Real Estate & Construction Blog

Category: Property Tax

Show All Categories

Property Tax

Truth-in-Taxation Forms—The Other Shoe Drops on Minnesota Commercial Property Owners

Minnesota commercial property owners have been waiting months for the other shoe to drop. The first shoe fell back in March when assessors told owners their estimated market values. The other shoe will drop in the next few weeks when local governments send out their truth-in-taxation forms, informing property owners of their proposed tax rates. Property tax liability is calculated by multiplying the estimated market value by the tax rate, so this will be the first look at what property owners will owe in 2026. Although the taxes you owe next year may seem a long time away, if you think your taxes are too high, now is the time to have someone look at them. While you can’t challenge the tax rate, you may be able to lower the assessed value. Here is a checklist of common indicators that your assessed value is too high: Your estimated market value spiked dramatically compared to the previous year. Your property experienced significant depreciation. Properties similar to yours recently sold for less than the estimated market value listed on your form. You have a recent appraisal report that is less than the value on your truth-in-taxation form. A unique feature of your property makes it less marketable. The property was specially built for your business’s particular use. To raise capital, your business executed a sale-leaseback, and the new value mirrors the sale price. You completed a 1031-exchange, and the new value tracks the 1031 sale price. Unfortunately, the meetings provided on the truth-in-taxation form are not opportunities to change your property’s estimated market value. Although your local assessor may be available to talk at these meetings, by statute, they are unable to make any changes to the value. Instead, you must file a tax petition in court. The deadline to file a petition for the taxes payable in 2026 is April 30, 2026. You should seek advice from a property tax attorney to determine whether you have a potential appeal.

November 18, 2025

Property Tax

Commercial Landlords Gain Confidentiality of Leases in Minnesota Property Tax Appeals

The Minnesota Tax Court rarely sits en banc, which is when all three judges of the Tax Court decide a matter instead of just one. When they do, it’s to address an issue that is particularly complex or important. The commercial landlord of a downtown Minneapolis office tower, 250 Nicollet Office LLC, filed a property tax appeal. To help value the property, the Hennepin County assessor asked for all the tenant leases. A landlord’s most confidential information are its leases. If competitors know when tenants need to renew their leases and the current terms, they will try to poach those tenants with better terms. In this case, 250 Nicollet Office LLC was willing to provide the leases to the assessor, but it was understandably hesitant to do so without confidentiality. The County refused. To address whether the landlord could produce the leases under a protective order, the judges sat en banc. The Commercial Landlord’s Conundrum—Pursue Tax Relief, but Risk Exposing Confidential Leases to Competitors Commercial landlords in Minnesota face a predicament when bringing a property tax appeal. They want tax relief, but to get it, they potentially expose their leases to their competitors. The source of this risk is a statute unique to Minnesota. The statute requires all income-producing property owners to provide assessors with certain information from their rent rolls. This includes tenant names, base rent, start/end dates and square footage. Failure to produce this information by August 1 results in an automatic dismissal of the case. When the owner provides this information, it is protected under the Minnesota Government Data Practice Act as nonpublic assessor’s data. Although this information is protected from the public, the assessor’s office can use it as part of their official functions, including in appraisal reports for similar properties. That means the assessor could use an owner’s rent roll information as a comparison in an appraisal report to value a competitor’s property, thus exposing the information. But what about when the assessor requests the actual leases? Minnesota statute further provides that assessors can request the actual leases if they believe it is necessary to properly evaluate the property. The landlord then has 60 days to produce them. Unlike the rent roll information where failure to produce the information results in an automatic dismissal, the Minnesota Rules of Civil Procedure address any failure to produce the leases. In other words, the remedy for failure to produce the leases is left to the court’s discretion, creating several questions. Must Leases Be Produced? The first issue was whether a commercial landlord has to provide the leases when requested. If failure to provide the leases didn’t result in an automatic dismissal like the rent roll information, was it really mandatory? Here, the Tax Court had conflicting rulings. One opinion held that it was mandatory, while another reasoned it wasn’t. Resolving this discrepancy was one of the reasons the court sat en banc. The Tax Court ruled that the plain language of the statute stated that the landlord “must” provide them, thereby making it mandatory. The Tax Court therefore overruled the previous contrary decision on this point. Are Leases Protected? The second issue was whether the leases were subject to the Minnesota Government Data Practices Act as nonpublic assessor’s data like the rent roll information, or if the court could issue its own protective order. If the leases were subject to the Data Practices Act, then the Tax Court had already ruled that it could not issue a protective order because the statute already provided the relevant protection. But the section of the statute governing the leases made enforcement subject to the Rules of Civil Procedure. The Tax Court reasoned that this allowed the court to issue its own protective order. What is the Protective Order’s Scope? The third issue was the scope of the protective order over the leases. The County argued that because leases were part of the same statute requiring landlords to provide certain rent roll information that was protected by the Data Practices Act, the court’s order should provide the same protection and allow assessors to use the leases as part of their normal office functions.  250 Nicollet Office LLC argued that its leases should be limited to this case only. The Tax Court ruled that the leases should receive this-case-only protection, assuring landlords that their leases will not fall into the hands of competitors. Steps Landlords Can Take to Keep Leases Confidential Going forward, if assessors request leases from commercial landlords, landlords should seek an appropriate protective order that limits the use of those leases to the particular case. The times that a commercial landlord has to worry about their leases being exposed to competitors should be as rare as the Tax Court sitting en banc.

October 14, 2025

Property Tax

I Just Got My Property Tax Assessment—Is the Assessor Out to Get Me?

Assessors have submitted their values and will be sending assessments to property owners in the coming weeks, if they haven’t already. Some property owners may look at their values and wonder, “How can my property possibly be valued this high? Is the assessor out to get me?” The good news is that assessors aren’t out to get you. As a whole, they genuinely want to find the right value. But that doesn’t mean your property was valued correctly. So how could they get it wrong? Mass Appraisal Techniques Can Lead to Over-Assessments There are far too many properties for assessors to inspect individually each year. They must therefore rely on mass appraisal techniques. These techniques are designed to value many properties based on certain, common characteristics. The values that are generated based on those common characteristics are then evaluated by statistical methods. Single-family residential homes offer a good example for how mass appraisal techniques are used. The common characteristics that an assessor might use are the number of bedrooms, number of bathrooms, size of the home, and the home’s location. Using only these common characteristics, assessors arrive at an estimate of the property’s value to calculate property taxes. Because there are a lot of single-family residential homes, the greater volume of data allows for a stronger statistical analysis to arrive at the right value. But what about the other characteristics of your property that aren’t included in the assessor’s model? Or what if your home has unique features? None of these are considered. In general, the more your property differs from the common characteristics used by the assessor, the further off the assessed value will be. Commercial, Multi-Family, and Industrial Properties Are More Prone to Over-Assessments When assessors apply mass appraisal techniques to other property types—such as commercial, multifamily, or industrial properties—there is a greater probability for over-assessments. First, these property types are less uniform, so it becomes more difficult to identify a common set of characteristics that assessors can use to value them as a group. Second, there are fewer of these property types, particularly compared to single-family residential properties, so the statistical analysis is not as robust. With less reliable data, there is a greater chance for over-assessments. An Imprecise Art and Inexact Science Assessing the value of a piece of real estate is a subjective task. There is a popular saying: “Beauty is in the eye of the beholder.” So too is the value of a property. A recent opinion from the Minnesota Tax Court observed that the appraisal of real estate is both an art and a science. It then quipped that appraisal is “at best an imprecise art” and an “inexact” science. How to Challenge an Over-Assessed Property So if appraising real estate is an imprecise art and inexact science, where does that leave the property taxpayer when faced with an assessed value based on mass appraisal techniques that feels too high? Even though taxpayers will not know what common factors the assessors used for the mass appraisal techniques, they should focus on the individual characteristics of their property. Identify all the characteristics that impact value, and present the data to the assessor. This could include everything from the condition of the heating and cooling systems, conditions of the interior, or any other added features. Additionally, being able to compare your property to a similar property that recently sold can be persuasive. But because valuation is an imprecise art and inexact science, each property will be different. Property taxpayers should watch their values closely each year, and March and April are the ideal times to do so. The deadline to file an appeal to challenge the taxes due in the current year is April 30. At the same time, assessors are sending valuation notices for the taxes payable the following year, and taxpayers have a small window of time to negotiate with assessors before budgets are finalized. You can see the full timeline for a property tax appeal here. Although the assessors are not out to get you, there will always be outliers when mass appraisal techniques are used. Make sure you’re not an outlier paying too much in property taxes.

