Scott E. Kamholz & Karen Levine Kamholz v. Board of Assessors of the City of Newton (January 25, 2012)

Commonwealth of Massachusetts
Appellate Tax Board
 

Scott E. Kamholz &		    v.  		 Board of Assessors of
Karen Levine Kamholz               	 the city of newton 
							   
Docket No. F298824					 Promulgated:
								 January 25, 2012


	This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the Board of Assessors of the City of Newton ("assessors" or "appellee") to abate a supplemental tax assessed on certain property owned by and assessed to Scott E. and Karen Levine Kamholz ("appellants") under G.L. c. 59, § 2D for fiscal year 2008 ("fiscal year at issue").
	Chairman Hammond heard this appeal and was joined by Commissioners Scharaffa, Egan, Rose, and Mulhern in the decision for the appellants.  
	These findings of fact and report are made pursuant to a request by the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32. 

	Scott E. Kamholz, pro se, for the appellants.
	James Shaughnessy, assistant assessor, for the appellee.

	
Findings of Fact and Report
     Based on the agreed statement of facts, testimony, and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board ("Board") made the following findings of fact.  
On January 1, 2007, S.Z. Realty LLC ("SZR") was the assessed owner of a 0.34-acre parcel of land improved with a single-family residence located at 377 Cherry Street in Newton and identified as parcel 33024-0017 for assessing purposes.  The assessors valued 377 Cherry Street as of January 1, 2007 at $513,700 for the fiscal year at issue.  
On July 5, 2007, SZR recorded a Condominium Master Deed in the Middlesex South Registry of Deeds and legally converted the dwelling located at 377 Cherry Street into two condominium units: the subject property, with an address of 375 Cherry Street (the "subject property") and 377 Cherry Street.  On June 29, 2007, six days prior to the recording of the Master Deed, SZR was issued an occupancy permit for the subject property.  On July 31, 2007, SZR sold the subject property to the appellants for $860,000.  
On June 20, 2008, the assessors gave notice to the appellants of a supplemental tax pursuant to G.L. c. 59, § 2D (the "Notice").  The Notice reflects that the assessors took the following steps in calculating the supplemental tax:
determined a value for the subject property prior to its establishment as a condominium of $256,900 (roughly one-half of the $513,700 original assessed value of the 375 Cherry Street single-family residence);

determined a value of $774,000 for the subject property after conversion to a condominium unit;

determined that the value of the subject property had increased by $517,100 ($774,000 - $256,900);

applied the fiscal year 2008 tax rate of $9.70/$1,000 to the $517,100 increase in value to determine a supplemental tax for the entire fiscal year of $5,015.87;

determined that the supplemental tax should be applicable for the entire fiscal year (365 days) and therefore the pro rata amount of the supplemental tax was the full $5,015.87;

added a Community Preservation Act Surcharge of 1 percent ($50.16) to the supplemental tax to arrive at a total supplemental tax due of $5,066.03

