                                 STATE OF MINNESOTA

                                  IN SUPREME COURT

                                        A16-0415

Tax Court                                                                     Chutich, J.
                                                                    Took no part, Stras, J.
Menard, Inc.,

                     Relator,

vs.                                                             Filed: November 9, 2016
                                                               Office of Appellate Courts
County of Clay,

                     Respondent.

                                 ______________________


Eric J. Magnuson, Katherine S. Barrett Wiik, Robins Kaplan L.L.P., Minneapolis,
Minnesota; and

Robert A. Hill, Robert Hill Law, Ltd., Maplewood, Minnesota, for relator.

Brian J. Melton, Clay County Attorney, Jenny M. Samarzja, Chief Assistant County
Attorney, Moorhead, Minnesota; and

Thomas J. Radio, Felhaber Larson P.A., Minneapolis, Minnesota, for respondent.

                                   __________________

                                     SYLLABUS

       1. The tax court’s finding that the highest and best use for the taxpayer’s property

was continued use as a big-box retail store was well supported by the record.

       2. The tax court’s depreciation calculations using the cost approach were supported

by the evidence in the record.


                                            1
       3. The tax court’s determination that only three of the comparable sales offered by

the parties were truly comparable was supported by the record.

       4. The tax court’s use of the cost approach and the way it weighted the cost and

sales comparison approaches were within the tax court’s broad discretion for determining

the property’s value because, whenever possible, the tax court should employ at least two

methods to determine property value and a final determination of value may require that

one approach be given greater emphasis.

       Affirmed.

       Considered and decided by the court without oral argument.

                                      OPINION

CHUTICH, Justice.

       Relator Menard, Inc. appealed to the tax court from respondent Clay County’s

assessment of the market value of Menard’s Moorhead home improvement retail store for

the assessment dates of January 2, 2011; January 2, 2012; January 2, 2013; and January 2,

2014. Following a trial, the tax court adopted market valuations below the County’s

assessment values but above Menard’s expert appraiser’s valuation. Menard appealed.

       In this appeal from the tax court’s final order and judgment, Menard asserts that the

tax court erred in several respects: (1) the tax court rejected Menard’s expert appraiser’s

highest and best use determination, (2) the tax court made improper calculations when it

determined the fair market value of the property using the cost approach, (3) the tax court

used a “de facto averaging” of the cost approach and the sales comparison approach when



                                             2
it determined the fair market value of the property, and (4) the tax court failed to adequately

explain its reasoning.

       The County also appealed, asserting that the tax court erred in its calculations and

conclusions of value using the sales comparison and cost approaches. Because the tax

court did not err in its findings and did not fail to adequately explain its reasoning, we

affirm the tax court’s value determinations.

                                               I.

       This appeal concerns the tax value of a Menards home improvement retail store in

Moorhead as of January 2, 2011 through January 2, 2014. The store is located on a parcel

of approximately 771,350 square feet with two structures. The first structure, the main

building, consists of a single-story heated retail space with an additional mezzanine space

and a covered and unheated garden center. The second structure is an open-air detached

shed, used as a warehouse. Built in 2007, the structures were in good condition as of each

assessment date, and are visible and accessible from the nearby interstate highway. The

Clay County Assessor valued the property at $11,200,000 for all four assessment dates.

Menard challenged these assessments, and a trial ensued before the tax court.

       Menard retained Michael MaRous to prepare an appraisal and opinion as to market

value, and Timothy Vergin prepared an appraisal and opinion as to market value on behalf

of the County.      MaRous conducted a sales comparison analysis and an income

capitalization analysis as part of his appraisal, but ultimately relied on the sales comparison

approach in his final valuation reconciliation. Vergin conducted a sales comparison

analysis, an income capitalization analysis, and a cost analysis, assigning one-third weight

                                                3
to each approach in his final valuation reconciliation. In their valuation conclusions, the

appraisal experts differed as to a key point: the highest and best use of the subject property.

MaRous concluded that the property was not viable as a big-box retail store if sold by

Menard, while Vergin concluded that the property was viable as a big-box retail store.

        Finding that Menard overcame the prima facie validity of the Clay County

Assessor’s valuation, the tax court then considered the appraisal opinions of each expert.

The tax court rejected Menard’s highest and best use determination and instead adopted

the County’s view that the highest and best use of the property as-vacant was commercial

property and as-improved was continued use as a big-box retail store. The tax court

rejected the County’s income capitalization analysis.1         After rejecting most of the

comparable sales used in the parties’ sales comparison analyses, and making adjustments

to the sales price of the remaining comparables, then making adjustments to the parties’

cost analyses, the tax court gave its cost approach calculation a 60-percent weighting and

its sales comparison approach a 40-percent weighting for appraisal years 2011 and 2012.

The tax court assigned each approach a 50-percent weighting for valuation years 2013 and

2014.

