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Home My WebLink About98-3028 civilIN RE: APPEAL OF FARMINGTON : IN THE COURT OF COMMON PLEAS OF MANOR, L.P. of real estate : CUMBERLAND COUNTY, PENNSYLVANIA tax assessments of property ~: owned by Appellant, located : in the Borough of Shippensburg: and known and numbered as : 32-32-2385-03 : through 32-32-2385-72 : NO. 98-3028 CIVIL TERM : FARMINGTON MANOR, L.P., Appellant CUMBERLAND COUNTY BOARD OF ASSESSMENT APPEALS, Appellee BOROUGH OF SHIPPENSBURG, SHIPPENSBURG AREA SCHOOL DISTRICT, CUMBERLAND COUNTY, : Interested Parties : CIVIL ACTION - LAW : : IN RE: APPEAL OF FARMINGTON MANOR BEFORE .GUIDO, J. AND NOW, this ORDER , day of MARCH, 1999, the within appeals from the assessments of tax parcels 32-32-2385-03 through 32-32- 2385-72 are DENIED. By Edward E. Guido, J. Jeffrey S. Blum, Esquire For the Appellant Stephen D. Tiley, Esquire For the Appellee :sld IN RE: APPEAL OF FARMINGTON : IN THE COURT OF COMMON PLEAS OF MANOR, L.P. of real estate : CUMBERLAND COUNTY, PENNSYLVANIA tax assessments of property : owned by Appellant, located : in the Borough of Shippensburg: and known and numbered as : 32-32-2385-03 : through 32-32-2385-72 : NO. 98-3028 CIVIL TERM : FARMINGTON MANOR, L.P., : Appellant : CUMBERLAND COUNTY BOARD : OF ASSESSMENT APPEALS, : Appellee : BOROUGH OF SHIPPENSBURG, : SHIPPENSBURGAREA SCHOOL : DISTRICT, CUMBERLAND COUNTY, : Interested Parties : CIVIL ACTION - LAW : : IN RE: APPEAL OF FARMINGTON MANOR BEFORE GUIDO, J. OPINION AND ORDER OF COURT ,, , This is a tax assessment appeal by the owner of real estate located in the Borough of Shippensburg, Cumberland County, Pennsylvania. The subject real estate is also located in the Shippensburg School District. A hearing was held on the appeal on December 11, 1998. The parties were given the opportunity to file briefs in support of their respective positions, as well as reply briefs if they so desired. This matter is now ready for disposition. STATEMENT OF FACTS This case involves an assessment levied on seventy (70) new single family residences owned by Farmington Manor, L.P. NO. 98-3028 CIVIL TERM ("Appellant"). Appellant is a limited partnership which was created for the sole purpose of constructing the seventy (70) homes on an eighteen (18) acre tract of land. The homes are to be rented to qualifying low income tenants. The property, as developed and used, complies with the low income housing tax credit provisions of Section 42 of the Internal Revenue Code of 1986 (26 U.S.C.A. § 42). This project, which includes the real estate, rents and tax credits, is the only asset owned by Appellant. In order to qualify for the tax credit provisions of the Internal Revenue Code, appellant was required to place certain restrictions on the transfer and use of the property. The restrictions last for thirty (30) years. The property must be rented to qualifying tenants at rentals set by an agreed upon formula. If the property is sold, the new buyer must comply with all restrictions. In addition, Appellant still remains responsible in the event that the restrictions are violated.~ A representative from the general partner of Appellant testified that projects such as this are typically held by the owner until the restrictions have expired. He also testified that, although he is not aware of any such sales, a sale of the property, or a sale of the limited partnership which owns the property, is certainly possible. ~The buyer's failure to comply with those restrictions would result in a retroactive loss of the tax credits. NO. 98-3028 CIVIL TERM In return for the restrictions Appellant receives substantial tax credits for the first ten (10) years of the project. These credits amount to a little over $800,000 per year or approximately $8 million total.2 Appellant converts those tax credits to cash by selling limited partnership interests to investors who then use the tax credits as a dollar for dollar reduction in their federal tax liability. In addition, even with the restrictions, Appellant's projected gross yearly rentals amount to $480,000.3 The parties have stipulated that the common level ratio applicable for 1998 was 7%. They have further stipulated that the common level ratio for 1'999 is 6.8%. The Cumberland County Board of Assessment Appeals ("Appellee") presented evidence to the effect that the original assessments of the properties were made using the rates and tables in effect since the last countywide reassessment in 1974. Cumberland County uses a base year valuation system, with the base year being the year of the last countywide reassessment.4 The original assessments totaled $501,710. Applying the stipulated common level ratio's, the implied market value of the project was $7,169,285 for 1998 and $7,378,089 for 1999. 2The total cost of the project was $7.85 million. 3See Appellant's Exhibit 2. 