Macy’s East, Inc.
v.
City of Nashua
Docket No.: 20942-04PT
DECISION
The “Taxpayer” appeals, pursuant to RSA 76:16-a, the “City’s” 2004 assessment of
$13,720,500 (land $9,164,700; building $4,555,800) on Map A/Lot 737Q, an anchor department
store consisting of a 126,141 square foot, two-story building on 8.63 acres of land (the
“Property”) located in the Pheasant Lane Mall, a super regional shopping center. For the reasons
stated below, the appeal for abatement is granted, but only to $11,037,000, (based on the City’s
market value estimate of $13,000,000 equalized by the weighted mean ratio of 84.9%).
The Taxpayer has the burden of showing, by a preponderance of the evidence, the
assessment was disproportionately high or unlawful, resulting in the Taxpayer paying a
disproportionate share of taxes. See RSA 76:16-a; Tax 201.27(f); Tax 203.09(a); Appeal of City
of Nashua, 138 N.H. 261, 265 (1994). To establish disproportionality, the Taxpayer must show
the Property’s assessment was higher than the general level of assessment in the municipality.
Id. The Taxpayer carried this burden but only to the extent noted above.
Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 2 of 24
The Taxpayer argued the assessment was excessive because:
(1) the Property was a “Macy’s” anchor department store at the time of the assessment (but the
Property was sold in July, 2006 to the mall owner and is slated for demolition);
(2) an appraisal of the Property (the “Bouchard Appraisal,” Taxpayer Exhibit No. 2) was prepared by a well qualified MAI appraiser, Donald P. Bouchard of Lincoln Property Company, who is licensed in New Hampshire and other states and has considerable experience in valuing shopping centers, malls and anchor department stores within them;
(3) using the income and cost approaches, and placing more emphasis on the income approach, the Bouchard Appraisal reconciled the market value of the Property to be $10 million (Taxpayer
Exhibit No. 2, p. 125) as of the assessment date (April 1, 2004);
(4) the City’s expert (Stephen G. Traub) agrees the highest and best use of the Property as of the assessment date is as an anchor department store;
(5) the signed “PA-34” form and other evidence, including Mr. Bouchard’s communications with the buyer and seller, see Bouchard Appraisal, p. 4, indicates the subsequent sale of the Property
to the mall owner (Simon) in July, 2006 for $7 million was a reasonable indication of its value at that time; and
(6) when equalized by the median ratio (80%), the assessment should be abated to $8,000,000 for tax year 2004.
The City argued:
(1) an appraisal of the Property (the “Traub Appraisal,” Municipality Exhibit No. B) was prepared by a well qualified appraiser and certified New Hampshire assessor (CNHA), Stephen
G. Traub, contracted by the City to appraise the Property; Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 3 of 24
(2) using primarily the income and cost approaches (and to a lesser extent the comparable sales
approach), and placing the most emphasis on the cost approach, the Traub Appraisal reconciled
the market value of the Property to be $13 million (Municipality Exhibit No. B, p. 79) as of the
assessment date (April 1, 2004);
(3) the rental estimate comparisons used in the Bouchard Appraisal (see p. 100) are flawed both
because they do not include percentage rent, which can be significant and because they are a
very small and selective sample from a region (New England) with many other malls and anchor
department stores;
(4) the cost estimate comparisons used in the Bouchard Appraisal are also flawed because they
failed to consider the considerable site improvement costs of the Best Buy site in Nashua and
Mr. Bouchard did not include the Lechmere sale for a Target store in the Pheasant Lane Mall;
(5) the market extraction method used in the Bouchard Appraisal to estimate annual depreciation
is excessive because it only looks at department stores that have been demolished rather than
looking also at stores that continue to operate;
(6) the subsequent sale of the Property to the mall owner (Simon) for $7 million is not a qualified sale for assessment purposes because it was part of a “bulk” sale of multiple stores and occurred in July, 2006, two years after the assessment date; and
(7) the $13 million value of the Property estimated in the Traub Appraisal and the weighted mean ratio (84.9%) should be applied.
The parties stipulated the board could take official notice (see RSA 541-A:33, V) of the evidence presented in another 2004 tax appeal involving The May Department Stores Co., d/b/a
Filenes v. City of Nashua Docket No.: 21005-04PT . Both properties are anchor department Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 4 of 24
stores at Pheasant Lane Mall and the parties’ representatives and appraisers were the same in
both appeals which were heard on consecutive days.
Board’s Rulings
The board first considered arguments regarding whether the weighted mean (84.9%,
proposed by the City) or the lower median (80%, proposed by the Taxpayer) should be applied
for the level of assessment. The City’s Chief Assessor (Angelo Marino) testified the City used
the weighted mean in tax years 2002, 2003 and 2004 for all direct equalization functions and to
use a different ratio for the level of assessment would lead to greater disproportionality. The
Taxpayer argued, to the contrary, that the City used the median ratio in subsequent years and
should do so for the Property in tax year 2004. For the reasons stated in Campbell v. City of
Manchester, BTLA Docket Nos. 20086-03PT/20796-04 PT (February 16, 2007), the board
agrees with the City and finds use of the weighted mean is appropriate for tax year 2004.
