Paul Bancroft, BANCROFT SUSA & GALLOWAY
Index of cases avaliable:
1. Eurofiesh , Inc. v. Graham County, Arizona Court of Appeals, No. 1-CATX 06-0002 (2007)
RE: Proof required for economic obsolescence.
2. Lifetime Fitness v. Maricopa County, TX 2005-050182, Superior Court of Arizona, (2008)
Distinguishes Eurofresh. Discussion of problems using 'leased-fee' sales for
owner occupied properties.
3. Southwest Airlines v. Arizona Dept. of Revenue, Arizona Court of Appeals, 1 CA-TX 07-0002 (2008)
RE: Taxation of avionics application software used in aircraft.
Cris K. O'Neall, CAHILL DAVIS & O'NEALL, LLP
Mayer v. L&B Real Estate
(June 16, 2008) 43 Cal.4th 1231
Property owners filed lawsuit to quiet title to commercial property following sale of portion of property at tax sale. Lower court held that quiet title action was barred because property owners were on notice and their action was barred by the applicable statute of limitations. Supreme Court reviewed prior court decisions and determined that, as property owners "in undisturbed possession" of their property, statute of limitations to bring quiet title action did not commence running until receipt of formal notice kom tax collector that sale had occurred, and quiet title action was timely brought. A key aspect of the Court's decision was its finding that the property owners did not have adequate notice of the sale due to the assessor's separate and erroneous assessment of a small portion of their property in contravention of assessor's normal procedure
for handling multi-parcel properties.
County of Los Angeles v. Raytheon
(January 18, 2008) 159 Cal.App.4th 27
Defense contractor Raytheon and related parties were successors in interest to long-term leases of property used for commercial purposes. The leases provided that Raytheon pay all property taxes. The assessor audited Raytheon's personal property assessments and issued escape
assessments following such audit. Raytheon appealed those escape assessments and, pursuant to Revenue and Taxation Code section 469, also appealed assessment on all real property at the location where personal property was situated. Raytheon's administrative appeals were denied by the Assessment Appeals Board and, following denials of claims for refund and pursuant to a stipulation with the County, Raytheon filed suit in Superior Court. The lower court found in favor of Raytheon and remanded Raytheon's appeals to the Appeals Board. The County subsequently appealed to the Court of Appeal. The Court of Appeal affirmed the Superior Court's decision, ruling that Raytheon was entitled to challenge its real property assessments based on issuance of audit escape assessments against personal property. The appellate court found that Raytheon had standing to challenge the real property assessments because it was required to pay the taxes under the terms of the operative leases and because, under property tax law pertaining to leases, Raytheon's leases (which had terms exceeding 35 years) gave Raytheon standing equivalent to fee owners of subject property.
Korean Air Lines Co., Ltd v. County of Los Angeles
(April 28, 2008) 162 Cal.App.4th 552
Trial court held that airline's interest in U.S. Government inspection area at Los Angeles International Airport (LAX) was not subject to property tax assessment. County appealed asserting that airline's possessory interest in LAX property was sufficiently "independent" of the U.S. Government to constitute a taxable possessory interest. The Court of Appeal agreed, based on a review of case law, the relevant lease document, and the facts surrounding airline's use of LAX property for inspection of airline travelers' luggage. The appellate court did not view the airline's relationship to LAX as a mere "agency," but found airline's use of various areas within LAX, including inspection area, resulted in a private benefit to airline and overcame implications of federal regulations stating that the U.S. Government "controlled" LAX airport's inspection
areas.
William Jefferson & Co. v. Orange County
(November 29, 2007) 2007 WL 4215639 (Unreported).
This decision provides a good reminder that taxpayers must fully exhaust their administrative remedies as condition for judicial review. The taxpayer failed to "check the box" for a base year value correction on its application for changed assessment, although the taxpayer did modify that portion of the application to identify the base year in issue. The taxpayer compounded this error by failing to introduce evidence or argument relating to each ground for appeal at the equalization hearing before the Assessment Appeals Board. The Court of Appeal concluded that even if the correct box on the application had been "checked," it could not consider any error attributed to the Board because the taxpayer's failure to introduce evidence and argument on the base year value issue constituted a failure to exhaust the administrative remedy. The appellate court also noted that the fact that the Board had access to the public records pertinent to the taxpayer's claim did not relieve the taxpayer of its obligation to actually place the evidence into the record. The court cited the controlling rule to be that: "A taxpayer, questioning the correctness of the assessed value, must fairly and fully present his showing to the Board as a prerequisite to a judicial attack upon the Board's determination."
Michael Strong v. State Board of Equalization
(October 2, 2007) 155 Cal.App.4th 1182
This case confirms the SEE'S extension to domestic partners of the exclusion from changes in ownership extended to inter-spousal transfers. Revenue and Taxation Code section 63 excludes inter-spousal transfers from "changes in ownership" for purposes of property tax. This protection was added to the California Constitution by Proposition 58 is 1986. In 2003, the SBE amended Property Tax Rule 422.240 to extend similar protections to domestic partners in the event of interstate succession. The California Legislature acted in 2005 to significantly expand the exclusion created by the SEE by adding subdivision (p) to Revenue and Taxation Code section 62. Various county assessors filed this action to invalidate the expansion of the spousal exclusion, contending that neither the SEE nor the Legislature had the power to create new exclusions or expand existing exclusions. The Court of Appeal concluded that defining the meaning and scope of the "change in ownership" was left to the discretion of the Legislature, and thus amendment of Section 62, and the implied ratification of SBE Rule 422.240, was proper.
William Little v. Los Angeles County Assessment Appeals Board
(September 27, 2007) 155 Cal.App.4th 915.
This case reviews the anti-injunction rule that substantially limits a taxpayer to the remedy of paying the disputed tax and then obtaining judicial review and the statute of limitations governing the correction of base year values. The taxpayer purchased an apartment building in 1991. The taxpayer filed a Proposition 8 decline-in-value appeal in 1994 which resulted in a stipulated reduction in taxable value. For reasons not clear from the published opinion, the Proposition 8 reduction in value was thereafter considered to be a correction to the 1991 base year value. The assessor restored the trended base year value in 2004 and the taxpayer appealed to the Assessment Appeals Board, contending that the base year value was incorrect. The Board declined to change the earlier base year determination and taxpayer filed a petition for writ of mandate. The Court of Appeal concluded that the writ was not a proper remedy because it directed the correction of a base year value, which relief would require that all subsequent years' assessed values be capped, which outcome would in turn be the equivalent of an action to enjoin the collection of a tax prospectively in violation of California Constitution art. 13, section 32. In addition, the appellate court found that even if the infirm petition for write of mandate was construed as a valid complaint for refund, the complaint was untimely. The Court relied on Revenue and Taxation Code section 5 1.5 for the proposition that errors in the base year value that resulted from the exercise of judgment must be corrected within four years, and that the
stipulated 1994 determination required the exercise of judgment based on the size of the property and consideration of comparable sales that were, presumably, used to justify the stipulation to the Board.
California Minerals v. County of Kern
(June 26, 2007) 152 Cal.App.4th 1016
Purchaser of undeveloped and unexplored oil and gas property interest challenged property tax assessment asserting there was no evidence of reserves to support assessment. Court of Appeal found that property owner had acquired right to explore for and develop oil and gas and that such interest, although not supported by evidence of proved reserves (but only probable or possible reserves), was assessable under the Court of Appeal's prior ruling in Maples v. Kern County Assessment Appeals Board. Appellate court also held that purchase price paid for such interest, even though not supported by any specific engineering or geologic data, represented the fair market value of such property for property assessment purposes.
Beck v. County of Riverside
(May 7, 2007) 2007 WL 1345849 (Unreported).
Property owners asserted that assessor and Assessment Appeals Board had incorrectly valued property, and that property should have been valued based on price established through foreclosure sale of shopping center. Owners also asserted that value of property should also be relative to value of other foreclosed parcels within same shopping center. Trial court ruled, and Court of Appeal affined, that foreclosure sale was not proper basis for property's assessed value as it did not represent fair market value, and that assessor and Board were not required to value property in accordance with the values of other foreclosed properties within the same shopping center.
Reilly v. City and County of Sarz Francisco
(August 29, 2006) 142 Cal.App.4th 480
Local assessor reassessed property held by trust upon death of income beneficiary who was succeeded by a new income beneficiary under the terms of the trust instrument. Trustee challenged reassessment, but trial court concluded that transfer of property to successor beneficiary constituted a change of ownership and a reassessable event under Proposition 13 and relevant statute because successor beneficiary acquired a present beneficial interest in the property upon the decease of the prior income beneficiary. The Court of Appeal affirmed the trial court's decision.
Silveira v. County of Alameda
(May 23, 2006) 139 Cal.App.4th 989
Taxpayer occupied marina as a month-to-month tenant under a holdover provision in a lease with the City of Oakland. The local assessor assessed tenant as the holder of a taxable possessory interest in the marina property. Taxpayer challenged the assessed value placed on the marina property by the assessor, asserting that taxpayer's month-to-month tenancy required a lower value. The appellate court disagreed, finding that the longevity of taxpayer's tenancy (several decades), along with Property Tax Rule 21's statement that a month-to-month tenancy amounts to a tenancy with "no stated term of possession," supported a higher value for taxpayer's possessory interest, and was consistent with the fair market value of the property.
Kuperman v. Assessment Appeals Board No. 1
(March 20, 2006) 137 Cal.App.4th 918
Taxpayer acquired property in San Diego County in 1996. Several years later, taxpayer learned that property was encumbered with a recorded easement in favor of the local electric utility.
Taxpayer subsequently appealed his assessed value to the assessor and the Assessment Appeals Board, both of which denied his claim for reduction. Denial was based on fact that taxpayer's claim was brought more than four years after base-year value of property had been established and, as such, taxpayer's claim was untimely under the applicable four-year statute of limitations.
Trial court and the appellate court affirmed. Although taxpayer had brought his claim within four years of discovering the utility easement, the courts concluded that the relevant statute of limitations was triggered by taxpayer's purchase of the property which established the property's base year value. The taxpayer had purchased the property more than four years prior to the date on which taxpayer's equalization claim had been filed. The courts dismissed the taxpayer's claim that the statute of limitations started to run upon taxpayer's discovery of the utility easement. The courts also turned away the taxpayer's argument that the assessor had not exercised judgment and, for that reason, a different statute of limitations should apply.
County of Los Angeles v. County of Los Angeles Assessment Appeals Board No. 4 (ARCO)
(February 27, 2006) 2006 WL 459326 (Unreported)
Taxpayer prevailed in proceeding before Assessment Appeals Board and assessor appealed. Property at issue was oil and gas producing property. Assessor challenged Board's rulings on valuation issues relating to: (1) economic life of oil-producing property; (2) future oil production and future oil price; (3) operating expenses for oil-producing property. Trial and appellate courts concluded that Board's decisions on these issues were supported by substantial evidence, and that trial court had not erroneously refused to hear new evidence in prior remand proceeding. APPLICATION OF SALES METHOD COMPLIED WITH LEGAL STANDARDS
Taxpayer and property owner Olen constructed two multi-story buildings in 1998 and 1999. The assessor assessed the buildings on completion, and Olen challenged the assessments by filing assessment appeals with the Orange County Assessment Appeals Board. The Board denied the appeals, and Olen appealed to the Superior Court, which affirmed the decision by the Board. Olen appealed the Superior Court’s ruling to the Court of Appeal.
Olen’s challenge was directed to the manner in which the assessor and Board had valued its properties under Property Tax Rule 4. In particular, Olen had challenged the use of the sales comparison approach, asserting that the cost approach was the only approach available to value the building improvements that Olen had constructed. The errors alleged by Olen were: (a) the assessor had failed to obtain a sufficient number of comparable sales or to make adjustments to those sales; (b) that the comparable sales used by the assessor were irrelevant because Olen had acquired the land prior to the passage of Proposition 13, and the only issue was the value of the new building improvements; (c) the assessor had not converted non-cash sales to their cash equivalent; (d) adjustments for time had not been made to the assessor’s sales; (e) the assessor’s sales had not been adjusted for physical attributes, location and amenities; (f) adjustments for differences in parking ratios were not made; and (g) the assessor did not make adjustments to his comparable land sales.
The Court of Appeal turned aside all of Olen’s assertions, finding that the assessor (and Board) had complied with the requirements of Property Tax Rules 2 and 4, and Revenue and Taxation Code section 402.5, in valuing the Olen’s properties. The appellate court upheld the Board’s decision and the Superior Court’s affirmation of that decision, concluding that the Board’s decision was supported by substantial evidence in the record.
In its appeal to the Superior Court, Olen sought to introduce a declaration by an appraiser to support one of its contentions by bringing a motion to augment the administrative record before the Board. The Superior Court excluded the declaration by the denying the motion to augment, and the Court of Appeal affirmed that ruling.
Olen also contended that the assessor was required to disclose the method used to value Olen’s property prior to the hearing before the Board. The Court of Appeal disagreed, pointing out that Olen had been provided information about the assessor’s sales comparison approach before the hearing.
Finally, Olen asserted that it was being taxed on the same tenant improvements that had been reported by the tenants in its buildings on their Business Property Statements. The court rejected this argument because the evidence presented did not show that taxes had been paid twice on the same property.
Olen Commercial Realty Corp. v. County of Orange (126 Cal.App.4th 1441 [4th Dist., Jan. 27, 2005])
PROGRAM FOR COLLECTING IN LIEU FEES FROM CITY’S UTILITYDIVISIONS VIOLATED REQUIREMENTS OF PROPOSITION 218
The City of Fresno requires all City divisions which perform municipal utility functions, such as provision of water and sewer services, to pay the City fees in lieu of property taxes. The “in lieu fees” collected are amounts above and beyond the cost of each City division’s operating expenses. Fee collected are placed in the City’s general fund. The fees charged by the City’s divisions are passed through to and paid by customers who use each division’s services.
Howard Jarvis Taxpayers Association (HJTA) challenged the City’s in lieu fee program, which had been in use since the late 1960s, by filing suit in Superior Court. HJTA contended that the City’s collection of fees amounted to imposition of property taxes and that such fees violated state constitutional provisions, including Proposition 218, that prohibit the imposition of fees which exceed the cost of providing a municipal service. City denied that its in lieu fee program with the City’s divisions violated any provision of law, including Proposition 218. The trial court granted HJTA’s summary judgment motion and the City appealed to the Court of Appeal.
The Court of Appeal affirmed the Superior Court’s decision in favor of HJTA’s position that the City’s in lieu fee program violated a portion of Proposition 218 (Cal. Const., art. XIII D, § 6) in that: (1) the City’s in lieu fees were not required in order to provide a property related service; (2) revenues raised through the in lieu fees were being used for a purpose other than that for which the fee was actually being charged (i.e., provision of a City utility service); and (3) the in lieu fees were being deposited in the City’s general fund to be used in providing general government services.
The appellate court addressed the City’s arguments in favor of the in lieu fee program in its decision, finding fault with the points raised by the City. First, the court dismissed the City’s contention that Proposition 218’s prohibitions did not apply to the in lieu fee program because the ordinance permitting use of in lieu fees was in existence prior to the passage of Proposition 218. Pointing to specific language in Proposition 218, the court found that the constitutional provision applied to existing tax arrangements, including the City’s in lieu tax program. Second, the court concluded that the in lieu fees were passed through to property owners and, therefore, the fees were an incident of property ownership and subject to the requirements of Proposition 218. The court also rejected the City’s argument that the in lieu fees passed through to consumers were a form of utility user’s tax.
Howard Jarvis Taxpayers Association v. City of Fresno (127 Cal.App.4th 914 [5th Dist., Mar. 23, 2005])
CREATION OF SPECIAL ASSESSMENT DISTRICT FOR ACQUISITION OF OPEN SPACE LAND COMPLIED WITH PROPOSITION 218
Relying on the provisions of Proposition 218 (Cal. Const., art. XIII D), plaintiff taxpayer associations challenged defendant Open Space Authority’s establishment of a special assessment district with the power to levy special assessments to be used to acquire open space lands. Such acquisitions were to be made in order to slow the conversion of land to urban uses, preserve quality of life and encourage agriculture within Santa Clara County.
The Authority was required to follow the guidelines for establishing special assessment districts set forth in Proposition 218. Accordingly, the Authority retained an engineering firm to prepare the necessary analyses and conducted an election in accordance with Proposition 218 which resulted in approval of the new assessment district. Following the election, plaintiffs filed suit in Superior Court to block any levies of special assessments by the Authority. The trial court granted the Authority’s motion for summary judgment, and plaintiffs sought review by the Court of Appeal.
The appellate court adjudicated: (1) whether the Authority could levy assessments for future acquisitions of unidentified open space land; (2) whether the acquisition of open space land conferred special benefits on the assessed properties; (3) whether the special assessments levied against the affected properties were proportional to the special benefits conferred on those properties; and (4) whether the Authority had segregated general benefits from special benefits in establishing the special assessment district. The court was also asked to adjudicate (and ultimately dismissed) certain irregularities in the manner in which the election establishing the new assessment district was conducted.
The Court of Appeal first reviewed Supreme Court precedent and the provisions of Proposition 218 relating to (a) “special benefit” and (b) “proportionality” between an assessment made and benefit conferred. The court found that, though Proposition 218 put the burden on the taxing agency to demonstrate these items, the agency’s decisions on those elements were entitled to judicial deference as legislative enactments. The court also found, however, that it could fully review whether Proposition 218’s procedures for establishing special assessment districts had been followed.
The court ruled that Proposition 218 did not contain a requirement that the cost or object of a special benefit (in this case, open space land to be acquired in the future) be known before an assessment could be levied. The court also held that assessments for the purchase of open space land conferred special benefits that could be deemed to benefit the assessed properties and not the public generally, that the special assessments were proportional to the benefits conferred on the affected properties because the open space land properties acquired by the Authority would be distributed throughout the assessment district, and that the Authority had used a reasonable method for separating general and special benefits.
Silicon Valley Taxpayers Assn., Inc. v. Santa Clara County Open Space Authority (130 Cal.App.4th 1295 [6th Dist., Jul. 6, 2005; Rev. granted, 35 Cal.Rptr.3d 317])
PARCEL TAX APPROVED BY ELECTORATE WAS VALID DESPITE NON-RESIDENT LANDOWNERS’ INABILITY TO VOTE ON TAX
In 2004, the City of California City held a municipal election to renew a parcel tax of up to $75 per lot for the purpose of raising funds to pay for police, fire and other city services. Over seventy percent of the City’s voters approved renewal of the tax, although most of the lots in the City were owned by absentee owners who resided outside of the City and could not vote in the election.
Neilson, a non-resident owner of property in the City, filed suit against the City, asserting that the parcel tax violated Proposition 13 and its progeny, including Proposition 218, as well as the Equal Protection Clause, primarily because 85 percent of the property in the City was held by absentee landowners who could not vote in the municipal election in which the tax was approved. Neilson also asserted that the parcel tax was instituted for multiple purposes and, as such, was not a “special tax” but a “general tax” intended to support general government purposes. The Superior Court sustained the City’s demurrer to Neilson’s amended complaint without leave to amend. Neilson then appealed to the Court of Appeal.
As a threshold issue, the appellate court was asked to determine whether the tax enacted by the City’s voters was permissible because it was not denominated an ad valorem tax. The Court of Appeal held that the parcel tax was a special tax, and that the tax was permitted under Proposition 218, which allowed taxes “upon any parcel of property or upon any person as an incident of property ownership.”
The court next addressed the issue of whether the City’s parcel tax constituted a general tax for general governmental purposes or a special tax imposed for specific purposes. Neilson contended that the tax was a general tax because the purposes given to the City’s voters, including police, fire and parks and recreation services, were general government purposes. The Court of Appeal found that the intended purposes for the parcel tax related to general government services but were not for general government purposes, and that Proposition 218 allowed multiple designated purposes for a special tax.
On the question of whether absentee landowners were entitled to vote in the City’s election, the appellate court held that Propositions 13 and 218 only permitted voters who resided in the City to vote on the proposed tax. The court’s ruling was based in part on specific provisions in Proposition 218 for elections relating to special assessments (inapplicable in this case) which required approval of landowners regardless of residence. In a similar fashion, the Court of Appeal overruled Neilson’s equal protection claim, relying on precedents which allow for exclusion of persons residing outside of the geographical boundaries of a particular jurisdiction from voting in elections affecting that jurisdiction.
Neilson v. City of California City (133 Cal.App.4th 1296 [5th Dist., Nov. 3, 2005])
PERSONAL PROPERTY USED BY U.S. GOVERNMENT DEFENSE CONTRACTOR WAS IMMUNE FROM PROPERTY TAXATION
Northrop Grumman is a defense contractor primarily engaged in the business of designing and building military aircraft and weapons systems for the U.S. Government. In carrying out its contractual obligations to the Government, Northrop employed low-value items such as tools, equipment, supplies and books, purchased by Northrop and allocated among all of Northrop’s contracts as “overhead property,” in accordance with generally accepted accounting principles and Federal Acquisition Regulations (FAR). Northrop claimed that its overhead property allocated to fixed price government contracts was immune from taxation because it was owned by the U.S. Government pursuant to the terms of those contracts and provisions in the FAR.
Despite Northrop’s contention, the Los Angeles County Assessor proceeded to assess Northrop's “overhead property.” Northrop filed claims for refund and then a lawsuit in Superior Court on the legal issue of whether the overhead property was taxable or non-taxable. The Superior Court agreed that the overhead property was immune from taxation, and entered judgment in favor of Northrop.
The assessor appealed to the Court of Appeal, asserting that the Government’s practice of making “progress payments” to Northrop for material acquired and work performed on Government contracts merely created a lien on the overhead property, and did not vest the Government with title to the property. The assessor also asserted that overhead property that was not earmarked to a specific government contract belonged to Northrop, not the government, and was therefore taxable.
The Court of Appeal rejected the assessor’s contentions, and held that title to all the overhead property Northrop used in the performance of its Government contracts vests in the U.S. Government, and was therefore immune from taxation. The appellate court found that the Government’s method of using progress payments to pay Northrop did not make the overhead property taxable, and that Northrop did not have to allocate the overhead property to specific contracts in order to immunize the property from taxation. The court’s decision was bolstered by reference to numerous federal and state court decisions and to actions taken by Congress in the late 1990s.
The Court of Appeal’s decision is significant because the court declined to follow the prior decision of another Second Appellate District division arising from the same facts and interpreting the same FAR provisions, namely TRW Space and Defense Sector v. County of Los Angeles (1996) 50 Cal.App.4th 1703. Instead, the appellate court specifically chose to follow the decision by the Fourth Appellate District in Hughes Aircraft Co. v. County of Orange (2002) 96 Cal.App.4th 540 (which strongly criticized the TRW decision) and several recent decisions by courts in other states.
Northrop Grumman Corp. v. County of Los Angeles (134 Cal.App.4th 424 [2nd Dist., Nov. 28, 2005])
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STATE REGULATION GIVING CALAMITY RELIEF TO AIRPORT PROPERTIES FOLLOWING EVENTS OF 9/11/01 INVALIDATED
In 2002 the California State Board of Equalization (SBE) enacted Property Tax Rule 139 which permitted owners and operators of properties located in public airports to seek property tax relief due to the temporary closure and subsequent limited access to airport facilities following the events of September 11, 2001. Rule 139 was enacted pursuant to the “misfortune and calamity” provisions of Revenue and Taxation Code section 170 and was intended to elaborate on the meaning of “damage or destruction” in that statute.
Assessors of certain California counties challenged the validity of Rule 139, asserting that airport property owners and operators had to show direct physical injury or damage to airport facilities which reduced the value of those facilities. The Superior Court granted the assessors’ motion for summary judgment to invalidate the rule. This appeal by affected airline operators, who had intervened in the Superior Court action, ensued.
The Court of Appeal examined the SBE’s authority to promulgate Rule 139 and the question of whether the rule was consistent with Section 170. It found that, although the SBE’s authority to interpret statutes in the course of administering the state’s property tax laws was significant, the SBE could not adopt a rule inconsistent with a controlling provision of the Revenue and Taxation Code.
In support of Rule 139, the airlines asserted that Section 170 specifically provided for the situation created by 9/11 due to the “restricted access” language in paragraph (1) of that section. The appellate court noted, however, that the events of 9/11 had not occurred in California, that no property at airports in the state had been physically damaged, and that the state of emergency declared by California’s Governor on 9/11 was not a disaster declaration as called for in Section 170.
In support of its conclusions, the court recited portions of California Constitution, article XIII, section 15, which authorizes Section 170 and refers to property which is “physically damaged or destroyed.” The court concluded that the physical impact of the event(s) supporting the misfortune or calamity must be present in the property for which relief is sought. The Court of Appeal also found support for the physical damage requirement in the language in paragraphs (a) and (g) of Section 170 (even though some portions of Section 170 referred to the impact of restricted access on the value of properties affected by misfortune and calamity). Finally, the court dismissed the airlines’ arguments arising from certain opinions of the California Attorney General and from the legislative history of Section 170 and its predecessor statute.
Slocum v. State Board of Equalization (134 Cal.App.4th 969 [1st Dist., Dec. 9, 2005])
FOUR YEAR LIMITATIONS PERIOD PREVENTS ADJUSTMENT OF PROPERTY’S VALUE UPON DISCOVERY OF RECORDED EASEMENT
In 1996, taxpayer Kuperman acquired a 50-acre parcel of land. In 2002, Kuperman discovered that his property was affected by a recorded easement and requested that the Assessor lower his base-year value. After the Assessor refused to reduce his base-year value, Kuperman appealed to the County Assessment Appeals Board, the Superior Court, and the Court of Appeal. The Court of Appeal affirmed the trial court’s decision on the grounds that it was not proper for the Assessor to adjust his base-year value under the four-year statute of limitations in Revenue and Taxation Code section 51.5(b).
