Hydro Kennebec, L.P. v. Town of Winslow
Opinion
STATE OF MAINE SUPERIOR COURT CIVIL ACTION
KENNEBEC. ss. DOCKET NO. AP-04-90
HYDRO KENNEBEC, L.P., Petitioner
v. DECISION ON APPEAL TOWN OF WINSLOW, Respondent
T h s matter comes before the court on the petition of Hydro Kennebec, L.P.
("petitioner" "HKLP") from a decision of the State Board of Property Tax Review ("Board") denying a requested property tax abatement. Tlus appeal of final agency action is brought pursuant to M.R. Civ. P. 80C.
Background
The petitioner owns a hydroelectric power generating plant situated on the Kennebec River. The petitioner also has a lease hold interest in the land underlying the plant, which is owned by Scott Paper Company. Scott Paper had previously operated a much smaller dam and hydro-generating unit primarily to provide power for its own paper malung operation. In 1984, Scott entered into a power purchase agreement ("PPA") with Central Maine Power, executed in the wake of the Public Utility Regulatory Policies Act of 1978. T h s contract required Scott to sell and CMP to purchase all of the electricity produced by the plant. In October of 1986, Scott assigned the contract to HKLP. In the early 1990's, the hydropower plant essentially was rebuilt with a significant increase in the amount of electricity it is capable of producing. The PPA, w h c h runs through February of 2009, has the effect of requiring CMP to purchase all of the increased production at a rate whch now exceeds the market rate for electricity produced without such contract.
For the tax year commencing April 1, 2000, the tax assessor for the respondent Town of Winslow, in whch the hydroelectric power generating plant is located, valued the property at $25 million, after talung into account the existence of the PPA. HKLP believed it was an error to consider the PPA in determining the value and petitioned the town's Board of Assessment Review requesting abatement. When the abatement was denied, the petitioner appealed the town's board's decision to the State Board. After the State Board upheld the decision of the town's board, the petitioner timely filed the present appeal.
Discussion
On appeals of denial of an abatement, there is a presumption that the assessor's valuation is valid. Yusem v. Town of Raymond, 2001 ME 61, ¶ 8,769 A.2d 865, 869-70. To overcome this presumption, the taxpayer must prove that the property was substantially over valued or there was unjust discrimination or fraud, dishonesty or illegality. Northeast Empire Limited Partnership No. 2 v. Town of Ashland, 2003 ME 28, ¶ 7, 818 A.2d 1021, 1024. In attempting to meet t h s burden, HKLP argues that consideration of the PPA in valuing the real property violates the Maine constitution and statutes concerning taxation of intangibles, and also that such valuation results in unjust discrimination by taxing a business decision to keep the PPA in effect. Neither argument is persuasive.
In its extensive and carefully reasoned decision, the board opined that the town was required to consider the PPA in determining the fair market value of the real property ". . . because the contract, albeit intangible property is inextricably intertwined with the hghest and best use of the real property being assessed." The petitioner argues that by considering the contract in malung the valuation, the assessor was taxing the contract, at least indirectly, contrary to the general rule that intangible property is not to be taxed. Although the Legislature has the constitutional authority to levy taxes on intangible personal property (Art. IX, § 8, Constitution of Maine), it has chosen to limit direct taxation of personal property to "tangible goods and chattels." 36 M.R.S.A. § 601.' However, the argument confuses this general rule that intangible personal property is not subject to taxation with the consideration of the effect of the intangible on the income generating capacity of the tangible real asset with which it is associated - in this case the hydroelectric generating plant. Using a stream of income approach to valuing the hydro plant, it is appropriate to consider the highest and best use of that plant, which for now is production of electricity for sale to CMP under the PPA. If at some time in the future the PPA was sold CMP or expires under its own terms, there would likely be a change in the revenue producing potential and resulting adjustment to valuation of the hydro plant. However, the petitioner has not surrendered or sold the contract and its consideration vis-a-vis the value of the real property does not mean that the contract itself is being taxed.
The valuation issue confronting the Board has not previously been addressed in Maine case law. Therefore, the Board looked to two decisions in California whch, though not stare decisis, the Board found to be "instructive" in analyzing the issue. Freeport-McMoran Resource Partners v. Cotinty of Lake, 12 Cal. App. 4th634 (1993); Watson Cogeneration Co. v. Town of Los Angeles, 98 Cal App. 4th1066 (June 2002). The petitioner argues that the California constitution and statutes are not the same as those in Maine. Nevertheless, the differences are not so great that they completely destroy the
1 Neither side argued the point, but the definition of "real estate" for tax purposes, as set forth in 36 M.R.S.A. § 551, includes "shore privileges and rights" which arguably are intangible property.
usefulness of the analysis. Both these California cases and cases from Massachusetts (Turners Falls Limited Partnership v. Board of Assessors of Montague, 54 Mass. App. Ct. 732, 767 N.E.2d 629 (2002))and Michgan (Sweepster, Inc. v. CSIO Township, 225 Mich. App. 497, 571 N.W.2d 553 (1997)) are in accord. Although the petitioner attempts to distinguish these cases, it offers no alternative authority of its own to show that any court in the United States has endorsed its own contrary approach to valuation.
Petitioner also suggests that a recent decision of the Legislature's Committee on Taxation to lull a proposed amendment to 36 M.R.S.A. § 701-A that would have expressly required the inclusion of intangible assets in determining the value of property is an expression of legislative intent that such assets not be included. This argument simply over analyzes legislative nonaction. The reason for the committee's decision could just as well have been that the authority to include such assets in determining value is recognized and requires no further legislative clarification. In any event, a committee's non-action is hardly evidence of the intent of the whole Legslature with regard to previously-enacted legislation.
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