        The parties moved for amended findings of fact and conclusions of law, but the tax

court adjusted its order only to account for inaccurate calculations for physical

deterioration and to grant Menard its unopposed request for equalization relief. The

assessed values, appraised values, and the tax court’s values for the property are as follows:


1
        The County did not appeal this determination.

                                              4
  Appraisal       County        County’s          Menard’s     Tax Court      Tax Court
    Year          Assessor      Appraiser        Appraiser       Order         Amended
                                (Vergin)         (MaRous)                       Order
    2011        $11,200,000    $12,000,000       $4,000,000   $7,432,100      $7,516,600

    2012        $11,200,000    $12,300,000       $4,000,000   $7,585,800      $7,681,300

    2013        $11,200,000    $12,500,000       $4,000,000   $7,219,000      $7,331,300

    2014        $11,200,000    $12,700,000       $4,000,000   $7,393,600      $7,556,200


       Menard appealed the tax court’s decision, arguing that the tax court erred in

rejecting MaRous’s highest and best use determination, in its cost approach calculations,

in averaging the sales comparison and cost approaches, and in failing to adequately explain

its reasoning. The County also appealed, contending that the tax court erred in accepting

parts of MaRous’s appraisal report and testimony, in excluding post-sale expenditures and

other comparable sales in its sales comparison approach, and in excluding indirect soft

costs in its cost approach.

       “Our review of [a] final order of the tax court is limited.” S. Minn. Beet Sugar Coop

v. Cty. of Renville, 737 N.W.2d 545, 551 (Minn. 2007). We will not overturn a tax court’s

valuation unless the valuation is clearly erroneous. Equitable Life Assurance Soc’y of U.S.

v. Cty. of Ramsey, 530 N.W.2d 544, 552 (Minn. 1995). The tax court’s valuation is clearly

erroneous when “the evidence as a whole does not reasonably support the decision,” Lewis

v. Cty. of Hennepin, 623 N.W.2d 258, 261 (Minn. 2001), and we are “left with a ‘definite

and firm conviction that a mistake has been committed,’ ” KCP Hastings, LLC v. Cty. of

Dakota, 868 N.W.2d 268, 273 (Minn. 2015) (quoting Equitable Life Assurance Soc’y, 530

N.W.2d at 552).
                                             5
       Our deferential review is rooted in the separation of powers and the inexact nature

of real estate appraisal. Cont’l Retail, LLC v. Cty. of Hennepin, 801 N.W.2d 395, 399

(Minn. 2011).    We have accepted even abbreviated explanations of the tax court’s

reasoning. See Kohl’s Dep’t Stores, Inc. v. Cty. of Washington, 834 N.W.2d 731, 734-35

(Minn. 2013); Harold Chevrolet v. Cty. of Hennepin, 526 N.W.2d 54, 58 (Minn. 1995)

(“The inexact nature of property assessment necessitates that this court defer to the decision

of the tax court.”). We will reject the tax court’s reasoning, however, when the tax court’s

decision is “clearly against the weight of the evidence,” Am. Express Fin. Advisors, Inc. v.

Cty. of Carver, 573 N.W.2d 651, 659 (Minn. 1998), or the tax court has “completely failed

to explain its reasoning,” Nw. Nat’l Life Ins. Co. v. Cty. of Hennepin, 572 N.W.2d 51, 52

(Minn. 1997).

                                            II.

       We first consider the tax court’s rejection of Menard’s highest and best use

determination. All property must be valued at its market value, Minn. Stat. § 273.11, subd.

1 (2014), which is the “usual selling price at the place where the property . . . shall be at

the time of assessment,” Minn. Stat. § 272.03, subd. 8 (2014). “Appraisers must perform

a highest and best use analysis when appraising commercial real estate.” Berry & Co. v.

Cty. of Hennepin, 806 N.W.2d 31, 34 (Minn. 2011). Thus, the market value of property

requires consideration of the property’s highest and best use. Cty. of Aitkin v. Blandin

Paper Co., 883 N.W.2d 803, 810 (Minn. 2016); see also Appraisal Institute, The Appraisal

of Real Estate 332 (14th ed. 2013) (explaining that a property’s highest and best use is

“[t]he reasonably probable use of property that results in the highest value”). The highest

                                              6
and best use of a property is the one that is physically possible, legally permissible,

financially feasible, and maximally productive. Cty. of Aitkin, 883 N.W.2d at 810.

       Highest and best use analysis can be approached in two ways. The first assumes

that the property is vacant or can be made vacant by demolishing present improvements.

Appraisal Institute, supra, at 336; see also Ferche Acquisitions, Inc. v. Cty. of Benton, 550

N.W.2d 631, 634 (Minn. 1996) (explaining that highest and best use can consider “whether

it would be best to sell [the property] vacant on the open market”). The second, “as-

improved,” focuses on the use of the property that should be made with its current

improvements. Appraisal Institute, supra, at 336. As-improved analysis is narrower,

focusing on whether to retain, modify, or demolish existing improvements. Id.

