James Crowley, Esq.
Bureau of Municipal Finance Law

If a community has a split tax rate, the classification of a parcel can have a big impact on the tax obligation. The proper classification of real property was the subject of a recent Appellate Tax Board (ATB) decision. The case is Union Street Realty Trust v. Board of Assessors of Holbrook, (ATB, docket ## F283385, F288853 November 3, 2009).

Joseph R. Mullins and Michael Mullins, Trustees of Union Street Realty Trust, acquired the subject 78.6 acre parcel at 229 Union Street in Holbrook in August 2002. The northern 8.6 acre portion of the parcel was described as containing a 13,000 square foot structure which had been operated as a bowling alley. The remaining 70 acres were described as vacant land. For some years the entire parcel had been zoned as business/commercial property. Pursuant to a master development plan, the owners planned to use the northern 8.6 acres for retail and office space with the remainder of the land being used for residential condominiums and a four lot residential subdivision. When the Holbrook assessors continued to classify the entire tract of land as Class 3, commercial property for fiscal years 2006 and 2007, the trustees applied for abatements which were denied. Prompt appeals were then made to the ATB. The assessed value of the parcel was not at issue. Only the Class 3, commercial classification of the property was challenged by the owners. They contended that the lower residential tax rate should have been applied to 70 acres of the land.

M.G.L. Ch. 59 Sec. 2A (b) establishes four classes of real property: Class 1, residential; Class 2, open-space; Class 3, commercial; and Class 4, industrial. Class 1 residential property is defined as "property used or held for human habitation containing one or more dwelling units…with facilities designed and used for living, sleeping, cooking and eating on a non-transient basis…" This portion of the statute has been interpreted to mean that the parcel must contain a single family or multi-family residential structure. M.G.L. Ch. 59 Sec. 2A (b), however, provides two scenarios where vacant land may also be classified as residential. First, if it is "accessory land…incidental to such habitation and used exclusively by the residents of the property or their guests." The Department has interpreted the statutory term "accessory" to mean that the vacant land must be located next to or in close proximity to a residential structure and used exclusively by the residents or their guests as a yard, for parking or other residential use. Secondly, the statute classifies unimproved land as residential if it is "situated in a residential zone and has been subdivided into residential lots." Under this provision, vacant land would be classified as residential if located in a residential zone and a subdivision plan has been recorded with the lots being held or sold for residential development.

In the case at hand, the owners presented evidence that the northern 8.6 acres had been rezoned for business use and the central 52.8 acres had been rezoned as residential as of May 2004. Yet, the southern 17.2 acres were not rezoned for residential use until January 9, 2006 which was subsequent to the assessment dates for both fiscal years 2006 and 2007. Nevertheless, the taxpayers contended that the 17.2 acres should have been classified as residential since access was only possible via the 52.8 acres of residentially zoned land. In their view, the land could only be used for residential purposes. For this reason, the taxpayers argued that a total of 70 acres should have taxed at the lower residential rate.

The ATB did not agree with the taxpayers since M.G.L. Ch. 59 Sec. 2A (b) expressly provided that vacant land could be classified as residential if two conditions were satisfied: the property must be located in a residential zone and it must have been subdivided into residential lots. It was undisputed that a definitive subdivision plan for the entire tract was not approved until August 2006 which was after the January 1 assessment dates for fiscal years 2006 and 2007. Notwithstanding the taxpayers' intent to develop a residential complex and their successful efforts to rezone a large portion of the land as residential, there had been no subdivision plan recorded at the Registry of Deeds as of the relevant January 1 assessment dates.

Consequently, the ATB ruled that the assessors had properly classified the entire parcel as commercial property.