                                                                       2016 WI 99

                  SUPREME COURT              OF   WISCONSIN
CASE NO.:               2014AP2947
COMPLETE TITLE:         Regency West Apartments LLC,
                                   Plaintiff-Appellant-Petitioner,
                             v.
                        City of Racine,
                                   Defendant-Respondent.

                            REVIEW OF A DECISION OF THE COURT APPEALS

OPINION FILED:          December 22, 2016
SUBMITTED ON BRIEFS:
ORAL ARGUMENT:          September 9, 2016

SOURCE OF APPEAL:
   COURT:               Circuit
   COUNTY:              Racine
   JUDGE:               Gerald P. Ptacek

JUSTICES:
   CONCURRED:
   DISSENTED:           ABRAHAMSON, J., joined by BRADLEY, A. W., J.
                        dissent
  NOT PARTICIPATING:

ATTORNEYS:

       For the plaintiff-appellant-petitioner, there was a brief
by Maureen A. McGinnity and Foley and Lardner LLP, Milwaukee,
and oral argument by Maureen A. McGinnity


       For the defendant-respondent, there was a brief by Robert
E. Hankel, and Robert E. Hankel, S.C., Mount Pleasant., John M.
Bjelajac,         and   Bjelajac   and   Kallenbach,   LLC,   Racine    and   oral
argument by Robert E. Hankel.
                                                                        2016 WI 99
                                                                NOTICE
                                                  This opinion is subject to further
                                                  editing and modification.   The final
                                                  version will appear in the bound
                                                  volume of the official reports.
No.       2014AP2947
(L.C. No.    2013CV1546 & 13CV1848)

STATE OF WISCONSIN                            :            IN SUPREME COURT

Regency West Apartments LLC,

              Plaintiff-Appellant-Petitioner,
                                                                     FILED
      v.                                                        DEC 22, 2016

City of Racine,                                                    Diane M. Fremgen
                                                                Clerk of Supreme Court

              Defendant-Respondent.




      REVIEW of a decision of the Court of Appeals.                  Reversed and

remanded.



      ¶1      PATIENCE     DRAKE      ROGGENSACK,      C.J.      Regency         West

Apartments, LLC brought actions against the City of Racine in
circuit court pursuant to Wis. Stat. § 74.37(3)(d) (2011-12)1 to

recover refunds from claimed excessive taxation for 2012 and

2013.      We review a per curiam, unpublished decision of the court

of appeals,2 affirming an order of the Racine County Circuit


      1
       All subsequent references to the Wisconsin Statutes are to
the 2011-12 version unless otherwise indicated.
      2
       Regency West Apts. LLC v. City of Racine, No. 2014AP2947,
unpublished slip op. (Wis. Ct. App. Sept. 16, 2015).
                                                                          No.   2014AP2947



Court3       that      dismissed      Regency     West's     claims       of    excessive

taxation.4

       ¶2        The City of Racine's appraisers valued Regency West's

property at $4,425,000 as of January 1, 2012 and at $4,169,000

as of January 1, 2013 for purposes of tax assessment.                             Regency

West       claims      both    appraisals    fail    to    comply     with      appraisal

principles required by Wisconsin law, and that those appraisals

resulted in excessive taxation.

       ¶3        Our discussion centers on whether Racine's appraisals

of     Regency         West's     property       comply     with    Wisconsin        law.

Specifically, we review whether Racine employed the methodology

required         by    Wis.     Stat.    § 70.32(1)        for   valuing        federally

subsidized property that is subject to I.R.C. § 42 restrictions;5

whether Regency West has overcome the presumption of correctness

set out in Wis. Stat. § 70.49; and whether Regency West proved

the tax assessments for 2012 and 2013 were excessive.

       ¶4        We conclude that the valuation methodologies Racine

used       for   the    2012    and   2013   assessments     did    not    comply    with
Wisconsin law.           Accordingly, we also conclude that Regency West

has overcome the presumption of correctness for the 2012 and

       3
           The Honorable Gerald P. Ptacek of Racine County presided.
       4
       Regency West commenced separate refund actions for 2012
and 2013, which were consolidated for trial.
       5
       I.R.C. § 42 provides "a dollar-for-dollar reduction in
federal tax liability for investors in exchange for equity
participation in low-income rental housing."         1 Wisconsin
Property Assessment Manual at 9-40; see 26 U.S.C. § 42.


                                             2
                                                                           No.        2014AP2947



2013 tax assessments, and that the circuit court and the court

of appeals       erred in concluding otherwise.                         And, finally, we

conclude     that       Regency       West     has      proved     that     Racine's        tax

assessments for 2012 and 2013 were excessive.                             Accordingly, we

reverse and remand to the circuit court to calculate the amount

of Regency West's refund.

                                      I.    BACKGROUND

    ¶5       Regency West is the owner and developer of a property

located    in    Racine,       Wisconsin.           Regency      West    constructed        the

property in 2010-11, with the first units placed in service

September       of   2011,     and     the     project     being        fully    leased      in

February of 2012.

    ¶6       The property has 9 two-story buildings consisting of

72 residential units, all of which are family units.                              All units

are federally regulated housing pursuant to I.R.C. § 42.                                 These

federal regulations include income and rent restrictions.                                    As

part of the restrictions, the property is subject to a Land Use

Restriction Agreement (LURA) that provides that for 30 years, 51
of the 72 units are restricted to tenants earning up to 50

percent    of    the     median       income       in   Racine    County        and    21   are

restricted to tenants earning up to 60 percent of the median

income in Racine County.                   The maximum rents that Regency West

may charge are set by Wisconsin Housing and Economic Development

Authority (WHEDA).

    ¶7       For purposes of assessing real estate taxes, Racine's

appraisers valued Regency West's property at $4,425,000 as of
January 1,       2012    and     at    $4,169,000         as     of     January 1,       2013.
                                               3
                                                                                No.   2014AP2947



Regency West contested both tax assessments, claiming that the

appraisals that underlie the tax assessments did not comply with

Wisconsin          law.        Regency      West     did       not    challenge       the     2012

assessment before the board of review because Racine did not

timely deliver the assessment to Regency West.                            However, Regency

West       did    challenge       the     2013   assessment          before     the   board     of

review.          The board upheld that tax assessment.

       ¶8         The   matter      now    before       us   is    Regency     West's       refund

action       brought         in     circuit      court       pursuant      to     Wis.      Stat.

§ 74.37(3)(d).               Therefore, we review the record made in the

circuit court and the circuit court's determination, not the

determination           of    the   assessor       or    the      board   of    review.        See

Nankin v. Vill. of Shorewood, 2001 WI 92, ¶¶24-25, 245 Wis. 2d

86, 630 N.W.2d 141.

       ¶9         Trial      testimony      turned      on   various      methods      of    real

estate appraisal by which the value of Regency West could be

determined.             The City presented testimony from its assessor,

Janet Scites, as well as the Chief Assessor for the City of
Racine,          Ray    Anderson.         Scites     testified        that     for    2012    she

applied a direct capitalization of income approach, using "mass

appraisal techniques."6                   With a direct capitalization of income

approach to valuation, an appraiser computes the property's net

operating income (income less expenses or NOI) and divides it by

       6
       Mass appraisal techniques have been used to value all
properties in a taxing district using uniform benchmarks.
Standard on Mass Appraisal of Real Property, 2013, International
Ass'n of Assessing Officers.


                                                 4
                                                                     No.       2014AP2947



the   applicable      capitalization            rate    (ratio   between         NOI   of

comparable properties and their sale prices).7

      ¶10   One of Regency West's construction lenders provided

estimates of potential gross income and expenses to Racine for

use in the 2012 valuation.            However, Racine's assessor said that

the   expense      projections        in    that       report    were      too     high.

Accordingly, Scites applied a 40 percent estimated expense ratio

that she believed was reflective of other Section 42 properties.

She testified that she did so "to stabilize expenses."

      ¶11   Racine's assessor used a 6 percent capitalization rate

derived from market-rate properties, not from the market for

Section 42 properties.8           To this, Scites added the 2.5 percent

property    tax    rate,   for    a   loaded      capitalization        rate     of    8.5

percent.9    Racine's appraisers divided the NOI they calculated

based on "stabilized expenses" by an 8.5 percent capitalization

rate thereby yielding a value of $4,425,000 for 2012.

      ¶12   With    respect      to   the   2013       assessment,   Racine       valued

Regency West's property at $4,169,000 as of January 1, 2013.


      7
       The capitalization rate is an estimate of the rate of
return an investor would expect in order to invest in the
subject property.
      8
       Ray Anderson testified that the capitalization rate was
given to them by a brokerage firm in Southeastern Wisconsin.
      9
       The Wisconsin Property Assessment Manual (WPAM) requires
that an appraiser add the effective tax rate to create the
loaded capitalization rate for the subject property when doing
an income-based valuation.     1 Wisconsin Property Assessment
Manual at 9-23.


                                            5
                                                                               No.       2014AP2947



The City's assessors used the comparable sales approach, rather

than the income approach, to appraise the property.                                 They relied

on    the    sales    of    three        properties,       which       they    claimed        were

reasonably comparable properties.

       ¶13    One of the properties, Lake Oakes, had few Section 42

housing      units;       most    were     market-rate         units.         The    other       two

properties          the      City's        assessors           relied         on,        Woodside

Village/Albert House and McMynn Tower, had no Section 42 units.

