Montaup Elec. Co. v. Board of Assessors of Whitman

• Citation: 460 N.E.2d 583,390 Mass. 847
• Parties: MONTAUP ELECTRIC COMPANY v. BOARD OF ASSESSORS OF WHITMAN.
• Decision Date: 23 January 1984
• Court: United States State Supreme Judicial Court of Massachusetts

Page 583

460 N.E.2d 583

390 Mass. 847

MONTAUP ELECTRIC COMPANY v. BOARD OF ASSESSORS OF WHITMAN.

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Nov. 10, 1983.

Decided Jan. 23, 1984.

Robert T. Capeless, Boston (William M. Cloran, Boston, with him), for plaintiff.

William B. Golden, Braintree (Robert J. Cotter, Rockland, with him), for defendant.

Before HENNESSEY, C.J., and WILKINS, LIACOS, ABRAMS and O'CONNOR, JJ.

LIACOS, Justice.

Montaup Electric Company (Montaup) appeals to this court pursuant to G.L. c. 58A, § 13, from the decision of the Appellate Tax Board (board) upholding the valuation of its personal property for the fiscal years 1979, 1980, and 1981 by the board of assessors of Whitman (assessors). We conclude that the board committed reversible error by disregarding relevant evidence of fair cash value without a legally supportable justification. We therefore remand the case to the board for a redetermination of the fair cash value of Montaup's property.

The following facts are undisputed. Montaup is a public utility engaged in purchasing and generating electricity, and transmitting and selling it mainly to two affiliated companies in the Brockton and Fall River areas. Montaup is subject to rate regulation by the Federal Energy Regulatory Commission (FERC). In the town of Whitman, Montaup owns and operates an electrical switching substation from which it distributes electricity coming from the Boston and Cape Code areas. The major items of property in the substation consist of a transformer that steps down the voltage to the 115,000 volt service capacity, steel towers, circuit breakers, switches, and cables.

The assessors valued Montaup's personal property at $4,684,500 for the fiscal years 1979 and 1980, and $4,727,900 for the fiscal year 1981. Montaup seasonably applied to the assessors for abatement of the taxes. The assessors granted a partial abatement of the tax assessed for the fiscal year 1979, reducing the assessment from $4,684,500 to $4,567,800. Montaup filed timely appeals with the board under the formal procedure from the assessors' refusal to (1) further abate the tax assessed for the fiscal year 1979; (2) abate the tax assessed for the fiscal year 1981; and (3) act on Montaup's application for an abatement for the fiscal year 1980 within three months of its filing. G.L. c. 59, §§ 64, 65. ¹ The board took jurisdiction and promulgated a decision. Upon request of the parties, the board also issued a report and findings of fact in support of its decision. See G.L. c. 58A, § 13. In its report, the board relied solely on what it considered to be the only probative evidence of fair cash value presented by the appraiser for the assessors. The board concluded that the value of Montaup's property exceeded the assessed value. Accordingly, the board decided in favor of the assessors for the fiscal years in question.

Because Montaup did not request that a stenographic report be taken of the board's proceedings, we are precluded from considering any question concerning the admission or exclusion of evidence, or whether any finding by the board was warranted by the evidence. G.L. c. 58A, § 10. ² New Bedford Gas & Edison Light Co. v. Assessors of Dartmouth, 368 Mass. 745, 749-751, 335 N.E.2d 897 (1975). On this appeal, Montaup may prevail only if an error of law is shown by the board's findings of fact and report. G.L. c. 58A, § 10.

Determination of fair cash value. Montaup contends that the board erred by disregarding the evidence presented by its treasurer of the net book cost or rate base value of its property in determining fair cash value and, in fixing the value of the property, by relying only on the evidence of net replacement cost offered by the appraiser for the assessors. The assessors claim that Montaup failed to produce any expert evidence correlating rate base value with fair cash value. Accordingly, the assessors argue, Montaup did not sustain its burden of proving that the assessors assessed the property based on a dollar amount higher than its fair cash value. See Schlaiker v. Assessors of Great Barrington, 365 Mass. 243, 245, 310 N.E.2d 602 (1974). ³

In determining the fair cash value (or fair market value) of property, assessors must seek to determine the price that a willing buyer, not compelled to buy the property, would pay to a willing owner, not under compulsion to sell the property. See Assessors of Quincy v. Boston Consol. Gas Co., 309 Mass. 60, 63, 34 N.E.2d 623 (1941); G.L. c. 59, § 38. A proper valuation depends on a consideration of the myriad factors that should influence a seller and buyer in reaching a fair price. Various methods may be relevant in making the determination of fair market value. See Boston Edison Co. v. Assessors of Watertown, 387 Mass. 298, 301-302, 439 N.E.2d 763 (1982); Boston Gas Co. v. Assessors of Boston, 334 Mass. 549, 566, 137 N.E.2d 462 (1956); Assessors of Quincy v. Boston Consol. Gas Co., supra 309 Mass. at 64, 66, 34 N.E.2d 623.

