Safeway Stores, Inc. v. District of Columbia
525 A.2d 207 (1987)
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Rule of Law:
When a statute requires a tax assessor to 'take into account' several valuation factors, the assessor must consider each factor but retains the discretion to rely on one valuation method over others, provided there is a rational basis for rejecting the others. An assessor's failure to exercise this discretion by relying solely on an inflexible office policy, without independent consideration of a mandatory factor, violates the statute.
Facts:
- Safeway Stores, Inc. owns or occupies eight supermarket properties in the District of Columbia.
- Five of these properties were previously owned by Safeway, which then sold them and entered into long-term sale-leaseback agreements.
- Under these leaseback agreements, Safeway pays rent that is below market rate and is also responsible for real estate taxes, insurance, and maintenance.
- For the 1983 tax year, the District's tax assessors valued the improvements on all eight properties using the 'replacement cost less depreciation' approach.
- Assessors for seven of the properties considered but rejected the 'income approach' to valuation, citing reasons such as the unreliability of below-market sale-leaseback rents and the lack of comparable rental data for such 'special purpose' properties.
- The assessor for one property, Galen L. Myers, testified that he did not use the income approach because of an 'office policy' and had not examined the property's income and expense statements.
Procedural Posture:
- Safeway Stores, Inc. challenged the District of Columbia's 1983 tax year assessments for eight properties.
- Safeway petitioned the Tax Division of the Superior Court of the District of Columbia (the trial court) for review of the assessments.
- Following a three-day trial, the trial court sustained the assessments in five cases and ordered reductions in three others on grounds unrelated to the primary issue on appeal.
- Safeway (as appellant) appealed the trial court's judgment to the District of Columbia Court of Appeals, challenging the valuation methodology for all eight properties.
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Issue:
Does a tax assessor violate D.C. Code § 47-820(a)'s requirement to 'take into account' a property's 'income earning potential' by choosing to use the replacement cost valuation method if the assessor has a reasoned basis for rejecting the income approach, and does adherence to an inflexible office policy satisfy this statutory mandate?
Opinions:
Majority - Ferren, Associate Judge
No, for seven of the assessments; Yes, for one. An assessor complies with the statutory mandate to 'take into account' all listed factors if they consider each one and have a reasoned, non-arbitrary basis for ultimately relying on one valuation method over others; however, an assessor violates this mandate if they reject a method based on an inflexible office policy without exercising any independent judgment. The court reasoned that the statute's requirement to 'take into account' a factor like 'income earning potential' does not mandate its use in the final calculation, but only its good-faith consideration. For seven properties, the assessors provided legitimate reasons for rejecting the income approach, such as the unreliability of below-market sale-leaseback rents and the lack of comparable rental data. Safeway failed to carry its burden of proving these assessments were incorrect. However, for the eighth property, assessor Myers admitted he rejected the income approach solely because of an 'office policy,' not based on an independent evaluation of the property. This failure to exercise discretion was an error of law, as an inflexible administrative policy cannot override a statutory mandate to consider specific factors for each individual property.
Analysis:
This decision clarifies the scope of discretion afforded to administrative officials under statutes that mandate consideration of multiple factors. It establishes that 'take into account' requires a demonstrable, reasoned decision-making process, not just rote application of all methods. The ruling sets a key precedent that an agency's inflexible internal policy cannot substitute for the individualized judgment required by law, reinforcing the principle that discretion must be genuinely exercised. Furthermore, the court's refusal to treat self-created, below-market leases as value-depressing encumbrances signals a policy against allowing sophisticated taxpayers to manipulate their property tax liability through corporate structuring.
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