Court Office of Appellate Courts
J. Magnuson, Katherine S. Barrett Wiik, Robins Kaplan L.L.P.,
Minneapolis, Minnesota; and Robert A. Hill, Robert Hill Law,
Ltd., Maplewood, Minnesota, for relator.
J. Melton, Clay County Attorney, Jenny M. Samarzja, Chief
Assistant County Attorney, Moorhead, Minnesota; and Thomas J.
Radio, Felhaber Larson P.A., Minneapolis, Minnesota, for
no part, Stras, J.
tax court's finding that the highest and best use for the
taxpayer's property was continued use as a big-box retail
store was well supported by the record.
tax court's depreciation calculations using the cost
approach were supported by the evidence in the record.
tax court's determination that only three of the
comparable sales offered by the parties were truly comparable
was supported by the record.
tax court's use of the cost approach and the way it
weighted the cost and sales comparison approaches were within
the tax court's broad discretion for determining the
property's value because, whenever possible, the tax
court should employ at least two methods to determine
property value and a final determination of value may require
that one approach be given greater emphasis.
and decided by the court without oral argument.
Menard, Inc. appealed to the tax court from respondent Clay
County's assessment of the market value of Menard's
Moorhead home improvement retail store for the assessment
dates of January 2, 2011; January 2, 2012; January 2, 2013;
and January 2, 2014. Following a trial, the tax court adopted
market valuations below the County's assessment values
but above Menard's expert appraiser's valuation.
appeal from the tax court's final order and judgment,
Menard asserts that the tax court erred in several respects:
(1) the tax court rejected Menard's expert
appraiser's highest and best use determination, (2) the
tax court made improper calculations when it determined the
fair market value of the property using the cost approach,
(3) the tax court used a "de facto averaging" of
the cost approach and the sales comparison approach when it
determined the fair market value of the property, and (4) the
tax court failed to adequately explain its reasoning.
County also appealed, asserting that the tax court erred in
its calculations and conclusions of value using the sales
comparison and cost approaches. Because the tax court did not
err in its findings and did not fail to adequately explain
its reasoning, we affirm the tax court's value
appeal concerns the tax value of a Menards home improvement
retail store in Moorhead as of January 2, 2011 through
January 2, 2014. The store is located on a parcel of
approximately 771, 350 square feet with two structures. The
first structure, the main building, consists of a
single-story heated retail space with an additional mezzanine
space and a covered and unheated garden center. The second
structure is an open-air detached shed, used as a warehouse.
Built in 2007, the structures were in good condition as of
each assessment date, and are visible and accessible from the
nearby interstate highway. The Clay County Assessor valued
the property at $11, 200, 000 for all four assessment dates.
Menard challenged these assessments, and a trial ensued
before the tax court.
retained Michael MaRous to prepare an appraisal and opinion
as to market value, and Timothy Vergin prepared an appraisal
and opinion as to market value on behalf of the County.
MaRous conducted a sales comparison analysis and an income
capitalization analysis as part of his appraisal, but
ultimately relied on the sales comparison approach in his
final valuation reconciliation. Vergin conducted a sales
comparison analysis, an income capitalization analysis, and a
cost analysis, assigning one-third weight to each approach in
his final valuation reconciliation. In their valuation
conclusions, the appraisal experts differed as to a key
point: the highest and best use of the subject property.
MaRous concluded that the property was not viable as
a big-box retail store if sold by Menard, while Vergin
concluded that the property was viable as a big-box retail
that Menard overcame the prima facie validity of the Clay
County Assessor's valuation, the tax court then
considered the appraisal opinions of each expert. The tax
court rejected Menard's highest and best use
determination and instead adopted the County's view that
the highest and best use of the property as-vacant was
commercial property and as-improved was continued use as a
big-box retail store. The tax court rejected the County's
income capitalization analysis. After rejecting most of the comparable
sales used in the parties' sales comparison analyses, and
making adjustments to the sales price of the remaining
comparables, then making adjustments to the parties' cost
analyses, the tax court gave its cost approach calculation a
60-percent weighting and its sales comparison approach a
40-percent weighting for appraisal years 2011 and 2012. The
tax court assigned each approach a 50-percent weighting for
valuation years 2013 and 2014.
parties moved for amended findings of fact and conclusions of
law, but the tax court adjusted its order only to account for
inaccurate calculations for physical deterioration and to
grant Menard its unopposed request for equalization relief.
