Court Opinion

ID: 9690797
Source: CourtListenerOpinion
Date Created: 2023-08-24 19:44:01.691786+00
Date Added: 2024-06-11T09:08:21.555938
License: Public Domain

*207SHIRLEY S. ABRAHAMSON, C.J.
¶ 87. {concurring). Although the parties' dispute is complex, the dispute hinges upon a simple question regarding the goal of property tax assessments under Wis. Stat. § 70.32(1), namely whether the statute requires an assessor valuing leased real property to estimate the market value of a fee simple interest in the leased property, or instead to estimate the market value of a leased fee interest in the leased property.
¶ 88. Walgreen Co. states that the court's decision in this case "will establish whether Wisconsin is a fee simple or a leased fee assessment state."1 The City of Madison (the City) refers to this issue as the "gravamen" of its disagreement with Walgreen Co.2 The parties' briefs predominantly address this basic point of dispute.3
¶ 89. The answer to this question depends on the statutes of the state. In principal, either approach may be used.
*208¶ 90. The majority opinion restates the issue on review as follows: "whether a property tax assessment of retail property leased at above market rent values should be based on market rents (as Walgreen argues) or if such assessments should be based on the above market rent terms of Walgreen's actual leases (as the City argues)."4 The majority opinion's statement of the issue obscures the parties' basic disagreement about the goal of property tax assessments under Wis. Stat. § 70.32(1).
¶ 91. Nevertheless, the majority opinion answers the question the parties pose. Citing the Wisconsin Property Assessment Manual, the majority opinion declares in the very first paragraph of its lengthy analysis that Wis. Stat. § 70.32(1) requires an assessor valuing leased real property to estimate the value of a fee simple interest in the leased property.5
¶ 92. After answering the parties' question in a single paragraph, the majority opinion proceeds to explain the means by which the value of a fee simple interest is determined. The parties do not dispute, however, how best to calculate the value of a fee simple interest (or the value of a leased fee interest) in leased real property. Although the parties' assessors employed different assessment techniques in the instant case, this difference is attributable to the parties' disagreement about the basic goal of the assessment — whether the value of a fee simple interest or the value of a leased fee interest in the property should be assessed.
¶ 93. The City does not suggest that Walgreen Co. fails to estimate the value of a fee simple interest in the property when Walgreen Co. uses market rents, and *209Walgreen Co. does not suggest that the City fails in its stated goal of estimating the value of a leased fee interest in the property when the City uses contract rents. The parties seem to assume, at least for purposes of this appeal, that each arrow strikes the target at which it is aimed.
¶ 94. The court of appeals' decision, the City of Madison's brief, and the brief of the amicus curiae (representing various municipal entities and associations and the Wisconsin Association of Assessing Officers) make the following persuasive argument based on both the accepted definition of fair market value of real property and what happens in the real world: Property is assessed at the amount the property would sell for as a result of arm's-length negotiations in the open market between an owner willing to sell and a buyer willing to buy. A buyer generally would pay more for real property that has a high stream of income from a lease than for property with a lower stream of income from a lease. Because the sum at which a property will be bought and sold is dictated in part by the income from a lease attaching to the property,6 the actual income stream from the lease should be capitalized to reach the assessed value of the property.
¶ 95. The court of appeals, the City, and the amicus curiae rely on Wis. Stat. § 70.32(l)'s language stating that real property shall be assessed "the full value which could ordinarily be obtained therefor at private sale." They appear to interpret this language as referring to the full price that a lessor-owner of the *210property could obtain in exchange for the lessor-owner's rights in the property, including the lessor-owner's rights and obligations under a lease running with the land.
¶ 96. The Wisconsin Property Assessment Manual supports Walgreen Co.'s position. The Manual states that "[t]he goal of the assessor is to estimate the market value of a full interest in the property, subject only to governmental restrictions. ... This is also called the market value of a fee simple interest in the property."7 The Manual apparently is based on the concept that a lease very favorable to the lessor does not increase the fair market value of the real property; any potential increased value in excess of the value of a fee simple interest in the property is attributable to the particular lease and constitutes the value of contract rights rather than real property rights.8
¶ 97. I find the City's argument persuasive, but Wis. Stat. § 70.32(1) provides in pertinent part that "[r]eal 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 therefor at private sale" (emphasis added). Implicitly, the Manual seems to interpret Wis. Stat. § 70.32(l)'s language about "the full value which could ordinarily be obtained therefor at private sale" as referring to the full price that could be obtained for both the lessor's and lessee's real property rights, and not as referring to the price that could be obtained for either *211the lessor's or lessee's contract rights under a lease agreement. In examining the Manual, as the statute instructs, I find that in addition to providing that the assessor must estimate the value of a fee simple interest in the assessed property, the Manual expressly contrasts a fee simple interest in real property with "partial interests" such as a (lessor's) leased fee interest or a (lessee's) leasehold interest in the property. According to the Manual, "[t]o accurately estimate the market value of the full \i.e., fee simple] interest in leased property, both the lessor's and the lessee's interest (the leased fee and leasehold interest) must be included."9
*212¶ 98. The court is not bound by the Manual. The "common law which accurately reflects the state of the law, and the language of § 70.32(1), STATS., not the [Manual], control."10
¶ 99. I am not persuaded that the case law contradicts the Manual.11 I therefore join in the mandate. I write separately to explain the rationale of the City's argument and my approach to the instant case.

