Property Tax Resources


Airport Concession Fees Are Not Rent in Property Taxation

Minnesota Supreme Court affirms decision barring use of airport concession fees in income-based property valuation.

A recent Minnesota Supreme Court ruling requires tax assessors to exclude an airport's concession fees from rent-based valuations for property tax purposes. The case offers a flight plan to lower taxes at many of the nation's transportation hubs, and underscores the importance for all taxpayers to exclude business value from taxable property value.

Every major airfield collects fees from food and beverage providers, retailers, banks and other businesses that provide goods or services on airport property. Concessionaires commonly pay these charges in addition to rent owed for the real estate where they operate. Many of these businesses are also responsible for property tax that passes through to tenants in a commercial lease.

The cases leading up to the March 29 state Supreme Court decision involved two car rental companies that challenged their 2019 tax assessments, claiming the assessor's office had overstated their property values by including the concession fee in its income-based valuation.

High-flying fees

Both Enterprise Leasing Co. of Minnesota and Avis Budget Car Rental pay a concession fee equal to 10 percent of gross revenues in addition to real estate rent for their operations at Minneapolis-St. Paul International Airport. The tax assessor for Hennepin County had historically valued the auto rentals for property tax purposes by including the concession fee in its income-based approach to valuation.

The auto rental companies challenged the valuations on their 2019 taxes in the Minnesota Tax Court. Law firm Larkin Hoffman, which represented both taxpayers, argued that the concession fees are not rent and should not be included in the income approach for property tax purposes.

The rental agencies prevailed in tax court. The court found that the concession fee is not real estate rent and that the county substantially overstated market values by including the fee in its calculations. Correcting the assessor's calculation reduced Enterprise's value from $34.873 million to $21.107 million, or 39 percent less than the initial assessment. Avis' property value dropped 39 percent as well, from $20.565 million to $12.497 million.

The county appealed the tax court's decision to the Minnesota Supreme Court, arguing that the concession fee is rent that must be used in the income approach. The Court affirmed the lower court's decision, however, holding that "the concession fee is not rent for purposes of the income approach."

Fee-simple principles

The rental agencies' case stood on fundamental precepts of fee-simple valuation. Minnesota is a fee-simple property tax state, meaning valuations for property tax purposes must value all property rights as though they are unencumbered.

Additionally, the leased-fee interest, or landlord's rights subject to contractual terms, should not be used for property tax valuations. Per the state Supreme Court, rents attributable to specific leases are disregarded except to the extent they represent market rent. It follows that business income should not be included in valuations for property tax purposes.

Taxpayers doing business at airports across the country often pay concession fees or other charges based on their revenues or business performance. Many states, like Minnesota, require those same properties to be valued on a fee-simple basis, which should neutralize any impact of business value.

In representing the rental car agencies at all stages of their appeal, Larkin Hoffman stressed the importance of these valuation concepts and how the very definition of a concession requires its exclusion from calculations of taxable property value. A concession is a "franchise for the right to conduct a business, granted by a governmental body or other authority," according to the Dictionary of Real Estate. Accordingly, if a concession fee is a payment for the right to conduct business and not for the right of occupancy, then it is a business revenue.

The county argued that because the rental agencies' concession agreements included the phrase for "use of the premises," then the concession must only be for the real estate. However, the tax court found that the concession fee was consideration for access to the airport car rental market rather than the real estate.

The tax court reasoned – and the Supreme Court affirmed – that the concession fee was not for the real estate because:

Concession fees were also paid by off-airport rental car companies, indicating that the fee is a business revenue rather than rent;

Inclusion of the concession fee in the income approach would inflate the value to 10 times greater than the cost approach, which would be clearly unreasonable; and

Inclusion of the concession fee in the county's income approach distorted other inputs.

It is well established that a fee-simple property tax valuation should exclude business value. Now, Minnesota courts have also acknowledged that when a concession fee is for the privilege of accessing the airport market rather than for the real estate, that fee represents business value.

To prevent erroneous inclusion of business value, and since airports are special-purpose properties, the court gave primary weight to the cost approach. With this decision, Minnesota's highest court has confirmed that concession fees are not rent for real estate and instead represent business value that should be excluded from the income approach.

For taxpayers in any jurisdiction that taxes property based on its fee-simple value, the recent decision is a reminder to ensure that assessors are excluding business value when calculating taxable property value. For businesses that also pay concession fees in addition to rent, the Minnesota case may provide an impetus to learn how those fees affect their own property values. And if those inquiries spur taxpayers to appeal their assessments, then the Minnesota case law may provide a valuable example and support for their arguments.

