Case Title: Nestle USA, Inc. v. DOR

Citation: 2011 WI 4

Docket Number: 2008AP000322

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2011-02-02T00:00:00Z

Document:
2011 WI 4 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2008AP322 
COMPLETE TITLE: 
 
Nestle USA, Inc., 
          Petitioner-Appellant-Petitioner, 
     v. 
Wisconsin Department of Revenue, 
          Respondent-Respondent. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at: 322 Wis. 2d 156, 776 N.W. 2d 589 
(Ct. App. 2009 – Published)      
 
 
OPINION FILED: 
February 2, 2011   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
September 7, 2010 
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Dane   
 
JUDGE: 
C. William Foust 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the petitioner-appellant-petitioner there was a brief 
by Robert L. Gordon and Michael Best & Friedrich LLP and oral 
argument by Robert L. Gordon. 
 
For the respondent-respondent there was a brief by F. 
Thomas Creeron III, assistant attorney general with whom on the 
brief was J.B. Van Hollen, attorney general, and oral argument 
by F. Thomas Creeron III. 
 
An amicus brief was filed by Robert Horowitz and Stafford 
Rosenbaum LLP and Stephen C. Nick and City of Eau Claire and 
oral argument by Robert Horowitz. 
 
An amicus brief was filed by James Buchen and R.J. Pirlot 
for Wisconsin Manufacturers and Commerce, Inc. 
 
 
 
 
2011 WI 4
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No. 2008AP322   
(L.C. No. 
2006CV004401) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Nestlé USA, Inc.,   
 
 
Petitioner-Appellant   
 
 
v. 
 
Wisconsin Department of Revenue   
 
 
Respondent-Respondent   
FILED 
 
FEB 2, 2011 
 
A. John Voelker 
Acting Clerk of Supreme 
Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.   
 
¶1 
MICHAEL J. GABLEMAN, J.  This is a review of a 
published decision of the court of appeals affirming the circuit 
court's judgment to uphold the determination of the Tax Appeals 
Commission.1  In late 2001, Nestlé finished constructing a plant 
(the "Gateway Plant") in Eau Claire, Wisconsin.  Nestlé designed 
the Gateway Plant to meet rigorous United States Food and Drug 
                                                 
1 Nestlé USA, Inc. v. Wis. Dep't of Revenue, 2009 WI App 
159, 322 Wis. 2d 156, 776 N.W.2d 589; Nestlé USA, Inc. v. Wis. 
Dep't of Revenue, Docket Nos. 04-M-101, 05-M-21, Wis. Tax Rptr. 
(CCH) ¶400-952 *34,130 (WTAC Nov. 29, 2006). 
 
 
 
2 
Administration ("FDA") standards for the processing of powdered 
infant formula. 
¶2 
After 
its 
completion, the Department of Revenue 
("DOR") sent Mr. Curt Stepanek to assess the Gateway Plant for 
property tax purposes.  In order to assess the property, 
Stepanek had to complete two preliminary steps: 1) determine the 
"highest and best use" of the facility and 2) select and apply 
the appropriate assessment method to be used in determining its 
value. 
¶3 
Stepanek 
made 
the 
following 
observations 
while 
considering the Gateway Plant's "highest and best use": the 
plant had a number of expensive features which made it specially 
suited to produce powdered infant formula; Nestlé's greatest net 
return would come from the plant's continued use as a powdered 
infant formula production facility; and a likely purchaser of 
the Gateway Plant would be one of Nestlé's competitors in the 
powdered 
infant 
formula 
industry. 
 
Based 
upon 
these 
observations, 
Stepanek concluded that the Gateway Plant's 
"highest and best use" was as a powdered infant formula 
production facility. 
¶4 
Stepanek then considered which of two assessment 
methods to use in determining the Gateway Plant's value: the 
comparable sales approach or the cost approach.  He first 
attempted to assess the Gateway Plant under the comparable sales 
approach.  This approach uses market sales of properties that 
are reasonably comparable to the subject property's "highest and 
best use" to predict the probable market price of the subject 
 
 
 
3 
property.  Stepanek could not find any powdered infant formula 
production facility in the United States that had been sold for 
continued use as a powdered infant formula production facility.  
Because there were no comparable sales, Stepanek decided he 
could not use the comparable sales assessment method.   
¶5 
Accordingly, Stepanek assessed the Gateway Plant based 
on the cost assessment method.  This method considers the cost 
of building an exact replica of the structure to be assessed, 
less depreciation and tax-exempt components.2  Under the cost 
assessment 
method, 
the 
assessor 
deducts 
depreciation 
for 
functional obsolescence from the replication cost.  This 
deduction occurs when a property contains an unmarketable 
feature called a "super adequacy."3  Stepanek decided that all of 
the Gateway Plant's specialized features could be marketed and 
                                                 
2 Reproduction cost represents the cost of an exact replica 
of the structure using the same materials, design, and quality 
of workmanship.  Bureau of Assessment Practices, Wis. Dep’t of 
Revenue, Wisconsin Property Assessment Manual, 7-21 (2005) 
(hereinafter "Property Assessment Manual").  Stepanek used 
Nestlé's actual construction costs of $13,168,780 for the 
Gateway Plant as the baseline value of the improvements.  He 
then subtracted 3% for depreciation and 25% for tax-exempt 
components.  In total, Stepanek valued the Gateway Plant 
property improvements at $9,579,900. 
3 A property is super adequate when a prudent purchaser or 
owner would not include or pay for the "greater capacity or 
quality in the particular type of structure under current market 
conditions."  Property Assessment Manual, at G-40.  In other 
words, if a reasonable person shopping for a generic food 
processing plant would not place any value in the Gateway 
Plant's features that were specially designed for powdered 
infant 
formula 
production 
facilities, 
then 
those 
special 
features would be "super adequate." 
 
