IBM Credit Corp. v. City of Bath

665 A.2d 663, 1995 Me. LEXIS 217

• Court: Supreme Judicial Court of Maine
• Decided: September 21, 1995
• Status: Published

Opinions

GLASSMAN, Justice.

IBM Credit Corp. appeals from the judgment entered in the Superior Court (Kenne-bec County, Alexander, J.) affirming the decision of the State Board of Property Tax Review determining the just value for tax purposes of certain mainframe computer equipment owned by IBM. IBM contends that because the Board erroneously did not utilize the fair market value of the equipment to determine its just value, the trial court erred in affirming the Board’s decision. We affirm the judgment.

The record reflects the following pertinent facts: IBM acquired the computer equipment in 1989 at a cost of $5,113,454 and simultaneously leased it to Bath Iron Works for a 36-month period at $143,872 a month. Thereafter, the equipment was leased to Deluxe Check Printers for 36-month period at $17,000 a month. The City Assessor valued the equipment at $3,694,500 for 1991 and $3,235,620 for 1992. Pursuant to 36 M.R.S.A § 841 (1990 & Supp.1994), IBM applied to the assessor for the City of Bath for an abatement of the taxes assessed on the computer equipment for the years 1991 and 1992. It requested that the assessed value be reduced to $1,797,240 for the year 1991 and to $801,890 for the year 1992.

Following the assessor’s denials of the applications, IBM applied to the City’s Board of Assessment Review, pursuant to 36 M.R.S.A. § 848 (1990 & Supp.1994). Following its denials, IBM filed appeals to the Board that were consolidated for hearing. By its appeals, IBM contended that the City Assessor had substantially overvalued the equipment by failing to consider its economic and functional obsolescence and its market value. In support of its contention, IBM presented the testimony of Robert Henry, its marketing advisor, and Dale Taylor, the owner and publisher of “Computer Price Watch,” a monthly publication giving the current wholesale and retail prices of computers and representative lease rates for certain terms. Henry opined that the equipment had lost approximately 90 percent of its value within the first three years of its purchase; that at the beginning of the lease to Deluxe Check Printers in October, 1992, the equipment had a value of approximately $560,000; and that the equipment would be worthless at the end of that lease period. Taylor testified that he analyzed information received in the course of a month from 50 to 60 dealers in computer hardware to determine that the information published in “Computer Price Watch” reflected the market and that he did not include price information during the months for which he had insufficient information to form a conclusion with which he was comfortable. He opined that in April, 1991 the equipment had a market value of $1,845,000 and $850,000 in April, 1992. He affirmed Henry’s opinion that at the termination of the lease to Deluxe Cheek Printers the equipment would be valueless. Michael Austin, the City Assessor, testified that, as was done with all personal property in the City, he valued the equipment by depreciating the original cost at five percent a year.

After a hearing, the Board determined that IBM had met its burden of proving that the equipment had been substantially overvalued. The Board found that the IBM equipment was not susceptible to the same method of assessment used for other types of personal property in the City of Bath because it depreciated at a faster rate, and accordingly, the five percent per year depreciation was inappropriate. It rejected IBM’s suggested rate of depreciation of more than 50 percent the first two years as not recognizing the residual value of the equipment. From the Board’s decision concluding that the just value of the equipment was the original cost depreciated by 20 percent a year and directing the City to reimburse IBM with interest from the date of overpayment, IBM sought review by the Superior Court pursuant to the provisions of 36 M.R.S.A. § 271(7) (1990) and 5 M.R.S.A. §§ 11001-11008 (1989). After a hearing, a judgment was entered affirming the decision of the Board, and IBM appeals.

When, as here, the Superior Court acts in its appellate capacity, we review directly the decision of the Board for abuse of its discretion, error of law or findings unsupported by substantial evidence in the record. Town of Vienna v. Kokernak, 612 A.2d 870, 872 (Me.1992); see also 5 M.R.S.A. § 11007 (1989) (setting forth the manner and scope of judicial review).

IBM contends that because the Board’s adoption of cost less depreciation as a methodology for determining the just value of the equipment was arbitrary, capricious and an abuse of its discretion and was not supported by substantial evidence on the whole record, its decision must be vacated. It argues that the just value of the equipment should have been determined by adopting its evidence as to the fair market value of the equipment. We disagree.

An assessment is presumed valid, and the taxpayer has the burden to prove it “manifestly wrong.” City of Waterville v. Waterville Homes, Inc., 655 A.2d 365, 366-67 (Me.1995). The Maine Constitution requires that property be assessed for purposes of taxation “equally according the just value thereof.” Me. Const, art. IX, § 8. In general, “local assessors have considerable leeway in choosing the method or combinations of methods to achieve just valuations.” Central Maine Power Co. v. Town of Moscow, 649 A.2d 320, 324 (Me.1994) (citations omitted). “Although the Legislature has established ‘minimum assessing standards’ with which the assessors must comply, 36 M.R.S.A. § 327, it has stopped short of setting forth in the statutes the different methods which local assessors may utilize to achieve such results.” Shawmut Inn v. Town of Kennebunkport, 428 A.2d 384, 389-90 (Me.1981). See also 36 M.R.S.A. § 326 (1990) (“The purpose of minimum standards is to aid the municipalities of Maine in the realization of just assessing practices without' mandating the different ways municipalities might choose to achieve such equitable assessments.”).

Here, in determining the value of the equipment, the Board used the cost less depreciation method. We have previously noted that “[depreciation, like the market value of property cannot be proved with mathematical certainty and must ultimately remain in the realm of opinion, estimate and judgment.” Shawmut Inn, 428 A.2d at 394. The evidence before the Board revealed that computer equipment depreciated at a faster rate than other personal property because the technology of existing computers is being superseded by continuing advances in computer technology. As a result, IBM’s computer equipment has a low resale value. Notwithstanding the low resale value, the record reveals that IBM’s computer equipment was being leased during the years at issue for approximately $143,000 per month. The Board accepted IBM’s contention that a straight line depreciation of five percent per year did not adequately reflect the sharp decline in the resale value of the computers. Its rejection of IBM’s suggested rate of depreciation of 50 percent over the first two years following its purchase was based on IBM’s failure to account for the income being generated by the leasing of the equipment. The Board properly considered both of these factors in settling on a depreciation of 20 percent over a period of five years to determine the just value of the equipment for tax assessment purposes. To require that the only methodology that could be used to arrive at a just value of the property is the comparable sales in 1991 and 1992, is to ignore the reality of the substantial income IBM was concurrently deriving from the leasing of the property. Our review of the whole record discloses that the Board’s decision is supported by substantial evidence. IBM has failed to establish that the Board’s methodology for determining the just value of the equipment was erroneous as a matter of law or that its assessed value as determined by the Board was “so unreasonable as to violate the constitutional mandate of justness and equality.” Shawmut Inn, 428 A.2d at 395.

The entry is:

Judgment affirmed.

ROBERTS, CLIFFORD and DANA, JJ., concurring.