October 2010 Newsletter

October 1, 2010 | appeal to tax court, asset management, commercial property tax reduction, commercial property taxes, corporate property tax savings, Cost Containment, cost containment definition, Department of Revenue, forfeit right to appeal, how to apply for property tax reduction, Increase Assets, methods of cost containment, Newsletter, power plant property tax, Property Tax Code, property tax reduction, property tax reduction consultants

NY Court invalidates special levies for services from which taxpayer did not benefit: Verizon New York, Inc. (formerly the New York Telephone Company) successfully challenged the imposition of special ad valorem levies for garbage collection against property it owned in North Hempstead, NY. Verizon owns “mass property” within North Hempstead, comprised of telephone lines, wires, cables, poles, and supports and enclosures for electrical conductors, a category distinct from “personal” or “real” property under the NY tax code. North Hempstead imposed special levies on Verizon relating to garbage collection services for its mass property, and Verizon appealed. Verizon neither requires nor receives any garbage collection services from North Hempstead, and claimed that the levies violated Real Property Tax Law § 102 (14), which provides that special levies may only be “imposed upon benefited real property.” The court held that the levies were invalid because the Verizon properties “did not and could not receive any direct benefit from that service.” New York Telephone Company v. Supervisor of the Town of North Hempstead, —N.Y.S2d —, 2010 WL 3023875 (August 3, 2010).

Billboard is personal, not real property: Billboards located on leased property subject to condemnation are personal property under the New Jersey Eminent Domain Act of 1971, N.J.S.A. 20:3-1 et seq. The Appellate Division relied in part on the classification of billboards as personal property for tax purposes, citing Maxwell Co. v. Galloway Twp., 145 N.J. 547 (1996), and refused to limit its holding to wooden billboards only. New Jersey Turnpike Authority v. Witt, N.J. Super.A.D. 2010, 2010 WL 2795077 (July 15, 2010).

Tax or Fee? T-Mobile, South, LLC, a wireless communication company, sued Fulton county for a refund of 9-1-1 charges it had paid on behalf of its prepaid wireless service customers. The Georgia Court of Appeals held that the “9-1-1 charge” imposed on T-mobile was a “tax” under state law, and that T-Mobile was entitled to a refund. The court defined a “tax” as “an enforced contribution exacted pursuant to legislative authority for the purpose of raising revenue to be used for public or governmental purposes,” and distinguished it from a “fee,” which it defined as voluntary “payment for a special privilege or service rendered.” The 9-1-1 charge was “exacted,” not voluntary, and its purpose was to raise revenue for “public or governmental purposes.” The court also held that the Georgia refund statute, OCGA § 48-5-380 (b), is not limited in application to ad valorem taxes and license fees, and that T-Mobile’s refund claim was not barred by the voluntary payment doctrine, which does not apply to tax refund claims. Fulton County v. T-Mobile, South, LLC, — S.E.2d —, 2010 WL 2978041 (July 30, 2010).

Water transport carrier’s use of in-state rivers creates tax situs in Tennessee: The taxpayer, an interstate water transportation carrier company operating boats and barges in the Mississippi and Tennessee Rivers, appealed from a Tennessee ad valorem tax assessment on its personal property. U.S. United Barge Line, LC (f/k/a Teco Barge Line, Inc.) is not domiciled in Tennessee, nor does it own or lease any property in Tennessee. Using the four-pronged test established in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), the court held that the Tennessee tax did not violate the Commerce Clause. United’s regular barge traffic over rivers throughout the State of Tennessee provided the “substantial nexus” required to allow Tennessee to impose a property tax measured by a fair apportioning formula. Further, the property tax imposed was “fairly related to the services provided by the state.” It made no difference that United’s barges have no need for Tennessee emergency services such as police or firefighters due to the availability of federal assistance while in transit, nor that United did not purchase supplies from Tennessee vendors nor regularly use any maintenance or repair facilities in Tennessee. It was enough that the taxpayer enjoyed “the privileges of living in an organized society, established and safeguarded by the devotion of taxes to public purposes,” for the tax to be legitimately imposed. However, the back assessments for the tax years of 2003 and 2004, which the court found had been imposed in retaliation for United’s appeal of its 2005 assessment, violated United’s First Amendment right to appeal the original assessment, and were invalidated. Teco Barge Line, Inc. v. Wilson, Slip Copy, 2010 WL 2730591 (Tenn.Ct. App. 2010) (July 9, 2010).

