Two Methods,
$128 Million

Minnesota law taxes real property, not businesses. That line is easy to draw when the property is a warehouse. It is much harder when the property is a full-service convention hotel, where a single sale bundles the building, the land, the furniture, the brand flag, the management contract, and the going-concern business into one price. The county's job is to strip out everything but the first two. How it does that — the methodology — is now the central battleground in Minnesota hotel tax cases.

Two Methods

The historical industry default is the Management Fee Approach, often called the Rushmore Approach after hospitality-valuation pioneer Stephen Rushmore. It deducts the hotel's management fee and franchise fee from net operating income and treats the remainder as attributable to real estate. The argument is that by subtracting what the management company earns, the appraiser has removed business value from the equation.

The competing method is the Parsing Income Method, associated with appraiser David C. Lennhoff. Instead of backing into real-property income by subtracting expenses, it isolates the real-property income stream directly — treating the rent a brand-flagged hotel would pay an unaffiliated landlord as the taxable component, and everything above that as business income.

In 2023, the Minnesota Supreme Court took up both methodologies in companion decisions — 1300 Nicollet, LLC v. County of Hennepin, 990 N.W.2d 422, and Bloomington Hotel Investors, LLC v. County of Hennepin, 993 N.W.2d 875 — and authorized both. The court declined "to adopt a rule that absolutely precludes the use of the management fee approach," but imposed one unyielding test beneath both methods: any valuation technique must effectively distinguish the value of taxable real estate assets from non-taxable assets. That evidentiary burden is where the Tax Court has been deciding these cases.

What JPMC Actually Did

JPMC 2018-Minn SS TRA, LLC v. County of Hennepin, decided October 17, 2025 by Judge Bradford S. Delapena, involved four consecutive tax years on the 821-room Hilton Minneapolis — the largest hotel in downtown Minneapolis. The court chose the Parsing Income Method over the Management Fee Approach and reduced the assessed value in every single year. The shape of the reductions is worth seeing.

We find that the Parsing Income Method used by JPMC better isolates taxable real estate value than does the Management Fee Approach. — Hon. Bradford S. Delapena, JPMC v. County of Hennepin (Oct. 17, 2025)

Three Trials, One Pattern

JPMC is not an outlier. It is the third Hennepin County hotel trial in three years to hinge on methodology selection, and when read together the three decisions form a coherent arc.

The Framework

The rule these three decisions establish, read together, is narrower than it looks. The Minnesota Supreme Court has not banned the Management Fee Approach. It has not blessed the Parsing Income Method as definitive. What it has done is raise the evidentiary bar for both methods to the same level: whichever you use, you must show that it effectively separates the taxable real estate from everything else wrapped around it. The Tax Court, reading that bar strictly, has repeatedly found Parsing Income easier to defend on the record.

For hotel owners, the practical takeaway is that methodology selection is now the single most consequential decision in an assessment challenge. A Rushmore-style analysis can still win. It will lose more often in Hennepin County, on this bench, with the court-reporter's transcript becoming the comparison set future judges cite.

For everyone else who owns property that mixes real estate with a going-concern business — assisted living, senior housing, branded restaurants, automobile dealerships, medical office — the logic of JPMC travels. The "effectively distinguish" test is not a hotel-specific rule. Any commercial property whose income stream includes a meaningful business component is now defensible on the same grounds, and vulnerable to the same scrutiny. The counties have not adjusted yet. The petition deadline for the 25pay26 tax year is April 30, 2026.