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Nutmeg Housing Development Corp. v. Town of Colchester

Supreme Court of Connecticut

December 27, 2016


          Argued September 21, 2016

          James Stedronsky, for the appellant (plaintiff).

          Lloyd L. Langhammer, for the appellee (defendant).

          Robert A. White and Proloy K. Das filed a brief for the Connecticut Housing Finance Authority as ami-cus curiae.

          Rogers, C. J., and Palmer, Zarella, Eveleigh, McDonald, Espinosa and Robinson, Js.


          ZARELLA, J.

          In this appeal, we consider whether the trial court correctly determined that the plaintiff, Nutmeg Housing Development Corporation, failed to establish aggrievement in that it failed to prove that the defendant, the town of Colchester (town), had overvalued its property for tax purposes. After a bench trial, the court found that the plaintiff had failed to establish that it was aggrieved by the town's valuation because the court found that the plaintiff's expert did not present sufficient, credible evidence to establish that the town had overvalued the property. The trial court rendered judgment for the town, and the plaintiff appealed. We conclude that the trial court's determination of credibility is supported by the record, and, thus, we affirm the judgment of the trial court.

         The following facts and procedural history are relevant to this appeal. The plaintiff is the owner of a unique parcel of land in Colchester. The property contains a thirty-two unit apartment complex, which was built in 2008. All of the units are age and income restricted. The property is subject to a ninety-nine year restrictive covenant requiring that the property be rented only to low income, elderly individuals. Because of the restricted use of the property, investors in the development of the property are eligible to receive federal low income housing tax credits (tax credits). The federal government created this tax credit program as a means of funding the development and rehabilitation of affordable housing. Investors in these projects receive dollar for dollar tax credits in addition to normal depreciation deductions. These tax credit projects must comply with strict requirements, or else they are subject to recapture penalties.

         For tax year 2011, the town assessed the plaintiff's property at approximately $2.29 million. The plaintiff challenged this assessment before the Colchester Board of Assessment Appeals (board), claiming that the property was worth only $1.3 million. The board disagreed, upholding the town's original valuation, and the plaintiff appealed from the board's decision to the Superior Court pursuant to General Statutes § 12-117a, again claiming that its property was overvalued.

         Before the trial court, the plaintiff argued that the town had used an improper method for valuing the property. The plaintiff claimed that the town was required to use the method described in General Statutes § 8-216a. That provision calls for the valuation of certain low income property using an income capitalization approach, that is, determining the property's actual rental income less reasonable expenses, and then adjusting that figure by a suitable capitalization rate. See General Statutes § 8-216a (a). The plaintiff further claimed that § 8-216a does not allow the town to include the value of the tax credits in its valuation. At the trial on the plaintiff's appeal, however, the plaintiff did not provide any evidence to the trial court to show precisely which method the town used to value the property and presented no evidence to show that the town had used the tax credits in valuing the property. Nevertheless, the plaintiff claimed that the town's valuation was excessive.

         In support of its claim, the plaintiff relied on an appraisal report prepared by Christopher Italia, a certified appraiser. Italia did not, however, value the property according to the income capitalization approach described in § 8-216a. He instead reached his valuation by blending an income capitalization approach with a sales comparison approach. For the income capitalization portion of his analysis, Italia first calculated the net operating income of the property by examining the actual income and expenses of the subject property. Italia used the below market restricted rents of the subject property but adjusted the other income and expense figures on the basis of the average income and expense figures derived from other, market rate properties, in order to determine reasonable income and expense figures. He then divided the net operating income by the capitalization rate-a figure that he determined from examining other market rate properties. Notably, however, none of the properties that Italia considered in this approach was age and income restricted.[1] Italia determined that the property was worth $1.06 million under this approach. For the sales approach, Italia examined the sales prices of other comparable apartment complexes. He then adjusted those prices based on perceived differences between these properties and the subject property in an attempt to calculate the price for which the subject property would sell. Once again, however, none of the comparable properties that Italia selected was age or income restricted like the subject property. In addition, the properties Italia relied on were also much older than the subject property. At the time of the valuation, the subject property was only three years old, yet one of the properties that Italia used as a comparable was eighty-six years old. Italia determined that the value under this approach was $1.15 million. After developing both methods, Italia then took the average of the two valuations and concluded that the fair market value of the property was $1.1 million.[2]

         The town then presented its own expert, Robert Silverstein, a certified appraiser, who was not the town's original appraiser of the property but had been retained as an expert for trial. Silverstein testified that the fair market value of the property was $2.5 million. Unlike Italia, Silverstein valued the property using solely an income capitalization approach, similar to the approach prescribed in § 8-216a. Also, unlike Italia, Silverstein's income capitalization analysis took into consideration the restricted nature of the subject property. In order to determine reasonable income and expense figures, Silverstein used market rates but adjusted them to reflect the subject property's restrictions. Silverstein, however, included the value of the tax credits associated with the property when evaluating the property's income and expenses.

         After the trial concluded, the parties submitted post-trial briefs. In the plaintiff's posttrial brief, it disregarded its expert's valuation of $1.1 million and claimed, instead, to perform its own valuation of the property using § 8-216a and determined that the value of the property was actually $526, 940-less than one half of the value assigned by its own expert. To reach this value, the plaintiff did not rely on its own expert's income and expense figures but used different figures from a 2011 statement of operation. The plaintiff adduced no expert testimony as to why this valuation was more appropriate than that used by its expert or whether the income and expense figures that the plaintiff relied on were reasonable.

         The trial court rejected the plaintiff's claims and rendered judgment for the town. In its memorandum of decision, the court did not credit the plaintiff's $526, 940 valuation because it was based solely on the plaintiff's own reading of § 8-216a and was not supported by any expert testimony. The court also cast doubt on the plaintiff's claim that § 8-216a applied and on its argument that the town could not consider tax credits when valuing the property. Nevertheless, the trial court ultimately did not base its decision on either of these grounds. Instead, the trial court determined that the plaintiff had not established that it was aggrieved by the town's valuation because it found that the plaintiff's expert was not credible. The court found that Italia's opinion of fair market value was not credible because it was ‘‘based [on] unrestricted sales and rental properties unrelated to age and income restrictions . . . .'' (Emphasis in original.) The trial court explained that ‘‘[i]t is a basic principle of law governing tax appeals that it is the burden of the taxpayer to show that he or she has been aggrieved by the action of the assessor overassessing the property. Ireland v.Wethersfield, 242 Conn. 550, 556, 698 A.2d 888 (1997). It is also recognized by our case law that, [when] the trial court finds that the taxpayer's appraiser is unpersuasive, judgment may be [rendered] in favor of the municipality on this basis alone. Id., 557-58. . . . [I]t is clear that Silverstein's opinion of value, based on the subject being an age and income restricted property (in contrast to Italia's opinion of value based on unrestricted property), is the more credible.'' (Emphasis added.) Because the trial court concluded that the plaintiff was not aggrieved, the court upheld the town's original assessment. After the court issued its memorandum of decision, the plaintiff moved for an articulation, requesting that the court articulate the statutory formula it had used to determine the property's value. More specifically, the plaintiff asked the trial court whether ยง 8-216a applied and, if not, which standard of valuation the court applied and what the property's value was under that standard. The court issued an articulation, ...

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