Scott Construction, Inc. v. City of Newport Board of Civil Authority

Scott Construction, Inc. v. City of Newport Board of Civil Authority 
(94-185); 165 Vt 232; 683 A.2d 382

[Opinion Filed 19-Apr-1996]

[Motion for Reargument Denied 13-Jun-1996]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                                 No. 94-185


Scott Construction, Inc.                          Supreme Court

                                                  On Appeal from
    v.                                            Orleans Superior Court

City of Newport                                   January Term, 1996
Board of Civil Authority


Alan W. Cheever, J.

       Duncan Frey Kilmartin of Rexford & Kilmartin, Newport, for
  plaintiffs-appellants

       Robert R. Bent of Zuccaro, Willis & Bent, P.C., St. Johnsbury, for
  defendant-appellee


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


       ALLEN, C.J.   In two cases tried together, taxpayers appeal decisions
  of the Orleans Superior Court setting the assessed valuation of two
  properties in the City of Newport.  We affirm both judgments.

       One property, known as Indian Point Farm, is a former dairy farm owned
  by Daniel Scott and his father, Richard Scott, consisting of about 148
  acres and two residences.  The property is wholly within the Newport City
  limits and has extensive road frontage, as well as substantial shoreline on
  Lake Memphremagog.  The second parcel is owned by Scott Construction, Inc.
  and consists of a lot of about one acre.

       The Indian Point property was assessed by the City during a general
  1990 revaluation at $891,000, based on an assessment by MMC, Inc., an
  appraisal firm.  Taxpayers appealed to the Board of Civil Authority (BCA),
  which set the valuation at $890,200.  They then appealed to the superior
  court, which concluded that the fair market value was $768,000, based on an
  appraisal by Douglas McArthur, an independent real estate appraiser who
  used a development


 

  model under which the parcel would be subdivided and sold as nine separate
  lots.  McArthur considered the property unique because of its size and
  lakeshore location and testified that a lake shore development would be its
  highest and best use.  In his plan, seven of the lots to be created would
  be sold undeveloped, while the last two would be sold with an existing
  dwelling on each. The seven lots were estimated to sell for an aggregate of
  $1,050,000, and the eighth and ninth for a total of $450,000.  The total
  development cost to be subtracted from sale proceeds was projected to be
  $732,000, yielding a net estimated value of $768,000.

       The one-acre lot was assessed during the City's general revaluation at
  $22,600 and was reduced to $20,000 by the BCA.  On appeal, the court ruled
  that the $20,000 valuation was correct.

                        I. Indian Point Property

       Taxpayers first argue that the highest and best use of the property is
  as a farm.  Vermont law compels assessment of real property based on its
  fair market value.  The statute defines fair market value as:

          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.

  32 V.S.A. § 3481(1).  As indicated by the words "potential and
  prospective," fair market value reflects the highest and best use.  See,
  e.g., Board of Assessment Appeals v. Colorado Arlberg Club, 762 P.2d 146,
  152 (Colo. 1988) (reasonable future use considered because relevant to
  property's present market value); Federated Dep't Stores, Inc. v. Board of
  Tax Review, 291 A.2d 715, 720 (Conn. 1971) ("A taxpayer who chooses to use
  his land in a manner which is not consistent with its highest and best use
  should not be rewarded with a lower assessment, the effect of which is to
  increase the tax burden on others."); Edward Rose Bldg. Co. v. Independence
  Township, 462 N.W.2d 325, 330 (Mich. 1990) (land is appropriately valued
  "as

 

  if available for development to . . . that most likely legal use which will
  yield the highest present worth").  The highest and best use of property
  has generally been construed to refer to "the value of the property for its
  most profitable, likely, and legal use."  D. Stockford, Property Tax
  Assessment of Conservation Easements, 17 B.C. Envtl. Aff. L. Rev. 823, 827
  (1990).

       The City presented evidence of, and argued for, appraisal at the
  development value of the property.  The court agreed, basing its decision
  on McArthur's testimony and written appraisal.  The issue of properly
  assessing large, relatively undeveloped, nonfarm or nonforest properties
  has long been a subject of debate in Vermont.  On one side of the debate
  are landowners who wish to maintain traditional land uses and pay lower
  taxes than might be suggested by postulated development uses.  On the other
  side are towns that want to apply highest-and-best-use valuations because
  they tend to enhance revenues and promote equity. Through Vermont's Current
  Use Appraisal Program, 32 V.S.A. §§ 3751-3775, individual landowners who
  actively manage twenty-five or more acres of agricultural or forest land
  are eligible for current-use rather than highest-and-best-use valuation. 
  Properties subject to conservation easements may qualify for similar
  benefits.  Note, Changing Vermont's Current Use Appraisal Program to
  Provide Property Tax Incentives for Conservation Easements, 17 Vt. L. Rev.
  165, 180 (1992).  But towns generally argue that, except for these
  specifically enacted programs, conservation and environmental concerns are
  not the primary purpose of tax laws and that using valuation methodologies
  as an indirect means of achieving ad hoc tax abatement is improper under
  our laws.

