Corrected December 2, 2016.
Telephone Company. Taxation, Assessors, Personal property tax: value. Constitutional Law, Taxation.
This court concluded that a split tax rate structure such as the board of assessors of Boston (assessors) employed in assessing property tax on certain personal property owned by each taxpayer telephone company, in compliance with the provisions of G. L. c. 40, § 56, did not impose an unconstitutional disproportionate tax on owners of personal property, where the animating purpose of art. 112 of the Amendments to the Massachusetts Constitution was to change the meaning of proportionality in Part II, c. 1, § 1, art. 4, of the Massachusetts Constitution, in order to enable municipalities to treat residential property differently from other property classes, and where the statute effectuates the overarching objective of art. 112 and does so in a manner that retains proportionality to a large extent by treating nonexempt personal property used for business purposes the same as commercial and industrial property. [833-837]
APPEAL from a decision of the Appellate Tax Board.
The Supreme Judicial Court on its own initiative transferred the case from the Appeals Court.
William Hazel for the taxpayers.
Anthony M. Ambriano for board of assessors of Boston.
Maura Healey, Attorney General, Daniel J. Hammond, Assistant Attorney General, & Daniel A. Shapiro, for Attorney General & another, amici curiae, submitted a brief.
Kenneth W. Gurge, for Massachusetts Municipal Association & others, amici curiae, submitted a brief.
BOTSFORD, J. Two telephone companies appeal from a decision of the Appellate Tax Board (board) upholding the property tax assessments by the board of assessors of Boston (assessors) for fiscal year (FY) 2012 on certain personal property each company
owns. At issue is whether the tax assessments, which were based on a "split" tax rate structure determined in accordance with G. L. c. 40, § 56 (§ 56), constituted a disproportionate tax that, as such, violated the Constitution of the Commonwealth. More particularly, the question is whether the split tax rate structure authorized by § 56 -- a rate structure that provides for taxable personal property to be taxed at a rate identical to the rate applied to commercial and industrial real property but higher than the rate that would apply if all taxable property, real and personal, were taxed at a single, uniform rate -- violates the proportionality requirement of Part II, c. 1, § 1, art. 4, of the Constitution of the Commonwealth, as amended by art. 112 of the Amendments to the Constitution, as well as art. 10 of the Massachusetts Declaration of Rights. We conclude that the split tax structure authorized by § 56 and related statutes does not violate the Massachusetts Constitution. We affirm the board's decision. [Note 3]
1. Background. [Note 4] a. Procedural background. Verizon New England Inc. (Verizon) and RCN BecoCom LLC (RCN) (collectively, taxpayers) are subject to property tax in the city of Boston on personal property consisting primarily of machinery, poles, underground conduits, wires, and pipes (§ 39 property) that they own and use for business purposes. Pursuant to G. L. c. 59, § 39, the Commissioner of Revenue (commissioner) is required on an annual basis to centrally determine and certify the valuation of this type of property owned by telephone and telegraph companies, including the taxpayers; the commissioner's certified central valuations then become the basis for tax assessments by the assessors in each city and town where such property is located and subject to taxation, including Boston. For purposes of property tax assessments for fiscal year 2012, the commissioner centrally valued the § 39 property owned by Verizon in Boston at $215,846,800, and the § 39 property owned by RCN in Boston at
$48,444,900. [Note 5] The assessors thereafter assessed a property tax for FY 2012 on Verizon's § 39 property at the tax rate of $31.92 per thousand dollars of value for a total assessment of $6,889,829.86; they assessed a FY 2012 tax on RCN's § 39 property at the same rate of $31.92 per thousand for a total assessment of $1,546,361.21. The taxpayers timely paid the personal property taxes thus assessed, and then timely filed abatement applications with the assessors. [Note 6] The requested abatements were denied, and both taxpayers filed timely appeals with the board. On April 24, 2013, the board consolidated the taxpayers' petitions for hearing. On October 24, 2014, the board issued its decision denying the taxpayers' appeals, and thereafter issued findings of fact and a report. The taxpayers timely appealed to the Appeals Court, and we transferred the case on our own motion.
b. Constitutional and statutory background. Part II, c. 1, § 1, art. 4 (art. 4), of the Constitution of the Commonwealth, as amended in 1978 by art. 112 of the Amendments (art. 112) authorizes the Legislature
"to impose and levy proportional and reasonable assessments, rates, and taxes, upon all the inhabitants of, and persons resident, and estates lying, within the said commonwealth, except that, in addition to the powers conferred under Articles XLI and XCIX of the Amendments, [Note 7] the general court may classify real property according to its use in no more than four classes and to assess, rate and tax such property differently in the classes so established, but proportionately in the same class, and except that reasonable
exemptions may be granted" (emphasis supplied). [Note 8]
Before it was amended by art. 112, art. 4 had been consistently interpreted by this court to require that
"all taxes levied under [the taxing authority of art. 4] be 'proportional and reasonable,' and [art. 4] forbids their imposition upon one class of persons or property at a different rate from that which is applied to other classes, whether that discrimination is effected directly in the assessment or indirectly through arbitrary and unequal methods of valuation."
