## Facts

- Federated Retail Holdings, Inc. owned and operated a Macy’s anchor department store at Rosedale Center Mall in Ramsey County, Minnesota, located on tax Parcel 0004.
- Federated held a leasehold interest in adjacent Parcel 0005 (owned by the mall owner) for basement and related administrative/retail space connected to the Macy’s store and used for store operations.
- The lease granted exclusive operational use of the adjacent space and was structured to be assignable to successor owners of the anchor store.
- For the January 2, 2006 assessment, the county assessor valued Parcel 0004 at $17,000,000 and included the contributory value of Federated’s leasehold interest in Parcel 0005.
- Federated filed tax petitions challenging the market value, asserting Parcel 0004’s taxable value could not include value attributable to the adjacent-parcel leasehold.
- The tax court found the leasehold conferred value tied to Federated’s store operations but concluded it lacked subject-matter jurisdiction to include that value because the parcels were not formally consolidated and the petition referenced only Parcel 0004.

## Issues

1. Whether the Minnesota Tax Court has subject-matter jurisdiction, in a valuation appeal for Parcel 0004, to consider the value of a taxpayer’s leasehold interest in adjacent Parcel 0005.
2. Whether the leasehold interest in adjacent property constitutes “real property” of the appealed parcel under Minn. Stat. § 272.03, subd. 1, because it operates as a covenant running with the land.

## Decision

- The Minnesota Supreme Court reversed the tax court and remanded.
- The court held the tax court has subject-matter jurisdiction over an adjacent-parcel leasehold interest if the leasehold constitutes real property of the tax parcel on appeal within Minn. Stat. § 272.03, subd. 1.
- The court held that an interest satisfying the criteria of a covenant running with the land is a “right or privilege” that “belongs or appertains” to land under § 272.03, subd. 1.
- Because Federated’s leasehold met the covenant-running-with-the-land criteria, its contributory value had to be considered in valuing Parcel 0004, notwithstanding the lack of parcel consolidation and the petition’s reference only to Parcel 0004.

## Legal Principles

- For Minnesota property tax valuation, “real property” under Minn. Stat. § 272.03, subd. 1 includes not only land and improvements but also rights or privileges that belong or appertain to the land.
- An appurtenant interest that meets the requirements of a covenant running with the land (including privity of estate, touch-and-concern, and assignability to successors) qualifies as such a right or privilege and is treated as real property of the benefited parcel.
- In a valuation appeal properly before it, the tax court’s subject-matter jurisdiction extends to all real property interests that are part of, or belong/appertain to, the appealed parcel, even if those interests involve an adjacent parcel.
- The absence of formal consolidation of tax parcels, and a petition’s failure to list the adjacent parcel, does not bar consideration of an appurtenant interest that is legally part of the appealed parcel’s bundle of rights.
- The contributory value of an appurtenant covenant running with the land must be included among the factors determining the fair market value of the appealed tax parcel.

## Conclusion

The Minnesota Supreme Court held that the tax court could consider and include, in valuing an appealed tax parcel, the contributory value of an adjacent-parcel leasehold interest when the leasehold operates as a covenant running with the land and therefore constitutes real property that belongs or appertains to the parcel under Minn. Stat. § 272.03, subd. 1.


Federated Retail Holdings, Inc. v. Cnty. of Ramsey, 820 N.W.2d 553 (Minn. 2012)