Workers carry tools into the Madison Paper Industries mill in Madison on May 23, 2016. The mill ended production at that time and closed. Morning Sentinel file photo

MADISON — A years-long dispute over property valuation between the owners of a now-closed mill and the town has cost taxpayers $200,000, an amount that will increase as the latest decision in favor of the town is being appealed to the state’s supreme court.

Madison Paper Industries, owned by UPM-Kymmene Corp. of Finland, lost its first attempt to be granted an abatement of its 2016 property taxes before the Maine State Board of Property Tax Review and lost again in Somerset County Superior Court.

Its appeal to the Maine Supreme Judicial Court will be its last, according to its representative, but not without going through a lengthy and expensive process.

Madison Town Manager Tim Curtis said that Madison Paper Industries notified the town in March 2016 that the mill would be closing. Operations ceased at the end of May the same year.

Curtis said that the town, along with municipalities statewide, base the valuation of properties on what operations are in place on April 1 each year, and on that date the mill was fully operational.

Because Madison Paper notified the town of the closure before April 1, representatives of the mill argue that the valuation of the mill should have been reduced to scrap value, as any sale would prohibit the manufacture of paper, which would result in the mill’s liquidation.

Jonathan Block of Pierce-Atwood, who represents Madison Paper Industries, said in a phone call on Wednesday that his party believes that “the standard is what someone would pay on April 1, not what it was doing on April 1,” is what should be considered.

“Madison Paper only wanted to pay on a value of roughly $25 million and we had assessed them at $72 million,” Curtis said. “That’s almost a $50 million gap that it equates to. They are asking for a tax abatement for the town to pay them back the $1 million of the taxes that they did pay in 2016.”

Curtis pointed out that in 2014, Madison Paper asked for a significant reduction in its value from $229 million to $80 million, because of the state of the paper market. That reduction in value was granted by the town and was a significant blow to the taxpayers.

“It is evident that the town was willing to recognize the downturn in the paper market, but it also shows that Madison Paper was asking for more from a municipality that had already given a significant reduction,” Curtis said.

The Mill closed in 2016, with more than 200 jobs lost in a town of about 4,800. The mill had made supercalendered paper used in magazine publishing since 1978, producing about 195,000 tons of paper annually.

The mill was assessed at $72 million in 2016 — down from $229 million in 2013 — and the town asked its owners to pay about $1.5 million in taxes.

The legal battles, which began at the Maine State Board of Property Tax Review and were then appealed in Somerset County Superior Court, have cost the town’s taxpayers around $200,000, Curtis said.

On Aug. 13, the Superior Court sided with the town, and on Sept. 3, another appeal was filed with Maine Supreme Judicial Court.

The Maine State Board of Property Tax Review ruled in its decision handed down Aug. 1 that “On April 1, 2016, the mill, as then used, was producing paper and operating unrestrictedly in the black.”

The ruling further states, “A gas pipeline recently had been put in place, and the owners had been successful in securing the imposition of a tariff on the importation of Canadian paper that competed with the SC paper produced on the premises by MPI. The property was considered ‘state of the art’, and neither the NYT or UPM (MPI’s partner owners) was in financial difficulty.”

Block said that his party’s position is that the value of the mill should be based on what a willing buyer would pay a seller for the property on that April 1, 2016, date.

“We think that a willing buyer would not have paid a willing seller (what the town was projecting) on April 1, 2016, because it was about to shut down because there was no more market for its product,” Block said. “So no one would have done that in their right mind.”

Block said that the town’s position to tax the property based on a fully operational paper-making business on April 1, 2016, knowing that the mill was about to shut down, should be reversed in court, which is why Madison Paper Industries has filed another appeal, this time to Maine’s supreme court.

Curtis said that this is how any business would be treated in town.

“The valuation is based on what’s going on as of April 1 of that year,” Curtis said. “In some extreme cases where property owners may own a house on April 1 and it burns down on April 2, they’re still going to get a tax bill on the house as it existed on April 1.”

“To date, over the last three years, taxpayers have paid about $200,000 in legal fees just to fight this case,” Curtis said. “When you weigh that against giving them an abatement of about a million dollars, which we don’t think they deserve, that seems to make sense.”

Curtis added that after the last appeal was denied, bringing the case to Maine’s highest court is frustrating for many residents in the community and surrounding area.

“Madison Paper is no more, it does not exist,” Curtis said. “Their parent company, UPM, which is out of Finland, are the ones that continue to allow the attorney to appeal and appeal and appeal.”

Dealing with the loss of over $180 million in valuation from 2014 to now has also been an additional weight on the town and the area, Curtis said.

“While we have some hope on the horizon for the site to actually be used to manufacture wood products again, we still have this dark cloud of a $1 million abatement that the town would have to pay back,” Curtis said. “We’re entering its fourth year (of legal battles), which is discouraging.”

Part of the terms in the sale of the mill includes that the facility not be used to make paper products. In 2019, the property was purchased by GO Lab Inc., out of Belfast, which planned to redevelop the site into a manufacturing hub for wood fiber insulation, potentially bringing in 100 jobs.

The current mill rate in town is $21.25 per $1,000 of valuation. In 2015, the mill rate was $19.50. In 2016, the tax rate was estimated to be $21 per $1,000 of assessed valuation, meaning the mill owed about $1.5 million in property taxes to the town.

In court documents from the appeal to the Maine Superior Court, Chief Justice Robert E. Mullen issued the ruling in favor of the town, citing that Madison Paper had failed to prove that the town’s appraisal was “manifestly wrong,” and that the court “is not surprised at all that the Board did not give much consideration to their appraisal.”

The judge said that since the mill was a “state of the art” facility designed to produce paper, prohibiting a purchaser from using the mill for its intended purpose “essentially meant that liquidating it was the only thing that a buyer could do with the mill.”

Block hopes that the Maine Supreme Judicial Court reverses the decision made by the Maine State Board of Property Tax Review and decides that the mill was valued at its highest and best use on April 1 — liquidation — which is what happened to the mill later in the year.

Additionally, the hydros should be valued at their highest and best use, which he said was as merchant power plants.

Block said that the process now will take about a year to complete, beginning with briefs, then oral arguments, and then a decision made by the court. No appeal will be made after this decision.