June 4, 2021 – A Milwaukee man challenged a property tax assessment, arguing the assessed value should be zero since contamination rendered the property unmarketable. Recently, the Wisconsin Supreme Court (4-3) disagreed.

In Collison v. City of Milwaukee Board of Review, 2021 WI 48 (June 2, 2021), a 4-3 majority ruled “that by utilizing the income approach to value the property according to its highest and best use as a parking lot, the assessor properly considered the impairment of the value of the property due to contamination in arriving at a valuation.”

Justice Patience Roggensack dissented, joined by Chief Justice Annette Ziegler and Justice Rebecca Bradley. They concluded the appraisal “did not follow the law.”

Determination and Review

Since 1979, Ronald Collison has owned property that is now two blocks from Fiserv Forum sports arena in downtown Milwaukee. The property includes a vacant two-story commercial building and a parking lot for up to 15 vehicles.

In 2012, four underground storage tanks were removed from the property, leaving behind contamination from petroleum and perchloroethylene solvents. A soil analysis did not say how much it would cost to remediate.

In 2016, the city assessed the property’s value at $31,800 using an income approach, basing the value on the potential rental income from the parking lot.

Collison challenged the assessment, arguing there’s no value because no one will buy contaminated property that needs to be remediated. He also argued that the assessor did not follow Wis. Stat. section 70.32(1m) when making the assessment.

That statute says, in part, that “the assessor shall consider the impairment of the value of the property because of the presence of a solid or hazardous waste disposal facility or because of environmental pollution.”

Instead of following this statute, Collison argued, the assessor followed the City of Milwaukee Environmental Contamination Standards (CMECS), which says property must be valued as if it were uncontaminated unless the property owner pays for an environmental site assessment that details the contamination and clean-up costs.

Milwaukee’s Board of Review ruled against Collison, and the circuit court affirmed the board’s decision but did not address the apparent conflict Collison raised, concluding there was no evidence the assessor relied on the CMECS requirements.

The circuit court also ruled that Collison’s challenge failed because he failed to bring forth evidence contradicting the assessor’s calculations on fair market value and relied only on the assertion that the property is unmarketable and cannot be sold.

The court of appeals affirmed, concluding “the assessor did not ignore the contamination of the property in valuing it, and the Board did not ignore the contamination in upholding that valuation.”

Majority Affirms

The majority reviewed the Milwaukee Board of Review’s decision and affirmed the lower courts, concluding the board’s decision properly followed Wisconsin law in determining the value of contaminated real estate for tax assessment purposes.

The majority noted that assessors must follow the Wisconsin Property Assessment Manual and applicable statutes in making tax assessments. The manual provides a hierarchical valuation methodology that must be applied based on the circumstances.

In this case, the assessor used a “tier 3” income approach, "which seeks to capture the amount of income the property will generate over its useful life,” according the majority.

When contaminated property is involved, Wis. Stat. section 70.32(1m)applies, which requires the assessor to also consider “the impairment of the value of the property.”

The Wisconsin Property Assessment Manual further provides that the assessor must consider the effect of contamination on the value of the property, noting that may be difficult when the extent of the contamination is unknown.

The majority noted that real estate must be valued at its highest and best use, and the assessor found that, based on the contamination, a parking lot was the best use. In other words, the assessor considered the impairment to the value of the property.

“[I]t was the contamination that drove the assessor's decision to use the income approach to value the property, and to value the property according to its highest and best use as a parking lot,” wrote Justice Ann Walsh Bradley for the majority.

“The record reflects a recognition that the property could have been valued much higher but for the contamination. The property is in a prime location near the new Milwaukee Bucks stadium.”

The majority noted that, according to income approach principles incorporated into the Wisconsin Property Assessment Manual, a contaminated property can still have value even if the cost to remediate exceeds the value of the property.

“By imploring the court to adopt a value of zero for his property despite not presenting evidence to support such a theory, Collison is asking the court to allow him to sidestep his burden, which we will not do,” Justice A.W. Bradley wrote.

Dissent

The dissenters highlighted evidence that the assessor applied the Milwaukee Environmental Contamination Standards (MECS), which says property must be valued as if it were uncontaminated unless the property owner pays for an environmental site assessment that details the contamination and clean-up costs.

“There is nothing in Wiegand's income-based valuation that refers to impairment of value, even though Wiegand's appraisal confirmed both his knowledge of contamination and his receipt of a detailed contamination report,” Justice Roggensack wrote.

Roggensack noted a statement from the assessor, who said the city had not received “verifiable written information pertaining to the extent or clean-up costs associated with any perceived contamination at the subject property” at the time of the assessment.

“From this statement and his failure to address impairment of value due to contamination, it appeared that he applied MECS's requirement that without a Phase II report showing the costs of clean-up the property is to be assessed as if uncontaminated,” Justice Roggensack wrote.

“MECS do not comply with Wis. Stat. § 70.32(1m) and therefore, it is unlawful to apply MECS in taxation appraisals of contaminated properties.”