 Walgreen Co.'s Reply Brief and Supplemental Appendix.

 City of Madison's Response Brief and Appendix at 13.

 See Walgreen Co.'s Initial Brief and Appendix at 16-21; City of Madison's Response Brief and Appendix at 6-10; Walgreen Co.'s Reply Brief and Supplemental Appendix at 1-10.
Walgreen Co. states the primary issue presented as follows:
Whether Wis. Stat. § 70.32(1) required the City [of Madison] to assess the fee simple interest of the two Walgreen properties using the income approach based on market rents (as well as other factors) or whether the City could assess the leased fee value of the properties considering only an income approach based upon contract rent, not market rents.
Walgreen Co.'s Initial Brief and Appendix at 2 (emphasis added).
The City of Madison states in its brief to this court that it accepts Walgreen Co.'s statement of the issues presented. City of Madison's Response Brief and Appendix at 2.

 Majority op., ¶ 2.

 Id., ¶ 21.

 "When a property is sold, the rights of the tenant are usually not extinguished. The existing leases remain intact and must be honored by the new property owner." Wis. Dep't of Revenue, Wisconsin Property Assessment Manual 7-2 (2007) (hereinafter Manual).

 Id. at 7-4 (emphasis in original).

 See Appraisal Institute, The Appraisal of Real Estate 473 (12th ed. 2001).

 Manual, supra note 6, at 7-4.
The Manual states that "[¡leases create partial property interests known as the leased fee and the leasehold interests. ... The property owner is said to hold the leased fee interest. The tenant, or lessee, has what is known as the leasehold estate." Manual, supra note 6, at 7-2.
See also The Appraisal of Real Estate, supra note 8, at 83 (defining a "leased fee" interest in property as "[a]n ownership interest held by a landlord with the rights of use and occupancy transferred by the lease to others" and defining a "leasehold" interest in property as "[t]he interest held by the lessee (the tenant or renter) through a lease transferring the rights of use and occupancy for a stated term under certain conditions").
According to The Appraisal of Real Estate, the value of a fee simple interest in leased property may or may not be equivalent to the value of a leased fee interest in the property. See The Appraisal of Real Estate, supra note 8, at 82 ("If the rent and/or terms of the lease are favorable to the landlord (lessor), the value of the leased fee interest will usually he greater than the value of the fee simple interest, resulting in a negative leasehold interest. If the rent and/or terms of the lease are favorable to the tenant (or lessee), the value of the leased fee interest will usually be less than the value of the value of the fee simple interest, resulting in a positive leasehold interest.").

 City of West Bend v. Cont'l IV Fund Ltd. P'ship, 193 Wis. 2d 481, 487, 535 N.W.2d 24 (Ct. App. 1995). See also Metro. Holding Co. v. Bd. of Review of Milwaukee, 173 Wis. 2d 626, 632-33, 495 N.W.2d 314 ("[CJompliance with the Manual is not a defense when the method of assessment suggested by the Manual results in a violation of sec. 70.32(1), Stats.").
Wisconsin Stat. § 73.03(2a) makes clear that the decisions of the Wisconsin courts are binding upon the Department of Revenue as it prepares and publishes the Manual, not the other way around. Section 73.03(2a) provides in relevant part that the Department of Revenue shall amend its manuals from time to time to reflect, inter alia, "court decisions concerning assessment practices."

 Neither of the two principal cases upon which the City and the court of appeals rely addresses the question whether the assessor's task under Wis. Stat. § 70.32(1) is to estimate the market value of a fee simple interest or a leased fee interest in real property. See Darcel, Inc. v. Manitowoc Bd. of Review, 137 Wis. 2d 623, 405 N.W.2d 344 (1987); City of West Bend v. Cont'l IV Fund Ltd. P'ship, 193 Wis. 2d 481, 535 N.W.2d 24 (Ct. App. 1995).