“Creative financing” argument fails in property tax
assessment case against Milwaukee
A limited partnership argued that sale-leaseback transactions involving
"creative financing" inflated property sales prices. But the
appeals court sided with the City of Milwaukee, which assessed property
taxes based on the arm's length sales transactions.
By Joe Forward, Legal Writer,
State Bar of Wisconsin
Dec. 17, 2010 – A
limited partnership that claimed property sale prices in Milwaukee were
inflated to account for “creative financing” in
sale-leaseback transactions recently lost its appeals fight for tax
refunds assessed by the City of Milwaukee.
Great Lakes Quick Lube LP (Great Lakes) acquired rights to purchase 47
Valvoline Instant Oil change businesses, located on 29 parcels of real
estate, for $26.6 million in 2004. Great Lakes assigned the real estate
purchase rights to CRIC Great Lakes Acquisition LLC (CRIC).
In 2004, the parties agreed that CRIC would lease the real estate to
Great Lakes for rent. The agreement stated that it was a “true
lease” and not representative of a “financing
arrangement.” Three of the real estate parcels are located in the
City of Milwaukee.
CRIC filed Wisconsin Real Estate Transfers Returns (WRETR) for the
three acquired properties, and a fourth acquired in 2005, reporting the
sale price of each property.
The returns did not indicate whether the transfers involved financing.
The sale price for all four properties totaled approximately $4.067
In 2005 and 2006, CRIC sold the four real estate properties and again
filed WRETRs for each of the sales. CRIC reported the sale price for all
four properties at approximately $4.73 million.
The City of Milwaukee used the sale amounts to determine the property
tax assessments on each of the four properties for both 2006 and 2007.
Great Lakes paid the taxes and sued for a refund, claiming the taxes
were excessive based in light of actual fair market value.
At trial, Great Lakes argued that its sale-leaseback transaction
required “creative financing” and as a result, sale prices
were inflated. Great Lakes argued that taxes should have been assessed
at approximately $1.144 million, the total fair market value of all four
properties. The city assessed taxes for both 2006 and 2007 based on a
total fair market value of about $4.4 million.
Assessment was proper
In Great Lakes Quick Lube, LP v. City of Milwaukee, 2009AP2775
(Dec. 14, 2010), the District I Wisconsin appeals court held that the
city’s assessments were correct based on the methodology required
by Wis. Stat section 70.32(1) and the Property Assessment Manual.
Under the manual, an arm’s length sale is the best evidence of
the property’s true cash value. If no recent sale has occurred,
the assessor examines comparable properties. If no comparable properties
exist, an assessor may use a third-tier assessment methodology.
The property sale prices were inflated because of “creative
financing arrangements,” Great Lakes argued, which disqualified
those sales as a proper basis for appraisal. Specifically, Great Lakes
argued that the sale-leaseback arrangement inflated the sales price
because “the leases involved above market rate rents.”
Great Lakes’ appraisal expert examined “market rents”
to value the property and calculated property value based on a belief
that the original transactions involved sale-leasebacks. The city based
its property value assessment on sale prices of the properties, and
The appeals court agreed with the circuit court that there were no
sale-leasebacks or creative financing costs that pushed the leases
beyond market rates.
Thus, the court held that the trial court “properly rejected
[Great Lakes’] formula because there were recent arm’s
length sales of the subject properties.”
The appeals court also rejected Great Lakes’ constitutional
Uniformity Clause challenge. Art. VIII, section 1 of the Wisconsin
Constitution provides that cities, villages, and towns can collect
uniform taxes on real estate through optional methods. The modes or
methods of taxing real property must be applied uniformly.
“[T]here is no evidence that all other similarly zoned properties
were systematically assessed at less than fair market value,”
Judge Joan Kessler wrote.