Based on the evidence, the board finds the proper assessment to be $11,037,000 using the estimated market value of $13 million in the Traub Appraisal submitted by the City and the weighted mean (84.9%) as the level of assessment in tax year 2004. The appeal is therefore granted, but only to this extent.
While the Taxpayer’s expert estimated a lower market value of the Property
($10,000,000) as of the assessment date, the board is unable to agree. The board must consider the evidence as a whole, not just the estimate of value presented by the Taxpayer, especially when the City had its own expert testify and submit an appraisal supporting a much higher estimate. See, e.g., Paras v. City of Portsmouth, 115 N.H. 63, 67-68 (1975). In Paras, the
supreme court noted “all relevant factors should be considered . . . in order to arrive at a just
result” and the board, “[a]s a quasi-judicial body, . . . must assess conflicting evidence, its Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 5 of 24
credibility, and the weight to be given the various portions thereof.” Id. In considering different
approaches to value and examining conflicting expert testimony, the board can exercise
discretion in evaluating and deciding, for example, how much weight each submitted appraisal is
entitled to. Id. On balance, the board finds the Taxpayer failed to meet its burden of establishing the market value of the Property was $10 million and finds the City’s estimate of $13 million to be more credible.
Before addressing more specifics, the board notes this appeal involves the same type of
property, many of the same issues, the same taxpayer’s attorney (David G. Saliba), one of the taxpayer’s appraisers (Donald P. Bouchard) and, indeed, some of the same comparables as were entirely or partially presented in appeals of the Sears, Roebuck & Company and J.C. Penney anchor department stores in the City of Manchester for tax year 2004 and prior years: Sears,
Roebuck & Company v. City of Manchester, Docket No.: 20820-04PT, decided February 26,
2008 (“Sears II”); Sears, Roebuck and Company v. City of Manchester, Docket Nos.: 19814-
02PT and 20026-03PT, decided March 28, 2006 (“Sears I”); and J.C. Penney Properties, Inc. v.
City of Manchester, Docket No.: 20940-04PT, decided February 26, 2008 (“Penney”)
(collectively, the “Manchester Appeals”). Many of the board’s findings in this decision will be
the same or parallel to the findings in those decisions due to the similarity of the properties,
issues and evidence submitted.
As the arguments above summarize, both parties utilized the cost and income approaches
to value the Property with the Taxpayer placing more weight on the income approach and the
City placing more weight on the cost approach. As in the Manchester Appeals, the board finds Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 6 of 24
the cost approach, rather than the income approach, provides the most reliable estimate of market
value.1
The board’s general finding in Sears I (at p. 5) relative to the income approach is equally
applicable in this appeal.
The income approach to value is applicable to properties that typically throw off a predictable income stream and to properties that are acquired as investments due to their income potential. In most instances, owner-occupied properties are not valued by the income approach because, by their very nature, they do not produce an income stream separate from the ownership interest in the property. Here, not only is this Property owner-occupied but evidence was submitted that nearly all anchor department stores in the three super regional malls in New Hampshire are owner- occupied rather than leased. As a consequence, neither party was able to identify any rental market data that was truly comparable to the Property. “The income approach … may be used to value both vacant and improved properties, providing that a sample of such properties is leased or rented in the market.” (Emphasis added). Mass Appraisal of Real Property, International Association of Assessing Officers (IAAO 1999) at p. 20. Because of the owner-occupied nature of the Property and comparable properties in New Hampshire, and the resulting dearth of market rental data, the income approach is not the best approach to valuing the Property.
The difficulty in finding truly comparable rentals is highlighted by the fact that only one of the twelve Bouchard Appraisal rentals and none of the five comparables utilized were in New
Hampshire. The other comparables are in Massachusetts, Pennsylvania and New York. The one
New Hampshire comparable listed (albeit, not used) is the Bon Ton store at the Steeplegate Mall in Concord, which the board found in Sears I (at p. 8) was not a good comparable:
The board finds this rental rate of $5.50 a square foot entered into in 1999 is also not comparable to the Property for several reasons. First, the Steeplegate Mall is not a super regional mall, does not draw from as large an area as the Mall of New Hampshire and is not immediately adjacent to, or visible from, an interstate highway. Second, the Bon-Ton store is comprised of nearly 88,000 square feet; however it is separated into two distinct sections at the Steeplegate Mall joined only by the common
1 While there are three approaches to value, not all three approaches are of equal import in every situation. Appraisal Institute, The Appraisal of Real Estate, 62 (12th Ed. 2001); International Association of Assessing Officers, Property Appraisal and Assessment Administration, 108 (1990). In New Hampshire, the supreme court has recognized that no single approach is controlling in all cases. Demoulas v. Town of Salem, 116 N.H. 775, 780 (1979). Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 7 of 24
public mall area. Both these factors diminish significantly the reliability of the market rental rate indication for the Property that can be derived from the Bon-Ton contract rent.
Turning to the Traub Appraisal, only two of the six comparable rentals were in New
Hampshire, with the others being in Massachusetts and Rhode Island. The two in New
Hampshire (Bon Ton at the Steeplegate Mall and Kohls at the Nashua Mall) are in inferior locations that are in smaller, regional malls. The range of rental rates in the Traub Appraisal
($5.50 to $14.85) also is indicative of the difficulty of finding truly comparable anchor department stores at larger, “super regional malls” and to find stores that are leased rather than
owner-occupied. The Pheasant Lane Mall is one of only three super regional malls in New
Hampshire and none of the anchor department stores are leased.
