Enterprise Leasing Company of Minnesota,

1
STATE OF MINNESOTA
IN SUPREME COURT
A22-1022

Tax Court Gildea, C.J.

Enterprise Leasing Company of Minnesota,

Respondent,

vs. Filed: March 29, 2023
Office of Appellate Courts
County of Hennepin,

Relator.

________________________

A22-1024

Avis Budget Car Rental, LLC,

Respondent,

vs.

County of Hennepin,

Relator.

________________________

Timothy A. Rye and Bryan J. Huntington, Larkin Hoffman Da ly & Lindgren Ltd.,
Minneapolis, Minnesota, for respondents.

Mary F. Moriarty, Hennepin County Attorney, Sa ra L. Bruggeman, Assistant County
Attorney, Hennepin County Attorney’s Office, Minneapolis, Minnesota, for relators.

________________________
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S Y L L A B U S
The tax court did not clearly err by ex cluding the “concession fee” from rental
income in the income-capitalization approach the court used to assess market value.
Affirmed.
Considered and decided by the court without oral argument.
O P I N I O N
GILDEA, Chief Justice.
Two rental car companies at the Minnea polis-St. Paul Inte rnational Airport,
Enterprise Leasing Company of Minnesota and Avis Budget Car Rental, LLC, separately
appealed to the tax court from Hennepin County’s valuation of their respective properties.
Hennepin County then appealed both cases to our court after the tax court’s estimated
market value in each case was lowe r than the value that Hennepin County sought at trial.
The appeals—which we consolidate for purposes of this opinion—raise the same issue:
whether the tax court erred in declining to in clude a “concession fee” as rental income
attributable to the property under the income-capitalization approach to property valuation.
Because we conclude that the tax court did not err, we affirm in both cases.
FACTS
Avis Budget Car Rental, LLC, and Enterp rise Leasing Company of Minnesota
operate car rental companies at the Minneapolis-St. Paul International Airport. Avis and
Enterprise lease their facilities from the Metropolitan Airports Commission (MAC). The
companies entered into separate General Terms Agreements and several Supplemental
Lease Agreements with MAC. Under the General Terms Agreements, Avis and Enterprise
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pay a “concession fee” to MAC. The concession fee is 10 percent of the revenue earned at
these properties and is paid for “use of the facilities and access to the Airport market.”
Under the Supplemental Lease Agreements, the companies also pay “rent” for use of the
premises.
Even though MAC is exempt from property tax, state statute obligates Avis and
Enterprise to pay property tax as lessees “in the same amount and to the same extent as
though the lessee or user was the owner of such property.” Minn. Stat. § 272.01, subd. 2(a)
(2022); see also Minn. Stat. § 360.035 (2022) (stating that MAC is exempt from property
tax). Accordingly, Hennepin County assessed Avis and Enterprise fo r the value of their
airport facilities. Hennepin County’s assessor valued the Avis pr operties at $20,465,000
and the Enterprise properties at $34,873,000.
Avis and Enterprise appealed Hennepin County’s valuation of the properties to the
tax court; they asserted that th e assessed market value exceed ed the actual market value.
See Minn. Stat. § 278.01, subd. 1 (2022) (providing for appeals of assessed value to the tax
court). The tax court held a joint trial to determine the market value of the Avis and
Enterprise properties.
The tax court and the parties focused at trial on two different approaches to
determining the market value of the properties: the cost approach and the income-
capitalization approach. 1 The cost approach is “fou nded on the proposition that an

1 The third approach our case law recogn izes is “the market comparison,” which
examines “the prices paid for comparable properties.” Am. Express Fin. Advisors v. Carver
County, 573 N.W.2d 651, 657 (Minn. 1998). Th e tax court did not use the market-
comparison approach, and the parties do not rais e any issue as to that decision on appeal.
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informed buyer would pay no more for the property than the cost of building a new property
with the same utility as the subject property.” Am. Express Fin. Advisors v. Carver County,
573 N.W.2d 651, 657 (Minn. 1998).
The income-capitalization approach is “p redicated on the capitalization of the
income the property is e xpected to generate.” Id. Rental income attributable to the
property is included within the income-capitalization approach. See Appraisal Institute,
The Appraisal of Real Estate 421 & 448 (15th ed. 2020) (“Any rent attributed to specific
leases is disregarded in the income analysis except to the extent that these leases may be
indicative of market rent.”).
A central issue at trial—and the only i ssue on appeal—is whether the concession
fee was rental income under the income-capita lization approach. Avis and Enterprise
argued that the fee was not rental income and therefore should not be included in the
income-capitalization approach. Hennepin County argued that because the concession fee
was part of the rental income earned from the leased property, the fee had to be included
in the income-capitalization a pproach. The tax court agreed with Avis and Enterprise,
relying on the testimony from their expert, Scot Torkelson.
Torkelson testified to market value based on his assessment of the property value in
the relevant tax year. See Avis Budget Car Rental, LLC v. County of Hennepin ,
No. 27-CV-19-4728, 2022 WL 1670020, at *3 (Minn. T.C. May 23, 2022) (hereinafter