 
 
4 
sold for use in a powdered infant formula production facility.  
Because of this, Stepanek concluded that the specialized 
features were not super adequate.  Thus, Stepanek denied any 
deduction for functional obsolescence and assessed the property 
at $10,915,000.4 
¶6 
Nestlé disagreed with Stepanek's assessment and hired 
Mr. S. Steven Vitale to appraise the property.  Similar to the 
DOR's assessor, Vitale could find no example of a powdered 
infant formula production facility ever being sold for continued 
use as a powdered infant formula production facility.  Because 
of this lack of sales data, Vitale decided the Gateway Plant's 
"highest and best use" was not as a powdered infant formula 
production facility, but rather as a food processing plant.  
Vitale then appraised the Gateway Plant by using the comparable 
sales approach.  He used sales of food processing plants which 
he believed were comparable to the Gateway Plant——not powdered 
infant formula production facilities.  Applying the comparable 
sales 
approach, 
Vitale 
appraised 
the 
Gateway 
Plant 
at 
$3,590,000. 
¶7 
Vitale also made an alternative appraisal under the 
cost method.  He concluded that it would cost Nestlé $17,196,879 
to reproduce an identical plant.  He then deducted $13,895,020 
                                                 
4 Stepanek's initial assessment included $1,335,100 for the 
land value.  The Tax Appeals Commission reduced the land's 
appraised value to $1,140,000.  The DOR did not appeal this 
reduction.  Thus, the Tax Appeals Commission determined the 
total assessed value of the property to be $10,719,900, which is 
the amount we affirm. 
 
 
 
5 
for functional obsolescence.  Vitale included such a large 
functional obsolescence deduction because many of the Gateway 
Plant's FDA-required features had no value in the market for 
generic food processing plants.  After other deductions, 
Vitale's cost method appraisal totaled $3,430,000. 
¶8 
The determinative issue is whether Nestlé presented 
sufficient contrary evidence to overcome the presumption of 
correctness that the Gateway Plant's "highest and best use" was 
as a powdered infant formula production facility.  The DOR 
argues the Gateway Plant's "highest and best use" was as a 
powdered infant formula production facility.  The DOR could find 
no comparable sales of powdered infant formula production 
facilities that satisfied FDA regulations and instead based its 
valuation on a cost assessment method.  Nestlé argues the 
Gateway Plant's "highest and best use" was as a food processing 
plant.  Nestlé did find comparable food processing plant sales 
and argues it properly used them in its comparable sales method 
appraisal.   
¶9 
We conclude that Nestlé did not advance sufficient 
evidence to overcome the presumption of correctness afforded to 
the DOR's assessment.  Nestlé failed to introduce significant 
evidence that no market existed for the Gateway Plant's sale as 
a powdered infant formula production facility.  Also, we 
conclude that the Tax Appeals Commission’s acceptance of the 
DOR’s determination that the Gateway Plant's "highest and best 
use" was as a powdered infant formula production facility is 
supported by substantial evidence.  Therefore, we hold that the 
 
 
 
6 
DOR properly used the cost method and appropriately denied 
Nestlé a deduction for functional obsolescence.  Accordingly, we 
affirm the decision of the court of appeals. 
I.  BACKGROUND 
¶10 Nestlé built the Gateway Plant in 2001 as a satellite 
facility to its main plant, both of which are located in Eau 
Claire, Wisconsin.  The Gateway Plant is a special purpose 
facility designed to produce whole protein powdered infant 
formula, and was specifically designed to meet FDA regulations 
in this field.  The specialized features of the plant include: a 
large spray dryer housed in a 122-foot-high spray-dry tower, 
ultra-sensitive processing areas with specially treated anti-
microbial surfaces, reverse osmosis water treatment equipment 
designed to remove impurities from the city water, a waste-water 
treatment facility which lowers the pH of the waste before 
discharge, and a fire pump house necessitated by the height of 
the spray dryer.  These features added significant costs to the 
Gateway Plant's construction. 
A.  The DOR's Assessment of the Gateway Plant 
¶11 In 2005, the Department of Revenue assigned Mr. Curt 
Stepanek ("Stepanek") to assess the Gateway Plant for property 
tax purposes.  In order to assess it, Stepanek had to do two 
preliminary steps: 1) determine the "highest and best use" of 
the facility and 2) select and apply the appropriate assessment 
method to be used in determining its value.  He made three 
significant conclusions in determining the Gateway Plant's 
"highest and best use."  First, he concluded that the plant had 
 
 
 
7 
a number of expensive features which made it specially suited to 
produce powdered infant formula.  Second, Stepanek concluded 
that Nestlé's greatest net return would come from continuing to 
use the Gateway Plant as a powdered infant formula production 
facility.  Third, he concluded that a likely purchaser of the 
Gateway Plant would be one of Nestlé's competitors in the 
powdered infant formula industry.5  Based upon these conclusions, 
Stepanek decided that the Gateway Plant's "highest and best use" 
was as a powdered infant formula production facility. 
¶12 Next, Stepanek needed to determine the appropriate 
assessment method to use.  He considered two methods: the 
comparable sales approach and the cost approach.  The comparable 
sales approach uses market sales of reasonably comparable 
properties to predict the probable market price of the subject 
property.  Here, however, Stepanek could find no sales of 
comparable powdered infant formula production facilities in the 
United States.  After examining sales of other, less-specialized 
food 
processing 
plants, 
Stepanek 
eventually 
rejected 
the 
comparable sales approach.  He concluded that those plants were 
not reasonably comparable to the Gateway Plant because they 
lacked the FDA-required features built into the Gateway Plant. 
¶13 Stepanek then used the cost approach instead of the 
comparable 
sales 
approach. 
 
