom the Board qualified as an expert in transfer pricing, testified that she examined the interest rates utilized in Sysco’s cash-management system and found them to be arm’s length. To arrive at this conclusion, Ms. Weise applied standards articulated under Internal Revenue Code (“I.R.C.”) § 482 and the associated regulations. In particular, with respect to the interest rate charged on sums outstanding from the operating companies to Sysco, Ms. Weise considered Sysco’s AA- bond rating and prevailing market rates and derived upper and lower bounds for Sysco’s interest rate. In this manner, she determined that prime minus one percent was an appropriate rate to pay the operating companies. For sums owing to Sysco, Ms. Weise assumed that each operating company was at least “investment grade” and concluded that the prime rate represented an arm’s-length interest rate. Ms. Weise did not, however, provide a foundation for her assumption that each of the operating companies was investment grade. Nor did she examine or take into account the creditworthiness of the individual operating companies, which Mr. Elmer had explicitly testified would result in varying credit ratings and associated costs of credit.
In her expert report, Ms. Weise also likened Sysco’s cash-management system to a bank, stating that the activities associated with the cash-management system “are the very definition of a bank.” Weise Expert Report, p. 13. However, Ms. Weise failed to note that a bank, unlike Sysco, is legally bound to return deposits as well as accumulated interest to its customers, and absent anomalous circumstances, does so. Consequently, the Board did not credit this portion of Ms. Weise’s opinion.
Finally, Ms. Weise concluded that the intercompany transactions resulted in creation of bona-fide debt. Noting that she “believ[ed] the existence of comparable third party cash management services is ample evidence to support Sysco’s treatment of its cash management system as bona fide indebtedness,” Ms. Weise focused her analysis in large measure on factors cited in Roth Steel Tube Company v. Commissioner of Internal Revenue, 800 F.2d, 625 (6th Cir. 1986) relating to a multi-factor debt/equity analysis. Weise Expert Report, p. 16.[178] These factors had been cited by DOR Audit Manager Michael Johnson in a determination letter to Sysco dated February 14, 2004, relating to the tax years 1996 through 1998, which preceded the issuance of the NIA for those years. The Board found that in her analysis and ultimate opinion, Ms. Weise failed to address sufficiently whether Sysco intended to and in fact did return excess cash advances to the operating companies. Thus, the Board was not persuaded by Ms. Weise’s observations that the intercompany transactions at issue resulted in the creation of bona-fide debt.
Dr. Brian J. Cody
The Board qualified Dr. Cody as an expert in the field of economics. Dr. Cody addressed the question of whether, from an economic perspective, advances made by the operating companies to Sysco and from Sysco to the operating companies during the tax years at issue should be characterized as debt or equity. Like Ms. Weise, Dr. Cody’s analysis focused largely upon the factors articulated in Roth Steel Tube Company, and based on his analysis, Dr. Cody concluded that the intercompany advances between Sysco and the operating companies within the context of the cash-management system were properly characterized “from an economic point of view” as debt. Also like Ms. Weise, however, Dr. Cody’s analysis failed to address sufficiently whether Sysco intended to and in fact did return excess cash advances to the operating companies.
Finally, Dr. Cody made his own comparison between Sysco’s cash-management system and a bank, likening excess cash advances to an overdraft on a personal account, which is not secured. Similar to Ms. Weise, Dr. Cody ignored that repayment of outstanding sums relating to bank overdrafts and credit lines is compelled by depository agreements and law. On the basis of the referenced flaws in Dr. Cody’s analysis, the Board afforded little weight to his testimony.
Professor Richard Pomp
Professor Pomp, whom the Board qualified as an expert in the field of tax policy, gave his opinion regarding the intercompany transactions at issue “from a tax policy perspective.” Acknowledging that “every tax system . . . . needs to guard against situations in which a taxpayer may try to disguise a nondeductible expenditure as a business deduction for interest,” such as a corporation’s attempt to disguise “an otherwise nondeductible dividend as a deductible payment of interest,” Professor Pomp opined that there was no such attempt evident in the present appeals. Pomp Expert Opinion, p.3. Professor Pomp also stated that “[o]ne overriding rule is that for interest to be deductible there must be ‘indebtedness,’ that is, an unconditional and legally enforceable obligation for the payment of money.” Id. at p.4.
As did Ms. Weise and Dr. Cody, Professor Pomp spent a considerable portion of his analysis applying the factors employed in Roth Steel Tube Company. At the conclusion of his analysis, Professor Pomp stated that the parties intended to create debt, and that the cash-management system had a business purpose and economic substance and was not implemented for tax-minimization purposes.
Regardless of the presence or absence of business purpose and economic substance and the absence of tax motivation, in his analysis, Professor Pomp failed to demonstrate the existence of “an unconditional and legally enforceable obligation for the payment of money” in the context of Sysco’s cash-management system. As previously noted, Professor Pomp characterized this obligation as fundamental to whether interest is deductible. Further, Professor Pomp failed to address relevant facts indicating that excess cash advances were not intended to be returned to the operating companies. For these reasons, the Board did not credit Professor Pomp’s opinion as it related to the nature of the intercompany transactions within the cash-management system.
The Commissioner’s Expert Testimony
Robert W. Alltop
The Board qualified Mr. Alltop as an expert in transfer pricing. Mr. Alltop’s testimony centered upon Ms. Weise’s opinion and report. In particular, Mr. Alltop stated that he disagreed with Ms. Weise’s decision not to examine the creditworthiness of the operating companies when deciding on an appropriate interest rate to be paid by the companies because in an arm’s-length transaction, creditworthiness of the borrowing entity would be reflected in the interest rate. Mr. Alltop also indicated that for Ms. Weise’s analysis regarding the nature of the intercompany transactions to be complete, he would have expected a focus on facts which demonstrated a reasonable expectation of repayment on the part of the operating companies, a focus which was not present either in Ms. Weise’s testimony or her report. Finally, having noted that legal decisions shape what is done by economists, Mr. Alltop questioned why Ms. Weise failed to draw a distinction between the facts in the present case and those considered in New York Times Sales, Inc. v. Commissioner of Revenue, 40 Mass. App. Ct. 749, 753 (1996), in which the Massachusetts Appeals Court found that intercompany transfers effected within the context of a cash-management system did not constitute indebtedness.
Summary
On the basis of the evidence presented and reasonable inferences drawn therefrom, the Board found that intercompany transfers associated with Sysco’s cash-management system during the tax years at issue did not give rise to bona-fide debt. The Board’s finding was based on an examination of the specific facts and circumstances of these appeals, with particular focus on various facts which inexorably led to the inference that the structure and operation of Sysco’s cash-management system indicated Sysco did not intend, nor did the operating companies expect, repayment of the excess cash advances, which therefore were permanent in nature. These facts included, but were not limited to: the absence of a legal obligation to repay advanced funds; Sysco’s expectation that the operating companies would be profitable and therefore, yield a perpetual stream of excess cash advances; the substantial increase in Sysco’s stated liability to the operating companies during the tax years at issue; Sysco’s failure to repay excess cash advances in full; Sysco’s payment of dividends to shareholders from advances made by the operating companies and its use of the advances for its general corporate purposes; the lack of instruments evidencing debt; the absence of limits on the amounts upstreamed to Sysco from the operating companies; the absence of repayment schedules or fixed dates of maturity; the lack of security, default or collateral provisions associated with the purported debt; and the operating companies’ failure to request repayment of excess cash advances made to Sysco.
Accordingly, and for the reasons discussed in the following Opinion, the Board decided these appeals for the appellee.
OPINION
Pursuant to G.L. c. 63, § 30(4), a corporation’s net income generally consists of gross income less the deductions, but not credits, allowed under the I.R.C. Pursuant to I.R.C. § 163(a), a corporation may deduct “all interest paid or accrued within the taxable year on indebtedness.” Sysco argued that for each of the tax years at issue, intercompany transactions associated with its cash-management system gave rise to bona-fide debt and consequent interest expenses for Sysco and interest income for its subsidiaries. The Commissioner responded that the facts and circumstances of the appeals, taken as a whole, indicated that the transactions did not constitute true indebtedness. The Board agreed with the Commissioner.
For a transaction to give rise to a valid interest deduction, the transaction must constitute true indebtedness. Knetsch v. United States, 364 U.S. 361, 364-65 (1960). True indebtedness requires, at the time funds are transferred, both “‘an unconditional obligation on the part of the transferee to repay the money, and an unconditional intention on the part of the transferor to secure repayment.’” Schering-Plough Corporation v. United States, 651 F.Supp. 2d 219, 244 (D.N.J. 2009)(quoting Geftman v. Commissioner of Internal Revenue, 154 F.3d 61, 68 (3rd Cir. 1998)).
“Related but separate corporations can freely enter into contracts including debt transactions, like any corporations or individuals.” Overnite Transportation Company v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1999-353, 370, aff’d, 54 Mass. App. Ct. 180 (2002)(citing Bordo Products Co. v. United States, 476 F.2d 1312, 1323 (Ct. Cl. 1973)). However, courts examine these transactions with greater scrutiny because the transactions “do not result from arm’s length bargaining.” Overnite Transportation Company, Mass. ATB Findings of Fact and Reports at 1999-370 (citing Kraft Foods Co. v. Commissioner, 232 F.2d 118, 123-24 (2nd Cir. 1956)); see also, Overnite Transportation Company, 54 Mass. App. Ct. at 186 (“When ‘the same persons occupy both sides of the bargaining table, form does not necessarily correspond to the intrinsic economic nature of the transaction, for the parties may mold it at their will with no countervailing pull’”)(quoting Fin Hay Realty Co v. United States, 398 F.2d 694, 697 (3d Cir. 1968)). Furthermore, “the method by which two related businesses account for cash transfers on their internal financial records is not deemed to be a controlling factor in determining the nature of the transaction” as such records are a product of the parties and therefore “do not necessarily constitute a reliable reflection of the true nature of the transaction.” New York Times Sales, Inc. v. Commissioner of Revenue, 40 Mass. App. Ct. at 753 (citing Alterman Foods, Inc. v. United States, 505 F.2d 873, 878 (5th Cir. 1974)(“Alterman I”); J.A. Tobin Const. Co. v. Commissioner of Internal Revenue, 85 T.C. 1005, 1022 (1985)).
“Although the issue of whether transfers between a subsidiary and its parent constitute debt has been extensively litigated, courts have not established a bright-line rule for making such a determination but have instead employed a case-by-case analysis based on the specific facts and circumstances of a particular case.” The TJX Companies, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2007-790, 881, aff’d in part, remanded in part on other grounds, Mass. App. Ct., No. 07-P-1570, Memorandum and Order under Rule 1:28 (April 3, 2009), aff’d, Mass. App. Ct., No. 09-P-1841, Memorandum and Order under Rule 1:28 (July 23, 2010). Consequently, “[t]he Board must review the facts and circumstances surrounding a purported inter-company loan to determine whether a true debt obligation exists.” Id. at 882.
Within the context of this review, “[i]t is well settled that a distribution by a subsidiary corporation to its parent is a loan and not a dividend if, at the time of its payment, the parties intended it to be repaid. Whether the parties actually intended the transaction to be a loan or dividend is an issue of fact. To resolve the issue, the courts apply a multi-factor analysis. No single factor is determinative; rather, all the factors must be considered to determine whether repayment or indefinite retention is intended.”
Kimberly-Clark Corporation & Kimberly-Clark Global Sales, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2011-1, 43 (quoting New York Times Sales, 40 Mass. App. Ct. at 752). (internal citations omitted).
In New York Times Sales, the Massachusetts Appeals Court upheld the Board’s decision that sums transferred from a subsidiary to its parent in the context of a cash- management system were not loans but dividends. The Board had determined that the parties did not intend the transactions to be loans in light of several factors which had previously been set forth in Alterman I, and Alterman Foods, Inc. v. U.S., 611 F.2d 866 (Ct. Cl. 1979)(“Alterman II”). See The New York Times Sales, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1995-137, aff’d., 40 Mass. App. Ct. 749 (1996). On appeal, the Appeals Court endorsed the Board’s reasoning relating to:
several factors [which] demonstrated that the parties intended that the cash transactions be dividends and not loans. They included (1) the amounts transferred were not limited in any manner; (2) there was no repayment schedule and no fixed dates of maturity; (3) the amounts ‘upstreamed’ to Times Company were intended to remain with the Times Company for use in fulfilling its various corporate purposes; (4) no interest was charged; (5) no notes or other evidences of indebtedness existed; (6) the transferred cash was not secured in any manner; (7) at no time did Times Sales request repayment; (8) there was no evidence that Times Sales had any expectations of repayment; and (9) at no time did Times Company make any effort to repay the amounts transferred to it by Times Sales.
New York Times Sales, 40 Mass. App. Ct. at 752.
In the present appeals, the facts of the case and the factors cited by the Appeals Court in New York Times Sales weigh heavily against Sysco. In New York Times Sales, the Times Company and its subsidiaries, like Sysco, maintained a cash-management system designed to foster certain efficiencies within a corporate group. Like the operating companies in these appeals, the relevant subsidiary in New York Times Sales participated in the cash-management system and its receipts were upstreamed on a daily basis to Times Company’s concentration account. As did Sysco, Times Company paid its subsidiaries’ expenses from funds that had been advanced to Times Company by the subsidiaries and which were subsequently deposited in the subsidiaries’ disbursement accounts. Finally, Sysco, like Times Company, retained excess cash advances and used the advances for general corporate purposes. Against this backdrop, the Appeals Court considered the factors cited above, each of which the Board addressed as follows.
(1) The operating companies deposited all their revenue into their depository account, from which the deposits were swept up to Sysco’s concentration accounts on a daily basis. Thus the Board found that “the amounts transferred were not limited in any manner.” New York Times Sales, 40 Mass. App. Ct. at 752. Curiously, Sysco argues that the transfers were “limited” by the amount of the operating companies’ revenue. Not only is this argument counterintuitive, but in New York Times Sales, as in the present appeals, the Appeals Court reviewed a cash-management system like Sysco’s in which the only limit on the amounts advanced to the parent corporation was dictated by the ability of the subsidiaries to generate revenue. If such a “limit” were dispositive, the Appeals Court would have overturned the Board’s prior determination that cash transfers limited only by the financial success of a subsidiary are, in fact, unlimited. See The New York Times Sales, Inc., Mass. ATB Findings of Fact and Reports at 1995-148.
(2) In the present appeals, there were no repayment schedules or fixed dates of maturity in the day-to-day operation of the cash-management system.
(3) The Board’s conclusion that the structure and operation of Sysco’s cash-management system indicated that excess cash advances were not intended to be returned to the operating companies and thus were permanent in nature equates to a finding that “the amounts upstreamed to [Sysco] were intended to remain with [Sysco] for use in fulfilling its various corporate purposes.” New York Times Sales, 40 Mass. App. Ct. at 752.
Regardless, Sysco asserted that repayment was intended, and in fact occurred through daily disbursements and acceptance of requests for capital CIPs. As a threshold matter, the Board, embracing the holdings in Alterman I and Alterman II, has rejected the notion that “a parent’s payment of its subsidiary’s expenses constituted a repayment of the cash transferred to it.” The New York Times Sales, Inc., Mass. ATB Findings of Fact and Reports at 1995-149.
Further, according to Sysco, full repayment of outstanding sums was evident in those instances in which an operating company went from being a net lender to net borrower of funds from Sysco. Notwithstanding Sysco’s assertions, the Board found that repayment of purported loans was not intended and did not occur.
All revenue received by the operating companies was swept up to Sysco on a daily basis. Having issued disbursements to the companies only to satisfy their operating and intermittent capital needs, excess balances remained with Sysco indefinitely. Within the structure of the cash-management system, a profitable operating company that did not receive funds for capital expansion such that it would revert to a net borrowing position remained indefinitely in a net lending position. Mr. Elmer, who equated a lending operating company with a “profitable business,” explicitly confirmed Sysco’s expectation that all of the operating companies would be profitable, and that a profitable entity would generate positive cash flow into the indefinite future. Further, Sysco was in a growing net borrowing position relative to the operating companies during the tax years at issue and used excess cash advances received from the operating companies to pay shareholder dividends and for general corporate purposes. These facts, taken together, amply support the Board’s finding that Sysco did not intend to return excess cash advances to the operating companies.
