Cnty. of Aitkin v. Blandin Paper Co.

• Decision Date: 17 August 2016
• Docket Number: No. A15–1666.,A15–1666.
• Parties: COUNTY OF AITKIN, et al., Relators, v. BLANDIN PAPER COMPANY, Respondent.
• Court: Minnesota Supreme Court

883 N.W.2d 803

COUNTY OF AITKIN, et al., Relators,

v.BLANDIN PAPER COMPANY, Respondent.

No. A15–1666.

Supreme Court of Minnesota.

Aug. 17, 2016.

Jay T. Squires, Rupp Anderson Squires & Waldspurger, PA, Minneapolis, MN; Michael J. Haig, Chief Assistant Itasca County Attorney, Grand Rapids, MN; James Ratz, Aitkin County Attorney, Aitkin, MN; and Nick D. Campanario, Assistant St. Louis County Attorney, Duluth, MN, for relators.

Marc A. Al, Andrew P. Moratzka, Emma J. Fazio, Stoel Rives LLP, Minneapolis, MN; and Dennis L. O'Toole, Lano, O'Toole & Bengston, Ltd., Grand Rapids, MN, for respondent.

Paul D. Reuvers, Jason J. Kuboushek, Iverson Reuvers Condon, Bloomington, MN, for amici curiae Minnesota Association of Townships, Association of Minnesota Counties, Minnesota Association of Assessing Officers, and the Minnesota County Attorneys' Association.

OPINION

DIETZEN, Justice.

Blandin Paper Company (“Blandin”) filed 156 property tax petitions to challenge the assessor's estimates of market value, for purposes of property tax assessments, for 4,680 parcels of land constituting roughly 187,000 acres of land located in Aitkin, Itasca, Koochiching, and St. Louis Counties (“the Counties”) for the January 2, 2010, and January 2, 2011, valuation dates. Before trial, the Counties moved to exclude evidence Blandin offered regarding the unit-rule method for determining the market value of the property at issue, arguing that the method was not recognized under Minnesota law and should not be admitted into evidence. The tax court denied the Counties' motion, and the consolidated cases proceeded to trial. Over the objection of the Counties, the tax court determined that the unit-rule method was admissible in property tax proceedings, adopted Blandin's appraisal values based on that method, and reduced the assessors' aggregate market value of the parcels for January 2, 2010, from $190,098,751 to $52,200,000; and for January 2, 2011, from $189,753,551 to $25,800,000. For the reasons that follow, we reverse and remand for further proceedings consistent with this opinion.

Blandin Paper Company owns and operates a paper mill located in Grand Rapids, where it manufactures lightweight coated paper used in magazines and catalogues. To provide a continuous supply of fresh wood for its manufacturing operation, Blandin owns 4,680 parcels of timberland, located in Aitkin, Itasca, Koochiching, and St. Louis Counties. The consolidated cases involve the January 2, 2010, and January 2, 2011, tax assessments based on the market values of Blandin's timberland properties.

The parcels are distributed among 78 taxing districts in the four Counties, and range in size from one-half acre to more than 600 acres, for a total combined area of about 187,000 acres. The parcels vary with respect to physical attributes such as road access, pond or stream frontage, topography, upland or lowland composition, and the amount of timber on the parcel. Blandin has not sought to combine any of the parcels for property tax purposes. Some, but not all, of the parcels are contiguous, but all of the parcels are operated as a single economic unit—namely, a managed forest that supports the operation of Blandin's paper mill.

Blandin enrolled most of its forest property under Minnesota's Sustainable Forest Incentive Act (SFIA), Minn.Stat. ch. 290C (2014), for several years, including 2010 and 2011.¹ Under SFIA, the State makes annual payments to the owners of forest land in return for the owners' agreement to practice sustainable forest management of those lands. See Minn.Stat. §§ 290C.08, subd. 1, 290C.03. To enroll in SFIA, a property owner must agree that the forest land is not and will not be developed in a manner inconsistent with SFIA requirements. Minn.Stat. § 290C.04(a). Land must be enrolled in SFIA for a minimum of 8 years, and the property owner must certify compliance with SFIA requirements annually. Minn.Stat. §§ 290C.03(a)(4), 290C.05. Under SFIA, enrollees pay local ad valorem property taxes, and later receive payments from the State. In 2009, the State reduced the funding for SFIA by capping payments at $100,000 annually, later making that cap permanent. See generally Meriwether Minn. Land & Timber, LLC v. State, 818 N.W.2d 557, 561–62 (Minn.App.2012) (explaining the SFIA program and statutory changes). As a result of this legislation, Blandin's 2010 effective property tax rate after SFIA reimbursements went from -$.30 per acre to approximately $7.91 per acre.