Cellular phone service providers now must report locally in Connecticut: Taxpayers providing mobile communications services may no longer elect to be taxed under CGS § 12-80a and to file their returns with the State Office of Policy and Management. Public Act 10-171, § 3, makes any such election null and void. Cellular phone service providers must now report their personal property to local assessors much like any other taxpayer. Personal property that was not fully depreciated under CGS § 12-80a as of October 1, 2009 is to be reported on the October 1, 2010 in the same manner as all other personal property. Personal property previously reported to OPM as fully depreciated will be added to the Grand List of the municipality in which it is located over a period of four years: 25 percent of the total value is reportable in 2010, 50 percent in 2011, 75 percent in 2012, and 100 percent in 2013 and thereafter.

Substantial compliance with personal property tax self-declaration requirements helps taxpayer avoid untimely assessment increase: BP Products North America, Inc. (f/k/a Amoco Sulfur Recovery Corp.) owns and operates the largest inland refinery in the world. The refinery is located in three Indiana cities. Indiana has a self-assessment system. BP timely filed its 2004, 2005 and 2006 personal property tax return forms, reporting the actual cost of all its depreciable business tangible personal property, deducting the cost of certain property it claimed as air pollution control equipment, and excluding the assessed value of the air pollution control equipment from its overall personal property assessed value computation. The Lake County tax assessor hired a refinery engineer to review the returns, and in May, 2007, issued notices to BP increasing the assessment of its personal property as a result of the disallowance of BP’s claimed air pollution control equipment exemption. The board of tax review agreed with BP, and the assessor appealed. Because the BP returns “substantially complied” with the Indiana personal property tax reporting requirements, the county assessor’s notices of increase, which were sent more than five months after the date the returns were filed, were invalid. The court rejected the assessor’s claim that BP had used “unintelligible” acronyms and “cryptic codes” to describe its air pollution control equipment on its returns. The taxpayer need not provide a description of its property that “instantaneously demonstrates to the assessor that the equipment qualifies for an exemption.” Rather the taxpayer need only provide “property descriptions that identify the property with particularity” in order to satisfy the reporting requirements. Lake County Assessor v. Amoco Sulfur Recovery Corp., — N.E.2d —, 2010 L 2773210 (July 14, 2010).

Notify the assessor of a change of address – little mistakes can make a big difference: Clara Wright bought real property in a tax sale for $283.11, the amount of property tax due on the property for the 2003 assessment year, plus interest, costs, and sheriff’s fees. The former owner, Cingular Real Estate Holdings of Louisiana, L.L.C., challenged the sale, claiming that its 2003 tax bill and the delinquency notice, after the tax went unpaid, were mailed to an incorrect address in Atlanta, where Cingular was located when it purchased the property in question. The Louisiana Court of Appeal rejected Cingular’s argument and held that the sale was valid. Although Cingular had listed its 2008 address as “AT&T Mobility LLC, Personal Property Tax Department, 16331 N.E. 72nd Way, RTC 1, Redmond, WA 98052” in response to the plaintiff’s interrogatory, it had not provided the tax assessor with notice of the change of address, and Cingular made no showing that its Atlanta address was incorrect in 2003 and 2004, when the tax sale occurred. Wright v. Cingular Real Estate Holdings of Louisiana, L.L.C., La.App. 1 Cir., 2010, 2010 WL 2637907 (July 1, 2010).

