Opinion
16-P-729
07-12-2017
GLW KIDS LLC & others v. BOARD OF ASSESSORS OF CARLISLE.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
In 2006 and 2007, the plaintiff taxpayers purchased 170 acres of contiguous tracts of land (property) in the town of Carlisle (town). Following endorsement of a twenty-one-lot plan pursuant to G. L. c. 41, § 81P, approval not required (ANR plan), and then approval of a subdivision plan reconfiguring the property to create thirty-five lots, the defendant board of assessors of Carlisle (assessors) assessed the taxpayers' property by individual assessments of the lots shown for the fiscal years (FYs) at issue, i.e., 2009 through 2012. The taxpayers challenge those assessments, contending the assessors erred in declining to make certain downward adjustments, particularly for a prolonged market absorption rate. They also contend the Appellate Tax Board (board) erred in concluding that the taxpayers failed to prove that their properties had been overvalued for any FY. Substantially for the reasons stated by the board, we affirm.
Background. The facts, drawn from the board's decision, are not in dispute. In any event, by statutory mandate, the board's findings of fact are final. See G. L. c. 58A, § 13.
The taxpayers purchased the property in the town for a total of $6,450,010, including a non-arms' length transfer of some seventy percent of the acreage for ten dollars. The plaintiffs created a twenty-one-lot ANR plan which the town planning board endorsed on September 27, 2006.
Improvements necessary for that plan were completed prior to January 1, 2008, at a cost of $426,661.
The assessors, when assessing the property for FY 2009, concluded that the highest and best use of the property was as a twenty-one-lot residential development and assessed each of the lots shown on the plan separately, issuing separate tax bills. The assessed value of each of the lots averaged approximately $445,000 with the exception of one lot valued at $1,131,800. The sum of the FY 2009 assessments of the individual twenty-one residential lots is $10,852,700.
The taxpayers make no specific argument related to the lot assessed at $1,131,800.
In May, 2007, seven months before the FY 2009 assessment date, the taxpayers received an offer to purchase all of the properties for a minimum price of $8.1 million, which assumed an approved thirty-five-lot subdivision and valued each individual lot at $225,000. The taxpayers declined that offer.
On July 3, 2008, the town planning board approved a definitive subdivision plan creating thirty-five individual single-family residential lots. For FYs 2010, 2011, and 2012, the assessors found that the highest and best use of the properties was as individual lots for sale to individuals for residential use. The assessors again separately assessed the lots shown on the thirty-five-lot subdivision plan. Assessments of individual lots for FY 2010 ranged from $457,400 to $472,200.
Meanwhile, the taxpayers entered into a brokerage agreement for the period of September 8, 2008, through November 17, 2010, which included listing prices for the thirty-five lots between $545,000 and $595,000. The taxpayers' expert opined that based on "comparable sales surveyed within the market and the listing price for the subject property outlined in [the brokerage agreement]," the estimated FY 2009 value of eight of the lots was $545,000 each, and for the other thirteen lots, $436,000 each. A total valuation of all twenty-one lots, according to the taxpayers' expert's unadjusted comparable sales, was $10,028,000. The expert, however, adjusted those values downward as will be discussed.
The taxpayers' expert opined that the unadjusted individual lot value was $450,000 for FY 2010 for the remaining thirty-two lots within the thirty-five-lot subdivision. For FYs 2011 and 2012, assessments of the individual lots ranged from $413,800 to $435,800. The taxpayers' expert opined that transactions involving single-family lots in surrounding subdivision communities and within the subdivision at issue supported the advertised price of $450,000 on January 1, 2010, and January 1, 2011, the respective assessment dates for FYs 2011 and 2012. As will be discussed, the taxpayers' expert discounted the market value for each FY at issue.
Between June of 2009 and July of 2010, five lots were sold from the subdivision; four for $450,000 and one for $400,000.
Discussion. Assessors must assess real estate at its fair cash value as of the first day of January preceding the start of the fiscal year. G. L. c. 59, §§ 2A and 38. Generally, fair cash value is equivalent to fair market value, that is, "the price that an owner willing but not compelled to sell ought to receive from one willing but not compelled to buy." Donlon v. Assessors of Holliston, 389 Mass. 848, 857 (1983), quoting from Boston Edison Co. v. Assessors of Watertown, 387 Mass. 298, 301 (1982). "Real estate is overvalued if it is assessed in excess of its ‘fair cash value.’ " Ibid. (citation omitted). Value is based on the highest and best use of the property; a use that is "reasonably probable" and "is legally permissible, physically possible, appropriately supported, financially feasible, and ... results in the highest value." Boston Gas Co. v. Assessors of Boston, 458 Mass. 715, 739 n.33 (2011) (citation omitted).