       Both experts provided opinions on the highest and best use of Menard’s property

“as-vacant” and “as-improved.”2 MaRous found that the highest and best use of the

property as-improved was continued use as a single-tenant retail building with Menard as

its occupant-owner. But if Menard were to vacate the property, MaRous concluded that it

was “highly likely the building would remain vacant.” In other words, continued use as a

big-box retail store was not viable for the property if Menard left. In reaching this

conclusion, MaRous considered national economic conditions and trends, particularly

regarding big-box retailers. These considerations include a nationwide oversupply of big-

box properties; the impact of the 2008 recession on big-box retailers; a trend away from

big-box retail, in part because of an increase in online retailing; and the superior “overall


2
      Menard appealed only the tax court’s as-improved determination. We do not
consider whether the tax court’s as-vacant determination was clearly erroneous.
                                             7
population and income demographics” in the Fargo, North Dakota market as compared to

the Moorhead, Minnesota market.

       Vergin found that, as-improved, the property and its improvements were suited to

its current use as a big-box retail store. Vergin relied on evidence that showed no excess

supply of vacant big-box stores in the local market and evidence that the 2008 recession

impacted that market less than many other communities.

       The tax court found that, for all valuation dates, the property’s highest and best use

as-improved was continued use as a big-box retail store. The tax court rejected MaRous’s

analysis because of its “general and abstract character,” noting that he “never descended to

[the required level] of particularity in concluding that the property was not a viable big box

retail store.” The tax court also rejected MaRous’s conclusions regarding the impact of the

2008 recession on big-box stores in the Fargo/Moorhead area because MaRous recognized

that the “magnitude and duration of the downturn depended a great deal on a number of

factors including location [and] local demographics,” a high growth rate, and a low

unemployment rate. The record also included evidence that “home improvement stores are

not as vulnerable to online sales” as other large retailers, and some big-box retailers are

moving toward even larger facilities rather than downsizing.

       Taking all these factors into consideration, the tax court found:

   1. “Fargo/Moorhead had an unusually strong and stable economy . . . and the area was
      experiencing steady population and wage growth,”
   2. “Moorhead’s development of an eastward growth ring was proceeding much more
      quickly than anticipated,”
   3. “[t]here was at most one vacant big box store[] in the entire Fargo/Moorhead area,”
      and


                                              8
   4. “the subject property was a recently-constructed typical big-box store with both
      good visibility and recently augmented access from Interstate 94.”

       The record supports the tax court’s findings. First, the tax court relied on population

demographics, high growth, and a low unemployment rate in the Fargo/Moorhead area.

Second, the tax court deemed Menard’s Moorhead-specific analysis unpersuasive because

it was based on national data that did not apply specifically to the property. The tax court

acknowledged that Menard’s retail sales at the property were less than those at its nearby

store in North Dakota, but it noted that many big-box retailers have several locations, and

even those big-box retailers located on the more prosperous side of the local market may

still choose to build another store in the area. The tax court’s determination—that the

highest and best use of Menard’s property was as a big-box retail store—was well

supported by the record.

       The County argues that once the tax court rejected MaRous’s opinion on the highest

and best use of the property, the tax court should have rejected MaRous’s opinions entirely

as unreliable. We disagree. “[T]he tax court typically determines the weight and credibility

of . . . testimony, including that of the expert witnesses.” Beck v. Cty. of Todd, 824 N.W.2d

636, 639 (Minn. 2013) (citation omitted) (internal quotation marks omitted). The tax court

is free to “accept all or only part of any witness’ testimony.” City of Minnetonka v. Carlson,

298 N.W.2d 763, 767 (Minn. 1980). MaRous offered evidence and opinions on many

elements relevant to the proper valuation of the property. Although the tax court found

that MaRous’s highest and best use determination was unreliable, it did not find that his

entire report was unreliable. Given our deferential review of credibility determinations,


                                              9
Eden Prairie Mall, LLC v. Cty. of Hennepin, 830 N.W.2d 16, 21 (Minn. 2013), we conclude

that the tax court acted well within its broad discretion in relying on portions of MaRous’s

appraisal report and testimony.

                                           III.

       Next, we review the parties’ objections to the tax court’s calculations under the cost

approach. We recognize three approaches for determining the market value of real estate:

the sales comparison approach; the income capitalization approach; and the cost approach.

See Equitable Life Assurance Soc’y of U.S. v. Cty. Of Ramsey, 530 N.W.2d 544, 552 (Minn.

1995).3 The cost approach assumes that “an informed buyer would pay no more for the

property than the cost of constructing new property having the same utility.” Id.

