Appeals Process: Familiarity with property tax abatement proceedings has become a necessity for municipal
officials, with requests on the increase
(from Maine Townsman, February 1994)
Kenneth M. Cole II, Esq. and Mailda A. Castner, Esq.
For a variety of reasons, residential and commercial property owners have been flocking to assessors' offices in the past year to seek the relief available through the abatement process allowed in Title 36 M.R.S.A. § 841 et seq. Therefore, municipal officials should become familiar with the abatement process, a process that can seem very complex because of the various time deadlines, "deemed denial" periods and alternative appeal routes. Municipal officials should also be aware that Maine's property taxation statutes, as interpreted by the courts over the years, provide municipalities with certain presumptions and defenses that give them a major advantage over taxpayers in abatement proceedings.
BURDEN ON PROPERTY OWNER
Municipalities start out with the upper hand in an abatement request. Maine courts have always upheld the presumption that the town assessor's valuation is valid, and the burden sits squarely on the property owner to prove that the property is overvalued and that the assessed valuation, with relation to just value, is manifestly wrong or that unjust discrimination exists. Therefore, it is important that municipalities recognize this advantage and take the right steps to fully utilize it early on in the property tax abatement process. Specifically, the municipality should strive to ensure that its assessments continue to be
fair in order to preserve this advantage and to arrive at assessed valuations that will withstand challenge by taxpayers. The assessor must properly document the values in the assessment, showing which methods were used to arrive at the assessed value as well as what adjustments were made and why. Also, the assessor(s) should review each assessment on an annual
basis to verify its validity. It is not enough for an assessor to merely rest on the presumption that his/her assessment is valid with no justification to support the value.
The Constitution of Maine (Art. IX, Section 8) requires that property taxes be assessed equally and fairly on
the basis of "just value." The concept of "just value" is statutorily defined in Title 36 M.R.S.A. §701-A. This statutory definition is further defined judicially through a series of cases that set out which methods of valuation and adjustments to tax assessments must be considered in arriving at "just value." Generally, the courts equate the term "just value" with the fair mar-
ket value obtained from an arm's length sale.
Every assessor should be familiar with the requirements for establishing just value; the assessor must take into consideration every factor which might affect valuation, including deed restrictions, recorded contractual obligations and limitations, physical depreciation, functional obsolescence and economic obsolescence.
TYPES OF ABATEMENT
There are three simple questions which municipal officials must ask when an abatement application is filed: (1) Why? (2) Who? and (3) When?
The first question the assessor or the municipal officers acting as assessors must ask is what type of abatement is being sought, or "Why is the property owner here?" The answer to this question will place the application within one of the three types of abatement requests described in Title 36 §841. One type of abatement is for reason of poverty or infirmity. An-
other type of abatement request is for reason of assessment illegality, error or irregularity. The third, and most common, abatement request is for overvaluation. Once this threshold question has been answered, the municipal officials must then ask the next two questions: Who? and When? The answers to these two questions will depend on the answer to the first
Poverty or Infirmity
The first type of abatement under consideration here is one in which an inability to pay taxes is alleged based upon poverty or infirmity. There are three important points to remember about an abatement based on poverty or infirmity.
Who: It is the municipal officers who may grant an abatement to a person who, by reason of infirmity or poverty, is "unable to contribute to the public charges." Poverty abatements can not be granted by assessors unless, of course, the assessors are
also the municipal officers. Also, the authority to grant poverty abatements can not be delegated to another municipal official, such as the town or city manager or welfare director.
When: Generally, the application for a poverty abatement must be made within three years of commitment of the tax, although the municipal officers have broad authority (but no obligation) to abate taxes for this reason even beyond the three-year
limit and even when no written application for a poverty abatement has been filed.
