State ex rel. Ft. Howard Paper Co. v. State Lake Dist. Bd. of Review

Decision Date07 March 1978
Docket NumberNo. 77-042,77-042
Citation82 Wis.2d 491,263 N.W.2d 178
PartiesSTATE ex rel. FORT HOWARD PAPER COMPANY, Petitioner-Appellant, v. STATE of Wisconsin LAKE DISTRICT BOARD OF REVIEW, Defendant-Respondent.
CourtWisconsin Supreme Court

Michael R. Wherry (argued), Jerry A. Edgar and Mulcahy & Wherry, S. C., Milwaukee, on brief, for petitioner-appellant.

John J. Glinski, Asst. Atty. Gen. (argued), and Bronson C. La Follette, Atty. Gen., on brief, for defendant-respondent.

DAY, Justice.

This is an appeal from a judgment dismissing a writ of certiorari and affirming the decision of the State of Wisconsin Lake District Board of Review (hereafter board). The board set the petitioner-appellant, Fort Howard Paper Company's (hereafter petitioner) 1975 real property improvement valuation at $27,000,000. The petitioner contends that the valuation was erroneous because the board failed to consider excess operating costs and certain market adjustments in arriving at its appraisal of valuation. The petitioner also contends that sec. 70.995(7)(b), Stats. (1975) and the board's valuation contravened the uniformity of taxation and equal protection clauses of the Wisconsin Constitution and the equal protection clause of the United States Constitution. The petitioner's constitutional arguments are based on allegations that the 1975 valuation resulted in the petitioner paying a disproportionate amount of real property taxes in the city of Green Bay and in the Northeast Vocational, Technical and Adult Education District.

The issues are as follows:

I. In reviewing the evaluation of the petitioner's manufacturing property, did the board act beyond its jurisdiction because there was insufficient evidence to provide any substantial basis for the board's decision?

(a) Did the board erroneously fail to consider the petitioner's excess operating costs?

(b) Did the board erroneously fail to consider market adjustments to five of the petitioner's buildings?

II. Did the petitioner prove that the 1975 valuation of its manufacturing property caused the petitioner to bear a disproportionate amount of the Green Bay or Lake District property tax in violation of the uniformity of taxation clause of the Wisconsin Constitution?

III. Does sec. 70.995(7)(b), Stats. (1975) contravene the equal protection provisions of the Wisconsin or United States Constitution because it allows for a phased in reassessment of all Wisconsin manufacturing property over a period of four years?

Applicable Statute.

Sec. 70.995, Stats. provides in pertinent part as follows:

"70.995. State Assessment Of Manufacturing Property. . . . (7) . . . (b) In making the May 1, 1974, manufacturing property assessment of any city, village or town, the department of revenue shall equalize the assessment of all manufacturing property within each city, village or town. Thereafter, the department of revenue shall revalue each year as many taxation districts as the available staff will permit so as to bring and maintain each property assessment within such taxation district at full value pursuant to ss. 70.32(1) and 70.34. The department of revenue shall proceed with such work so as to complete and maintain the reevaluation of all manufacturing property in the state every 4 years. . . ."

On August 2, 1975 the petitioner received its 1975 assessment for real property improvements located in the City of Green Bay. The amount of the assessment for the seventy buildings in question was $30,500,000. The structures had a book value in May 1975 of $15,669,235, and an actual cost of $23,694,688. The buildings are located on approximately 100 acres of land, and comprise a paper mill having a production output of 800 tons per day. The same improvements had been assessed by the Wisconsin Department of Revenue at $18,183,874 in 1974, the year in which the department took over the state-wide assessment of all manufacturing property from local assessors pursuant to sec. 70.995, Stats. (1975).

The net increase (after subtracting $1,900,000 for new construction during 1975) exceeded $10,000,000. The 1975 assessment represented a fifty-seven percent increase for the same improvements over the preceding year's assessment.

Before the State of Wisconsin took over manufacturing property assessments in 1974, the local assessor for the City of Green Bay had conducted all of the annual property tax assessments within the city. He had made on-site inspections of the petitioner's property in 1969, 1971, 1972 and 1973 for the purpose of making annual property tax assessments.

