Can a municipality offer to waive or reimburse payment of property taxes, as an incentive to businesses or other property owners to locate in the community?

No. Municipalities are prohibited from granting property tax breaks by a clause contained in the Wisconsin Constitution which is referred to as the Uniformity Clause. Article VIII, sec. 1 of the Wisconsin Constitution provides that "The rule of taxation shall be uniform...." Although the provision contains language which allows the state legislature to classify and exempt property for tax purposes, municipalities do not have the power to create full or partial exemptions.

In Cornwell v. City of Stevens Point, [1] the Wisconsin Court of Appeals held that a contract between a property owner and city in which the city agreed to reimburse the property owner for all real estate taxes payable on the property violated the uniformity clause and was void. In exchange for the reimbursement of property taxes, the contract required the property owner to petition the city to annex the land, precluded the owner from developing the land, and granted the city the right to pump groundwater from the land for use in its municipal water system. The term of the contract was 99 years.

In concluding that the contract violated the uniformity clause, the Cornwell court discussed two cases, one upholding and the other invalidating payments based on the property tax. In the first case, Monroe Water Works v. Monroe, [2] the Wisconsin Supreme Court upheld a contract in which a water company agreed to maintain fire hydrants and provide the city water on a daily basis for public buildings and other public uses in exchange for the city's payment of the company's real property taxes. The court ruled that the arrangement did not violate the uniformity clause because it was well established that a city may pay for services by an amount equal to taxes.

In the second case, Ehrlich v. City of Racine [3] the court struck down an agreement in which the city agreed to pay a sum equal to the difference between the amount of property taxes based on the actual valuation and a lower valuation in exchange for the property owners' agreement to petition for annexation and grant the city an easement for a storm sewer to alleviate a flooding problem. The court held that the agreement amounted to a partial tax exemption and therefore violated the uniformity clause. The court distinguished the Monroe case because in that case the payment was for continuing services and was thus not comparable to an annexation agreement involving payment for an easement.

The Cornwell court concluded that the agreement not to develop land and to give the city rights to groundwater more closely resembled the grant of an easement in the Ehrlich case than the purchase of continuing services in the Monroe case. The court noted that the city did get benefits from the contract, but that it was not enough for the city to get a "good deal." The existence of such benefits, the court reasoned, is not enough to outweigh the "compelling" public policy of equal treatment for all taxpayers.

The Cornwell court further concluded that even if the arrangement were viewed as involving payment for continuing services, it would still not pass constitutional muster under the uniformity clause because "it must appear that the sum so stipulated to be paid is a fair and just allowance for the actual services to be rendered. . . ." [4] The court said that there was nothing in the record to show that the amount of tax reimbursements in any way related to the value of the benefits received by the city.
The Cornwell case shows that an agreement in which a municipality pays a property owner an amount based on taxes is questionable. Although there is old case law to the effect that such payments are valid for continuing services, the amount to be paid must still be in accord with the value of the services. This suggests that even where continuing services are clearly involved, it may be prudent to base the payment on something other than taxes so that the payment reflects the value of the services.

The uniformity clause also prevents municipalities from freezing property assessments as an incentive for locating in a community, or from agreeing to give tax rebates to property tax owners or rebates of TIF increments to businesses in a TIF district.

Although a municipality may not waive the payment of property taxes or in most instances reimburse a property owner for payment of taxes, there are accepted methods of encouraging economic development. As pointed out in League legal opinion Taxation #992, a municipality may install public improvements without levying special assessments. Other examples include the tax increment financing law (TIF) law which allows land acquisition write down expenses as a project cost. [5] Municipalities are also authorized to benefit industry by installing roads and utilities (but not buildings) pursuant to Wis. Stat. sec. 66.1101.

1. 159 Wis.2d, 136, 464 N.W.2d 33 (Ct. App. 1990).
2. 110 Wis. 11, 85 N.W. 685 (1901).
3. 26 Wis.2d 352, 132 N.W.2d 489 (1965).
4. 159 Wis.2d 136, 464 N.W.2d 33, 35.
5. Wis. Stat. sec. 66.1105(2)(f)1.c.

(rev. 1/14)