Doctors’ offices render clinic not tax exempt: St. Joseph Hospital Regional Medical Center, Inc., a non-profit corporation, runs the St. Joseph Outpatient Center in Wauwatosa, Wisconsin. The clinic provides outpatient services, pediatric rehabilitation, physical therapy, radiology and a women’s health care center. The clinic also includes a twenty-four hour urgent care center. The clinic filed timely tax exemption requests with the local assessor for the years 2003-2006, all of which were denied by the assessor. Although WIS. STAT. § 70.11 provides a property tax exemption for real property owned and used exclusively for purposes of any hospital, the statute expressly states that it “does not apply to property used for commercial purposes, as a health and fitness center or as a doctor’s office.” The clinic ran afoul of the prohibition against use as a doctor’s office: it did not provide inpatient services, it provided the doctors with space to do paperwork, and doctors saw most patients by appointment and only during business hours. The court explained that a “doctor’s office” is a place where doctors see patients, mostly by appointment, during scheduled business hours, and have their offices; a “hospital” is a place that offers inpatient, overnight care. As a result, the clinic was not tax-exempt, and properly assessed by the assessor. Covenant Healthcare System, Inc. v. City of Wauwatosa, Slip Copy, Wis.App. 2010, 2010 WL 3119800 (August 10, 2010).

Failure to include statement of operating expenses for comparable properties in income approach appraisal not prejudicial to taxpayer’s case: The taxpayer, who owned a 412-unit mobile home park, brought an appeal challenging the town of Malta’s $18,440,000 assessment of its property. The town claimed that the taxpayer’s appraisal was deficient for failing to include a statement of the operating expenses for comparable properties identified in its appraiser’s income approach to support the estimation of market expenses, as required by the Uniform Standards of Professional Appraisal Practice. The court rejected the attack, and found that the fair market value of the property was $13,000,000, as set forth in the taxpayer’s appraisal report. The purpose of the USPAP requirement, which has been adopted in New York by statute (19 NY ADC 1106.1) is to allow opposing counsel to “adequately prepare for cross-examination.” See 22 NY ADC 202.59 (g) (2). The taxpayer’s appraisal set forth the actual line expenses of the property as well as estimated market line expenses for comparison. Any deficiency was rectified at trial by the appraiser’s testimony on direct as to his background and methodology. Regency Realty Associates, LLC v. Board of Assessment Review, 75 A.3d 950, 905 N.Y.S. 2d 710, 2010 N.Y. Slip Op. 06197 (N.Y. App. Div., 3d Dept., July 22, 2010).

Tax Injunction Act bars federal challenge to payment of Connecticut property tax: The taxpayer claimed that he had paid a motor vehicle tax bill, which the municipality disputed. The district court held that the taxpayer sought to avoid the payment of taxes, and the court of appeals affirmed. The Connecticut tax code contains several provisions by which taxpayers may contest assessments, and the taxpayer did not challenge the method by which he was notified of the overdue taxes. Although the taxpayer claimed that it would have been impossible for him to challenge the tax assessment in question, which dated from 1997, due to a one-year statute of limitations in the applicable statute, the court observed that it was unlikely that a Connecticut court would interpret that statute to preclude the taxpayer’s challenge. The court held that it lacked subject matter jurisdiction to consider the taxpayer’s claim under the principle of comity and the Tax Injunction Act, 28 U.S.C. § 1341, which provides that “[t]he district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” Marshall v. Town of Middlefield, 360 Fed Appx. 227, 2010 U.S. App. LEXIS 665 (January 12, 2010).

