David C. & Rodney A. Smith, Liebfried Realty Trust, et al v. Board of Assessors of the City of Fitchburg (January 24, 2008)

COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD

DAVID C. & RODNEY A. SMITH,     v.    BOARD OF ASSESSORS OF
LIEBFRIED REALTY TRUST, ET AL 	   THE CITY OF FITCHBURG


Docket Nos. F277870,			   Promulgated: 	
            F277872-F277902           January 24, 2008
		  F278050-F278053

These are appeals under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65, from the refusal of the appellee to abate taxes assessed on certain property, located in the City of Fitchburg, owned by and assessed to the appellants under G.L. c. 59, §§ 11 and 38, for fiscal year 2005.
Commissioner Scharaffa heard the appeals and was joined in the decisions for the appellee by Commissioners Egan, Rose and Gorton.
These findings of fact and report are made at the request of the appellants pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.

Sherrill R. Gould, Esq., for the appellants.
Kenneth W. Gurge, Esq., for the appellee.

FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits introduced at the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact.
On January 1, 2004, the appellants, which include five private individuals and a for-profit realty trust (collectively the "appellants"), were the assessed owners of aircraft hangars constructed by Liebfried Realty Trust, a for-profit entity, on land owned by the City of Fitchburg ("City") through its instrumentality, the Fitchburg Airport Commission.   
For fiscal year 2005, the Board of Assessors of the City of Fitchburg ("assessors") assessed the hangars in existence on June 30, 2004 and issued tax bills to the
owners.  The appellants timely paid all taxes due.  On January 26, 2005, the appellants filed timely Applications for Abatement with the Board of Assessors of the City of Fitchburg ("assessors"), claiming that the hangars were exempt property.  The assessors denied the applications on February 8, 2005.  On May 2, 2005, the appellants seasonably filed Petitions with the Board.  On the basis of these facts, the Board found that it had jurisdiction over the instant appeals.
At all relevant times, Fitchburg Municipal Airport ("Airport") was a municipal airport servicing private and pleasure aircraft.  The Airport did not serve commercial airplanes, and no commercial flights departed or arrived at the Airport.  The hangars were constructed by Liebfried Realty Trust on land leased to Liebfried Realty Trust by the Fitchburg Airport Commission in June, 2003 for a period of up to sixty years.  The underlying land lease provided for rent to be paid to the Airport Commission, consisting of a monthly fee of $25.00 per hangar (one-half the normal tie-down fee) and a five percent commission paid the first time a hangar was sold.  The lease also provided that the "[l]essee shall pay all taxes including real estate . . .  taxes due as a result of any and all business conducted on the Leased Premises . . . ."  The lease did not contain a payment in lieu of taxes ("PILOT") agreement.  The appellants did not dispute the values assessed on the hangars.
Pursuant to the land lease, the use of the land for commercial operations was prohibited.  Therefore, the hangars were used solely for the storage of privately-owned aircraft.  The hangars were secured by key lock and were not open to the general public unless accompanied by the owner/lessees or authorized Airport personnel.  Aircraft using the Airport were not required to use the hangars, and the majority of aircraft operating out of the Airport did not use the subject hangars.  The Airport had operated for decades without the subject hangars.  
For the reasons explained in the following Opinion, the Board found and ruled that the hangars were not exempt from real estate tax under G.L. c. 59, § 2B.  Accordingly, the Board issued a decision for the appellee in these appeals.


OPINION
The issue in these appeals is whether the hangars at issue, which were constructed on city land and owned in fee by a for-profit entity and various private individuals, were subject to property tax.  
1.  The provisions of § 2B do not apply to the hangars.
Pursuant to G.L. c. 59, § 2, "[a]ll property, real and personal, situated within the Commonwealth wherever situated, unless expressly exempt, shall be subject to taxation."  With respect to municipally-owned land, G. L. c. 59, § 2B provides that: 
real estate owned in fee or otherwise or held in trust for the benefit of . . . a . . . 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 as of January first to the user, lessee or occupant in the same manner and to the same extent as if such user, lessee or occupant were the owner thereof in fee . . . .  This section shall not apply to a use, lease or occupancy which is reasonably necessary to the public purpose of a public airport, . . . which is available to the use of the general public . . . . (emphasis added)

