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Erie-Western Pennsylvania Port Authority v. Erie County Board of Assessment Appeals

Commonwealth Court of Pennsylvania

July 12, 2019

Erie-Western Pennsylvania Port Authority and Commodore Perry Yacht Club
Erie County Board of Assessment Appeals and The School District of the City of Erie Appeal of: The School District of the City of Erie Erie-Western Pennsylvania Port Authority and Commodore Perry Yacht Club
Erie County Board of Assessment Appeals and The School District of the City of Erie Appeal of: Erie County Board of Assessment Appeals Erie-Western Pennsylvania Port Authority and Commodore Perry Yacht Club
Erie County Board of Assessment Appeals, School District of the City of Erie Appeal of: Commodore Perry Yacht Club

          Argued: May 6, 2019




         The City of Erie School District (School District), Erie County Board of Assessment Appeals (Board), and Commodore Perry Yacht Club (Yacht Club) cross-appeal the June 12, 2018, order of the Court of Common Pleas of Erie County (trial court), which determined the fair market value of a private marina for purposes of its real estate tax assessment for the years 2013 through 2017. For the following reasons, we affirm the trial court.


         The subject property, located at 664 West Bayfront Highway in the City of Erie, is owned by the Erie-Western Pennsylvania Port Authority (Port Authority) and has been leased to Yacht Club, a non-profit corporation, since 1976. The property consists of three acres of dry land and 13 acres of water lots, numbered from 181 to 198. The present lease, which extends through 2025, obligates Yacht Club to pay all real estate taxes.

         Yacht Club constructed a marina on the property, which uses a floating dock system to provide boat slips to its members. The floating docks, constructed in 2009, replaced a fixed steel dock system. Joint Stipulation of Facts, ¶¶4, 7; Reproduced Record (R.R.) at 37a-38a.

         Yacht Club has made improvements to the property. They include: breakwalls to define the borders of the water lots, a two-story clubhouse, three picnic pavilions, a workshop, an equipment building, a restroom building, an in-ground swimming pool, a gravel parking lot, concrete walkways and perimeter chain-link fencing. The lease, as modified in 1997, provides, inter alia, that "all buildings, improvements, fixtures, machinery, and equipment of whatsoever nature at any time constructed, placed or maintained upon any part of the leased premises shall be and remain the property of the [Yacht Club], or its sublessees, as their interests may appear," and Yacht Club may remove them when the lease term ends. Certified Record (C.R.), Item 6, Exhibit 1, at 7.

         Yacht Club pays $3, 220 per year to the Port Authority on March 1 of each year. In addition, it pays a fixed rent for the boat slips that is calculated in five-year increments, with a $10 increase every five years on each boat slip. From 2011 through 2015, the annual rent to the Port Authority was $80 per boat slip. From 2016 through 2020, the annual rent is $90 per boat slip.

         In turn, Yacht Club charges its members a fee based on the lineal length of the member's slip or boat, whichever is larger. Members of Yacht Club also contribute a minimum of 20 hours of volunteer work each year. A member who does not meet this annual volunteer obligation pays a penalty of $40 for each unworked hour. All members pay an initiation fee and annual dues of $500.

         In 2012, the Erie County Bureau of Assessment proposed to assess the property at $963, 200. After an appeal by Yacht Club, the Board reduced the assessed value to $635, 200, effective January 1, 2013. Yacht Club appealed to the trial court, asserting that the assessment was "excessive [and] inappropriately high."[1] R.R. 14a. The School District intervened, requesting a higher assessment.

         Pre-Trial Motion Regarding Floating Docks

         After discovery, the School District and the Board filed a pre-trial motion seeking "to declare [Yacht Club's] floating docks as taxable real estate and/or fixtures." R.R. 16a. Yacht Club responded that the floating docks are personalty, quoting a decision of the trial court in another case, i.e., In re Appeal of Erie-Western Port Authority and Bay Harbor Marina, 78 Erie C. L.J. 94 (No. 1594-A-1989) (Bay Harbor).

         The trial court conducted an evidentiary hearing to determine whether there were any factual differences between the instant case and the Bay Harbor decision as well as to receive "any evidence related to whether the floating docks are affixed to the real estate as fixtures." Trial Court Order, 11/16/2016; R.R. 30a. The Board presented the testimony of Scott Maas, a certified Pennsylvania real estate appraiser and the director of the county assessment office. He testified that his assessment did not include the value of the floating docks.

         The School District presented the testimony of David R. Lloyd, Jr., a certified real estate appraiser.[2] Lloyd opined that it is "very labor intensive" to install and remove the floating dock system. Notes of Testimony (N.T.), 1/23/2017, at 129. Lloyd noted that electrical lines "feeding out into the main docking area" could not easily be disconnected. Id. at 131-32. Further, the metal collars that surround the 200 pilings would have to be unbolted to separate the docks from the pilings. The gangways bolted to the bulkheads on land would also need to be removed to free the floating docks.

         Yacht Club presented the testimony of its treasurer, Henry W. Bujalski. He testified that the docks were floated to staging areas and then connected using a cotter pin system. He stated that the pins can be removed without special equipment. The main docks are about 40 feet long and 10 feet wide. Finger piers are the narrower docks dividing the slips that provide access to the boats. Bujalski explained that to keep the floating docks in place, pilings were pounded into the basin floor to a depth of approximately 42 inches. The floating docks are not attached to the pilings; instead, the docks "ride on a roller system up and down the [pilings]" based on the water levels. Id. at 86.

