Madison Paper Indus. v. Town of Madison
| Decision Date | 06 July 2021 |
| Docket Number | Som-20-241 |
| Citation | 2021 ME 35 |
| Parties | MADISON PAPER INDUSTRIES v. TOWN OF MADISON |
| Court | Maine Supreme Court |
Argued: April 8, 2021
Revised: September 7, 2021; November 9, 2021
Jonathan A. Block, Esq. (orally), and Olga J. Goldberg, Esq. Pierce Atwood LLP, Portland, for appellant Madison Paper Industries
David P. Silk, Esq. (orally), Curtis Thaxter, LLC, Portland, for appellee Town of Madison
Panel: MEAD, GORMAN, JABAR, HUMPHREY, and HORTON, JJ.
[¶1] Madison Paper Industries (MPI) appeals from a judgment of the Superior Court (Somerset County, Mullen, C.J.) affirming a decision of the State Board of Property Tax Review that upheld the Town of Madison's denial of MPI's request for a property tax abatement for the 2016-17 tax year. MPI argues that the Town's property tax assessment substantially overvalued MPI's paper mill and hydro-electric power plants (hydros) and that the Board made several errors of law in upholding the Town's denial of MPI's abatement request. Because the Board made no errors of law and because its findings were all supported by competent evidence in the record, we affirm the judgment.
[¶2] As of April 1, 2016, the beginning of the tax year at issue, [1] MPI owned and operated a paper mill in Madison and two hydros that straddle the border of Madison and Anson. The Town issued a property tax assessment based on its determination of the taxable value of the mill and the Madison portion of the hydros as of that date. See 36 M.R.S. § 708 (2021). MPI requested a tax abatement, which the Town's Board of Assessors denied. MPI appealed the denial to the State Board pursuant to 36 M.R.S. § 843 (1-A) (2021). After holding a hearing, the Board issued a written decision upholding the denial of the abatement request. In its decision, the Board made the following findings of fact, which are supported by competent evidence in the record. See Angell Fam. 2012 Prouts Neck Tr. v. Town of Scarborough, 2016 ME 152, ¶ 3, 149A.3d271.
[¶3] MPI was a partnership between UPM-Kymmene Corporation (UPM), a global paper products manufacturer, and the New York Times Company. MPI had purchased the mill property, including the two hydros, to produce super-calendared paper (SC) for the New York Times. The MPI mill was the only SC-manufacturing mill UPM owned in North America and was producing 12 percent of North America's entire S.C. supply. MPI's mill assets included the mill premises, the paper-making machinery, and the equipment for producing the mechanical pulp used in the production of S.C. paper.
[¶4] In 2016, UPM and the New York Times dissolved MPI, announcing the dissolution that March. Operations at the mill ceased in May 2016. However, the decision to shut down the mill was made no later than October 2015.
[¶5] As of April 1, 2016, the mill and the two hydros were fully operational. The hydros produced roughly 40 percent of the energy that the mill used, thereby saving the mill money as an avoided cost on energy purchases. MPI purchased on the market the remaining 60 percent of the energy required to operate the mill. Because the hydros straddle the border of Madison and Anson, the Town's valuation split the allocation of the "overall value" of each hydro between the two towns. Each town was allocated roughly 81 percent of one hydro and 19 percent of the other.
[¶6] The mill had been operating at a profit as of April 1, 2016, and it continued to do so until its closure in May 2016. Up to the date it closed, the mill was considered a "state of the art" facility. However, MPI's earnings before interest, taxes, and amortization were in a period of steady decline. By March 2016, UPM and the New York Times had decided that the hydros and mill assets would be sold separately rather than as an operating paper mill complex. In fact, MPI intended that the mill machinery and equipment be sold as scrap separately from the mill premises. MPI advertised the sale of the hydro assets, but neither UPM nor the New York Times nor MPI made any attempt to advertise the sale of the mill assets.
[¶7] After the closure announcement, MPI began receiving bids for the mill assets. The bids were almost exclusively from liquidators who intended only to purchase the assets, not to operate the mill itself. In December 2016, six separate pieces of mill equipment essential for paper production were sold under restrictions that, as expressed in the asset-purchase agreement between MPI and the buyer, prohibited their use in S.C. production in any location for ten years "to protect the legitimate competitive interests of [UPM] and its Affiliates." These mill assets sold for $2, 000, 000.