	Appellants timely paid the supplemental tax without incurring interest and timely filed an abatement application with the assessors on July 18, 2008.  The assessors denied the appellants' abatement application on August 4, 2008 and the appellants filed their appeal of the denial with the Board, postmarked on November 3, 2008.  Based on the foregoing, the Board found and ruled that it had jurisdiction to hear and decide this appeal.  
	The appellants did not challenge the assessors' valuation of the subject property.  Rather, the appellants' sole argument was based on the fact that they did not take title to, and therefore did not occupy, the subject property until July 31, 2007.  Accordingly, the appellants argued that the supplemental tax could not be levied under G.L. c. 59, § 2D(a)(2) because that statute expressly applies only in instances where occupancy of the property takes place between January 1 and June 30.  The appellee, on the other hand, interpreted the statute to apply in instances where an occupancy permit is issued between January 1 and June 30.  
	For the reasons discussed more fully in the following Opinion, the Board found and ruled that the plain language of § 2D establishes a supplemental tax with two components: 1) a pro rata tax for the fiscal year in which the improvement takes place and an occupancy permit is issued; and 2) a pro forma tax for the succeeding fiscal year where "the occupancy" takes place between January 1 and June 30.  
With regard to the first component, an occupancy permit for the subject property was issued on June 29, 2007, the day before the end of fiscal year 2007.  The appropriate supplemental tax calculation would first determine the fiscal year 2007 tax on the increased value of the subject property resulting from any new construction by multiplying the increase in value by the fiscal year 2007 tax rate and then determine the pro rata amount by multiplying the fiscal year 2007 tax on the increased value by the fraction 1/365.  
Although the occupancy permit was issued in fiscal year 2007, the assessors did not compute a fiscal year 2007 supplemental tax.  At the hearing of this appeal, the assistant assessor testified that no fiscal year 2007 supplemental was calculated because there was only one day left in the fiscal year and the amount of the tax was de minimis.  Instead, using the occupancy permit date of June 29, 2007, the assessors assessed a fiscal year 2008 supplemental tax based on the fiscal year 2008 tax rate and the fraction 365/365.
The Board found and ruled that the statute did not authorize the assessment of the supplemental tax at issue.  First, a necessary precondition for the imposition of a § 2D(a) supplemental assessment is that the subject real estate must be "improved in assessed value by over 50 percent by new construction."  The record in the present appeal is devoid of any evidence of construction on the subject property.  Instead, the only change in the subject property to account for its increase in value that is reflected in the record was its legal conversion into a condominium unit.  Because § 2D provides for a supplemental tax only where the increase in assessed value is due to new construction, the Board found and ruled that the subject assessment was not authorized by the statute.  
Moreover, the subject assessment is also invalid because the assessors failed to follow the statutory language in assessing the supplemental tax.  The pro rata component of the § 2D supplemental tax is applicable to the fiscal year in which the occupancy permit is issued, in this case fiscal year 2007.  The assessors assessed no pro rata assessment for fiscal year 2007.  The fact that there was only a short time remaining in the fiscal year does not mean that the assessors can ignore the clear requirements of the statute.
The assessors purported to assess a pro rata supplementary tax for the year succeeding the fiscal year in which the improvement was made and the occupancy permit was issued.  However, it is the second component of the § 2D supplemental tax that applies to the year following the issuance of an occupancy permit, in this case fiscal year 2008.  Section 2D provides that the supplemental tax for the succeeding fiscal year is applicable only where "the occupancy taxes place between January 1 and June 30." (emphasis added).  There was no evidence of record concerning the occupancy of the subject property between January 1 and June 30; although an occupancy permit was issued on June 29, there is no indication in the record that the subject property was occupied prior to the appellants' purchase of the property on July 31, 2007.  Accordingly, there was no basis to assess a tax for the "succeeding fiscal year" based on the record in this appeal.  
	Accordingly, the Board issued a decision for the appellants in this appeal and granted an abatement in the amount of $5,066.03.      

OPINION
Under G.L. c. 59, § 2D(a), whenever any real estate "improved in assessed value by over 50 per cent by new construction" is issued an occupancy permit after January 1 in any year, the owner must pay as a supplemental tax an amount that reflects what "would have been due for the applicable fiscal year" if the property were so improved on the January 1 "assessment date for the fiscal year in which the occupancy permit issued." 
As a threshold matter, § 2D authorizes the assessors to impose a supplemental tax only where the increase in assessed value of the subject property results from "new construction."  The term "construction" is not defined in the statute, but statutory language, when clear and unambiguous, must be given its ordinary meaning.  Bronstein v. Prudential Ins. Co. of America, 390 Mass. 701, 704 (1984).  Where the language of a statute is "plain, it must be interpreted in accordance with the usual and natural meaning of the words."  In re Valuation of MCI Worldcom Network Services, 454 Mass. 635, 650 (2009)(quoting Household Retail Services, Inc. v. Commissioner of Revenue, 448 Mass. 226, 229 (2007)).  
There is nothing ambiguous about the word "construction" in § 2D; it plainly means the erection or physical alteration of a building or other structure. See, e.g. Black's law dictionary 355 (9th ed. 2009) (defining "construction" to mean the "act of building by combining or arranging parts or elements.").  
In the present appeal, there was no evidence that any new construction took place on the subject property.  The record did not contain evidence of any new building, remodeling or other physical alteration of the subject property; the only change was the conversion of a single-family residence into two separate condominium units.  Although the Master Deed creating the condominium and the occupancy permit issued for the subject property were introduced into evidence, neither those documents nor any testimony provided evidence of any new construction.  Although the legal conversion of the property into condominium units may have increased the value of the subject property, that increase was not due to "new construction" and, therefore, § 2D did not authorize the subject assessment.
In addition, the assessors' application of § 2D to the facts of this case was flawed.  The amount of the supplemental tax under §2D(a)(1) and (2) is computed as follows:
A real estate tax based on the assessed value of the improvement for the fiscal year in which such improvement and issuance of an occupancy permit occurred allocable on a pro rata basis to the days remaining in the fiscal year from the date of the issue of the occupancy permit to the end of the fiscal year; and 

