Bureau of Municipal Finance Law
In a decision that surprised some local officials and differed with written opinions from this Department, the Appeals Court ruled that taxpayers were not liable for penalty taxes when they built a personal residence on land classified as farmland under M.G.L. Ch. 61A. The case is Adams v. Assessors of Westport, 76 Mass. App. 180 (2010).
Milton and Marilyn Adams purchased 13.41 acres of land in the Town of Westport in June 2005. Seeking to have the land classified as agricultural land which would result in reduced taxes, they filed a timely Ch. 61A application with the Westport assessors in October 2005 for fiscal year 2007. The taxpayers did not complete the entire application. The taxpayers wrote "13.41" on the line of the application indicating "total acres" but did not enter anything on the line "acres to be classified." Yet, on page two of the application the taxpayers wrote that all 13.41 acres of land were presently being used to cultivate alfalfa. The assessors approved the application and in a notice sent to the taxpayers dated December 14, 2005 the assessors wrote that their application for Ch. 61A status had been approved for all 13.41 acres for fiscal year 2007. The entire parcel was classified and taxed as agricultural land for FY2007.
In December 2006, the taxpayers applied for a building permit to construct a personal residence on a 1.4 acre portion of the 13.41 acre parcel. The Westport building inspector issued the permit in January 2007. Once the assessors learned of the proposed dwelling, they assessed a conveyance tax in May 2007 for $61,709. The penalty tax was computed under M.G.L. Ch. 61A Sec. 12 by applying a 9% tax rate (where the farmland was sold or converted within the second year of ownership) to a $685,590 land value, i.e., $61,703 plus a $6 certificate fee under M.G.L. Ch. 61A Sec. 19 for a total of $61,709. It was not clear from the record whether the conveyance tax was assessed only on that portion of the land on which the use has changed.
Believing a tax as harsh as this should not have been imposed, the taxpayers filed an abatement application which the assessors denied. The owners then paid the tax with interest and filed an appeal with the Appellate Tax Board (ATB). Under M.G.L. Ch. 61A Sec. 19 timely payment is not a prerequisite for appeal of the conveyance tax to the ATB.
The ATB could have ruled that the taxpayers in their initial application to the assessors never intended to have all their land classified under M.G.L. Ch. 61A and thereby would have avoided the conveyance tax issue. Instead, the ATB held that construction of a residence for the owners themselves did not constitute a change in use under M.G.L. Ch. 61A Sec. 12. The ATB relied on its own earlier decision of Ross v. Assessors of Ipswich, (ATB docket #F239496, November 21, 2000). In Ross, the ATB held that roll-back taxes could not be assessed where farmland was conveyed to the owner's son for the construction of a house for the son and daughter-in-law. For these reasons, the Westport conveyance tax was void and the ATB abated all the penalty taxes.
The Westport assessors promptly appealed to the Appeals Court. The assessors contended that where the 1.4 acre portion was classified land, the construction of a house on the land would constitute a conversion in use and would trigger the assessment of a roll-back or conveyance tax since the land would no longer be actively devoted to farming. The assessors agreed that the town could not acquire the land under M.G.L. Ch. 61A Sec. 14 which provides a right of first refusal when classified farmland is sold for, or converted to a residential, commercial or industrial use. Sec. 14 expressly provides that a sale or conversion to a residential use for the owners themselves or certain family members is not a conversion, "for purposes of this section." The assessors argued, however, that this exemption from the right of first refusal exemption did not apply to conveyance taxes assessed under Sec. 12. In fact, M.G.L. Ch. 61A Sec. 16 by its terms would seem to require the imposition of penalty taxes since the land was no longer actively devoted to agricultural use.
The Appeals Court disagreed. The Court reviewed the legislative history and the purpose for which M.G.L. Ch. 61A was enacted, namely, to reverse the trend of the decreasing number of farms in the Commonwealth. According to the Court, the Legislature recognized that real estate taxes were significantly contributing to the demise of farms. At the same time, the Legislature realized that speculators and developers might acquire farmland and pay taxes at a reduced rate of taxation with hopes of developing the land at some point in the future. The Court believed this concern about development prompted the Legislature to enact roll-back tax, conveyance tax and right of first refusal provisions.
In the Court's view, the conveyance tax provisions of M.G.L. Ch. 61A Sec. 12 applied only to commercial or residential subdivision development. According to the Court, it was the intent of the Legislature to promote family farming and for this reason the construction of a house for the owners themselves would not trigger the assessment of conveyance taxes under M.G.L. Ch. 61A Sec. 12. The Court admitted that the Legislature in enacting M.G.L. Ch. 61A Sec. 12 did not expressly exempt family members from the conveyance tax as it did in M.G.L. Ch. 61A sec. 14 with regard to the first refusal option. Nevertheless, the Appeals Court agreed with the ATB's statutory interpretation that building a personal residence would not constitute a change in use. Consequently, the entire conveyance tax was abated.
When the assessors learned of this decision, they sought to appeal to the Supreme Judicial Court. Further review was denied. 456 Mass. 1106 (2010).