Keith A. Mann v. Board of Assessors of the Town of Plymouth (November 26, 2001)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD

KEITH A. MANN			v.		BOARD OF ASSESSORS OF 
					THE TOWN OF PLYMOUTH


Docket Nos. F256305				Promulgated: 
  		  F256308 			November 26, 2001
  F256309	
							

	These are consolidated appeals under the formal procedure, pursuant to G.L. c. 59, §§ 64 and 65, from the refusal of the appellee to abate taxes on certain real estate located in the Town of Plymouth, owned by and assessed to the appellant under G.L. c. 59, § 38 for fiscal year 2000. 
	Commissioner Rose heard these appeals.  Chairman Burns and Commissioners Scharaffa, Gorton and Egan joined him in the decisions for the appellee.
	These findings of fact and report are promulgated on the Board's own motion pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.
	
Francis A. DiLuna, Esq. for the appellant.

Louise W. Hatch, Assessor, for the appellee. 


FINDINGS OF FACT AND REPORT

	On January 1, 1999, Keith A. Mann ("appellant") was the assessed owner of three parcels of real estate, referred to as the Garland, Plateau and Nye lots, located in the Town of Plymouth.  The Board of Assessors of Plymouth ("Assessors") identified the Garland lot as Map 129, Lot 2A, the Plateau lot as Map 129, Lot 2B and the Nye lot as Map 129, Lot 3.   
The appellant is the President and operator of Mann Farms, Inc. ("Mann Farms"), an agricultural business enterprise that operates and manages a total of 135 acres of cranberry bogs in southeastern Massachusetts, including those within the parcels at issue.  As a participant in the Ocean Spray Cooperative, Mann Farms has a five-year agreement to sell its entire crop exclusively to the Cooperative at prices determined by the Cooperative.  By the terms of its agreement with the Cooperative, Mann Farms is precluded from selling to any other purchasers. 
On September 2, 1998, pursuant to the provisions of G.L.c. 61A, § 6, the appellant  timely  filed  applications for  its  fiscal year 2000 agricultural land classification  for all three parcels at issue.  These applications were deemed allowed as of December 31, 1998.  For the tax year at issue, therefore, the three subject parcels were valued, assessed, and taxed by the Assessors as agricultural land under the provisions of G.L. c. 61A.
The Garland lot, consisting of 211.13 acres, is comprised of 44.61 acres of cranberry bog, 43.19 acres of related land and 123.33 acres of woodland.   The Assessors valued the Garland lot at $1,152,790 and assessed taxes thereon at a rate of $17.48 per thousand in the amount of $20,150.77.  The appellant timely filed an application for abatement on February 11, 2000.  The Assessors granted a partial abatement of $1,565.95 on April 11, 2000.  Not satisfied with this determination, the appellant filed his petition with the Appellate Tax Board ("Board") on May 10, 2000.  On this basis, the Board found that it had jurisdiction over the Garland lot appeal.
The Plateau lot, consisting of 44.50 acres, is comprised of 21.27 acres of cranberry bog and 23.33 acres of woodland and related land.  The Assessors valued the parcel at $101,396 and assessed taxes thereon at a rate of $17.48 per thousand in the amount of $1,772.29.  The appellant timely filed his abatement application on February 11, 2000, which was denied on April 11, 2000.  The appellant filed his petition with this Board on May 10, 2000.  On this basis, the Board found that it had jurisdiction over the Plateau lot appeal.
The Nye lot, consisting of 19.50 acres, is comprised of 13.71 acres of cranberry bog, 3.98 acres of related land, and 1.81 acres of woodland.  The Assessors valued the Nye lot at $290,474 and assessed taxes thereon at the rate of $17.48 per thousand, in the amount of $5,077.49.  The appellant timely filed his application for abatement on February 11, 2000.  The Assessors granted a partial abatement of $842.37 on April 11, 2000.  Not satisfied with this determination, the appellant filed his petition with this Board on May 10, 2000.  On this basis, the Board found that it had jurisdiction over the Nye lot appeal.
	The Assessors' valuations for the parcels at issue were based upon the range of values promulgated by the Massachusetts Farmland Valuation Advisory Commission ("FVAC") for fiscal year 2000.  The FVAC's range of values for agricultural land used for cranberry production is based on a five-year average value of cranberry bogs in the Commonwealth.  The fiscal year 2000 values, which reflect a January 1, 1999 valuation date, are based upon industry income and expense information averaged for the five year period running from calendar years 1993 through 1997, with the highest and lowest year figures dropped from the calculation.  The FVAC received this information sometime in the spring of 1998.  The per-acre range of values established by the FVAC for fiscal year 2000 is as follows:


