*1 696 in ascertaining this follows court
supra. standard the prov invades instruction challenged or not a whether such an instruction is to determine how jury ince of the ordinarily intelligent understood have been would when the instruction sitting jury with a lay person ere, 428, 110 I. Bruy 426, R. court. State v. by the delivered Goff, R. 331, I. State v. (1972); 312-13 311, 293 A.2d justice did not The trial 267 A.2d jurors; justice province invade He not evidence. did merely recited the case present person have intelligent lay ordinarily nor could charge, jury must find charged, have him to understood take the did fact oath. defendant particular this exceptions overruled, and the the defendant’s All of Superior proceed- Court for further to the remitted case is ings. Israel, P. General, Ryan, Donald Attorney
Richard J. Dillon, Jr., E. Special Edward Attorney General, Asst. General, plaintiff. Attorney Asst. Cicilline, DelGiudice,
Bevilacqua Anthony S. & for de- fendant. A.2d 543. et al. vs. Kargman Stanley R. D. Jacobs,
Max Tax his Assessor capacity City Providence, East Rhode Island.
OCTOBER 1974. Paolino, Joslin, Doris, Kelleher and JJ. Present: *2 J. Max R. and Kargman (plain- William M. Kelleher, tiffs) are general partners in the Kent Farm Company (Company), a Massachusetts limited partnership, which .parcels owns six city land of East Providence.
n Such improvements buildings with all land, together tax- of local purposes assessed, for the been had thereon $188,960. amount in the 31, ation, on December the con- Company undertook 1971 the During 1970 and is sometimes which complex apartment aof struction endeavor Farm.” “Kent the record as referred to Housing of the National (d)(3)2 by §221 regulated pro- Congress sought legislation this enacting Act. income families moderate housing for low and vide *3 urban re- displaced which had been families those (as- defendant Jacobs 1970, the newal. At the close of property of all in reevaluation Jacobs), general or a sessor real plaintiffs’ the Providence, in valued situated East 1971, 31, on December $2,535,780. year later, A estate at $3,021,420. further valuation to he increased the by filing those two assessments plaintiffs challenged The (1970 L. the Court under G. petitions Superior two Reenactment) through grounds 44-5-31 on §§44-5-26 a their real estate had been assessed at valuation i.e., fair the assess- value, excess of its full and cash ments and void. the valuation illegal attacking were plaintiffs by defendant, presented at evidence of arrived appraiser real to the effect that the full and fair a estate governed by levy local taxes in Island 1The and assessment of Rhode Reenactment) (1970 5 of title 44. The L. 1956 ch. taxes assessed G. year arrears,” day of December each valuations in that on the 31st “in following year. §44-5-1. tax to be collected the See are determined for tire during Hence, paid property a 1970 are based on valuation taxes 31, 1969. as of December L(d)(3) (d)(3), (1964), 2Housing Act U.S.C.A. §1715 §221 1965-69). (Supp. V, as amended cash value of their on December 1970 was $1,032,201 on and December only $1,227,330.3 1971 was petitions
The two were consolidated After a for trial. in the hearing Superior justice Court, a thereof rendered decision plaintiffs appealed. assessor. The methods which the experts two arrived their were conclusions both recognized means of assessing real property.
The parties stipulated comparable that no sales were known to place have taken open market which might have assisted them in value determining proper of the buildings improvements.
The assessor, who qualified as
expert,
testified that
he employed the
cost” approach4 to assess
“reproduction
buildings
improvements. Comparable sales were
available to aid in placing a
on
land, and,
value
there-
fore, he based his
assessment
the land on such sales.
The same method
used for
both the 1970 and 1971
appraisals.
In each instance he had taken into considera-
tion what a willing buyer
pay
would
for the property and
*4
what a willing seller would sell it for. He regarded as
irrelevant what income
property
the
would produce. The
plaintiffs’ property
being
we refer
3While
to
as
assessed at its full and
(1970
value,
Reenactment)
fair cash
G.
L.
§44-5-12 authorizes an
percentage”
assessment at a
percentage
“uniform
by
thereof. The
used
by
the
given
assessor was
plaintiffs’ expert
The valuations
80%.
were also
pegged
figure.
complex began
at
Construction of the
in 1969 and
completed
early
was
1971.
4Reproduction
money,
oost”
amount of
prices
is the
based on current
market,
required
duplicate
building
the
that would be
improve
a
or
property
replica,
a
ment with
new
basically
or
made of the same or
simi
property
lar
by
following
materials. The value of
is arrived at
the
for
reproduction
replacement
new,
mula: estimated
building
or
cost of the
depreciation,
any, plus
less estimated accrued
if
the estimated land value.
Bldg.