On July 8, 2010, Blandin granted a Conservation Easement to the State of Minnesota for its forest land.² Blandin granted to the State a perpetual Conservation Easement in and to its forest land in exchange for $43,700,000. Blandin reserved the right to sell or transfer the forest land, but Blandin's successors were bound by the terms of the agreement. Finally, the easement required Blandin's forest land to remain under unified ownership; it could not be divided for sale, lease, mortgage, or license in any other form.³

In 2010 and 2011, the County Assessors in Itasca, St. Louis, Aitkin, and Koochiching Counties followed the statutory procedures for valuing and assessing each of the parcels that is the subject of this appeal. See Minn.Stat. §§ 273.11, .12 (2014). According to the County Assessors, the aggregate value of Blandin's parcels totaled $190,098,751 for the 2010 assessment, and $189,753,551 for the 2011 assessment. Blandin subsequently filed 156 petitions challenging those valuations. These petitions alleged (1) that the assessors' cumulative estimated fair market value for the parcels exceeded the actual market value of the single economic unit represented by Blandin's forest land; and (2) that Blandin's parcels were unequally assessed as compared with other properties. The tax court consolidated the petitions for trial.

Before trial, the parties exchanged appraisal reports that addressed the market value of the parcels as of January 1, 2010, and January 1, 2011. Both appraisers defined the subject property as Blandin's entire 187,000–acre, 4,680–parcel forest. Both appraisers determined the “highest and best use” of the property was sustainable timber production.⁴ The Counties' appraiser, Maxwell Ramsland, used a model to estimate the value for each individual parcel included in the subject property. Blandin's appraiser, Bret Vicary, estimated the market value of the fee simple interest in the subject property as a single economic unit based on his conclusion that the most likely purchaser of the property would be an institutional investor that would purchase the property as a single economic unit. Then, after considering comparable transactions involving forest land in other locations to determine an aggregate value for the property, Vicary used timberland inventory data (and in 2010, a factor to represent best-use potential value) to allocate a portion of the subject property's overall value to each of the four Counties, based on an average per-acre price. Vicary's appraisal method was referred to initially as a “larger-parcel rule” and later as the “unit-rule method.”

The Counties filed a motion in limine to exclude Vicary's appraisal evidence, arguing that his unit-rule method is per se prohibited by Minnesota law, including by the tax uniformity requirement of Article X, Section 1 of the Minnesota Constitution and the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. The tax court denied this motion, and then, because Vicary's appraisals would be admitted at trial, denied the Counties' motion for summary judgment.

At trial, Vicary testified, consistent with his appraisal report, that the highest and best use of the subject property was sustainable timber production, that the subject property should be valued as a single economic unit, and that the resulting aggregate value should be allocated to each County. Vicary testified that the aggregate value of the subject property for the 2010 valuation date was $52,200,000 or $278 per acre, and for the 2011 valuation date was $25,800,000 or $138 per acre. The difference in value between the two assessment dates, according to Vicary, was due in part to the Conservation Easement. Vicary also presented evidence that the value of standing timber is a factor in determining the value of the property on which the timber grows. Consequently, Vicary used timberland inventory data (and in 2010, a factor to represent value for potential non-timberland use in a small percentage of the total property) to allocate the aggregate value into separate values for each of the four Counties.⁵

Ramsland's report for the Counties stated that the aggregate value of the subject property was approximately $177,000,000 for the 2010 valuation date, and $129,000,000 for the 2011 date.⁶ Ramsland considered comparable sales transactions, then relied upon mass appraisal techniques to determine the value of each of the 4,860 parcels based upon their individual characteristics, such as location, road access, and size.⁷

Following trial, the tax court concluded that Blandin presented sufficient evidence to overcome the prima facie validity of the assessors' estimated market value of the property, and to determine a market value for each parcel. The tax court ordered further proceedings to determine whether extending Vicary's allocation method to compute a per-acre value for each of the affected 78 taxing districts (rather than merely the four affected counties) would materially increase the accuracy of the final market value determinations using Blandin's unit-rule method. The tax court directed Vicary to supplement his report by computing a per-acre value for 12 of the 78 affected taxing districts. After receiving the parties' submissions on this issue, the tax court held a further hearing to consider Vicary's supplemental report and computations.

On June 16, 2015, the tax court filed findings of fact, conclusions of law, and an order for judgment. The...