In re St. John's Nursing Home, Inc., Bankruptcy No. 81-02346-JNF.
| Decision Date | 12 May 1993 |
| Docket Number | Bankruptcy No. 81-02346-JNF. |
| Citation | 154 BR 117 |
| Parties | In re ST. JOHN'S NURSING HOME, INC., d/b/a Blaire House Long Term Care Facility of New Bedford, f/k/a Casa Seville, Debtor. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Mark N. Polebaum, Boston, MA, for Chapter 11 Trustee/Movant.
Burton Peltz, Boston, MA, for City of New Bedford, Respondent.
The matter before the Court is the "Trustee's Motion Pursuant to 11 U.S.C. § 505 to Reassess the Value of the Subject Property, Determine Its Real Estate Tax Liability and to Order a Refund of Any Overpayment of Such Taxes" (the "Motion"). William Gabovitch, the Chapter 11 Trustee (the "Trustee") of the above-referenced Debtor filed the Motion (the "Motion") on November 13, 1992. He asserts that the Debtor's real estate was assessed improperly and over-valued by the City of New Bedford ("the City") for the fiscal years 1988 through 1993. Accordingly, he asks the Court to determine the Debtor's real estate liability to the City for fiscal years 1988, 1989, 1990, 1991, 1992, and 1993 and to order the City to refund any overpayments.
The City timely filed an objection to the Motion. It asserts that this Court is prohibited from determining the Debtor's tax liability and ordering a refund under 11 U.S.C. § 505(a)(2)(B)(i).
The parties are in agreement as to all relevant facts and have submitted briefs and reply briefs. Based upon the undisputed facts, the Court makes the following findings of fact and rulings of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
The Debtor filed a voluntary Chapter 11 petition on December 31, 1981 and operated as a debtor-in-possession until the Trustee was appointed on June 6, 1990. The Debtor is in the business of owning and operating a 123 bed nursing home under license from the Commonwealth of Massachusetts.
The Debtor's real estate consists of land and a building located at 397 County Street, New Bedford. The Debtor is subject to the assessment of local property taxes by the City. The Debtor pays real estate taxes from its operating income. Local real property taxes are assessed under Mass.Gen. Laws Ann. Ch. 59, §§ 1-94 (West 1988 & Supp.1992). The actual tax is based upon the assessor's determination of the fair market value of the subject property. Id. at §§ 11 and 38.
The City assessed the Debtor's property using the following assessments and rates:
Assessment Tax Rate Tax
Fiscal Year 1988 1,767,300 35.99 63,605.13
Fiscal Year 1989 2,644,500 20.55 54,344.18
Fiscal Year 1990 2,644,500 20.79 54,979.15
Fiscal Year 1991 2,644,500 20.57 54,397.37
Fiscal Year 1992 2,709,800 22.69 61,485.36
The Trustee asserts that when the property is assessed properly the total tax obligations for the five fiscal years at issue would be $122,254.19 less than what the Debtor and the Trustee have paid, since, with the exception of fiscal year 1993, all real estate taxes have been paid in full.
Neither the Debtor nor the Trustee filed an application for an abatement with the City for any of the fiscal years in question. Moreover, neither the Debtor nor the Trustee took an appeal to or filed a petition with the Appellate Tax Board pursuant to Mass.Gen.Laws Ch. 59, §§ 59 or 64. The City filed a proof of claim with this Court on March 17, 1982 for prepetition unpaid real estate taxes and water charges. Its claim totals $38,520.61. A duplicate proof of claim was filed in March of 1992.
The Trustee contends that section 505 of the Bankruptcy Code1 gives this Court the power and authority to determine the Debtor's real estate tax liabilities for fiscal year 1988 through 1992 and to order a refund of any overpayments as a result of the Court's valuation of the Debtor's property for those fiscal years, as well as the power to determine the assessment for 1993. The Trustee asserts that the time limitations set forth in section 505(a)(2)(B) should be construed merely to raise a time limitation on the Court's ability to act on a refund claim. In other words, the Trustee contends that section 505(a)(2)(B) does not control whether a claim for a refund can be brought but only where it can be brought. Finally, the Trustee requests that the Court use an income approach to valuation to determine the fair market value of the nursing home property and accept his calculation of refunds owed.