The assessed values, appraised values, and the tax
court's values for the property are as follows:
County's Appraiser (Vergin)
Menard's Appraiser (MaRous)
Tax Court Order
Tax Court Amended Order
$11, 200, 000
$12, 000, 000
$4, 000, 000
$7, 432, 100
$7, 516, 600
$11, 200, 000
$12, 300, 000
$4, 000, 000
$7, 585, 800
$7, 681, 300
$11, 200, 000
$12, 500, 000
$4, 000, 000
$7, 219, 000
$7, 331, 300
$11, 200, 000
$12, 700, 000
$4, 000, 000
$7, 393, 600
$7, 556, 200
appealed the tax court's decision, arguing that the tax
court erred in rejecting MaRous's highest and best use
determination, in its cost approach calculations, in
averaging the sales comparison and cost approaches, and in
failing to adequately explain its reasoning. The County also
appealed, contending that the tax court erred in accepting
parts of MaRous's appraisal report and testimony, in
excluding post-sale expenditures and other comparable sales
in its sales comparison approach, and in excluding indirect
soft costs in its cost approach.
review of [a] final order of the tax court is limited."
S. Minn. Beet Sugar Coop v. Cty. of Renville, 737
N.W.2d 545, 551 (Minn. 2007). We will not overturn a tax
court's valuation unless the valuation is clearly
erroneous. Equitable Life Assurance Soc'y of U.S. v.
Cty. of Ramsey, 530 N.W.2d 544, 552 (Minn. 1995). The
tax court's valuation is clearly erroneous when "the
evidence as a whole does not reasonably support the decision,
" Lewis v. Cty. of Hennepin, 623 N.W.2d 258,
261 (Minn. 2001), and we are "left with a 'definite
and firm conviction that a mistake has been committed, '
" KCP Hastings, LLC v. Cty. of Dakota, 868
N.W.2d 268, 273 (Minn. 2015) (quoting Equitable Life
Assurance Soc'y, 530 N.W.2d at 552).
deferential review is rooted in the separation of powers and
the inexact nature of real estate appraisal. Cont'l
Retail, LLC v. Cty. of Hennepin, 801 N.W.2d 395, 399
(Minn. 2011). We have accepted even abbreviated explanations
of the tax court's reasoning. See Kohl's
Dep't Stores, Inc. v. Cty. of Washington, 834 N.W.2d
731, 734-35 (Minn. 2013); Harold Chevrolet v. Cty. of
Hennepin, 526 N.W.2d 54, 58 (Minn. 1995) ("The
inexact nature of property assessment necessitates that this
court defer to the decision of the tax court."). We will
reject the tax court's reasoning, however, when the tax
court's decision is "clearly against the weight of
the evidence, " Am. Express Fin. Advisors, Inc. v.
Cty. of Carver, 573 N.W.2d 651, 659 (Minn. 1998), or the
tax court has "completely failed to explain its
reasoning, " Nw. Nat'l Life Ins. Co. v. Cty. of
Hennepin, 572 N.W.2d 51, 52 (Minn. 1997).
first consider the tax court's rejection of Menard's
highest and best use determination. All property must be
valued at its market value, Minn. Stat. § 273.11, subd.
1 (2014), which is the "usual selling price at the place
where the property . . . shall be at the time of assessment,
" Minn. Stat. § 272.03, subd. 8 (2014).
"Appraisers must perform a highest and best use analysis
when appraising commercial real estate." Berry &
Co. v. Cty. of Hennepin, 806 N.W.2d 31, 34 (Minn. 2011).
Thus, the market value of property requires consideration of
the property's highest and best use. Cty. of Aitkin
v. Blandin Paper Co., 883 N.W.2d 803, 810 (Minn. 2016);
see also Appraisal Institute, The Appraisal of
Real Estate 332 (14th ed. 2013) (explaining that a
property's highest and best use is "[t]he reasonably
probable use of property that results in the highest
value"). The highest and best use of a property is the
one that is physically possible, legally permissible,
financially feasible, and maximally productive. Cty. of
Aitkin, 883 N.W.2d at 810.
and best use analysis can be approached in two ways. The
first assumes that the property is vacant or can be made
vacant by demolishing present improvements. Appraisal
Institute, supra, at 336; see also Ferche
Acquisitions, Inc. v. Cty. of Benton, 550 N.W.2d 631,
634 (Minn. 1996) (explaining that highest and best use can
consider "whether it would be best to sell [the
property] vacant on the open market"). The second,
"as-improved, " focuses on the use of the property
that should be made with its current improvements. Appraisal
Institute, supra, at 336. As-improved analysis is
narrower, focusing on whether to retain, modify, or demolish
existing improvements. Id.
experts provided opinions on the highest and best use of
Menard's property "as-vacant" and
"as-improved." MaRous found that the highest and best use
of the property as-improved was continued use as a
single-tenant retail building with Menard as its
occupant-owner. But if Menard were to vacate the property,
MaRous concluded that it was "highly likely the building
would remain vacant." In other words, continued use as a
big-box retail store was not viable for the property if
Menard left. In reaching this conclusion, MaRous considered
national economic conditions and trends, particularly
regarding big-box retailers. These considerations include a
nationwide oversupply of big-box properties; the impact of
the 2008 recession on big-box retailers; a trend away from
big-box retail, in part because ...