Feb. 23, 2023 – The Wisconsin Supreme Court has upheld (7-0) a city’s property tax assessment of a big-box store, rejecting the retailer’s argument that the assessment was excessive because the list of comparable properties did not include vacant big-box stores.

In Lowe’s Home Centers, LLC v. City of Delavan, 2023 WI 8 (Feb. 16, 2023), the supreme court concluded that Lowe’s Home Centers (Lowe’s) failed to provide evidence sufficient to overcome a presumption that the city’s tax assessment was correct.

Justice A.W. Bradley wrote the majority opinion. Justice R.G. Bradley wrote a concurring opinion, joined by Justice Patience Roggensack.

Big-Box Store

Lowe’s owns a 14-acre parcel in the City of Delavan (City). A Lowe’s Home Improvement Store that encloses 134,574 square feet sits on the property.

In 2013, the City assessor reevaluated the property’s tax assessment and came up with an assessed value of $8.92 million. The assessment remained the same in 2016 and 2017.

Lowe’s challenged the 2016 and 2017 assessments before the City’s board of review.

​After the board disallowed the challenge, Lowe’s filed a challenge in Walworth County Circuit Court under Wis. Stat. section 74.37(3)(d).

The company alleged that that assessments for 2016 and 2017 were excessive and sought to recover the amount it claimed it had paid in excess.

Dueling Properties

During a three-day trial, Lowe’s expert witness, MaRous, testified that the property’s fair market value was $4.6 million.

MaRous calculated that number by comparing Lowe’s Delavan property to six other properties, each recently sold, that he had determined were similar to Delavan property.

Three of the comparable properties, or “comps,” were former American TV stores; each was in receivership when it was sold.

Steinhafel’s, a furniture store, bought two of the properties. The third property had been converted into a combination race go-kart track, restaurant, and bar.

MaRous’ fourth comp was a former K-Mart store that had sat vacant for two or three years before its sale. The other three comps used by MaRous had each sat vacant for between two and four years before being purchased.

City Uses Active Business as Comps

The City’s expert, Chapko, calculated the assessed value of Lowe’s Delavan store to be $9.2 million.

Chapko testified that he didn’t think it was appropriate to use “dark” or “distressed” properties as comps. Each of Chapko’s comps was: 1) occupied when it was sold; and 2) the subject of a market-rate lease.

The circuit court determined that the City’s evidence was more credible and upheld the City’s assessment.

Specifically, the circuit court discounted the second and fifth comp relied upon by MaRous because each had sat vacant longer than the two to three years that the expert had testified was normal for the Delavan area.

Lowe’s appealed. The Wisconsin Court of Appeals upheld the circuit court’s decision.

Manual vs. Presumption

Lowe’s argued that the City’s assessment was not entitled to the presumption of correctness established in section 70.49(2) because it didn’t apply the principles of the assessment manual created by the state Department of Revenue, as required by a statement made by the supreme court in Walgreen Co. v. City of Madison, 2008 WI 80, 311 Wis. 2d 158, 752 N.W.2d 687.

That argument was inconsistent the wording of section 70.49(2), Justice A.W. Bradley explained

“The plain language of this provision thus compels only one conclusion: that the presumption of correctness attaches at the filing of the assessment by the assessor along with the required affidavit,” A.W. Bradley wrote.

Justice A.W. Bradley reasoned that to adopt Lowe’s argument would be to ignore the way statutory presumptions work, and in doing so clarified the holding in Walgreen Co. and a related supreme court case.

“We take the court’s statements in Walgreen Co. and Adams Outdoor Advertising to mean not that the presumption does not initially attach to an assessment that does not follow the Manual’s directives, but that the presumption is overcome in such a situation,” A.W. Bradley wrote.

Narrowing Walgreen Co.

A.W. Bradley pointed out that under the manual, “The assessor should avoid using sales of improved properties that are vacant (‘dark’) or distressed as comparable sales unless the subject property is similarly dark or distressed.”

Lowe’s argued that for purposes of the assessment, only the property’s fee-simple status mattered, and not whether it was vacant, and again cited Walgreen Co.

But A.W. Bradley pointed out that in Walgreen Co., the City of Madison had included within its assessment the lease fee interest in the property (Walgreens leased the property from a developer at an above-market rate to compensate for the developer’s cost).

“The court in Walgreen Co. made a narrow determination regarding how above-market rent is to be treated for tax assessment purposes,” Justice A.W. Bradley wrote. “Walgreen Co. does not stand for the blanket proposition that occupancy or vacancy has no role to play in valuation.”

A.W. Bradley also explained that the manual’s admonition against including ‘dark stores’ among comps accords with the general principles of real estate.

“The highest and best use of a store in an area that is conducive to business (and is in fact operating as a business) is different from the highest and best use of a property that contains a failed big-box store,” Justice A.W. Bradley wrote.

A.W. Bradley concluded that the circuit court’s findings, including its credibility determination, were not clearly erroneous.

Concurrence: Independent Review Required

In her concurrence, Justice R.G. Bradley argued that whether a property was non-comparable presented a question of law subject to independent review, rather than deference on appeal.

“In cases like this, appellate courts must review such question of law independently,” R.G. Bradley wrote. “If the power to tax is the power to destroy, taxpayers must have access to meaningful appeal when challenging property tax assessments.”​