The 
cost 
approach 
values 
improvements (such as newly constructed commercial buildings) by 
                                                 
5 Stepanek testified that at the time he thought Mead 
Johnson, 
Abbott 
Laboratories, 
or 
Wyeth 
would 
be 
likely 
purchasers of the plant if offered for sale. 
 
 
 
8 
estimating the reproduction cost of the structure.  Deductions 
for 
depreciation, 
functional 
obsolescence, 
and 
tax-exempt 
components are then subtracted from that estimated cost to reach 
a final value. 
¶14 Stepanek 
valued 
the 
reproduction 
cost 
of 
the 
improvements at $13,168,780.  He then added the value of the 
land, and subtracted for physical depreciation and exempt 
manufacturing components to reach a total value of $10,915,000.  
Because the plant was new and operated specifically for its 
purpose of manufacturing powdered infant formula, Stepanek did 
not reduce the 2003 or 2004 assessments for any functional 
obsolescence.   
B.  Nestlé's Competing Appraisal 
¶15 Nestlé 
submitted 
its 
own 
appraisal, 
which 
was 
performed 
by 
its 
retained 
expert, 
Mr. 
S. 
Steven 
Vitale 
("Vitale"). 
 
Similar 
to 
the 
DOR's 
expert, 
Vitale 
first 
considered performing an appraisal under the comparable sales 
method.  Vitale concluded that because powdered infant formula 
manufacturers operate in a limited market, the Gateway Plant 
would be unlikely to sell for its continued use as a powdered 
infant formula production facility.  After considering a number 
of alternative uses for the facility, Vitale classified the 
Gateway Plant's "highest and best use" as an unspecified food 
processing plant and not as a powdered infant formula production 
facility.  Vitale then compared the Gateway Plant to sales of 
six food processing plants which had recently been sold and 
 
 
 
9 
which he believed were comparable to the Gateway Plant.6  Based 
upon his belief that the six facilities were reasonably 
comparable to the Gateway Plant, Vitale valued the Gateway Plant 
at $3,590,000. 
¶16 Vitale also made an alternative assessment under the 
cost approach.  He valued the reproduction cost of the 
improvements at $17,196,879, and, among other deductions, 
subtracted $13,895,020 for functional obsolescence because he 
believed that the FDA-required features built into the Gateway 
Plant were "super adequate" for the uses of a generic food 
processing 
plant. 
 
Vitale's cost-based assessment totaled 
$3,430,000. 
C.  Nestlé Challenges DOR's Appraisal 
¶17 Nestlé filed a timely objection to the 2003 and 2004 
assessments with the State Board of Assessors in each respective 
year and, as required by statute, paid its tax on the amount of 
the original assessment when the deadline arrived.7  The Board of 
Assessors denied each objection and Nestlé petitioned the Tax 
Appeals Commission for review.8 
                                                 
6 Vitale did not specify which type of food processing plant 
would serve as the Gateway Plant's "highest and best use."  He 
instead listed a number of potential uses, such as a pork 
processing 
plant, 
a 
cheese 
processing 
plant, 
a 
distribution/warehouse facility, a dry blend dairy manufacturing 
plant, 
a 
cheese 
manufacturing 
facility, 
and 
a 
butter 
manufacturing facility. 
7 Wis. Stat. § 70.84 (2003-04).  All subsequent references 
to the Wisconsin Statutes are to the 2003-04 version unless 
otherwise indicated. 
8 Nestlé, Wis. Tax. Rptr. (CCH) ¶400-952, at *34,130. 
 
 
 
10 
¶18 The Tax Appeals Commission consolidated both petitions 
and agreed with the DOR's assessment for both years.  It 
concluded that "the nonexistence of recent sales of specialized 
manufacturing plants does not mean that there is no market for 
such plants."  Nestlé, Wis. Tax. Rptr. (CCH) ¶400-952 at 
*34,136.  Agreeing with the DOR, the Commission stated that "the 
presumption 
of 
correctness 
associated 
with 
the 
[DOR’s] 
assessment of the improvements to the Gateway Plant has not been 
rebutted 
and 
there 
is 
credible 
evidence 
to 
support 
the 
assessment."9  The Commission concluded that the DOR correctly 
used the cost method and correctly denied Nestlé a deduction for 
functional obsolescence. 
¶19 Nestlé then sought certiorari review in the Dane 
County Circuit Court.  The circuit court, the Honorable C. 
William Foust presiding, found that Nestlé "failed to produce 
any evidence that the properties used in its comparable analysis 
were in fact comparable."  Nestlé USA, Inc. v. Wis. Dep't of 
Revenue, at 7, No. 06CV4401 (Dane Cty. Cir. Ct. Nov. 26, 2007).  
It found that the Tax Appeals Commission made "no finding of 
fact or conclusion that there is no market for the Gateway 
facility."  Id. at 9.  The circuit court agreed with the DOR 
that Nestlé failed to present sufficient contrary evidence to 
overcome the presumption of correctness that the Gateway Plant's 
                                                 
9 Id. The Tax Appeals Commission held that the presumption 
of correctness granted to the assessor was rebutted with regard 
to the value of the land. Neither party appealed this point.  
See supra note 4. 
 