Timothy Rye, Esq. is a litigator and shareholder at Minneapolis-based law firm Larkin Hoffman, the Minnesota member of American Property Tax Counsel, the national affiliation of property tax attorneys, and a Certified General Real Property Appraiser (inactive).
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Tax Trauma - How Higher Assessments Can Cause Lower Net Rents

Resurgent demand for commercial real estate is driving sale prices to record highs, pressuring assessors to increase taxable property values substantially. In the Minneapolis-St. Paul area, tax bills on some suburban and downtown Minneapolis buildings have shot up 30 percent or more within two years following a sale.

These assessment spikes yield staggeringly larger tax bills, with some buildings now taxed at $8 to $10 per square foot, up from $5 to $6.50, for taxes payable in 2014.

For landlords with well-occupied properties, the tax burden itself is less important than the increased occupancy cost it creates, because most tenants compare lease proposals by total occupancy cost rather than by net rent alone. It does not matter to a tenant where the rent dollar goes; for every dollar that taxes increase, tenants will likely try to reduce net rent payments by that same amount in order to keep occupancy costs flat.

Assessors under Pressure

The Minnesota Department of Revenue prepares an annual sales-ratio study that compares assessments to sales prices. This puts pressure on assessors to react strongly to rising sale prices when properties are revalued each year.

If a sale price is 50 percent higher than the assessed value, then a 20 percent assessment increase in the first year after the sale, and 20 percent again the next year, will only raise the value to something approaching the sale price.

For example, a downtown Minneapolis property assessed at $107 million sold for $200 million. The assessments increased only 10 percent the first year and another 10 percent the second year, but jumped another 34 percent in year three. These repeated increases drive building costs well beyond owner and taxpayer expectations.

Assessors increased another property’s value by 30 percent in the year after the sale. Yet another pair of buildings were assessed 10 percent higher the year before they sold, then increased 30 percent and 50 percent in the year following the sale, putting them at approximately 90 percent of the purchase price.

Tenant Repercussions

Tenants notice operating cost increases, especially those recurring over consecutive years. Operating cost increases can discourage a tenant from renewing its lease at a higher rent.

As an example, a local tenant in a build-to-suit property had projected taxes at $4 per square foot, but with taxes of $10 per square foot this year, the tenant faces occupancy costs far in excess of projections. Whether the difference is looked at in an absolute sense as $6 per square foot or as 250 percent higher than expectations, the tenant is in a very different financial position than anticipated. How can the next lease be at the same net rate?

Many national tenants demand lease provisions that cap annual increases in real estate tax charges as protection against these increases, turning a triple-net lease into a quasi-gross lease, at least for taxes. Common in retail properties and found in flex space or office buildings as well, this practice puts a dent into the owner’s return. As in many other states, Minnesota assessors try to equalize assessments, so a few high-priced sales may trigger increased assessments for neighboring buildings. If an assessor is trying to avoid being accused of “chasing sales,” then one or two sales in a market area can lift all assessments. Comparable properties may see an increase in taxes with no changes to their own net rents or occupancy. Such increases can be a burden if the assessor has done a poor job of equalizing.

One of the biggest surprises for new buyers can occur when trying to renew leases. Many landlords discover that higher assessments lead to lower net rents or increased vacancy numbers that are far different from the assumptions made at the time of purchase. Relatively few buyers project double-digit tax increases, so tax hikes approaching 30 percent can inflict a troublesome dampening effect on net rents and occupancy.

Even tax increases limited to 10 percent annually for two or three years will exceed the 3 percent increases that a typical buyer builds into a discounted cash flow analysis when evaluating a purchase. That unexpected cost can decrease cash flow in future years to the point that the purchase price appears too optimistic. When this increase in taxes is combined with lower net rents as tenants fight to keep occupancy costs under control, the entire analysis at the time of sale becomes a meaningless historical curiosity.

Clearly, potential buyers must perform due diligence on assessor practices when a contemplated sale price is significantly higher than current assessments, or risk nasty surprises in the next few years.



John Gendler is a partner in the Minneapolis law firm of Smith, Gendler, Shiell, Sheff, Ford & Maher, P.A., the Minnesota member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Minnesota Property Tax Updates

Updated december 2020

Assessors Struggle with COVID Valuations

In Minnesota, the valuation date for pay ’21 taxes was January 2, 2020.  Assessors have taken the position that COVID impacts for 2021 were neither known nor appreciated at that date, and that pay ’21 tax appeals should not consider the impacts from COVID. 

