HealthSouth Corp. v. Boulder County Board of Commissioners

220 P.3d 966, 2009 Colo. App. LEXIS 366, 2009 WL 707411

• Court: Colorado Court of Appeals
• Decided: March 19, 2009
• Docket: 08CA0233
• Status: Published

Opinions

Opinion by

Judge GRAHAM.

In this property tax case, petitioner, HealthSouth Corporation (taxpayer), appeals from a final order of the Board of Assessment Appeals (BAA). The BAA dismissed taxpayer's consolidated administrative appeals challenging the denial by respondent, the Boulder County Board of County Commissioners (BOCC), of two petitions seeking an abatement and refund of a portion of taxpayer's personal property taxes for the 2002 tax year. We reverse the BAA's order and remand for further proceedings on the merits of taxpayer's abatement and refund claims.

The statutory grounds for an abatement and refund of all or part of property taxes levied are provided in section 89-10-114(1)(a){(D(A), C.R.S.2008, which authorizes an abatement and refund of property taxes levied "erroneously or illegally," whether due to (1) "erroneous valuation for assessment"; (2) "irregularity in levying"; (8) "clerical error"; or (4) "overvaluation."

At issue in this appeal is whether, under the Colorado property tax scheme, a taxpayer may seek an abatement and refund of overpaid personal property taxes when the overpayment resulted from the taxpayer's earlier misconduct in overreporting assets and valuations in filing its personal property declaration schedules. Contrary to the BAA's ruling, we conclude that, under the statutory scheme, taxpayer has the right to proceed with its abatement and refund claims on the ground of overvaluation, notwithstanding the fraudulent overstatement of its assets and valuations in its initial tax filings. Consequently, the BAA erred in dismissing taxpayer's appeals without affording an evidentiary hearing, and on remand it must consider the merits of taxpayer's overvaluation claims concerning its personal property for the 2002 tax year.

I. Factual Background

The facts relevant to the legal issues before us are not in dispute. Taxpayer timely filed two abatement and refund petitions with the BOCC concerning the taxes levied on its personal property for the 2002 tax year. After the BOCC denied these petitions, taxpayer timely appealed these decisions to the BAA. The BAA later consolidated these appeals.

In the BAA proceedings, taxpayer sought to reduce the 2002 tax year valuation of its personal property at its Longmont location from $654,642 to $125,517, and to reduce the 2002 tax year valuation of its personal property at its Boulder location from $471,060 to $60,312. The factual basis for taxpayer's abatement and refund claims is that in 2002, as part of a broader fraudulent scheme to increase the company's stock price, taxpayer included fabricated valuations for fictitious assets in the personal property declaration schedules it filed.

Taxpayer, through its independent accountants, disclosed the existence of this scheme to the BOCC in a letter which enclosed a copy of a complaint which had been filed against taxpayer by the Securities and Exchange Commission. The complaint alleged that taxpayer had inflated its earnings to match projections of certain Wall Street analysts and thereafter balanced its books by matching false earnings with false increases in its tangible assets. According to the complaint, taxpayer "engaged in transactions, practices and a course of business which would have operated as a fraud or deceit upon the purchasers of the securities." Now under different management, taxpayer sought an abatement and refund of the portion of the personal property taxes it overpaid attributable to the reported valuations of the nonexistent assets.

The BOCC moved to dismiss taxpayer's appeals, contending that taxpayer's fraud in its personal property tax filings provided no basis for abatement and refund claims under any of the statutory grounds. The BOCC alternatively argued that even if there were any viable statutory grounds for relief under these circumstances, taxpayer's abatement and refund claims should be barred by certain equitable defenses, including the "unclean hands" doctrine.

After considering this motion, taxpayer's response, the BOCC's reply, briefs by the parties, and oral argument at an evidentiary hearing on the issues, the BAA granted the BOCC's motion and dismissed taxpayer's appeals.

As we read the BAA's order, it did not dismiss for lack of jurisdiction. Rather, the BAA ruled that there were no statutory grounds authorizing an abatement and refund under the cireumstances stated by taxpayer. Specifically, the BAA ruled that under these cireumstances taxpayer's abatement and refund claims were not based on any erroneous valuation for assessment, any clerical error, or any overvaluation within the meaning of these statutory provisions. This appeal followed.

