Opinion
Nos. CV-01-0559167, CV-02-0562612, CV-03-0565828, CV-04-0569453
October 30, 2006
MEMORANDUM OF DECISION
Before the court are four consolidated appeals from the taxation of plaintiff's personal property by the Town of Montville on the lists of October 1, 2000, October 1, 2001, October 1, 2002 and October 1, 2003.
In all cases, the complaints set forth plaintiff's claims in four counts. Counts One, Two and Three brought under the provisions of Connecticut General Statutes Section 12-117a allege that on the assessment dates, the tax assessors of the Town of Montville overvalued and over assessed certain manufacturing equipment and supplies owned by plaintiff and located at Route 163 within the Town of Montville. It is further alleged that plaintiff appealed the action of the assessor to the Board of Assessment Appeals which did not reduce the assessments.
The second count specifically alleges that the assessors overvalued the property by failure to make proper deductions for obsolescence. The third count alleges that the over assessment occurred because the assessors applied a depreciation schedule to plaintiff's property that was different from that applied to similar personal property within the Town of Montville.
The fourth count alleges a claim under Connecticut General Statutes Section 12-119. This count alleges that the tax laid on the personal property was computed on an assessment which, under the circumstances, is manifestly excessive and could not have been arrived at except by disregarding the statute for determining valuation of personal property.
Plaintiff's claims will not be considered by the court in the order in which they appear on the complaint.
The plaintiff, Rand-Whitney Containerboard, L.P., operates a paper mill within the Town of Montville. The mill produces high quality, recycled linerboard which is an element of corrugated containers. In the manufacturing process, the old corrugated containers (OCC) are mixed in a pulper with water to produce a pulp, or paper slurry. The pulp is then washed, refined and contaminants are removed. The clean paper slurry is then moved through the paper machine on a series of screens. Water is drained from the slurry. The remaining fibers are pressed with rollers and dried to form large sheets of paper. Computerized sensors and state-of-the-art control equipment monitors each step of the process to ensure that the paper meets, or exceeds, all standards. As the paper exits the machine, it is wound into large rolls.
To manufacture the linerboard, plaintiff uses a Beloit 204 Fourdrinier linerboard machine (paper machine) with additional necessary equipment. The valuation of the paper machine and equipment, which includes the pulper, refining equipment, storage tanks and chests, various pumps, a plant boiler system, piping, power wiring and support equipment is the principal issue in this appeal.
The pulp machine and ancillary equipment used in the manufacture of containerboard by plaintiff have been described as "Code 10" assets. To facilitate the assessment of personal property, the Town of Montville uses a form entitled "Declaration of Personal Property." This is not a state-mandated document, but has been adopted by tax assessors and is in general use throughout the state. This form is distributed to businesses and owners of taxable personal property annually. The taxpayer is required to list on the form all personal property purchased between the current October 1st assessment date and October 2 of the preceding year. Failure to return the declaration before the following November 1st could result in a penalty.
The declaration separates types of personal property into various categories by code numbers. On the declaration of October 1, 1999, the Code 10 section provided as follows:
10-MANUFACTURING MACHINERY AND EQUIPMENT. Industrial manufacturing machinery and equipment (e.g., tools, dies, jigs, patterns, etc.) Include air and water pollution control equipment (Provide DEP certificate if claiming exemption. Do not include manufacturing equipment that is being claimed on exemption form M-65 and under Code #13.
For succeeding assessment dates through October 1, 2003, Code 10 assets are described simply as "machinery and equipment."
The pulp machine and ancillary equipment used by plaintiff in its manufacturing process being as Code 10 assets, have been listed by plaintiff on the declaration form for each of the tax years in question in the section provided for Code 10 property.
The value of Code 10 assets for taxation was arrived at by using the original cost less depreciation method. The declaration form facilitated this and provided columns under which the year the assets were acquired could be indicated next to a column indicating the "original cost transportation and installation." Next was a column, which, except for the first year, indicated a depreciation rate which increased at the rate of 10 percent per year until a 30 percent life was reached. The next column entitled depreciated value was arrived at by deducting the depreciation from the original cost. The depreciated value would then be the assessed value of the asset for tax purposes.
