March 22, 2018 – Between 2008 and 2014, the City of Milwaukee’s tax assessments on oil terminals located in the city were between $16 million and $23 million per year. Recently, the oil companies that challenged the assessments lost their appeal.
Marathon Petroleum Company LP and U.S. Venture Inc. (the Oil Companies) are the owners of two oil terminals at the Granville Terminal Complex, which stores gas and diesel fuel that ultimately serves all of southeastern Wisconsin. They filed separate actions, alleging the city’s assessments were excessive, exceeding fair market value.
They sought refunds between $1.4 and $1.7 million. The cases proceeded to a bench trial, where opposing experts gave highly inconsistent valuations.
For instance, the city valued one oil terminal at $17.4 million in 2010. The Oil Companies’ expert valued the terminal at $8 million that year, a $9.4 million difference.
The trial court found that the city assessor’s appraisal methodology conformed to Wisconsin law and the Wisconsin Property Assessment Manual. The city assessor had used a mass appraisal method to reach assessment numbers for 2008 to 2014.
In Marathon Petroleum Co. LP v. City of Milwaukee, 2016AP939 (March 20, 2018), a three-judge panel for the District I Appeals Court affirmed, ruling the Oil Companies did not overcome a presumption of correctness with significant contrary evidence.
The Oil Companies argued, the panel noted, that the city’s assessments improperly included the value of income-generating capability based on terminalling agreements. That is, they argued the city included “non-assessable intangible value.”
But the panel said the value of the contracts appertains to the property, meaning they are transferable with the property. “[T]he concept that income generating-capability of property can be inextricably intertwined with the land and appertained to the property is well developed in Wisconsin case law,” wrote Judge Timothy Dugan. “This income may then be included in the land’s assessment … because it appertains to the land.”
The Oil Companies argued the “inextricably intertwined test” does not reach complex business transactions with intangible value and the test is reserved for an income and cost analysis (Tier 3) used when a comparable sales analysis (Tier 2) is not possible.
“[W]e reject the Oil Companies’ argument that the inextricably intertwined test applies only to a Tier 3 income approach analysis and hold that the … test also applies to a Tier 2 analysis for valuing real property for tax assessment purposes,” Judge Dugan wrote.
In making the assessments, the city assessor relied on recent comparable sales of other Granville terminals to value the real estate, but also looked at income value.
The panel also rejected the argument that the sale of oil terminals involve complex corporate business contracts, such as “throughput agreements,” and the value of those business contracts are separate from the value of the real estate that is sold.
“We hold that throughput agreements are not separate intangible business contracts,” wrote Dugan, noting that income from contracts is tied to the land. “They are inextricably intertwined with the land and, thus, transferable to future purchasers of the land.”
In essence, the contracts would have no independent value unless tied to the terminals, which receive gasoline products through an underground pipeline at that location.
Supreme Court Upholds Mass Appraisal in Property Tax Assessment Case – WisBar News (Feb. 2, 2018)