[¶8] MPI sold both hydros in July 2017.
[¶9] Rather than adopting MPI's self-imposed liquidation restrictions for the mill assets, the Town assessed the value of the mill and hydros as "an operating whole" as of the April 1, 2016 valuation date. However, the assessment was itemized by asset and "bifurcated" between the mill and the hydros. Two individuals were involved in the valuation underlying the Town's assessment. First was the Town assessors' agent. Second was Michael Rogers, a supervisor of municipal services at Maine Revenue Services, who was enlisted as an advisor at the agent's request. Rogers provided calculations as guidance for the Town's assessment. The Town followed Rogers's guidance for valuing the hydros but modified, in part, his valuation of the mill assets.
[¶10] Rogers's valuation of the hydro assets situated in Madison involved three "approaches" to valuation: the cost approach, the income approach, and the sales comparison (or market) approach. Once Rogers completed his calculation of value under the three approaches, he incorporated them into a final figure and subtracted an amount corresponding to the percentages of the hydros located in Anson. He also excluded the value of equipment eligible for exemption from property tax under Maine's Business Equipment Tax Exemption (BETE) program, see 36 M.R.S. §§ 361-700B (2021).[2]His final assigned value for the taxable hydro assets situated in Madison was $34, 295, 500. The Town adopted this figure in its assessment.
[¶11] Based on MPI's mill closure announcement, Rogers assumed the mill assets' "highest and best use" for valuation purposes to be liquidation rather than continued operation. Rogers's valuation of the mill assets relied on the cost approach rather than the income or sales comparison approaches. His analysis factored in the age and condition of the premises and equipment as well as economic obsolescence based on UPM's sweeping restrictions on the equipment's use after sale. He ultimately determined that the reproduction cost of the mill assets should be reduced by 90 percent to reflect economic obsolescence. His final calculation of the value of the mill assets was $21, 341, 883.
[¶12] The Town largely followed Rogers's guidance for the mill assessment, though it set the subtraction for economic obsolescence at 82 percent, rather than 90 percent, because it disagreed with his assumption that liquidation represented the mill's "highest and best use." The Town based its departure from Rogers's obsolescence figure on several factors, including, among others, the mill's active paper production status as of April 1, 2016, benefits the mill received through a reduction in its valuation for the 2015 fiscal year, the recent installation of a gas line, and MPI's successful pursuit of the United States government's imposition of tariffs on Canadian S.C. paper the previous year. The Town's assessment of the taxable mill assets (excluding BETE property) was $38, 070, 181. Thus, the Town's assessment of the mill and hydro assets-as an operational whole-was $72, 362, 681.
[¶13] MPI retained the firm of Duff & Phelps to appraise the mill and hydro assets. The Duff & Phelps appraiser was Robert Herman, who inspected the mill and hydro properties in May 2017 and issued a written report setting out his conclusions.
[¶14] Like Rogers, Herman assumed-based on MPI's determination that the mill would be closed and that the mill property, mill assets, and hydros would not thereafter be used to make paper-that the "highest and best use" of the mill assets would be liquidation. Herman's valuation of the mill assets used only the sales comparison approach to set their liquidation value at $2, 675, 000. His analysis made no reference to the restrictions MPI had placed on the buyer's use of the mill equipment and therefore did not analyze their potential effect on the sales price.
[¶15] Herman valued the hydro assets situated in Madison at $31, 787, 000. Unlike Rogers, Herman did not separate out the value of the BETE equipment in his valuation of the hydro assets. His valuation was based on only the sales comparison and income approaches. He did not complete-and therefore did not include-the cost approach.
[¶16] The Board found that Herman's valuation of the mill assets was not credible for several reasons. First, it took issue with Herman's conclusion that liquidation was the mill's "highest and best use." Specifically the Board, agreeing with several of the factors underlying the Town's decision to deviate from Rogers's valuation of the mill assets, noted that the mill property was considered "state of the art." Further, it found that Herman's report and hearing testimony never discussed whether the comparable sales cited in his sales comparison analysis were subject to owner-imposed restrictions on use comparable to those imposed by MPI on the mill assets. It then found that Herman's report failed to distinguish between liquidation (or salvage)...
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