As manufacturers get tax reductions, Wisconsin homeowners pay more

MANAWA - Larry Squires distinctly remembers how he felt when he got his annual property tax bill in the mail in December.

Taxes on his Manawa home went up nearly 14 percent, an increase of more than $260.

“I definitely wasn’t happy about it,” Squires said.

Neither were many of Manawa's roughly 1,300 residents, who haven't been shy in letting local officials know their displeasure with the tax hike, Mayor John Smith said.

A key reason residents’ taxes went up: Property taxes on the largest employer in town, Sturm Foods, went down.

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The company, which makes oatmeal, dried soups and other products, was able to reduce the assessed value of its facilities by nearly $10 million last year.

“The rest of us taxpayers are going to pay the penalty,” Squires said. “I wish my taxes were less.”

Sturm Foods isn't the only company to do this: Manufacturers in Wisconsin have erased at least $150 million in taxable value on their plants over the last five years by challenging the state Department of Revenue's assessments of their properties, a USA TODAY NETWORK-Wisconsin analysis has found.

One paper company cut its taxable value by more than $13 million on properties in the Fox Valley and central and northern Wisconsin. Another paper company won a big tax cut and then announced plans to shut down local plants and cut hundreds of jobs.

The efforts by manufacturers parallel those of big-box retailers and other companies taking similar steps to shed hundreds of millions of dollars in assessed value to also save on taxes.

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Cutting costs is a key motive. Companies have a fiduciary responsibility to not overpay their taxes, said Scott Manley, senior vice president of government relations for Wisconsin Manufacturers and Commerce.

Yet, such action often means homeowners and other property owners have to pay more as local governments seek to make up for the lost tax revenue.

Data from the Wisconsin Department of Revenue show that 136 companies obtained reduced assessments for more than 200 manufacturing facilities around the state between 2012 and 2016.

At least 84 companies appealed their assessed value to the department in 2017. Many of those cases are pending.

Among the largest losers:

► Manufacturers in Milwaukee County reduced their assessed values by more than $18 million, the most of any county.

► Outagamie County had the second-biggest reduction, losing $14.5 million in assessed value.

► Brown County lost more than $11 million, while Sheboygan County lost $7 million and Manitowoc County lost $4.7 million.

► In central and northern Wisconsin, Oneida County lost nearly $4.5 million and Marathon County lost more than $2.5 million in taxable property.

Expera Specialty Solutions secured one of the biggest cuts of any single company: It obtained reductions in the assessed value of its paper mills in Kaukauna, De Pere, Mosinee and Rhinelander by a combined $13.6 million.

Expera, a subsidiary of New York private equity firm KPS Capital Partners, was created in 2013 to run the four mills after a series of acquisitions.

The Department of Revenue also has also reduced the assessed value of two properties owned by Gannett, the parent company of USA TODAY NETWORK-Wisconsin.

Valuing manufacturers: It's complicated

Assessing manufacturing properties is challenging for several reasons, said Dale Knapp, research director at the nonpartisan Wisconsin Taxpayers Alliance.

Chief among them: Far fewer manufacturing properties are sold on the open market than are homes, which makes it difficult to find facilities of comparable value.

Manufacturing properties are often custom-built to suit a company’s unique needs and processes. A building’s layout, ceiling height and even the number of loading docks can affect the sale price.

That can lead to significant differences of opinion between manufacturers and the state Department of Revenue, which assesses manufacturing properties for tax purposes, Knapp said.

Companies have repeatedly asserted that their manufacturing properties have no value at all or are worth just a sliver of their assessed value — something that could be an intentional negotiation tactic, according to Fox Crossing Village Manager Jeffrey Sturgell.

“That’s all part of the game,” Sturgell said. “We know they’re just really looking to see what they can get.”

Large paper companies in Fox Crossing have filed assessment appeals in recent years.

Kimberly-Clark sought to slash the values of facilities in Fox Crossing by nearly $40 million.

The company reached a settlement with the state and village that ultimately lowered the assessed value by $9.2 million, reducing the company’s tax burden by $202,000.

Kimberly-Clark is now planning to cut about 600 jobs and close plants in Fox Crossing and Neenah as part of a restructuring plan.

SCA Tissue is seeking to reduce the assessed value of four manufacturing parcels in Fox Crossing by $5.5 million, or more than half their current assessed value. That appeal is pending.

The village opposed the Kimberly-Clark appeal and is also fighting the SCA Tissue case.

Settle, or fight?

Sturm Foods said in a statement that it challenged the state's assessments because "appealing an overvalued assessment is a responsible and common practice by individual taxpayers in Manawa as well as other companies."

The company said the Department of Revenue agreed that the properties were overvalued "by the fact that the values were reduced in the settlement."

Sturm initially sought to cut the assessment of its primary operations in Manawa by 78 percent, from $30 million to just $6.5 million.

Smith, the Manawa mayor, said the city agreed to the $10 million reduction out of a concern that a court could settle on an even greater reduction — which would be worse for local taxpayers and could set a precedent affecting other communities in Wisconsin.

Sturgell, the Fox Crossing official, said challenging the companies' assessment appeals gives the village a voice in the process and helps ensure all taxpayers are treated as fairly as possible.

“If we don’t appeal, then basically the Department of Revenue can strike a deal with the manufacturer without us being involved,” Sturgell said.

Sturgell said the village must take manufacturers seriously when they claim they're over-assessed, because Fox Crossing doesn't want to lose those local employers. But, he said, village leaders also have to consider other taxpayers who often are required to pay more in taxes if a large property’s assessed value decreases.

Outsized influence in small towns

Small towns may feel the effects of major drops in assessed value more acutely than bigger cities, according to Knapp of the taxpayers alliance.

In Manawa, where Sturm Foods employs nearly as many people as there are city residents, the property tax rate increased by $2.36 per $1,000 of assessed value after the company's reductions took effect.

Both the Department of Revenue and Smith, the mayor, said a reduction in the city's manufacturing assessed value were partly to blame for the rate increase.

Manley, of Wisconsin Manufacturers and Commerce, disputes that claim.

He said cities can choose whether to increase their tax rates to make up for a loss in revenue from manufacturing properties, or they can cut their spending budgets to avoid a higher levy.

Smith said the city decided it needed to raise additional money to preserve services.

Manawa already is closely watching overtime for public works employees and police officers after the city has had to refund Sturm more than $100,000 for taxes the company asserted it overpaid.

The Manawa School District also had to reimburse Sturm more than $83,000 as a result of the settlement, according to Carmen O'Brien, the district’s business manager.

O'Brien said that money will come from an investment account and won’t harm education programs. The district can raise taxes to recoup that amount from taxpayers, but officials have not decided whether to do that.

"It's very much a trickle-down effect,” said O’Brien, whose personal property taxes went up by more than $500. “Ultimately it trickles down to the taxpayers."