ABKA Limited Partnership v. Board of Review of the Village of Fontana-On-Geneva Lake

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SUPREME COURT OF WISCONSIN Case No.: 98-0851 Complete Title of Case: ABKA Limited Partnership, Plaintiff-Appellant-Petitioner, v. Board of Review of the Village of Fontana-On-Geneva-Lake, Defendant-Respondent. ON REVIEW OF A DECISION OF THE COURT OF APPEALS Reported at: 224 Wis. 2d 551, 591 N.W.2d 879 (Ct. App. 1999, Published) Opinion Filed: Submitted on Briefs: Oral Argument: Source of APPEAL COURT: COUNTY: JUDGE: JUSTICES: Concurred: Dissented: December 23, 1999 September 8, 1999 Circuit Walworth James L. Carlson WILCOX, J., dissents (opinion filed). PROSSER, J., joins in dissent. Not Participating: ATTORNEYS: For the plaintiff-appellant-petitioner there were briefs by Alan Marcuvitz, Andrea Roschke and Weiss, Berzowski, Brady & Donahue, LLP, Milwaukee and oral argument by Alan Marcuvitz and Andrea H. Roschke. For the defendant-respondent there was a brief by Robert Horowitz and Stafford, Rosenbaum, Rieser & Hansen, Madison and oral argument by Robert Horowitz. No. 98-0851 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 98-0851 STATE OF WISCONSIN : IN SUPREME COURT FILED ABKA Limited Partnership, DEC 23, 1999 Plaintiff-Appellant-Petitioner, v. Marilyn L. Graves Clerk of Supreme Court Madison, WI Board of Review of the Village of Fontana-On-Geneva-Lake, Defendant-Respondent. REVIEW of a decision of the Court of Appeals. ¶1 ANN WALSH BRADLEY, J. Plaintiff Affirmed. ABKA Limited Partnership (ABKA) seeks review of a published decision of the court of appeals that affirmed a circuit court order to uphold the 1996 and 1997 Geneva Lake Resort.1 property tax assessments of the Abbey on ABKA contends that the assessments of the Board of Review of the Village of Fontana-on-Geneva-Lake (Board) improperly included income from the management of separately owned off-site condominiums and incorporated erroneous data and methodology. We determine that the management income is inextricably intertwined with the resort property and that the 1 ABKA Ltd. Partnership v. Board of Review of the Village of Fontana-on-Geneva-Lake, 224 Wis. 2d 551, 591 N.W.2d 879 (Ct. App. 1999) (affirming in part and reversing in part the judgment of the Circuit Court for Walworth County, James L. Carlson, Judge). 1 No. assessor employed proper data and methodology. 98-0851 Because we conclude that assessments of the Board were made according to law and were supported by a reasonable view of the evidence, we affirm the court of appeals. ¶2 (Abbey). his ABKA owns and manages the Abbey on Geneva Lake Resort In 1996, the Abbey was assessed at $8.5 million.2 valuation included of ABKA s condominiums the resort income located property, from adjacent to the the Assessor management resort. In Fred Mathes of rental ABKA disputed neither the assessor s use of the income method to calculate the property 2 assessment nor the capitalization rate he applied.3 Other assessments for the same year included: Personal Property (owned by ABKA) - $1,789,900 Unsold dockominium units - $4,465,000 Sold dockominium units - $6,917,000 The unsold dockominium units are boat slips offered by ABKA for sale but which remain unsold. 3 The income approach involves the conversion of anticipated future benefits into an estimate of the present worth of the property. Capitalization represents the conversion process. 1 Property Assessment Manual for Wisconsin Assessors, 9-7 (Rev. 12/94). This court has described the basics of the income method: 2 No. 98-0851 Instead, ABKA challenged the inclusion of the management fees in the assessment of the resort property. ¶3 ABKA does not own the condominiums located near the property. annual They are separately owned and assessed. rental agreements between ABKA and Pursuant to the condominium owners, however, ABKA receives 50% of the gross revenues from the rental of each unit. ¶4 The owners retain the remaining 50%. In return for its percentage of rental revenues, ABKA provides a myriad of services for the renters. Renters make reservations through the Abbey, where they also check-in and check-out. Rental prices for the condominiums are advertised in the Abbey s brochures and are listed along with the rates for rooms in the Abbey. According to the terms of the rental agreements, ABKA retains sole discretion to set rental rates for the condominiums. In addition, the condominium renters have access to the full amenities of the resort, subject to the same An assessor first determines the net annual income of the property. This figure is reached by deducting estimated operating expenses from the property s gross income. The assessor also selects a capitalization rate by considering the discount and recapture rates suitable for such an investment as well as the applicable effective tax rate. Finally the assessor applies a capitalization rate to the net annual income to yield the present value of the expected income stream over the life of the property. Waste Management of Wis., Inc. v. Kenosha County Bd. of Review, 184 Wis. 2d 541, 561, 516 N.W.2d 695 (1994). 3 No. additional charges as resort guests. advertising, individualized 98-0851 The resort also provides accounting, cleaning supplies and toiletries, and maid and switchboard services. ¶5 ABKA has managed the condominiums since 1978, and the management income from the rental of these condominiums accounts for over $300,000 of the resort s yearly revenue. Although not all of the condominium units participate in the rental pool, those units that do participate have provided a long-term, consistent pattern of rentals and a stabilized flow of income to the Abbey. ¶6 ABKA challenged the 1996 assessment before the Board on December 11, 1996. While testifying before the Board, both Assessor Fred Mathes and Frank Karth, ABKA s expert appraiser, addressed the propriety of including the management income in the assessment of the resort property. Mathes testified in support of the inclusion, while Karth testified that the fees represented intangible personal property that Mathes erroneously used to assess the resort property. ABKA also challenged the methodology that Mathes used in making the assessment, as well as his reliance on estimates rather than actual historical data. Finally, ABKA challenged the assessor s rounding of the assessed value from $8,328,025 to $8.5 million. ¶7 uphold At the conclusion of the hearing, the Board decided to the 1996 assessment. ABKA 4 subsequently filed for No. certiorari review of the Board s determination. the 1997 assessment was also complete, property was assessed at $8.5 million. that the Board may make based on thereafter, the Board upheld the parties agreed to the 1996 By that time, once again, the The parties stipulated determination assessment addition, the a and 98-0851 as to hearing record. 