Section 51.5(a) allows assessors to correct base-year values without any time limitation if an assessor did not exercise a judgment as to value. Under Section 51(b), however, an Assessor can only correct an error in value judgment within four years from the date the value was enrolled.
The key holding of the Court is that an Assessor is presumed to be aware of a recorded easement and to have taken it into account in setting a base-year value. Since the Assessor exercised a judgment as to value, the four-year limitations period applied.
Kuperman v. Assessment Appeals Bd. No. 1, San Diego County (137 Cal.App.4th 918 [4th Dist., March 20, 2006])
ANTICIPATED TERM OF POSSESSORY INTEREST NOT LIMITED BY MONTH-TO-MONTH LEASE PROVISION
This decision is concerned with the valuation of possessory interests. Here, taxpayer Silveira had been in possession of port property owned by the City of Oakland since 1967. Several agreements were entered into between Silveira and the City over the years regarding Silveira's use of the property. Relevant to this case, one such agreement ended on September 30, 1990.
Since September 30, 1990, Silveira continued to occupy the property under a month-to-month holdover provision. Silveira challenged tax assessment for years 1998, 2001 and 2002 because the Assessor was using an anticipated eight-year term of possession to value his possessory interest. Silveira argued that the Assessor was prohibited from valuing his use on a term of possession longer than one month. Silveira relied upon American Airlines, Inc. v. County of Los Angeles (1976) 65 Cal.App.3d 325, which, under somewhat similar factual circumstances, found in favor of a taxpayer stating that the assessor could not tax "something they do not have, namely possessory interests extending beyond the terms of their leases." (Id. at p. 331.)
The appellate court found that month-to-month tenancies are not simply tenancies for a fixed term that are periodically extended, but rather are tenancies having "no stated term of possession," as provided for in California Code of Regulations, title 18, section 21 (d)(3). As a result, the court distinguished Silveira's situation from that in American Airlines, and held that the Assessor's anticipated term of possession of eight years, and the assessment appeals board's findings that this term was reasonable, were supported by substantial evidence, and that the taxpayer’s month-to-month agreement did not limit the term for calculating the assessment on the taxpayer’s possessory interest.
Silveira v. County of Alameda (139 Cal.App.4th 989 [1st Dist., May 23, 2006])
TRANSFER OF GROUND-LEASED PROPERTY SUBJECTED TENANT-OWNED IMPROVEMENTS TO CHANGE OF OWNERSHIP
The property in this case was held by certain trusts for grandchildren beneficiaries Robert and Electra Anderson. In 1996, the property was leased to Tommy Hilfiger Retail, Inc. under a lease which permitted Hilfiger to demolish the existing improvements and construct new building improvements on the property which Hilfiger opted to do. Upon completion, the new improvements became the property of Hilfiger under the terms of a twenty-year ground lease between the trusts and Hilfiger. The trusts remained the owners of the land underlying the improvements.
After Hilfiger had completed the new improvements, the father of beneficiaries Robert and Electra Anderson passed away, which resulted in a transfer of the land at the property to the beneficiaries. Robert and Electra applied for and the Los Angeles County Assessor granted them a grandparent-grandchild property tax exclusion under Revenue and Taxation Code section 63.1. However, the assessor applied over ninety percent of the $1 million exclusion to the new building improvements which Hilfiger had constructed.
The trusts challenged the assessor’s allocation of the grandparent-grandchild exclusion by filing assessment appeals with the Los Angeles County Assessment Appeals Board. At the Board hearing, the trusts contended that the exclusion should have been applied only to the land because Robert and Electra Anderson did not have any present beneficial ownership interest in the improvements constructed by Hilfiger. The Board agreed, finding that the grandchildren did not have a present beneficial interest in the improvements, as required by Revenue and Taxation Code section 60, and that the exclusion should only have been applied to the land at the property. The Board rejected various arguments by the assessor including the assertion that improvements constructed by a tenant are presumed to be owned by the landowner by operation of law. The Board also turned away the assessor’s argument that the lease on the property, which was for a period less than 35 years, created a presumption that the improvements were owned by in the landowner under property tax ownership standards. The assessor appealed to the Superior Court, which affirmed the Board’s decision.
The assessor then sought review in the Court of Appeal, which reversed the decisions below. The appellate court found that Revenue and Taxation Code section 61(c), the 35-year lease change of ownership provision, supported the conclusion that an ownership change of the land and improvements at the property had occurred. In a lengthy dissent buttressed by a complete review of the underlying facts (which indicated that the trusts did not own Hilfiger’s improvements), Justice Vogel pointed out that the majority’s decision had ignored the primacy of the present beneficial ownership element in Section 60, and that no landlord ownership presumption applied to the improvements constructed by tenant Hilfiger.
The California Supreme Court upheld the decision of the Court of Appeal. The court determined that the interest held by Hilfiger was a leasehold interest or at most a possessory interest in an estate for years, which did not amount to a freehold estate. Being less than a 35 year lease, this situation did not fall within Revenue and Taxation Code section 61’s 35-year lease rule. As a result, the court reasoned, Hilfiger could not have an ownership interest in the land for purposes of Proposition 13. The court held that the change in ownership included both the land and the improvements.
Auerbach v. Assessment Appeals Board No. 1 (Northern Trust Bank of California)(39 Cal.4th 153 [Calif. Supreme Ct., July 17, 2006])
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Kenneth S. Kramer, Berenbaum, Weinshienk & Eason PC
EchoStar Satellite, L.L.C., PetitionerAppellee, and Colorado State Board of
Assessment Appeals, Appellee, v. Arapahoe County Board of Equalization,
Respondent Appellant, and Jo Ann Groff, Property Tax Administrator for the State
of Colorado, Interenor Appellant.
171 P.3d 633; 2007 Colo. App. LEXIS I748
(August 23, 2007, Decided)
CASE SUMMARY:
PROCEDURAL POSTURE: Respondent county equalization board (BOE) and intervener Colorado Property Tax Administrator (PTS) challenged a decision from the Colorado Board of Assessment Appeals (BAA), which reclassified certain personal property owned by petitioner taxpayer as exempt.
OVERVIEW: The property in question consisted of boxes and filters that were rented to customers for their use with other equipment to obtain television signal reception. The taxpayer contended that the property was exempt as held for consumption by a business under Colo. Const. art. X §3(1)(c) and Colo. Rev. Stat. § 39-3-119 (2006). The BOE denied the exemption, and the taxpayer sought review. The BAA
agreed with the taxpayer, and this appeal followed. In affirming the BAA, the appellate court determined that the PTA's published criteria under 5 Assessors Reference Library § VII, at 7.127.13 (Rev. Jan. 2004) set forth the requirements for a tax exemption for consumable personal property. The boxes and filters individually satisfied the description of the type of property exempted because they were each acquired completely assembled for use in the taxpayer's business. There was no reason for aggregating the cost of all components of a "system," including those not owned by the taxpayer, for purpose of determining whether the exemption applied. Finally, even if an evidentiary ruling was erroneous, the BOE was not prejudiced thereby since testimony was ultimately permitted on the matter.
OUTCOME: The decision of the BAA was affirmed.
OPEX Communications, Inc., Petitioner-Appellant, v. Property Tax Administrator,
Respondent-Appellee, and Colorado State Board of Assessment Appeals, Appellee.
166 P.3d 225; 2007 Colo. App. LEXIS 878
(May 17, 2007, Decided)
PROCEDURAL POSTURE: Appellant, a non facilities-based reseller of long distance telephone services (reseller), objected to assessments by appellee Property Tax Administrator (PTA). Appellee Colorado State Board of Assessment Appeals (BAA) found that the reseller was a telephone company, and thus a public utility under Colo. Rev. Stat 5 39-4-102(1) (2006). The BAA also determined that a 2003 valuation was correct, but reduced a 2004 valuation. The reseller appealed.
OVERVIEW: The PTA assessed property taxes against the reseller as a public utility for 2003 and 2004. The reseller did not own, operate, or maintain any telephone network or switching equipment. The reseller had contracts with two nationwide network providers to provide toll access, but the contracts did not provide for the leasing or management of equipment or for the bulk purchase of services. Over 4000 Colorado residential and business customers relied on the reseller for long distance services. The reseller claimed it was not a telephone company because it did not lease or own any equipment, lines, or switching facilities such that the reseller did not directly facilitate two-way communication between unrelated parties. The court concluded that the reseller, as a non facilities-based reseller of long distance telephone services, was a telephone company within the meaning of Colo. Rev. Stat 5 39-4-101(3)(a) (2006). Hence, the reseller was subject to property tax assessment. Despite a decrease in income in 2003, there was evidence that the value of the reseller for 2004, assuming no discount for income taxes, was at least as high as the
erroneously discounted value for 2003.
OUTCOME: The BAA'S order was affirmed
Colorado Supreme Court address specific issues in the process of property tax assessment and appeal.
Huddleston v. Board of Equalization , 31 P.3d 155 (Colo. 2001).
In a September 2001 case, the court held that Colorado ’s personal property tax exemption only allowed an exemption for businesses owning not more than $ 2,500 in otherwise non-exempt personal property in the same county. The court ruled that the property tax administrator’s authority supported the application of the exemption in relation to all personal property owned within a county, rather than on the personal property located at each distinct business location.
City & County of Denver v. Board of Assessment Appeals , 30 P.3d 177 (Colo. 2001).
In a May 2001 case, the court held that the Board of Assessment Appeals’ holding that the Fire and Police Pension Association's ownership interest in property was exempt from ad valorem taxation was in error. According to the court’s statutory interpretation, the Colorado General Assembly had not provided for this exemption.
Several recent cases from the Colorado Court of Appeals clarify the process of property tax assessment and appeal.
Padre Resort, Inc. v. Jefferson Cty. Bd. of Equalization , 30 P.3d 813 (Colo. Ct. App. 2001).
In one case, a property owner argued that the assessor should consider economic conditions outside the statutory base period, because plans for the development of additional hotel rooms were known. The court affirmed the valuation, finding that the assessor had properly excluded the estimated economic conditions that existed beyond the base period.
Wilber v. Board of Cty. Comm’rs , 42 P.3d 49 (Colo. Ct. App. 2001).
In another case, a petition for abatement of real property taxes was properly denied. The court found that a county’s specific ballot measures regarding mill levy increases superceded general statutory limitations on such increases.
Welby Gardens Co. v. Adams Cty. Bd. of Equalization , 2002 Colo. App. LEXIS 8 (Colo. Ct. App. 2002).
Most recently, the court found that a greenhouse had been improperly classified as ‘agricultural’ for property tax purposes. The court explained that the land only provided a site for greenhouse operation, and that the greenhouse’s products did not originate from the productivity of the land.
In a recent pair of cases concerning ski area associations, the Colorado Supreme Court and Court of Appeals addressed issues of property tax assessment.
Board of Cty. Comm’rs v. Vail Assoc., Inc., 19 P.3d 1263 (Colo. 2001).
In the Supreme Court case concerning Vail Associates, the court determined that a Colorado statute creating a property tax exemption for ski areas and others with long-term possessory interests in federal property was unconstitutional, absent an exemption in the state constitution. The court held that Vail’s possessory interest was taxable property under the statute, and also ordered the unconstitutional parts of the statute severed.
Steamboat Ski & Resort Corp. v. Rout Cty. Bd. of Equalization, 23 P.3d 1258 (Colo. Ct. App. 2001).
In the Court of Appeals case, the court declined to reverse an assessment of the Steamboat Ski Area’s property. The assessment of the ski area’s parcel of land was supported by competent evidence, and the court held that it could not substitute its own judgment for the judgment of the Board of Assessment Appeals in the weight given to the evidence.
Top
Hartford/Wlndsor Healthcare Properties, LLC v. City of Hartford; Trinity Hill Realty, LLC v. City of Hartford
CV074014469, CV074014470
(April 2, 2008.)
OVERVIEW: The assessor classified the nursing homes as commercial property on the ground that they did not meet the definition of either residential property or apartment property. The owners contended that the nursing homes contained dwelling units used for human habitation within the meaning of § 12-62n. The superior court held that the classification of the term "apartment," as defined in § 12-62n, did not include the term 'nursing home" for property tax assessment purposes. In the statutory provision for the licensing and regulating of nursing homes in the State, Conn, Gen. Stat, ch. 368v, the legislature clearly looked at nursing home residents as patients, not tenants. The superior court recognized that the legislature was well aware of the distinction between the meaning of a "nursing home" versus "apartment property" especially in light of the legislature having specifically defined the term "apartment property" in § 12-62n and "nursing home in Conn, Gen. Stat.§ 19a-490(c). when regarded the licensing of institutions. Therefore, the superior court determined that it would be inappropriate to interject the term "nursing home" within the meaning of "apartment property."
OUTCOME: The superior court ruled that the classification of the term "apartment" did not include the term "nursing home" for
property tax assessment purposes. Because it bifurcated the trial by separating the issues of classification and valuation, the issue
of the real estate valuation remained outstanding. If, within thirty days of the issuance of the decision, the parties were unable to
resolve the valuation issue, a trial date would be scheduled.
SBC Internet Services, Inc. v. City of Bridgeport; SNET Diversified Group, Inc. v. City of Bridgeport, SNET America, Inc. v. City of
Bridgeport, AT&T Services, Inc. v. City of Bridgeport
2008 Conn. Super. LEXIS 367
February 15,2008, Decided
PROCEDURAL POSTURE: Plaintiff taxpayers filed sulit against dependant tax assessor challenging the assessment of a 25 percent penalty on the taxpayers under Conn. Gen. Stat. §12-41(d). The assessor filed a motion for summary judgment.
OVERVIEW: The taxpayers argued that they complied with the filing requirements by having their declarations postmarked and mailed on October 31, 2005. The trial court noted that the construction of "file" in §12-41(d) was a matter of first impression. The dictionary definition of "file" was to deliver after complying with any condition precedent to the proper officer for keeping on file or among the records of his office. It would be presumed that the Connecticut legislature intended "file" to have its ordinary meaning. Thus, the failure to deliver a declaration to the tax assessor's office on or before November 1, 2005 invoked the penalty provisions of §12-41(d). Under Conn. Gen. Stat. § 1-2z, if "file" §12-41(d) was interpreted as to deliver or postmark a declaration, then the words postmarked in Conn. Gen. Stat. §12-42 would be superfluous. The taxpayers did not point to any statute related to taxation that did not contain the additional phrase "or postmarked', to meet the requirement of a timely filing. The taxpayers would not obtain similar treatment to those in other municipalities as the official declaration form in their City did not contain the postmark language.
OUTCOME: Summary judgment was entered for the assessor and against the taxpayers.
CORE TERMS: declaration, postmarked, assessor, prescribed, presumed, postmark, envelope, deliver, mailed, physically present,
legislative history, legislative enactment, ordinary meaning, municipalities, superfluous, mail, dictionary
DISTRICT OF COLUMBIA, et al., APPELLANTS, v. PETER 5. CRAIG, et al., APPELLEES. DISTRICT OF COLUMBIA, et ai., APPELLANTS, v.POLLY H. ERNST, et al., APPELLEES.
No. 06-TX-177, No. 06-TX-178
DISTRICT OF COLUMBIA COURT OF APPEALS
930 A.2d 946; 2007 D.C. App. LEXIS 458
January 12, 2007, Argued
July 19, 2007, Decided
SUBSEQUENT HISTORY: As Corrected July 20, 2007. US Supreme Court certicrari denied by Craig v. D.C.. 2008 US. LEXlS 5003 (US,June 16. 2008)
PRIOR HISTORY: [**1] Appeals from the Superior Court of the District of Columbia. (CVT8112-02 & CVT3141-02). (Hon. Eugene N. Hamilton, Trial judge).
CASESE SUMMARY
PROCEDURAL POSTURE: The District of Columbia Superior Court Tax Division, in two certified class actions, granted summary judgment against appellant government representatives in cases where appellee taxpayers challenged property tax assessments regarding properties located in the District of Columbia. The government representatives appealed.
OVERVIEW: The trial court certified two class actions arising out of real estate tax assessments made against two groups of taxpayers. One group was made up of people owning certain residential properties The second group was a "dan in formation." The two groups wanted to challenge tax assessments for a particular tax year because they believed the assessments were excessive. Following a hearing, the trial court granted declaratory and injunctive relief in favor of the taxpayers. The trial court also granted summary judgment to them upon finding that the assessment method led to widespread discrimination. It further ruled that the assessment method should have been subject to District of Columbia rule-making procedures. On appeal, the appellate court found that the relief that the trial court awarded violated the District of Columbia Anti-Injunction Act, D.C. Code § 47-3307, because most of the lawsuits were not refund lawsuits, and exceptions that the District of Columbia would have no possibility of prevailing and that the taxpayers had no adequate legal remedy did not apply. It also found the assessment method was not a "rule" that could be made subject to rule-making procedures.
OUTCOME: The trial court's judgments were reversed and the cases were remanded to the trial court for further proceedings.
CORE TERMS: tax year, methodology, notice, property owners, triennial, real property, assessed value, administrative review,
jurisdictional, refund, trending, market value, administrative remedies, prerequisite, proposed assessments, refund suit,
exhaustion, valuation, taxation, Anti-Injunction Act, class actions, residential properties, neighborhood, tax refund, class member,
summary judgment, citations omitted, declaratory, injunctive, entertain.
Jeffrey L. Mandler, Berman Rennert Vogel & Mandler
BOAT SLIPS ON LAESED SOVEREIGN SUBMERGED LANDS ARE NOT SUBJECT TO REAL PROPERTY TAX
Burklow &Associates, Znc. v. Brown,
931 So.2d 218 (Fla 1" DCA 2006)
In a recent case a Yacht Club leased sovereign submerged land from the State of Florida, and subleased wet slips thereon to individual users. The sublesees also had the right to shared use of the docks, piers, uplands and improvements on the uplands during the term of their leases.
However, the subleases were subject to the duration of the underlying SSL lease. The Court reiterated current law that "A leasehold estate in real property owned by the State of Florida may only be taxed as intangible personal property. However, any personal property, buildings, or other
real property improvements constructed on such state owned land, which are owned by the lessee, are subject to ad valorem taxes." The Court held that where the subleases were subject to termination at the end of the term of the underlying lease, there were not sufficient indicia of
ownership and the wet slips were not subject to real property tax.
WHEN DOES THE PROPERTY APPRAISER HAVE THE ABILITY TO CHALLENGE A STATUTE?
Zingale et a1 v. The Crossings at Fleming Island Community Development District,
920 So.2d 20 (Fla 1'' DCA 2007)
In Florida, the Property Appraiser does not have the ability to challenge the constitutionality of a statute on the basis that such statute is contrary to limitations imposed by the United States Constitution or the Florida Constitution. However, Florida courts have recognized two
exceptions to this rule: (i) if the taxing statute at issue involves the disbursement of public funds or (ii) if the constitutionality is raised as a defense in an action initiated by the Taxpayer. Although courts have established these two exceptions, there is persuasive authority for the
position that the Property Appraiser may not raise the constitutionality of a statute even in a defensive posture. Yet, a recent First District Court of Appeal decision chose to ignore these arguments and allowed a Property Appraiser to raise as an affirmative defense, a challenge to the constitutionality of a statute that defined a special tax district as a "municipality" for property tax exemption purposes.
RECENT LEGISLATIVE CHANGES RELATED TO TAXATION:
Florida property taxes have increased dramatically in recent years due to tax assessments which tracked rapidly rising real estate values. State lawmakers held a special session in June, 2007 in an attempt to provide relief to taxpayers. The resulting legislation, however, was far more modest than many hoped. The new legislation freezes all city and county taxes for the 2007-08 fiscal year at their 2006-07 levels less an additional 0-9% cut depending on a formula that forces higher tax cuts on counties whose property taxes have risen the most.
In its continuing efforts to control rising taxes, the Florida Legislature recently approved amendments to Articles VII & XII of the Florida Constitution related to property taxes. The proposed amendments went before voters January 29,2008 and passed (it required 60% approval
of voters to pass). Beginning in 2009 the amendment limits assessment increases to no more than 10% over the prior year's assessment, regardless of the increase in market value other than on primary residences, which are already subject to a 3% cap on increases. (The cap does not, however, apply to school district levies which are approximately one third of the total tax bill.) Properties may be reassessed at market value upon a change of ownership or control, including a change of ownership of the legal entity that owns the property. Changes, additions, reductions or improvements to property will not be subject to this cap. This is a substantial change from the prior law, which requires all properties, except those with a homestead or other exemption, to be assessed at just value each year.
To receive the assessment limitation property there is no requirement for owners to file an application. Property owners must, however, notify the county property appraiser of any change in ownership or control of a property, including a change in control of the entity that holds title to the property, even if a deed is not recorded. (newly created $193.1554)
In addition, the amendment creates portability of homestead exemptions and creates an exemption for personal property up to $25,000.
Additional changes to Florida law arising from a 2008 bill relating to the appeals process are described below.
The bill modifies the highest and best use language in the statutes to require that county property appraisers consider "any zoning change, concurrency requirements and permits necessary to achieve the highest and best use". This should help to keep properties assessed based on their current use rather than a speculative future use. The bill requires the Department of Revenue to develop uniform procedures for Value Adjustment Boards and special magistrates throughout the state. The DOR will also conduct annual training sessions for special magistrates.
The configuration of the VAB is changed by adding two citizen members in place of one commissioner and one school board member. Once citizen member must own homestead property within the county and one must own a business occupying commercial space in the
school district. The statutory codification of the above legislation appears as changes to 5 193.01 1, 5 193.46 1, $194.01 1, 5194.015, 5194.034 5194.035, $194.037, 5195.002 & 5195.052
Fuchs v. Robbins , 27 FLW S288 (2002).
Property Appraiser Standing and Doctrine of Substantial Completion
The Florida Supreme Court ruled that the Property Appraiser does not have the authority to challenge the validity of a Statute on the basis that such Statute is contrary to limitations imposed by the US Constitution or the Florida Constitution. Although the Court ruled that the Property Appraiser acting in his or her official capacity cannot initiate an independent action challenging the validity of a taxing statute, the Appraiser may raise such a defense in an action initiated by the taxpayer challenging a property assessment. In this action, Robbins was challenging the constitutionality of the Substantial Completion Statute. The Substantial Completion Statute (FS 192.042) states improvements or portions not substantially completed on January 1, shall have no value placed thereon. The Supreme Court reversed the Third District Court of Appeal decision holding this Statute unconstitutional. This means that the Substantial Completion Statute is still constitutional, but the Supreme Court decision leaves the door open for the Property Appraiser to again raise the constitutionality of this Statute if a taxpayer initiates a complaint seeking the benefit of this statute.
Higgs v. Good, 27 FLW D642 (2002).
Supplying Income Information
The Third District Court of Appeal ruled that a property owner’s income data may be inadmissible in administrative or court proceedings if the property owner failed to supply the data in a timely fashion upon request of the Property Appraiser. Good had received, and failed to respond to, a form notice requesting income information prior to the Property Appraiser completing the assessment roll. Good then supplied the income information when he filed a Value Adjustment Board proceeding. The Court ruled that Good’s previous failure to reveal the income information made it inadmissible in trial.
Davis v. Gulf Power Corporation, 26 FLW D2368 (2001).
Personal Property
This decision involved an application for an economic development ad valorem tax exemption. This exemption was available to companies which created ten or more full time jobs manufacturing or producing tangible personal property. The Court ruled that electricity falls within the definition of tangible personal property and that the generation of electricity is a manufacturing process and thus entitled to the tax exemption.
Sherman v. Royal and Sons, Ltd ., 801 So. 2d 255 (2001).
Presumption of Correctness
This case held that even if an assessment is reduced at the Value Adjustment Board (the administrative level), the Property Appraiser retains the presumption of correctness on appeal to the Circuit Court. The Court interpreted the Burden of Proof Statute (FS 194.301) and asserted that the Appraiser loses the presumption of correctness only if the taxpayer shows by a preponderance of the evidence either that the Appraiser has failed to consider the correct applicable criteria or that the property assessment is arbitrarily based on appraisal practices which are different from appraisal practices applied by the Property Appraiser to comparable property within the same class and same county. If the taxpayer makes this showing by a preponderance of the evidence, the Property Appraiser’s presumption of correctness is lost and the taxpayer will thereafter have the burden of proving, also by a preponderance of the evidence, that the Appraiser’s assessment exceeds just value.
Fairhaven South, Inc. v. McIntyre, 793 So. 2d 110 (2001).
Exemptions
The Court ruled that a non-profit home for the aged may be tax exempt if it qualifies as a not for profit corporation under Section 501(c)(3) of the Internal Revenue Code and at least 75% of the residents are over the age of 62 or totally or permanently disabled. The Court rejected the Property Appraiser’s argument that in order to be exempt Fairhaven would have to prove that it served a charitable purpose. As long as Fairhaven qualified as a non-profit organization and met the residency requirements, it did not have to make an additional showing that the property was used for charitable purposes.
Wells v. Vallier, 773 So. 2d 1197 (2001).
Homestead Exemption
In this case from Pasco County , Florida , the Court held that the maintenance of a second home outside of Florida does not preclude the granting of homestead exemption for Florida residences. The primary factors considered by the Court in granting a homestead exemption were the length of residency, the maintenance of a Florida driver’s license, the registration of vehicles in Florida , maintenance of primary checking and savings accounts in Florida and listing of the Florida residence as the primary residence for Federal Income Tax purposes. The Court also awarded attorneys fees and costs to the taxpayer since it felt the Property Appraiser’s actions were frivolous.
