NORTHWEST AIRLINES, INC., Relator, v. COUNTY OF HENNEPIN, Respondent.
No. C7-00-1876.
Supreme Court of Minnesota.
Aug. 30, 2001.
632 N.W.2d 216
Amy Klobuchar, Hennepin County Attorney, for respondent.
OPINION
STRINGER, Justice.
On certiorari from the tax court we consider whether relator‘s property tax petitions filed under
The Main Base Building is one of several parcels leased by MAC to relator at the airport.1 Relator and MAC entered into a 30 year lease agreement in 1956, effective 1961, wherein MAC, as lessor, agreed to finance and construct hangers, buildings, paved areas and other improvements for relator‘s exclusive use for its aircraft maintenance, overhaul and operational headquarters at the airport. MAC retained title to the land and all improvements, including those constructed by relator, but relator had 90 days after the termination of the lease to remove any improvements made by relator. The 30 year lease was a “financing” lease—that is, relator agreed to make monthly payments sufficient to fund MAC‘s principal and interest payments and to pay incidental costs associated with bonds it issued to finance the construction of the base facilities and improvements. The lease also provided that one year prior to its expiration the parties would enter into “bona fide” negotiations for a new lease “upon such rates, covenants and conditions as are adequate, reasonable and fair in light of the conditions then existing at said Airport, including the then going rates and lease terms to other scheduled air carriers * * *”
The 1961 lease expired on June 30, 1991 but was extended from month to month until a new lease agreement effective January 1, 1995 was signed.2 The Tax Court found the 1995 lease was an arm‘s length, negotiated agreement designed to arrive at fair rental value rather than amortize bond costs. The 1995 lease required relator to pay rent beginning at $83,333 per month in 1995, increasing to $383,000 per month in 2001 and decreasing to $381,250 per month in 2002 through August 31 of that year. The Main Base Building is exempt from real property taxes because it is owned by MAC,
The county assessor was apparently unaware of the existence of the 1995 lease until October, 1999 when MAC provided a copy to the assessor, and relator also submitted a copy in response to respondent‘s discovery request.3 On January 5, 2000
Information, including income and expense figures, verified net rentable areas, and anticipated income and expenses, for income-producing property must be provided to the county assessor within 60 days after the petition has been filed under this chapter. Failure to provide the information required in this paragraph shall result in the dismissal of the petition, unless the failure to provide it was due to the unavailability of the evidence at that time.
Relator and respondent agreed on the taxable value of all the remaining parcels subject to relator‘s petitions except the Main Base Building, and the tax court‘s grant of respondent‘s motion to dismiss the petitions under section 278.05, subdivision 6(a) as they relate to relator‘s challenges to taxes payable on the Main Base Building is now the only matter before the court.
The tax court ruled that relator‘s petitions are barred by
Our review of decisions of the tax court is limited to whether the court had jurisdiction, whether its decision was justified by the evidence and in conformity with the law or whether it committed an error of law.
The traditional notion of “income-producing” property is property that generates rental income for its owner on the basis of an arms-length, market-based lease, see Equitable Life Assurance Soc‘y. v. Ramsey County, 530 N.W.2d 544, 549 (Minn.1995) but the term is not necessarily limited to rental property. See Montgomery Ward & Co. v. County of Hennepin, 450 N.W.2d 299, 303-04 (Minn.1990). Since 1995 relator has paid MAC rental payments for the use and enjoyment of the property based on an arms-length, market-based lease. Relator contends however, citing
We disagree. The legislature has plainly provided in
Relator contends however, that despite section 273.11, subdivision 1, its leasehold interest is the taxable property interest at issue because section 272.01, subdivision 2(a), (c) and (d), require that it be treated as the owner of the property. Relator‘s construction of section 272.01, subdivision 2 is not persuasive. Section 272.01, subdivision 2 provides in relevant part:
(a) When any real or personal property which is exempt from ad valorem taxes, and taxes in lieu thereof, is leased, loaned, or otherwise made available and used by a private individual, association, or corporation in connection with a business conducted for profit, there shall be imposed a tax, for the privilege of so using or possessing such real or personal property, in the same amount and to the same extent as though the lessee or user was the owner of such property.