The petitioner's property is located in the Wisconsin Department of Revenue's Lake District that covers seventeen counties located in the north central and northeastern sections of the State. This district includes Brown County. In 1974 only a few reassessments of manufacturing property were made in the Lake District to establish the initial values for new construction. On-site appraisals of manufacturing property began in 1975. Within that district, in 1975, only manufacturing property in Brown and Winnebago Counties were on-site inspected.

Fifteen to sixteen percent of the total Lake District manufacturing property was on-site inspected in 1975. The remaining eighty-four to eighty-five percent was maintained at 1974 assessed values with additions made for new construction during the preceding year for "economic increases" reflective of the increase in basic construction costs from 1974 to 1975. Something in excess of fifty percent of the non-inspected manufacturing property received economic increases ranging from zero to fifteen percent, with the norm being seven and one-half percent. Much of the non-inspected manufacturing property received no economic increases.

Petitioner's property was inspected in March of 1975 by Thomas Smith and two other Department of Revenue employees. They conducted their inspection of the buildings on March 6, and 7, 1975. The inspection process for appraisal of the seventy buildings took between five and one-half and seven hours. 1

In July of 1975, American Appraisal Company was retained by the petitioner to make an appraisal of the petitioner's improvements for property tax purposes. The inspection of the buildings began in late July. One appraiser worked three weeks, and another two weeks, on the on-site portion of the appraisal. In its final appraisal report American Appraisal determined the fair market value of the improvements to be $22,026,000. This valuation was slightly higher than the $20,893,000 fair market value relied upon by the petitioner in proceedings both before the board and on this appeal. The difference between the lower value reached by petitioner and that of American Appraisal resulted from a variance in the respective calculations of the amount of "excess operating costs" attributable to the taxable property.

"Excess operating costs" are an element of functional obsolescence used as a deduction factor in arriving at the fair market value of manufacturing property. The costs are a determination of the additional manning, operating and maintenance costs that are annually required to operate a plant that is inefficiently laid out as compared to an ideal modern plant of the same capacity. The total excess annual operating costs are capitalized over the remaining economic life of the buildings and reduced to a present value pursuant to a formula, after consideration of the company's excess manpower, equipment and plant overhead.

Mr. Smith testified before the board that his initial appraisal included a twenty-five percent reduction for functional obsolescence, including excess operating costs.

After the petitioner's objection to the valuation was filed with the Lake District Board of Review, the State Board of Assessors requested the Wausau office of the Department of Revenue to review the assessment of the petitioner's premises, primarily to analyze functional obsolescence. Myron Duginski, a Department of Revenue appraiser, inspected the facility on September 25 and 26, 1975, and reviewed the Lake District's assessment which had been prepared by Thomas Smith. Mr. Duginski's conclusions noted,

"The following clerical errors . . .

"(1) The local modifier applied to the basic replacement cost was the same for all buildings.

"(2) Some of the original structures one of which is presently being rebuilt, has been given a remaining residual life incompatible with field observations.

"(3) Basic cost and depreciation were improperly applied in one instance.

"(4) Five buildings were omitted.

"(5) New construction was duplicated.

"(6) Functional depreciation does not appear appropriate as no basis is given for the percentage applied."

After making his independent determination of excess operating costs, Mr. Duginski testified that his excess operating cost penalty totaled $6,338,394 as compared to American Appraisal's figure of $5,492,500 for the main mill and outlying buildings. Mr. Duginski also testified that acquiring data pertaining to the company's excess hourly manning, equipment and operating costs would result in a more accurate total for functional obsolescence.

During the original on-site inspection in March of 1975, the State appraisers did not make any written analysis of excess operating costs, nor did they request any of the supporting data from Fort Howard, such as wage rates or manpower schedules.

Mr. Duginski testified before the board that his appraisal of the petitioner's improvements was $26,400,000. This figure included the deduction of $6,338,394 for excess operating costs.

The State Board of Assessors in reviewing the revised assessment rejected many of the changes made by Mr. Duginski, but corrected the local modifiers, included valuation of omitted property and corrected the errors new construction. The net result of the additions and deductions made by the State Board of Assessors was to reduce the assessment for the...

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