Sun ‘ N Lake of Sebring Improvement Distract v. McIntyre, 800 So. 2d 715 (2001).
Exemption
To begin with, this case held that the Property Appraiser lacked standing to challenge the constitutionality of an amendment to a statute. This portion of the decision is consistent with the recent Supreme Court ruling in Fuchs v. Robbins. The Statute which was held constitutional provided that special districts could be treated as municipalities and therefore be exempt from taxation. However, the Court held that vacant lots owned by a district and actively marketed for sale to private parties were not exempt from ad valorem taxation since they were not held exclusively for a public purpose.
Wal-Mart Stores, Inc. v. Mazourek, 778 So2d 346 (2000).
Personal Property
The Supreme Court has accepted an appeal of this case. The lower Court held that when utilizing the cost method of assessing personal property, the Property Appraiser should not include sales tax in the property’s value. The court also held that the Property Appraiser must consider the market data approach for valuing tangible personal property. The Court rejected the Property Appraiser’s claim that by utilizing assessments of other taxpayer returns it had demonstrated consideration of the market approach.
Appellate Court Decisions in Georgia on Tax Appeal Issues During 2007 and 2008 -
Monroe Countv. et al. v. Georgia Power Company,
238 Ga. 12,655 S.E. 2d 817 (2008),
Georgia Power Company filed its return of the fair market value of its real property in the state of Georgia with the State Revenue Commissioner. The Commissioner accepted the returned value and apportioned the value among the counties in which the taxpayer owned property. Monroe
County Board of Tax Assessors rejected the Commissioner's determination of the fair market value of the property in Monroe county, rejected the assessment ratio that the Commissioner used to arrive at the proposed tax assessment for Monroe County, made its own determination of
fair market value and increased the assessment ratio which ultimately resulted in an increased assessment for the taxpayer. The taxpayer brought an action for equitable relief; the trial court ruled against the taxpayer by entering a summary judgment in favor of the county. The Court of Appeals held that for the taxation of public utilities, county boards of tax assessors lack the authority to alter the State Revenue Commissioner's determination of fair market value and his proposed apportionment, but do have the authority to alter the assessment ratio he proposes
based on the most recent records uniquely available to each county. The Supreme Court affirmed the Court of Appeals' decision.
Oconee County Bd. of Tax Assessors v. Thomas,
282 Ga. 422,651 S.E.2d 45 (2007) involved a taxpayer who received a penalty assessment from the county board of tax assessors for breach of
a conservation use covenant. The taxpayer attempted to appeal the assessment to the county board of equalization, but the board of assessors refused to allow the appeal. The taxpayer then filed in superior court for a writ of mandamus which was granted. The board of tax
assessors appealed the trial court's decision and contended that the meaning of the word "assessment" in the tax appeal statute was only for determinations of value of property. The Court of Appeals held that an assessment of a penalty for breach of a conservation use covenant
is an assessment for which a property owner has the right to appeal pursuant to O.C.G.A. § 48-5-3 11, by relying upon the Black's Law Dictionary definition of the word "assessment" as meaning more than merely valuation.
In Jasper County Board of Tax Assessors v. Thomas, 289 Ga. App. 38,656 S.E.2d 188 (2007) taxpayers had applied for conservation use assessments and other exemptions, but the county board of tax assessors denied the applications. The taxpayers appealed to the county board of
equalization which reversed. The board of tax assessors appealed to superior court and requested a non-jury de novo hearing pursuant to O.C.G.A. 848-5-31 1 (g)(4)(A). After the trial court failed to hold a hearing within 40 days in accordance with the code section, the taxpayers filed a motion to dismiss which was granted. The Court of Appeals held that the statute which states that non-jury trials in tax appeals are to be held within 40 days of filing is directory, rather than mandatory, and it is error for a superior court to dismiss an appeal for failure to hold a hearing
within the time period.
Tax Appeal Legislation During 2008 -
Effective May 14,2008, O.C.G.A. 48-5-31 1 was amended to provide that refunds shall be paid to the taxpayer within 60 days of the last date upon which an appeal may be filed or the date the final determination of value is established on appeal, whichever is later. Refunds paid after the sixtieth day accrue interest at the rate of one percent per month until paid. The prior statutory provision that provided that interest shall accrue for a period of no more than 180 days was deleted, but the $ 150.00 limit on the amount of interest paid remains in effect.
I
Administrative Remedies. Idaho requires a property taxpayer to exhaust at least his first level of administrative remedy (the county board of equalization) before turning to the courts for a trial on a valuation dispute. The Idaho Supreme Court recently decided that a taxpayer who
opts to take his dispute to the next administrative level, the State Board of Tax Appeals, must actively participate in the adjudicative process. He cannot simply file with the BTA, wait for an adverse decision without further participation, and then go on to court. Blanton v. Canyon
County, 144 Idaho 718,170 P.3d 383 (2007).
Trial De Novo. In Canyon County v. AmalgamatedSugar, 143 Idaho 58,137 P.3d 445
(2006), the Idaho Supreme Court interpreted a procedural statute that permits appeals from the
Board of Tax Appeals to District Court for a trial de novo on the issues raised at the BTA. The case holds that the parties are not limited to the appraisals presented at the BTA. The "issue" is market value, not any specific proof of market value.
Low Income Housing. Brandon Bay v. Payette County, 142 Idaho 681,132 P.3d 438 (2006), involved the thorny problem of determining market value for rent-restricted low income apartment projects built with federal income tax credits. The Idaho Supreme Court had previously held that an assessor must take the rent restrictions into consideration. Greened Village Apartments v. Ada County, 130 Idaho 207,938 P.2d 1245 (1997). In the current case, the Court held that it was also appropriate for the assessor to consider the value of the income tax credits when assessing the real property.
226 111. 2d 36, *; 871 N.E.2d 38, '*;
2007 IN. LEXIS 863, ***; 312 ill. Dec. 638
THE KANKAKEE COUNTY BOARD OF REVIEW, Appellant, v. THE PROPERTY TAX APPEAL BOARD et al., Appellees.
Docket No. 102318
SUPREME COURT OF ILINOIS
226 Ill. 2d 36; 871 N.E.2d 38; 2007 Ill. LEXIS 863; 312 Ill. Dec. 638
June 7, 2007, Opinion Filed
SUBSEQUENT HISTORY: Counsel Amended August 1, 2007.
PRIOR HISTORY: Appeal from the Appellate Court for the Third District.
Kankakee County Bd. of Review v. Property Tax Appeal Bd.. 219 Ill. 2d 567,852 N.E.2d 240. 2006 Ill. LEXIS 982.303 Ill. Dec. 8330
DISPOSITION:Appellate court judgment affirmed.
CASE SUMMARY
PROCEDURAL POSTURE: Petitioner court board of review challenged the decision of the Property Tax Appeal Board (PTAB), which reduced the assessed value of respondent taxpayer's property for two tax years on the ground that the rights and privileges to naturally occurring gas storage reservoirs should not have been assessed to the taxpayer's property. The Court of Appeal's of
Illinois affirmed the decision. The board appealed the judgment.
OVERVIEW: The PTAB's decision was subject to de novo review as the determination turned on whether the easements, governmental permits, and rights to utilize the reservoirs for gas storage were considered rights and privileges belonging to or pertaining to the subject property under 35Ill. Comp. Stat 200/1-130 (2004). That determination was one of statutory construction. Moreover, determining whether the PTAB considered appraisals that utilized the proper methodology for the valuation of the subject property was a legal question abject to de novo. For purposes of § 200/1-130, while the term "pertain" might have implied a less rigid connection than "belong", there still had to be some direct relationship between the rights and property at issue.
The easements that allowed the taxpayer to operate its pipes and wells on property owned by others did not pertain to the subject property as they were easements in gross that benefited the taxpayer. Permits issued by two power agencies did not pertain to the property as they also attached to the taxpayer. The property's proximity to the reservoirs was improperly used to enhance its value as the proximity was not a marketable asset.
OUTCOME: The judgment was affirmed.
CORE TERMS: subject property, reservoir, easement, appraisal, storage, compressor, station, valuation, market values, plant,
tunnels, natural gas, pertaining, ownership, acres, easements in gross, underground, pipeline, surface, utilize, pertain, belonging,
real property, income approach, constructed, appurtenant, storage facilities, pipe, control center, real estate
2008 Ill. App. LEXIS 744, *
THE COOK COUNTY BOARD OF REVIEW, Petitioner-Appellant, v. ILUNOIS PROPERTYTAX APPEAL BOARD and OMNI CHICAGO, Respondents-Appellees.
NO. 1-04-2402
APPELLATE COURT OF ILUNOIS, FIRST DISTRICT, FIRST DIVISION
2008 Ill. App. LEXIS 744
July 28, 2008, Decided
July 28, 2008, Filed
NOTICE:
THIS DECISION IS NOT FINAL UNTIL EXPIRATION OF THE 21 DAY PETITION FOR REHEARING PERIOD. SUBSEQUENT HISTORY: As Corrected.
Rehearing denied by Cook County Bd. of Review v. Ii Prop. Tax Appeal Bd., 2008 111. App. LEXIS 953 (11. App. Ct. 1st Dist., Sept. 8, 2008))
Supplemental opinion at, Rehearing denied by Cook County Bd. of Review v. Ill. Prop Tax Appeal Bd., 2008 Ill. ADO. LEXE 904 (UL
ADD. Ct. 1st foist. Se Dt 8. 2008)
PRIOR HISTORY: [*1]
Petition for Review of Decision of the Property Tax Board and Docket Numbers. No. 98 29670-C-3.
DISPOSITION: Reversed and remanded with directions.
CASE SUMMARY
PROCEDURAL POSTURE: Appellant, the Cook County Board of Review (BOR), appealed the decision of me Illinois Property Tax
Appeal Board (PTAB)which reduced the valuation of respondent property owner's property from $48,296.794 to $43,250,000.
OVERVIEW: The PTAB relied on the property owner's appraisal of the property, which focused on the income approach to property
valuation, to establish market value. The BOR argued that the method of valuation adopted by the PTAB was improper as a matter
of law because (1) it excluded the sales comparison approach, and (2) it utilized a vague and expanded definition of market value
based on a hypothetical model with no basis in fad or law. The instant court found that the exclusion of the sales comparison or
market approach in light of the existence of market data regarding comparable properties rendered the property owner's appraisal
insufficient as a matter of law to challenge the correctness of the property tax assessment. Consequently, the PTAB's reliance on
that appraisal as "the best evidence to estimate the subject property's market value" was erroneous as a matter of law. The instant
court did not address the BOR's other arguments.
OUTCOME: The decision of the PTAB was reversed and the matter was remanded with directions that the assessment finalized by
the BOR be reinstated.
CORE TERMS: market value, subject property, appraisal, retail, space, appraiser, square foot, market data, valuation, est mate,
hotel, office space, estimated, utilized, income approach, comparable, matter of law, rent, method of valuation, comparable
properties, airline, property tax assessment, capitalization rate, reproduction, leasehold, square feet, owned, question of law,
valuation method, approaches to value
Bruce F. Clark & Michele M. Whittington, Stites & Harbison
Comcast Cablevision of the South v. Revenue Cabinet , KBTA Order No. K-18194 (May 1, 2001).
Unit Valuation
In this case involving the determination of the appropriate "unit value" of the taxpayer’s operating property as defined under Kentucky law, the Kentucky Board of Tax Appeals held that the Kentucky taxable value was not equivalent to "business enterprise" value, which would include values associated with prospective income from future investment, technology and customers. The Board based its decision on the language of KRS 136.115, which defines "operating property," upon which the unit value is to be based, to include both the operating tangible property and the "franchise." The Board accepted the argument of the Taxpayer that the franchise value must be based on property in place and operating on the lien date, so that the utilization of cash flow multipliers from the marketplace would result in values in excess of the operating property taxable under Kentucky law. The Taxpayer’s position is supported by Kentucky case law, which indicates that the "franchise" value should represent and reflect the enhanced or increased value that the government franchise gives to the tangible property in place and operating on the lien date. The Kentucky Revenue Cabinet has appealed the Board’s ruling to the Franklin Circuit Court.
Marina Property Services, Inc. v. Owens , No 2000-CA-000055-MR, 2001 WL 1472658 (Ky. Ct. App. Nov. 21, 2001 )
Taxable Situs
In Marina Property Services, Inc. v. Owens, the Kentucky Court of Appeals addressed the question of how to determine the taxable situs of houseboats that were not operated entirely in one county. The houseboats were used on a lake that is bordered by seven different counties. The taxpayer asserted that transient personal property was to be taxed in the domicile of the taxpayer, which in this case was Russell County , despite the fact that the houseboats were never operated in that county. The court rejected the taxpayer’s position and found that the houseboats acquired a taxable situs in the county in which they were docked, stored, rented, repaired and serviced, although they were not operated entirely within that county. Under Kentucky law, personal property must have a "more or less permanent location" in the taxing jurisdiction. The court found that the above-noted facts established sufficient use in the taxing jurisdiction to establish a permanent location and thus a taxable situs.
Continental General Tire v. Graves County PVA , KBTA Order No. K-18087 (Feb. 26, 2001);
General Electric Company v. Jefferson County PVA , KBTA Order No. K-18316 (Nov. 8, 2001).
Valuation of Industrial Properties
In two recent decisions, the Kentucky Board of Tax Appeals has recognized functional obsolescences associated with large industrial plants. The Continental Tire case involved a 2.3 million square foot manufacturing facility. The comparable sales accepted by the Kentucky Board of Tax Appeals (KBTA) were considerably smaller than the subject property. The taxpayer asserted argued that the extraordinary size of the subject property in relation to the comparable sales necessitated that a size discount should be applied to the subject property. The KBTA agreed with the taxpayer and made a 25% downward adjustment to the value of the plant. In the General Electric case, the KBTA made a 35% downward adjustment to the comparable sale value of the plant to account for the decreased utility of the subject property. The General Electric plant is comprised of eight primary structures with a total of 7.4 million square feet and twenty-seven secondary structures.
Wild Flavors, Inc. v. Kenton County PVA , KBTA Order No. K-18049 (Feb. 8, 2001)
Valuation of Industrial Properties
The KBTA recognized super-adequacies as another form of functional obsolescence. The Wild Flavors plant had a number of aesthetic extras not found in a normal manufacturing facility. The local authority required Wild Flavors to place its HVAC units on the roof of the building and to erect screen walls to hide them from passing traffic, and had also require extensive landscaping. Due to the nature of Wild Flavors’ business (development and manufacture of food flavorings) it was required to install elaborate interior and exterior odor control systems. Approximately 32% of the total square footage in the Wild Flavors plant was characterized as office space, which far exceeds the typical manufacturing facility. The Board of Tax Appeals adopted the PVA’s cost approach to value the property, but held that downward adjustments were required in order to reflect the super-adequacies of the property that would not be recognized by the market for industrial properties.
Dunaway v. DLX, Inc., No. 2000-CA-002519-MR (Ky. Ct. App. March 1, 2002)
Procedural Issues
This case addressed the question of how much information a taxpayer must supply to the local property valuation administrator (PVA) in order to preserve its right to further appeal a property tax assessment. The property owner held two separate conferences with the PVA challenging the PVA’s assessment, but failed to supply the PVA with supporting information. Consequently, the PVA and the local board of assessment appeals refused to adjust the initial assessment. After the Kentucky Board of Tax Appeals reduced the initial assessment, both parties filed appeals. On appeal, the PVA argued that the property owner’s appeal to the state board should have been dismissed due to the property owner’s failure to supply supporting information to the PVA. The court reviewed KRS 133.120, which sets forth the procedure for challenging property assessments, and found that, while the statute places a duty on a property owner to supply supporting information to the local board of assessment appeals, there is no similar requirement that the property owner supply any such information to the PVA.
Sunday Sun, Ltd. v. Warren County PVA , KBTA Order No. 18227 (July 27, 2001)
Procedural Issues
As is noted in the Dunaway v. DLX case, a property owner is not required to provide factual information to the PVA at the first stage of the Kentucky assessment appeal process. However, as the KBTA noted in the Sunday Sun case, the failure to provide supporting information before a local board of assessment appeals (the second stage of the appeal process) constitutes a failure to exhaust administrative remedies and constitutes grounds for dismissal of an appeal. In this case, the property owner had appealed the PVA’s assessment to the local board. Prior to the local board hearing, the property owner refused to comply with the PVA’s request that the property owner provide specific information on the property, including insurance policies and income and expense information. The property owner’s problems were compounded by the fact that its representative did not appear at the local board hearing, but instead presented testimony through a letter delivered to the board by a messenger with no knowledge of the property. The KBTA noted that the local board hearing provided for at KRS 133.120(7) is a trial-type administrative hearing, with evidence presented under oath that is subject to cross-examination. Because the property owner failed to appear in person before the local board, the property owner deprived the local board of the opportunity to scrutinize the information presented through cross-examination or questioning. In addition, the KBTA cited KRS 133.120(3), which mandates that an taxpayer’s appeal is to be denied if the taxpayer fails to provide "reasonable information pertaining to the value of the property." Because the property owner failed to comply with the PVA’s information requests and failed to appear at the hearing, the Board held that it had not complied with the requirements of KRS 133.120 and thus had failed to exhaust its administrative remedies.
Excel Telecommunications, Inc. v. Revenue Cabinet , KBTA Order No. K018214 (May 10, 2001).
Miscellaneous
In this case, the Kentucky Board of Tax Appeals found that a long-distance reseller is a "telephone company" subject to taxation in Kentucky and that the company’s leasehold interest in another carrier’s property constituted taxable property and a franchise. Excel leased lines, switches and facilities of another long-distance carrier that were located in Kentucky and had a service agreement for the right to use capacity on the carrier’s network. Although Excel was not regulated by the Kentucky Public Service Commission, it had obtained from the PSC the authority to operate and to provide interstate long-distance services as a non-dominant carrier. The KBTA found that Excel was a "telephone company" as that term is understood in everyday usage and thus was subject to taxation pursuant to KRS 136.115 et seq. KRS 136.120(2) requires telephone companies to pay tax on its "operating property," and the Board found that Excel’s leasehold interest in the other carrier’s lines and facilities was a taxable property interest.
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Christopher J. Dicharry, Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, LLP
Johnson v. La. Tax Commission, 807 So.2d 356 (La. App. 4 Cir. 1/16/02).
The Louisiana Constitution requires most challenges to the valuation set by an assessor to be reviewed first by a local board of review, then by the Louisiana Tax Commission, and finally by the courts. The Louisiana Fourth Circuit Court of Appeal has determined that while an assessor has the right to appeal an adverse decision of the board of review to the Louisiana Tax Commission, an assessor cannot appeal a final determination of the Louisiana Tax Commission to the courts. La. R.S. 47:1998 dealing with the judicial review of decisions of the Louisiana Tax Commission authorizes "[a]ny taxpayer or bona fide representative of an affected tax recipient body" dissatisfied with a determination of the Louisiana Tax Commission to file an appeal by filing suit in district court. The court determined that the assessor is not a representative of a tax recipient body.
Johnson v. Louisiana Tax Commission, 807 So.2d 329 (La. App. 4 Cir. 1/16/02).
Appeals from a decision of the Louisiana Tax Commission must be filed within thirty days of the entry of the decision. The assessor who had appealed from a decision of the Louisiana Tax Commission argued that her appeal filed more than thirty days after the entry of the decision was timely because of the ten-day rehearing period allowed under Louisiana law. The court determined that the rehearing period and the appeal period overlap and that appeals must be filed within thirty days of the entry of the Louisiana Tax Commission decision if no application for rehearing was filed. If a rehearing application had been filed, the thirty day period would begin to run from the denial of the application for a rehearing.
Crescent Real Estate Equities/1100 Poydras v. Louisiana Tax Commission, 809 So.2d 394 (La. App. 1 Cir. 9/28/01).
Taxpayer’s appeal from a decision of the Louisiana Tax Commission was not premature even though filed within the ten day rehearing period. Appeals from a determination of the Louisiana Tax Commission must be filed within thirty days of the entry of the decision of the Louisiana Tax Commission. "..., in the absence of a request for a rehearing, a decision or determination of the tax commission is ‘final’ as of the date of the tax commission’s entry of its decision. Pursuant to the rules and regulations promulgated by the tax commission, that date has been identified as ‘the postmark certificate of mailing’ of notification to the parties of its decision."
Affordable Housing Developers, Inc. v. Kahn, Director of Finance of City of New Orleans, et al, 785 So.2d 251 (La. App. 4 Cir. 4/25/01).
Landowners brought actions to recover interest and penalties paid under protest. The taxpayers had paid their ad valorem taxes late and the protests related to an ordinance adopted by the City of New Orleans after the delinquent taxes were paid. The ordinance retroactively imposed penalties and interest on delinquent taxes. The court ruled that the taxpayers had lost the right to contest the interest and penalties since their taxes were delinquent at the time of payment. Louisiana law requires the timely payment of ad valorem taxes in order to preserve the right to litigate the validity of the tax. The court determined that this rule of law applies to actions contesting the validity of penalty and interest impositions. As pointed out by the dissent, the taxpayer lost the right to challenge the new interest and penalty ordinance before the ordinance was even adopted by the City Council.
Louisiana Employers-Managed Insurance Company v. Litchfield , 805 So.2d 386 (La. App. 1 Cir. 12/28/01)
Taxpayer lost the right to contest its tax liability when it paid its taxes under protest after they had become delinquent.
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Margaret Ford, Smith, Gendler, Shiell, Sheff & Ford PA
Lake Superior Paper Industries v. State of Minnesota , et al. File No. C0-00-598 (Minn. Sup. Ct. April 5, 2001).
Valuation Issues; Minimum Assessment Agreements
LSPI challenges the 1996, 1997 and 1998 assessed value of its paper mill facility in Duluth . LSPI and the City of Duluth had entered into an assessment agreement in 1991 setting the minimum assessed value of LSPI’s property at $42,742,100. On appeal the Minnesota Supreme Court affirmed the tax court, ruling the minimum assessment agreement valid. LSPI argues among other things that the tax court erred in interpreting and applying the adjustment clause in the assessment agreement; that based on its plain language the City’s refusal to adjust the paper mill’s minimum market value downward constituted a breach of the implied covenant of good faith and fair dealing. The supreme court, recognizing that when interpreting assessment agreements, the language of the agreement is to be given its plain and ordinary meaning, found the adjustment clause indicates that the minimum market value can be changed only when both parties agree to the change; and there is nothing in the record to support LSPI’s claim that the City’s refusal to adjust the minimum value was either unreasonable or a breach of the implied covenant of good faith and fair dealing. LSPI next argues the assessment agreement is invalid because it does not satisfy the section 469.177 (8) statutory criterion. LSPI contends this provision requires that an assessment agreement be executed prior to completion of the improvements; the mill’s construction was completed before the agreement became effective in 1991. The supreme court rejected LSPI’s argument. Here the assessment agreement became effective when it was signed in January, 1999. Although the record indicates the construction of the paper mill was completed in 1987, the supreme court found the tax court was correct in determining that the assembly and acquisition of the land on which the improvements were to be constructed was not completed in January 1991, the date of the assessment agreement. Therefore the supreme court, like the tax court, held the assessment agreement was in compliance with Minnesota Statutes section 469.177 (8). LSPI next argues the assessment is invalid because the city assessor did not comply with the statutory duties imposed by Minnesota Statutes section 469.177 (8) in preparing the certification of minimum market value. Although the supreme court noted this issue is de novo, it agreed with the tax court’s determination that the assessor’s certification satisfied the statutory requirements in this case. Citing Brookfield Trade Center, Inc. v. County of Ramsey, 609 N.W.2d 868, 874 (Minn. 2000) as authority the supreme court recognized that the assessment agreement statute "simply requires the assessor to determine whether a minimum market value agreed to by the parties and presented to the assessor is a reasonable estimate." Specifically, the court must determine (1) whether the assessor received the proposed minimum market value, (2) reviewed the plans for the improvements constructed, (3) considered the property’s previous market value and determined that the agreement’s minimum market value was a reasonable estimate. Applying the Brookfield II analysis here the supreme court found the assessor (1) received the proposed minimum market value, (2) reviewed the plans for the improvements, (3) reviewed the land’s market value upon which the improvements have been and will be constructed, and ultimately determined that the agreement’s minimum market value appeared reasonable. Because LSPI did not rebut the presumption that the assessor’s certification complied with the statute, the supreme court held the tax court did not err in determining the assessor’s certification satisfied the statutory requirements. Accordingly the supreme court held the minimum assessment agreement in this case.
Rahr Malting Company v. County of Scott , 632 N.W.2d 572 (Minn. 2001).
