Guardian Energy, LLC v. Cnty. of Waseca, s. A14–1883

• Decision Date: 12 August 2015
• Docket Number: Nos. A14–1883,A14–2168.,s. A14–1883
• Citation: 868 N.W.2d 253
• Parties: GUARDIAN ENERGY, LLC, Relator, v. COUNTY OF WASECA, Respondent.
• Court: Minnesota Supreme Court

868 N.W.2d 253

GUARDIAN ENERGY, LLC, Relator
v.
COUNTY OF WASECA, Respondent.

Nos. A14–1883
A14–2168.

Supreme Court of Minnesota.

Aug. 12, 2015.

Thomas R. Wilhelmy, Jennifer A. Kitchak, Fredrikson & Byron, P.A., MN, Minnesota, for relator.

Marc J. Manderscheid, Michael M. Sawers, Briggs and Morgan, P.A., Minneapolis, MN; and Brenda Miller, Waseca County Attorney, Waseca, MN, for respondent.

Robert Small, Executive Director, Minnesota County Attorneys Association, Saint Paul, MN; and John March, Senior Hennepin County Attorney, Jane N.B. Holzer, Thomas F. Pursell, Assistant Hennepin County Attorneys, Minneapolis, MN, for amicus curiae Minnesota County Attorneys Association.

OPINION

WRIGHT, Justice.

In a proceeding before the Minnesota Tax Court, relator Guardian Energy, LLC, challenged respondent Waseca County's assessment of the value of its ethanol-production facility. In this appeal from the tax court's order for judgment, Guardian Energy argues that the tax court erred by (1) classifying 27 tanks¹ used in the ethanol-production process as taxable real property and (2) determining the fair market value of the property based on an analysis of external obsolescence that is unsupported by the record. We affirm the

868 N.W.2d 256

tax court's determination that the tanks are taxable real property. But because the tax court failed to adequately explain its calculation of external obsolescence, and based that calculation on an analysis that is not supported by the record, we vacate the tax court's valuation of the facility and remand for further proceedings.

I.

The property at issue in this appeal is Guardian Energy's ethanol-production facility located on 141 acres in Janesville. The plant converts field corn into ethyl alcohol (ethanol). Guardian Energy, a joint venture of six midwestern ethanol entities, purchased the nearly completed plant in 2009 for $92 million after the former owners filed for bankruptcy during its construction. Guardian Energy completed construction of the plant and commenced operations in October 2009. The property consists of three adjoining tax parcels that contain an industrial complex of buildings, tanks, distillation columns, wells and septic systems, a rail spur, and other land improvements.

The Waseca County Assessor estimated that the market value of the property was $24,167,100 as of January 2, 2009; $22,157,600 as of January 2, 2010; and $26,564,200 as of January 2, 2011. Guardian Energy challenged the assessments by filing timely petitions with the tax court. See Minn.Stat. § 278.01, subd. 1 (2014). In 2012, the parties filed cross-motions for partial summary judgment to resolve whether certain tanks at the plant were taxable. After a two-day hearing in January 2013, the tax court concluded that the disputed tanks were taxable real property² within the meaning of Minn.Stat. § 272.03, subd. 1 (2012).³ The matter proceeded to trial in February 2014 to determine the fair market value of Guardian Energy's facility, and both parties introduced expert appraisal testimony. Guardian Energy's expert, Robert Strachota of the Shenehon Company, valued the property at $20,320,000 as of January 2, 2009; $20,120,000 as of January 2, 2010; and $19,690,000 as of January 2, 2011. Waseca County's expert, Clay Dodd of Patchin Messner Dodd & Brumm, valued the property at $26,590,000 as of January 2, 2009; $29,100,000 as of January 2, 2010; and $33,990,000 as of January 2, 2011.

After receiving the parties' post-trial briefs, the tax court issued its findings of fact and conclusions of law in September 2014. Following Guardian Energy's motion for amended findings of fact, conclusions of law, or new trial, the tax court issued amended findings of fact, conclusions of

868 N.W.2d 257

law, and an order for judgment in December 2014.⁴ The tax court determined that the fair market value of the property was higher than the parties' appraisal evidence presented at trial. See Guardian Energy, LLC v. Cty. of Waseca, No. 81–CV–10–365, 2014 WL 7476215 (Minn.T.C. Dec. 9, 2014).