March 10, 2025

Property Tax

30 Frequently Asked Questions for Minnesota Property Tax Appeals

Do you feel you are paying more than your fair share in property taxes? If so, you may be able to reduce your taxes or obtain a refund. Here are answers to some of the most common questions we receive about filing a property tax appeal in Minnesota. Property Tax Appeal Essentials What am I appealing when I file a petition? The most common basis for filing an appeal is that the assessed value is higher than the property’s actual market value. A petition to appeal seeks to reduce the assessed value of your property, also known as the estimated market value (“EMV”), to reflect the current market. Are there additional bases for an appeal? Yes, you can also appeal whether your property was misclassified (i.e., residential, agricultural, commercial), whether your property should be exempt from property taxes, or whether it was unequally assessed when compared with similarly situated properties in the applicable area. Can I appeal my property tax rate? No, the tax rate is set by the legislature and local government. How much money can I save with a property tax appeal? Residential property is generally taxed at about 1.0–1.5% of value, and commercial/industrial property is taxed at about 3.0–3.5% of value. That means for every $100,000 in reduced assessed value, a residential property taxpayer saves $1,000–$1,500 in taxes and a commercial/industrial property taxpayer saves $3,000–$3,500. Could the property value go up after filing a petition? Yes, the value can increase, but only if a petition is taken all the way to trial and the judge determines that the property was under-assessed. If the taxpayer does not want to take the risk that the value may increase, the petition can be dismissed at any time before trial and end the case. Initiating an Appeal When is the property value determined? All property is valued as of January 2 for taxes payable the following year. When must a petition be filed? The deadline to file an appeal is April 30 of the year the tax is due. Because property tax appeals are determined by statute, failure to meet this deadline is strictly enforced. Even if you’re a day late, the petition will be dismissed. What if the April 30 deadline falls on a weekend? If the appeal deadline falls on a weekend, you may file the petition on the next business day. Who can file a petition? Anyone who has an interest in the property can bring an appeal. For properties that are leased, appeals are most often filed by the property owner, although tenants can also bring an appeal. But the lease or contract may limit or direct who can bring an appeal. Can I include more than one tax year on a petition? No, the petition can only have one tax year. You must file a separate petition for each new assessment date. Can I include more than one parcel on a petition? Yes, you can include more than one parcel on a petition so long as the owner is the same for each parcel and all the parcels are in the same county. Do I have to take any steps before filing with the Tax Court? No, there are no requirements that a taxpayer must take before filing a petition with the Tax Court. Unlike other jurisdictions, there is no requirement that a taxpayer first appear before the local or county board of appeal and equalization or exhaust any other administrative remedies. Do I need an attorney to file an appeal? It depends. All corporations and limited liability companies with more than one member must be represented by an attorney. Individuals, corporations, or limited liability companies with only one member and partnerships in which the individual is a general partner can represent themselves, but it is recommended that they consult with an attorney. Proving Your Case After I file the petition, does the County have to prove that the value is correct? No, the assessed value is presumed to be correct. It is the petitioner’s burden to overcome the presumption of correctness. How do I overcome the presumption of correctness? The petitioner overcomes the presumption of correctness by presenting evidence that the value is incorrect. Although an owner or other fact witness can offer testimony to overcome this presumption, an appraisal report from an expert is almost always sufficient to overcome the presumption. What happens after the petitioner overcomes the presumption of correctness? After the petitioner overcomes the presumption of correctness, the Tax Court conducts a de novo review of value. In other words, the Tax Court does not give the assessed value any credit, and instead determines the value for itself based on all the evidence in the record. How is the market value determined? The Minnesota courts use the three traditional approaches to value. The sales comparison approach compares your property to similarly situated properties that recently sold in an arm’s length transaction. The cost approach values your property by how much it would cost to replace your property. The income approach values your property by how much income you could generate by renting or leasing the property. After the value from each approach is determined, the three approaches are reconciled against each other to find the EMV. Do I need an expert to determine the EMV? If going to trial, generally yes, an expert is needed. While the value of the property can be determined by the property owner or non-expert witness, they must present evidence that allows the Tax Court to conduct the three approaches to value. Because this is a complex and technical analysis, an expert appraisal report is typically required to present the three approaches to value. What Happens at Trial How likely is it that I will go to trial? Almost all cases settle. Generally, the Tax Court receives several thousand property tax petitions per year, and only a handful of cases go to trial. Who testifies at trial? Typically, the only witnesses in a valuation case are the expert appraisers. How do experts present their opinions at trial? During trial, the appraisal report serves as the expert’s direct testimony at trial regarding their opinions. The expert is not allowed to provide testimony on direct examination unless approved by the Court. Because the expert’s report serves as their direct testimony, depositions of the experts are not typically conducted. Who decides my case? All property tax appeals are decided by the Minnesota Tax Court, which is an executive-branch court. Your case will be decided by one of the three Tax Court Judges appointed by the Governor. There are no jury trials in Tax Court. Timeframe of an Appeal How long does it take to resolve an appeal? The process usually takes 1.5–2 years, but the process can take longer if subsequent tax years are consolidated. After a petition is filed, the Tax Court issues a scheduling order with a trial date typically set for about 1.5 years after filing. You can see the full timeline of the process here. Can I reduce my property taxes without filing a petition? There is a small window of time to reduce your assessed value without filing a petition. Taxpayers receive their valuation notices in March for the taxes payable the following year. But taxpayers only have until the end of June before the counties finalize their budgets and lock in the assessed values. After this roughly 3-month window closes, the only way to reduce your assessed value is by filing a petition. This 3-month window is different for every county, so you must look at your valuation notice for the meeting date of your local board of equalization and appeal. Pitfalls to Property Tax Appeals in Minnesota If I filed an appeal, do I still need to pay the property taxes while the appeal is pending? Yes, all property taxes must be paid as they come due, otherwise it results in an automatic dismissal of your appeal. If a payment is missed, an appeal can be maintained with prompt payment. If I pay my property taxes and obtain a reduction, what happens? If you have paid your property taxes and obtain a reduction, the county will issue a refund of the overpayment with interest. Who is required to make mandatory disclosures? Taxpayers challenging the assessed value of their property who are income producing must provide certain information by August 1 of the year the taxes are due. Although the statute does not define “income producing,” courts have determined that where the owner and occupier are different entities and valuable consideration flows between them, the property is income producing. Classic examples are apartment buildings or office buildings with multiple tenants. But the courts have applied an expansive definition of what constitutes “income producing,” so a taxpayer should err on the side of disclosure. If a property is owner-occupied and does not generate income, then no disclosures are required. What must be provided to the assessor as part of the mandatory disclosures? The statute requires the taxpayer to provide financial statements, rent roll, identification of all lease agreements, net rentable square footage, and a budget. The actual leases must be provided only if requested by the assessor. What if the taxpayer does not provide all the information by August 1? The statute does not provide any opportunity to cure a deficiency in the mandatory disclosures, so failure to make full disclosures results in an automatic dismissal. The Tax Court and Minnesota Supreme Court strictly enforce this deadline, no matter how small the deficiency and regardless of whether the county was prejudiced. Can the information from the mandatory disclosures be kept confidential? The Minnesota Government Data Practices Act classifies documents provided to the assessor through the mandatory disclosures as non-public assessor’s data, which means that the documents are not subject to a request under the Freedom of Information Act. But the assessors can use the information they received for other assessment duties. If the taxpayer is concerned about maintaining other information as confidential, the Tax Court will enter an appropriate protective order.

