New Court Cases On The WAAO
Website
By: Pete Weissenfluh
Recently
we posted new assessment related court decision on the website. They include:
Wisconsin Central Limited (and others) v. Wisconsin
Department of Revenue, a Court of
Appeals case dealing with omitted assessments on railroad property.
Linn A. Duesterbeck (and others) v. Town of Koshkonong, a Court of Appeals case dealing with issues of
uniformity, the requirement to send notice, claims against municipalities based on
valuation.
Karen
M. Joyce v. Town of Tainter, a Court of Appeals case dealing with testimony on
comparable sales.
ABKA
Ltd, v. Board of Review, a Supreme Court case. This case is summarized below:
This
summary of the Court of Appeals case is from the November/December 1999 issue of the Assessment
Journal.
Resort Property
Income
from resort owner’s management of property was inextricably intertwined with the
resort property and was therefore properly included in the income approach. Use of
stabilized income, rather than actual income, to eliminate anomalies in income and expense
levels is proper. Rounding of assessment is contrary to statute.
ABKA Ltd. v. Board of Review. 591 N.W.2d 879 (Wis.
App.1999 [January 27])
ABKA
appealed a circuit court order affirming the Board of Review’s decision upholding the
1996 and 1997 assessments of the Abbey on Geneva Lake Resort. The three issues raised were
the inclusion of more that $300,000 in income from management of off-site condominium
rentals, the use of average rather than actual figures for operating income and expense,
and the rounding up of the assessment from $8,328,025 to $8,500,000.
The condominium units are not
owned by ABKA and are assessed individually to their owners. Under contract, ABKA provides
services, including advertising, reception desk, and cleaning, and renters have full
access to the amenities of the resort. In return, ABKA receives 50 percent of the gross
revenues from the rental of each unit. The contract transfers with the property, allows
for assignment by either ABKA or a condominium owner, and is binding on all successors and
assigns. In State ex rel, N/S Associates v. Board of Review, 473 N.W.2d 554 (Wis.App.
1991), the court held that transferable value inextricably intertwined with the property
may be included as a component of value. Value that is independent of the property, so
that the value either stays with the seller or dissipates upon sale, may not. A potential
purchaser of the resort would consider the rental contract, and the income from the
contract is generated on the resort property. When the income approach is used, income
attributable to the skill and work of the owner must be excluded. In the case of the
resort, the skill and labor required to maintain the management income are not specific to
ABKA but would be required of any hotel owner. The inclusion of income does not violate
the unitary taxing rule, which provides that interest in property cannot be divided or
separately assessed. The tax is on income derived from the management of the condominium
property and is not a tax on the condominium real property or an interest belonging to the
condominium
The
assessor prepared a stabilized operating statement, which examined actual revenue and
expenses from 1994 and 1995 to eliminate anomalies in cash flow and projected stabilized
income and expense levels. He also used percentage typical of similar properties
nationally and regionally for administrative and general expenses. For maintenance and
repair, he allowed 4 percent of gross income, although actual expenses were $300,000 more
on average. He reasoned that these higher expenses resulted from repair and remodeling
projects that would be capitalized out over a period of years, an approach consistent with
Wisconsin’s Property Assessment Manual. The assessor also relied on the most
recent figures indicating full occupancy of the marina for income attributable to marina
fuel sales. ABKA objected to the assessor’s method of arriving at a value for the
entire property and then subtracting the value of personal property and dockominuum units.
However, the court found there was nothing improper in this method. However, rounding of
the assessment up by $172,000 was improper because there is no evidence or law to support
it.
Therefore,
the Court of Appeals upheld the use of the income from the condominium rentals and the use
of stabilized rather than actual income and expense figures, but reversed the rounding.
The court remanded with directions to reduce the rounded figure to actual assessed value.
The
Supreme Court affirmed the decision of the Court of Appeals.
Importantly,
they started their examination with the statutory basis for assessment under s.70.03. This
defines real property, real estate and land for purposes of tax assessment as “not
only the land itself but all buildings and improvements thereon, and all fixtures and
rights and privileges appertaining thereto.”
Another
major clarification by the Supreme Court regarding the use of “actual” vs.
“estimated” figures is found in the following quote: “There is nothing that
suggests that an assessor must always use actual figures in the absence of a sale.
Although an assessor should consider actual figures, we find no blanket rule mandating the
use of actual figures as the data for an assessment when actual figures do not accurately
reflect regular expenses”
This
is an important decision, which all assessors should read and study carefully.