James Crowley, Esq.
Bureau of Municipal Finance Law

The taxability of a historic mansion owned by the Commonwealth and leased to a private business was the subject of the recent Appellate Tax Board (ATB) decision of Willowdale LLC v. Board of Assessors of Topsfield, (ATB, docket ## F288893, F297036, March 15, 2010).

Pursuant to Ch. 85 Sec. 44 of the Acts of 1994, the Legislature authorized the Department of Environmental Management (DEM) to lease 23 named historic properties to private parties for the purpose of rehabilitating and maintaining them at no cost to the Commonwealth. Under the Historic Curatorship Program, the Department of Conservation and Recreation (DCR), which was the legal successor to DEM, entered into a 50 year lease of the Bradley Palmer Mansion (Mansion) in September 1999. Built in 1901, the Mansion is located in Topsfield at the Bradley Palmer State Park. As some may be aware, the former owner, Bradley Palmer, was a noted attorney who represented President Wilson at the Versailles Peace Conference at the conclusion of World War I. The leased parcel contained 6.1 acres of land improved by an historic residence, a coach house and pump house. The lessee, Willowdale LLC, planned to operate the Mansion as a bed and breakfast with facilities for weddings, banquets, and conferences. Extensive renovations were required which were costly and time consuming. A certificate of occupancy was only issued to the lessee in August 2007. All renovation work had to receive prior approval from DCR and the Massachusetts Historical Commission. Full cost for the renovation was paid by the lessee, which in return received a credit toward the long-term lease of the premises equal to the value of the provided improvements, maintenance and management services. The lease agreement for the Mansion also expressly required the lessee to pay all real estate taxes.

For fiscal years 2007 and 2008, the Topsfield assessors taxed the Mansion. The lessee promptly filed abatement applications which were denied. Timely appeals were then made to the ATB which found it had jurisdiction. The issue to be determined by the ATB was whether the Mansion was subject to tax. The assessors claimed the parcel was taxable under M.G.L. Ch. 59 Sec. 2B, which provides in pertinent part that where real property, owned by the Commonwealth or a municipality, is used in connection with a business conducted for profit or leased or occupied for non-public purposes, it may be valued, classified, assessed and taxed annually as of January 1 to the user, lessee or occupant in the same manner as if owned in fee. Ordinarily, government owned real property is exempt. The assessors contended that taxation under M.G.L. Ch. 59 Sec. 2B is permitted where there are individuals or entities using or occupying the government property for their own benefit rather than for a public purpose. In this instance, the assessors argued taxation was legislatively authorized to preclude business competitors who pay real estate taxes from being at an economic disadvantage compared to the current lessees of the Mansion.

The lessee, however, claimed the parcel was exempt under M.G.L. Ch. 59 Sec. 2B since the statute expressly exempts from tax any use, lease or occupancy "reasonably necessary to the public purpose of a …park, which is available to the use of the general public." The taxpayer relied on the decision of MCC Management Group, Inc. v. Assessors of New Bedford where the ATB in 2000 held that a privately managed public skating rink was a "park" within the meaning of M.G.L. Ch. 59 Sec. 2B and exempt from taxation under that statute. In support of their claim for exemption, the lessee also cited the decision of Miller v. Commissioner of the Department of Environmental Management, 23 Mass. App. 968 (1987). In Miller the Appeals Court reviewed the State's awarding of an exclusive use permit to a private company for the operation of a cross-country skiing program in a state forest. According to the Court, the granting of the permit to the private firm was permissible since the purpose of the arrangement was to enhance the use of the ski trails for a legislatively authorized recreational purpose.

The ATB was not persuaded by the lessee's argument. The burden of proof was on the taxpayer to demonstrate exemption from the tax assessment. Unlike the skating rink which was ruled to be a park under the terms of M.G.L. Ch. 59 Sec. 2B, the ATB held that the operation of a bed and breakfast inn and conference center did not constitute recreational activities for the general public.

Furthermore, while the Mansion was physically located within the Bradley Palmer State Park, the operation of the inn and center and a bed was not reasonably necessary to the public purpose of the State Park. Visitors could certainly access the State Park without using the Mansion. For these reasons, the ATB upheld the tax on the Mansion.

For another article on the taxation of leased public property, please refer to the July 2008 issue of City & Town pdf format of    july08.pdf  .