1997 the 1997 assessment. consolidate Shortly the In certiorari actions for the 1996 and 1997 assessments. ¶8 Upon certiorari review, the circuit court affirmed the Board s decision finding both that the Board acted according to law and that its decision was based on a reasonable view of the evidence. The court of appeals subsequently affirmed circuit court decision in part and reversed in part. the The court held that the management income was inextricably intertwined with the resort property and thus was properly included in the assessment. assessor s estimates Furthermore, methodology rather than was the court proper, actual as historical determined was his data. that the reliance However, on the court disapproved of the assessor s decision to round up the final assessment and thus reversed and remanded with The issue of rounding up the value of the assessment was not raised before this court on appeal. Abbey instructions to reduce the actual assessed value.4 I. 4 5 No. ¶9 98-0851 ABKA asks this court to review the Board s decision to uphold the assessment of its resort property. In a certiorari action under Wis. Stat. § 70.47(13) (1995-96),5 our review of the Board s decision is strictly limited. State ex rel. Geipel v. City of Milwaukee, 68 Wis. 2d 726, 731, 229 N.W.2d 585 (1975). This court considers the following factors: (1) whether the Board acted within its jurisdiction; (2) whether the Board acted according to law; (3) whether the Board s action was arbitrary, oppressive, or unreasonable, representing its will rather than its judgment; and (4) whether the evidence was such that the Board might reasonably make the order of determination in Darcel, Inc. v. Manitowoc Bd. of Review, 137 Wis. 2d question. 623, 626, 405 N.W.2d 344 (1987). In this case, the parties dispute whether the Board acted according to law and whether its determination was supported by a reasonable view of the evidence. ¶10 This independently court and court of court the of reviews the determinations appeals, while record of rendered by benefiting the the from Board circuit their analyses. Steenberg v. Town of Oakfield, 167 Wis. 2d 566, 571, 482 N.W.2d 326 (1992). If the assessment is made in accordance with the statutory mandate, it must be upheld if it can be 5 All future references to the Wisconsin Statutes will be to the 1995-96 volumes. 6 No. supported by any reasonable view of the 98-0851 evidence. Waste Management of Wis., Inc. v. Kenosha County Bd. of Review, 184 Wis. 2d 541, 555, 516 N.W.2d 695 (1994). there is enough evidence to sustain In determining whether the assessment, [t]he presumptions are all in favor of the rightful action of the Darcel, 137 Wis. 2d at 626 (quoting State ex rel. Board. Boostrom v. Board of Review of the Town of Linn, 42 Wis. 2d 149, 155, 166 N.W.2d 184 (1969)). II. ¶11 for We begin our analysis by examining the statutory basis the assessment. Wisconsin Stat. § 70.03 defines real property, real estate, and land for the purposes of tax assessment as not only the land itself but all buildings and improvements thereon, and all fixtures and rights and privileges appertaining thereto . . . . Whether an income interest may be captured in a property assessment hinges on whether the value appertains to the property. A value that appertains property is one that is transferable with the property. ex rel. N/S Assocs. v. Board of Review of the ¶12 State Village Greendale, 164 Wis. 2d 31, 54, 473 N.W.2d 554 (Ct. App. to of 1991). At the heart of ABKA s argument lies its claim that, as business value, the management income from the rental of offsite condominiums was improperly assessed under the laws of this state. However, Wisconsin law recognizes that certain business 7 No. value may be captured in a property assessment. whether business 98-0851 Waste Management, 184 Wis. 2d at 564-65. ¶13 A determination assessable involves capacity of the land. an of inquiry into the value is income-producing Income that is attributable to the land, rather than personal to the owner, is inextricably intertwined with the land and is thus transferable to future purchasers of the land. N/S Assocs., 164 Wis. 2d at 54. This income may then be included in the land s assessment under Wis. Stat. § 70.03 because it appertains to the land. ¶14 In challenged assessor N/S the had Associates, assessment improperly market value of the mall. of the owner the property, included of business 164 Wis. 2d at 52. a shopping arguing value in mall that the the fair In addressing the mall owner s argument, the court of appeals formulated a test for determining whether business value is to be included in a property assessment, and we adhere to that test today. ¶15 The N/S Associates court stated that the key to the analysis of whether business value is assessable is whether the value is appended to the property, and is thus transferrable with the property, or whether it is, in effect, independent of the property so that the value either stays with the seller or dissipates upon sale. Id. at 54. Applying the test, the court found that the mall s sole reason for existence, the leasing of 8 No. space to tenants, intertwined with represented the subsequent owner. income-producing mall value and Id. at 55. capacity, that would survive inextricably its sale to a As part of its transferrable the mall s business properly included in the mall s assessment. ¶16 was 98-0851 value was Id. In Waste Management, the owner-operator of a sanitary landfill challenged a tax assessment that included the income generated by the landfill. 184 Wis. 2d at 545. The owner- operator claimed that the landfill income was business value that should not have been included in a property assessment. Id. In discussing N/S Associates, the court noted that the case: appears to recognize that certain business value may in fact be appended to the real estate rather than personal to the owner. According to the reasoning of the court, such appended value is inextricably intertwined with the land and is transferred to the new owner upon a sale of the land. Id. at 564. ¶17 The Waste court Management found that the income generated by the landfill could be attributed to the underlying parcel of land, which waste. Id. at 568. had an inherent capacity concluded determined that the that the accept The court also found that the inherent capacity would pass to a new owner upon sale. it to Id. board of review could income generated by As a result, have the reasonably landfill was attributable to the transferable income-producing capacity of 9 No. 98-0851 the underlying land itself, thus properly including the income in the assessment. ¶18 While it is true that neither N/S Associates nor Waste Management before is this capturing Id. at 569. factually court, business both value congruous cases in a to the situation demonstrate property the presently propriety assessment when value is inextricably intertwined with the underlying land. of that We must then determine whether the Board properly concluded that the management income at issue here is so inextricably intertwined with the land on which the Abbey is situated that it is transferable to future purchasers of the land. ¶19 Recognizing that the law provides for the inclusion of business value in a property assessment only if the value is inextricably intertwined with the property, the assessor in this case found ABKA s management intertwined with the Abbey. income to be inextricably The assessor testified that the condominiums, which are located next to the resort property, were developed by ABKA with the intention of providing a steady and available source of customers for the Abbey. This regular stream of customers provides a stabilized flow of income for the resort. ¶20 According to the assessor, the management income is attributable primarily to the nature of the resort property, including the access to the Abbey s amenities and the advantage 10 No. of the Abbey s location. The assessor explained Abbey s location serves as its main advantage. 