IKEA’s Tax Appraisal Slashed By $4M

Furniture retail giant IKEA has secured a $4 million discount on their Sargent Drive property’s ​“fair market value” — and a resulting $186,000 cut to their next local tax bill — after waging a yearslong legal battle over the property’s worth.

That’s the upshot of a settlement struck on Sept. 25 in the state court case Ikea Property Inc. v. City of New Haven.

The lawsuit at the center of that case, first filed in May 2021, saw IKEA try to convince the court to reduce the city-issued tax appraisal for 450 Sargent Dr., a 16.7‑acre property that the Swedish home furnishings company has owned since 2003. 

That site has long been home to a 310,000 square-foot industrial building where customers can buy ready-made beds, desks, sofas, lamps, and, of course, Swedish meatballs.

On Sept. 25, state Superior Court Judge Matthew Budzik signed off on a stipulation agreed to by both IKEA and the City of New Haven, thereby bringing this three-years-and-counting court case to a close.

The agreement reduces the Grand List Year 2020 ​“fair market value” for 450 Sargent Dr. from $33,173,400 to $29,000,000, or by a total of more than $4.1 million. 

Since city properties are taxed at their assessed value, which is 70 percent of their ​“fair market value,” that means that the court-approved stipulation reduces that year’s assessed value for this property from $23,221,380 to $20,300,000.

When taking into account the mill rate at the time, all of that translates to a $128,190 drop to the company’s Grand List Year 2020 New Haven real estate tax bill.

According to city spokesperson Lenny Speiller, the court case settlement also applies to Grand List Year 2021 and, when taking into account that year’s mill rate and property revaluation phase-in, results in a $58,062 drop to that year’s tax bill. 

These tax-bill ​“overpayments” for Grand List Years 2020 and 2021 — totaling more than $186,000 — will be applied as credits to IKEA’s next local property tax payment, per the settlement.

“Property valuations are generated through computer modeling and take into account various factors,” Speiller told the Independent in an email comment. ​“However, properties don’t always perfectly comport with computer modeling, which is why there is a process for property owners to appeal these assessments and present alternative valuations. The IKEA building is one of these unique properties that does not easily fit into typical evaluation modeling. The MOA [memorandum of agreement] reflects a settlement that takes into account these factors as well as potential litigation costs, and we’re pleased we were able to reach an amicable agreement.”

In a Jan. 26 legal filing in this case, IKEA’s attorney, Michael Reiner of Farmington, provided a 14-page appraisal report that the company had commissioned from a New Hampshire-based commercial property valuation expert named Barry Cunningham.

After analyzing the property by using cost, sales comparison, and income approaches, Cunningham concluded that 450 Sargent Dr.‘s fair market value for this time period was $26,650,000. As demonstrated by the Sept. 25 settlement in this case, the city and IKEA ultimately agreed to a valuation nearly $2.5 million higher than Cunningham’s proposal, but more than $4.1 million less than the city’s initial appraisal.

While this recent settlement closes out IKEA’s 2021 tax appraisal lawsuit, it doesn’t spell the end of legal wrangling over 450 Sargent Dr.‘s future tax bills.

That’s because the furniture company is still pursuing a second tax appraisal lawsuit, filed in May 2022, challenging the property’s post-revaluation city tax appraisal of $38,066,700.

At the current mill rate of 38.5 and 70-percent-assessment of $26,646,690, that means that IKEA owes a total of $1,025,897 in local real estate taxes for the current fiscal year, which began July 1. They paid the first half of that local tax bill in July; the second half is due in January. The outcome of this second tax appraisal lawsuit, however, could result in another cut to their current taxes.