SCARBOROUGH — A new court ruling could cost the town an additional $1.2 million to settle a 4-year-old property tax dispute in favor of 52 waterfront residents.

So says a lawyer for the residents, who challenged the fairness of a little-known but widespread practice among Maine’s municipal assessors of giving tax breaks to homeowners for adjacent vacant lots that they also own.

The so-called abutting property program, which has been permitted by state revenue officials, resulted in assessment reductions on about 110 properties in town, ranging from a few thousand dollars for inland parcels to a few million for waterfront properties. Some homeowners saved as much as $60,000 in yearly taxes.

The 52 residents of Prouts Neck and Higgins Beach went to court in 2014 after the town’s Board of Assessment Review rejected their requests for abatements on their rising tax bills.

In August 2016, the Maine Supreme Judicial Court found that the town’s practice of randomly undervaluing separate adjacent lots at the request of individual landowners violated the constitutional requirement for equal taxation.

The court also found that the practice violated state laws that call for each lot to be assessed separately and at just market value, and it directed the assessment review board to make “appropriate abatements.”

This month, a Superior Court judge ruled on appeal that the $463,477 in abatements that the town divided among the 52 residents in September didn’t square with the tax breaks granted to homeowners in the abutting property program in fiscal 2013 through 2016.

‘INDEFENSIBLE’ ABATEMENTS

The $463,477 reflected $395,398 in tax breaks that the town gave to 19 homeowners who were still benefiting from the program in fiscal 2016, plus 7 percent annual interest.

The town divided the money among the 52 residents who brought the lawsuit, effectively giving each homeowner an 8 percent reduction in their land assessments over the four years. The average overall abatement was $8,913 per taxpayer.

In his order this month, Justice A.M. Horton found that the town’s formula to reach the abatement amount was “indefensible” because it was tied to the number of plaintiffs in the group.

“As the taxpayers point out, the way the board has structured the abatement means that, had there been five in their group instead of more than 50, the abatement for each would be 10 times greater,” Horton wrote. “Had there been 500 in the taxpayer group, the abatement for each would be one-tenth of what it is.”

Horton directed the town’s Board of Assessment Review to recalculate and issue new abatements that will put the 52 residents “in a position roughly equal” to the 19 homeowners who were “favored” by the abutting property program.

The 52 residents had asked the board to grant them abatements that reflected the percentage discount off market value that the 19 homeowners received through the abutting property program, which the plaintiffs figured to be 31.48 percent.

At that rate, the total abatement to be divided among the 52 residents would be about $1.6 million, plus 7 percent annual interest, said William Dale, a lawyer with Jensen Baird who represented some of the plaintiffs.

STATEWIDE PRACTICE

Town Manager Tom Hall declined to comment on Dale’s assessment that the town owes the plaintiffs a total of $1.2 million.

The Board of Assessment Review has yet to schedule a meeting to act on the ruling. The Town Council is set to discuss the ruling with the town’s attorney in executive session on Wednesday.

What impact this case might have on municipal assessing practices statewide remains to be seen. A call to Justin Poirier, acting director of the Property Tax Division at Maine Revenue Services, went unanswered Wednesday.

While Maine’s high court blasted Scarborough’s practice of randomly undervaluing separate adjacent lots, it upheld the practice of assessing lesser used or unused portions of larger single lots at a lower rate – as long as it reflects fair market value.

Municipal and state assessing officials testified during Scarborough’s abatement hearings in 2013 and 2014 that the practice of combining separate lots with shared ownership for assessment purposes was common across the state.

They pointed to a state law, Title 36, Section 701-A, that allows contiguously owned parcels to be combined for assessment purposes.

The law stipulates that it applies to “unimproved acreage in excess of an improved house lot … when each parcel is 5 or more acres (and) the owner gives written consent to the assessor.”

However, the law doesn’t say that parcels may be combined this way to reduce property assessments.

Ruth Birtz, assessor for the town of Lincoln and president of the Maine Association of Assessing Officers, said the practice is still used across the state to ensure fair and equitable assessments.

Birtz noted that on the outskirts of Lincoln – about an hour north of Bangor, in Penobscot County – house lots must be at least 2 acres, but some people buy more land for greater privacy and other reasons. Under those circumstances, it would be unfair to assess a homeowner with 12 wooded acres of land the same as a subdivision with six house lots up for sale.

But undervaluing excess land gets risky where property values are impacted by proximity to waterfront and other features that influence market demand, Birtz said.

“It depends on location,” Birtz said. “You’re not going to get a standard application across the state. There are a lot of variables in property assessment. At assessing functions, we’ve debated this at length. The highest and best use changes, depending on the area. Lincoln is different than York.”

Kelley Bouchard can be contacted at 791-6328 or at:

[email protected]

Twitter: KelleyBouchard

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