A summary of the fair market values, as proposed by the parties and as found by the tax court, is as follows:

Year	County Assessment	Guardian Energy's Expert at Trial	County's Expert at Trial	Tax Court Amended Order
2009	$24,167,100	$20,320,000	$26,590,000	$36,379,100
2010	$22,157,600	$20,120,000	$29,100,000	$34,834,200
2011	$26,564,200	$19,690,000	$33,990,000	$38,593,000

In determining the fair market value, the tax court used a cost approach to valuation that considered the value of the land, plus the replacement cost of the improvements to the land, with deductions for depreciation based on external obsolescence.⁵ The tax court's estimated replacement cost for the real property, the replacement cost new (RCN), was within the ranges of the replacement costs calculated by the appraisers. However, in deducting for external obsolescence, the tax court rejected the analysis of both parties' appraisers and calculated a level of external obsolescence that was considerably lower than the estimates that Guardian Energy and the County submitted at trial. This calculation resulted in a final assessed value for each tax year that was significantly higher than the values proposed by either party. Guardian Energy sought review by our court, challenging the tax court's determination that the tanks on the property are taxable real property and the tax court's calculation of external obsolescence.

Our review of the tax court's decision is limited to determining whether the tax court had jurisdiction, whether its decision is supported by the evidence, and whether it committed an error of law. 444 Lafayette, LLC v. Cty. of Ramsey (444 Lafayette II), 830 N.W.2d 25, 29 (Minn.2013) ; see Minn.Stat. § 271.10, subd. 1 (2014). We review the tax court's legal conclusions de novo, but we defer to the tax court's market value determinations unless they are clearly erroneous. See Eden Prairie Mall, LLC v. Cty. of Hennepin (Eden Prairie II), 830 N.W.2d 16, 20 (Minn.2013) ;

868 N.W.2d 258

Cont'l Retail, LLC v. Cty. of Hennepin, 801 N.W.2d 395, 398 (Minn.2011). The tax court's value determinations are clearly erroneous when they are not reasonably supported by the record as a whole. Equitable Life Assurance Soc'y of the U.S. v. Cty. of Ramsey, 530 N.W.2d 544, 552 (Minn.1995). Accordingly, we will not defer “to the tax court's valuation determination when the tax court has clearly misvalued the property or has failed to explain its reasoning.”Cont'l Retail, LLC, 801 N.W.2d at 399.

II.

We first address Guardian Energy's argument that the tax court erred when it determined that certain tanks at the facility are taxable real property.⁶ The tax court began its valuation analysis by identifying the structures on the land that are subject to taxation. Although the parties agreed that the land and the buildings on the land are taxable real property, they disagreed about whether 27 tanks are taxable. The disputed tanks serve various functions in the ethanol-production process and, in general, are bolted to or sit on concrete foundations or piers. The tax court concluded that all of the disputed tanks are taxable real property. Guardian Energy, LLC v. Cty. of Waseca, No. 81–CV–10–365, 2013 WL 8719413 (Minn.T.C. July 9, 2013).

All real and personal property is taxable unless otherwise exempt. Minn.Stat. § 272.01 (2014). Minnesota Statutes § 272.03, subd. 1(a) (2012), broadly defines “ ‘real property’ ” for taxation purposes as “the land itself ... and all buildings, structures, and improvements or other fixtures on it.” See also S. Minn. Beet Sugar Coop v. Cty. of Renville (SMBSC), 737 N.W.2d 545, 551 (Minn.2007). However, the tools, machinery, and equipment used in the property's production activity or business are excluded from the definition of real property. Minn.Stat. § 272.03, subd. 1(c)(i). But this exclusion for equipment and machinery does not apply to structures with exterior shells that have “structural,

868 N.W.2d 259

insulation, or temperature control functions or provide[ ] protection from the...