Closure of Hearing
By petition for writ of prohibition Rahr Malting Company (Rahr) asks the Minnesota Supreme Court to prohibit the tax court from holding a public trial in Rahr’s appeal of the 1998 and 1999 assessments of its owner-occupied malting facility in Shakopee , Minnesota . The tax court below denied Rahr’s motion in limine to close the trial regarding certain testimony and to seal exhibits Rahr claimed were proprietary. The tax court found Rahr’s conclusory allegations of harm were insufficient to overcome the strong presumption in favor of open proceedings and the statute mandating a public trial. In considering Rahr’s petition the supreme court explained that a writ of prohibition may be issued when: (1) an inferior court or tribunal is about to exercise judicial or quasi-judicial power; (2) the exercise of power is unauthorized by law; and (3) the exercise of power will result in injury for which there is no adequate remedy. There was no dispute that the tax court exercised its quasi-judicial power when it denied Rahr’s motion in limine. With respect to the second factor, the supreme court concluded the tax courts’ refusal to close the trial and seal the court records was not an unauthorized exercise of power. The supreme court pointed out the tax court is in the best position to weigh the parties’ competing needs and interests, and here the court simply found that, in light of the presumption in favor of open proceedings and the statute requiring a public trial, Rahr failed to adequately show the harm it would suffer if disclosure were allowed. The supreme court concluded the tax court’s finding is supported by the record, the affidavits and testimony containing only conclusory allegations of harm. Because Rahr cannot show that the tax court’s action was unauthorized, the supreme court held the court’s denial of the motion in limine does not meet the requirements for issuing a writ of prohibition. Since the court held the tax court’s action was not unauthorized by law, it noted there was no need to address factor (3) of the writ of prohibition analysis. Although the court denied Rahr’s petition for writ of prohibition, it noted it was not clear from the record that Rahr had an adequate opportunity to fully present its case for closure of trial at the motion hearing. Nothing in the hearing transcript indicates it was closed to the public. Concerned that Rahr may have been inhibited in presenting its evidence by the public nature of that hearing, the court remanded the matter to the tax court for proceedings consistent with its opinion.
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Northwest Airlines, Inc. v. County of Hennepin , C7-00-1876 (Minn. Sup. Ct. filed August 30, 2001).
Motion to Dismiss for Failure to Provide Income and Expense Data.
Northwest Airlines (Northwest) filed appeals on the 1996, 1997 and 1998 assessed value of four properties it leases from the Metropolitan Airports Commission (MAC) at the Minneapolis/St. Paul International Airport (MSP). The County and Northwest previously settled appeals on three of the four. The property at issue is the remaining parcel upon which the Main Base Building is located. From 1956 to 1995 Northwest leased the property from MAC under an agreement whereby its lease payments were calculated to amortize MAC’s bond costs. The lease provided that one year before its expiration the parties would negotiate for a new lease upon rates, terms that are reasonable in light of conditions then existing at the airport. Although the lease expired on June 30, 1991 it was extended from month to month until a new lease agreement effective January 1, 1995 was signed. The 1995 lease required Northwest to pay MAC monthly rent starting at $83,333. Although the County had sufficient information to settle appeals on the other leased parcels, it moved to dismiss the petitions on the remaining parcel under the Sixty-Day Rule, claiming Northwest failed to provide the 1995 lease information within the required time period. The County for over twenty years has valued the subject property by using a traditional cost approach to value. It now argues the property is income-producing, subject to the Sixty-Day Rule requirements. The tax court agreed that the Main Base Building is income-producing and dismissed Northwest’s petitions for failure to comply with Minnesota Statutes section 278.05 (6)(a). In the supreme court, as in the tax court the County argues the property is income-producing, subject to the Sixty-Day Rule because Northwest since 1995 has paid rent to MAC under an arms-length lease. Northwest admits it did not provide the County the 1995 lease information within the sixty-day period, but argues the property is owner-occupied and therefore not subject to the Sixty-Day Rule. Northwest cites section Minnesota Statutes section 272.01 (2)(a) under which Northwest as lessee is treated as the property owner. That section provides:
When any real or personal property which is exempt from ad valorem taxes,and taxes in lieu thereof, is leased, loaned, or otherwise made available and used by a private individual, association, or corporation in connection with a business conducted for profit, there shall be imposed a tax, for the privilege of so using or possessing such real or personal property, in the same amount and to the same extent as though the lessee or user was the owner of such property.
Minn. Stat. § 272.01 (2)(a) (2000). The supreme court rejected Northwest’s argument, finding that the above statute essentially shifts the real property tax liability to Northwest as a personal property tax in an amount MAC would have been required to pay had MAC not been an exempt property owner. The supreme court like the tax court concluded the subject property is income- producing because Northwest pays rent to MAC under an arm’s length lease, for the use of the land and improvements. The supreme court also rejected Northwest’s special purpose property argument and reliance upon In re McCannel, 301 N.W.2d 910 (Minn. 1980) and Northwest Airlines, Inc. v. County of Hennepin, 537 N.W.2d 488 (Minn. 1995), reasoning the issue of what property interest is to be assessed was not raised in either case. The supreme court affirmed the tax court’s decision dismissing Northwest’s petitions for failure to provide the 1995 lease information within the section 278.05 (6)(a) sixty-day period.
Justice Paul Anderson concurred but wrote separately to clarify particular concerns. Although Justice Paul Anderson concurred with the majority, he wrote of his concerns about the harshness of the section 278.05 (6)(a) sixty-day deadline. Justice Anderson recognized the difficulty in complying with the statute in this situation is the complex scheme of classifying Northwest as an owner/leaseholder and classifying the property as income-producing, even though the source of the income is the lease payments made by Northwest. Justice Anderson pointed out that because of the tax scheme’s complexity, "it is oftentimes difficult to fit the essential pieces together and still comply with the 60-day deadline." Justice Anderson suggested that the legislature may want to reconsider this statutory scheme and its consequences.
Justice Gilbert, joined by Justice Page, concurred in part and dissented in part. Justice Gilbert wrote that although he generally concurred with the majority’s legal reasoning, he would not apply its analysis under these facts to deprive Northwest of a hearing. Justice Gilbert stated that for over twenty years, since the court’s decision in In re McCannel, 301 N.W.2d 910, 932-24 (Minn. 1980) Hennepin County has been valuing the subject leased property by using a traditional cost approach for this special use property; then on January 4, 2000 the County switched its appraisal approach after the sixty-day deadline in section 278.05 (6)(a) had expired. Justice Gilbert concluded "[t]he county is trying to take unfair advantage of this change in strategy without notice to Northwest after a long-term course of dealings using a different classification that did not require income figures." Based on these facts the Justice reasoned it is unfair and inequitable for Hennepin County to benefit by its changed tactics. Accordingly Justice Gilbert would affirm the tax court’s analysis, but make the decision prospective and remand for a hearing on the tax years in question.
Programmed Land, Inc., et al. v. O’Connor, et al., CX-99-777, C7-99-1210 (Minn. Sup. Ct. filed September 20, 2001).
Recovery of Overpayment
In these consolidated cases commercial and industrial property owners seek reimbursement for taxes they overpaid as a result of the counties’ erroneous application of property tax class rates. Although respondents did not file timely claims challenging the erroneous property taxes under Minnesota Statutes section 278.01 (1), they sought relief under other statutes and included constitutional and equitable claims of relief. The court of appeals held that the application of the wrong class rate was not an assessment error and therefore not subject to challenge under Minnesota Statutes section 278.01 (1) (2000). The court also ruled that respondents could not seek refunds based on the class rate error under Minnesota Statutes section 276.19 or based on their constitutional arguments. Because no statutory or constitutional remedy was available, the court concluded that respondents can proceed for reimbursement in common law or equity. Upon review the Minnesota Supreme Court recognized the basic issue in this case is the scope of Minnesota Statutes section 278.01 (1) (2000) which provides in relevant part:
Any person having personal property, or any estate, right, title, or interest in or lien upon any parcel of land, who claims that such property has been partially, unfairly, or unequally assessed in comparison with other property ..., or that the parcel has been assessed at a valuation greater than its real or actual value, or that the tax levied against the same is illegal, in whole or in part, or has been paid, or that the property is exempt from the tax so levied, may have the validity of the claim, defense, or objection determined by the district court of the county in which the tax is levied or by the tax court .... [T]he petitioner must file the copies [of a petition for determination] with proof of service ... on or before March 31 of the year in which the tax becomes payable.
Section 278.01 (1) provides a cause of action to bring five types of challenges to property taxes within a limited time frame - by March 31 of the year taxes are payable. The counties claim the misapplication of class rates can be challenged as either a partial, unfair or unequal assessment or the levy of an illegal tax. The supreme court agreed, concluding that assessment is the process by which taxable value is ascertained, and that process includes the determination of market value, classification and the application of class rates. A property’s taxable value is its net tax capacity. Therefore, assessment for the purposes of section 278.01 (1) is the process of determining a property’s net tax capacity. Accordingly the supreme court held that applying the appropriate class rate is part of the assessment process and any errors in applying the class rates resulting in the partial, unfair or unequal assessment of property are subject to challenge under section 278.01 (1). The court also concluded that the assessor’s application of class rates is part of the extension and collection of taxes by executive power; therefore the misapplication of class rates as prescribed by statute is the levy of an illegal tax for the purposes of section 278.01 (1). Having determined that respondents’ claim is an assessment challenge the supreme court, consistent with Evanson v. Comm’r of Taxation, 280 Minn. 559, 561, 159 N.W.2d 259, 261 (1968), ruled chapter 278 is respondents’ exclusive statutory remedy. The court further rejected respondents’ argument that section 276.19 creates an independent cause of action to challenge overpayment. (Section 276.19 provides that if an overpayment arises on a parcel for any reason the county must notify and instruct the taxpayer how to claim the overpayment.) The court reasoned that while the phrase "overpayment ... for any reason" is inclusive, to adopt such a statutory construction would effectively abrogate the statute of limitations set forth in section 278.01 and subvert its policies. The court found section 276.19 is a notice statute; it does not provide an independent procedure to challenge an overpayment. With respect to respondents’ constitutional claims the supreme court held the class rate error did not violate respondents’ federal and state due process or equal protection rights. Regarding due process, the notice of estimated tax gave respondents adequate notice from which to inquire about the basis of the tax and then challenge it if taxpayer believes it was calculated improperly. To meet the evidentiary burden of establishing an equal protection violation a taxpayer must show the purported disparity between taxpayer’s assessment and that of similarly situated properties was the result of intentional or arbitrary discrimination. Here the court found there is no evidence the assessors intentionally or arbitrarily applied the reduced rate to some eligible properties but not to others. In summary the supreme court reversed the court of appeals, concluding: (1) Minnesota Statutes section 278.01 (1) provides a statutory remedy for respondents’ overpayment claim; (2) because a statutory procedure was available, common law and equitable remedies are not; (3) respondents’ claim is time-barred under section 278.01 (1). The court affirmed the court of appeals that respondents cannot seek refunds because of erroneous class rates under section 276.19, or on constitutional grounds in this situation.
Justice Stringer, joined by Justices Page and Gilbert, dissented. The Dissent writes that the majority’s definitions of "assessment" and "levy of an illegal tax" under section 278.01 (1) are overbroad and result in the application of the strict statute of limitations in section 278.01 to claims the statute was not intended to extinguish. The Dissent would conclude that applying class rates is not an assessment or levy for purposes of the taxpayers’ remedies under section 278.01. Without a statutory remedy the Dissent would hold respondents are entitled to seek recovery for overpayment under theories of common law or equitable relief.
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Skyline Preservation Foundation v. County of Polk , File No. C0-00-360 (Minn. Sup. Ct. February 8, 2001).
Taxable Versus Non-taxable Property; Exemption Issues; Institutions of Purely Public Charity
The Minnesota Supreme Court reversed the tax court’s decision, holding that taxpayer Skyline Preservation Foundation, Inc. (Skyline) is an institution of purely public charity, exempt from taxation under Article X of the Minnesota Constitution and section 272.02 (1)(6) of the Minnesota Statutes. In North Star Research Institute v. County of Hennepin, 306 Minn. 1, 236 N.W.2d 754 (1974) the supreme court listed six factors as guidelines in determining whether an organization is an institution of purely public charity:
(1) whether the stated purpose of the undertaking is to be helpful to others without immediate expectation of material reward;
(2) whether the entity involved is supported by donations and gifts in whole or part;
(3) whether the recipients of the "charity" are required to pay for the assistance received in whole or in part;
(4) whether the income received from gifts and donations and charges to users produces a profit to the charitable institution;
(5) whether the beneficiaries of the "charity" are restricted or unrestricted, and, if restricted, whether the class of persons to whom the charity is made available is one having a reasonable relationship to the charitable objectives;
(6) whether dividends, in form or substance, or assets upon dissolution are available to private interests.
306 Minn. at 6, 236 N.W.2d at 757. Agreeing with the tax court that Skyline already established it satisfied factors one and six, the supreme court limited its analysis to factors two through five.
The tax court determined Skyline failed to demonstrate compliance with factors two through five, since it had no record of actual operation - the tax court reasoned the exemption applies to organizations performing current, and not contemplated, charitable activities. The supreme court disagreed, concluding that proof based on actual current operations is not the only method by which the North Star factors may be satisfied. Rather, a new organization that has not yet provided charitable services may still qualify as a purely charitable institution by demonstrating clearly that its planned operations are compatible with the North Star factors. The supreme court noted the focus of the second factor: whether a would-be charity receives an adequate percentage of its revenue from altruistic supporters. Recognizing that Skyline was a new organization and had received its support entirely in the form of gifts and membership fees, the court concluded Skyline therefore fulfills this factor. The third factor asks whether recipients of the organization’s benefits are required to pay for those benefits, in whole or in part. This factor is intended to assess whether people will benefit from the organization’s activities to an extent greater than if the organization were merely providing a service as part of the private market. Finding there was no evidence Skyline had any plans to charge users for the benefits it would provide through the community center, the court concluded Skyline satisfied the third factor. With respect to the fourth factor, the court pointed out again that when a new organization seeks exempt status, evidence based on past and current performance is not the only way to demonstrate compliance. Observing that at the time Skyline was denied exempt classification there was no evidence it had ever produced a profit, nor was there any likelihood of this occurring, the supreme court found Skyline satisfied the fourth factor. With respect to the fifth factor, the supreme court pointed out that for a new organization it would look at the organization’s structure and future plans. Here Skyline’s bylaws show the planned community center will be an open, inclusive institution, providing educational, recreational and entertainment opportunities. Because at the time Skyline was denied exempt classification there was no evidence it had restricted or had any plans to restrict the beneficiaries of its acts, and because Skyline’s planned use of the property would lessen the burden of government, the supreme court concluded Skyline also satisfied factor five. Accordingly the supreme court found Skyline qualified as a purely public charity and its property classified in 1997 as exempt.
Space Center Enterprises, Inc. v. County of Ramsey, File Nos. C6-97-3361, C1-98-3228, C1-99-2929, C4-99-11298 (443 Lafayette), File Nos. C8-97-3359, C2-98-3237, C8-99-2944, C2-99-11302 (444 Lafayette) (Minn. Tax Ct. January 9, 2001). Krause.
Commercial/Industrial Property
At issue is the taxable value of two properties located directly across the street from one another at 443 and 444 Lafayette , St. Paul . The 443 Lafayette building consists of four stories and a full basement originally built for warehouse use. The improvements were originally constructed in 1919 with substantial renovations in 1987 to convert the building to office use. The 444 Lafayette building consists of six stories and a basement originally built for warehouse use. The improvements were originally constructed in 1919 with substantial renovations made in 1986 to convert the building to office use. Both experts considered all three approaches to value, but like the court, placed little weight on the cost approach due to the age and structural obsolescence of the building. Finding the highest and best use of the properties is a single tenant office building, and relying primarily on the income approach, the tax court reduced the assessor’s 1996, 1997, 1998 and 1999 market value on both properties. Also at issue is equalization relief under Minnesota Statutes section 278.05 (4). The County did not challenge the 1996, 1998 and 1999 Sales Ratio Studies introduced as evidence by petitioner. Pointing out that it prefers the nine month study in the smallest jurisdiction when adequate sales are available in the sample, the tax court found the resulting median ratio for St. Paul as of January 2, 1996 is 86.2%; the median ratio for 1998 was 81.8% and for 1999 was 81.3%. Therefore the court further reduced the market value of each subject property by 8.8% as of January 2, 1996 , 13.2% as of January 2, 1998 and 13.7% as of January 2, 1999 . With respect to the experts’ qualifications, the court pointed out that it does not regard minor deviations from USPAP guidelines, which do not affect the appraisers’ conclusion, as necessarily evidence of lack of credibility. Moreover the court found that the number of times an expert has testified for the county or the taxpayer, is on its own, irrelevant as a measure of credibility. Personal bias or motive is not assumed. The quality of work, adherence to relevant standards, candor and ability to explain their analysis are among the significant factors in determining credibility.
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FACS of New Ulm, LLC v. County of Brown, File No. CX-00-222 (Minn. Tax Ct. May 25, 2001). Krause.
The issue in this case is the value of several dry and cold storage properties in Brown County . The experts agreed that the property’s highest and best use was storage and warehousing. Although both appraisers considered the cost approach, they disagreed over the proper amount of depreciation and whether to include the value of the HVAC (heating, ventilation, air conditioning system) as part of the real estate. The court found that regarding depreciation the figures used by the County’s expert are reasonable and comport with standard appraisal practice, while petitioner’s expert made no attempt to adequately explain how he arrived at his depreciation figures. Therefore the court relied upon the County’s depreciation. With respect to the HVAC system, the court found the refrigeration equipment component is not part of the real estate for valuation purposes. The court reasoned that the refrigerated and frozen storage requires equipment that is beyond the needs of an average commercial building; the refrigeration equipment is attached to the building by pipes and fittings, and cannot be removed without damage to the remaining structures. The court therefore found the refrigeration equipment is personal property, exempt from property tax assessment, and reduced the County’s cost approach estimate by $514,000 (the value the County placed on the equipment). While both experts considered all three approaches to value, ultimately the court placed most weight on the sales approach because it found it provided the most accurate reflection of the market. The court noted that the income approach estimate, while a useful benchmark, is problematic here because of the owner’s lack of accurate income information. The court gave the cost approach less weight because of the age of most of the buildings, pointing out the cost approach is most useful when valuing new structures. Placing more credibility in the County’s appraisal, the court accepted its $3,750,000 value and affirmed the assessor’s $3,750,000 estimated market value for the subject property.
Hoheisel v. County of Morrison , File No. CX-00-1413 (Minn. Tax Ct. June 7, 2001). Krause.
The issue in this case is the 2000 assessed value of petitioner’s bar and storage building in Genola , Minnesota , and whether the property was unequally assessed. The court found petitioner’s uncontroverted evidence of actual cost is sufficient to overcome the presumption that the assessor’s estimated market value is correct. The court explained the cost approach to value is an attempt to determine the property’s market value by analyzing the market costs to construct a similar property. Actual costs are an indicator of market costs, but must be adjusted when actual costs do not represent actual market conditions. In a normal market project of this type there are architect, general contractor and labor costs. There is also an assumed profit margin for the developer. Petitioner admitted his cost figure did not include the normal costs of an architect, general contractor or entrepreneurial profit. The court placed considerable weight on the cost approach in this case, but adjusted petitioner’s actual costs to reflect true market costs. Accordingly the court reduced the assessor’s value from $256,600 to $200,000. With respect to petitioner’s unequal assessment claim the court recognized the countywide Sales Ratio Study shows the median level of assessment for the ten sales of commercial/industrial property was 94.9% of value. Because the general level of assessment was greater than 90% of value, the court under Minnesota Statutes section 278.05 (4)(d) denied petitioner’s claim for ratio relief.
Kmart Corporation v. County of Crow Wing, File No. CX-00-768 (Minn. Tax Ct. July 19, 2001). Krause.
Petitioner appeals the 1999 assessed value of a single tenant, single story retail building attached to the Westgate Mall in Baxter , Minnesota . The building is occupied by Kmart Corporation under a lease that commenced in 1979. Both experts agree that the highest and best use of the property as improved is a single tenant "big box" discount retailer. The issue in this case is the degree to which general property increases have affected the subject property. The court found the property has benefited from the significant growth in the Brainerd/Baxter area. This overall growth rate has increased the value of the subject property. The court observed that benefit, however, has been tempered by the potential for a major shift in traffic patterns as a result of the bypass and development of a new core shopping area north of the bypass. The court concluded these factors indicate the subject property has not increased as much as the County alleges nor as substantially as other, better placed properties. Placing no weight on the cost approach, some weight on the sales approach, and relying primarily on the income approach the court found a 1999 market value of $2,000,000. (The assessor’s 1999 estimated market value was $1,862,700; petitioner’s expert testified to a $1,650,000 value; County’s expert testified to a $2,975,000 value.) Based on the Sales Ratio Study for the County of Crow Wing the court under Minnesota Statutes section 278.05 (4) then granted petitioner equalization relief, reducing the 1999 $2,000,000 value by 17.3%, resulting in a $1,654,000 taxable value.
Jennie-O Foods, Inc. and Heartland Foods v. County of Lyon , File No. C0-99-265, C0-00-287 (Minn. Tax Ct. August 21, 2001). Sanberg.
This case concerns the 1998 and 1999 valuation of an owner-occupied turkey processing facility in Marshall , Minnesota . Petitioner contends the assessor’s 1998 and 1999 $2,461,000 EMV exceeds the property’s fair market value, and that the subject property was unequally assessed. Both experts considered all three approaches to value, but chose not to use the income approach since the property was owner-occupied. Although the tax court also agreed with both experts’ decision to place little reliance on the cost approach because of the building’s age, substantial depreciation and obsolescence, the court observed the cost approach analysis did aid the court in reaching its value conclusion by providing a range of values that serve as a reality check against the results determined from the sales approach. After reviewing the data and expert testimony the court found the range of value under the cost approach to be $1.3 - 1.6 million. The tax court, like both experts, gave most weight to the sales approach. All of the seventeen comparables used by the experts (13 by petitioner, 4 by the County) required significant adjustments. Consequently, the court relied on very few of the comps in its final analysis. In discussing the County’s reliance upon one comparable for 65% of its final valuation - the property’s 1997 CRV - the court reiterated its six-factor analysis in determining the weight to be given a comparable that is part of an on-going business. These factors include: (1) how the real estate allocation of the overall purchase price was determined; (2) was there an appraisal upon which the allocation was based; (3) who did the appraisal; (4) what was the basis of the appraisal; (5) evidence that tends to support or rebut the values listed in the CRV; and (6) evidence, if any, that extraneous considerations influenced the allocation amount. Here the uncontroverted testimony indicated the CRV number was picked by the sale parties’ lawyers for convenience just days before the sale. No facts were presented that petitioner believed the allocation in the CRV or the purchase agreement was the true property value for ad valorem purposes. No appraisal of the property was undertaken before the sale. Finding there was insufficient evidence under the six-factor analysis to support use of the sale or the CRV’s stated valuation the court therefore excluded the County’s comp. Giving most weight to the sales approach, after adjustments, the court found an estimated market value of $1,420,000 for both years. The court pointed out this value is within the ranges presented by both experts (petitioner - $900,000, County - $2,185,000), and is supported by the court’s cost approach range of value. With respect to petitioner’s unequal assessment claim for the 1999 assessment, the court granted petitioner ratio relief. The nine-month 1999 Sales Ratio Study for the City of Marshall and Lyon County shows a median ratio of 87.7%. Accordingly the court granted petitioner the relief directed in Minnesota Statutes section 278.05 (4) and reduced the 1999 assessed value 7.3%.
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Jennie-O Foods, Inc. and Heartland Foods Co. v. County of Kandiyohi , File No. C8-99-0404, CX-00-0492 (Minn. Tax Ct. September 11, 2001). Krause.
Petitioner contests the 1998 and 1999 assessed value of Jennie-O’s corporate headquarters and turkey evisceration/processing plant in Willmar , Minnesota . The assessor’s 1998 and 1999 estimated market value was $5,900,900 and $6,424,600, respectively. In considering the three approaches to value the tax court agreed with both experts that the income approach is inapplicable here because the property is not income-producing. Both experts performed a cost approach analysis, but the court agreed the cost approach is of less use than the sales approach in this instance. The cost approach most closely approximates market value when the subject is new. The court pointed out in this case the property is not new and some parts were twenty-five years old at the assessment date. Although both experts also performed a sales approach analysis, the court found both analyses are limited by comparable sales that were part of the sale of an on-going business, that contained allocations of personal property, had been vacant for significant periods of time, or were from other states. All of these factors made true comparisons difficult and resulted in the court’s decision to give more weight to the cost approach than it would otherwise. Placing more weight on the cost and sales approach conclusions of petitioner’s expert, with certain adjustments, the court therefore reduced the 1998 value to $5,000,000 and the 1999 value to $5,390,000. The court further granted petitioner equalization relief based on the nine-month Sales Ratio Study for the City of Willmar . The Study shows eight sales for the 1999 period with a median ratio of 87.4%. In accordance with section 278.05 (4) of the Minnesota Statutes the tax court therefore reduced the 1999 estimated market value of $5,390,000 by 7.6%. The reduction equals the difference between 95% of market value and the median ratio determined by the Study.
FACS of New Ulm , LLC v. County of Brown , File No. CX-00-222 (Minn. Tax Ct. August 13, 2001). Krause.
Procedural and Other Issues
Allowance for Costs and Disbursements
Consistent with its earlier decisions the tax court in this case confirmed it will not award costs and disbursements for the time the party’s expert spent preparing for trial or for the appraisal fee. Here respondent seeks under Minnesota Statutes section 278.07 and Rule 8610.0150 of the Tax Court Rules of Procedure reimbursement for trial preparation by its expert witness and others, the expert witness’s preparation of a summary and complete appraisal, and miscellaneous expenses. While denying respondent trial preparation and appraisal costs the court granted respondent the cost of its expert’s actual testimony time. The court further denied the request for miscellaneous charges because respondent’s affidavit did not contain sufficient supporting documentation.
Lake Superior Paper Industries v. County of St. Louis , File Nos. CX-96-600516, C4-97-600649, C1-98-600621 (Minn. Tax Ct. October 17, 2001). Krause.
