Williams v. Muses, Ltd., 2016-CA-0250
| Decision Date | 19 October 2016 |
| Docket Number | NO. 2016-CA-0251,NO. 2016-CA-0250,2016-CA-0250 |
| Citation | 203 So.3d 558 |
| Parties | Errol G. Williams, Assessor, Parish of Orleans v. The Muses, Ltd. 1; The Muses II, LP; and Louisiana Tax Commission Errol G. Williams, Assessor, Parish of Orleans v. The Muses Ltd. and Louisiana Tax Commission |
| Court | Court of Appeal of Louisiana — District of US |
Christian N. Weiler, John J. Weiler, WEILER & REES, LLC, 909 Poydras Street, Suite 1250, New Orleans, LA 70112, COUNSEL FOR PLAINTIFF/APPELLANT
Stephen H. Kupperman, Stephen R. Klaffky, BARRASSO USDIN KUPPERMAN FREEMAN & SARVER, LLC, 909 Poydras Street, 24th Floor, New Orleans, LA 70112, Robert D. Hoffman, Jr., ROBERT D. HOFFMAN, JR., APLC, 7039 Highway 190E Service Road, Covington, LA 70433, COUNSEL FOR DEFENDANT/APPELLEE
(Court composed of Judge Paul A. Bonin, Judge Rosemary Ledet, Judge Sandra Cabrina Jenkins )
This is a property tax assessment case. The three parties to this appeal are as follows: (i) Erroll Williams, in his capacity as the Assessor for the Parish of Orleans, State of Louisiana (the "Assessor"); (ii) The Muses, Ltd. 1; and The Muses II, LP (collectively "The Muses" or the "Taxpayers"), two limited partnerships that each own one phase of an affordable housing apartment complex located in the Parish of Orleans known as "The Muses Apartments" (the "Complex"); and (iii) the Louisiana Tax Commission ("LTC").
This case arose as a result of the Assessor's placement of the Complex—three separate tax parcels1 —on its tax rolls for both 2014 and 2015 at an assessment value that The Muses challenged as excessive. Agreeing with The Muses, the LTC, in four separate decisions, ruled that the federal Low-Income Housing Tax Credit ("LIHTC")—a tax credit pursuant to Internal Revenue Code § 42 designed as an incentive to promote the construction of affordable housing— received by The Muses' owners was not income and that the Assessor could not include the LIHTC when assessing the value of such affordable housing using the income approach. The Assessor appealed those four decisions to the trial court, as the first court of appellate review.2 From the trial court's decision granting The Muses' exception of prescription as to two of the four decisions and affirming the LTC's decisions in the other two appeals, the Assessor appeals to this court.
Reduced to its essence, this appeal presents the following two issues: (i) whether two of the four appeals were correctly dismissed as prescribed on the basis that the Assessor's appeals were untimely filed; and (ii) whether the LTC erred in finding that the Assessor could not include the value of the LIHTC in determining the fair market value of the Complex for ad volorem taxes using the income approach. For the reasons that follow, we reverse the trial court's finding that two of the appeals are prescribed, affirm the trial court's finding that the LTC did not err in determining that the Assessor could not include the value of the LIHTC, and remand with instructions that the trial court reconsider its decisions in the two appeals it dismissed as prescribed in light of our decision in this case.
As the Assessor points out, the facts in this case are not in dispute. The Muses' Complex is a four-story, mixed-income, affordable housing development located in the Central City neighborhood of New Orleans. The Complex, constructed in two phases between 2009 and 2011, was designed as an affordable housing development in order to qualify for the LIHTC program.3 Phase I of the Complex consists of 211 apartment units; Phase II consists of 52 units. Combined, the Complex has 263 apartment units, 244,056 rentable square feet, and amenities.4
Of the Complex's 263 apartment units, 99 are subject to rental restrictions imposed in accordance with the LIHTC program. Also in accordance with the LIHTC program, 75% of the units in Phase I are leased to households earning less than 50% of the area median income of $63,000; and 23 of the units in Phase II are leased to those earning between 20% and 80% of the area mean income. The Louisiana Housing Corporation ("LHC")—the agency that administers the LIHTC program in this state—categorizes the Complex as a "deep affordability project" because 10% of the housing units are dedicated to households earning less than 20% of the area median income, and an additional 10% are dedicated to those earning less than 30% of the area median income. Pursuant to the Land Use Restriction Agreement ("LURA") that was entered into for each phase,5 The Muses is required to maintain the allocation of affordable housing units until December 31, 2045 for Phase I, and December 31, 2040 for Phase II—the "Qualified Compliance Period" for each phase.
