Court Opinion

ID: 9669640
Source: CourtListenerOpinion
Date Created: 2023-08-24 03:02:32.644054+00
Date Added: 2024-06-11T18:15:58.996738
License: Public Domain

*641WILLIAM A. BABLITCH, J.
(dissenting). Seventeen states that have considered the issue presented here, see Majority Opinion at p. 636 n. 10, including California, New York, Minnesota and Illinois, disagree with the conclusion reached by the majority of this court. Each of those courts support the proposition that fair market rents rather than contract rents are to be used in determining fair market value of income producing properties for tax assessment purposes. The majority cites only one other state which agrees with its conclusion. My research reveals no other. The overwhelming authority disagrees with the majority for good reason.
If the long term leases on this property provided for fair market rents, the property is undisputably worth $5.2 million. However, the leases provided woefully inadequate rents, and therefore the selling price was $1.1 million less than the full value. Because the majority concludes that the full value of the property for purposes of taxation is $4.1 million, $1.1 million worth of otherwise taxable property is removed from the property tax rolls. The property taxes that would have been paid on that additional $1.1 million must now be borne by all other property taxpayers in the City of Manitowoc. The majority says the law compels this result. I think not.
The majority opinion is in error in three respects: 1) it is contrary to the requirement of sec. 70.32(1), Stats., that value be determined at the full value which could ordinarily be obtained at private sale; 2) it is contrary to the requirement of the Wisconsin Property Assessment Manual for Wisconsin Assessors which provides that assessors are to value all rights in the real estate regardless of whether the property owner possesses the entire bundle of rights; and 3) it is *642contrary to the objective of uniformity and consistency in taxation. Accordingly, I dissent.
I will address each of these errors in turn.
Section 70.32(1), Stats., provides in part that real property must be assessed "at the full value which could ordinarily be obtained therefor at private sale.” (Emphasis added.) Thus, the law recognizes that there are circumstances in which an arms length selling price will not control the determination of full value. Such is the case here. This was far from an "ordinary” sale. Long-term leases provided for rents that were substantially lower than fair market rents. Stores at a comparable competing shopping center across the street were paying rents ranging from $7.50 to $10.00 per square foot. By contrast, the two largest tenants in this property were only paying $1.09 per square foot under leases negotiated in 1968, and which would not terminate until approximately the year 2000. The majority’s conclusion necessarily implies that this price was the full value which could "ordinarily” be obtained. Rather than being "ordinary,” I assume that this set of circumstances in which contract rents are substantially lower than fair market rents is extraordinary. The "ordinary” sale price would ordinarily reflect that contract rents are substantially equivalent to fair market rents. Because these contract rents are so substantially different from fair market rents, the selling price here is not that which could "ordinarily” be obtained. Thus, we must look further to determine the fair market value. The answer lies in sec. 70.32(1) and the Wisconsin Property Assessment Manual for Wisconsin Assessors.
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Section 70.32(1), Stats., provides that property shall be assessed "in the manner specified in the Wisconsin property assessment manual _” The Wisconsin Property Assessment Manual for Wisconsin Assessors (the Manual) is prepared by the Wisconsin Department of Revenue. It provides that "even though a property owner may not possess the entire bundle of rights, the value that is being sought is market value ... includes all rights and privileges." Wisconsin Assessment Manual for Wisconsin Assessors, 7-2, Dec. 1985. Here, Darcel could not purchase all rights. Darcel was obligated to honor the long-term leases. The lessees, despite the sale, maintained their rights to lease the stores at contract rents that were substantially lower than fair market rents. The value of those rights was presumably $1.1 million, the difference between the value of the property if leased at fair market rent ($5.2 million) and the actual sale price ($4.1 million).
The statute directs that property be assessed according to the Manual. The Manual requires that assessment include the full value of all the rights (referred to as "the bundle of rights”) including leasehold interests. The majority, by finding that the full value was the selling price of $4.1 million fails to take into account in any respect the value of the leasehold interest. The $1.1 million dollars worth of property is therefore off the tax rolls. This is not only contrary to Wisconsin law, it is contrary to the conclusion of 17 other states that have decided this issue.
Therefore, I conclude that the statutes as well as the Manual support the finding of the Manitowoc *644Board of Review that the full value of this property for tax assessment purposes is $5.2 million. This conclusion is further supported by a longstanding principle: the principle of uniformity and consistency in taxation.
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The Wisconsin Constitution, article VIII, sec. 1, provides that "[t]he rule of taxation shall be uniform _” This principle has been part of the Wisconsin Constitution since 1848. Section 73.03, Stats., directs the Wisconsin Department of Revenue to provide "more nearly uniform and more consistent assessments of property at the local level.”
The Georgia court of appeals succinctly and correctly addressed this concern:
"If tax assessments on the same property were to fluctuate according to the varying terms of a lease, the computation of ad valorem taxes on the basis of such assessments would result in a tax penalty for one who, through business acumen or fortuity, succeeds in leasing his property for an amount in excess of its 'fair market value’ and a tax windfall to one who, through bad business judgment, leases far below his property’s 'fair market value.’ Such a method of evaluation would hardly produce assessments which were 'fairly and justly equalized’ as between taxpayers.” Martin v. Liberty Cty. Bd. of Tax Assessors, 262 S.E. 2d 609, 612 (Ga. 1979).1
*645The error of the majority is readily seen by a hypothetical posed in appellant’s brief:
"Assume the following facts: There are two 20 year old shopping centers across the street from each other. They are identical with respect to area, location and all other characteristics, except that one shopping center is encumbered by leases which do not have the flexibility to generate market rents. The leases at this shopping center produce an annual net operating income of $400,000.00. The leases for the other shopping center produce market rents generating an annual net operating income of $600,000.00. Each of the shopping centers is sold on the same date at an arm’s length sale price equal to ten times annual net operating income. That is, one shopping center is sold for $4,000,000.00; the other shopping center is sold for $6,000,000.00.
"As the Appellant understands the rationale of the court of appeals, the assessment on one shopping center should be $4,000,000.00 while the assessment on the other shopping center is $6,000,000.00. This would be so even though the physical characteristics of the two shopping centers are identical. The Appellant submits that to limit the assessment on the shopping center encumbered by the bad leases to $4,000,000.00 would violate the uniformity requirements of the Wisconsin constitution and the Wisconsin Statutes." Appellant-petitioner's supreme court brief, pp. 22-23 (June 3, 1986).
I agree.
In conclusion, I would hold that Darcel must pay property taxes based on a value that reflects fair market rents rather than woefully inadequate con*646tract rents, i.e., the assessed value of $5.2 million established by the City of Manitowoc Board of Review.
Would this result lead to an unfair burden on Darcel or others similarly situated? Hardly. The negotiated selling price in a free market will reflect the property taxes that new owners will have to pay notwithstanding unrealized rents from financially inadequate long-term leases. Presumably the selling price to Darcel reflected just that.
Would this result lead to an unfair burden on the seller? Burden? ... yes. Unfair? ... no. The lower selling price results because of the seller’s own misjudgments in negotiating the leases.
Unfortunately, the majority places the burden of the costs of those past misjudgments squarely where it should not rest: on the City of Manitowoc property taxpayers.
Accordingly, I dissent.
I am authorized to state that CHIEF JUSTICE NATHAN HEFFERNAN joins in this dissent.

 If these long-term leases provided for substantially higher contract rents than fair market rents, I doubt whether Darcel, Inc. would argue that contract rents should control its assessment.