August 13, 2024

Real Estate

Bill Griffith and Adam Pabarcus Moderate at Bisnow's Twin Cities State of the Market Event

Larkin Hoffman's attorneys Bill Griffith and Adam Pabarcus recently moderated panel discussions during Bisnow’s Twin Cities State of the Market outlook event. Held earlier this month, the event featured insightful conversations with leaders in the Twin Cities real estate and development markets. The first panel, moderated by Bill Griffith, included Pat Barrett, COO of Oppidan Investment Company; Tim Elam, Managing Director at Scannell Properties; and Barry Stoffel, Partner and Integrator at Gardner Builders.  The four covered a range of topics including strategies for navigating the current market and some of the challenges to various asset classes including industrial space, data centers, and senior housing.  Pat Barrett remarked optimistically, "Winds are shifting, and we're headed in the right direction," when discussing emerging trends in the Twin Cities. Adam Pabarcus moderated the event's final panel which included Josh Brandsted, President of Greco Properties; Jay Bhakta, Managing Partner at JR Hospitality; and Angela Ledding, Head of Underwriting at PACE Sloan Group. The panel focused on the future prospects for the Twin Cities real estate market. "We're witnessing significant economic volatility, impacting every facet of property development and management," noted Adam. Discussions centered on the resurgence of office space demand as the city adapts post-COVID-19 lockdown, as well as identified avenues for future growth. Bill Griffith and Adam Pabarcus are both part of Larkin Hoffman's real estate team.  Recently, Bill sat down with Adam and another attorney on the team, Tim Rye to discuss property taxes.  If you would like to learn more about property taxes in how today's market may be affecting your value, please visit the Larkin Hoffman Real Estate Podcast and listen to our latest episode.  Bill Griffith advises local and national clients on legal and policy issues affecting land use, zoning, real estate, environmental review, municipal law, regulatory matters and government relations. He has been legal counsel to Mall of America in all its phases, and serves as city attorney for the city of Columbus. He is a trusted advisor on real estate development and public funding for both private clients and municipalities. Adam Pabarcus is a litigator and trial attorney who focuses his practice on complex real estate litigation and property tax appeals. Adam represents clients in state and federal courts across the country to resolve disputes and advance their business goals on a broad range of issues. Tim Rye is a litigator who advises clients on real estate valuation and property tax appeals. He advises on all aspects of the property tax appeal process, including: reviewing properties for potential success on appeal, filing appeals and all statutory disclosures, researching market data, preparing analyses for negotiations, negotiating resolutions, and litigating appeals if necessary. Tim represents a broad range of clients, including real estate investors, owners, developers, property and asset managers, corporations, and individuals with real estate holdings.

May 13, 2024

Property Tax

Property Taxes High? Your Property Could Be Over Valued. Find Out More on The Larkin Hoffman Real Estate Podcast.

There is a simple formula that is used to determine how much you owe in property taxes, however if your property is valued incorrectly, you could be overpaying.  Tim Rye and Adam Pabarcus from our property tax appeals team recently sat down with Bill Griffith to discuss the property tax appeals process and to highlight the benefit of a quick periodic review to determine if your tax assessment is fair.  In this episode of The Larkin Hoffman Real Estate Podcast, Tim also shares insights regarding his team’s recent victory in the Minnesota Supreme Court and its decision to require tax assessors to exclude the airport’s concession fees from rent-based valuations for property tax purposes. The case offers a flight plan to lower taxes at many of the nation’s transportation hubs and underscores the importance for all taxpayers to exclude business value from taxable property value. In this episode, Tim details the magnitude of the Minnesota Supreme Court’s decision regarding concession fees and how it could influence the results of future property tax appeals. The deadline to file a petition for the upcoming tax season is quickly approaching and taking charge of your tax rate can be as easy as a quick complementary annual checkup.  Contact our property tax appeals team to schedule your review. Bill Griffith advises local and national clients on legal and policy issues affecting land use, zoning, real estate, environmental review, municipal law, regulatory matters and government relations. He has been local counsel to Mall of America in all its phases and serves as city attorney for the city of Columbus. He is a trusted advisor on real estate development and public funding for both private clients and municipalities. Contact Bill Griffith at wgriffith@larkinhoffman.com. Tim Rye is a litigator who advises clients on real estate valuation and property tax appeals. He advises on all aspects of the property tax appeal process, including reviewing properties for potential success on appeal, filing appeals and all statutory disclosures, researching market data, preparing analyses for negotiations, negotiating resolutions, and litigating appeals if necessary. Tim represents a broad range of clients, including real estate investors, owners, developers, property and asset managers, corporations, and individuals with real estate holdings. Contact Tim Rye at trye@larkinhoffman.com. Adam Pabarcus is a litigator and trial attorney who focuses his practice on complex real estate litigation and property tax appeals. Adam represents clients in state and federal courts across the country to resolve disputes and advance their business goals on a broad range of issues. Contact Adam Pabarcus at apabarcus@larkinhoffman.com. Our real estate and construction law team  covers every facet of real estate and its development phases. With the aim of offering distinctive perspectives on emerging topics, trends, and matters within our industry, we launched The Larkin Hoffman Real Estate Podcast to complement The Larkin Hoffman Real Estate and Construction blog. We stay on top of developing issues and legislation and collaborate with industry leaders to ensure our readers and listeners stay abreast of pivotal issues.

April 15, 2024

Property Tax

Hot Topics in Commercial Property Tax for 2024

As we start the new year, it is important to reflect on what happened in 2023 so that we know where commercial property taxes are going in 2024. While it was a busy year, three trends stand out. They indicate that property values should decrease in 2024 and that the market is going through a realignment. Property owners should watch assessments carefully to make sure they are being fairly valued and to look for opportunities to gain tax savings and possible refunds. Cap rates are increasing, which lead to values decreasing. In 2023, cap rates increased across all sectors. Higher risk property types, such as office buildings, saw greater increases than lower risk categories such as industrial and multi-family. But even industrial and multi-family buildings saw upward cap rate pressure. In 2021 and 2022, many industrial and multi-family properties traded with cap rates in the 5.5% range, indicating a relatively safe investment. In 2023, the cap rates rose to a range of 6.5–7.5% or higher, reflecting increased volatility and risk for investors. As a result of the increased risk, property values in 2024 should decrease.   Office landlords should factor higher lease-up costs to fill vacancies, which negatively impacts value. New and renewing tenants typically receive some level of tenant improvements. If the tenant wants more expensive improvements, landlords frequently accommodate them and spread the expenses over the lease's duration, leading to an increase in the base rental rate. However, office space is broadly available and competition for new tenants is intense. As a result, some landlords are offering more tenant improvements without passing on the additional costs, while at the same time absorbing rising construction costs. This suggests that in 2024, as lease-up costs to fill office vacancies increase, property values will decrease.   Fewer sales in 2024 could potentially lead to more over-valuations. The volume of commercial real estate transactions is down across all sectors. One reason for this is that buyers and sellers may have different pricing expectations. To illustrate, consider a scenario where a seller bought an industrial property in 2021 for $10 million and has a $7 million mortgage. The seller may want at least $10 million to cover the debt and not lose equity. But a buyer today may offer only $8.5 million because mortgage rates are much higher and the property would not cash flow appropriately at a $10 million sale price. The $1.5 million gap will likely result in no sale. We anticipate that 2024 will see a lower volume of sales until the market adjusts to realign the expectations of buyers and sellers. From a valuation perspective, this is significant. One of the primary ways that assessors determine value is comparing property to similar properties that recently sold. With fewer sales, assessors may lack reliable comparisons. Property owners will want to work closely with their counsel to make sure that their properties are being fairly assessed. Final Takeaway Property taxes are based on valuations. As we anticipate lower values in 2024, property owners should diligently review their assessments to make sure they are paying only their fair share and watch for opportunities to obtain tax savings and potential refunds.