472 P.S. § 5453.602(a). NO. 98-3028 CIVIL TERM Appellant presented an expert real estate appraiser who gave four different market values for the project. The values ranged from a low of $4,070,000 to a high of $7,750,000. Each market value was based upon a different approach to the valuation of the property. However, only one method of valuation took into account the tax credits received by Appellant. DISCUSSION The well established procedure for a tax assessment appeal is set forth in Deitch Co. v. Board of Property Assessment, 417 Pa. 213, 209 A.2d 397 (1965) as follows: The proceedings in the trial court are de novo and the proper order of proof in cases such as the present one has long been established. The procedure requires that the taxing authority first present its assessment record into evidence. Such presentation makes out a prima facie case for the validity of the assessment in the sense that it fixes the time when the burden of coming forward with the evidence shifts to the taxpayer. If the taxpayer fails to respond with credible, relevan~ evidence, then the taxing body prevails. (emphasis added) 417 Pa. at 221, 209 A.2d at 402. In this instant case the taxing authority presented its assessment record into evidence. Since we believe that Appellant failed to respond with credible evidence as to the fair market value of the property, its appeal must be denied. Of the four approaches to market valuation used by Appellant's expert, only one considered the tax credits received by the owner. Since we conclude that any assessment of the project must consider the tax credits, we must reject three of the four valuation methods as not providing credible evidence of NO. 98-3028 CIVIL TERM the properties' value. Appellant argues that the tax credits should not be considered in determining the fair market value of the property. It points out that the Uniform Standards of Professional Appraisal Practice ("USPAP") Advisory Opinion 14 provides that low income housing tax credits are intangible personal property that should not be taken into account in determining the fair market value of real estate. However, this position ignores both economic realities and the law of this Commonwealth. At the outset we should note that USPAP Advisory Opinion 14 is advisory only. It is technically not part of USPAP and need not be followed to be in compliance with those standards.5 Additionally, it simply does not make sense that an appraiser should ignore the substantial tax credits that the owner is guaranteed to receive for the next ten years. This is especially true when those tax credits are being sold to investors by the owner for cold, hard cash.6 More importantly for our purposes, Appellant's position is directly contra to existing Pennsylvania law. The Commonwealth Court addressed the identical issue in Parkside Townhomes Associates v. Board of Assessment Appeals of York County, 711 ~Appellee · s EXhibit 8. 6The cash flow of the project is more than doubled when the tax credits are factored into the equation. NO. 98-3028 CIVIL TERM A.2d 607 (Pa. Commw. Ct. 1998). It specifically rejected the argument that Section 42 tax credits should not be considered in determining the fair market value of real estate. It recognized that those credits are part of "the economic reality" and that [t]ax related benefits associated with investment property ownership inherently affect value and the court is not constrained to determine FMV as though the property lacked tax shelter features. 711A.2d at 611. Appellant's appraiser considered the affect of the tax credits in only one of the valuation methods he used. The value of the property under that method amounted to $7,750,000, well in excess of that determined by the taxing body. Appellee chose to present no additional evidence as to the fair market value of the property. Rather, it would have us accept the opinion of Appellant's expert that the fair market value of the property is $7,750,000 when the tax credits are considered. However, we were not at all impressed with many of the assumptions upon which the appraiser based these valuations.~ Therefore, we also choose to reject this testimony as not being credible. Since the Appellee failed to present any evidence as to the property value other than the original assessment, and since the Appellant failed to come forward with any credible evidence as to ~For instance, he did not consider the cost of marketing the tax credits when factoring them into his valuation method. We feel t~hat the failure to consider the cost of marketing the credits may have unfairly increased the value he assigned to those credits. NO. 98-3028 CIVIL TERM the correct valuation, the original assessment must stand. The appeal from the various assessments must, therefore, be denied. ORDER AND NOW, this 29TH day of MARCH, 1999, the within appeals from the assessments of tax parcels 32-32-2385-03 through 32-32- 2385-72 are DENIED. By the Court, /s/ Edward E. Guido Edward E. Guido, J. Jeffrey S. Blum, Esquire For the Appellant Stephen D. Tiley, Esquire For the Appellee :sld