The City contends that this Court lacks jurisdiction to determine the Trustee's motion because the real estate tax bills for 1988 through 1992 were fully paid and no abatement applications or appeals were filed. The City argues that section 502(a)(2)(B) prohibits the Court from determining the Debtor's postpetition real estate taxes because neither the Debtor nor the Trustee made a proper request to the City for a tax refund. With respect to the 1993 taxes, the City asserts that a determination by this Court of taxes due for fiscal year 1993 is premature.
The City's argument that this Court cannot adjudicate the amount of the Debtor's tax obligation is grounded in the seemingly plain language of section 505(a)(2)(B). The City contends that the statute bars the Court from determining the amount taxed prior to 120 days after a trustee properly requests the refund. The City argues that under Massachusetts law the timely filing of an abatement application is a prerequisite to seeking a refund of an overpayment of taxes. Indeed, the City asserts that "the entire statutory abatement scheme is, in and of itself, if the taxes have been paid, a scheme for ultimately obtaining a refund." The City adds (emphasis in original). Thus, according to the City, since the Trustee never made a proper request for a refund, the Court is prohibited from determining the tax.
Both parties address In re Ledgemere Land Corp., 135 B.R. 193 (Bankr.D.Mass. 1991) (hereinafter Ledgemere). The Trustee argues that the court in that case correctly determined the scope of section 505. The City submits that the Ledgemere court ignored the plain meaning of section 505(a)(2)(B), and failed to recognize the statutory refund scheme under Massachusetts law. It also submits that Ledgemere is distinguishable from the present case.
The issues that must be resolved include 1) whether this Court has the power to determine the amount owed by the Debtor for real estate taxes for years 1988 through 1993 by reassessing the value of the Debtor's property for those years; and 2) whether the Debtor has the right to a refund of taxes previously paid, and, if so, what the amount of the refund should be. If the Court determines that it lacks the power to require the City to refund overpayments, valuation of the Debtor's property obviously would be futile.
Section 505(a)(1) sets forth the general rule that the bankruptcy court has jurisdiction to determine the amount of any tax, whether or not the tax has been paid and whether or not the dispute is before another court or agency. However, section 505(a)(2) sets forth two limitations upon this power. First subsection 505(a)(2)(A) provides that the court may not determine the amount of a tax if the amount was contested and adjudicated by another court or administrate tribunal of competent jurisdiction. Secondly, subsection 505(a)(2)(B) divests the bankruptcy court of authority to determine the estate's right to a tax refund before the earlier of 120 days after the trustee properly files a tax refund claim, or a determination by the taxing authority denying the tax refund claim.
Section 505(a)(2)(B) deals with the right of the estate to a refund. It is a limitation on the court's power to determine the estate's entitlement to a tax refund. According to the legislative history, its purpose is to ensure that an estate's request for a tax refund did not languish in the administrative process. Thus, if the responsible administrative agency does not determine the estate's request for refund within 120 days, the bankruptcy court may determine the estate's rights. Section 505(a)(2)(B) prohibits the bankruptcy court from adjudicating the right of an estate to a tax refund unless the trustee has first requested a refund from the government authority administering the tax and was refused. In re Goldblatt Bros., Inc., 106 B.R. 522 (Bankr.N.D.Ill.1989).
The issues raised by the parties and the interplay of the subsections of section 505 in the context of this case present something of a conundrum. The prohibition set forth in section 505(a)(2)(A) does not apply to the present case because the taxes in dispute did not arise before the commencement of the case and consequently could not have been adjudicated by a judicial or administrative tribunal of competent jurisdiction before that time. All of the disputed tax assessments arose during the pendency of this Chapter 11 case. Clearly, but for section 505(a)(2)(B), the Court has both the power and the discretion to determine the amount of the taxes since the exception noted in section 505(a)(2)(A) is inapplicable (there having been no prepetition adjudication of the amount of the taxes). However, a decision to make such a determination would be meaningless in this case, at this time if section 505(a)(2)(B) bars, either temporarily or permanently, the Trustee from seeking a refund, since the taxes for fiscal years 1988 through 1992 have been paid.
In this jurisdiction, Chief Judge Queenan has held that a debtor has the power under section 505 to seek both a reduction of real estate taxes and a refund of taxes that had been paid with respect to two...
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