January 17, 2024

Property Tax

Fair Property Taxes to Avoid Overpaying

Businesses face any number of headwinds. High interest rates, inflation, work shortages, and supply chain problems are just a few. Don’t let this list include overpaying on your property taxes. As the saying goes, the only certain things in life are death and taxes. But that doesn’t mean you have to accept your property taxes blindly. The amount of property taxes you pay is based on a percentage of your property’s estimated market value. If the property is overvalued, then you are paying unnecessary tax on that extra value. Factors Leading to Overvaluations: Mass Appraisal Techniques and the Effects of the COVID-19 Pandemic Assessors set a property’s estimated market value using a system referred to as mass appraisal. At its essence, mass appraisal uses statistical analysis to compare your property to similarly situated properties. Mass appraisal is most effective when there are large sets of properties that have highly similar characteristics, such as single-family residential. But it is less accurate when there are fewer similar property types in the surrounding area, your property has unique features, or it is built-to-suit. Properties that are generally more difficult to value include retail, industrial, and commercial properties. For taxes payable in 2024, there are additional factors leading to overvaluations. As we emerge from the COVID-19 pandemic, changes in the economy and the way businesses will continue to operate are coming into focus. The shift to remote and hybrid work schedules is causing a much higher vacancy rate in office space, yet assessors seem to be valuing office buildings the same as they did pre-pandemic. Should You Appeal Your Property Taxes? How do you know if your property taxes are too high? Indicators that you might be paying too much in property tax include: You know similar properties to yours recently sold for less than the estimated market value (“EMV”) listed on your property tax notice. You have a recent appraisal report that is less than the EMV on your property tax notice. The EMV of your property increased dramatically from the previous year. A unique feature of your property makes it less marketable. The property was specially built for your business’s particular use. To raise capital, your business executed a sale-leaseback and the new EMV mirrors the sale price. You completed a 1031-exchange and the new EMV tracks the 1031 sale price. Your property has experienced significant depreciation. To know whether your property is overvalued, you should consult a local property tax appeal attorney. In Minnesota, property is valued as of January 2 for taxes payable the following year. The deadline to file an appeal is April 30 of the year the taxes are due. Failure to meet this deadline is an absolute bar to challenge that particular year’s taxes. To lessen any headwinds your business may be facing, consult with an attorney to make sure your property taxes are fair.

October 12, 2023

Property Tax

Airport Concession Fees Are Not Rent in Property Taxation

In a groundbreaking ruling, the Minnesota Supreme Court affirmed a tax court decision requiring tax assessors to exclude the airport’s concession fees from rent-based valuations for property tax purposes. The case offers a flight plan to lower taxes at many of the nation’s transportation hubs and underscores the importance for all taxpayers to exclude business value from taxable property value. Larkin Hoffman’s property tax appeals team, led by shareholder Tim Rye with the assistance of shareholder Bryan Huntington, represented the concessionaires Enterprise and Avis in the historic case. Reprinted with permission of Heartland Real Estate Business, a France Media publication. Every major airfield collects fees from food-and-beverage providers, retailers, banks and other businesses that provide goods or services on airport property. Concessionaires, or those who pay the concession fees to the property owner, commonly pay these charges in addition to rent owed for the real estate where they operate. Many of these businesses are also responsible for property tax that passes through to tenants in a commercial lease. The cases leading up to the March 29 state Supreme Court decision involved two car rental companies that challenged their 2019 tax assessments, claiming the assessor’s office had overstated their property values by including concession fees in its income-based valuation. High-flying fees Both Enterprise Leasing Co. of Minnesota and Avis Budget Car Rental pay a concession fee equal to 10 percent of gross revenues in addition to real estate rent for their operations at Minneapolis-St. Paul International Airport. The tax assessor for Hennepin County had historically valued the auto rental providers for property tax purposes by Including concession fees in its income-based approach to valuation. The auto rental companies challenged the valuations on their 2019 taxes in the Minnesota Tax Court. Law firm Larkin Hoffman, which represented both taxpayers, argued that concession fees are not rent and thus should not be included in the income approach for property tax purposes. The rental agencies prevailed in tax court. The court found that concession fees are not real estate rent and that the county substantially overstated market values by including the fees in its calculations. Correcting the assessor’s calculation reduced Enterprise’s value from about $34.9 million to $21.1 million, or 39 percent less than the initial assessment. Avis’ property value dropped 39 percent as well, from approximately $20.6 million to $12.5 million. The county appealed the tax court’s decision to the Minnesota Supreme Court, arguing that concession fees are rent that must be used in the income approach. The court affirmed the lower court’s decision, however, holding that “the concession fee is not rent for purposes of the income approach.” Fee-simple principles The rental agencies’ case stood on fundamental precepts of fee-simple valuation. Minnesota is a fee-simple property tax state, meaning valuations for property tax purposes must value all property rights as though they are unencumbered. Additionally, the leased-fee interest, or landlord’s rights subject to contractual terms, should not be used for property tax valuations. Per the state Supreme Court, rents attributable to specific leases are disregarded except to the extent they represent market rent. It follows that business income should not be included in valuations for property tax purposes. Taxpayers doing business at airports across the country often pay concession fees or other charges based on their revenues or business performance. Many states, like Minnesota, require those same properties to be valued on a fee-simple basis, which should neutralize any impact of business value. In representing the rental car agencies at all stages of their appeal, Larkin Hoffman stressed the importance of these valuation concepts and how the very definition of a concession requires its exclusion from calculations of taxable property value. A concession is a “franchise for the right to conduct a business, granted by a governmental body or other authority,” according to the Dictionary of Real Estate. Accordingly, if a concession fee is a payment for the right to conduct business and not for the right of occupancy, then it is a business revenue. The county argued that because the rental agencies’ concession agreements included the phrase for “use of the premises,” then the concession must only be for the real estate. However, the tax court found that the concession fees was consideration for access to the airport car rental market rather than the real estate. The tax court reasoned — and the Supreme Court affirmed — that the concession fee was not for the real estate because: Concession fees were also paid by off-airport rental car companies, indicating that the fee is a business revenue rather than rent; Inclusion of the concession fee in the income approach would inflate the value to 10 times greater than the cost approach, which would be clearly unreasonable; and Inclusion of concession fees in the county’s income approach distorted other inputs. It is well-established that a fee-simple property tax valuation should exclude business value. Now, Minnesota courts have also acknowledged that when a concession fee is for the privilege of accessing the airport market rather than for the real estate, that fee represents business value. To prevent erroneous inclusion of business value, and since airports are special-purpose properties, the court gave primary weight to the cost approach. With this decision, Minnesota’s highest court has confirmed that concession fees are not rent for real estate and instead represent business value that should be excluded from the income approach. For taxpayers in any jurisdiction that taxes property based on its fee-simple value, the recent decision is a reminder to ensure that assessors are excluding business value when calculating taxable property value. For businesses that also pay concession fees in addition to rent, the Minnesota case may provide an impetus to learn how those fees affect their own property values. And if those inquiries spur taxpayers to appeal their assessments, then the Minnesota case law may provide a valuable example and support for their arguments. Given the precedent this case has set, Larkin Hoffman’s property tax assessment team is strongly committed to making sure other vendors at the Minneapolis airport and airports around the country are being assessed fairly.  Please reach out or fill in our property tax intake form to find out if we can help you. Tim Rye is a litigator who advises clients on real estate valuation and property tax appeals. He advises on all aspects of the property tax appeal process, including reviewing properties for potential success on appeal, filing appeals and all statutory disclosures, researching market data, preparing analyses for negotiations, negotiating resolutions, and litigating appeals if necessary. Tim represents a broad range of clients, including real estate investors, owners, developers, property and asset managers, corporations, and individuals with real estate holdings. Bryan Huntington represents his clients in the enforcement of their property rights. His clients include developers, landowners, contractors, builders, surety companies, condominium owners, landlords and tenants. Bryan represents landowners and contractors in litigation and negotiation adversarial to governmental subdivisions (counties, cities, townships, etc.) and government agencies, including matters involving eminent domain, inverse condemnation, zoning, administrative law and payment disputes. He litigates contract disputes and is passionate about obtaining justice when misrepresentations are made during a real estate transaction about the conditions of real property.  Bryan is also a Rule 114 qualified neutral (mediator) in Minnesota.