II. Legal Analysis

We agree with tazpayer that the BAA erred in dismissing its abatement and refund claims under these cireumstances. In our view, taxpayer had a viable basis for its abatement and refund claims under the statutory scheme on the ground of overvaluation, to the extent that taxpayer could prove that its personal property was overvalued by the inclusion of any value attributable to nonexistent assets. We also perceive no basis under the statutory scheme for barring these authorized abatement and refund claims under the equitable defenses asserted by the BOCC.

A. Jurisdictional Issues

We first address the parties' arguments concerning the BAA's jurisdiction to consider taxpayer's abatement and refund claims. As noted by taxpayer, because the administrative appeals from the BOCC's actions denying taxpayer's petitions were timely filed with the BAA, the BAA had jurisdiction and a statutory duty to "hear" taxpayer's appeals. See §§ 39-2-125(1)(f), 89-10-114.5(1), C.R.S. 2008; 5050 S. Broadway Corp. v. Arapahoe County Bd. of Comm'rs, 815 P.2d 966, 968-69 (Colo.App.1991)

In such administrative appeals, the BAA is not limited to a review of any previous action taken, but instead is authorized to conduct de novo evidentiary proceedings on the merits of the abatement and refund claims. See D.C. Burns Realty & Trust v. Jefferson County Bd. of County Comm'rs, 849 P.2d 900, 903 (Colo.App.1992). Nevertheless, even when the BAA has subject matter jurisdiction to hear such appeals, the substantive limitations on abatement and refund elaims found in other statutory provisions remain applicable. See 5050 S. Broadway Corp., 815 P.2d at 968-71 (holding that BAA had jurisdiction to hear the appeal, but affirming BAA's denial of abatement and refund claims as unauthorized under statutory scheme).

Here, the BAA stated that it had "heard" taxpayer's appeals, but it ultimately dismissed them upon ruling that taxpayer's abatement and refund claims did not fall within the substantive grounds for such relief under the statutory scheme. Thus, the BAA's order was not based on any jurisdictional issues, and we perceive no error on any jurisdictional grounds.

B. Overvaluation Issues

Next, contrary to the BOCC's argument and the BAA's analysis, we agree with taxpayer that it asserted viable abatement and refund claims under the cireumstances here based on the statutory provisions authorizing such claims on the ground of "overvaluation."

We review interpretations of statutes by the BAA de novo. Our primary purpose when construing statutes is to effectuate the intent of the General Assembly. To determine intent, we first look to the statutory language, giving words and phrases their commonly accepted meaning. Boulder Country Club v. Boulder County Bd. of Comm'rs, 97 P.3d 119, 120 (Colo.App.2003).

The term "overvaluation" is not defined in section 39-10-114(1)(a)(D)(A), but it must be given a broad meaning. See ch. 809, see. 1, § 39-10-114(1)(a)(D)(A), 1991 Colo. Sess. Laws 1962 (legislative declaration stating that this ground was added to the statutory scheme "with the intent of extending to any taxpayer the right to petition for an abatement or refund of property taxes levied erroneously or illegally due to an overvaluation," which allows abatement and refund petitions "for essentially all errors in valuation"); see also Portofino Corp. v. Bd. of Assessment Appeals, 820 P.2d 1157, 1160 (Colo.App.1991) {noting and applying this legislative declaration).

The determination as to the statutory grounds applicable to a taxpayer's abatement and refund claims is based on the substance of the taxpayer's claims, and the language used in the taxpayer's petition is not controlling. When the taxpayer's abatement and refund claims involve a factual determination concerning the appropriate valuation, they are based on the ground of overvaluation. See Boulder Country Club, 97 P.3d at 122-23; Wyler/Pebble Creek Ranch v. Colo. Bd. of Assessment Appeals, 883 P.2d 597, 600 (Colo.App.1994); see also 2 Assessors Reference Library § V, at 5.14 (rev. Sept.2008) (provisions of Property Tax Administrator's reference manuals stating that "overvaluation" under section 39-10-114(1)(a)(ID)(A) is defined as "valuation adjustments that require judgment").