 
 
11 
"highest and best use" was as a powdered infant formula 
production facility.  Nestlé sought further review from the 
court of appeals. 
¶20 The court of appeals unanimously affirmed the circuit 
court.  First, it agreed with the DOR that whether Nestlé could 
find a buyer for the Gateway Plant for its continued use as a 
powdered infant formula production facility was in dispute.  
Second, the court of appeals concluded that the burden of 
proving the absence of a market for the Gateway Plant's sale 
fell on Nestlé.  Third, it held that——by itself——the fact that 
powdered infant formula production facilities are rarely bought 
and sold did not per se mean that no market existed for their 
sale.  The court of appeals concluded, as did the circuit court, 
that Nestlé failed to present sufficient contrary evidence to 
overcome the presumption of correctness that the Gateway Plant's 
"highest and best use" was as a powdered infant formula 
production facility. 
¶21 Nestlé then petitioned this court for review, which we 
granted. 
II. 
STANDARD OF REVIEW 
¶22 On 
appeal 
from 
the 
Commission, 
we 
review 
the 
Commission's decision, not the decision of the circuit court or 
the court of appeals.  Wis. Dep't of Revenue v. Menasha Corp., 
2008 WI 88, ¶46, 311 Wis. 2d 579, 754 N.W.2d 95; Racine Harley-
Davidson v. State, 2006 WI 86, ¶9 n.4, 292 Wis. 2d 549, 717 
N.W.2d 184.  Statutory interpretation is a question of law 
subject to de novo review, and we are not bound by an 
 
 
 
12 
administrative agency's decision.  Harnischfeger Corp. v. LIRC, 
196 Wis. 2d 650, 659, 539 N.W.2d 98 (1995).  The DOR argues that 
in tax cases we should defer to the Commission's interpretations 
under at least a "due weight" deference.  See id. at 659-60.  
Nestlé 
argues 
that 
the 
Commission's 
construction 
of 
an 
unambiguous statute is entitled to no deference.  We do not 
reach this question because we hold that, even under the 
stringent no deference standard, we affirm the Commission’s 
interpretation.   
¶23 We uphold an agency's findings of fact as long as 
"substantial 
evidence" 
supports 
the 
findings. 
 
Milwaukee 
Symphony Orchestra, Inc. v. Wis. Dep't of Revenue, 2010 WI 33, 
¶31, 
324 
Wis. 2d 68, 
781 
N.W.2d 674. 
 
This 
"substantial 
evidence" test means that an agency's findings of fact may be 
set aside only when a reasonable trier of fact could not have 
reached them from all the evidence before it, including the 
available inferences from that evidence.  Id.  The DOR's 
assessment is entitled to a presumption of correctness which may 
be overcome only if the challenging party presents significant 
contrary evidence.  Wis. Stat. § 70.995(13).  See also Wis. 
Stat. § 70.47(8)(i)(The Commission "shall presume that the 
assessor’s valuation is correct.  That presumption may be 
rebutted by a sufficient showing by the objector that the 
valuation is incorrect.")  It is in light of this presumption 
that we proceed. 
III. DISCUSSION 
 
 
 
13 
¶24 The question before us is whether the Tax Appeals 
Commission reasonably concluded that Nestlé failed to present 
sufficient contrary evidence to rebut the presumption of 
correctness given to the DOR’s assessment.  In Part A, we 
provide a brief overview of the Wisconsin real estate assessment 
framework.  In Part B, we examine the Commission’s determination 
that the Gateway Plant’s highest and best use is as a powdered 
infant 
formula 
production 
facility, 
and 
conclude 
it 
was 
supported by substantial evidence.  In Part C, we review the 
Commission’s application of the cost approach in assessing the 
Gateway Plant, and conclude it was also supported by substantial 
evidence.   
A.  Overview of Assessment Framework 
¶25 We first turn to a general overview of the real estate 
assessment framework established by the Wisconsin Property 
Assessment Manual (hereinafter "Property Assessment Manual")10, 
statutes, and case law.   
¶26 The law requires that property taxes be levied upon 
all real property in this state, except property that is exempt 
from taxation.  Wis. Stat. §§ 70.01-70.02.  The rules for real 
property assessment begin with Wis. Stat. § 70.32(1), which 
mandates that real property be assessed "from actual view or 
from the best information that the assessor can practicably 
                                                 
10 Bureau of Assessment Practices, Wis. Dep't of Revenue, 
Wisconsin Property Assessment Manual, (2005).  In the instant 
case, the parties cite to the Property Assessment Manual last 
revised in December 2004.  Therefore, we also rely on the 
December 2004 version. 
 
 
 
14 
obtain, at the full value which could ordinarily be obtained 
therefore at private sale."11  Wis. Stat. § 70.32.  This statute 
requires adherence to the Property Assessment Manual, absent 
conflicting law.  Walgreen Co. v. City of Madison, 2008 WI 80, 
¶3, 311 Wis. 2d 158, 752 N.W.2d 687.  Therefore, we examine the 
applicable statutes "in conjunction with basic principles of 
real estate assessment as described by case law, treatises, and 
the Property Assessment Manual."  Id., ¶19.   
¶27 The 
Property 
Assessment 
Manual 
explains 
that, 
regardless of the assessment approach utilized by the assessor, 
all property must be assessed at its "highest and best use."  
The subject property’s highest and best use is "defined as that 
use which over a period of time produces the greatest net return 
to the property owner."  Id. at 7-9.  The Property Assessment 
Manual dictates that the contemplated "highest and best use" 
                                                 
11 Wisconsin Stat. § 70.32(1) provides in full: 
Real property shall be valued by the assessor in the 
manner specified in the Wisconsin property assessment 
manual provided under s. 73.03 (2a) from actual view 
or from the best information that the assessor can 
practicably obtain, at the full value which could 
ordinarily be obtained therefore at private sale. In 
determining the value, the assessor shall consider 
recent arm's-length sales of the property to be 
assessed if according to professionally acceptable 
appraisal practices those sales conform to recent 
arm's-length sales of reasonably comparable property; 
recent arm's-length sales of reasonably comparable 
property; 
and 
all 
factors 
that, 
according 
to 
professionally acceptable appraisal practices, affect 
the value of the property to be assessed. 
 