There is very little guidance to help municipal officers determine whether a person is "unable to contribute to the public charges." On the basis of the wording of the statute, the guidance provided by two pertinent decision of the Maine Supreme Court (Macaro v. Town of Windham, 468 A.2d 604 (1983), and Gilmore v. City of Belfast, 580 A.2d 698 (1990)), and the less precendent-setting but nonetheless helpful guidance of two Superior Court cases (McCready v. City of Old Town, Penob. Cty. #CV 90-74, and Rand v. Town of Falmouth, Cumb. Cty. #CV 93-164), it seems that in order to determine eligibility for a poverty abatement case, the standard (albeit a subjective one) is whether the applicant has demonstrated that his or her income and resources (not including the home) was less than what he/she needed to pay for "reasonable house-
hold expenses," including taxes, during the tax year in question and subsequently.
This standard being established, municipal officers are still justifiably perplexed with regard to a number of poverty abatement issues. To what extent, for example, is a person eligible for a poverty abatement who owns a very expensive home or is saddled with a hefty mortgage or other credit obligations? To what degree is an elderly applicant living in a nursing home eligible for a poverty abatement of the taxes on his or her residence when that residence is in the constructive possession of the applicant's heirs? The answers to these questions and others that may arise on a case-by-case basis are not easily provided without carefully examining the facts of the case and applying a dose of "reasonableness."
Last session, the Legislature considered a bill (LD 1190) that would have significantly clarified the poverty abatement application process and substantially redesigned the program from one that results in an abatement — or forgiveness — of the tax debt to a program that instead would have simply stopped the tax lien foreclosure process when a person is found
eligible until that person is able to pay the tax debt or the property is sold or transferred. LD 1190 was killed in the Taxation Committee last session, but supposedly resurrected into this session by a taxation subcommittee studying the tax abatement
procedure over the summer. Apparently, that resurrection of LD 1190 will not occur.
For a more detailed discussion regarding how poverty abatement applications should be processed and the standards of eligibility, refer to an article on the subject in the February, 1991 Maine Townsman.
Illegality, Error, or Irregularity
The second type of abatement under consideration here is one based on illegality, error or irregularity. An example of an assessment that should be abated for illegality, error, or irregularity is a situation where a person does not own any property in that town, or where all of that person's property is exempt from property taxation. In other words, an abatement granted for one of these reasons is appropriate when the assessment is wholly void and the applicant, as a matter of law, should not
have been required to pay any taxes at all on the property in question.
Who and When: Within the first year from the date of commitment, the assessors are the proper authority to whom to make application to correct an illegality, error, or irregularity in assessment. After the first year from the date of commitment, but
within three years from that date, the municipal officers are the proper authority to make application for this type of abatement.
It should be noted that for both "illegality, error, and irregularity" cases as well as overvaluation cases (discussed below), the taxpayer's failure to file a "true and perfect list" of all his/her taxable property as of April 1st — if such a list has been for- mally requested — will bar the taxpayer's ability to request an abatement. However, the assessor or municipal officers first must ask, by mailed or hand-delivered notice, for the true and perfect list or else the taxpayer does not have an obligation
to furnish the information. Title 36 M.R.S.A. §706. A taxpayer also may be barred from seeking an abatement for refusal or neglect to respond to the assessor's supplemental requests for information as to the nature, situation and value of the property. The municipal assessors should understand that their ability to raise this technical obstacle to abatement requests will turn on the degree it can be established that the taxpayer was formally (i.e., in writing by hand delivery or certified mail, return receipt requested) and in a timely manner apprised of his or her duty to supply the true and perfect list. For this rea-
son the assessors may choose to formally require true and perfect lists from only their largest industrial/commercial real and personal property owners.
Also, in the case where the applicant is claiming the property to be totally exempt from taxation, municipal officials
should be aware of recent statute (PL 1993, chapter 422) that requires all applications for exemption to be filed prior to
the April 1 deadline.