(4) Unlike the taxpayer in New York Times Sales, Sysco made daily calculations of interest and accounting entries for interest accrued on intercompany accounts. However, as noted, supra, Sysco’s transfer-pricing expert, Ms. Weise, failed to establish that the interest rate charged by Sysco to operating companies that were in a net borrowing position was arm’s length. More importantly though, interest accounting entries were just that, and amounts credited to operating companies as interest were immediately swept up to Sysco forming part of a rapidly growing net liability from Sysco to the companies during the tax years at issue. As previously noted, the Board found that the operating companies could not expect or require repayment of this liability, therefore, in practice, interest was not “paid” as it would be in a third-party lending transaction.
(5) There were no promissory notes or formal agreements of any type evidencing the purported debt in these appeals. Sysco contended that the FAMM provided substantial evidence that a debtor/creditor relationship had been established, but the Board found this argument unpersuasive. The FAMM was an internal manual, which provided guidelines relating to operation of the cash-management system. It did not, however, evidence a legal obligation to repay sums it stated were borrowed from or lent to the operating companies. In particular, the FAMM did not provide for execution of agreements relating to the purported debt. Nor did the FAMM provide for amortization schedules, default or collateral provisions, or any type of security mechanism to ensure timely repayment. Finally, although the FAMM referred to the various intercompany transactions and balances relating to the cash-management system as reflecting “borrowing” and “lending” between Sysco and the operating companies, the FAMM’s instructions and the resultant internal accounting entries are not controlling in the context of intercompany transactions. New York Times Sales, 40 Mass. App. Ct. at 753.
(6) During the hearing of these appeals, Sysco’s executives acknowledged that the purported loans were not secured in any manner. Sysco, however, asserted that this factor is immaterial. For example, Dr. Cody compared the flow of excess cash advances to Sysco with an over-drafted bank account, noting that when an account holder withdraws funds in excess of the value of his personal bank account, the bank has made an unsecured loan to its customer. Dr. Cody (as did Ms. Weise) ignored, however, that repayment of outstanding sums relating to bank deposits or overdrafts is compelled by depository agreements and law. Moreover, repayment of third-party unsecured debt taken on by Sysco would be similarly compelled. There is no such compulsion attendant to the advances made by the operating companies to Sysco. Thus, security in the present matters takes on importance it does not have in the context of certain third-party lending transactions.
(7-9) Two of the last three New York Times Sales factors relate to the operating companies’ requests for and expectation of repayment and the final factor is whether Sysco, as the parent corporation, made any effort toward repayment. The record reflects that at no time did the operating companies request repayment of excess cash advances from Sysco. With regard to the operating companies’ expectation of repayment, the facts that indicate that Sysco did not intend to repay excess advances to the operating companies, which are discussed in detail above, compel the conclusion that the companies had no expectation of repayment. These facts indicate as well that Sysco made no systematic effort toward repayment of the excess cash advances.
In sum, consideration of the various factors articulated in New York Times Sales, with particular focus on those indicating that repayment of excess cash advances to Sysco was neither intended nor expected, was central to the Board’s finding that the advances did not constitute bona-fide debt.
Although not a factor considered in New York Times Sales or any other case cited by Sysco, Sysco placed great emphasis on the business purpose underlying formation and operation of its cash-management system, as well as the absence of a tax motive, arguing that these factors are “crucial” to a determination of whether the intercompany transactions at issue in these appeals qualify as bona-fide debt. The Board does not agree that business purpose and absence of tax avoidance substantially support an assertion that intercompany transfers constitute debt. In fact, in New York Times Sales, the court explicitly described the business purpose underlying the operation of the taxpayer’s cash-management system, stating that its “primary purpose . . . . was to increase the efficient use of available cash from all of the members of the Times Company group. One significant benefit of the system was that it reduced Times Company’s banking fees by consolidating banking arrangements and eliminating individual bank loans for working capital, thereby reducing interest expenses.” New York Times Sales, 40 Mass. App. Ct. at 752. Moreover, there was no assertion of tax avoidance as a motive for implementation of Times Company’s cash-management system. Consequently, the Board found Sysco’s arguments relating to the import of business purpose and absence of a tax avoidance motive unpersuasive.
Finally, in its post-hearing brief, Sysco argued that if the Board were to determine that the intercompany advances at issue did not qualify as loans, the Commissioner’s proposed adjustments would be in violation of the Commerce Clause and the Due Process Clause of the United States Constitution. Sysco correctly noted that a state cannot tax extraterritorial values. See, e.g. Allied-Signal, Inc. v. Director, Division of Taxation, 504 U.S. 768 (1992). However, “[i]t remains the case that ‘in order to exclude certain income from the apportionment formula, the company must prove that “’the income was earned in the course of activities unrelated to [those carried out in the taxing] State.’”'” Allied-Signal, Inc., 504 U.S. at 787 (quoting Exxon Corp. v. Department of Revenue of Wis., 447 U.S. 207, 223 (1980)(quoting Mobil Oil Corp. v. Commissioner of Taxes of Vt., 445 U.S. 425, 439 (1980)); see also Gillette Co. v. Commissioner of Revenue, 425 Mass. 670, 680 (1997)(quoting Container Corporation of America v. Franchise Tax Board., 463 U.S. 159, 164 (1983))(holding that “the taxpayer has the ‘distinct burden of showing by “clear and cogent evidence” that [the State tax] results in extraterritorial values being taxed.’”).
In the current appeals, Sysco offered only its unsubstantiated argument that the Commissioner’s adjustments would result in constitutionally impermissible taxation. During the hearing of these appeals, Sysco did not support this argument with substantive evidence or analysis establishing that the adjustments resulted in taxation of extraterritorial values. Thus, the Board found that Sysco’s contentions regarding the constitutionality of the Commissioner’s adjustments were unavailing.
Conclusion
Having considered the specific facts and circumstances of Sysco’s cash-management system, and mindful that related entities can enter into debt transactions, the Board found and ruled that the intercompany transfers at issue in these appeals did not give rise to bona-fide debt. The Board reached its determination with particular focus on facts indicating that the excess cash advances made within Sysco’s cash-management system were not intended or expected to be repaid. Accordingly, the Board decided these appeals for the appellee.
THE APPELLATE TAX BOARD
By: _________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: _________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
PAUL A. LaPOINTE v. BOARD OF ASSESSORS OF
THE TOWN OF DANVERS
Docket No. F307197 Promulgated:
November 3, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the Town of Danvers (“assessors” or “appellee”) to abate taxes on certain real estate owned by and assessed to Paul A. LaPointe (“appellant”) under G.L. c. 59, §§ 11 and 38 for fiscal year 2010.
Commissioner Rose (“Presiding Commissioner”) heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20 and issued a single-member decision for the appellant.
These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32. A Corrected Decision in this appeal is promulgated herewith.
Paul A. LaPointe, pro se, for the appellant.
Marlene M. Locke, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2009, Paul A. LaPointe was the assessed owner of a condominium unit located at 27 Carriage Way in the Town of Danvers (“subject property”). The subject property is a one-and-one-half story, end-unit condominium with a total of seven rooms, including two bedrooms and also two full bathrooms, with a total finished living area of 2,583 square feet. The exterior is clapboard with an asphalt-shingled, gable roof. The home is heated by electric heat and there is central air conditioning. Additional features of the home include a fully-finished walk-out basement, a wood deck, and a detached one-car garage. The property record card on file with the assessors graded the subject property’s condition as “C+.” The appellant purchased the subject property on July 31, 2008 for $289,000. The subject property is located within a 164-unit condominium complex known as Olde Salem Village.
For fiscal year 2010, the assessors valued the subject property at $349,500 and assessed taxes thereon, in the amount of $12.22 per thousand, in the total amount of $4,270.89. In accordance with G.L. c. 59, § 57C, the appellant timely paid the tax due without incurring interest. On January 8, 2010, in accordance with G.L. c. 59, § 59, the appellant filed an Application for Abatement with the assessors, which the assessors denied on March 19, 2010. On June 8, 2010, the appellant seasonably filed an appeal with the Appellate Tax Board (“Board”). On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
The appellant argued that the subject property was overvalued for fiscal year 2010 because the assessors failed to take into account the subject dwelling’s overall condition. Mr. LaPointe testified that the subject property, which had been occupied by the original owner since the subject property was built in 1982, required significant repairs and improvements. Specifically, Mr. LaPointe testified that the kitchen cabinets and appliances, the carpeting, and the bathroom fixtures needed to be replaced. Therefore, he argued, the purchase price of $289,000 reflected the anticipated costs associated with the necessary renovations and represented the subject property’s fair market value since none of the renovations had been initiated as of the relevant assessment date.
In support of their assessment and in response to the appellant’s claim of overvaluation, the assessors offered into evidence the testimony of Marlene Locke, assessor, and a comparable-sale analysis of three condominiums located in Olde Salem Village. The purportedly comparable properties are located at 96 Village Post Road, 154 Village Post Road, and 28 Carriage Way. The properties sold on July 21, 2008, September 17, 2008, and November 10, 2008, respectively, with sale prices of $342,500, $322,500, and $262,000, respectively. In their analysis, the assessors made adjustments only for differences in finished living area to arrive at adjusted sale prices of $374,600, $357,000, and $311,600, respectively.
Ms. Locke testified that she had not been inside the purportedly comparable properties. However, according to the property listing sheets, which were included in the assessors’ sales-comparison analysis, 96 and 154 Village Post Road had undergone substantial renovations including new kitchen appliances, new cabinets, granite and Corian countertops, hardwood floors, Pella windows, built-in gas fireplaces, and gas heat conversion; 28 Carriage Way had newer appliances. The assessors made no adjustments to account for these improvements.
Moreover, the assessors offered no evidence to suggest that the subject property’s July 31, 2008 sale was not an arms’-length transaction.
Based on the evidence presented, the Presiding Commissioner found that the appellant met his burden of proving that the subject property was overvalued for the fiscal year at issue. In reaching his decision, the Presiding Commissioner found that at the time of sale, the subject property required substantial renovations which negatively impacted the subject property’s fair cash value. The Presiding Commissioner further found that none of these renovations had been initiated as of the relevant assessment date. Therefore, the Presiding Commissioner found that the best evidence of the subject property’s fair market value as of January 1, 2009, was the subject property’s July 30, 2008 sale for $289,000. Moreover, the Presiding Commissioner found that the assessors failed to adjust for obvious differences between the purportedly comparable properties and the subject property.
Based on all of the evidence, the Presiding Commissioner found that the subject property’s fair cash value for fiscal year 2010 was $289,000. Accordingly, the Presiding Commissioner found that the subject property was overvalued by $60,500 for the fiscal year at issue and granted an abatement of $739.31.
OPINION
The assessors are required to assess real estate at its fair cash value. G.L. c. 59, § 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The appellant has the burden of proving that the property has a lower value than that assessed. “‘The burden of proof is upon the petitioner to make out its right as [a] matter of law to [an] abatement of the tax.’” Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245 (1974) (quoting Judson Freight Forwarding Co. v. Commonwealth, 242 Mass. 47, 55 (1922)). “[T]he board is entitled to ‘presume that the valuation made by the assessors [is] valid unless the taxpayer[] . . . prove[s] the contrary.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 598 (1984) (quoting Schlaiker, 365 Mass. at 245).
Actual sales of the subject property itself are “̒very strong evidence of fair market value, for they represent what a buyer has been willing to pay to a seller for [the property under appeal].’” New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981) (quoting First Nat’l Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 560 (1970)); see also Kane v. Assessors of Topsfield, Mass. ATB Findings of Fact and Reports 2000-409, 411 (finding that a sale of the subject property three months before the relevant assessment date was the best evidence of the subject’s fair cash value absent any evidence of compulsion).
Based on the evidence presented, the Presiding Commissioner found that the appellant met his burden of proving that the subject property was overvalued for fiscal year 2010. The Presiding Commissioner found that the subject property’s July 31, 2008 sale was an arm’s-length transaction between a willing buyer and seller and that the sale price represented the subject property’s fair cash value. With respect to the assessors’ purportedly comparable properties, the Presiding Commissioner found that the assessors failed to account for differences that existed between the purportedly comparable properties and the subject property.
Accordingly, the Presiding Commissioner found and ruled that the fair cash value of the subject property for the fiscal year at issue was $289,000. Accordingly, the Presiding Commissioner found that the subject property was overvalued by $60,500 for the fiscal year at issue and granted an abatement of $739.31.
APPELLATE TAX BOARD
By: _________________________________
James D. Rose, Commissioner
A true copy,
Attest: _____________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
CHUNG WAH HONG CO., INC. v. COMMISSIONER OF REVENUE
Docket No. C294232 Promulgated:
November 3, 2011
This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 68 (“§ 68”), from the revocation by the Commissioner of Revenue (“Commissioner” or “appellee”) of the cigarette retailer license held by Chung Wah Hong Co., Inc. (“CWH” or “appellant”). This appeal was consolidated for hearing with Docket No. C304858, an appeal which related to the Commissioner’s assessment of cigarette excise and sales taxes upon the appellant for the tax periods 2004-2009. The decision in that appeal will be issued separately.
Chairman Hammond heard the appeal and was joined in a decision for the appellee by Commissioners Rose, Mulhern, and Chmielinski.
These findings of fact and report are made pursuant to requests by the appellant and appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.
Karnig Boyajian, Esq. and Timothy O’Brien, Esq. for the appellant.
Timothy Stille, Esq. and Arthur Zontini, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the testimony and other evidence entered into the record in this appeal, the Appellate Tax Board (“Board”) made the following findings of fact.
At all times relevant to this appeal, the appellant was a Massachusetts corporation which owned and operated a grocery store in the Chinatown section of Boston. It catered primarily to the residents of Chinatown. Among the items sold at the grocery store were cigarettes, pursuant to a valid cigarette retailer license issued by the Commissioner.
On March 11, 2005, the Massachusetts State Police, pursuant to a valid search warrant, entered the appellant’s premises and seized records and numerous boxes of unstamped cigarettes. As a result of this seizure and the subsequent investigation by the Department of Revenue (“DOR”), on June 14, 2005, the appellant was indicted on three counts of failure to file corporate excise returns, one count of willfully delivering false sales tax returns, one count of willfully evading or defeating the cigarette excise, and one count of possession with intent to sell unstamped cigarettes.
On March 13, 2006, the appellant plead guilty to all six counts of the indictment. By notice dated April 8, 2008, the Commissioner notified the appellant of her intent to revoke its cigarette retailer’s license effective April 11, 2008. The appellant filed its appeal with the Board challenging the Commissioner’s revocation of its license on April 11, 2008, which was within ten days of the notice of revocation, as required by § 68. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide this appeal.
Although this appeal was consolidated for hearing with Docket No. C304858, the decision in that appeal will be issued separately. The only issue to be decided in this appeal was whether the Commissioner’s revocation of the appellant’s license was authorized by § 68. That section provides that the Commissioner may suspend or revoke a license if:
(1) The licensee or registrant willfully fails to file any return or report required by this chapter; (2) The licensee or registrant willfully files, causes to be filed, gives or causes to be given a return, report, certificate or affidavit required under this chapter, or under the provisions of the applicable tax, which is false; (3) The licensee or registrant willfully fails to collect, truthfully account for or pay over any tax under the provisions of this chapter; (4) The licensee or registrant has been convicted of a crime provided for by this chapter; (5) The licensee or registrant has otherwise willfully failed to comply with any provision of the tax laws of the commonwealth or regulations thereunder; or (6) The licensee or registrant has ceased to act in the capacity for which the license or registration was issued.
The appellant presented its case-in-chief through the testimony of Nancy Mui, who testified that she was personally familiar with the Chin family, who were the operators of CWH. Ms. Mui also testified that beginning in 2007, she performed certain tax accounting services for CWH. The appellant additionally offered into evidence certain tax returns, invoices, checks, and billing documents.