Intervenor City of Duluth brings a motion for costs and disbursements in this case. Costs and disbursements in a chapter 278 case are governed by section 278.07 of the Minnesota Statutes which provides in relevant part:
If the tax is sustained in the full amount levied or increased, costs and disbursements may, in the discretion of the court, be taxed and allowed as in delinquent tax proceedings and shall be included in the judgment.
If the tax so determined is decreased from the amount originally levied, the court, may in its discretion, award disbursements to the petitioner .... Minn. Stat. § 278.07 (2000). Intervenor in a conclusory statement claims approximately $16,000 in photocopy costs. The court denied the claim, reasoning intervenor’s conclusory statement was insufficient to support its claim. With no documentation as to dates and purpose of the expenses, intervenor also claims $621.85 in court reporter fees. The court denied the claim, refusing to award costs for undocumented court reporter fees where the court could not determine from the affidavit the purpose of such costs. Intervenor then claims $26,339.07 in costs to have its counsel, Mr. Maki deposed. The court denied this claim for three reasons. First, intervenor had poor documentation for its claim. Second, the court pointed out it generally does not award attorneys’ fees except as provided under section 15.472 of the Minnesota Statutes. Here intervenor made no claim under section 15.472 and alleged no circumstances in this case that would cause the court to change its past practice. Third, the court found intervenor failed to show a proper claim under Rule 45.06 of the Minnesota Rules of Civil Procedure. With respect to intervenor’s request for statutory costs the court observed that counsel for intervenor first stipulated the EMV of the subject property would be reduced to the minimum assessment agreement level. Intervenor now rejects that stipulation, and substantially qualifies an earlier stipulation regarding the agreement’s termination date. The court stated both stipulations, later recanted or qualified were ill-considered and led to confusion and the need for addition hearings, briefs and expense for petitioner, the tax court and supreme court. Accordingly the tax court exercised its discretion under section 278.07 and denied intervenor’s request for statutory costs.
J.C. Penney Properties, Inc. v. County of Hennepin , File Nos. TC-26456, TC-27192 (Minn. Tax Ct. July 18, 2001). Perez.
Amended Findings or New Trial
Hennepin County files a motion for amended findings and/or new trial of the tax court’s December 18, 2000 decision. The County files its motion under Rule 59.01 of the Minnesota Rules of Civil Procedure and Minnesota Statutes section 271.08 (1). The County’s first group of requested amendments consists of minor clerical and immaterial errors. The court granted these amendments to reflect greater accuracy. The second group of requested amendments concerns issues for which the County seeks additional explanation. The first issue is whether the court correctly excluded the mezzanine from the total gross area of the TBA. The tax court found there was no error; it excluded the mezzanine area based on the expert testimony presented at trial. The court next rejected the County’s argument that the court considered only one approach in determining the property’s value. The court pointed out its decision is clear that it addressed all three approaches, but gave differing weights to them. Another issue raised by the County is whether the court in the income approach should have used actual sales or higher sales because Ridgedale Mall is a well-located super regional mall. The court confirmed its reliance on actual sales, finding the expert testimony recommending use of actual sales persuasive. The court also rejected the County’s claim of error regarding the court’s acceptance of the cap rate analysis of respondent’s witness (Ramslund). The court explained it found Ramslund’s analysis persuasive, because of the admission by the County’s witness that his cap rate analysis had limited support. Finally the County claims the court in its December 18, 2000 decision upheld the assessor’s 1997 and 1998 EMV; consequently the court cannot apply a sales ratio reduction under controlling precedent. The court rejected the County’s argument, reasoning that it determined its own value through evidence presented at trial and therefore may apply a sales ratio reduction. The court observed that it determined values of $9,020,000 and $9,090,000 for 1997 and 1998 respectively, but affirmed the assessor’s original 1997 and 1998 assessment of $8,913,7000 because the values were almost equal. In order to accurately reflect the court’s value determination, the court therefore amends its Conclusion of Law as stated above.
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FACS of New Ulm, LLC v. County of Brown, File No. CX-00-222 (Minn. Tax Ct. August 13, 2001). Krause.
Although the tax court affirmed its finding of value ($3,750,000) in its May 25, 2001 decision, it agreed with petitioner that the court incorrectly assumed the assessor’s EMV corresponded with the appraised value submitted by the County’s independent appraiser ($3,750,000). Accordingly it granted petitioner’s request to amend Finding No. 5 and Conclusion No. 1, to accurately reflect the assessor’s lower EMV of $2,760,600. The court pointed out there was ample evidence introduced at trial to support the $3,750,000 market value, and the fact that there was an EMV of a differing amount does not affect the outcome. Finally, concluding there is no basis for a new trial the court denied petitioner’s motion in this regard.
Rahr Malting Company v. County of Carver, File Nos. 99-03807, 00-01171 (Minn. Tax Ct. November 15, 2001). Krause.
Upon remand from the supreme court the tax court denied Rahr’s motion for an in camera review of additional facts regarding its earlier motion to close portions of the trial and seal certain records Rahr claimed was proprietary. In October, 2001 the tax court held a hearing to determine what actions it must take to be consistent with the supreme court opinion issued in August, 2001. At the hearing the parties confirmed that the tax court in May, 2000 held an off-the record conference, the purpose of which was to discuss the procedural steps necessary for Rahr’s motion in limine. Rahr’s counsel was given the option of presenting evidence in camera at the conference. Rahr’s counsel declined on the grounds disclosure of the confidential information was unnecessary to substantiate its claim. The tax court then proceeded to public hearing on the motion in limine. Rahr now argues the supreme court remand gives it a second chance to prove its case. The tax court disagreed, pointing out that Rahr had an adequate opportunity for an in camera hearing. It instead chose a public hearing. The tax court explained the evidence at that hearing was insufficient to meet the Schumacher and Northwest Racquet tests set forth in the tax court’s July 10, 2000 decision in this matter. The tax court therefore denied Rahr’s request for a second hearing on the same issue and set the matter for trial, finding that decision consistent with the supreme court opinion.
FACS of New Ulm LLC v. County of Brown, File No. CX-00-222 (Minn. Tax Ct. January 11, 2001). Krause.
Motion to Dismiss for Failure to Provide Income and Expense Data
The parties in this case agree that the subject property is income-producing and therefore subject to the information provision requirements of Minnesota Statutes section 278.05 (6)(a) (60-Day Rule). The County moves for dismissal claiming insufficient production of information under the 60-Day Rule. Although petitioner within the 60 days provided some information (including net rentable areas, income statements, depreciation expense reports), it refused to provide information pertaining to its business operations, as distinct from the real estate, without a confidentiality agreement. The County refused to enter into such an agreement. The tax court found the material petitioner provided the County was a "meaningful submission" under the 60-Day Rule. The court noted petitioner’s and the County’s appraisers were able to complete their appraisals with the information provided. Citing Doddway Investment Co. v. County of Dakota , File No. CX-97-7301 (Minn. Tax Ct. Order dated Aug. 1, 1997), aff’d, 578 N.W.2d 348 ( Minn. 1998), and Mendota Mall Assocs. v. County of Dakota, File No. CX-97-7300 ( Minn. Tax. Ct. Order dated Aug. 1, 1997), aff’d, 578 N.W.2d 350 (Minn. 1998) as authority that a petitioner is not required to provide audited financial statements under the 60-Day Rule, the tax court concluded the information provided in this case is sufficient to comply with the Rule requirements. The court pointed out that it has also held that income and expense information pertaining to the underlying business operation is not normally subject to the requirements of the 60-Day Rule. Accordingly the court denied the County’s motion to dismiss, noting that the rules of discovery still apply. Information beyond that which is required by the 60-Day Rule should be obtained through the normal process of discovery.
Kmart Corporation v. County of St. Louis, File Nos. C1-00-600670, C3-00-600671, C8-00-600665, CX-00-600666 (Minn. Tax Ct. January 11, 2001). Perez.
This case involves four Kmart stores in St. Louis County . Two of the properties are in Duluth ( Mall Drive and West Duluth ). The other two properties are in Virginia and Hibbing (the Virginia store and the Hibbing store). Petitioner filed petitions for all four properties. The County does not dispute that petitioner provided information within the 60 day period; the issue is whether the information provided complies with the 60-Day Rule. Petitioner provided the County lease summaries for the four Kmart properties. The lease summaries for each property, except the Hibbing store, contained a base rent and note that if petitioner’s gross sales exceed a certain amount, an escalator clause is triggered. The Hibbing store lease is a flat rental lease and the County does not dispute that the information provided on it complies with the Rule. The tax court observed that in this case, the relevant information for three of the four Kmart properties is whether the escalator clause was triggered in order to determine total rent paid. Without this statement the County could not begin its appraisal; the information provided to the County was meaningless. Reasoning that the income information petitioner provided does not allow the County to begin its appraisal of the Kmart properties, other than the Hibbing store, the tax court concluded such information does not comply with the 60-Day Rule. With respect to expense information, the court noted that there is a rent adjustment clause in three of the Kmart property leases; a rent adjustment if real estate taxes exceed a certain amount. The court found that for petitioner to comply with the 60-Day Rule, it was required to provide the County with a statement indicating whether the taxes exceeded the threshold amount and the tax payments petitioner made. The court concluded that without providing this expense information, available to petitioner, the County cannot meaningfully begin its appraisal for those three Kmart properties. Therefore the court found that petitioner was not in compliance with the 60-Day Rule in providing expense information on Mall Drive, West Duluth and the Virginia store. However, the court recognized that since other operating expenses, including insurance, utilities, and common area maintenance and repair expenses that are paid by the tenant do not reduce the landlord’s income, those expenses are not relevant in calculating the property’s value, and do not have to be provided in this case. The court granted the County’s motion to dismiss on the Mall Drive, West Duluth and Virginia store, while dismissing the County’s motion on the Hibbing store.
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Kmart Corporation v. County of Douglas, File No. C7-00-309 (Minn. Tax Ct. January 11, 2001). Krause.
In this case the tax court confirmed that taxpayer’s petition should not be dismissed under the 60-Day Rule, where the petitioner failed to provide the County tenant-paid business expenses related to real estate mixed with non-real estate expenses. The court held that because, under normal circumstances, the tenant business data, including expenses relating to the real estate that are paid by the tenant, is not useful in appraising the property’s market value, it is not required to be provided under the 60-Day Rule. With respect to the issue of income information, petitioner provided the County within the 60-day period a copy of its lease with the landlord. The court noted that in this case the lease contains a base rent and notes that if petitioner’s gross sales exceed a certain amount, an escalator clause is triggered resulting in increased rent. Petitioner provided the lease but did not provide any information if the escalator clause was triggered. Petitioner admits it had that information during the 60-day period but did not disclose it. The court found such information is relevant and must be provided; without it the lease is not useful and no income data can be deemed to have been provided. Accordingly the court affirmed its previous order dismissing the case for failure to comply with the 60-Day Rule, but on the ground that petitioner failed to provide complete and relevant income information.
Kmart Corporation v. County of Becker , File No. C2-00-395 (Minn. Tax Ct. March 16, 2001). Krause.
Petitioner on March 28, 2000 , filed a petition challenging the assessment of its Detroit Lakes store. Petitioner was a tenant of the subject property on the assessment date, January 2, 1999 . In October, 1999 petitioner purchased the subject property from landlord. By letter dated May 22, 2000 petitioner sent certain information to the Becker County assessor in an effort to comply with the 60-Day Rule. The County moves for dismissal, arguing the provided information was insufficient. Petitioner first argues the property was not income-producing under the 60-Day Rule, since it was owner-occupied as of the date the petition was filed ( March 28, 2000 ). It is uncontested that the property was income-producing on the assessment date (and the following 10 ½ months). The county argues the assessment date, not the filing date, is determinative. The tax court agreed. The court reasoned that the 60-Day Rule requires provision of certain information that relates to the property’s valuation during the assessed year. It is only logical that the status of the property for purposes of that Rule also be as of the year at issue, not the next year, which has no relevance to the required information or the case itself. Petitioner then argues it provided sufficient information within the 60 days to comply with the Rule’s requirements. Petitioner did provide some information regarding income and expense, including terms of its lease. Although the lease required that tenant pay an additional percentage rent if tenant reached certain sales targets, petitioner did not inform the county if the percentage rent clause was activated. The court found in this case petitioner had, but did not provide information, which would have allowed the county to ascertain the income of the landlord. The court noted that petitioner provided the lease but no statement if the percentage rent trigger was met; and without this information the lease was not useful in determining income to the landlord. Concluding the information petitioner submitted was insufficient because the total rent paid was information available to petitioner, but not provided to the county, the tax court granted the county’s motion to dismiss.
Arvantis v. County of Ramsey, File No. C2-01-2679 (Minn. Tax Ct. October 25, 2001). Perez.
The court granted Ramsey County ’s motion to dismiss petitioner’s tax appeal for failure to provide income and expense data for his income-producing property as required under the "Sixty-Day Rule." Petitioner claims he did not provide the information to the County because he was unaware of the statutory requirement. Petitioner further argues the County knew the property was income-producing and never mentioned the Sixty-Day Rule. Citing BFW v. County of Ramsey, 566 N.W.2d 702, 705 (Minn. 1997) as authority the tax court found petitioner, not the County, has the burden of complying with the Sixty-Day Rule, and petitioner’s ignorance of the law does not excuse his non-compliance.
Goldberg v. County of Ramsey, File No. C2-01-2651 (Minn. Tax Ct. October 25, 2001). Perez.
Petitioner appealed the 2000 assessment of three adjacent tax parcels located on University Avenue in St. Paul . The property is improved with a thirty-room hotel. The County moves to dismiss for petitioner’s failure to provide income and expense information within sixty days after filing the petition as required under the "Sixty-Day Rule." Petitioner, like petitioner in Arvantis, does not dispute that the property is income-producing, but claims she did not provide the information because she was unaware of the statutory requirement. Like Arvantis, the tax court granted the County’s motion to dismiss. Although the court sympathized with petitioner that she did not know of the Sixty-Day Rule requirement, it still found petitioner bears the burden of compliance and therefore dismissed her petition.
Kmart Corporation v. County of Crow Wing, File No. CX-00-768 (Minn. Tax Ct. August 28, 2001). Krause.
Motion to Reconsider
Petitioner asks for reconsideration of the court’s July 19, 2001 decision. Petitioner raises three issues in the court’s decision. First petitioner claims the court did not correctly identify Mr. Lierness’ reasoning regarding his decision to not make a time adjustment for his market lease comparables. The tax court disagreed, noting that Mr. Lierness testified there was insufficient market date upon which to base a time adjustment. He did not state the market data established no time adjustment was needed. Accordingly the tax court found it correctly excluded those comparables that were several years old and for which Mr. Lierness admitted there was insufficient market data to determine what time adjustment should be made. Second, with respect to petitioner’s argument that the County’s expert failed to prove the lease comps were at market rate, the court agreed the expert did not clearly prove his contention, but pointed out petitioner’s expert did not prove they weren’t at market. The court found the County’s expert testimony slightly more credible and therefore accepted it. Third, petitioner challenges the court for giving any weight to the County’s sales approach when its expert testified he did not rely on the sales approach. The court pointed out it did not adopt the expert’s sales approach as a whole; it relied only on those parts it found persuasive and credible. The court noted that a motion for reconsideration is not clearly provided for in the Minnesota Rules of Civil Procedure. As a result, granting permission to bring such a motion is wholly within the discretion of the tax court. Recognizing that this court has granted such a request only under unusual and compelling circumstances, the court found the circumstances here were neither unusual nor compelling. It therefore denied petitioner’s request for reconsideration.
TAXABLE VERSUS NON-TAXABLE PROPERTY; Exemption Issues; INSTITUTIONS OF PURELY PUBLIC CHARITY
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Cook Area Health Services, Inc. v. County of St. Louis , File No. C6-00-100312 (Minn. Tax Ct. April 27, 2001). Perez.
The issue in this case is whether Petitioner’s Cook Clinic is exempt from taxation as an institution of purely public charity under Minnesota Statutes section 272.02 (1)(6). Petitioner (CAHS) is a non-profit corporation whose general purpose is to encourage and provide health care services in northeastern Minnesota . CAHS’ doctors are paid a flat rate with no incentives or productivity requirements. Under CAHS’ articles of incorporation board members receive no salary. CAHS receives funding from the federal government, which comprises twenty-five percent of its overall operating revenue for all CAHS programs. Applying the six-factor test identified by the Minnesota Supreme Court in North Star Research Institution v. County of Hennepin, 306 Minn. 1, 236 N.W.2d 754 (1975) the tax court found CAHS satisfied all six factors and was therefore tax exempt. The factor one inquiry is whether the organization’s stated purpose is helpful to others without immediate expectation of material reward. The court pointed out it has consistently held the first factor is satisfied if the organization’s articles of incorporation state its purpose is to be helpful to others on a non-profit basis. Since CAHS’ articles so provide, the court found factor one is satisfied. Factor two - whether the organization is supported by donations and gifts in whole or part - the court found the federal grant is a "donation," and is of sufficient value (grant comprises twenty-five percent of overall operating revenue) to meet the test. In order to satisfy factor three CAHS must prove that patients received free medical and dental services or at considerably reduced rates. The key determination is whether patients receive services at significantly less than market cost or value. Here CAHS offered services at a below market rate for those who don’t have insurance and can’t afford to pay the full price. The tax court did not view these discounts as a type of "business arrangement" and concluded the third factor is satisfied. With respect to factor four - whether the income received from gifts, donation and charges produces a profit to the charitable institution - the court found CAHS had a small gain or loss for the past five years, and was not attempting to make a profit. Therefore it concluded the fourth factor is satisfied. Factor five - whether the beneficiaries are restricted or unrestricted, and if restricted, whether the restricted class has a reasonable relationship to the organization’s charitable objective. The county concedes CAHS’ restricted class has a reasonable relationship to its charitable objective, but argues CAHS’ services do not lessen governmental burdens since the government is paying through the federal grant. The tax court disagreed, reasoning that because of CAHS, the government does not have to own and operate its own hospital. Factor five is satisfied. Finally the court found factor six is satisfied - whether dividends or assets upon dissolution are available to private interests. Here CAHS’ articles restrict transfer of assets upon dissolution to charitable entities.
Ridgeview Medical Center v. County of Carver, File No. C3-00-590 (Minn. Tax Ct. October 25, 2001). Sanberg.
Public Hospital
The issue here on cross-summary judgment motions is whether a portion of petitioner’s medical facility in Chaska, Minnesota is exempt from taxation as a public hospital under Minnesota Statutes section 272.02 (4) (2000). Petitioner is a public hospital operating without private profit in two locations, Waconia and Chaska. Petitioner’s main hospital is in Waconia. Its other facility is in Chaska, thirteen miles from the Waconia hospital building. In 1998 petitioner began operating out of the Chaska facility in order to serve a larger portion of the community. About forty-two percent of the Chaska facility is subleased to third parties; 49.3% of the premises used by the hospital and at issue here, includes operating rooms, sports rehabilitation rooms, snack bar, business occupational services and behavioral health services. Under established case law, a party claiming an exemption must show property ownership by the type of institution prescribed by the exemption provisions, and use of the property for the accomplishment of that institution’s purpose. A public hospital is defined as one that is open to the public generally and is operated without private profit; it isn’t necessary that the public own the hospital, dispense public charity, or provide services without charging for them. The court recognized that the Chaska facility, like the Waconia facility, is a public hospital, meeting the criteria: it is open to the public and operates without private profit. However, the court pointed out that a facility separate from the main hospital must meet a further test in order for the exemption to apply: the separate property must be devoted to what a public hospital does, and must be reasonably necessary to accomplish its purposes. Here, the medical services provided at the Chaska facility are the type provided by a public hospital - treatment of sick and injured persons, with attendant business offices, common areas, storage and refreshment areas. The services are in fact the same as those provided in the main hospital building. The court concluded the Chaska facility is therefore devoted to what a public hospital does and furthers the purpose of a public hospital. With respect to the next issue, whether the Chaska facility is "reasonably necessary," the court found it is. The Minnesota Supreme Court has determined that "reasonably necessary" relates to functional necessity, not economic necessity. Chisago Health Services v. Commissioner of Revenue, 462 N.W.2d 386, 390 ( Minn. 1990). The court relied upon Naeve Health Care Ass’n v. County of Freeborn, File No. C6-92-541 (Minn. Tax Ct. February 11, 1993), a case almost identical to the present case, in which the tax court held a hospital’s satellite facilities for physical therapy, sports medicine, counseling and diagnosis were tax exempt because they were reasonably necessary to the hospital’s functioning as a hospital, not just its economic function. Accordingly the court found petitioner in this situation demonstrated the portion of the Chaska medical facility qualifies as a public hospital and is tax exempt.
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John Garippa, Garippa, Lotz & Giannuario
Centerino v. Tewksbury Township , 2001 WL 1651476 (N.J. Super. A.D.).
A Homeowner challenged the 1998 and 1999 assessment increases of a single-family residence on the grounds that they were based on her recent purchase of the property and therefore were unconstitutional spot-assessments under the "Welcome Stranger" practice. The Tax Court upheld the increase.
The Appellate Division reversed, following the Supreme Court’s reasoning in West Milford v. Van Decker, 120 N.J. 354 (1990) holding that under no circumstances can appraised valuation of property be increased merely because it has been sold. The Appellate Court further concluded that the municipality’s assessments were therefore unconstitutional under both the Federal and State Constitutions.
Schumar v. Borough of Bernardsville, No. A-3732-99T (App. Div. Dec.2001).
This case involves a challenge of the Tax Assessment for residential real property. Subsequent to a purchase of a home in December 1997, the Borough increased the assessment on the property for 1998 from $217,000 to $308,400. The taxpayer did not specifically allege spot assessment until the day of trial. The homeowner sent the municipality a letter Notice in Lieu of Subpoena for the production of the tax assessor at trial and certain documentary evidence. The Tax Court quashed the Notice in Lieu of the subpoena. The Appellate Division reversed.
The Court noted that although it was on the eve of trial, it could not have been a surprise to the municipal assessor because on its face it should have been obvious to practitioners and assessors who deal in property tax law, if not lay persons.
Mobil Oil Co. v. Township of Greenwich, File Nos. 0002565-98; 002806-98; 000461-98; 000462-98; 000463-98; 000215-00; 000218-00, DOCKET NOS. 000976-99, 000983-99, Tax Court of New Jersey, 2002 N.J. Tax Lexis 8.
The Tax Court held that communications between a municipal tax assessor and a municipal attorney or Special Counsel were not privileged.
Ruling on an objection raised during the deposition of the tax assessor, the Tax Court held that the attorney-client privilege did not bar questioning the assessor in regard to communications with municipal counsel or Special Counsel.
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Bill Siegel, Siegel Fenchel & Peddy, P.C.
Macy’s Primary Real Estate, Inc. v. Assessor of City of White Plains, 738 N.Y.S.2d 388 (2d Dept. 2002).
Recognizing the potential drastic impact on school district budgets, the New York State legislature amended Real Property Tax Law § 708(3) to require that a petitioner in a tax certiorari proceeding mail a copy of the petition with notice to the school district within ten days of service on the respondent assessor. The school district may then become a party in the proceeding. Failure to serve the school district " shall result in the dismissal of the petition unless excused for good cause shown."
In Macy’s, the petitioner challenged tax assessments for the 1995 through 1998 tax years. Petitioner and respondents, the Assessor for the City of White Plains , Board of Assessment Review of the City of White Plains and the City of White Plains , entered into a stipulation of settlement which was then incorporated into two judgments demanding payment of tax refunds. The judgment was served on the school district. The school district sought to bar enforcement of the judgments on the grounds that they were never served with copies of the petitions and thus, the petition must be dismissed pursuant to RPTL § 708(3). The appellate division held that because of petitioner’s failure to comply with RPTL § 708(3), the school district was not bound by the settlement or judgment.
Tilles Investment Co. v. Gulotta, 288 A.D.2d 303, 733 N.Y.S.2d 438 (2d Dept. 2001).
In Tilles, commercial property owners in Nassau County brought an action seeking a judgment declaring that RPTL Article 18 violates both the U.S. and New York State Constitutions as well as New York statutory law which requires equitable and uniform assessments. Article 18 designates New York City and Nassau County as special assessing units and creates a class system of taxation. The property owners alleged that as a result of Article 18, commercial property owners in Nassau County "are taxed more heavily than other commercial property owners in other counties in New York State, residential property owners in Nassau County and commercial property owners in those cities and villages in Nassau County that are not subject to RPTL Article 18." Id . at 304. The appellate division found the class system constitutional under the rational basis test which limits the scope of judicial review to "whether the statutory classification is rationally related to a legitimate government objective." Id at 304. Under this test, states may treat one class of property owners differently "unless the difference in treatment is ‘palpably arbitrary’ or amounts to an ‘invidious discrimination.’" Id. at 305.
Barthel v. Town of Hurley, 2002 WL 433034 (N.Y.A.D. 3 Dept.).
In Barthel, the court once again addressed the issue of a non-attorney representing property owners in tax reduction proceedings. The property owners entered into agreements giving petitioner, a real estate broker, authority to act as representative "‘in any and all negotiations and/or proceedings’ before the Tax Assessor . . . and to verify and file a petition or petitions and to commence a proceeding." The court rejected the notion that such agreements are champertous as a matter of law. However, the court found that although the broker was authorized to act in administrative proceedings, the agreements were void as a broker "could not agree to pursue judicial relief in contesting the assessment, a service that ‘impinges on the practice of law.’" Id at 2.
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Charles B. Neely, Jr., Maupin, Taylor, P.A.