       “Under [this] approach, the appraiser determines the current cost of constructing the

existing improvements on the property, subtracts depreciation to determine the current

value of the improvements, and then adds the value of the land to determine the market

value.” Cont’l Retail LLC v. Cty. of Hennepin, 801 N.W.2d 395, 403 (Minn. 2011). This

approach “is useful for estimating the market value of new or relatively new construction

. . . and . . . is best applied when land value is well supported and the improvements are

new or suffer only minor depreciation.” Guardian Energy, LLC v. Cty. of Waseca, 868

N.W.2d 253, 262 (Minn. 2015).




3
        The parties’ appraisers used an income capitalization approach, although MaRous
ultimately relied on the sales comparison approach. The County does not challenge the tax
court’s decision that it had “no reliable market value indication under the income
capitalization approach.”
                                             10
       The tax court first determined a value for the property site by considering

comparable sales transactions, then adjusted the resulting value figure for the cost of

improvements and a 10-percent entrepreneurial incentive, and finally adjusted for

depreciation, including functional and external obsolescence. Menard challenges three

elements of the tax court’s analysis: (1) adjusting for a 10-percent entrepreneurial

incentive, (2) rejecting MaRous’s market extraction theory for calculating total

depreciation, and (3) refusing to adjust for external obsolescence. The County raises one

issue related to the tax court’s cost analysis: error in excluding indirect soft costs when

adjusting for improvements. We address each issue in turn.

                                               A.

       We begin with the tax court’s adjustment to the site value using a 10-percent

entrepreneurial incentive. Entrepreneurial incentive is “[t]he amount an entrepreneur

expects to receive for his or her contribution to a project. . . . [I]t is the expectation of

future profit as opposed to the profit actually earned on development or improvement.”

Appraisal Institute, supra, at 573. Entrepreneurial profit is a “market derived figure that

represents the amount an entrepreneur receives for his or her contribution to a project and

risk; the difference between the total cost of a property . . . and its market value.” Id.

       Menard asserts that adjustment for an entrepreneurial incentive was improper

because the property is owner-occupied rather than for sale or other use. But this factor is

not determinative. See, e.g., Nw. Racquet Swim & Health Clubs, Inc. v. Cty. of Dakota,

557 N.W.2d 582, 585 (Minn. 1997) (explaining adjustments made to land value for

operating a health club, including “a five percent entrepreneurial profit”).            “Some

                                              11
appraisers . . . observe that entrepreneurial profit often represents a theoretical profit in

build-to-suit, owner-occupied properties.          The owner-occupant may consider any

additional operating profit due to the property’s efficient design to be an incentive.”

Appraisal Institute, supra, at 575. This profit “might only be realized years after the

property is built when it sells to a similar owner-occupant at a premium because the

property is suitable and immediately available, unlike new construction or conversion of a

different property.” Id.

       MaRous did not include an entrepreneurial incentive in his calculations, noting that

“[i]n the subject’s case, and like virtually all big box retail stores, consideration for

entrepreneurial profit is not applicable.” Vergin, on the other hand, included a 10-percent

entrepreneurial incentive in his cost approach calculations, explaining that he added that

sum because it “is compensation to the entrepreneur for . . . going at risk to build the asset.”

       The tax court agreed with Vergin, relying on the principle that “any building project

will include an economic reward (above and beyond direct and indirect costs) sufficient to

convince an entrepreneur to take on the risk associated with that project in that market.”

See Appraisal Institute, supra, at 573. Although we may have come to a different

conclusion had we been the initial fact-finder, the tax court’s decision has support in the

record, and we are not left with a definite and firm conviction that an error was committed.

                                                B.

       We next address the County’s assertion that the tax court failed to account for all

indirect soft costs in its adjustments to property value. Soft costs are those costs “generally



                                              12
related to the size and cost of the project,” including indirect soft costs such as

“architectural fees and property taxes.” Appraisal Institute, supra, at 572.

       The parties’ experts compared Menard’s actual 2007 costs—when the buildings

were constructed and the land was improved—with the estimated costs provided by a

valuation service, Marshall & Swift Valuation Service (Marshall & Swift). The tax court

found errors in Vergin’s calculations, noted that MaRous’s adjustments to actual site-

improvement costs were “unchallenged by the County,” and based on the evidence in the

record, preferred MaRous’s cost calculations. The County asserts that this decision is

erroneous because MaRous admitted that he did not know what the soft costs were for the

2007 project, and Menard’s cost statement did not identify any soft costs.

       Although the tax court acknowledged that MaRous’s actual cost figures did not

include soft costs, it nonetheless found that those estimates were “reasonably close” to the

adjusted Marshall & Swift estimate. On the other hand, the tax court found that Vergin’s

cost calculations were incorrect and “not sufficiently justified to warrant reliance.”

Further, Vergin’s estimated costs based on the Marshall & Swift information were

“substantially above the indexed actual cost.”