The Commissioner offered the testimony of Thomas Nowicki, who is the chief investigator for DOR’s Criminal Investigations Unit; Allan Ferullo, who is a field supervisor within DOR’s Audit Division; and Christine Keane, who is an auditor within DOR’s Audit Division. The testimony of these three individuals, each of whom had involvement in the investigation or audit of CWH, along with other evidence entered into the record, revealed a pattern of shoddy record-keeping practices on CWH’s part, along with significant co-mingling of funds between CWH and Boston Communications Corp., Inc., which was another business owned by the Chin family.
The appellant’s argument in opposition to the revocation of its cigarette retailer license was premised on its assertion that the Commissioner’s proposed revocation was inequitable. The appellant argued that the license revocation was unwarranted because the appellant has cooperated with DOR, has paid significant amounts of cigarette excise since DOR began its investigation, and has operated its business without further incident since 2005. The appellant asserted that cigarette revenue was a major source of revenue for its grocery store, and that the loss of that revenue, coupled with the loss of incidental sales made by cigarette purchasers, would severely impede its ability to operate. Similarly, the appellant asserted that it employs numerous individuals within its community and it provides valuable goods and services to that community, and that the loss of its cigarette license would negatively impact its ability to provide those opportunities within the community.
The Board found none of the appellant’s arguments to be persuasive. Rather, the Board found that the record clearly established that the circumstances in which the Commissioner is authorized to revoke a cigarette retailer’s license had occurred. The appellant plead guilty to all six counts of the indictment, thereby establishing grounds for revocation under prongs one through five of § 68. The Board therefore found that the revocation of the appellant’s cigarette retailer license was authorized by § 68, and that the Commissioner acted within her authority in revoking the license. Accordingly, the Board issued a decision for the appellee in this appeal.
OPINION
Under the provisions of G.L. 64C, § 2, retailers may sell tobacco products only if they possess a valid license issued by the Commissioner. Pursuant to § 68, the Commissioner is authorized to revoke a cigarette retailer license in certain circumstances. Specifically, the Commissioner may suspend or revoke a license if:
(1) The licensee or registrant willfully fails to file any return or report required by this chapter; (2) The licensee or registrant willfully files, causes to be filed, gives or causes to be given a return, report, certificate or affidavit required under this chapter, or under the provisions of the applicable tax, which is false; (3) The licensee or registrant willfully fails to collect, truthfully account for or pay over any tax under the provisions of this chapter; (4) The licensee or registrant has been convicted of a crime provided for by this chapter; (5) The licensee or registrant has otherwise willfully failed to comply with any provision of the tax laws of the commonwealth or regulations thereunder; or (6) The licensee or registrant has ceased to act in the capacity for which the license or registration was issued.
Section 68 authorizes the suspension or revocation of a license in the event that just one of the delineated criteria for suspension or revocation has been met; it does not require that all of the criteria, or even more than one of them, be met. The uncontroverted evidence in the record established that the first five criteria were met in this case. The taxpayer plead guilty to all six counts of the indictment, thereby establishing grounds for revocation under prongs one through five of § 68. The Board therefore found and ruled that the Commissioner was within her authority to revoke the appellant’s cigarette retailer license.
Further, the Board rejected the appellant’s argument that its cooperation with DOR and its current state of compliance with the relevant laws should defeat the revocation of its license. There is no support in the statute for this claim. Indeed, such an interpretation would essentially nullify the intended effects of the statute. Moreover, the Board found and ruled that the appellant’s equitable arguments against license revocation were without merit. In addition to the appellant’s guilty pleas, which were sufficient to establish grounds for license revocation, the Board found that the evidence showed a clear pattern of shoddy record-keeping practices and co-mingling of funds between CWH and another business owned by the Chin family, in contravention of the record-keeping requirements set forth in G.L. c. 64C, § 11. In sum, there was ample support in the record to support the Commissioner’s revocation of CWH’s cigarette retailer license.
Accordingly, the Board found and ruled that the Commissioner’s revocation of the appellant’s cigarette retailer license was authorized by the express provisions of § 68, and it therefore issued a decision for the appellee in this appeal.
THE APPELLATE TAX BOARD
By: __________________________________
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: __________________________
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
AMB FUND III v. BOARD OF ASSESSORS OF
THE CITY OF BOSTON
Docket Nos.: F286004
F289174
F297264
F300445 Promulgated:
November 17, 2011
These are appeals under the formal procedure, pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the City of Boston (“assessors” or “appellee”), to abate real estate taxes assessed on certain real property located in Boston, assessed to appellant AMB Fund III (“AMB” or “appellant”), under G.L. c. 59, § 11 for fiscal years 2006, 2007, 2008, and 2009 (“fiscal years at issue”).
Commissioner Scharaffa heard these appeals and was joined by Chairman Hammond and Commissioners Egan, Rose and Mulhern in the decisions for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
John M. Lynch, Esq. and Stephen W. DeCourcey, Esq. for the appellant.
Anthony M. Ambriano, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
On the basis of the Agreed Statement of Facts, testimony, and exhibits offered into evidence at the hearing of these appeals, the Appellate Tax Board (“Board”) made the following findings of fact.
I. Introduction
At issue in these appeals was the taxability of certain real property owned by the Massachusetts Port Authority (“Massport”) and leased to the appellant during the fiscal years at issue. The appellant was a limited liability company organized under the laws of the State of Delaware. On January 22, 2004, the appellant acquired a leasehold interest in a property known as the International Cargo Port, located at 88 Black Falcon Avenue in Boston (“subject property”). The subject property is located in South Boston in an area known as the Commonwealth Flats, which is an area consisting of former tidal lands that were filled-in and developed in the nineteenth and twentieth centuries. The subject property consists of approximately 10.52 acres of land improved with several buildings with a total rentable area of 376,267 square feet. It is also improved with 555 parking spaces.
The appellant acquired its leasehold interest from International Cargo Port – Boston, L.L.C. (“ICP”), which had previously leased the subject property from Massport. The appellant in turn subleased the subject property to numerous tenants, all but three of which were for-profit businesses. The appellant’s three non-profit tenants were A Better Chance, which was a non-profit educational organization, the United States Customs Service, and United States Representative Stephen F. Lynch, who sublet office space at the subject property.
II. Jurisdiction and Procedural History
For the fiscal years at issue, the assessors valued and assessed taxes on the subject property as set forth in the following table:
|
Fiscal Year |
Assessed Valuation |
Tax Rate |
Total Taxes Assessed |
|
2006 |
$29,203,000 |
$30.70 |
$896,532.10 |
|
2007 |
$31,973,500 |
$26.87 |
$859,127.95 |
|
2008 |
$35,059,500 |
$25.92 |
$908,742.24 |
|
2009 |
$35,059,500 |
$27.11 |
$950,463.05 |
The appellant paid the real estate taxes assessed on the subject property without incurring interest. The appellant thereafter timely filed Applications for Abatement with the assessors. The following chart contains the dates of filing of the Applications for Abatement, the dates on which they were denied by the assessors, and the dates of filing of the appellant’s appeals with the Board.
|
Fiscal Year |
Abatement Application Filed |
Abatement Application Denied |
Petition Filed |
|
2006 |
2/1/06 |
3/29/06 |
6/27/06 |
|
2007 |
2/1/07 |
3/05/07 |
6/05/07 |
|
2008 |
2/1/08 |
4/01/08 |
6/26/08 |
|
2009 |
2/2/09[179] |
2/27/09 |
5/26/09 |
The appellant subsequently filed amended petitions with the Board on February 24, 2009. On the basis of these facts, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
The appellant’s primary claim in these appeals was that the subject property was exempt from taxation. It originally asserted several grounds for its exemption claim (“exemption claim”), but later conceded that St. 1956, c. 465, § 17 (“Section 17”) which is a section of Massport’s enabling act (“enabling act”), alone controlled the taxation of the subject property, and abandoned its other arguments for exemption.
The appellant additionally sought an abatement on the ground that the assessed value of the subject property exceeded its fair cash value for the fiscal years at issue (“valuation claim”). By Order dated February 4, 2009, the Board bifurcated the appellant’s valuation and exemption claims for hearing, with the hearing of the exemption claim to proceed first.
The Board issued an Order in which it found that the subject property was taxable during the fiscal years at issue. Subsequently, the parties submitted a Stipulation in which they resolved the valuation issue by agreeing that the assessed value of the subject property did not exceed its fair cash value for each of the fiscal years. The parties also requested that the Board enter a decision in these appeals. Having made its finding that the subject property was subject to tax, and because the parties stipulated that the subject property was not overvalued for the fiscal years at issue, the Board issued decisions for the appellee in these appeals.
III. The Exemption Claim
A. The Creation of Massport and its Acquisition of the Subject Property
Massport was created by Chapter 465 of the Acts and Resolves of 1956 in order to consolidate multiple transportation facilities under the direction of one, self-supporting body politic and corporate. These transportation facilities included Logan Airport, Hanscom Field, the Mystic River Bridge, the Sumner Tunnel, and facilities previously held by the Port of Boston Commission. By the terms of the enabling act, Massport would not take title to these properties until it had issued revenue bonds to fund its property acquisitions. Thus, Massport did not take title to these properties until 1959. The enabling act also granted Massport the power to acquire additional properties in the future.
The subject property was part of a parcel of land conveyed by the Commonwealth to the United States by deed dated April 23, 1918. Following its determination that the parcel was surplus land, the United States conveyed the parcel, including the subject property, to Massport by deed dated August 11, 1988. On May 20, 1999, Massport leased the subject property to ICP under a ground lease with a 50-year term. On January 22, 2004, ICP assigned its entire leasehold interest in the subject property to the appellant. The appellant held the leasehold interest in the subject property from January 22, 2004 through the fiscal years at issue.
The subject property was not taxed from 1918 to 1988, while it was owned by the United States. It was also classified as exempt by the assessors from the time of its acquisition by Massport in 1988 through 2004. Lowell Richards III, Chief Development Officer for Massport, testified at the hearing of these appeals that the appellant was not identified by Massport as a tenant responsible for payment of property taxes during the fiscal years at issue. The appellant also introduced lists and other records maintained by Massport showing that the appellant was not identified by Massport as a tenant responsible for the payment of property taxes during this time period. In 2005, the assessors reclassified the subject property as non-exempt property and began assessing taxes thereon.[180]
B. Section 17 of the Enabling Act
As originally enacted, Section 17 provided, in relevant part, that:
[L]ands of the Authority, except lands acquired by the commonwealth under the provisions of chapter seven hundred and five of the acts of nineteen hundred and fifty-one, situate in that part of the city called South Boston and constituting a part of the Commonwealth Flats, and lands acquired by the Authority which were subject to taxation on the assessment date next preceding the acquisition thereof, shall, if leased for business purposes, be taxed by the city or by any city or town in which the said land may be situated to the lessees thereof, respectively, in the same manner as the lands and the buildings thereon would be taxed to such lessees if they were the owners of the fee[.]
The property “acquired by the commonwealth under the provisions of chapter seven hundred and five of the acts of nineteen hundred and fifty-one” was a parcel of land then known as the Castle Island Terminal Facility (“Castle Island Terminal”).[181] The Castle Island Terminal was located in South Boston, within the Commonwealth Flats. Prior to 1951, the Castle Island Terminal had been exempt from property taxes because it was owned by the United States. St. 1951, c. 705, which authorized the acquisition of the Castle Island Terminal by the Port of Boston Authority, continued this exemption by expressly prohibiting the City of Boston (“City”) from assessing property taxes on that property, even if it was leased for business purposes. St. 1951, c. 705, § 2. Thus, Section 17 carved out two exceptions to the general exemption from tax for Massport-owned properties. Under the first exception (“first exception”), Massport properties located within the Commonwealth Flats, except for the Castle Island Terminal, would be taxable if leased for business purposes, and under the second exception (“second exception”), properties that were taxable prior to their acquisition by Massport would be taxable if leased for business purposes.
Minor amendments were made to Section 17 by St. 1978, c. 332, § 2, although its text remained substantially the same. As amended, it provided, in pertinent part:
[L]ands of the Authority, except lands acquired by the commonwealth under the provisions of chapter seven hundred and five of the acts of nineteen hundred and fifty-one situated in that part of the city called South Boston and constituting a part of the Commonwealth Flats, and lands acquired by the Authority which were subject to taxation on the assessment date next preceding the acquisition thereof, shall, if leased for business purposes, be taxed by the city or by any city or town in which the said land may be situated to the lessees thereof, respectively, in the same manner as the lands and the buildings thereon would be taxed to such lessees if they were the owners of the fee[.]
G.L. c. 91, App. § 1-17.
As can be seen by comparing Section 17 as originally drafted and as amended by St. 1978, c. 332, § 2, the only change made by the amendment was the removal of a comma after “fifty-one” and the addition of the letter “d” to the word “situate.”
C. The Taxation of the Subject Property
The issue in these appeals was primarily one of statutory interpretation. The appellant contended that the subject property was not taxable under Section 17, either as originally enacted or as amended, because its first exception, the appellant argued, applied to only those properties located in the Commonwealth Flats that Massport took title to in 1959, and not properties acquired later, like the subject property. It was the appellant’s position that the subject property was not located in the “part” of the Commonwealth Flats referred to in Section 17, because that “part” referred to only the properties acquired by Massport in 1959. In other words, the appellant interpreted Section 17’s first exception to have both a geographic and temporal limitation.
The appellant’s argument regarding the first exception was based largely on the legislative history of the enabling act, including earlier drafts of the enabling act that were not enacted and the following recommendation from the Special Commission:
The city of Boston claims the right to tax the state-owned Commonwealth Flats in South Boston whenever they are leased for business purposes, the tax being assessed to the lessee and the right to enforce collection being limited to rights against the lessee and the leasehold interest only. . .
A question has recently been raised, however, as to whether Boston still has the right to tax Commonwealth Flats which are under the jurisdiction of the Port of Boston Commission, and the matter is being litigated in the courts.
Your Commission recommends that the city of Boston be allowed to continue to tax in the limited manner referred to those areas of the flats which it had the right to tax at the time of transfer (exclusive of Commonwealth Pier No. 5) to the recommended Massachusetts Port Authority. (Emphasis added).
The appellant asserted that the legislative history of the enabling act, including the Special Commission’s recommendations, make it clear that Section 17’s first exception was intended to apply only to those properties located in the Commonwealth Flats that Massport took title to in 1959. The appellant also pointed to the language of Section 17’s second exception as additional support for its construction of the first exception. According to the appellant, the Legislature’s use of the phrase “lands of the Authority” in the first exception indicated its intent to limit the application of the first exception to those properties transferred to Massport via the enabling act, while the Legislature’s use of the phrase “lands acquired by the Authority” in the second exception indicated its intent to address properties acquired by Massport thereafter. (Emphasis added).
In further support of its argument, the appellant introduced evidence, including the testimony of Mr. Richards and various records maintained by Massport, indicating that Massport did not consider or treat the subject property as being among its taxable Commonwealth Flats properties. Similarly, the appellant argued, the assessors themselves had classified the subject property as exempt from the time it was acquired by Massport in 1988 through 2004. The appellant pointed to these facts as further evidence that the subject property was exempt from tax under Section 17.
The appellant also pointed to the Payment In Lieu of Taxes (“PILOT”) agreement entered into between the City and Massport in 1978.[182] Under the terms of the PILOT agreement, Massport was to make annual payments to the City which would reflect both Massport’s reliance on City services and the benefits derived by the City from Massport’s services. The PILOT agreement also stated that Massport’s annual payment would be adjusted in proportion to any new or additional taxes levied by the City on Massport properties. The parties stipulated that payments made by Massport under the PILOT agreement were not reduced during the fiscal years at issue despite the fact that the assessors assessed taxes on the subject property. The appellant proffered this fact as further evidence that the assessors improperly assessed taxes on the subject property for the fiscal years at issue.
Lastly, the appellant contended that the subject property was not taxable under Section 17’s second exception, which applies to properties that were taxable prior to their acquisition by Massport, because the subject property was previously exempt from tax as property of the United States.