Now, assessors are faced with making valuations for the January 2, 2021 assessment for pay ’22 taxes, with no argument about the presence of the coronavirus.  Some jurisdictions are asking taxpayers to voluntarily produce sensitive income and expense information about their properties, with the suggestion that cooperation could lead to reduced valuations for the upcoming assessment.

While the prospect of influencing value and taxes downward for pay ’22 is enticing, taxpayers should understand that information they provide may be exposed to other property owners with active tax appeals if used by the assessor or its agent in an appraisal.  Assessors also may misunderstand what property operating information means when it is provide without context.  For example, retail properties have been among the hardest hit by the pandemic.  Tenants have often stopped paying rent, or are paying reduced amounts. However, that information may not be apparent from a rent roll that continues to list face rates pending resolution of the tenancy issues.  An assessor considering this information might assume that impacts on that property have not been significant.

Taxpayers are advised to consult their property tax representatives when approached by an assessing office for proprietary operating information.  Otherwise, they might find their sensitive income information is being used in a way that was not intended.

Mark Maher.
Smith, Gendler, Shiell, Sheff, Ford & Maher
American Property Tax Counsel (APTC)

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How Eden Prairie Mall Challenged the Minnesota Tax Court

"It is now clear that the Minnesota Tax Court doesn't need to merely pick one of the taxable property values presented at trial and can find a taxable value outside the range of values introduced at trial..."

By John Gendler, Esq., as published by NREIonline, September 2011

In several cases over the past few years, the Minnesota Tax Court has found a taxable property value higher than the amounts presented in witness testimony from either side of a tax argument.

Because the Tax Court has the power to increase values as well as decrease them, this trend has raised concerns when considering whether a case should be taken to trial. However, a Minnesota Supreme Court opinion issued this year suggests that the Tax Court's decisions in the future are more likely to reflect facts presented in testimony.

Legal showdown

The pivotal decision stems from Eden Prairie Mall, LLC vs. County of Hennepin in which the Minnesota Supreme Court rejected the Tax Court's value increase for a recently renovated mall from $90 million to id="mce_marker"22 million.

The Supreme Court has said the Minnesota Tax Court cannot simply copy a county attorney's memorandum — including arithmetic mistakes — when deciding to find a value for a property that is higher than that testified to by either appraiser.

Both the taxpayer and government presented appraisals prepared by independent appraisers who had earned the MAI designation from the Appraisal Institute. (The professional accreditation refers to "Member, Appraisal Institute.")

The diverse appraisal testimony included value opinions for Jan. 2, 2005, and for Jan. 2, 2006, as a separate value must be found for each year in Minnesota.

The taxpayer's appraiser relied exclusively on an income approach, citing the lack of comparable sales, and testified to a value of $68.75 million in 2005 and a value of $60.55 million in 2006.

The original assessments being appealed put the mall's market value at $90 million in 2005, increasing to id="mce_marker"00 million in 2006. The government's appraiser gave most weight to the income approach, testifying to a value of id="mce_marker"10 million in 2005 and id="mce_marker"15 million in 2006. Neither appraiser prepared a discounted cash flow analysis.

The judge based her decision on a direct-capitalization income approach, finding that the government's cost and sales approaches were not meaningful given the recent major renovation of the mall. The Tax Court found the value of the mall to be id="mce_marker"22.9 million the first year and a slightly lower id="mce_marker"20.1 million for the later assessment.

In the decision, the Tax Court adopted an argument made by the government's attorney, which resulted in the indicated value being higher than that found by the government's appraiser. Like the government's attorney, the court stated that the government's appraiser had made a mistake in his calculations.


Independent judgment

The Supreme Court said that the Tax Court did have the authority to make a value determination that is higher or lower than the testimony of the experts because the judges bring their "own expertise and judgment in valuation matters."

The Supreme Court noted, however, that "market value determinations involve the exercise of complex and sophisticated judgments of market conditions, anticipated future income, and investor expectations ...." In other words, the Tax Court can set taxable values based on its own analysis supported by the factual record. But did that analysis occur?

The Supreme Court pointed out that the Tax Court rejected both appraisers' opinions of market value and adopted, verbatim, a calculation presented by the government's attorney in a post-trial brief, "including several arithmetic errors."