Further exacerbating the unreliability of the income approach is the lack of clarity in the
evidence as to any adjustments necessary to base rental rates on comparable properties to
account for additional percentage rent obligations and for any appreciable tenant fit-up costs
beyond the building’s (as-is) rented state at the time of lease commencement and whether these
costs would be absorbed by the owner or the tenant.
The Bouchard Appraisal (at pp. 87 and 88) lists the percentage rents for certain
“Department Store Leases,” but there was significant conflicting direct and rebuttal testimony
about percentage rents and whether they should be included in estimating market rental rates. In particular, the Taxpayer’s expert, Mr. Bouchard, stated no percentage rents should be applied, while the City’s expert, Mr. Traub, argued otherwise. In the end, the board was left with the impression that this was an issue neither party’s expert had adequately explored to the point where anyone, including the board members, could reach a definitive conclusion. As a result, the board finds the Taxpayer did not meet its burden of proof on this issue. Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 8 of 24
It is well established that certain tenant fit-ups may rise to the level of being taxable real estate.2 Again, there was insufficient evidence for the board to determine if the contract rents need to be increased for significant tenant fit-up. The board also noted this concern in the
Penney appeal (at p. 9) where the appraiser was inconsistent in adjusting the rental rate for the
J.C. Penney store at the Natick Mall in Natick, Massachusetts (which was estimated to amount to
$3 per square foot); that store is one of the comparables employed by both parties’ experts in this appeal.
In brief, the lack of clarity on these two issues from two reputable appraisers further diminishes any reliability the board might give to the income approach value estimates for the
Property and makes the board more inclined to use the cost approach. Relative to the income approach, the board finds use of the cost approach in this appeal to estimate the value of the
Property has fewer drawbacks and more advantages. The board has considered the drawbacks
(including the difficulty of estimating appropriate depreciation of the improvements), but finds, on balance, the cost approach is the best of the three approaches to value the Property.3
As a preliminary matter, the board considered the valuation questions posed by the existence of so-called “COREA” operating agreements that are typical in shopping centers.
2 See, e.g. 590 Realty Co. Ltd., v. City of Keene, 122 N.H. 284 (1982):
When property is appraised, all factors relevant to its value should be considered, Paras v. Portsmouth, 115 N.H. at 67-68, 335 A.2d at 308, including special architectural features and equipment. Although it may be difficult to estimate, the special features and equipment have some market value. “[T]o hold there is no market value ... would mean that valuable property would entirely escape its just share of the burden of taxation.” Public Service Co. v. New Hampton, 101 N.H. 142,146,136 A.2d 591,595 (1957).” (Italics in original.)
3 Mr. Traub also presented a perfunctory sales analysis, which he acknowledged had significant limitations and led to his conclusion that the indicated value of the Property was “greater than $9,460,000 and less than $14,250,000.” (See pp. 58 and 67.) In his testimony, Mr. Traub conceded this value range simply sets high and low benchmarks. Given the lack of any sales of any anchor stores in super regional malls and, thus, the lack of good comparability of the sales utilized and the lack of any adjustments for the comparables’ differences, the board is unable to give the sales approach in Traub Appraisal any weight. Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 9 of 24
While not discussed as extensively as in the Manchester Appeals, to the extent the operating
agreement between the Taxpayer and the mall owner may fragment the Taxpayer’s fee simple
bundle of rights, the cost approach makes any speculation regarding the value of transferred
rights moot. The board’s general finding on this issue in Sears I (at pp. 16 – 17) is also applicable here.
The board further notes the City makes a compelling argument that the cost approach for a well maintained property such as the Property may be a preferable approach to value because it reassembles all the sticks of the bundle of rights that the Taxpayer owns that may be fragmented through the reciprocal agreements between the Taxpayer and the Mall of New Hampshire owners. It is, as the City argues, the total absolute bundle of rights in a property that must be valued and taxed regardless of how they are fragmented amongst the various interests to a property. Because the income and sales approach rely upon market data of properties that may be similarly fragmented, the value indications by that data may not be inclusive of the entire bundle of rights; however, the cost approach does reassemble those rights. 4
The cost approach entails estimating the land value by the sales comparison approach and adding it to a depreciated replacement cost for the improvements. As the City’s expert,
Mr. Traub, noted, because of the relatively high value of the land due to its excellent location compared to the improvements, the land value comprises a significant portion of the overall value estimate (for both parties): 73% of the total estimate using the cost approach in the
Bouchard Appraisal and 68% in the Traub Appraisal’s cost approach is land value. As evidenced in both appraisals, there are sufficient land sales of reasonably comparable properties to arrive at a reliable land value estimate and so it is not surprising the land value estimates are within 5% of each other ($1.0 million and $1.05 million, per acre, respectively). In summary,
4 See also Sears II (pp. 3 – 8), where the board described COREA’s in greater detail before concluding:
While the ultimate effect of the COREA on where or with whom the fee simple bundle of rights reside is a question the board cannot definitively resolve [in this appeal], this factor itself weighs heavily in finding the cost approach, which inherently reassembles any fracturing of the real property rights, is the most reliable approach to value the Property.
Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 10 of 24
the board finds approximately 70% of the cost approach estimates have a reliable basis in the
land sales. This fact is another compelling reason why the cost approach is given weight by the
board.
Along with the Bouchard and Traub land value estimates being very similar, their
‘replacement cost new’ estimates for the building improvements are within 9% of each other.
The predominant remaining difference between the two appraisals’ cost approach estimates is the
depreciation to be applied to the building; in each appraisal the building entails 30% or less of
the overall value. The Bouchard Appraisal (see pp 117-121) applies a total of 63.72%
depreciation (physical, functional and external) based on a market extraction analysis (at p. 121)
of 13 anchor stores that were ‘demolished’ after being used for a number of years. The Traub
Appraisal (see pp. 76-77), in contrast, applies 16% physical depreciation and 40% “external” or
economic obsolescence. The physical depreciation is based on observed conditions and the
effective life depreciation tables contained in the Marshall Valuation Service publication. The external obsolescence is based on the “lackluster gross business revenues” and its magnitude is influenced by the Traub Appraisal income value and comparable sale value range.
The board finds (as it did in Sears II, p. 9) the Taxpayer failed to carry its burden of proving a very high depreciation is warranted for several reasons. First, as Mr. Traub testified, calculating depreciation based only on demolished anchor store buildings is a bit like deriving life expectancy actuarial tables by focusing entirely on the life span of individuals who have already died rather than on the entire population (including those who are still alive).5 Second,
the reason for the stores being defunct may be partially due to business related decisions of the
5 Another analogy, mentioned in the Manchester Appeals, is deriving an estimate of the useful life of cars (Toyotas, for example) by simply recording the data available at salvage yards where these cars have been demolished, rather than looking at the entire population (including those cars that are still on the road). Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 11 of 24
owner, not just obsolescence of the real estate. Most of the 13 demolished stores were owned by
entities that either went through bankruptcy (Bradlees, Lechmere) or were vacated due to
corporate consolidations (Filenes, Macy’s). Third, the Traub Appraisal depreciation reasonably
considers the age (16 years) of the building, its smaller size, its slightly lower quality fit-up and
style and its lower economic viability.
The board gives little weight to the sale of the Property when it was vacant in July 2006
for $7,000,000 for several reasons. First it occurred two years subsequent to the assessment date
and may not be reflective of its condition or highest and best use as of April 1, 2004. The
corporate merger in 2005 of the owners of Filenes and Macy’s (Federated and May companies),
according to Mr. Traub, created an imbalance in the supply and demand for anchor store space
that didn’t exist in 2004. Second, the sale was part of a bulk transaction of surplus
Filenes/Macy’s stores throughout the United States. In particular, four of the 15 surplus stores in
New England were sold to Simon, the owner of the malls at which they are located and the
owner of the Pheasant Lane Mall. See Traub Appraisal at p. 35. Both the surplus imbalance of the number of stores available and the volume or bulk nature of the sales likely resulted in significant discounting of the price below market value. Some evidence of this is the sale of the former Lechmere building with 7.45 acres of land at the Pheasant Lane Mall in 1998 for
$10,500,000. See Municipality Exhibit No. I. The building was subsequently razed and the site
rebuilt with the current Target store. While this earlier sale may have involved some discounting
of its own (Lechmere had filed for bankruptcy), the sale price indicates a higher value per acre,
even if considered solely as a land sale, than the 2006 sale of the Property.
In conclusion, the board finds the City’s correlated market value of $13 million is a
reasonable and, indeed, the best evidence of the Property’s market value. Applying the 84.9% Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 12 of 24
weighted mean, the indicated assessed value is $11,037,000. Because this value is significantly
less than the appealed assessed value of $13,720,500, the board finds an abatement is warranted
to achieve proportionality.
If the taxes have been paid, the amount paid on the value in excess of $11,037,000 shall
be refunded with interest at six percent per annum from date paid to refund date. RSA 76:17-a.
The “Requests” received from the Taxpayer are replicated below, in the forms submitted
and without any typographical corrections or other changes. The board’s responses are in bold face. With respect to the Requests, “neither granted nor denied” generally means one of the following:
a. the Request contained multiple requests for which a consistent response could not be given;
b. the Request contained words, especially adjectives or adverbs, that made the request so broad or specific that the request could not be granted or denied;
c. the Request contained matters not in evidence or not sufficiently supported to grant or deny;
d. the Request was irrelevant; or
e. the Request is specifically addressed in the Report.
Taxpayer’s Request for Findings of Fact
1. That the Petitioner/Taxpayer was on April 1, 2004 the owner of certain taxable real estate in the City of Nashua.
Granted.
2. That the Petitioner/Taxpayer duly complied with all the requirements of Chapter 74 of the Revised Statues Annotated of New Hampshire pertaining to its 2004 property taxes in the City of Nashua.
Granted.
Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 13 of 24
3. That the City of Nashua, by its Board of Assessors, assessed the Plaintiff’s property for the purpose of ad valorem taxes as of April 1, 2004 for the tax year 2004 in the aggregate sum of $13,720,500.
Granted.
4. That for the tax year 2004 The Department of Revenue Administration determined that the City of Nashua’s median equalization ratio was 80%.
Granted.
5. That in this case the median equalization ratio of 80% is the appropriate ratio to determine the general level of assessment.
Denied.
