Rollsworth Tri-City Trust v. City of Somersworth, TRI-CITY

• Decision Date: 05 April 1985
• Docket Number: TRI-CITY,No. 84-117,84-117
• Citation: 126 N.H. 333,493 A.2d 462
• Parties: ROLLSWORTHTRUST v. CITY OF SOMERSWORTH.
• Court: New Hampshire Supreme Court

Page 462

493 A.2d 462

126 N.H. 333

ROLLSWORTH TRI-CITY TRUST v. CITY OF SOMERSWORTH.

No. 84-117.

Supreme Court of New Hampshire.

April 5, 1985.

Wiggin & Nourie, Manchester (W. Wright Danenbarger and Edward L. Cross, Jr. (orally), on the brief), for plaintiff.

Shaheen, Cappiello, Stein & Gordon P.A., Dover (Daniel M. Cappiello and Dorothy M. Bickford (orally) on the brief), for defendant.

BATCHELDER, Justice.

We are asked to determine whether the master properly selected and applied the capitalization of income method in his valuation of the plaintiff's property in a tax abatement appeal. We affirm in part and reverse in part.

The property consists of 36.72 acres zoned for business use in Somersworth. An apartment complex occupies 14.7 acres; the remaining land is undeveloped. The plaintiff, Rollsworth Tri-City Trust, purchased the property for $3,964,000 in 1978.

The defendant, the City of Somersworth, assessed the property's value at $2,544,750 for each of the tax years 1980 and 1981, resulting in tax levies of $169,480.35 and $191,874.15 for 1980 and 1981, respectively, computed at respective tax rates of $66.60 and $75.40 per $1,000 of assessed value. The plaintiff paid these taxes under protest and applied for abatements under RSA 76:17. When the abatements were denied, the plaintiff petitioned the superior court under RSA 76:16 for a redetermination of its tax liability for both years, alleging that the levies were disproportionately high. The parties stipulated that the applicable equalization ratios employed by the city for 1980 and 1981 were 41% and 38%, respectively. The only issue in dispute, therefore, was whether the defendant's valuation of the property was excessive.

Using the capitalization of income approach, the Master (Mayland H. Morse, Jr., Esq.) determined that the correct assessed valuation of the property had been $1,302,596.53 in 1980 and $1,437,624.94 in 1981. He accordingly recommended tax abatements in the amounts of $82,727.42 and $83,477.23. The Superior Court (Temple, J.) approved the recommendations and ordered the abatements.

The defendant first contends that the master erred in relying exclusively on the capitalization of income method to determine the property's value. To support this position, the defendant makes three arguments: (1) the master failed to make an evidentiary finding that other valuation techniques were unreliable and therefore erred in not considering such techniques; (2) the income approach was legally inadequate because it failed to account for tax considerations that could have affected the property's marketability; and (3) the income approach was legally inadequate because only a portion of the property produced income. These arguments are without merit.

In ruling on the defendant's requested findings of fact, the master found that the cost approach, the income approach, and the market approach are the "generally accepted methods by which an appraiser arrives at an estimate of value." He found, however, that the market approach was inadequate because "no comparables were proven to provide any reliable basis for the use of this method," and he rejected the cost approach as computed by the defendant as "not ... reliably applicable." In his report, the master took notice of the fact that both the plaintiff's expert and the defendant's expert testified that the income approach was the most reliable method in this case.

The income capitalization approach measures the present value of property on the basis of the future net income the property could produce for the owner. The net income is the rent the property would generate on an open market, less the normal and usual costs of operation. This figure is then capitalized to determine present worth.

"In abatement petitions, the trial court is empowered to make a determination of the subject property's market value, ... and all evidence before the court relating to valuation should be considered.... However, the court is not foreclosed from choosing a particular method to the exclusion of others." Brickman v. City of Manchester, 119 N.H. 919, 920, 409 A.2d 1328, 1329-30 (1979) (citations omitted). This property was developed and held for the purpose of generating income for investor-owners. We find that the income approach was an appropriate method of valuation in this case and that the master's selection of this method was proper and rested on an adequate evidentiary basis.

"[W]orth to the owner alone is not the appropriate standard for taxation." 590 Realty Co., Ltd. v. City of Keene, 122 N.H. 284, 286, 444 A.2d 535, 536 (1982). "It is obvious that whatever income tax benefits a taxpayer may derive from his ownership of real estate will depend upon facts peculiar to him such as his income tax bracket for the particular year, the method of depreciation used and the current and unpredictable future provisions of the Federal income tax laws." Fort Lee v. Hudson Terrace Apts., 175 N.J.Super. 221, 226, 417 A.2d 1124, 1126 (1980). We therefore reject the defendant's claim that the income approach is legally inadequate because it fails to account for tax considerations that might affect property marketability.

The income capitalization approach determines value by measuring a property's worth on the basis of its capacity to generate future rental income. Although use of this approach might indeed be inappropriate where anticipated income is insignificant relative to the magnitude of the property, we do not find this to be the case here. We therefore reject the defendant's argument that the master's reliance on this approach constituted error due to the presence of unproductive land.

The defendant next contends that even if the master correctly selected the income approach as his valuation method, the master erred in his application of this approach. The defendant argues that the master erred in four ways: (1) he...