         Bujalski testified that the floating docks are not removed in winter. On occasion, the finger piers have been "lifted out of the water" for repairs by using a pontoon boat. Id. at 78. According to Bujalski, there is no reason to remove the docks other than "obsolescence and normal repair and maintenance." Id. at 106. The docks have not reached critical obsolescence, although one of the main docks may have to be "pull[ed]" out because of damage. Id. at 105. Bujalski further stated that some of the floating docks will need to be reconfigured to accommodate larger boats. The parties agreed that the floating docks can be removed without damage to the realty or the docks.

         By order of February 6, 2017, the trial court denied the motion of the School District and the Board to have the floating docks declared taxable realty. The trial court reasoned that the facts in the present case could not be distinguished from those in Bay Harbor and, further, Section 8811(a) of the Consolidated County Assessment Law (Assessment Law), [3] 53 Pa. C.S. §8811(a), does not identify floating docks as taxable real estate.

         Hearings on Assessment Appeals

         The trial court then held two hearings on November 21, 2017, and January 16, 2018, on Yacht Club's assessment. Maas, the Board's appraiser, testified that the subject property is assessed at $635, 200, which consists of $292, 650 for the land (dry land and water lots) and $342, 550 for buildings and improvements. The assessment record for the property was introduced as evidence.

         Maas testified that to assess the value of the land, he "looked at the values across the waterfront" and determined the value "by neighborhooding them to what we could find in the marketplace of property that sold over time." N.T., 11/21/2017, at 10. Maas did not consider the lease between the Port Authority and Yacht Club; rather, he compared the subject property to waterfront properties "that were actually sold." Id.

         Maas testified that he used an income approach to set a fixed value of $8, 283 per boat slip. He determined the income per boat slip by looking to the revenue a boat slip generates in the Erie marina market. He used a similar method to value the parking lot spaces. Maas used a cost approach to assess the value of the buildings and improvements on the property less depreciation for age and condition. Maas also considered the location of the subject property but not the profits generated by the marina's operations. Maas testified that he uses the same approach to evaluate all marinas in Erie County.

         Yacht Club presented the testimony of Robert Glowacki, a certified appraiser. He assessed the property at $940, 570 for the year 2013, which declined to $576, 789 for the year 2017. As did Maas, Glowacki used the cost approach to determine the value of the buildings and improvements on the property. To value the land, he used the income approach. In doing so, he first calculated the gross rental amount Yacht Club paid to the Port Authority, which was $80 per boat slip annually from 2011 through 2015, and $90 per boat slip for the years 2016 through 2020. He then reduced that amount by 2% to account for management and administrative expenses. The net figure was then divided by a capitalization rate of 7%. Using these calculations, Glowacki arrived at a land value of $193, 000 for tax years 2013 through 2015 and $217, 000 for tax years 2016 through 2017.

         Glowacki testified that he did not consider the annual boat slip fees collected by Yacht Club. Rather, he considered only the Port Authority's income from its lease with Yacht Club. Glowacki explained that he did not consider Yacht Club's income from the boat slips because floating docks are "trade fixtures." N.T., 11/21/2017, at 88.

         Lloyd, the School District's appraiser, assessed the property at $1, 700, 000 for the tax year 2013, and $1, 715, 400 for 2017. He testified that he used the cost approach to assess the buildings and improvements, and he used the income capitalization approach to assess the land. Lloyd first set a leased fee value of the property based on the annual rent paid to the Port Authority.[4] Lloyd then valued the property's leasehold interest, which is "what can be leased on the property."[5] Id. at 204. In doing so, Lloyd calculated all potential income that Yacht Club could derive from a "for-profit marina," including boat slip fees, guest dockage and boat storage. Id. at 193, 205. He testified that his methodology establishes the market price that a potential marina purchaser is willing to pay.

         Bujalski responded that Yacht Club does not charge its members for boat storage, which is included as "a benefit of membership." Id. at 34. Bujalski explained:

[Y]ou actually have to look at the whole picture, because everybody bills their revenue picture differently. Meaning, we charge work party, some don't. Some emphasize higher dues. Some for-profit marinas don't have dues, because it's not membership, therefore they have a higher dockage rate. So we have to look at the whole picture and culmination in terms of what the total cost is. Some charge for a per square foot, versus a foot long base. Some charge for air conditioning, electricity use. So everyone's a little different.

Id. (emphasis added). All parties agreed that the highest and best use of the subject property is as a private marina.

         Trial Court Opinion

         In an opinion and order dated June 12, 2018, the trial court upheld the Board's assessment of $635, 200. The trial court rejected the testimony of Glowacki because he did not consider the income Yacht Club received from the boat slip fees, which the trial court found integral to the valuation of a private marina. Although the floating dock system is not itself taxable, it "play[ed] [a role] in determining the assessment value of the subject property under the income capitalization approach." Trial Court op. at 7. The trial court found that Glowacki engaged in an improper value-in-use analysis "driven by the conscious efforts ...

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