Town of Killington v. Dept. of Taxes, 2003 VT 88 (Vt. 10/24/2003)

• Decision Date: 24 October 2003
• Docket Number: No. 2002-433.,2002-433.
• Citation: 2003 VT 88
• Parties: Town of Killington v. Department of Taxes.
• Court: Vermont Supreme Court

Page 1

2003 VT 88

Town of Killington v. Department of Taxes.

No. 2002-433.

Supreme Court of Vermont.

Filed October 24, 2003.

On Appeal from Rutland Superior Court, William D. Cohen, J.

Mark L. Sperry, Kevin E. Brown, and F. Rendol Barlow of Langrock Sperry & Wool, LLP, Burlington, for Plaintiff-Appellee.

William H. Sorrell, Attorney General, and Charles L. Merriman, Special Assistant Attorney General, Montpelier, for Defendant-Appellant.

Robert S. DiPalma of Paul, Frank & Collins, Burlington, for Appellees/Cross-Appellants Adams, Brown, Josselyn, Kilburn and Woodward.

Brian P. Monaghan, Montpelier, for Amicus Curiae Vermont League of Cities and Towns.

PRESENT: Amestoy, C.J., Johnson and Skoglund, JJ., and Allen, C.J. (Ret.) and Gibson, J. (Ret.), Specially Assigned

SKOGLUND, J.

¶ 1. The State of Vermont appeals a superior court decision striking down as "arbitrary and capricious" the methodology it used to determine the Town of Killington's statewide school property tax under the Equal Educational Opportunity Act (Act 60), and ordering the Commissioner of Taxes to recalculate the Act 60 tax for Killington. Appellee Town of Killington cross-appeals the court's limited remedy, arguing that the court should have ordered the State to redetermine the 1997 education property tax for all Vermont municipalities. We conclude the trial court erred in invalidating the State procedure, and therefore reverse.

¶ 2. Act 60 created a statewide property tax assessed not upon individual landowners, but against each Vermont municipality, calculated as 1% of the aggregate fair market value of the town's realty. 32 V.S.A. § 5401(6). Because of the disparate appraisal levels and practices in Vermont municipalities, Act 60 requires the Commissioner of Taxes to standardize, or equalize, the aggregate fair market value of each municipality's grand list every year. Id. § 5405(a). The Act provides that the determination of equalized fair market value "shall be based upon such methods, as in the judgment of the commissioner, and in view of the resources available for that purpose, shall be appropriate to support that determination." Id. § 5405(d). A municipality's statewide education property tax liability is the product of the statewide property tax rate multiplied by the municipality's equalized grand list. Id. § 5402(b).

¶ 3. Killington set its 1997 education grand list value at $397,492,895. After applying the State's equalization procedures, the Director of Property Valuation and Review certified Killington's equalized education grand list value as $410,103,965. Id. § 5406(b). Killington petitioned for a redetermination under 32 V.S.A. § 5408, which resulted in a reduction of value to $403,980,885. Killington then appealed the redetermination to the Valuation Appeal Board (VAB). In its decision, the VAB criticized the State's methodology in some categories of property valuation and questioned the credibility of Killington's grand list valuation in general. The VAB ordered Killington to undertake a complete reappraisal of all properties in the town and ordered the State to redetermine Killington's equalized value upon completion of the townwide reappraisal. The VAB ruled that, in the event Killington did not complete a townwide reappraisal within ninety days, Killington's redetermined equalized value would be affirmed.

¶ 4. Killington appealed the VAB's decision to the superior court under § 5408(d), which provides that the court "shall hear the matter de novo." Following an evidentiary hearing, the court ruled in favor of Killington. Notably, the court did not find that the State's estimate of Killington's equalized education grand list value, which differed from Killington's grand list value by only 1.6%, was inaccurate or excessive. Indeed, the trial court reached no conclusion as to Killington's 1997 equalized education grand list value. Rather, the court concluded that the methodologies used by the State in the 1997 equalization study were arbitrary and capricious and that their application constituted an abuse of discretion. Accordingly, the court ordered the State to redetermine Killington's 1997 aggregate fair market value "using statistically appropriate methodologies," but declined Killington's request to order a redetermination of all Vermont municipalities. The court also dismissed five individual intervenors for failure to exhaust administrative remedies. The State's appeal and Killington's and intervenors' separate cross-appeals followed.¹

I.