       In the present case, taxpayers attacked the City's assumption that
  Indian Point was readily convertible to a lakeshore residential subdivision
  or that a change in use would result in a higher value.  They contend that
  the property's highest and best use was its present agricultural use and
  that the court erred when it relied on the City's evidence.   Taxpayers,
  however, have failed to demonstrate that the court's findings are clearly
  erroneous.  P.F. Jurgs & Co. v. O'Brien, 160 Vt. 294, 300, 629 A.2d 325,
  329 (1993) (findings of fact set aside only when clearly erroneous,

 

  with due regard given to trial court's opportunity to judge credibility of
  witnesses and weight of evidence).

       The City's evidence, particularly the McArthur appraisal, was valid,
  detailed and complete.  It addressed environmental permits, development and
  marketing costs, and considered value in light of comparable sales of
  lakefront properties.  Taxpayer's evidence, particularly that of Bruce
  Taylor, who testified that the highest and best use of the property was as
  a farm, was vague and conclusory.  His testimony lacked specific data or
  information on local or state development permit costs or why those costs
  -- set forth in the evidence and factored into the McArthur valuation --
  would bar a developer from pursuing a residential lakeshore project.
  Taxpayers also introduced evidence that an adjoining property had been
  denied an Act 250 permit in order to demonstrate that the subject property
  would be similarly treated.  The court disagreed, again on the basis of the
  McArthur development proposal, under which an Act 250 permit would not be
  needed.  Therefore, taxpayers have not shown the court's finding to be
  clearly erroneous.

       Apart from these site-specific valuation issues, taxpayers suggest
  that the mere existence of uncertainty in the regulatory process bars
  consideration of development potential.  We disagree.  By nature, the
  highest-and-best-use concept depends on market and legal assumptions. See
  Pacific Mut. Life Ins. Co. v. County of Orange, 232 Cal. Rptr. 233, 236
  (Cal. Ct. App. 1985) (normal uses to which potential purchasers could put
  property must be considered because part of property's market value);
  Colorado Arlberg Club, 762 P.2d  at 152 (reasonable future use of real
  property is one element of fair market value); Division of Tax Appeals v.
  Township of Ewing, 178 A.2d 229, 231 (N.J. Super. Ct. App. Div. 1962)
  ("assessor must consider the possibility of sale to a buyer who intends a
  different use, unless such possibility is so remote as to have no real
  bearing upon current value"). The court's highest-and-best-use analysis was
  proper on the facts of this case and consistent with statutory notions of
  fair market value.

       Taxpayers next argue that the court erred in relying on the McArthur
  appraisal: first,

 

  because his sole method of valuation was the "development analysis," and
  second, because he used comparables to reach conclusions about the
  marketability of lots after completion of the proposed development plan. 
  The court was not limited to evidence of comparables and was free to weigh
  any competent, relevant, and probative evidence of valuation.  See
  Sondergeld v. Town of Hubbardton, 150 Vt. 565, 571, 556 A.2d 64, 67 (1988).

       Taxpayers also argue that the appraisal was a "nullity," because,
  according to taxpayers, 32 V.S.A. § 3481 requires a municipality to
  "treat[] the property as a whole in the hands of its current owner." 
  Taxpayers' construction of § 3481 is inconsistent with the mandate of that
  provision to consider a property's "use both potential and prospective."

       Taxpayers next argue that partition of a property for appraisal
  purposes violates 32 V.S.A. § 4467, because the statute refers to "the
  property" (emphasis added) and not to parts of a property.  There is
  nothing inconsistent in a statutory reference to "the property" and a
  valuation analysis that considers parts of the whole.  Taxpayers cite no
  other support for the proposition that the City could not appraise Indian
  Point by applying separate valuation criteria to parts of the parcel.  If
  taxpayers' limitation were applied, it would be difficult, if not
  impossible, to consider a development scenario for a property the size of
  the subject property, because the only developments that could be
  considered would be those contemplating a single use of the entire,
  undivided parcel.

       Moreover, McArthur's appraisal method does not run afoul of Raymond v.
  Chittenden County Circumferential Highway, 158 Vt. 100, 604 A.2d 1281
  (1992).  In Raymond, we held that the condemnation value in that case
  "reflected the state of the property at the time of condemnation -- that
  is, as raw land, permitted for development, and sold as one parcel."  Id.
  at 103, 604 A.2d  at 1283.  We added that "[i]t is not unfair to value this
  property as raw land that can be used for a housing development.  Its
  development potential is contained in this value."  Id. at 105, 604 A.2d  at
  1284.  We disallowed the "lot method" in Raymond because we regarded the
  development costs as uncertain and conjectural.  Id. at 104, 604 A.2d  at
  1284.

