Somers v. City of Meriden

• Decision Date: 27 July 1934
• Citation: 119 Conn. 5,174 A. 184
• Court: Connecticut Supreme Court
• Parties: SOMERS v. CITY OF MERIDEN.

174 A. 184

119 Conn. 5

SOMERS v. CITY OF MERIDEN.

Supreme Court of Errors of Connecticut.

July 27, 1934

Appeal from Superior Court, New Haven County; Patrick B O'Sullivan, Judge.

Appeal by Lewis J. Somers from the refusal of the board of relief of the City of Meriden to reduce the valuation of the plaintiff's property, tried before a judge of the superior court.From a judgment of dismissal, the plaintiff appeals.

No error.

In proceeding to reduce assessed valuation of property, refusal to find that rents of other property in neighborhood were material to rental capabilities of property in question held not error, where evidence as to such rents was disputed and property differed in location and arrangement.

Lewis J. Somers, of Meriden, for appellant.

Harry R. Cooper, Dennis T. O'Brien, Jr., and Benjamin Tonkonow all of Meriden, for appellee.

Argued before MALTBIE, C.J., and HAINES, HINMAN, BANKS, and AVERY JJ.

HINMAN, Judge.

In 1926the plaintiff purchased for $41,000 a lot, located on West Main street, in Meriden, having a frontage of 50 feet and a depth of 150 feet, with a 4-story brick and frame building and a 4-car brick garage thereon.Directly thereafter he expended $10,000 in modernizing the main structure and converting it into a one-store building with lofts on the second, third, and fourth floors, so that it is adapted to a retail furniture business, and leased the property for that purpose for a term of fifteen years from July 1, 1926, at an annual rent of $6,000 for the first five years, $8,000 for the second five, and $10,000 for the third.In addition, the lessees agreed to pay the lessor, at the rate of $1,000 per year, the $10,000 expended by him for the alterations and improvements, and to pay for all interior repairs.Up to October 1, 1932, the lessees had occupied the premises and paid the agreed rent and $6,000 on account of the $10,000.In 1929 the assessors made a revaluation of real estate for tax purposes, and in that year, and in 1930, 1931, and 1932, the plaintiff's property was assessed as follows: Land, $40,300; main building, $25,330; garage, $1,210; a total of $66,840.From the assessment made as of October 1, 1932, the plaintiff appealed to the board of relief which refused to reduce this valuation, and he appealed to the superior court.The court, by the methods and upon the facts found as hereinafter stated, determined the value of the buildings to be $28,266 and of the land $40,394, a total of $68,660, and dismissed the appeal.The assignments of error are unnecessarily numerous, but may be consolidated into a few material points.

It was conceded on the trial that on October 1, 1932, the " market value" of the property was not ascertainable, owing to lack of " conditions in which there are, or have been, or will be, within a reasonable time, willing sellers and able and ready buyers of property like that to be assessed, and in which sales are or have been made, or may fairly be expected, in the usual and natural way of business."Underwood Typewriter Co. v. Hartford,99 Conn. 329, 336, 122 A. 91, 93.The plaintiff admits that, therefore, the valuation must be arrived at by some other method, and that a proper means to that end is capitalization of income, but asserts that the test of valuation utilized by the trial court was a capitalization at 10 per cent. of an annual gross income equivalent to the actual rentals of the property averaged for three years, while his claim is that valuation should be based on (1) earning capacity rather than actual earnings; (2) net income ascertained by deducting from gross annual earning capacity ascertained allowances such as taxes, repairs, insurance premiums, and vacancies, and certain percentages for such elements as depreciation, and management and rent collection; (3) capitalization of the net earnings, so determined, at the current rate of interest, alleged in this case to be not less than 6 per cent.

Present income and that reasonably to be anticipated exerts a large influence upon the amount which a prudent man would give for property as a permanent investment.State v. Illinois Central R. Co.,27 Ill. 64, 79 Am.Dec. 396;People v. Kalbfleisch,25 A.D. 432, 49 N.Y.S. 546, 549.The value of property may be considered to be that which it has as used and by reason of its use, and it is often a reasonable assumption that it is worth a sum capitalized on the basis of its average income and earning capacity.People v. Commissioners of Taxes,104 N.Y. 240, 246, 10 N.E. 437, 440;Pittsburg R. Co. v. Backus,154 U.S. 421, 14 S.Ct. 1114, 38 L.Ed. 1031;Oregon & C. R. Co. v. Jackson County,38 Or. 589, 64 P. 307, 65 P. 369;Citizens' Savings Bank v. Fitchburg Ins. Co.,87 Vt. 23, 27, 86 A. 1056;In re Assessment of Taxes, Kapiolani Estate, Ltd.,21 Hawaii, 667, 671;Pierce, Inc., v. Santa Barbara County,40 Cal.App. 302, 180 P. 641.

As a general principle, earning or income-producing capacity, as distinguished from actual earnings, is to be regarded as a factor in valuation for taxation purposes; but if the property is devoted to the use for which it is best adapted, and is in a condition to produce or is producing its maximum income, the actual rental is a very important element in ascertaining its value.Cooley, Taxation (4th Ed.) § 1146;26 R.C.L. p. 367;State v. Illinois Central R. Co.supra;State v. Nevada Central R. Co.,28 Nev. 186, 81 P. 99, 113 Am.St.Rep. 834;22 Eng. Rul. Cas. 561.The trial court correctly held that in the situation here presented " in determining what is fair rental income, the actual rental income, while not controlling, is an element to be considered."It is true that, in the final analysis, it is the net income rather than the gross which affects values, but there is no inflexible rule for ascertaining the deductions to be made from the gross for the purpose of obtaining the net.If the percentage used in capitalizing gross income is sufficient to cover the deductions allowable in producing net, the result will satisfy this requirement.The trial court found, upon sufficient evidence, that 10 per cent. is " a fair, reasonable, and accepted percentage" to be used as a factor in capitalizing gross income from real property.The plaintiff claimed and asked the court to find that he was entitled to a net return of 10 per cent, but this was manifestly excessive, as were requested findings as to at least some of the items of deduction claimed.It was open to the trial court to conclude that the percentage adopted (10) was sufficient to cover legitimate deductions and a fair net return to the owner, and to regard the result of capitalization on that basis as, although not the sole, a very important consideration in arriving at a valuation.As to the applicability of customary percentages and the general effect of extraordinary conditions upon the determination of values for taxing purposes, the following from Central Realty Co. v. Board of Review,110 W.Va. 437, 158 S.E. 537, 538, is apt: " Was it the purpose of the statute to jeopardize the machinery of *** [the] municipality, during a depression, or was it enacted to cover ordinary conditions existing over a period of years?To ask the question is to answer it.Values of real estate and fixtures thereon are more or less constant over a period of years.*** The fact that property cannot be sold...