Likewise, the parties do not ch allenge the tax court’s use or application of the cost
approach.
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Avis II); Enterprise Leasing Co. of Minn. v. County of Hennepin , No. 27-CV-19-4730,
2022 WL 1669010, at *3 (Minn. T.C. May 23, 2022) (hereinafter Enterprise II). Torkelson
did not include the concession fee as rental income in the income-capitalization approach
because he thought the concession fee was co mparable to a “franc hise fee,” which is
business income that is not attributable to the real estate. Torkelson based this conclusion
on several factors, including a review of the lease terms.
Torkelson explained that car rental comp anies that occupy only small counter-
service areas at the airport still pay a fee of 10 percent of their revenue for access to airport
patrons. Because other car re ntal companies pay the same fee, even if they use only
minimal space from the airport, he found no relationship between the fee and the real estate.
Torkelson also noted that car rental comp anies typically pay a fee of approximately
10 percent at other airports, regardless of wh ether the car rental companies operate at
facilities leased from the airport. This fact further supported Torkelson’s finding that the
concession fee was not rent. Finally, Torkelson noted that including the concession fee as
rental income in the income-capitalization approach would result in a market value that far
exceeded the value that would be arrived at using the cost approach.
Hennepin County’s expert did not conduct an independent property tax assessment,
but rather, he reviewed a previous tax year’s assessment by Torkelson, modified parts of
the previous appraisal, and highlighted purported flaws with the prior analysis. Based on
this analysis, Hennepin County’s expert offe red an opinion on the market value for the
applicable tax year. As part of that opinion, Hennepin County’s assessor explained that he
would characterize the concession fee as a percentage lease based on his lease
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interpretation, which he said makes the concession fee income attributable to the subject
property. Accordingly, he included the c oncession fee in his income-capitalization
approach.
After trial, the tax court found Torkels on’s testimony and approach more reliable
than that offered by Hennepin County. See Avis II , 2022 WL 1670020, at *10–13
Enterprise II, 2022 WL 1669010, at *4–5. Consistent with Torkelson’s approach, the tax
court found that the concession fee was best allocated as business income, not rental
income, and the court therefore did not include the concession fee as rental income in the
income-capitalization approach. Avis II, 2022 WL 1670020, at *13.
In conducting its analysis, the tax court acknowledged that we have previously
considered a question invo lving concession fees. See Avis Budget Car Rental LLC v.
County of Hennepin , 937 N.W.2d 446, 449–51 (Minn. 2020) (hereinafter Avis I) (citing
Minn. Stat. § 278.05, subd. 6 (2022)); see also Enterprise Leasing Co. of Minn. v. County
of Hennepin, 937 N.W.2d 428, 430 (Minn. 2020) (hereinafter Enterprise I). In Avis I and
Enterprise I, Avis and Enterprise failed to disclose documents showing that the concession
fee was paid to MAC, even though the mandatory-disclosure provision of the statute
governing property tax appeals required disclosure of “year-end financial statements, rent
rolls and identification of lease agreements (including base rent and square footage leased),
and anticipated income and expenses relative to the property.” Avis I, 937 N.W.2d at 450;
Enterprise I, 937 N.W.2d at 429; see also Minn. Stat. § 278.05, subd. 6. We held that the
concession fees “were rent or, at least, income that needed to be disclosed under the statute,
whether in the required financial statements, as rent information, or as anticipated income.”
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Avis I, 937 N.W.2d at 450 (emphasis added); Enterprise I, 937 N.W.2d at 430 (“For the
reasons explained in Avis, the tax court did not err in dismissing Enterprise’s petition
because the concession fees were rent, or at least income, and thus subject to the
mandatory-disclosure requirements of Minn. Stat. § 278.05, subd. 6.”).2
Rather than grou nd a result in Avis I, the tax court consider ed the evidence in
reaching its decision not to in clude the concession fee as re ntal income. The tax court
acknowledged that the General Terms Agreement states that the concession fee is for “use
of the facilities and access to the Airport market.” Avis II, 2022 WL 1670020, at *11
(emphasis omitted). But the court ultimatel y concluded “that the concession fee is
consideration for access to the airport car rental market, rather than rent paid for use of the
‘Leased Premises’ ” for the income-capitaliza tion approach and dec lined to include the
concession fee in the income-capitalization approach. Id. at *13. The tax court cited three
reasons to support its determination.
First, the tax court noted, as Torkelson testified, that off-airport car rental
companies—rental car compan ies that do not lease sp ace from the airport—pay a
10 percent fee for access to the airport market. Id. at *12. Second, the tax court noted that
if the concession fee was considered rent, th e lease rate would be ten times greater. Id.
The tax court found that this va riance was plainly unreasonable. Id. And finally, the tax
court found that including the concession fee as rental income made other calculations that
the county’s assessor relied on unreasonably high. See id. at *13 (“Including the

