Massachusetts rejects ‘potential use’ assessment


On May 18, 2021, the Massachusetts Appeals Court affirmed a Massachusetts Appellate Tax Board (Board) decision rejecting a local property tax assessment that had included potential retail space in the property valuation.1 Specifically, the Court found that the potential for additional development was too speculative to include in the assessment of property tax.






Macy’s Retail Holdings, Inc. (Macy’s), an American department store chain, formerly owned and operated a retail location adjacent to the Burlington Mall in Burlington, Massachusetts. The property consisted of a parcel of approximately 17 acres and was improved with a three-story department store. The property also included a parking area with approximately 1,515 parking spaces.

During its annual assessments of the property for the 2014-2016 tax years, the Town of Burlington included the property’s “pad sites,” considered part of the store’s parking lot, as potential retail space in its determination of value for the property assessment. The inclusion of the pad sites increased the property’s annual assessed value, thereby increasing the tax owed by the taxpayer for the years at issue. Macy’s requested abatement of tax assessed for these years. When the requests were denied, Macy’s sought relief from the Board.

At an evidentiary hearing before the Board, the parties presented testimony regarding the property’s value. Burlington attempted to show that Macy’s property tax assessment properly included the pad sites as potential retail space.2 During the hearing, Burlington’s expert stated that the highest and best use of the property was as a department store with the potential for development of additional retail locations in the area being used for parking. On the other hand, Macy’s expert testified that the property’s highest and best use was solely as a department store. Macy’s expert also provided his opinion of value for each of the contested years based on his belief that the potential for the development of additional retail space should not be considered in the determination of value.

The Board found Macy’s expert’s evidence persuasive, noting that Macy’s sustained its burden of proof and adequately demonstrated that the assessed value of the property in question exceeded its fair cash value for the fiscal years at issue. Therefore, the Board granted Macy’s abatement requests for the years at issue.3




Appellate Court decision


The issue on appeal was whether the Board properly granted Macy’s real estate tax abatements for the 2014-2016 tax years. Specifically, Burlington contended that the Board erred in rejecting the opinion of value given by the town’s expert and erred in failing to include the potential for further development of the pad sites in its determination of the fair cash value of the property. The Court disagreed with Burlington’s position and affirmed the Board’s decision to grant Macy’s abatement requests.

First, the Court weighed the differences between the evidence provided by the parties’ experts regarding the potential for development of the pad sites on the property. As noted above, Macy’s expert testified that the assessed value of the property exceeded its fair cash value since the highest and best use of the property was as a department store. Further, Macy’s expert attested that development of the pad sites would require approval from both the town and the mall’s developer, which was unlikely to be granted. Even though Burlington’s expert testified that it was likely any pad site could be developed, the expert agreed that development of a pad site would only be possible upon approval of the mall’s developer. The town’s assessor added an estimate of the corresponding value of future pad site expansion on the basis that the mall developer would likely grant approval for further development, which the Court determined to be speculative.

The Court deferred to the Board’s judgment regarding which evidence to accept and which methods of valuation to rely upon.4 The Court held that it was for the Board to assess the weight and credibility of the evidence presented and determined that there was no abuse of discretion or any error in the Board’s assessment of the evidence presented by the parties. Following Massachusetts case law, the Court found that the credibility of witnesses, the weight of the evidence, and inferences to be drawn from the evidence are matters for the Board to determine.5 The Court also determined that the Board’s finding that the pad site values were too speculative was based on the evidence and did not amount to improper burden shifting. Thus, the Court concluded that the Board did not improperly consider testimony presented by Macy’s expert that attempted to show errors in Burlington’s method of valuation.6

For these reasons, the Court agreed that Macy’s property was overvalued for the years at issue and that the abatements should be granted based on the Board’s determination of fair market value and calculation of tax.






Generally, real property is valued by estimating the market value using one or a combination of three methods – the market approach, cost approach and income approach – and multiplying the market value by an assessment ratio. Factors such as the property’s size, construction type, age and location may all impact a property’s assessed value. An assessment of property generally accounts for the actual value of the property, and not for the value of a potential development or use of the property.

Traditional assessment methods specify that real property should be assessed at its highest and best use. Considering all the potential uses of the property, the land use that would generate the greatest economic rent is assumed and the property is valued based on that presumed use for assessment purposes. A market appraisal of potential development alternatives can provide a basis for estimating the value of unimproved land. However, this approach is typically not feasible for annual assessments of a parcel by local taxing jurisdictions since this method requires an extensive study of the market, as well as physical attributes of the land.

The Court’s decision highlights the principle that potential value does not equal actual value for property tax assessment purposes. Taxpayers owning property with additional undeveloped sites should note that the potential for development of these sites may be considered during an appraisal but should generally not be included in the property’s annual tax assessment. Moreover, one can expect that in a post-pandemic world, these types of controversies could proliferate. Taxpayers that have been forced to revisit what to do with undeveloped property, or formerly usable property that had to be shuttered during the pandemic, could make business decisions that change the perception of what might be the highest and best use of the property. As a result, these decisions could have significant effect on assessed values over time, with consequent changes in property tax liability.

Macy’s Retail Holdings, Inc. v. Board of Assessors of Burlington, No. 19-P1758, Massachusetts Appeals Court, May 18, 2021.
2 During the hearing, Burlington’s expert attempted to show that the taxpayer had at one time proposed developing the pad sites into additional retail space. The taxpayer never pursued the proposal. As such, the Board did not find this evidence persuasive in its determination.
3 The Board considered the evidence provided by both parties and subsequently made its own determination of value for the property in question. In making its determination, the Board found that the value of the subject property exceeded its fair cash value for the years at issue.
4 Citing Boston Edison Co. v. Assessors of Water, the Court noted that the appellate court should “defer to the board’s judgment as to what evidence to accept and which method or methods of valuation to rely on. Boston Edison Co. v. Assessors of Water, 439 N.E.2d 763 (Mass. 1982).
5 Citing Cummington Sch. Of Arts, Inc. v. Assessors of Watertown, 369 N.E.2d 457 (Mass. 1977).
6 Citing General Elec. Co. v. Assessors of Lynn, 472 N.E.2d 1329 (Mass. 1984).









Donald L. Lippert Jr.

Don Lippert is a principal with Grant Thornton LLP specializing in property tax services. He has over 25 years of professional experience.

Chicago, Illinois

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