EDUCATIONAL PURPOSES ONLY – NOT TO BE USED FOR ANY OTHER PURPOSE WITHOUT EXPRESS WRITTEN CONSENT OF THE AUTHOR ALL RIGHTS RESERVED IMA CONFERENCE ASSESSMENT CASE LAW UPDATE EQUITY, VALUE, CLASSIFICATION, PROCEDURE, -WE’VE GOT IT ALL IN THE CASE LAW UPDATE 1:30 to 2:25 Monday, June 25th IMA 2012 Annual Conference Kenneth R. West, Walker Poole Nixon LLP
Table of Contents EQUITY CASE REVIEW
SPEERS INVESTMENT LIMITED MUNICIPAL PROPERTY ASSESSMENT CORPORATION, REGION NO. 15, V. BUIJS, ET AL. IRBER HOLDINGS LIMITED ET AL. V. MUNICIPAL PROPERTY ASSESSMENT CORPORATION ET AL KOIFMAN V. MUNICIPAL PROPERTY ASSESSMENT CORPORATION BOUCHARD ET AL. V. MUNICIPAL PROPERTY ASSESSMENT CORPORATION, ET AL ENBRIDGE GAS DISTRIBUTION INC. V. MUNICIPAL PROPERTY ASSESSMENT CORPORATION MPAC V. GUMARO HOLDINGS
2 3 4 5 7 8 9
The following paper will attempt to deal in detail with some of the most recent cases dealing with the concept of equity, but specifically with respect to the introduction and application of section 44 (3) of the Assessment Act (“Act”). Section 44(3) came into effect with the 2008 CVA for the 2009 through 2012 taxation years and all subsequent cycles. The litigation with respect to section 44(3) is still in its infancy and as you will see is awaiting a decision from the Divisional Court which hopefully will provide guidance on the application of the same. The main equity cases with respect to section 44(3) are Speers Investment Limited et al. v. Municipal
Property Assessment Corporation, Region No. 15 et al., Municipal Property Assessment Corporation , Region No. 15, v. Buijs, et al., Irber Holdings Limited et al. v. Municipal Property Assessment Corporation et al., Koifman v. Municipal Property Assessment Corporation, et al, and Bouchard et al. v. Municipal Property Assessment Corporation, et al. Subsequent to dealing with the equity cases in detail, this paper will attempt to make taxpayers centric observations with respect to the recent cases dealing with the issues of classification and value under the Act and cases dealing with procedures before the Assessment Review Board (“Board”).
Equity Case Review Subsection 44(3)(b) states:
EDUCATIONAL PURPOSES ONLY – NOT TO BE USED FOR ANY OTHER PURPOSE WITHOUT EXPRESS WRITTEN CONSENT OF THE AUTHOR ALL RIGHTS RESERVED
44.(3) For 2009 and subsequent taxation years, in determining the value at which any land shall be assessed, the Board shall, (a) determine the current value of the land; and (b) have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment of the land. 2008, c. 7, Sched. A, s. 13.
Speers Investment Limited The case of Speers Investment Limited deals with a property used as a training facility for hockey and ice-skating. The property was originally developed in 1978 as a manufacturing and warehouse facility and was converted to have a number of facilities for the purpose of figure skating and ice hockey including ultimately three hockey playing ice rinks, shooting pads, dressing rooms, a proshop, administrative offices, and a second floor viewing area. The Board’s decision involves an issue as to the valuation of the tenants interests as well as the interest of the Landlord, however, the significance of the case is really how the Board deals with the concept of assessment to sale ratio and its application with respect to section 44 (3) of the Act. It’s perhaps useful in dealing with cases that involve equity and indeed cases that involve current value to try and deal with some of the linguistic problems that are created by the Act. The Act refers to Current Value as the value of a property to be returned on the roll. In dealing with matters before the Board, we attempt to differentiate between the Current Value, which is returned by MPAC, and what we call Actual Current Value, which is the value that is correct taking into account all valuation considerations before the Board. We also utilize the term Equitable Current Value to deal with the concept of a value that has been determined to be the Actual Current Value but adjusted to account for the value of similar real properties in the vicinity. It is important to draw a distinction between these three concepts because the Act simply refers to all of them as the Current Value creating a linguistic problem. In the Speers case, the Board determined that the Actual Current Value in this case is the same as the Current Value as returned by MPAC. In determining the concept of equity, the Board found that the commercial properties located in the vicinity had a median ASR of 1.09. The Board concluded that this demonstrates that MPAC’s approach to value tends to assess similar properties above their Current Value. The Board adjusted the Subject Property to be reduced by 9% to account for that tendency to increase. Generally speaking, this is an interesting development because on the whole, the value is reduced by the Board when the ASR is a number below 1 rather than above 1. This is an indication that there is some at least theoretical ability for a taxpayer to utilize the equity test to be able to obtain a reduction whether MPAC is generally assessing high or generally assessing low. At the same time, it is certainly fair to say that this unusual approach to the application of the equity test may not
EDUCATIONAL PURPOSES ONLY – NOT TO BE USED FOR ANY OTHER PURPOSE WITHOUT EXPRESS WRITTEN CONSENT OF THE AUTHOR ALL RIGHTS RESERVED
stand in all cases and one should be fairly weary about attempting to apply to the Board for a reduction to an Actual Current Value where the comparable properties median ASR is higher than 1. Generally, this would be seen as an issue on the valuation side of the equation.
