SB 1107

This bill provides that, for property tax purposes, real property includes any

leases, rights, and privileges pertaining to the property, including assets that cannot

be taxed separately as real property, but are inextricably intertwined with the real

property. The bill also requires real property to be assessed at its highest and best

use. Current law requires that real property be assessed at its full value and upon

actual view or from the best information that the assessor can obtain from

“arm's-length sales" of comparable property. This bill defines an “arm's-length sale"

as a sale between a willing buyer and willing seller, neither being under compulsion

to buy or sell and each being familiar with the attributes of the property sold.

The bill also provides that an assessor may determine the value of leased

property by considering the lease provisions and actual rent pertaining to the

property, if the lease provisions and rent are the result of an “arm's-length

transaction.” The bill defines an “arm's-length transaction” as an agreement

between willing parties, neither being under compulsion to act and each being

familiar with the attributes of the property.

The Wisconsin Supreme Court decided in 2008 that a property tax assessment

of leased retail property using the income approach must be based on “market rents,"

which is what a person would pay to rent the property, based on rentals of similar

property, as opposed to “contract rents," which is the amount that the lessee actually

paid to rent the property. See,

Walgreen Company v. City of Madison

, 2008 WI 80,

752 N.W.2d 689 (2008). This bill changes Wisconsin law to specify that an

assessment using the income approach must be based instead on contract rents.

The bill also provides that to determine the value of property using generally

accepted appraisal methods, an assessor must consider all of the following as

comparable to the property being assessed:

1. Sales or rentals of properties exhibiting the same or a similar highest and

best use with placement in the same real estate market segment.

2. Sales or rentals of properties that are similar to the property being assessed

with regard to age, condition, use, type of construction, location, design, physical

features, and economic characteristics.

The bill defines “real estate market segment” to mean a pool of potential buyers

and sellers that typically buy or sell properties similar to the property being

assessed, including potential buyers who are investors or owner-occupants.

The bill also provides that a property is not comparable to the property being

assessed if the seller has placed restrictions on the highest and best use of the

property or if the property is dark property and the property being assessed is not

dark property. The bill defines “dark property” as property that is vacant or

unoccupied beyond the normal period for property in the same real estate market