Accordingly, the general rule of § 2B is that municipally-owned property used in connection with a business, or leased or occupied for other than public purposes, shall be taxable to the user, lessee or occupant.  See, e.g., Sisk v. Board of Assessors of Essex, 426 Mass. 651, 654 (1998) (ruling that land leased from the government was to be valued, assessed, and taxed to the lessees as if they owned the land in fee).  For reasons not clear to the Board, the underlying land upon which the hangars were situated was not assessed and thus was not at issue in these appeals.  See Sisk, supra.  
Regarding the hangars, the appellants contend that they were exempt under the narrow exemption under § 2B for property "reasonably necessary to the public purpose of a public airport."  As a threshold matter, § 2B must be applicable to the subject appeals before considering the § 2B exemption.  It is undisputed that the hangars were privately owned by a for-profit entity and several individuals.  While the underlying land was owned by the City, the subject assessments were on the hangars, not the land.  
The instant facts are distinguishable from those at issue in MCC Management Group, Inc. v. Board of Assessors of the City of New Bedford, Mass. ATB Findings of Fact and Report 2000-886, a recent appeal in which the Board ruled that the subject land qualified under the § 2B exemption.  MCC Management Group addressed the taxability of a skating arena owned by the City of New Bedford and operated by a private management company; it was undisputed that both the underlying land and the improvement, the skating rink, were owned by the Commonwealth and under the oversight and control of its instrumentality, the Division of Forests and Parks.  Id. at 887.  Therefore, the provisions of § 2B applied.  See generally, id. at 896-907.  
In contrast, the hangars at issue were not "owned or held in trust for the benefit of [the City]."  While the hangars were located on land owned by the City, the hangars themselves, the property at issue, were owned in fee by private individuals and a for-profit entity.  The Board thus found that the threshold requirement of § 2B, that the property must be municipally-owned, was not met under the facts of this appeal.  Accordingly, the Board found and ruled that, by its plain terms, § 2B does not apply to these appeals.  
Even if they were municipally-owned, the hangars were not "reasonably necessary to the public purpose of a public airport," and therefore did not qualify for exemption pursuant to § 2B.   

The exception of § 2B applies only if the appellants can meet their burden of proving that the use, lease, or occupancy of the hangars was "reasonably necessary to the public purpose of a public airport."  As an exemption from tax, the § 2B exemption applies strictly:  "An exemption is a matter of special favor or grace and [is] to be recognized only where the property falls clearly and unmistakably within the express words of a legislative command."  Southeastern Sand & Gravel, Inc. v. Commissioner of Revenue, 384 Mass. 794, 796 (1981) (citations omitted).    
a.  The hangars did not serve a public purpose.
In MCC Management Group, the conveyance of land by a city to the Commonwealth was made "in consideration of the Department of Natural Resources completing a skating rink and holding and administering that facility . . . for the benefit of the general public."  MCC Management Group, Mass. Findings of Fact and Report 2000 at 902.  By the terms of the conveyance in that appeal, the city contemplated that the transfer of the land for the operation of a public skating rink would be "for the benefit of the general public."  Id.  By contrast, the hangars at issue were not transferred to the City or held for the City's benefit.  Instead, they were either held and rented to private individuals by a private for-profit entity or subleased to other private individuals for their private use.  Also unlike the skating rink in MCC Management Group, the hangars were not available for use by the general public for a modest admission charge.  Rather, the hangars were available only for use by those who rented or subleased them for the storage of their private aircraft.  In fact, the land lease prohibited the use of hangars located at the Airport for other than private purposes, and access to the hangars was restricted by lock and key.    
The appellants cited two cases, Cabot v. Assessors of Boston, 335 Mass. 53 (1956) and Board of Assessors of Newton v. Pickwick, 351 Mass. 621 (1967), which they contend establish that the operation of private property can confer a public benefit sufficient for exemption under the § 2B exception.  The appellant cited Cabot for the proposition that the operation of the garage by a private entity, upon land leased by the City, served a public purpose, because it accomplished "the abatement of the public nuisance, consisting of congestion of the public ways of Boston, caused by the great number of motor vehicles."  Cabot, 335 Mass. at 58.  The appellant next cited Pickwick for the proposition that the land owned by the Massachusetts Bay Transportation Authority ("MBTA") but leased to a private for-profit entity for the operation of a retail establishment served a public purpose, because the lease provided for payments to the fiscally-struggling MBTA  to relieve it of its financial burdens.  Pickwick, 351 Mass. at 624. 
However, in both cases, precise statutory exemptions provided the particular tax relief sought.  In Cabot, section 2A of St. 1946, c. 294, inserted by St. 1948, c. 654, § 1, specifically provided that "No private corporation . . . shall be assessed any tax upon any real estate, garage" located on the city's land and leased for the operation of a public garage.  Cabot, 335 Mass. at 56.  In Pickwick, St. 1949, c. 572, § 6 amended § 14 of St. 1947, c. 544 by specifically extending the MBTA's tax exemption to all of its property "whether or not used in the transit system."  Pickwick, 351 Mass. at 623.  
By contrast, the only exemption cited in these appeals was § 2B.  The appellants failed to demonstrate that the hangars at issue served the City or its instrumentality, the Airport, in some specific manner, perhaps by relieving traffic congestion, as in Cabot, or relieving a financial burden of the City, as in Pickwick.  The only remuneration paid to the municipality was one-half the normal non-hangar tie-down fee per month ($25.50 per hangar unit) and the one-time five percent commission, to be paid to the Airport Commission; the City received no other remuneration, including PILOT payments, pursuant to the lease, other than municipal taxes levied upon improvements to the land.  The Board found and ruled that the monthly fee, which was less than the fee paid for a non-hanger tie-down, could hardly be said to relieve the Airport of any financial distress, even if the appellants had demonstrated financial distress.  
The Board thus found and ruled that the appellants failed to meet their burden of proving that the subject hangars served a public purpose of the City or its instrumentality, the Airport.
b.  The hangars were not "reasonably necessary to the
    public purpose of a public airport."

