Opinion ID: 1726781
Heading Depth: 3
Heading Rank: 2

Heading: Application to MRMC

Text: ¶ 52 We now apply the analyses of Mitchell Aero, Gebhardt, and Crystal Ridge to the present case. MRMC argues that Milwaukee County, in addition to retaining title to the land, retains sufficient control over the property to be considered the owner. MRMC argues that this control manifests itself through approval requirements, lease restrictions, and entry privileges. Furthermore, the County receives present financial benefits under the terms of the lease and will receive significant rent for the last 20 years of the lease. Moreover, the County will receive title to the day care facility at the end of the lease. MRMC also contends that the County receives non-financial benefits by having the day care facility in the community. ¶ 53 On the other hand, the City argues that MRMC has not presented sufficient evidence to overcome the presumption of taxation. The City claims that the County receives only inconsequential or future benefits from the property. Furthermore, the County does not retain control over the property because it has no say in the operation of the property. ¶ 54 We agree with the City that MRMC is the beneficial owner of the property at the present time, and thus the property is not tax-exempt under Wis. Stat. § 70.11(2). The totality of the circumstances weighs toward MRMC as the beneficial owner. ¶ 55 We recognize that the County has numerous indicia of ownership. [13] These indicia include the following: (1) the County has title to the land; (2) if construction of the day care facility had not been substantially completed on time, the lease would have been null and void; (3) the County must give its approval for MRMC to use the day care facility for any purpose other than to operate a day care program; (4) the County controls whether MRMC may lease, sublet, or assign the day care facility or space within the facility; (5) the County must approve all building construction plans and material changes after such approval; (6) the County must approve all alterations, additions, improvements, and projects over $50,000; (7) the County has the right to enter the premises; (8) the County must consent before MRMC may construct a parking lot; (9) the County is paid by MRMC for exterior security of the property, sewage service, and water; (10) the County must give permission to MRMC before MRMC makes substantial expenditures during the last 10 years of the lease; (11) the County is paid by MRMC for MRMC's prorated share of fire station expenses; (12) the County receives title to the day care facility at no cost upon termination of the lease; (13) the County is a co-insured on the hazard insurance and an additional insured on the public liability insurance; and (14) if there is a condemnation that leaves the property unusable as a day care facility, the County receives the portion of the condemnation award attributable to the land, utilities, and utility tunnels. ¶ 56 On the other side of the scale, MRMC's indicia of ownership include: (1) MRMC has a 50-year lease; (2) MRMC has exclusive occupancy of the property during the life of the lease; (3) MRMC pays only $1.00 per year in rent to the County for 30 years; (4) MRMC does not pay the County any revenues from its day care activities on the property; (5) MRMC has control over the operation of the day care facilitythe County does not set the prices or hours of operation; (6) MRMC must be provided with written notice before the County may enter the property, except when the County enters the property to inspect its utility lines; (7) MRMC can mortgage its leasehold interest in the land; (8) MRMC constructed the day care facility at its own expense; (9) MRMC pays the debt on the bonds issued to build the day care facility; (10) MRMC retains title to the day care facility until the expiration or termination of the lease; (11) MRMC has hazard and public liability insurance on the property; (12) MRMC maintains the day care facility and performs repairs; (13) MRMC provides security for the interior of the day care facility; (14) MRMC will be reimbursed by the County for any substantial capital expenditures it undertakes if those expenditures are made during the ten years prior to the termination of the lease; (15) upon condemnation of the property, MRMC shall at its sole discretion determine if the property is suitable to continue operation of the day care facility, and if the property is condemned so that it is not usable as a day care facility, MRMC receives that part of the condemnation award attributable to the day care facility. ¶ 57 Several of the MRMC factors deserve discussion and emphasis. First, a 50-year lease is a relatively long lease. It permits MRMC to engage in long-term planning for the child care needs of employees and students in its member institutions. In December 2003 the day care facility had 76 more children than the 140 mentioned in the 1990 lease, suggesting that MRMC has been able to expand use of the facility. ¶ 58 Second, although a lessee's occupancy of leased property is expected and not dispositive, MRMC is nonetheless entitled to exercise exclusive occupancy of this property for a half century. Its exclusive occupancy of the property contrasts with the nonexclusive occupancy of the properties in Gebhardt and Crystal Ridge. ¶ 59 