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Tuesday, July 8, 2008

Walgreens was made to part with too much green for property taxes

Two locally based firms -- James H. Gilbert Law Group and Robert Hill & Associates (both of Eden Prairie) -- scored a big victory for Walgreens today at the Wisconsin Supreme Court.

The dispute involved how the tax value of two properties leased by Walgreens for use as stores should be calculated. Under the arrangement it has used to develop thousands of sites nationwide, Walgreens leases sites from developers that buy the property and develop it to fit the retailer's highly specialized needs. The long-term leases Walgreens enters into provide for rents at substantially above market rates in order to allow the developer to recoup its capital outlay and other development costs over time. As part of the lease, Walgreens agrees to pay all property taxes.

In determining what those property taxes should be on the two properties, the city of Madison used the rent generated by the property as a means of figuring out the property's market value. However, rather than using the rent amount that the property would generate on the open market to determine the properties' worth, the city used the much higher monthly rent that Walgreen paid to the developer. The city's way of calculating property value led to a result that was much higher than Walgreens' -- approximately doubling the valuations from about $2 million each to about $4 million each.

Both the trial court and lower appellate court ruled in favor of the city's assessment.

But, in Walgreen Co. v. City of Madison, the Wisconsin Supreme Court today reversed.

"If we were to expand the law in the direction the City requests, property assessments would in essence become business value assessments, with assessors improperly equating financial arrangements with property value," wrote Judge Louis Butler for the court.

Jim Gilbert of the Gilbert Law Group called the decision "huge," given that Walgreens has thousands of stores and uses a similar lease arrangement with developers throughout the country. He noted that this decision was "closely watched" as cash-strapped municipalities look to find creative ways to fill their coffers as residential real estate values decline.

Gilbert's co-counsel on the case was Bob Hill.


Anonymous said...

This is a good thing?
I'm always suspicious of Wisconsin Supreme Court rulings since the Republicans bought the court. The corporation won- big shock.
The corporations win again and peons fight over the peanut shells they leave behind.

Mark Cohen, editor said...

Like most legal work -- whether you think it's a good thing or bad depends upon which side you are on. However, after reading the decision, I think the reasoning is pretty sound.

That said, an interesting side note is that the justice who wrote this "pro-business" decision, Louis Butler, is the justice business interests spent millions of dollars to defeat in the recent Wisconsin Supreme Court election. Butler, a Democratic appointee, leaves office at the end of this month.