VT Electric Power v. Town of Cavendish

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                                 No. 91-003

 Vermont Electric Power Company, Inc.         Supreme Court

                                              On Appeal from
      v.                                      State Board of Appraisers

 Town of Cavendish                            December Term, 1991

 Elizabeth Koitto, Chair

 Thomas N. Wies, Rutland, for plaintiff-appellee

 Stephen C. Walke, Jr. and Ralph W. Howe III of Paterson & Walke, P.C.,
   Montpelier, for defendant-appellant

 Deborah L. Markowitz, Montpelier, for amicus curiae Vermont League of
   Cities & Towns

 PRESENT:  Allen, C.J., Gibson, Dooley and Morse, JJ.

      ALLEN, C.J.   The Town of Cavendish appeals from a decision by the
 State Board of Appraisers (Board) applying the Town's average equalization
 ratio to Vermont Electric Power Company (VELCO) property.  We affirm the
 decision and reject the Town's contention that VELCO's property should be
 listed at one hundred percent of fair market value.
      VELCO owns property in Cavendish consisting of land, high-voltage
 transmission lines, substations, poles, and related utility facilities.  In
 April of 1990, the Town's board of listers appraised and listed that pro-
 perty, not including the land, at $6,560,200.  Hearings before the local
 board of civil authority did not result in any change to either the
 appraised or listed value, and VELCO appealed to the State Board of
 Appraisers.  The Board, using the "Handy-Whitman/Iowa Curve" formula,
 established the fair market value of the subject property at $6,035,388, and
 neither party disputes that figure.  The instant case centers around the
 Board's application of the Town's average equalization ratio (AER) of 66.23
 percent to the fair market value, which resulted in a listed value of
      The parties and the Board agree that, given the absence of sales
 transactions involving utility property, the proper appraisal method for the
 VELCO property required application of the formula.  This formula starts
 with the original cost of the property and then applies the Handy-Whitman
 index, which is updated regularly and adjusted for different regions of the
 country, to approximate replacement cost.  Depreciation is then calculated
 according to the Iowa Curve, which reflects the remaining life of utility
 property.  This methodology provides a fair market value referred to as
 "depreciated replacement cost."  In this case, that figure was $6,035,388.
      VELCO argued to the Board that its property was unique in Cavendish and
 the Board must, in the interest of equal treatment, apply the Town's AER of
 66.23 percent as calculated by the Vermont Division of Property Valuation
 and Review.  The Board found that VELCO's property was not unique within the
 Town, noting that Central Vermont Public Service (CVPS) had similar,
 although not identical, property in Cavendish.  It nonetheless found that
 the AER should be applied, relying upon a 1985 stipulation between Cavendish
 and CVPS (FN1) whereby the Town agreed to apply its AER to CVPS property for
 listing purposes.
      On appeal, the Town makes three arguments.  First, it contends that the
 Board erred in applying its AER to VELCO property because that ratio was not
 in fact applied to CVPS property.  Second, the Town argues that VELCO failed
 to meet its burden of establishing that its property was listed at a higher
 percentage of fair market value than comparable property in Cavendish.
 Finally, the Town, joined by amicus Vermont League of Cities and Towns
 (VLCT), argues that 32 V.S.A { 3620 and 32 V.S.A. { 3481 require that
 utility property be listed at full fair market value.
      The Town's first argument is that the Board erred in applying
 Cavendish's AER to VELCO's property because the Board found that the
 property was not unique.  Vermont law, it argues, required the Board to
 apply the equalization ratio applicable to comparable property.  Because
 Cavendish listed CVPS property at 100% of fair market value, despite the
 agreement to the contrary, the Town maintains that it must also list VELCO
 property at full value.  VELCO counters that its property is unique and that
 application of the Town's AER is therefore required.
      When reviewing tax assessments, the Board's function is to "determine
 whether the listed value of the property corresponds to the listed value of
 comparable properties within the town."  Kachadorian v. Town of Woodstock,
 149 Vt. 446, 447, 545 A.2d 509, 510 (1988).  This determination requires two
 steps: the establishment of fair market value and equalization of that value
 to insure the comparable listing of  comparable properties.  Id.  If
 comparable properties exist within the town, a comparison is made between
 current market value and listed value to determine the equalization ratio.
 Id.  Constitutional considerations of equal protection and proportional
 contribution require the Board to apply that ratio to the subject property
 to ascertain its listed value.  Royal Parke Corp. v. Town of Essex, 145 Vt.
 376, 380, 488 A.2d 766, 769 (1985); 32 V.S.A { 4467.  Where the Board
 concludes that it lacks a statistically representative sample of comparable
 property, it may use other evidence to determine the appropriate
 equalization ratio.  Philbin v. Town of St. George, 156 Vt. ___, ___, 588 A.2d 1060, 1061 (1991).  If the property is unique within the town, however,
 its listed value is determined by applying an average of the equalization
 ratios for all properties in the town.  Kachadorian, 149 Vt. at 448, 545 A.2d  at 510.
      Here, the Board properly established fair market value of the VELCO
 property, and neither party disputes that value.  The Board then found that
 CVPS owned comparable property in Cavendish and concluded that the VELCO
 property was not unique.  We agree with this conclusion because for
 equalization purposes, "'comparable properties within the town' means
 properties of the same general class as the subject propert[y], even if
 [those] properties . . . would not meet the initial valuation comparability
 criteria on the basis of factors like building size, age, description,
 condition, use, income and expenses, and surroundings."  Philbin, 156 Vt. at
 ___, 588 A.2d  at 1061.  The evidence of value was, however, limited to the
 other utility property within the town.  The Board found that there were
 differences between the properties of the two utilities but concluded that
 the differences were not sufficient to qualify the VELCO property as
 unique.  The Board then cited the stipulation between CVPS and the Town, in
 which the Town agreed to apply its AER to the CVPS property for each year
 beginning in 1985, and found that equitable treatment of CVPS and VELCO
 required the application of the AER to VELCO's property.
      It was erroneous for the Board to consider only utility property as
 comparable to determine the appropriate equalization ratio, but we affirm
 the decision because the Board applied the proper ratio, albeit for the
 wrong reason.  In the absence of evidence of sufficient comparables, the
 Board should have looked to other relevant evidence in considering whether
 Cavendish properly listed VELCO's property.  Philbin, 156 Vt. ___, 588 A.2d 
 at 1061 (Board has discretion to use other evidence to determine
 equalization ratio when it lacks sufficient comparables).  In this case,
 there was other relevant evidence.  VELCO introduced evidence before the