Here, taxpayer's abatement and refund claims are factually based on its inclusion of fictitious values of nonexistent assets in the personal property declaration schedules it initially filed. Although the personal property taxes levied were based on the assets and values taxpayer reported, the county had the legal authority to value and tax only the property actually located within the county. See §§ 39-1-108(5)(a), 89-1-105, C.R.98.2008. Any nonexistent property reported could not be located within the county and could not have any actual value. Consequently, taxpayer asserts that there has been an overvaluation of its taxable personal property in the aggregate, to the extent that the taxes have been levied on valuation attributable to the nonexistent assets initially reported.

Under these circumstances, absent any applicable exceptions, there is a viable basis for taxpayer's abatement and refund claims under the statutory scheme on the ground of overvaluation. The amount of the overvaluation involves a factual determination as to the valuation improperly assigned to nonexistent assets as opposed to the valuation properly assigned to actual assets located within the county. See Boulder Country Club, 97 P.3d at 122-23; see also Home Depot USA, Inc. v. Pueblo County Bd. of Comm'rs, 50 P.3d 916, 918-20 (Colo.App.2002) (affirming BAA's factual determinations as to valuation of taxpayer's personal property from evidentiary proceedings on taxpayer's abatement and refund claims).

There are two possible exceptions to the statutory authorization for abatement and refund claims on the ground of overvaluation, but neither one is applicable here.

First, abatement and refund claims on the ground of overvaluation are statutorily prohibited if the valuation for the same tax year was previously challenged under the separate protest and adjustment procedure. See § 89-10-114(1)(a)(D(D), C.R.S.2008; D.C. Burns Realty & Trust, 849 P.2d at 902. The parties agreed at the BAA hearing that taxpayer did not previously challenge the 2002 tax year valuation of its personal property under the protest and adjustment procedure, and so this exception is inapplicable.

The other exception applies to situations in which a taxpayer has failed to file any personal property declaration schedule and the county assessor has made a "best information available" (BIA) valuation as authorized under section 89-5-116(1), C.R.98.2008. In Property Tax Adm'r v. Prod. Geophysical Services, Inc., 860 P.2d 514, 516-19 (Colo.1993), the supreme court held that a taxpayer in that situation is barred from challenging the BIA valuation of its personal property under the abatement and refund procedure, based on the provisions of section 39-5-118, C.R.S.2008, which applies only when a taxpayer has failed to file a personal property schedule.

In this case, however, taxpayer filed personal property schedules for the 2002 tax year and no BIA valuations were made. Thus, the exception provided by section 39-5-118 and Production Geophysical Services is also inapplicable here.

Consequently, under the statutory scheme, taxpayer may be granted relief on its abatement and refund claims on the ground of overvaluation to the extent that it can establish that it was improperly taxed on valuation relating to nonexistent property.

C. Equitable Defenses

The BOCC also contends that, even if taxpayer had statutory grounds for its abatement and refund claims, these claims should be barred on equitable grounds by the unclean hands doctrine because they arose from taxpayer's own fraudulent misconduct in ov-erreporting assets and valuation in the personal property schedules it filed. 'We are not persuaded.

Tax provisions are generally viewed as technical laws that are not subject to equitable principles. Shell W. E & P, Inc. v. Dolores County Bd. of Comm'rs, 948 P.2d 1002, 1007 (Colo.1997) (SWEPI ). Nevertheless, in certain cireumstances it may be appropriate to apply certain equitable principles in abatement and refund proceedings under the Colorado property tax scheme. See id. at 1010 (holding that application of equitable tolling doctrine was appropriate as to statute of limitations in abatement and refund proceedings under cireumstances in that case).

In our view, it would not be appropriate to permit the application of the non-statutory equitable defense of the unclean hands doctrine under the cireumstances here, which would have the effect of barring taxpayer's statutorily authorized abatement and refund claims, because the General Assembly has addressed this situation but has provided for different consequences.

Nothing in the statutory scheme itself bars a taxpayer that has submitted false information in a filed personal property schedule from later pursuing abatement and refund claims as to any resulting overpayment of its personal property taxes. However, there are two separate statutory provisions otherwise addressing these cireumstances. See §§ 39-5-116(2), 89-10-114(1)(b), C.R.8.2008.