       These findings have ample support in the record. Given the tax court’s explanation

for accepting MaRous’s cost adjustments and rejecting Vergin’s, we conclude that the tax

court’s adjustments for soft costs were well supported by record evidence.

                                              C.

       We now turn to Menard’s challenges to the tax court’s deductions for depreciation.

Depreciation represents “losses in the value of improvements due to the effects of age,

                                             13
wear and tear, and other causes.” Appraisal Institute, supra, at 576. Three major causes

of depreciation exist: physical deterioration, functional obsolescence, and external

obsolescence, all of which can operate separately or in combination. Id.; see also Guardian

Energy, 868 N.W.2d at 262 (describing the “three forms of depreciation under the cost

approach”). Menard contends that the tax court erred in its depreciation adjustments by

rejecting the market-extraction method that MaRous used to calculate functional

obsolescence and by concluding that the property suffered no external obsolescence.

       We begin with Menard’s argument regarding the market-extraction method used to

calculate depreciation.4   The market-extraction method “relies on the availability of

comparable sales from which depreciation can be extracted,” but it is used only when “the

quality of th[e] data is adequate to permit meaningful analysis.” Appraisal Institute, supra,

at 605. This “method is difficult to apply when the type or extent of depreciation varies

greatly among the comparable properties due to characteristics other than age.” Id. at 610.

       Relying on data drawn from 27 separate sales transactions, MaRous used the

market-extraction method to “test the reasonableness of [his] total depreciation estimate,”

which was 79 percent or 80 percent for each year. The tax court identified several concerns

with MaRous’s comparable transactions. First, most of the primary comparables—a group

of seven in-state transactions—were not comparable in age. Second, comparables similar



4
       Total depreciation can be calculated using any of the following, either individually
or in combination: the market-extraction method, the economic age-life method, or the
breakdown method. Appraisal Institute, supra, at 597. Menard’s expert used a “modified”
economic age-life method and a market-extraction method for estimating total
depreciation. Only the market-extraction method is at issue on appeal.
                                             14
in age were closed for “insufficient sales,” suggesting that the “depreciation at these stores

may well be attributable to external obsolescence not shared by the subject property.”

Finally, two of the older stores that were sold had been replaced by newer stores, suggesting

that any depreciation was attributable to factors not shared by the Menard’s store. Thus,

the tax court concluded that “MaRous’s application of market extraction to the primary set

was inappropriate, and his results unreliable.”

       Menard argues that the tax court improperly speculated about the accuracy of

MaRous’s depreciation analysis and erroneously substituted its own view of comparability.

See Guardian Energy, 868 N.W.2d at 266 (noting that the tax court cannot “substitute its

own measure of external obsolescence that is without support in the record”). In Guardian

Energy, the tax court calculated external obsolescence “with virtually no record support or

explanation” after rejecting a factor “that both parties’ appraisers found to be the primary

consideration.” Id. In contrast, the tax court’s decision here was based on identified

concerns with the lack of comparability in the transactions relied on, and inconsistencies

between, Menard’s “occupancy-only” theory of big-box retailers and the offered

comparables. After considering these issues, the tax court concluded that MaRous’s

“implementation” of the market-extraction method did not provide reliable results.

       Based on the entire record, we conclude that the tax court’s decision to reject

MaRous’s market-extraction analysis was supported by the record.

                                               D.

       Menard also challenges the tax court’s finding that Menard’s Moorhead store

suffered no external obsolescence on any of the valuation dates. External, or economic,

                                             15
obsolescence “is the measurement of a property’s loss in value as a result of factors beyond

the physical boundaries of the property and beyond the owner’s control.” Guardian

Energy, 868 N.W.2d at 262-63; see also In re McCannel, 301 N.W.2d 910, 924 n.10 (Minn.

1980) (defining economic obsolescence as an “impairment of desirability or useful life

arising from factors external to the property”).

       MaRous estimated external obsolescence at 10 percent, relying on “the on-going

recession and . . . its adverse and significant impact on all segments of the real estate

market.” Menard also presented evidence regarding the inferiority of the Moorhead area

on the Minnesota side of the river, as compared with the Fargo area on the North Dakota

side, in terms of “population and income market demographics,” as well as a “glut of vacant

big-box retail stores.” The tax court found that the property suffered from no external

obsolescence and noted that Menard’s 10-percent estimate was “based exclusively on

broad generalizations and on national rather than local data” and the specific property.

       Menard failed to present any evidence showing that online sales have affected

lumber and home improvement stores and that nationwide economic trends produced

external obsolescence in Moorhead.5 Menard also failed to address evidence showing that

some big-box retailers are building even larger big-box stores. In addition, Peter Doll, a

witness for the County who values property for tax purposes and is involved in economic

development, testified to the strong market for large retail stores in the Moorhead market.