The declaration of personal property form was devised by the assessors because it would be impossible for an assessor to check and value each item of personal property individually within the time and personnel restrictions under which they work. The form uses the cost less depreciation method for all classes of property. This is an efficient and reasonable method of arriving at the value of personal property for tax purposes. By utilizing the declaration form, all personal property taxpayers are treated equally.
I.
Under the third count, plaintiff claims that the 5 percent depreciation rate was used in valuing its Code 10 assets, not because the assessor determined that it reflected true value, but because of a mistaken belief that plaintiff had agreed to this rate. There is much evidence to support this claim.
From such evidence, it is found that Michael Hillsberg was finance director of the Town of Montville from 1990 to 2002. He was also administrator of the water pollution control authority. At the time of trial, he was a part-time employee with duties involving the WPCA. As the Town's chief financial officer, he supervised the tax assessor's office.
Early in 1990, Mr. Hillsberg was made aware of plaintiff's intention to locate a $100 million paper mill in the Town at the site of the Robertson Paperbox facility. He was involved in negotiations with plaintiff concerning the project. Discussions included property tax exemptions and projections as to how the Town would recover the costs involved in supporting the project.
Involved in the negotiations were the construction of two pipelines by the Town. One was a sewer line from the paper mill to the water pollution control facility (WPCF). The other was a reuse line from the WPCF to the mill. The sewer line would allow treated water from the WPCF to be used by plaintiff in its manufacturing process.
Plaintiff and the Town entered into a contract whereby the treated water from the WPCF would be returned to the plant though the reuse line. This water would be of a certain quality as set forth in the agreement. When the treated water was not at the contract standard, the Town spent a considerable sum in an effort to improve the treatment. When this was not successful, plaintiff brought suit in the federal court. This suit resulted in a multi-million dollar judgment against the Town.
To finance construction of the pipelines, the Town would issue short-term bonds in the amount of $2.75 million. Plaintiff was to install $75 million worth of new machinery and equipment. It was understood that this machinery and equipment would be tax-exempt under the provisions of the Manufacturer's Assistance Act, Connecticut General Statutes Section 12-81(72) for a period of four years with the Town being reimbursed in lieu of taxes under Connecticut General Statutes Section 12-94c. This state program was extended for an additional year so that the tax exemption remained in effect for five years with the mandatory 10 percent depreciation rate as previously noted.
While in this program, Connecticut General Statutes Sec. 12-94c required that the property be depreciated at the rate of 10 percent. It was only after the five-year period that the depreciation rate was reduced to 5 percent.
Mr. Hillsberg made projections as to how the income from the state could be used to pay off the bonds. He also discussed with at least one of plaintiff's officials the tax revenue which could be anticipated after the five-year exempt period expired. Mr. Hillsberg was left with the firm impression that plaintiff had agreed that after the five-year exempt period expired, a 5 percent depreciation rate would be applied to plaintiff's machinery and equipment.
From the testimony of Mr. Hillsberg and others, it must be concluded that there was a general understanding by Montville officials, including the tax assessor, that an agreement existed between the Town and plaintiff that a 5 percent depreciation rate would be applied in valuing plaintiff's machinery and equipment after the exemption period had expired.
Evidence concerning the appeal to the Board of Assessment Appeals confirms this.
In connection with the October 1, 2000 tax assessment, plaintiff appealed to the Board of Assessment Appeals. A hearing was held before the Board in which plaintiff was represented by John McDermott of McDermott and Associates, LLC. Ellen Lakowsky, chairman of the Board, was a qualified tax assessor and former municipal assessor. After the hearing, she went to the tax assessor, Darryl DelGrosso, for the purpose of discussing plaintiff's appeal to the Board. Mrs. Lakowsky made crude notes on the back of an envelope memorializing this discussion. From such material and her testimony, it is found that the 10 percent depreciation rate which the property was to have while in a tax-exempt status with a reduction to a 5 percent rate thereafter by agreement was discussed. It was noted that there was no signed contract although the words "Rand signed agreement" appear. Mr. DelGrosso also discussed with Mrs. Lakowsky that he estimated the life of the machinery and equipment to be 40 years and that he used the 5 percent as he had done with other properties.
Mrs. Lakowsky next met with Mr. Hillsberg to discuss plaintiff's tax appeal. She reviewed "boxes of stuff" in his office. They also discussed the assumed agreement made by plaintiff with the Town that the 5 percent depreciation rate would be used after the tax exemption expired. Mr. Hillsberg informed her that he had been unable to locate any written evidence of this agreement.