Assessment of Electric Power Generating Plants in North Carolina
Posted February 20, 2006
In a decision involving the valuation of electric power generating plants, the North Carolina Court of Appeals has carved out another exception from North Carolina’s traditional rule that in applying the income approach to valuation, market income should be used and not contract income.
On December 6, 2005, the North Carolina Court of Appeals unanimously affirmed the decision of the North Carolina Property Tax Commission affirming Halifax County discovery assessments against Westmoreland-LG&E Partners. ( In Re Appeal of Westmoreland-LG&E Partners, COA04-1181, December 6, 2005.)
The Taxpayer owned two coal-fired baseload generating facilities located adjacent to each other in Halifax County, North Carolina. Both plants were built commencing in the late 1980’s subject to power purchase agreements (PPAs) with Dominion Resources. The Halifax County tax assessor made a discovery assessment against Taxpayer alleging that certain costs booked by Taxpayer had not been properly listed for assessment. Taxpayer’s witnesses, including a consultant employed by Taxpayer, testified that the costs had not been listed due to an agreement with the assessor that the costs did not contribute to the value of the facilities and were therefore not assessable. Taxpayer also contended that the facilities should be valued using the income approach to value, which North Carolina courts favor for the assessment of income-producing properties, and that in so doing the market rates for electricity as of the assessment date should be used, not the contract rates in the PPAs entered into long before the assessment dates.
After hearing evidence from both the Taxpayer and the County, the Property Tax Commission affirmed the discovery assessment, holding that the Taxpayer had failed to carry its burden of proof under North Carolina law to prove that the assessment was either arbitrary or illegal and that it was substantially in excess of fair market value.
After the case had been tried, the authors of this article were retained to handle the appeal of the Property Tax Commission’s decision to the North Carolina Court of Appeals. On appeal, the Taxpayer argued that the Commission had failed to apply properly North Carolina law on burden of proof and that once Taxpayer had produced evidence on the valuation of the plants and had then survived the County’s motion to dismiss, the burden had shifted to the County to prove that its assessment was correct.
In its decision, the Court of Appeals analogized the market for power plants like the Taxpayer’s generating plants to the market for anchor stores in regional malls discussed in In Re Appeal of Belk-Broome, 119 N.C. App. 470 (1995). In Belk-Broome, the North Carolina Court of Appeals departed from the market income standard and held that the operating agreements between mall developers and anchor store owners, which defined each party’s respective rights and obligations, customarily offered anchor stores lower rental rates or lower purchase prices for the mall real property on which anchor stores are located in exchange for the anchor stores’ promise “to operate only as a department store and . . . not to sell the property to any entity other than an acceptable anchor department store.” In the Belk-Broome case, the Court of Appeals held that operating agreements between malls and anchor stores were “an integral part of the market,” determined that anchor stores paid lower rents as a subsidy and that “the property must be valued according to that market,” creating an exception to the normal rule in North Carolina that market income as of the date of assessment must be considered under the income approach in valuing income-producing property.
In Appeal of Westmoreland-LG&E Partners, the Court of Appeals extended the exception created in Belk-Broome to the valuation of the power plants in question, holding that even though the income under a long-term PPA exceeded the income obtainable without the contract, “like the operating agreement in Belk-Broome, the income received under the PPAs are an integral part of the market for taxpayer’s property; therefore any assessment of this property’s income must factor in the revenue streams received under these PPAs.” The Court went on further to hold that “the existence of the PPA is not something unique to this facility but was a market standard during the tax years in question.” Accordingly, the proper market against which to judge the value of the taxpayer’s plants under the income approach is that consisting of the existing facilities with the PPAs . . . . ” (Emphasis added.)
The Court of Appeals made this holding despite the fact that the County had not argued for an extension of the Belk-Broome exception to power plants, neither party briefed or argued at oral argument that the Belk-Broome doctrine was applicable, the facts in Belk-Broome are readily distinguishable from the facts in Westmoreland-LG&E Partners, and the record was arguably inadequately developed to support such an extension of the Belk-Broome doctrine to power plants. The Court did not rule upon the burden of proof issue argued and briefed by the parties.
A careful analysis of the Court of Appeals holding in Westmoreland-LG&E Partners indicates that the ruling should be confined to the facts of the case and to the tax years in question, 1996-2001. The record before the Court of Appeals was not well developed at the hearing before the Property Tax Commission. Taxpayers in other cases involving the valuation of power plants subject to PPAs which produce above-market income streams may be able to develop evidence that would show that PPAs are not the market standard and that the case is distinguishable on its facts.
In the Matter of the Appeal of Corbett, 355 N.C. 181, 558 S.E.2d 82 (2002).
Revaluation After the Year of Reappraisal
In Corbett, the North Carolina Supreme Court clarified its decision in In re appeal of Allred, 351 N.C. 1, 519 SE 2d 52 (1999), which had cast uncertainty over what property might be revalued during the course of a revaluation cycle.
In North Carolina , by law, counties are required to revalue real property at least once every eight years. Some counties revalue on a four-year cycle.
N.C.G.S. § 105-287(a) authorizes a change in a property’s assessed value in years in which general reappraisals are not made for certain specified reasons such as correcting clerical errors or appraisal errors resulting from a misapplication of the schedule of values used in the most recent general reappraisal, or recognizing an increase or decrease in the value of property resulting from a factor other than one listed in N.C.G.S. § 105-287 (b). Subsection (b) states that changes in the assessed value of real estate may not be made to recognize a change in value due to normal physical depreciation of improvements, inflation, deflation or other economic changes affecting the county in general, or for certain other limited reasons.
Since changes to property, such as new construction or other improvements to realty, are not excluded, real estate subject to such factors may be revalued in years in which general reappraisals are not made.
In Allred, a parcel of real estate was transferred for a price less than the assessed value. The North Carolina Supreme Court held that the transfer of an entire, unchanged parcel was not a factor which would trigger revaluation under N.C.G.S. § 105-287. The Court explained that factors which would allow for an increase or decrease in the value of property would include, for example, a rezoning, a relocation of a road or utility, or other such occurrence directly affecting the specific property which falls outside of the control of the owner and is subject to analysis and appraisal under the established schedules of values, standards and rules. Allred seemed to fly in the face of N.C.G.S § 105-287 since it appeared that the Supreme Court was holding that if the property owner controlled the change to the property, then the resultant change would not subject the property to revaluation.
Corbett involved the subdivision of a parcel and the conveyance of one portion of the subdivided property to a new owner. Pender County revalued both parcels with a higher total value than that previously assessed on the unsubdivided parcel.
The Court of Appeals, following Allred, reasoned that since the subdivision and transfer of the property was within the sole authority of the taxpayers, those actions were not a factor within the meaning of N.C.G.S. § 105-287 authorizing revaluation of the property.
The Supreme Court, in reversing the Court of Appeals and in clarifying its opinion in Allred, explained that the Court of Appeals had "misread" Allred and explained that the examples recited in Allred did not comprise an exhaustive list of all occurrences which would justify a revaluation. "There is nothing in the language of section 105-287 which makes a distinction between an occurrence within the control of the owner and an occurrence outside the control of the owner. Therefore, as a point of clarification, factors which allow for an increase or decrease in the appraised value of real property in non-general reappraisal years . . .not limited to occurrences affecting the specific property which fall outside the control of the owner."
Corbett also reaffirmed the importance of the use of the schedule of values adopted at the time of the last reappraisal in making mid-term re-valuations. Doing so preserves uniformity with assessments made at the last revaluation.
In the Matter of the Appeal of Owens and Padgett , 144 N.C. App. 349, 547 S.E.2d 827 (2001), disc. review denied, 354 N.C. 361, 556 S.E.2d 575 (2001)
Use of Income Approach to Value Warehouses
The North Carolina Court of Appeals, in reviewing and affirming the decision of the Property Tax Commission as to the valuation of commercial warehouses in Rutherford County, North Carolina, held that there was substantial evidence in the record supporting the Commission’s decision to accept the income approach relied upon by the county to value the properties and that since the taxpayers had not met their burden of proving that the method of valuation used by the Commission was illegal or arbitrary and that the valuation method produced a substantially higher value than the true value of the property, concluded that the Commission’s decision to use the income approach to value the taxpayer’s property was proper.
The Court sustained the Commission’s reliance on a "yield capitalization" income approach to valuation to the exclusion of cost and other factors, noting that there is no exclusive technique which must be used in an income approach to value and that as long as the Commission’s decision to accept that method of income valuation is based on substantial evidence, the decision would not be disturbed on appeal.
In the Matter of the Appeal of the Greens of Pine Glen, Ltd ., ___ N.C. App. ___, 555 S.E.2d 612 (2001), petition for disc. review allowed, ___ N.C. ___, ___S.E.2d ___ 2002)
Valuation of Low Income Housing
Taxpayer appealed from a decision of the Property Tax Commission affirming Durham County’s valuation of taxpayer’s apartment complex built pursuant to a federal program (IRC 26 USC § 42, "section 42") which encourages the building of rent restricted housing for low income families. Pursuant to this program, the developer received 10 years worth of federal tax credits and in return agreed to restrict the pool of eligible tenants to low income families for 30 years and to limit rents to rates that were approximately 25 to 30 percent less than the prevailing market rates for 30 years.
The Durham County assessor assessed the property using the replacement cost method of valuation and did not take into account the restrictions on the property.
The Property Tax Commission affirmed the decision of the Durham County Board of Equalization Review, which sustained the assessor’s decision.
The Court of Appeals, upon review, remanded the case for a re-determination of the value of the taxpayer’s property using a methodology which would take into account the restrictions on the property.
The Court of Appeals observed that under N.C.G.S. § 105-317, the appraiser must take into account a property’s "uses; past income; probable future income; and any other factors that may affect its value . . ." It observed that North Carolina courts have routinely held that the income approach is the most reliable method in reaching the market value of investment property and that the cost approach is better suited for valuing specialty property or newly developed property.
North Carolina is a "market rents" state and not a "contract rents" state; for property tax purposes, the market rents of comparable properties are used and not the property’s actual contract rent. The Court of Appeals held that the North Carolina cases holding to that effect were distinguishable from the present case and held that the instant case was more analogous to the situation presented to the court in Belk-Broome, 119 N.C. App. 470, 458 S.E.2d 921 (1995), in which the Court of Appeals held that mall anchor stores, sold subject to operating agreements between the anchor store and mall developers, were sold in a market in which operating agreements were frequently encountered and "the County and Commission must take the property as it finds it." In Belk-Broome, the Court of Appeals held that the operating agreement was "an integral part" of the market for a store such as the Belk-Broome store and that the property must be valued according to that market.
The Court of Appeals, in reversing the Property Tax Commission, held that unlike the situation in North Carolina’s market rent cases, an encumbrance on low income housing is not "a personal encumbrance unique to the property" but is "more akin to the uniform restrictions placed on anchor department stores in Belk-Broome" than to an unfavorable lease on a property subject to assessment. "Low rent housing built according to the established requirements and mandates of section 42 are no less of a market standard than anchor department stores operating pursuant to operating agreements with mall developers."
Based on this case, many owners of rent restricted properties in North Carolina are filing protective appeals with their local boards of equalization and review. The North Carolina Supreme Court has granted the appeal of the county to hear the case on discretionary review and may be expected to issue a decision later this year or early in 2003.
In the Matter ofthe Appeal of Briarfield Farms, ___ N.C. App. ___, 555 S.E. 2d 621 (2001), disc. review denied, 355 N.C. 211, 559 S.E.2d 798 (2002).
Present Use Valuation of Agricultural Property
Briarfield Farms involves the application of North Carolina ’s present use value statute which allows certain agriculture, horticulture and forest lands to be assessed at their present use value as opposed to their fair market value. The property at issue in this case had qualified for present use value taxation as dairy farm but was being used at the time of audit for crop land purposes.
In 1998, the Alamance County assessor audited Briarfield Farms for the first time since the farm had ceased its dairy operation. The county assessor determined that Briarfield Farms was no longer a farm use property and gave notice to the taxpayer. When the taxpayer failed to respond within the allotted time, the assessor revoked Briarfield Farms’ present use status, assessing the property at its market value. The County Board of Equalization and Review affirmed the decision. Upon appeal, the Property Tax Commission reversed, conferring upon Briarfield Farms its former farm use status.
On appeal to the Court of Appeals, the county argued, among other issues, that the Commission had erred by finding that Briarfield Farms qualified as agriculture land and in determining that Briarfield Farms’ failure to notify the assessor of its status change did not deprive it of farm use status.
The Court of Appeals noted that as a general rule the burden is on the taxpayer to prove entitlement to an exemption. After reviewing the state’s present use value statute, the Court found that the Commission had properly ruled that although the property was in transition from dairy farm use to crop land use, there was substantial evidence that it was actively engaged in commercial production for growing of crops, plants, or animals, that the property was under the sound management plan required by the statute and that it met the size and income requirements of the statute. The Court further held that Briarfield Farms’ failure to notify the county of its status change did not bar its eligibility for the farm use tax exemption. Since the property had continued in its farm status even though it was no longer being used for dairy purposes, it qualified under North Carolina ’s present use value statute.
In the Matter of the Appeal of Intermedia Communications, Inc., 144 N.C. App. 424, 548 S.E.2d 562 (2001).
Timelines/Form of Appeal to Property Tax Commission
Taxpayer, Intermedia Communications, Inc., a public service company, appealed an order of the North Carolina Property Tax Commission dismissing its appeal to the Commission as untimely. The Court of Appeals reversed the order of the Commission and held that Intermedia’s notice of appeal was timely filed.
Intermedia’s property was centrally assessed by the State Department of Revenue and when the Department notified Intermedia by letter of its proposed valuation for 1999, the Department notified Intermedia that its proposed revaluation would become final unless written notice of its exception was filed with the Property Tax Commission within 20 days from the date of this notice. Intermedia submitted its written notice to the Property Tax Commission by facsimile within the 20 day period.
Subsequently, the Commission notified the taxpayer that the Commission did not accept as properly submitted documents submitted by facsimile and that the Commission had no jurisdiction to consider the appeal. When a hearing was held to determine the timeliness of the notice of appeal, the Commission dismissed Intermedia’s appeal as untimely.
The sole issue before the Court of Appeals was whether the Commission’s receipt of Intermedia’s notice letter by facsimile was sufficient to constitute timely receipt of a written notice of exception under N.C.G.S. § 105-342(b). In reversing the Property Tax Commission, the Court of Appeals held the facsimile did constitute submission of a written request for a hearing as required by statute.
The Court noted that the statute did not require that the written request be an original document or a postmarked document and that the statute does not prescribe any particular method for submission or delivery of the request. Further, the Commission had not adopted a rule regarding facsimile or other transmissions. Finally, the Court pointed out that notices of appeal from county commissioners and county boards of equalization and review may be filed by means other than United States mail and that these notices are considered to be filed on the date received in the office of the Commission. The Court held that a strict construction against the state of N.C.G.S. 105-342(b), a taxing statute, required the conclusion that Intermedia complied in all respects with the statute.
In the Matter of the Appeal of Bermuda Run Property Owners, 145 N.C. App. 672, 551 S.E.2d 541 (2001).
Assessment of Club Initiation Fee as Part of Real Estate
Property owners in the Bermuda Run subdivision are required by the terms of restrictive covenants encumbering their properties to join the Bermuda Run Country Club when they acquire property in the community. Restrictive covenants are recorded and there is an initiation fee payable at the time of transfer of the property.
At the time of the 1994 revaluation, the Davie County assessor had determined that the initiation fee in effect was $10,000. He therefore added $10,000 to his calculation of the appraised value of each parcel in the subject communities.
Taxpayers appealed the assessments, alleging that the county’s inclusion of the amount attributable to their initiation fee in the appraised value of their properties was an impermissible tax on intangible personal property. The assessor contended that the country club memberships were rights and privileges belonging to and pertaining to the appellants’ real property and were not intangible personal property.
Neither the Property Tax Commission or the Court of Appeals reached this issue. Instead, the Commission, in affirming the decision of the assessor relied upon In re: Appeal of Amp, 287 NC 547, 215 S.E.2d 752 (1975) in which the North Carolina Supreme Court held that in order to rebut the presumption of correctness given to tax assessments, a taxpayer must produce competent, material and substantial evidence that tends to show that the county assessor used either an arbitrary method of valuation or an illegal method of valuation and that the assessment substantially exceeded the true value in money of the property.
Since the taxpayers presented no evidence as to whether or not their property had been over assessed and no evidence as to the fair market value of their property, the Commission held, without reaching the first prong of the Amp test, since the second prong had not been satisfied, that the taxpayers’ appeals must be dismissed.
The Court of Appeals affirmed the decision of the Property Tax Commission agreeing with its analysis of Amp.
In the Matter of the Appeal of Chapel Hill Day Care Center, Inc., 144 N.C. App. 649, 551 S.E.2d 172 (2001).
Exempt Status of Non-Religious Day Care Center
The Orange County assessor denied the day care center’s application for an exemption from property taxation, the Board of Equalization and Review affirmed and the North Carolina Property Tax Commission affirmed the decision of the assessor. Taxpayer appealed.
Chapel Hill Day Care Center applied for an exemption from property taxation under NCGS § 105-278.4, maintaining that its primary function was educational, not custodial. N.C.G.S. § 105-278.4(a)(4) provides that educational establishments may be tax exempt if they are "wholly and exclusively used for educational purposes by the owner . . . " Children enrolled at the day care center ranged from three weeks in age to five years. While the taxpayer presented evidence concerning the educational activities of the center, the taxpayer conceded that the center did not keep traditional school hours, did not assign homework or require make-up work and did not issue report cards. The accrediting agency for the childcare center did not accredit educational facilities but childcare facilities. The Commission noted that witnesses for the day care center repeatedly referred to the center in terms of a custodial day care center and its teachers as child care providers. The Commission refused to accept the taxpayer’s contention that its custodial activities were incidental to its educational activities but instead found that the care provided was for custodial care and was not wholly and exclusively educational.
Noting that the Court of Appeals’ review is limited to deciding relevant questions of law and determining whether the findings of fact and conclusions of law are supported by competent, material and substantial evidence, the Court noted that it could not say that the Tax Commission’s decision was arbitrary or capricious.
The day care center also argued that the denial of the exemption from property taxes violated the taxpayer’s rights under the Equal Protection clause of the Fourteenth Amendment to the United States Constitution and similar provisions of the North Carolina Constitution, contending that the Orange County assessor gave preferential tax-exempt treatment to church affiliated day care centers while non-church affiliated day care centers were denied the tax exemption.
The assessor testified that he had concluded that if day care was part of the church’s mission, then it is exempt. His test was that if a day care center is in a church and is part of the mission of the church, then the center is exempt from taxation. The Court found North Carolina tax provisions authorizing tax exemptions for real and personal property used for religious purposes to be constitutional and constitute an acceptable accommodation of religion and that the tax payer was not treated differently than any other similarly situated county taxpayer.
In the Matter of the Appeal of Winston-Salem Joint Venture, 144 N.C. App. 706, 551 S.E.2d 556, disc. review denied, 354 N.C. 217, 555 S.E.2d 277 (2001).
Valuation of Super Regional Mall/Uniformity Considerations
Taxpayer owned the Hanes Mall, a super regional mall located in Winston-Salem , North Carolina . The Forsyth County assessor appraised the real property associated with Hanes Mall at a total value of $162, 725,000. Taxpayer appealed the assessment to the local board of equalization and review, which affirmed the assessment. The taxpayer thereafter appealed the assessment to the Property Tax Commission which, while reducing the value of the mall to $140,000,000, rejected the taxpayer’s contention (a) that the Commission had erred in failing to properly consider the cost approach and to recognize that cost sets the upper limit of value of the property and (b) that the Commission’s adoption of the county’s expert appraisal and its assessment of the mall resulted in a denial of taxpayer’s constitutional and statutory rights to equal protection and uniform taxation.
Observing that the Court of Appeals had previously concluded that the income approach was the most reliable method to determine the market value of investment property, the Court deemed a prior statement of the Court that "the cost approach’s primary use is to establish the upper limit of value" was at most, dicta. The Court held that "although the cost approach may often times result in the upper limit of fair market value, it does not necessarily need to be so." The Court went on to hold that use of the income approach was the appropriate valuation method in the case and found no error in the Commission’s failure to use the cost approach.
The taxpayer also contended that the use of one assessment methodology to assess the Hanes Mall (income approach) and another assessment methodology (cost) to assess the property of another group of taxpayers in the same class (retail stores and other commercial uses) resulted in significant differences in the assessed values of comparable properties and a denial of uniformity. While the parties had stipulated that the county had used the income approach to assess the Hanes Mall, hotels, motels, and investment grade apartment complexes and that the county had used the cost approach to assess all other commercial and industrial properties in the county including strip centers and other shopping centers, retail stores, office buildings, etc., the Court observed that the taxpayer had offered no evidence that the assessor had used the cost approach to value another super regional mall and yet used the income approach solely to value Hanes Mall. (The Court noted that Hanes Mall is the only super regional mall in Forsyth County .) The Court stated "without a showing that taxpayer’s property was entitled to be considered to be in the same class as strip malls and the like, taxpayer has failed to show it was discriminated against by being excluded from that class. In failing to fall within the same class, the assessment cannot violate the equal protection clauses of the United States and North Carolina Constitutions." The Court apparently concluded super regional malls constitute a separate class.
The Court of Appeals failed to note that there can be no separate classification under North Carolina law for super regional malls, but that all real estate in North Carolina, with the exception of present use valued properties such as farm land, and a few types of property such as those used for charitable uses, homestead exemption property, etc., are all in the same classification.
Taxpayer’s appeal for discretionary review was subsequently denied by the North Carolina Supreme Court.
R.J. Reynolds Tobacco Company v. North Carolina Department of Environment and Natural Resources , ___ N.C. App. ___, 56 S.E. 2d 163 (2002).
Exemption for Recycling or Resource Recovery Equipment
North Carolina provides a property tax exemption for real or personal property that is "used exclusively for recycling or resource recovering of or from solid waste" under N.C.G.S. 105-275(8)(b).
The North Carolina Court of Appeals handed down a decision on February 19, 2002, which gave an expansive interpretation to this exemption, in which the Court held that certain resource recovery equipment at the RJR Whitaker Park manufacturing facility was entitled to the tax exemption, affirming a decision of the superior court which had reversed the decision of the North Carolina Department of Environment and Natural Resources (DENR) denying the tax exempt certification. RJR used the recycling process to recycle tobacco scraps, stems and dust into reconstituted sheet tobacco which is then shredded and blended with other tobacco into cigarette filler. Use of the reconstituted sheet tobacco enables cigarettes to be made with lower tar and nicotine content, which has been demanded by smoking consumers, and is to be an integral part of the manufacturing process.
The Court of Appeals concluded that the tobacco scrap, stems and dust constituted "solid waste" and that were it not for the recycling process, all of the stems, scrap and dust generated by RJR’s stemmery process in which the stems are separated from tobacco used to make filler, would be discarded.
Although "solid waste" is defined to include ". . . other material that is either discarded or is being accumulated, stored or treated prior to being discarded . . ." (N.C.G.S. 130-290(35)), the Court found that there is no requirement that the materials actually be discarded to be deemed to be solid waste. DENR had found that the reconstituted sheet tobacco was integral and necessary to the cigarette manufacturing process, that RJR found it economical to use it and that tax incentives were not determinative as to whether the tobacco scraps would be recycled, but the Court observed that these findings merely showed that RJR had successfully incorporated its recycling process into its manufacturing program and that such findings have no bearing on whether the materials should be considered "solid waste."
The decision gives an interpretation of the tax exemption which is beneficial, not only for property tax, but for North Carolina franchise and income tax purposes as well.
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J. Kieran Jennings, Esq.,
Siegel Siegel Johnson & Jennings Co., L.P.A.
Posted 9/5/2006
Higbee Company v. Cuyahoga County Bd. of Revision , 839 N.E.2d 385 (Ohio, 2006).
The property at issue was two-story 213,084 square foot Dilliard’s department store, owned by Higbee Company, a subsidiary of Dillard’s. The store was one of four anchors at a Cleveland suburban mall. The store was built in 1995-1996 and open for business at the end of 1996; the relevant tax lien date was January 1, 1997.
The Board of Tax Appeals (BTA) accepted the taxpayer’s appraisal which included deductions for physical depreciation and external obsolescence. Upon appeal, the Ohio Supreme Court held, in a per curiam decision, that the BTA erred in accepting a valuation based on the current use of the property rather than the value-in-exchange required by Ohio law.
The taxpayer’s appraiser had calculated external obsolescence by capitalizing rental income loss, where income was calculated based on sales per square foot. The appraiser also used a second method which used the difference between predicted sales and actual sales; and the difference between average sales and actual sales to come to a value for external obsolescence. The Supreme Court found that these methods were unreasonable, stating: “The fallacy of using sales per square foot as a factor to determine value can be demonstrated by the following example: Assume two identical anchor department store buildings in the same mall, operated by different owners. If one store has higher sales per square foot than the other, is the property housing the store with the lower sales worth less than the building housing the store with the higher sales? While the store with the higher sales per square foot may be worth more as a business, that consideration must be separated from a valuation of the real property. The two buildings in the hypothetical mall should be valued the same if they are identical.” Higbee at 394. Because the methods used for calculating external obsolescence in this case all depended on the success of the business as measured by sales per square foot, the Supreme Court rejected this approach. “If it is the real property that is being valued, its valuation cannot be made to vary depending on the success or lack thereof of the business located on the property.” Id. at 395.
Real property valuation, sales per square foot, external obsolescence, anchor store, value in exchange, value in use.
