Beacon S. Station Assocs. v. Bd. of Assessors of Bos.

Decision Date14 May 2014
Docket NumberNo. 13–P–739.,13–P–739.
Citation85 Mass.App.Ct. 301,9 N.E.3d 334
CourtAppeals Court of Massachusetts


Anthony M. Ambriano, Boston, for the defendant.

Stephen H. Oleskey, Boston, for the plaintiff.



The principal issue in this case is whether certain real estate in Boston owned by the Massachusetts Bay Transportation Authority (MBTA) and leased to a private, for-profit entity was exempt from taxation pursuant to G.L. c. 161A, § 24, in fiscal years 2009 and 2010.2 The property in question is the South Station Headhouse (Headhouse), which the MBTA leases to Beacon South Station Associates, LSE, also known as EOP–South Station, LLC (EOP).3 The Headhouse consists of an enclosed concourse through which the public passes to access MBTA and Amtrak train platforms, an underground subway connection, office and retail space, a surface facility and parking area, and the surrounding sidewalks. The real estate taxes assessed on the Headhouse were $1,439,974.76 in 2009, and $1,135,463.55 in 2010. EOP filed challenges to the 2009 and 2010 fiscal year assessments on the property with the board of assessors of Boston (assessors), and then appealed to the Appellate Tax Board (board) following the assessors' refusal to abate the taxes. The board ruled that G.L. c. 161A, § 24, “expressly exempted the property of the MBTA from taxation, whether or not leased for business purposes,” and granted the abatements. The assessors appealed.

On appeal, the assessors' primary argument is that the board erred in its conclusion, and the § 24 exemption did not apply to the Headhouse at all because EOP, a private entity, leased the Headhouse from the MBTA and operated it for profit in the tax years in question. Alternatively, the assessors argue that even if the Headhouse was not subject to a blanket assessment for the years in question, EOP could be taxed on the tenant improvements made to the property because EOP owned these improvements according to the terms of the lease, and they were therefore not property of the MBTA. Examination of G.L. c. 161, § 24, as in effect in 2009 and 2010, its legislative purpose, and the case law interpreting the statute compel us to conclude that no part of the property was subject to taxation in 2009 or 2010, and we therefore affirm the decision of the board abating the taxes for those years.

Background. The stipulated factual record is replete with evidence detailing the financial hardships of both South Station and the MBTA. We begin with a brief summary of the history of South Station and how the plans to revitalize it were intended to benefit the ailing MBTA.

Following the increase in air and highway travel after World War II, and through the 1970s, the use of South Station steadily declined and the property deteriorated as a result.4 Although the Boston Redevelopment Authority (BRA), after purchasing South Station in 1965, originally concluded that it was “infeasible of economic conversion for a better use,” the BRA, along with Federal, State, and local agencies, eventually reconsidered and determined that South Station could become a transportation hub and multiuse complex. South Station was reimagined as a “public meeting place” that would include office and retail space and a “grand and spacious” concourse for intra-and intercity travelers and commuters.

As a result, the BRA conveyed South Station to the MBTA in 1979. The MBTA began a $195 million renovation and restoration of the Headhouse in 1984. Funding for this restoration was provided by the MBTA, Amtrak, the Urban Mass Transit Authority, the Federal Railroad Administration, private development corporations, and EOP's predecessor, Beacon.

In 1988, to advance the revitalization plans, the MBTA entered into a long-term lease agreement with Beacon, pursuant to which Beacon agreed to expend a substantial amount of money to renovate and operate the property, and in turn, to earn and share revenue by leasing space to subtenants. Beacon provided $22 million to finance the renovation, supervised the rehabilitation of the Headhouse, and provided property management services for the MBTA. The lease “was not intended to be a conventional, profit-making commercial real estate lease, but rather a lease to provide a public service as well as to offset the cost of redeveloping and operating the facility.” The initial term of the lease expires on December 31, 2024. The lease also contains an option for two fifteen-year extensions. Although the MBTA retains ownership of the land and the Headhouse, the lease specifies that Beacon—now EOP—retains title to any and all tenant improvements, but any such improvements not removed at the end of the lease term become property of the MBTA. “Tenant's Improvements” are defined in the lease as follows:

“Any and all appurtenances, furnishings, fixtures, equipment, improvements, additions and other property attached to or installed in the Premises by or on behalf of Tenant, including, without limitation, Tenant's Work, any and all Tenant Alterations 5 and any and all appurtenances, furnishing, trade or other fixtures, equipment, improvements, additions and other property installed by or for the use or benefit of any and all Subtenants.”

