USF&G tower's owner, state go to court Lack of settlement on tax bill is unusual

January 24, 1996|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Like most downtown office building owners hurt by the real estate industry's depression, Ray Turchi thought the state's assessment of the 23-story Redwood Tower in 1992 far exceeded its true value.

At issue was money -- lots of it, since the assessment would determine the tax bill for the building at 217 E. Redwood St.

"Our feeling was the building should have been assessed at what we paid for it, and it wasn't," said Mr. Turchi, who with Angelo Teeter bought the property for $10.5 million in June 1992.

The Capital Acquisitions Inc. partners appealed their assessment and finally settled for a reduction to $12.6 million by the state's Department of Assessments and Taxation.

Settlement is what everyone has come to expect.

That's why people are surprised at the fight between the owner of the USF&G tower and the state -- a disagreement that has landed them in Maryland Tax Court.

Of the thousands of assessment appeals filed by property owners downtown since 1991, only 34 cases have actually gone to the tax court, according to court records.

And of those, every one has been settled prior to trial.

That could change on May 1, though, when the state and Marbax Associates Ltd. Partnership, the owner of USF&G tower, are scheduled to battle over a $50 million difference in the valuation of the 35-story skyscraper.

"Very few major downtown office properties have gone to tax court in the past five years because the assessment office, while it likes to take an optimistic view of the market, has been realistic in regards to value and has made necessary reductions," said T. Scott Basik, an attorney in the Towson law firm of Basik, Bushel & Shelton, which specializes in assessment appeals.

The other reason is procedural: Before a property owner can take a case to tax court, he must first negotiate with the assessment office, and if that fails, go before an independent appeals board, said Owen C. Charles, the department's supervisor of assessments for Baltimore.

Once in tax court, pretrial conferences instituted two years ago allow the opposing sides to continue negotiating.

"Most cases involve issues that have room for give and take on both sides," Mr. Charles said.

"The cases that end up in tax court usually involve valuation procedures, because in those cases, the two sides just are not going to see eye to eye," the supervisor said.

Such is the case involving the USF&G tower. At the heart of the dispute is the building's value in the wake of a 1984 sale to Marbax and a subsequent long-term lease signed by the insurer.

The state contends the sale and lease were market transactions. Marbax and USF&G claim the deal was a simple financing mechanism.

Marbax and the state have fought over the tower's assessment three times before, but the current dispute represents the first time the two have been so close to going to court. If Marbax isn't satisfied there, its only recourse is to appeal to Baltimore City Circuit Court.

At stake for the city in the USF&G tower case is a potentially multimillion-dollar refund it would owe to Marbax for taxes paid between 1992 and 1995, when the state assessed the 100 Light St. building at $86.8 million. Marbax contends the building's real value was $37.5 million, based on its own appraisal.

The significant difference may also prompt the city's intervention in the case for fear of lost revenue.

In the case of USF&G, a successful appeal could halve its current $2 million annual tax bill. Further, the city would owe Marbax interest on the taxes, often at a rate exceeding 10 percent.

There are six other cases pending before the tax court. One of those involves The Baltimore Sun Co., which has appealed the state's $51 million assessment of the newspaper company's 501 N. Calvert St. building and adjacent parking garage, court records show.

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