This is a review of a published court of appeals decision 1 affirming an order by the circuit court for Milwaukee County, Honorable Charles L. Larson, Reserve Judge. The circuit court affirmed the Board of Review of the City of Milwaukee's decision to sustain the city tax assessor's assessment of Metropolitan Holding Company's property.
At issue is the proper annual income figure to be used when assessing a subsidized housing project under the capitalization of income apрroach. While the Board of Review of the City of Milwaukee (hereinafter referred to as "The Board") argues that annual income should be based on estimated market rents and expenses, Metropolitan argues that annual income should be based on actual income and expenses. We agree with Metropolitan and reverse the court of appeals.
The facts are not in dispute. Metropolitan built Layton Garden, a three-building housing complex, in 1972-73. In return for federal financing, Metropolitan agreed to several restrictions imposed by the Federal Department of Housing and Urban Develоpment (hereinafter referred to as "HUD"). For example, HUD requires that Metropolitan rent only to elderly persons *629 whose income is below a certain level. HUD also controls the maximum amount of rent that Metropolitan can charge and the grounds upon which Metropolitan may evict a tenant. Furthermore, HUD limits the amount Metropolitan can retain after expenses to approximately $6,000 per building per year, with any excess profits reverting to HUD.
In 1988, the city assessor assessed Layton Garden at $4,766,000. In calculating the value of Layton Garden, the city assessor used the capitalization of incоme method. Under this method, the value of a property is determined by applying a capitalization rate to the estimated net annual income. Metropolitan does not object to the use оf the capitalization of income method.
Metropolitan does object, however, to the city assessor's method of calculating the net annual income. The city assessor based his calculation of net annual income on estimated market rents and expenses. The city assessor, therefore, created a hypothetical market using figures from housing complexes which, although not subject to HUD regulations, were otherwise comparable to Layton Garden.
In response to Metropolitan's objection to the assessment, The Board granted Metropolitan a hearing. At the hearing, Mеtropolitan argued that the city assessor should have based his calculation of net annual income on actual rents and expenses because the HUD regulations precluded market rents and thе actual expenses exceeded the estimated expenses. Although The Board reduced the assessment to $4,483,000, The Board approved the use of estimated market rents and expenses.
Metrоpolitan filed a petition for a writ of certiorari and requested the circuit court to reverse The Board. The circuit court upheld the decision of The Board and *630 Metropolitan appealed. The court of appeals affirmed the circuit court. This court then accepted Metropolitan's petition for review.
"The principles of law are well settled governing the jurisdiction оf courts in reviewing the findings of boards of review on
certiorari." State ex rel. Mitchell Aero v. Bd. of Review,
Metropolitan contends that The Bоard did not act according to law when it approved the use of estimated market rents and expenses to determine the value of Layton Garden. Metropolitan argues that sec. 70.32(1), Stats. 1987-88, 2 case law and the Federal and Wisconsin Constitutions prohibit the use of the capitalization of income method based on estimated market rents and expenses when assessing subsidized housing. We conclude that The Board did not act according to law when it approved the assessment of Layton Garden because the assessment violated sec. 70.32(1). We therefore *631 reverse the court of appeals without reaching Metropolitan's additional arguments regarding constitutionality.
Section 70.32(1), Stats, governs the valuation of real property for the purposes of taxation and requires an assessor to value real property at the "full value" which could ordinarily be obtained at a private sale.
Steenberg v. Town of Oakfield,
The assessment in the present case viоlated sec. 70.32(1), Stats, because the city assessor's valuation of Layton Garden exceeded the fair market value. In using estimated market rents and expenses, the city assessor essentially pretendеd that Layton Garden was not hindered by the HUD restrictions and valued the property at the amount the property would bring in an arm's-length transaction if Metropolitan were able to charge market rents. Laytоn Garden was, however, hindered by the HUD restrictions and it is undisputed that the HUD restrictions precluded Metropolitan from charging market rents. In fact, the city assessor admitted that Metropolitan could not have rеalized the assessed amount from a private sale in 1988. Furthermore, The Board's counsel conceded, during oral argument, that she would pay less for a building encumbered with HUD restrictions than she would for an otherwisе identical building that was not encumbered with HUD restrictions. The city assessor's use of estimated market rents violated sec. *632 70.32(1), because the estimated market rents did not reflect the true market value of Layton Gаrden.
The Board points out that sec. 70.32(1), Stats, provides that real property shall be valued "in the manner specified in the Wisconsin property assessment manual. ..." Section 73.03, Stats. 1987-88 grants the Wisconsin Departmеnt of Revenue the authority to prepare the Wisconsin Property Assessment Manual (hereinafter referred to as "the Manual"). Section 73.03, Stats, provides that "[t]he manual shall discuss and illustrate acceрted assessment methods, techniques and practices with a view to more nearly uniform and more consistent assessments of property at the local level." The Manual, which specifically addresses the appropriate method of valuing subsidized housing, states: "subsidized housing must be valued according to the value it would command if it were free and clear of encumbrances.... When using the income apprоach for the valuation of subsidized housing, market rents must be used, regardless of whether the contract rents are above or below market rent." 1 Property Assessment Manual for Wisconsin Assessors at 9-25.
The Board argues that the assessment of Layton Garden did not violаte sec. 70.32(1), Stats, because sec. 70.32(1), requires that real property be valued in the manner specified in the Manual and the city assessor complied with the Manual when valuing Layton Garden. Section 70.32(1), howеver, also mandates that real property be assessed at the full value which could ordinarily be obtained at private sale. We have already held that Layton Garden was not assessed at its full valuе, as that term is used in the statute, because the assessed value exceeded the fair market value.
We now hold that compliance with the Manual is not a defense when the method of assessment suggestеd *633 by the Manual results in a violation of sec. 70.32(1), Stats. Although The Board urges this court to defer to the Manual when the Manual accurately reflects the state of the law, the portion of the Manual which requires thе use of estimated market rents when assessing subsidized housing under the capitalization of income approach does not accurately reflect the state of the law. In fact, that portion of the Manual directly violates sec. 70.32(1).
Although the parties dispute whether the Manual carries the same weight as an administrative rule, this court has held that even long-standing administrative rules may not stand at variance with an unambiguous statute.
See Department of Revenue v. Howick,
The language of sec. 73.03, Stats, supports our conclusion. Section 73.03, states that "[t]he Manual shall be amended by the department from time to time to reflect advances in the science of assessment, court decisions concerning assessment practices, costs and statistical and other information deemed valuable to local assessors by the department." (emphasis added). The quoted lаnguage indicates that the Legislature intended that the Manual conform to, rather than establish, Wisconsin Law.
In summary, we hold that the assessment of Layton Garden violated sec. 70.32(1), Stats, even though the assessment was pursuant to the instructions set forth in the Wisconsin Property Assessment Manual. We therefore reverse the court of appeals without reaching Metro *634 politan's additional arguments. We remand this case with instructiоns that The Board order the city assessor to assess Layton Garden using the capitalization of income approach based on actual income and expenses.
By the Court —The decision of the court of appeals is reversed and the case is remanded to circuit court with instructions to remand to the Board of Review of the City of Milwaukee for further proceedings consistent with this opinion.
Notes
Section 70.32(1) provides in pertinent part:
70.32 Real Estate, how valued. (1) Real property shall be valued by the assessor in the manner speciñed 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 full value which could ordinarily be obtained therefor at private sale.