The Board of Assessment Appeals voted to deny plaintiff's appeal, and by letter dated April 23, 2001, Mrs. Lakowsky as chairman/secretary of the Board, so informed Mr. McDermott. The letter stating the reasons for denying the appeal is as follows:
Dear John,
After reviewing the method of depreciation placed on the valuation of personal property of Rand Whitney, Inc. and conferring with the Director of Finance, learning of an agreement with officials of Rand Whitney and the Administration of the Town of Montville, the method of depreciation was agreed upon the end of the Manufacture Reinbursement (sic) to the Town of Montville. (Sec. 12-81(72).
The method of depreciation used by the Assessor was according to the agreement.
Your appeal has been denied.
Although the Town urged a contrary conclusion, from all of the evidence it must be found that the Board denied plaintiff's appeal, not on the basis of the true value of the property, but on the basis of the supposed agreement with plaintiff.
It was not necessary for the court to consider the legality of any such agreement between a town and a taxpayer.
The depreciation rate to be applied to plaintiff's machinery and equipment after the exemption period may well have been discussed by Mr. Hillsberg and plaintiff's officials, and Mr. Hillsberg and other Town officers, including the tax assessor, were under the impression that an agreement had been made that the 5 percent rate would apply. There is no evidence that such agreement ever existed. At trial, the town conceded that the agreement did not exist.
Mr. DelGrosso, the tax assessor who initially considered the valuation of plaintiff's Code 10 assets, and his successor, Lucy Beit, were both qualified tax assessors with the ability to value personal property for tax purposes. Mr. DelGrosso testified that he viewed the installation of the pulp machine and equipment and revisited the property after it became operational. He considered it to be state of the art and he testified that he deviated from the depreciation schedule to more accurately reflect the fair market value of the assets.
Mr. DelGrosso testified that he estimated that the plant had a 40-year life, but that he selected the 5 percent depreciation rate to reflect obsolescence.
He further testified that he discussed the valuation of plaintiff's Code 10 assets with his successor, Mrs. Beit, before leaving office. She followed Mr. DelGrosso's methodology in valuing the property in successive years.
Although the tax assessors both testified that the 5 percent depreciation rate was based upon Mr. DelGrosso's estimation of the value of the Code 10 assets, the better evidence requires a finding that the actual reason for the 5 percent depreciation rate was the mistaken assumption that this rate had been agreed to by plaintiff. This conclusion is based upon the testimony of Mr. Hillsberg and Mrs. Lakowsky whose investigation of the situation resulted in the Board of Tax Appeals' decision that the agreement existed.
Mr. DelGrosso testified that his use of the 10 percent depreciation rate was based upon his estimate of actual value. His testimony was to the effect that he relied upon his inspection of the plant and his knowledge and experience. There was no testimony that he had any particular experience in valuing paper mills or that he consulted any outside authority which could aid in such valuation. He reached a conclusion that the plant had a forty-year life and yet he came back to the 5 percent depreciation rate which comports exactly with the assumed agreement. It must be concluded that the dominating factor in the use of 5 percent depreciation rate was the non-existent agreement.
The town argues correctly that the assessor was not required to use any particular depreciation rate or method of valuation and that it had, on occasion, used different rates. There was some evidence that CLP assets had been depreciated at a different rate, but it is not clear whether such property constituted Code 10 assets. There was also evidence that the assessor had initially changed the depreciation rate of Smirfit-Stone's Code 10 property to 5 percent, but after conferring with Stone's representative went back to the 10 percent rate.
The evidence indicates that the Code 10 assets of Stone, which also manufactured container board from OCC, and other similar taxpayers were all afforded a 10 percent depreciation rate. Only plaintiff was treated differently because of the mistaken belief that there was an agreement for a 5 percent rate.
In the third count, plaintiff seeks relief under the provisions of Connecticut General Statutes Sec. 12-117a. In an appeal under this section, the ultimate question is the valuation of taxpayers' property.
