56 th Mid-Year Meeting Municipal Law: Real Property Tax Appeals

Transcription

1 Vermont Bar Association Seminar Materials 56 th Mid-Year Meeting Municipal Law: Real Property Tax Appeals March 15, 2013 Sheraton Burlington Faculty: Brian P. Monaghan, Esq. Pamela Moreau, Esq.

2 Municipal Law: Real Property Tax Appeals Pamela Moreau, Esq. and Brian P. Monaghan, Esq. I. Introduction A. The process begins when the municipal listers or the assessor list a property in the grand list (32 V.S.A. 4044) and send a notice of change of appraisal to the property owner (32 V.S.A. 4111). Note: If the property s assessment has not changed from the prior year, no notice will be issued. A property owner who wants to appeal must call the clerk to find out when to grieve the assessment. B. First Step: Board of Listers. The aggrieved taxpayer must meet with the Board of Listers to grieve their property assessment. At this stage, they can correct any inaccuracies (square footage, etc.) or explain why the assessment is too high. C. Second Step: Board of Civil Authority ( BCA ). Within 14 days of the Listers decision, the aggrieved taxpayer must appeal to the BCA. 32 V.S.A The BCA is comprised of the municipality s Selectboard or City Council, Town Clerk, and Justices of the Peace. 24 V.S.A The quorum rules are relaxed for the BCA, allowing the board to take action through a majority of those present and voting. Id. This is different than the rule in municipal zoning proceedings, where a board can only take action through the majority of all of its members. 24 V.S.A Note: Attorneys do not typically participate at these initial stages, partly for economic reasons. The process is overseen by laypeople, and a taxpayer need only present their reasons for the assessment being too high, bringing evidence such as a recent appraisal or comparable properties to explain the basis for their belief as to property value. D. Third Step: If the taxpayer wants to appeal the BCA decision, there are 2 options: the taxpayer can appeal either to the Superior Court for the county or to the Director of Property Valuation and Review ( PVR ). 32 V.S.A Appeals are to be filed with the Town Clerk pursuant Rule 74 of the Vermont Rules of Civil Procedure and Forum Selection PVR - Generally a less expensive, less formal process, with generally less involvement by attorneys. Superior Court better suited to addressing legal issues that arise in the context of a tax appeal taxability, exemptions, and constitutionality issues. 1

3 E. Fourth Step: Within 30 days of the decision issued by either the State appraiser or the Superior Court, a taxpayer may appeal to the Supreme Court, following the Vermont Rules of Appellate Procedure. II. Timelines for Appeal A. Strict deadlines for appeal. The timelines for taking appeals are set by statute, and are strict. Failure to meet a deadline is jurisdictional. Accordingly, an attorney counseling the taxpayer in the initial appeal process should recognize the timelines in which to file the various appeals. B. April 1. A property s valuation is set as of April 1 st. This date is used as a snapshot in time so that all properties are assessed as of the same date each year. Different municipalities treat the April 1 deadline differently for a property in midconstruction on April 1. Some adhere to the April 1 deadline and will wait until the next tax season to assess the property at its full value. Other municipalities will approach the task in a more practical way and may use a stepped approach if the property will have significant value for a portion of the year. C. Deadlines for the Municipality s Process. The Secretary of State s office has produced a treatise called A Handbook on Property Tax Assessment Appeals, revised by Charles Merriman, Esq. and former Secretary of State Deb Markowitz, Esq. (2009). The following table from the Handbook illustrates the deadlines, all of which are imposed by statute. The dates vary depending on the municipality s population, so it is critical to be cognizant of these issues in preparing any appeal. IMPORTANT NOTE: The deadlines below represent the final date for a municipality to comply. If a municipality complies earlier than the date shown here, it may impact a taxpayer s time for appeal. You should always call the municipal clerk or assessor to verify the date for any grievance process. 2

