Wisconsin ~ Property Tax: Section 42 Apartments Were Overvalued

The Wisconsin Supreme Court has reversed a Court of Appeals decision that had upheld assessments of Section 42 apartment buildings for Wisconsin property tax purposes. In calculating the property’s net operating income for 2012 under the mass appraisal technique, the city’s appraiser used market-rate vacancy and expenses, rather than the vacancy and expense projections that were specific to the subject property. That approach failed to account for differences in federally regulated housing and distorted the actual value of the property. Projected expenses and income were available for the property in question, but the city chose not to use that information. Accordingly, the city did not comply with the law, because it did not use the best information that was available to its assessors. In addition, the assessors used a capitalization rate derived from market-rate properties, when they should have used a market for Section 42 properties to determine the capitalization rate. For 2013, the city applied a comparative sales approach for its assessment. However, the taxpayer successfully argued that the properties relied on, i.e. primarily Section 8 properties, were not reasonably comparable to the subject property. The Wisconsin Supreme Court noted that Section 42 and Section 8 are very different subsidized housing programs, with different risks for the owners. The sales relied on by the assessors were not representative of reasonably comparable arm’s-length sales, as required by the law. Further, when valuing the property, the assessors did not consider the different restrictions required by federal regulations. The court concluded that the taxpayer not only overcame the presumption of correctness for the assessments but also proved that the assessments were excessive. The case was remanded to the circuit court for a determination of the applicable refund amount due.

Regency West Apartments LLC v. City of Racine, Wisconsin Supreme Court, No. 2014AP2947, December 22, 2016, ¶402-120

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