Douglas County Bd. of Equalization v. Fidelity Castle Pines, Ltd., VENTURE--ROXBOROUGH

• Citation: 890 P.2d 119
• Decision Date: 21 February 1995
• Docket Number: Nos. 94SC8,VENTURE--ROXBOROUGH,94SC19,s. 94SC8
• Parties: DOUGLAS COUNTY BOARD OF EQUALIZATION, Petitioner, v. FIDELITY CASTLE PINES, LTD.; Colorado Castle Pines Realty, Inc.; Castle Pines Fidelity Associates Limited Partnership; and Board of Assessment Appeals of the State of Colorado, Respondents. DOUGLAS COUNTY BOARD OF EQUALIZATION, Petitioner, v. ROXBOROUGH VILLAGE JOINTACQUISITION CORPORATION, and Board of Assessment Appeals of the State of Colorado, Respondents.
• Court: Colorado Supreme Court

Page 119

890 P.2d 119

DOUGLAS COUNTY BOARD OF EQUALIZATION, Petitioner, v. FIDELITY CASTLE PINES, LTD.; Colorado Castle Pines Realty,

Inc.; Castle Pines Fidelity Associates Limited

Partnership; and Board of Assessment

Appeals of the State of

Colorado, Respondents.

DOUGLAS COUNTY BOARD OF EQUALIZATION, Petitioner, v. ROXBOROUGH VILLAGE JOINT VENTURE--ROXBOROUGH ACQUISITION

CORPORATION, and Board of Assessment Appeals of

the State of Colorado, Respondents.

Nos. 94SC8, 94SC19.

Supreme Court of Colorado,

En Banc.

Feb. 21, 1995.

Office of the County Attorney, Douglas County, Colorado, Thomas W. McNish, Asst. County Atty., Castle Rock, for petitioner in Nos. 94SC8 and 94SC19.

Barry J. Goldstein, Denver, for respondents Fidelity Castle Pines, Ltd., Colorado Castle Pines Realty, Inc. and Castle Pines Fidelity Associates Ltd. Partnership in No. 94SC8.

Gale A. Norton, Atty. Gen., Stephen K. ErkenBrack, Chief Deputy Atty. Gen., Timothy M. Tymkovich, Sol. Gen., Maurice G. Knaizer, Deputy Atty. Gen., Larry A. Williams, First Asst. Atty. Gen., General Legal Services Section, Denver, for respondent Bd. of Assessment Appeals of State of Colorado in Nos. 94SC8 and 94SC19.

Barry J. Goldstein, Denver, for respondent Roxborough Village Joint Venture--Roxborough Acquisition Corp. in No. 94SC19.

Justice LOHR delivered the Opinion of the Court.

We granted certiorari to review two decisions of the Colorado Court of Appeals that present a common issue as to the manner of valuing vacant land for property tax assessment purposes. The issue is whether section 39-1-103(14)(b), 16B C.R.S. (1991 Supp.), prior to its amendment in 1992, required assessing officers to consider indirect costs, such as developer's profit and overhead, as part of the "cost of development" when using the market approach to appraisal. The 1992 amendment disallowed consideration of indirect costs, thereby raising the question of whether the 1992 amendment changed or merely clarified the prior law. In Fidelity Castle Pines, Ltd. v. Douglas County Bd. of Equalization, No. 92CA1453 (Colo.App. Nov. 12, 1993) (not selected for official publication), the court of appeals reversed a decision of the Board of Assessment Appeals (BAA) which held that indirect costs should not be considered. In Roxborough Village v. Douglas County Bd. of Equalization, No. 92CA1414 (Colo.App. Nov. 18, 1993) (not selected for official publication), the court of appeals affirmed a decision of the BAA which required consideration of indirect costs. We hold that prior to amendment in 1992, section 39-1-103(14)(b) required indirect costs to be considered when using the market approach to appraising vacant land for tax assessment purposes and that the 1992 amendment changed rather than clarified existing law. We therefore affirm the judgment of the court of appeals in each of the two cases.

I.

We first outline the basic facts and procedural history of the two cases.

A.

Roxborough Village Joint Venture--Roxborough Acquisition Corporation (Roxborough) owns approximately 408 acres of unplatted vacant land, 180 platted lots in four subdivisions, and 16.4 acres of platted commercial property in Douglas County, Colorado. To determine the valuation for assessment of this land for the 1991 tax year, the Douglas County assessor used the market approach to appraisal and determined the present value of each of the properties to which this appeal relates by present worth discounting. Section 39-1-103(14)(b) specifically authorizes appraisers to use present worth discounting when valuing vacant land. Present worth discounting requires: (1) determination of the estimated retail prices of the lots or parcels into which the properties are to be divided for sale, ¹ (2) deduction of the costs of development that are to be incurred in preparing the lots or parcels for sale to arrive at an adjusted retail price, (3) estimation of the time periods required to sell the lots or parcels in order to arrive at a market absorption rate, and (4) selection of an appropriate discount rate. Utilizing this data, an appraiser is able to calculate the present worth of the vacant land, which is its market value.