Production level (barrels/acre)	Above average		Average	Below Average
Cranberries				> 162			110-162	< 110

Effective tax rate: 
  Low (single rate)			$21,085		$17,570	$14,055
  High	(split rate)			$19,200		$16,000	$12,800
												

Permanent Pasture
Woodland				$215			$180		$145
Necessary Related lands	
_______________________________________________________________________________

Non-productive land			$55			$45		$35


The appellant, however, argued that the parcels at issue should have been valued outside the guidelines promulgated by the FVAC for fiscal year 2000.  The appellant also asserted that the parcels' estimate of value should be derived from an income capitalization methodology, with net operating income based on a five year average of actual income and expenses from Mann Farms and with a capitalization rate that accurately reflects the risks inherent in cranberry production in Massachusetts.   
David Mann, Director of Mann Farms, former Director of Ocean Spray for thirty years, and long-time cranberry grower, testified on behalf of the appellant.  Mr. Mann testified that the Massachusetts cranberry industry has been experiencing a severe market crisis since 1997.  He attributed the market crisis to cranberry surpluses coupled with a sharp decline in the market price of cranberries.  He testified that Ocean Spray Cooperative's payment for the 2000 cranberry pool was $12.75 per barrel, a price that was thirty-eight percent lower than 1980s' prices.  In contrast, Mr. Mann asserted that farmland values increased 1,218 percent over that same time period.  He further maintained that the FVAC's values, while appropriately used to assess farmland in a normal economic market, were inappropriately used for the market crisis existing during the fiscal year at issue.  
Jay Slattery, Executive Director of the Massachusetts Farm Bureau, a member of the FVAC's "Technical Subcommittee" since 1978, whom the Board qualified for purposes of the hearing as an expert in the valuation of agricultural and forestry lands, also testified on behalf of the appellant.  The Technical Subcommittee, according to Mr. Slattery, is the body responsible for compiling information that relates to farmland values that are then utilized by the FVAC in determining its value guidelines.  The FVAC's value guidelines were originally formulated utilizing an income capitalization methodology.  Sometime in the early 1990s the FVAC surveyed a percentage of cranberry growers in the region to create cranberry industry income and expense profiles to be used in determining statewide industry averages.  The capitalization rate selected by the FVAC was based on a rate appropriate for rental income, a selection that was, in his opinion, a "political compromise."  Mr. Slattery opined that such a rate was inappropriate because rental income typically represented a steady and predictable income stream, although it "worked well enough" in a strong cranberry market.  While admitting to being a "thorn in everyone's side from the standpoint of the cap[italization] rate," Mr. Slattery testified that he has unsuccessfully argued to the Technical Subcommittee that any capitalization rate selected should factor in depreciation, taxes and the inherent risks in agricultural production because agricultural land does not have a predictable income stream.   Mr. Slattery did not offer an opinion of value of the subject parcels.
The appellant, Keith Mann, testified to the identifiable reasons for a determination of value outside the FVAC's guidelines.  In this regard, he testified to the disparity between the record high assessments for the fiscal year at issue coupled with the record low per- barrel price for cranberries of $10.75.  He also provided opinion testimony regarding the operational efficiency of Mann Farms.  
The appellant also relied on the testimony and appraisal report of Leslie Gosule, a certified public accountant and certified valuation analyst, to support his overvaluation claim.  He provided testimony regarding an estimate of the parcels' value pursuant to an income capitalization approach.  Mr. Gosule testified extensively as to the appropriate development of a capitalization rate that, in his opinion, properly factored in the risks inherent in cranberry production.  His capitalization rate was considerably higher than the 12.45 percent capitalization rate used by the FVAC.  Based on his analysis for the fiscal year at issue, Mr. Gosule estimated the value of the Garland bog at $373,029, the Plateau Bog at $103,393 and the Nye Bog at $164,438.  
The Board found, however, that Mr. Gosule's income capitalization methodology valued Mann Farm's business enterprise value rather than the underlying real estate's earning capacity or use value.  Mr. Gosule failed to demonstrate the applicability of such an analysis to real estate valuation.  Mr. Gosule also did not even attempt to extrapolate the value of the subject real estate from the proffered business value of Mann Farms.  Because of these deficiencies, the Board placed minimal weight on Mr. Gosule's opinions of value.  
In the present appeals, the Board found that the appellant identified some specific factors that could support  a  determination  of the parcels' value outside the range of values promulgated by the FVAC for fiscal year 2000.  The appellant established that there was a time difference between the assessment date for the parcels at issue, January 1, 1999, and the five-year time period of 1993 through 1997 relied upon by FVAC to determine average farmland income and expenses used to develop its fiscal year 2000 values.  The appellant also provided evidence of a decrease in cranberry prices during the relevant time period.  The appellant also showed that in its determination of its fiscal year 2000 valuation guidelines, the FVAC did not consider income and expense information from 1998 onward and also excluded figures for 1997, the lowest five-year income and expense figures during the relevant five-year period, in determining fiscal year 2000 values.  
However, the Board found that the appellant failed to provide a credible methodology to estimate the value of the parcels at issue for fiscal year 2000.  The Board found that the income capitalization methodology relied upon by the appellant's witness was defective because it presented an estimate of value of Mann Farms as a business enterprise rather than an estimate of value of the earning capacity or use value of the underlying real estate.  The appellant's witness failed to extrapolate the real estate value from the business value.  Consequently, the appellant's real estate values, based solely on the business value of the enterprise, were unreliable and therefore without merit.  
Accordingly, the Board found and ruled that the appellant failed to provide any credible estimate of value for the parcels at issue.  The Board, therefore, found that the appellant failed to meet his burden of proving that the subject parcels were overvalued for fiscal year 2000. 
Accordingly, the Board issued decisions for the appellee in these appeals.