Municipal Property Assessment Corporation, Region No. 15, v. Buijs, et al. This is a case that was determined originally by the Board and was subject to a motion for a request for review on the basis of fact or law. A litigant can request a review from the Board on the basis of Rule 146 and 149 of the Assessment Review Board Rules of Practice and Procedure and section 21.2(1) of the Statutory Power and Procedures Act (“SPPA”). It is interesting to note on this request for review motion that MPAC, the moving party, having lost in the original hearing was met with no material being filed by the other parties yet with a representative appearing for the tax payer the Board granted the request for review and canceled the decision of the original Board set out in the original reasons and ordered a rehearing. FACTS What is interesting about this decision, aside from being a decision with respect to section 44(3), is that it appears to adopt a relatively low standard for granting a de novo hearing for another member of the Board on the request for review. As is aside, it is possible that counsel for MPAC may have taken advantage of a litigant with substantially less experience and legal training. This case raises some interesting questions specifically whether MPAC issued a notice of increase and, based on what this case appears to be doing, it suggests that it is appropriate for the Board to increase the CVA or the Actual Current Value without a notice of increase issued by any of the parties. It appears that MPAC acknowledged that, on the basis of the Actual Current Value, the value is higher than the value returned by MPAC. This certainly raises questions as to the burden and onus that has been placed on MPAC by the legislature in section 40(17). In any event, the Board suggests that it is appropriate for the Board to conclude that the Actual Current Value could be higher than the Current Value as returned and then applying equity so as to establish that the Current Value as returned is ultimately the equitable Current Value. This is a relatively innovative order in which to go through the steps of section 40 in determining the Actual Current Value and the equity current value. Normally, we recognize that the Actual Current Value must be established and without a notice of intention to increase the assessment, is seems that the Board should be acknowledging that the assessment as returned should be given weight where MPAC is proposing alternate value as the Actual Current Value only to use equity to get it to its original value. With that being said, it is certainly reasonable to conclude that Current Values as returned on the roll have an obligation to be equitable in the first place. This case certainly has the potential to raise very interesting issues on a go forward basis.
EDUCATIONAL PURPOSES ONLY – NOT TO BE USED FOR ANY OTHER PURPOSE WITHOUT EXPRESS WRITTEN CONSENT OF THE AUTHOR ALL RIGHTS RESERVED
Irber Holdings Limited et al. v. Municipal Property Assessment Corporation et al The next case is the case of Irber Holdings Limited et al. v. Municipal Property Assessment Corporation et al., which at the Divisional Court is properly styled Chrysler Canada and the Municipal Property Assessment Corporation. The decision of the Divisional Court is expected any time and hopefully during the period in between the creation of this document and the presentation there will be a decision that we can discuss. The Irber Holdings Limited decision at the Board is certainly a troubling decision from a taxpayer’s perspective. In the interest of full disclosure, Ms. Lunau was counsel for MPAC at both the Board as well as Divisional Court, and Jack Walker and I acted as counsel for Chrysler at the Divisional Court hearing. The case centered on a number of car dealerships in the City of Toronto and the issue put to the Board was simply whether the Board could have reference to properties conceptually near by the subject properties but across a municipal boarder. The appellant alleged that the comparable properties for the purposes of conducting an ASR study included properties located outside of the City of Toronto and included properties in Vaughan, and the region of Peel, and the region of Durham. The Board concluded that the concept of equity does not extend to taxpayers in other municipalities. The Board concluded this on the basis that the purpose and intent of the Act is to achieve a fair distribution of the tax burden between real property within a municipality (a burden that is created at a municipal level) equity or inequity, when reviewing the relationship between the assessments of such real property and Current Values of such real property, is only achievable at a municipal level where all properties are subject to the same level of burden of taxation derived from the same municipal budget and expressed in the same mill rate. The challenge to the Divisional Court centers on the specific wording of section 44(3). Specifically, it was argued that the failure that the legislature to include the language that would specifically limit the “vicinity” to the municipality to which the subject sits is clear evidence of its intention that from a legal perspective there is no such limitation on vicinity. This is made even more clear from a statutory interpretation perspective