Each of those developments was either entirely HUD § 8 housing

or HUD § 8 housing with a small number of commercial units.10

The    assessor       did    not    adjust     for       differences          in     government

restrictions         on    the     different       types       of   federally         regulated

housing      when     appraising         Regency     West's         property.            Instead,

Scites       testified      that     she     considered         the     restrictions             for

Section 8 and Section 42 properties to be sufficiently similar.

       ¶14    Racine       also    presented       the    testimony       of       two    outside

appraisers,      Peter       Weissenfluh       and       Dan    Furdek.            The    outside

appraisers used four appraisal methods for both their 2012 and
2013    assessments.              First,    Weissenfluh          and    Furdek        used       the

comparable       sales       approach.             The    appraisers          relied        on    a

combination of Section 42 and Section 8 properties, and Furdek


       10
       HUD § 8 housing has entirely different restrictions than
does Section 42 housing.   For example, Section 8 properties do
not have tenant income or rent restrictions, and the government
provides rent subsidies when tenant income is insufficient to
pay the rent charged. Compare 42 U.S.C. § 1437f (HUD § 8) with
26 U.S.C. § 42 (I.R.C. § 42).


                                               6
                                                                            No.    2014AP2947



testified that he believed the restrictions on the properties

were irrelevant as long as the rental income from the properties

was the same.            Next, they used two variations of the income

approach:       the direct capitalization method and the discounted

cash flow method.             Finally, they used the cost approach.                       Each

of     Furdek     and    Weissenfluh's        valuations      resulted            in     higher

valuations than Racine's.

       ¶15   In contrast, Regency West argued that it had overcome

the     presumption       of     correctness         afforded     the         City's       tax

assessment      for     two   reasons.        First,    the     City    had       failed    to

comply with the Wisconsin Property Assessment Manual (WPAM)11 in

its     appraisals       of    Regency   West's        property        as     Wis.       Stat.

§ 70.32(1) requires.            Second, Regency West presented sufficient

contrary evidence that Racine's appraisals were excessive.                                   In

that    regard,       Regency    West    presented       testimony          from        Michael

Lerner and, its appraiser, Scott McLaughlin.                     Michael Lerner has

vast experience working with Section 42 housing whereas Scott

McLaughlin        specializes       in    appraising          subsidized               housing.
Relying solely on the income approach, which he explained was

consistent      with     WPAM,    McLaughlin         appraised     the       property        at

$2,700,000 for 2012 and $2,730,000 for 2013.

       ¶16   At    the    conclusion     of    the     trial,    the     circuit          court

dismissed Regency West's excessive tax claims for both years.

The circuit court concluded that Regency West had failed to

       11
       All references to the Wisconsin Property Assessment
Manual are to the 2011 version unless otherwise indicated.


                                           7
                                                                            No.     2014AP2947



overcome Wis. Stat. § 70.49's presumption of correctness given

to the 2012 and 2013 tax assessments.

       ¶17     The circuit court found that Racine did not do an

individual valuation of Regency West's property for 2012, but

instead,      it     "applied       mass    appraisal         techniques."        The     court

found that Scites "estimated expenses based upon her experience

and    used    a     capitalization            rate    of     8.5%."     The    court      then

concluded that "[d]ue to the number of assessments needed to be

done (7,500), the City used mass appraisal techniques, [which

was] an appraisal method approved by the Property Assessment

Manual for commercial property" in arriving at $4,425,000 as the

property's value in 2012.

       ¶18     The       court   of   appeals         affirmed    the    circuit        court's

dismissal of Regency West's complaint.                         With respect to the 2013

assessment,         the     court     rejected        Regency    West's    argument        that

Section       42     and     Section       8     properties       are     not     reasonably

comparable for purposes of the comparative sales approach.                                 The

court reasoned that both types of subsidized housing are found
within the same section of the WPAM, and Racine's assessors had

opined that the rents from all the properties were essentially

the    same.         With    respect       to    the    2013    assessment,       the     court

concluded that reliance on market-rate properties for the NOI

was    immaterial           because     Racine         used     the    comparative       sales

approach for that valuation; and for 2012, reliance on a market-

rate    NOI        was     reasonable       because         Regency     West      was    newly

constructed and did not have actual expenses to consider.


                                                 8
                                                                           No.   2014AP2947



      ¶19   Consequently,            the   court      of    appeals       concluded    that

Regency West had not overcome the presumption of correctness

accorded    to       tax      assessments        by    Wis.     Stat.      § 70.49     and,

therefore, Regency West was unable to show that its 2012 and

2013 tax assessments were excessive.

      ¶20   We granted Regency West's petition for review and now

reverse.

                                     II.   DISCUSSION

                               A.    Standard of Review

      ¶21   This is a refund action commenced under Wis. Stat.

§ 74.37(3)(d).          It permits "an aggrieved person to recover that

amount of general property tax imposed because the assessment of

property was excessive."               Wis. Stat. § 74.37(1).                A claim for

excessive assessment is a "new trial, not a certiorari action."

Trailwood Ventures, LLC v. Vill. of Kronenwetter, 2009 WI App

18, ¶6, 315 Wis. 2d 791, 762 N.W.2d 841.                       Therefore, "we review

the   record     made       before   the   circuit         court,   not    the   board   of

review."    Adams Outdoor Advert., Ltd. v. City of Madison, 2006
WI 104, ¶24, 294 Wis. 2d 441, 717 N.W.2d 803 (citing Nankin, 245

Wis. 2d 86, ¶25).

      ¶22   As we review the record made in the circuit court, we

interpret      and    apply     Wis.   Stat.      § 70.32      to   determine     whether

Racine's appraisals for 2012 and 2013 followed the statute's

directives.           We     also    interpret        Wis.     Stat.      § 70.49(2)     to

determine whether Regency West has overcome the presumption of

correctness          that     attached      to        Racine's      tax     assessments.
Statutory interpretation and application present questions of
                                             9
                                                                 No.     2014AP2947



law that we independently review, while benefitting from the

analyses of the court of appeals and the circuit court.                    Oneida

Cty. Dep't of Soc. Servs. v. Nicole W., 2007 WI 30, ¶9, 299

Wis. 2d 637, 728 N.W.2d 652; see also Soo Line R.R. Co. v. DOR,

97 Wis. 2d 56, 59-60, 292 N.W.2d 869 (1980).

                      B.    General Appraisal Principles

       ¶23   "The power to determine the appropriate methodology

for    valuing   property      for    taxation     purposes    lies    with    the

legislature."     Walgreen Co. v. City of Madison, 2008 WI 80, ¶19,

311 Wis. 2d 158, 752 N.W.2d 687.                 Wisconsin Stat. § 70.32(1)

provides that "property shall be valued by the assessor in the

manner specified in the Wisconsin property assessment manual."

"The Manual, in turn, provides that '[t]he goal of the assessor

is    to   estimate   the    market   value   of   a   full   interest    in   the

property, subject only to governmental restrictions.                     All the

rights, privileges, and benefits of the real estate are included

in this value.        This is also called the market value of a fee

simple interest in the property.'"               Walgreen, 311 Wis. 2d 158,
¶20 (quoting 1 Wisconsin Property Assessment Manual (2007) at 7—

4).

       ¶24   The objective of an appraisal is to determine "the

full value" that an owner would receive at a "private sale."

Wis. Stat. § 70.32(1).          For purposes of determining full value,

property is separated into seven classifications based on use.

Wis. Stat. § 70.32(2).           Regency West is residential property.

§ 70.32(2)(a)1.


                                        10
                                                              No.    2014AP2947



       ¶25   Wisconsin Stat. § 70.32(1) provides the methodological

framework that appraisers must follow when appraising property.

It delineates a three-tier approach:

       In determining the value, the assessor shall consider
       recent arm's-length sales of the property to be
       assessed if according to professionally acceptable
       appraisal practices those sales conform to recent
       arm's-length sales of reasonably comparable property;
       recent arm's-length sales of reasonably comparable
       property;   and   all  factors   that,    according to
       professionally acceptable appraisal practices, affect
       the value of the property to be assessed.
Wis. Stat. § 70.32(1); see also State ex rel. Markarian v. City

of Cudahy, 45 Wis. 2d 683, 686, 173 N.W.2d 627 (1970).

       ¶26   "An assessor has an obligation to follow the three

tier     assessment    analysis."       Adams,   294     Wis. 2d    441,    ¶47.

Nevertheless,       this   hierarchy    of   appraisal    methods    does    not

permit an assessor to use an appraisal method when insufficient

data exist to perform an accurate valuation under that method.

To the contrary, an assessor must not appraise a property using

unreliable data.       Metro. Holding Co. v. Bd. of Review of City of

Milwaukee, 173 Wis. 2d 626, 631-32, 495 N.W.2d 314 (1993).
       ¶27   Under the first tier of appraisal methods set out in

Wis. Stat. § 70.32(1), an appraiser should rely on recent arm's-

length sales of the subject property to determine the property's

value.       This     approach   is    universally     considered   the     most

reliable method of appraising property.              Markarian, 45 Wis. 2d

at 686.      However, both parties agree that this method is not at

issue in the present case because there were no sales of the
subject property to consider.

                                       11
                                                                  No.    2014AP2947



      ¶28   Under     the   second     tier    of     appraisal    methods,     an

appraiser values a property by considering recent, arm's-length

sales of "reasonably comparable" properties.                  Id.; 1 Wisconsin

Property     Assessment     Manual     at     9-45.       The     WPAM     defines

"reasonably    comparable"      properties     as     those   properties       that

represent the "subject property in age, condition, use, type of

construction, location, design, physical features and economic

characteristics."       1 Wisconsin Property Assessment Manual at 7-

22.

