The Law Firm of Bucknam Black Davis PC

Taxation Vexation

Attorney Davis originally wrote this post as a Contributor for SCOVLaw

In this case, taxpayer owns three units in a condo community that lies in both Sudbury and Hubbardton. Taxpayer objects to Sudbury’s tax assessment and argues that the trial court erred in upholding the state law through which Sudbury did the tax assessment, the valuation of the portion within its boundaries, and Sudbury’s method of apportioning the tax burden among the condo owners.

The condo community—known as Wanee Villas and Resorts—consists of twenty-one individually owned units covering 26.9 acres. Two documents in the Sudbury land records (a 1978 covenant and a 1993 amendment) assign a percentage of ownership interest in the common land to each unit; state that each unit has a an easement to access the common land; and create a common-interest community and a condominium. Most of this land (including all of the privately owned units) lies in Hubbardton. Only 1.29 acres of common land lies in Sudbury. Three-hundred-eighty-five feet of that land is on Lake Hortina, which is more appealing to individually owned units. Taxpayer owns three units and a stake in Wanee Enterprises, which owns eleven units.

Back in the day (1996 to be exact), taxpayer appealed Sudbury’s tax assessment of the Sudbury portion of Wanee. Taxpayer and Sudbury stipulated to a value of $89,460 for the Sudbury portion. Taxpayer again appealed in 2007, arguing before the town’s Board of Civil Authority and the trial court that Sudbury could not tax the land because the individually owned units were all within Hubbardton. Taxpayer voluntarily dismissed the case with an agreement with Sudbury that it would not tax the units owned by taxpayer, Wanee Enterprises, or taxpayer’s mom from 2007-2009. Sudbury honored this agreement for the three years and then continued to not tax beyond those years until the Legislature could clarify how to tax common lands belonging to a condominium community whose units lie entirely in another town.

Then, in 2012, the Legislature amended 27A V.S.A. § 1-105. Normally I would paraphrase the statute, but it’s a big piece of this case, so I’m willing to use the space to quote the relevant part:

(a) In a condominium or planned community: …

(2) if there is any unit owner other than a declarant, each unit shall be separately taxed and assessed, and no separate tax or assessment may be rendered against any common elements for which a declarant has reserved no development rights; provided, however, that if a portion of the common elements is located in a town other than the town in which the unit is located, the town in which the common elements are located may designate that portion of the common elements within its boundaries as a parcel for property tax assessment purposes and may tax each unit owner at an appraisal value pursuant to 32 V.S.A. § 3481.

Sudbury reappraised the Sudbury portion through a “systematic, multiple-factor formula derived from land tables, schedules, and adjustments,” and valued the Sudbury portion at $177,445. In following the §1-105 amendment, Sudbury taxed the land against individual unit owners by apportioning the tax burden among the unit owners in accordance with their percentage ownership.

Taxpayer appealed to the Sudbury appraisers, then to the Sudbury Board of Civil Authority, and then to the trial court. At the trial court, he argued that §1-105violated the U.S. and Vermont Constitutions; that the Sudbury valuation of the land is not supported by evidence and does not represent the land’s fair market value; and Sudbury must apportion the tax burden equally to each unit. The trial court, after a bench trial, ruled against taxpayer on everything except a remand to apportion the tax burden in accordance with the 1993 amendments to Wanee’s covenants. Taxpayer appeals using the same three arguments as below.

On the first argument—the constitutionality of the statute—the SCOV finds that the statute does not violate either the U.S. Constitution or the Vermont Constitution. Taxpayer asserts that the law creates a situation where common land in more than one town can be taxed at a higher total rate than those with common land in just one town. In his situation he pays twice as much. His situation violates the idea that any difference in tax burden between similarly situated citizens must have a reasonable and rational basis.

A tax is constitutional if it is established for a reasonable purposes, bears a reasonable relation to that purpose, and is fairly applied so that all within a given tax classification are treated alike. These requirements are met in §1-105 because it creates a system that is reasonable and results in fair and uniform tax treatment if implemented properly. This sounds a bit like a Bernie Sanders stump speech. In any event, §1-105 creates two different classifications: common elements entirely in one town, and common elements located in two towns. Towns cannot tax land outside their boundaries, but can tax the amount and value of the land inside their town. Assuming everyone is treated uniformly, everyone pays like taxes, regardless of whether their lands lie in one or two towns.

