Town of Victory v. State, 2004 VT 110 (VT 10/22/2004), 2003-196, April Term, 2004

• Decision Date: 22 October 2004
• Docket Number: No. 2003-196, April Term, 2004,2003-196, April Term, 2004
• Citation: 2004 VT 110
• Court: Vermont Supreme Court
• Parties: Town of Victory v. State of Vermont

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2004 VT 110

Town of Victory v. State of Vermont

No. 2003-196, April Term, 2004

Supreme Court of Vermont

October 22, 2004

On Appeal from Essex Superior Court, M. Kathleen Manley, J.

Philip H. White of Wilson & White, P.C., Montpelier, for Plaintiff-Appellee.

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

PRESENT: Amestoy, C.J.,¹ Dooley, Johnson, Skoglund and Reiber, JJ.

DOOLEY, J.

¶ 1. The Vermont Department of Taxes (State) appeals from an Essex Superior Court decision setting the 1999 fair market value of land owned by the Agency of Natural Resources (ANR) in the Town of Victory (Town). Pursuant to 32 V.S.A. § 3708, the State makes annual payments in lieu of taxes (PILOT) to towns in which ANR owns land. The PILOT payments at issue are based on the appraisal value of the land as set by the director of property valuation and review (PVR), 3 V.S.A. § 2289, a division of the Department of Taxes. See 32 V.S.A. § 3708(a) (instructing director of PVR to appraise all ANR-owned land, and directing the State to make PILOT payments). Under § 3708(d), a town that disagrees with the director's appraisal can appeal the set value to the superior court, as the Town did in this case. In that appeal, the superior court found that the director's valuation was invalid and set a valuation substantially above the director's appraisal. We affirm in part, vacate the valuation of forest land set by the superior court, and remand to the director of PVR.

¶ 2. ANR owns over 19,310 acres of land in the Town. Of that amount, 8724 acres are enrolled in the agricultural and managed forest land use value program, 32 V.S.A. §§ 3751-3763, and are not part of this appeal. Most of the remaining acreage, 10,068 acres, is located in the Victory State Forest, with a small amount, 518 acres, in the Victory Basin, also known as Victory Bog. In 1999, the director of PVR appraised the forest land at $211.05 per acre and the basin land at $183.59 per acre. The land consists of both timberland and wetlands. The record indicates that approximately eighty percent of the forest land could be commercially productive, while the basin land has little commercial viability.

¶ 3. The 1999 appraisals by the director of PVR did not change the values from those arrived at in 1995, the year of the previous appraisal. In 1995, Robert Beaulieu, then a PVR district advisor, appraised the forest and basin lands to set their values for ANR's 1996 PILOT payment.² The trial court found that to determine the value, Beaulieu used a mass appraisal methodology in the following manner:

a) He was physically on-site on approximately six occasions, but did not inspect the property other than what he was able to observe from his immediate location.

b) He reviewed Property Transfer Tax Returns (PTTR) for large acre sales lying in his district and in parts of adjoining districts to include more parcels[,] including Essex, Caledonia, Orleans, [and] parts of Orange and Washington counties for two years prior to 1995. From that review he selected timberland parcels over 300 acres or larger. He excluded any sale that appeared from the PTTR to be non-arm's length and two parcels with extreme values, one very high and one very low.

c) Using a base of 8 sales, Beaulieu calculated the per acre price for each sale, totaled the per acre values and divided by 8 to arrive at an unweighted average. This method is also referred to as a parcel-weighted mean which gives each parcel in the sales base equal weight. This produced an average per acre value of $328.

d) Beaulieu adjusted this average for land in the Victory Forest by applying two adjustment factors. He applied a .8 factor for location (a 20% reduction from the average property in his base properties) and a .8 factor for topography (20% reduction from the average property in his base properties). The location adjustment was made due to the relative remoteness of Victory Forest and the topography adjustment was made due to the steepness and wetness of the land.

This methodology yielded an appraisal of $211.05 per acre for the forest land and $183.59 per acre for the basin land as the basis for the 1996 ANR-land PILOT payment.

¶ 4. To determine the 1997 PILOT payment, district advisor Stearns Allen reviewed the value set by Beaulieu and recommended no changes. Similarly, in 1998, district advisor Douglas Lay considered Beaulieu's valuation and did not increase the value of ANR's lands. The appraisal for 1999, the year in question, proceeded in a similar manner. In that year, district advisor John Westinghouse reviewed the Beaulieu values and recommended no adjustments. We note that there were no appraisal protocols that the district advisors were required to follow in any of these years. Following Westinghouse's appraisal, the Town appealed the valuation to the superior court.

