Opinion
No. CV 98 0066947 S
October 14, 2003
MEMORANDUM OF DECISION
The plaintiff Services Development Corporation (SDC) claims that the assessor for the defendant, the town of Willington (town) overvalued for tax purposes, property located at 350 Ruby Road in that town on the grand lists of October 1, 1996 through October 1, 1998.
With respect to the 1996 grand list, SDC also claims the assessor erroneously included in its real estate evaluation a hub conveyor system (conveyor) located within the property when it should have properly been considered personalty.
Appeals were taken to the board of assessment appeals (BAA) for the town which did not give SDC the relief it sought and SDC appeals the decision of the BAA, as follows:
1. 1996 grand list: by refusing to remove the value of the conveyor from the real estate assessment and by refusing to reduce the assessed value of the real estate.
2. 1997 grand list: by improperly determining the actual value of the properly. (The BAA did remove the value of the conveyor from the 1997 grand list).
3. 1998 grand list: by improperly determining the actual value of the property.
By way of special defense, the town claims SDC is not entitled to a refund of its alleged overpayment of taxes on the 1996 grand list because it voluntarily paid the tax bill with knowledge of the facts.
The property in question is a 108.8 acre parcel. It was purchased by SDC in 1993 for $4,000,000 with the intention of building a modern state of the art automated small package distribution center which would be operated by Roadway Package Systems (Roadway), a corporate affiliate of SDC. Roadway was subsequently acquired by Federal Express (FedEx) and FedEx operates the facility as a package distribution center.
The subject property was attractive to SDC because of its size and location, which provides easy access to I-84, an interstate highway which in turn provides for the shipment of trailer loads of packages to other smaller distribution centers utilizing I-84 and connecting interstate highways.
About 50 acres of the 109-acre tract is available for development and the rest is subject to a conservation easement. After preparing the site for building, which included such things as a detention basin, some blasting of ledge, re-channeling a stream, and drainage work, two buildings were erected with a combined area of 137,000 square feet. One building contains mostly the conveyor. The building and the conveyor are designed to fit together. Trailers loaded with packages are backed into bays on one side of the building and the packages are off loaded onto the conveyor which automatically routes them to trailers on the other side of the building where they are loaded onto other trailers for delivery to regional distribution centers. Some packages are loaded onto small trucks for local delivery as well. There are some 116 truck bays. It takes about five minutes to move a package from truck to truck.
The second building is much smaller and is used to service trucks entering and leaving the property, if required.
The parties have stipulated to the following chronology of events:
1. July 7, 1995 — the town renews a zoning permit in connection with the SDC's construction of site improvements to the real property at 350 Ruby Road with an estimated cost of $6,200,000.
2. August 17, 1996 — the town renews for a second time a zoning permit in connection with SDC's construction of buildings and site improvements at the property with an estimated cost of $18,184.000.
3. October 1, 1996 — SDC is the owner of the property. The town assessor's valuation of the Property as of that date: a) includes the conveyor system as part of the real estate with a fair market value as complete of $1,658,900, b) considers the conveyor system to be partially complete, c) considers the building to be 75% complete, and d) includes $7,060,541 in land improvement costs. The town's mill rate for this grand list is 18.85.
4. February 21, 1997 — a 60-day temporary certificate of occupancy for the property excluding the offices in the hub area is issued.
5. May 19, 1997 — the town assessor issues a notice of a prorated assessment of $3,988,133 to be added to the October 1, 1996 grand list to reflect the completion of the property including the conveyor system.
6. July 28, 1997 — SDC pays the first installment of taxes on the October 1, 1996 prorated assessment in the amount of $37,588.16.
7. October 1, 1997 — SDC remains the owner of the property. The Willington assessor values the Property as complete and includes in her valuation as of that date the conveyor system with a fair market value of $8,395,787. The town's mill rate for this grand list is 19.35.
8. January 14, 1998 — SDC pays the second installment of taxes on the October 1, 1996 prorated assessment in the amount of $37,588.16.
9. February 19, 1998 — acting by means of a duly authorized agent, SDC appeals the town's October 1, 1996 prorated assessment and October 1, 1997 assessment of the Property to the BAA.
10. March 10, 1998 — the BAA conducts hearings on the two appeals filed by SDC. SDC is represented at the hearings by its duly authorized agent.
11. March 16, 1998 — The BAA grants SDC's appeal regarding the October 1, 1997 grand list to the extent of removing the conveyor system from the assessment for the property. The BAA denies SDC's appeal regarding the October 1, 1996 prorated assessment.
12. May 14, 1998 — SDC commences the instant litigation.
13. July 29, 1998 — SDC pays under protest the first installment of taxes on the property on the October 1, 1997 grand list in the amount of $152,076.30.
14. October 1, 1998 — SDC remains owner of the property. The town's mill rate for this grand list is 20.9.
Aggrievement
SDC has established aggrievement and standing. The appraisers for both SDC and the town concluded that the assessment overvalued the property. Therefore, pursuant to General Statutes § 12-117a, this Court tries the matter de novo and determines the fair market value of the property. Konover v. West Hartford, 242 Conn. 727, 734-36, 699 A.2d 158 (1997).