because various sections of the Municipal Act includes language that defines vicinity to be the same as it is in the Act and then includes specific language to limit vicinity to within a municipality. This distinction clearly evidences the intention of the legislature that vicinity in section 44(3)(b) would extend as far as wide as necessary so as to include a reasonable number of comparable properties so as to determine equity. From a practical perspective, it was our submission that the inclusion of section 44(3) in the Act is for the purpose of insuring that MPAC gets their values right and provides a taxpayer with an effective sword to challenge an assessment on the basis that other assessments in the Province similar real properties indicate that MPAC is not in fact assessing similar properties on a similar basis. With the power of assessment belonging to one organization, it stands to reason that the legislature would want all the assessments in the province to be done in a similar basis and thus, allowing taxpayers to be able to reach to other municipalities to ensure that MPAC is consistent in assessing similar properties. This is how equitable assessment and ultimately correct assessment is driven. The earlier case law dealing with section 44(2) from an equity stand point indicates that the only way to achieve fairness in equity and taxation is to achieve equity of assessment while the case law seems to indicate in some of the earlier cases, albeit with a very mixed result, that 44(2) was limited to properties within a municipality. It is clear that there is a distinction between the concepts of equity and taxation, and equity and assessment.
Koifman v. Municipal Property Assessment Corporation The next case is Koifman v. Municipal Property Assessment Corporation, et al. The case of
Koifman is another case wherein MPAC brought a motion for review of an earlier decision of the Board under Rules 146 through 152 of the Board’s Rules of Practice and Procedure. It is always useful to note that counsel for MPAC on this matter was learned and counsel was learned in experience counsel while the appellant was self-represented. This case deals with a residential property two story residences with a total building area of 3,325 square feet and a returned assessment of $1,471,000. The Member hearing the original case received 11 comparable properties in evidence including a 2003 sale price for the Subject which was rejected. The Member rejected MPAC’s “market value differential” adjustments. The Member also rejected four properties because of their proximity to a main arterial road, three of which were raised by the assessor, and one of which was raised by the appellant. The Member rejected to more of the appellants comparables because the sizes of the improvements were unknown. The Member concluded that the five remaining properties were best comparables because they were “the properties closest to the subject property and have a total area in the 3,325 square foot range.” The Member then went on to calculate the average Current Value per square foot at $415 and applied it to the subject structure to determine a Current Value of $1, 373, 875. The Member then found that there was an ASR of 0.98 based on three of the five comparable properties and determined that as the ASR was below 1.0 there was an equity adjustment of 2% which was deducted from the determined Actual Current Value. MPAC submitted to the Board on its motion for a review that the Member estimated building area for two of the five comparable properties using information contained from the MLS listing for those two properties. It was submission of counsel that this was an error in fact of law because the Member failed to consider relative evidence and made findings unsupported by the evidence before the Board. MPAC asserted that this is a breach of procedural fairness or natural justice in that the parties were not afore the opportunity to cross-examine or to make submissions on the method and evidence adopted by the Member. Furthermore, MPAC contended that the Member erred in the application of 44(3)(b) because an ASR of 0.98 does not indicate a general under assessment substantially less than 1 and that determining an equity adjustment on the basis of an ASR derived from only three sales is a factual error and is wrong in law as it is based on insufficient evidence. With respect to issue of whether the Member had no evidence and the application of the valuation methodology, the Board concluded that the Member on the original panel had sufficient evidence in addition to other attributes to conclude that the two impugned properties were comparable and necessary of the determination of the correct Current Value. The Board hearing the motion concluded that while hearing the motion that while in the circumstances that the Members met that might lead to sufficient factual error that its decision would be more than marginally different, that is not the case. The motion panel was unable to declare that this method was sufficiently erroneous to have resulted in a different decision on the particular facts of the case and thus, had that been the only issue, the Members utilization of derived information and utilizing midpoints of the comparable did not rise to an error that would require a rehearing.