 
 
 
15 
must be: 1) legal, 2) complementary,12 and 3) not highly 
speculative.  Id.  Additionally, our cases hold, and Chapter One 
of the Property Assessment Manual provides, that the property 
must also be marketable for that use.  Property Assessment 
Manual, at 1-1 ("The law requires that the assessor assess all 
property . . . which has any marketable value"); State ex. Rel. 
Markarian v. City of Cudahy, 45 Wis. 2d 683, 686, 173 N.W.2d 627 
(1970) ("The statutory rule of assessment of real estate is 
restricted to its sale value in the open market . . . .").   
¶28 The Property Assessment Manual and our case law set 
forth a three-tiered methodology for assessing real property’s 
full value at private sale.  Markarian, 45 Wis. 2d at 686; 
Property Assessment Manual, at 7-18 to 7-30.  Evidence of a 
recent arm’s-length sale of the subject property is the best 
evidence of full value.  Adams, 294 Wis. 2d 441, ¶34.  If the 
subject property has not been recently sold, then an assessor 
must consider sales of reasonably comparable properties.  Id.  
Only in situations where there has been no arm’s-length sale of 
the subject property and there are no reasonably comparable 
sales may an assessor use one of the third-tier assessment 
methods.  Id.        
                                                 
12 The Property Assessment Manual defines "complementary" as 
being "in balance with the uses of the property around it."  
Property Assessment Manual, at 7-9.  This requirement stems from 
the principle of conformity, which stands for the proposition 
that "[t]he value of a property is increased when it conforms to 
the standards of a neighborhood." Id. at 7-11. 
 
 
 
16 
¶29 Under a third-tier assessment approach, an assessor 
should consider "all the factors collectively which have a 
bearing on value of the property in order to determine its fair 
market value."  Markarian, 45 Wis. 2d at 683.  These factors 
include 
"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." 
State ex rel. Mitchell Aero, Inc. v. Bd. of Review of City of 
Milwaukee, 74 Wis. 2d 268, 278, 246 N.W.2d 521 (1976).  The cost 
assessment approach, which attempts to value the property based 
on its reproduction or replacement cost, is one of two third-
tier analytic methods.13  Adams, 294 Wis. 2d 441, ¶35.   
¶30 In sum, when reviewing a decision of the Commission, 
these sources——Wis. Stat. § 70.32, the Property Assessment 
Manual, 
and 
our 
case 
law——together 
provide 
the 
guiding 
principles of our review.    
B. 
The Commission’s Highest and Best Use Determination is 
Supported by Substantial Evidence  
¶31 Nestlé argues that the Commission erred by failing to 
apply the comparable sales approach in assessing the Gateway 
Plant, contrary to Wis. Stat. § 70.32(1).  The comparable sales 
approach requires an assessor to consider sales of "reasonably 
                                                 
13 The other third-tier assessment method is the income 
approach.  The income approach assesses property based on the 
amount of income it will generate over its useful life.  
Property Assessment Manual, at 7-26.  Here, neither party argues 
the income approach is applicable. 
 
 
 
17 
comparable" properties.  See Wis. Stat. §  70.32(1).  If there 
had been any reasonably comparable sales available, but despite 
such availability the Commission instead relied on a third-tier 
assessment method, the assessments would be invalid.  Adams, 294 
Wis. 2d 441, ¶37; Markarian, 45 Wis. 2d at 686, 173 N.W.2d 627; 
State ex. rel Keane v. Bd. of Review of City of Milwaukee, 99 
Wis. 2d 584, 590, 299 N.W.2d 638 (Ct. App. 1980).   
¶32 The first step in determining whether the Commission 
erred in not using the comparable sales approach is to consider 
whether the Commission properly concluded the Gateway Plant’s 
highest and best use is as a powdered infant formula production 
facility.  This is a threshold issue because the properties an 
assessor identifies as "reasonably comparable" to the subject 
property for assessment purposes must be reasonably comparable 
to the subject property’s highest and best use.  Forest Cnty. 
Potawatomi Cmty. v. Twp. of Lincoln, 2008 WI App 156, ¶10, 314 
Wis. 2d 363, 761 N.W.2d 31 (citing Property Assessment Manual, 
at 7-9 to 7-10). Therefore, a property’s highest and best use is 
often a determinative factor in the assessor’s decision on which 
assessment approach to rely on in appraising the subject 
property.   
¶33 As explained above, a subject property’s highest and 
best use must be: 1) legal, 2) complementary, 3) not highly 
speculative, 
and 
4) 
marketable 
for 
that 
use. 
 
Property 
Assessment Manual, at 1-1, 7-9.  Both parties in the instant 
case agree that the Gateway Plant’s current use as a powdered 
infant formula production facility is legal, complementary, and 
 
 
 
18 
not highly speculative.  The crux of their dispute centers on 
the fourth required element in determining a subject property’s 
highest and best use——that the use be one that is marketable.   
¶34 The "marketable" requirement for a subject property’s 
highest and best use stems from Wis. Stat. § 70.32(1), which 
requires that property be assessed at the "full value" the 
property could receive in a "private sale."  Nestlé correctly 
notes that this court has consistently interpreted Wis. Stat. 
§ 70.32(1) to require that, when an assessor is determining the 
highest and best use in which a subject property for sale will 
produce its "greatest net return to the property owner," a 
market for that property must exist.  See, e.g., Metropolitan 
Holding Co. v. Bd. of Review of City of Milwaukee, 173 
Wis. 2d 626, 631, 495 N.W.2d 314 (1993) (An assessor cannot 
"create a hypothetical market" or "pretend that a market exists" 
when determining a subject property’s fair market value); 
Markarian, 45 Wis. 2d at 686 (An assessment must be based on a 
property’s "sale value in the open market and [not] its 
intrinsic value"); State ex rel. Northwestern Mutual Life Ins. 
Co. v. Weiher, 177 Wis. 445, 448, 188 N.W. 598 (1922) (An 
assessment cannot be based on an imaginary sale "to a supposed 
purchaser that does not in reality exist").  Therefore, if there 
is no market in which the Gateway Plant could be sold as a 
powdered infant formula production facility, a determination 
that the Gateway Plant’s highest and best use is as a powdered 
infant formula production facility would be invalid under Wis. 
Stat. § 70.32(1). 
 
