Opinion ID: 1868480
Heading Depth: 1
Heading Rank: 6

Heading: did the city erroneously apply the income approach by including the value of the billboard permits in its assessment?

Text: ¶ 57 This question encompasses three of the questions certified by the court of appeals: 2. Should the appraisal methods used in eminent domain cases be recognized in personal property tax assessment cases? [14] 3. Should the inextricably intertwined approach used in real estate tax assessment cases be recognized in personal property tax assessment cases? 4. Is a permit authorizing the location of an outdoor advertising sign an intangible within the meaning of Wis. Stat. § 70.112(1) and therefore an exempt factor for purposes of personal property tax assessment?
¶ 58 We address the issue of billboard permits first. Adams contends that billboard permits are either (1) an interest in real property under Wis. Stat. § 70.03 or (2) intangible personal property and not taxable as personal property under Wis. Stat. § 70.112(1). Either way, Adams concludes, the result is the same: the value of billboard permits cannot be included in the assessment of billboards. In response, the City contends the classification of the permits is immaterial, because the value attributable to the permits is inextricably intertwined with the billboard structures and therefore properly included in the assessments of the billboards. ¶ 59 We conclude that a billboard permit is a right or privilege appertaining to real property and thus falls within the definition of real property in Wis. Stat. § 70.03. A billboard permit is not tangible personal property within the definition of personal property in Wis. Stat. § 70.04. If a billboard permit were to be considered personal property, it would be exempted from property taxation as an intangible by Wis. Stat. § 70.112(1). ¶ 60 Whether the City could include the value of the billboard permits in its personal property tax assessments is a question of statutory interpretation. As always, statutory interpretation begins with the language of the statute. State ex rel. Kalal v. Circuit Court for Dane County, 2004 WI 58, ¶ 45, 271 Wis.2d 633, 681 N.W.2d 110. When the meaning of a statute is plain, the inquiry ordinarily stops. Id. We conclude the statutory scheme established by Wis. Stat. ch. 70 unambiguously precludes billboard permits from being taxed as personal property. ¶ 61 In determining whether a billboard permit can be taxed as personal property, the first question is whether permits are personal property. To answer this question we turn to Wis. Stat. § 70.04, which states: Definition of personal property. The term personal property, as used in chs. 70 to 79, shall include all goods, wares, merchandise, chattels, and effects, of any nature or description, having any real or marketable value, and not included in the term real property, as defined in s. 70.03. (1) Personal property also includes toll bridges; private railroads and bridges; saw logs, timber and lumber, either upon land or afloat; steamboats, ships and other vessels, whether at home or abroad; ferry boats, including the franchise for running the same . . . . Three aspects of § 70.04 demonstrate that a billboard permit, which represents an intangible right to use land in a specific manner, does not fall within the definition of personal property. ¶ 62 First, Wis. Stat. § 70.04 defines personal property by means of a list of general types of property, including goods, wares, merchandise, chattels, and effects, all of which have tangible characteristics and have real or marketable value because of their corporeal existence. By contrast, the value of a billboard permit lies not in the piece of paper qua paper, but in the right to construct a billboard upon designated land, which the paper represents. Applying the canon of ejusdem generis, [15] we interpret § 70.04 to include only tangible personal property, to the exclusion of intangible property such as permits, licenses, most franchises, patents, copyrights, trademarks, and the like. ¶ 63 Second, Wis. Stat. § 70.04(1) corroborates the conclusion that billboard permits do not fall within the definition of personal property. Subsection (1) lists specific examples of personal property. Of the list, only one item is not tangible  a ferry boat franchise. If personal property included permits, licenses, and franchises, the statute would not have listed a ferry boat franchise. To avoid rendering this provision surplusage, we interpret the term personal property (which is subject to property taxation) to exclude intangible property, with the exception of ferry boat franchises. ¶ 64 Third, Wis. Stat. § 70.04 excludes from the definition of personal property anything that falls within the definition of real property in Wis. Stat. § 70.03. In part, § 70.03 defines real property as not only the land itself but . . . all fixtures and rights and privileges appertaining thereto[.] Because a billboard permit confers a right or privilege to erect and operate a billboard on a designated piece of land and because a permit cannot be transferred to a different location, we conclude a billboard permit falls within the definition of real property. [16]