6. That the tax year 2004 assessed valuation of $13,720,500 amounts to a value of $17,150,625 when equalized to 100%.
Denied.
7. That as of April 1, 2004 the subject property was an Anchor Department Store located at 310 Daniel Webster Highway at the Pleasant Lane Mall in the City of Nashua.
Granted.
8. That Donald P. Bouchard MAI is an expert as to the valuation of real estate.
Granted.
9. That as of the assessing date of April 1, 2004 the highest & best use of the subject property was a mall anchor department store.
Granted.
10. That in July of 2006 the subject property was sold for $7,000,000 to Pleasant Land Mall FB, LLC.
Granted.
11. That the sale of the subject property in July 2006 to Pleasant Lane Mall FB, LLC was an arms-length transaction.
Denied.
Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 14 of 24
12. That the subject property has been vacant since July 2006.
Neither granted nor denied.
13. That the subject property is in the process of being demolished.
Neither granted nor denied.
14. That in this case both the income approach to value and the cost approach to value are meritorious.
Neither granted nor denied.
15. That in this case the income approach to value is more reliable.
Denied.
16. That the just and proportionate assessment of the subject property as of April 1, 2004 is $8,000,000 ($10,000,000 100% market value x 80% equalization ratio = $8,000,000 just and proportionate assessment).
Denied.
Taxpayer’s Request for Rulings of Law
1. Taxable property shall be assessed at its market value. Market value means the property’s full and true value as the same would be appraised in payment of a just debt from a solvent debtor. RSA 75:1; Appeal of the Town of Newmarket, 140 N.H. 279, 665 A.2d 1088, 1995 N.H. LEXIS 143 (1995).
Granted.
2. Property is to be valued at its highest and best use. 509 Realty Co., Ltd. v. City of Keene 122 N.H. 284, 285, 444 A.2d 535; 1982 N.H. LEXIS 326 (1982).
Granted.
3. The taxable value is the sale value rather than its value to the owner Trustees of Phillips Exeter Academy v. Exeter 92 N.H. 473, 33 A.2d 665, 1943 N.H. LEXIS 118 (1943), Brock v. Farmington 98 N.H. 275, 98 A.2d 162, 1953 N.H. LEXIS 59 (1953).
Granted.
Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 15 of 24
4. All factors to property value should be considered when making an appraisal, in order to arrive at a just result. Paras v. City of Portsmouth, 115 N.H. 63, 335 A.2d 304, 1975 N.H. LEXIS 224 (1975).
Granted.
5. Market value is determined by using the three approaches to value: (1) comparative sales; (2) cost; and/or (3) income. Town of Newmarket (New Hampshire Board of Tax and Land Appeals) 140 N.H. 279, 665 A.2d 1088, 1995 N.H. LEXIS 143 (1995) Paras v. City of Portsmouth, 115N.H. 63, 335 A.2d 304, 1975 N.H. LEXIS 224 (1975).
Neither granted nor denied.
6. There is a presumption that a sale price is probative of value unless the court finds on evidence that there was not a fair market. Adelard Berthiaume & a. v. City of Nashua 118 N.H. 646; 392 A.2d 143; 1978 N.H. LEXIS 259 (1978).
Neither granted nor denied.
7. In order to determine the appropriate assessed value for the subject property the court must make specific findings regarding property’s market value and the equalization ratio by which to discount the market value to an assessed value. Appeal of City of Nashua (New Hampshire Board of Tax and Land Appeals) 138 N.H. 261; 638 A.2d 779; 1994 N.H. LEXIS 13 (1994).
Neither granted nor denied.
8. If a city in a tax abatement proceeding does not offer an alternative to The Department of Revenue Administration’s equalization ratio for the relevant tax years the plaintiff’s offering of the departments ratios shall satisfy their burden of proving the general level of assessment. Appeal of City of Nashua (New Hampshire Board of Tax and Land Appeals) 138 N.H. 261; 638 A.2d 779; 1994 N.H. LEXIS 13 (1994).
Neither granted nor denied.
9. The Department of Revenue Administrations median equalization ratio is the preferred equalization ratio to establish the general level of assessment. Public Service Company of New Hampshire v. Town of Seabrook 133 N.H. 365; 580 A.2d 702; 1990 N.H. Lexis 73 (1990), Gilbert G. Campbell v. City of Manchester 2007 N.H. Tax Lexis 3 (2007).
Neither granted nor denied.
Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 16 of 24
A motion for rehearing, reconsideration or clarification (collectively “rehearing motion”) of this decision must be filed within thirty (30) days of the clerk’s date below, not the date this decision is received. RSA 541:3; Tax 201.37. The rehearing motion must state with specificity
all of the reasons supporting the request. RSA 541:4; Tax 201.37(b). A rehearing motion is
granted only if the moving party establishes: 1) the decision needs clarification; or 2) based on
the evidence and arguments submitted to the board, the board’s decision was erroneous in fact or
in law. Thus, new evidence and new arguments are only allowed in very limited circumstances
as stated in board rule Tax 201.37(f). Filing a rehearing motion is a prerequisite for appealing to
the supreme court, and the grounds on appeal are limited to those stated in the rehearing motion.
RSA 541:6. Generally, if the board denies the rehearing motion, an appeal to the supreme court
must be filed within thirty (30) days of the date on the board’s denial.