May 10, 2023

Planning and Development

Larkin Hoffman’s Real Estate and Construction Attorneys Recognized in The Best Lawyers in America® for 2021

Every year attorneys from Larkin Hoffman receive recognition for their efforts to assist in a variety of complex issues relating to land use and zoning, real estate, environmental regulation, construction, eminent domain and condemnation, and tax law. This year a number of the firm’s real estate and construction practice attorneys have been selected by their peers in The Best Lawyers in America® for 2021. Peter J. Coyle – Land Use & Zoning Law; Litigation – Land Use and Zoning William C. Griffith – Land Use & Zoning Law; Municipal Law David D. Hammargren – Construction Law Peder A. Larson – Environmental Law Paul J. Linstroth – Tax Law; Litigation and Controversy – Tax Tamara O’Neill Moreland – Land Use and Zoning Law James M. Susag – Land Use and Zoning Law, Litigation – Real Estate Gary A. Van Cleve– Eminent Domain and Condemnation Law Additionally, attorneys Peter Coyle and William Griffith are each recognized by Best Lawyers as a 2021 “Lawyer of the Year” in their respective fields. Peter was selected for Land Use and Zoning Law; Litigation and Bill was recognized for Land Use & Zoning Law; Municipal Law. Only a single lawyer in each practice area and designated metropolitan area is honored as the “Lawyer of the Year,” making this accolade particularly significant. The lawyers are selected based on peer-review assessments. From Best Lawyers: Best Lawyers® is the world’s most selective and highly regarded directory of attorneys. Inclusion is based on an exhaustive and rigorous peer-review process comprised of evaluations by top attorneys. For more than three decades, Best Lawyers® has been regarded – by both the profession and the public – as the most credible and definitive guide to legal excellence in the United States.

August 23, 2020

Planning and Development

New Podcast Series: Land Use and Real Estate Issues Affected by the COVID-19 Crisis

Welcome to Larkin Hoffman’s new series of podcasts discussing issues affected by the COVID-19 crisis. Our senior attorneys will address corporate, employment, real estate, construction, franchise, bankruptcy, insurance, litigation, and other matters in this series. The podcasts are 15 minutes long and can be heard at your convenience. Over the next few weeks, there will be several podcasts on developing matters. In this first podcast, Bill Griffith and Tim Rye discuss land use and real estate issues affected by the pandemic. In particular, they address: The pandemic’s impact on value for property taxes The timing of property tax payments, appeals and extensions The timing for potential tax relief due to value changes or appeals Economic stimulus – Minnesota Essential Investment Bill Low interest loans, government guarantees, bonds, debt restructuring Other forms of relief, such as utility payments, payroll reimbursement Everyone is managing issues arising from COVID-19. Larkin Hoffman attorneys are engaged daily with clients to remove barriers critical to their ongoing operations, and perhaps even their survival.

April 10, 2020

Eminent Domain

How Will COVID-19 Affect Real Estate Values?

Those of us in the real estate practice—and particularly in areas concerning real estate valuation such as eminent domain and property tax appeals—are obviously quite concerned about the impact of the COVID-19 pandemic on our clients’ property values as we all proceed through these very uncertain times. I think about two upcoming quick-take hearings that I have for clients in late March and early April. The quick take hearing is the critical time during an eminent domain proceeding when the court grants the government title to and possession of the real property needed for whatever public project necessitated the taking. The date of this transfer of title and possession—the so-called “take date”—is the date on which the property will be valued for purposes of determining the damages that the property owner is owed as “just compensation” for the taking. Will the unfortunate timing of my clients’ quick take dates in the midst of this pandemic affect their ability to recover just compensation? It’s anybody’s guess at this point. Josh Folland and his group of appraisers at Valbridge Property Advisors have interviewed Twin Cities real estate professionals to try to assess the potential impacts of the pandemic at this early stage. I’m pleased to pass on Valbridge’s newsletter and report for your information. If you have thoughts (or experiences) of your own, we’d love to hear from you. Stay safe and stay well. Valbridge notes that market sentiment is likely to change as the impacts of the virus become more clear. They will continue to survey the market and will publish updates to this report.

