Wal-Mart Real Estate Bus. Trust v. Cnty. of Anoka, A18-1678

• Decision Date: 17 July 2019
• Docket Number: A18-1678,A18-1679,A18-1681
• Citation: 931 N.W.2d 382
• Parties: WAL-MART REAL ESTATE BUSINESS TRUST, Relator, v. COUNTY OF ANOKA, Respondent.
• Court: Minnesota Supreme Court

931 N.W.2d 382

WAL-MART REAL ESTATE BUSINESS TRUST, Relator,
v.
COUNTY OF ANOKA, Respondent.

A18-1678
A18-1679
A18-1681

Supreme Court of Minnesota.

Filed: July 17, 2019

Mark R. Bradford, Christine Hinrichs, Bassford Remele, P.A., Minneapolis, Minnesota; and Robert A. Hill, Robert Hill Law, Ltd., Wayzata, Minnesota, for relator.

Anthony C. Palumbo, Anoka County Attorney, Jason J. Stover, Christine V. Carney, Assistant County Attorneys, Anoka, Minnesota, for respondent.

Considered and decided by the court without oral argument.

OPINION

CHUTICH, Justice.

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In this consolidated tax appeal we must determine whether retail stores that permit franchisees to operate their businesses inside the retail store in exchange for rent are "income-producing properties" within the meaning of the tax statute’s mandatory-disclosure provision. See Minn. Stat. § 278.05, subd. 6(a) (2018). When an owner of real property challenges the county assessor’s valuation of a property that is "income-producing," the owner must disclose certain information by August 1 of the taxes-payable year. Id. Failure to disclose this information by the deadline results in dismissal of the taxpayer’s petition, unless an exception applies. Id. , subd. 6(b).

Relator Wal-Mart Real Estate Business Trust ("Trust") owns three parcels of land in Anoka County ("County"). Each parcel has a Walmart retail store, operated by Walmart, Inc. ("Walmart"). The Trust is a wholly-owned subsidiary of Walmart.

The Trust filed petitions challenging the County’s assessment of the three parcels. The tax court dismissed the petitions, however, because the Trust failed to provide the information required by the mandatory-disclosure provision before the deadline. The Trust filed timely certiorari appeals from the tax court’s orders dismissing the petitions. It claims that it is not subject to the mandatory-disclosure rule because the Walmart stores are not "income-producing." We consolidated the three appeals for briefing and non-oral consideration. Because we agree with the tax court that the properties are "income-producing" and that the Trust’s disclosures were inadequate, we affirm the dismissal of the petitions.

FACTS

Three of the Trust’s retail properties are at issue here: Ball Road, Blaine ("Ball Road store"), Ulysses Street, Blaine ("Ulysses Street store"), and University Avenue, Fridley ("University Avenue store"). Although the Trust owns all three parcels, it receives no income tied to the properties because retail income is kept by Walmart and recorded as ordinary business income. Walmart does not pay rent to the Trust.

Walmart has contracted with several "vestibule businesses" to operate within its stores. Among the three properties at issue, Walmart has vestibule arrangements with four entities: Twin Towers Trading Site Management, LLC, a franchisor of

931 N.W.2d 385

Subway sandwich restaurants; Da-Vi Nails Salon and Spa, LLC, which operates nail salons; Seva Beauty, LLC, which operates beauty salons and spas; and Regis Corporation, which operates hair salons. The Ball Road store has a Subway, a Da-Vi Nails salon, and a Seva Beauty salon. The Ulysses Street store has a Subway and a Regis hair salon. The Fridley store has a Subway.

These vestibule arrangements are governed by generally applicable master lease agreements along with site-specific attachments to the master agreement. The Trust is not a party to any of these agreements. The master lease agreements are negotiated by Walmart on a national scale and include, among other terms, promises by Walmart to deliver possession of the premises to the vestibule occupant in exchange for promises by that occupant to pay rent. The site-specific attachments provide further terms, such as a description of the leased premises, the amount of rent, the duration of the lease, and the allocation of specific costs such as utilities fees, taxes, repairs, and insurance.

Although the specific terms vary, the master agreements and attachments follow more or less the same format. Each attachment separately defines the "leased premises" and requires the vestibule occupant to pay a monthly "base rent" plus a percentage of the occupant’s gross sales. The rent formula is only slightly different for each occupant. The Subway franchisor, for example, paid no monthly base rent at the Ball Road and Ulysses Street stores, instead agreeing to pay a graduating percentage of gross sales, calculated monthly. Da-Vi Nails, by contrast, paid a monthly base rent, plus a percentage of annual gross sales. The other agreements followed variations on this formula.

The properties were assessed by the County as of January 2, 2016, and the Trust contested these valuations in tax petitions filed for each store. The deadline for the mandatory disclosures required by Minnesota Statutes section 278.05, subdivision 6(a) was August 1, 2017. On July 30, 2017, the Trust emailed the county assessor’s office a one-page document for each property entitled "2017 Compliance Submission." This document contained the following information arranged in a small chart: "Starting Date," "Ending Date," "Gross Amount," "Rentable Area," "Annual Sq. Ft.," and "Annual Gross." Although the Trust now contends that it was never obligated to provide any information to the County under this statute because the properties are not "income-producing," it explains that it submitted this information to the County out of an abundance of caution.

Claiming that the informational charts submitted by the Trust were not adequate under the statute, the County moved to dismiss the petitions. The Trust opposed the motions, arguing that the properties are not income-producing because the money generated from the vestibule agreements is "business income" for Walmart, and not rental income for the Trust. The Trust also contended that, even if the properties are income-producing, its submissions were adequate under the statute because each chart represents all the information in its possession regarding the vestibule occupants. To support its argument, the Trust provided the tax court with copies of the master agreements and site-specific attachments that had not been previously disclosed to the County.

The tax court rejected the Trust’s view of the arrangements between Walmart and the vestibule occupants, finding that the agreements were property leases that produced income and concluding that the Trust’s July 30, 2017 compliance submissions were inadequate. Consequently, the

931 N.W.2d 386

tax court dismissed the Trust’s petitions. This certiorari appeal follows.

ANALYSIS

Our review of tax court decisions is limited to determining whether "the Tax Court was without jurisdiction, that the order of the Tax Court was not justified by the evidence or was not in conformity with law, or that the Tax Court committed any other error of law." Minn. Stat. § 271.10, subd. 1 (2018). We review the tax court’s application of law de novo. Langer v. Comm'r of Revenue , 773 N.W.2d 77, 80 (Minn. 2009). The tax court’s findings of fact are reviewed for clear error. Antonello v. Comm'r of Revenue , 884 N.W.2d 640, 647 (Minn. 2016). Whether the Trust’s properties are income-producing, and if so, whether its disclosures satisfy the statutory requirement, are questions that involve the application of law to facts and are subject to de novo review. See Morton Bldgs., Inc. v. Comm'r of Revenue , 488 N.W.2d 254, 257 (Minn. 1992).

I.

Under the Minnesota statutes governing tax petitions, a property tax petitioner that "contests the valuation of income-producing property" must provide, "no later than August 1 of the taxes payable year," the following information:

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