The Board was not persuaded by the appellant’s evidence or by its statutory interpretations. The assessors’ prior classification of the subject property as exempt, the PILOT agreement, and Massport’s opinion concerning which of its properties were taxable by the City were not persuasive indicators of whether the subject property was exempt from tax during the fiscal years at issue, and the Board therefore gave that evidence little weight. Similarly, and as discussed further in the Opinion below, the Board found that the appellant’s arguments regarding Section 17’s first exception were contrary to the plain language of the statute and relevant legal precedent, and the Board therefore rejected those arguments.
On the basis of all of the evidence, the Board found that Section 17’s first exception applied to all properties located within the Commonwealth Flats, other than the Castle Island Terminal, if leased for business purposes, and not just to those properties that Massport took title to in 1959. The Board additionally found that the subject property was located in the Commonwealth Flats for the purposes of Section 17 and that it was leased for business purposes. Although three of AMB’s sub-lessees were government or non-profit entities, the Board found that the subject property was leased for business purposes because AMB was a for-profit entity which leased the subject property for its business purposes.
Having found that the subject property was located within the Commonwealth Flats and leased for business purposes, the Board therefore found that the subject property was taxable by the City under Section 17. Because the Board concluded that the subject property was taxable under Section 17’s first exception, it found that Section 17’s second exception did not control the outcome in these appeals.
Based on the foregoing subsidiary facts, the Board found and ruled that the appellant failed to meet its burden of proving that the subject property was exempt from tax during the fiscal years at issue. Having resolved the exemption claim
in favor of the assessors, and because the parties stipulated that the assessed value of the subject property did not exceed its fair cash value for the fiscal years at issue, the Board issued decisions for the appellee in these appeals.
OPINION
All property, real and personal, situated within the Commonwealth is subject to local tax unless expressly exempt. G.L. c. 59, § 2. Exemptions from taxation are a privilege, and statutes granting such exemptions are strictly and narrowly construed. See e.g. Milton v. Ladd, 348 Mass. 762, 765 (1965); see also Boston Chamber of Commerce v. Assessors of Boston, 315 Mass. 712, 717 (1944) (“Exemption from taxation is a matter of special favor or grace.”). Statutes specifying the tax treatment of particular property supersede more general tax statutes. See Cabot v. Assessors of Boston, 335 Mass. 53, 63-65 (1956). In the present appeals, the Board found that the specific statute at issue, Section 17, did not exempt the subject property from tax.
As originally enacted, Section 17 provided, in pertinent part, that:
lands of the Authority, except lands acquired by the commonwealth under the provisions of chapter seven hundred and five of the acts of nineteen hundred and fifty-one, situate in that part of the city called South Boston and constituting a part of the Commonwealth Flats, and lands acquired by the Authority which were subject to taxation on the assessment date next preceding the acquisition thereof, shall, if leased for business purposes, be taxed by the city or by any city or town in which the said land may be situated to the lessees thereof, respectively, in the same manner as the lands and the buildings thereon would be taxed to such lessees if they were the owners of the fee[.]
The property “acquired by the commonwealth under the provisions of chapter seven hundred and five of the acts of nineteen hundred and fifty-one” was a parcel of land then known as the Castle Island Terminal. The Castle Island Terminal had previously been exempt from taxes because it had been owned by the United States. St. 1951, c. 705, which authorized the acquisition of the Castle Island Terminal by the Port of Boston Authority, continued this exemption by expressly prohibiting the City from assessing property taxes on that property, even if it was leased for business purposes. St. 1951, c. 705, § 2. Thus, Section 17 provided that Massport properties located within the Commonwealth Flats, except for the Castle Island Terminal, and Massport properties that were taxable prior to their acquisition by Massport, would be taxable to lessees thereof if leased for business purposes.
Minor amendments were made to Section 17 by St. 1978, c. 332, § 2, although its text remained substantially the same. As amended, it provided, in pertinent part, that:
[L]ands of the Authority, except lands acquired by the commonwealth under the provisions of chapter seven hundred and five of the acts of nineteen hundred and fifty-one situated in that part of the city called South Boston and constituting a part of the Commonwealth Flats, and lands acquired by the Authority which were subject to taxation on the assessment date next preceding the acquisition thereof, shall, if leased for business purposes, be taxed by the city or by any city or town in which the said land may be situated to the lessees thereof, respectively, in the same manner as the lands and the buildings thereon would be taxed to such lessees if they were the owners of the fee[.]
It was the appellant’s contention in these appeals that the exceptions to the general exemption from tax for properties owned by Massport contained in Section 17 were not applicable to the subject property. The appellant argued that the first exception contained in Section 17 – both as originally enacted and as amended by St. 1978, c. 332, § 2 – did not apply because it applied only to properties located within the Commonwealth Flats that Massport took title to in 1959. Additionally, the appellant argued that the second exception did not apply because the subject property was not taxable prior to its acquisition by Massport.
The Board disagreed with the appellant’s argument concerning the first exception. Much of that argument was based on the legislative history of the enabling act, but the Board found and ruled that the appellant’s use of legislative history to buttress its argument was misplaced. Inquiries into a statute’s legislative history may be made only when the words of the statute are ambiguous. See Welch v. Sudbury Youth Soccer Assoc., Inc., 453 Mass. 352, 355 (2009) (“Where . . . the language of a statute is clear and unambiguous, it is conclusive as to the intent of the Legislature.”). The Board found no ambiguity in the language of Section 17. Moreover, assuming arguendo that such an ambiguity existed, the Board found that the legislative history cited by the appellant – the Special Commission’s recommendations – failed to support its argument. The Special Commission noted that the “city of Boston claims the right to tax the state-owned Commonwealth Flats in South Boston whenever they are leased for business purposes,” and went on to recommend “that the city of Boston be allowed to continue to tax in the limited manner referred to those areas of the flats which it had the right to tax at the time of transfer.” (Emphasis added). The appellant asserted that this piece of legislative history reflected the Legislature’s intention that Section 17’s first exception apply to only those properties transferred to Massport in 1959. On the contrary, the Board found and ruled that the “limited manner referred to” by the Special Commission was the City’s ability to tax properties within the Commonwealth Flats only if leased for business purposes.
Furthermore, the Board was not persuaded by the appellant’s argument that the Legislature’s use of the phrase “lands of the Authority” signified its intent to limit the application of the first exception to only those properties that Massport took title to in 1959, while the Legislature’s use of the phrase “lands acquired by the Authority” in Section 17’s second exception signified its intent to address all properties acquired by Massport after 1959. Had the Legislature wished to so limit the scope of Section 17’s first exception, it presumably would have done so in a more direct manner. See Suffolk Constr. Co. v. Division of Capital Asset Mgt., 449 Mass. 444, 461 (2007). Further, the Board found that the Legislature’s use of the term “lands acquired by the Authority” in Section 17’s second exception was not used to distinguish those lands from the properties referred to in Section 17’s first exception. Rather, it was apparent from its context within the statute that the phrase “lands acquired by the Authority” was meant to describe properties which, in the hands of the previous owner, had been taxable by the City, and, but
for the second exception, would have been exempt when acquired by Massport.
Moreover, it was evident from the statutory language that Section 17 was intended to maintain the status quo regarding the City’s ability to tax certain properties, i.e., properties located within the Commonwealth Flats which the City previously had the authority to tax and properties which it had the authority to tax in the absence of Massport ownership. For example, the City had been precluded from taxing the Castle Island Terminal, even if leased for business purposes, prior to the creation of Massport and the passage of the enabling act. The Castle Island Terminal was not a property the City had had the authority to tax prior to the passage of the enabling act, and it was therefore expressly carved out of Section 17’s first exception. This was not the case for the subject property and other properties located within the Commonwealth Flats, which the City had long had the authority to tax prior to the creation of Massport. The Board therefore found and ruled that the plain language of the statute reflected the Legislature’s intent to maintain the City’s ability to tax properties located in the Commonwealth Flats if leased for business purposes. Accordingly, the Board rejected the appellant’s argument regarding Section 17’s first exception because it was contrary to the legislative intent of the statute as reflected by its plain language.
In addition, the appellant’s argument must fail because it ignores two Massachusetts Appeals Court holdings to the contrary. In Boston v. U.N.A. Corporation, et al., 11 Mass. App. Ct. 298, 299-300 (1981), the Appeals Court considered an issue nearly identical to the issue raised in these appeals, which involved property owned by Massport and located within the Commonwealth Flats on a parcel of land known as Commonwealth Pier 5. The property at issue in that case, which involved fiscal years 1970 and 1971, was leased for business purposes, and after the City assessed taxes on the property, the lessees brought suit challenging the assessments. The lessees in that case claimed that § 17 did not give the City the authority to assess taxes on the property. In making this claim, the lessees emphasized Section 17’s legislative history, including the Special Commission’s recommendation, which explicitly excluded Commonwealth Pier 5 from the properties to which the first exception would apply. Id. at 301. The Special Commission’s recommendation regarding Commonwealth Pier 5, however, was not included in the final version of the statute. Like the Board in the present appeals, the Appeals Court gave no weight to the legislative history cited by the taxpayers in that case because it concluded that the “plain language of § 17[] permits no other reading than that parts of [Commonwealth] Pier 5 which are leased for business purposes are taxable by the city to the lessee.” Id.
Similarly and more recently, in Cape Cod Shellfish & Seafood Company, et al. v. Boston, Mass. App. Ct., No. 08-P-364, Memorandum and Order under Rule 1:28 (April 3, 2009), the Appeals Court considered whether property owned by Massport and located within the Commonwealth Flats on property known as the Fish Pier was taxable by the City when it was leased for business purposes. The facts presented in that case were substantially similar to those presented in U.N.A. Corporation, but involved later fiscal years, such that the Appeals Court in Cape Cod Shellfish & Seafood Company construed § 17 as amended by St. 1978, c. 332, § 2. Nevertheless, the Appeals Court held that “the clear language of [] § 17, the case of Boston v. U.N.A. Corp., supra, construing that provision, the rules of statutory construction, and other provisions of [the General Laws], all indicate that the city may tax the leasehold interests of the plaintiffs.” Cape Cod Shellfish & Seafood Company, Mass. App. Ct., No. 08-P-364, Memorandum and Order under Rule 1:28 (April 3, 2009) at 6.
In so holding, the Appeals Court noted that the City “has had the authority to tax the area known as the Commonwealth Flats if leased for business purposes as far back as 1904, pursuant to St. 1904, c. 385.” Id. at 2-3, citing Boston Fish Mkt. Corp. v. Boston, 224 Mass. 31, 34 (1916). Thus, it expressly rejected the taxpayers’ claim in that case that the “retooling of the statutory scheme” called for a different result. Id. at 3. Likewise, the Board rejected the appellant’s argument that Section 17’s first exception did not apply to the subject property. The Appeals Court has had the opportunity to construe Section 17 both as originally enacted and as amended, and in both instances, it held that properties located within the Commonwealth Flats, other than the Castle Island Terminal, were subject to tax if leased for business purposes.
Following the guidance of the Appeals Court in both U.N.A. Corporation and Cape Cod Shellfish & Seafood Company, and the plain language of the statute, the Board found and ruled that Section 17 permitted the City to tax the subject property. Because the Board found that the subject property was taxable by the City under Section 17’s first exception, it found and ruled that Section 17’s second exception did not control the outcome in these appeals.
Finally, in an effort to bolster its statutory interpretation, the appellant pointed to the fact that both the assessors and Massport had long considered the subject property exempt from tax, even though it was leased for business purposes. However, the assessors’ failure to assess a tax is not determinative of whether the subject property was exempt from tax under § 17. “Statutory authority (like an easement in land) is not subject to atrophy or abandonment merely from nonuse.” Polaroid v. Commissioner of Revenue, 393 Mass. 490, 496 (1984). A “‘[taxing authority’s] expertise in tax matters might . . . bring the [taxing authority] to the conclusion that a prior interpretation of a statute or regulation was wrong and should be changed.’” Gillette Co. v. Commissioner of Revenue, 425 Mass. 670, 678 (1997) (quoting Commissioner of Revenue v. BayBank Middlesex, 421 Mass. 736, 741-42 (1996)). “When a prior determination has been proved wrong, a taxpayer’s reliance on the error will not prevent the [taxing authority] from correcting a mistake of law and assessing a tax that is otherwise due.” Gillette Co., 425 Mass. at 678, (citing Commissioner of Revenue v. Marr Scaffolding Co., 414 Mass. 489, 494-95 (1993); John S. Lane & Son v. Commissioner of Revenue, 396 Mass. 137, 141-42 (1985)). Likewise, Massport’s opinion that the subject property was exempt from tax was not dispositive on this point. Accordingly, the Board placed little weight on this evidence because it was not a persuasive indicator of the subject property’s taxability during the fiscal years at issue.
Similarly, the Board was not persuaded by the appellant’s arguments regarding the PILOT agreement. The PILOT agreement provided that payments by Massport under the agreement would be reduced by “new or additional tax payments” made to the City. The parties stipulated that the payments made under the PILOT agreement by Massport were not reduced on account of the taxes assessed on the subject property and paid to the City, but this fact provided no support for the appellant’s position that the subject property was exempt from tax. The plain language of Section 17 and the applicable legal precedent established that the subject property was taxable during the fiscal years at issue, and the Board so found and ruled.
CONCLUSION
On the basis of all of the evidence, the Board found and ruled that Section 17’s first exception applied to all properties located within the Commonwealth Flats, other than the Castle Island Terminal, if leased for business purposes, and not just to those properties that Massport took title to in 1959. Additionally, the Board found that the subject property was located in the Commonwealth Flats for the purposes of Section 17 and that AMB was a for-profit entity which leased the subject property for its business purposes. Having found that the subject property was located within the Commonwealth Flats and leased for business purposes, the Board found and ruled that the subject property was taxable by the assessors under Section 17.
Based on the foregoing, the Board found and ruled that the appellant failed to meet its burden of proving that the subject property was exempt from tax during the fiscal years at issue. Because the parties stipulated that the assessed value of the subject property did not exceed its fair cash value for the fiscal years at issue, the Board issued decisions for the appellee in these appeals.
THE APPELLATE TAX BOARD
By: _____ ____
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: ______ _______
Clerk of the Board
|
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
MUHAMMAD M. ITANI, TRUSTEE v. BOARD OF ASSSESSORS OF
OF THE MAPLE REALTY TRUST THE TOWN OF ROCKLAND
Docket No. P012815 Promulgated:
November 22, 2011
This matter consists of sixty-nine Petitions for Late Entry (“PLEs”) filed under G.L. c. 59, § 65C and 831 CMR 1.05. The PLEs were precipitated by the failure of the Board of Assessors of the Town of Rockland (“assessors”) to act on applications to abate taxes on real estate located in Rockland owned by and assessed to Muhammad M. Itani and Bisher I. Hashem, Trustees of the Maple Realty Trust (“appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2010 and the appellant’s failure to file appeals to the Appellate Tax Board (“Board”) within three months of the deemed-denial dates of the appellant’s abatement applications as required by G.L. c. 58A, § 6 and G.L. c. 59, §§ 64 and 65.
Chairman Hammond (“Presiding Commissioner”) heard the PLEs at a Board motion session and subsequently issued a written order denying them.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Thomas J. Filipek, Esq. for the appellant.
Debra Krupczak, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2009, the appellant was the assessed owner of sixty-nine parcels of real estate located in the Town of Rockland (collectively “subject properties”). Table 1 lists the street addresses of the individual properties which comprise the subject properties.