In a Sec. 12-117a appeal, the court performs a two-step function. The court must first determine whether the plaintiffs are aggrieved. Sibley v. Middlefield, 143 Conn. 100, 105 (1956). Whether a specific action that the assessor takes in his valuation has aggrieved a taxpayer is a question of law. Nader v. Altermatt, 166 Conn. 43, 55 (1974). "Valuation of property in excess of fair market value is not the only ground upon which a taxpayer may be entitled to relief. Any circumstances indicating that a disproportionate share of the tax burden is being thrust upon a taxpayer would warrant judicial intervention." Chamber of Commerce of Greater Waterbury, Inc. v. Waterbury, 184 Conn. 333, 336 (1981). A demonstration that the plaintiffs have been treated unfairly or that the assessment or the methodology employed by the assessor was wrongful is sufficient to establish aggrievement. See Davis v. Westport, 61 Conn.App. 834 (2001). Yankee Gas Co. v. Meriden, Super.Ct., complex litigation at Tolland, Docket No. X07-CV-96-0072560 (April 20, 2001, Bishop, J.) ( 29 Conn. L. Rptr. 285, 287).
Once aggrievement has been established, the court may then proceed to the next step.
From the evidence, where the rate of depreciation was arbitrarily reduced by the assessors based upon a nonexistent agreement, it must be found that for the tax years in question plaintiff was treated unfairly and that the methodology employed by the assessors in valuing plaintiff's Code 10 assets was wrongful. It is therefore found that plaintiff has established the aggrievement required for a Sec. 12-117a claim.
Once aggrievement has been established, the court may then proceed to "grant such relief as to justice and equity appertains, upon such terms and in such manner and form as appears to be equitable, . . ." Connecticut General Statutes Sec. 12-117a. The proper relief will be considered in Section III.
II
In the fourth count of the complaint, plaintiff appeals pursuant to Connecticut General Statutes Sec. 12-119 from the decision of the Board of Tax Appeals.
"[Section] 12-119 allows a taxpayer to bring a claim that the tax was imposed by a town that had no authority to tax the subject property, or that the assessment was manifestly excessive and could not have been arrived at except by disregarding the provisions of the statutes for determining the valuation of property. `Our case law makes clear that a claim that an assessment is excessive is not enough to support an action under this statute. Instead, Sec. 12-119 requires an allegation that something more than mere valuation is at issue. Second Stone Ridge Cooperative Corp. v. Bridgeport, 220 Conn. 335, 339-40 (1991) . . ." (Internal quotation marks omitted.) Pauker v. Roig, 232 Conn. 335, 339 (1995).
"The first category in Sec. 12-119 `embraces situations where a tax has been laid on a property not taxable in the municipality where it is situated.' . . . This category is not applicable to the facts of this case.
"The second category consists of claims that assessments are (a) manifestly excessive and (b) . . . could not have been arrived at except by disregarding the provisions of the statutes for determining the valuation of the property . . . Cases in this category must contain allegations beyond the mere claim that the assessor overvalued the property. [The] plaintiff . . . must satisfy the trier that [a] far more exacting test has been met: either there was misfeasance or nonfeasance by the taxing authorities, or the assessment was arbitrary or so excessive or discriminatory as in itself to show a disregard of duty on their part. Mead v. Greenwich, 131 Conn. 273, 275 (1944). Only if the plaintiff is able to meet this exacting test by establishing that the action of the assessors would result in illegality can the plaintiff prevail in an action under Sec. 12-119. The focus of Sec. 12-119 is whether the assessment is illegal . . . Second Stone Ridge Cooperative Corp., 220 Conn. at 341-42." (Citations omitted; internal quotation marks omitted.) Yankee Gas Co. v. Meriden, Superior Court, supra.
In support of its argument, the plaintiff relies on Yankee Gas Co. v. Meriden, supra, to establish that the town engaged in disparate tax treatment in not applying a ten percent deprecation rate on the plaintiff's property. The Yankee Gas case held that the assessments of Yankee Gas's personal property were "unlawful and manifestly excessive" under Sec. 12-119, and that the court could revalue the subject property under Sec. 12-117a. Id., 291. Therein, the city of Meriden had entered into a contract with Northeast Financial Management Associates (NFMA) "to provide audit services for which NFMA was to be compensated through a contingency fee arrangement based upon a percentage of the additional tax revenues, including interest and penalties, actually collected by the City as a result of the contemplated audit." Id., 287. NFMA created a unique methodology, "a reproduction cost new less depreciation" (RCNLD), for assessing and taxing Yankee Gas's personal property and further, only Yankee Gas was subject to this unique taxation methodology. Id., 288.