The third type of abatement application is based simply on a claim of overvaluation. This abatement procedure is appropriate for every property owner who believes his/her assessment is too high, or where a quantitative question exists as to the just value of the property, including questions as to number of acres assessed, the actual description and condition of the property as of April 1, and the particular assessment techniques used.
An abatement for reason of overvaluation is by far the most common type of abatement request, and the essential difference between this type of abatement and an abatement for reason of illegality, error, or irregularity is that in the circumstance
of overvaluation, the taxpayer admits that he or she should pay some amount of taxes on the property. The only issue is how much.
Who and When: Only the assessor(s) can grant an abatement for reason of overvaluation. That authority is not given to the municipal officers unless, of course, they are also the assessors. A written abatement application for reason of overvaluation should be made to the assessor(s) within 185 days of commitment if the taxpayer wants to compel a decision, although the assessors are allowed by law to grant such an abatement request on their own initiative within one year of the date of commitment.
Again, no abatement is available to a taxpayer who has failed to provide a true and perfect list or information (under oath, if so requested) in response to the assessor's supplemental questions. Municipalities could therefore send annual notices requir-
ing these true and perfect lists to all taxpayers, as well as requests for additional information where appropriate. Because the true-and-perfect list statute requires, as a practical matter, that the taxpayer be formally notified of the responsibility to provide such a list, municipal assessors typically find it infeasible to place the requirement on all residential taxpayers, and instead target true and perfect list obligations to the largest industrial/commercial taxpayers.
Once it has been determined what type of abatement application has been filed and whether it was directed to the proper official within the appropriate time, then a decision must be made on the application. The notice of the decision of abatement
action by the municipal officers or the assessor must be given in writing within ten (10) days of final action on the application. If the assessor or municipal officers fail to give a written notice of decision within sixty (60) days of the date of application, the application is deemed to be denied unless the applicant has consented in writing to a further delay. Title 36 M.R.S.A. §842. Take note that the property owner's written consent to delay may have to be obtained, and dated, prior to the end of the 60-day period in order to be effective, according to a decision by one panel of the State Board of Property Tax Review.
APPEALS: PROCEDURAL AND TIMING ISSUES
Aside from the complex technical methods of valuation of assets which arise in commercial and industrial abatement cases, the timing of appeals from decision of the assessor is the next most difficult area of abatement practice. The taxpayer must
comply with this complex series of time frames or will lose the right to further appeal. The municipality therefore must be aware of these timing requirements in order to adequately apprise the taxpayer of the taxpayer's rights and responsibilities
and in order to adequately defend these appeals.
Once the application has been denied, or if a deemed denial occurs by reason of no decision, then the taxpayer has 60 days to appeal to either the local board of assessment review (BAR), if the municipality has established one, or to the county commissioners if the municipality has no local board. In either event, the abatement process before the local BAR or the
County Commissioners is a de novo process, which means that the eligibility for the abatement is determined solely on the basis of the evidence presented to the BAR or commissioners. The taxpayer still has the burden at this level of appeal to show that the underlying assessment was manifestly wrong, irrational, discriminatory, or fraudulently accomplished; the de
novo BAR or county process does not amount to a completely new assessment of the property. The de novo aspect at this level of appeal only prohibits the BAR or County Commissioners from being influenced by the fact that the assessors did not grant the abatement when asked to do so by the taxpayer.
From the vantage point of the municipality, it will probably appear far better to establish a local board of assessment review than to have to argue these matters before the county commissioners. One reason to avoid county review by establishing a local board is that the commissioners may not be familiar with properties within the town and may have little experience in property tax matters. A bill currently before the Legislature (no LD number is currently established) would allow the County Commissioners to establish county-wide Boards of Assessment Review, and to the extent the commissioners take advantage of this option, if the bill is passed, there might be an improvement in the quality of county-level abatement appeal process. (see Jo Josephson's article in this issue.) In any event, to preserve the advantage of a local board, a municipality should be sure that the local board issues a timely notice of decision that complies with 36 M.R.S.A. § 842.