5
       Specifically, during the valuation period the Fargo/Moorhead area had an unusually
strong and stable economy compared with many other communities; the area was
experiencing steady population and wage growth; and there was, at most, one vacant big-
box store in the Fargo/Moorhead area.
                                             16
On this record, the tax court’s finding that the subject property suffered no external

obsolescence was not clearly erroneous. See Nw. Racquet Swim & Health Clubs, 557

N.W.2d at 588 (finding a tax court’s decision on economic obsolescence that had

“evidentiary support” and was “not unreasonable” was not clearly erroneous).

       In conclusion, the tax court’s calculations under the cost approach were supported

by the record. Therefore, we affirm the tax court’s cost approach calculations.

                                           IV.

       We next consider the County’s challenges to the tax court’s calculations in its sales

comparison approach. The sales comparison approach involves valuing property “based

on the price paid in actual market transactions of comparable properties, and then [making]

an adjustment to those sales prices . . . to reflect differences between the sold property and

the subject property.” Cont’l Retail LLC v. Cty. of Hennepin, 801 N.W.2d 395, 402 (Minn.

2011); see Carson Pirie Scott & Co. (Ridgedale) v. Cty. of Hennepin, 576 N.W.2d 445,

447 (Minn. 1998) (explaining that adjustments are made “for differences such as location,

size and time of sale” after comparing the subject property with comparable sales). “A

major premise of the sales comparison approach is that an opinion of the market value of

a property can be supported by studying the market’s reaction to comparable and

competitive properties.” Cont’l Retail, 801 N.W.2d at 402 (quoting Appraisal Institute,

The Appraisal of Real estate 297 (13th ed. 2008)). A tax court does not err by rejecting a

valuation under the sales comparison approach where noncomparable sales are used. KCP

Hastings LLC v. Cty. of Dakota, 868 N.W.2d 268, 274 (Minn. 2015).



                                             17
       The County raises two challenges to the tax court’s sales comparison analysis. First,

the County argues that the tax court improperly rejected several of its comparable sales

simply because those transactions were not also considered by Menard’s expert, MaRous.

Second, the County objected to the tax court’s adjustment to exclude post-sale costs

incurred in the transaction for Lowe’s-Cambridge.

       The County’s expert, Vergin, considered eleven comparable transactions, using a

gross building area of 236,429 square feet, which included the main building, the

mezzanine space, the covered and unheated space, and the detached open-air shed.

MaRous considered seven transactions using a gross building area of 162,340 square feet,

which comprised the main building’s enclosed, heated space and excluded the mezzanine

and covered, unheated space.

       The tax court, using MaRous’s gross building area of 162,340 square feet, agreed

with MaRous that the main building’s covered and unheated space and the detached open-

air shed “would likely have ‘very little contributory impact on value’ ” and that “the

‘[m]ore appropriate treatment of this space may be achieved by . . . applying an upward

adjustment’ for the excluded spaces.” The tax court noted that “Vergin agreed that [the]

market would not attach any value” to the mezzanine space.

       The tax court also noted that the property was unique, and “[a] significant factor in

the selection of sales comparables . . . is the main building’s . . . covered/unheated space,

and the property’s . . . detached open-air shed.” With this standard in mind, the tax court

identified four comparable sales transactions the appraisers had in common. Three of those

common sales had similar covered and unheated space, were relatively close in gross

                                             18
building area (excluding covered and unheated space), and had sale dates in late 2012—

close to the center of the four valuation dates. Given these similarities to the property, the

tax court used these three transactions as comparable sales transactions.

       The County argues that the tax court should have included three of its offered

transactions because they are “very comparable” and require “the least amount of

adjustment.” We will not disturb the tax court’s decision to rely on some, but not all,

offered comparables. See KCP Hastings, 868 N.W.2d at 273-74. The tax court explained

its reasons for including the comparables that it used, and in particular, noted that the

similarities between the three chosen comparables and the subject property “reduce the

need for adjustment.” Given this explanation and reasoning, we find the tax court’s

explanation was adequate and its decision was supported by the record.

       The County argues that the tax court should have excluded the Lowe’s-Rogers sale

(comparable No. 5), even though the County relied on this transaction, because the sale

“had severe use restrictions in place.” Based on a limited-use restriction in the warranty

deed for comparable No. 5, the tax court adopted a 15-percent adjustment for each

valuation date, finding that a use restriction “imposes a genuine constraint on the . . .

property for seven years.” The County contends that the use restriction adjustment Vergin

proposed—75 percent—had more support in the record than the 5-percent adjustment that

MaRous proposed. The tax court considered both experts’ testimony and evidence,

rejected Vergin’s speculation about the effect of the use restriction for comparable No. 5,

and determined that a 15-percent adjustment adequately reflected the constraint imposed

by the restriction, which was “limited in both scope and duration.” We do not disturb the

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tax court’s determinations on comparable transactions, particularly when credibility

determinations are at issue, see Archway Mktg. Servs. v. Cty. of Hennepin, 882 N.W.2d

890, 896 (Minn. 2016), and we do not do so here.

