Financial Disclosures Complicate Property Tax Appeals

10/16/2018 / Tim Rye

When a property tax appeal is filed on an income-producing property in Minnesota, certain financial disclosures are required to be submitted to the county before Aug. 1. The disclosures are required by a Minnesota state statute[1] sometimes referred to by the tax court as the disclosure rule (and formerly known as the 60-day rule). Recently, Wal-Mart had two cases dismissed because of failure by the petitioning taxpayer to adhere strictly to the disclosure rule.[2] The disclosure rule is meant to provide information “useful to the appraisal process” so that counties can conduct thorough and accurate assessments.[3] However, in light of recent decisions, is the application of the disclosure rule accomplishing that goal?

Disclosures are generally a routine affair. Taxpayers and property tax practitioners do their best to gather the responsive documents and provide them to the county by the Aug. 1 deadline. Most of the time the disclosures are sufficient, or the county requests additional information from the petitioner and the petitioner provides the additional information with no trouble. However, from time-to-time determining what is required can get muddled. There may be a disagreement about what is required, or the disclosures do not occur in a timely or clear manner. In that event, the county challenges the validity of the disclosures. When this occurs, the county generally seeks dismissal of the entire petition.

There have been many tax court and Minnesota Supreme Court decisions over the years that have interpreted and applied the disclosure rule. In doing so, the reach of the rule has expanded, and the penalty for differing interpretations – dismissal of the tax petition – seems disproportional to the perceived transgression, which goes, perhaps, beyond the original intent of the rule.

The Disclosure Rule is Strictly Enforced

The disclosure rule is strictly enforced.[4]  Except for when the required information is unavailable to the petitioner on the disclosure deadline – or when the petitioner is not aware of, or informed of, the requirement to provide the information – any failure to disclose the required information results in dismissal.[5]

Wal-Mart Tripped Up by Strict Enforcement

Wal-Mart Real Estate Business Trust (Wal-Mart) was recently charged with a negative outcome due to the disclosure rule on a property in Blaine.[6] In this case, the disclosure issue arose because the store included spaces which were leased to a restaurant and a hair salon. Wal-Mart disclosed the starting date, ending date, gross amount, rentable area, annual square foot rent, and annual gross rent. As anyone who has been in a Wal-Mart store can imagine, the restaurant and hair salon occupied very small amounts of space within the much larger store. Wal-Mart argued to the tax court that the income derived from the businesses was business income rather than rental income, and that because the store was in the retail business, it did not track the relevant real estate income and expenses the way that a real estate investment property would.

The tax court rejected the argument that the rental income was business income and followed prior tax court decisions that held that any income between different entities, even if related, makes the subject property income producing.[7] In addition, the court found that Wal-Mart provided some of the information required, but that it did not produce all of the information required or all of the information that it possessed. The hair salon’s rental agreement with Wal-Mart provided for a base rent and a percentage rent. The court held that when there is a percentage rent clause the “petitioner must specify actual rent paid and whether the percentage rent was triggered.”[8] It is hard to see how percentage rent on a small restaurant and a hair salon located in a store the size of a Wal-Mart could be useful to the fee simple market valuation required for property taxation. Nevertheless, the tax court granted the county’s motion to dismiss Wal-Mart’s tax petition for violation of the disclosure rule.

Disclosure Guidance

Wal-Mart shows how strictly the disclosure rule has come to be enforced. Justice Anderson’s dissent in the Irongate Enterprises, Inc. case ponders whether the majority decision “turns disclosure procedures for a real property owner into a guessing game in which the end result will all too often be an “I gotcha” that ends in summary dismissal.”[9]  Perhaps Justice Anderson stated taxpayers and property tax practitioners concerns best when he said that the decision “turns ordinary discovery disputes into nearly sure-fire grounds for counties to obtain summary dismissal of petitions challenging real property valuations.” Id. He concluded, “I do not believe that this is the intended result of the statute.” Id. Based on the current application of the disclosure rule, taxpayers petitioning their taxes have no choice but to err on the side of the most full and complete disclosure possible; otherwise, they risk losing their day in court.


[1] Minn. Stat. § 278.05, subd. 6(a).

[2] Wal-Mart Real Estate Business Trust v. County of Clay, No. 14-CV-17-1450, 2018 WL 1476179 (Minn. Tax Feb. 13, 2018); Wal-Mart Real Estate Business Trust v. County of Anoka, No. 02-CV-17-2048, 2018 WL 4517831 (Minn. Tax Sept. 7, 2018).

[3] Irongate Enters., Inc. v. Cty. of St. Louis, 736 N.W.2d 326, 330 (Minn. 2007).

[4] 78th St. OwnerCo. LLC v. Cty. of Hennepin, 813 N.W.2d 409, 417 (Minn. 2012).

[5] Minn. Stat. § 278.05, subd. 6(b); Kmart Corp. v. Cty. of Becker, 639 N.W.2d 856, 861 (Minn. 2002).

[6] Wal-Mart Business Real Estate Trust v. County of Anoka, No. 02-CV-17-2048, 2018 WL 4517831 (Minn. Tax Sept. 7, 2018).

[7] T & L Invs. v. Cty. of Dakota, No. C9-95-7347, 1995 WL 516557 (Minn. Tax Aug. 24, 1995); Larson Leasing, Inc. v. Cty. of Dakota, No. C1-95-7231, 1995 WL 516553 (Minn. Tax Aug. 24, 1995).

[8] Wal-Mart, 2018 WL 4517831 at *9 (citing Kmart Corp. v. Cty. of Douglas, No. C7-00-309, 2001 WL 40361 at *4 (Minn. Tax Jan. 11, 2001)).

[9] 736 N.W.2d 326, 334 (Minn. 2007) (dismissing a tax petition for failing to disclose leases despite having provided lease abstracts with all of the relevant information).