Secondly, the appellants failed to demonstrate that the hangars sufficiently benefited the operations of the Airport to merit exemption under § 2B.  The Airport had existed for many years with only outdoor tie-downs available for use.  Moreover, the majority of the planes operating out of the Airport still used the tie-downs, even after the hangars became available.  The convenience of the small number of aircraft which used the hangars is not sufficient to establish that the hangars were reasonably necessary to the public purpose of the Airport.  Contrast, MCC Management Group, Mass. ATB Findings of Fact and Reports 2000 at 902-04 (finding that a skating rink open to the public satisfied the criteria that the subject property be "reasonably necessary to the public purposes" of a park).  Furthermore, the appellants failed to demonstrate that any monetary gain bestowed upon the City or its instrumentality, the Airport, by virtue of increased airport traffic, if any, was the direct result of the hangars and not the result of normal growth in airport usage or other factors.
Based on all of the above factors, the Board found and ruled that the appellants failed to meet their burden of proving that the subject hangars were "reasonably necessary to the public purpose of a public airport."
c.  The hangars were not available to the use of the
    general public.

The subject hangars were either held and rented to private individuals by a private for-profit entity or subleased to other private individuals for their private use.  The hangars were not available for public usage, and in fact, access to the hangars was restricted to the general public unless accompanied by the owner/lessees or authorized Airport personnel.  Contrast MCC Management Group, Mass. ATB Findings of Fact and Report 2000 at 902-04 (skating rink open for public use for a modest admission charge).  The Board thus found and ruled that the subject hangars were not "available to the use of the general public" as is required under § 2B.  
 
Conclusion
Based on all of the above factors, the Board found and ruled that the appellants failed to meet their burden of proving that the hangars were exempt from real estate taxes pursuant to the exception in § 2B.  Specifically, the appellants failed to meet their burden of proving that § 2B applied to these appeals.  Moreover, the appellants failed to prove that the hangars were "reasonably necessary to the public purpose of a public airport."  Accordingly, the Board issued a decision for the appellee in these appeals.

					  THE APPELLATE TAX BOARD

By: ______________________________________
                      Thomas W. Hammond, Jr., Chairman




A true copy,

Attest:  ___________________________________
               Clerk of the Board

  Appellants' attorney explained in her opening statement that Liebfried Realty Trust built the hangar units to be condominiums pursuant to the provisions of G.L. c. 183A.  Liebfried Realty Trust then sold sublease unit rights to five individuals who became subject to the underlying land lease.  The remaining thirty-one units were leased by Liebfried Realty Trust to aircraft owners.  Neither party raised standing as an issue in this appeal, and both parties treated the subleasees as if they were the owners of the hangar units.  Therefore, for purposes of this appeal, the Board refers to all appellants as owners of the hangar units.
  In 1990, the City adopted the provisions of Chapter 653, § 40 of the Acts of 1989, which permit a city or town to tax new construction in existence between January second and June thirtieth of the preceding fiscal year.  If a city or town does not adopt Chapter 653, § 40 of the Acts of 1989, G.L. c. 59, § 2A(a) requires that buildings and other structures erected or affixed to land must be in existence by January 1 of the preceding fiscal year. 
  At the hearing of this appeal, Andrew H. Liebfried ("Mr. Liebfried"), the owner and manager of Liebfried Realty Trust, admitted that the hangars were assessed at their fair cash value.
  Mr. Liebfried testified that prior to the construction of the hangars at issue, seven hangar buildings existed at the Airport, several of them constructed sometime in the 1940s, other "more modern" constructions from the 1980s.  

ATB 2008-84