Cheshire v. County Comm'rs of Berkshire, 118 Mass. 386 , 389 (1875). See, e.g., President, Directors, & Co. of the Portland Bank v. Apthorp, 12 Mass. 252 , 255 (1815); Oliver v. Washington Mills, 11 Allen 268 , 275 (1865); Opinion of the Justices, 220 Mass. 613 , 618-619, 621 (1915); Opinion of the Justices, 332 Mass. 769 , 778-779 (1955); Bettigole v. Assessors of Springfield, 343 Mass. 223 , 230-231 (1961).
In practice, however, local municipal assessors -- to whom the Legislature has delegated for over two centuries the power to assess local property taxes, see Opinion of the Justices, 378 Mass. 802 , 810 & n.11 (1979) -- did not follow this constitutional mandate of strict proportionality, or the statutory requirement that local assessment of property taxes be based on "a fair cash valuation of all the estate, real and personal, subject to taxation therein." G. L. c. 59, § 38. See Bettigole, 343 Mass. at 231-232. See also Sudbury v. Commissioner of Corps. & Taxation, 366 Mass. 558 , 563 (1974); Shoppers' World, Inc. v. Assessors of Framingham, 348 Mass. 366 , 371-372 (1965). Rather, there was a widespread practice of employing varying percentages of fair cash values that favored residential properties at the expense of commercial and industrial properties. See Keniston v. Assessors of Boston, 380 Mass. 888 , 890-891 (1980); Bettigole, supra at 227-228. Particularly beginning in the 1960s this court more insistently declared disproportionate assessments of property illegal and also broadened remedies available to taxpayers bringing claims of disproportionate taxation. See Sudbury, supra at 568-569; Shoppers' World, Inc., supra at 372-373 (1965); Bettigole, supra at 236-237; Stone v. Springfield, 341 Mass. 246 , 248 (1960). However,
in the midst of the "accelerated judicial enforcement of the [proportionate taxation and] fair cash valuation requirement, . . . there was public challenge to the concept of 100% valuation" (citation omitted), Keniston, 380 Mass. at 891, and in response to this public sentiment, the General Court approved in 1975 and again in 1977 the constitutional amendment embodied in art. 112; the amendment was ratified by the voters on November 7, 1978 -- by a two-to-one margin. [Note 9] See Associated Indus. of Mass., Inc. v. Commissioner of Revenue, 378 Mass. 657 , 659 (1979); Opinion of the Justices, supra at 804. Accord Keniston, supra. Article 112 empowered the Legislature to establish a property tax system that would impose "different rates of taxation on different classes of real property," Opinion of the Justices, supra, and that in practical effect would resemble and legitimize the long-time local practice of establishing relatively lower property tax assessments for residential property and vacant land or open space as compared to other classes of property. See id. at 804-805.
Article 112 permits the Legislature to establish different classes of real property and to tax the different classes at different rates, so long as all real property within a class is taxed at the same rate. In anticipation of the ratification of art. 112, the Legislature enacted legislation, St. 1978, c. 580, that, pursuant to the authority contained in the proposed amendment, created a property tax system based on classifying real property in four classes. In 1979, following the amendment's ratification, the Legislature considered a somewhat different classification system and submitted two questions to this court concerning the constitutionality of certain of its features. [Note 10] See Opinion of the Justices, 378 Mass. at 802, 806-815. Following receipt of our affirmative answers to its questions, the Legislature enacted new legislation, St. 1979, c. 797, to implement art. 112, establishing a property tax structure almost identical to that proposed. At the same time, the Legislature also repealed the classification provisions of St. 1978, c. 580. See St. 1979, c. 797, § 23. See also St. 1980, c. 261, § 16.
The implementing legislation set out in St. 1979, c. 797, is codified as G. L. c. 40, § 56; G. L. c. 58, § 1A; and G. L. c. 59, § 2A, and remains in effect; [Note 11] the assessors here implemented the split tax structure in place in Boston for FY 2012 pursuant to these statutes. [Note 12] Under them, the commissioner is required every three years to determine, within each city and town in the Commonwealth, whether the locally assessed values represent the full and fair cash valuation for each class of real property, defined in c. 59, § 2A, [Note 13] and for all personal property not exempt from local taxation. See G. L. c. 40, § 56; G. L. c. 58, § 1A. [Note 14] For every municipality that the commissioner determines is using full and fair cash valuation, the commissioner also ascertains a "minimum residential factor" (MRF). [Note 15] See G. L. c. 40, § 56; G. L. c. 58, § 1A.
The municipality next determines "the percentages of local tax levy to be borne by each class of real property, as defined in [G. L. c. 59, § 2A], and personal property." G. L. c. 40, § 56. To do so, the municipality first adopts a residential factor (RF) to be applied in making the determination of local levy percentages for each class of property; the RF may not be less than the MRF determined by the commissioner. Id. The municipality then determines the tax rate per thousand dollars of value for each class of property by dividing the share of the levy to be raised by each class by the total assessed valuation for that class, and multiplying the result by 1,000. [Note 16] Id.
c. Factual background. Turning to this case, for FY 2012, Boston elected to adopt a split rate tax structure pursuant to
§ 56. [Note 17] The city having elected to use an RF of 59.6005%, the assessors determined the following percentages of the total tax levy to be borne by each class of real property and by personal property:
|Classification||Levy Percentage||Tax Rate Per Thousand|