SO ORDERED.
BOARD OF TAX AND LAND APPEALS
______Paul B. Franklin, Chairman
______Albert F. Shamash, Esq., Member
Certification
I hereby certify a copy of the foregoing Decision has this date been mailed, postage prepaid, to: David G. Saliba, Esq., Saliba & Saliba, P.O. Box 8796, Boston, MA 02114, counsel for the Taxpayer; and Chairman, Board of Assessors, City of Nashua, PO Box 2019, Nashua, NH 03061.
Date: March 25, 2008 ______Anne M. Stelmach, Clerk Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 17 of 24
Macy’s East, Inc. v.
City of Nashua
Docket No.: 20942-04PT
ORDER
The board has reviewed the “Motion for Rehearing, Reconsideration or Clarification”
(“Motion”) filed by the “Taxpayer” with respect to the March 25, 2008 Decision. The board’s
April 14, 2008 suspension order issued to allow the board more time to consider the Motion is hereby withdrawn.
Rehearing motions are governed by Tax 201.37.6 While the Motion reflects obvious disagreements with the Decision, which granted a tax abatement, but less than the Taxpayer was seeking on the “Property” (an anchor department store in the Pheasant Lane Mall in the “City”), the board finds the Motion is without merit and it is therefore denied.
Section I of the Motion (“Equalization Ratio”) describes as “nonsensical” and “wrong” the board’s application of the weighted mean (rather than the median) for the level of assessment in the City in tax year 2004. The board does not agree.
6 The Motion “shall only be granted for ‘good reason,’ pursuant to RSA 541:3” based upon a required showing “the board overlooked or misapprehended the facts or the law and such error affected the board’s decision.” Tax 201.37(e). In addition, “rehearing motions shall not be granted to consider evidence previously available to the moving party but not presented at the original hearing or to consider new arguments that could have been raised at the hearing.” Tax 201.37(g). Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 18 of 24
The choice of ratio (level of assessment) question was addressed and ruled upon as the
first issue at the hearing. On page 4 of the Decision, the board summarized the respective
arguments of the parties and then confirmed its ruling as follows: “[f]or the reasons stated in
Campbell v. City of Manchester, BTLA Docket Nos. 20086-03PT/20796-04 PT (February 16,
2007), the board agrees with the City and finds use of the weighted mean is appropriate for tax
year 2004.”
The Motion, however, fails to mention or discuss the Campbell decision at all or to
explain why the board erred in applying its holding. Instead, the Motion places sole reliance on
Public Service Company of New Hampshire v. Town of Seabrook, 133 N.H. 365, 378 (1990), a
case considered in Campbell (see p. 4); Public Service, however, is not controlling to the
question at hand and is distinguishable from Campbell and this appeal.
In Campbell (at pp. 4 - 6), as here, the weighted mean was used by the municipality
“exclusive[ly] ... during the tax years in question” and the board agreed with the municipality’s
argument that:
[The weighted mean] ratio ... must be ... used so as to have only one level of assessment as required by the holdings in Appeal of City of Nashua, 138 N.H. 261 (1994); Appeal of Andrews, 136 N.H. 61 (1992); and Appeal of Town of Sunapee, 126 N.H. 214, 217 (1985). …
[N]otwithstanding the preference of the median ratio for direct equalization, the board finds the more compelling argument is the mandate that there be but one ratio or one level of assessment within a community for each tax year. Here, the City [of Manchester] testified for the two tax years in question it had consistently utilized the weighted mean in granting abatements and equalizing current use assessments. To switch to the median ratio at this point in determining the Taxpayer’s assessments would result in the Property being assessed at a different level than all other property in the City [of Manchester]. In essence, this would result in there being two classes of property assessed at different levels which is prohibited by a number of holdings by the supreme court. Appeal of Andrews, 136 N.H. 61 (1992); Appeal of Town of Seabrook, 133 N.H. Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 19 of 24
365 (1990); Appeal of Town of Sunapee, 126 N.H. 214 (1985); and Stevens v City of Lebanon, 122 N.H. 29 (1982). ...
Last, the board finds, in keeping with Appeal of City of Nashua, 138 N.H. 261 (1994), the City disclosed its “preferred equalization ratio” as the weighted mean and indicated it has been consistently utilized throughout the two tax years in question. The Taxpayer did not perform its own ratio study but rather relied upon and argued the application of the DRA’s median ratio is more applicable than the weighted mean. “In the event of a disparity, the board, in its role as finder of fact, … shall determine the equalization ratio most reasonably representative of the general level of assessment.” Nashua at 267. Given the facts presented in this case, the board finds the weighted mean ratio is reasonably indicative of the level of assessment in the City and should be utilized to ensure the Taxpayer’s assessments are proportional to other assessments throughout the City for the two tax years in question. Doing so fulfills the New Hampshire Constitution, pt. II, art. V requirement that assessments within a taxing jurisdiction be proportional.
For essentially the same reasons as in Campbell, the board ruled against the Taxpayer’s position
that the median ratio should be applied in this appeal and finds no reason to change or modify
this ruling.