      ¶29   Moreover, "if there has been no arms-length sale and

there are no reasonably comparable sales [] an assessor [may]

use any of the third-tier assessment methodologies."                    Adams, 294

Wis. 2d 441, ¶34.        "The income approach, which seeks to capture

the amount of income the property will generate over its useful

life, and the cost approach, which seeks to measure the cost to

replace the property, both fit into this analytic framework."

Id., ¶35.

      ¶30   However,     when   valuing     subsidized    housing,       the   WPAM
suggests that the "Cost Approach is the least reliable valuation

method"     because    of   "the     difficulty     in   estimating       external

obsolescence."        1 Wisconsin Property Assessment Manual at 9-45.

Accordingly, an assessor should apply the cost approach when




                                       12
                                                                                  No.     2014AP2947



evaluating subsidized housing only when other approaches are not

available.12

       ¶31    Because an appraiser must consider all aspects of the

subject      property      that    may    affect      its    value,          appraisers         must

consider      whether       a     property's         value        is    affected           by     its

classification        as   residential         property          subject      to        Section    42

subsidized      housing         restrictions.              See       Metro.       Holding,        173

Wis. 2d at 631-32.

       ¶32    The income approach is often the most reliable method

for    assessing        subsidized        housing.               1     Wisconsin          Property

Assessment Manual at 9-45 ("The income approach may be the most

useful method for valuing subsidized housing . . . .").                                           The

income approach is superior when applied to subsidized housing

"due    to    the     conditions         of    the    agreement             and    the     limited

availability of data."            Id.

       ¶33    The WPAM recognizes dissimilarities between subsidized

properties      and     market-rate           properties.              It     instructs         that

federally regulated properties are to be treated "as a separate
market and distinct from conventional (market level) projects."

1 Wisconsin Property Assessment Manual at 9-42.                                   Specifically,

federally      regulated        properties          have    "operational            constraints

       12
       Wisconsin Stat. § 70.32(1g) prohibits assessors from
considering the effect of Section 42 tax credits when valuing
property. It is nearly impossible to apply the "cost approach"
to subsidized housing because the "cost approach" requires an
appraiser to examine the cost of replacing the property, which
will necessarily be impacted by the tax credits an owner
receives in return for constructing the property.


                                               13
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(regulations) and risk factors that are different from a market

rate property."             Id.        As such, appraisals that fail to account

for     differences           between          those     properties             and     market-rate

properties contravene the WPAM and Wis. Stat. § 70.32.                                          Metro.

Holding, 173 Wis. 2d at 630-32.

       ¶34     The WPAM provides that to be "reasonably comparable,"

other properties must have "similar restrictions" to the subject

property.          1 Wisconsin Property Assessment Manual at 9-45 ("To

be considered [reasonably] comparable, the recent arm's-length

sales        should        have        restrictions          similar         to       the      subject

property.").           With these foundational principles in mind, we

turn    to    the     2012       and    2013    appraisals          that     underlie         the   tax

assessments for Regency West's property.

                              C.       Regency West's Property

                                  1.     2012 tax assessment

       ¶35     Regency        West       placed        its     first        units       in     service

September of 2011, and the project was fully leased in February

of    2012.         Both     Racine      and     Regency       West     valued         the     subject
property       as     of    January 1,         2012,     using        the       income       approach.

However, they did not apply it in the same way.                                       First, Racine

did     not    do     an     individualized            appraisal           of     Regency      West's

property,       but        instead,      employed        "mass       appraisal          techniques"

because its appraisers had 7,500 properties to value in 2012.

Regency       West's       appraisal       was    based       on     the    subject          property.

Second,       Racine       did     not    consider       the        projected         expenses      and

income       for    the     subject       property           when    calculating             its    NOI.
Regency West used projected expenses and income for the subject
                                                  14
                                                                          No.   2014AP2947



property.      Third, Racine employed a capitalization rate based on

market-rate properties; Regency West applied a capitalization

rate derived from a Section 42 housing market.

       ¶36    In calculating Regency West's NOI for 2012 under its

mass appraisal technique, the City's appraiser used market-rate

vacancy      and   market-rate     expenses      instead     of     the    vacancy     and

expense projections that were specific to the subject property.

This    approach     fails    to   account      for    the   vast    differences        in

federally     regulated      housing      discussed     above      and    distorts     the

actual value of Regency West's property.

       ¶37    An   appraiser       must    not    value      federally          regulated

housing as if it were market-rate property.                   Doing so causes the

assessor to "pretend" that the subject property is not hindered

by federal restrictions.              Metro. Holding, 173 Wis. 2d at 631;

see also 1 Wisconsin Property Assessment Manual at 9-45 ("Any

income    approach     used    must    consider        all   the    impacts       of   the

subsidy program.").           The restrictions and underlying agreements

implicit      in    federally      regulated      housing         will      affect     the
property's value.            See Bloomer Hous. Ltd. P'ship v. City of

Bloomer, 2002 WI App 252, ¶31, 257 Wis. 2d 883, 653 N.W.2d 309

("An assessor must consider the effects of the restrictions on

subsidized housing."); Walworth Affordable Hous., LLC v. Vill.

of Walworth, 229 Wis. 2d 797, 802–03, 601 N.W.2d 325 (Ct. App.

1999)     (reasoning      that      because      the     subject         "property      is

encumbered with income and rental restrictions resulting from

the [Federal Housing Tax Credits], these restrictions must be
considered in the property's valuation.").                    As discussed above,
                                           15
                                                                                No.     2014AP2947



the WPAM recognizes these differences and directs that assessors

are   not     to     treat    federally       regulated      housing         as    if      it   were

market-rate housing for purposes of determining property values.

1    Wisconsin       Property        Assessment       Manual      at     9-42     ("Subsidized

housing       properties           operate         differently         than       conventional

(market-rate) properties.").

       ¶38     Our    decision        in    Metropolitan          Holding         unambiguously

requires assessors to use income and expenses for the subject

property       when     valuing        subsidized         housing        under     the      income

approach.          Metro. Holding, 173 Wis. 2d at 634 (remanding the

"case with instructions that [t]he Board order the city assessor

to    assess       Layton     Garden       using    the    capitalization             of    income

approach based on actual income and expenses").

       ¶39     In Metropolitan Holding, the plaintiff, Layton Garden,

argued that its property was valued artificially high because

the City of Milwaukee had relied on market-rate expenses when

determining the property's NOI.                      Id. at 630.             We agreed with

Layton       Garden     and     overturned          the    City     of      Milwaukee's         tax
assessment based on that valuation.                        Id.      We reasoned that by

employing market-rate rents and market-rate expenses, the city

assessor "pretended that Layton Garden was not hindered by the

HUD   restrictions           and     valued   the     property         at   the       amount     the

property       would         bring     in     an     arm's-length           transaction           if

Metropolitan were able to charge market rents."                             Id. at 631; see

also Mineral Point Valley Ltd. P'ship v. City of Mineral Point

Bd. of Review, 2004 WI App 158, ¶11, 275 Wis. 2d 784, 686 N.W.2d
697    (concluding           that     the     assessor       must        value        properties
                                               16
                                                                          No.    2014AP2947



individually,       not    based    on   hypothetical         income      and    expenses

(citing Metro. Holding, 173 Wis. 2d at 629)).

       ¶40   Wisconsin Stat. § 70.32(1) requires assessors to value

property based on "the best information that the assessor can

practicably       obtain."     Here,       there   was       available     to    Racine's

assessor projected expenses and income for this newly opened

property.       However, Racine chose not employ that information and

chose    instead     to     calculate      the     NOI       for   its     income-based

valuation       through    mass     appraisal      techniques        that       were   not

particularized to Regency West's property.                      We conclude that in

that    regard,     Racine    did    not    comply       with      the    directive     of

§ 70.32(1) because it did not use the "best information" that

was available to its assessor.

       ¶41   In contrast to the City's approach, Regency West used

income    and     expenses    specifically         projected        for    the    subject

property     when    it    calculated       the    NOI       for   its     income-based

valuation.        These projected expenses are the best information

that could practicably be obtained.                 We conclude that for this
newly opened property, the use of projected expenses complies

with the mandate of Wis. Stat. § 70.32(1).

       ¶42   In    addition    to    calculating         a   NOI    for    the    subject

property,    an     income-based      valuation      requires        determining       the

applicable capitalization rate.                 Therefore, we consider whether

appraisers,       when    valuing    federally      regulated        properties,       may

derive the capitalization rate from market-rate properties.                             We

conclude that they may not.


                                           17
                                                                           No.       2014AP2947



       ¶43    The capitalization rate expresses the rate of return

an investor would expect to receive from an investment in the

subject property.        1 Wisconsin Property Assessment Manual at 9-

21.     The determination of the applicable capitalization rate is

a   critical       element    in    determining          the    value     of   a     property

because a small change in capitalization rate will create a

significant change in a property's value.                             This is so because

the value of a subject property is determined by dividing its

NOI     by   the    applicable       capitalization             rate,    which       rate     is

expressed as a percentage.                 Id.       Therefore, a larger percentage

will yield a smaller total value for the property.

