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Marathon Petroleum Company LP v. City of Milwaukee

Court of Appeals of Wisconsin, District I

March 20, 2018

Marathon Petroleum Company LP and U.S. Venture, Inc., Plaintiffs-Appellants,
v.
City of Milwaukee, Defendant-Respondent.

         APPEAL from an order of the trial court for Milwaukee County No. 2009CV009690 CHRISTOPHER R. FOLEY, Judge. Affirmed.

          Before Brennan P.J., Brash and Dugan, JJ.

          DUGAN, J.

         ¶1 Marathon Petroleum Company LP and U.S. Venture, Inc. (collectively the "Oil Companies") appeal the trial court's order affirming the City of Milwaukee's 2008 through 2014 property tax assessments for their oil terminals.

         ¶2 On appeal, the Oil Companies argue that the trial court erred as a matter of law in affirming the City's 2008 through 2014 property tax assessments for their oil terminals because that valuation included non-assessable intangible value. However, we hold that the income-generating capability of the oil terminals "appertains to" and is "inextricably intertwined" with the land and is thus transferable to future purchasers of the land (the "inextricably intertwined test").[1] Therefore, this income may be included in the land's assessment because it appertains to the land.

         ¶3 Moreover, based on our independent review of the record, we uphold the trial court's determination that the Oil Companies failed to introduce significant contrary evidence to overcome the statutory presumption of correctness attached to the City's assessment. Specifically, the Oil Companies' expert failed to apply the inextricably intertwined test and, therefore, he did not properly apply W . S . § 70.32(1)(2009-10) and the Property Assessment Manual, as IS TAT [2] required by Wisconsin law. Further, we uphold the trial court's finding that the Oil Companies' expert's appraisal report and testimony was not credible.

         ¶4 The following background, which relies primarily on the trial court's findings of fact, provides helpful context for the issues in this case. Additional facts are included in our analysis as needed.

         BACKGROUND

         ¶5 Granville Terminal Complex, located in the City, is the site of five oil terminals (the "Granville terminals"). The five Granville terminals are comparable properties to each other.[3] The Oil Companies are two of the Granville terminals' owners.

         ¶6 The City's initial tax assessments of the Granville terminals for the years 2008 through 2014 were determined using mass appraisal techniques, as permitted under Wisconsin law.[4] At the time of those assessments, Peter Weissenfluh was the City's chief assessor and was responsible for the assessments of the Granville terminals.

         ¶7 The City assessed the Oil Companies' terminals for the years 2008 through 2014 as follows:

Year

Marathon

U.S. Venture

Assessment

Per-Barrel

Assessment

Per-Barrel

2008

$16, 733, 000

$34.89

$20, 251, 000

$34.89

2009

$16, 733, 000

$34.81

$20, 231, 000

$34.81

2010

$16, 733, 000

$34.33

$20, 231, 000

$34.33

2011

$17, 434, 000

$34.49

$22, 672, 000

$34.12

2012

$17, 434, 000

$34.49

$22, 672, 000

$33.81

2013

$17, 434, 000

$34.49

$22, 672, 000

$34.45

2014

$17, 434, 000

$34.49

$22, 672, 000

$33.36

         ¶8 In 2009, pursuant to Wis.Stat. § 74.37(3)(d), the Oil Companies filed separate actions alleging that the assessments for their oil terminal properties for the years 2008 through 2014 were excessive pursuant to § 74.37(1) because they exceeded the properties' fair market value. The Oil Companies sought refunds of the excessive taxes paid on those properties, together with interest as provided by § 74.37(5).[5]

         ¶9 Based upon the differences between the City and the Oil Companies' valuations for those eight years, Marathon sought a total tax refund of roughly $1.7 million plus statutory interest, and U.S. Venture sought a total tax refund of roughly $1.4 million plus statutory interest. In November 2015, the trial court presided over a two-week bench trial.

         ¶10 At trial, the City relied upon valuations co-authored by its retained experts Weissenfluh and James Watson. The Oil Companies relied upon valuations by their expert Kevin Reilly. The City and the Oil Companies' respective valuations are shown in the chart below:

City and Oil Companies'Expert Valuations

Year

City

Oil Companies

City

Oil Companies

Marathon

Marathon

U.S. Ventures

U.S. Ventures

2008

$17, 704, 909

$9, 300, 000

$23, 915, 921

$15, 100, 000

2009

$17, 663, 894

$8, 700, 000

$23, 860, 518

$15, 200, 000

2010

$17, 418, 411

$8, 000, 000

$23, 528, 917

$13, 100, 000

2011

$17, 500, 000

$8, 400, 000

$23, 386, 803

$13, 300, 000

2012

$17, 500, 000

$9, 000, 000

$23, 173, 631

$14, 700, 000

2013

$17, 500, 000

$8, 000, 000

$22, 925, 700

$15, 200, 000

2014

$17, 500, 000

$8, 000, 000

$22, 865, 715

$14, 900, 000

         ¶11 The trial court found that Weissenfluh and Watson's methodology and opinions are in conformity with Wisconsin law and the Wisconsin Property Assessment Manual for Wisconsin Assessors (the "Property Assessment Manual"). The trial court found that Reilly's appraisal report and testimony were not credible and therefore did not and could not constitute significant contrary evidence.