 Board, undisputed by the Town, that the AER for Cavendish was 66.23 percent.
 That evidence, given the dearth of comparables, was all that was available
 to determine the appropriate equalization ratio to apply to the VELCO
 property.  See McKnight Shopping Center v. Board of Property Assessment, 417
 Pa. 234, 242, 209 A.2d 389, 393 (1965) (in seeking uniformity of taxing
 ratios, all properties are relevant and comparable).  Thus, although the
 Board erred in basing its decision on one comparable, it arrived at the
 proper and equitable result when it applied Cavendish's AER to the VELCO
 property.  We will affirm a proper administrative decision even if the
 grounds stated in its support are erroneous.  See Vermont State Colleges
 Faculty Federation v. Vermont State Colleges, 151 Vt. 457, 463, 561 A.2d 417, 421 (1989).  We note that whether the Town actually applied its AER to
 CVPS property is largely irrelevant given the absence of other comparable
 properties in Cavendish. (FN2) In such situations, the Board must look 
 for evidence of the proper equalization ratio.  Because property taxation
 rests on notions of equity and fairness, there is no better evidence than
 the average equalization ratio for all property within the Town.
      The Town and VLCT argue that 32 V.S.A. { 3620 (FN3) creates a separate
 class of property which must be listed at full fair market value in
 accordance with { 3481. (FN4) They maintain that 32 V.S.A. { 4467, (FN5) which
 requires the Board and courts to apply equalization ratios to uphold
 constitutional considerations of proportional contribution and equal
 protection, has no application to utility property which is "equalized"
 statewide by virtue of the appraisal methodology and the requirements of {{
 3620 and 3481.
      We agree that { 3620, on its face, states that utility property be
 taxed at full fair market value.  We disagree, however, that the statute
 creates a separate class of property exempt from the application of
 equalization ratios.
      Although the Town and VLCT ground their argument on the "plain
 language" of the statute, nowhere in { 3620's brief text can we find any
 words suggesting the purpose to create a separate class of property.  A
 review of legislative history reveals, instead, the purpose to ameliorate
 the effects of a decision by this Court, Village of Lyndonville v. Town of
 Burke, 146 Vt. 435, 440, 505 A.2d 1207, 1210 (1985), in which we held that
 certain utility property should be taxed as business personalty in
 accordance with 32 V.S.A. {{ 3617 and 3618 rather than as realty.  Because {
 3618 permits owners of business personalty to elect appraisal at fifty
 percent of cost or at net book value, 32 V.S.A. { 3618(a)(1) & (2), either
 of which yields a value substantially less than fair market value, that
 decision resulted in a potentially severe loss of tax revenues for towns.
 See Hearings on H.772 Before the Senate Finance Committee, April 11, 1986
 (comments of Arthur Ristau, Director of Vermont Property Valuation and
 Review Division).  Mr. Ristau estimated that if towns taxed utility property
 as personalty rather than as realty, they could lose between seventy-five
 and eighty percent of their revenue from that property.  Id.  Other
 testimony at the hearing made clear that the purpose of { 3620 was to
 rectify that situation by requiring towns to tax utility property at fair
 market value.  We find no evidence, however, that the Legislature intended
 to create a separate class of property to be taxed at full fair market
 value, without the application of the appropriate equalization ratio.
      Furthermore, { 3620 must be considered in the context of the Vermont
 property tax scheme.  Although the statute facially requires taxation at
 fair market value, our system favors constitutional considerations of
 proportional contribution (FN6) and equal protection (FN7) over statutory 
 listing mandates.  32 V.S.A. { 4467 requires the Board and state courts, in
 deference to these constitutional considerations, to equalize listings so
 that taxpayers of comparable properties pay equitable and proportional
 taxes.  See also Royal Parke, 145 Vt. at 380, 488 A.2d  at 769 (although
 towns not free to ignore 100 percent requirement under 32 V.S.A. 3481(2),
 constitutional compulsion requires a general discounting of taxable
 property); Town of Barnet v. Palazzi Corp., 135 Vt. 298, 302, 376 A.2d 24,
 27 (1977) ("constitutional requirement of uniformity takes precedence over a
 legislative directive to list at a fixed percentage of fair market value");
 New England Power Co. v. Town of Barnet, 134 Vt. 498, 509, 367 A.2d 1363,
 1370 (1976) (uniformity and equitability of appraisals more important than
 precise adherence to market value).  Thus, although the Legislature directs
 that utility property -- indeed most property, see 32 V.S.A. { 3481(2) -- be
 taxed at fair market value, this directive must yield to the constitutional
 and equitable considerations set forth in { 4467.  We are unpersuaded that {
 3620 exempts utility property from this scheme and therefore hold that towns
 must apply equalization ratios to such property, just as they must to other
      We are also unpersuaded by the argument by the Town and VLCT, based on
 our holding in Grand Union Co. v. City of Winooski, 152 Vt. 193, 566 A.2d 398 (1989), that equalization ratios have no application where fair market
 value is established by methods other than by review of sales of comparable
 properties.  In that case, we held that equalization ratios were
 inapplicable to appraisals of business personalty calculated in accordance
 with 32 V.S.A. { 3618.  Id. at 195, 566 A.2d  at 399.  We noted that neither
 valuation option under { 3618, fifty percent of cost or net book value,
 relates to fair market value.  Id. at 194, 566 A.2d  at 399.  We concluded
 that attempting to equalize property appraised using those methods with
 property appraised at fair market value would "produce an irrational, and
 inherently unfair, result."  Id. at 195, 566 A.2d  at 399.
      Grand Union is readily distinguishable.  In the instant matter, the
 appraisal was not based on a fixed percentage of cost or a net book value,
 but rather on the Whitman-Handy/Iowa Curve formula.  That formula, as found
 by the Board, applies an adjusted index sensitive to current replacement
 costs and regional factors, as well as a depreciation factor based on the
 remaining useful life of utility property.  See New England Power Co., 134
 Vt. at 506, 367 A.2d  at 1368 (approving utility property appraisal based on
 original cost, trended by a reliable index, less appropriate depreciation).
 It produces a value that the parties agree reflects fair market value.
 Thus, unlike the Grand Union case, which involved arbitrary, fixed valuation
 based on cost, the instant matter involves an accepted appraisal of actual
 fair market value.  Because other property within Cavendish is also valued
 at fair market value, the Board was not attempting to equalize inherently
 different appraisal methods when it applied the AER to VELCO's property.
 The Whitman-Handy/Iowa Curve formula yields fair market value equivalents
 and our rationale in Grand Union, 152 Vt. at 195, 566 A.2d  at 399 -- that
 fixed values are not affected by the "rise and fall" in property values --
 does not hold here.  Where equalization ratios are applied to property
 assessed at fair market value, the constitutional considerations previously
 discussed require that they be applied to all property so valued.

