Argument Recap: Nutmeg Housing Development Corporation v. Town of Colchester, SC 19551

The Supreme Court heard oral argument on September 21, 2016 in Nutmeg Housing Development Corporation v. Town of Colchester, SC 19551, a tax appeal challenging the assessment of the value of an affordable housing project in Colchester.  Of particular interest is the dispute over whether Low Income Housing Tax Credits (LIHTCs) should affect the fair market value of the subject property for tax assessment purposes.

The Low Income Housing Tax Credit program is a federal tax incentive program designed to stimulate investment in affordable housing. Under the program, an eligible taxpayer receives credit against federal income taxes by holding an ownership interest in a qualified low-income housing project. This case presents the question of whether these tax credits can be considered in the valuation of the affordable housing property for purposes of property taxes.

In a March 13, 2015 decision, the trial court permitted the defendant municipality to add the present value of LIHTCs to the value of real property used for affordable housing for assessment.  The trial court acknowledged that jurisdictions are divided on the question of whether, and how, low-income housing tax credits may be included in valuation of real estate for purposes of municipal tax assessments.  It noted that the “key factor in the difference between [the plaintiff’s valuation and the defendant’s valuation] is the question [of] whether LIHTC can be used in the valuation process of the subject property….”  The defendant’s expert “concluded that the fair market value of the subject property… was $2,500,000,” and that his “valuation, in part, was affected by his inclusion of low-income housing tax credits (LIHTC), which he considered to be a factor in the valuation of the subject property since there were age and income restrictions encumbering it.”  The trial court entered judgment in favor of the defendant, placing its imprimatur on the town’s assessment which adds the present value of the tax credits to the value of the real property.

The plaintiff-appellant argued that courts in Connecticut and elsewhere have concluded that LIHTCs are “intangibles,” and since Connecticut prohibits the taxation of intangibles, LIHTCs should not be subject to taxation.

The ramifications of this case are likely to have a significant effect on the sustainability of low-income housing projects, since the developers of such projects often rely heavily on the tax credits that LIHTCs afford them.  In the event that the Supreme Court overrules this appeal, it is possible the Legislature will seek to address this issue.  We will be paying close attention to the this matter and provide an update once a decision has been made.

Murtha Cullina authored an amicus brief in this case on behalf of the Connecticut Housing Finance Authority (CHFA).