A real estate tax based on the assessed value of the improvement for the succeeding fiscal year where the occupancy takes place between January 1 and June 30 of any year.

The statute authorizes two types of supplementary taxes: a pro rata supplementary tax under § 2D(a)(1) ("pro rata tax") for the fiscal year during which an occupancy permit is issued and a pro forma supplementary tax under § 2D(a)(2) ("pro forma tax") for the succeeding fiscal year.  See also Massachusetts Department of Revenue's Information Guideline Release ("IGR") 03-209.  The pro rata tax allows assessors to capture the increase in value from new construction for the remaining part of the fiscal year after an occupancy permit is issued; the pro forma tax allows assessors to value property for the fiscal year after the occupancy permit issues as if it were so improved on the relevant valuation date, provided that the occupancy takes place between January 1 and June 30.  
The reason that the occupancy date is limited to the period between January 1 and June 30 - the second half of any fiscal year -- is that there would be no need for a pro forma assessment where the improvement and occupancy occur during the first half of a fiscal year, between July 1 and December 31: when the improvement is made and the occupancy permit is issued in the first half of the fiscal year, a pro rata assessment would be assessed for the remainder of the fiscal year in which the occupancy permit issued and, since the improvement would be already in place as of January 1 - the mid-point of the current fiscal year and the valuation date for the succeeding fiscal year - the value of the improvement is included in the assessment for the succeeding fiscal year without the need of a § 2D pro forma tax.  
In the present appeal, because an occupancy permit for the subject property was issued on the second-to-last day of fiscal year 2007, § 2D (a)(1) authorizes a pro rata tax for fiscal year 2007, provided the other requirements of the statute were met.  However, the assessors did not assess a fiscal year 2007 pro rata tax, since they determined that the supplemental tax amount for the one day remaining in the fiscal year was de minimis.  Regardless of the size of the pro rata tax for fiscal year 2007, however, it is the only pro rata tax under § 2D that can be assessed because it is the fiscal year during which the improvement was made and the occupancy permit was issued.  The assessors' purported assessment of a pro rata tax for fiscal year 2008 is therefore invalid.
Further, the assessors could not assess a pro forma tax for fiscal year 2008 on the facts of this appeal.  The pro forma assessment under § 2D(a)(2) is based on "the assessed value of the improvement for the succeeding fiscal year where the occupancy takes place between January 1 and June 30 of any year."  (emphasis added).  The pro forma assessment therefore deals with the fiscal year following the fiscal year during which the improvement to real estate is made and the occupancy permit is issued and treats the improvement as having been made on the January 1 assessment date.  
However, unlike the pro rata tax computation under § 2D(a)(1), the pro forma tax computation under § 2D(a)(2) refers to the date of "occupancy" not the issuance of an occupancy permit.  Moreover, in § 2D(a) and (b) there are multiple references to the issuance of an occupancy permit; the only part of § 2D which refers to the date of "occupancy" is the pro forma tax computation under § 2D(a)(2).  
In interpreting a statute, the words used by the Legislature must be given effect.  See Mass. Broken Stone Co. v. Town of Weston, 430 Mass. 637, 640 (2000)(rejecting effort to substitute alternative words for the plain words of the statute because the "Legislature did not say subdivision shown or lot shown, it said 'land shown.'").  Moreover, when construing a statute, it is presumed "that the Legislature intended what the words of the statute say."  Mass. Care Self-Ins. Group, Inc. v. Mass. Insurers Insolvency Fund, 458 Mass. 268, 275 (2010).  
In the present appeal, there is no evidence concerning the occupancy of the subject property at any time prior to the appellants' purchase of the unit on July 31, 2007.  Although an occupancy permit was issued on June 29, 2007, there is nothing to indicate, in the absence of evidence of actual occupation, that the date of issuance of an occupancy permit should be deemed to be the date of "occupancy" for purposes of § 2D.  The Legislature certainly could have referred to the issuance of an occupancy permit in § 2D(a)(2) as it did throughout the rest of § 2D, but chose not to; § 2D must be interpreted according to the words the Legislature chose to use and it cannot be presumed that it meant to say something else.  See Bronstein, 390 Mass. at 704; Mass. Care Self-Ins. Group, Inc., 458 Mass. at 275.
It is not clear why the Legislature would require actual occupancy, as opposed to the issuance of an occupancy permit, to trigger the pro forma tax, considering the administrative difficulty it creates for assessors who must determine when there is an actual occupation of property.  However, it is clear that the Legislature explicitly used the phrase "occupancy takes place" in subsection (a)(2) in contrast to the other references in § 2D to the issuance of an occupancy permit.  It is not for the Board, however, to speculate as to possible legislative intent or to ignore the plain words of the statute, much less assume that the legislative language was a mistake.  See CFM Buckley/North LLC, et al v. Assessors of Greenfield, et al, 453 Mass. 404, 409 (2009)(ruling that the court "cannot interpret a statute so as to avoid injustice or hardship if its language is clear and unambiguous and requires a different construction"). Changing statutory language and addressing administrative difficulties are proper subjects for legislative action and are not part of the Board's function to interpret the relevant statutory language.  
Based on the foregoing, the Board issued a decision for the appellants in this appeal and granted a full abatement in the amount of $5,066.03.   

