Huron Ridge v. Ypsilanti Twp.

• Decision Date: 27 March 2007
• Docket Number: Docket No. 263495.
• Citation: 737 N.W.2d 187,275 Mich. App. 23
• Court: Court of Appeal of Michigan — District of US
• Parties: HURON RIDGE LP, Petitioner-Appellant, v. YPSILANTI TOWNSHIP, Respondent-Appellee.

737 N.W.2d 187

275 Mich. App. 23

HURON RIDGE LP, Petitioner-Appellant, v. YPSILANTI TOWNSHIP, Respondent-Appellee.

Docket No. 263495.

Court of Appeals of Michigan.

Submitted December 4, 2006, at Lansing.

Decided March 27, 2007, at 9:00 a.m.

Honigman Miller Schwartz and Cohn LLP (by Michael B. Shapiro, Daniel L. Stanley, and Mark A. Burstein), Lansing, for the petitioner.

McLain & Winters (by Angela B. King), Ypsilanti, for the respondent.

Before: MARKEY, P.J., and SAAD and WILDER, JJ.

SAAD, J.

Petitioner appeals the Michigan Tax Tribunal's decision that established the true cash value of an Ypsilanti low-income apartment complex, Huron Ridge Apartments, and assessed taxes for tax years 2002, 2003, and 2004. For the reasons stated below, we affirm.

I. Facts

Petitioner, Huron Ridge LP is the limited partnership that owns Huron Ridge Apartments, which is allotted credits under the Federal Low Income Housing Tax Credit Program pursuant to § 42 of the Internal Revenue Code. Petitioner contends that the Tax Tribunal erred by including the value of the low-income housing tax credits authorized by IRC § 42 in the true cash value of the property. In the § 42 program, the low-income housing developer is allocated tax credits for ten tax years, the developer generally uses the tax credits to recruit private investors, and the investors are assigned the tax credits in exchange for the investors' contribution of capital to build or rehabilitate the housing project.¹ Here, the apartment complex was assigned $13,590,490 in tax credits for tax years 2001 to 2010. For the three tax years at issue here, petitioner received annual credits of $1,359,049.

On June 21, 2002, petitioner petitioned the Tax Tribunal for a reduction of the property's tax year 2002 taxable value from $5,024,463 to $2,250,000. The parties filed cross-motions for partial summary disposition on the issue whether the tax credits are value-influencing factors that must be considered in the valuation process. The Tax Tribunal granted respondent Ypsilanti Township's motion for partial summary disposition on October 11, 2004. The parties entered into a stipulation of facts in lieu of a formal evidentiary hearing on valuation, though petitioner preserved the right to appeal the Tax Tribunal's final order. The final order of the Tax Tribunal adopted the factual findings of the parties and the legal conclusions of the October 11, 2004, order. The parties agreed that the appropriate appraisal method for the property was the income method. The Tax Tribunal agreed with the parties that "the most applicable method within the income approach is a discounted cash flow analysis in which the combined cash flows from operation of the subject property and the unallocated (remaining) [tax credits] are discounted to a present value as of each date of valuation." Under this method, the value of the remaining tax credits diminishes with each year until the credits are exhausted in year 11. For tax year 2002, the stipulated true cash value of the property was $13,120,300 with a taxable value of $5,024,463. For tax year 2003, the stipulated true cash value was $11,904,500 with a taxable value of $5,099,829. For tax year 2004, the parties only stipulated a taxable value of $5,217,125. Petitioner now appeals the Tax Tribunal's decision to include the tax credits in the property valuations.

II. Analysis

A. True Cash Value, Uniformity Requirement, and Use-Value Approach

Petitioner claims that the value of the tax credits should not be attributable to the value of the property and argues that, to the extent that there is ambiguity regarding whether the tax credits may be included in "true cash value," that ambiguity must be construed in favor of the taxpayer. Our Supreme Court has held that, if a term within a tax statute was clearly intended by the Legislature to sweep broadly, it must be given a practical construction. See Michigan Bell Telephone Co. v. Treasury Dep't, 445 Mich. 470, 478-479, 518 N.W.2d 808 (1994).

It is clearly within the competence of the legislature to sweep within its taxable orbit all kinds of property and any and all interests therein.

* * *

While [tax statutes] will not be extended by implication, . . . neither will the words thereof be so narrowly interpreted as to defeat the purposes of the act. [In re Brackett Estate, 342 Mich. 195, 205, 69 N.W.2d 164 (1955).]

"If the language of the statute is clear and unambiguous, then no further interpretation is required. However, judicial construction is appropriate when reasonable minds can differ with regard to the meaning of the statutory language." Benedict v. Dep't of Treasury, 236 Mich.App. 559, 563, 601 N.W.2d 151 (1999) (citation omitted).