¶ 65 The fourth certified question asked: Is a permit authorizing the location of an outdoor advertising sign an `intangible' within the meaning of Wis. Stat. § 70.112(1) and therefore an exempt factor for purposes of personal property tax assessment? ¶ 66 We conclude that a billboard permit should be assessed as a right or privilege appertaining to real property under Wis. Stat. § 70.03. As a result, we need not respond to the certified question with a yes or no answer. Nonetheless, if a failure to comment on intangibles were to leave the impression that the answer is no, we would create a misleading impression of Wis. Stat. § 70.112(1) and open the door to argument on inextricable intertwinement. ¶ 67 Wisconsin Stat. § 70.112(1) exempts from personal property taxation all intangible personal property. [A]ll intangible personal property is an exceptionally broad classification. Its plain language suggests a clear policy choice to exempt intangible personal property from personal property taxation. We see no reason on the face of the statute to give the term a narrow reading. ¶ 68 There is a solid historical basis to support this interpretation of Wis. Stat. §§ 70.04 and 70.112(1). A century ago personal property was more broadly defined than it is today. In 1900 Wis. Stat. § 1036 read as follows: Personal property defined. Section 1036. The term personal property as used in this title shall be construed to mean and include Toll bridges, Saw logs, timber and lumber, either upon land or afloat; Steamboats, ships and other vessels, whether at home or abroad; Buildings upon leased lands, if such buildings have not been included in the assessment of the land on which they are erected; Ferry-boats, including the franchise for running the same; Ice cut and stored for use, sale or shipment; All debts due from solvent debtors, whether on account, note, contract, bond, mortgage or other security, or whether such debts are due or to become due; And all goods, wares, merchandise, chattels, moneys and effects, of any nature or description, having any real or marketable value, and included in the term real property as above defined. (Emphasis added.) ¶ 69 This text covered some, if not all, intangibles. In State ex rel. Dwinnell v. Gaylord, 73 Wis. 316, 41 N.W. 521 (1889), this court approved a personal property tax assessment on $14,000 of a taxpayer's moneys in Nebraska managed for the taxpayer by his son-in-law. In Kingsley v. City of Merrill, 122 Wis. 185, 99 N.W. 1044 (1904), the court approved the taxation of notes and mortgages. In State ex rel. Milwaukee Street Railway Co. v. Anderson, 90 Wis. 550, 63 N.W. 746 (1895), the court approved the assessment of a street railway franchise in Milwaukee. Among other things, the court said that the franchises of the street railway company are property. Id. at 559, 63 N.W. 746. Franchises are classed as incorporeal hereditaments. Id. at 560, 63 N.W. 746. We have the general and paramount provision making franchises taxable.... [T]he cardinal requirement is that, as property, they shall be taxed. Id. at 562, 63 N.W. 746. ¶ 70 In a Report of the Taxation Committee of the Wisconsin Legislative Council, December 1950, the Committee recounted the history of the personal property tax in Wisconsin. The report indicates that the personal property tax had consistently been the subject of hostile criticism, in part because of its uneven administration. A tax commission set up in 1898 revealed that intangibles escaped taxation almost entirely. The formal exemption of intangibles began in piecemeal fashion in 1903 with the exemption of mortgages. A 1907 Report of the Wisconsin Tax Commission singled out intangibles as the class of personal property for the most immediate and drastic action of exemption. In 1909 Governor James O. Davidson advocated the abolition of the personal property tax on intangibles and the establishment of an income tax. ¶ 71 In Chapter 658, Laws of 1911, an income tax was created and all moneys, all debts due or to become due to any person, and all stocks and bonds not otherwise specially provided for were exempted. ¶ 72 The 1911 statute did not use the word intangibles. That word was added by Chapter 63, Laws of 1949, in legislation requested by the Legislative Council. Chapter 63 created Wis. Stat. § 70.112, which exempted: Money and Intangible Personalty. Money and all intangible personal property, such as credit, checks, notes, bonds, stocks and other written instruments. ¶ 73 The 1950 Legislative Council Report made two significant observations in relation to this case. First, [t]he Wisconsin personal property tax has been transformed over the years from a tax on tangible and intangible, income-producing and non-income-producing property into a tax wholly on tangible and largely on income-producing property. (Emphasis added.) This statement reinforces our interpretation of Wis. Stat. § 70.04. Second, there seems little doubt that the income tax was designed as an eventual replacement for the entire personal property tax. ¶ 74 With respect to the second point, Wis. Stat. § 70.112 is now entitled Property exempted from taxation because of special tax. This title is explained by Rick Olin in a Study of the Treatment of Personal Property Under the Property Tax (Legislative Fiscal Bureau, Sept. 2002). Olin writes: [S]ection 70.112 ... exempts certain types of real estate and personal property from the property tax because the property is subject to another tax or fee . . . Such property includes money and intangibles (income tax). . . . In 