The court discussed in Yankee Gas that "[i]t is axiomatic that a just assessment process is one (which is uniform and uniformity requires that similarly situated tax payers be treated equally without discrimination) . . . That is not to say, however, that all classifications are barred by equal protection considerations. `Classification of persons or property, or both, for taxing purposes is sanctioned provided, of course, that such classification is fair, reasonable and not or whimsical, and based on substantial distinctions' . . .
"The application of those principles to this instance means that if the property of one or two taxpayers is to be valued according to a method employed for no other businesses, there should be a reason relating to the particularly affected taxpayers to justify their unique treatment.
This is particularly true when the resulting assessment is substantially greater than it would have been if the property had been assessed in the same manner as all other business property." (Citations omitted; internal quotation marks omitted.) Yankee Gas Co. v. Meriden, supra, 29 Conn. L. Rptr. 290.
The court in Yankee Gas concluded that "The only taxpayers whose property was taxed on the basis of RCNLD were the plaintiffs. There is no reasonable basis for Meriden to have taxed the plaintiffs, and no other taxpayers, on the basis of RCNLD. This view is held by the defendant's experts who supported the RCNLD method. In their view, this is the appropriate method to tax all personal property, regardless of whether or not it is regulated, and there was no particular reason to use this methodology assessing the plaintiffs and not other businesses' property. The defendant offered no credible evidence to support its unique and uneven treatment of the plaintiffs. In its audit process for the tax years 1991 through 1994 no other taxpayers were assessed on the basis of RCNLD. Similarly, no Meriden taxpayers, other than the plaintiffs, were assessed according to this methodology for any of the tax years 1995 through 1998. By unreasonably singling out the plaintiffs for this unique treatment resulting in substantially greater taxes, the defendant discriminated against the plaintiffs, and in doing so, the defendants denied the plaintiffs the equal protection of the law in violation of both the state and federal constitutions." Yankee Gas Co. v. Meriden, supra, 29 Conn. L. Rptr. 290-91. The court further explained that if "the assessments are unlawful, [it] may provide relief as it believes just and equitable pursuant to Sec. 12-119 . . . [including the valuation of] the property de novo." Id., 291.
The finding of facts and the factual conclusions as to why the 5 percent depreciation rate was used by the tax assessors with respect to plaintiff's Code 10 property in connection with the third count are applicable here.
Plaintiff was the only taxpayer burdened with the 5 percent depreciation rate, not withstanding, for example, the Town's 10 percent depreciation rate applied to Smurfit Stone, a similarly situated taxpayer. Applying the reasoning of the court in the Yankee Gas case, the Town is required to establish a reason for the unique tax treatment afforded plaintiff. The classification of plaintiff's property for tax purposes must be fair and reasonable based upon a proper appraisal of value as required by law. Here, it was not. In each of the tax years in question, the assessment was based upon an arbitrary and mistaken decision that an agreement for a 5 percent depreciation rate existed.
Considering the undisputed range of values of the Code 10 assets involved, it must be concluded that the 5 percent reduction in depreciation has resulted in assessments in tax years in question which were manifestly excessive.
III
"The court must determine an appropriate remedy. Under 12-119, the court is authorized to grant such relief upon such terms and in such manner as to justice and equity appertains." The authority to determine a remedy under Sec. 12-117a is basically the same. The language of both statutes grants the court broad discretion in fashioning a remedy for a wrongful assessment, that is, the court may provide relief which is just and equitable.
By improperly using a depreciation rate of 5 percent, rather than the 10 percent rate applied to similar Code 10 taxpayers, the Town has burdened plaintiff with an additional 5 percent assessment on millions of dollars in assets. This has resulted in an overpayment of taxes by the plaintiff. Plaintiff has requested that the town be ordered to depreciate Code 10 assets in the same manner as other taxpayers. This is a just and equitable resolution of the issues.
Accordingly, it is ordered that for the tax years 2000 through 2003, the tax assessor should set the depreciation rate at 10 percent on plaintiff's Code 10 assets. It is further ordered that the Town of Montville should reimburse plaintiff for the overpayment of all taxes paid on the improper assessment for the tax years in question.
Interest on the taxes which must be reimbursed is discretionary with the court and will not be assessed.
Having found the issues for the plaintiff on the third and fourth counts, it is not necessary for the court to consider the first and second counts.
Accordingly, judgment is entered for the plaintiff as stated.