* * * *
(c) Taxes imposed by this subdivision are payable as in the case of personal property taxes and shall be assessed to the lessees or users of real or personal property in the same manner as taxes
relator contends however, that despite section 273.11, subdivision 1, its leasehold interest is the taxable property interest at issue because section 272.01, subdivision 2(a), (c) and (d), require that it be treated as the owner of the property. Relator‘s construction of section 272.01, subdivision 2 is not persuasive. Section 272.01, subdivision 2 provides in relevant part:
(a) When any real or personal property which is exempt from ad valorem taxes, and taxes in lieu thereof, is leased, loaned, or otherwise made available and used by a private individual, association, or corporation in connection with a business conducted for profit, there shall be imposed a tax, for the privilege of so using or possessing such real or personal property, in the same amount and to the same extent as though the lessee or user was the owner of such property.
* * * *
(c) Taxes imposed by this subdivision are payable as in the case of personal property taxes and shall be assessed to the lessees or users of real or personal property in the same manner as taxes
(d) The tax on real property of the state or any of its political subdivisions that is leased by a private * * * corporation and becomes taxable under this subdivision * * * must be assessed and collected as a personal property assessment. The taxes do not become a lien against the real property.
Relator‘s reliance upon our decisions in McCannel and Northwest Airlines is equally unpersuasive. In McCannel we stated that relator “is treated as feeholder of the [airport] property for purposes of the taxing statute,” 301 N.W.2d at 914, and in Northwest Airlines we observed that the parties stipulated that the property relator leases from MAC at the airport is taxed as personal property pursuant to
Relator next contends that the county should be collaterally estopped from arguing that the Main Base Building is income-producing property because in McCannel we ruled that the airport property is “special purpose,” and therefore, relator contends, as special purpose property it is not income-producing property for real estate tax purposes. McCannel, 301 N.W.2d at 914. While we observed in McCannel that the cost approach is best suited for valuing special purpose property, at no point did we say that the special-purpose nature of the property bars its assessment as income-producing property. Id. Where special-purpose property is subject to an arms-length lease, as here, it may indeed be more reliably valued using the income approach with the lease serving as a key source of information. We therefore reject relator‘s claim of collateral estoppel.
Relator also raises arguments in equitable estoppel and laches. We have held that a private party seeking to apply equitable estoppel against a government agency acting in its sovereign capacity has a heavy burden of proof, including a showing that the private party‘s detrimental reliance was induced by the government‘s wrongful conduct. Ridgewood Dev. Co. v. State, 294 N.W.2d 288, 292 (Minn.1980). The assertion of the relator and the dissent that respondent unfairly changed the assessment approach is wholly unfounded, as the record supports the conclusion that the county was not aware of the 1995 lease until October 22, 1999-long after the 60 day filing deadline for the tax years at issue had passed. Relator cannot claim it relied on respondent‘s conduct when it failed to inform respondent of the existence of the lease, despite numerous requests over several months. This is not an effort to take unfair advantage of the 60 day statutory requirement, as the dissent
As to relator‘s laches argument, section 278.05 subd. 6(a) confers no discretion on respondent to rely upon or waive the 60 day rule unless there is evidence that failure to comply was due to the unavailability of necessary information. Id. The petitioner must provide income and expense information within 60 days after the petition is filed or the petition must be dismissed.7
Finally, relator contends that even if the Main Base Building is income-producing property, the terms of the lease are neither necessary nor appropriate for determining market value. Respondent concedes that it relies on the cost approach for the “mass assessment” of the Main Base Building, but the record also indicates that respondent did not consider the income approach for valuing the Main Base Building because it was unaware of the 1995 market-based lease. As stated above, an arms-length lease provides important information for valuing income-producing property. We conclude that the tax court did not err in determining that the 1995 lease was income and expense information relator was required to provide under section 278.05, subdivision 6(a).