4 III. Evaluating the Listed Value Evidentiary Issues A. Whether to Appeal. The BCA, and either of the tribunals on appeal, may increase, reduce, or sustain an appraisal made by the listers." 32 V.S.A The taxpayer should be aware of the risk that the appeal may result in an increased property assessment. B. Cost Benefit Analysis. Evaluating the merits of an appeal beyond the BCA is probably best framed as a cost-benefit analysis: does the chance of success on the merits, which might result in a reduction of X, justify the outlay of funds Y necessary to reach that point? C. Fair Market Value. The municipal listers role is to assess property at fair market value 1 pursuant to 32 V.S.A The statute does not mandate any particular method to determine estimated fair market value. D. Equalizing the Assessment. After the FMV of the property is determined, it is equalized so that the listed value of the property corresponds to the fair market values of other comparable properties. See Kachadorian v. Town of Woodstock, 149 Vt. 446, 447 (1988). The equalization rate is typically the municipality s common level of appraisal ( CLA ), as determined by the Vermont Department of Taxes Division of Property Valuation and Review. 2 E. Three Approaches to Fair Market Value: Sales Comparison: The best evidence of the market value of a property is the price paid for it in a bona fide sale. See Royal Parke Corp. v Town of Essex, 145 Vt. 376 (1985). If this is not available, comparison with the sale price of properties similar to the subject property is an accepted method. See Barrett/Canfield, LLC v. City of Rutland, 762 A.2d 823, 171 Vt. 196 (Vt. 2000) Cost Approach: Sometimes referred to as RCNLD Replacement Cost New Less Deprecation. The appraiser is effectively assigning a value to each item of property and applying a depreciation factor based on its age and useful life. When the cost approach is utilized, the method is often based on a hybrid of the cost and comparison approaches in order to produce an accurate assessment. The Vermont Supreme Court has held that cost alone is not a verifiable approach to appraisal. See Jeffer v. Town of Chester, 142 Vt. 23, 451 A. 2d 823 (1982) (Replacement cost approach to valuation inapplicable when not otherwise reconciled with fair market value); see also, In re Hughes, 132 Vt. 334, 318 A. 2d 676 (1974) ( This Court has repeatedly warned that the use of any single method, 1 32 V.S.A. 3481(1) requires, in part, that The estimated fair market value of a property is the price which the property will bring in the market when offered for sale and purchased by another, taking into consideration all the elements of the availability of the property, its use both potential and prospective, any functional deficiencies, and all other elements such as age and condition which combine to give property a market value... Fair market value is based on the Highest and Best Use of the property. Scott Const., Inc. v. City of Newport Bd. of Civil Authority, 683 A.2d 382, 165 Vt. 232 (Vt. 1996). 2 See Knollwood Bldg. Condominiums v. Town of Rutland, 699 A.2d 31, 166 Vt. 529 (Vt. 1997) and Dewey v. Town of Waitsfield, 956 A.2d 508, 2008 VT 41 (Vt. 2008). 3

5 or even combination of methods that lead appraisers astray of their statutory responsibility will not be accepted. ). Income Approach: The income approach is the most appropriate method in the assessment of property that produces income such as commercial or residential rental properties. See Beach Properties Inc. v. Town of Ferrisburgh, 161 Vt. 368 (1994). Simply put, the appraiser s role is to take the gross income of the business, subtract operating expenses, and apply a capitalization rate to arrive at a going concern value. In certain cases, it would be appropriate to subtract out the value of any personal property that impacts the value of the going concern but which is not taxable as real estate. IV. Burden of Proof on Appeal. A. Initial burden. The initial burden of proof is on the municipality to provide evidence of the fair market value of the property, by introducing its property record cards, or listers cards, into evidence. The initial appraisal is entitled to a presumption of validity by the court. Kruse v. Town of Westford, 145 Vt. 368, 372 (1985). B. Rebuttal. The taxpayer is then charged with the burden of going forward with the evidence, which the taxpayer can meet by offering evidence of that her property is overvalued, bursting the bubble of the Town s evidence. If the taxpayer meets this burden of production, the presumption that the listed value is accurate no longer exists. At that point, the municipality must defend its appraisal with adequate evidence, despite the fact that the ultimate burden of persuasion remains with the taxpayer. N.E. Power Co. v. Town of Barnet, 134 Vt. 498 (1976). V. Vermont Supreme Court Decisions: Given that the property tax is one of the more heavily litigated issues in Vermont jurisprudence, there are plenty of recent and pending cases of import to the tax appeal practitioner: In re HS-122, 38 A.3d 1163, 2011 VT 138 (Vt. 2011): Pursuant to the Public Records Act, the Vermont Supreme Court held that property tax adjustment information (i.e., property tax rebate) on municipal property tax bills is confidential and not to be made available to the public for inspection and copying. Nevertheless, the Vermont Legislature responded by passing Act 70 in the 2012 Legislative Session: This act provides that a public agency or employee of a public agency shall not be held liable for a violation of the public records act, a violation of tax return confidentiality requirements, or for a claim based on invasion of privacy as a result of disclosure of property tax adjustment information prior to the issuance of the mandate on the Vermont Supreme Court in In re H.S. 122 (Vt. Dec. 22, 2011), which held that property tax adjustment information on municipal property tax bills is confidential tax return information. The Legislature later passed Act 143 (amending 32 V.S.A. 3102(j) and (k)), clarifying that, while unadjusted property tax bills are public documents, adjusted bills and the documents used to generate those adjusted bills are confidential. The latter states that liability may not be incurred when the state tax commissioner or a municipal official 4