Table 1
|
Saw Mill Lane Properties |
| |
Corn Mill Way Properties |
|
| |
||
| 3 5 6 7 |
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For fiscal year 2010, the assessors valued seventeen of the Saw Mill Lane properties at $133,300, fourteen at $133,500, fifteen at $133,700, and one at $133,900, and assessed taxes thereon, at a rate of $14.39 per $1,000, in the respective amounts of $1,918.19, $1,921.07, $1,923.94, and $1,926.82. The assessors valued four of the Corn Mill Way properties at $133,300, eight at $133,500, and ten at $133,700 and assessed taxes thereon, at a rate of $14.39 per $1,000, in the respective amounts of $1,918.19, $1,921.07, and $1,923.94. On or about December 31, 2009, Rockland’s Collector of Taxes sent out the town’s actual real estate tax bills. In accordance with G.L. c. 59, § 57C, the appellant timely paid the taxes assessed on the subject properties without incurring interest.[183]
On February 1, 2010, in accordance with G.L. c. 59, § 59, the appellant timely filed sixty-nine Applications for Abatement with the assessors for the subject properties. Because the assessors did not act on the applications within three months of their filing, they were deemed denied pursuant to G.L. c. 58A, § 6[184] and G.L. c. 59, §§ 64 and 65.[185] On May 5, 2010, within ten days after the deemed-denial date, in accordance with G.L. c. 59, § 63,[186] the assessors sent notice to the appellant that the applications had been deemed denied on Monday, May 3, 2010.[187] The assessors presumably relied on G.L. c. 4, § 9 (“[W]hen the day or last day for the performance of any act . . . falls on Sunday or a legal holiday, the act may . . . be performed on the next succeeding business day.”) and G.L. c. 41, § 110A (treating Saturday as a holiday) in extending the deemed-denial date under G.L. c. 58A, § 6 and G.L. c. 59, §§ 64 and 65 from Saturday, May 1, 2010 to the next business day, Monday, May 3, 2010.
Contrary to G.L. c. 58A, § 6 and G.L. c. 59, §§ 64 and 65, the appellant did not file appeals with the Board within three months of even the May 3, 2010 purported deemed-denial date. Rather, on September 29, 2010, almost two months after the date required by G.L. c. 58A, § 6 and G.L. c. 59, §§ 64 and 65, the appellant filed sixty-nine PLEs seeking leave to file appeals for the subject properties late because there had been “ongoing negotiations with the Town” and the appellant believed that “the appeal period had not been triggered.”[188]
On the basis of these facts and assertions and in consideration of the relevant statutory sections, the Presiding Commissioner found that the assessors had timely sent the deemed-denial notices under G.L. c. 59 § 63 to the appellant but the appellant had nonetheless failed to timely file his appeals within three months of the deemed-denial date, thereby depriving the Board of jurisdiction under G.L. c. 58A, § 6 and G.L. c. 59, §§ 64 and 65. The Presiding Commissioner further found that the appellant was not eligible for the additional two-month’s relief within which to file his appeals under G.L. c. 59, § 65C because the assessors had timely sent the notice required by G.L. c. 59, § 63 to the appellant. Moreover, the Presiding Commissioner found that continuing negotiations with and by the assessors did not excuse the appellant’s failure to timely file his appeals or estop the assessors from denying their timeliness.
In making these findings, the Presiding Commissioner recognized that the information statutorily required for inclusion in the notice of decision under G.L. c. 59, § 63 was not compromised and the appellant was not prejudiced here by the deemed-denial date being listed on the notice as Monday, May 3, 2010 instead of the actual deemed-denial date of Saturday, May 1, 2010. The appellant did not timely file his appeals within three months of even the Monday, May 3, 2010 date. The Presiding Commissioner further recognized that G.L. c. 4, § 9 and G.L. c. 41, § 110A do not apply to extend the deemed-denial date from Saturday, May 1, 2010 to Monday, May 3, 2010. These two remedial statutes only apply when “the performance of any act” is required. The manifestation of a deemed-denial date does not require “the performance of any act”; it occurs by operation of law. Accordingly, the Presiding Commissioner found that G.L. c. 4, § 9 and G.L. c. 41, § 110A do not apply here.
On this basis, the Presiding Commissioner found that the appellant did not timely file his appeals and the appellant was not entitled to invoke the additional two-month’s relief under § 65C. Accordingly, the Presiding Commissioner ordered that the PLEs be denied.
OPINION
G.L. c. 58A, § 6 and G.L. c. 59, §§ 57-65C contain the statutory requirements for invoking the Board’s jurisdiction to appeal a municipal tax assessment on real estate. See generally Eastern Racing Ass’n v. Assessors of Revere, 300 Mass. 578 (1938). While the appellant met some of the statutory prerequisites for invoking the Board’s jurisdiction – those regarding payment and the timely filing of his abatement applications – he did not timely appeal the deemed denials of his abatement applications within the three-month period prescribed by G.L. c. 58A, § 6 and G.L. c. 59, §§ 64 and 65. Because of his omission, he filed PLEs with the Board requesting an extra two months within which to file his appeals with the Board pursuant to G.L. c. 59, § 65C. In accordance with § 65C, the Board may allow a PLE and sanction the filing of an appeal late, if it finds, among other things, that “the board of assessors failed to send written notice of such inaction [in accordance with G.L. c. 59, § 63] to the applicant within ten days” of the deemed-denial date.
Here, the Presiding Commissioner found that the assessors had complied with § 63 and sent the requisite notices of decision to the appellant within ten days of the deemed denial date – May 1, 2010. The Presiding Commissioner further found that while the listing of Monday, May 3, 2010 as the deemed-denial date instead of Saturday, May 1, 2010 was incorrect, it did not impact the legitimacy of the notices of decision because it did not compromise the substance of the statutorily required information or prejudice the appellant. The Presiding Commissioner recognized that the Board would simply and reasonably calculate the three-month appeal period as running from this later date. See Boston Communications Group, Inc. v. Assessors of Woburn, Mass. ATB Finding of Fact and Reports 2011-780, 788-89 (finding and ruling that when a notice of decision under § 63 is lacking, the Board will use a reasonableness standard in evaluating the appropriate time for appeal).
The Presiding Commissioner contrasted the notice of decision in the present matter with the one in Stagg Chevrolet, Inc. v. Board of Water Commission of Harwich, 68 Mass. App. Ct. 120 (2007) in which that notice of decision under G.L. c. 59, § 63 “fail[ed] to include statutorily required information regarding the appellate process.” Id. at 121. The Court in Stagg Chevrolet, Inc. affirmed the Board’s allowance of an additional two months within which to file an appeal because: that notice “[completely] lacked critical [appeal] information”; the remedy crafted by the Board was “easily ascertained by both parties”; and it “provide[d] some redress.” Id. at 126. Here, the statutorily required deemed-denial date was included in the notice of decision but it was simply improperly advanced an additional two days. Under these circumstances, the Presiding Commissioner found and ruled that the most appropriate and reasonable remedy would be to calculate the three-month appeal period from this later date. See Boston Communications Group, Inc., Mass. ATB Finding of Fact and Reports 2011 at 788-89 (using a reasonableness standard to rectify any harm caused by a defective notice of decision); cf. General Dynamics Corp. v. Assessors of Quincy, 388 Mass. 24, 31 (1983)(“We will not attribute to [the assessors] the intention of misleading taxpayers”). Even by this measure, the appellant missed the requisite filing deadline by almost two months.
Finally, the Presiding Commissioner found and ruled that continuing negotiations with and by the assessors did not excuse the appellant’s failure to timely file his appeals or estop the assessors from denying their timeliness. See Franklin County Realty Trust v. Assessors of Greenfield, 391 Mass. 1018 (1984)(affirming the Board’s dismissal of a taxpayer’s late filed appeals and rejecting the taxpayer’s estoppel argument which was premised on “the assessors’ continued [] consider[ation] [of] [taxpayer’s] application after the expiration of the appeal period.”).
For these reasons, the Presiding Commissioner found and ruled that the appellant was not entitled to invoke the additional two-month’s relief under G.L. c. 59, § 65C and, therefore, ordered that his PLEs be denied.
APPELLATE TAX BOARD
By: ____
Thomas W. Hammond, Jr., Chairman
A true copy,
Attest: _______
Clerk of the Board
COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
WYBEN HILLS NOMINEE TRUST v. BOARD OF ASSESSORS OF
KARA J. KETTLES, TRUSTEE THE CITY OF WESTFIELD
Docket No. F307949 Promulgated: November 30, 2011
This is an appeal under the formal procedure, pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the Board of Assessors of the City of Westfield (the “appellee” or the “assessors”) to abate taxes on certain real estate in the City of Westfield owned by and assessed to the Wyben Hills Nominee Trust, Kara J. Kettles, Trustee, (the “appellant”) under G.L. c. 59, §§ 11 and 38, for fiscal year 2010 (the “fiscal year at issue”).
Commissioner Rose (the “Presiding Commissioner”) heard this appeal under G.L. c. 58A, § 1A and 831 CMR 1.20 and issued a single-member decision for the appellee.
These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.
Kara J. Kettles and Lou Kettles, pro se, for the appellant.
James Pettingill, assessor, for the appellee.
FINDINGS OF FACT AND REPORT
On January 1, 2009, the appellant was the assessed owner of an improved parcel of real estate located at 382 Montgomery Road in the City of Westfield (the “subject property”). As of the January 1, 2009 assessment and valuation date for the fiscal year at issue, the subject property contained approximately 13.85 acres of land improved with a single-family dwelling and several outbuildings, yard improvements, and farm-related structures. The assessors classified, valued, and assessed twelve of the subject property’s 13.85-acre parcel as agricultural or horticultural land under G.L. c. 61A (“Chapter 61A”).
More specifically, the assessors classified seven of these twelve acres as agricultural land and the remaining five acres as horticultural land. They placed a fair cash value, under G.L. c. 59, §§ 2A and 38, and a Chapter 61A value, under G.L. c. 61A, §§ 4, 10, and 11, on the agricultural land of $18,200 and $805, respectively, and on the horticultural land of $13,000 and $540, respectively. The assessors considered the remaining 1.85 acres to be the subject property’s homestead. They valued one acre of the homestead as the subject property’s primary site at $110,600 and valued the remaining 0.85 acres as residual land at $3,500. The assessors valued the subject property’s dwelling, outbuildings, and yard improvements at $330,000 and two farm-related buildings, including a barn, at $13,100. The subject property’s total assessment for the fiscal year at issue was $458,545.
The dwelling is a wood-framed, two-story, Colonial-style house, built around 1960, with approximately 2,616 square feet of finished living space.[189] It has eleven rooms, including four bedrooms, as well as three full bathrooms. The basement is partially finished, and there is a 24-foot-by-24-foot garage. The 1,308-square-foot attic is unfinished. On the main level, the floors are carpeted. The interior walls are drywall. For amenities, there is a chimney with three hearths, an open and an enclosed porch, an overhang, and central air-conditioning. The dwelling has a forced hot-air heating system fueled by oil. The exterior siding is stucco, and the roof is covered with slate tiles. The landscaping is mature and tasteful.
For the fiscal year at issue, the assessors valued the residential portion of the subject property at $444,100 and the farm-related buildings at $13,100 and assessed a tax thereon, at the rate of $14.68 per thousand, in the amount of $6,711.70. The assessors placed an assessed value on the agricultural and horticultural land portions of the subject property in the amount of $1,345 and assessed a tax thereon, at the commercial rate of $28.60 per thousand, in the amount of $38.47. Accordingly, the assessors assessed an aggregate tax on the subject property in the amount of $6,750.17, plus a Community Preservation Act (“CPA”) assessment in the amount of $52.82, for a total tax of $6,802.99.
Jurisdiction
On or about December 31, 2009, Westfield’s Collector of Taxes sent out the town’s actual real estate tax notices. In accordance with G.L. c. 59, § 57C, the appellant paid the tax assessed on the subject property without incurring interest. On February 1, 2010, in accordance with G.L. c. 59, § 59, the appellant timely filed an Application for Abatement with the assessors. On February 10, 2010, the assessors denied the appellant’s application, and on May 10, 2010, in accordance with G.L. c. 59, §§ 64 and 65, the appellant seasonably filed a Statement Under Informal Procedure with the Appellate Tax Board (the “Board”).[190] On the basis of these facts, the Presiding Commissioner found and ruled that the Board had jurisdiction to hear and decide this appeal.
Merits
On the Application for Abatement, Statement Under Informal Procedure, and at the hearing of this appeal, the appellant asserted that the assessors should have placed a total assessed value on the subject property of $388,000, not $458,545. The appellant admitted that in March 2008, only nine months before the relevant assessment and valuation date, the subject property was purchased for $499,900, with a view toward placing twelve acres of the subject property’s parcel under the provisions of Chapter 61A. Nonetheless, the appellant argued that the subject property was overvalued because: the portion of the subject property’s assessed value attributed to the dwelling was excessive compared to the assessed values attributed to other nearby dwellings and the assessed values attributed to other similar properties that had also been sold in Westfield during 2008; twelve acres of the subject property had been placed under Chapter 61A shortly after the sale; residential property values were declining in Westfield during the relevant time period; and the assessors had erroneously changed the style of the home on its property record card from “Contemporary/Modern” to “Colonial” and had also erroneously changed the home’s condition grade from “Average” to “Excellent.”
The appellant testified in support of these assertions and also offered into evidence several exhibits, including: photographs of the subject property’s dwelling; an analysis comparing the square footage and assessed values of purportedly comparable Colonial and Modern/Contemporary dwellings that had been sold in Westfield within the range of $400,000 to $500,000 in 2008; an analysis comparing the square footage and assessed values of purportedly comparable Colonial and Modern/Contemporary dwellings located within two miles of the subject property; and a statistical chart produced by The Warren Group,[191] which quantified the decline in the median sales price of homes in Westfield from January, 2008 to December, 2008 at approximately 8% and from January, 2009 to December, 2009 at approximately 11¼%.
While the assessors did not introduce any demonstrative evidence in defense of the assessment, except for the requisite jurisdictional information and the subject property’s property record card, the city’s administrative assessor, James Pettingill, testified that the subject property’s overall assessment was below the subject property’s recent sale price even before placing part of the property under chapter 61A. Mr. Pettingill further related that, according to the assessors’ data, more expensive properties in Westfield, like the subject property, had not declined in value as precipitously as the rate indicated by The Warren Group’s report, and, at any rate, the assessors did take the declining market into account when placing the assessment on the subject property.
Mr. Pettingill also testified that the assessors took the style and condition of the property into account when they valued it, notwithstanding what may have been on the property record card with respect to those two factors. In addition, Mr. Pettingill maintained that the purportedly comparable properties’ dwellings upon which the appellant relied in the appellant’s comparable-assessment analyses were, for the most part, significantly larger than the subject property and were simply not comparable to it in other noteworthy ways, such as the number of rooms, the number of bathrooms, the locations, the degree of basement finish, and the presence of other amenities. In many cases, the purportedly comparable properties were located in areas and settings substantially different from the subject property’s location and more than five to eight miles away.
In consideration of all of the evidence, the Presiding Commissioner found that the appellant failed to demonstrate that the subject property was overvalued for the fiscal year at issue. In particular, the Presiding Commissioner found that the appellant did not sufficiently demonstrate that the purportedly comparable properties and dwellings upon which the appellant’s comparable-assessment analyses relied were sufficiently comparable to the subject property. The Presiding Commissioner further found that the appellant’s analyses did not include any adjustments to account for differences between the subject property and its dwelling as compared to the purportedly comparable properties and their dwellings. In addition, the Presiding Commissioner, cognizant of the familiar appraising principle that larger dwellings usually have lower values per square foot than smaller ones that are otherwise comparable, did not find the appellant’s comparable-assessment analyses that compared the per-square-foot value of the subject property’s dwelling to those of the purportedly comparable properties’ dwellings to be persuasive.
The Presiding Commissioner also credited Mr. Pettingill’s testimony that the assessors had appropriately considered the style and condition of the subject property and the degree of Westfield’s declining market for more expensive properties when valuing the subject property for the fiscal year at issue. Moreover, the Presiding Commissioner determined that even by reducing the March, 2008 sale price of $499,900 to account for depreciating home values during the relevant time period and to then further reduce that value to account for twelve acres being placed under Chapter 61A and for possible mischaracterizations of the subject dwelling’s style and condition, the disputed assessment was still lower than the adjusted sale price.
Finally, the Presiding Commissioner found that the appellant failed to show that the overall value of the subject property was lower than its overall assessed value for the fiscal year at issue.