March 20, 2020

Property Tax

When to Consider a Property Tax Appeal

Developers, real estate investors and business owners are appropriately focused on creating profit and high rates of return. Managing property taxes may not be a terribly high priority. However, property taxes are usually the most significant real estate expense incurred by real estate users and have a direct impact on profitability and rates of return. So, when should developers, investors and businesses consider a property tax appeal? Property taxes in Minnesota are based on the fee simple market value of the subject property. Generally meaning, the amount that could be achieved in a sale between a willing buyer and willing seller without any special benefit or deduction applied due to specific tenancy or lease terms. The short answer to the question in the title of this post is, if the market value is likely less than the assessed value then you should consider an appeal. It is not practical or economical to have an appraisal prepared every year just to test the assessed value. You can have property tax lawyers like those at Larkin Hoffman conduct a review anytime – Larkin Hoffman offers free property tax reviews – or the following may serve as indications for when to take a deeper look. Purchase for less than the assessed value Refinance and the financing appraisal concludes to a value lower than the assessed value There is substantial deferred maintenance or significant capital expenditures are needed The Subject is contaminated The property is special use The Subject went through a significant renovation or new construction The property was under construction on the date of assessment Subject is suffering from high vacancy or not yet stabilized The market around the subject has changed, such as increasing vacancy, decreasing rents, crime, etc. Assessed value is rapidly increasing and little has changed for the Subject The above list is certainly not exhaustive, but for the developer, investor, and business owner with little time to consider property taxes, the list can be a good cheat sheet for when to consider calling a property tax lawyer. While valuation is the most important factor for determining and adjusting property taxes, the assessment cycle and appeal deadlines are nearly as important. For example, the deadline to appeal the Pay 2020 value is April 30, 2020. As a result, the following is an outline of the assessment and appeals process. Minnesota property tax dates from assessment to appeal Description Date Notes Date of assessment January 2 Each assessment is the basis for the property taxes payable in the following year. For example, the assessment on January 2, 2019 is for taxes payable in 2020. Valuation notices March – April Counties mail notices of valuation in the year of assessment. For example, valuation notices sent in March and April 2019 are for the 2019 assessment payable in 2020. County Boards of Appeal and Equalization June Boards of Appeal and Equalization hear informal/administrative appeals of assessments in the year of assessment. For example, a 2019 Board of Appeal and Equalization is for the 2019 assessment payable in 2020. Truth-in-taxation notices November 10 – 25 Truth-in-taxation notices provide taxpayers with the proposed taxes based on preliminary budgets. They are mailed in November for the taxes payable in the following year. For example, the November 2019 truth-in-taxation notices provide the proposed taxes payable in 2020. Truth-in-taxation meetings After November 25 Truth-in-taxation meetings are held by the taxing authorities to present the budgets and hear comments from taxpayers. After the comment period is complete the taxing authorities will finalize the budgets, and therefore, the taxes. Property tax statements March 31 (last day) This is the date for the year taxes are payable. For example, March 31, 2020 is the last day for counties to mail the statements for property taxes payable in 2020. Property tax appeal deadline April 30 All property tax appeals must be filed by April 30 in the year the taxes are payable. For example, April 30, 2020 is for the 2019 assessment for taxes payable in 2020.* First Half Taxes Due May 15 First half property taxes are due. Second half taxes due October 15 Second half property taxes are due. * Minnesota’s property tax appeal deadline is a hard deadline. If an appeal is not filed for that tax year, the value cannot be changed.

February 21, 2020

Property Tax

How Does the Sale of a Property Affect Its Assessed Value?

We frequently get asked about how an assessment will change after an acquisition at a price higher than the assessed value. The answer of course is, it depends. Assessors use sales ratio studies for the review and equalization of values. A sales ratio shows the relationship between the assessors Estimated Market Value (EMV) and the sales price of a property. The sales ratio formula is: Sales Ratio = Assessor’s EMV/Sale Price Assessors use sales ratio studies to plan an upcoming assessment, to evaluate an existing assessment, and to identify inequities. However, before the sales ratio study can be of any use an assessor must analyze the sale transaction. Assessors will verify the sale transaction to adjust the sale for non real estate components such as furniture, fixtures, and equipment, but they will also determine whether the sale should be rejected from the study. There are many reasons for a rejection, such as: Related party sale Government sale Partial interest transaction Prior interest sale, such as a lease with an option to buy Payoff of a contract for deed Forced sale or foreclosure Sale-leaseback transaction Allocated sale price; or Not typical market If the sale is rejected from the sales ratio study then the sale is unlikely to have a significant impact in the future assessment of the subject property. If the sale is a market transaction, good for the study, it may have some impact in the future valuation, but there is still a good chance that the sale will not result in the value being set at or near the sale price in the immediate future. The Minnesota Department of Revenue defines sales chasing as “[t]he practice of making any substantive change in the value of a recently sold property, while not also reviewing and applying the same criteria to properties that have not sold.” The practice of sales chasing can cause invalid findings in ratio studies. For example, if assessors chase sales then the ratio studies will show that the assessments are generally in line with the sales, and those that are unsold will not be adjusted to be in line with the market. In a rising market, sales chasing can cause the study to arrive at an inaccurately low value, and in a declining market sales chasing can cause the study to arrive at erroneously high values. Accordingly, sales chasing causes issues when applying mass appraisal techniques and is harmful to equal and fair assessment practices and is discouraged. Therefore, it is unlikely that assessors will immediately adjust the assessed value to a value at or near a sale price that is higher than the assessed value. If there are many sales occurring at prices higher than the assessed values then the sales ratio study will show that the assessed values are below market. To illustrate, if the sales of a specific class of property in a specific area in a given year have a median sale price 30% higher than the assessed value then the ratio would be 0.7692 (i.e,. $1,000,000 EMV ÷ $1,300,000 Sale Price) or 77%. In Minnesota, assessors are to aim for ratios within 90% of the sales. Based on this illustration, instead of sales chasing, the assessors would put the sales in the study and likely increase all properties in that group by 13% the following year (13% + 76% = 90% sales ratio target). In a rising market, like we have experienced over the last few years, we generally see assessors increase values year over year rather than chase the sale. As a result, the assessment may eventually reach the sale price, but it can take a few years. While it is possible that an assessor could decide to chase a sale, our experience evaluating these types of sales supports the methodology described above. Nonetheless, we always recommend taking a close look at the market activity, assessment patterns, ratio studies, and property specific factors to evaluate the risk of increasing assessments following a sale.

July 30, 2019

Property Tax

Meet Minnesota Tax Court’s Newest Judge: Tamar N. Gronvall

Governor Dayton appointed Tamar N. Gronvall to the Minnesota Tax Court for a six-year term, which began in January 2017 and will expire on January 2, 2023. Before her appointment to the Tax Court, Ms. Gronvall was General Counsel in the Office of Legal Services at the Minnesota Department of Commerce, where she led a team advising the agency in areas of consumer protection, banking, insurance, energy, insurance fraud, contracts, and employment law. She also was a Manager of Tax Litigation, Bankruptcy and Education Division of the Office of the Minnesota Attorney General. Judge Gronvall has an extensive history in public service, government, commerce, litigation, and tax. Here are a few of Judge Gronvall’s initial rulings as a Tax Court Judge: Macy’s Retail Holdings, Inc. (Downtown Minneapolis Parking Ramp)-Petitioner v. County of Hennepin-Respondent and InterPark Holdings, LLC-Intervenor, File Nos: 27-CV-13-6683, 27-CV-14-6579 (Minn. T.C. June 2, 2017) Type of Decision: Evidence, Protective Order, Procedural Summary: Macy’s objected to parts of the County’s appraisal that included third party non-public data through a Motion in Limine The parties stipulated to allow InterPark to intervene in Macy’s Motion in Limine for the purposes of protecting InterPark’s data that it had provided to the City of Minneapolis. The Court held a hearing on the issue and encouraged the parties to work to stipulate to a protective order to protect InterPark’s information. Macy’s and InterPark were able to agree and stipulate to the protective order terms, but the County did not agree. Macy’s and InterPark filed the proposed order and the County asked for direction from the Tax Court on how to object to the proposed protective order. The Court permitted the County to submit written objections. Comment: Judge Gronvall encouraged the parties to work together to collaborate on a solution for the protective order and was willing to provide procedural guidance to the County. University Court LLC v. County of Hennepin, File No: 27-CV-15-07947 (Minn. T.C. June 2, 2017) Type of Decision: Discovery Summary: The County served Interrogatories and Requests for Production of Documents and University Court did not respond within the required 30 days. The County requested to meet and confer with University Court. University Court asked for an extension, which the County allowed. When the extension expired the County asked again for discovery responses, but received no response from University Court. The County then filed a Motion to Compel. University Court filed no response and did not appear at the hearing. The County’s motion to compel was granted with expenses and attorney fees. Comment: This is a straight forward failure by a party to comply with discovery and Judge Gronvall handled it according to the rules. Moral of the story, if you don’t respond you will probably lose. Macy’s Retail Holdings,Inc. (Downtown Minneapolis Parking Ramp) v. County of Hennepin, File Nos: 27-CV-13-6683, 27-CV-14-6579 (Minn. T.C. June 19, 2017) Type of Decision: Discovery Summary: The County sought to compel discovery of information regarding offers to purchase or sell the property. The County’s Motion to Compel was granted. Although Macy’s had received multiple letters of intent or expressions of interest, it claims that because those documents either expressly or impliedly disclaimed contractual liability they did not constitute offers. The Court found that the County satisfied the procedural requirements to compel discovery, and that the the letters of intent were responsive to the County’s request for information on all offers. In other words, in this case letters of intent are offers. In addition, even though the purchase agreement was finalized after the close of discovery Macy’s was required to supplement its discovery responses. Comment: Judge Gronvall followed the procedural rules for considering the motion to compel and concluded in the County’s favor that the letters of intent are offers, and discovery responses must be supplemented after the close of discovery even if the information was not created until after the close of discovery. Macy’s Retail Holdings, Inc. (Downtown Minneapolis Parking Ramp)-Petitioner v. County of Hennepin-Respondent, and InterPark Holdings, LLC-Intervenor, File Nos: 27-CV-13-6683, 27-CV-14-6579 (Minn. T.C. July 28, 2017) Type of Decision: Evidence and Protective Order Summary: Macy’s Motion in Limine to exclude portions of the County’s appraisal that included third party nonpublic data was denied. The expert reports were temporarily sealed and if InterPark alleges that the parties’ expert reports include proprietary or sensitive information it may file a motion to permanently seal the relevant portions. In short the County redacted nonpublic information in its discovery responses, but included the information in its appraisal. Macy’s objected on discovery grounds. The Court found that, among other things, Macy’s was not prejudiced, so its motion to exclude portions of the County’s appraisal was denied. The Court also protected InterPark’s third party information and provided an avenue for further protection for InterPark if any is needed. Comment: Judge Gronvall decided this issue in favor of the County, but did place significant weight on the whether Macy’s was prejudiced by the failure to disclose in discovery, which Judge Gronvall found it was not. This is consistent with many decisions of the Tax Court to include evidence rather than exclude. In addition, Judge Gronvall’s willingness to protect third party information is a positive sign for taxpayers that provide information to assessor. Final Thoughts Judge Gronvall has shown in her early rulings that she follows discovery rules closely, has preferred to include more evidence rather than less, encourages parties to work together, and protects third parties. The decisions can be found here.