¶ 5. During the appeal, the Town attacked the PVR appraisal, but did not introduce its own alternative appraisal. The State, in opposition, introduced independent evidence that supported the valuation and argued that the Town failed to meet its burden of proof because it did not introduce its own appraisal. Both sides presented several witnesses. In its findings and order, the trial court reviewed in detail both the valuation determined in 1995 and the subsequent decisions to continue that valuation for the 1997-99 PILOT payments.

¶ 6. Before addressing the merits of the appeal, the court considered the applicable standard of review. Observing that the standard of review for an appeal in the context of the PILOT program is not set forth in § 3708, and that this Court has not spoken on this issue, the court considered arguments from both sides. The State and the Town both agreed that the most analogous process to a PILOT appeal is an appeal of a lister's appraisal under 32 V.S.A. § 4467. Both parties were in accord that under § 4467 the trial court reviews the appraisal de novo; however, the Town further asserted that the PVR appraisal is given no deference whatsoever. The State, in contrast, contended that although a § 4467 appeal is de novo, a presumption of validity and legality attaches to the lister's work, and, therefore, to overturn the appraisal, the opponent must show that the valuation was either arbitrary and capricious or unlawful. The court accepted the State's view, and applied the arbitrary and capricious standard.

¶ 7. Turning to the merits of the appeal, the trial court, although recognizing that there is a significant amount of "individual discretion and judgment involved in appraisal methodology," rejected the 1999 appraisal. In reaching the conclusion that the 1999 appraisal was invalid, the court first addressed the 1995 Beaulieu appraisal. The court found this appraisal unreliable stating, "its ad hoc and essentially arbitrary nature reflects both the lack of any guiding standardized appraisal methodology or procedures on the part of PVR at that time, and an approach that relies primarily on vague general impressions rather than feasible empirical research and evaluation."

¶ 8. The court went on to detail the reasons for finding that the Beaulieu appraisal was unreliable: (1) he selected his eight comparable land tracts solely on the basis that they were larger than 300 acres and the PTTR indicated that they were timberland, but he neither determined the individual characteristics of the comparables nor learned their exact location or topography; (2) he did not consider the "forest potential"-timber rights, the existence of a forest management plan, or the impact of recent logging-in his calculation; (3) with respect to the eight comparable parcels, he used an unweighted average, so that every comparable was considered the same, an approach the court found "assumes that adjustments to the parcel values are made before averaging, to reflect differences in the individual parcels;" (4) his reduction adjustments, 20% for location and 20% for topography, were based on only a general familiarity with the district and not serious analysis; and (5) he did not consider a 1995 acquisition by the Nature Conservancy of a 2600 acre parcel, approximately 1100 acres of which is in the town of Victory, with the remainder in the adjoining towns of Concord and Lunenberg. The court felt that the third reason was a "disqualifying defect" in the property valuation. The court was particularly influenced by the fifth reason because the land acquired by the Nature Conservancy was transferred to the State and became part of the Victory Forest, and the price the Nature Conservancy paid, $275 per acre, was based on a full appraisal. Yet, Beaulieu disregarded the sale, reasoning that a sale to a government or conservation entity is suspect as to fair market value because these agencies may be willing to pay more than economic value for timberland. Thus, in 1996, he added the additional 1100 acres to the size of the Victory Forest parcel and valued it at the 1995 level of $211.05 per acre.

¶ 9. After reviewing the Beaulieu appraisal, the court addressed the subsequent reviews conducted by the various district advisors. The court concluded that these reviews were fatally flawed. Specifically, the court found that in 1997 Allen's review showed that he accepted the Beaulieu valuation "based upon general familiarity with the area" and had no knowledge of the lack of a comparable basis in the comparable parcels. Similarly, Lay reviewed the Beaulieu appraisal, but conducted no independent inquiry into the valuation. In like manner, Westinghouse only reviewed Lay's workfile and did not review the original appraisal. Also, Westinghouse was aware of two land transactions that he did not take into account when reviewing valuation for the 1999 PILOT payment. The first transaction, which was being finalized in 1999, involved the purchase by the State, federal government...