Discussion of Issues I. Status and Valuation of the Conveyor
The Court concludes the conveyor was properly included as realty in the 1996 tax bill. In deciding whether the conveyor was personalty or realty, it must first be determined whether it was a fixture. Vallerie v. Stonington, 253 Conn. 371, 372, 751 A.2d 829 (2000). "To constitute a fixture, it is essential that an article should not only be annexed to the freehold, but that it should clearly appear from an inspection of the property itself, taking into consideration the character of the annexation, the nature and the adaptation of the article annexed to the uses and purposes to which [the realty] was appropriated at the time the annexation was made, and the relation of the party making it to the property in question, that a permanent accession to the freehold was intended to be made by the annexation of the article." (Internal quotation marks omitted.) Waterbury Petroleum Products, Inc. v. Canaan Oil Fuel Co., 193 Conn. 208, 215-16, 477 A.2d 988 (1984). "The intent sought is not the subjective intent or undisclosed purpose of the annexer, but the intent manifested by his actions." (Internal quotation marks omitted.) Id., 216.
According to Paul Chicoine, the property's facility maintenance manager, the conveyor and the building housing it are an "integrated package." The building was designed primarily to house the conveyor. It is a massive system servicing the 116 truck bays. It is welded together and bolted to the floor.
Interestingly, SDC pulled a building permit for the conveyor, which would usually be obtained for "elements of realty." SDC's expert even considered it to be a fixture, but tried to distinguish it from a permanently attached fixture. In actuality it is an integral part of the building and is expected to last as long as the building stands. It is therefore realty that was properly included in the real estate assessment. See Connecticut Performing Arts, Inc. v. Hartford, Superior Court, judicial district of New Britain, Docket No. CV 98 0492318 (July 23, 1999, Aronson, J.T.R.) ( 25 Conn. L. Rptr. 158) (held that seats were fixtures where they were bolted to the ground in a theater); Adair v. Koppers Co., Inc., 741 F.2d 111, 115 (6th Cir. 1984) (court held that a conveyor belt was a fixture because it was bolted in place supported by steel angles on a concrete footing, was placed below ground level and had remained in place for a long period of time).
The fact that the Board agreed to classify the conveyor as personal property in 1997 is not conclusive to this hearing. Both the assessor in 1996 (David Gardner) and the present assessor (Nicole Lintereur) are of the opinion that the conveyor should be classified as realty. The Board's reasoning for changing the classification is its prerogative, but this Court is looking at the claims de novo and is not bound by the Board's decision to reclassify it.
The Court agrees that SDC owns the conveyor. The parties stipulated that SDC owned the property on October 1, 1996, and, having determined the conveyor was realty, SDC is the owner of it for assessment purposes.
Valuation Issues
SDC urges the Court to reject the assessor's valuation. The Court, however, finds that Mr. Gardner's valuation methodology is problematic, but there are some concerns about Mr. Heberger's valuation as well.
Both sides in this dispute utilized experienced and qualified appraisers. SDC's appraiser was Arnold J. Grant who has an extensive background in appraising real estate and who has testified often as an expert. The town's expert was Edward F. Heberger, similarly qualified and experienced.
Mr. Grant's opinion was that the property had a fair market value of $8,800,000 while Mr. Heberger's opinion of his fair market value was $20,800,000.
Recognizing that the appraisal of real estate is not an exact science, the Court must consider the opinions of the appraisers, all of the circumstances in evidence which affect value and its own general knowledge of the elements going to establish value. Aetna Life Insurance Co. v. Middletown, 77 Conn. App. 21, 26, 822 A.2d 330, cert. denied, 265 Conn. 901, 829 A.2d 419 (2003).
Mr. Grant reached his conclusion by developing both a sales comparison and a cost approach to value and ascribing 20 percent of his value conclusion to comparable sales and 80% to the value of the improvements. His utilization for cost approach yielded a value of $9,000,000 and his comparable sales approach yielded a value of $7,000,000. The Court finds it difficult to accept his conclusions.
First of all, his comparable sales were of distribution warehouses, while this property is a transit warehouse. A distribution warehouse is one where freight comes in, and is then broken down for re-shipping to other facilities, which could be wholesale, retailers and the like. A transit facility, such as the subject property, has packages come in by trailer where they are off loaded onto the conveyor and within minutes sent to another truck for loading and reshipment to smaller distribution or transit facilities. (Some packages are loaded onto small delivery trucks for local distribution, but the bulk are put into other trailers.) Mr. Grant classified the facility as a distribution warehouse because it resembles what the Marshall Valuation Service classifies as a distribution warehouse, which typically has two stories. While the conveyor system does go up to a mezzanine or second story, that is part of this unique (for this area of the county) package transfer operation. Packages are transferred by a massive conveyor during the night and moved out the following day. Nothing is stored in the building. As such it is a special purpose property and, as such, the comparable sales approach is not the most reliable methodology. The shape of the building, with its long and narrow loading wings make a valid comparable sales questionable. The Court finds the comparable sales used by SDC so unlike this subject property that their reliability is doubtful.