Also keep in mind that the county commissioners must allow costs (not including attorneys fees) to the municipality where the applicant has failed to prevail on an abatement appeal to the county commissioners. Likewise, if the applicant prevails at this level, the municipality must reimburse the applicant for overpayment of tax, plus costs. Title 36 M.R.S.A. §844(1).
If the local board or county commissioners deny the appeal through written notice of decision, then the taxpayer must proceed to Superior Court under Rule 80B appeal unless the property in question is nonresidential property with an equalized municipal valuation of $500,000 or greater, in which case the taxpayer may appeal to Superior Court or to
the State Board of Property Tax Review ("State Board"). Again, there are some changes and clarifications with regard to this process that are in the works and will be before the Legislature this session. Please refer to Jo Josephson's article on that subject in this issue.
An appeal to Superior Court must be filed within 30 days of the local BAR's or commissioners' notice of decision. The Superior Court conducts an appellate review; no new testimony is taken, only the record of the proceedings below is reviewed. After reviewing that record, the court determines whether the local BAR or County Commisisoners committed an
abuse of discretion, error of law, or made findings not supported by substantial evidence in the record, Sherwood v. Town of Kennebunkport, 589 A.2d453 (Me. 1991).
As has been discussed, an alternative appeal route is provided when the abatement request is for a "non-residential property with an equalized municipal value of $500,000 or greater." If an abatement is being requested for a property of this type and value, and the municipality has a local board of assessment review, then the appeal route is from the assessors to the local BAR to the State Board of Property Tax Review and into Superior Court. For those municipalities that do not have a local BAR, the appeal for the $500,000-plus properties is from the assessors to either the County Commissioners or the State
Board of Property Tax Review, at the taxpayer's choice, and from there to Superior Court.
An appeal to the State Board must be filed within 60 days of the notice of decision. Where the appeal is filed with the State Board, it hears the case de novo, which means that the entire case must be made anew to the Board. The determination whether the property is "nonresidential" is often a difficult one. In one instance, it was determined at the State Board
level that apartment buildings were "nonresidential" since they generated income. The bill before the Legislature dealing with the abatement appeal process that has been discussed above and in more detail in Jo Josephson's article in this issue, would clarify the definition of "non-residential property."
Finally, if there is no decision issued by the local BAR or county commissioners, and a deemed denial results, then the applicant can appeal to either the State Board or to Superior Court. Title 36 M.R.S.A; §850 requires the State Board to charge its costs to the municipality if the local board or county commissioners fail to make a decision.
DO'S AND DON'TS
In summation, as a municipality, it is important to protect the presumption of validity of the assessor's valuation by properly documenting the methodology and adjustments used to arrive at the assessed value each year. The burden falls on the property owner to prove that the value is manifestly unjust.
Do: Annually review, update and document methodology and adjustments to valuations.
Don't: Accept prior assessor's work product without reviewing it.
Do: Always have your assessor or municipal officers render a written decision when formally asked for an abatement
since failure to render a decision may nullify the advantage on appeal.
Don't: Ignore deadlines for deemed denial periods.
Do: Always ask for, in writing and to the extent practicable, a true and perfect list pursuant to Title 36 M.R.S.A. §706 and make sure to follow it up, where appropriate, with requests for further information.
Do: Make certain that your town has a local Board of Assessment Review since the Local Board will necessarily be more familiar with the local property values and personalities involved in the abatement dispute.
Don't: Assume county commissioners will rule in the municipality's favor.
Do: Make certain that your town or city has established a set rate of interest for any interest on refunds so that Title 36 M.R.S.A. §506-A will not require the maximum rate of 12%.
Kenneth M. Cole III, Esq., is a director and president of Jensen Baird Gardner and Henry law firm in Portland. Milda A. Castner, Esq., is an associate at the firm. Both have extensive experience in tax abatement issues.