 
 
19 
¶35 Nestlé argues that there is no market for the Gateway 
Plant in its continued use as a powdered infant formula 
production 
facility. 
 
Nestlé 
relies 
extensively 
on 
its 
interpretation of the Commission’s Finding No. 26, which states 
in relevant part, "neither party could find any instance in the 
United States where a powdered infant formula manufacturing 
plant was sold for continued use as a powdered infant formula 
manufacturing plant."  Nestlé, Wis. Tax. Rptr. (CCH) ¶400-952, 
at *34,132.  Nestlé contends that the Commission, by concluding 
in Finding No. 26 that no actual sales of powdered infant 
formula production facilities had been identified in the United 
States, is necessarily concluding that there is no market for 
powdered infant formula production facilities.    
¶36 Nestlé’s interpretation of the Commission’s finding is 
flawed.  The Commission concluded that neither party found an 
instance in the United States where a powdered infant formula 
production facility was sold for continued use as a powdered 
infant formula production facility.  This finding, however, is 
not analogous to a finding that there is no market for powdered 
infant 
formula 
production 
facilities. 
 
Wisconsin 
Stat. 
§ 70.32(1), our case law, and the Property Assessment Manual do 
not demand that evidence of actual sales of properties be put 
forward to satisfy the "marketable" requirement of a highest and 
best use determination.    
¶37 Nestlé’s argument that the Commission found there is 
no market for the Gateway Plant as a powdered infant formula 
production facility attempts to create a new requirement in our 
 
 
 
20 
case law where actual sales must be identified when determining 
a subject property’s highest and best use.  This "actual sales" 
interpretation, however, is inconsistent with the objectives of 
Wis. 
Stat. 
§ 70.32(1) 
and 
would 
effectively 
convert 
our 
established three-tier system for property assessments into a 
two-tier analysis.   
¶38 The purpose in requiring that assessors determine a 
subject property’s highest and best use is to ascertain a 
property’s 
"greatest 
net 
return 
to 
the 
property 
owner."  
Property Assessment Manual, at 7-9.  In other words, the 
Legislature and this court have concluded it is improper to 
assess a taxpayer’s property at a value that does not equate to 
what that taxpayer would receive for their property on the open 
market.  This objective to determine a subject property’s fair 
market value, however, does not require actual sales of other 
properties to be identified.  A market can exist for a subject 
property, especially a special-use property, without actual 
sales data of similar properties being available.   
¶39 The instant case illustrates this principle.  Here, 
the FDA implemented its new infant formula standards in 1997.  
When the Gateway Plant was completed in late 2001, it was the 
first powdered infant formula production facility constructed to 
meet 
these 
standards. 
 
Under 
such 
circumstances 
it 
is 
unsurprising that no actual sales of powdered infant formula 
production facilities had occurred by 2003 or 2004.  This, 
however, does not inevitably lead to the conclusion that there 
is no market in which the Gateway Plant could be sold to a 
 
 
 
21 
potential buyer for the purposes of manufacturing powdered 
infant formula.  Rather, it means only that, in the young 
industry in which the Gateway Plant was designed and constructed 
to operate, no similar plants had yet been sold.14 
¶40 Nestlé’s "actual sales" interpretation would always 
force assessors to look for active markets when determining a 
property’s highest and best use, even if the subject property 
already operated in a thriving, albeit limited, industry.15  This 
                                                 
14 The lack of actual sales of powdered infant formula 
production facilities in 2003 and 2004 is certainly relevant to 
a determination of whether a market exists for powdered infant 
formula production facilities, but it is in no way conclusive. 
15 Industry experts have recognized this is a flawed 
approach in assessing special purpose properties:   
Except for statutes or (faulty) jurisprudence in 
property 
tax 
matters 
requiring 
the 
alternate-use 
treatment, the highest and best use for viable 
special-purpose industrial facilities is the use for 
which they were constructed, unless proven otherwise.  
The theory that the assessments for property taxes of 
viable plants should be based upon alternate use 
arises from the notion that (1) there is a limited 
market for such properties and (2) the erroneous idea 
that the appraisal of the highest and best current use 
is 
"value-in-use" 
rather 
than 
a 
market 
value 
appraisal. 
Max J. Derbes, Jr., Non-Comparable Industrial Sales, The 
Appraisal Journal, Jan. 2002, at 41.  When an appraiser is 
assessing a special purpose property where "the presence of an 
actual market for that property is extremely thin . . . it is 
generally recognized that conventional valuation techniques of 
sales comparison and income approaches are not applicable" 
because of limited comparable data.  David Paul Rothermich, 
Special-Design Properties: Identifying the "Market" in Market 
Value, The Appraisal Journal, Oct. 1998, at 410.  "Consequently, 
the cost approach is usually considered the only valid approach 
in value."  Id.        
 
 
 
22 
requirement would result in subject properties in limited 
markets being assessed, not at their fair market value, but 
rather at a value based on the subject properties’ costly and 
hypothetical conversions to alternative uses.16 
¶41 Nestlé’s "actual sales" interpretation would also 
result in 
replacing our established three-tier assessment 
framework with a two-tier approach.  Under this two-tier 
approach, valid assessments would be based on only (1) recent 
sales of the property itself, or (2) recent sales of comparable 
properties.  By requiring actual sales to be identified when 
determining a subject property’s highest and best use, assessors 
would be required to broaden a property’s potential use further 
and further until actual sales could be located.  This 
interpretation of the "marketable" requirement for highest and 
                                                                                                                                                             
 
16 Nestlé 
complains 
that 
the 
Commission 
created 
a 
"hypothetical buyer" when assuming a market exists for the 
Gateway Plant in its continued use as a powdered infant formula 
production facility.  While the premise of this argument rests 
on Nestlé’s "actual sales" interpretation that we reject today, 
it is worth noting that Nestlé is also creating a "hypothetical 
buyer" by assuming a potential buyer would purchase the Gateway 
Plant 
after 
it 
had 
been 
converted 
to 
a 
generic 
food 
manufacturing facility.  Neither party put forward any evidence 
of actual sales of converted food manufacturing facilities that 
had once been powdered infant formula production facilities. 
This highlights a fact Nestlé overlooks throughout its arguments 
in 
this 
case: 
markets 
are 
necessarily 
forward-looking.  
Empirical 
evidence 
of 
past 
sales 
activity 
is 
certainly 
informative, but it is not conclusive.  Other factors such as 
changes in consumer demand, industry regulation, and competitor 
behavior are also important and relevant considerations when 
engaging in market analysis. 
 