The renovation of the Headhouse, completed in 1989, included interior improvements, with retail and food kiosks on the first floor and office space on the upper floors.

Under the lease, EOP's rental payments to the MBTA are either the greater of (i) a minimum guaranteed rent of $330,000 per year, or (ii) fifty percent of the difference between net available income (as defined in the lease) and the annual capital improvement contribution. The lease also provides that real estate taxes are deducted from the net available income in calculating the annual rent due.

Since 1990, real estate taxes have been assessed on the entirety of the Headhouse. In addition to the various for-profit sublessees that occupy the private retail and office space, both Amtrak and the Commonwealth also sublet office space during the tax years at issue. As explained above, the total real estate taxes for 2009 and 2010 were $1,439,974.76 and $1,135,463.55, respectively. The parties stipulated below that the rental payments to the MBTA would have been greater if the property had not been subject to real estate taxes. For example, in 2009, EOP would have paid $791,936.71, instead of the $330,000 minimum.6 In issuing its decision on the 2009 and 2010 abatements, the board emphasized that EOP paid significantly less rent to the MBTA than it would have if taxes had not been assessed.

Although the South Station revitalization was successful, the MBTA continues to face grave financial difficulties, including substantial debt. As of early 2011, this debt totaled $5.5 billion.

Discussion. 1. Standard of review. “At the outset it should be noted that an exemption from taxation is a matter of legislative grace and may be recognized only when the taxpayer shows that he comes within either the express words or the necessary implication of some statute conferring this privilege upon him.” Assessors of Newton v. Pickwick Ltd., 351 Mass. 621, 623, 223 N.E.2d 388 (1967) ( Pickwick ). See Boston Chamber of Commerce v. Assessors of Boston, 315 Mass. 712, 716, 54 N.E.2d 199 (1944); Willowdale LLC v. Assessors of Topsfield, 78 Mass.App.Ct. 767, 769, 942 N.E.2d 993 (2011).

2. Statutory scheme and MBTA exemption. In 2009 and 2010, the MBTA exemption statute, G.L. c. 161A, § 24, inserted by St. 1999, c. 127, § 151, provided:

“Notwithstanding any general or special law to the contrary, the [MBTA] and all its real and personal property shall be exempt from taxation and from betterments and special assessments; and the [MBTA] shall not be required to pay any tax, excise or assessment to or for the commonwealth or any of its political subdivisions....” 7

As the board recognized, by its plain terms the statutory exemption applied to all of the property at issue without regard to whether or for what purpose the property was leased. See White v. Boston, 428 Mass. 250, 253, 700 N.E.2d 526 (1998) (courts are constrained to follow statute's plain language). There was no exception carved out of the § 24 exemption for private leases. Moreover, during the years at issue, § 24 expressly provided that the property of the MBTA shall be exempt from taxation [n]otwithstanding any general or special law to the contrary.” The Legislature employs the “notwithstanding” language to trump the effect of other potentially inconsistent statutes. In this instance it trumped the effect of G.L. c. 59, § 2B, the general tax statute.

3. Prior case law interpreting private leases. We also have specific guidance from the Supreme Judicial Court on the issue of the taxability of MBTA leases to private parties. In Pickwick, 351 Mass. at 623–625, 223 N.E.2d 388, the Supreme Judicial Court addressed this question while construing substantially similar statutory language in the predecessors to the MBTA exemption statute and the general public property taxation statute in effect in 2009 and 2010.8 The court interpreted the exemption statute to “encompass all the [MBTA's] real and personal property,” including any property leased from the MBTA by a private, commercial entity, regardless of the purpose for which that property was used. Id. at 624, 223 N.E.2d 388. The court emphasized that the Legislature's purpose in establishing the exemption was to alleviate the ailing transportation authority's “crushing financial burden.” Id. at 626, 223 N.E.2d 388. Consistent with that purpose, the court adopted an interpretation of the exemption that included lessees. Ibid. “If the exemption did not include lessees of the authority, the lessee ... could reduce its rental payments to the authority by the amount of the tax.... Such...

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