Dickinson-Tidewater, Inc. v. Supervisor of Assessments of Anne Arundel County

• Decision Date: 03 December 1974
• Docket Number: INC,DICKINSON-TIDEWATE,No. 67,67
• Citation: Dickinson-Tidewater, Inc. v. Supervisor of Assessments of Anne Arundel County, 329 A.2d 18, 273 Md. 245 (Md. 1974)
• Parties: , et al. v. SUPERVISOR OF ASSESSMENTS OF ANNE ARUNDEL COUNTY.
• Court: Maryland Court of Appeals

Page 245

273 Md. 245

329 A.2d 18

DICKINSON-TIDEWATER, INC., et al. v. SUPERVISOR OF ASSESSMENTS OF ANNE ARUNDEL COUNTY.

No. 67.

Court of Appeals of Maryland.

Dec. 3, 1974.

John J. Ghingher, Jr., Baltimore (Max Stul Oppenheimer and Weinberg & Green, Baltimore, on the brief), for appellants.

William J. Ciacofci, Asst. Atty. Gen. (Francis B. Burch, Atty. Gen., Baltimore, on the brief), for appellee.

Argued before MURPHY, C. J., and SINGLEY, SMITH, DIGGES, LEVINE, ELDRIDGE and O'DONNELL, JJ.

LEVINE, Judge.

This appeal is from an order of the Maryland Tax Court upholding six real property assessments. Involved are four adjacent parcels of land situated in Anne arundel County on State Route 46, opposite Baltimore-Washington International Airport. ¹ Each is improved by one or more office buildings. The assessments were applicable to the tax-levy year of 1972-73, for which the date of finality was January 1, 1972. After receiving their final notices of assessment, appellants lodged timely protests with the Appeal Tax Court of Anne Arundel County. Afforded no relief by that body, they then took their cases to the Maryland Tax Court (the Tax Court), where, save for some minor arithmetical adjustments, they were also unsuccessful. Unfortunately for the taxpayers, they shall fare no better in this Court.

The four parcels are owned by three entities. Parcels A and B, totaling 22.7325 acres, are owned by Baltimore-Washington Science & Industry Center, and were acquired in 1967 at a total cost, including 'site improvements,' of $505,258. ² Parcel A is improved by a one-story office building (NSA 1), completed in September 1967 at a cost of $1,373,048, which is under lease to the National Security Agency (NSA) until March 31, 1978, at an annual rental of $305,000. This lease is subject to five one-year renewal options with corresponding incremental increases. Parcel B is improved by a two-story office building (NSA 2), completed in July 1968 at a cost of $3,343,048, which is also under a lease to NSA expiring on May 31, 1979, at an annual rental of $863,119. Here, the tenant has two five-year options at increased rentals for each additional term. The total assessment for parcel A, as refined by the Tax Court, is $916,135, consisting of $160,910 for the land and $755,225 for the improvements; and the assessment for parcel B is $2,460,390, consisting of $316,475 for the land and $2,143,915 for the improvement.

Parcel C, consisting of 12.5757 acres, is owned by Friendship Investment Company, and was acquired in 1968 for $358,054, which included the cost of site improvements. It is improved by a seven-story office building (NSA 3), gatehouse and parking lot, completed in 1970 at a total cost of $6,778,095, all of which is under lease to NSA until January 1985 at an annual rental of $1,523,040; it is not subject to any renewal options. The adjusted assessment for this parcel is trifurcated, since the land is divided into three 'subparcels.' The assessment for the officebuilding site is $4,177,250, of which $144,625 is for the land and $4,032,625 is for the improvement. The assessment for the gatehouse site is $54,860, of which $5,800 is for the land and $49,060 is for the improvement. The assessment for the parking-lot portion is $179,000, of which $113,660 is for the land and $65,340 is for the improvement.

Parcel D, 1.607 acres in size, is owned by Dickinson-Tidewater, Inc., and was acquired in 1967 at a total cost-including site improvements-of $35,403. It is improved by a two-story, multi-tenant commercial office building completed in December 1967 at a cost of $300,899. The building is leased to various tenants at rentals ranging from $4.20 to $6 per square foot. The total assessment for this parcel is $261,595, consisting of $33,475 for the land and $228,120 for the improvement.