1911, the creation of the state income tax provided a rationale for fully exempting intangible property . . . from the property tax. Olin, supra, at 3. ¶ 75 Black's Law Dictionary 809 (6th ed.1990) defines Intangible Property. As used chiefly in the law of taxation, this term means such property as has no intrinsic and marketable value, but is merely the representative or evidence of value, such as certificates of stock, bonds, promissory notes, copyrights, and franchises. Intangibles is defined as [p]roperty that is a `right' such as a patent, copyright, trademark, etc., or one which is lacking physical existence; such as goodwill. Black's Law Dictionary 809 (6th ed.1990). ¶ 76 Black's Law Dictionary 1233 (7th ed.1999) has a different definition of Intangible Property: Property that lacks a physical existence. Additionally, Intellectual Property is defined as 1. A category of intangible rights protecting commercially valuable products of the human intellect. The category comprises primarily trademark, copyright, and patent rights . . . . Id. at 813. ¶ 77 Intangibles have a paramount place in contemporary society. They are integrally related to both the heavily regulated and wholly entrepreneurial facets of our modern economy. They include the intellectual property that is essential to creativity, branding, and information technology. Wisconsin Stat. § 70.112 exempts from personal property taxation  all intangible personal property, ranging from patents to permits, as well as money substitutes. (Emphasis added.) Any decision to tax intangible personal property should be made by the legislature, not local assessors. [17]
¶ 78 Regardless of our conclusion that billboard permits are real property, the City contends it is permissible to include the value of the permits in the personal property tax assessments. The City argues the income attributable to billboard permits is inextricably intertwined with the physical structure of the billboards, so that it can be included in the assessment, just as the management income in ABKA Limited Partnership v. Board of Review, 231 Wis.2d 328, 344, 603 N.W.2d 217 (1999), and the income attributable to the landfill license in Waste Management, 184 Wis.2d at 568, 516 N.W.2d 695, were included in real property assessments. In short, the City argues permits can be included in personal property tax assessments because a permit is necessary for a billboard to be operational, meaning the permits are inextricably intertwined with the physical structure of the billboards. ¶ 79 We conclude that the City's reliance upon the inextricably intertwined concept is misplaced. The concept of inextricable intertwinement allows business value to be included within the assessment of real property where the income-generating capability can be transferred with the real estate. ABKA, 231 Wis.2d at 336, 603 N.W.2d 217; Waste Mgmt., 184 Wis.2d at 563, 516 N.W.2d 695; State ex rel. N/S Assocs. v. Board of Review, 164 Wis.2d 31, 54, 473 N.W.2d 554 (Ct.App.1991). When business value is transferable with the underlying real estate, the business value is appended to the real estate rather than attributable to the personal skill and expertise of the owner. ABKA, 231 Wis.2d at 336, 603 N.W.2d 217; Waste Mgmt., 184 Wis.2d at 563, 516 N.W.2d 695; N/S Assocs., 164 Wis.2d at 54, 473 N.W.2d 554. ¶ 80 A review of the cases leading up to ABKA demonstrates that inclusion of business value in a property assessment should be the exception, not the norm. See ABKA, 231 Wis.2d at 344, 603 N.W.2d 217 (cautioning that for income to be included in an assessment it must be attributable primarily to the nature of the property); Waste Mgmt., 184 Wis.2d at 565, 516 N.W.2d 695 (inclusion of business value permissible only in very limited circumstances under § 70.32(1)). Only business value related primarily to the nature of the property may be included; business value attributable to another source must be excluded from real property assessments. ABKA, 231 Wis.2d at 344, 603 N.W.2d 217; Waste Mgmt., 184 Wis.2d at 566, 570, 516 N.W.2d 695 (requiring income attributable to labor and skill to be factored out). ¶ 81 In ABKA, Waste Management, and N/S Associates, the courts confronted the question whether business value was attributable primarily to the underlying real estate or to the business skill and acumen of the property owner. In all three cases, the courts determined the value was attributable to the underlying real estate. Integral to the analysis in these cases was the conclusion that the income appertained to the real property under Wis. Stat. § 70.03, and therefore, was a proper element to include in the real estate assessment under Wis. Stat. § 70.32(1). See ABKA, 231 Wis.2d at 344, 603 N.W.2d 217; N/S Assocs., 164 Wis.2d at 55, 473 N.W.2d 554. ¶ 82 The conclusions in these cases depend upon the definition of real property in Wis. Stat. § 70.03, which includes all buildings and improvements thereon, and all fixtures and rights and privileges appertaining thereto[.] (Emphasis added.) Thus, in ABKA the management income derived from adjacent real estate could be included in the assessment because the physical proximity and interdependency of the real estate meant the income was a privilege appertaining to the subject real estate, rather than the product of the owner's skill and business acumen. Likewise, in Waste Management, the