164 Wis. 2d at 53 (property s value, for 98-0851 that the See N/S Assocs., taxation purposes, affected by advantage or disadvantage of location). He indicated that the condominium renters are attracted both by the ability to make use of all of the resort s amenities and by the resort s lake setting. Moreover, these attractions are unlikely to dissipate upon sale to a different owner. ¶21 ABKA s The assessor management concluded, income is survive a sale of the Abbey. a and the Board transferable upheld, value that that will Wisconsin Stat. § 70.32 governs the valuation of property for tax assessment and requires that property be valued at its full value. 6 Full value under § 70.32 is synonymous with fair market value, which is the value reflected by an arms-length sale on the open market between an owner willing but not obliged to sell and a buyer willing but not obliged to buy. State ex rel. Mitchell Aero, Inc. v. Board of Review of City of Milwaukee, 74 Wis. 2d 268, 277, 246 N.W.2d 521 (1976); 1 Property Assessment Manual for 6 Wisconsin Stat. § 70.32 states in relevant part: Real 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. 11 No. Wisconsin Assessors, fixed what at assessor was interest to (Rev. would it 7-3 bring required garner to 12/94). in an examine management fees Since value arms-length whether from the the 98-0851 is best sale, the contractual rental of the condominiums represented an element that a prospective buyer of the Abbey would be willing, and indeed expecting, to purchase. N/S Assocs., 164 Wis. 2d at 53. ¶22 Board, In a memorandum submitted as an exhibit before the the assessor noted that the management income was included in an appraisal report prepared by ABKA for financing purposes, and it was also listed in ABKA s income statements. In his opinion, the listing of the management income was relevant because it indicated that the value of the Abbey included the management income and suggested that potential purchasers would be purchasing the ability to earn the income as well. ¶23 Furthermore, ABKA s own appraiser, Frank Karth, testified that most future purchasers of the Abbey would expect to acquire the management interest along with the Abbey property and would purchasers income from pay a greater sum accordingly. would recognize the value the management of the of the Thus, potential expectation condominiums. It is of the future or anticipated benefits that give value to the property. 1 Property Assessment Manual for Wisconsin Assessors, 7-3 (Rev. 12/94). 12 No. ¶24 In addition, the rental agreements 98-0851 provide for assignment to third parties and successors, who become subject to the same terms and limitations contained in the agreement. Although the agreements are contractual in nature and expire yearly, they provide for automatic renewal at the end of the contractual period and have been renewed consistently for the past eighteen years. This history of renewal demonstrates the predictability of income from the rental of the condominiums and supports an expectation that this pattern is likely to continue. ¶25 ABKA maintains, however, that the income is not inextricably intertwined with the resort property because ABKA s unique skill and expertise in management, rather than the nature of the resort property, allow it to earn the substantial income from the condominiums. While certain business value may be attributed to the transferable income-producing capacity of the underlying land, other business value that is attributable to the enterprise, skill, and acumen of the owner cannot be considered part of this transferable, income-producing capacity. Waste Management, 184 Wis. 2d at 565. of property may not assessment purposes. be considered State ex rel. A non-transferable use an element Oshkosh of value Country Club for v. Petrick, 172 Wis. 82, 84, 178 N.W. 251 (1920). ¶26 ABKA claims that another company or subsequent purchaser would not be able to emulate its success, for it is 13 No. 98-0851 ABKA s superior business acumen that produces the revenues from the condominiums. ABKA errs in its reading of precedent. Whether business value may be included in a property assessment hinges on the property s inherent income-producing capacity, a capacity that survives the sale of the underlying land, rather than on whether a subsequent owner succeeds in fully exploiting that capacity. N/S Assocs., 164 Wis. 2d at 55 (emphasis added). ¶27 the As long as the potential to produce income exists with land and transfers to a subsequent owner, whether a subsequent owner of the Abbey is able to maintain the same level of management income as ABKA has historically maintained is not central to our concern. The relevance of a subsequent owner s success the in strictly maintaining limited to the same specific level of would be included amount income in the assessment. This amount may vary depending on the ability to exploit income-producing the capacity that inherently exists with the Abbey property. ¶28 reproduce Most A competent level of management can be expected to the predicted entrepreneurs income willing to stream from participate the in condominiums. the competitive resort market are likely to possess the requisite business savvy and skills to provide clean linens, switchboard services, and help with reservations and check-in 14 and check-out. The No. 98-0851 services offered by ABKA do not suggest any unique skill on the part of ABKA, but rather militate in favor of finding a unique quality of the land itself that attracts prospective condominium renters. ¶29 Moreover, there is evidence that the assessor did indeed factor out the amount he believed to be attributable to ABKA s own including labor and appropriate skill in management. management fees as He an resort in the stabilized operating statement. did this expense by of the The remainder was properly included in the assessment as income attributable to the Abbey property and not to any unique skill on ABKA s part. ¶30 ABKA further argues that because its management income is easily separated from income generated by the Abbey, unlike the business value of the mall in N/S Associates, it is not inextricably intertwined with the Abbey. Once again, ABKA misapprehends the test for determining whether a non-real estate interest may be captured under Wis. Stat. § 70.03. difficulty of separating the mall s business While the value was considered in N/S Associates, the issue of severability did not represent the dispositive factor. Rather, the fact that the income was non-severable helped buttress the court s conclusion that the property. income was inextricably intertwined with the mall Here, the Board determined that the management income is inextricably intertwined with the resort property. 