A judge ruled this week in favor of county and state officials in a lawsuit brought by Walgreens Co. that threatened to strip millions of dollars from Kentucky's school districts.
In a ruling issued Wednesday, Fayette Circuit Judge Tom Clark said Fayette County Property Valuation Administrator David O'Neill had properly assessed the value of the Walgreens pharmacy at 2290 Nicholasville Road.
Clark upheld an earlier finding in favor of O'Neill by the Kentucky Board of Tax Appeals, saying the method used to value the property "was not arbitrary or capricious, nor was it clearly erroneous."
If O'Neill and other PVAs in the state had lost the case, the potential change in how PVAs assess commercial property could have cost Kentucky's 173 public school districts "hundreds of millions of dollars," O'Neill said.
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Walgreens' store on Nicholasville Road is worth $5 million, according to O'Neill, but the company has contested its property tax bill for the past two years, paying the taxes as though the store were worth $3.4 million.
That, and similar appeals for six other Walgreens in Fayette County, amounted to a $200,224 loss for Fayette County Public Schools, which gets 54 percent of its funding from such local taxes.
Statewide, Walgreens has appealed the valuation on more than 20 of its 94 stores to the state board of tax appeals.
Central to the company's lawsuit was its contention that Kentucky PVAs are using the wrong methodology to determine the value of Walgreens stores, resulting in inflated values and unfairly high tax bills.
There are three accepted practices for determining a property's value:
■ For a residential property, PVAs usually base their estimates on comparable sales in a given neighborhood.
■ For a new commercial property, PVAs sometimes look at the construction cost.
■ For an existing commercial property, PVAs usually determine a value by calculating how much income it can generate. In other words, what could a real estate holding company collect by renting the property over time to a corporation, such as Walgreens?
Walgreens contended that its stores should be assessed based on the value of comparable properties, not its cost to lease the stores.
O'Neill said Friday that he "was always confident that our methodology for assessing these properties was sound — and that the law is clear — so obviously I'm thrilled that the judge agrees and that we can now move forward."
Phil Caruso, a spokesman for Walgreens, declined to comment Friday.
Caruso previously defended the company's appeal, saying Walgreens was behaving "like any taxpayer who believes their real estate assessment is excessive."
If Clark's ruling stands, Walgreens will have to pay taxes on the PVA's assessed value of its properties, plus interest.
In an unusual twist, a handful of school districts helped fund the fight against Walgreens.
O'Neill and officials in Fayette County Attorney Larry Roberts' office sought funding from school officials in Fayette and other counties to defend the Walgreens case before the Kentucky Board of Tax Appeals.
Fayette County Public Schools contributed $8,737 to the cause, and other Kentucky school districts pitched in for a total of about $26,000.