Federated Retail Holdings, Inc. v. County Of Ramsey

Facts

P has an ownership interest in the property now occupied and operated as a Macy's department store, Parcel 0004. Macy's is a three-level department store, with a gross leasable area of 259,453 square feet that is physically attached to the Rosedale Mall. The mall has approximately 164 stores encompassing a gross leasable area of 1,150,000 square feet. Macy's has 214,017 square feet of gross building area, and it is one of three major anchor department stores at the mall. P has a leasehold interest in Parcel 0005 at the Rosedale Mall, which is contiguous and adjacent to Parcel 0004. Parcel 0005 consists of 45,436 square feet of basement space that is physically attached to the tax parcel via an escalator. Parcel 0005 is improved with a structure that is used for common areas of the mall, and the basement space is used by Macy's as administrative/retail space. These interests back to a 1992 lease agreement between Equitable, as the owner-landlord of Parcel 0005, and Dayton's, as the tenant of Parcel 0005 and owner of Parcel 0004. Dayton's would construct a new multi-level department store at the Rosedale Mall, and would receive leasehold rights to the exclusive use of the lower level of Parcel 0005 provided that the space is used 'solely for an integrated part of the operation of tenant's department store.' The lease gave the new Dayton's department store on Parcel 0004 an additional 45,435 square feet of contiguous administrative/retail space on Parcel 0005. Eventually, the Equitable lease was assigned to P in accordance with its terms. P, as the current owner of Parcel 0004, has a long-term leasehold interest in the basement space of Parcel 0005, provided that the space is integrated into and operated as part of the department store on Parcel 0004. D determined that the fair market value for Parcel 0004 was $17,000,000, which included the value of P's leasehold interest in Parcel 0005. P appealed. P's appraiser, Daniel T. Boris, presented an appraisal report that valued Parcel 0004 for the 2006 and 2007 assessments. He relied upon the market data and income approaches to determine the fair market value but did not use the cost approach because he concluded it was not a reliable indicator of value due to the age of the building and its economic obsolescence in the marketplace. Boris concluded that the fair market value of Parcel 0004 was $12,600,000 as of January 2, 2006, and $13,700,000 as of January 2, 2007. Boris did not include any contributory value of leasehold rights for Parcel 0005 on the basis that the County Assessor had not consolidated the two parcels, and therefore it was not appropriate to transfer value from Parcel 0005 to Parcel 0004. D's appraiser, Dwight W. Dahlen, presented an appraisal report that valued Parcel 0004 at $19,465,000 for the 2006 and 2007 assessment dates. Dahlen testified that the most relevant approaches to valuation were the income capitalization approach and the direct sales comparison approach. Dahlen used a wider variety of regional department stores in the comparison approach than Boris and testified that the tax parcel included the parts of Parcel 0005 that were part of the Macy's department store. Dahlen testified that since 1991 the leased basement space contained within Parcel 0005 had been included by the County as part of the value of Parcel 0004. Dahlen relied in part on a handwritten pencil notation concerning the leased basement space contained on the assessor's field card, which states: 'division 63660 processed-new Dayton's and basement of old Dayton's on this description parcel 0004,' as evidence that Parcel 0004 and Parcel 0005 were to be considered together for purposes of the valuation of Parcel 0004. P argued that any valuation of Parcel 0004 that included the value of the leasehold interest in Parcel 0005 was not within the subject-matter jurisdiction of the tax court. The tax court concluded that the fair market value of the tax parcel was $14,894,830 and $15,245,024 for January 2, 2006, and January 2, 2007. The tax court found that P's ownership interest in Parcel 0004 included its leasehold interest in Parcel 0005. The tax court held that the value of P's leasehold rights in Parcel 0005 was not subject to the jurisdiction of the tax court because no steps had been taken to follow the statutory process for consolidating the two tax parcels and the petition only referenced Parcel 0004. The tax court concluded that D's assessment should not include the value of the leased basement space in Parcel 0005.  The tax court granted P's motion and reduced the square footage of the building area for the tax parcel from 259,453 to 214,017 square feet to exclude Parcel 0005's square footage, and reduced Parcel 0004's valuation to $10,590,888 for January 2, 2006, and to $12,575,281 for January 2, 2007. This appeal followed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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