15 The fact No. 98-0851 that it can be easily distinguished does not alter the outcome of our analysis. ¶31 ABKA also contends that assessable business value must be generated on the land, and that because its management income was generated from the off-site condominiums, it inextricably intertwined with the resort property. is not The court of appeals found ABKA s distinction to be an overly constrained reading of precedent, and we agree with this characterization. Wisconsin law does not create such an artificial distinction between on-site and off-site income. However, even assuming that the distinction carries a degree of significance, we are able to dismiss ABKA s contention by concluding that the management fees are generated primarily on the resort property itself. ¶32 We reiterate here that not only does the Abbey possess an inherent capacity to generate income due to its location and access to amenities, but that the actual site of income generation. Abbey also represents the The condominium rental fees are generated by the range of services and amenities provided on the resort grounds. ¶33 Furthermore, condominiums serve as the assessor extensions of testified the Abbey that and, for the all practical purposes, can be considered to be located on-site. The assessor found that the condominiums represent an auxiliary 16 No. set of overflow hotel rooms, an extension the of 98-0851 resort property with minimal expenses. While ABKA retains its half of the the rental revenues, most of costs are borne by the condominium owners, who pay taxes, maintenance, and insurance. The condominiums were developed by ABKA and, pursuant to the rental agreements, ABKA retains sole discretion to set rental rates. Renters enjoy the same privileges and opportunities as resort guests and are not separately identified for revenue or expense purposes. ¶34 whether In summary, business value upon may applying be the included test in a to determine property tax assessment, we conclude today that ABKA s management income is inextricably intertwined with the Abbey. The management fees are generated both by and on the land on which the Abbey is located, and the ability to earn the fees is transferable to future purchasers of the Abbey. As value that is inextricably intertwined with the Abbey, the management income appertains to the Abbey under Wis. Stat. § 70.03 and was properly included in the Abbey assessment. We further conclude that the Board, in upholding the assessment, acted according to law and that its determination was supported by a reasonable view of the evidence. ¶35 Before proceeding further, we would like to sound a note of caution. Our determination today is not to be construed 17 No. 98-0851 as a broad license to ignore the site of income and thus assess income derived from any off-site property that may have tenuous relationship to the main property being assessed. It is true that the off-site location of income lends itself to the initial conclusion that the income assessment. However, should where a not be factual encompassed exploration in the reveals a situation in which income is attributed primarily to the nature of the land being assessed, the significance of its off-site nature may lose potency. III. ¶36 We turn next to ABKA s claim that the assessor used incorrect data and methodology in making his valuation of the Abbey. First, ABKA submits that the assessor s data was erroneous because he relied on estimated figures, while ignoring the existence of actual figures. and find that the assessor s We reject ABKA s contention valuation was supported by a reasonable view of the evidence. ¶37 While testifying before the Board, the assessor explained that in making his assessment he first reviewed actual revenues and expenses. operating statement. He then constructed a stabilized A stabilized operating statement examines operating history, eliminates anomalies in the flow of income, and projects stabilized income future. 18 and expense levels for the No. ¶38 In explaining why he did not the use 98-0851 actual administrative and general expenses for 1994 and 1995 in making the assessment, the assessor testified that the actual expenses were largely in excess of those expenses for similar properties. The same was true of repair expenses, which he reasoned was a result of remodeling projects that would be capitalized out over a period of years. ¶39 The assessor also explained why he attributed more income to the property for marina fuel sales, when the sales had dropped the previous year. He noted that the previous year was the year that dockominiums were beginning to be sold, and as a result, the marina income was lower than normal. believe the previous year s figure accurately He did not reflected the income, and thus he used the income from the last year the marina was fully occupied. ¶40 to make In calculating an assessment, an assessor is required a determination from actual view or from the information that the assessor may practicably obtain. Stat. § 70.32. best Wis. While the statute specifically mandates the use of recent sales as the best information, there is nothing that suggests that an assessor must always use actual figures in the absence of a sale. Although an assessor should consider actual figures, we find no blanket rule mandating the use of actual 19 No. 98-0851 figures as the data for an assessment when actual figures do not accurately reflect regular expenses. ¶41 In Rosen v. City of Milwaukee, 72 Wis. 2d 653, 242 N.W.2d 681 (1976), this court disapproved the assessor s use of estimated figures because it found the actual figures to be more reliable. costs of This court examined actual construction costs and land, instead of relying on estimated replacement costs, and noted that recent and undisputed market cost figures were preferable to any other factor, theory, or rule of thumb. Id. at 669 (quoting State ex rel. Garton Toy Co. v. Mosel, 32 Wis. 2d 253, 261, 145 N.W.2d 129 (1966)). Notwithstanding its stated preference for actual figures, the court stopped short of declaring a mandate for the use of actual figures as data for a property assessment. The court instead disapproved board s failure even to consider actual figures. Id. of the See also Marina Fontana v. Village of Fontana-on-Geneva Lake, 107 Wis. 2d 226, 231, 319 N.W.2d 900 (Ct. App. 1982) (failure to consider actual costs grounds for invalidating the assessor assessment based on estimated costs). ¶42 figures In before operating figures, best contrast, he arrived statement. but He at did rather thought information the available. 