Ogden Entertainment Services v. Board of Assessors of the Town of Hadley (December 12, 2000)

COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
OGDEN ENTERTAINMENT SERVICES.	v.    BOARD OF ASSESSORS OF
						   	 THE TOWN OF HADLEY

Docket Nos. F238188			 	Promulgated: 
		  F242126				December 12, 2000	 


These are appeals under the formal procedure pursuant to G.L. c. 59, §§ 64 and 65, from the refusal of the appellee to abate taxes assessed on certain property, located in the Town of Hadley, owned by the Commonwealth of Massachusetts and assessed to the appellant under G.L. c. 59, §  2B, for fiscal years 1996 and 1997.  
Former Chairman Gurge heard the appeal and was joined in the decision for the appellant by Chairman Burns, Commissioners Scharaffa and Gorton and former Commissioner Lomans.
These findings of fact and report are made at the request of the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.

	R. David Back, Esq. for the appellant.
	Patrick J. Costello, Esq. for the appellee.





FINDINGS OF FACT AND REPORT
	The issue in this appeal is whether the assessors of the Town of Hadley ("the assessors") properly assessed real estate taxes for tax years 1996 and 1997 on certain property owned by the University of Massachusetts, Amherst, but operated and managed by a private, for-profit entity.  On the basis of testimony and exhibits introduced at the hearing on the cross motions for summary judgment in these appeals, the Appellate Tax Board ("Board") made the following findings of fact.
The William D. Mullins Memorial Center (the "Mullins Center") is a multi-purpose arena and convocation center located partially in the Town of Hadley and partially in the Town of Amherst.  The Mullins Center is owned by the University of Massachusetts Building Authority (the "Authority") and operated by the University of Massachusetts, Amherst (the "University") under a Contract for Financial Assistance dated October 1, 1988.  The Mullins Center is part of the campus of the University. 
The University entered into a Management Agreement dated   September  28,  1992    with   appellant,     Ogden 

Entertainment Services ("Ogden") for Ogden's provision of 
management services in conjunction with the University's operation of the Mullins Center.  Ogden is a private entity engaged in the business of managing public entertainment facilities.  Under the terms of the Management Agreement, Ogden performs various management services, including event scheduling to ensure "that appropriate concerts, conventions, shows and other programs are booked in to the Center and that suitable press coverage is obtained"; performs marketing and promotional services and "staging" (setting up and tearing down) for each event; provides insurance for the Center; and provides all aspects of maintenance, such as custodial and cleaning services, pest control, trash removal, staffing, concessions services, ticket sales, security and licensing for the operation of the Mullins Center.  The Management Agreement specifies that Ogden's relationship with the University is that of an independent contractor.
The University uses the Mullins Center for various activities, including physical education programs and classes, sporting events, convocation ceremonies, theater productions, concerts and other University events.  In addition to University events, other appropriate events which are open to the public, such as concerts, shows and convocations, are booked into the Mullins Center.  Some of the events previously scheduled have included a diverse variety of productions, such as the World Wrestling Federation matches, David Copperfield magic shows,  craft shows and food fairs, concerts by a wide variety of artists including the Boston Pops, Aerosmith, Primus and Barry Manilow, sports events and theatrical shows such as The Wizard of Oz and Jesus Christ Superstar.  Under the terms of the Management Agreement, these events may not conflict with any scheduled University Fine Arts productions or University basketball or hockey games, and final approval of all such events rests with the University.
Also under the terms of the Management Agreement, Ogden must establish a separate operating account, the Ogden Operating Fund, from which it is required to pay all direct costs of operating the Mullins Center.  The University is required to deposit into this Ogden Operating Fund, before the commencement of each fiscal quarter, sufficient funds to cover the amount by which anticipated expenses are projected to exceed anticipated revenues.  Thus, while Ogden acts as the administrator for the payment of direct operating costs, the University and the Authority are the parties responsible for making the deposits into the Ogden Operating Fund and, therefore, bear the financial responsibility of paying operating expenses.  Accordingly, all direct operating costs connected with the Mullins Center, including any taxes, also flow through to the University and the Authority.
The University does not charge Ogden any type of user fee.  Ogden is paid a flat management fee of $12,000.00 per month for its services, with an allowance for a 5% annual increase.  Ogden is also entitled to an "incentive fee" of 30% of the excess amount of event revenues over $190,000.00 for events held at the Mullins Center which do not involve the University.  However, this "incentive fee" is capped such that it never exceeds 25% of gross revenue in excess of direct operating costs.  All profits and losses from the operation of the Mullins Center flow through to the University and the Authority. 
The University and the Authority retained title and physical possession of the Mullins Center.  There was never a lease between the University and Ogden, and Ogden received no ownership rights to the Mullins Center under the terms of the Management Agreement.  Under the terms of the Management Agreement, the University reserved the right to approve the events held at the Mullins Center, the prices for tickets, prices of items sold and other charges to Mullins Center users, the right to approve Ogden's Annual Budget, and all other rights not expressly granted to Ogden.
The University is a public institution of the Commonwealth.  The Legislature expressly exempted the Authority and all property owned by the Authority from Massachusetts taxation in St. 1960, c. 773, § 15, as amended.  
The assessors issued tax assessments to Ogden for tax years 1996 and 1997 for that portion of the Mullins Center located within the Town of Hadley as a result of Ogden's operation of the Mullins Center.  For tax year 1996, the assessors valued the property at $1,594,359.00 and assessed a tax of $20,025.15 to the appellant.  The assessors issued a preliminary tax bill to Ogden on June 30, 1995, and then issued the tax bill on December 29, 1995.  On January 26, 1996, Ogden paid the balance of the assessed real estate taxes and timely filed an application for abatement with the assessors.  The assessors did not send written notice of their decision to Ogden and, therefore, the application was deemed denied on April 26, 1996.  On July 26, 1996, Ogden timely filed its appeal with this Board for tax year 1996.
	For tax year 1997, the assessors valued the property at $1,500,569.67 and assessed a tax of $19,597.44 to the appellant.  The assessors issued the tax bill to Ogden on December 31, 1996.  On January 17, 1997, Ogden paid the assessed real estate taxes and timely filed an application for abatement with the assessors.  Ogden received a written notice, dated April 22, 1997, that the application had been deemed denied on April 17, 1997.  On June 11, 1997, Ogden timely filed its appeal with this Board for tax year 1997.  On the basis of the foregoing, the Board found it had jurisdiction to hear these appeals involving tax years 1996 and 1997.
For the reasons stated in the Opinion which follows, the Board found that Ogden was not subject to real estate tax under G.L. c. 59, § 2B, because the property was owned by the Commonwealth, and Ogden neither "used" the Mullins Center in connection with the operation of a business nor "leased or occupied" it for "other than public purposes."  Rather, Ogden merely operated the property on behalf of the University and Authority.  Accordingly, the Board issued a decision for the appellant in these appeals and granted abatements of tax in the amounts of $20,025.00 for fiscal year 1996 and $19,597.44 for fiscal year 1997.