With respect to whether an ASR of 0.98 demonstrates an inequity, MPAC brought cases of Empire Realty and Bramalea Limited to the Board’s attention. In Empire Realty, the Board quoted that “the Court would find inequity if all similar lands in the vicinity were assessed at some percentage of Actual Value substantially less than 100.” MPAC’s issue with the original decision is that the normal position put forward by MPAC is that an ASR of anywhere between 0.95 and 1.05 indicates a range that is reasonable and demonstrative of consistent and accurate assessments. The Board on this issue concludes that equity is not defined in the Act but is remedial in nature and applied in where strict application of the law may leave an injustice or unfairness in its wake. The Board “infers that the reason why a 5% standard is generally recognized is that if determining Current Value is not an exact science, then the search for equity is even less so, largely due to the fact that there is a distinction between equity and equality.” The panel interpreted the case law to mean that an ASR in the range of 0.95 to 1.05 lacks sufficient magnitude to draw a reasonable inference of MPAC’s model or to differentiate between Current Value and Equitable Value with any precision. Thus, a clear case would not be made in that range for the presence of an inequity. However, notwithstanding the comments made by the panel with respect to the reasonableness of the 10% range, the Board concluded that “it is not prepared to declare the application of any particular percentage or ratio to be an error of law. The generally accepted plus or minus 5% standard is not binding on the Board, but is rather a reasonable guideline that ought to be following in most instances.” It is important to recognize from a taxpayers perspective that the 10% swing in the 0.95 to 1.05 range asserted by MPAC is not a black letter law. It is important to recognize that in certain instances that where equity is demonstrated clearly and the evidence shows that it would be unreasonable not to provide a reduction for a property that are within that range the Board ought to be prepared to reduce an assessment on something less than 5%. In terms of the sufficient sample size, the Board originally used a sample size of only three properties it being the only evidence before it that the Board was able to conclude represented similar real property in the vicinity. The motion panel noted that reducing the sample size renders the resulting ASR less statistically correct and of less probative value in determining equity. It is commonly understood that MPAC will often submit six properties as comparable properties in determining the assessment to sales ratio. The Board states that “a home owner should be able to present, and the Board to consider, a representative sample of what the party say are similar properties in the area, in order to demonstrate the alleged equity.” This is a recognition by the Board that tools are available to taxpayers particularly with respect to residential appeals are limited in obtaining sales of similar properties so as to perform an assessment to sales ratio will often not be more than a small number. It will be interesting to see in the future on commercial and industrial appeals whether the evidence of its status is ever introduced by a party to deal with the issue of what is the correct sample size so as to portray an accurate picture of equity. Today, to my knowledge, that has not occurred. Generally speaking, the Board is presented with usually essence of two and often less than 10 comparable properties. The Board concludes that in the decision under review, the Member did not have a ratio list of sufficient probable value to establish the inequity of the subject properties assessment. The Board found that the original Member made conclusions that were factually incorrect as the correct numbers from the larger samples using all five sales do not support a finding of the properties are being generally under assessed as
concluded by the original panel. The Board determined that that error in fact would have resulted in a different decision as in absence of the application of the ASR based on five comparables no equity adjustment would have been made. As a result, the Board ordered a rehearing on all the issues noting that it would have only ordered a rehearing on the issue of the ASR but for a request by the appellant that all matters should be reopened on rehearing.