       ¶44    When determining the applicable capitalization rate,

assessors must consider factors that appreciably alter the value

of the property.         Otherwise, the capitalization rate will not

truly     represent     the    risk        an        investor    is     undertaking         when

investing in the property.

       ¶45    "Capitalization rates from the marketplace are usually

derived from the sale of market-rate projects."                             Id. at 9-45.
Such     capitalization            rates        "do     not     reflect        the     unique

characteristics of subsidized housing.                        In some cases there can

be more risk in subsidized housing, in other cases there is

less."       Id.    The WPAM further explains, "Rent levels are often

regulated and annual increases may be difficult to obtain.                                    In

many cases the proportion of debt to equity is different in

subsidized projects than in market rate projects.                                  With some

types of projects the amount of annual equity return is limited
(called a limited dividend)."                   Id.     Additionally, for some types
                                                18
                                                                        No.    2014AP2947



of federally regulated housing, "equity investors primarily look

to other sources beyond the cash flow of the property for their

required return on investment."              Id.

    ¶46       Appraisers who fail to consider property classified as

federally      regulated     housing        and    the    restrictions         attendant

thereto when deriving capitalization rates are overlooking major

characteristics        of   such     property.          After    all,   a     property's

classification as federally regulated housing may substantially

impact the risks associated with the property, thereby altering

the market for the property.

    ¶47       Moreover,     as     discussed       above,       the   WPAM     prohibits

appraisers      from    using      market-rate          properties      when     valuing

federally regulated housing.            As a corollary, appraisers may not

derive    a    capitalization         rate       from    market-rate         properties.

Rather,    appraisers       should    use    "recent      market      value    sales    of

similar properties" to determine the capitalization rate.                              Id.

at 9-24.       Therefore, when valuing a property using the income

approach, appraisers must use capitalization rates derived from
                                                                                       13
a market consistent with the market for the subject property.

    13
       The market of properties an appraiser may consider when
determining the capitalization rate will often be broader than
the market of properties that are reasonably comparable to the
subject property. The WPAM does not require an appraiser to
consider the specific restrictions attendant to each property an
appraiser relies on to determine the capitalization rate; the
property manual requires that the properties the appraiser
relies on be "similar." See 1 Wisconsin Property Manual at 9-24
(stating that an appraiser must use "similar properties" when
determining   the   capitalization   rate).     Therefore,   the
capitalization rate may be derived from properties classified as
the same type of federal housing as the subject property without
                                                     (continued)
                                            19
                                                                       No.    2014AP2947



     ¶48    The    City      assessor     used      6     percent       as     a   base

capitalization rate, which she derived through mass appraisal

techniques of market-rate properties.                   The assessor then added

2.5 percent, which is the tax rate for Regency West, yielding a

loaded capitalization rate of 8.5 percent.14

     ¶49    Both    the     circuit   court      and     the    court    of     appeals

approved the 6 percent base rate.             They relied on Mineral Point

Valley     from    which      they      concluded        that     the        applicable

capitalization       rate      must      be   derived           from     market-rate

properties.15      The court of appeals also relied on Bischoff v.

City of Appleton, 81 Wis. 2d 612, 260 N.W.2d 773 (1978).                           Their

reliance    on     either     Mineral     Point     Valley       or     Bischoff     is

misplaced, and it also fails to comply with our decision in

Metropolitan Holdings discussed in some detail above.




considering the property's individualized restrictions.       In
contrast, whether properties are reasonably comparable for
purposes of the comparative sales approach to valuation requires
a more exacting analysis.   Properties used for valuation under
the comparable sales approach must have "restrictions similar to
the subject property." Id. at 9-45 (emphasis added).
     14
       Both parties added the City of Racine's tax rate to the
base capitalization rate they calculated, as the addition is
required by WPAM. 1 Wisconsin Property Assessment Manual at 9-
22.
     15
       The circuit court also approved Racine's appraisal for
the 2012 income valuation, saying it was ok for "commercial
Property."   However, under Wis. Stat. § 70.32(2)(a)1., Regency
West is classified as residential property, not commercial
property, which is set out under Wis. Stat. § 70.32(2)(a)2.


                                         20
                                                                         No.          2014AP2947



       ¶50     Mineral       Point   Valley      considered       competing       arguments

about which interest rate should be used when establishing a

capitalization rate based on the underlying mortgage for a HUD

§ 515 property.16             Mineral Point Valley, 275 Wis. 2d 784, ¶8.

The partnership had obtained a 50-year mortgage at 8.75 percent.

Id. at ¶3.         As part of the HUD program, the federal government

subsidized the partnership for 7.75 percent of that interest.

Id.    Because of the subsidy, the city assessor used 1 percent as

the capitalization rate and the partnership used 8.75 percent.

The court of appeals precluded the use of 1 percent as the

capitalization rate.            Id., ¶13.

       ¶51     Mineral       Point      Valley     did     not     involve        a     direct

capitalization          of     income    approach,        which     is   the          type    of

capitalization approach all parties have used in the case before

us    for    2012.      Mineral      Point    Valley      had    nothing     to       do     with

whether market-rate properties or Section 42 properties should

establish the market from which sales and NOIs were obtained

when        determining        the   applicable          capitalization        rate          for
federally regulated housing.17                   Therefore, Mineral Point Valley

should       not   be   read    to   have    concluded      that    an   appraiser           may

calculate a capitalization rate from market-rate properties when

valuing federally regulated property.


       16
            See 42 U.S.C. § 1485.
       17
       Recall that a market-driven capitalization rate is
determined by taking NOIs of comparable properties and dividing
those numbers by the sale prices for those properties.


                                             21
                                                                              No.     2014AP2947



      ¶52    In    the    case      at    hand,       the    City's     assessors      used   a

capitalization       rate      derived         from    market-rate       properties        when

appraising Regency West's federally regulated property for 2012.

The City's assessors should have used a market for Section 42

properties to determine the capitalization rate.                                    See Metro.

Holding, 173 Wis. 2d at 634.                         Instead, the assessors used a

capitalization rate provided by a brokerage firm, which did not

account for the property's classification as subsidized housing.

As a result, the City's assessors' use of a 6 percent base

capitalization          rate    was      not    in     compliance       with    Wis.     Stat.

§ 70.32(1) or with the WPAM.                   Taxing authorities are required to

comply with the law when valuing properties, and failing to do

so   negates      the    presumption           of     correctness       that    Wis.     Stat.

§ 70.49 otherwise accords.                     Allright Props., Inc. v. City of

Milwaukee, 2009 WI App 46, ¶12, 317 Wis. 2d 228, 767 N.W.2d 567

(citing Walgreen, 311 Wis. 2d 158, ¶17).

      ¶53    The    court      of     appeals,        relying     on    our    decision       in

Bischoff    concluded          that      an    appraiser's       sole    reliance       on    an
income     approach      to     valuation        was        improper.      The       court    of

appeals' reliance on Bischoff is understandable, but misplaced.18




      18
       The court of appeals' rationale that Section 42 and
Section 8 programs are similar because they are found within the
same section of the WPAM is unconvincing.    Both are subsidized
housing; however, the similarities between the two programs
largely end there.     The two programs have vastly different
restrictions.


                                                22
                                                           No.    2014AP2947



      ¶54   Bischoff arose in the context of demurrer where we

held that a complaint that alleged error in the use of the

income approach      for valuation when there had been an arm's-

length sale was timely filed.          Bischoff, 81 Wis. 2d at 619-20.

We never concluded that an income approach could not be used as

the sole method of valuation in all cases.           See also Northland

Whitehall Apts. Ltd. P'ship v. City of Whitehall Bd. of Review,

2006 WI App 60, ¶25, 290 Wis. 2d 488, 713 N.W.2d 646 ("the

'income approach' as utilized by its appraiser has also been

recognized by the courts . . . as a valid method of determining

the value of subsidized housing projects").

      ¶55   Furthermore,    Bischoff     did   not   address     subsidized

housing.     As we have explained, because of the difficulty in

appraising subsidized properties under other appraisal methods,

the income approach may be the best determiner of value.               And,

the WPAM does not preclude appraisers from relying solely on the

income approach when valuing subsidized properties.                We have

recognized that a single valuation approach under the third tier
may be appropriate.     Adams, 294 Wis. 2d 441, ¶53 ("There may be

situations in which the only information available compels an

assessor to use a single methodology to [value] property.").

      ¶56   By contrast, Regency West's expert utilized a market

for   Section   42   properties   when    constructing   the     applicable

capitalization rate.       In that market, Section 42 property base

capitalization rates averaged 7.4 percent for senior properties

(with a high of 8.4 percent and a low of 5.9 percent) and
averaged 7.57 percent for family property (with a high of 8.83
                                   23
                                                                    No.    2014AP2947



percent and a low of 6.59 percent).                Regency West's expert used

a base capitalization of 8 percent for 2012.                    He then added the

same tax rate of 2.54 percent, and employed a loaded rate of

10.54 percent in his income-based 2012 valuation.                     Determining

the capitalization rate in this manner complied with the WPAM as

Wis. Stat. § 70.32(1) requires.

       ¶57     Based on its expert's calculations described above,

Regency West valued its property at $2,700,000 as of January 1,

2012.        Racine's   valuation    of     $4,425,000    was    derived    from    a

procedure that did not comply with Wis. Stat. § 70.32(1) and the

WPAM;       Regency   West's    valuation      followed   the    requirements      of

§ 70.32(1) and WPAM in its valuation.                Regency West's appraisal

is the best evidence of the property's value.19                   Accordingly, we

conclude that Regency West has shouldered its burden to show

that Racine's taxation for 2012 was excessive and a refund is

due.