OPINION
	The issue in this appeal is whether the Mullins Center is "used in connection with a business conducted for profit or leased or occupied for other than public purposes" by Ogden, such that the appellee properly assessed real estate taxes to Ogden.  G.L. c. 59, § 2B provides in pertinent part that:
. . . [R]eal estate owned in fee or otherwise or held in trust for the benefit of the United States, the commonwealth, or a county, city or town, or any instrumentality thereof, if used in connection with a business conducted for profit or leased or occupied for other than public purposes, shall for the privilege of such use, lease or occupancy, be valued, classified, assessed and taxed annually . . . in the same manner and to the same extent as if such user, lessee or occupant were the owner thereof in fee  . . . . (Emphasis added). 

The Board found that G.L. c. 59A, § 2B did not apply to Ogden, because Ogden did not "use", "lease" or "occupy" the Mullins Center.  As stated in the Management Agreement, Ogden was not "using" the property at all, but merely contracting to supply the University and Authority with management services for the use and occupancy of the Mullins Center by the University and the Authority.  The appellee cites as the legislative intent behind the enactment of § 2B the need to close a "loophole" whereby for-profit businesses operating on public property would avoid paying local taxes, thus securing an unfair advantage vis-à-vis competing businesses operating on private property.  The Board agrees that the statute "shows an intent that municipalities have for their purposes real estate tax revenue from land devoted by occupants to the uses of their businesses, even though owned by the Commonwealth."  Atlantic Refining Co. v. Assessors of Newton, 342 Mass. 200, 206-07 (1961).  However, the Board found that the specific situation presented in these appeals did not fall within the rubric of the legislative intent even as characterized by the appellee.  Here, Ogden is merely providing contractual management services for a property that is both owned and controlled by the Authority and the University.  As described in the Findings above, the Management Agreement specifies that the University and Authority retain ultimate control over the use of the Mullins Center, from the approval of all events scheduled, ticket prices and all other prices paid by customers and Ogden's Annual Operations Budget, to payment of all operating expenses and deficiencies, including taxes.  
Moreover, all profits and losses flow through to the University.  Ogden was not liable for losses and was not charged a user fee for its management activities at the Center.  Ogden merely received a flat management fee for its services.  The 5% annual increase provided for in the management fee was akin to a cost-of-living increase, and did not reflect any share in profits or losses through the operation of the Mullins Center.  Even the "incentive" fee it received was capped, indicating that Ogden's compensation, unlike that of a true owner or user for profit, was not directly tied to the profits and losses of the Mullins Center.  Rather, as an independent contractor, its compensation was tied to its performance of services.  The Board thus found that the flow-through of profits and liabilities to the University and the Authority, together with their retention of control over the use of the Mullins Center, indicated that it was the University and the Authority which "used" or "occupied" the Mullins Center.  
Furthermore, Ogden's performance of certain ministerial services did not result in the use of public property for private enterprise, but rather furthered the legitimate use for which the Mullins Center was established.  Ogden was engaged by the Authority, the owner of the property, to perform certain managerial and administrative functions which the University would otherwise need to perform itself.  In this respect, the Board found Ogden's relationship to the Mullins Center to be like that of a janitor, plumber, food concessionaire or other independent contractor.  Surely, it could not reasonably be argued that a service provider such as a janitor, plumber or consessionaire should be assessed a real estate tax based on the fact that it "uses" the facility to make a profit.  Similarly, Ogden, by taking on these service obligations and others, did not thereby become a "user" subject to real estate taxes when the governmental owner, in an effort to maximize the use of its facility for the public good, hired Ogden to perform these services subject to the owner's ultimate approval and control.  See Miller v. Commissioner of the Department of Environmental Management, 23 Mass.App.Ct. 968, 969-70 (1987)(where a ski facility owned by the Commonwealth but operated by for-profit entity serves a public purpose, even though "the arrangement is a commercial one," because "[a] private entity experienced in making artificial snow and managing cross country skiing facilities is an appropriate party to operate such a facility.  Such an entity would not be expected to undertake the responsibility without an arrangement for fees and some expectation of exclusivity").  