Rental car company has taxable interest in airport common areas: The taxpayer, a car rental company, appealed from the county’s assessment of real property tax on areas leased in common by the company at a public airport. In California, where tax-exempt public property is subject to private use, the property may not be taxed unless the private use constitutes a “possessory” interest. Here, at least six other rental car companies also leased space at the airport’s rental car facility. Vanguard’s lease agreement provided that Vanguard would have exclusive possession of certain areas, while sharing other areas in common with the other rental car companies. Although Vanguard claimed it had no possessory interest in the common areas, it had authority and control over the common areas that the general public did not. For example, members of the public did not have the right to use the garage space to park their own private cars, and could have been prevented by Vanguard from doing so. This control over the common areas rendered them subject to tax. Vanguard Car Rental USA, Inc. v. County of San Mateo, 118 Cal.App.4th 1316, 104 Cal.Rptr.3d 911, 2010 Cal.App.LEXIS 155 (February 8, 2010).

External obsolescence of Big Box store results in reduced assessment: Meijer opened a 158,114 square foot big box store on 26 acres of land in Richmond, Indiana in 2000. When it received its tax assessments for the 2002, 2003 and 2004 tax years, it appealed, claiming that the assessments were too high. The Indiana Board of Tax Review rejected its appraiser’s obsolescence analysis because it found that the appraiser had failed to establish that the Meijer property was subject to the market forces that caused certain types of retail properties to lose value. Obsolescence, the court explained, is a form of depreciation, the functional or economic loss of value to property, which is expressed as a percentage reduction to an improvement’s replacement cost new. The court contrasted “functional” obsolescence (a loss of value caused by internal inutilities) which could be caused, for example, by design defects, the need for modernization, a superadequacy, or changes in the tastes of potential buyers, with “external” obsolescence (a loss of value caused by factors external to the property) which may be caused by an oversupply of the type of space it provides, light or noise pollution, crime, or inharmonious land use. Meijer’s property, like most other big-box retail properties within its market, experienced a significant, but temporary, amount of external obsolescence due to the limited number of potential buyers and an oversupply of such properties in the market. According to Meijer’s appraiser, the overall size of these properties limited their marketability, while the market glut was primarily caused by two other factors: 1) the dynamic nature of the retail industry (e.g., the rapid transition from strip malls to power centers); and 2) the business practices of certain retailers (i.e., their increased building of larger big-boxes and abandonment of smaller big-boxes before the expiration of those properties’ physical lives). Finally, the appraiser testified that the majority of the obsolescence in the big-box retail market occurs immediately; thus, even brand new big-box stores experienced an immediate loss in value. The court found that the Indiana Board arbitrarily rejected the appraiser’s testimony, and reversed the board’s decision. Meijer Stores Limited Partnership v. Smith, 926 N.E.2d 1134, 2010 Ind.Tax LEXIS 10 (March 26, 2010).

Comparable sales of vacant properties more persuasive than sales of leased properties in determining market value of manufacturing facility in slow economy: Trimas Fasteners owns and operates a 200,000 square foot manufacturing facility on 44 acres in Frankfort, Indiana, assessed by the township assessor at $7,762,600. Although the Clinton County board of assessment appeals reduced the assessment of its property to $7,212,300, Trimas appealed anyway, producing its own appraisal showing the market value-in-use of the Trimas property to be $2,960,000. The difference in valuation was due to a disagreement over whether the Trimas property suffered from external obsolescence. According to Trimas’s appraiser, its property suffered from external obsolescence because a slowdown in the manufacturing sector in Indiana for the relevant time period saturated the market with manufacturing facilities for sale. Trimas’s appraiser used five comparable sales involving vacant manufacturing facilities, while the assessor’s appraiser used six manufacturing facilities with leases in place, the latter arguing that value-in-use of a vacant property is just “sticks and bricks” while the value-in-use of the Trimas property, an ongoing concern, should be “over and above” that. No, said the court: market value-in-use, as determined by objectively verifiable market data, is the value of property for its use, not the value of its use. The assessor failed to explain why properties with long term leases were actually more comparable to the subject property, which had no lease in place on the valuation date, than properties that sold in fee simple transactions. Stinson v. Trimas Fasteners, Inc., 923 N.E.2d 496 (March 26, 2010).