By Amy Davis
How do you tax a parcel of land that lies in more than one town? I like to think I might be able to come up with a way that involves less litigation and more common sense, but my job is to blog.
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: ...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.
(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.
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 §1-105 violated 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 §1-105 satisfies 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.