ANALYSIS OF DECEMBER 22, 2016 SUPREME COURT OPINION

(Posted December 22, 2016) The justices manage to squeeze one more opinion in before Christmas, and it’s a nice present for some taxpayers. In Wakefield Manor Associates v. Arlington County, the court decides a challenge to real-estate taxes on transfers of development rights. TDRs are creatures of statute, and allow landowners to protect their land from future development. They’re useful to preserve properties with bucolic beauty or having historical importance; things like that.

These transfers work by a dedication of available density – for example, a right to build a huge apartment building containing hundreds of units – from one property to another. The first property is called the sending area and the second one is the receiving area. In this way, the owners can be compensated for their forgone rights to develop, and landowners elsewhere, who might otherwise be constrained by land-use limitations, can build what they want to without a rezoning. The county has to approve the transfer before it becomes effective.

These development rights have a value, and Arlington County wanted to tax them when Wakefield Manor and one other landowner sought to sever them. The owners paid the taxes under protest and sued to get the money back.

There are two statutes that allow counties to tax TDRs. The court rules today that the county can’t use the first one, because that requires that the county adopt an ordinance with twelve specific criteria. Unquestionably, the county didn’t do that, so the court turns to the second approach.

That one fails, too, because it allows taxation only after the sending and receiving areas are both identified. The taxpayers segregated the TDRs in 2011, but didn’t settle on a buyer for the rights until 2015. The court rules today that in the intervening years, the county didn’t have the power to tax the rights. That means that the taxpayers will get a nice check, just in time to fill a stocking Saturday night.