In Section II of the Motion (“Cost/Income Approach to Value”), the Taxpayer argues the
board erred in not adopting the income approach methodology used by the Taxpayer’s expert
(Donald P. Bouchard) to value the Property. In stating this argument, the Taxpayer makes
reference to several Hillsborough County Superior Court orders entered in tax year 2005 appeals
filed by the Taxpayer and another anchor department store (J.C. Penney) against the City,
identified as “Docket No. 06-E-0342 ... and ... Docket No. 06-E-0347.” The Taxpayer did not
attempt to submit these court orders, which involve subsequent tax years, as evidence in this tax year 2004 appeal. Indeed, if the Taxpayer had tried to do so, the relevance of the Hillsborough orders would be subject to question, either by the City or by the board itself, since they involve a subsequent tax year and (presumably) different evidence. Even if the Taxpayer had submitted those orders, however, they would not be binding since the board has concurrent jurisdiction
with the superior court over tax appeals. Compare RSA 76:16-a and 76:17; see also RSA 71- Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 20 of 24
B:5, I (board has authority to “hear and determine all matters involving questions of taxation
properly brought before it”).
The Motion cites the board’s ruling in “Sears I,”7 which involved tax year 2002 and 2003
appeals and a different expert for the Taxpayer (Robert G. Bramley, not Donald P. Bouchard).
Every appeal and every appraisal must stand on its own merits. In Sears I (pp. 5 – 9), the board
found numerous shortcomings in the appraisal which led to the finding that use of the income
approach by Mr. Bramley was not a reliable indicator of the market value of the Property. In
addition, the board noted the professional appraisal literature recognizes the income approach, in
general, is less desirable for “owner-occupied” properties and that there was a lack of reliable
rental information for anchor department stores because so many of them are owner-occupied
rather than rented. Id. at p. 5. Thus, contrary to the Taxpayer’s assertion, the board found in
Sears I the cost approach, rather than the income approach, was more reliable.
It should also be noted that both appraisers employed the income and cost approaches.
Mr. Stephen G. Traub, the City’s expert, gave “partial weight” to the income approach and
Mr. Bouchard, the Taxpayer’s expert, gave “greatest credence to the income approach.”
Compare Municipality Exhibit No. B, p. 79 and Taxpayer Exhibit No. 2, p. 125.
It bears emphasis that the board is not obligated to make a wholesale adoption of the
expert testimony or other evidence presented by either one side or the other in a tax appeal. To
the contrary, when there are contested factual issues and “conflicting evidence” bearing on those
issues, the board must determine, for itself, the credibility of witnesses and the weight to be
given the testimony of each because “judgment is the touchstone.” See, e.g., Appeal of Public
Serv. Co. of New Hampshire, 124 N.H. 479, 484 (1984), quoting from New England Power Co.
7 Sears, Roebuck and Company v. City of Manchester, BTLA Docket Nos.: 19814-02PT and 20026-03PT (March 28, 2006). Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 21 of 24 v. Littleton, 114 N.H. 594, 599 (1974) and Paras v. City of Portsmouth, 115 N.H. 63, 68 (1975); see also Society Hill at Merrimack Condo. Assoc. v. Town of Merrimack, 139 N.H. 253, 256
(1994).8
In Section III (“Depreciation”), the Motion draws attention to the respective approaches to estimating depreciation taken by Mr. Bouchard and Mr. Traub in their appraisals. The total depreciation estimates are relatively close (63.72% for Mr. Bouchard and 56% for Mr. Traub), because both concluded additional depreciation should be recognized for non-physical factors affecting the value of the Property. For the reasons stated in the Decision at pages 10 – 11, the board found Mr. Traub’s estimate to be more reasonable and credible than Mr. Bouchard’s.
In Section IV (“Standard of Proof”), the Taxpayer attempts to reargue the question of whether the board should have given more weight to the sale of the Property, two years after the assessment date, to an abutter (Simon, the mall owner). The Decision (at p. 11) noted the reasons why this sale, part of a bulk transfer to effect a corporate merger/reorganization between two very large department store chains, was not indicative of the market value of the Property as of the assessment date, when market conditions were quite different.9 Generally, the sale to an
8 “The plaintiffs next argue that the trial court erred in discounting the testimony of their expert witness.... A fact finder has the discretion to evaluate the credibility of the evidence and may choose to reject that evidence in whole or in part. Johnson v. Nash, 131 N.H. 731, 734, 559 A.2d 842, 844 (1989); New England Power Co. v. Littleton, 114 N.H. 594, 607, 326 A.2d 698, 706 (1974). Credibility of witnesses is a question of fact and we will not overrule the trial court's decision unless the finding is clearly erroneous or unsupported by the evidence. Rancourt v. Town of Barnstead, 129 N.H. 45, 50, 523 A.2d 55, 59 (1986). ... Given the evidence in the case, the trial court could properly conclude that the evidence given by the plaintiffs' expert witness was not credible. …
“The court ruled that it did not find those other appraisals credible. As discussed above, determinations of credibility rest with the sound discretion of the trial court. Johnson, 131 N.H. at 734, 559 A.2d at 844; New England Power Co., 114 N.H. at 607, 326 A.2d at 706. Evidence was introduced at trial that cast doubt upon the methodology used by the plaintiffs' expert. Given that evidence combined with the expert's error in relying on the market auction sales, we cannot say that the trial court's findings regarding the credibility of the expert's appraisals were clearly erroneous.”
