Developers holding vacant land approved for condo construction will pay for the privilege after the town of Pacific successfully defended taxing the properties.
The Saddle Ridge Corp., a Portage-based developer, challenged the Columbia County town’s ability to tax 41 properties on which the company was approved to develop, but had not yet built, condominiums. Pat Kirk, president of Saddle Ridge, said his company cannot afford to continue paying property taxes for land that will not generate money until he finds a condo buyer and can build.
“There is no income, no return, nothing,” he said. “And now they want us to pick up the tab.”
In the Saddle Ridge case, the developer began building condominiums in 1978 in the Saddle Ridge subdivision in the town of Pacific. Since then, the town approved lots where the company could build single-family, stand-alone condominiums.
But the town in 2006 increased the assessment for those vacant lots from $5,000 to $32,000, drawing a court complaint from Saddle Ridge over the property taxes. Saddle Ridge did not challenge the assessed value of the land, but argued the people who had bought condominiums in the development should pay the taxes for their condos as well as the vacant lots.
The Wisconsin Supreme Court on Friday decided the developer must pay the taxes on the vacant lots.
The Saddle Ridge lawsuit is the first case to affirm that municipalities can tax developers for vacant land approved for condominium development, said Amie Trupke, attorney who represented the Board of Review for the town of Pacific. Trupke said it is common for municipalities to tax such properties, but the ruling cements support for the practice.
“It’s important to all municipalities,” she said, “because it makes it clear that developers cannot avoid paying taxes on declared but unbuilt condominium units using clever wording in condominium agreements.”
The outcome of the case is good and bad for condo developers statewide, said Tom Larson, director of regulatory and legislative affairs for the Wisconsin Realtors Association. The decision protects condo owners from higher taxes, removing a disincentive for potential buyers, he said. But developers may need to pay higher taxes.
“It means they can be assessed, but they have to be assessed at their fair market value,” he said of the vacant lots. “We just don’t know what that is.”
The case did not resolve whether the town of Pacific was right in increasing the taxes on the property because, unlike typical vacant land, the lots had town approval to be developed. If municipalities take the case as an invitation to levy taxes on such properties, Larson said, it could spur more developers to challenge the assessed value of land.
Developers should pay a higher tax if their land is approved for a condo project, said Rick Stadelman, executive director of the Wisconsin Towns Association. Although there is no building on the site, the property is more valuable because it has government approval for construction, he said.
Kirk said his land in Pacific does not have much value right now because nobody is buying condominiums. He said he does not know what he will do about the vacant lots that, after Friday’s court decision, will continue to prompt tax bills for his company.
“The holding costs — they’re going to be unrealistic for anyone developing over a long period of time,” Kirk said. “So the big guys, it probably won’t affect them that much. But for the little guys, it probably will.”