The present worth discounting process recognizes that developers who sell large numbers of lots over a period of time will not realize the full value of their properties until sometime in the future. The present worth discounting process accounts for the time value of money, i.e., a payment received today is more valuable than a payment received in the future. Essentially, this method arrives at present value by treating the value of individual parcels like payments in an anticipated future annuity stream and discounting those anticipated payments to present value. See El Paso County Bd. of Equalization v. Craddock, 850 P.2d 702, 705-06 (Colo.1993) (explaining in more detail the present worth discounting method of determining market value as contemplated by section 39-1-103(14)(b)).

In deducting anticipated costs of development in order to arrive at adjusted retail prices for the Roxborough properties as part of the present worth discounting process, the assessor included direct costs--sometimes referred to as hard costs--such as the costs of constructing roads and installing utilities. The assessor, however, declined to include indirect costs--sometimes referred to as soft costs--such as the developer's overhead and profit.

Roxborough appealed Douglas County's assessment of the property to the BAA. See § 39-8-108, 16B C.R.S. (1994). Roxborough sought reductions in valuation, arguing that the BAA and the court of appeals have consistently required deduction of indirect costs for proper valuation of vacant land. The BAA determined that Roxborough was entitled to a 10 percent allowance for indirect costs, calculated as a percentage of the unadjusted retail price, for all property eligible for present worth discounting. ² In so ruling, it held that indirect costs were allowable as a "cost of development" under section 39-1-103(14)(b) prior to its amendment in 1992. The BAA ruled that the 1992 amendment, allowing only direct costs to be considered, changed existing law and was only prospective in effect. Douglas County appealed the BAA's ruling to the court of appeals. Roxborough cross appealed the BAA's decision to allow only a 10 percent adjustment for indirect costs instead of the greater amounts for which it had contended.

The court of appeals in an unpublished opinion affirmed the BAA's ruling. Roxborough Village v. Douglas County Bd. of Equalization, No. 92CA1414 (Colo.App. Nov. 18, 1993) (not selected for official publication). The court of appeals adopted the reasoning in Commercial Federal Sav. & Loan Ass'n v. Board of Assessment Appeals, 867 P.2d 17 (Colo.App.1993), and held that "the 1992 amendments to § 39-1-103(14)(b) prohibiting the consideration of soft or indirect costs did not constitute a clarification of prior law, but instead changed the law in this respect." Roxborough Village, slip op. at 3. Therefore, the court of appeals determined that prior to the 1992 amendment, section 39-1-103(14)(b) permitted deduction of a developer's indirect costs when valuing vacant land. In addition, the court of appeals ruled that the amount of the deduction for indirect costs is a question of fact for the BAA. Id. Because the court found that the BAA's decision was supported by evidence in the record, it affirmed the BAA's decision to allow only a 10 percent adjustment for indirect costs. ³ Id., slip op. at 5.

B.

Fidelity Castle Pines, Ltd., Colorado Castle Pines Realty, Inc., and Castle Pines Fidelity Associates Limited Partnership (collectively, Castle Pines) owns 212 parcels of vacant land in Douglas County. The Douglas County assessor determined the value of these parcels for assessment for the 1991 tax year in a manner analogous in all relevant respects to that used in valuing the Roxborough properties. See supra pp. 4-5. In the present worth discounting calculations, the assessor adjusted retail prices to reflect direct costs but denied adjustments for indirect costs.

Castle Pines appealed Douglas County's valuation for assessment to the BAA and requested that the BAA adjust the valuation to account for indirect costs. § 39-8-108, 16B C.R.S. (1994). The BAA determined that the 1992 amendment to section 39-1-103(14)(b) prohibiting deduction of indirect development costs simply clarified the meaning of section 39-1-103(14)(b) as in effect prior to the amendment. The BAA held that the earlier version did not allow deduction of indirect costs and rejected Castle Pines' request for a reduction in assessed valuation.

Castle Pines appealed, and the court of appeals in an unpublished decision reversed the BAA's ruling. Fidelity Castle Pines, Ltd. v. Douglas County Bd. of Equalization, No. 92CA1453 (Colo.App. Nov. 12, 1993) (not selected for official publication). The court of appeals adopted the reasoning in Commercial Federal Sav. & Loan Ass'n, and rejected Douglas County's argument that the 1992 amendment to section 39-1-103(14)(b) constituted a clarification of the statute rather than a change. Fidelity Castle Pines, Ltd., slip op. at 1. Therefore, the court of appeals remanded the case to the BAA for reconsideration of Castle Pines' valuation in light of the court's determination that prior to the 1992 amendment, section 39-1-103(14)(b) required assessors to consider indirect costs during the valuation process.

Douglas County sought certiorari review of the court of appeals' decisions in both the Roxborough case and the Fidelity Castle Pines case. We granted certiorari, and consolidated the cases for review, to determine:

Whether the court of appeals erred in concluding that the General Assembly, in amending section [39-1-103(14)(b) ] in 1992 to exclude a developer's profit and overhead in the valuation of vacant land, intended to change the law as it existed prior to this amendment rather than...