 
 
23 
best use determinations results in recent sales of reasonably 
comparable properties necessarily existing.  This would, in 
effect, render obsolete the third-tier assessment methodologies 
that are well established by Wis. Stat. § 70.32(1), the Property 
Assessment Manual, and our case law.  We therefore reject 
Nestlé’s "actual sales" interpretation of the "marketable" 
requirement for highest and best use determinations.17      
¶42 We find the Commission’s conclusion that the Gateway 
Plant’s highest and best use is as its continued use as a 
powdered infant formula production facility is supported by 
substantial evidence.  Stepanek, the DOR’s assessor, relied 
primarily 
on 
three 
pieces 
of 
evidence 
in 
reaching 
this 
conclusion.  First, Stepanek testified there were competitors in 
the infant formula industry——Mead Johnson, Abbott Laboratories, 
and Wyeth——that could be potential buyers of the Gateway Plant.  
Second, Stepanek noted the infant food industry was strong and 
expanding its capacity.  Third, Stepanek found no evidence that 
powdered infant formula production facilities had ever been 
converted to other uses. 
                                                 
17 Nestlé also argues that if we accept the Commission’s 
conclusion that the Gateway Plant’s highest and best use is as a 
powdered infant formula production facility, we would be 
creating an impossible burden by requiring that Nestlé prove the 
absence of a market.  Our case law, however, does not place that 
burden on Nestlé.  In order to prevail in the instant case, 
Nestlé would have needed to present only sufficient contrary 
evidence showing that the Commission’s acceptance of the DOR’s 
highest and best use determination was incorrect.  Adams, 294 
Wis. 2d 441, ¶34. 
 
 
 
24 
¶43 The only evidence that Nestlé presented was its 
expert’s testimony that no powdered infant formula production 
facility had ever been sold in Wisconsin for its continued use 
as a powdered infant formula production facility.  Nestlé 
presented no evidence refuting Stepanek’s findings or otherwise 
suggesting there is no market for the Gateway Plant in its 
existing use as a powdered infant formula production facility.   
¶44 Based 
on 
the 
record 
before 
it, 
the 
Commission 
reasonably concluded that the Gateway Plant’s highest and best 
use is as a powdered infant formula production facility.  
Nestlé, relying exclusively on the fact that no actual sales of 
powdered infant formula production facilities had been found in 
Wisconsin, failed to present sufficient contrary evidence to 
overcome the presumption of correctness given to Stepanek’s 
testimony and report.  
¶45 Because we agree with the Commission’s conclusion that 
the Gateway Plant’s highest and best use is its current use as a 
powdered infant formula production facility, we further hold the 
Commission’s conclusion that the comparable sales approach was 
not appropriate for assessing the Gateway Plant is supported by 
substantial evidence.  The comparable sales approach bases the 
value of the subject property on "the sales of reasonably 
comparable properties."  Property Assessment Manual, at 7-18.  
Both parties agree there were no recently sold food-related 
manufacturing plants that had been similarly equipped to 
manufacture powdered infant formula.  Because the Gateway 
Plant’s highest and best use is as a powdered infant formula 
 
 
 
25 
production facility, we agree with the Commission that the 
general food processing plants relied upon by Nestlé as 
comparable sales were not "reasonably comparable" to the Gateway 
Plant.   
¶46 Nestlé 
nonetheless 
argues 
that 
the 
Commission’s 
decision to accept the DOR’s assessment and reject the sales 
comparison approach in assessing the Gateway Plant directly 
contradicts our holding in State ex. rel. Northwestern Mutual 
Life Insurance Co. v. Weiher, 177 Wis. 445, 188 N.W. 598 (1922).  
We disagree.   
¶47 Northwestern Mutual involved the assessment of the 
original 
Northwestern 
Mutual 
headquarters 
in 
Milwaukee, 
Wisconsin, for property tax purposes.  The subject property at 
issue was "a fine, substantial, artistic building gracing half a 
block in the city of Milwaukee built to meet the peculiar needs" 
of Northwestern Mutual Insurance Company.  Id. at 599.  This 
court concluded there was no market of potential purchasers with 
needs similar to Northwestern Mutual’s, consequently making it 
unjust to assess the property as if a hypothetical purchaser 
existed who would value and use the uniquely constructed subject 
property for the same purposes as Northwestern Mutual.   
¶48 In the instant case, the Commission never concluded 
that no market existed for powdered infant formula manufacturers 
in 2003 or 2004.  In fact, Vitale, Nestlé’s own assessor, 
testified a market existed:  
 
 
 
 
26 
Q:  Let’s talk about markets for infant formula plants.  
Again, you—are you aware of any powdered infant formula 
plants selling?  
 
A:  No.  
 
