Opinion ID: 1966660
Heading Depth: 1
Heading Rank: 2

Heading: Full and Fair Cash Value & The City's Formula

Text: Of central concern to the case is Harvard Pilgrim's assertion that the Superior Court erred in affirming the city's assessments of its ratable tangible personal property for tax years 1997, 1998, and 1999 in excess of full and fair cash value, violating G.L.1956 § 44-5-12. Section 44-5-12(a) provides that: [a]ll property subject to taxation shall be assessed at its full and fair cash value or at a uniform percentage of its value, not to exceed one hundred percent (100%) to be determined by the assessors in each town or city   . [3] Thomas Rossi (Rossi), then the city's tax assessor and the named defendant, testified that the formula the city used to establish fair market value for items of tangible personal property was `acquisition cost minus depreciation.' Harvard Pilgrim I, 847 A.2d at 289. Rossi testified that the city assessors supplied a form on which property owners could list their ratable tangible personal property  although property owners are free to submit their annual account in any form that meets the statutory requirements of a true and exact account of all ratable estate owned or possessed. Section 44-5-15. Taxpayers are asked to state the acquisition cost of listed items, the date of purchase, and whether the items were new or used at the time of purchase. Sections of the city's form pertinent to Harvard Pilgrim's accounts include: section two, tangible personal property; section three, computer equipment; section four, inventory/stock in trade/supplies; section five, tangible property leased or rented from others; and section six, leasehold improvements. While sections two and six include spaces for the taxpayer to declare fair market value, section three has no such space. Rossi testified that the city relied solely on the taxpayer's listed acquisition costs, ignoring taxpayer statements of fair market value; Roberta Vellucci D'Onofrio, supervisor of personal property in the assessor's office, also testified to that effect. Rossi testified that the city applies depreciation schedules for furniture and equipment, computers, and leasehold improvements to arrive at a property valuation. Rossi reviewed the depreciation schedules for the tax years 1997-2000 in detail. He testified that he used the Marshall Swift Evaluation Service (or Marshall Swift Manual), a nationally used tool in the appraisal industry, as a guide to set depreciation schedules. The Marshall Swift Manual, in turn, is based on an Internal Revenue Service publication, as well as various studies of equipment and bookkeeping practices and appraiser's opinions. For the 1997 and 1998 tax years, Rossi testified the city's depreciation schedules included a ten-year schedule for furniture, fixtures and equipment, a seven-year schedule for computers, and any of three different types of depreciation for leasehold improvements. The individual depreciation schedules, again derived from the Marshall Swift Manual, included varying percentage depreciations deducted from the acquisition cost of each item, depending on its age. For the tax years 1997 and 1998, the depreciation schedules started with a 5 percent deduction for assets in their first year, with a 10 percent decrease every year until the ninth year, when depreciation bottomed out at 20 percent. In the city's view, so long as an item has some use  no matter its age  it has taxable value. Rossi testified that the only change to the depreciation schedules between the 1997 and 1998 tax years was the inclusion of depreciation for items purchased during the 1997 calendar year. However, for the 1999 tax year, the city adopted new depreciation schedules that became applicable to Harvard Pilgrim's personal property. The new schedules, for furniture, fixtures and equipment, as well as computers, adopted a 100 percent value (zero depreciation) for the first year of use. [4] He testified that under the new schedule, furniture, fixtures, and equipment bottomed out at a 30 percent valuation, as opposed to 20 percent in previous years. Rossi stated that in his opinion, the fair market values would be best reflected using 100 percent in those first years. When asked whether use of the depreciation schedules resulted in the fair market value of Harvard Pilgrim's listed assets for the years in question, Rossi replied affirmatively. On cross-examination, however, he admitted that the city's depreciation schedules did not specifically account for physical depreciation, functional obsolescence, or economic/external obsolescence. Rossi did not specifically rely on market data for secondhand computers in valuing computer depreciation, as did Harvard Pilgrim's appraiser. Further, Rossi noted that the city's figures for acquisition costs could properly include shipping, freight, and labor, another practice that Harvard Pilgrim disputed. Rossi repeatedly stated that the assessor must determine fair market value for the personal property of more than 7,000 taxpayers  with an overall number of items requiring assessment in the hundreds of thousands  characterizing the task as impossible and difficult. The city's witness, Thomas J. Sullivan (Sullivan), a CPA and consultant specializing in tax and health care, testified that the city's inclusion of what he called soft costs, such as freight, shipping, and installation, were properly included as acquisition costs under Generally Accepted Accounting Principles (GAAP). He also said that the city's seven-year depreciation schedules for computers did not match GAAP, which applies a five-year schedule. On cross-examination, Sullivan said that from an accountant's viewpoint (not as an appraiser), the city's method of depreciation fails to reach fair market value. Nonetheless, he clarified that the formula, if uniformly applied to all city taxpayers, would share the tax burden equally. Two witnesses for Harvard Pilgrim addressed the city's acquisition cost minus depreciation formula. John McEachern (McEachern), an appraiser, testified that he had never seen a depreciation system that followed the city's 100 percent first-year value for computers, furniture, or fixtures. Harvard Pilgrim's Accountant, George Moses (Moses), of Ernst & Young, an economist and former Boston assessor, also testified that the city's depreciation schedules for computers differed substantially from twenty-five other jurisdictions. The trial justice concluded that the city's formula for reaching fair market value was not an illegal method of assessment. The Superior Court noted that Harvard Pilgrim's arguments in this respect were premised merely on a disagreement about methodologies for calculating full and fair cash value, while ignoring the important disjunctive in § 44-5-12. The trial justice said that the statute requires uniformity in assessment of the method employed as long as it is even-handedly applied and Harvard Pilgrim introduced no evidence that it was not. B