Wisconsin Court of Appeals Decision May Reduce Billboard Property Tax

August 11, 2010

A new decision from the Wisconsin Court of Appeals may reduce the property tax burden for some billboard owners. In Adams Outdoor Advertising, Ltd, v. City of Madison (Adams II), [1] the court held that a municipal assessor may not consider the value of billboard permits or income attributable to them in determining a billboard’s assessed value. The court then ordered the City of Madison to reassess Adams’ billboards in a way that did not include the value of the permits.
In Wisconsin, billboards are taxed as personal property and, like all personal property, they are supposed to be assessed at their fair market value. Location is everything, so a billboard with high visibility is more valuable than one with low visibility, and a billboard without a permit is nearly valueless. In the City of Madison, new billboard permits are scarce.

Generally, a billboard owner leases the property from the underlying land owner, and the billboard owner holds the permit. The billboard owner pays personal property tax on the billboard, and the underlying property owner pays real property tax on the land.

The Adams II case was the latest chapter in an ongoing dispute between Adams and the City over the City’s 2002 and 2003 billboard assessments. In 2006, the Wisconsin Supreme Court, in Adams Outdoor Advertising, Ltd. v. City of Madison (Adams I), [2] handed down a lengthy ruling in response to Adams’ initial challenge to the assessments. Two main holdings in Adams I are relevant to Adams II.

First, the Supreme Court in Adams I clarified the process by which an assessor should determine a billboard’s fair market value for personal property tax purposes. On the basis of prior court decisions and the state of Wisconsin Property Assessment Manual [3], the Court indicated that assessors should look first at arms-length sales of either the subject property or comparable properties. [4] If no such data is available, assessors may look to so-called “third tier” assessment methodologies. [5]

The primary third tier methods are the income and cost approaches. The income approach bases the billboard’s value on the income it generates, and the cost approach considers the cost to replace the billboard less depreciation. [6] The court held that the City of Madison erred by basing its personal property tax assessment solely on the income approach. [7]

The second major point in Adams I is that billboard permits are not personal property and they therefore do not contribute to assessed value for personal property tax purposes. [8] The Court’s rationale was that a billboard permit “is a right or privilege appertaining to real property and therefore falls within the definition of “real property” in Wis. Stat. § 70.03.” [9] To determine the fair market value of a billboard, an assessor would be required to disregard any value “attributable” to the billboard permit. [10] The majority reasons this is a coherent approach because valuation experts testified that income attributable to billboard structures can be isolated. [11]

Chief Justice Abrahamson criticizes the majority in her dissent, arguing that an assessor cannot ignore the permit in determining fair market value. According to Abrahamson, the fair market value “of a billboard is based on income, which is inextricably intertwined with the billboard permit.” [12] She bases much of her argument on the fact that the income-generating capacity of a billboard is based primarily on the location, which is governed by the permit. [13] Thus, Abrahamson argues, an assessor cannot properly determine fair market value without considering the billboard permits.

The Supreme Court in Adams I ordered the City to reassess Adams’ billboards without considering the permits or income attributable to them. The City did reassess, but came back with only marginally lower assessments, [14] prompting Adams to again challenge the assessments. The court of appeals subsequently rejected the reassessments because the City had again considered the value of the permits in determining assessed value. [15]

Billboard Taxation post-Adams II
The most clear takeaway point from Adams II is that billboard permits cannot contribute to the assessed value of billboards. Billboard owners should be sure their assessor is separating the permit value in determining the billboard’s fair market value. It is going to be much more problematic, however, to determine how much of a billboard’s value is attributable to the permit, and how much value is included in personal property tax assessments. Neither Adams decision is clear on how an assessor is to make that determination. Moving forward, the apportionment of a billboard’s value between the permit and the billboard itself may provide an option for challenging a property tax assessment.

The court is also unclear as to how or whether municipalities should tax the billboard permit or income attributable to it. The Supreme Court has indicated that a billboard permit is a right appertaining to real property, which adds value to the real property underneath the billboard. Wis. Stat. § 70.17(1) requires real property to be taxed “in the name of the owner” who is not the owner of the permit.

The Adams II court notes, “We acknowledge that it appears that, under Adams I, some portion of the fair market value of the real property escapes taxation.”[16] A municipality’s taxing authority simply may not reach billboard permits or value attributable to them.

Billboard taxation has been an ongoing issue for years in Wisconsin, and the Adams cases are just the most recent episode. This session in the legislature, a bipartisan bill would have mandated that assessors use only comparable sales and the cost method to assess billboard values. [17] Billboard owners should consult knowledgeable tax professionals and legal counsel to ensure their property tax assessments are consistent with evolving law and are not inappropriately based on value attributable to the billboard permit.

[1] 2009AP1373 (2010).
[2] 2006 WI 104, 294 Wis. 2d 441, 717 N.W.2d 803.
[3] Available online here.
[4] Adams, 2006 WI 104 at ¶ 34.
[5] Id.
[6] Id. at ¶ 35.
[7] Id. at ¶ 56.
[8] Id. ¶ 90.
[9] Id. at ¶ 59.
[10] See id. at ¶ 89.
[11] Id.
[12] Id. at ¶ 121.
[13] See id. at ¶ 121-27.
[14] The 2002 and 2003 assessments initially were $6.02 million and $5.86 million respectively while the reassessed values were $5.75 million and $5.75 million respectively.
[15] Adams 2009AP1373 ¶ 10.
[16] Id. at ¶ 17.
[17] See 2009 S.B. 145 and 2009 Assemb. B. 215.