OPINION
Valuation of land classified under Chapter 61A as agricultural and/or horticultural land must be based upon its agricultural or horticultural use, rather than on the property's value, if devoted to its highest and best use. G.L. c. 61A, §§ 4 and 10.  "In the . . . Board's experience, the land values so determined by                    use have always been considerably less than fair cash     values for 'highest and best' uses . . . ."     NMB Wetstone v. Board  of  Assessors of the Town of Longmeadow, 
9 Mass. App. Tax. Bd. Rep. 31, 34 (1987).  Landowners, therefore, "who choose to have their land so qualified [under Chapter 61A] . . . receive a benefit of a lower tax levy for each year that they qualify by continued agricultural or horticultural use."  Id.  
In determining use value for land qualified under Chapter 61A, and while permitted to rely on their own knowledge, judgment and experience concerning local land values, local assessors are required to consider the ranges of land use values promulgated each year by the FVAC     and published by the Commissioner of Revenue.           G.L. c. 61A, § 10.  "[I]t is mandatory that the assessors take into consideration the ranges of value established by the  FVAC . . . ."  Mann v. Board of Assessors of Wareham, 387 Mass 35, 40 (1982)("Mann I")(emphasis added).  See also Black Cat Cranberry Corporation v. Board of Assessors of the Town of Kingston et. al., 2001 ATB Adv. Sh. 613 and Mann v. Board of Assessors of the Town of Wareham, 8 Mass. App. Tax. Bd. Rep. 97 (1987).   ("Mann II.") 

