Greenwood Associates, L.P. v. Perry

Citations: 399 F.3d 1317; 2005 U.S. App. LEXIS 3006; 2005 WL 407721Docket: 2004-1286

Court: Court of Appeals for the Federal Circuit; February 21, 2005; Federal Appellate Court

Original Court Document: View Document

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Greenwood Associates, L.P. appealed a decision by the General Services Administration (GSA) Board of Contract Appeals, which denied its claim for reimbursement of real estate taxes under a tax adjustment clause in its lease with the government. The lease, initiated in June 1998 for office space in Chicago, included a tax adjustment clause that required the government to cover increases in real estate taxes over the base year, defined as the year the lease commenced or the first year of a full assessment if none occurred in the commencement year. The lease officially started on March 13, 2000, with rental payments beginning in August 2000. 

Real estate taxes were assessed in arrears, meaning taxes for 1999 were paid in 2000, and those for 2000 were paid in 2001. Greenwood claimed a reimbursement for the increase in taxes from 1999 to 2000, arguing that "taxes paid for the calendar year" referred to taxes actually paid within that year. Greenwood sought reimbursement for the difference between the 1999 taxes of $125,862.38 and the 2000 taxes of $223,153.77. The government contended that the base year was 2000, and "taxes paid for the calendar year" referred to taxes assessed in that year, not the previous year. Therefore, the government argued it was not liable for the increase based on 1999 taxes. The court affirmed the Board's decision, agreeing with the government's interpretation of the tax adjustment clause.

The Government contended it was accountable for the increase in real estate taxes from the 2000 calendar year, despite the taxes being paid in 2001. It argued that a proper comparison should be between the taxes actually paid in 2001 and those paid in 2002. The Government opposed Greenwood's argument, which would hold it liable for taxes in 1999, a year it did not occupy the property. Consequently, the Government refused to reimburse Greenwood, leading to a claim for tax reimbursement by Greenwood, which was denied by the GSA contracting officer. Greenwood then appealed to the GSA Board of Contract Appeals, which also denied the appeal, interpreting “taxes paid for” 2000 as referring to taxes assessed for that year, not paid in 2000 for 1999. Greenwood appealed this decision, asserting jurisdiction under 28 U.S.C. 1295(a)(10).

In the discussion, it is noted that questions of law, including contract interpretation, are reviewed de novo, and that while the Board's interpretations are given great respect, the phrase “taxes paid for” is deemed unambiguous. Greenwood argued that this phrase could mean either taxes paid in the calendar year or those surrendered to the taxing authority that year, and thus should be construed against the Government. The Government countered that “taxes paid for” refers to taxes assessed for that year, independent of the timing of payment. The Government acknowledged it would be responsible for tax adjustments for the final year of the contract even after vacating the property. Ultimately, the conclusion reached aligns with the Government's interpretation that the phrase signifies taxes accrued during the specified year, regardless of payment timing.

Federal courts have interpreted the phrase "taxes paid for" to refer to taxes accrued in a particular year rather than the actual payments made during that year. In the case of Apollo Steel Co. v. Commissioner, the United States Tax Court clarified that a taxpayer can deduct accrued taxes even if they are paid in a subsequent year. This principle was applied in the current case regarding a lease contract, where the phrase "taxes paid for the calendar year" was determined to mean taxes accrued in that year, specifically 2000, regardless of when they were paid. The government is liable only for increases in taxes over those accrued in 2000, not those paid in 2000 or based on prior years' assessments. Greenwood's argument to base tax increases on payments made in 2000 was rejected, as it would incorrectly impose liability for taxes accrued before the government occupied the property. The decision also reassures Greenwood that it can still claim increases in real estate taxes assessed during the final year of the lease, even if those taxes are paid after the government's occupancy ends. The Board's interpretation that "taxes paid for" refers to assessed taxes and not actual payments was affirmed.