Furthermore, the property tax system must be based on fair market value to make sure that the tax burden is shared proportionately. The SCOV holds that §1-105satisfies this. The idea behind this is that each town can value the portion within its boundaries so long as the combined valuation does not exceed actual fair market value of the entire piece of land. The Proportional Contribution Clause of the Vermont Constitution, and the Equal Protection Clause of the Vermont Constitution require that §1-105 be applied in a way that does not tax based on a total valuation in excess of fair market value.  Section 1-105 allows towns to consider the land inside their boundaries and the fair market value of the entire piece of land. Therefore, §1-105 is constitutional. Additionally, the taxpayer offered no evidence to show that his property was value or taxed at a higher rate than if it were located entirely within one town.

Moving along, the SCOV addresses the next argument that the fair market value of the Sudbury portion was not supported by evidence. This is the usual part where I claim that “math are hard” and skim over it, but my critics at VTDigger dislike that and assume I can’t do math, so I’ll explain it. Sudbury uses a method of “land tables, schedules, and adjustments that take into account multiple factors affecting the value of the land.” Taxpayer objects to the part of the formula that uses an adjustment for easements reflecting that the land is a small portion of a larger parcel. Taxpayer argues that the adjustment is insufficient, but does not propose an alternative method.

The SCOV reiterates the long-established rule that Vermont towns have discretion to use different appraisal methods to value property in accordance with fair market value. This can be met by taking into consideration all elements that give value to property. In this case, the State of Vermont provides a general land schedule based on actual sales in the town over the past three years. Then, Sudbury adjusts for certain factors like terrain, accessibility, septic systems, etc. Sudbury’s method is remarkably accurate with its assessed values “very comparable” to actual sales.

Sudbury started with a schedule based on the average fair market value for a lot on Lake Hortonia of $1,000 per linear foot of lake frontage (385 feet), for a base value of $385,000 (that’s $1,000 x 385 = 385,000), and then took into account certain factors. Here’s where the math kicks in: ($385,000 x .80 (overgrown beach) x 1.02 (deeper-than-normal parcel) x. .70 (lake frontage) x .80 (easement for community owners)) + $1500 (dilapidated structures) = $177,429.60. Final assessed value being $177,445 (with no indication as to where the extra $15 came from).

The trial court found the system was accurate because the schedule was based on actual sales data, and the adjustment factors reflected elements the SCOV has previously recognized as giving property a market value. The SCOV also finds that the town uses proper bases for determining the degree of adjustment for each factor, including the use of numerical charts. Finally, the overall land value close matches historical sale prices. Therefore, the appraisal method is not unreasonable or too simplistic like other methods the SCOV has struck down. It other words, the method has to be just complicated enough for it to be upheld. If it were simple, then anyone could do it, and that’s not right.

Taxpayer also argues that Sudbury’s formula should not be used at all because the land was developed to value stand-alone parcels and not portions of land belonging to one larger parcel. Taxpayer claims that the Sudbury portion is almost worthless because it cannot be sold on its own. This ignores the SCOV’s long-standing holding that “contiguous lands should be treated as one under appropriate circumstances.” Factors to consider in determining whether a property should be assessed as a single parcel include such questions as: is it conveyed in one deed? What’s the character of land and purpose for which it is used? Does it function as one tract for the owner? Here, the Sudbury and Hubbardton portions function as one tract, and the Sudbury portion enhances the whole by providing the units with lakefront access.

Taxpayer’s third and final argument is that the tax burden should not be apportioned among the unit owner in relation to their percentage interest in Wanee. He claims it is unreasonable, unconstitutional, and violates the principal that property tax appraisal value should be proportionate to fair market value. Taxpayer believes the tax burden should fall equally on each unit. The SCOV says no, just no. Sudbury’s method of apportioning the burden according to ownership interest is reasonable because it takes into account “the benefits and burdens of condominium ownership.” It’s constitutional because it reflects the actual value that the common property adds to each unit. The SCOV notes that “tax is a common expense, so it is reasonable for Sudbury to allocate this burden across the different units according to percentage of ownership interest.” Historically, Vermont relies on the principal that common areas of condo communities are not taxed as if completely independent of units that own easements to it. Instead, it is allocated to the individually-owned units that make up the condo, and then those units are taxes. Here, none of the units lie in Sudbury, so Sudbury can tax the portion of the common area that is within its boundaries.

Thus, the SCOV affirms the trial court and the tax bill.