9 Among other things, department store sales revenues continued to decline dramatically between 2004 and 2006. See, e.g., Taxpayer Exhibit No. 2, at pp. 94 – 97. Further, in Mr. Traub’s appraisal, he noted the merger between Federate and May included the “planned national divestiture of 80 duplicate stores including ... 15 in New England.” Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 22 of 24 abutter under atypical conditions is not indicative of market value and is not considered an arm’s-length transaction.10 Even if Mr. Bouchard “interviewed the buyer and seller” as part of his investigation, and Mr. Traub did not, the board finds the weight of the evidence indicates it is likely there was undue motivation for the 2006 sale between the Taxpayer and the mall owner, making that sale less reliable as an indicator of the value of the Property as of April 1, 2004 compared to the other evidence presented.
Finally, in response to Section V of the Motion, the board notes it is not in the business of ruling in the abstract or giving advisory opinions.11 It is therefore neither prudent nor advisable to grant, on the very limited record pertaining to this issue, the Taxpayer’s request for “a definite ruling” regarding the “COREA” (a common agreement between anchor department stores discussed on pages 8 – 9 of the Decision).
In the decision, the board considered the valuation questions posed by the COREA, but concluded “to the extent the [COREA] ... may fragment the Taxpayer’s fee simple bundle of rights, the cost approach makes any speculation regarding the valuation of transferred rights moot” and quoted from Sears I on this issue. Id. at p. 9. This is because, as noted in Sears I
See Municipality Exhibit No. B, p. 35. “Nationally, 8 of the 80 sold to Simon. [In] New England, 4 of 15 sold to Simon.” Id. 10 See The Dictionary of Real Estate Appraisal, 4th edition (CD Rom version) (an arm’s-length transaction is “[a] transaction between unrelated parties under no duress.”); see also Appraisal Institute, The Appraisal of Real Estate (11th ed. 1996) at p. 410 (appraiser should adjust for various conditions of sale, including financial or business relationships between parties to a transaction or sales to abutting owner (for assemblage) because: “[w]hen nonmarket conditions of sale are detected in a transaction, the sale can be used as a comparable but only with great care.”). Cf. Rodgers Brothers Inc. v. Town of Londonderry, BTLA Docket No. 16058-95PT (April 25, 1997):
The Taxpayer has the burden to show that a particular sale is a market sale, ... Society Hill at Merrimack Condominium Association v. Town of Merrimack, 139 N.H. 253, 255-56 (1994). ... The lot 7 sale was an abutter sale, which could have adversely or positively affected the sales price. However, the board did not receive sufficient information to draw a conclusion on that point.
11 Cf. North Country Envtl. Services v. Town of Bethlehem, 150 N.H. 606, 620 (2004), citing Piper v. Meredith, 109 N.H. 328, 330 (1969) (superior court has no jurisdiction to give advisory opinions). Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 23 of 24
(at pp. 15 – 16), the cost approach inherently reassembles all of the sticks in the fee simple
bundle of rights, even if they have been ‘fractured’ or fragmented among two or more entities
with varying interests in a property.
In this appeal, the parties presented very little direct testimony or evidence regarding the
COREA and its impact on valuation of the Property. Unlike the “Manchester Appeals” 12 which the board recently heard and decided, the City did not make a motion to dismiss or argue the
COREA impacted the bundle of rights subject to taxation. Without more detailed evidence regarding in what amount, if any, the COREA specifically transfers value from one to the other, the board is unable to make a broader ruling, aside from noting the complexity of the interrelationships between these parties and how several courts in other jurisdictions have grappled with the difficult questions posed for ad valorem tax purposes. See Sears II, pp. 4 – 6
and fn. 5 (noting the tax year 2003 and 2004 appeals by the mall owner “were withdrawn and
never heard or decided by the board”).
In summary, while the Taxpayer now requests a more definite ruling, the COREA issue
cannot be resolved in the abstract or on the basis of the limited record to govern any future
assessment disputes that may arise regarding whether it confers substantial value and, if so,
which party should be assessed for it; conceivably, these issues could arise either in tax
abatement requests and appeals filed by the individual anchor department stores or the mall
owner.
12 See Sears, Roebuck & Company v. City of Manchester, Docket No.: 20820-04PT, decided February 26, 2008 (“Sears II”); Sears I; and J.C. Penney Properties, Inc. v. City of Manchester, Docket No.: 20940-04PT, decided February 26, 2008 (“Penney”); all collectively referenced in the Decision (p. 5) as the “Manchester Appeals.” Macy’s East, Inc. v. City of Nashua Docket No.: 20942-04PT Page 24 of 24
For all of these reasons, the Motion is denied. Any appeal of the Decision must be by petition filed with the supreme court within thirty (30) days of the clerk's date noted below. See
RSA 541:6.
SO ORDERED.
BOARD OF TAX AND LAND APPEALS
______Paul B. Franklin, Chairman
______Albert F. Shamash, Esq., Member
Certification
I hereby certify a copy of the foregoing Order has this date been mailed, postage prepaid, to: David G. Saliba, Esq., Saliba & Saliba, P.O. Box 8796, Boston, MA 02114, counsel for the Taxpayer; and Chairman, Board of Assessors, City of Nashua, PO Box 2019, Nashua, NH 03061.
Date: April 25, 2008 ______Anne M. Stelmach, Clerk