Fall 2018

In this Fall 2018 Issue:

U.S. Supreme Court Internet Sales Tax Decision and Property Values   

Your editors do not need to belabor the point that brick and mortar retail occupancies, rents and values have been pounded as a result of internet shopping – although in certain markets overstoring has also been a problem.

It is important, as a result, to try to estimate the impact that the US Supreme Court’s recent decision in the Wayfair case will have in this area. As the Court pointed out quite eloquently, its previous decisions exempting retailers from the requirement to collect state sales taxes - unless they had a physical presence in a state - were a subsidy to internet vendors that had become ridiculous. The Court noted that a hypothetical nationwide retailer with a 500,000 foot warehouse located ten feet from a state line could sell millions of dollars of merchandise into that bordering state without sales tax collections because it was not located there. On the other hand, a small retailer located in the state 100 yards away from the large retailer was mandated to collect the tax. 

While consumers purchasing from an out of state company were technically required to file “use” tax returns and to pay the tax directly to the state taxing authority, almost none – except perhaps law abiding purchasers of large ticket items - did so. This unintended subsidy was wiped out in a single stroke by the Court on June 26. 

Will mandatory internet sales tax collection save or perhaps even revive some brick and mortar retailers? Will internet shopping decline or at least plateau as a result of the decades-old loss of the subsidy? Will some Americans be weaned off their internet shopping habits and start thinking about local merchants? 

Tune in a few years from now for the answer. In any and all events, however, the Wayfair decision can only be seen as a positive development for the retail real estate space. 

Michael J. Marafito is familiar with the Wayfair case. He can be reached at or 860-424- 4360.

Bulk Discount Not Available 

In a recent PTVT issue, we wrote about a Massachusetts Superior Court decision which rejected a developer’s claim that his unsold subdivision lots should be valued on a discounted basis because the market would not absorb all of them in sales to individual buyers in a given year. Thus, his reasoning was that in order to determine the market value of all lots on the municipality’s valuation date, a buyer of multiple parcels would expect a bulk discount to take them off the owner’s hands. The court rejected this approach noting that otherwise residential building lots would wind up being assessed at different values depending on whether they were to be put up for sale individually or in a group.

A similar claim was raised recently in Nevada with respect to a high rise condominium project in Reno which apparently was not experiencing robust sales. The owner’s expert relied on a discounted cash flow analysis which attempted to calculate the present value of the unsold units to one buyer. The Nevada Supreme Court rejected this approach.

The exigencies of assessment values occasionally clash with market realities – as was the case here.

Montage Marketing, LLC v. Washoe County, Supreme Court of Nevada, Docket No. 59063 (May 31, 2018).

Elliott B. Pollack can respond to questions and can be reached at or 860-424-4340.

Appraiser's Credibility Rules

In what might be considered to be a garden variety ad valorem assessment appeal dealing with the value of a skilled nursing facility in the Town of Rocky Hill, a Connecticut Superior Court had interesting observations about the party’s respective appraisers’ work product which ultimately determined the outcome of the case. 

The subject property, at the time of the trial, was a tired 43 year old facility on two levels, with the kitchen located on the lower level. Plumbing and HVAC systems were somewhat antiquated and the facility’s payor mix was largely Medicaid. Its work force, other than registered nurses, was unionized. 

An important point of difference between the parties’ appraisers was the manner in which expenses were calculated on a stabilized basis applying the enterprise approach to value. The owner’s appraiser calculated labor costs based on existing unionized conditions. The Town’s appraiser failed to do so and in fact projected a 10% reduction of nursing costs without explaining where such cuts would be made. The Court noted, “[h]er projected reductions in nursing expenses did not make sense in light of the need to improve the quality of care at the facility in relation to its competitors.” By the same token, the Town’s appraiser’s projected expenses for services such as physical therapy and occupational therapy were significantly less than those actually incurred. In neither case was adequate documentation furnished for her lower projections. In sustaining the property owner’s appeal at a value close to that estimated by its appraiser, the Court observed that the owner's appraiser’s “projection of the expense reductions ventured into the realm of wishful thinking.” 

The Town’s appeal of the decision against it to the Connecticut Appellate Court was recently settled favorably to the Town’s position. 

Elm Hill Realty, LLC v. Town of Rocky Hill, Docket No. CV-14-6024910, Superior Court Judicial District of New Britain, March 15, 2018.