                           2.    2013 tax assessment

       ¶58     Although both parties employed the income approach to
valuation for 2012, only Regency West did so for 2013.                       Racine

applied a comparative sales approach for its 2013 assessment.

       19
       We do not consider the appraisals of Peter Weissenfluh
and Dan Furdek because their appraisals exceeded the valuations
of Racine for both 2012 and 2013.    See Trailwood Ventures, LLC
v. Vill. of Kronenwetter, 2009 WI App 18, ¶¶12-13, 315 Wis. 2d
791, 762 N.W.2d 841 (concluding that a taxation district that
has accepted the payment it requested has agreed that its
taxation value is the maximum value that it may seek; Wis. Stat.
§ 74.37 permits a refund to the taxpayer or may uphold the
status quo, but there is no authority for deficiency judgments).


                                          24
                                                                           No.    2014AP2947



Regency West argues that the properties the City's appraiser

relied on, primarily Section 8 properties, were not reasonably

comparable to the subject property, which is Section 42 housing.

For the reasons discussed below, we conclude that Section 8 and

Section      42    properties     are      not        "reasonably       comparable,"     and

therefore     the      City   incorrectly            applied   the    comparative     sales

approach when valuing Regency West's property for 2013.

       ¶59    It is the legislature that required the use of "recent

arm's-length sales of reasonably comparable property" when an

appraiser is valuing a property under the second tier method.

Wis.    Stat.       § 70.32(1).           And        in   addition,      § 70.32(1)     also

requires      consideration          of   "all        factors      that,    according     to

professionally acceptable appraisal practices, affect the value

of the property."

       ¶60    If there are no             "reasonably comparable"               properties,

the comparable sales approach cannot be used.                           Allright Props.,

317 Wis. 2d 228, ¶29.             That is, an appraiser cannot accurately

value a property using data from the sales of properties that
are not "reasonably comparable" to the subject property.                              Absent

comparable sales, an appraiser must apply the third tier for

valuing property.         Id.

       ¶61    The WPAM does not leave the determination of whether

properties are reasonably comparable wholly to the discretion of

an   appraiser.         It    provides      appraisers         with     instructions    for

assessing         subsidized     properties           under     the     comparable    sales

approach.          To obtain the necessary information, an appraiser
"may   have       to   perform   a    statewide           search   to    find    comparable
                                                25
                                                                        No.     2014AP2947



sales."       1 Wisconsin Property Assessment Manual at 9–45.                           An

appraiser can obtain this information "by viewing website data

and    by    calling    other   assessors         who     have    similar     subsidized

housing in their jurisdictions."                 Id.

       ¶62    The WPAM explicitly states when subsidized properties

are reasonably comparable:                properties being compared must have

"restrictions      similar      to    the       subject      property."         Id.     To

determine if properties have similar restrictions, an appraiser

must    examine    the    specific        restrictions        that   apply      to    each

property, as well as the differences between these restrictions.

And, an appraiser must consider the nature of these restrictions

and the ways in which these restrictions affect the value of

each property.         This also suggests that an appraiser should not

compare subsidized property to non-subsidized property as non-

subsidized property lacks the restrictions subsidized property

carries.      We have explained the necessity of understanding the

specific       restrictions      appurtenant            to     federally        regulated

property when appraising such property.                          Metro. Holding, 173
Wis. 2d at 631-32.         The failure of an appraiser to consider the

restrictions specific to the subject property is a failure to

follow      Wisconsin    law.        We   now    examine      whether     two    specific

classifications of subsidized housing, Section 8 and Section 42,

are "reasonably comparable."20
       20
       The WPAM has a section dedicated to the various
subsidized housing credits.    1 Wisconsin Property Assessment
Manual at 9-40.   This section includes descriptions of the two
types of federally regulated properties at issue in this case,
Section 42 and Section 8.


                                            26
                                                                           No.    2014AP2947



      ¶63       Section 42 is a United States Treasury program that

promotes the development of affordable housing by allowing an

owner to receive federal tax credits for developing a parcel of

land into Section 42 housing.21                The credits can be exchanged for

equity     in     the    property,     which       allows    the        owner    to   reduce

construction debt with equity financing.                      Under the Section 42

program,        investors    receive    "a     dollar-for-dollar            reduction     in

federal tax liability . . . in exchange for equity participation

in low-income rental housing."                 1 Wisconsin Property Assessment

Manual at 9-40.

      ¶64       Section 42 "credits come with many restrictions."                        Id.

For example, in Wisconsin the owner is required to enter into a

LURA that obligates the owner to maintain the project for 30

years with rent-restricted units for income-qualified tenants.

Id.

      ¶65       In    contrast,     Section    8    is   a   rent       subsidy   program.

"Project owners receive a rental subsidy payment under Housing

Assistance Payment Contract (HAP Contract) that range from 15 to
40 years."           Id. at 9-42.     The property owner is required to rent

Section 8 units to tenants from low or very low-income families.

"Families whose incomes do not exceed 80% of the median income

in the area are defined as low-income; very low-income families

do not exceed 50% of the median income."                     Id.



      21
           In    Wisconsin,       Section     42    housing        is    administered     by
WHEDA.


                                              27
                                                                              No.       2014AP2947



      ¶66      Section     8       properties          are       generally    a     low       risk

investment.        The    risk          is    low,    in    part,   because       the    federal

government insures the owners of Section 8 housing against the

possibility that their tenants will fail to pay rent.

      ¶67      In sum, Section 42 and Section 8 are vastly different

subsidized       housing       programs,          with       different      risks       for    the

owners.     Section 42 is a tax credit program; Section 8 is a

subsidy program.         Section 42 is a riskier investment because the

government does not insure against non-payment of rents.                                       In

contrast, the government guarantees much of the rents of Section

8 properties.          Unlike owners of Section 8 properties, Section 42

owners    are    required          to    enter    into      a    30-year    LURA.        Regency

West's expert testified that these differences lead to vastly

different markets for the two types of properties.

      ¶68      In the case before us, the City's assessors relied on

the     sales     of     three          properties:               Lake     Oakes,       Woodside

Village/Albert House and McMynn Tower.                           Lake Oakes possesses few

Section 42 housing units; most units are market-rate rentals.
Woodside Village/Albert House and McMynn Tower have no Section

42 units.       One property was entirely Section 8 housing and the

other    was    Section        8    housing          with    a    few    commercial       units.

Therefore, their sales were not representative of "reasonably

comparable" arm's-length sales as the second tier of Wis. Stat.

§ 70.32(1) and the WPAM require.

      ¶69      Moreover, the City's assessors did not consider the

varying restrictions federal                     regulations require          when       valuing
Regency West's property.                     Rather, Scites testified that Section
                                                 28
                                                                       No.    2014AP2947



42 and Section 8 properties have similar restrictions.                           Scites

relied almost entirely on the properties' similar rates of rent,

without recognizing that Section 8 rents are subsidized by the

government and Section 42 rents are not.                      Furthermore, nothing

in the WPAM or Wisconsin law equates "reasonably comparable"

with "similar rents."              The failure of Racine to consider the

properties' restrictions caused the three sales Scites relied on

to fall outside the parameters of reasonably comparable sales.

      ¶70   The     City     was     required       to     consider     the     various

restrictions on subsidized properties.                   And, as a matter of law,

Section 8 and Section 42 do not possess the same restrictions.

The   City's      2013   assessment        of    the     subject    property     relied

totally on its assertion that the sales of Lake Oakes, Woodside

Village/Albert House and McMynn Tower were sales of reasonably

comparable       properties.         As     we    have    explained     above,     WPAM

explains    the    differences       those       properties    have    from    Regency

West's property such that they are not reasonably comparable.

Accordingly, Scites' 2013 appraisal was completed in violation
of Wisconsin law and the WPAM.                   The circuit court erroneously

concluded    that    the   City's         assessors      complied     with    Wisconsin

law.22

      ¶71   We    conclude     that       Scites'      2013   appraisal      failed   to

follow Wisconsin law and the WPAM, negating the presumption of

      22
       We emphasize that whether an assessor complied with
Wisconsin law and the WPAM are questions of law for our
independent review.    Adams Outdoor Advert., Ltd. v. City of
Madison, 2006 WI 104, ¶26, 294 Wis. 2d 441, 717 N.W.2d 803.


                                            29
                                                                       No.    2014AP2947



correctness otherwise available in Wis. Stat. § 70.49.                         Allright

Props., 317 Wis. 2d 228, ¶12.

       ¶72    Regency West argues that it has presented the only

evidence of its property's value as of January 1, 2013 that

complies with Wisconsin law and the WPAM.                  We agree.         It did so

in its third tier direct capitalization of income appraisal.

That    appraisal     employed      actual      expenses   and     income      for   the

property upon which the NOI was calculated, and it derived its

capitalization rate from a market for Section 42 properties.

