In this case, the Wisconsin Supreme Court held that a property tax assessment must be based on fair market rental rates and not on above-market rental contract values.
Walgreens leased two properties located in Madison, Wisconsin, from a developer who built the properties according to Walgreens’s specifications. The lease terms provided for rental prices that were higher than the market value in order to compensate the developer for financing, land acquisition, construction, and development costs plus profit.
In 2003 and 2004, Walgreens appealed their tax assessments to the City of Madison Board of Review, which denied their claim for excessive assessment. Walgreens then appealed through to the Wisconsin Supreme Court.
The Court held that a correct assessment requires use of the proper methodology for assessing leased retail property per Wisconsin Statute Section 70.31(1), which requires real property to be valuated based on procedures found in the Wisconsin Property Assessment Manual and the Appraisal of Real Estate.
Thus the court held that assessments must be based on market rent and not the rent agreed to in the lease.