Tax case sets precedent
Rhode Island taxpayers can recoup legal fees they pay to challenge unwarranted
property taxes, based on a state Supreme Court ruling last week that plaintiff’s
attorneys called a precedent-setting decision.
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The court on Feb. 13 upheld a lower court’s ruling that required the city
of Providence to pay more than $250,000 in legal expenses to real estate firm
Capital Properties. The fees stem from the East Providence company’s successful
1997 challenge of city property taxes that totaled more than $10 million for
a number of condemned properties it owned downtown.
In 2000, the firm and its lawyers filed a motion to recover $257,000 in attorneys’
fees and other costs. The legal team relied on a little-known Rhode Island statute
that permits taxpayers to recover reasonable legal expenses if a court finds
property taxes levied by a city or town were assessed with “a complete absence
of justifiable issue of either law or fact raised by the losing party.”
While any Rhode Island taxpayer has the right to challenge its property tax
assessments, the taxpayer typically incurs the associated legal fees and other
costs, rather than the municipality.
That likely will change in future cases in which a municipality is found to
have selectively or arbitrarily assessed property taxes, said Jerry Petros,
a partner at Hinckley Allen & Snyder LLP, who represented Capital Properties.
“This is a statute that has not been employed commonly if at all in the past,”
Petros said. “But in cases where a taxpayer feels a city’s or town’s actions
were without merit, I think the taxpayer will certainly look to this recent
ruling to seek reimbursement of attorneys’ fees.”
Petros emphasized, though, that the statute can only be applied when a municipality’s
tax assessment is entirely unfounded.
Last week’s ruling culminates a legal battle between the city and Capital
Properties that began in 1988, when Capital Properties sued the state over a
number of its downtown parcels that were condemned to make way for the relocation
of the Providence River.
In 1997, the Superior Court awarded the firm $10.6 million for the condemned
land, a payment that was to be split between the city and state.
Within a few months, the city slapped Capital Properties with a hefty tax
bill on a number of the condemned properties, based on the condemnation value
of $110 per square foot. The city made the tax increases retroactive to 1991,
leaving the firm with a tax bill of nearly $8 million, according to last week’s
court ruling.
After Capital Properties filed two complaints charging that the tax increases
were “selective and discriminatory,” the city threatened to auction off several
of the firm’s downtown properties in an effort to collect the back taxes.
A trial court in 1998 found the city’s increased tax assessments on the condemned
properties “selective, arbitrary and illegal,” and ordered it to expunge the
taxes.
In last week’s decision ordering the city to pay attorneys’ fees, Justice
Paul A. Suttell wrote that the city’s actions amounted to “little more than
a thinly veiled retaliatory and illegal taxing scheme designed to recoup the
cost of the 1997 condemnation award to (Capital Properties).”
A Hinckley Allen press release stated that the Supreme Court’s ruling last
week came as many Rhode Island municipalities are in the process of reassessing
properties.
Petros said that while egregious assessments such as the Providence example
are rare, the ruling could serve as a deterrent for unjustifiable municipal
assessments in the future.
“I think cities and towns might be a little more careful when they’re assessing
and collecting property taxes,” he said.
Mike Colias is a contributing writer to PBN.