The FVAC is specifically charged with determining annually, prior to January first of each year, a range of values for each classification of land in agricultural or horticultural use in the Commonwealth on a per-acre basis. G.L. c. 61A, § 11.  The FVAC determines its annual range of values after consideration of "agricultural or horticultural land use capability available from soil surveys and such other evidence and documentation as may, in its judgment, appear pertinent."  G.L. c. 61A, § 11.  The FVAC's members are the Commissioner of Revenue, the Commissioner of Agriculture, the Director of Housing and Community Development, the Dean of the College of Food and Natural Resources of the University of Massachusetts, or their respective designees, and one member of a local board of assessors, appointed by the Governor. G.L. c. 61A, § 11.  Because the FVAC's range of values "are promulgated throughout the Commonwealth, it seems inferable that the Legislature intended some uniformity of treatment of farmland in each category in the absence of relevant differences affecting particular parcels or parcels in particular communities." Mann II, 8 Mass. App. Tax. Bd. Rep. at 108.  
Further, the Massachusetts Supreme Judicial Court ("SJC") in Mann I found that the "Act clearly provides that the FVAC guidelines are some evidence of value.  G.L. c. 61A, § 10.  In valuing land classified as agricultural or horticultural, a finding of value within the guidelines established by FVAC would therefore require little additional evidence to meet the substantial evidence test." Mann I, 387 Mass. at 42.  Moreover, the SJC found that "[a] determination of value outside the guidelines would require an appreciably stronger showing and would require, at a minimum, an identification of the factors that led to a determination of value outside the guidelines." Id. (emphasis added).  As this Board cautioned, "[t]he language of the [Mann I] Court strongly suggests that the board should be sure of its ground before concluding that the [Farmland Valuation Advisory] Commission lacked a reasonable basis for its determinations."  Mann II, 8 Mass. App. Tax. Bd. Rep. at 108.  
	In the present appeals, the Board found and ruled that the valuation of the subject parcels by the Assessors was based on the guidelines set forth by the FVAC, in compliance with Chapter 61A.  At a minimum, therefore, the appellant must identify specific factors that lead to a determination of value outside these guidelines.  Mann I, 387 Mass. at 42.  
In this regard, the Board found that the appellant did identify some specific factors that could support a determination of value outside FVAC's fiscal year 2000 guidelines.  The appellant detailed what his witnesses referred to as a regional cranberry market crisis with a significant decline of per-bushel price.  The appellant also provided credible testimony regarding the determination of the FVAC's fiscal year 2000 guidelines and detailed that these guidelines were developed without current market information.  However, the appellant must do more than point to perceived flaws in the development of the FVAC's value guidelines.  Rather, he must provide evidence of value lower than the assessed value.  
In support of his opinion of value in a declining market, the appellant argued that the subject parcels should be valued by an income capitalization methodology.  The SJC has recognized that the ordinary fair cash methods for land valuation, such as the income capitalization method, are not "without problems" when applied to use valuation.  Mann I, 387 Mass. at 41.  In use valuation, for example, the SJC noted that "the income approach has . . . been criticized for not distinguishing between efficient and inefficient operations, or for failing to adjust for variable factors, such as weather conditions."  Id. citing King v. Real, 466 S.W.2d 1, 7 (Tex. Civ. App. 1971).  See also Black Cat Cranberry Corporation, 2001 ATB Adv. Sh. at 624. 
In addition to concerns with the application of income capitalization methodology to use valuation of farmland, the Board found and ruled that this appellant's application of income capitalization methodology to value the parcels at issue was seriously flawed because it provided an estimate value of the business of Mann Farms as operated by the appellant, rather than the earning capacity or value in use of the underlying real estate.   It is the earning capacity of real estate, rather than its actual income, that is probative of market value.  Assessors of Quincy v. Boston Consolidated Gas Co., 309 Mass. 60, 64 (1941)(emphasis added).  ("[T]he general rule is that the profits from a business located on the land are not a fair measure of the value of the land because the financial returns from a commercial undertaking are dependent upon so many material factors having no real relation to the land itself that the profits cannot be said to be derived from the land."  Id.) 
An assessment of a parcel of real estate's value is presumed valid until the taxpayer sustains his burden of proving otherwise.  Schlaiker v. Board of Assessors of Great Barrington, 365 Mass. 243, 245 (1974).  Accordingly, the burden of proof is upon the appellant to make out his right as a matter of law to an abatement of the tax.  Id.  The mere going forward with evidence is not enough to meet the taxpayer's burden in this regard; the evidence must be credible and persuasive.  See Foxboro Associates v. Board of Assessors of Foxborough, 385 Mass. 679, 691 (1982).  Furthermore, the Board may disbelieve a witness or reject evidence as long as it has an "'explicit and objectively adequate reason.'"  New Boston Garden Corporation v. Board of Assessors of Boston, 383 Mass. 556, 470 (1981).
In reaching its decision in these appeals, the Board was not required to believe the testimony of any particular witness or adopt any particular method of valuation that an expert witness suggested.  Rather, the Board could accept those portions of the evidence that the Board determined had more convincing weight.  Foxboro Associates v. Board   of Assessors of Foxborough, 385 Mass. at 683;            New Boston Garden Corporation v. Assessors of Boston,    383 Mass. at 473; Assessors of Lynnfield v. New England Oyster House, Inc., 362 Mass. 696, 701-702 (1972).      "The credibility of witnesses, the weight of evidence, the inferences to be drawn from the evidence are matters     for the board."  Cummington School of the Arts,             Inc. v. Assessors of Cummington, 373 Mass. 597, 605 (1977).   
In these appeals, therefore, the Board found and ruled that although the appellant identified some factors that could have supported a determination of the parcels' use value outside the range of values set by the FVAC guidelines, the evidence presented by the appellant did not substantiate that the parcels at issue were overvalued.  In particular, the Board ruled that the appellant's income capitalization approach to determine value was seriously flawed because it attempted to value the business enterprise of Mann Farms, without separating the earning capacity or value in use of the underlying real estate at issue.  The appellant, therefore, provided no credible estimate of value of the parcels at issue.     In the absence of substantial evidence supporting a value less than the assessed value of the parcels, the Board found and ruled that the appellant failed to prove that the parcels at issue were overvalued in fiscal year 2000.