2 Because Enterprise I relied upon “the reasons explained in Avis,” we cite primarily
to Avis I in this opinion.
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concession fee as rent, however, would incr ease management expense to $163,588, an
annual figure plainly unreasonable for one-tenant facilities on 5-year leases.”).
The tax court’s approach resulted in the following value calculations:
Avis
Approach Indicator Weight 3 Product
Cost Approach $12,51 0,450 90% $11,259,405
Income-Capitalization Approach $12,380,000 10% $ 1,238,000
Total: $12,497,405

Enterprise
Approach Indicator Weight Product
Cost Approach $21, 179,586 90% $19,061,627
Income-Capitalization Approach $20,450,000 10% $ 2,045,000
Total: $21,106,627

The tax court’s estimated market valu es—$12,497,405 for Av is and $21,106,627
for Enterprise—are lower than the values Hennepin County presented at trial.4 Hennepin
County challenged the tax court’s values in petitions for certiorari review to our court under
Minn. Stat. § 271.10, subd. 1 (2022) (“A review of any final order of the Tax Court may
be had upon certiorari by the supreme court upon petition”).
ANALYSIS
The sole issue in this appeal is whether the concession fee is income attributable to
the subject property that needed to be in cluded in the valuation under the income-
capitalization approach. The parties and the ta x court agree that income generated by the

3 The weight that the tax c ourt attributed to each approach is unchallenged, so we do
not consider whether it was error for the tax court to place less we ight on the income-
capitalization approach.

4 Specifically, at trial Henn epin County valued the Avis properties at $20,560,000
and the Enterprise properties at $31,620,000.
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subject property for use of the property—rental income—should be included in the income-
capitalization approach and that other forms of income—business income—should not.
Hennepin County asserts that the concession fee is rental income because our prior opinion
in Avis I and the terms of the lease documents say as much. The tax court disagreed.
When we review a tax court’s valuation of a property, we “defer to the tax court’s
determination unless it clearly mi svalued the property or failed to explain its reasoning.”
Minn. Energy Res. Corp. v. Comm’r of Revenue (MERC), 886 N.W.2d 786, 792 (Minn.
2016). Our review is limited and deferential be cause real estate appraisal is not an exact
determination. Menard, Inc. v. County of Clay, 886 N.W.2d 804, 811 (Minn. 2016). We
consider “whether the tax court lacked subjec t matter jurisdiction, whether the tax court's
decision is supported by evidence in the record, and whether the tax court made an error of
law.” Hohmann v. Comm’r of Revenue, 781 N.W.2d 156, 157 (Minn. 2010).
Hennepin County argues primarily that the tax court’s decisions are contrary to law.
Specifically, the County contends that the tax court erred as a matter of law in determining
not to include the concession fee in its calc ulation of market value under the income-
capitalization approach. The County asserts that Avis I compels the tax court to include
the concession fee as part of the rental income for the properties. For their part, Avis and
Enterprise argue that Avis I is not dispositive of the issu e and that the tax court had
discretion over how to use the concession fee within the income-capitalization approach.
We agree with Avis and Enterprise.
Our holding in Avis I did not resolve the question of whether the concession fee was
rental income that must be included in the income-capitalization approach to real estate
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valuation. Avis I was not about the tax court’s valuation of property. That decision instead
concerned the interpretation of the mandatory-disclosure provision in Minn. Stat. § 278.05,
subd. 6. 937 N.W.2d at 449–51. This pr ovision requires that property taxpayers who
challenge the county’s assessed value of their “income-producing property” disclose to the
county certain information about that prop erty. Minn. Stat. § 278.05, subd. 6. In Avis I,
Avis did not disclose inform ation about the concession fee and Hennepin County argued
that the statute required that information to be disclosed. 937 N.W.2d at 449. We agreed
with Hennepin County. We said that the concession fe e was “rent—or at least income—
subject to the mandatory-disclosure provision.” Id. at 451.
Avis I does not control here because the ques tion of whether info rmation must be
disclosed under the statute is a different question from whether that same information must
be used in the tax court’s market value anal ysis. Indeed, we have recognized that the
mandatory-disclosure provision is broader than the valuation inquiry. See Wal-Mart Real
Est. Bus. Tr. v. County of Anoka, 931 N.W.2d 382, 388 (Minn. 2019) (“Whether or not the
information provided by a taxpayer gives an ac curate picture of a property’s actual value
is a question that goes to the merits of th e petition itself. The mandatory-disclosure rule
applies without regard to the merits of th e tax petition, however.”). Thus, our ruling in
Avis I that the concession fee was “rent—or at le ast income” that need ed to be disclosed
under the mandatory-disclosure provision did not resolve the current dispute over whether
the concession fee should be included as rental income in the income-capitalization
approach. 937 N.W.2d at 451.
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Separate from its argument that Avis I compels the conclusi on that the tax court
erred as a matter of law, Hennepin County argues that the plain text of the lease documents
compels a conclusion that the concession fee was rental income attributable to the subject
property. The County notes that the General Terms Agreement states that the concession
fee is for “use of the facilities and access to the Airport market .” Based on its reading of
the agreement, the County asserts the concession fee was rent as a matter of law and thus
had to be included within the income-capitalization approach. We are not persuaded.
As the tax court found, the terms of the lease documents support the conclusion that
the concession fee is both rental income and business income. We agree with the tax court.
The General Terms Agreement provides that the fee is for “use of the facilities and access
to the Airport market.” Under these terms then , the concession fee is at least in part for
“access to the Airport market,” and Hennepin County does not dispute that fees paid for
access would be business income.5
Once the tax court acknowledged that the concession fee is—as a matter of contract
interpretation—both rental income and business income, the ta x court properly sought to
answer the next question before it: “whether fee payments for these combined purposes
can be reliably allocated” between business income and rental income. Avis II, 2022
WL 1670020, at *11. Because the lease doc uments did not resolve the question, the tax