Thus, for FY 2009, the assessment is based on the value on January 1, 2008.
"The board may rely on any method of valuation that is reasonable and supported by the record." Analogic Corp. v. Assessors of Peabody, 45 Mass. App. Ct. 605, 609 (1998). "Where there is substantial evidence to support the board's decision, we defer to the board's judgment as to what evidence to accept and which method or methods of valuation to rely on." Boston Gas Co., 458 Mass. at 721, quoting from General Elec. Co. v. Assessors of Lynn, 393 Mass. 591, 608 (1984). The taxpayer bears the burden of proving its property has been overvalued and an "assessment is valid unless the taxpayer sustains its burden of proving otherwise." Id. at 717. See Western Mass. LifecareCorp. v. Assessors of Springfield, 434 Mass. 96, 106 (2001). "Our review of any decision of the board is limited to questions of law." W.A. Wilde Co. v. Assessors of Holliston, 84 Mass. App. Ct. 102, 104 (2013) (citation omitted). "[W]here ... there is no persuasive evidence on the part of the party carrying the burden of proof, a conclusion that a presumptively valid assessment must stand is by its nature not such an affirmative finding as to require substantial evidence to support it." Hampton Assocs. v. Assessors of Northampton, 52 Mass. App. Ct. 110, 118 (2001) (citation omitted).
The board found that at all relevant times, the lots were ready to be sold separately to individuals for construction of single-family homes at retail prices. And the parties agree that the highest and best use of the property is for residential subdivision development with lots to be sold to individuals for residential use. Thus, the assessors plainly did not err by assessing the subdivision lots individually. See Donlon, 389 Mass. at 859 (lots shown on subdivision plan rescinded after assessment date properly individually valued as being within existing subdivision).
The assessors used the comparable sales method of valuation for each lot and supported their valuations with evidence of appropriate comparable sales. The board found that the sale of lots within the property itself supported the assessments for FYs 2011 and 2012. Furthermore, as demonstrated supra, the taxpayers' expert concluded that unadjusted comparable sales supported values approximating those of the assessments for all of the FYs. The taxpayers do not dispute the differences between the assessors' per lot valuations and those determined by their expert for each FY. Instead, they argue that the assessors erred in failing to make certain adjustments to consider market absorption, infrastructure costs, and a discounted cash flow analysis.
1. Market absorption. The taxpayers contend that the assessed value of the property must take into consideration the market's ability to absorb all of the lots over time. Here, the witnesses agreed that the market was such that only six or seven lots could be sold in a good year. The taxpayers contend, accordingly, that four or five of the lots should be assessed at full value and the rest at a reduced value to reflect that they were unsaleable in any given assessment year. The taxpayers' argument is not without initial appeal as there is no doubt that the carrying costs of a subdivision until all the lots are sold can be steep.
However, the basic flaw in this theory is that it assumes a "willing buyer [ ]" must actually exist. Board of Equalization of Salt Lake County v. Utah State Tax Commn. ex. rel. Benchmark, Inc., 864 P.2d 882, 888 (Utah 1993). While it may be true that all twenty-one or thirty-five lots could not sell in a single year for lack of enough willing buyers, the owner of a single lot could make the same argument. Every property in the town is assessed on a single date and, in reality, would be in competition with all of the lots in the town. See ibid. Moreover, the taxpayers' brief at pages 21 through 22 effectively concedes that the time it would take to sell all of the lots in the development was factored into the price the taxpayers agreed upon in marketing and selling the lots. Factoring an absorption rate into valuation for tax purposes would discount for the absorption rate twice.
We agree with the board that assessing the lots as proposed by the taxpayers would result in disproportionate assessments. Here, the lots in the subdivision that had already been sold to other, individual taxpayers would be assessed in a different manner and at higher amounts than those lots still owned by the taxpayers. "The amount of other property that a taxpayer owns is not a rational basis for distinguishing between otherwise identical lots for tax purposes." Id. at 887, quoting from Mathias v. Department of Rev., 312 Or. 50, 62 (1991).
Moreover, the board reasonably expressed concern that if property were to be taxed differently because one owner owned more lots than the absorption rate of a town would allow to be sold in a given year, it would violate "[t]he requirement that real estate assessments be proportional." First Natl. Stores, Inc. v. Assessors of Somerville, 358 Mass. 554, 559 (1971). While an amendment in the Massachusetts Constitution "permits the Legislature to establish different classes of real property and to tax the different classes at different rates," "all real property within a class" must be taxed "at the same rate." Verizon New England Inc. v. Assessors of Boston, 475 Mass. 826, 830 (2016).