September 6, 2017

Property Tax

Do your commercial real estate taxes seem too high? Is it time to appeal?

Minnesota’s deadline to file an appeal for taxes payable in 2017 is April 30, 2017, which means it’s time for commercial property owners, tenants, managers, etc., to decide if a tax appeal is appropriate. This post answers a few questions that I am frequently asked. My taxes are really high, should I appeal? Property taxes are based on the real estate value, so the first question before deciding to file an appeal is actually, is my value too high? If you don’t have a good sense for the value of your property then you should have a property tax professional take a look at your situation. I provide free reviews for any commercial property taxpayer, and so do many other property tax professionals. If you are well versed in the market for your property and have a good understanding of the value, or have a recent appraisal, then compare your analysis against the assessed value on your tax statement. If your analysis or appraisal, is similar or higher than the assessed value, then you probably don’t want to appeal. If it is lower, you may have a case for an appeal. At this point you should contact a property tax appeal attorney to discuss the potential for a successful case. Additionally, most commercial properties are owned by LLC’s or another class of entity. It is important to note that Minnesota only allows individuals to personally file an appeal on property they own in their own name. So, if your property is owned by a company you will need a property tax appeal attorney to handle the filing. Is a tax appeal litigation? Technically, a tax appeal is litigation. However, in most cases traditional litigation actions, such as discovery, motions, hearings, etc., never occur. Most appeals have a more transactional process. For example, an appeal is required in order for the assessor to adjust the value, but the matter may still be entirely resolved through negotiations and can be very friendly. In my practice, one of my core philosophies is to maintain quality respectful, and when possible, friendly, relationships with assessors. A good working relationship with the assessor is important for working through the challenging issues of the appeal. In short, while an appeal can lead to a trial, it generally does not require full blown litigation. Will an appeal now cause higher taxes in the future? Assessors have a duty to value real estate at its market value. As a result, any retaliatory increase to a non-market value would be illegal. I have never experienced an assessor raising values in response to an appeal being filed. However, the legitimate concern is whether or not an appeal will reveal information to an assessor that could cause a value increase in the future. For example, let’s say an assessor believed that the average market rent for a specific property was $10 per square foot, but then during the appeal they find out that the average market rental rate for the property is actually $15 per square foot. The assessor may not be able to ignore this fact going forward, and the result could be a higher valuation based on the higher rent. In fact, this is one of the many things that I look for when I conduct preliminary reviews for potential appeals, and it is one of the reasons that I always recommend talking to me or a property tax professional before filing an appeal. In conclusion, if you feel your commercial real estate taxes are too high, ask me or a property tax professional to take a look.

March 13, 2017

Property Tax

A Bank Sale of the Subject Property can be the Best Indicator of Value for Property Tax Valuation

Real estate buyers who purchase property from banks sometimes get the property for a price that seems below market. Assessors frequently dismiss these sales as “bank sales” and therefore irrelevant for property tax valuation. However, these apparent discounts can be the result of actual distress or market influences, rather than because the bank was under duress to sell. The Minnesota Tax Court squarely addressed this issue in Zephyr Group LLP v. County of Washington. The subject – a former Denny Hecker car dealership – was acquired by a financial institution after the bankruptcy of the previous owner. The property was then listed and marketed for almost four years with offering prices incrementally dropping from $1,800,000 to $600,000. The subject finally sold for $600,000. Since the assessed value was approximately $2,300,000, the buyer filed an appeal. Subject Property On appeal, the county disregarded the sale because it was “lender mediated.” The court however, disregarded the county’s analysis because of its failure to consider the sale. A long standing rule in Minnesota Tax Court is that a sale of the subject property near the date of assessment is the “best indicator of value” and it should be “given great weight, especially when [it] was an arm’s length transaction.” Nonetheless, the tax court is always cautious to use only the sale price of the subject, because “one sale does not make a market” and other evidence may show that the sale price is above or below market. In Zephyr, the court found that the subject was an arms’ length transaction, because it was sufficiently exposed to the market, sold between two unrelated parties, and the lender was not under any regulatory or other pressure to sell for a below market. Because it was arms’ length and took place near the date of assessment, it was the best indicator of value. Accordingly, a bank sale can be an arms’ length, market transaction; and therefore, the best indicator of value entitled to great weight in property tax valuation.