On this basis, the Presiding Commissioner found that the appellant failed to meet the burden of establishing that the subject property was overvalued for the fiscal year at issue, and he, therefore, decided this appeal for the appellee.
OPINION
“All property, real and personal, situated within the commonwealth . . . shall be subject to taxation.” G.L. c. 59, § 2. The assessors are required to assess real estate at its fair cash value determined as of the first day of January preceding the start of the fiscal year. G.L. c. 59, §§ 2A and 38. Fair cash value is defined as the price on which a willing seller and a willing buyer in a free and open market will agree if both of them are fully informed and under no compulsion. Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566 (1956).
The burden of proof is upon the taxpayer to make out its right as a matter of law to abatement of the tax. Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974). The taxpayer must show that the assessed valuation of the subject property was improper. See Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 691 (1982). The assessment is presumed valid until the taxpayer sustains its burden of proving otherwise. Schlaiker, 365 Mass. at 245.
In appeals before this Board, a taxpayer “ʽmay present persuasive evidence of overvaluation either by exposing flaws or errors in the assessors’ method of valuation, or by introducing affirmative evidence of value which undermines the assessors’ valuation.’” General Electric Co. v. Assessors of Lynn, 393 Mass. 591, 600 (1984)(quoting Donlon v. Assessors of Holliston, 389 Mass. 848, 855 (1983)).
In the present appeal, the appellant tried to show that the assessed value of the subject property exceeded its fair cash value by attacking the assessors’ methodology and by introducing affirmative evidence of the subject property’s value. The appellant asserted that the assessors had erroneously categorized the subject property as having a Colonial-style dwelling in excellent condition instead of a Modern/Contemporary-style dwelling in average condition. The Presiding Commissioner found, however, that Mr. Pettingill’s testimony credibly rebutted those assertions, as did the Presiding Commissioner’s own calculation, based on the evidence of record, comparing the assessment to the subject property’s adjusted sale price.
With respect to the appellant’s affirmative evidence of value, the Presiding Commissioner found that while an analysis of comparable properties’ assessments may form the basis for an abatement, see G.L. c. 58A, § 12B[192] and John Alden Sands v. Assessors of Bourne, Mass. ATB Findings of Fact and Reports 2007-1098, 1106-1107 (“The introduction of such evidence may provide adequate support for either the granting or denial of an abatement.”), the appellant did not demonstrate that the purportedly comparable properties and dwellings upon which the appellant’s comparable-assessment analyses relied were sufficiently comparable to the subject property. Even a cursory review of the properties’ characteristics placed their comparability to the subject property in issue. See, e.g., Hinds v. Assessors of Manchester-By-The-Sea, Mass. ATB Findings of Fact and Reports 2006-771, 780 (“[T]he appellants’ purportedly comparable properties were differently situated and so much larger than the appellants’ property that their comparability was dubious.”)(citing Narkiewich v. Assessors of Newbury, Mass. ATB Findings of Fact and Reports 2006-354, 360-61).
Moreover, the Presiding Commissioner found that the appellant’s analyses did not include any adjustments to account for differences between the subject property and its dwelling as compared to the purportedly comparable properties and their dwellings. “[R]eliance on unadjusted assessments of assertedly comparable properties . . . [is] insufficient to justify a value lower than that” assessed. Antonio v. Assessors of Shutesbury, Mass. ATB Findings of Fact and Reports 2008-54, 70. Accordingly, the Presiding Commissioner found and ruled that, without the appropriate adjustments, the appellant’s reliance on the assessed values of other properties in Westfield was not a persuasive indicator of the subject property’s fair cash value.
In addition, the Presiding Commissioner, cognizant of the familiar appraising principle that larger dwellings usually have lower values per square foot than smaller ones that are otherwise comparable, see Appraisal Institute, The Appraisal of Real Estate (13th ed. 2008) 212 (“Size differences can affect value . . . . Generally, as size increases, unit prices decrease. Conversely, as size decreases, unit prices increase.”), did not find the appellant’s comparable-assessment analyses that compared the per-square-foot value of the subject property’s dwelling to those of the purportedly comparable properties’ dwellings to be persuasive. See Seto v. Assessors of Quincy, Mass. ATB Findings of Fact and Reports 2006-585, 592 (“all other things being equal, smaller [] units ordinarily have a higher value per square foot than larger ones.”); Finigan v. Assessors of Belmont, Mass. ATB Findings of Fact and Reports 2004-533, 537 (“One cannot take a unit of value for a given parcel and apply that unit value to increase the value of a larger parcel or decrease the value of a smaller one.”). The purportedly comparable properties’ dwellings upon which the appellant’s comparable-assessment analyses relied were, for the most part, significantly larger than the subject property’s dwelling. The appellant did not apply any adjustments to account for these meaningful size variations, and the evidence did not contain sufficient data upon which the Presiding Commissioner could rely to apply his own.
Finally, the Presiding Commissioner found and ruled that the appellant’s evidence challenging the assessment placed on the subject property’s dwelling did not address the efficacy of the assessment placed on the subject property as a whole. The Board has previously found and ruled that “a taxpayer does not conclusively establish a right to an abatement merely by showing that [a single component of the overall assessment] is overvalued. ʽThe tax on a parcel of land and the building thereon is one tax . . . although for statistical purposes they may be valued separately.’” Hinds, Mass. ATB Findings of Fact and Reports, at 2006-778 (quoting Assessors of Brookline v. Prudential Insurance Co., 310 Mass. 300, 317 (1941)). The Presiding Commissioner found and ruled here that the appellant’s evidence, which challenged only the portion of the assessment applied to the dwelling, did not address or demonstrate “that the overall assessment of the subject property exceeded its fair cash value as of the relevant assessment date.” Hinds, Mass. ATB Findings of Fact and Reports at 2006-779.
Accordingly, the Presiding Commissioner ruled that the appellant failed to meet the burden of proving that the subject property was overvalued for the fiscal year at issue. On this basis, the Presiding Commissioner decided this appeal for the appellee.
APPELLATE TAX BOARD
By: ____
James D. Rose, Commissioner
A true copy,
Attest:
Clerk of the Board
[1] For tax year 2002, Kimberly-Clark filed Schedules ABI, Exceptions to the Add Back of Interest Expenses, and ABIE, Exceptions to the Add Back of Intangible Expenses, with its corporate excise return, claiming exceptions from add back under G.L. c. 63, §§ 31I and 31J. In connection with these filings, Kimberly-Clark asserted that the add back of interest expense would result in double taxation. During opening statements relating to these appeals, the appellants conceded the add-back issue as it related to their prior assertion of double taxation. Consequently, the Board found that double taxation of interest expense was not an issue contested in the appeals.
[2] For tax year 2003, Global filed Forms ABI and ABIE with its corporate excise return, claiming exceptions from add back under G.L. c. 63, §§ 31I and 31J. Global did not assert that the add back of any of the claimed expenses would result in double taxation.
[3] The record in these matters reflects that for the tax years ending December 31, 2001 and December 31, 2002, Kimberly-Clark served as the manager for the appellants’ cash-management system. Although the Commissioner states that Global “took over for [Kimberly-Clark] as the cash manager for the group” for the tax year ended December 31, 2003, the record does not establish Global’s role for the 2003 tax year. Regardless, the evidence presented gave no indication that the nature of the transactions connected with the cash-management system materially changed during the tax years at issue.
[4] Amounts swept up included interest and royalty “payments” made among the affiliated entities.
[5] In certain instances, none of which were explained in detail by the appellants, the “federal mid-term or long-term rate” was to be employed.
[6] The Loan Agreement and each of the attached promissory notes were executed by one individual, W. Anthony Gamron, in his capacity as Treasurer of Kimberly-Clark and Worldwide.
[7] As with other assertions relating to the disputed issues, the appellants did not substantiate these claims with expert testimony or documentary evidence.
[8] Worldwide remained a wholly owned subsidiary of KCTC until 2000, when KCTC was liquidated into Kimberly-Clark.
[9] The sole signatory to these eight agreements, on behalf of each party, was Mr. John W. Donehower. Mr. Donehower executed the agreements in his capacity as president of Worldwide and Senior Vice President and Chief Financial Officer of Kimberly-Clark and of KCTC.
[10] The royalty rates were based on the results of a transfer pricing study performed by Ernst & Young. The record does not reflect when or on whose behalf the study was performed. Although precise sums are not apparent from the record, sales to which the royalty was applicable totaled several billion dollars per year after the 1996 reorganization.
[11] Neither Kimberly-Clark nor KCTC paid a royalty for use of trademarks it still owned. A portion of the royalty, however, reflected compensation for use of the other entity’s trademarks.
[12] These agreements include: a “License and Technical Assistance Agreement” by and between Global and Kimberly-Clark, as well as a first amended version of the agreement; a “Supply and Service Agreement” by and between Kimberly-Clark and Global, as well as a first amended and restated version of the agreement; a “License and Technical Assistance Agreement” by and between Worldwide and Global, as well as a first amended version of the agreement; and a “Supply and Service Agreement” by and between Worldwide and Kimberly-Clark, as well as a first amended and restated version of the agreement.
[13] During his testimony, Mr. Beauvais stated that “we do have some production that may come from a totally unrelated party. There can be various facets of a particular product. But in this discussion, it would be probably not real material”. (Tr. Vol.1, pg.123). However, he also unequivocally acknowledged that all of the certified suppliers were affiliated corporations.
[14] The appellants did not describe the timing of these transactions or precisely how they were accounted for within the cash-management system.
[15] In their brief, and with reference to trial testimony, the appellants state that Worldwide continued throughout 2003 to have the right to sublicense the Trademarks, implying that the Trademarks’ ownership had not changed since the 1996 reorganization. The License and Technical Assistance Agreement[s] relating to the Global reorganization, however, indicate that as of January 1, 2003, Worldwide owned the Trademarks. The record does not reflect when, how or if this property was contributed to Worldwide.
[16] Passed by the Legislature as emergency acts during 2003, the Add Back statutes were made effective for tax years beginning on or after January 1, 2002. St. 2003, c. 4, § 87.
[17] For a transaction to be disregarded for tax purposes, some courts have required that both business purpose and economic substance be absent. See, e.g., Rice’s Toyota World, Inc v. Commissioner, 752 F.2d 89, 91 (4th Cir. 1985). Others will disregard a transaction if either business purpose or economic substance is lacking. See, e.g., Coltec Industries, Inc. v. United States, 454 F.3d 1340 (Fed. Cir. 2006).
[18] Had the appellants asserted double taxation, a different exception would have applied to the disputed expenses.
[19] The third factor was that legal title and physical possession of the marks passed from Sherwin-Williams to its subsidiaries, as did the Patents in this matter. Sherwin-Williams, 438 Mass. at 86.
[20] Because the assessors purported to deny the appellant’s abatement application on April 29, 2009, more than three months after the application was filed, the denial was a nullity. See G.L. c. 58A, § 6. The application was therefore deemed denied on April 26, 2009. Id.
[21] In addition, the property record card for 34 Holly Woods Road showed that its land value was reduced slightly to account for its topography as well as the fact that it has a shared driveway.
[22] During fiscal year 2007, Donelan’s Supermarket underwent a renovation project and expanded its net leasable area by 1,800 square feet. There was a corresponding decrease of 1,580 square foot in the appellant’s leasable retail space and a 220 square foot decrease in the appellant’s leasable office space.
[23]Mr. Wolff’s vacancy figure does not represent 10% of the PGI. Despite this error, his EGI value is correct.
[24] Again Mr. Wolff’s figure for vacancy does not represent 10% of the PGI. However, despite this error his final figure for EGI is correct.
[25] The actual filing date of the application for abatement is unclear on this record. However, based on the return filing date of May 20, 2008 and the Commissioner’s denial issued less than one month later on June 16, 2008, the Board found that the appellant’s abatement application was timely filed.
[26] Section 32, which provided for the corporate excise on domestic corporations, was repealed by St. 2008, c. 173, § 47. G.L. c. 63, § 39 now provides for the corporate excise on both foreign and domestic corporations for tax years beginning after January 1, 2009. Because the tax years at issue predate 2009, § 32 is the applicable provision.
[27] Where, as here, the Board receives a petition after the three-month due date, the date of postmark is deemed to be the date of filing. G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 & 65. Accordingly, the Presiding Commissioner found and ruled here that the filing date of the petition was deemed to be May 8, 2010 and therefore the appellants’ appeal was timely.
[28] Both of these abatements include a one-percent CPA tax.
[29] The cumulative effect of Ms. Kilborn’s mistakes and inconsistencies appear to violate applicable professional standards. “In developing a real property appraisal, an appraiser must not render appraisal services in a careless or negligent manner, such as by making a series of errors that, although individually might not significantly affect the results of an appraisal, in the aggregate affects the credibility of those results.” Uniform Standards of Professional Appraisal Practice (“USPSP”) Standard Rule 1-1(c).
[30] Both of these abatements include a one-percent CPA tax.
[31] This amount includes a Community Preservation Act assessment of $1,254.51.
[32] This amount includes a Community Preservation Act assessment of $315.63.
[33] This amount includes a Community Preservation Act assessment of $977.32.
[34] This assessment remained constant after the appellee’s partial abatement.
[35] Specifically prohibited uses are industrial, automotive, warehouse, adult, junkyard, lodging, restaurant, office, airport, and solid waste facility.
[36] The shore zone is the part of the Coastal District that consists of all land one hundred feet inland of the inland edge of any beach grass, marsh grass or bluff over 15 feet in height that abuts any pond, lake, stream, creek, ocean, sea or water that is subject to tidal action. The inland zone is the remainder of the land in the Coastal District.
Permitted uses in the shore zone are limited to those uses which are consistent with the fragile nature of the area, like outdoor recreation, conservation, agricultural purposes and minor non-residential structures. Permitted uses in the inland zone are single-family dwellings and accessory structures. All other uses allowed in the RU district are eligible for consideration for a special permit.
[37] In the subject’s wooded landscape, the maximum height of structures is the lesser of the height of the surrounding trees, or twenty-four feet for a pitched roof and thirteen feet for a flat or shed roof.
[38] The one comparable-sales property that was not less than half the size of the proposed 24-acre lots was 0 State Road in Aquinnah, used for comparison with Mr. Hartel’s hypothetical premium lot. This purportedly comparable property was only slightly more than half the size of Mr. Hartel’s hypothetical lot.
[39] This amount includes a Community Preservation Act assessment of $872.29.
[40] This amount includes a Community Preservation Act assessment of $335.40.
[41] This amount includes a Community Preservation Act assessment of $330.75.
[42] The acronym RCNLD stands for “reproduction cost new less depreciation.”
[43] That appeal, represented by Docket No. 275055, is therefore no longer at issue.
[44] The acronym EBITDA stands for “earnings before interest, taxes, depreciation, and amortization.”
[45] Incorporation of the 2001 EBITDA would reduce the Board’s original adjusted EBIDTA of $28,791,500 to a revised adjusted EBITDA of $26,996,500. This sum is arrived at by adding together the EBITDAs for 1997, 1998, 1999, 2001, 2002, and 2003, and finding their average, which is $33,905,000. This average is then adjusted by $6,908,500 to account for the appellant’s excess operating costs.
[46] The initial ratio of 12.8 represented Eastern Enterprises’ sale price of $2,251,000,000 divided by Mr. Sansoucy’s chosen EBITDA of $175,926,000. The revised ratio represents this same sale price divided by the 1999 EBITDA of $194,812,000.
[47] The six ratios used to calculate the revised average ratio are: 10.56; 13.32; 9.46; 15.15; 9.38; and the revised Eastern Enterprises ratio of 11.55.
[48] These percentages reflect the proportional difference between $375,109,000, the RCNLD value before incorporating an allowance for economic obsolescence, and the indicated values derived under the income analysis.
[49] The net book value of the property is $159,157,892. When added together with the RCNLD value of $333,097,000 and divided by two to comport with the Board’s 50%/50% weighting, these sums yield an indicated value of $246,127,446, which the Board rounded to $246,127,000.