Laura B. Cardillo litigated this case and can respond to questions about the decision as well as valuation issues pertaining to skilled nursing facilities in general. She can be reached at or 860-424-4309. 

Geese Attacks Don't Generate Assessment Reduction

Thomas Golisano, founder of Paychex, asserted that hundreds of geese who leave their foul deposits on his waterfront property on Lake Canandaigua in South Bristol, New York “fowly” reduced its value. 

The South Bristol Assessment Review Board rejected his argument leaving him to seek judicial relief if his novel valuation argument is to be upheld. Mr. Golisano contends that the town should be offering him assistance in dealing with this avian poop assault.

Dark Store Issue Makes It to the Ballot Box 

DeForest and Sun Prairie, two Wisconsin municipalities, have asked their voters to register their views on the “dark store” issue. Stung by the efforts of large retailers to reduce their ad valorem assessments (by arguing that sales of vacant stores should be used to value occupied stores), these communities are seeking voter approval to petition the Wisconsin legislature to ban the “dark store” theory of valuation as well as to overturn an important 2008 Wisconsin Supreme Court decision which addressed the valuation of a Walgreens build to suit property. According to an article in a recent issue of the DeForest Times-Tribune by Hannah Rajnicek, the Town of DeForest had to refund significant tax revenue after losing tax appeals in which the dark store theory was upheld.

Allocation Argument Wins; Appeal Fails

A manufacturing company purchased an industrial complex in Somersworth, New Hampshire for almost $7.4 million within six months of the relevant assessment date. The assessor pointed to the sale as more than supportive of his assessment of almost $1 million less. The owner’s comeback was that the price declared for its purchase was merely an allocation. It established to the satisfaction of the appeal board that the value of the subject real estate was rather inconsequential in size compared to the total price paid for an electric meter business at over $1 billion. Indeed, it pointed to the fact that an appraisal of the property had not been developed and that the property itself was never placed on the market. 

While the owner was able to deflect the importance of its purchase in the overall valuation analysis, in accepting its argument that the sales methodology was the best approach to achieving a realistic value, the board rejected the appeal based on data presented by the City. Evidence presented by the owner’s appraiser, also relying on the sales methodology, was soundly rejected by the hearing authority. 

Somewhat humorously, one of many problems cited by the New Hampshire Board of Tax and Land Appeals was of the owner’s appraiser’s reliance on the sale of what apparently was a large industrial complex comprising eight different parcels.   Unfortunately, the appraiser “omitted a key fact”: the eight lots were not contiguous and one of the noncontiguous lots was improved with an old train depo. 

This would appear to have been an appeal doomed from the outset.

Aclara Meters v. Somersworth, Docket Number 28086-15 PT, 2018 WL 1830911 (March 27, 2018)

Gregory F. Servodidio represents New Hampshire property owners and can respond to questions about this decision at or 860-424-4332. 

Virtual Artists Rights Act Damages Awarded

An industrial factory site became a series of canvases for graffiti art beginning in 1996. The site named 5Pointz for New York’s five boroughs, displayed important work by internationally recognized graffiti artists. 

Seventeen years later, the owner decided to demolish 5Pointz and to replace it with an upscale luxury apartment development. When the artists attempted to stop the demolition, the developer destroyed the art with whitewash. A federal court awarded the artists damages under the Visual Artist Rights Act (VARA) - which permits the award of money damages for the destruction of art of “recognized stature” after an advisory jury appointed by the Court concluded that the owner violated VARA. 

The court itself undertook to determine whether or not any of the work was of a recognized stature and, if so, what damages should be paid for its destruction. After a three week trial, court concluded that the developer willfully violated the artists’ rights with respect to 36 paintings on his walls and awarded damages of almost $7 million! 

It might well be asked how an artist can recover damages for works of art which are not salable because they have been planted on someone else’s property. 

Without delving into all the nuances of the award of “statutory” damages under VARA, we point out that the developer’s unrepentant attitude towards the artists’ rights and his unbelievable “insolence,” as the court put it, on the witness stand resulted in a punitive damages assessment by the court when only a modest amount of compensatory damages would have been awarded. 

The message of this case and of VARA generally to owners of artistically enhanced buildings is to obtain sound legal advice and to become more familiar with the vagaries of VARA before vitiating the art on them. The impact of VARA on property valuation litigation remains to be seen. 

Cohen, et al v. G&M Realty, LP, et al, Docket Number 13-CV-05612 (2018)

Elliott B. Pollack can answer questions about this case at or 860-424-4340.

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