       We next consider the County’s objection to the tax court’s exclusion of post-sale

costs incurred in the transaction for Lowe’s-Cambridge. Post-sale costs, such as costs to

“demolish and remove a portion of the improvements,” can be added to the sales price of

a comparable property if the buyer and the seller have anticipated such costs. Appraisal

Institute, supra, at 412-13. In the Lowe’s-Cambridge transaction, the Lowe’s property was

purchased by Mills Fleet Farm, which then incurred expenses to remove Lowe’s trade-

dress improvements from the property.

       No evidence in the record shows, however, that Lowe’s anticipated the $2.8 million

that Mills Fleet Farm spent to remove Lowe’s trade dress and to construct its own. Here,

Vergin was questioned at length during the trial as to whether Lowe’s knew of the $2.8

million that Mills would have to spend. After a lengthy exchange, the appraiser agreed

that “[Lowe’s] may not have known what was going to be spent by . . . Mills.” Because

evidence of actual assumptions made by Lowe’s regarding post-sale costs is not in the

record, the tax court did not clearly err by declining to consider those costs as part of its

calculations under the sales comparison approach.6


6
      The tax court characterized post-sale costs as functional obsolescence under the cost
approach. Functional obsolescence is the “inadequacy or obsolescence of a facility due to
developments which have made it incompetent to perform its function properly or
economically, . . . or the inability of a structure to perform adequately the function for
which it is currently employed.” In re McCannel, 301 N.W.2d 910, 924 n.9 (Minn. 1980).
“[E]xpensive trade dress [that is] so important to [one big-box retailer] represents
                                             20
                                           V.

       Finally, we consider the objection by Menard to the tax court’s weighting of the cost

approach and the sales comparison approach. The tax court weighted the cost approach at

60 percent and the sales approach at 40 percent for the first two years. It did so after

concluding that it had “no reliable market value” information for the income capitalization

approach, the “cost approach is well supported and . . . appropriately used,” and the “sales

comparison approach likewise produces reliable indications of market value.” For the final

two years, the tax court gave the two approaches equal weight. This “math,” Menard

contends, “divorces market value” from its intended objective, identifying the price that a

purchaser would be willing to pay for the property.

       All real property is assessed based on market value, that is, the price at which

property could be sold at a private sale. Minn. Stat. §§ 273.11, subd. 1, 272.03, subd. 8

(2014). We have said that the “sale value [of property], not the actual value, is what must

control” any determination of market value. State v. Russell-Miller Milling Co., 182 Minn.

543, 544, 235 N.W. 22, 22 (1931). The tax court need not, however, “accept any particular

valuation approach as the sole basis for determining market value.” DeZurik Corp. v. Cty.

of Stearns, 518 N.W.2d 14, 16 (Minn. 1994). Whenever possible, the tax court should




functional obsolescence when the property is put on the open market.” David Charles
Lennhoff, Valuation of Big-Box Retail for Assessment Purposes: Right Answer to the
Wrong Question, 39 Real Estate Issues, no. 1, 2014, at 21, 25. Because these post-sale
improvements (removal of expensive trade dress) fit within the definition of functional
obsolescence, the tax court did not clearly err when it considered these post-sale
improvements as a form of depreciation under the cost approach and applied a similar
deduction to the Menard property.
                                            21
employ at least two methods to determine the market value of a property because the

different methods can serve as checks on each other. Am. Express Fin. Advisors v. Cty. of

Carver, 573 N.W.2d 651, 657 (Minn. 1998). In a given valuation determination, more than

one approach to value is usually appropriate and necessary. See Appraisal Institute, supra,

at 77; Equitable Life Assurance Soc’y of U.S. v. Cty. of Ramsey, 530 N.W.2d 544, 553-54

(Minn. 1995). We “accord the tax court broad discretion in choosing which valuation

approach to use.” Evans v. Cty. of Hennepin, 548 N.W.2d 277, 278 (Minn. 1996). Further,

we have recognized that “the weight given to each approach depends on the quantity and

quality of available data.” KCP Hastings LLC v. Cty. of Dakota, 868 N.W.2d 268, 275

(Minn. 2015) (citation omitted) (internal quotation marks omitted).

      Menard contends that the tax court’s job was done once it determined that the sales

comparison approach provided a reliable indicator of market value. The sales comparison

approach “must be given the full weight it legally deserves” according to Menard. If by

this declaration Menard insists that the tax court erred by failing to rely on the sales

comparison approach alone, we have already rejected this argument. We have said that

“appraisal is an inexact value determination” and an “estimate of value.” Lewis & Harris

v. Cty. of Hennepin, 516 N.W.2d 177, 180 (Minn. 1994).

