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Menards seeks remedy at Supreme Court over tax assessment

October 17, 2017

Article courtesy of MIRS News Service

Menards Inc.’s attorney asked the Michigan Supreme Court to find the Court of Appeals erred when it overturned a Tax Tribunal’s decision that it owed less taxes than the city of Escanaba levied. 

Attorney John PIRICH, of Honigman Miller Schwartz & Cohn, who represents Menards, said Thursday the appeals court exceeded its scope of review by “substituting its own views regarding the weight to be accorded to the evidence … and the credibility of the witnesses.” 

The case originated when Escanaba valued Menards’ freestanding “big box” retail store’s “true cash value” for property tax assessment at $8 million, based on a cost approach. 

Menards challenged the assessment, presenting an expert appraiser who valued the property at about $3.3 million, based largely on a sales-comparison approach based on what the building would be worth if it were empty.

The Michigan Tax Tribunal in 2014 rejected the city’s valuation, prompting the city of Escanaba to appeal. The case is being closely watched by municipal government officials and retailers alike due to its sweeping impact on box store property assessments and local government revenue.

The appeals court ruled in favor of the city in May 2016, saying there were flaws in the valuation approaches by both parties and it instructed the Tax Tribunal to take additional evidence before issuing a tax assessment decision. 

Justice Richard BERNSTEIN questioned the complexity of Menards’ appraisal. 

Pirich replied there was “nothing inappropriate” with comparing it. The store’s appraiser looked at comparables in size and significance to the Escanaba parcel. 

“The Tribunal found Menards’ appraiser to be credible,” he said. “It’s clear the Court of Appeals exceeded its scope of review.” 

Jack VAN COEVERING, an attorney with Foster Swift Collins & Smith in Grand Rapids, who represents the city, argued there was no functional obsolescence because another purchaser would use the building in a similar format. He said whether the value of functional obsolescence was zero or 10, the Tribunal was required to determine what amount existed. 

“There’s a characterization here of the Court of Appeals decision as somehow ignoring the weight and credibility that this Tax Tribunal judge apparently gave to certain evidence,” he said.

Pirich argued the city assessor “made no attempt” to account for obsolescence, either functional or economic, and it must be accounted for when using a cost-approach methodology. 

The obsolescence is the difference between what something would cost to replace and what the market would pay for it. 

Van Coevering said the obsolescence is not identified or addressed in the appraisal or trial. 

“We don’t know what aspects of this building are not suitable for use in the market and we have no idea what economic influences would have created or rendered a discount to the property as it existed,” he said.

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