Opinion ID: 1478581
Heading Depth: 1
Heading Rank: 1

Heading: plaza village

Text: The first parcel, known as Plaza Village, is a 228-unit housing development consisting of nine residential buildings, five tenant-storage buildings, and a community building. These units are subsidized by the Department of Housing and Urban Development (HUD) pursuant to § 236 of the National Housing Act. See 12 U.S.C.A. § 1715z. As of December 31, 1987, and for the years 1988, 1989, 1990, and 1991, the city assessed the Plaza Village property at $7,042,795. [2] This valuation represented the uniform 75 percent of the fair-market value applied to all residential real estate in the city of Woonsocket. At trial the city presented Ralph Wilcox (Wilcox), supervisor for the city's 1987 revaluation project, as its only witness. Wilcox testified that his appraisal reports to the city were based on the reproduction cost minus depreciation approach (cost approach), a recognized method of appraising real property. [3] According to Wilcox, the cost approach is the most practical method of conducting mass appraisals such as citywide revaluations because this approach produces a separate building and land value, which is required for state reporting purposes. In valuing Plaza Village, Wilcox relied upon measurements and figures supplied by an inspector who had allegedly examined the inside of the complex. Wilcox himself had never been inside Plaza Village. Wilcox further testified that he utilized a figure of 10.5 percent for physical depreciation. Using these figures, Wilcox valued Plaza Village at $5,369,396 for the buildings and improvements and $1,675,399 for the land. Adding these figures together, Wilcox arrived at a total valuation of $7,042,795 for each of the years in question. William E. Coyle, Jr. (Coyle), a real estate appraiser and consultant, testified for plaintiff and took issue with the appraisal method used by Wilcox to evaluate Plaza Village. Coyle appraised the property, using the capitalization of income approach (income approach), another recognized method of property valuation. [4] Coyle opined that in this instance the income approach was the more preferable method of calculating fair-market value because of the rental limitations imposed by HUD regulations. In valuing Plaza Village, Coyle utilized the controlled rental income established by HUD and subtracted typical expenses that would be projected by a prudent investor. Coyle then applied a capitalization rate of 12.37 percent, which included a tax factor, and arrived at the following fair-market valuations: $3,960,622 for 1988, $3,904,511 for 1989, $3,840,507 for 1990, and $3,909,944 for 1991. Prior to presenting these figures at trial, plaintiff presented them to opposing counsel and the trial justice at a conference in chambers. The trial justice requested that Coyle perform another appraisal of Plaza Village, this time using a capitalization rate of 6 percent and the actual profits and losses that plaintiff had submitted to HUD for each of the years in question. The 6-percent capitalization figure represented the rate of return limited by the HUD contract. Using these figures, Coyle arrived at the following valuations: $4,296,757 for the year 1988, $3,667,111 for the year 1989, $3,545,851 for the year 1990, and $3,956,361 for the year 1991. [5] The defendant disputed Coyle's calculations, claiming that the figure used for depreciation should be added to net income for capitalization purposes. The defendant, however, failed to present expert testimony on this subject. To refute defendant's allegation, plaintiff presented Frank Sciuto (Sciuto), a certified public accountant with a master's degree in both accounting and taxation. After examining Coyle's projections and the audited returns that plaintiff had filed with the Federal Government, Sciuto testified that depreciation definitely should not be added back into the calculation of the capitalization of income approach on Plaza Village. Rather, Sciuto explained, depreciation is included in the calculation of taxable income. Sciuto's testimony then turned to an illustration of how an accounting expert might calculate a capitalized income value for Plaza Village based upon a cash-flow analysis. In his cash-flow analysis, Sciuto set out the net operating income without including depreciation. He then calculated a straight-line depreciation of $156,246 based on an anticipated tax benefit of owning Plaza Village. Adding the tax benefit to the net operating income, Sciuto arrived at a net cash flow before taxes and mortgage. Sciuto calculated the tax benefit at 35 percent of the net loss after applying his depreciation figure. The 35-percent figure represented the tax that would have been paid by the typical corporate investor in the years in question for both state and federal income tax. From his calculations Sciuto arrived at the following capitalized value and appropriate tax for each of the years in question: YEAR VALUE TAX 1988 $4,413,691 $80,771 1989 $4,290,162 $80,441 1990 $4,178,903 $87,841 1991 $4,432,276 $99,505 After all the evidence concerning the valuation of Plaza Village had been presented, the trial justice rendered his decision. He based his decision on Sciuto's valuation figure of $4,413,691 for the year 1988. The trial justice then departed from this figure and did exactly what Sciuto said should not be done. He added in the actual depreciation figure of $364,340 and concluded that Plaza Village's 75-percent uniform value was $5,401,927 as of December 31, 1987. From this figure the trial justice determined that plaintiff was entitled to the following tax refunds: YEAR REFUND 1988 $30,027 1990 $34,491 1991 $36,837 After awarding plaintiff $27,109 in interest and $400 in costs, the trial justice concluded that plaintiff was entitled to a total refund of $128,864. The trial justice dismissed plaintiff's petition for the year 1989, stating that plaintiff had failed to file the petition in a timely manner.