         ¶12 The City determined that none of the Oil Companies' Granville terminals had been recently sold. Therefore, it was not possible to do a Tier 1 Recent Sale (Tier 1) analysis to determine value. Accordingly, the City relied upon a Tier 2 Comparable Sales (Tier 2) analysis to support each year's assessment. It primarily used these three Granville terminal sales: the Exxon terminal that sold in 2007, the Flint Hills terminal that sold in 2010 and the BP terminal that sold in 2011. Further, as checks on its Tier 2 analysis of the three Granville oil terminal sales, the City did a Tier 2 analysis of the sales of thirteen additional oil terminals within the Midwest, and did a Tier 3 Income and Cost analysis.

         ¶13 The trial court found that the City's approach "fully support[ed]" its property assessments for each of the challenged years. Each of the sales provided Tier 2 market support for the assessments of the subject properties. The trial court found that (1) the City verified, analyzed and adjusted all of the sales in conformity with the Property Assessment Manual and Wisconsin statutes, (2) the real estate sales included all the rights, benefits and privileges appertaining to the real estate, and (3) the sales in the City's appraisal reflected the economic climate and market for oil terminals during the years at issue.

         ¶14 The trial court found that the City's assessments took into consideration the income-generating capability of the real estate that was inextricably intertwined with the land and transferrable to future owners and did not consider the individual contracts associated with each property or the skill or management of the individual operators. Thus, the trial court determined that the City's conclusions in the Tier 2 approach provided "a credible valuation upon which the court could rely to find that the assessments are not excessive."

         ¶15 The trial court also found that the Tier 3 Income and Cost approach relied upon by the City, as a check on the value conclusions reached under the Tier 2 approach, confirmed that the City's tax assessment of the Oil Companies' terminals was not excessive. Facts relevant to the City's Tier 3 Income and Cost approaches will be set forth in the body of this decision.

         ¶16 Moreover, the trial court found that the Oil Companies had not presented "[s]ignificant contrary evidence rebutting the presumption of fair and equitable assessment." The trial court also made the following findings regarding the Oil Companies' expert, Reilly: (1) he failed to rely upon a sales comparison analysis when there were sales of comparable properties available and, therefore, had failed to comply with Wis.Stat. § 70.32(1); (2) he failed to take into consideration all of the real estate business value that appertains to the real estate; (3) because he disavowed the Tier 2 comparable sales analysis, his opinions and testimony were not credible; and (4) his sales comparison analysis was not credible because he primarily relied on a property that was not comparable. Additionally, the trial court noted that in responding to its questions Reilly stated that, if the income-generating capability of the property was included in the value of the real estate, the value of the oil terminals would be higher than his assessed value.

         ¶17 This appeal followed.

         DISCUSSION

         ¶18 We begin our discussion by setting forth the legal standards governing real property assessment and our review of the issues presented.

         I. Standards for Real Property Assessment

         ¶19 The standards for real property assessment begin with Wis.Stat. § 70.32(1) which provides, in pertinent part, as follows:

Real property shall be valued by the assessor in the manner specified in the Wisconsin property assessment manual provided under s. 73.03(2a) ... at the full value which could ordinarily be obtained therefor at private sale. In determining the value, the assessor shall consider recent arm's-length sales of the property to be assessed[;] ... recent arm's-length sales of reasonably comparable property; and all factors that, according to professionally acceptable appraisal practices, affect the value of the property to be assessed.

Id. This statute requires adherence to the Property Assessment Manual, absent conflicting law. See Walgreen Co. v. City of Madison, 2008 WI 80, ¶3, 311 Wis.2d 158, 752 N.W.2d 687. Thus, we analyze the applicable statutes "in conjunction with basic principles of real property assessment as described by case law, treatises, and the Property Assessment Manual." Id., ¶19.

         ¶20 "The Property Assessment Manual and case law set forth a three-tier assessment methodology to ascertain [a real property's] true cash value." See Adams Outdoor Advert., Ltd. v. City of Madison, 2006 WI 104, ¶34, 294 Wis.2d 441, 717 N.W.2d 803. "True cash value" is synonymous with "fair market value, " which is the price that the real property would sell for "upon arm[']s-length negotiation in the open market, between an owner willing but not obligated to sell, and a buyer willing but not obligated to buy." See id., ¶33 n.8 (citation and one set of quotation marks omitted).

