By Jeffrey Messina
This case involves an appeal of the superior court’s decision to uphold the Burlington Board of Tax Appeals’(“Board”) appraisal of Taxpayer’s commercial property.
Taxpayer and her business partner purchased a commercial lot in 1987. In 1993, petroleum was discovered to be contaminating the property’s groundwater, likely due to leaky underground storage tanks from when the property was a gas station. In response, Taxpayer spent over $20,000 on various engineering studies and installed several wells to monitor the contamination. The Department of Environmental Conservation (DEC) requested an additional $10,000 of monitoring on the property before it would issue a “Site Management Activities Completed” designation for the property—indicating remediation efforts had come to a close. Instead, the property remains listed as an un-remediated petroleum pollution site due to an inability to pay for the additional monitoring or obtaining funds from the Vermont Petroleum Cleanup Fund (PCF). The PCF provides up to $990,000 in remediation costs once a property owner has paid the initial $10,000. Taxpayer did not believe the PCF was in her best interest, fearing that it would leave her liable for additional expenses if remediation costs exceeded the $990, 000 cap, or if the fund ran out of money.
As a result, Taxpayer held the position that the contamination rendered her property valueless, and failed to pay city property tax for many years.
The Board appraised the property using a fair market value of $225,000 based on the value of non-polluted properties, discounted $10,000 because of the pollution, and then applied an equalization to rate to arrive at $193,500. The Board noted that the availability of the PCF is the best predictor for the property’s future. Taxpayer appealed the Board’s valuation to the superior court.
In court, the City supported the Board’s cost-to-cure appraisal with evidence that other methods of valuation resulted in similar values. Also, the City showed that Taxpayer rented out the property for $20,400 annually. Additionally, the City introduced testimony from a willing investor, who had previously offered $185,000 to purchase the property. The City also introduced evidence that taxpayer had previously listed the property for sale at prices of $349,000 and $389,000. Taxpayer’s appraiser testified that under the gross rent multiplier method, which calculates value based on the ratio of sales price to rental income, the property was worth between $204,000 and $255,000.
Taxpayer argued the $10,000 cost-to-cure reduction did not adequately account for the impact the stigma of pollution had on the property value. Taxpayer’s appraiser testified that the Board’s initial assessment of fair market value was accurate, but asserted that the pollution stigma reduced the property’s value beyond the $10,000 cost-to-cure. Unfortunately, he did not present a study to support his statement.
Taxpayer testified she believed the pollution made the property valueless. She argued it was unreasonable to assume the PCF would cover future remediation costs because the fund could run out of money or the cost could exceed the $990,000 cap—citing a PCF settlement in which remediation exceeded $2,000,000.
Taxpayer pointed to the fact that no one bid on her property at a tax sale as proof that the City’s valuation was inaccurate. Finally, she argued that the offer from the willing investor to buy the property was not a legitimate offer because it relied on the PCF to cover the remediation costs.
The superior court ruled in favor of the City, holding that the cost-to-cure methodology was appropriately used by the Board and that taxpayer failed to overcome the initial presumption of validity in favor of the Board’s decision. The court found that the $10,000 cost to cure was accurate because the PCF would likely cover all additional expenses, also finding Taxpayer’s appraiser’s testimony on the stigma of petroleum pollution unconvincing because it was not supported by studies or data. The court found baseless taxpayer’s claim that the property was valueless due to the consistent rental income the property generated, the prices at which taxpayer listed the property to sell, and the investor’s previous offer to buy. The court concluded that even if the taxpayer overcame the initial presumption in favor of the Board’s appraisal, the City’s evidence was more persuasive.
On to SCOV.
In tax-appraisal appeals, SCOV affirms the lower court “where [the conclusions] are reasonably drawn from the evidence presented.”
On appeal, Taxpayer contends that: (1) she presented sufficient evidence that the property was not assessed at fair market value to overcome the city appraisal’s presumption of validity; and (2) the City failed to meet its burden of proof demonstrating the property was assessed at fair-market value. SCOV affirms.
The Court notes that on an appeal from the Board, the City has the initial burden to show that the property was appraised at fair-market value. Then the burden-shifting dance begins; however, “the burden of persuasion remains on the taxpayer as to all contested issues.” So, despite any supporting evidence, Taxpayer still had to one-up the City’s countervailing evidence.
SCOV determines the superior court reasonably concluded that the cost-to-cure method accurately calculated the property’s fair market value, accepting the valuation based on the cost-to-cure method because neither the City nor Taxpayer’s appraisers could find sufficient comparable properties in the area with similar pollution levels. SCOV notes that appraisers for both parties had used the cost-to-cure method in previous appraisals of polluted properties and though their opinions differed over the cost of remediating the pollution in this case, they did not dispute the cost-to-cure methodology itself.
SCOV opines it was within the superior court’s discretion to determine the credibility of the valuation method used, and it was not an error for the superior court to accept the City’s cost-to-cure method given the lack of comparable properties in this case.
Taxpayer argues that the $10,000 “cost to cure” is arbitrary because the total cost of remediation is unknown. SCOV dismisses this argument because “regulatory uncertainty does not bar the appraiser from considering development potential in determining fair market value.” It further adds that the cost of remediation is unknown due to Taxpayer’s failure to use the PCF fund.
The Court notes that property appraisals in Vermont are based on the highest and best use of the property, and to reward taxpayer in this case for her refusal to pursue the clean-up of her property would run contrary to the statutory purpose.
Finally, SCOV rejects Taxpayer’s position that the property is valueless—noting the superior court credited the City appraiser’s testimony that tax sales are not good indicators of property value because of low attendance and restrictions on the property sold, such as the owner’s right to redeem. The Court also cites the steady rental income generated by the property and Taxpayer’s previous attempts to sell the property for $349,000 to $389,000, which contradicts her own testimony that she believed the property was worthless.