New Haven Water Co. v. Board of Tax Review of City of New Haven

• Decision Date: 26 March 1974
• Parties: NEW HAVEN WATER COMPANY v. BOARD OF TAX REVIEW OF the CITY OF NEW HAVEN.
• Court: Connecticut Supreme Court

Page 641

348 A.2d 641

166 Conn. 232

NEW HAVEN WATER COMPANY v. BOARD OF TAX REVIEW OF the CITY OF NEW HAVEN.

Supreme Court of Connecticut.

March 26, 1974.

Richard G. Bell, New Haven, for appellant (plaintiff).

Roger J. Frechette, Asst. Corp. Counsel, New Haven, for appellee (defendant).

Before HOUSE, C.J., and SHAPIRO, LOISELLE, MacDONALD and BOGDANSKI, JJ.

BOGDANSKI, Associate Justice.

The plaintiff, the New Haven Water Company, appealed from the 1966 and 1967 assessments of its personal property to the defendant board of tax review of the city of New Haven. The board refused to reduce the assessments and the plaintiff appealed to the Court of Common Pleas. The matter was referred to Hon. Patrick B. O'Sullivan, as a committee, who filed a corrected report confirming the action of the board. The plaintiff thereafter filed objections and exceptions to the report, which were overruled, and the court rendered judgment for the defendant. From that judgment the plaintiff has appealed to this court.

A taxpayer who believes he has been aggrieved by the action of a board of tax review has a right of appeal to the Court of Common Pleas, where the matter is tried de novo. General Statutes § 12-118. That statute provides, in part, that '(t)he court shall have power to grant such relief as to justice and equity appertains,' but the burden is on the plaintiff to show that it is aggrieved by the doings of the assessor and that its property has been overassessed. Bridgeport Gas Co. v. Stratford, 153 Conn. 333, 337, 216 A.2d 439; Burritt Mutual Savings Bank v. New Britain, 146 Conn. 669, 675, 154 A.2d 608.

The plaintiff is a privately owned public service company, within the meaning of General Statutes § 16-1, with headquarters in New Haven, Connecticut. It supplies water to the city of New Haven and its environs. As a public service company, its accounting procedures and rates are regulated by the public utilities commission. By commission regulation, the earned return permitted the plaintiff is based upon the original cost of the property employed in its business, less depreciation, with an allowance for working capital, materials and supplies. 'Original cost' is defined by the commission to be the cost to the person first devoting the property to public service. The plaintiff's earnings have not exceeded the permitted rate of return.

This appeal challenges the 1966 and 1967 tax assessments of so-called Code 23 property, consisting of water mains, hydrant connections, meters and service connections, owned by the plaintiff and located in New Haven. The Code 23 property is part of the plaintiff's water distribution system, which, the committee found, is its highest and best use. There is no market for the sale of Code 23 property apart from that distribution system, and its salvage value is negligible.

The city assessors found the value of the plaintiff's Code 2o property to be $7,511,923 on the 1966 and 1967 assessment dates. They reached this figure by determining the replacement cost and deducting an appropriate amount for depreciation. The plaintiff claimed that its property should have been valued by taking the original cost less depreciation, one of the three methods the assessors considered but did not adopt. The parties agree that the value of the Code 23 property on the 1966 and 1967 assessment dates according to the plaintiff's method of valuation was $4,653,938 and $4,748,399, respectively. Both the board of tax review and the committee approved the replacement cost less depreciation method for computing the value of the plaintiff's property.

On this appeal, the plaintiff claims that the assessors were required, as a matter of law, to use the original cost less depreciation method to determine the fair market value of its property. The plaintiff also asserts, in the alternative, that the committee erred by failing to take into account unique elements significantly affecting the value of its property, namely, the public utilities commission's rate restrictions and the fact that the property has no other use beyond that to which it is presently committed. The plaintiff has expressly abandoned its other assignments of error.

Utility company property is taxed at a fixed percentage of its 'fair market value.' General Statutes § 12-80. 'Fair market value' is generally said to be the value that would be fixed in fair negotiations between a desirous buyer and a willing seller, neither under any undue compulsion to make a deal. Portland Silk Co. v. Middletown, 125 Conn. 172, 174, 4 A.2d 422; see also General Statutes § 12-63. Hence, fair market value is ordinarily best ascertained by reference to market sales. Federated Department Stores, Inc. v. Board of Tax Review, 162 Conn. 77, 87, 291 A.2d 715; Sibley v. Middlefield, 143 Conn. 100, 107, 120 A.2d 77. 'But it does not follow that, when the tax assessors cannot ascertain the market value of certain property, they cannot determine the valuation of that property for legal taxation. If the rule of taxation provided by statute cannot be applied, the law still commands that all property liable to taxation shall be put in the owner's list at its present true and actual valuation . . .. Hence, if the rule indicated cannot be followed, other means must and may be found by which the assessors can perform the duty the law has put upon them.' Underwood Typewriter Co. v. Hartford, 99 Conn. 329, 337, 122 A. 91; Sibley v. Middlefield, supra, 143 Conn. 106-107, 120 A.2d 77. '(The) present true and actual value' of personal property has been calculated by taking reproduction or replacement cost, with an adjustment for depreciation; Federated Department Stores, Inc. v. Board of Tax Review, supra, 162 Conn. 80, 291 A.2d 715; Connecticut Light & Power Co. v. Monroe, 149 Conn. 450, 452, 181 A.2d 118; Sibley v. Middlefield, supra; Connecticut Savings Bank v. New Haven, 131 Conn. 575, 578, 41 A.2d 765; Underwood Typewriter Co. v. Hartford, supra; by capitalization of income; Federated Department Stores, Inc. v. Board of Tax Review, supra, 162 Conn. 83, 291 A.2d 715; Lomas & Nettleton Co. v. Waterbury, 122 Conn. 228, 231, 188 A. 433; Somers v. Meriden, 119 Conn. 5, 7-8, 174 A. 184; and by reference to original or historical cost, less depreciation; Bridgeport Gas Co. v. Stratford, 153 Conn. 333, 335, 216 A.2d 439; Bridgeport Hydraulic Co. v. Stratford, 139 Conn. 388, 393, 94 A.2d 1. As a rule, however, '(n)o one method is controlling; consideration should be given to them all, if they have been utilized, in arriving at the value of the property.' Sibley v. Middlefield, supra, 143 Conn. 107, 120 A.2d 80.

It is agreed that neither the market sales approach nor the capitalization of income method could be utilized to determine the value of the plaintiff's Code 23 property. The committee found that the replacement cost less depreciation method is widely used throughout the state, and is used to assess the taxable property of other public service companies.

The plaintiff claims that the assessors were required to value its Code 23 property by the original cost less depreciation method because there is no market for this property except as part of its water distribution system, and since any prospective buyer of that system would be regulated by the public utilities commission, the earning capacity...