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08/29/78 PEQUOT ASSOCIATES v. BOARD ASSESSORS SALEM

August 29, 1978

PEQUOT ASSOCIATES
v.
BOARD OF ASSESSORS OF SALEM & ANOTHER *FN1 (AND A COMPANION CASE)



Suffolk. Appeals from decisions of the Appellate Tax Board.

Hennessey, C.j., Braucher, Kaplan, Wilkins, & Liacos, JJ.

SYLLABUS BY THE COURT

Taxation, Urban redevelopment corporation. Urban Redevelopment Corporation, Excise tax. Contract, Construction. Practice, Civil, Parties. Words, "Completion," "Substantial evidence."

The opinion of the court was delivered by: Hennessey

A Conclusion by the Appellate Tax Board that the valuation governing the excise tax liability for 1974 and 1975 under G. L. c. 121A, § 10, as amended, of the developer of an urban redevelopment project was $300,000 for the land and $3,470,000 for the building, was supported by substantial evidence, including evidence that the project was completed and occupied in 1974 when the building inspector approved the building for occupancy, and that the developer reported gross income in a substantial amount for 1974, and considerably more for 1975 [273-274]; without merit were contentions of the developer, who claimed that only the land valuation governed, that issuance by the Massachusetts Housing Finance Authority of a "certificate of approval and acceptance" of the project determined completion, and that evidence that "each unit" was occupied was necessary [274-277].

Under a contract entered into in 1972 pursuant to G. L. c. 121A, § 6A, whereby the developer of an approved urban redevelopment project agreed to make annual payments to the city in lieu of special assessments and betterments according to a formula controlling "during construction" in each calendar year "prior to and including the calendar year in which the building . . . shall be completed," and where it appeared that completion occurred in 1974, this court held that the developer's liability for that calendar year was governed by the "during construction" formula, and that the developer's greater liability for the calendar year 1975 was governed by an "upon completion" formula. [277-278]

This court allowed the request of the State Tax Commission that the appeal in a proceeding in which it was named as an appellee be dismissed as to it where it appeared that the controversy was between the developer of an approved urban redevelopment project and the city with respect to an excise payable to the Commonwealth but paid over to the city, and that the developer sought no relief against the commission, which had not participated in the hearing before the Appellate Tax Board. [278-279]

These are appeals from decisions of the Appellate Tax Board (board). The appellant Pequot Associates (Pequot) is a limited partnership acting as an "urban redevelopment corporation" pursuant to G. L. c. 121A. The only issues before us are whether the board's decisions are supported by substantial evidence or are erroneous as matter of law. See generally New Bedford Gas & Light Co. v. Assessors of Dartmouth, 368 Mass. 745, 749 (1975). As will be developed, the board's decisions affect Pequot's liability, in 1974 and 1975, for the urban redevelopment excise tax. See G. L. c. 121A, § 10, as amended by St. 1969, c. 540, § 1. We affirm these rulings. The board's decisions also affect Pequot's liability, in the same two years, under a contract entered into with the city of Salem (city). See G. L. c. 121A, § 6A, inserted by St. 1960, c. 652, § 5. We hold that the board erred with regard to Pequot's contractual liability for 1974, but we affirm the board's ruling as to contractual liability for 1975. *fn2

Pequot is the owner and developer of Pequot Highlands (project) a low and moderate income housing project of 250 units, which was approved as an urban redevelopment project on April 19, 1972. Under G. L. c. 121A, § 10 (first par.), the project is exempted from property taxation for forty years, but the Commonwealth levies, instead, an annual excise of five per cent of the gross income of the project plus one per cent of the fair cash value of the real estate and improvements constituting the project (with certain provisos). § 10 (third par.). Sydney v. Commissioner of Corps. & Taxation, 371 Mass. 289, 290-291 (1976). The local assessors are required by statute to determine the fair cash value of the project as of January 1 of each year, and this determination serves as the basis for assessing the excise for the previous calendar year. G. L. c. 121A, § 10 (second par.). However, if the Department of Community Affairs requests, the local assessors make a determination of the maximum fair cash value of the project as proposed, or of such values of any stages of the project, and their determinations then constitute the upper limits of value in the computation of the excise, except when it is shown that real estate or tangible personal property has been acquired which was not included in the project as proposed. § 10 (seventh par.; cf. fourth par.). Sydney v. Commissioner of Corps. & Taxation, supra at 291.

The Department of Community Affairs requested the board of assessors (assessors) to determine a maximum fair cash value for the project, and the assessors did so on July 12, 1972, as follows: $300,000 for the land, and $3,470,000 for the building on completion and occupancy of each unit, for an aggregate maximum fair cash value of $3,770,000 on completion.

The value of the project also affects Pequot's contractual liability to the city. Pequot has agreed to make annual payments to the city in lieu of special assessments and betterments. See generally G. L. c. 121A, §§ 6A, 10. On July 12, 1972, Pequot agreed to pay the city annually the excess of the respective following amounts over the excises payable pursuant to § 10: in each calendar year through the year in which the building was completed, an amount determined by multiplying the real estate tax rate for such year by the fair cash value of the land, agreed to be $300,000; and in each subsequent calendar year (through the fortieth year in which the project is subject to c. 121A), an amount equal to fifteen per cent of the gross income of the project for the year (but not more than the real estate tax rate for such year multiplied by the maximum fair cash value of the project as fixed by the assessors). Sydney v. Commissioner of Corps. & Taxation, supra at 291.

The dispute here arose when the assessors determined that the fair cash value of the project as of January 1, 1975, was $5,770,000 -- $2,000,000 more than the previously established maximum. Pequot appealed this determination to the board. The assessors made an identical determination for January 1, 1976, and Pequot appealed again. The board consolidated the appeals, held a hearing, and issued a single opinion.

The assessors had asserted that they were justified in exceeding the maximum fair cash value because Pequot had breached its contract. The board ruled that a breach of contract -- if in fact the contract had been breached -- was no justification. This ruling has not been appealed. The board also found that the Pequot project had been completed in 1974 and was thereafter occupied. It concluded, therefore, that the valuation governing Pequot's liability both for the excise and under the contract was $3,770,000. Pequot claims that the ...


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