Third, legal title to the day care facility is presently vested in MRMC. This makes the most valuable part of the property distinguishable from the property at issue in Mitchell Aero where title to the hangars was vested in Milwaukee County. See Mitchell Aero, 42 Wis.2d at 663, 168 N.W.2d 183. ¶ 60 Fourth, at present, MRMC does not really pay rent for the land, as $1.00 per year is a token payment. As MRMC notes, this factor will change markedly in the future. As a consequence, MRMC receives the primary financial benefit from the property at the present time. The only other financial benefits the County receives from MRMC are payments for water, sewage service, a prorated share of security for the exterior of the day care facility, and a prorated share of fire station expenses. As in Mitchell Aero, where the County received no rent for the two hangars, the County in this case does not receive a portion of Campus Day Care's profits. See Mitchell Aero, 42 Wis.2d at 663, 168 N.W.2d 183. ¶ 61 In both Gebhardt and Crystal Ridge, on the other hand, the government agency received a significant present financial benefit. In Gebhardt, the state received significant rent under the terms of the lease. Gebhardt, 89 Wis.2d at 110-11, 278 N.W.2d 465. In Crystal Ridge, Midwest paid Milwaukee County rent of the greater of three percent of gross profits or $10,000. Crystal Ridge, 180 Wis.2d at 564-65, 509 N.W.2d 730. Milwaukee County also shared the revenues for the dumping fees for landfill material. Thus, the court noted that between the dumping fees and rent, Milwaukee County earned $744,569 for the 5-year period. Id. at 565, 509 N.W.2d 730. Here, while the County received $1.00 in rent for each year from 2001 through 2003, Campus Day Care generated revenue of $1,051,014 in 2001, $1,218,942 in 2002, and $1,374,689 in 2003 for MRMC. ¶ 62 Fifth, Milwaukee County is not involved in the daily operation of Campus Day Care. In other words, the County not only does not occupy the property, but also does not really control the property. Most of the County's present controls come into play only if MRMC wishes to change the facility's mission, change the facility's occupants, or change the facility itself. Periodic inspections and control of building construction and building signage are typical of government oversight, irrespective of ownership. The County may not access the day care facility without prior written notice. Hence, this case stands in sharp contrast to Gebhardt and Crystal Ridge in terms of government control of operations. ¶ 63 In Gebhardt the State owned and operated the only concession stand at the ice skating arena, required the ice arena to cater to special neighborhood groups, had keys to the arena, could enter the arena at any time, and had sole control over the arena for two months of the year. Gebhardt, 89 Wis.2d at 111-12, 278 N.W.2d 465. In Crystal Ridge the county specified the accounting method Midwest had to use; the cash management equipment Midwest had to use; and the cost of all lift tickets, food, ski rentals, or other items sold or rented on the premises. Crystal Ridge, 180 Wis.2d at 566, 509 N.W.2d 730. ¶ 64 Considering the totality of the circumstances, we conclude that MRMC is at present the beneficial owner of the property. The County presently holds title to the land, for which it is paid rent of only $1.00 per year, but MRMC presently holds legal title to the day care facility. Thus, the present financial benefit weighs heavily for MRMC. The County's present control of the property also is not significant. Therefore, the property does not qualify for a Wis. Stat. § 70.11(2) tax exemption. ¶ 65 Two additional comments on this score appear necessary. One, under the lease, MRMC is required to pay the County a portion of the County's costs for the construction of a city fire station and additional firefighting positions. For the years at issue, 2001-2003, these payments amounted to $6,645.30. In essence, these payments serve as payments partially in lieu of taxes. Inasmuch as we conclude that MRMC is not exempt from property taxes, MRMC will be paying full property taxes to Milwaukee County as well as to the City. Continuation of the fire station payments on top of property taxes to the County may constitute an issue that MRMC and the County should address. ¶ 66 Two, of necessity, we consider the totality of the circumstances for tax years 2001, 2002, and 2003. Wisconsin Stat. § 70.10 requires the assessor to assess all real and personal property as of the close of January 1 of each year. If the terms of the lease or other circumstances (such as use of the property) change significantly, beneficial ownership may change as well. In this case, the effect of the lease is markedly different after 30 years. After 30 years, MRMC will pay a fair market value rent to the County on the land. This change in lease terms may alter the property's tax status. This case is quite different from Gebhardt where the parties agreed that the court's determination would govern the tax assessment on the ice arena for the year 1974 and all future years in which the property is subject to the lease agreement.  Gebhardt, 89 Wis.2d at 105, 278 N.W.2d 465 (emphasis added). The holding in this case does not prevent a reassessment of MRMC's tax status if there is a significant change in the totality of the circumstances. [14]