20 did figures not that here wholly they His did consider in his ignore not actual stabilized the actual represent the explanation for using No. 98-0851 estimates as data for the assessment was reasonable in light of his knowledge and familiarity with comparable properties.7 ¶43 Next, ABKA challenges the assessor s methodology. methodology included first valuing the resort whole based on ABKA s total gross revenues. property His as a The assessor then subtracted component parts from the whole, including personal property and dockominium values, assessable value of the Abbey. to arrive at the final ABKA offers only State ex rel. Gisholt Mach. Co. v. Norsman, 168 Wis. 442, 448-49, 169 N.W. 429 (1919), and inverse argues that this court method of assessment used disapproved by the of assessor the same in this case. ABKA s reliance on Gisholt is misplaced because it did not involve the income method of valuation. ¶44 Furthermore, we find nothing in the Property Assessment Manual that suggests that the assessor s method was 7 ABKA cites several cases that fail to support its argument that an assessor must always rely on actual figures in the valuation of property. In State ex rel. Park Plaza Shopping Ctr., Inc. v. Board of Review of City of Madison, 61 Wis. 2d 469, 476, 213 N.W. 2d 27 (1973), this court did not require the use of actual figures over estimates, but simply noted that it was not erroneous for an assessor to use actual figures. Darcel, Inc. v. City of Manitowoc Bd. of Review, 137 Wis. 2d 623, 640, 405 N.W.2d 344 (1987), involved a recent arms-length sale of property, which under the statute represents the best information for tax assessment purposes. In Metropolitan Holding Co. v. Board of Review of City of Milwaukee, 173 Wis. 2d 626, 631, 495 N.W.2d 314 (1993), the use of estimated rents was not allowed in an assessment of property encumbered by HUD restrictions. No such encumbrances affect the Abbey. 21 No. improper. 98-0851 The party challenging a property assessment must show why its method of valuation is more reliable or accurate than the assessor s chosen method. State ex rel. Park Plaza Shopping Ctr., Inc. v. Board of Review for the City of Madison, 61 Wis. 2d 469, 476-77, 213 N.W.2d 27 (1973). ABKA has failed to convince us that the assessor s methodology was erroneous and has failed to offer a more reliable method of valuation. ¶45 ABKA also claims that by including the management income in the Abbey s assessment, the assessor violated this state s unitary tax rule, which requires that all property be assessed to its owner. N.W. 132 (1929). Aberg v. Moe, 198 Wis. 349, 359, 224 ABKA argues that the assessor took some of the income of the condominiums and improperly transferred it to the resort. ¶46 ABKA s argument misses a critical point. The assessor testified that in the Abbey assessment, he included only the 50% of the income that duly belonged to ABKA as management income under the terms of the agreements. The remaining 50% was attributed to the condominium owners. Thus, there was no transfer of condominium income to the Abbey. ¶47 Moreover, the management income is not an interest in the real property of the condominiums. contractual obligation of the Rather, it represents a condominium owners. We have already determined that the management income is generated by the resort property and is properly 22 assessed as interest No. transferable with the property.8 Accordingly, we 98-0851 reject ABKA s argument that the inclusion of the management income in the Abbey s assessment violates the unitary tax rule.9 ¶48 In summary, we determine that ABKA s management income from the rental of condominiums was properly included in the assessment of the Abbey. intertwined with the The management income is inextricably resort future owners of the Abbey. property and is transferable to It thus appertains to the resort property under Wis. Stat. § 70.03. The assessor followed his statutory mandate and also employed proper data and methodology 8 ABKA misplaces reliance on cases in which the interests involved attach to the underlying land. See First Nat. Bank v. Charles Henneman Co., 10 Wis. 2d 260, 103 N.W.2d 24 (1960) (federal tax lien); Aberg v. Moe, 198 Wis. 349, 224 N.W. 132 (1929) (leasehold rights); Schmidt v. Town of Almon, 181 Wis. 244, 194 N.W. 168 (1923) (timber interests); City of West Bend v. Continental IV Fund Ltd. Partnership, 193 Wis. 2d 481, 535 N.W.2d 24 (Ct. App. 1995) (long-term lease); Cornell Univ. v. Rusk County, 166 Wis. 2d 811, 481 N.W.2d 485 (Ct. App. 1992) (mineral interests). These cases are factually distinguishable because, as we have already determined, the management income is value transferable with the resort property and not an interest in the real property of the condominiums. 9 ABKA maintains that a violation of the unitary tax rule also constitutes double taxation, yet ABKA fails to develop its claim. This court will not address undeveloped arguments. McEvoy v. Group Health Coop. of Eau Claire, 213 Wis. 2d 507, 530 n.8, 570 N.W.2d 397 (1997). 23 No. in his valuation. Abbey were made 98-0851 Because the 1996 and 1997 assessments of the according reasonable view of the to law evidence, properly upheld the assessments. and we were conclude supported by that Board the a Accordingly, we affirm the court of appeals. By the Court.-The decision of the court of appeals is affirmed. In addition, ABKA raises the issue of violation of the uniformity clause for the first time during the present appeal. This court need not address arguments raised for the first time on appeal, and we exercise our discretion in declining to address ABKA s uniformity argument. State v. Van Camp, 213 Wis. 2d 131, 144, 569 N.W.2d 577 (1997); State v. Wilks, 121 Wis. 2d 93, 107, 358 N.W.2d 273 (1984). 24 No. 25 98-0851 98-0851.jpw ¶49 JON P. WILCOX, J. Although (dissenting). I agree with the majority that the assessor s inverse methodology and his use of estimated figures are supported by a reasonable view of the evidence, I disagree with its conclusion that the fees received from management of off-site condominiums may be included in the assessment of the resort property. ¶50 Relying heavily on the concept that the management fees and the resort property are inextricably intertwined, the majority fails to articulate clear guidelines for determining whether particular contract with assessment. business off-site The income property inclusion of generated may such be by an owner s included off-site in income an in an assessment has no precedent in Wisconsin case law and appears to have no basis in the Wisconsin Property Assessment Manual, other appraisal literature, or the case law of other jurisdictions. The resulting assessment involves the taxation of an intangible personal property interest, business appertain to the real property. assessment is 70.112(1), therefore and income does not Because I conclude that the contrary to results in 70.32(1), that Wis. Stats. double §§ 70.03, taxation, and undermines the Uniformity Clause of the Wisconsin Constitution, I respectfully dissent. ¶51 I agree with the majority that the scope of our certiorari review of the Board s action is narrowly limited. Majority opinion at 6; State ex. rel Geipel v. City of Milwaukee, 68 Wis. 2d 726, 731, 229 N.W.2d 585 (1975); Darcel, Inc. v. Manitowoc Bd. of Review, 137 Wis. 2d 623, 626, 405 1 98-0851.jpw N.W.2d 344 (1987). However, as the majority acknowledges, one of the explicit grounds of our review is whether the Board acted according to law. Majority opinion at 6; Geipel, 68 Wis. 2d at 731; Darcel, 137 Wis. 2d at 626. view of court the may evidence is determine reviewed whether the Although the Board s with great