The Wisconsin Supreme Court this month unanimously affirmed a court of appeals decision denying an appeal of the Department of Revenue’s (DOR) tax assessment for Nestlé’s powdered infant formula plant in Eau Claire.

In Nestlé USA, Inc. v. DOR, 2008AP000322 (Feb. 2, 2011), the question before the Court was the sufficiency of evidence necessary to rebut the presumption of correctness given to DOR’s assessment of the plant.

In 2005, DOR assessed Nestlé’s new powdered infant formula production facility for tax purposes. The DOR attempted to apply the comparable sales assessment method, but could not find any facilities in the United States that had been sold for continued use as powdered infant formula production facilities for comparison.

Other less-specialized food processing plants lacked the FDA-required features of the Nestlé plant, so the DOR determined the highest and best use of the facility was for producing formula.

This meant that in the eyes of the DOR, comparing the facility to other food processing plants would be improper, so a cost approach would be a better assessment. The cost approach estimates the cost of replicating the existing facility, and then deducts value for depreciation, functional obsolescence, and tax-exempt components. Applying the cost approach, the DOR assessed the plant at $10,915,000.

Nestlé appealed the DOR’s assessment, arguing that the cost approach was inappropriate. Nestlé agreed that there was little, if any, market for powdered infant formula facilities; however, Nestlé argued the facility’s highest and best use was as a food processing plant because it could be converted. Nestlé’s assessor used the comparable sales approach, comparing the sales of food processing plants, and appraised the plant at $3,590,000.

Writing for the Court, Justice Michael Gableman affirmed the decisions of the lower courts and the DOR. Under the “substantial evidence” test, the DOR’s assessment is presumed to be correct until “the challenging party presents significant contrary evidence.”

Applying the substantial evidence test, the Court ruled that “Nestlé failed to introduce significant evidence that no market existed for the Gateway Plant’s sale as a powdered infant formula production facility.” Specifically, Nestlé’s evidence that there were no actual formula facilities sold in the United States was not substantial evidence to establish that there is no market.