The Board, therefore, decided these appeals for the appellee.	
		

APPELLATE TAX BOARD

					By:_____________________________
						Abigail A. Burns, Chairman

A true copy,

Attest: ___________________
   Clerk of the Board

 Appellate Tax Board docket number F256305.
 Appellate Tax Board docket number F256308.
 Appellate Tax Board docket number F256309.
 Mr. Slattery testified that these profiles were forwarded by the FVAC to the Agricultural Statistics Division of the United States Department of Agriculture in New Hampshire, which then developed income and expense ratios.  
 Mr. Slattery testified that the Massachusetts Department of Revenue has agreed to study the issue of the appropriate capitalization rate to be applied in determining cranberry bog values.  
 Such testimony was presumably offered by the appellant in response to the Supreme Judicial Court's concern that the income capitalization approach, when applied in use valuation, does not adequately distinguish between efficient and inefficient operations.  Mann v. Board of Assessors of Wareham, 387 Mass. 35, 41 (1982).
 Mr. Gosule's testified that a certified valuation analyst is involved in the valuation of a business' intangible assets, such as goodwill. 
 Mr. Gosule's appraisal report specified that it is an analysis of the business value of Mann Farms.  The report stated that "[i]n determining the price to pay for a company, a buyer of a business ultimately determines the return he will receive on his investment . . . .   Whether [the company's income streams are] derived from history and/or future forecasts, the value of the business is based on the present worth to [an] anticipated series of future income streams."   Further, the report adds that "[t]he value of an enterprise could be determined under one of three methods . . . ."  (Appraisal report of Lesley Gosule, page 1)(emphasis added).  
In considering a determination of an income stream, the appraisal report also referenced the Internal Revenue Service's Revenue Ruling 59-60, a ruling relevant to business valuation and not land valuation.  
 The appellant also offered as an exhibit a report from the accounting firm of Arthur Andersen, dated January 18, 2001.  That report analyzed the appropriate development of a capitalization rate applicable to valuation of a typical cranberry bog in Massachusetts as of January 1, 2000.  The hearing officer excluded this report from evidence. 
  Use value is "a concept based on the productivity of an economic good.  Use value is the value a specific property has for a specific use.  In estimating use value, the . . . focus[ is] on the value the real estate contributes to the enterprise of which it is a part, without regard to the highest and best use of the property."  The Appraisal Institute, THE APPRAISAL OF REAL ESTATE 24 (12TH Ed., 2001).  
 General Laws chapter 61A, § 10, as then in effect and as applicable to both Mann I and Mann II, required only that boards of assessors "be guided by" the values determined under FVAC guidelines. (Emphasis added.)  The statutory language requiring that boards of assessors use the range of values established by FVAC was added in 1983, following the decision of Mann I.  St. 1983, Ch. 709. 

  
ATB 2001-876