assessment deference, was made on the the statutory basis, for such inquiry involves a question of law. Geipel, 68 Wis. 2d at 732 (citations omitted). the cases the majority cites in support Indeed, both of of the strictly limited standard of review rejected Board-approved assessments after determining that they were not in accordance with the law. See id. at 733-34, 737; ¶52 Any approach Darcel, 137 Wis. 2d at 624. to assessment of real property for taxation purposes first must conform to the statutory framework authorizing taxation. Taxes are to be levied upon all general property that is not exempt, including non-exempt real property. Wis. Stat. §§ 70.01, 70.02. itself, all improvements on Real property includes the land the land, and all fixtures rights and privileges appertaining thereto . . . . § 70.03. However, it cannot include intangible and Wis. Stat. personal property, which is specifically exempted from taxation. Wis. Stat. § 70.112(1). Assessors are to value real property at its full value, fair market in accordance with the Wisconsin Property Assessment Manual and professionally accepted appraisal practices. ¶53 Wis. Stat. §§ 70.32(1), 73.03(2a). We have always recognized that under these statutes an assessor must take care to value the real estate, and not the 2 98-0851.jpw business concern using the real estate, in an assessment. Waste Management of Wis., Inc. v. Kenosha County Bd. of Review, 184 Wis. 2d 541, 565, 516 N.W.2d 695 (1994). Other jurisdictions appear to be in general agreement that business value must be separated carefully from real estate value in property tax assessments.10 ¶54 basic In assessing approaches: approaches. 1 Assessors, ch. 9, approach, which real the sales Property at property, 9-6. looks to assessors comparison, Assessment Of these, recent cost, Manual the utilize and three income for Wisconsin sales comparison arm s-length sales of the assessed property or comparable properties, is preferred because it most accurately reflects the property s fair market value. Waste Management, 184 Wis. 2d at 556-57; Bischoff v. Appleton, 81 Wis. 2d 612, 618-19, 260 N.W.2d 773 (1978). Stat. § 70.32(1)(directing assessors to first See also Wis. consider recent sales of the property and comparable properties, and then other factors affecting the property s value) and 1 Property Assessment Manual for Wisconsin Assessors, ch. 9, at 9-6, 9-19 10 See, e.g., Service America Corporation v. County of San Diego, 19 Cal. Rptr. 2d 165, 171 (Cal. Ct. App. 1993); New Haven Water Co. v. Bd. of Tax Review, 422 A.2d 946, 951-52 (Conn. 1979); Post-Newsweek Cable, Inc. v. Bd. of Review, 497 N.W.2d 810, 816-17 (Iowa 1993); Inner Harbor Marina of Baltimore, Inc. v. Supervisor of Assessments, No. 6280, 1991 WL 322991, at 1 (Md. Tax Ct. May 13, 1991); Coastal Eagle Point Oil Co. v. Westville Borough, 13 N.J. Tax 242, 281-283 (N.J. Tax Ct. 1993); Dublin Senior Community Ltd. Partnership v. Franklin County Bd. of Revision, 687 N.E.2d 426, 430 (Ohio 1997); Boise Cascade Corp. v. Dep t of Revenue, 12 Or. Tax 263, 266-269 (Or. T.C. 1991). 3 98-0851.jpw (recognizing that the sales comparison approach should be used if applicable, and that other approaches should be considered only in the absence of sales comparison information). ¶55 In preferred sum, although method for the valuing income real approach estate, is this not the court has permitted the approach to be used in the absence of comparable sales and in conformity with the Wisconsin Property Assessment Manual. See Waste Management, 184 Wis. 2d at 560. ¶56 However, no Wisconsin case has ever allowed a property tax assessment to capture income generated by separate, off-site property. Thus, although the majority states that Wisconsin law does not create such an artificial distinction between onsite and off-site income, majority at 15, no previous Wisconsin case has even suggested that off-site income could properly be captured in an assessment. ¶57 Typically, the income approach is used to value income producing properties that generate rental income on site. The approach can provide a somewhat comfortable fit when used to value the more common income producing properties such as industrial, office or apartment buildings, or shopping centers, uses which tenancies, often which involve generate long rental or medium income term for leases the or owners. Analogic Corp. v. Bd. of Assessors, 700 N.E.2d 548, 553 (Mass. App. Ct. 1998). ¶58 assessor In these more typical income approach assessments, the estimates market rent. the property s income by estimating its The Wisconsin Property Assessment Manual often 4 98-0851.jpw describes the income approach in terms of rental income. See, e.g., 1 Property Assessment Manual for Wisconsin Assessors, ch. 7, 7-20, ( [The assessor calculates] an estimate of net income by deducting the appropriate expenses from an estimate of the market rent of the property. ), and ch. 9, 9-7 ( Potential gross income is the income that would be generated if a property was 100 percent occupied and receiving the market rent. ). ¶59 income Similarly, industry literature recognizes that [t]he to investment properties consists primarily of rent. The Appraisal Institute, The Appraisal of Real Estate 478 (11th ed. 1996). In the past, this court has approved the inclusion of on-site income in assessing the fair market value of rental property. Wis. 2d See State ex. rel N/S Assocs. v. Bd. of Review, 164 31, Milwaukee, 52, 72 473 Wis. 2d N.W.2d 653, 554 (Ct. 670-71, App. 242 1991); N.W.2d Rosen 681 v. (1976). Indeed, in this case ABKA agrees that the income derived from rental of rooms at the resort property was properly included in its assessment. ¶60 On-site rental income was essentially at issue in N/S Associates, the case that first used the phrase inextricably intertwined on which the majority opinion so heavily relies. In that case, the owner of a shopping mall challenged the use of a recent sale as an estimate of the mall s fair market value on the grounds that the sale price included business value. N/S Assocs., 164 Wis. 2d at 52. Obviously mindful of the fact that a is recent arm s-length sale the best information for an assessment, see id. at 56-57, the court of appeals held that the 5 98-0851.jpw assessment s reliance on the recent sale was permissible, even though it might include some business value. Id. at 55. Because the leasing of space to tenants and related activities was a value that would transfer with the mall at sale, it was inextricably intertwined with the mall. ¶61 Id. In contrast, the management fees at issue in this case are not generated by the rental of the assessed property and are easily separated from the on-site rental income. The fees are generated by the owner s contracts to manage the rental of the off-site condominiums. including majority There appears to be no precedent for such income cites in nothing a in property the tax assessment, Wisconsin Property and the Assessment Manual or other appraisal industry authorities that explicitly justifies its approval of such an assessment. ¶62 Moreover, the majority seems to give the phrase inextricably intertwined a different meaning than it had N/S