Regency West's appraisal determined that the property's value

was    $2,730,000     as    of    January 1,     2013.      This    is       sufficient

evidence to meet Regency West's burden to show that the City's

tax assessment was excessive and accordingly a refund is due.23

                                  III.    CONCLUSION

       ¶73    We conclude that the valuation methodologies Racine

used    for   the    2012   and   2013    assessments      did   not     comply      with

Wisconsin law.        Accordingly, we also conclude that Regency West

has overcome the presumption of correctness for the 2012 and
2013 tax assessments, and that the circuit court and the court

of appeals erred in concluding otherwise.                        And, finally, we

conclude      that    Regency      West    has    proved    that       Racine's      tax

assessments for 2012 and 2013 were excessive.                      Accordingly, we




       23
       Regency West had the burden to show that that assessment
was excessive. See Sausen v. Town of Black Creek Bd. of Review,
2014 WI 9, ¶20, 352 Wis. 2d 576, 843 N.W.2d 39.


                                           30
                                                           No.     2014AP2947



reverse and remand to the circuit court to determine the amount

of the refund due Regency West.

    By   the   Court.—The   decision   of   the   court   of     appeals   is

reversed and remanded.




                                  31
                                                                      No.    2014AP2947.ssa


      ¶74   SHIRLEY S. ABRAHAMSON, J.                 (dissenting).          Fortunately

for Regency West (and unfortunately for Racine's coffers and the

other Racine taxpayers), the majority opinion declares that the

lower   assessment     of     the    property       at     issue     is     correct.    The

majority opinion flouts the longstanding principle that property

tax assessors should use the best information possible in order

to determine real property's full value, upends the proper scope

of   appellate     review,     and        inserts   itself      as     a    fact-finder.

Because of the majority opinion's unwarranted departures from

precedent and usurpation of the role of the circuit court, I

dissent.

      ¶75   The essential question posed in this court is whether

Racine's original assessments are excessive.                        The circuit court,

the court of appeals, and I answer the question in the negative.

Applying    a    correct     legal    analysis,       giving        deference     to    the

circuit court, the fact-finder, and reviewing the record compel

answering the question with a firm, clear "No."

      ¶76   The    majority     opinion          reaches      the    opposite     answer,
resting its conclusion on errors of law and on its refusal to

consider    the    evidence     Racine       presented.             Now,    assessors    of

federally       subsidized    housing        (at    least      Section      42   housing)

apparently can go straight to an income approach, a third-tier

method of assessment, bypassing the best information and other

proper assessment methodologies along the way.

                                             I

      ¶77   Regency    West,        the    property      at    issue,       comprises    72
apartment units and is owned by a limited liability corporation.

                                             1
                                                                          No.    2014AP2947.ssa


The property is treated as commercial property for assessment

purposes.         Wisconsin           Property       Assessment        Manual     9-1     (2011)

[hereinafter        Manual]           ("For   assessment          purposes         commercial

property consists of . . . [a]partment houses of four or more

units . . . .").               Although       the      majority         opinion        describes

Regency    West        as     residential     property,          the     majority       opinion

applies the commercial valuation principles set forth in the

Manual.1

     ¶78    I      agree       with     the      majority        opinion        that    general

appraisal principles apply to federally subsidized housing.                                   I

agree     with     the      majority      opinion       that      the     three        valuation

approaches       are     an    arm's-length          sale   of    the    subject        property

(tier    one),     the        sales    comparison       approach         (tier     two),    and

income, cost, and other valuation methods (tier three).2

     ¶79    I agree with the majority opinion that the statutory

interpretation and application of Wis. Stat. § 70.32 presents a

question of law that this court determines independently.                                   The

court determines, as a matter of law, whether the assessor's
valuation        methodology          complies       with    statutory          requirements.

Here our agreement ends.

     ¶80    I disagree with the majority opinion that, as a matter

of law, the only valuation approach applicable in the instant


     1
         See majority op., ¶¶24, 31, 50 n.15.
     2
      All parties agree that there are no recent arm's-length
sales of Regency West, so a tier one analysis was not possible.
The instant case is about which other tier analyses should be
used.


                                                 2
                                                                    No.    2014AP2947.ssa


case is the income approach.               The majority opinion errs as a

matter of law.

    ¶81    The majority opinion errs as a matter of law when it

totally discards and disregards in its analysis the evidence

presented by Dan Furdek and Peter Weissenfluh, Racine's expert

witnesses.         The     majority      opinion          describes        Furdek     and

Weissenfluh's evidence, but does not consider the evidence in

its analysis and conclusion.

    ¶82    Why ignore these experts?                One reason is "because,"

according to the majority opinion, "their appraisals exceeded

the valuations of Racine for both 2012 and 2013."                         Majority op.,

¶57 n.20.3    A second reason for ignoring Racine's two experts,

according to the majority opinion, is that they err as a matter

of law in using a sale comparison approach to valuation in the

instant case.

    ¶83    The    majority     opinion         supports    its     legal     conclusion

that Racine's two experts should be ignored in their entirety in

footnote   19,    citing      Trailwood        Ventures,     LLC    v.      Village   of
Kronenwetter,     2009   WI    App   18,       ¶¶12-13,    315     Wis. 2d 791,       762

N.W.2d 841.      The footnote in the majority opinion states:

    We do not consider the appraisals of Peter Weissenfluh
    and Dan Furdek because their appraisals exceeded the
    valuations of Racine for both 2012 and 2013.       See
    Trailwood Ventures, LLC v. Vill. of Kronenwetter, 2009
    3
       The majority misstates Furdek and Weissenfluh's report
because the experts' pre-reconciliation value derived from the
income   approach   was  actually  lower   than  the  original
assessments.     After reconciling their various approaches,
however, their appraisal was slightly higher than the original
assessments.


                                           3
                                                       No.   2014AP2947.ssa

    WI App 18, ¶¶12-13, 315 Wis. 2d 791, 762 N.W.2d 841
    (concluding that a taxation district that has accepted
    the payment it requested has agreed that its taxation
    value is the maximum value that it may seek; Wis.
    Stat. § 74.37 permits a refund to the taxpayer or may
    uphold the status quo, but there is no authority for
    deficiency judgments).
    ¶84   The    Trailwood   Ventures   case   does   not    support   the

conclusion of law (reached by the majority opinion) that a court

cannot or should not consider evidence presented that the value

of the subject property was greater than the assessment from

which review was sought.      The Trailwood Ventures decision says

nothing about admissible evidence or disregarding evidence that

the value of the subject property was greater than the original

assessment.     The briefs filed in Trailwood Ventures, as well as

the opinion, make clear that admissibility of evidence was not

an issue in Trailwood Ventures.

    ¶85   Trailwood Ventures holds only that the statutes do not

permit a trial court to set a higher assessment under Wis. Stat.

§ 74.37 than that from which the taxpayer appealed or impose a

greater tax burden on the taxpayer than the one the taxpayer

challenges.     Trailwood Ventures, 315 Wis. 2d 791, ¶¶10, 12-14.
    ¶86   Trailwood Ventures offers no guidance in the instant

case.   Racine's purpose of introducing its experts' evidence was

not to increase Regency West's assessments for 2012 and 2013 or

to levy a larger tax on Regency West for those years.              Furdek

and Weissenfluh's evidence was to serve the singular purpose of

showing that Racine's initial assessments were not excessive.

In misapplying Trailwood Ventures, the majority opinion commits



                                   4
                                                                    No.    2014AP2947.ssa


a fatal error of law by utterly ignoring the evidence presented

by Racine's two expert witnesses.

       ¶87    The majority opinion is off on its own solo venture in

discussing      Trailwood       Ventures.         Regency      West       has     made     no

objection to the admission of Furdek and Weissenfluh's testimony

on the ground that their valuation was higher than Racine's

initial estimate.            Neither party's briefs in the instant case

cite   or     discuss       Trailwood    Ventures.          The    majority           opinion

misinterprets and misapplies Trailwood Ventures to make new law

in the instant case.

       ¶88    A second reason the majority opinion errs as a matter

of law in deciding that only the income method of valuation

applies and in discarding the evidence of Weissenfluh and Furdek

is that the majority opinion concludes that the sales comparison

approach was not a valid appraisal method in the instant case.

The majority opinion takes a cribbed, too narrow view of the

sales comparison approach.              (Weissenfluh and Furdek also used an

income approach.)
       ¶89    The    majority    opinion       misreads     the    directive          in   the

Manual       that    "the    recent     arm's-length        sales     [of        federally

subsidized      housing]      should     have    restrictions       similar           to   the

subject      property."        Manual     at    9-52    (emphasis     added).              The

majority      opinion       reads   "similar"      to       mean    "identical"            and

concludes that Racine's two experts' comparable sales approach

was erroneous.

       ¶90     The    second     tier    method        of   valuation,          the     sales
comparison approach, requires an assessor to use the value of

                                           5
                                                                            No.   2014AP2947.ssa


"reasonably               comparable"          properties.                    "'[R]easonable

comparability' depends upon the degree of similarity between the

properties         in     question."           Rosen    v.     City    of     Milwaukee,     72

Wis. 2d 653,             686,    242     N.W.2d 681      (1976).            The    court    has

suggested some factors to consider in determining the similarity

of properties:

       Important   considerations   in   determining   whether
       particular property is sufficiently similar to the
       property being assessed to warrant reliance on its
       sale price as evidence of market value include its
       location, including the distance from the assessed
       property, its business or residential advantages or
       disadvantages, its improvements, size and use. It is
       also important to consider the conditions of sale,
       including its time in relation to the date of
       valuation, and its general mode and character insofar
       as they tend to indicate an arm's-length transaction.
Rosen, 72 Wis. 2d at 665.

       ¶91     The Manual at 9-12 provides that the "sales comparison

approach should be used" if there are comparable properties, and

that "[t]o be comparable, properties should be similar in both

physical           and     economic        characteristics            including . . . the

ability to generate income . . . ."