Pursuant to the LIHTC program, The Muses was awarded approximately $15.3 million in LIHTCs (approximately $1.53 million per year), which will be fully exhausted in 2020. At the outset of the development, The Muses sold the right to use those tax credits through syndication. As a result, The Muses generated approximately $10 million of equity that it, in turn, used to pay its construction loan.6
As noted above, the current dispute arose when the Assessor determined that The Muses were two for-profit entities and placed the three tax parcels comprising the Complex on the assessment rolls for the tax years 2014 and 2015. In assessing the Complex—the total land and improvement value for Phases I and II—the Assessor assigned a fair market value to the property of $23,433,700 for both 2014 and 2015. In determining the fair market value of the Complex, the Assessor used the income approach and included in the calculation the value of the LIHTC received annually by The Muses' owners.
The Muses appealed the assessments to the Orleans Parish Board of Review—the City Council of New Orleans. The Board of Review revised the 2014 fair market value and affirmed the 2015 fair market value. The Board of Review determined that the 2014 fair market value of the Complex was $19,028,000. The Muses appealed the Assessor's 2014 and 2015 assessments to the LTC. The Assessor also appealed the revised 2014 assessments.
On December 2, 2014, the matter came before the LTC for a hearing on the dual appeal—an appeal by both the Assessor and the Taxpayers. For the 2014 tax year, the LTC heard appeals as to all three tax parcels that comprise the Complex; for the 2015 tax year, the LTC heard a fourth appeal as to one of those same parcels. The issue presented to the LTC was the determination of the fair market value of the Complex—which consists of the 263 apartment units, support facilities, and amenities—for ad valorem tax purposes.
At the hearing, the appraisers for all three parties—the Assessor, the Muses, and the LTC—were in agreement on the following two things: (i) the use of the income approach and (ii) the use of the restricted (as opposed to the actual market) rents. The fundamental disagreement among the parties' appraisers was whether to include the value of the LIHTC as income.
The LTC's in-house appraiser, Alicia Labat, presented her appraisal reflecting a total fair market value for the Complex of $16,678,000. Ms. Labat testified that she chose not to include the value of the LIHTC for the following two reasons:
The Muses' sole witness at the LTC hearing was Kevin Hilbert, a consultant who had appraised the Complex. Mr. Hilbert testified that he understood 7
The Assessor presented two witnesses at the LTC hearing—Thomas Sandoz, the Assessor's office staff appraiser, who reassessed the Complex before the hearing; and Mike Truax, an independent appraiser who did not value the Complex but testified and provided a report on the methodologies employed by the Assessor in valuing the Complex. As Mr. Truax explained, his testimony was meant to provide some background as to the appraisal theory.8 Mr. Sandoz's appraisal report was introduced at the hearing; his report reflects that he derived his net income figures from the appraisals done by Ms. Labat and Mr. Hilbert. Unlike the other appraisers, however, Mr. Sandoz included the value of the LIHTC in his calculations.9 Although Mr. Sandoz appraised the total fair market value of the Complex to be $27,163,731, the Assessor's attorney explained at the LTC hearing that Mr. Sandoz's calculation mistakenly included a dual assessment. The revised valuation sought by the Assessor before the LTC thus was $23,433,700—the Assessor's original assessment amount for both the 2014 and 2015 tax years.
Following the hearing, the LTC determined that for the 2014 tax year, for which it heard appeals as to all three tax parcels, the Complex had a combined fair market value of $16,678,000, the value proposed by its in-house appraiser, Ms. Labat. For the 2015 tax year, the LTC issued a ruling consistent with its ruling for the 2014 tax year. Thereafter, the LTC rendered four separate decisions—one for each of the three parcels comprising the Complex for the 2014 tax year and one for one of those parcels for the 2015 tax year.10 From those decisions, the Assessor appealed to the trial court. In response, the Muses filed a peremptory exception of prescription as to two of those appeals.
On January 8, 2016, the trial court rendered judgment granting the Muses' peremptory exception of prescription as to two of the appeals and affirming the LTC's decision in The Muses' favor on the merits as to the other two appeals.11 This appeal followed.
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