 

       Contrary to taxpayers' argument, Raymond did not hold that any
  valuation method that relied on the "lot method" is inherently unsound. 
  Testimony as to the value of property if subdivided is generally admissible
  on the issue of fair market value as evidence of the highest and best use
  of that land.  Tolman v. Carrick, 136 Vt. 188, 192, 385 A.2d 1119, 1122
  (1978); see also United States v. 47.3096 Acres in Oxford Township, 583 F.2d 270, 272 (6th Cir. 1978) (lot method admissible in eminent domain
  cases if proponent offers credible evidence of costs of subdivision); Dash
  v. Alaska, 491 P.2d 1069, 1071 (Alaska 1971) (sounder view to accept
  evidence of lot method); Oregon v. Deal, 233 P.2d 242, 247 (Or. 1951)
  (where property is adaptable to particular use, all circumstances
  demonstrating this adaptability may be presented); 4 J. Sackman, Nichols on
  Eminent Domain § 12B.14(1), at 12B-152 (rev. 3d ed. 1995). Ultimately, the
  decision to admit and consider the evidence bearing on valuation was within
  the sound discretion of the court.  Soutiere v. Soutiere, ___ Vt. ___, ___,
  657 A.2d 206, 209 (1995).

       Taxpayers next criticize the "spaghetti lot" approach used by McArthur
  to avoid Act 250 as demonstrating the "invalidity, impracticality and
  inadvisability" of the approach.  But other than the bare assertion that
  the nine-lot scenario would offend Act 250's shorelands and agricultural
  lands criteria, irrespective of lot configuration, taxpayers do not state
  why the scenario is impractical, and they fail to demonstrate why it is
  invalid.

                         II. One-Acre Parcel

       In the second of the consolidated cases, taxpayer concedes that the
  City presented evidence of comparable sales with respect to the one-acre
  parcel, but questions whether they were comparable.  Taxpayer argues that
  the two comparables accepted by the court had passed regulatory muster as
  part of a platted subdivision, were not bisected by power poles, and
  benefited from completed infrastructure, while the one-acre parcel was
  undevelopable.

       Taxpayer has not demonstrated, however, that the court abused its
  discretion in accepting the two challenged comparables.  Comparable
  properties are rarely, if ever, identical properties.

 

  Absent abuse of discretion, the degree of comparability goes to the weight
  of the evidence and is a matter for the trier of fact.  Tolman, 136 Vt. at
  192, 385 A.2d  at 1122; accord Batchelder v. State Highway Bd., 130 Vt. 263,
  265, 291 A.2d 257, 258-59 (1972).

       Moreover, there was ample evidence to support the court's conclusion
  that the one-acre parcel was suitable for residential development. 
  Taxpayer's attempt to build a medical arts facility on the property had
  been rejected because of lack of septic capacity, but Daniel Scott conceded
  on cross-examination that he had not applied to the zoning administrator
  for a permit to use the property for residential purposes.  He testified to
  only a "verbal thing" from City authorities that he could not use the
  parcel "for any reason, for any purpose."

       The City also supported its valuation of the one-acre parcel by use of
  a land-value table, which taxpayer argues was impermissible under our tax
  statute.  Ames v. Town of Danby, 136 Vt. 78, 82, 385 A.2d 1075, 1078
  (1978).  The problem with the use of land-value tables is the potential for
  arbitrary valuations.  Where the land-value table is based on appropriate
  sales data, however, this problem is mitigated.  There was ample evidence
  in the present case that the appraisal methodology was tied to actual sales
  data, and that once per-square-foot values were applied to a given
  property, appropriate adjustment factors were applied reflecting
  differences in depreciation, amenities, frontage, views, and other factors
  affecting valuation.

                       III. Additional Arguments

       Taxpayers contend that the court's findings and conclusions were
  confusing, inconsistent, and conjectural.  This argument revisits most of
  the taxpayers' substantive arguments already considered in this opinion. 
  For example, taxpayers challenge the court's omission of findings, with
  respect to the one-acre lot, concerning specific valuation factors (FN1)
  emphasized in taxpayers' case and not mentioned in the decision.  Taxpayers
  found numerous similar deficiencies with the court's findings with respect
  to the Indian Point Farm, again, closely related to taxpayers'

 

  substantive case on valuation.  The law merely requires that the court sift
  through the evidence and make findings sufficient to indicate to the
  parties how it reached its ultimate conclusion, not that it make findings
  tailored to any particular theory of valuation.  See Kruse v. Town of
  Westford, 145 Vt. 368, 374, 488 A.2d 770, 774 (1985).  Here, the lack of
  findings on taxpayers' theories of valuation amounted to a rejection by the
  court of their approach to valuation, not a failure by the court to explain
  its rationale.

       Affirmed.


                              FOR THE COURT:



                              _______________________________________
                              Chief Justice




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                                 Footnotes


FN1. Such as the issue of on-site sewage capability, availability of a
  permit for a multi-purpose house on the property, and the cost of removing
  the power poles from the property.