      Thus, we have allowed the tax court to determine market value by considering more

than one approach. See id. (“Viewing value from three different perspectives may help the

appraiser arrive at an estimate closer to actual market value than if the property were

viewed from a single perspective.”); see also Am. Express Fin. Advisors, 573 N.W.2d at

657 (“We have stated that whenever possible, the court should apply at least two

                                            22
approaches to market value because the alternative value indications derived can serve as

useful checks on each other.”).

      Menard further asserts that the tax court erred in its decision by giving the cost

approach and the sales comparison approach varying weights when determining market

value and by failing to explain its reasoning. We disagree.

       “The respective weight placed upon each of the three traditional approaches to

value depends on the reliability of the data and the nature of the property being valued.”

Harold Chevrolet v. Cty. of Hennepin, 526 N.W.2d 54, 59 (Minn. 1995). “No mechanical

formula is used to select one [valuation approach] over the others. The strengths and

weaknesses of each approach used must be discussed, and the appraiser must explain why

one approach may be relied upon more than another . . . .” Appraisal Institute, supra, at

642. Indeed, we have allowed “overriding weight” to be given to one approach when

weaknesses in the other two approaches are identified. Montgomery Ward & Co. v. Cty.

of Hennepin, 482 N.W.2d 785, 791 (Minn. 1992).

      To be sure, the tax court must provide adequate reasoning for its valuation

determinations. Archway Mktg. Servs. v. Cty. of Hennepin, 882 N.W.2d 890, 897 (Minn.

2016) (finding that the tax court’s unexplained rejection of several sales comparables

required remand). But we have accepted even abbreviated explanations of the tax court’s

reasoning. See Kohl’s Dep’t Stores Inc. v. Cty. of Washington, 834 N.W.2d 731, 734-35

(Minn. 2013).

      In its final reconciliation, the tax court found that “the cost approach [was] well

supported and [was] appropriately used give[n] the recent vintage of the subject property’s

                                            23
improvements.” The tax court also found that the sales comparison approach “produces

reliable indications of market value.” The tax court determined that, for the 2011 and 2012

valuation dates, it was appropriate to give the cost approach 60-percent weight and the

sales comparison approach 40-percent weight because “the subject property’s

improvements were only four years old on the first valuation date.” The tax court gave the

sales comparison approach and the cost approach equal weighting (50 percent each) for the

2013 and 2014 valuation dates.

       The tax court provided a reasonable explanation of the circumstances that justified

the use of the cost approach. First, the tax court found that because the property was

“relatively new construction,” substantial reliance on the cost approach was proper. See

Guardian Energy LLC v. Cty. of Waseca, 868 N.W.2d 253, 262 (Minn. 2015). Second, the

tax court noted that there was “no reliable market value indication under the income

capitalization approach,” so its reliance on the cost approach and the sales comparison

approach “became relatively more important.” See Equitable Life Assur. Soc’y, 530

N.W.2d at 553.

       Third, the tax court reiterated that it had “substantial misgivings about the

comparable sales in this case,” and this concern with Menard’s comparable sales affected

the tax court’s “confidence in, and final weighting of, the sales comparison approach.”

Specifically, the tax court stated that “Menard’s occupancy-only theory necessarily

suggests that sales of big box retail stores are extraordinary events that must be carefully

analyzed for comparability,” but the parties did not include “any trade-area analysis for

any of the proffered comparable sales.” This failure left the tax court “with no objective

                                            24
basis for evaluating the true comparability of the subject property to the proffered

comparables with respect to a critical factor . . . the quality of [the] retail location.” Based

on its reservations, the tax court concluded that “the sales comparison approach . . . was

not entitled to controlling weight.” The tax court found in its amended order that this

“judgment was well within [its] discretion.”

       We agree. “[T]he weight placed on each approach depends on the facts of each

case,” Cont’l Retail LLC v. Cty. of Hennepin, 801 N.W.2d 395, 402 (Minn. 2011), and the

calculation of a property’s valuation is best approached by using at least two of the three

valuation methods, see Am. Express Fin. Advisors, 573 N.W.2d at 657; Equitable Life

Assurance Soc’y, 530 N.W.2d at 553-54. We have also stated that property valuation is an

inexact science and that it is for the tax court to determine the weight that it will assign to

each approach. See Cont’l Retail, 801 N.W.2d at 399; Harold Chevrolet, 526 N.W.2d at

59; Lewis & Harris, 516 N.W.2d at 180. In arguing for a theory of valuation that limits

the assessed value to the price paid in the last comparable sales transaction, Menard ignores

these well-established principles. Not surprisingly, none of our decisions support this

narrow view of the inexact science of real property appraisal.

       In sum, the tax court properly exercised its broad discretion in weighting the sales

comparison approach and the cost approach for the four valuation years at issue. Moreover,

the tax court adequately explained its reasoning for that decision.

       Affirmed.



       STRAS, J., took no part in the consideration or decision of this case.

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