house-and-taxIn a recent decision, the Minnesota Supreme Court chastised the tax court’s failure to address and analyze the evidence of the homeowners, and reversed that court’s decision on the valuation of the property. Even if the tax court didn’t put stock in the homeowners’ evidence and expert testimony, the Supreme Court held, it still had an obligation to recognized and explain its decision and that testimony’s weight in its decision.

The homeowners owned a lake home (“the Property”) which included 245 feet of lakeshore. They built a house on the Property in 2001. Todd County (“the County”) assessed roughly $4,000 in taxes on the Property based on its conclusion that the Property had an estimated market value of $397,400 as of January 2, 2009 (“the effective date”).

The homeowners petitioned the tax court for relief from the County’s property tax assessment. They did not offer a written appraisal report of the Property at trial; instead, they and their real estate expert witness testified that the value of the Property as of the effective date was significantly less than the County’s assessment. The County also retained a property appraisal expert witness, a licensed appraiser, to determine the fair market value of the Property for the specific tax year. From her calculations, the county’s expert concluded that after adjustments, the Property should be valued at $395,000.

On appeal to the Minnesota Supreme Court, the homeowners challenged the tax court’s judgment. They argued, among other things, that the tax court erred by: (i) adopting the appraisal of the County’s expert; (ii) rejecting the homeowner’s testimony, as well as the testimony of his wife and their expert witness; and (iii) not determining separate land and improvement values for the property.

Justice G. Barry Anderson wrote the opinion, and noted that the Supreme Court has long held that it will not defer when the tax court has “clearly overvalued or undervalued the property, or has completely failed to explain its reasoning.” Justice Anderson said that the Supreme Court had cautioned that when the tax court failed to explain its reasoning, it ran the risk of having its decision overturned. In this case, the tax court’s complete failure to address the homeowners’ testimony challenging the County’s assessment warrants remand because it raised doubts over whether the tax court exercised its own skill and independent judgment. The tax court typically determines the weight and credibility of testimony—including that of the expert witnesses—as it is in the best position to evaluate the credibility of witnesses. Nonetheless, the tax court here did not address, much less analyze, the homeowners’ evidence. Minnesota law provides that all parties to an appeal from any official order of the Commissioner of Revenue “shall have an opportunity to offer evidence and arguments at the hearing.” In this case, the homeowners’ evidence raised serious doubts about the adequacy of the county’s expert’s appraisal and the tax court’s adoption—essentially verbatim—of her valuation of the Property.

One of the homeowners (the husband), a licensed CPA and realtor, presented the tax court with substantial and “perhaps even impressive” evidence—according to Justice Anderson—in support of his valuation of the Property. In the same light, the other homeowner (the wife), an experienced and licensed real estate agent, conducted a thorough analysis of the market, and claimed that the Property was worth less than its assessed value on the effective date.

The homeowners also raised challenges to the assumptions and values underlying the county’s expert’s appraisal that the tax court failed to address. They contended that the county’s expert witness’ methodology was contrary to general appraisal practices, and at trial the homeowners elicited testimony that supported this position from the County Assessor. On the record before the Supreme Court, and without any tax court analysis, the homeowners’ effective examination of a key witness who represented the County’s interest significantly undermined the County’s valuation argument.

Judge Anderson said that the supreme court was also compelled to remand this case for further proceedings because the tax court’s stated reason for placing no weight on the homeowner’s expert testimony was incorrect as a matter of law. The tax court gave his testimony no weight because he was not a licensed appraiser. Minnesota Rule of Evidence 702 expressly allows “a witness qualified as an expert by knowledge, skill, experience, training, or education” to testify if the testimony will assist the trier of fact. The court reiterated that it had repeatedly emphasized that the most important factor for determining an expert witness’s qualifications under Rule 702 was practical experience.

The tax court allowed the homeowner’s expert to testify about the value of the Property, and the County did not dispute his qualifications to furnish expert testimony. The plaintiff’s expert witness was, in fact, an active real estate agent with 34 years of experience in the Todd County real estate market. He was a licensed appraiser for 30 years before he allowed his license to lapse in 2008. Without a challenge from the County as to his qualifications or his lack of an appraisal license, the mere fact that he allowed a previously valid license to lapse, standing alone, was insufficient as a matter of law to reject his expert testimony. The tax court failed to explain why the homeowners’ expert lack of an appraisal license—in light of his extensive experience—rendered his expert testimony irrelevant.

Given the tax court’s failure to address and analyze the homeowner’s evidence, the Supreme Court reversed the tax court’s decision valuing the Property and remanded the case to allow the tax court to adequately explain its reasoning for its valuation determination. At a minimum, Justice Anderson remarked, the homeowners—both of whom put “substantial time, effort, and energy into their petition and these proceedings”—were entitled to know that the tax court considered their opinions about the value of their property and why the tax court chose to reject them.

Case: 2013 WL 163476 (Minn. 2013).

By: Kurt Mattson, J.D. LLM