¶ 5. It is critical at the outset of our discussion to identify the correct standard of review. Killington notes that the Act authorizes the trial court to hear its appeal from the VAB "de novo," 32 V.S.A. § 5408(d), which signifies that the court shall conduct a new evidentiary hearing and make its own independent findings. State v. Madison, 163 Vt 360, 369, 658 A.2d 536, 542 (1995). This begs the more fundamental question, however, of the standard of review to be accorded the Commissioner's initial administrative choice of equalization methodology. The Legislature, as noted, specifically provided that the determination of each municipality's equalized education grand list was to be based on "such methods, as in the judgment of the commissioner, and in view of the resources available for that purpose, shall be appropriate to support that determination." 32 V.S.A. § 5405(d). The legislative provision mirrors the substantial deference that courts have traditionally accorded administrative agencies, particularly where, as here, a decision involves highly complicated valuation and equalization methodologies within the agency's area of expertise. As we have observed, "[a]bsent a clear and convincing showing to the contrary, decisions made within the expertise of . . . agencies are presumed correct, valid and reasonable." In re Johnston, 145 Vt. 318, 322, 488 A.2d 750, 752 (1985) (citing Vermont Dept. of Taxes v. Tri-State Indus. Laundries, Inc., 138 Vt. 292, 294, 415 A.2d 216, 218 (1980)).

¶ 6. Thus, to successfully challenge the Commissioner's equalization methodology, it was Killington's burden here to demonstrate that the State's approach was wholly irrational and unreasonable in relation to its intended purpose. See, e.g., Breault v. Town of Jericho, 155 Vt. 565, 569, 586 A.2d 1153, 1156 (1991) ("If the [Board of Appraiser's] decision is within the range of rationality, it must be affirmed."); Sondergeld v. Town of Hubbardton, 150 Vt. 565, 568, 556 A.2d 64, 66 ("The burden of proof is not met by simply impugning the Board's methods or questioning its understanding of assessment theory or technique. To prevail a taxpayer must show an arbitrary or unlawful valuation."). Requiring such a relatively high threshold of proof ensures the necessary flexibility and range of judgment to which the Commissioner is entitled under the Act, while protecting against the purely aberrational or capricious result.

¶ 7. Turning to the record evidence and the trial court's decision, several initial observations are in order. There is no doubt that the depth and breadth of the statistical evidence adduced by the parties was impressive. Nevertheless, certain fundamental facts appear to have been lost in the blizzard of statistical data and expert opinion. First, it is clear that the State calculated Killington's equalized education grand list value in accordance with its established procedures. The State analyzed 187 bona fide sales within the Town of Killington during the previous two years, which represented over six percent of all real properties in the Town, well in excess of the four percent minimum required by the State. Using these transactions, the State calculated the assessment level, or ratio, of sales price to listed value for each category of property, derived an equalized value, and added those values to yield an aggregate fair market value within 1.6% of Killington's grand list value. Killington adduced no credible evidence to suggest that the fair market value of its equalized education grand list differed markedly from its own assessment figure or that of the State.

¶ 8. Second, the court made no findings, and indeed took virtually no account of the State's evidence relating to the reasonableness of its equalization methodology in light of the resources available, as required by Act 60. See 32 V.S.A. § 5405(d) (determination of equalized fair market value "shall be based upon such methods, as in the judgment of the commissioner, and in view of the resources available for that purpose, shall be appropriate to support the determination") (Emphasis added). Thus, while critical of the limited sales data utilized by the State and the fact that the State failed to supplement the data with independent appraisals, the court largely ignored the testimony of state officials that appraisals were beyond the limited means available to the Division of Property Valuation and Review, which had devoted the bulk of its first-year budget to improving local listing practices by purchasing computers for towns and holding training sessions for local listers. This was based upon the Director's considered judgment that such efforts would yield more accurate equalization results in the longterm, and nothing adduced by Killington shows that decision to have been wholly unreasonable.

¶ 9. Third, it is uncontested that the State's estimate of Killington's equalized education grand list had an overall confidence interval of plus/minus 4.6%, which is generally acknowledged to be a reliable result. Fourth, the State presented empirical evidence based on a wide-ranging study of 134 towns that had reappraised between 1991 and 1996, showing a close correlation between the reappraised values and the State's equalized education grand list values and indicating that the State's equalization methodology is an accurate predictor of fair market value.² Finally, the State's expert, Robert J. Gloudemans,...