6 acting as his or her agent may provide the adjusted tax bill to the following people without incurring liability: (1) An escrow agent, the owner of the property to which the adjustment applies, a town auditor, or a person hired by the town to serve as an auditor; (2) A lawyer, including a paralegal or assistant of the lawyer, an employee or agent of a financial institution as that term is defined in 8 V.S.A , an employee or agent of a credit union as that term is defined in 8 V.S.A , a realtor, or a certified public accountant as that term is defined in 26 V.S.A. 13(12) who represents that he or she has a need for the information as it pertains to a real estate transaction or to a client or customer relationship; and (3) Any other person as long as the taxpayer has filed a written consent to such disclosure with the municipality. Town of Castleton v. Parento, 2009 VT 65: The taxpayer appealed a decision of the Vermont State Appraiser upholding the Town of Castleton's reappraisal of the property. The taxpayer argued that the Town selectively reappraised his property in violation of the Proportional Contribution Clause of Chapter I, Article 9 of the Vermont Constitution. The Court agreed with the taxpayer and reversed the decision of the state appraiser. The Court held that there must be a rational basis for identifying a subset of properties to be reassessed and that the record must also demonstrate that the reassessment was effectuated consistently with respect to these properties. Castleton v. Parento, 988 A.2d 158, 2009 VT 65 (Vt. 2009), citing M.T. Assocs., 2005 VT 112, 18, 179 Vt. 81, 889 A.2d 740; cf. One Church St., 152 Vt. at 268, 565 A.2d at 1353 (stating that "once fair classifications have been established, taxpayers within a given classification must be treated alike"). The case involved lake front property that, according to taxpayer, was not to be re-assessed at that time, while the Town maintained that two parcels in close proximity but are not contiguous should be taxed as one. The Court rejected this argument and found that the Town arbitrarily treated similarly situated taxpayers differently. Boivin v. Town of Addison, 2010 VT 67: Taxpayers appealed a decision by the Addison Superior Court establishing the listed values for the year 2003 for three properties. The lower court s decision was affirmed. The taxpayers presented the following arguments: (1) the trial court's findings were without evidentiary support because the court should have given more weight to Boivin's testimony regarding the appropriate valuation analysis; (2) the assessment of taxpayers' property was an arbitrary assessment and the result of sales chasing in violation of taxpayers' constitutional rights; (3) the Town's arguments in support of its assessment should have been foreclosed based on the doctrine of judicial estoppel; (4) the trial court erred in refusing to issue findings on the formulas the Town's appraiser used to assess the value of properties in which development rights have been sold or the land schedule used for assessments in previous years; and (5) the trial court erred by accepting the Town's appraiser's updated report. The Taxpayers did not prevail on any of their contentions. The Court upheld the qualifications of the state appraiser and the sales comparison approach employed by the appraiser, noting, The mere fact that the Town's appraiser is not himself a dairy farmer is not enough to show an abuse of the trial court's 5