Associates, and a different understood to have. [d]ifficult or meaning than it is normally A common definition of inextricable is impossible to disentangle or untie. The American Heritage Dictionary of the English Language 924 (3d ed. 1992). Intertwine twining together. inextricably means [t]o Id. at 944. intertwined join or become joined by Thus, to say that something is normally means together and impossible to disentangle. that it is joined The income at issue in N/S Associates actually was inextricably intertwined with the assessed property because, as the court noted, there was substantial evidence before the Board of Review that it was not 6 98-0851.jpw possible to separate Southridge mall s non-transferrable incomeproducing capacity from the elements of real estate that are set out in section 70.03 . . . . ¶63 Notwithstanding N/S Assocs., 164 Wis. 2d at 55. the inextricably intertwined, usual the meaning majority of the determines phrase that the issue of severability did not represent the dispositive factor in N/S Associates. Majority at 15. The opinion further explains that the easy severability of ABKA s management fee income from the income of the resort property itself simply does not alter the outcome of its analysis of whether the income is inextricably intertwined with the resort property. Majority at 15. ¶64 Thus, inextricably in the intertwined majority does not opinion, seem to the have phrase its normal dictionary definition or the definition it had in N/S Associates itself. and will The precise meaning of the phrase is therefore obscure generate uncertainty in property tax assessments throughout the state. ¶65 To justify its decision that the off-site management fees are inextricably intertwined with the resort property, the majority relies on its conclusions that the income generated by the fees is a transferable value, majority at 10-12, and is generated primarily on the resort property itself. Majority at 15. ¶66 To begin with, transferable value that the will idea that survive a the sale income of the majority at 10, appears to be unsupported by the record. 7 is a Abbey, ABKA, 98-0851.jpw the owner of the resort, receives the income under one-year contracts with the individual condominium owners. Although the record owners establishes that, on average, 20 to 30 have contracted for ABKA s management services each year, there is no evidence that the same owners consistently renew their contracts, and the owners are under no obligation to do so. An owner s is decision whether to renew a particular contract likely to be greatly affected by his or her satisfaction with the quality of the services provided. record suggests ABKA s management Thus, nothing in the income would transfer with the assessed resort upon sale.11 automatically This stands in contrast to the income generated by renting mall space in N/S Associates, which was the mall s raison d etre, N/S Assocs. at 55, and would obviously transfer with the mall itself. ¶67 Likewise, the majority s conclusion that [t]he condominium rental fees are generated by the range of services and amenities provided on the resort grounds, majority at 15, does not appear to be supported by the record. In reaching its conclusion, fact the majority is persuaded 11 by the that the The majority supports its conclusion that the management income is a transferable value that will survive the sale of the Abbey by relying on the testimony of ABKA s appraiser, Frank Karth, that future purchasers of the resort would expect to acquire the interest in managing the condominiums. Majority at 12. However, Karth s testimony did not suggest that the management income is impossible to disentangle from the resort property or would transfer automatically with it. To the contrary, Karth testified that in order to transform his valuation of the resort as a going concern into a valuation of the property itself for tax assessment purposes, he extracted the value of the management income. 8 98-0851.jpw condominiums serve as extensions of the Abbey, and [r]enters enjoy the same privileges and opportunities as resort guests and are not separately identified for revenue or expense purposes. Majority at 16. ¶68 These facts do not seem relevant to determining whether the condominium management fees appertain to the resort property. The fact that renters may not be aware that the condominiums are actually separate properties does not change the fact that they are separately owned and separately assessed. The renters may indeed be attracted by the amenities available at the resort property, just as they are attracted by the nearby lake. the However, any member of the public may also make use of resort property s amenities, on a fee-for-service basis. The condominium renters pay the same fees for the use of those facilities, and those fees have already been taken into account in the assessment. Thus, the additional income generated by the condominium renters use of the amenities at the resort property are already included in the assessment, before the fees ABKA receives for managing the condominiums are added. ¶69 It seems clear that, rather than being generated by the resort property, the management fee income is generated by the condominium properties themselves. condominium privilege pays of the condominium temporarily rooming A person who rents a owner at the primarily for condominium. the In exchange for half of the rent paid to the condominium owner, ABKA provides services switchboard, and cleaning. such as reservations, check-in, Most of the services provided by 9 98-0851.jpw ABKA could be condominiums. managed from a building miles away from the Thus, the management fees do not appertain to the resort property, but to the business that owns and operates the resort. by the They are not generated by the resort property, but rental of the separately owned, separately assessed condominium properties. ¶70 Waste Management also fails to support the majority s determination that the condominium management fees appertain to the resort property. That case was a great leap from our former precedents, none of which had permitted the inclusion of owneroperator income in a property tax assessment. The primary value of the landfill property at issue was its ability to receive waste. the Id. at 568. tipping fees We determined that a significant portion of generated on transferable income-producing site was capacity attributable of the to underlying itself, and not to the labor and skill of the owner. the land Id. at 569. ¶71 absolute Although bar to the using opinion concluded owner-operator that income there to is value no real estate, in the absence of rental income, Waste Management, 184 Wis. 2d at 563, it repeatedly emphasized caution and warned that its reasoning might only apply to the unique circumstances of a landfill property. ¶72 Id. at 569. The majority opinion in this case is an even greater leap from precedent. The majority does not cite, and I am unable to find, any precedent in the case law of Wisconsin or other jurisdictions that supports the inclusion of income from 10 98-0851.jpw management of off-site property in an income approach assessment. As noted