5 Hennepin County emphasizes that “[f]ees to ‘access’ property are equivalent to fees
to ‘use’ property.” But fees to access airport property and fees to access the airport market
could be different, and, as the tax court found, the lease documents do not definitely resolve
that difference.
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court turned to the evidence to decide how to treat the concession fees.6 Cf. TMG Life Ins.
Co. v. County of Goodhue , 540 N.W.2d 848, 853 (Minn. 19 95) (deferring to tax court’s
factual determination that actual lease terms did not represent market rent and affirming
the tax court’s reliance on expert testimony to determine market rent).
Ultimately, the evidence supports the tax court’s finding that the concession fee was
not rent for purposes of the income-capitali zation approach. The tax court considered
competing expert testimony presented by the parties and found Torkelson’s testimony more
reliable. See Avis II, 2022 WL 1670020, at *12–13. As the factfinder, the tax court “was
entitled to resolve the conflicts in the record and determine how much weight to give each
expert report.” MERC, 886 N.W.2d at 794.
Based on Torkelson’s testimony, the tax court noted that off-airport car rental
companies pay the same 10 percent fee,7 that the income-capitalization approach with the
concession fee resulted in an estimated market value that was unreasonably high, and that

6 Hennepin County a sserts that the necessary implication of the tax court’s conclusion
is that lease agreements that “create[] only a privilege to access property . . . do[] not result
in the imposition of tax.” The tax court did not write such a broad rule of law, expressly
or implicitly. The tax court merely conclude d that when lease agreements include a fee
that is in part not attribut able to the subject property, it should rely on evidence and
expertise to determine how to allocate that income in the income-capitalization approach.
See MERC, 886 N.W.2d at 794.

7 Hennepin County asks us to overturn th e tax court’s factual finding that off-airport
car rental companies pay the same fee but do not pay property taxes on that fee. For
support, the County offers one citation to a tax court case that eventually settled. See
Petition, Auto Rental LLC dba Ace Rent A Car, formerly Auto Rental LLC dba Sixt
Rent a Car MSP Airport v. County of Hennepin , No. 27-cv-20-14415 (Henn. Cnty. Dist.
Ct. filed November 9, 2020). We will not overturn the tax court’s factual finding absent a
showing of clear error, and Hennepin County presents no evidence of clear error.
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including the concession fee as rent “deranges other figures the County’s review appraisal
considered reasonable.” Avis II, 2022 WL 16700 20, at *12–13. Because there is
evidentiary support for the tax court’s decisi on to exclude the concession fee from rental
income, that decision was not clearly erroneous.
CONCLUSION
For the foregoing reasons, we affirm the decisions of the tax court.
Affirmed.