Agency,
See
Redevelopment
Travellers
Ass’n v. Providence
assessor city entire of of the only not was the basis taxation and towns other cities but of all the Providence also East one ais common approach the Island, of and that Rhode appraisal.” “mass a conducting detailed more much expert presented plaintiffs’ The property the He assessed than that Jacobs. testimony In his approach.”5 income by “capitalization the the sub- should have been valued the opinion, property stantially figure. lower expert asserted conclusion, taxpayer’s his the reaching expense in- of income and he had studied the items community. He apartment operation of the
volved in the complex from the net income potential deduced that the purchaser of a that a $122,733. judgment It was his on his invest- a return expect this kind would property of multiplied expert the Therefore, of at ment least 10%. $1,227,330 resulting in the net income figure by total. the value as estimated justice accepted
The trial one problem concerning He viewed the Jacobs. had proof. plaintiffs obligation burden of estimating approach a method of 5This to real estate evaluation is value yield respect property. to the income based on factual data with converting process It the stream of income derived is a mathematical present capital on real into value. Value is based from estate property. “capitaliza prospective A factor known as the income from applied produced income rate” to the estimated net annual tion is capitalization repre rate This is the rate determine its value. senting example: For the investment. fair return on $16,665 property is income from Estimated net annual rate) (capitalization on the investment A fair return *5 8.2% 16,665 equals $ .0825 Then if 2,020 equals $ .01 $202,000 equals 100% $202,000. See Fried is therefore of the The indicated value Appraising man, Encyclopedia Estate 36-37 Real of establishing jus- trial illegality appraisal. of the The believed that employed by tice the method Jacobs of the recognized accepted ways ascertaining “one of that value,” proper since defendant’s method was a one, their plaintiffs had failed to burden. carry
The plaintiffs’ principal argument jus- is that the trial approval tice’s of defendant’s determination the value of their property was total of the disregard evidence its earning capacity, rejected and that he arbitrarily plaintiffs’ expert appropriate as to the testimony capi- talization factor to be used. Therefore, argument pro- ceeds, clearly agree. decision is erroneous. We do not
Referring to the testimony presented real estate experts parties, both we shall set forth that part of the record puts purposes which enterprises such as Kent Farm in their proper focus. -plaintiffs’
One of witnesses was a gentleman who was an attorney and public a certified He accountant. described himself employee as an of a firm management with charged operations Kent everyday Farm. He told the trial court that firm specializes his in assembling syndicate provide a that will housing for low and moderate explained income families. He all facets of such enter prises subject to federal regulation, including a limit toas the amount of the monthly charge. rental in vestors are restricted to a maximum return. However, 6% he also pointed out that investors such developments federally can obtain a guaranteed mortgage at a rate of while the investors in a privately complex financed can look forward to a paying to an mortgage. 7%% 8%% no personal liability There is part on investor’s event of foreclosure the Federal Government agency. This witness told of liberalized depreciation benefits to one project available who invests in a such Kent Farm. The were depreciation benefits described as “ex
702 the on cake. frosting as the
cellent” and the return federally operating apparent properly quite It is that to both the bring joy can development6 housing financed housing The have the investors. tenants tenants and in bask the the investors can reasonable rate and a most However, there were shelter. of a most attractive tax glow apparently Farm—an Kent two in the ointment at flies units and the dwelling high number of vacant unforeseen Providence. by assessments made East in when all which, before us as one We see issue justice that trial done, arguing plaintiffs said defendant's. expert their instead of believed should have French, Socony-Vacuum Oil Co. v. can held that a trier of facts (1958), A.2d this court experts and one set of accept property the valuation particularly when reject experts, of another set of that may pick as he gives doing he reasons for so. Just good may by he presented laymen, and choose evidence among experts. That when with evidence dealing do same controlling rationale is here. justice
The contention that the trial acted plaintiffs' arbitrary capitalization of in- rejecting manner The expert formula used their is without merit. come justice with quarrel proposition trial had no to be con- proper income from real is a factor purposes. plain- its valuation for tax fixing sidered justice’s rejection of difficulty tiffs' arises from the trial specific capi- appraisal grounds—the their on two witness' in- expert expert’s and the factor used talization he were rental figures using income sistence charged by privately financed comparable to those being in the area. apartment facilities granted by mortgage the Federal Government was 6The amount of the $5,000,000. in excess of *7 A crucial choice by expert made plaintiffs’ was his use capitalization of a factor of He stated that “from 10%. experience” it his judgment purchaser that a of this type of property expect would such a return. The trial justice refused accept to this figure expert’s on the bald reference to experience, his especially in the of absence any evidence by plaintiffs to as other income-pro- what ducing opportunities might have available to been the purchaser envisioned by expert. the Furthermore, expert testified that far he so as could determine, a search of the 50 states had failed to disclose one sale of a housing development such as Kent Farm.