The Assessor's single witness-having qualified as an expert-testified that he arrived at the assessment on the improvements principally by capitalizing the rental income. In addition, he stated that he also considered a countywide survey made in 1971 which took into account:

'. . . Number one, current replacement costs for all buildings and similar structures as evidenced by costs for Anne Arundel County developed through the help of the Assessments Department and through the help of the contractors that we talked to in the course of appraising some 100 industrial and commercial properties in the County for the County Assessments Office. In each case, the value that we arrived at was arrived at on the basis of several considerations the first being the then-current replacement cost, which would be average-1971; sales of any properties that were similar in use, size and construction that may have existed, as well as an analysis of the income so that we could arrive at an indicated capitalized value for all the subject properties where that approach was pertinent. . . .'

He conceded that no allowance was made for the fact-a point emphasized by appellants-that the buildings leased to NSA were being used for a 'special purpose' and, not being subject to long-term leases, might require substantial renovations upon being vacated at the expiration of the original lease periods. The Assessor adopted the position that consideration of the 'special-purpose' nature of the buildings leased to NSA, or so-called 'functional obsolescence,' should be deferred until such time as the existing leases have actually terminated without the options having been exercised, and the vacant property has then been exposed to the rental market; or, at the very least, until NSA signifies its intention not to renew at the expiration of the current lease periods.

The assessments on the land were established by the 'comparable sales' method, supplemented by the capitalization of income approach. Initially, the Assessor had determined that the value of the land was $40,000 an acre, but at the Appeal Tax Court hearing, he agreed to an adjustment that resulted in a uniform appraisal of $35,000 per acre for all of the land included in these cases. Assessments in Maryland, of course, were based on 60% of the fair market value for this particular year.

In respect to the assessments on the improvements leased to NSA, the testimony presented by appellants stressed the specialized nature of that federal agency, and the substantial costs to be anticipated in renovating the buildings for conventional leasing purposes should they be vacated at the expiration of the current lease periods. Thus, the principal spokesman for appellants testified:

'. . . Well, it is the National Security Agency. They are a top secret organization of the United States Government; and, as such, they require quite a bit of security equipment. To convert these buildings to a multi-tenant or even a single commercial tenant would require the removal of most of this security equipment. And also it would require the partitioning of these various floors because the design of the building is such that it calls for huge open areas.'

This witness denied that the 'special purpose' factor had been considered in determining the amount of rent currently being paid by NSA. As they do here, appellants conceded below that apart from the disallowance of the so-called functional obsolescence, the assessments on the improvements would have been reasonable and proper.

The fair market values for the land in the opinion of appellants' expert were as follows: The parcels owned by Baltimore-Washington Science & Industry Center-$15,000 an acre; the land owned by Friendship Investment Company-$20,000 an acre; and the parcel owned by Dickinson-Tidewater, Inc.-$30,000 an acre. He supported his opinion by an analysis of 32 comparable sales which ranged in price paid per acre from $5,000 to $37,500; and, in terms of distance removed from the subject properties, extended from 'across the street' to some 17 miles. He acknowledged, however, that, in drawing upon the 32 comparable sales for his opinion, he made no adjustments for differences in the time of sale or the cost of site improvements.

In sustaining the assessments, the Tax Court rejected appellants' complaint regarding 'functional obsolescence,' noting the expiration dates of the various NSA leases, the renewal options applicable to two of the three buildings and the increased rentals to be paid if those options are exercised. With regard to parcels A and B, the court said:

'The argument as to the special character of these buildings should not be of any particular concern to the Assessor until the leases have terminated and some tangible evidence of the limited value of these properties is shown.'

In respect to parcel C, it said:

'However, this Court is of the opinion that the special purpose buildings located on this land are not limited in value as long as the lease is operative and the question of limited value will not become a factor until the lease period has expired in 1985.'

Regarding the land assessments, the court was of the view that the favorable rental income in relation to the assessments amply justified the latter in each case. Thus, it noted that the annual rent for A, B and C exceeded 34% of the combined land and improvement assessments for those parcels; and that in the case of parcel D, the rental value amounted to 31% of the combined assessments.

In this Court, appellants raise the following contentions:

(1) That the Tax Court failed to comply with its own Rule 7 which requires each party in a proceeding before it to furnish the opposite party with an itemized list of properties upon which it intends to rely to prove comparable sales. Related to this is their argument that the opinion testimony of the Assessor's expert witness should have been excluded, since he 'provided no factual basis for his conclusion as to value.'

(2) That the decision of the Tax Court-regarding the land assessments-is against the weight of the evidence, and...