Berea City School District Bd. of Educ. v. Cuyahoga County Bd. of Revision , 834 N.E.2d 782(Ohio, 2005).
At issue was the value of a property located in a Cleveland suburb improved with a Kmart, an in-line store, and a free standing Burger King restaurant for the tax lien date of January 1, 1997. The property had transferred in an arm’s length sale in March 1996 for $2,600,000, encumbered by two long term leases.
The Ohio Supreme Court overruled its previous decisions in Ratner v. Stark County Bd. of Revision, 491 N.E.2d 680 (Ohio, 1986) (Ratner I) and Ratner v. Stark County Bd. of Revision, 517 N.E.2d 915 (Ohio, 188) (Ratner II) to the extent that those decisions required boards of revision and the Ohio Board of Tax Appeals to consider evidence other than a recent, arm’s length sale (for example an appraisal report) that may reflect value.
The Court did not decide the question of whether market or actual rent should have been used in the appraisals of the subject property.
Real property valuation, arm’s length sale, encumbered, long term lease, market rent, actual rent
William K. Elias, Elias, Books, Brown & Massad
AP-Prescott One Ten LP v. Cheryl Clay, Tulsa County Assessor and County Board of Equalization of Tulsa County, 2001 OK CIV APP 128
Under Oklahoma law, protested taxes must be timely paid or the appeal will be dismissed. The taxpayer must give notice to the Treasurer at the time payment is made that an appeal is pending and that the taxes are being paid under protest. Further, Oklahoma law affords the taxpayer the option of paying property taxes in two (2) equal installments (December 31 st and March 31 st) and provides that all protested taxes are to be specified in the second payment if the disputed funds are less than ½ of the total tax due.
In AP-Prescott the taxpayer made the first ½ tax payment but did not notify the Treasurer of the pending appeal. Notice of appeal was given with the second ½ payment. The Assessor moved to dismiss on the grounds that the taxpayer failed to give timely notice of the protest. The trial court sustained the Assessor’s motion to dismiss. The Oklahoma Court of Civil Appeals reversed. The Court of Appeals held that if the protested amount does not exceed 50% of the total amount due, there is no requirement that the taxpayer give notice of the protest in the first installment payment.
In re ONEOK Field Services Gathering, L.L.C., 38 P.3d 900 (Okla. 2001).
Assessor included the value of rights of way in calculating the fair cash value of pipeline’s personal property. Assessor claimed that rights of way were integral to pipeline and would constitute portion of replacement cost. Taxpayer appealed, asserting that rights of way fall within the legislative definition of real property and are taxable to the fee owner. Trial court sustained taxpayer’s motion for summary judgment and the Oklahoma Supreme Court affirmed. Supreme Court held that rights of way are interests in land which entitle the holder to limited use and enjoyment of land owned by another. Rights of way fall within the statutory classification of real property, not personal property, and they are taxable to the fee owner under the Oklahoma Ad Valorem Tax Code.
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David L. Canary, Garvey Schubert & Barer
Posted August 30, 2006
Knapp, et. al. v. The City of Jacksonville, J. Breithaupt, Case No. 4641 (April 14, 2005).
Court found that the public safety surcharge adopted by City and imposed upon taxpayers was subject to limits of Measure 5 of the Oregon Constitution. Knapp v. City of Jacksonville, 18 OTR 22 (2004). The question now before the court was the appropriate relief and to whom. The court held that the remedy is limited to a refund to the prevailing taxpayers in an amount that the surcharge was in excess of Measure 5 limitations. Remedies under ORS 294.485 to render the surcharge void because taxpayers did not make their claim for relief under that statute.
ZRZ Properties, LLC v. City of Portland, defendant, and Oregon Health Sciences University and River Campus Investors, Intervenors, J. Breithaupt, Case No. 4701 (May 10, 2005.)
Portland attempted to assess taxpayer’s property by Ordinance 178675 adopted by the City. In Finding No. 15 in the ordinance, the city stated:
“Local improvement district assessments are an incurred charge and are not subject to the property tax limitation established by Article XI, §11b of the Oregon Constitution. [Measure 5]”
The ordinance further directs that “[p]roperties shall be assessed on a square footage basis.”
Taxpayer sought an order from the court declaring the ordinance does not fall within the category of taxes referred to as incurred charges within the meaning of Measure 5. The City moved to dismiss the taxpayer’s complaint on three grounds: (1) the court lacked subject matter jurisdiction under ORS 305.583 because the ordinance does not yet impose a fee, tax or assessment and therefore the taxpayer was not an “interested party;” (2) the issue was moot because of an amendment to the ordinance; and (3) the taxpayer had another action pending in the Circuit Court requesting the ordinance to be declared unlawful.
The Tax Court rejected the City’s motion on all three grounds. Most importantly, the court held that under ORS 310.145 a petition must be filed within 60 days of when the government classifies the tax fee, charge or assessment as either subject to or not subject to Measure 5. Further in a case of a characterization of an assessment as one of local improvements, ORS 305.583(4) requires a petition to be filed within 60 days of notification by the government of its intent to characterize the assessment as one for local improvements.
COMMERCIAL FACILITIES UNDER CONSTRUCTION – ORS 307.330
ORS 307.330 provides, in part, as follows:
“(1)…each new building or structure or addition to an existing building or structure is exempt from taxation for each assessment year of not more than two consecutive years if the building, structure or addition:
(a) Is in the process of construction on January 1;
(b) Is not in use or occupancy on January 1;
(c) Has not been in use or occupancy at any time prior to such January 1;
(d) Is being constructed in the furtherance of the production of income; and
(e) Is, in the case of nonmanufacturing facilities, to be first used or occupied not less than one year from the time construction commences…”
Trendwest Resorts, Inc. v. Dept. of Revenue/Clatsop County Assessor, J. Breithaupt, Case No. 4645 (January 20, 2005).
The court held that a portion of the project was used or occupied by the taxpayer as of January1, 2003 and rejected the taxpayer’s argument that these were separate condominium units and should be treated separately. Also, the court rejected the taxpayer’s argument that although the retail space that was in operation of January 1, 2003, and was part of the same building for which the exemption was claimed, it should be treated separately because its use was different than the condominiums that were being developed and there was no access to the rest of the building from the retail space.
Weston Holdings, Inc. v. Multnomah County Assessor, M. Mattson, Case No. TC-MD 031039B (February 23, 2005).
This case turns upon what is meant by the phrase “in the process of construction on January1” of ORS 307.330, cited above. The property was River Park Plaza, a 3-story office building with two levels of parking. Plaintiff constructed the building to lease space to commercial tenants who would provide their own specifications for how the interior of the building was to be completed.
On January 1, 2003, no tenant had been found and no tenant improvements had been made. The City of Portland had issued a Certificate of Occupancy for the building shell only. The work remaining to be done included: return air or duct work for HVAC, insulation, plumbing, electrical configurations, lights, interior walls, sprinklers, horns and strobes for fire alarms, and “sufficient” tenant exits. At this point the building was uninhabitable. However, no construction activities occurred during the time period between the completion of the building shell in September 2002 and when the taxpayer secured its first tenant in April 2003.
The County contends that because construction had halted in September 2002, the property was not “in the process of construction on January 1, 2003” because the large office building was built with an unfinished interior for the purpose of leasing to businesses which, in turn, would “undertake to finish according to their wishes the building shell provided by the lessor,” the developer’s process of construction would be deemed complete. Further, the County contends that because the taxpayer received a security deposit from its first tenant before the tenant signed a lease, it was demonstrated that “[i]t was not necessary to construct the tenant improvements to lease space in the building.”
The court held in favor of the taxpayer and granted the exemption. The court held that a plain reading of the statue and its attendant administrative rule does not require that construction be going on every day of the week – particularly when the legislature used January 1st (New Year’s Day, a holiday) as its point of reference. Instead, the phrase means construction has begun on or prior to January 1 and ends after January 1. The court stated: “…the phrase “process of construction” refers to a period of time defined by distinct points of commencement and cessation. It does not refer to specific activities that must be occurring on the assessment date.” Here, the construction had not ended as of January 1. The basic functional and necessary elements of an office building were not in place on January 1. As a result, the building had not been approved for occupancy.
ENTERPRISE ZONE EXEMPTION
Keith Mfg. Co. v. Jefferson County Assessor, M. Robinson, TC-MD040988C (June 10, 2005).
ORS 285C.175 provides for a three-year, 100 percent property tax exemption for qualifying property of a qualified business firm in a designated enterprise zone. Both new buildings and additions to existing buildings can qualify for exemption. See ORS 285C.180(1)(a) and (b).
The applicable law requires a precertification application and, after construction is complete, an exemption claim form. See generally, ORS 285C.140 and ORS 285C.220 (formerly 285B.719 and 285B.722). The precertification application was approved, but the exemption claim form was denied because the taxpayer had commenced construction, modification or installation of qualified property in an enterprise zone prior to precertification. The taxpayer acknowledged that dirt was moved to the site of the addition in March 2002, prior to the filing of its application for precertification on June 20, 2002. However, taxpayer argued that despite the site preparation, actual construction did not begin until after the precertification was filed. The evidence suggested that the construction of the building itself did not begin until July 2002. The court held that under the governing administrative rule, “commencement of construction” “includes site preparation that leads directly to construction…such as fill, grading or leveling on raw land.” (Emphasis in original.). Thus, the court upheld the denial of the exemption.
OMITTED PROPERTY
PUD No. 1 of Snohomish Co., et al v. Dept. of Rev., J. Breithaupt, TC 4560 et al (January 26, 2005).
The 2003 Legislature amended ORS 308.590 to allow the Department of Revenue (DOR), as part of its powers to centrally-assess utility taxpayers, to add omitted property to the tax rolls going back 5 years. The DOR added the value of intertie contracts the taxpayers had to transmit power over transmission lines of Bonneville Power. Taxpayers argued that the property was not omitted because the DOR knew of the contracts previously and simply chose not to assess them as part of the unit of property to be assessed.
The court upheld the DOR’s ability to assess the contracts as omitted property. First, the court held that ORS 308.590 specifies that “any property omitted” from any roll within the specified period may be assessed by the department. Second, even if the DOR’s powers are analogous to that of the county assessor’s under ORS 311.205 and 311.216, “the law is clear that omitted property may be added without regard to the reason for the omission.” Citing Miller v. Dept. of Rev., 16 OTR 4 (2001). In Miller, Judge Breithaupt distinguished the West Foods case. The court stated “[t]hat case stands only for the principle that where an assessor fails to take into account all fixtures present in a building or structure at the time of physical appraisal, but does take into account the structure as a whole, the matter is one of undervaluation.” 16 OTR at 7.
PENALTIES FOR FAILING TO FILE PERSONAL PROPERTY RETURNS
David Hill Vineyards v. Washington Co. Assessor, M. Weidner, TC-MD 0500363E (August 19, 2005).
Taxpayer was unaware that a winery was required to file personal property returns and requested the court to waive liability for the 50% penalty because the failure was for “good and sufficient cause.”
The court held that although “good and sufficient cause” is not defined by the personal property penalty statute, ORS 305.228 is a useful guide. Under ORS 305.228, “good and sufficient cause” means:
“(A) An extraordinary circumstance beyond the control of the taxpayer or the taxpayer’s agent or representative…
(B) Does not include inadvertence, oversight or lack of knowledge.”
The court rejected the taxpayer’s “first time offense” argument and upheld the penalty.
Sharon Korter Enterprises v. Multnomah County Assessor, M. Mattson, TC-MD 940994B (May19, 2005).
Taxpayer appealed imposition of penalties for failing to file personal property returns for the past five years on the grounds that the County had discontinued its practice of mailing blank returns to businesses and because plaintiff did not receive a blank form from the county, she thought no return was required to be filed from then on.
The court rejected the taxpayer’s argument and held that this was not good and sufficient cause that relieved the taxpayer from her duty of filing the returns.
EXEMPT TAXPAYERS
Portland Community Land Trust v. Multnomah County, M. Mattson, TC-MD 040250B (April29, 2005).
Court granted plaintiff’s motion for summary judgment holding that taxpayer (PCLT) was entitled to a charitable exemption of land leased to low income home owners who, in turn, owned and built improvements on the leased land through government or private assistance. The court held that the fee for the long term lease ($40 per month) was below market and involved an element of gift or giving, alleviating a burden of the government to make land available for low income housing, and that PCLT’s activities were charitable in nature.
Four Rivers Community School v. Malheur County Assessor, M. Weidner, TC-MD 040924E (May12, 2005).
Court held that property leased by a non-exempt taxpayer to plaintiff, a charter school, under a triple net lease by which plaintiff was required to pay real estate taxes, if any, was exempt from taxation under ORS 307.112. The statute requires that a lease agreement between a taxable owner and exempt lessee expressly provide that the lease payment was set to establish the tax savings that would result from the exemption. Plaintiff argues that no specific language was necessary because the lease was established as a triple net lease (NNN) and, consequently, the tax savings automatically flow to plaintiff.
The court held the legislature wanted to make certain that the benefit of the exemption was realized by the exempt entity. “With a NNN lease, those benefits are realized directly by the exempt entity. As a consequence, the rent need not be below market. When comparing what an exempt entity pays under a NNN lease compared to a nonexempt entity, the exempt entity is paying less because it does not have the expense of property taxes.”
USE OF SALES AFTER THE ASSESSMENT DATE
West Side Lube, Inc. v. Washington County Assessor, M. Robinson, TC-MD 040417C (August22, 2005).
The property at issue was a gas station and convenience store in Cornelius, Oregon. The County assessed the property at $2.5 million using a cost approach for the 2003-04 tax year. The property had been listed for sale in August 2003 for $1.85 million, but could not sell. The property eventually sold for $1.1 million in July 2004.
The court held the RMV of the property to be its sale price of $1.1 million even though the sale occurred 18 months after the January 1, 2003 assessment date. The court cited several cases (although not the Truitt Bros v. DOR case) for the proposition that the sale of the subject property within a reasonable time of the assessment date is “very persuasive of its market value” and the court may consider after-assessment date sales if market conditions have not changed appreciably. The court rejected the county’s cost approach that was based upon computer modeling that was too mechanical and did not take into account market conditions or conditions affecting the value of the property.
ASSESSOR I -- CONTAMINATED PROPERTY
EJK Investments v. Lane Co. Assessor, TC-MD 0404558C; Lane Plywood v. Lane Co. Assessor, TC-MD 040557D, M. Robinson (June 20, 2005)
Court found that lots developed over a landfill that was producing methane gas and over former log pond had a stigma that substantially reduced the value of the lots because of risks associated to buyer of the property.
ASSESSOR/DOR II – NATIONAL WILDLIFE CONSERVATION EASEMENT DECREASED VALUE OF PROPERTY and ATTORNEYS FEES
McKee v. Dept. of Rev./Lincoln Co. Assessor, J. Breithaupt, TC 4620 (October 14, 2004).
Court ruled that $25,000 is the appropriate value of 25 acres of unimproved property located near Cascade Head in Lincoln County because area designated a National Wildlife & Wilderness Area under a conservation easement that prevented the owner from doing anything with the property. The DOR opted to “remain on the sidelines.” At trial, the witness for the county testified that the conservation easement was just a ploy by wealthy land owners to avoid paying property taxes and enjoy the beauty of their land (the taxpayer had a house on property adjacent to the 25 acres) and ignored the “government restrictions” found in ORS 308.205 (2)(d) in determining the real market value of the property. The court found that the conservation easement had a significant impact on the value of the property in question.
Further, the court found that ORS 305.490 provides for a substantive right to an award of attorneys fees for a prevailing taxpayer even if not plead in the complaint because no rule of the Tax Court requires the claim for attorneys fees be plead. The rights to attorneys fees under ORS 20.105 do not appear to exceed those under ORS 305.490.
The DOR paid taxpayer’s attorneys fees in the amount of $32,000.
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BFC Hardwoods, Inc. v. Board of Assessment Appeals of Crawford County , 771 A.2d 759 (2001).
Plaintiff taxpayer brought administrative challenge to real property assessment to extent that such assessment included value of dry kilns that taxpayer used in its business of drying lumber for commercial sale. The Pennsylvania Supreme Court held that the kilns and structures used in the drying lumber process did not benefit the land in a general sense as would a conventional building and as such should not be included in the real estate assessment.
The court indicated that, "Dry kilns that taxpayer used in its business of drying lumber for commercial sale were excluded, in their entirety, from real estate taxation as ‘machinery and equipment contained in an industrial establishment’. Taxpayer proffered extensive evidence that practical and economical use of dry kilns was restricted to particular purpose for which they were constructed, such that they did not benefit land in a general sense as would conventional building and there was insufficient evidence to support claim that kilns could be practically used for storage." Id at 766.
Green v. Schuylkill County Board of Assessment Appeals , 772 A.2d 419 (2001).
Plaintiff residential taxpayer filed a property tax appeal for their 6,344 sq/ft residence situated on 1.8 acres in Schuylkill County . The taxpayer offered expert testimony regarding the value of their property. The Board simply introduced the official assessment record into evidence and rested without offering any expert evidence and/or a rebuttal of Plaintiff’s expert testimony. In it’s decision, the Pennsylvania Supreme Court reiterated several important points regarding expert testimony.
The court noted that "where a taxpayer’s expert’s testimony is both unrebutted and credible, the valuation testified to by the expert must be accepted." Id . at 430. Where the trial court is presented with conflicting testimony by equally credible experts in a real estate tax assessment appeal, it is appropriate for the court to conclude that fair market value of the subject property is somewhere between values presented by parties. Id . at 433. Lastly, "Where a single expert testifies as to fair market value in a real estate tax assessment appeal, and trial court’s valuation departs from that figure, there is no basis for assuming that the court’s valuation is, ipso facto, appropriate. Accordingly the trial court’s reasoning must be stated on the record so that the reviewing court may determine if the trial court’s departure form the expert’s valuation is warranted." Id at 433.
Sports & Exhibition Authority of Pittsburgh v. County of Allegheny , 789 A.2d 316 (2001).
The Plaintiff Sports Authority purchased the subject property in 1999 and sought review of an assessment board decision taxing the property for said year. The court held that although the Sport’s Authority was tax-exempt, they were liable for the real estate taxes for the purchase year as they purchased the property after the date of assessment and the property sellers were not immune from taxation after the date of assessment.
The court stated that, "It is well settled that the taxable status of property is determined as of the time when the assessment is levied and the tax is due, and even if during the year the property is transferred to an owner in whose hands it is exempt, the exemption is not retroactive, but on the contrary does not commence until the next following date of assessment." Id at 319.
Independent Oil and Gas Association of Pennsylvania v. Board of Assessment Appeals of Fayette County , 780 A.2d 795 (2001).
Plaintiff owners of interest in oil and gas filed action for declaratory judgment and equitable relief, alleging that imposition of ad valorem taxes was unauthorized. The court held that oil and gas interests could be subject to assessment and taxation as real estate.
Pennsylvania law recognizes three separate estates of land: the surface itself, the right of support and the minerals contained thereunder. The court noted that, "Oil and gas interests could be subject to assessment and taxation as real estate, as the statute authorizing taxation of real estate specifically enumerated ‘land’ as a subject of taxation, and included therein were interests in the minerals oil and gas." Id . at 798.
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Andy Raines, Stokes Bartholomew Evans & Petree , PA
Appeal of Airport Land Company before the Tennessee State Board of Equalization Assessment Appeals Commission, Tax Year 2000, December 10, 2001
The Assessment Appeals Commission of the Tennessee State Board of Equalization was faced with the issue of the proper Constitutional assessment of sub-classification of vacant land property. In Tennessee , "industrial and commercial" property is assessed at 40 percent of the appraised value whereas residential and agricultural, i.e., non industrial and commercial property is assessed at 25 percent. The statute governing assessment classification states that vacant land should be classified according to its "immediate most suitable economic use" determined according to numerous factors, e.g., prior use, location, zoning, availability of services, size.
The taxpayer contended that the subject vacant property should not be considered to have an immediate use as industrial or commercial property because "the necessary infrastructure to support this use is not yet in place." The Commission agreed that the property should not be classified as industrial or commercial and stated:
We agree that the classification of unused land should not be determined solely by reference to its zoning….and the taxpayer has adequately demonstrated, without rebuttal from the assessor, that industrial and commercial use is not a likely immediate and economically suitable use.
The Commission’s ruling brings into question the practice of most assessors to sub-classify property solely based on its zoning.
State of Tennessee, Hamblen County, and City of Morristown v. Knoxville College Tennessee Court of Appeals, Eastern Section June 7, 2001
Knoxville College had filed an application to the Tennessee State Board of Equalization for exemption on its real property.
The State Board denied the application. Knoxville College did not timely appeal that determination, either in an administrative appeal to the State Board or by appeal directly to Chancery Court.
Subsequent to the time period allowed for appeal, the city and county filed an action seeking to collect delinquent taxes. Knoxville College was named as a defendant and answered and filed a counter-petition for writ of certiorari to review the denial of its exemption.
The Court of Appeals, Eastern Section, held that Knoxville College ’s failure to pursue its statutory remedies during the requisite time periods rendered the Board of Equalization’s decision final. The Chancery Court was therefore without jurisdiction to entertain the appeal as presented in the counter petition.
Tennessee law requires a property owner to exhaust all administrative remedies prior to any appeal from the decision of the Tennessee State Board of Equalization.
In the Matter of All Assessments, Review of Ad Valorem Assessments of Public Utility Companies for Tax Year 1998, Tennessee Court of Appeals, Western Section April 11, 2001.
The Tennessee State Board of Equalization granted equalization relief to all centrally-assessed taxpayers on the basis of a settlement agreement between various taxing jurisdictions and Bellsouth Telecommunications.
In a prior decision, the Tennessee Court of Appeals, Western Section reversed the State Board’s action. On appeal, the Tennessee Supreme Court overruled the Court of Appeals and remanded the case back to that court. On remand, the Court of Appeals ruled there was substantial and material evidence to reduce the value of public utility tangible personal property to the level of locally assessed tangible personal property.
Based on this holding, the Court held that a 15% reduction in public utility personal property assessments was necessary.
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Raymond Gray, Popp, Gray & Hutcheson, LLP
COVERT v. WILLIAMSON CAD
241 S.W. 3D 655, Tex. App.-Austin, November 30, 2007
(NO. 03-06-00218-CV).
: Covert sought relief under section 42.26(d) of the Texas Tax Code. Covert’s complaint was limited to only the appraised value of the land portion of the real estate and not the appraised value of the improvements.
: Does Tex. Tax Code § 42.26(d) permit challenge only as to the appraised value of land as to land that is improved?
: The court of appeals affirmed the judgment of the trial court, finding that a taxpayer challenging the equal and uniform assessment of an improved property under section 42.26 must allege that the overall appraised value of the property is unequal in order to state a cause of action under section 42.26.
MARATHON ASHLAND V. GALVESTON CAD
236 S.W.3d 335, Tex.App.-Hous. (1 Dist.), July 06, 2007
(NO . 01-06-00531-CV).
: Marathon Ashland Petroleum (“Marathon”) refines petroleum products, segregates them into tanks where they stay for 3-8 days, and then ships them. The products were appraised for taxation, and Marathon appealed claiming exemptions under the Interstate Commerce Clause.
: Does the Commerce Clause protect petroleum products from ad valorem taxation if they are awaiting transportation to out of state customers?
: An interstate commerce exemption attaches when products are actually transferred to a common carrier for delivery outside the state. Refined products in tanks, designated to be placed in the stream of interstate commerce and awaiting transfer to common carriers, are not exempt from taxation.
HARTMAN v. HARRIS CAD
--- S.W.3d ---, 2007 WL 2963686, Tex.App.-Hous. (1 Dist.), October 11, 2007 (NO. 01-06-01074-CV).
Facts: HCAD appraised the Hartman’s real property at a value of $1,476,828 for tax year 2005. The Hartman’s filed a notice of protest with HCARB. At the hearing, the Hartman’s tax agent proposed a value of $1,340,000. The District’s agent concurred with the value and the ARB issued an Order Determining Protest listing the final value at $1,340,000.
: Was there an agreement as to valuation under § 1.111(e)?
: There was an agreement as to valuation as required by § 1.111(e) making the judgment final and non appealable.
: Definitions of agreement include “the act or fact of agreement” and “harmony of opinion and the definition in Hayes v. Nichols, which provides “An agreement is a verbal understanding to which both parties have assented and upon which both are acting. When the Hartmans’ agent and the appraiser each announced the same opinion as to the value of the property, they were expressing a “harmony of opinion.” Further, the Hartmans were afforded due process when they were given an opportunity to be heard before an assessment board at some stage of the proceedings.
WESTERN v. CENTRAL APPRAISAL DISTRICT OF TAYLOR
213 S.W.3d 544, Tex.App.-Eastland, January 18, 2007
(NO. 11-05-00075-CV).
: Western constructed an apartment complex under a contract with the United States Air Force in which Western agreed to limit the amount of rent that could be charged to Air Force personnel and restricted the occupancy of the complex, giving priority to Air Force personnel. The appraisal district did not consider this in the property’s valuation.
: Are the agreements between Western and the Air Force that restrict occupancy and rent of the apartment complex “individual characteristics” that must be considered in determining the market value of the property
: Contractual provisions restricting the amount of rent that may be charged to lessees constitute “individual characteristics” of a property that must be considered in valuing the property under USPAP Rule 1-2(e) (2004).