Q. Okay.  So, is it fair to say that there’s no market for 
powdered infant formula plants?  
 
A: You know, it’s hard to say no market, but I call it a 
limited market because of that.  
Vitale’s conclusion is consistent with Stepanek’s testimony that 
there were other powdered infant formula manufacturers in the 
United States that could be potential purchasers of the Gateway 
Plant.    
¶49 Northwestern Mutual holds that, in situations where it 
has been determined there is no potential market for the subject 
property, it is contrary to Wis. Stat. § 70.32(1) to conclude 
that the highest and best use of the subject property should 
remain the same.  This case is easily distinguishable from 
Northwestern Mutual.  In the instant case the DOR’s assessor, 
the Commission, and even Nestlé’s own appraiser, all agreed a 
market existed for powdered infant formula production facilities 
in 2003 and 2004.  Unlike Northwestern Mutual, where a "supposed 
purchaser . . . [did] not in reality exist" for the subject 
property, both parties in the instant case have agreed that 
there is at least a limited market for powdered infant formula 
production facilities.  Id.  Ultimately, Nestlé simply failed to 
introduce sufficient evidence to support its argument that no 
market exists for the Gateway Plant to be sold in its continued 
use as a powdered infant formula production facility.        
 
 
 
27 
C. 
DOR’s Application of Cost Approach is Supported by 
Substantial Evidence 
¶50 Nestlé argues, in the alternative, that if the 
Commission’s decision to use the cost approach in assessing the 
Gateway Plant is correct, the DOR’s assessor’s application of 
the cost approach overvalued the property by failing to reduce 
the assessment for functional obsolescence.  We find this 
argument unpersuasive.   
¶51 The cost approach method determines the value of 
improvements by estimating the reproduction or replacement cost 
of the structure.  Property Assessment Manual, at 7-21.  Then, 
deductions for depreciation, functional obsolescence, and tax-
exempt components are subtracted to reach a final value.  Id. 
¶52 Nestlé argues that the special features incorporated 
into the Gateway Plant for the production of powdered infant 
formula are "super adequacies" that should be deducted from the 
Gateway Plant’s assessment because they do not translate into 
market value as real estate.  This argument, however, turns on 
1) the classification of the Gateway Plant’s "highest and best 
use," and 2) whether components of the Gateway Plant are 
functionally obsolete for that use.   
¶53 We have already held that the Gateway Plant’s "highest 
and best use" is as a powdered infant formula production 
facility.  Therefore, the only remaining issue to be resolved is 
whether the specialized improvements that make the Gateway Plant 
suitable for the production of powdered infant formula are 
 
 
 
28 
functionally obsolete for the plant’s continued use as a 
powdered infant formula production facility.   
¶54 The Property Assessment Manual defines "functional 
obsolescence" as "the loss in value, due to a lack of or 
excessive utility."  Property Assessment Manual, at 7-26.  The 
Gateway Plant was newly constructed and all of its FDA-required 
features were being utilized for the purpose of producing 
powdered infant formula at the time of its assessments in 2003 
and 2004.  Nothing about the plant can be considered lacking 
utility during this time period.  Therefore, the primary issue 
is whether functional obsolescence existed as a result of 
"excessive utility" (also referred to as "super adequacy").     
¶55 The test for super adequacy is whether a "prudent 
purchaser or owner would include or would pay for . . . [the 
greater capacity or quality] in the particular type of structure 
under current market conditions."  Property Assessment Manual, 
at G-40.  Nestlé is correct that if the Gateway Plant’s 
specialized features are not marketable, then Nestlé is entitled 
to a deduction for super adequacy.18 
                                                 
18 Nestlé 
is also correct in pointing out that the 
Commission mistakenly stated that no functional obsolescence can 
be found in situations where special features are currently 
functional for the present owner of the subject property.  
Whether 
the 
special 
features 
of 
a 
subject 
property 
are 
functional for the present owner is irrelevant to the question 
of 
whether 
functional 
obsolescence 
exists 
for 
assessment 
purposes.  The key issue in determining if deductions are 
appropriate for functional obsolescence is whether the special 
features of the subject property will be functional for a 
potential buyer. 
 
 
 
29 
¶56 Nestlé’s argument is unpersuasive, however, because we 
consider only whether the FDA-required features are marketable 
in the powdered infant formula production facility sales market.  
This is so because the market is defined by the property’s 
"highest and best use" both when we consider which assessment 
method to use and when we consider the appropriateness of a 
deduction for functional obsolescence.  Prudent purchasers of 
powdered infant formula production facilities would value the 
Gateway Plant’s specialized features because these features are 
required by FDA regulations and are therefore necessary to the 
operation of such a plant.   
¶57 Further, we need not consider whether the FDA-required 
features are marketable in the broader market of general food 
processing plants because we have already found them to be 
marketable in the context of the narrower, relevant market in 
which the Gateway Plant operates. 
¶58 A reasonable trier of fact could have concluded the 
specialized features of the Gateway Plant are marketable and 
Nestlé has not advanced any evidence that the specialized 
features of the Gateway Plant are unmarketable if the Gateway 
Plant is sold as a powdered infant formula production facility——
its highest and best use.  Therefore, we hold that Nestlé has 
not overcome the presumption of correctness enjoyed by the DOR, 
and that the court of appeals properly denied Nestlé a deduction 
for functional obsolescence.     
IV. 
CONCLUSION 
 
 
 
30 
¶59 We conclude that Nestlé did not advance sufficient 
evidence to overcome the presumption of correctness afforded to 
the DOR's assessment.  Nestlé failed to introduce significant 
evidence that no market existed for the Gateway Plant's sale as 
a powdered infant formula production facility.  Also, we 
conclude that the Tax Appeals Commission’s acceptance of the 
DOR’s determination that the Gateway Plant's "highest and best 
use" was as a powdered infant formula production facility is 
supported by substantial evidence.  We therefore hold that the 
DOR properly used the cost method and appropriately denied 
Nestlé a deduction for functional obsolescence.  Accordingly, we 
affirm the decision of the court of appeals. 
By the Court.—The decision of the court of appeals is 
affirmed.