         ¶21 With respect to the three-tier assessment methodology, Adams Outdoor explains,

Evidence of an arm[']s-length sale of the subject property is the best evidence of true cash value [Tier 1]. If there has been no recent sale of the subject property, an assessor must consider sales of reasonably comparable properties [Tier 2]. Only if there has been no arm[']s-length sale and there are no reasonably comparable sales may an assessor use any of the third-tier assessment methodologies [Tier 3].

Id., 294 Wis.2d 441, ¶34 (citations omitted; brackets added). See also, State ex rel. Markarian v. City of Cudahy, 45 Wis.2d 683, 686, 173 N.W.2d 627 (1970).

         II. The Standard of Review for Excessive Tax Assessment Actions under Wis.Stat. § 74.37(3)(d)

         ¶22 A party that is dissatisfied with an assessment may bring an excessive tax assessment claim under Wis.Stat. §74.37(3)(d). See Bloomer Hous. Ltd. P'ship v. City of Bloomer, 2002 WI.App. 252, ¶11, 257 Wis.2d 883, 653 N.W.2d 309. Acting pursuant to § 74.37(3)(d), the trial court makes determinations concerning excessive tax assessment claims "without giving deference to any determination made at a previous proceeding, " including any proceeding before the board of review. See Nankin v. Village of Shorewood, 2001 WI 92, ¶¶24-25, 245 Wis.2d 86, 630 N.W.2d 141.

         ¶23 "The court must only give presumptive weight to the assessor's assessment." Id., ¶25 (citing Wis.Stat. § 70.49(2)). However, "[t]he assessor's assessment 'is presumed correct only if the challenging party does not present significant contrary evidence.'" Allright Props., Inc. v. City of Milwaukee, 2009 WI.App. 46, ¶12, 317 Wis.2d 228, 767 N.W.2d 567');">767 N.W.2d 567 (citations and some quotation marks omitted).

         ¶24 "An opinion as to value which ignores the statutory factors is not 'significant contrary evidence' necessary to overcome the presumption that the assessment is valid." Great Lakes Quick Lube, LP v. City of Milwaukee, 2011 WI.App. 7, ¶18, 331 Wis.2d 137, 794 N.W.2d 510. In other words, "when the city assessor correctly applies the Property Assessment Manual and Wisconsin statutes, and there is no significant evidence to the contrary, courts will reject a party's challenge to the assessment." See Allright Props., 317 Wis.2d 228, ¶12.

         ¶25 On appeal, we defer to the trial court's findings of fact. See Adams Outdoor, 294 Wis.2d 441, ¶27 ("Where there is conflicting testimony the fact finder is the ultimate arbiter of credibility."). "The weight and credibility to be given to the opinions of expert witnesses is 'uniquely within the province of the [trial court].'" Id. (citation and one set of quotation marks omitted). "We will not upset [a trial] court's factual findings, including findings involving the credibility of witnesses, unless they are clearly erroneous." Bonstores Realty One, LLC v. City of Wauwatosa, 2013 WI.App. 131, ¶6, 351 Wis.2d 439, 839 N.W.2d 893. However, "[a]pplication of the law to the facts presents a question of law that we review de novo." See id.

         III. Income-Generating Capability of Real Estate that is Inextricably Intertwined with the Land may be Included in the Real Estate's Assessment

         ¶26 The crux of the Oil Companies' argument is that the City's assessments of their Granville terminals improperly includes non-assessable intangible value in the form of business value found in terminalling agreements. Therefore, we first address whether the value of the income-generating capability of the oil terminals, partially represented by terminalling agreements, adheres to the real property as a right or privilege appertaining to the real estate, as argued by the City, or whether that value is a separate non-assessable intangible property, as argued by the Oil Companies. Then we address the Oil Companies' other arguments.

         A. The Inextricably Intertwined Test

         ¶27 Our discussion of the inextricably intertwined test begins with consideration of the statutory basis for tax assessments. Wisconsin Stat. § 70.01 provides that "[t]axes shall be levied, under this chapter, upon all general property in this state except property that is exempt from taxation. Wisconsin Stat. § 70.03 defines "real property, " "real estate, " and "land" for the purpose of tax assessment as "not only the land itself but all buildings and improvements thereon, and all fixtures and rights and privileges appertaining thereto…." (Emphasis added.)

         ¶28 Our supreme court has explained that "[w]hether an income interest may be captured in a property assessment hinges on whether the value appertains to the property. A value that appertains to property is one that is transferable with the property." ABKA Ltd. v. Board of Review of the Vill. of Fontana-On-Geneva Lake, 231 Wis.2d 328, 336, 603 N.W.2d 217 (1999). See also State ex rel. N/S Assocs. v. Board of Review of the Vill. of Greendale, ...


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