CAMERON APPRAISAL DISTRICT v. ROURK
194 S.W.3d 501, 49 Tex. Sup. Ct. J. 660, Tex., June 02, 2006 (NO. 04-0359).
: The Cameron Appraisal District assessed ad valorem taxes against the owners of 34 travel trailers for the tax years 2000 and 2001. After some but not all filed unsuccessful administrative protests and then timely appeals in the district court, the district (1) court dismissed for lack of jurisdiction the claims by those who had not exhausted administrative remedies, (2) granted summary judgment against the remainder because their trailers were taxable as a matter of law, and (3) refused to certify a class action. The court of appeals reversed all three rulings.
: Was the court of appeals correct in holding that the taxpayers did not have to exhaust all administrative remedies because purely legal and constitutional questions were involved?
: Taxpayers are required to exhaust administrative remedies.
: The Texas Tax Code provides detailed administrative procedures for those who would contest their property taxes. The administrative procedures are “exclusive” and most defenses are barred if not raised therein.
Here, the taxpayers are not just seeking an appeal on constitutional grounds, but also through the Texas Tax Code. Specifically, the tax payers are seeking the declaration that taxing trailers is unconstitutional and they are seeking to have their individual assessments set aside. Because the Texas Constitution allows the Legislature to bestow exclusive original jurisdiction on administrative bodies, the court of appeals erred in reversing the trial court’s partial dismissal and requiring certification of a class of taxpayers who had failed to pursue administrative remedies.
C.I.T. Leasing Corporation v. Dallas CAD
2007 WL 4341077, Tex.App.-Dallas, December 13, 2007
(NO. 05-06-01546-CV).
: C.I.T. alleged that it erroneously rendered a Gulfstream G-III aircraft for property taxes in 2002. As a result DCAD assessed property taxes on the aircraft for approximately $290,000. In June, 2003, several months after the taxes became due, C.I.T. paid the taxes, penalties and interest. C.I.T. then filed a motion with the ARB under 25.25 to correct the tax roll for 2002. The ARB dismissed the motion because C.I.T. failed to timely pay the 2002 taxes required by § 42.08.
: What payments are required under § 42.08 when the entire amount of taxes allegedly due are in dispute?
: Reversed and remanded.
Reasoning : § 42.08 clearly requires a property owner to pay the lesser of (1) the undisputed amount of taxes due or (2) the amount due under an order form which the appeal is taken. C.I.T.’s petition claimed that it was disputing the entire amount of taxes allegedly due. Therefore, the amount of taxes “not in dispute” was zero and C.I.T.’s failure to prepay any taxes did not constitute a violation of § 42.08.
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Raymond Gray & Natalie A. McLemore, Popp, Gray & Hutcheson, LLP
Curtis C. Gunn, Inc. v. Bexar County Appraisal District , No. 04-01-00470-CV (Tex. App.–San Antonio 2002, pet. filed).
SECTION 25.25(C)(3) DOES NOT PROVIDE A MEANS TO CHALLENGE INTERSTATE ALLOCATION FOR APPRAISED VALUE OF AIRCRAFT
Taxpayer owned a commercial aircraft used in interstate commerce. The taxpayer rendered the aircraft from 1997 to 1999, but did not protest the value set by the appraisal district for those years. The taxpayer sought interstate allocation of the value of the aircraft by filing a motion to correct under section 25.25(c)(3) of the Texas Tax Code. That section allows a property owner to file a motion to correct "the inclusion of property that does not exist in the form or at the location described in the appraisal roll." The court noted that the Houston Court of Appeals has found that a motion to correct may be used to obtain interstate allocation, reasoning that the portion of the property allocable to interstate commerce does not exist at the location described in the appraisal roll. However, the court rejected the reasoning of the Houston Court of Appeals and held that a motion to correct may not be used to obtain interstate allocation.
Braeswood Harbor Partners v. Harris County Appraisal District , No. 01-00-01034-CV (Tex. App.–Houston [1st Dist.] 2002, no pet.).
ORDER GRANTING SUMMARY JUDGMENT IS NOT FINAL FOR PURPOSES OF APPEAL UNLESS IT DISPOSES OF ALL CLAIMS AND PARTIES; ORDER GRANTING SUMMARY JUDGMENT COULD NOT BE CORRECTED BY NUNC PRO TUNC SUMMARY JUDGMENT.
Property owners sought judicial review of an order of the appraisal review board under section 42.01(1) of the Texas Tax Code. After the property owners filed their original petition, the appraisal review board and the appraisal district filed a motion for summary judgment claiming the property owners were not proper parties because they no longer owned the property at issue. The property owners amended their pleadings to include the new owner as an additional Plaintiff. The trial court granted the motion for summary judgment against the property owners but not against the new owner. The property owners appealed. Although the trial court’s order granting summary judgment was entitled "final judgment," and expressly stated "all relief not granted herein is denied," the court held the order was not final, and therefore interlocutory, because it did not address the claims of the new owner. The court stated its appellate jurisdiction is limited to review of final judgments that dispose of all parties and claims. Because no statute authorizing an appeal from an interlocutory order applied, the court lacked jurisdiction over the appeal and notified the property owners of its intent to dismiss for want of jurisdiction. Rather than following the proper procedure for demonstrating that the claims of the new owner had been disposed of, the property owners filed a motion for extension of dismissal based on their intent to seek a nunc pro tunc summary judgment. The court denied the motion, dismissed the appeal, and concluded that the order granting summary judgement could not be corrected by a nunc pro tunc summary judgment.
Panola County Fresh Water Supply District Number One v. Panola County Appraisal District , No. 06-00-00120-CV (Tex. App.–Texarkana 2002, no pet.).
APPRAISED VALUE OF LEASEHOLDS SHOULD BE BASED ON CURRENT MARKET VALUE
A tax-exempt political subdivision leased lots to individuals. Due to high demand for the lots, many of the individuals transferred the leases to others. The transferees purchased the leases from the transferors and assumed the responsibility to pay rent to the political subdivision. When transferees failed to pay taxes, the lots reverted to the political subdivision and the appraisal district attempted to tax the tax-exempt political subdivision. Based on such attempts, the court found the political subdivision had standing to challenge the appraisal methodology used by the appraisal district to value the leases. Although section 23.13 of the Texas Tax Code provides that the appraised value of a taxable leasehold that is exempt from taxation to the owner may not be less than the total rental paid for the leasehold, under section 23.01 the price a buyer is willing to pay for the leasehold may be taken into consideration when valuing the leasehold. Accordingly, the trial court erred when it limited the value of the leaseholds to the contract rental price paid to the political subdivision on each lot. By limiting the appraised value to the contract rental price, the trial court effectively excluded the true market value of the leaseholds, which included the purchase price paid by the transferees for the leaseholds. The court remanded the case instructing the trial court not to limit the appraised value of the leaseholds to the amount of annual rent paid on the leaseholds and to eliminate comparables of fee-simple interests from the data used to establish fair market value.
ATTORNEYS’ FEES UNDER SECTION 42.29 DO NOT VIOLATE THE EQUAL PROTECTION CLAUSE; SECTION 21.05 ALLOCATIONS ARE NOT UNCONSTITUTIONAL TAX EXEMPTIONS; DENIAL OF POST-TRIAL LEAVE TO AMEND PETITION DOES NOT CONSTITUTE ABUSE OF DISCRETION
Tex-Air Helicopters, Inc. v. Galveston County Appraisal Review Board, No. 14-00-00869-CV (Tex. App.–Houston [1st Dist.] 2002, no pet.).
Taxpayer owned five helicopters continuously used to transport personnel and materials to platforms on the Outer Continental Shelf. Taxpayer claimed it was entitled to interstate allocation of the value of the helicopters under section 21.05 of the Texas Tax Code. The court held that all five of the taxpayer’s helicopters, which had a possible tax situs on the Outer Continental Shelf, were entitled to interstate allocation. The court also held that section 42.29 of the Tax Code does not violate the Equal Protection Clause of the 14th Amendment by providing for the recovery of attorney’s fees for successful property owners in excessive and unequal appraisal claims but not for other successful taxpayers. Further, the court found section 21.05 does not violate the null and void clause of the Texas Constitution, which makes all laws that exempt property not listed in article VIII, section 2(a), null and void. Rather, section 21.05 provides a method of valuation not an exemption from taxation. Because the appraisal district failed to carry its burden of showing that the allocation formula in section 21.05(b) did not fairly reflect the taxpayer’s use of the helicopters in Texas , the trial court correctly used section 21.05(b) to calculate interstate allocation. Moreover, the appraisal district failed to prove the application of the formula in section 21.05(b) is so arbitrary and capricious that it violates article VIII of the Texas Constitution. Finally, the court concluded that the trial court did not abuse its discretion by refusing to grant the taxpayer’s post-trial motion for leave to assert all of its helicopters were immune from taxation under the Outer Continental Shelf Act.
Orange County Appraisal District v. Agape Neighborhood Improvement , 57 S.W.3d 597 (Tex. App.— Beaumont , 2001 no pet.).
TAXPAYER ENTITLED TO EXEMPTION SUPPORTED BY SITPULATED FACTS
Taxpayer sought a community housing exemption under section 11.182 of the Tax Code for tax years 1998, 1999, and 2000. The appraisal district denied the exemption, and the taxpayer appealed to the trial court. The trial court ordered the appraisal district to grant the exemption. The appraisal district appealed, and the appellate court affirmed. The court noted that the stipulated facts upon which the case was tried met all of the requirements for an exemption under section 11.182. Because at all relevant times the taxpayer 1) was a non profit corporation, 2) owned and operated the subject property, and 3) was a "qualified subordinate unit" of a corporation with tax exempt status under section 11.182, the trial court did not err by granting the exemption.
Western Athletic Clubs, Inc. v. Harris County Appraisal District , 56 S.W.3d 269 ( Tex. App.—Amarillo 2001, no pet.).
MOTION TO CORRECT UNDER SECTION 25.25(B) DOES NOT ENTITLE TAXPAYER TO HEARING BEFORE APPRAISAL REVIEW BOARD; SECTION 25.25(B) DOES NOT GIVE APPRAISAL REVIEW BOARD AUTHORITY TO REVIEW ACTIONS OF THE CHIEF APPRAISER
Taxpayer filed a motion to correct the 1983 – 1987 appraisal rolls under section 25.25(b) of the Tax Code. The chief appraiser denied the taxpayer’s motion, and the taxpayer sent a notice of protest of the denial to the appraisal review board. The appraisal review board responded that it did not have the authority to review or change the appraisal roll under section 25.25(b). Taxpayer filed suit against the appraisal district’s and the appraisal review board. The trial court granted the appraisal district and appraisal review board’s motion for summary judgment. The appellate court affirmed. The court noted that the Legislature has established two methods for challenging an appraisal. For timely filed protests, section 41.41 allows taxpayers to present evidence and argument at a hearing. The remedy in section 25.25, however, is more limited. Unlike section 41.41, section 25.25(b) does not contemplate the filing of a motion or protest and does not authorize the appraisal review board to change the appraisal roll. Under section 25.25(b), the chief appraiser may change the appraisal roll to correct an error, and the actions of the chief appraiser are final and not subject to review by the appraisal review board. Further, a motion filed under section 25.25(b) is not a basis for a hearing under chapter 41 of the Tax Code. Because the taxpayer filed a motion to correct under section 25.25(b), it was not entitled to a hearing before the appraisal review board, and the appraisal review board did not have the authority to review the chief appraiser’s denial of the motion.
Richardson Independent School District v. GE Capital Corporation , 58 S.W.3d 290 (Tex. App.— Dallas , 2001(no pet.).
SECTION 26.15(D) DOES NOT POSTPONE THE DELINQUENCY DATE OF A TAX BILL WHILE THE PROPERTY OWNER DISPUTES THE APPRAISED VALUE OF THE PROPERTY
Property owner untimely tendered payment for ad valorem taxes. The taxing unit refused the tender because it did not include penalties and interest. The property owner then filed suit disputing the valuation of its property. The case settled and the parties agreed to a judgment. Thereafter, the taxing unit sent the property owner a corrected tax bill. The property owner tendered payment for the taxes and requested waiver of penalties and interest. The taxing unit refused to waive penalties and interest. The property owner refused to pay the taxes, penalties, and interest, and the taxing unit sued for collection of the taxes. The trial court found that the corrected tax bill postponed the delinquency date for the taxes and denied the taxing unit’s requests for penalties. The appellate court reversed and remanded. The court stated that under section 25.15(d), by changing the amount of taxes owed, a corrected tax bill changes the amount of taxes on which penalties for delinquency are assessed. However, section 25.15(d) does not eliminate a property owner’s liability for penalties that result from the failure to pay the original tax bill. Under section 25.15(e), when a property owner timely pays a tax bill but a later correction increases tax liability, the delinquency date is postponed. However, the Tax Code does not postpone the delinquency date of a tax bill while a property owner disputes the valuation of its property under section 25.25(c)(3). To avoid the assessment of additional penalties and interest, the property owner should have paid the entire amount due at the time of tender and then litigated the dispute. A correction to the tax rolls resulting from the litigation would have obligated the taxing unit to refund the difference between the tax paid and the tax legally due.
Comerica Acceptance Corporation v. Dallas Central Appraisal District, 52 S.W.3d 495 (Tex. App.— Dallas, 2001 pet. denied).
LIENHOLDER IN POSSESSION OF PERSONAL PROPERTY COLLATERAL FOR THE PURPOSE OF SELLING IT IS NOT LIABLE FOR AD VALOREM TAXES
Lienholder had a security interest in motor vehicles and boats pursuant to a retail installment contract. Debtors defaulted on the contract, and the lienholder repossessed the property. The property was taken to an auction house where it was to be sold. Some of the property was not sold by January 1 of tax years 1996, 1997, and 19988. The appraisal district levied taxes on the property against the lienholder. The trial court held that the lienholder was the owner of the property for purposes of ad valorem taxation. The appellate court reversed and remanded. The court held that a lienholder in possession of property in anticipation of a foreclosure sale is not an owner under section 32.07(a) of the Tax Code, and therefore not liable for ad valorem taxes on the property.
Compass Bank v. Bent Creek Investments, Inc., 52 S.W.3d 419 (Tex. App.— Fort Worth, 2001, no pet.)
A LIEN FOR ROLLBACK TAXES DOES NOT ARISE UNTIL THE CHIEF APPRAISER DETERMINES THAT THE USE OF PROPERTY HAS CHANGED FROM AN AGRICULTURAL TO A NONAGRICULTURAL USE
Property owner sold land that was previously entitled to an agricultural use exemption by a general warranty deed in 1995. The deed warranted that the land was free of encumbrances except for those shown of record. The land was then sold to taxpayer. By virtue of an unrecorded tax lien, taxpayer became liable for rollback taxes caused by a change of use of the land from agricultural to nonagricultural use during the time property owner owned the land. Taxpayer sued under the general warranty deed to recover money paid to the taxing unit for rollback taxes. The trial court granted summary judgment in favor of taxpayer. The appellate court reversed and remanded. The court stated that taxpayer failed to establish as a matter of law that the unrecorded tax lien attached to the land before the 1995 conveyance. Further, the court noted that under section 23.55(e) of the Tax Code, a rollback tax lien does not arise as a matter of law. Rather, the chief appraiser’s official determination that a change of use has occurred creates the lien. Because taxpayer could not establish that the chief appraiser determined a change of use had occurred or that the tax lien had attached to the property before the 1995 conveyance, the taxpayer was not entitled to judgment as a matter of law.
Robinson v. Budget Rent-A-Car Systems, Inc., 51 S.W.3d 425 (Tex. App.— Houston [1st Dist.], 2001, no pet.).
THE RENDITION PROVISIONS OF SECTION 22.01(A) AND (B) ARE MANDATORY; AWARD OF ATTORNEYS FEES UNDER THE UNIFORM DECLARATORY JUDGMENTS ACT IS DISCRETIONARY
Taxpayer owned income producing personal property but failed to render it for taxation for 1998. The chief appraiser filed suit seeking to compel the taxpayer to render the property. The trial court granted the taxpayer’s motion for summary judgment but denied the taxpayer recovery of attorneys’ fees. The appellate court reversed in part and affirmed in part. The court held that the rendition provisions of section 22.01(a) and (b) of the Tax Code are mandatory. Accordingly, an appraisal district may compel a taxpayer to file a rendition through an injunction. The court noted that under the Uniform Declaratory Judgments Act a trial court may award reasonable and necessary attorneys’ fees as are just and equitable. Given the facts of the case and the legitimate positions of both sides, however, the court held that the trial court did not abuse its discretion by denying the taxpayer recovery of attorneys’ fees.
El Paso County Hospital District v. Gilbert , 64 S.W.3d 200 (Tex. App.— El Paso, 2001)
PROPERTY OWNERS ARE ENTITLED TO INJUNCTIVE RELIEF WHEN TAXING UNIT FAILS TO COMPLY WITH PUBLICATION REQUIREMENTS OF SECTION 26.04(G)
Property owners sued the taxing unit to prohibit it from levying property taxes under section 26.04(g) of the Tax Code. That section entitles property owners to injunctive relief when a taxing unit adopts a tax but fails to comply with certain publication requirements. The property owners also sought declaratory judgment under the Declaratory Judgments Act. The appellate court held that the taxing unit did not violate the publishing requirements of section 26.04(e)(2). The Supreme Court of Texas reversed and remanded. On remand, the appellate court found the property owners had standing to bring suit under the Declaratory Judgments Act based on the taxing-unit’s failure to comply with the publication requirements of section 26.04(e)(2). Further, because there was evidence that the taxing unit lacked good faith when it failed to comply with the publishing requirements, the court ruled that the trial court did not abuse its discretion by granting injunctive relief to the taxpayers under section 26.04(g).
Aavid Thermal Techs of Texas v. Irving Independent School District, 68 S.W.3d 707 (Tex. App.—Dallas 2001, no pet.)
GENERAL DESCRIPTION OF PROPERTY IN CITATION OF SERVICE WILL SUPPORT DEFAULT JUDGMENT
Taxing unit sued taxpayer for delinquent taxes and served taxpayer’s registered agent with citation. The taxpayer received the citation but failed to answer or appear. The trial court rendered a default judgment against the taxpayer. The taxpayer appealed alleging that the citation of service did not strictly comply with Rule 117a of the Texas Rules of Civil Procedure because the term "personal property" contained within the citation was too general. The appellate court affirmed the trial court’s default judgment. The court stated that Rule 117a requires a "brief general description of the property upon which the taxes are due." While the citation did not contain an explicit description of the specific items of personal property at issue, the court stated that such a description is not necessary under Rule 117a. Because the taxpayer was not misled or placed at a disadvantage by the citation, the court held that the citation provided the taxpayer with all of the notice to which it was entitled.
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David Crapo, Wood Crapo LLC
Posted August 30, 2006
Beaver County v. Property Tax Division, 2006 UT 6, 128 P.3d 1187.
This is a case dealing with the time horizon during which a taxing authority may issue an escaped property tax assessment after it is discovered that a taxpayer has mistakenly reported information about its property. Utah law allows the assessment of escaped property up to 5 years prior to the time of "discovery." The Utah Supreme Court held that for purposes of this time limitation, "discovery" occurs when the undervaluation assessment is issued, not when the reporting error is discovered. Thus, if the taxing authority waits more than five years after learning of a reporting error before issuing an assessment, the assessment will not be permitted.
Alliant Techsystems, Inc. v. Salt Lake County Board of Equalization, 2005 UT 16, 110 P.3d 691.
This case provides important guidance for agreements settling property tax disputes. The settlement agreement in question awarded the taxpayer a lump sum refund to settle appeals of tax assessments for five separate years. However, the agreement did not set forth property values for any of the individual years in question. The Utah Supreme Court refused to enforce the settlement because it failed to satisfy the constitutional requirement that property be taxed at an "equal rate in proportion to its value." By failing to set a specific property value for the years in question, the settlement agreement contained no assurance that the tax was assessed in proportion to the property’s actual value. The court explained that when settling property tax disputes, the parties must agree to an assessment value for each year in question and that value must fall within a "reasonable range" of the property’s fair market value.
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Norman J. Bruns, Garvey, Schubert & Barer
Samis Land Co. v. City of Soap Lake 143 W.2d 798, 23 P.3d 477 (2001).
The Washington Supreme Court struck down a city’s water and sewer "standby fee" imposed on vacant lots that were not connected to water and sewer lines. The court found that the fee was a thinly disguised property tax that violated the tax uniformity clause of the state constitution.
City of Burien v. Kiga , 144 Wn.2d 819, 31 P.3d 659 (2001).
The Washington Supreme Court struck down voter-approved Initiative 722 under the "single subject" clause of the state constitution. That clause of the constitution seeks to eliminate legislative "logrolling" in which bills include multiple subjects in order to attract supporters of only one of the subjects. I-722 undid local tax increases that were adopted in late 1999 in response to the repeal of the motor vehicle excise tax, and it also revived the idea of slowing down rapidly rising property tax values. The new twist in I-722 was to couch the property tax value limitation as a partial exemption. That twist, if approved, would undermine the state’s longstanding commitment to property tax uniformity. In an uncharacteristically short opinion, eight of the justices limited their reasoning to the single subject clause and expressed no view on the underlying uniformity issue. One justice concurred in a manner that signaled his unswerving commitment to tax uniformity.
Cascade Court Limited Partnership v. Noble, 106 Wn. App. 321, 23 P.3d 1090 (2001).
This Washington Court of Appeals case involved the market value of low income housing projects that enjoy government subsidies. The court ruled that an assessor must consider all factors that would affect the price in negotiations between a willing buyer and a willing seller. This includes rent restrictions. The court also held that the federal income tax credits available to some housing projects are exempt intangibles and should not be included in the assessed value of the real estate. The assessor did not seek review by the Washington Supreme Court.
University Village Ltd. Partners v. King County , 106 Wn. App. 321, 23 P.3d 1090 (2001).
This Washington Court of Appeals case involved a property tax uniformity challenge to the land value of an upscale urban shopping center. The owner did not dispute its overall assessed value (land plus improvements), but it did complain that its land value was higher than neighboring land values. The trial court agreed that the taxpayer was entitled to seek uniform treatment on the land portion of its assessment. The Court of Appeals reversed, holding that no such challenge will be entertained when the total assessed value (land plus improvements) does not exceed market value. The Washington Supreme Court declined to review the case.
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Robert L. Gordon, Michael Best and Friedrich LLP
Posted September 5, 2006
Adams Outdoor Advertising, Ltd. v. City of Madison, 2006 WI 104, 717 N.W.2d 803 (2006)
In July 2006, the Wisconsin Supreme Court issued a major new tax assessment decision in a case involving the assessment of billboards. Concluding that the “emerging trend” is to assess billboards under the cost approach, the Court invalidated the City’s assessment on the ground that the assessor had relied exclusively on the income approach, and had failed to adequately consider the cost approach in valuing the property. The Court held that where an assessor fails to follow the assessment methods prescribed by the Wisconsin Property Assessment Manual, the assessment loses any presumption of correctness. The Court also held that, because billboard permits constitute an interest in real property and billboards themselves are personal property, the City could not include the value of the billboard permits in its assessment of the billboards. In doing so, the Court declined to expand to personal property the doctrine under which it has previously allowed business income “inextricably intertwined” with real estate to be included in the assessment of that real estate.
Meridian Eau Claire LLC v. Wisconsin Department of Revenue, Wis. Tax Rep. (CCH) ¶400-841 (WTAC 2005).
For the second time in two years (following the Hormel decision discussed below), the Wisconsin Tax Appeals Commission handed down a major decision rejecting the Wisconsin Department of Revenue’s attempt to use a non-market transaction as a basis to assess manufacturing property. In this case, Department of Revenue tried to claim that a sale-leaseback financing transaction which was structured to provide working capital to a manufacturer represented an arm’s-length real estate purchase, and that the amount of cash the manufacturer borrowed represented a fair market real estate purchase price which could be used to assess the plant. The Tax Appeals Commission rejected the Department of Revenue position and held that the proceeds of the sale-leaseback financing transaction could not be equated to the fair market value of the real estate.
Hormel Foods Corporation v. Wisconsin Department of Revenue, Wis. Tax Rep. (CCH) ¶400-741 (WTAC 2004)
In this case, Hormel acquired the stock of another food corporation. To satisfy tax and accounting requirements, Hormel obtained a value-in-use appraisal which allocated the stock purchase price among the corporation’s assets—including a Wisconsin manufacturing plant—on a going-concern basis. The Wisconsin Department of Revenue attempted to treat the stock purchase as a real estate purchase of the plant, and to use the amount allocated to the plant in the value-in-use appraisal as the market value of the real estate. The Wisconsin Tax Appeals Commission (affirmed by the Circuit Court for Dane County) rejected the Department of Revenue’s argument and held that a value-in-use appraisal could not be used to determine the fair market value of real estate for assessment purposes.
Wisconsin Department of Revenue v. A. Gagliano Co., Inc., 2005 WI App 170, 284 Wis. 2d 741, 702 N.W.2d 834 (2005)
This Wisconsin Court of Appeals decision involved the exemption of machinery and equipment used for manufacturing from general property taxes. One of the tests of whether a process comprises manufacturing is whether the process results in the mechanical or chemical transformation of materials or substances into new products. The taxpayer in this case utilized a highly sophisticated ripening facility to ripen tomatoes and other produce. The Wisconsin Department of Revenue argued that no ripening facility, no matter how sophisticated, could constitute manufacturing property since that facility was doing nothing more than accelerating a process which would otherwise occur naturally. The Wisconsin Tax Appeals Commission disagreed, concluding that the process transformed inedible, unmarketable produce into a different product, and that without the application of that process, no marketable product would be created. The Wisconsin Court of Appeals affirmed the Tax Appeals Commission decision, in a significant victory for emerging and non-traditional technologies.
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