The rate base value, or net book cost, which is the original cost of property when first devoted to a public use, less accrued depreciation, constitutes one relevant method of determining fair cash value. Boston Edison Co. v. Assessors of Watertown, supra 387 Mass. at 301, 439 N.E.2d 763. Evidence of comparable market sales and capitalized net earnings also may constitute legitimate methods for determining the fair cash value of property. See Correia v. New Bedford Redevelopment Auth., 375 Mass. 360, 362, 377 N.E.2d 909 (1978). In valuing special purpose property, the current replacement cost, or reproduction cost of the property less depreciation (DRC), may also prove probative of fair cash value. See id. at 363-364, 377 N.E.2d 909; Assessors of Quincy v. Boston Consol. Gas Co., supra 309 Mass. at 66, 34 N.E.2d 623. No one of these methods necessarily is decisive on the valuation issue. Id. at 66-67, 34 N.E.2d 623.

In assessing the property of an electrical utility company for property taxation purposes, this court has recognized the feasibility of using both the DRC approach and the rate base value. Boston Edison Co. v. Assessors of Watertown, supra 387 Mass. at 301-302, 439 N.E.2d 763. Since utility company property is special purpose property concerning which there is little, if any, evidence of comparable sales, the DRC approach has been considered an appropriate criterion in estimating the fair cash value. See id. at 301, 439 N.E.2d 763; Assessors of Quincy v. Boston Consol. Gas Co., supra 309 Mass. at 66, 34 N.E.2d 623. As a general principle, the DRC approach focuses on the current cost of reproducing the particular property involved and thus constitutes an appropriate method of valuing special purpose property. Boston Edison Co. v. Assessors of Watertown, supra 387 Mass. at 304, 439 N.E.2d 763.

In Boston Edison Co. v. Assessors of Watertown, supra, however, we concluded that governmental restrictions on the financial returns of a utility company are also relevant to the price which a willing buyer would pay to a willing seller for utility property. See id. at 304-305, 439 N.E.2d 763. In the Watertown case, Boston Edison Company (Edison), an electrical utility company regulated by the Department of Public Utilities, appealed from a decision of the board. Edison challenged the board's valuation of its property since it was based almost entirely on the DRC method with only minimal weight given to rate base value. Id. at 299, 439 N.E.2d 763. ⁴

In that case, experts for both parties presented their calculations of rate base value and the DRC of the utility's property. The board accepted the evidence presented by Edison's expert as to the rate base value of the property. Although the board arrived at a lower depreciated reproduction cost than that testified to by the assessors' expert, their determination of the property's fair cash value revealed an almost total reliance on the DRC method.

In determining whether the board correctly decided to accord almost complete weight to the DRC method, we considered, and rejected, Edison's argument that the rate base value equals the highest amount at which the property of a utility company can be valued for local taxation purposes. Id. at 302, 439 N.E.2d 763. ⁵ The original cost of the utility's property, less an annual rate of depreciation, does not definitively measure the sale price of the property in a free and open market. Id. at 303-305, 439 N.E.2d 763. ⁶ We reasoned, however, that governmental restrictions which affect the value or earning power of utility property ordinarily must be considered in determining fair cash value. ⁷ Cf. Community Dev. Co. of Gardner v. Assessors of Gardner, 377 Mass. 351, 354, 385 N.E.2d 1376 (1979) (board must consider Federal restrictions on rents received by owners of low income housing projects in calculating fair cash value of rental property for local taxation purposes). Fair cash value will be affected if a regulated utility may receive as earnings no more than a reasonable return on, or designated percentage of, its rate base value. Moreover, when a utility company sells an asset to another regulated utility company, the buyer's return on the property transferred is limited to the rate base value in the hands of the seller, and not on any higher purchase price that the buyer might have paid. ⁸ See Boston Edison Co. v. Assessors of Watertown, 387 Mass. 298, 301, 439 N.E.2d 763 (1982). 1 A.J.C. Priest, Principles of Public Utility Regulation 189 (Michie 1969). Since a public utility buyer of Edison's property would thus be limited to a return on the seller's rate base value, we concluded that such a purchaser would not choose freely to pay more than this amount for the property since a better return could be obtained by investing the same money elsewhere. Boston Edison Co. v. Assessors of Watertown, supra at 305, 439 N.E.2d 763.

We recognized that certain circumstances could induce a buyer of...