       ¶92     The Manual contains a section devoted to subsidized

housing, including Section 42 housing.4                        The Manual describes 10

different      types        of    federally      subsidized       housing.           Regarding

Section       42     housing,      the     Manual      notes    that    these        projects'

operating income is often lower than market rate properties and

that       these    projects       can    be    risky    because       of     tenant    income


       4
           Manual at 9-44 to 9-54.


                                                 6
                                                                        No.   2014AP2947.ssa


restrictions.5         The Manual addresses generally how to assess the

10 different federally subsidized projects.                            Case law and the

Manual make clear that assessors must consider the impact that

the subsidized housing's restrictions have on value.

       ¶93      Nothing          in    the     Manual's       subsection        addressing

federally         subsidized            Section       42     housing     discusses      any

limitations on the type of assessment methodology that should be

used       in   assessing        these     properties.         The     Manual    does   not

foreclose using sales comparison to value subsidized housing,

although the majority opinion reads the Manual as if it does.

Indeed, the Manual refers to using the sales comparison approach

in   determining           the    proper     method    of    valuation    for    federally

subsidized housing.               See Manual at 9-52.           The Manual does state

that "the income approach may be the most useful method for

valuing subsidized housing . . . ."                         See Manual at 9-53.         The

operative word is "may."

       ¶94      As to using the sales comparison approach, the Manual

explains        that   a    comparable       property       should     have   restrictions
similar to the subject property and information should be sought

from several sources.                 The Manual states:

       To be considered comparable, the recent arm's-length
       sales should have restrictions similar to the subject
       property.    The assessor may have to perform a
       statewide search to find comparable sales. Sales data
       should always be confirmed by reliable sources.
       Information may be obtained by viewing website data


       5
       Manual at 9-47.     In both Racine and Milwaukee (the
location of the comparables used by Racine's experts), Section
42 properties usually have a waiting list.


                                                  7
                                                                        No.   2014AP2947.ssa

      and by calling other assessors who have                                 similar
      subsidized housing in their jurisdictions.
Manual at 9-52.

      ¶95    The   evidence          presented          by   Furdek     and   Weissenfluh

adheres     to   the   Manual.          They       considered     the      impact   of   the

Section 42 restrictions in their sales comparison valuation.                               I

will comment further on their evidence later on.                               For now, I

just point out that the majority opinion errs in disregarding

out of hand the sales comparison approach in the instant case.

      ¶96    In sum, the majority opinion is based on errors of law

regarding the interpretation and application of the three tiers

of    valuation        and      in     entirely          disregarding         Furdek     and

Weissenfluh's evidence.               The majority opinion relies only on

Racine's assessor, Janet Scites, and Racine's Chief Assessor,

Ray Anderson.

      ¶97    I turn to the standard of review of the evidence in

the   record.      I     then   analyze        the      testimony     of   the   competing

experts and review the               circuit court's            findings of fact         and

determination under the proper standard of review.

                                              II

      ¶98    Having determined that Racine's experts complied with

the   statute      and    the        Manual        in   using    several      methods    of

valuation, I now determine whether Racine's original assessments

were excessive.        A challenger, here Regency West, has the burden

at trial to "produce evidence that it is more probable than not

that the assessed value is not correct."                        Bonstores Realty One,

LLC v. City of Wauwatosa, 2013 WI App 131, ¶9, 351 Wis. 2d 439,



                                               8
                                                                     No.    2014AP2947.ssa


839 N.W.2d 893.         Racine may rebut with its own evidence Regency

West's production of evidence.

      ¶99   The       circuit     court's    findings        of   fact     will    not   be

overturned       by    an   appellate       court      unless     they     are    clearly

erroneous, that is, unless they are against the great weight of

the evidence.         Findings of fact are not against the great weight

of the evidence "merely because a different fact-finder could

draw different inferences from the record."                       State v. Wenk, 2001

WI App 268, ¶8, 248 Wis. 2d 714, 637 N.W.2d 417.

      ¶100 Further, the weight and credibility that an appellate

court    gives    to    the     evidence     of   an    expert      witness       is   also

"uniquely within the province of the fact finder."                                 Bloomer

Housing Ltd. P'ship v. City of Bloomer, 2002 WI App 252, ¶12,

257     Wis. 2d 883,        653    N.W.2d 309        (quoted       source        omitted).

"Where, as here, there is conflicting testimony, the fact finder

is the ultimate arbiter of credibility and when more than one

reasonable    inference         can   be    drawn,     the    reviewing      court     must

accept the inference drawn by the trier of fact."                          Bloomer, 257
Wis. 2d 883, ¶12 (internal quotation marks omitted); see also

Mineral Point Valley Ltd. P'ship v. City of Mineral Point Bd. of

Review, 2004 WI App 158, ¶16, 275 Wis. 2d 784, 686 N.W.2d 697

(Deininger, P.J., concurring) ("I recognize that, in the absence

of a recent arms-length sale, property valuation depends largely

on matters of judgment and expertise. . . . [A]ppraised values

of a particular property can differ sharply, and [ ] it is most

often the fact finder's proper role to assess the weight and
credibility of competing opinions of fair market value.").

                                             9
                                                              No.   2014AP2947.ssa


                                        III

    ¶101 Following a four-day bench trial filled with extensive

expert evidence from both sides, the Circuit Court for Racine

County    concluded      that    the     original    assessments       were    not

excessive.

    ¶102 The     crux    of     the    circuit   court's    decision      involved

determining    the    weight    and    credibility   of    conflicting      expert

evidence.     Each side presented experts and, as the circuit court

explained, "[t]he opinions provided by all experts in this case

[were] highly subjective.         All experts stabilized values, loaded

cap rates, or made adjustments to factors used in calculating

their    valuations     based    on    their   experience    and    for    reasons

stated in their testimony."

    ¶103 Ultimately, the circuit court concluded (and the court

of appeals agreed) that Racine's experts were more credible and

more persuasive.      Based on this determination, the circuit court

concluded that Racine's original assessments were not excessive.

The court of appeals affirmed.
    ¶104 Deferring        to    the    circuit   court's    findings      of   fact

about the credibility of the expert witnesses and the weight to

be given to each of them, I agree with the circuit court's

conclusion that Regency West failed to carry its burden.                       The

circuit court was not persuaded that Regency West established

that it was more probable than not that the assessed values were

excessive.        The     evidence       supports    the     circuit       court's

conclusion.



                                         10
                                                                        No.    2014AP2947.ssa


      ¶105 Racine's experts,               Furdek and Weissenfluh, are well-

versed in Wisconsin appraisal techniques as well as appraisal

techniques for subsidized housing.                     Each has spent the majority

of his career in the Milwaukee Assessor's Office; they have

recently gone into private practice together.                           Contrary to the

majority opinion's assertion, both Furdek and Weissenfluh have

experience         with    Section      42     subsidized       housing.          In    their

respective tenures at the Milwaukee Assessor's office, they were

directly involved with assessing Milwaukee's numerous Section 42

properties or reviewing and signing off on the assessments of

Section 42 properties.              Each has given presentations on valuing

subsidized housing.

      ¶106 These          experts      submitted       a    thorough,    nearly        70-page

assessment          report         using       several         different          valuation

methodologies.             They     testified         at    length,     concluding        that

Racine's initial assessments of Regency West were not excessive.

      ¶107 Furdek          and    Weissenfluh         considered      three    traditional

valuation approaches:             sales comparison (tier two), income (tier
three),    and      cost    (tier      three).        The    Manual     at    9-52     states,

referring to Wis. Stat. § 70.32, that "[t]he assessor should

consider all three approaches to value when assessing federally

subsidized properties."                Indeed, all three approaches are set

forth    in   the     Manual      at    9-52     to    9-54,    discussing        federally

subsidized housing.

      ¶108 Before applying these assessment methodologies, Furdek

and     Weissenfluh         explained        Wisconsin         assessment         standards
applying      to    subsidized       housing,       thoroughly        examined       Racine's

                                               11
                                                                  No.   2014AP2947.ssa


real estate climate, and stated the assumptions upon which they

based their analyses.           This extensive pre-assessment analysis

complies with the Manual, which provides:

    Each type of property presents unique valuation
    problems.   This requires the assessor to possess a
    great deal of knowledge about the current economic
    conditions of the area and any trends and factors that
    may influence the value of commercial property.

            . . . .

    Given the data used and the type of property
    appraised, the appraiser must consider how well each
    method   employed  estimates   the   value  of   the
    property. . . .

    How does the appraiser determine which approach or
    approaches are most reliable? The best guidance that
    can be offered is to review the market activity for
    the subject and determine the attributes by which the
    market uses to evaluate alternative real estate
    decisions.
Manual at 9-1, 9-39.

    ¶109 Furdek         and   Weissenfluh       also    met    with   the   Wisconsin

Housing and Economic Development Authority (WHEDA) to discuss

Section    42   and   Section    8   federally         subsidized     housing.     In

Wisconsin,      WHEDA     administers      Section        42    tax     credits   and
publishes the maximum rents that may be charged to Section 42

tenants.     Manual at 9-46.         The WHEDA representative stated that

Section    8    and      Section     42        properties      were     economically

comparable.

    ¶110 Based upon their conversation with WHEDA, Furdek and

Weissenfluh concluded that most Land Use Restriction Agreements

(LURAs) for Section 42 properties impose similar restrictions.