Later, however, expert remarked that the rental he figures used were comparable to the rents being charged privately financed apartment complexes neighborhood. This of finding comparability followed the of making “adjustments” for lack within the project of such amenities air conditioning or security services, plus a further adjustment for the difference in locations. These adjustments were “by made judgment” based on the ex pert’s “experience” in evaluating properties. The lack of specificity to pertaining experience upon which the expert’s judgment rested caused justice the trial to give weight no expert’s to this opinion as to the full and fair cash value of their property on the assessment dates question. The burden proof upon of is the taxpayer establish his contention that defendant assessor has set a value on subject property that greater than its full and fair cash justice value. The felt, trial and with reason, good that the burden had not been met. We see no reason to disturb this finding.
Finally, a brief comment should be directed to an asser- tion made plaintiffs to the effect justice the trial had ruled city-wide that a assessment of real estate by use of reproduction the cost technique constituted an auto- requirement compliance statutory with the
matic cash value. full fair he at its property assessed justice’s the trial have the thrust plaintiffs misconceived ruling. use of discussing the assessor’s justice
The trial
power
observed that
reproduction standard
cost
provide
shall
which
Assembly,
in the General
tax is vested
* * *
* *
in such
making new valuations
const,
IV, §15.
art.
deem best.”
they may
manner as
authority
delegated this
Assembly in turn has
The General
44-5-11.
*8
municipality.
Section
to the assessors of each
man
in the
value
same
determine
are authorized to
They
instance,
as
have,
this
might
Legislature
ner as the
is given
He
best.
assessor deems
East Providence
employ.
he will
method of valuation
to which
choice as
I.
Municipal Corp., 62 R.
Bonded
In Allen v.
said:
(1938), this court
A.2d 249
of fairness in taxa-
requirement
"The constitutional
it
applied
that
be
taxing
met if
law demands
tion is
a
without discrimination
uniformity
with substantial
apart
separate
set
a class of
throughout
Id. at
Admittedly,
ap
when the cost
accuracy
to the
of the result obtained
the use of
proach
acknowledged
is used. We have
valuation unless the
technique
this
can cause
excessive
for such items as obso
adequately
costs are
discounted
physical
Travellers
lescence, inadequacy
depreciation.
Redevelopment Agency,
v. Providence
Bldg. Ass’n
it
(1969). However,
recognized
Further evidence mathematical morass as to the can be seen approach can be encountered with the income expense expert’s inappropriate Kent Farm’s use as item East Providence actually of the taxes assessed proceedings. but now in these being challenged firm The employee management of the Kent Farm’s wrong told the trial court that went with something analysis.” up” rent “market There was no “immediate problem.” and then came the “tax a miscalculation Such “* * * properties reminds one the valuations' of successes managerial local taxation cannot with the vary Brunswick v. State City New or failure of the owners.” A.2d 537, 189 Jersey Appeals, New Div. Tax 39 N. J. precise science. We appraisal The of real estate is not subject property. fault Jacobs’ assessments of the cannot appeal and dismissed. plaintiffs’ is denied participate. Mr. Chief Justice Roberts did not Joslin, Mr. em- dissenting. my judgment, Justice ployment “reproduction of the cost” method to assess “Kent land, buildings improvements known as the produces substantially Farm a valuation in ex- Village” property’s cess of the full and fair cash value. The result- illegal and, challenged, is therefore when ing assessment respectfully I therefore not be allowed to stand. should dissent. *10 obligation
In the Kent Farm the assessor’s appraising value, is, was to ascertain its full and fair cash buyer probably pay would willing amount which a in a fair transaction length seller an arm’s willing 707 market. Allen v. Bonded I. Municipal Corp., 101, 62 R. 105, 4 A.2d 249, 251 (1938). obviously that market buyer availability would be limited to investors. And while an investor might reproduction resort to the cost approach to obtain an upper beyond which limit he would not 2 pay, Orgell, Valuation Under Eminent Domain §199 (2d ed. 1953), he would fully do so aware that
cost of the reproduction approach is one of the “least reliable indicia of market value,” Bldg. Travellers Ass’n v. Providence Redevelopment Agency, 106 83, 89, 5, 9 (1969), A.2d and entitled to “weight only those cases where more satisfactory evidence based on actual sales or on earning power is not available.” 2 Orgell, supra §199 at 57.1
In this case there were
comparable
no
sales, and there-
fore
only
way to obtain a
point
realistic
of reference
in the valuation process was
capitalize
the property’s
income-producing potential. Yet, in
valuing
as of December 31, 1971 at approximately $3,776,775,2 the
assessor,
tax
in effect, looked to a building contractor’s
reproduction
estimate of its
cost rather than to an account-
ant’s ascertainment of its earning capacity. True,
absence of a full year’s operation
apartment
of the
com-
question
appropriateness
1I do not
reproduction
ap
of the
cost
“* * *
proach
determining
the fair market value of
so-called ‘service
properties/
nonprofit
that are owned for
uses and that seldom come on the
Churches, club-houses, golf-courses,
market.
university
schools and
build
ings
Orgell,
are of
Valuation Under Eminent Domain §188
this nature.”