In his utilization of the cost approach to valuation, Mr. Grant utilized the replacement cost approach and not the reproduction cost. He also relied exclusively on cost estimates found in the Marshall Valuation Service and not the higher historic costs of construction. It was Mr. Grant's opinion that cost does not equal value.
The Court favors the cost approach as the most reliable method of valuing this property, and in this approach believes reproduction costs are the more accurate indicator. Reproduction costs are the estimated costs to construct, at current prices as of the effective appraisal date, an exact duplicate or replica of the building being appraised. Replacement cost is the estimated cost to construct, at current prices as of the effective appraisal date, a building with utility equivalent to the building being appraised. Aetna Life Insurance Co. v. City of Middletown, supra, 77 Conn. App. 30 noll. It is acceptable (or even preferable) to use reproduction costs where the improvements are relatively new and unique. Id., 34-35.
It is not disputed that the highest and best use of this property is its present use as a transit package or transit warehouse facility. As such there is a very limited market for a potential buyer. It would have to be a business very similar to the present FedEx operation or the prior Roadway Packing Systems.
Mr. Heberger testified that he compared available actual costs and his Marshall Services conclusions and found the comparison to be so similar as to not require any adjustment.
Further, the historic costs of construction for this facility were attributable to the design plan for the development and were, for the most part, anticipated by the preliminary engineering work the plaintiff had done.
The Court concludes that Ms. Heberger's approach more accurately assesses the market value of the property than that of Mr. Grant which essentially disregards actual costs involved with the development of the property.
Land Valuation
Mr. Grant did a comparison study of sales of land with special attention paid to sales in Willington and neighboring communities. He ultimately concluded that the developable portion of the property, approximately 50 acres, is worth $20,000 per acre ($1,010,000) and the portion within the conservation easement is worth $3500 per acre ($200,000). The total value of the land is $1,210,000 according to Mr. Grant.
Mr. Heberger concludes the developable portion is worth $2,515,000 and the conservation area is worth $205,000 (using $3500 per acre as did Mr. Grant) for a total of $2,720,000. Mr. Heberger relied heavily on the purchase of the land by SDC in 1993 for $4,000,000 to which he then adjusted downward, primarily to reflect the buyer's motivation.
The $4,000,000 purchase price is not, in the Court's mind, the best indicator of the value of the land and is relied on too heavily by Mr. Heberger. SDC had almost unique requirements for location with easy highway access for property suitable for its specialized building, for community acceptance, and the need to expedite construction of the facility. On the other hand Mr. Grant, in this Court's opinion, undervalues the per acre value of the developable 50 acres at $20,000 per acre. The property is a superior location given its size and proximity to an interstate highway system with access to connecting highways. From the viewing done by the Court it is a very attractive piece of real estate. It is the Court's opinion that the developable land has a market value at the high end of the comparable sales and the Court sets the value at $35,000 per acre rounded to $1,750,000, for a total land value of $1,950,000.
Special Defense
The town claims that SDC voluntarily paid its total 1996 tax bill without protest and is therefore precluded from challenging the assessment for that year. SDC argues there is no requirement that it indicate it was paying its tax bill under protest in order to receive a refund.
This issue was raised by the town as a special defense. Testimony was elicited from the tax assessor that the taxes for 1996 were not paid under protest and that was not refuted. Where the plaintiff, with knowledge of the facts, paid the taxes voluntarily, it could not recover them back even though they were in an amount in excess of what it should have paid. Atheneum v. City of Hartford, Superior Court, judicial district of Hartford, Docket No. CV 94 0538328 (October 25, 1995, Aronson, J.) ( 16 Conn. L. Rptr. 25); Pitt v. Stamford, 117 Conn. 388, 392, 167 A.919 (1933); Verran Co. v. Stamford, 108 Conn. 47, 142 A.578 (1928) (where the plaintiff paid the tax, appealed to the Superior Court, which reduced the valuation with the result the plaintiff overpaid. The Verran court held that the payment was voluntary and not the result of fraud, duress, accident or mistake and the plaintiff was not entitled to a refund). See also Bridgeport Screw Co. v. Bridgeport, 125 Conn. 593, 7 A.2d 649 (1939); Underwood Typewriter Co. v. Chamberlain, 92 Conn. 199, 102 A.600 (1917) (which held if the taxes were not paid under protest the taxpayer has no recourse).
Conclusion
As to Count one, judgment shall enter for the defendant.
As to Count two, judgment shall enter for the defendant.
As to Count three, the Court finds the fair market value of the improvements on the subject property, using the cost approach (Heberger appraisal) to be $18,065,000 and adding to that a land value of $1,950,000 for a total market value of the property to be $20,015,000.
The assessments of the subject property on the grand lists of 1997 and 1998 shall be reduced to reflect a market value of $20,015,000.
The plaintiff is awarded interest at the rate of 10% per annum on the amount of the refund (§§ 12-117a and 37-3a).
The plaintiff may submit a bill of costs.
Klaczak, JTR