In several cases over the past few years, the Minnesota Tax Court has found a taxable property value higher than the amounts presented in witness testimony from either side of a tax argument.

Because the Tax Court has the power to increase values as well as decrease them, this trend has raised concerns when considering whether a case should be taken to trial. However, a Minnesota Supreme Court opinion issued this year suggests that the Tax Court’s decisions in the future are more likely to reflect facts presented in testimony.

Legal showdown

The pivotal decision stems from Eden Prairie Mall, LLC vs. County of Hennepin in which the Minnesota Supreme Court rejected the Tax Court’s value increase for a recently renovated mall from $90 million to $122 million.

The Supreme Court has said the Minnesota Tax Court cannot simply copy a county attorney’s memorandum — including arithmetic mistakes — when deciding to find a value for a property that is higher than that testified to by either appraiser.

Both the taxpayer and government presented appraisals prepared by independent appraisers who had earned the MAI designation from the Appraisal Institute. (The professional accreditation refers to “Member, Appraisal Institute.”)

The diverse appraisal testimony included value opinions for Jan. 2, 2005, and for Jan. 2, 2006, as a separate value must be found for each year in Minnesota.

The taxpayer’s appraiser relied exclusively on an income approach, citing the lack of comparable sales, and testified to a value of $68.75 million in 2005 and a value of $60.55 million in 2006.

The original assessments being appealed put the mall’s market value at $90 million in 2005, increasing to $100 million in 2006. The government’s appraiser gave most weight to the income approach, testifying to a value of $110 million in 2005 and $115 million in 2006. Neither appraiser prepared a discounted cash flow analysis.

The judge based her decision on a direct-capitalization income approach, finding that the government’s cost and sales approaches were not meaningful given the recent major renovation of the mall. The Tax Court found the value of the mall to be $122.9 million the first year and a slightly lower $120.1 million for the later assessment.

In the decision, the Tax Court adopted an argument made by the government’s attorney, which resulted in the indicated value being higher than that found by the government’s appraiser. Like the government’s attorney, the court stated that the government’s appraiser had made a mistake in his calculations.