My Statutory Prerogative

January 21, 2016Amy DavisMunicipal0

Note: this blog was originally written and posted for SCOV Law.

Demarest v. Underhill, 2016 VT 10

This case focuses on who gets the responsibility of maintaining an old, rough road in Underhill, Vermont: the Town that has historically maintained it, or the road’s neighbors. This road, known as Town Highway 26 (TH 26) has been around for about 150 years. It is a single lane about 1.5 miles long that leads to a beaver pond. The road intersects with both Irish Settlement Road and Pleasant Valley Road. In 2001, the Town of Underhill tried to reclassify a segment of TH 26 between Irish Settlement Road and Pleasant Valley road as a legal trail. There was some litigation involved, but the changes became effective in June 2010, and TH 26 became part of the Town’s six miles of Class 4 highways.

Before this reclassification took place, the Town would do some maintenance and repair work to the roadway and the twenty-two culverts under the road. Since the reclassification, the Town has done some work to the road, mostly by adding base material to the roadway. In spring 2013, the Town made some repairs to four culverts following severe storms and increased runoff.

Appellees Demarest, Moulton, and Fuller all own property on TH 26 in Underhill. In early 2012, they filed a notice of insufficiency asking for maintenance of TH 26. The Town denied the notice, asserting that it was maintaining TH 26 to the “extent required by the necessity of the Town, the public good, and the convenience of the inhabitants of the Town.” Appellees brought an action for repairs and maintenance to drainage, culverts, and road surfaces.

The trial court appointed three Commissioners who found that TH 26 had a variety of problems making it unsafe for travel. The Commissioners also acknowledged that the town is not required to regularly maintain a Class 4 highway, but also added that because the Town had made improvements in the past, the abutting property owns have a justifiable expectation that maintenance and repair will continue. The Commissioners then ordered the town to make various repairs and improvements costing about $68,000.

The Town appealed the report, and the trial court entered judgment against the town, adopting the Commissioners’ report in part, and modifying it in part. The trial court required the Town to undertake some recommendations, which “will ensure basic safety and reliability.” The Town moved for reconsideration, which the trial court unsurprisingly denied.

The Town appeals to SCOV, claiming that the trial court erred in requiring maintenance of TH 26 because the decision whether or not to make repairs of a Class 4 highway is in the Town’s discretion.

The SCOV notes that under 19 V.S.A. §310(b), towns have discretion in determining whether to maintain and repair Class 4 highways. There are factors to be considered when deciding to repair, such as the necessity of the town, and the convenience of the inhabitants. A citizen can get around this discretion by showing the town has acted arbitrarily and discriminatorily.

In a similar case regarding the Town of Calais, the SCOV affirmed the town’s decision to not repair a Class 4 highway, finding that it was pursuant to a general town policy that maintenance was the adjacent landowner’s problem, except for some minimal summer maintenance. Underhill’s road policy has similar language to this previous case. The trial court added requirements into the standard, considering whether the Town had some obligation to perform minimal road maintenance to ensure basic safety and reliability.

The SCOV agrees with the trial court in that the Town’s road policy does not have much substance. While the Town’s road policy adds little to the applicable statutory language, it emphasizes the discretionary nature of its decision-making.

The trial court noted that it is within the Town’s “statutory prerogative” to spend less on maintenance of Class 4 roads than the appellees might prefer, but the prerogative must be “within reason and based on non-arbitrary factors.” Then the trial court dived into the Town’s decision-making process and the court’s own analysis of the need for repairs and maintenance. The trial court found the Town’s decision arbitrary—not from the Town’s implementation of its own policy, but from a “proper engineering perspective.”

The Town says that TH 26 is being maintained to the extent required by the necessity of the Town, the public good and the convenience of the inhabitants of the Town. The court requires that the Town’s decision be in line with its road policy, if consistent with the statute, and the decision be not arbitrary or discriminatory in implementation of the Town’s policy. The SCOV agrees with the Town and reverses, concluding that there was no basis to find the decision was arbitrary or outside the scope of the Town’s broad discretion.

The SCOV also notes that broad discretion under the statute binds the Commissioners and the trial court, leaving them powerless in reaching a different conclusion. There’s a good chance that Class 4 roads would never be repaired under such discretion, but that’s because of the legislature’s statute, not the court’s policy. So, take your concerns to Montpelier. Or, elect new town officials who will fix your roads, I guess.

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