Facts: Black
Rock Golf Club, LLC (Black Rock) is the owner of real property (club), which
encompasses approximately 175 acres which is dedicated to an 18-hole golf
course and practice areas, a four-level club house, a recreation center, an
outdoor pool, and five outdoor tennis courts, walkways, and parking lots. Of
the club's more than 300 members, only 86 had paid the $125,000 full initiation
fee. Other members had paid initiation fees ranging from $65,000 to $115,000.
Other members had not paid initiation fee but instead received membership as
incentive to purchase a condominium.
The club generated four
categories of income: 1) golf revenue (membership dues, guest fees, cart
rentals, tournament fees, and initiation fees); 2) clubhouse food and beverage
sales; 3) merchandise sales; and 4) miscellaneous amenities and services.
The board of assessors of the
town of Hingham valued the club at $20 million for the fiscal year of 2006 and
at $18.6 million for 2007. The valuation by the assessors was based upon
capitalization of income methodology where its expert estimated the income
earned by Black Rock as owner and operator of the club for the tax years in
question and applied a capitalization rate to it. However, Black Rock made its
own valuation which was not based simply on an estimation of the club's net
income with the application of the capitalization rate. Instead, its expert
estimated the fair market rental income which Black Rock could have achieved if
it had chosen to lease the club to a third-party management company, a common
practice in the golf club industry. By this method, Black Rock's expert
proposed a valuation of “$10,000,000 to $11,000,000.”
Procedural History:
The valuations of the club in 2006 and 2007 resulted in tax bills of
$186,760 and 169,911 respectively. In both years, Black Rock filed an
application for abatement, which the assessors denied. Black Rock then appealed
to the Appellate Tax Board (Board) who concluded that the assessors has
overvalued the property and granted the abatements for both years. The Board
based its reasoning on Black Rock's capitalization or market rental hypothesis
while adjusting the rental percentage for the golf revenue from twenty-two
percent to twenty-five percent, and adopted the assessors' capitalization rates
instead of Black Rock's. The Board then valued the club at $13.39 million in
2006 and $14.09 million in 2007. The Board also found the assessors'
computation of imputed interest on initiation fees to be flawed because 1) that
method assigned interest income on both refundable and nonrefundable portions
of the fees; and 2) the assessors estimated the amount of received initiation
fees on the faulty premise that all members had paid the maximum figure of
$125,000, when in fact, most of the members had paid less, if at all.
Issue: Whether
the Board's rejection of the assessors' methodology has the support of
substantial evidence?
No. The
court employed the substantial evidence standard to determine that the Board's
general acceptance (with adjustments) of Black Rock's valuation was flawed
because Black Rock's expert did not adequately establish that a fair market
lease would calculate rent on the basis of different fixed percentages of a
club's four revenue streams. None of the eleven clubs considered by Black
Rock's appraiser followed the model of a management rental rate based on a discrete
percentage of revenues from golf, food and beverage, merchandise, and
miscellaneous sales. Furthermore, eight of the eleven properties surveyed by
Black Rock's appraiser were public and generated revenue through daily greens
fees whereas Black Rock, as a private club, would generate its revenue from initiation
fees and membership dues.
While the law permits the board
to “choose between reasonable alternative valuation methods, it nonetheless
requires the board to assure the reasonableness of its choice by adequate
findings that are reasonably intelligible[.]” The court held that the Board's
decision fell below the level of substantial evidence because the surveyed
eleven properties and the club lacked comparability. However, the Appeals Court
vacated the judgment and remanded the case back to the Board because it was not
satisfied with the assessors' reasoning as to the incorrectness of the board's
rejection of their own income capitalization rationale. (MW)