right to generate income from the landfill appertained to the nature of the real estate rather than the labor and skill of the owner. Finally, in N/S Associates the right to receive rental income appertained to the nature and location of the mall rather than to the unique qualities of the mall's ownership. ¶ 83 The valuation of Adams' billboards for purposes of a personal property tax assessment presents the court with a different set of circumstances from those presented in ABKA, Waste Management, and N/S Associates. Rather than a question of whether the income is primarily attributable to the real estate or the personal business skill and acumen of the real property owner, the issue here is whether the income is primarily attributable to real property or personal property. ¶ 84 We conclude that because billboard permits are real property, as defined in Wis. Stat. § 70.03, the income attributable to them is properly included in the real property tax assessment, not the personal property tax assessment. [18] Any value attributable to the billboard permits is not inextricably intertwined with the structure of the billboards. The primary value of the permits is unrelated to the structures; rather, the primary value of the permits appertains to the location of the underlying real estate. ¶ 85 The nature of billboard permits demonstrates the correctness of this conclusion. Billboard permits are valid for a designated location only. A permit terminates when a billboard is moved. Whether value appertains to property depends upon the property's inherent capacity to generate income. ABKA, 231 Wis.2d at 341, 603 N.W.2d 217. Applying this analysis to billboards, it is apparent that business value primarily inheres in the permit and the location, which are real property (the permit) or features of real property (location). Value primarily inheres in the permit because the City has severely restricted the number of permits, artificially driving up their value. Likewise, the value of a billboard is heavily dependent upon its location, as demonstrated by the fact that a billboard along a heavily traveled interstate highway can command a much greater price for the display of advertising than a billboard in a residential neighborhood. See Vivid, 219 Wis.2d at 780, 580 N.W.2d 644 (Bablitch, J., with two justices joining); see also N/S Assocs., 164 Wis.2d at 53, 473 N.W.2d 554. ¶ 86 The City argues that it is immaterial whether the billboard permit is considered tangible or intangible. In its brief, the City states that [t]he City has shown that the value of the permit is inextricably intertwined with the structure and that its value is transferable to a subsequent owner. (Emphasis added.) However, if we were to allow the permit, which the City concedes is intangible, to be factored into an assessment of personal property by means of the inextricably intertwined concept, we would undermine the legislature's decision to exempt intangible personal property, as expressed in Wis. Stat. §§ 70.04 and 70.112(1).
¶ 87 There are three recognized valuation methods for billboards: cost approach, income approach and market approach. Vivid, 219 Wis.2d at 783, 580 N.W.2d 644 (citing 8A Nichols on Eminent Domain § 23.04[4], at 23-51 to 23-59). These three methods are equally applicable to establish fair market value in eminent domain cases, id., and to establish true cash value for personal property tax assessments. Mitchell Aero, 74 Wis.2d at 279, 246 N.W.2d 521; I.B.M., 231 Wis. at 311-12, 285 N.W. 784; see also O'Neall & Marsh, supra at 7. ¶ 88 Although the same appraisal methods may be used to establish fair market value for condemnation purposes as may be used to establish true cash value for purposes of personal property tax assessments, the property valued differs depending upon the purpose. See 8A Nichols on Eminent Domain § 23.04[3], at 23-50 n. 7 (3d ed.2005). In eminent domain, fair market value of a billboard is the price the aggregate assetthe lease, permit and signwould bring in the marketplace[.] Vivid, 219 Wis.2d at 780, 580 N.W.2d 644 (Bablitch, J., with two justices joining). Necessarily, this includes the value attributable to the location of the billboard. Id. at 803-04, 580 N.W.2d 644 (Bradley, J., with three justices joining) (noting the value of the location is included in the value of the leasehold). ¶ 89 In contrast, an appraisal for personal property tax assessment purposes includes only the value of personal property, and therefore excludes the value of the leasehold and billboard permit. See Wis. Stat. §§ 70.04 and 70.34. Because Adams' experts, Donald Sutte and Mark Ulmer, and the City's chief assessor, Michael Kurth, all testified that income attributable to the billboard structures could be isolated, we conclude that a per se rule against the use of the income approach to appraise billboards for property tax assessment is not necessary. [19] In fact, once it is shown that a market approach is not available, the income approach is always a proper element to consider [.] I.B.M., 231 Wis. at 312, 285 N.W. 784 (emphasis added). ¶ 90 Therefore, we conclude the same methods of appraisal may be used in eminent domain as are used in appraising personal property for tax purposes, provided care is taken to exclude from a personal property tax assessment any value attributable to elements other than tangible personal property.