The Supreme Court said "adopting verbatim the recalculated assumptions and nearly verbatim the value determinations ... presented in a post-trial brief raises doubts over whether the Tax Court exercised its own skill and independent judgment."

Although the Supreme Court affirmed other portions of the case, including the increase in value of a separate anchor store, this part of the case was returned to the Tax Court for additional explanation, including its use of income higher than that used by either appraiser.

Furthermore, the Supreme Court explicitly stated the Tax Court could reopen the record and admit additional evidence. It is not clear whether the Tax Court must admit additional evidence, but presumably the taxpayer will seek to do so when the Tax Court reconsiders its decision. At this writing, the Tax Court has not issued a new decision.

It is now clear that the Minnesota Tax Court doesn't need to merely pick one of the taxable property values presented at trial and can find a taxable value outside the range of values introduced at trial.

Importantly, however, it is also clear that the Minnesota Supreme Court will scrutinize those findings, demanding that the Tax Court explain in detail why it is rejecting the testimony and substituting its own opinions and data.

This precedent-setting case could encourage the Tax Court to stay within the range of testimony from the various appraisers, absent a compelling explanation for doing otherwise.


John Gendler is a partner in the Minneapolis law firm of Smith, Gendler, Shiell, Sheff, Ford & Maher, P.A., the Minnesota member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Thinking Outside the Box

"Smart shopping center owners follow Hoteliers' approach to reducing property taxes."

By Cris K. O'Neall, Esq., as published by National Real Estate Investor, November/December 2009

Why do taxing authorities recognize intangibles for hospitality properties, but not shopping center properties? The answer may be the way mall intangibles have been chara­acterized for tax purposes.

Intangibles include such items as business franchises, licenses and pera­mits, operating manuals and procedures, trained workforce, commercial agreea­ments and intellectual property.

Owners of hospitality properties know that branding their properties with well-recognized franchises or flags, such as Marriott, increases revenues. Because branding usually delivers access to resera­vations and management systems, traina­ing programs and other value-added benefits, it attracts clientele willing to pay premiums for hospitality stays and related amenities.

While hospitality properties benefit from their property tax exemption for franchises and other intangibles, shopa­ping mall properties haven't garnered the same benefits.

A recent unfavorable decision by the Minnesota Tax Court in an appeal filed by Eden Prairie Center in suburban Minneapolis typifies the difficulty shopa­ping center owners face in obtaining exemptions for intangibles. Mall owners who could use a respite from high propa­erty taxes are understandably frustrated.

Identifying intangibles

Hotel owners have succeeded in claiming the intangibles tax exemption by identia­fying specific types of intangibles, such as franchises and employee workforce, and assigning values to those tax-exempt items. This approach is particularly suca­cessful in states like California where statutes and court decisions support deductions for intangibles.

In contrast, shopping center owners typically urge tax assessors to reduce assessments based on residual "business enterprise value" (BEV). These owna­ers ascribe to BEV the higher in-line store rents produced by the presence of high-end anchor tenants or a particularly advantageous tenant mix.

Taxing authorities are reluctant to accept taxpayers' requests for BEV assessa­ment reductions. Court decisions involva­ing shopping center properties usually point to difficulties in proving BEV and the problem of separating intangibles from real estate.

Mall owners should focus on intana­gible assets and rights specific to their properties, as hospitality owners have done, rather than rely on the more neba­ulous BEV. They should identify and determine the value of intangibles such as anchor tenant and/or mall trade names, management agreements, and advertising arrangements. Creativity in identifying and valuing intangibles can bring significant assessment reductions, but success depends on owners' efforts. For example, proving to taxing authorities the benefits of having upscale anchor tenants likely requires an appraiser's analysis and may also depend upon data for competing properties.

Making the case

After intangibles are identified, an appraiser who specializes in intangible valuation should be retained to appraise the identified assets and rights. Then the total value of the tax-exempt intangibles is deducted from the entire property's value to arrive at the value of the taxable real property.

If the value of all intangibles is suba­stantial, this should be presented to the assessor. Ideally, informal negotiations with the taxing authority result in lower assessments. Even with the best efforts, however, it's still possible that the assessor won't reduce a shopping center's value by removing tax-exempt intangibles. In that event, a tax appeal should be filed.

CONeallCris K. O'Neall is a partner with Cahill, Davis & O'Neall LLP, the California member of American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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