We hold that the Main Base Building is income-producing property for the period covered by the chapter 278 petitions and relator‘s failure to provide respondent with a copy of the 1995 lease within 60 days of filing the petitions constituted a failure to provide income and expense information as required under section 278.05, subdivision 6(a). The tax court therefore did not err in dismissing relator‘s 1997, 1998 and 1999 property tax petitions with respect to the Main Base Building.
Affirmed.
PAUL H. ANDERSON, J. (concurring).
I concur in the result reached by the majority, but write separately to clarify particular concerns I have about this case.
There is no question that the MAC is the owner of the Main Base Building. Nor is there any question that under
There is also no question that when a party, such as Northwest, petitions to challenge the assessed value of a property, the 60 day rule in
It is not that difficult for us—after a petition has been filed, a tax court hearing held, and an appellate review conducted—to conclude that for purposes of
On a final note, I also write to express my concern with the majority‘s discussion of the income approach accounting method as part of its statutory interpretation analysis. The approach a county assessor uses to determine the market value of a property is not relevant to determining whether that property is correctly classified as income-producing. Thus, the discussion of the income approach is distracting. Regardless of the proper approach for determining the market value of income-producing property,
GILBERT, Justice (concurring in part and dissenting in part).
I generally concur with the legal reasoning of the majority, but do not believe that its analysis should be applied under these facts to deprive Northwest Airlines of a hearing. For over 20 years, since our decision in In re McCannel, 301 N.W.2d 910, 923-24 (Minn.1980), Hennepin County has been valuing this leased property by using a traditional cost approach for this special use property. Then on January 4, 2000, the county switched its appraisal approach after the 60 day filing requirement in
The county stated that it found out about a new lease after the 60-day period had expired. But the county knew that this public property was always leased by Northwest. This facility had been under lease since 1956 and, although the initial lease expired in 1991 and was a month-to-month lease thereafter, the county had been aware of the leased nature of this property for over 40 years. In fact, we made reference to the initial lease in McCannel. However, even though the county knew of a lease all along, until now the county had always used the traditional cost approach for this special use, leased property rather than the income approach. The tax court also noted that “[p]etitioner, as tenant of the MSP [Minneapolis/St. Paul International Airport], has filed petitions contesting the assessed value of the MSP since 1957.”1 The terms of the lease
Minnesota law provides a mechanism for a property owner to contest a real estate assessment.
Here, Northwest failed to provide that information within 60 days, and its petition was dismissed. While this result is consistent with the language of the statute, the unfairness lies in the fact that Northwest was unaware that it was required to submit certain information and comply with the 60 day statutory deadline in
Based on these facts, I believe it is unfair and inequitable for Hennepin County to benefit by its changed tactics. This result reached by the majority is especially unjust based on the Hennepin County Assessor‘s office testimony in front of the House Tax Committee when the 60 day rule was adopted in 1994. The assessor testified that the county warned property owners that their property was subject to the then-current 45 day rule relating to information to be provided on income-producing property, suggesting that the county assessor would continue that practice with respect to the 60 day rule. Hearing on H.F. 7890, H. Comm. on Taxes, 78th Minn. Leg., Mar. 25, 1994 (audiotape) (statement of Tom May, Assistant Hennepin County Assessor). However, in truth and fact, in this case the Hennepin County Assessor‘s office submitted an affidavit stating the assessor‘s office does not make a practice of warning property owners that information relative to income-producing property must be provided before the 60 day filing period expires. The county did not warn Northwest of its practice or its change in classification of this building, and did not even request a copy of the actual lease until over 1 year after the 60 day period had expired.
Accordingly, I would affirm the tax court‘s analysis, but I would make this decision prospective and remand for a hearing on the tax years in question.
PAGE, Justice (concurring in part, dissenting in part).
I join in the concurrence and dissent of Justice Gilbert.