834 N.W.2d 731
Minn.2013Background
- Kohl’s challenged Washington County’s property tax assessment for a Cottage Grove Kohl’s store (tax years 2007–2009); parties agree a 49,100 sq ft outlot sold in 2008 had value $700,000.
- Both sides submitted expert appraisals (relator’s Amundson; county’s Swanson); tax court primarily relied on income approach.
- Tax court values (amended) fell between the parties’ figures: 2007 $6,834,700; 2008 $6,834,700; 2009 $5,773,900.
- Kohl’s post-trial argued the tax court should have adjusted its capitalization rate upward to account for owner-paid taxes on vacant space and neighborhood vacancy/blight, and should have derived market rent by percent-of-sales rather than comparable leases.
- Tax court set cap rates at 8% (2007–2008) and 8.5% (2009) and adopted a market rent of $6.25/sq ft; Kohl’s moved to amend and then appealed the amended order.
- Court of Appeals applied deferential "clearly erroneous" review for factual findings and affirmed, finding tax court’s choices reasonable and supported by the record despite terse explanations in parts.
Issues
| Issue | Kohl’s Argument | County's Argument | Held |
|---|---|---|---|
| Whether cap rate should be increased to reflect owner-paid property taxes on vacant space | Tax court should have added an upward adjustment to cap rate to reflect owner liability for taxes on vacant areas | County’s expert already incorporated tax effects in comparables; cap rate adopted reflects that | Court affirmed: tax court’s cap rate not clearly erroneous; record supports rate despite terse explanation |
| Whether cap rate should be adjusted for neighborhood vacancy/blight and inclusion of an outlier comparable (abandoned Wal‑Mart) | Neighborhood vacancy/blight warrants higher cap rate; Wal‑Mart comparable should be included | Wal‑Mart was an outlier (abandoned tenant) and other comparables already reflect market/area conditions | Court affirmed: exclusion of Wal‑Mart and adopted rates were reasonable and not clearly erroneous |
| Proper method to determine market rent: comparable leases vs. percentage of retail sales | Market rent should be based on percentage of retail sales (Kohl’s preferred) | Market comparables reflect market rent; percentage‑of‑sales not adequately supported here | Court affirmed: tax court reasonably relied on comparable leases and its $6.25/sq ft conclusion was not clearly erroneous |
| Weight and reliability of specific lease/comparable evidence | Relator contended some comparable leases and adjustments were mishandled | Tax court vetted comparables, gave minimal weight to weak/outdated comparables | Court affirmed: tax court reasonably evaluated comparables and explained weight given; outcome supported by evidence |
Key Cases Cited
- S. Minn. Beet Sugar Coop v. Cnty. of Renville, 737 N.W.2d 545 (Minn. 2007) (scope of appellate review of Tax Court; need for adequate explanation of Tax Court reasoning)
- Eden Prairie Mall, LLC v. Cnty. of Hennepin, 797 N.W.2d 186 (Minn. 2011) (deferential review of Tax Court valuation; reversal only if clearly erroneous or unexplained)
- Harold Chevrolet, Inc. v. Cnty. of Hennepin, 526 N.W.2d 54 (Minn. 1995) (real estate appraisal described as an inexact process)
- Equitable Life Assurance Soc’y of U.S. v. Cnty. of Ramsey, 530 N.W.2d 544 (Minn. 1995) (taxpayer bears burden to show assessor’s valuation is excessive)
- Berry & Co., Inc. v. Cnty. of Hennepin, 806 N.W.2d 31 (Minn. 2011) (appellate court will not overturn unless left with definite and firm conviction a mistake was made)