Moreover, as the Board recently found in MCC Management v. Board of Assessors for the City of New Bedford, the engagement of an independent for-profit entity to perform contractual services may actually be necessary to serve a public purpose.  See Id. at 903, citing Miller, supra.
While it is not dispositive, the Board found persuasive the Internal Revenue Service's treatment of management service contracts such as Ogden's as not resulting in a private business use of the property.  See Rev. Proc. 97-13, I.R.B. 1997-5 (management service contracts will not result in private business use under Internal Revenue Code § 141(b) where contract is "for services that are solely incidental to the primary government function" including "contracts for janitorial, office equipment repair, hospital billing or similar services" and compensation not based on share of net profits from operation of facility).  
In addition, the Board also found that the Mullins Center was not properly assessed by the appellee, because the Legislature had expressly exempted the Authority and its property from taxation via St. 1960, c. 773, § 15.  That provision, entitled "Exemption from Taxation," provides in relevant part:
The exercise of the powers granted by this act will be in all respects for the benefit of the people of the commonwealth, and for the promotion and improvement of public education in the commonwealth, and as the construction, operation and maintenance of projects by the Authority will constitute the performance of essential governmental functions, the Authority shall not be required to pay any taxes or assessments upon any property acquired or used by the Authority under the provisions of this act or upon the income therefrom . . . . (Emphasis added).

Accordingly, the explicit language of the exemption requires that the construction, operation and maintenance of Authority projects, which would include the Authority's construction, operation and maintenance of the Mullins Center, will "in all respects" be "for the benefit of the people of the commonwealth," particularly in "the promotion and improvement of public education in the commonwealth."  The Board found, and the assessors did not dispute, that the use of the Mullins Center for University-sponsored events, such as use by the athletic teams and other University programs, was activity within the intended scope of the exemption in § 15.  The issue raised by the assessors, however, is whether use of the Mullins Center for activities sponsored by outside parties, such as World Wrestling Federation and Aerosmith performances, fell outside the scope of the public purpose for which the Authority was created. 
The Board found that the various uses of the Mullins Center did not fall outside the scope of the public purpose for which the Authority was created.  As the Supreme Judicial Court has long recognized, "[e]ducation is a broad and comprehensive term."  Mount Hermon Boys' School v. Inhabitants of Gill, 145 Mass. 139, 146 (1887).  In recognition of the "broad and comprehensive" nature of education, the Legislature has specifically provided with respect to the University that "[t]he major purpose of the university shall be to provide, without discrimination, public service, research, and educational programs, including continuing education services, in the liberal arts and sciences and in the professions . . . ."  G.L. c. 75, § 2.  The Board of Trustees of the University has determined that the Mullins Center fulfills the University's public service role:
"public service" encompass the provision of educational and cultural programs to the public at large and the enhancement of opportunities within the geographic areas served by the University for members of the public and students of the University to attend, at reasonable prices, lectures, concerts, festivals, exhibitions, immense diversity of ideas and concepts, artistic creativity, performance techniques and musical and other artistic styles in the United States and throughout the world, thereby increasing awareness and appreciation both of the diversity of our cultural heritages and our common ties as men and women devoted to the enrichment of our lives and the affirmation of understanding and good will among cultures and people throughout the world . . . . 
Resolution of the Board of Trustees, February 3, 1993 (Emphasis added).