                                          12
                                                                             No.   2014AP2947.ssa


They   therefore        used       a    sales       comparison       approach      using      other

Section 42 properties.

       ¶111 Furdek       and       Weissenfluh            primarily    relied       on   a   sales

comparison approach that consisted of three properties.                                      Their

Report     explains      that          the      "sales       [were]    researched         through

numerous      sources,       inspected          and       verified    by     a   party    to    the

transaction."          Two of the properties comprised a mix of Section

42    units     and    market          units.         The    other     comparable        property

consisted of a building that was being converted into Section 42

housing.

       ¶112 Because the comparables Furdek and Weissenfluh found

were not identical to Regency West, these experts complied with

the Manual——they made adjustments in their comparisons.                                        They

explained       that    they       took       into        account     specific      differences

between       the     comparables             and        Regency     West,       including     the

location, age, and non-section 42 portions, to arrive at a value

for    Regency       West.         Only      after       making     these    adjustments       did

Furdek    and       Weissenfluh         use     the       sales    comparison      approach     to
arrive    at     the    value          of    the      Regency       West    property.          This

valuation corroborated the original assessments.

       ¶113 Furdek           and        Weissenfluh           also      used       two       income

approaches, a capitalization of income approach and a discounted

cash flow analysis, and a cost approach.                                   For each of these

approaches, these experts used a combination of Regency West's

actual expenses as well as projected expenses.                                     The experts

reconciled the values derived from each approach to reach a
valuation.

                                                    13
                                                              No.    2014AP2947.ssa


      ¶114 Each of these valuation methodologies, independently

and   when   reconciled      with    the    others,    confirmed     that    Janet

Scites——Racine's assessor whose initial assessments Regency West

challenged——got it right.

      ¶115 In    stark   contrast      to    the     extensive,     multi-faceted

evidence presented by Racine's experts, Regency West presented

one expert, Scott McLaughlin.              Although McLaughlin claimed that

he specialized in assessing federally subsidized housing, the

record does not reflect the extent of his Wisconsin-specific

assessment experience.         That said, the majority opinion relies

extensively (indeed exclusively) on McLaughlin's testimony and

report.

      ¶116 In the instant case, McLaughlin prepared a four-page

report consisting only of a capitalization of income approach to

valuation.      This report was based on Regency West's projected

expenses for 2012 and actual expenses for 2013.                     McLaughlin's

report did not state his assumptions, nor did it consider market

conditions      affecting     the     value     of     property      in     Racine.
Furthermore, McLaughlin's report does not explain the basis for

his opinions or the figures that he uses.                His testimony filled

in some of this information.

      ¶117 McLaughlin's report concluded, based on his "extensive

experience      appraising     IRC     § 42     properties,"        that    "[t]he

inability to obtain reliable data regarding the rent and income

restrictions for IRC § 42 properties prevents a valid comparable

sales valuation in this case."



                                       14
                                                                      No.   2014AP2947.ssa


      ¶118 Nevertheless, McLaughlin derived a capitalization rate

based     on   sales   of    fifteen      Section      42     properties.       Although

McLaughlin      claimed      he   could       not    perform    a    comparable    sales

analysis of Regency West because he did not have the Land Use

Restriction Agreements (LURAs) for his list of fifteen Section

42 sales, McLaughlin relied on data from Section 42 sales to

derive    a    capitalization          rate   for    his    income   approach.6       The

majority opinion unsuccessfully attempts to explain away this

inconsistency          in     McLaughlin's            evidence        regarding       the

availability of comparables.

      ¶119 Based       upon       an     income      valuation       approach     alone,

McLaughlin concluded that Regency West's value was nearly two

million dollars less than the valuations that Racine or Furdek

and Weissenfluh reached.

      ¶120 McLaughlin and the majority opinion rely solely on the

income approach to conclude that Racine's original assessment

was     excessive.          The    majority         opinion     is   unsuccessful      in

explaining away precedent.               The cases have stated time and time
again that the income approach "may never be the sole basis for

an assessment of property."               Waste Mgmt. of Wis. v. Kenosha Cty.

Bd. of Review, 184 Wis. 2d 541, 558, 516 N.W.2d 695 (1994); see




      6
       There is no evidence that McLaughlin attempted to obtain
the LURAs for any of these fifteen properties or communicated
with WHEDA, buyers, sellers, or brokers to obtain information.


                                              15
                                                              No.   2014AP2947.ssa


also       Bischoff   v.    City   of    Appleton,     81   Wis. 2d 612,       260

N.W.2d 773 (1978).7

       ¶121 After comparing evidence presented by the experts, the

circuit court unsurprisingly ruled in favor of Racine.                         The

circuit court was persuaded by Racine's appraisers and experts,

but was not impressed by McLaughlin.                The circuit court stated

its    finding    that     Racine's     assessors    were   more    credible    as

follows:

       Credibility of the assessors and experts is critical
       to this analysis. Based upon the years of experience,
       knowledge,  and   demeanor,  this  Court   finds  the
       testimony of the City's assessors and experts more
       credible than that of the plaintiff's expert, Scott
       McLaughlin. The City's assessors and experts are very
       familiar and experienced in valuing property in the
       Racine and Southeastern Wisconsin area and McLaughlin
       is not.
Based on my review of the record, without even giving deference

to the circuit court, I agree with the circuit court.

       ¶122 I conclude that Regency West has failed to present

sufficient evidence showing that the initial assessments were

excessive.       Racine's assessors and experts presented the more

persuasive evidence that Racine's initial assessments were not

excessive.

                                              IV

       7
       See State ex rel. I.B.M. Corp. v. Bd. of Review, 231
Wis. 303, 312, 260 N.W. 784 (1939) ("Though net income from the
rental of either real or personal property is always a proper
element to consider, it cannot be considered as the sole
controlling factor in determining value of either real or
personal property.     Such a rule, if given approval, would
require a holding that non-income producing property is
practically valueless for taxation purposes.").


                                         16
                                                                      No.    2014AP2947.ssa


      ¶123 Before I end my analysis, I discuss court procedure.

I   dissented     in    an    unpublished          order   granting    review     in   the

instant case.          I repeat my objection in this published dissent

to inform litigants and lawyers about court procedure.

      ¶124 On November 16, 2015, the court adopted a procedure

governing   when       a     justice    may    hold     for   further       discussion    a

petition    for    review       in     which       a   Supreme   Court      Commissioner

recommended granting review.

      ¶125 The procedure applies when the justices vote on the

Wisconsin    Supreme          Court     Commissioners'           recommendations         on

petitions for review by e-mail.                    Most months the court votes on

the recommendations in person, in closed conference.                          The new e-

mail procedure states:

      Regarding   petitions   for   review,  certifications,
      petitions to bypass, original actions, petitions for
      supervisory writ, and petitions for writ of mandamus,
      prohibition, quo warranto, and habeas corpus, some
      months are scheduled as mail-in conferences, whereby
      each justice votes, by e-mail, on the recommendations
      of each Commissioner. A justice, who wishes to hold a
      matter for which a Commissioner has recommended
      granting review, must submit in writing, with his or
      her e-mail votes, the specific reason(s) why he or she
      would not approve the grant as recommended by the
      Commissioner. Within 5 calendar days of that writing,
      all justices shall vote, by e-mail, to grant the
      matter, deny the matter, or otherwise approve the
      suggestions in the written proposal.     If sufficient
      votes to grant the matter remain, the grant order
      shall issue within two business days.    If the matter
      no longer has the requisite votes to grant, it shall
      be discussed in a court conference, but in any event,
      no later than at the next in-person petition for
      review conference.




                                              17
                                                                    No.   2014AP2947.ssa


     ¶126 The new procedure was adopted without any notice to

the Supreme Court Commissioners and Clerk of the Supreme Court,

let alone the litigants, lawyers, and the public.8

     ¶127 Although I        did not vote in favor of                  adopting     this

procedure, I have followed it.                 At the very least, the court

should follow its adopted procedures.                 As I have written before,

a scent of lawlessness pervades the court.

     ¶128 The      effect      of      several    newly       adopted      procedures

(whether    the    effect   is      intended     or    not)    is    to    silence   an

individual justice's voice——whether that justice wants to hold a

petition for review for further discussion, write separately on

a matter, or dissent.

     ¶129 I have pledged to continue to discharge my duties on

this court as the people of the state have four times elected me

to do.     The commitment I made to myself nearly 40 years ago and

in   four    successive        elections       since      then      remains:         Be

independent,      impartial,     and    non-partisan,         and   help    the   court

system improve.       I will continue to implement that commitment
whether in the majority or in dissent.

     ¶130 We are a court of seven.                    Each justice is only one

voice of seven.        I will continue to be one justice with one




     8
       The procedure was adopted pursuant to the Introduction to
the Supreme Court's Internal Operating Procedures, which states
that the Internal Operating Procedures "may be changed without
notice as circumstances require."    The Supreme Court Internal
Operating Procedures are available in Volume VI of the Wisconsin
Statutes (2013-14).


                                          18
                                                       No.    2014AP2947.ssa


voice, but mine will not be a timid voice as I continue to serve

the people of the state of Wisconsin.

    ¶131 For the reasons set forth, I write on the merits of

the case and court procedure.

    ¶132 I   am   authorized   to    state   that   Justice    ANN    WALSH

BRADLEY joins this dissent.




                                    19
    No.   2014AP2947.ssa




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