above, there seems to be general agreement that even on-site business interests must be carefully separated from real property interests in property tax assessments. On the rare occasion that off-site income has been considered in a property tax assessment, the income has been generated by the activity of on-site residents. v. Borough of 1981)(allowing Fair an Lawn, 3 apartment See Knollcroft Apartments, Inc. N.J. Tax building s 25, 36 (N.J. assessment to Tax Ct. include half of the income from rental of parking spaces on an adjacent parking lot that the apartment owner used free of charge in exchange for maintaining the lot). ¶73 In particular, the decision to allow a property tax assessment of a hotel property to capture income generated by the owner-operator s contract to manage properties appears to be unprecedented. separate, off-site Indeed, cases reviewing income-approach assessment of hotels frequently have cautioned that the assessor must deduct non-realty value from the estimate of real property s net income. See Analogic, 700 N.E.2d at 553; Equitable Life Assurance Soc y/Marriott Hotels, Inc. v. State Tax Comm n, 852 S.W.2d 376, 380-81 (Mo. Ct. App. 1993). Analogic cautions that: Hotels present unique problems to appraisers. They tend to be labor intensive businesses which derive only a portion of their income from daily room (space) occupancies. They derive other income from services and sales of such items as food and alcohol . . . . This other income, if not attributable to the 11 98-0851.jpw realty, is not rental income for purposes valuation under the income capitalization method. Analogic, 700 N.E.2d at 553 (citation omitted). of Similarly, as we noted in Waste Management, the Wisconsin Property Assessment Manual warns that for hotel properties, the amount of income is substantially affected by the quality of management, and so [t]he assessor should be careful to make sure that only the real estate is being valued and not the quality of management or goodwill. Waste Management, 184 Wis. 2d at 565 (citing 1 Property Assessment Manual for Wisconsin Assessors, ch. 9, at 924). ¶74 Moreover, nothing in the Wisconsin Property Assessment Manual provides that income like the management income in this case should be included in an income approach assessment. The manual states that miscellaneous, non-rental income may include parking, coin operated laundries, and rental of clubhouses or party rooms, but cautions that any assessable items of personal property Manual must for not be Wisconsin double assessed. Assessors, ch. 9, 1 Property 9-10. Assessment This passage describes only income from operations on the property itself. Similarly, The Appraisal of Real Estate provides that other income includes: all income generated by the operation of the real property that is not derived directly from space rental. It includes income from services supplied to the tenants such as switchboard service, antenna connections, and garage space; income from coinoperated equipment and parking fees is also included. Because service-derived income may or may not be attributable to the real property, an appraiser might find it inappropriate to include this income in the 12 98-0851.jpw property s potential gross income. The appraiser may treat other income as business income or as real property income, depending on its source. The Appraisal Institute, The Appraisal of Real Estate 489 (11th ed. 1996). It is true that under these principles, and as Waste Management holds, certain business income generated by the real estate may be included in an income approach assessment. ¶75 However, it does not follow from this that income generated by the owner-operator of a resort property under yearto-year contracts to manage the rental of adjacent condominiums should increase the resort property s tax assessment. Such income is easily distinguished from the income generated by the rental of the resort property itself. It is intangible personal property belonging to the owner of the appertain to the resort property itself. resort and does not Its inclusion in the assessment is therefore unlawful under Wis. Stats. §§ 70.03 and 70.32. ¶76 In addition to resulting in an inaccurate and unlawful calculation of the assessment may result double in fair violate market value Wisconsin s taxation. of real unitary Under taxation Wisconsin property must be assessed to its owner. property, law, this rule all real Wis. Stat. § 70.17; Aberg v. Moe, 198 Wis. 349, 359, 224 N.W. 132 (1929). condominium assessment is of assessed each separately, condominium value of the rental income. the assessor property. assessed The result and would and a fair presumably market Each value include the Nonetheless, the record shows that part may of be 13 this that income this to the portion resort of a 98-0851.jpw condominium s value will be captured in two assessments, the assessment of the condominium and the assessment of the resort. ¶77 Finally, this assessment also appears to violate the Uniformity Clause of the Wisconsin Constitution. section 1 of the Constitution provides taxation shall be uniform . . . . uniformity of methods of that Article VIII, [t]he rule of The provision requires not taxation, but uniformity in results . . . . State ex rel. La Follette v. Torphy, 85 Wis. 2d N.W.2d 94, 109, 270 187 (1978), Chicago citing and N.W. Railway Co. v. State, 128 Wis. 553, 614, 615, 108 N.W. 557 (1906). Yet, under management income depending on to the the majority be included ability to in opinion, an the amount assessment exploit the may of vary income-producing capacity that inherently exists with the Abbey. This suggests that the assessment of the Abbey resort will not be uniform because the value of the resort in relation to other similar resort properties may vary depending upon the quality of management and the amount of entrepreneurial activity by each resort s owner. This is a serious undermining of the rule of uniformity in taxation required by the Wisconsin Constitution. ¶78 The reaching repercussions Wisconsin. case majority did assessment opinion for will have property tax serious assessments the faracross The record shows that the property assessor in this not specifically manual and address instead relied the on Wisconsin majority opinion invites 14 even property interpretation language in N/S Associates and Waste Management. of and broader of The language interpretation. 98-0851.jpw The opinion repeats intertwined seventeen which analysis the inscrutable times, determines yet whether never phrase inextricably precisely off-site articulates business income appertains to real property. ¶79 In sum, although the majority opinion cautions that it is not to be construed as a broad license to ignore the site of income and thus assess income derived from any off-site property that may have tenuous relationship to the main property being assessed, majority at 17, I believe that it approves just such an assessment. Because the resulting assessment is unlawful, I respectfully dissent. ¶80 I am authorized to state that Justice David T. Prosser joins in this dissenting opinion. 15 98-0851.jpw 1

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