[50] As noted, supra, had the Board included 2001 in the sample used to derive the adjusted EBITDA employed in the income-capitalization analysis, the revised adjusted EBITDA would have been $26,996,500. This sum, multiplied by the revised EBITDA multiplier of 11.57, would yield a value of $312,349,505 under the income-capitalization approach. The economic obsolescence allowance, in turn, would rise to 16.73%, and the rounded indicated value under the RCNLD approach would be $312,353,000. The final rounded valuation of the subject property under the blended RCNLD/net book value approach would be $235,755,000, which is greater than the property’s 2004 assessed value.
[51] Genzyme Corporation was the appellant in Docket Nos. F277284 and F282964. BMR-500 Kendall Street, LLC was the appellant in Docket Nos. F287968, F294379 and F299101.
[52] These amounts include a 3% Community Preservation Act Surcharge.
[53] The assessors calculated expenses as a percentage of income for each of the fiscal years at issue. The expense amounts stated above are those percentages expressed as dollar-per-square foot values.
[54] The highest actual rent was $36.50, but this rent was part of a ten-year lease with graduated rents, the average of which was $33.50.
[55] A “triple-net lease” is a leasing arrangement under which the tenant bears responsibility for all operating expenses except structural repairs. See Appraisal Institute, The Appraisal of real estate 451 (13th ed. 2008). “Triple net” terms operate to increase the effective rent a tenant is obligated to pay. Id.
[56] The evidence showed that the landlord was responsible for the maintenance and cleaning of a limited number of items, including, but not limited to, the building’s exterior windows.
[57] The abatement amounts include a 3% Community Preservation Act Surcharge.
[58] In addition to its “monumental” size, the building at issue in State Mutual Life Assurance Co. of America featured a pink granite exterior, imported wood paneling, plush carpeting, and marble walls and floors, along with such niceties as “a meditation room.” Id. at 1986-154-58.
[59] The abatement amounts include a 3% Community Preservation Act Surcharge.
[60] The Presiding Commissioner took judicial notice of the Board’s Findings of Fact and Reports in Giurleo I, Giurleo II, and Giurleo III.
[61] The abatement amount included a district tax.
[62] At the June 25, 2008 hearing of these appeals, evidence for only fiscal years 2007 and 2008 was entered into the record. Subsequent to that hearing, the appellant filed its appeal for fiscal year 2009. The parties stipulated that the evidence with respect to fiscal year 2009 would be substantially similar to the evidence entered for the previous two fiscal years, and they asked the Board to include fiscal year 2009 in its decision and in its Findings of Fact and Report. Accordingly, the Board found that the evidence entered with respect to fiscal years 2007 and 2008, as it related to the exemption issue, was substantially similar for fiscal year 2009, and it included fiscal year 2009 in its Decision and Findings of Fact and Report.
[63] The evidence showed that the amount of subsidy varied from resident to resident. Some of the supported residents received only modest financial assistance while others received completely subsidized care.
[64] The Board noted that Mr. Westgate’s passing and isolated reference that “there have been times in [Home’s} history” when individuals with no assets were admitted to Adams House stood in stark contrast to the detailed and elaborate testimony that he gave on other topics. The Board inferred from Mr. Westgate’s statement, along with the lack of evidence to the contrary, that the instances alluded to by Mr. Westgate represented exceptions to Home’s general practice, rather than its common practice. This inference was further supported by the documentary evidence, including the resident roster, showing that the residents residing at Adams House generally had significant assets upon admission.
[65] In cases where a unit is occupied by more than one resident, at least one of the residents must be age sixty-two or older upon admission to Bay View.
[66] For example, while there was testimony that the average age of Adams House residents was in the early nineties, there was also testimony that organized trips to casinos, picnic outings, and the like were among the recreational opportunities that Home provided to residents of Adams House.
[67] Despite its capacity, Adams House had just forty-one residents in fiscal year 2007 and forty-seven residents in fiscal year 2008.
[68] In making this finding, the Board was aware that many of the cottages were unoccupied as of the relevant determination dates. However, by the express terms of the “Residence and Use Agreement,” applicants wishing to reside at the cottages were required to furnish documentation of a physical exam establishing that they were “capable of self-maintenance” following admission to the cottages. Moreover, the entrance fees and mandatory monthly fees required all potential residents to have considerable financial resources. Therefore, because the cottages could only be occupied by individuals who were physically and financially independent, the fact that some of the cottages were vacant during the fiscal years at issue did not impact the Board’s finding that Home’s services were predominantly available to physically and financially independent individuals.
[69] The parties also stipulated that the abatement amounts had already been paid.
[70] The facility at issue in New Habitat had a maximum capacity of four residents. Since the time New Habitat began providing services, three individuals had applied to enter the program, and all three had been accepted. At the time relevant to the appeal, New Habitat housed only two residents. Further, the record reflected that New Habitat charged a $150,000 entrance fee and monthly fees of $17,000 to $18,000. New Habitat, 451 Mass. at 730.
[71] The Board issued its Decision, though not its Findings of Fact and Report, prior to the New Habitat decision.
[72] Nor did the assessors emphasize this issue in the proceedings at the Appeals Court, in which they did not file a brief. See Mary Ann Morse Healthcare Corp., 74 Mass. App. Ct. at 702.
[73] The fact that an organization charges fees will not automatically defeat a claim for exemption. However, “[i]n weighing this factor, we consider whether the organization’s charging of fees helps to advance the organization’s charitable purpose.” New Habitat, 451 Mass. at 734, (citing Boston Symphony Orchestra, 294 Mass. at 255-56). With respect to the fees charged at Bay View, the Board found and ruled that they did not advance a charitable purpose, but merely facilitated the delivery of premium lifestyle services akin to services available in a luxury-living setting.
[74] Furthermore, no evidence was presented that Home offered reduced fees to low-income elders in an effort to fill its vacancies, an indication that the provision of charitable services was not its “dominant purpose.” New Habitat, 451 Mass. at 733.
[75] This amount includes a 1.5% assessment under the Community Preservation Act (“CPA”).
[76] The evidence is devoid of any information regarding the length of the strip of land leading to Asnacomet Pond.
[77] Pursuant to G.L. c. 58A, § 6, the appellant consented to extend the time for the Commissioner to act beyond the six month deadline provided in § 6.
[78] Directly beneath the section on an abatement application in which a taxpayer provides personal information, including name and address, is an oval to be filled in if the taxpayer’s address has changed since the last return was filed. The appellant did not fill in this oval on his abatement application.
[79] Subject to specific limitations, which are not relevant to this appeal, the Form M-2848 provides that an attorney in fact is “authorized . . . to receive confidential information and to perform any and all acts that the principal(s) can perform. . . .”
[80] Section D of Form M-2848 provides that “[o]riginals of notices and other written communications go to the taxpayer(s).” Below this statement is a box, which the appellant did not check, to request that copies of notices and all other written communications be mailed to the POA.
[81] Through the Durable Power of Attorney, the appellant ostensibly authorized his brother, who resided at the Somerville address, to perform any and all acts the appellant could perform with respect to his federal and state tax liabilities, and to hire attorneys, certified public accountants “or others licenced by the Internal Revenue Service by executing a Form M-2848 . . . for the same.”
[82] The Office of Appeals sent a hearing scheduling letter and a letter requesting additional information to the appellant at the Miami address. A copy of each letter was sent to Mr. Marino. The determination letter was sent to the Somerville address, with a copy to Mr. Marino. The record, however, provides no explanation for this inconsistency.
[83] The Admissions were signed under the pains and penalties of perjury by the appellant and by Mr. Marino as his attorney.
[84] The appellant also stated that upon “reasonable inquiry” he was “without knowledge or information sufficient to form a belief” as to whether his brother, Joe Martins, had received a copy of the Notice during 2006 or 2007.
[85] The Board made no finding regarding the appellant’s “address as it appear[ed] in the records of the commissioner.” G.L. c. 62C, § 71. Such a finding was unnecessary given the Board’s findings relating to receipt of the Notice by Mr. Marino and the appellant.
[86] The appellant also argued that the Durable Power of Attorney granted to his brother had no binding legal effect. Coupled with the assertion that the Somerville address was not the appellant’s address of record, this argument would, in the appellant’s view, render the Somerville address irrelevant for purposes of satisfying the notice requirements of G.L. c. 62C. The Board did not address the argument, having found other facts necessitating dismissal of the appellant’s appeal. It is noteworthy, however, that the appellant’s counsel, who notarized and submitted the Durable Power of Attorney to the DOR, presumably to allow the appellant’s brother to act on the appellant’s behalf, ultimately characterized the document as lacking legal effect.
[87] The source of these advertisements is not entirely clear, but they appear to have been taken from various local real estate sales flyers.
[88] This sale included an adjoining unbuildable parcel located at 5 Progress Avenue consisting of 6,500-square-feet, which the assessors valued at $16,400 for fiscal year 2008. Consistent with the evidence presented, the Board found no indication that the adjoining parcel contributed more than its assessed value to the $675,000 sale price of 241 Cromesett Road.
[89] The NIA proposed an assessment of $876,132, of which $39,702 related to sales taxes assessed by the Commissioner because of insufficient exemption certificates. The appellant did not dispute that issue and paid the $39,702 in full.
[90] The NIA proposed an assessment of $622,297, of which $39,702 related to sales taxes assessed by the Commissioner because of insufficient exemption certificates. The appellant did not dispute that issue and paid the $39,702 in full.
[91] Mr. Anglin testified that “message units” are calls made within a local calling area using residential main telephone services.
[92] The August 2009 letter stated that it did not address migration of tetrachloroethylene, a drycleaning solvent, from 700 State Road, the former site of a drycleaning establishment.
[93] Vinyl chloride is a by-product of tetrachloroethylene.
[94] This appears to be the vinyl chloride that Tighe & Bond noted had been detected near the subject property.
[95] The assessors presented one other multi-family property for consideration, but the Presiding Commissioner excluded this property from his analysis based on the property’s inferior condition.
[96] AT&T’s receipts from intrastate telecommunications services are not at issue here.
[97] The requested abatements for each tax year at issue were:
1996: $337,450
1997: $137,256
1998: $997,790
1999: $655,641
[98] Mr. Allen actually created two reports, the first from May, 2006, which presented Mr. Allen’s transactional approach, or “demand view” analysis, and the second from September, 2009, which primarily presented Mr. Allen’s operational approach, or “costing view” analysis. Mr. Allen testified that he had prepared the original report under the assumption that the Commissioner would require a transactional-approach analysis.
[99] Mr. Allen further performed a so-called “micro view” analysis, by which he examined direct costs that supported Massachusetts sales. For this “micro view” study, Mr. Allen compared the proportion of direct costs incurred in Massachusetts, versus those incurred in New Jersey, to support Massachusetts sales. Even under this “micro view,” Mr. Allen concluded that the greater proportion of direct costs was incurred in New Jersey.
[100] Mr. Eiler explained that Mr. Allen’s study used “budgeted data,” or approximations based on historical data, for certain periods where the actual data was not in existence. He explained, however, that when they compared Mr. Allen’s results derived from using actual data and budgeted data (for those periods where actual data was available), there were no significant differences.
[101] The unitary-business principle recognizes that the corporate entity, while having activities in various states, receives benefits from the operation of the business as a whole, namely, functional integration, centralization of management and economies of scale. See Mobil Oil Corp. v. Comm’r of Taxes, 445 U.S. 425, 438 (1980) (“Because these factors of profitability arise from the operation of the business as a whole, it becomes misleading to characterize the income of the business as having a single identifiable ‘source.’”).
[102] Boston Professional Hockey Ass’n, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2003-273, aff’d in relevant part, 443 Mass. 276 (2005).
[103] Goldberg v. Sweet, 488 U.S. 252, 255 (1989).
[104] Post-Trial Brief of Appellee Commissioner of Revenue at 18.
[105] See supra, note 3.
[106] Mr. Starkey’s report did not address Mr. Allen’s more recent September, 2009 study. However, Mr. Starkey testified that he had an opportunity to review the September, 2009 study before giving his testimony in this appeal. Therefore, his testimony includes his critique of Mr. Allen’s “costing view” analysis.
[107] If a foreign corporation has income from business activities taxable both in Massachusetts and elsewhere, its taxable net income is apportioned to Massachusetts by means of a three-factor formula based on the ratio of its Massachusetts property, payroll and sales to its property, payroll and sales everywhere. G.L. c. 63, § 38(c) – (f). The general rule under G.L. c. 63, § 38 is that the apportionment factor is computed as “a fraction, the numerator of which is the property factor plus the payroll factor plus twice times the sales factor, and the denominator of which is four.” G.L. c. 63, § 38(c) (emphasis added). In computing the public service franchise tax, however, the sales factor is given equivalent weight to the property and payroll factors.
[108] As originally developed, the subdivision contained twenty-two lots, but three had been retained by or previously sold to others.
[109] Shortly before the transaction, the parties reduced the final purchase price by $1,000,000 to the $10,532,000 amount.
[110] The appellant’s parent company, Gilbane Development Company, entered into the Agreement with the then owners of the subject property, William N. Duffey, Jr., individually and as trustee of various trusts. The sale was effectuated by having Mr. Duffey, in his multiple capacities, convey the subject property to Captain’s Crossing, LLC, a Massachusetts limited liability company. After this conveyance, Captain’s Crossing, LLC transferred all of its membership interest to the appellant.
[111] General Laws, c. 59, § 59 provides in pertinent part that: “Notwithstanding any other provision in this section, a person who acquires title to real estate after January first in any year, shall for the purposes of this section be treated as a person upon whom a tax has been assessed.”
[112] This analysis also included the completion and year-one sale of a then partially constructed improvement on one of the nineteen parcels.
[113] Assuming that the nineteen subject lots had an average retail value of only $900,000 each as of January 1, 2008, which, according to this appraisal report, is likely a conservative estimate for that earlier time, their total retail value was $17,100,000, which still exceeds the total assessed values, as abated, by more than $2,500,000.
[114] Those retail values were then discounted in accordance with the development approach contained in the appraisal report, which the Board found and ruled was an inappropriate methodology to use here given the Board’s highest-and-best-use determination. The appropriate method for valuing developed lots that are ready to be sold to and utilized by multiple purchasers at retail prices is the sales-comparison approach for which no absorption rate is prescribed. See supra and infra. To the extent that Cnossen, Mass. ATB Findings of Fact and Reports 2002-675 may be read to suggest otherwise, the Board overrules that portion of the Findings.
[115] Because the assessed real estate taxes were $3,000 or less, the incurring of interest did not defeat the Board’s jurisdiction. G.L. c. 59, §§ 64 & 65.
[116] The appellant’s petition was mailed in an envelope postmarked July 7, 2010 and was received by the Board on July 8, 2010. Where, as here, the Board receives a petition after the three-month due date, the date of postmark is deemed to be the date of filing. G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 & 65. Accordingly, the Presiding Commissioner found and ruled that the filing date of the petition was deemed to be July 7, 2010 and therefore the appellant’s appeal was timely.
[117] The tax bill includes a Community Preservation Act (“CPA”) tax in the amount of $37.29.
[118] This includes a Community Preservation Act (“CPA”) charge of $106.44.
[119] The tax includes a $48.85 Community Preservation Act (“CPA”) assessment.
[120] The appellant timely mailed her petition on May 12, 2009, and the Board received it on the following day. See G.L. c. 59, § 65 (“If any such petition is, after the period or date prescribed by this section, delivered by United States mail . . . to such board, the date of the United States postmark . . . affixed on the envelope or other appropriate wrapper in which such petition is mailed or delivered shall be deemed to be the date of delivery . . . .”).
[121] The abbreviations in Mr. Mazur’s comparable-assessment analysis, reproduced in the table above: “Nbhd”; “AYB”; “EYB”; “ELA”; “Cent A/C”; and “AV” are acronyms for: “neighborhood”; “actual year built”; “effective year built”; “effective living area”; “central air-conditioning”; and “assessed value,” respectively.
[122] The tax is the net amount assessed after the application of the residential exemption. See G.L. c. 59, § 5C.
[123] The tax is the net amount assessed after the application of the residential exemption. See G.L. c. 59, § 5C.