(2d
Bldg.
1953);
4at
Travellers
ed.
Ass’n v. Providence Redevelopment
Agency,
(1969) (clubhouse
organiza
106 R. I.
708 be projected required figures that some would have
plex an insurmount- that was not estimated. But and others estimates were projections such Indeed, able obstacle. tax- the expert who testified the real estate made a net income His indicated this case. calculations payers $122,733, of depreciation,3 prior to year, for the current valuation. of of on the accessor’s or a rate return 3.25% with expert’s calculations regard the majority the initially amount reject it because suspicion, they income, assumed although it he allocated rental which upon year, the was based occupancy a throughout 100% upon an estimate rather than actually the rentals received they principle upon the which of fair rental value. While City v. sound, Somers premise that is generally conclusion Meriden, 184, (1934), 186-87 5, 8-12, 119 Conn. A. of of peculiar it the circumstances clearly inapplicable in where the actual rentals were the concededly this case charged. the law to be permitted maximum which expert’s which majority A further fault find in the expense from item the inclusion as an computation stems as very taxpayers challenging of tax which the agree preferable approach might I a illegal. arguendo that rate to net income apply capitalization have been taxes, compensate by increasing before and then to reasonably yield rate to the return an investor would That expect plus payable. the amount of taxes approved in New Brunswick approach City which was of Jersey, 537, v. Div. Tax Appeals, State New N. J. of (1963). 189 A.2d 545-46, straight used, depreciation a as 3If line rate of little had been $75,000. net have about income would been further reduced Some depreciation income, gross treat as a from others as courts deduction capitalization any event, determining generally factor in rate. it is recognized place. City to be market a relevant circumstance Jersey, Appeals, Brunswick New Tax New v. State Div. 39 N. J. 547-48, 189 A.2d 708-09 capitalizing I with point But at this am not concerned taxation, but in order to value *12 income ascertaining valuation testing the assessor’s with could have been buyer whether on December 1971 a 31, put on the $3,776,775 price willing found to invest —the. income, net order to realize a property by the assessor —in return on his depreciation $122,733, to or a prior 3.25% investment. possible obviously
Whether that would have been de- in upon money the conditions then pended prevailing market. An examination4 of those conditions discloses exempt 20-year AAA tax securities with maturities were* corporate then AAA bonds with like yielding return; 5% ma- 7.2%; obligations of the United States maturities — deposits in mutual turing 5.8%; and local sav- 1992— banks —from ings depending to on nature 4.5% deposit. Clearly, of the the substantially higher rates of return quality, which those better lower risk investments-- a, were then would have stifled the paying willingness potential buyer to for the Kent what pay property Farm the assessor said it was worth. Hence, overassessed and the tax therefore illegal.
What remains is to ascertain the amount of the over- tax, that, of course, depends on whether the record' cash, discloses what fact was property’s full and fair While the taxpayers’ expert value. capitalized the net income he projected had order to arrive at figure,, such a justice rejected the trial conclusion, his not because of any question as to his but expertise, solely because of the absence of underpinning capitaliza- an evidential to the tion rate used. That I prepared say am not justice respect trial erred in this does not mean that I States, Simpson judicial v. United 4I take notice of these rates of return. 547, 550, 367, 368, 709, (1920); see Ander 64 U. S. 40 S.Ct. L.Ed. 712 252 (1970). Anderson, 202, 210, 56, son v. 107 R. 266 A.2d 61 I. 710 Instead, valuation. excessive accept
must assessor’s appropriate seems circumstance, what peculiar in this follow opportunity parties to afford both to remand thus to approach of rental income capitalization may remand While such a assessment. legal arrive at a precedent. not without it is nonjury case, in a be unusual Pavers Co. v. Bituminous Sand & Gravel County South Golden 427, (1971); Co., 246, 274 A.2d 239, 108 R. I. A.2d 45, College, 35, Barrington Gate v. Corp. Co. v. Gil- Hospital Trust Rhode Island (1964); 691, 693 leney, 61 R. I. 199 A. *13 denied. reargument for
Petition Cole, Edwards, Angelí, Jonathan E. James K. Edwards & plaintiffs. Little, Joseph Solicitor, Asst. defendant. City T. A .2d 16. re
In : Robert J. Jr. H. re: Michael 17, 1974. OCTOBER Roberts, J., Paolino, Joslin, Doris, C. Kelleher and JJ. Present: