## Facts

- Menard, Inc. owned a 166,196-square-foot, owner-occupied home-improvement “big-box” store on 18.35 acres in Escanaba, Michigan.
- The City assessed the property’s true cash value (TCV) for ad valorem taxes at approximately $7.8 million (2012), $8.0 million (2013), and $8.2 million (2014).
- Menard challenged the assessments and presented an appraisal asserting a TCV of $3.3 million for each year.
- Menard’s appraiser used a sales-comparison approach relying heavily on sales of vacant or former big-box properties, many burdened by private deed restrictions limiting future retail use.
- The parties stipulated the property was not income-producing; the Michigan Tax Tribunal ultimately gave no weight to an income approach.
- The City’s experts criticized Menard’s comparables as legally and economically dissimilar because of vacancy, repurposing, and deed restrictions, and urged use of a cost-less-depreciation approach for an operating, unrestricted store.
- The Tax Tribunal largely adopted Menard’s sales-comparison analysis, declined to apply cost-less-depreciation (citing difficulty quantifying functional obsolescence), and found deed restrictions did not affect comparable sale prices.

## Issues

1. Whether the Tax Tribunal committed legal error and lacked substantial evidence by valuing an unrestricted, operating big-box store primarily through sales of deed-restricted, vacant/repurposed properties without adjustments for the restrictions and dissimilarities.
2. Whether the Tax Tribunal erred by effectively rejecting the cost-less-depreciation method based on the asserted difficulty of calculating functional obsolescence.
3. How TCV should be determined for a relatively new, owner-occupied, unrestricted big-box store when available sales data includes vacant and deed-restricted properties.

## Decision

- The Michigan Court of Appeals reversed the Tax Tribunal and remanded for further proceedings.
- The court held the tribunal’s valuation rested on legal error and was not supported by competent, material, and substantial evidence.
- The court directed the tribunal on remand to either:
  - perform a sales-comparison analysis with appropriate adjustments for deed restrictions and other material differences, or
  - properly consider and apply the cost-less-depreciation approach, including a supported analysis of functional obsolescence, consistent with Michigan law.

## Legal Principles

- Michigan property must be assessed at “true cash value,” generally reflecting the usual selling price of the property.
- Valuation for tax purposes ordinarily targets the unencumbered fee-simple interest; private deed restrictions affecting comparable sales must be accounted for when the subject property is not similarly restricted.
- Comparable-sales evidence must reflect meaningful similarity; material legal and economic differences (including deed restrictions and vacancy/repurposing) require adjustments and reasoned findings.
- The Tax Tribunal must make findings supported by “competent, material, and substantial evidence,” not assumptions or conclusory acceptance of one side’s theory.
- The cost-less-depreciation approach is a recognized valuation method, particularly where comparable sales are limited or problematic; functional obsolescence is a legitimate component of depreciation that must be analyzed rather than dismissed as too difficult.

## Conclusion

The court required the Tax Tribunal to value the property’s fee-simple true cash value using legally sound methods, rejecting unadjusted reliance on deed-restricted “dark store” sales and directing meaningful consideration of adjustments and/or cost-less-depreciation with supported treatment of functional obsolescence.


Menard, Inc. v. City of Escanaba, 315 Mich. App. 512, 891 N.W.2d 1 (Mich. Ct. App. 2016)