7 discretion in crediting his testimony and report. Regarding the argument that the Town should have used a regression analysis, the Court noted that the heart of taxpayers' argument goes to the credibility determinations made by the trial court as to the appropriate analysis to calculate fair market value, and we will not disturb this determination on appeal, as the court's decision to credit the Town's appraiser's sales comparison approach was not clearly erroneous. The Town s equalization rate was also upheld when the Court decided that it was entirely reasonable to conclude that any changes in valuations occurred as a result of other, permissible, factors and not arbitrary enforcement or sales chasing. VI. Property Tax Exemptions A. Background 1. Nearly 9,000 properties in Vermont are tax-exempt, valued at $6 billion. 2. PILOTS 32 VSA (state-owned property) 3. Recent Trends oversight by PVR to protect Education Tax Funds a. In re Appeal of the Town of Colchester, Docket No. S CnC b. Champlain Housing Trust, Inc. v. City of Burlington, et al., Docket No. S1392 CnC B. 32 V.S.A. Chapter 125 Exemptions V.S.A. 3802(1) (17) Property Tax. The following property shall be exempt from taxation:... (4) Real and personal estate granted, sequestered or used for public, pious or charitable uses; real property owned by churches or church societies or conferences and used as parsonages and personal property therein used by ministers engaged in full time work in the care of the churches of their fellowship within the state; real and personal estate set apart for library uses and used by the public and private circulating libraries, open to the public and not used for profit; lands leased by towns or town school districts for educational purposes; and lands owned or leased by colleges, academies or other public schools or leased by towns for the support of the gospel; and lands and buildings owned and used by towns for the support of the poor therein; but private buildings on such lands shall be set in the list to the owners thereof, and shall not be exempt. The exemption of lands owned or leased by colleges, academies or other public schools, shall not apply to lands or buildings rented for general commercial purposes, nor to farming or timber lands owned or 6

8 leased thereby; but this provision shall not affect the exemption of socalled school or college lands, sequestered to such use prior to January 28, Public, pious or charitable use 32 V.S.A. 3802(4) American Museum of Fly Fishing, Inc. v. Town of Manchester 151 Vt. 103 (1989) i. Property must be dedicated unconditionally to public use; ii. The primary use must directly benefit an indefinite class of persons who are part of the public; iii. The property must be owned and operated on a not-for-profit basis. 3. Exceptions to Exemptions for Public, Pious or Charitable Uses 32 VSA The exemption from taxation of real and personal estate granted, sequestered or used for public, pious or charitable uses shall not be construed as exempting: (1) Real and personal property held in trust for a municipal corporation by virtue of a trust which takes effect after passage of this act when the property is located outside the town where the said municipal corporation has its principal place of business, unless the town or municipality in which the property is located so votes at any regular or special meeting duly warned therefor. (2) Real estate owned or kept by a religious society other than a church edifice, a parsonage, the outbuildings of the church edifice or parsonage, a building used as a convent, school, orphanage, home or hospital, land adjacent to any of the buildings named in this subsection, kept and used as a parking lot not used to produce income, lawn, playground or garden and the so-called glebe lands. (3) Property of railroad corporations. (4) A municipal electric light plant when located outside the town wherein the municipality owning it is situated. (5) Real and personal property held by the state and located in any town other than that in which the institution of which it forms a part is located. (6) Real and personal property owned or kept by an orphanage, home or hospital including diagnostic and treatment center not used for the purpose of such institution but leased to others for income or profit, whether or not the institution is conducted by or connected with a religious society unless the town or municipality in which the property is located so votes at any regular or special meeting duly warned therefor. (7) Real and personal property of an organization when the property is used primarily for health or recreational purposes, unless the town or municipality in which the property is located so votes at any regular or special meeting duly warned therefor. (Amended 1959, No. 187; 1965, No. 71.) 7

9 4. Case Illustrations A. Indefinite Class of Persons Who Are Part of the Public Vermont Studio Center, Inc. v. Town of Johnson, 2010 VT 59 (Vt. 2010) (exemption denied for selective artist-in-residency program) MacDonough-Webster Lodge No. 26 v. Wells, 175 Vt. 382, 2003 VT 70 (Vt. 2003) (exemption denied for lodge property used by Masons). B. Owned and Operated on a Not-for-Profit Basis Lincoln Street, Inc. v. Town of Springfield, 159 Vt. 181 (1992) (exemption denied to nonprofit leasing from private owner to operate home for disabled residents). Herrick v. Town of Marlboro, 173 Vt. 170 (Vt. 2001) (exemption denied to private owner who had dedicated property to exclusive use of religious ministry). Twin Valley Community Services, Inc. v. Town of Randolph, 170 Vt. 648 (2000) (exemption granted where there is concurrence of non-profit ownership and use). Champlain Housing Trust v. City of Burlington. C. Exceptions for Recreational Use Town Must Vote Ice Center of Washington West, Inc. v. Town of Waterbury, 2008 VT 37 (Vt. 2008) (exemption denied to public ice rink). D. Exceptions for Religious Society Type of Use is Limited (church edifice, parsonage, convent, school, home or hospital). Our Lady of Ephesus House of Prayer, Inc. v. Town of Jamaica, 2005 VT 16 (Vt. 2005) (exemption denied to portions of the property). 8