February 24, 2017

Property Tax

Property Valuation is an Inexact Science

Home improvement retailer, Menard’s, successfully lowered the value of its Moorhead store in tax court. When it pressed its position based only on sales of similar properties, the court replied that valuation is not that narrowly focused.  The appeal covered years 2011 through 2014 and the original value was $11,200,000 for each year. At tax court, Menard’s sought a value as of $4,000,000. The tax court’s final value decision was as follows: Appraisal Year County Assessor County’s Appraiser (Vergin) Menard’s Appraiser (MaRous) Tax Court Order Tax Court Amended Order 2011 $11,200,000 $12,000,000 $4,000,000 $7,432,100 $7,516,600 2012 $11,200,000 $12,300,000 $4,000,000 $7,585,800 $7,681,300 2013 $11,200,000 $12,500,000 $4,000,000 $7,219,000 $7,331,300 2014 $11,200,000 $12,700,000 $4,000,000 $7,393,600 $7,556,200 Menard’s appealed the tax court’s decision because it wanted the Minnesota supreme court to rule that only the sales comparison approach should have been considered, instead of the sales comparison and cost approaches to value. The court has long held that review of the tax court’s decisions is very limited and it will only overturn a valuation if is clearly erroneous. Menard’s contended that the tax court’s job was done when it determined that the sales comparison approach provided a reliable indicator of market value. However, the court has already ruled that approach out when it said some years ago, “appraisal is an inexact valuation determination” and an “estimate of value” Lewis & Harris v. Cty. of Hennepin, 516 N.W.2d 177, 180 (Minn. 1994) (emphasis added). The court has also stated that whenever possible the tax court should apply at least two of the approaches to value, and value indications derived can serve as useful checks on each other. Overriding weight can be given to one approach over another and the tax court has the discretion to determine what weight it will assign to each approach. Finally, the court emphasizes that none of its decisions narrow the view of the inexact science of real estate appraisal to such a degree. As a result, for property tax valuation, the methodology should try to avoid being so narrowly focused. The court also weighed in on the highest and best use determination and the depreciation analysis for the Menard’s property. If interested in the finer points of the valuation issues, here is the full November 9, 2016 decision for Menard, Inc. v. County of Clay.

January 24, 2017

Property Tax

Minnesota Property Tax Dates from Assessment to Appeal Filing

Commercial property taxpayers have a lot to worry about and focus on to keep their properties running well, and aside from payment due dates, property tax dates probably are not on the radar. However, if a valuation is too high or taxes are a major concern, knowing important dates might be useful. Most lists provide the dates in a chronological order based on the calendar year, but because Minnesota taxes are paid in arrears, that order can create confusion. The following is a list of important property tax dates in order from the initial valuation/assessment to the appeal filing deadline. Minnesota Property Tax Dates from Assessment to Appeal Description Date Notes Date of assessment January 2 Each assessment is the basis for the property taxes payable in the following year. For example, the assessment on January 2, 2016 is for taxes payable in 2017. Valuation notices March – April Counties mail notices of valuation in the year of assessment. For example, valuation notices sent in March and April 2016 are for the 2016 assessment payable in 2017. County Boards of Appeal and Equalization June Boards of Appeal and Equalization hear informal/administrative appeals of assessments in the year of assessment. For example, a 2016 Board of Appeal and Equalization is for the 2016 assessment payable in 2017. Truth-in-taxation notices November 10 – 25 Truth-in-taxation notices provide taxpayers with the proposed taxes based on preliminary budgets. They are mailed in November for the taxes payable in the following year. For example, the November 2016 truth-in-taxation notices provide the proposed taxes payable in 2017. Truth-in-taxation meetings After November 25 Truth-in-taxation meetings are held by the taxing authorities to present the budgets and hear comments from taxpayers. After the comment period is complete the taxing authorities will finalize the budgets, and therefore, the taxes. Property tax statements March 31 (last day) This is the date for the year taxes are payable. For example, March 31, 2017 is the last day for counties to mail the statements for property taxes payable in 2017. Property tax appeal deadline April 30 All property tax appeals must be filed by April 30 in the year the taxes are payable. For example, April 30, 2017 is for the 2016 assessment for taxes payable in 2017.* First Half Taxes Due May 15 First half property taxes are due. Second half taxes due October 15 Second half property taxes are due. * Minnesota’s property tax appeal deadline is a hard deadline.  If an appeal is not filed by April 30 for that tax year, neither the tax court nor the county can go back and change the value. The Minnesota Department of Revenue has a more lengthy list that includes additional dates, such as homestead and exemption application deadlines.  The Department of Revenue’s list is chronological based on the calendar year and can be found here.

December 5, 2016

Property Tax

Investment Value or Market Value: Analyzing Sales for Property Tax Assessments

Institutional investors may expect an increase in real estate taxes when they acquire assets for historically high prices, but do those sales represent market value for property tax purposes? Moreover, should they be used to value more normal properties for property tax purposes? Twin Cities commercial real estate has been experiencing substantial investment by real estate investment trusts (REITs), insurance companies, and other national investors. There can be many reasons for this: good market fundamentals, low unemployment, high quality of life, number of bike lanes, the list goes on and on. However, many of these investors are paying near-record and record-high prices for assets in the Twin Cities. For example, Ameriprise Financial Center sold to a Florida investment firm for $200,000,000 ($163 per square foot); Norman Point II in Bloomington sold to a Chicago investment firm for $52,500,000 (also $163 per square foot); and Excelsior and Grand sold to an Ohio investment firm for $317,589 per unit. Meanwhile, many average office properties sell for less than $100 per square foot, and many apartment complexes sell for less than $150,000 per unit. Ameriprise Financial Center There are many reasons national and international investors are acquiring commercial real estate in the Twins Cities and these sales should be analyzed very carefully if they are to be considered for property tax purposes. However, it is not surprising to see many market values below the values indicated by high-priced investment sales, because those sales potentially traded based on investment value. Sales that garner the attention of national investors will often be institutional-grade properties. Institutional-grade property is defined as “real property investments that are sought out by institutional buyers and have the capacity to meet generally prevalent institutional investment criteria.”[i] Investment value is “the value of a property interest to a … class of investors based on the investor’s specific requirements. Investment value may be different from market value because it depends on a set of investment criteria that are not necessarily typical of the market.”[ii] Institutional investment criteria include considerations such as high-credit tenants, low historical vacancy, long-term leases, premium locations, etc. However, the criteria can include more subjective considerations, such as being a 300-plus unit apartment building to balance risk in a portfolio; or, being an office building occupied predominantly by government tenants, because the investment plan defines government buildings as the primary asset type. As a result, when properties that fit certain criteria become available institutional-grade investors may willingly overpay to secure the asset for their portfolios. Accordingly, purchase prices of institutional-grade properties are usually determined based on the investment value rather than general market value. In Minnesota, all property shall be valued at its market value when being valued for property tax purposes. “Market value is objective, impersonal, detached; investment value is based on subjective, personal parameters.”[iii] When subjective parameters come into play, an institutional investor will outbid and out pay traditional investors that are focused on strictly on market-based criteria. Thereby creating a substantial difference between investment value and market value. Therefore, assessed values should not be based on investment sales, except in the rare situation where the investment sale actually represents market value. [i]               The Dictionary of Real Estate Appraisal, p. 102 (2010 5th Ed.). [ii]               Id., p. 104. [iii]              Simonson v. County of Hennepin, 1997 WL 45311 (Minn. Tax) (quoting The Appraisal of Real Estate, p. 23 (10th ed. 1992)).

December 5, 2016

Firm Highlights

Blog Post
The FTC’s Aggressive Approach to Non-Compete Agreements
News
Larkin Hoffman Attorneys Recognized in Legal 500’s Minnesota Elite Guide
News
Health Care Attorney Angela Mamaril Joins Larkin Hoffman
News
Larkin Hoffman Attorneys Named 2026 Super Lawyers and Rising Stars
News
Larkin Hoffman Attorneys Named Top Lawyers by Minnesota Monthly
Blog Post
Department of Labor Restores 2019 Salary Thresholds for FLSA Exemptions
News
Craig Hardie Joins Habitat for Humanity of Minnesota Board of Directors
Blog Post
Can Employees Be Prohibited From Recording Workplace Conversations?
Blog Post
Four Months of Minnesota Paid Leave: Frequently Asked Questions
Blog Post
Why All Employers Should Understand Protected Concerted Activity
Blog Post
The FTC’s Aggressive Approach to Non-Compete Agreements
News
Larkin Hoffman Attorneys Recognized in Legal 500’s Minnesota Elite Guide