Bouchard et al. v. Municipal Property Assessment Corporation, et al The next case is Bouchard et al. v. Municipal Property Assessment Corporation, et al. This is
another case argued on behalf MPAC by Ms. Lunau. The subject property being a 0.46 acre parcel of land with an 18 unit “walkup” multi-residential apartment building. As an aside, this is another decision where the Board states that the Act requires assessments to be “equitable or fair” and the purpose[s] of the equity test [are] to ensure that the Municipal Act burden is shared fairly and equally among similarly situated rate payers.” This conclusion while generally accepted may not present the entire picture particularly as we note the shift from section 44(2) to section 44(3) and that ultimately the equity test, as I note earlier is also intended for the purposes of ensuring that MPAC’s assessment are consistent and fair. In this case MPAC valued this property as well as all of the properties raised as comparable properties using an income methodology and a gross income multiplier or (GIM) to achieve a Current Value. MPAC’s income approach uses rental information provided by the appellant in gross income and determines a gross income by multiplying the median actual rent received for each suite types by the number of suites in the building. These median rents are referred to as TAR or Typical Actual Rents. Multiply it by multiple gross income multiplier to determine the current value. With ancillary components being added in such as parking. The Board was presented with evidence by MPAC that with sales in the vicinity indicate an assessment to sales ratio of 0.99. The appellant relied on the sale of a 30 unit building that was a former Canadian Tire store converted to a multi residential use. The MPAC evidence on the subject indicated that the typical annual rents were on average 21% higher in the subject property than for the appellant’s comparable property. This certainly would tend to indicate that the properties are not similar. The subject property was assessed by MPAC with a GIM of 5.6 while the comparable used by the appellant was valued using a GIM of 3.9. The assertion by MPAC was that the comparable property was raised by the appellant and in theory the equality has suggested by the substantial lower rents. The Board recognizes at paragraph 30 that the systems of mass appraisal do not generate Actual Current Values for every property and at this point in the decision there is certainly an indication that the Board does concur that the equity test found at 44(3) has something to do with ensuring that MPAC gets it right, so to speak. The Board accepted MPAC’s assessment of $925,000 as being the correct Current Value and ultimately, the Board does not accept the appellants argument based on the sale of its comparable largely on the basis that subsection 44(3)(b) of the Act is drafted “in the plural as opposed to the singular suggesting that an equity analysis should encompass more than just one new comparable property.”
This case is a good indication on the one hand that an analysis of one property does not an equity test a make. Also that there is at the very least a tacit acceptance by the Board that the concept of equity as currently found in the Act is among other things, for the purpose of ensuring that the assessments returned by MPAC are consistent and fair within MPAC’s jurisdiction and not just applicable within the jurisdiction of the taxing jurisdiction which the property lies.
Enbridge Gas Distribution Inc. v. Municipal Property Assessment Corporation Enbridge Gas Distribution Inc. v. Municipal Property Assessment Corporation, Region No. 13 and the City of Oshawa is the next case. This is a case dealing with a natural gas gate station. The general facts of the case are that gas would come from the natural gas pipeline owned by the appellant and within the subject property the gas would be depressurized and an odorant is added and the process involves a degree of heating and cooling. The Board concluded that the subject property fell under the classification section found in O. Reg 282/98 subsection 6(1) paragraph 1, sub paragraph i, that within the facility there is processing occurring. As a result the property is classified as industrial rather than falling into the catch all class of commercial. The appellant submitted that generally speaking the concept is that gas comes in the facility and gas leaves the facility. However, the Board’s conclusion is that in fact the changes being made did constitute processing and as such did fall within the industrial property class. This decision is problematic but this is largely because of the nature of the regulations. The fact of the matter is that fast food restaurants indeed, all restaurants process things yet are subject to commercial property class, the nature of the regulations simply does not capture and was likely not intended to capture all kinds of processing however the language is written in such a way as to capture a very wide range of use. I think this decision poses significant problems for MPAC and for taxpayers, as there is certainly a suggestion that any change to anything within a subject property would render the property subject to the industrial tax rate. Furthermore, this issue has been raised in other cases where it is very clear that the taxpayer is processing something however, the Board determined that in those cases notably in the case we all refer to as the Sign Case where the Board concludes that while the various components of signs are coming into the taxpayers property and are leaving as completed signs that that did not constitute to processing. The Enbridge Gas case is subject to an application for leave to appeal and hopefully we will get some guidance from the Courts as to how broad the definition of the industrial tax class is before the 2012 Base comes into play. In fact another issue was raised by counsel for the appellant and it was whether there is any equity in the concept of classification and the Board was not receptive to that concept and there is certainly a question as to whether there is some inherent right to be treated equitably absent a provision in the Act requiring it and again it will be very interesting to see whether the Courts at some point or indeed the legislature sees it fit to make a determination to the Board that ought to consider the concept of equity when making determinations of classifications.
MPAC v. Gumaro Holdings The next case is MPAC v. Gumaro Holdings. This is another case involving Ms. Lunau and a multi-residential property. Indeed, this is another case where MPAC is requesting a rehearing on the grounds that the Board violated the rules of natural justice and made errors of law or facts that such would have likely reached a different decision. Interestingly, no one appeared on behalf of the assessed person or the municipality on the rehearing before Member Whitehurst. Increasingly, the number of cases in which MPAC seeks a request for review tells a story within its self.
Conclusion As one can see from this year of decisions on Equity that there is more to come on the subject, and hopefully some clarity from the Divisional Court.