				          APPELLATE TAX BOARD 	 


					By: __________________________________
						Thomas W. Hammond, Jr., Chairman

A true copy, 
Attest: __________________________
		  Clerk of the Board 

 The appellants' petition was mailed in an envelope postmarked November 3, 2008 which was received by the Board on November 5, 2008.  Where, as here, the Board receives a petition after the expiration of the three-month appeal period, the date of postmark is deemed to be the date of filing. G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 & 65. Accordingly, the Board found and ruled that the filing date of the petition was deemed to be November 3, 2008 and therefore the appellants' appeal was timely. 
 The allocation fraction has as its numerator the number of days remaining in the fiscal year and as the denominator the total number of days in the year. 
 In addition to the supplemental tax authorized by G.L. c. 59, § 2D, there is another statutory mechanism for assessors to reach the value of new construction between January 1 and June 30.  See G.L. c. 59, § 2A (a).  Section 40 of Chapter 653 of the Acts of 1989 ("Ch. 653"), amending G.L. c. 59, § 2A (a), allows cities and towns to assess "buildings and other things erected on or affixed to land" between January 2 and June 30. See also IGR 90-401.  However, § 2A requires that the city or town accept its provisions to be effective. The parties in this appeal stipulated that Newton has not adopted § 2A and therefore that method of supplemental assessment is not at issue in this appeal.  

 The assessors' failure to assess a supplemental tax for fiscal year 2007 and their calculation of the fiscal year 2008 supplemental tax as reflected in the Notice showing that the assessors used 365 as the number of days from the issuance of the occupancy permit to June 30 and a pro rata fraction of 365/365 indicate that the assessors assessed a pro rata supplemental tax for fiscal year 2008.

ATB 2012-15