                                         FOR THE COURT:

                                         Chief Justice

FN1.        Paragraph 5 of that stipulation reads:
     As of April 1, 1985 and for each real estate tax year
     thereafter the fair market value of Central Vermont's
     property shall be [established using the Handy-
     Whitman/Iowa Curve formula].  The property shall be set
     in the Town's Grand List at that fair market value as
     equalized based upon the average equalization ratio for
     the Town as published by the Vermont Department of
     Property Valuation and Review.

FN2.        For this reason, we need not reach the town's second argument --
 that VELCO failed to meet its burden of demonstrating that its property was
 listed at a higher percentage than comparable property.  Whether Cavendish
 actually applied its AER to CVPS property is of little relevance given the
 statistically insignificant sample of comparable property.

FN3.        { 3620 provides:  "Electric utility poles, lines and fixtures owned
 by nonmunicipal utilities shall be taxed at appraisal value as defined by
 section 3481 of this title."

FN4.        { 3481(1) defines "Appraisal value" as "the estimated fair market
 value."  { 3481 (2) defines "Listed value" as "an amount equal to 100
 percent of the appraisal value."

FN5.        { 4467 provides, in part:
     The state board or court shall take into account the
     requirements of law as to valuation, and the provisions
     of Chapter I, Article 9 of the Constitution of Vermont
     [proportional contribution] and the 14th Amendment to
     the Constitution of the United States [equal
     protection].  If the board or court finds that the
     listed value of the property subject to appeal does not
     correspond to the listed value of comparable properties
     within the town, the board or court shall set said
     property in the list at a corresponding value.

FN6.        See Vt. Const. Ch. I, art IX.

FN7.        See U.S. Const. amend. XIV.