2. Infrastructure costs. The taxpayers also argue that the assessors failed to consider significant development costs yet to be incurred at least for the FY 2010 assessment. As the taxpayers argued, the price a buyer is willing to pay assumes completed infrastructure. The record indicates that the marketing prices included certain provisions for installed septic systems or approved septic plans, and the taxpayers have not pointed us to record evidence indicating that the buyers expected or were contractually entitled to any other infrastructure improvements that were not reflected in the marketing prices and that thus caused those prices to overstate the lots' fair cash value. Accordingly, in setting their marketing prices, the assessors could assume the taxpayers set them at a price that would include reimbursement for costs of infrastructure. The brokerage agreement covering the assessment date for FY 2010 anticipated a sales price of well more than the assessed value. Accordingly, the taxpayers have not shown that any failure to separately consider infrastructure costs resulted in overvaluation.
3. Discounted cash flow analysis. The taxpayers contend that the only way to determine the fair cash value of a subdivision when supply exceeds demand is to use a discounted cash flow method. The taxpayers' expert used a development valuation method that discounted the comparable sales values for development costs, brokerage fees, entrepreneurial profit, and a discount rate to convert future income from sales to an indication of present value over a prolonged absorption period. For example, the taxpayers' approach for FY 2010, valued three lots at $545,000 each for a total of $1,635,000. It also deducted a broker's fee of five percent, a so-called "entrepreneurial profit" of fifteen percent, and an annual "discount factor" of 11.46 percent to convert future income from sales to an indication of present value. After applying these discounts, the taxpayers' expert concluded that the fair cash value of the collective properties for FY 2010 was $5.2 million. He did not offer an opinion on the value of the individual lots shown on the plan. Applying a similar analysis, he concluded the fair cash value of FY 2009 was $5.5 million, FY 2011 was $6.7 million, and FY 2012 was $6.4 million. These are in contrast to the total assessed values of FY 2009 of $10,852,700; FY 2010 of $16,097,800; FY 2011 of $14,673,100; and FY 2012 of $14,706,100.
The board rejected the taxpayers' expert's method of valuation as inappropriate for a subdivision ready to sell individual lots. Where, as here, lots are ready for sale, States consistently have rejected a so-called "subdivision" or "developer's discount" approach. The "developer's discount method does not assess the value of the properties when put to their highest and best use but instead, reduces their value to the value they would have if considered as an investment." Hixon v. Lario Enterprises, 257 Kan. 377, 386 (1995), citing First Interstate Bank v. Department of Rev., 306 Or. 450, 454-455 (1988). See ibid., quoting from Edward Rose Bldg. Co. v. Independence Township, 436 Mich. 620, (1990) (developer's discount method might be appropriate for raw or unimproved land, but "the uniformity requirement of the Michigan Constitution compels the assignment of values to property upon the basis of the true cash value for the property and not on the basis of the manner in which it is held"). See also St. Leonard Shores Joint Venture v. Supervisor of Assessments of Calvert County, 307 Md. 441, 445-446 (1986) ; Appraisal of Real Estate 372-376 (14th ed. 2013).
The taxpayers' subdivision method of valuation includes a discounted cash flow for large, vacant lots that have subdivision potential. See Tamburelli Properties Assn. v. Borough of Cresskill, 308 N.J. Super. 326, 333-334 (N.J. Super. Ct. App. Div. 1998) (in valuing raw acreage, absorption study, developer's profit, costs of development, marketing costs, financing fees, and multiple other criteria are critical to measuring value of an entire subdivision to a single owner).
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Moreover, the board found the taxpayers' expert's methodology flawed and speculative. The board could accept those portions of evidence it determined had more convincing weight, New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456, 469 (1981), and credibility of witnesses is a matter for the board. Cummington Sch. of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977). For example, the taxpayers' expert reduced the value of thirteen lots by twenty percent because they would require long, shared common driveways. The board rejected this rationale, pointing out that those lots were substantially larger and set back from the street, which afforded more privacy to the lot owners.
4. Conclusion. Where the board rejects as unpersuasive evidence of overvaluation, it is justified in presuming the assessors' valuation of the lots was valid. Donlon, 389 Mass. at 862-863. For the reasons stated by the board and for the foregoing reasons, we conclude the taxpayers have failed to demonstrate that their properties were overvalued.
Decision of Appellate Tax Board affirmed.