Under section 89-5-116(2)(a), a taxpayer fails to make a full and complete disclosure of its personal property for assessment purposes if, among other things, the taxpayer includes in a filed personal property schedule "any information" concerning its property that is "false, erroneous, or misleading." Section 39-5-116(2)(c) further provides that any taxpayer in those circumstances "shall have the right to pursue the administrative remedies available to taxpayers under this title, dependent upon the basis of [the taxpayer's] claim." (Emphasis added.)

Thus, the Colorado property tax scheme distinguishes between taxpayers that fail to file any personal property schedules and taxpayers that file personal property schedules that include false information, providing different consequences for each situation. Taxpayers failing to file any personal property schedule are barred from challenging a BIA valuation under the abatement and refund procedure. Prod. Geophysical Servs., 860 P.2d at 516-19; see §§ 89-5-116(1), 839-5-118. In contrast, taxpayers filing personal property schedules that include false information have a statutory right to pursue all available administrative remedies, including remedies under the abatement and refund procedure. See § 39-5-116(2).

However, the statutory scheme also provides for more limited adverse consequences to such taxpayers in section 39-10-114(1)(b). Although taxpayers prevailing on abatement and refund claims are generally entitled to refunds of the taxes paid together with refund interest, section 39-10-114(1)(b) provides that refund interest "shall not be paid" if the overpaid taxes were levied "as a result of an error made by the taxpayer in completing personal property schedules." Thus, the statutory penalty provided in such cireumstances is limited to the denial of interest on any tax refunds made under the abatement and refund procedure.

The dissent supposes that the phrase, "dependent upon the basis of [the taxpayer's] claim," contained in section 39-5-116(2)(c), provides an exception which allows the BAA to reject a petition for tax abatement in the present cireumstance, arguing that the basis for taxpayer's petition here is fraudulent. We read the phrase as referencing the four separate bases for abatement set forth in section 39-10-114: where taxes have been levied erroneously or illegally as the result of (a) erroneous valuation for assessment, (b) irregularity in levying, (c) clerical error, or (d) overvaluation. These four bases are, in our view, different from the nature of a claim, and the statutory provisions do not exclude claims that are in the nature of taxpayer's but nevertheless satisfy one of the four statutory bases. We also note that while the dissent focuses on the fraudulent activity of taxpayer, it was not the BOCC that was the target of the inflated earnings fraud: it was the investors.

In short, although the Colorado statutory scheme does not expressly address the applicability of equitable defenses to abatement and refund claims under these cireumstances, it is not silent on the issue. Because the General Assembly has addressed the situation of taxpayers including false or misleading information in filed personal property schedules but has chosen not to bar such taxpayers from later pursuing abatement and refund claims concerning any resulting overpayment of taxes, we perceive no basis for nevertheless effectively barring such claims on nonstatutory grounds by permitting the application of the equitable defense of the unclean hands doctrine in this situation. See §§ 39-5-116(2), 89-10-114(1)(b).

D. Remand Proceedings

For the foregoing reasons, the case must be remanded to the BAA for a new determination on the merits of taxpayer's abatement and refund claims on the ground of overvaluation concerning the 2002 tax year. For such purposes, the BAA is authorized to conduct a de novo evidentiary hearing on taxpayer's claims. Taxpayer is entitled to an abatement and refund of its 2002 personal property taxes, without refund interest, to the extent that it can prove that it was improperly taxed on valuation attributable to nonexistent property rather than valuation attributable to actual assets located within the county on the January 1 assessment date. See §§ 89-1-108(5)(a), 89-1-105, 39-10-114(1)(a)(D(A), (b); D.C. Burns Realty & Trust, 849 P.2d at 903-04; see also Home Depot USA, Inc., 50 P.3d at 918-20.

E. Other Issues

The parties have also asserted arguments based on the rulings on similar claims in cases from other states. See, eg., Ex parte HealthSouth Corp., 978 So.2d 745 (Ala.2007). However, because those cases were decided based on significantly different statutory language in different statutory schemes in those states, we do not find them to be persuasive in this case regarding the construction of the applicable statutory provisions of the Colorado property tax scheme.

Finally, in view of this disposition of the issues, we need not address the remaining contentions of the parties.

Accordingly, the BAA's order is reversed, and the case is remanded to it for further proceedings consistent with the views expressed in this opinion.

Judge BOORAS concurs. Judge BERNARD dissents.