"True cash value" is a constitutional term used in Const. 1963, art. 9, § 3:

The legislature shall provide for the uniform general ad valorem taxation of real and tangible personal property. . . . The legislature shall provide for the determination of true cash value of such property; the proportion of true cash value at which such property shall be uniformly assessed . . .; and for a system of equalization of assessments.

The statutory definition of "true cash value," provided by MCL 211.27(1), is "the usual selling price at the place where the property to which the term is applied is at the time of assessment, being the price that could be obtained for the property at a private sale," as opposed to an auction or forced sale. The Legislature has provided guidelines for the determination of true cash value as follows:

In determining the true cash value, the assessor shall also consider the advantages and disadvantages of the location; quality of soil; zoning, existing use; present economic income of structures, including farm structures; present economic income of land if the land is being farmed or otherwise put to income producing use; quantity and value of standing timber; water power and privileges; and mines, minerals, quarries, or other valuable deposits known to be available in the land and their value. [MCL 211.27(1).]

On the basis of this broad statutory definition, our Supreme Court has determined that "true cash value" is synonymous with "fair market value." CAF Investment Co. v. State Tax Comm., 392 Mich. 442, 450, 221 N.W.2d 588 (1974). Therefore, the assessment must reflect the probable price that a willing buyer and a willing seller would arrive at through arm's length negotiation. See Safran Printing Co. v. Detroit, 88 Mich.App. 376, 382, 276 N.W.2d 602 (1979).

MCL 211.27(1) does not mandate a single method to arrive at the true cash value. Our Supreme Court recognizes certain appraisal methods, including the income method used in this case, as the traditionally favored methods of calculating a property's true cash value. However, "[a]ny method which is recognized as accurate and reasonably related to fair market valuation is an acceptable indicator of true cash value." Safran, supra, 88 Mich.App. at 380, 276 N.W.2d 602. "It is the duty of the Tax Tribunal to select the method which is the most accurate after considering all the facts before it." Clark Equip. Co. v. Leoni Twp., 113 Mich.App. 778, 781-782, 318 N.W.2d 586 (1982). As a result of the broad legislative definition, "it has fallen to the courts to approve or disapprove of specific methods of determining true cash value, guided by those available expressions of legislative intent." Antisdale v. City of Galesburg, 420 Mich. 265, 276, 362 N.W.2d 632 (1984).

As noted, petitioner objects to the appraisal method of determining true cash value because it includes the federal income tax credit authorized by IRC § 42. However, petitioner's argument that this method violates the uniformity requirement of the Michigan Constitution has been rejected by our Supreme Court in prior cases that addressed analogous federal housing subsidy programs. For example, in Antisdale, supra, 420 Mich. at 268-270, 362 N.W.2d 632, the Court considered whether the financing terms of mortgages provided by the Farmers Home Administration (FmHA) program should be a factor in the determination of the true cash value of an apartment complex subsidized under that program. The FmHA loaned the complex's developers the required funds at a subsidized 1 percent annual interest rate. Id. at 269, 362 N.W.2d 632. The Tax Tribunal hearing officer concluded that including the value of financing terms in the property assessment violated the uniformity requirement. The hearing officer reasoned that no exception to the general rule excluding financing terms should be made for this type of federal subsidy because, "`[i]f exceptions are carved out . . . where only a minute segment of comparable properties have this particular financing arrangement, the "usual sale" requirement would become so diluted as to render the term meaningless.'" Id. at 273, 362 N.W.2d 632. However, the Tax Tribunal subsequently rejected the hearing officer's legal conclusion. Id. at 273, 362 N.W.2d 632. This Court affirmed the Tax Tribunal and rejected the argument that "physically identical properties in comparable locations must receive identical valuations in spite of different financial conditions." Antisdale v. City of Galesburg, 109 Mich. App. 627, 633, 311 N.W.2d 432 (1981), rev'd 420 Mich. 265, 362 N.W.2d 632 (1984).

Our Supreme Court affirmed the Tax Tribunal's decision to value the subsidy, though it reversed its decision to use a particular method of calculation. Antisdale, supra, 420 Mich. at 286, 362 N.W.2d 632. The Supreme Court reasoned that "[t]he foremost value of these [subsidized] properties is found in the tax benefits they generate to the owner." Id. at 285, 362 N.W.2d 632. Therefore, the Supreme Court held that tax benefits should be reflected in the valuation to the extent that they increase or decrease the value of the real property. Id. In reaching its conclusion, the Supreme Court rejected the respondent's contention that...