[124] The appellant’s petition was mailed in an envelope postmarked June 4, 2010 and was received by the Board on June 7, 2010. Where, as here, the Board receives a petition after the three-month due date, the date of postmark is deemed to be the date of filing. G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 & 65. Accordingly, the Board found and ruled here that the filing date of the petition was deemed to be June 4, 2010 and therefore the appellant’s appeal was timely.
[125] The Board notes the apparent discrepancy that in Schaub I, it was stated that the subject property had one bathroom, rather than two full and one half bathrooms, as noted on its property record card. This discrepancy was likely due to the fact that some of the subject property’s bathrooms were not functional.
[126] General Laws c. 58A, § 12A provides that if the assessed value of a property is greater than the fair cash value as determined by the board in either of the two fiscal years following the fiscal year for which the Board has made a determination of value, the burden shall be upon the appellee to prove that the assessed value was warranted.
[127] On September 23, 2009, Chairman Hammond granted Massachusetts Manufactured Housing Association, Inc.’s Motion to Intervene.
[128] The evidence indicates that, at all relevant times, there were not more than 254 manufactured homes in the Park.
[129] General Laws, c. 59, § 5, cl. 36 provide an exemption for “Manufactured homes located in manufactured housing communities subject to the monthly license fee provided for under section thirty-two G of chapter one hundred and forty . . . .”
[130] The appellant submitted a Motion in Limine to preclude the assessors from offering evidence of valuation. The appellant argued that the pleadings did not raise the issue of valuation, only exemption. Accordingly, any evidence pertaining to valuation should be excluded from the hearing of these appeals. At the hearing, the Board took the motion under advisement and allowed the introduction of valuation evidence de bene. See Commonwealth v. Curry, 341 Mass. 50, 54 (1960)(“evidence may be admitted de bene and the determination of its admissibility or effect postponed until the parties have rested.”). After the close of the hearing, the Board denied the motion and allowed the evidence without qualification.
[131] This evidence includes Mr. Reen providing to the appellant’s counsel as justification for dramatically raising the assessed value of the appellant’s real estate from fiscal year 2007 to fiscal year 2008 a copy of the case Ellis v. Assessors of Acushnet, 358 Mass. 473 (1970)(holding that under certain circumstances manufactured homes may be taxed as real estate) and certain public pronouncements by Mr. Reen, which he attempted to explain away when testifying. After the close of the hearing and after the Board took these appeals under advisement, the appellant attempted to submit additional evidence into the record by attaching minutes of a Chelmsford Finance Committee meeting to its post-trial brief. The assessors promptly filed a motion to strike the minutes. Primarily for the reasons set forth in the assessors’ motion, the Board allowed it and struck the minutes.
[132] The assessors submitted a Motion in Limine to exclude Mr. Piper from testifying at the hearing, which the Board denied.
[133] In 2002, Mr. LaChance studied and included the subject Park as a comparable rental property for an appraisal that he was hired to perform on another manufactured housing park.
[134] The other three cabins were not rentable because of their dilapidated condition.
[135] Mr. LaChance identified those items as a nearly new truck/snow plow, a bucket loader, office and laundry equipment, and miscellaneous other things.
[136] The tax abatements include appropriate abatements for the CPA surcharge.
[137] The street addresses were taken from the property records cards in evidence and the August 2, 1998 deed from David Brown to the appellant. The appellant also owns a third other property in the area, with an Ocean View Cliffs address, that is not directly connected to these appeals and is identified by the assessors as Parcel ID 29-150. It is referred to in more recent deeds as “Parcel One: Registered Land” (“Parcel One”).
[138] Because the tax due for the 8 Ocean View Avenue assessing parcel for each fiscal year at issue is not more than $3,000, timely payment is not a prerequisite to the Board’s jurisdiction. G.L. c. 59, §§ 64 & 65.
[139] Neither party availed themselves of the opportunity to file post-trial briefs.
[140] Portions of several paper streets that appear on the 1875 Plan of Ocean View Cliffs discussed in greater detail, infra, are also included within the perimeter description. While these streets are not delineated in the deed, the assessors nonetheless use them to help distinguish the four assessing parcels from one another.
[141] There is one exception to this statement with respect to the 8 Ocean View Avenue assessing parcel. The exception is where the property forms the bend in its 7-shape.
[142] Where, as here, a tax bill is issued for property that the appellant claims is exempt under the Clause Third exemption, the appellant has two choices: it may apply to the assessors for an abatement under G.L. c. 59, § 59, with timely payment of the tax, or it may appeal directly to the Board under G.L. c. 59, § 5B with or without timely payment of the tax. See generally Trustees of Reservations v. Assessors of Windsor, Mass. ATB Findings of Fact and Reports 1991-22, 25.
[143] On or about March 19, 2007, abutters appealed the issuance of the Order of Conditions for the Premises that was issued by Berkley’s Conservation Commission. On or about June 15, 2007, the Massachusetts Department of Environmental Protection (“DEP”) issued a Superseding Order of Conditions approving the appellant’s work on the subject property. On or about June 29, 2007, abutters once again appealed the Superseding Order of Conditions and requested an adjudicatory hearing. The appellant reached a settlement agreement with the abutters on September 13, 2007.
[144] The statute in effect at that time was Gen. Sts. c. 11, § 5, cl. 3, the predecessor to Clause Third.
[145] Gen. Sts. c. 11, § 5 cl. 7.
[146] Christine M. Florio, as Trustee of the PMNEMN Nominee Trust, Eugene Novak and Christine Florio brought the fiscal year 2007 and 2008 appeals. Wanda J. Novak, as Trustee of the PMNEMN Nominee Trust, brought the fiscal year 2009 and 2010 appeals.
[147] Donald Accetta, as Trustee of the Surfside Nominee Trust, brought this appeal.
[148] Susan S. Christ communicated a suggestion of Henry A. Christ’s death.
[149] The map was taken from a website referenced by at least one of the appellants.
[150] The study was authorized by § 204 of the Water Resources Development Act of 1992 (33 USC Sec. 2326), as amended.
[151] Two of the 26 property owners initially refused to sign the easement agreement. Because the replenishment project went forward, that issue apparently was resolved.
[152] While the property at 4 Northern Boulevard appears to be one parcel removed from the ocean, it apparently has an unrestricted ocean view.
[153] It is not clear in the article what, if any, easements the property owners may have signed to participate in the replenishment projects.
[154] The Board recognizes, however, that, under certain circumstances, some post-January first events may have some relevance to preceding fiscal years.
[155] Numerous articles in The Appraisal Journal offer variations on the definition of stigma. See, e.g., Richard Roddewig, “Stigma, Environmental Risk and Property Value: 10 Critical Inquiries,” The Appraisal Journal, October 1996: 375-387 in which stigma, as it applies to real estate affected by environmental risk, is generally defined as “an adverse public perception about a property that is intangible and not directly quantifiable.” Roddewig also notes that stigma can be a temporary condition. See also Lusvardi, Wayne and Charles B. Warren, ASA, “The Stigma Enigma: Doublespeak, Double Standards, and Double Dipping in Toxic Tort Property Damage Claims,” http://www.jurispro.com/uploadArticles/Warren-Stigma.pdf (date last visited May 19, 2011), in which the authors posit that stigma is a function of the probable magnitude of any future problem, the probability of public acceptance of a present fix and/or the probability of recurrence of the problem.
[156] G.L. c. 59, § 64 provides a right to appeal a tax on personal property or on a parcel of real estate, provided that “at least one-half of [the tax] has been paid.”
[157] The notice of denial sent to the appellant stated that it was a denial of the abatement application filed by “Sprint PCS.” However, the notice of denial was addressed to, and received by, BCGI at its Bedford headquarters.
[158] Per G.L. c. 59, § 64, the taxpayer may consent to extend the time for the assessors to act on an abatement application, which would in turn extend the time for filing an appeal with the Board. Absent such an extension, the parties cannot agree or consent to extend the time for filing an appeal with the Board.
[159] Under G.L. c. 59, §§ 64 and 65, the accrual of interest for the fiscal year at issue is not a jurisdictional impediment where a taxpayer has timely paid an amount equal to or greater than the average of the taxes assessed for the three years preceding the fiscal year at issue.
[160] The Board noted that the expense ratio selected by Mr. Avery exceeded the subject property’s reported expense ratios for fiscal year 2006 and 2007 and the expense ratios reported by industry publications. Industry publications reported expense ratios ranging from 37.5% to 40%. For fiscal year 2006, the subject property reported income of $6,190 and expenses of $1,905 per pad site, which was an expense ratio of 30.7%, while in 2007 it reported income of $6,238 and expenses of $1,935 per pad site, which was an expense ratio of 31.0%. In his analysis, Mr. Avery used an income of $2,580 per pad site with expenses of $1,507 per pad site, which was an expense ratio of 58.4%.
[161] Figures are reported in dollars unless otherwise indicated.
[162] This sum included a Community Preservation Act charge of $79.65 that was abated by the assessors on April 20, 2010.
[163] This discussion assumes that the data provided by the appellants are accurate, although the appellants provided no documentation to support their calculations.
[164] “Mezzanine” is defined as “an intermediate floor with less area than the standard full floors.” APPRAISAL INSTITUTE, THE DICTIONARY OF REAL ESTATE APPRAISAL 182 (13th ed. 2008).
[165] Pursuant to G.L. c. 59, §§ 57C and 59, the appellant had until February 1, 2009 to file its fiscal year 2009 abatement application. However, when, as here, the last day for filing the application falls on a Saturday, Sunday, or holiday, the deadline is extended by operation of law to the next business day. G.L. c. 4, § 9. See also CFM Buckley/North, LLC v. Assessors of Greenfield, Mass. ATB Findings of Fact and Reports 2007-220, 223, n. 2; Holt v. Assessors of West Springfield, Mass. ATB Findings of Fact and Reports 2010-946, 948, n. 1. Accordingly, the Board found that the appellant’s abatement application filed on Monday, February 2, 2009, was timely.
[166] Mr. Levitch erroneously used the fiscal year 2010 tax factor. The correct tax factor for the year at issue was 1.75%.
[167] The Board noted that there appeared to be minor mathematical errors in Mr. Levitch’s calculation of the indicated values.
[168] This amount is in addition to the $49,976.00 assessment referred to in the NOA dated May 18, 2004.
[169] See note 1, supra.
[170] In accordance with the parties’ Statement of Agreed Facts, ¶ 74, and the appellant’s abatement application, Form CA-6, and Amended Individual Income Tax Return (at pages 2944 to 2953 of the Stipulated Exhibits), the correct amount of lottery winnings was $2,587,591, not $258,759,150.
[171] See note 3, supra.
[172] There was evidence that the assessors voted to issue a motor vehicle excise bill to ICPC in 2001, but the excise so assessed was later abated and the bill was rescinded.
[173] Motor vehicles owned by motor vehicle dealers are not completely exempt from the excise under the statute, but are instead taxed at a reduced rate.
[174] Pursuant to G.L. c. 63 § 30, Sysco’s fiscal years were deemed ended on June 30th of each of the tax years at issue.
[175] Mr. Elmer stated that he was employed by Sysco Services, LP, a limited partnership that “leased professional services” to Sysco. Although not employed directly by Sysco, Mr. Elmer was responsible for all of Sysco’s financial reporting, corporate credit management and tax compliance functions.
[176] Included in the returns were The Sygma Network, Inc. and The Sygma Network of Ohio, Inc., the only two of Sysco’s wholly owned subsidiaries that had taxable nexus with the Commonwealth.
[177] Although Sysco did not establish that the portion of the FAMM introduced into evidence was identical to the FAMM employed during the tax years at issue, there was no indication that it had been altered in a manner that would affect the outcome of these appeals.
[178] The Court in Roth Steel Tube Company identified and applied the following factors “to be used in making the capital contribution versus loan determination: (1) the names given to the instruments, if any, evidencing the indebtedness; (2) the presence or absence of a fixed maturity date and schedule of payments; (3) the presence or absence of a fixed rate of interest and interest payments; (4) the source of repayments; (5) the adequacy or inadequacy of capitalization; (6) the identity of interest between the creditor and the stockholder; (7) the security, if any, for the advances; (8) the corporation’s ability to obtain financing from outside lending institutions; (9) the extent to which the advances were subordinated to the claims of outside creditors; (10) the extent to which the advances were used to acquire capital assets; and (11) the presence or absence of a sinking fund to provide repayments.” Roth Steel Tube Company, 800 F.2d, at 630.
[179] Under G.L. c. 59, § 59, the appellant’s Application for Abatement would have been due on February 1, 2009. However, February 1, 2009 was a Sunday. When the last day of a filing period falls on a Saturday, Sunday or legal holiday, the filing is still considered timely if it is made on the following business day. G.L. c. 4, § 9.
[180] The assessors issued an omitted real estate tax bill to the appellant for fiscal year 2005, but the taxes assessed for that fiscal year were later abated in full pursuant to a settlement agreement between the parties. Therefore, the appellant’s tax liability for fiscal year 2005 is not at issue in these appeals.
[181] The evidence indicated that it is now known as the Conley Marine Terminal.
[182] The PILOT agreement was amended and restated in 1995.
[183] When the real estate tax on the property is $3,000 or less, timely payment is not a prerequisite to the Board’s jurisdiction. See G.L. c. 59, §§ 64 and 65.
[184] G.L. c. 58A, § 6 provides, in pertinent part, that:
Whenever a board of assessors, before whom an application in writing for the abatement of a tax is pending, fails to act upon said application, except with the written consent of the applicant, prior to the expiration of three months from the date of filing such application, it shall then be deemed to be denied, and the taxpayer shall have the right, at any time within three months thereafter, to take any appeal from such denial to which he may be entitled by law, in the same manner as though the board of assessors had in fact refused to grant the abatement applied for.
[185] G.L. c. 59, § 64 similarly provides, in pertinent part, that:
Whenever a board of assessors, before which an application in writing for the abatement of a tax is or shall be pending, fails to act upon said application, except with the written consent of the applicant, prior to the expiration of three months from the date of filing of such application it shall then be deemed to be denied and the assessors shall have no further authority to act thereon.
G.L. c. 59, § 65 provides, in pertinent part, that:
A person aggrieved as aforesaid with respect to a tax on property in any municipality may, subject to the same conditions provided for appeal under section sixty-four, appeal to the appellate tax board by filing a petition with such board within three months after the date of the assessors’ decision on an application for abatement as provided in section sixty-three, or within three months after the time when the application for abatement is deemed to be denied as provided in section sixty-four.
[186] G.L. c. 59, § 63 provides, in pertinent part, that:
Assessors shall, within ten days after their decision on an application for an abatement, send written notice to the applicant. If the assessors fail to take action on such application for a period of three months following the filing thereof, they shall, within ten days after such period, send the applicant written notice of such inaction.
[187] G.L. c. 59, § 63 provides, in pertinent part, that “[s]aid notice shall indicate . . . the date the application is deemed denied.”
[188] G.L. c. 59, § 65C provides, in pertinent part, that:
If a person has, by reason of the failure of the board of assessors to act upon an application for abatement, a right of appeal to the appellate tax board under section sixty-five but the board of assessors failed to send written notice of such inaction to the applicant within ten days as provided in section sixty-three and by mistake or accident such person fails to enter such appeal in said board within the time prescribed by section sixty-five, said board, upon petition filed within two months after the appeal should have been entered, and after notice and hearing, and upon terms, may allow such person to enter his appeal.
[189] The appellant alleged that the dwelling was built in the style of a Modern/Contemporary home, as it had been assessed in previous fiscal years, and not a Colonial.
[190] Pursuant to G.L. c. 58A, § 7A and 831 CMR 1.09, the assessors timely elected to have this appeal heard under the formal procedure.
[191] The Warren Group is the publisher of Banker & Tradesman and The Commercial Record; it also, among other things, provides real estate and financial information and analyses to subscribers.
[192] General Laws chapter 58A, § 12B provides that: “At any hearing relative to the assessed fair cash valuation or classification of property, evidence as to the fair cash valuation or classification of property at which assessors have assessed other property of a comparable nature or class shall be admissible.”