March/April 2023 Issue

Also in this issue: Public Service Commission Rules on Third Party Decisions     |     Public Service Commission Distributes $10 Million in Energy Innovation Grants     |     Wisconsin Public Records Law: Risk Of Attorney’s Fees Remains, Despite Voluntary Release     |     Denial of Permit Reversed on Certiorari Review as Being Based on an Incorrect Theory of Law

Wisconsin Supreme Court Addresses Dark Store Evidence & Presumption of Correctness in Tax Assessment Claims

Storm B. Larson | 03.30.23

On February 16, 2023, in Lowe’s Home Centers, LLC v. City of Delavan, 2023 WI 8, the Wisconsin Supreme Court ruled that the City of Delavan’s (“City”) 2016 and 2017 tax assessments of a Lowe’s store were not excessive. According to the majority, Lowe’s failed to introduce sufficient evidence to overcome the presumption of correctness afforded to municipal assessments pursuant to Wis. Stat. § 74.37. This decision marks a positive development for municipalities because it confirms that municipalities’ assessments are presumed correct, and taxpayers ultimately bear the burden to challenge their property tax bills.

A complicated set of rules and statutes govern Wisconsin tax assessment claims. Therefore, some background may be helpful. In a nutshell, municipalities assess properties under a three-tier framework, and each tier corresponds to a set of information that the assessor can consider. Assessors must start at tier 1 and can only proceed to a higher tier if no information is available under the lower tier. 

Tier 1 instructs assessors to look to a recent arm’s‑length sale of the subject property to determine its fair market value. If no recent sale data exists, then the assessor may move to a tier 2 analysis, which examines recent arm’s‑length sales of reasonably comparable properties. This is often called a ​“sales comparison” approach. If no data is available from either tier 1 or tier 2, the assessor may move to tier 3, which permits consideration of all factors that collectively bear on the property’s value, such as cost, depreciation, replacement value, income, industrial conditions, location and occupancy, sales of like property, book value, amount of insurance carried, value asserted in a prospectus, and appraisals produced by the owner. Once the assessment is complete, the assessed values are deemed presumptively reasonable.

Property owners who wish to dispute their assessment may, pursuant to Wis. Stat. § 70.47(7), file an objection with the relevant municipal board of review. The board of review then decides whether to grant or deny the objection. If the board denies the objection, the taxpayer can appeal that decision through three different avenues: (1) certiorari review pursuant to Wis. Stat. § 70.47(13); (2) a written complaint with the Department of Revenue to revalue the property under Wis. Stat. § 70.85; and (3) an excessive assessment action pursuant to Wis. Stat. § 74.37. With this brief summary in mind, we can turn to the case at hand.

Lowe’s Home Centers, LLC v. City of Delavan involved the City’s 2016 and 2017 assessments in which it assessed property owned by Lowe’s at $8,922,300 for both years. Lowe’s challenged the assessment, and the Board of Review disallowed the claim. Lowe’s then filed an action in Walworth County Circuit Court pursuant to Wis. Stat. § 74.37(3)(d).

Lowe’s argued that the property’s fair-market value was actually $4,600,000. To arrive at this figure, Lowe’s relied upon an expert report that utilized the tier 2 (sales comparison) analysis. After a three-day bench trial, the circuit court rejected Lowe’s analysis because nearly all of the properties that Lowe’s deemed ​“comparable” were either ​“dark” or in economic distress (i.e., in receivership). For context, the Wisconsin Property Assessment Manual defines ​“dark store” as one that is ​“vacant beyond the normal time period for that commercial real estate marketplace and can vary from one municipality to another.” Thus, a dark store will often be valued at a much lower amount and is often not comparable to a property which is not dark. Because nearly all of the properties were not comparable, the circuit court concluded that Lowe’s had not introduced sufficient evidence to overcome the presumption of correctness afforded to municipal assessments. The court of appeals affirmed this decision.

Lowe’s appealed to the Wisconsin Supreme Court, which largely adopted the circuit court’s analysis. There are two key takeaways from the supreme court’s decision. First, it confirmed the principle that the initial presumption of correctness attaches regardless of whether the municipality initially applied the wrong assessment methodology. The supreme court observed that it is up to the taxpayer to overcome that presumption by adducing significant contrary evidence and to point out these flaws. 

The second notable takeaway concerns the evidentiary value of dark/​distressed property data when used in comparison to a property that is not dark or distressed. In this case, the circuit court disregarded the dark store data and found it too different to be probative. The supreme court ruled that this was a proper ruling. Therefore, moving forward, circuit courts can exclude dark/​distressed property data under the tier 2 approach if the subject property is neither distressed nor dark. The supreme court did note, however, that there will be close calls and there may be times when considering a vacant property as opposed to a dark property may be permissible in appropriate circumstances. 

Lowe’s Home Centers, LLC is an important decision because it resolves some ambiguity in how municipalities can defend tax assessment litigation while still leaving some questions unanswered for another day. 

We encourage you to reach out to a member of the Boardman Clark Municipal Law Practice Group with any questions.