The University Board of Trustees, in implementing the Legislature's statutory directive regarding the purpose of the University, has chosen to define its "public service" mandate by offering both students and the public at large an opportunity to attend a variety of events that promote an "immense diversity of ideas and concepts" and "thereby increasing awareness and appreciation" of the diversity of the culture in which the University is a part.  
It is a well-established principle that an agency of government is to be given discretion in the implementation of a general and broad statutory directive.  See, e.g., L.G.G. v. Department of Social Services, 429 Mass. 1008 (1999)("Where the means of fulfilling [a legal] obligation is within the discretion of a public agency, the courts normally have no right to tell that agency how to fulfil its obligation"), quoting Matter of McKnight, 406 Mass. 787 (1990).  While the assessors argued that World Wrestling Federation and Aerosmith concerts fall outside the scope of "education," the Board found that the Board of Trustees' determination that the diverse range of activities offered by the University at the Mullins Center carried out its "public service" role, in a manner that was "without discrimination" and consistent with the performance of its governmental function for the public benefit and improvement of public education in the Commonwealth under G.L. c. 75, § 2.  "There may be an honest difference of opinion among persons of good judgment, as to whether it is wise to use real estate in a particular way for its direct effect in promoting the purposes for which an educational corporation was established.  In such cases the managing directors have the responsibility and duty of deciding  .... [A] decision within the limits of reasonable determination should be given effect."  Emerson v. Trustees of Milton Academy, 185 Mass. 414, 415 (1904).  See also, Cummington School of the Arts, Inc. v. Bd. Of Assessors of Cummington, 373 Mass. 597, 603 (1977)(Supreme Judicial Court "recognized an institution's entitlement to exemption even where its educational goals were not within traditional areas of education"), citing, inter alia, Newton Centre Woman's Club, Inc. v. Newton, 258 Mass. 326, 330-31 (1927)(affirming public support for numerous civic activities, including a music school and free art exhibitions).
Furthermore, the fact that an admission fee is charged to patrons of events does not negate the public purpose of the Mullins Center.  For example, the United States District Court for the Eastern District of Pennsylvania found that the publicly-owned skating rink where the Philadelphia Flyers play hockey served a public use of the property, even though the facility charged admission fees:  "By providing the public with amusement, pleasure, and entertainment, the municipally owned Spectrum clearly is public property used for public purposes."  In re Spectrum Arena, Inc., 330 F.Supp. 125, 127 (E.D.Pa. 1971).  Here, too, while the Mullins Center charges admission for its events, the "reasonable prices" do not negate the public purpose served by the use of the property in bringing diverse cultural events to students and the community surrounding the University. 
Finally, under the terms of the Management Agreement, any tax liability imposed on Ogden would flow through to the University and the Authority.  Thus, a tax liability assessed to Ogden would result in a tax imposed on the University and the Authority, in contravention of the clear Legislative intent to exempt from taxation the property of the Authority and University.  Because the Legislature intended to exempt the Mullins Center from taxation, the Board found that this exemption was also intended to extend to an entity such as Ogden which provided services on behalf of the Authority's ownership and the University's operation of the Mullins Center; otherwise, the exemption would not achieve its intended purpose.  See Board of Assessors of Newton v. Pickwick Ltd., Inc., 351 Mass. 621, 625 (1967) ("The authority, by indemnifying the leaseholder by statutory fiat or by the terms of a lease, would, in effect, be paying taxes on its property.  Such a construction would completely negate the Legislature's intent to exempt all of the authority's property from taxation . . . and is to be avoided"). 
Based on the foregoing, the Board ruled that Ogden was not subject to real estate tax under G.L. c. 59, § 2B.  Accordingly, the Board issued a decision for the appellant in these appeals.

					      APPELLATE TAX BOARD	
							
By:____________________________
					    Abigail A. Burns, Chairman




A true copy:



Attest: _____________________
	    Clerk of the Board
						

   This management agreement was subsequently amended on January 12, 1995 and June 4, 1997.

ATB 2000-978