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Indiana Property Tax Updates

UPDATED december 2019

Indiana Tax Court: Under The Income Approach, Fee Simple Interest Must Be Valued Based On Market Rents

Name:  Southlake Indiana LLC v. Lake County Assessor (the decision can be viewed here -- https://www.in.gov/judiciary/opinions/pdf/11251901mbw.pdf)

Date Issued:  November 25, 2019

Property Type:  Retail store

Assessment Years:  2007-2014  

Synopsis:  Taxpayer owns a 90,000 SF two-story, freestanding retail building in Northwestern Indiana, which it leased to a retailer doing business nationwide.  The property was encumbered by a build-to-suit lease, originally executed in 1992 and renewed in 2012. At the administrative hearing before the Indiana Board of Tax Review, the parties’ appraisals developed all three approaches to value but relied primarily on the income approach.  The Indiana Board’s final determination assigned no weight to the appraisers’ sales comparison and cost approaches.  The Tax Court explained, “To determine which appraiser’s estimate of market rent [under the income approach] was best supported, the Indiana Board used its own unique evaluation method.”  The Indiana Board examined 16 leases from the parties’ appraisers, made certain adjustments, and ultimately concluded that the market rents and income approach values offered by the Assessor’s appraiser were more credible.

Observing that Indiana assesses the value of real property – not business value, investment value, or the value of contractual rights – the Tax Court observed: “when valuing a property under the income approach, the fee simple interest in property must be valued based on an estimate of market rent, not contract rent.”  Comparable rental data, the Court further noted, must “represent freely negotiated, arm’s length transactions.” 

Assessor’s appraiser failed to adjust the rental data from the build-to-suit leases upon which his income approach relied.  Accordingly, those leases were not probative evidence of the market value of the subject property’s real property alone.  In contrast, the record evidence showed that Taxpayer’s appraiser exercised caution in using any build-to-suit rental data.  That the build-to-suit rental data “relied heavily on” by Assessor’s appraiser and the Indiana Board  “was neither adjusted nor explained as reflecting market rent” was contrary to law, the Court held. 

Finally, the Court explained that “no reasonable person reviewing the administrative record would find enough relevant evidence to support the Indiana Board’s reconstruction of [the Taxpayer’s Appraiser’s] percentage of gross sales analysis or its resulting conclusions.”  Therefore, the Indiana Board’s final determination also was unsupported by substantial or reliable evidence. 

The Tax Court reversed the final determination and ordered the Indiana Board to determine assessed values based, in part, on market rents derived by the analysis offered by the Appraiser for the Taxpayer. 

- The above facts and summary of the holding are based solely on the information presented in the published opinion issued by the Indiana Tax Court. 

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Faegre Baker Daniels LLP
American Property Tax Counsel (APTC)

Declining To Reweigh The Evidence, Indiana Tax Court Affirms Assessments Of CVS Store Based On Cost Approach

Name: CVS Corporation v. Elkhart County Assessor (can be accessed at
https://www.in.gov/judiciary/opinions/pdf/12091901mbw.pdf)

Date Issued: December 9, 2019

Property Type: Retail pharmacy

Assessment Years: 2012 – 2015

Point of Interest: Indiana Tax Court would not reweigh the record evidence, which supported the Indiana Board of Tax Review’s conclusion of value based solely on the cost approach without adjustment for external obsolescence.

Synopsis: CVS challenged the assessments of its nearly 11,000 SF retail pharmacy, built in 2004 and situated on 1.26 acres of land. The County Assessor had valued the property at a range of approximately $1 Million to $1.1 Million for the four contested assessment dates. At the consolidated administrative hearing before the Indiana Board of Tax Review, both parties presented USPAP-compliant appraisals; both appraisers applied all three approaches to value but assigned weight to them differently. For CVS, its appraiser gave most weight to the sales and income approaches, concluding to a range of $800,000 to $890,000. For the Assessor, her appraiser assigned equal weight to each of the three approaches, opining on a value for each year of about $1.8 Million.

The Indiana Board applied the cost approach, without obsolescence. The Indiana Board concluded that the cost approach – absent any adjustment for economic obsolescence – was the most persuasive indication of value for this eight- to eleven-year-old store. The Indiana Board disregarded both appraisers’ sales and income approaches completely, finding them too flawed, and concluded to values of more than $1.2 Million for each year.

The Court will not reweigh the evidence. The Tax Court noted that the Indiana Board is “required to adopt a value based exclusively on evidence in the administrative record,” but it is not obligated to “adopt the same weight afforded to the evidence” that the appraisers applied in their respective reports. The Court further explained that the record evidence supported the Indiana Board’s rejection of external obsolescence. The appraiser for CVS had testified in “vague generalities” about the subject property’s “softer market.” The Assessor’s appraiser, however, presented evidence regarding growth in population, employment and gross domestic product in the local area during the years at issue. CVS was asking the Court to reweigh the record evidence in its favor, something the Court cannot do “absent a showing that the Indiana Board has abused its discretion.” Concluding that the Indiana Board had acted within its statutory authority, the Court affirmed the final determination.

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Faegre Baker Daniels LLP
American Property Tax Counsel (APTC)

Indiana Tax Court Affirms Assessment of Vacant Lot Based on Appraisal and Testimony of the Appraiser

Name:  Sheerin v. LaPorte County Assessor (which can be viewed at https://www.in.gov/judiciary/opinions/pdf/12111901tgf.pdf)

Date Issued:  December 11, 2019

Property Type:   Vacant lot

Assessment Year:  2015

Point of Interest:  Appraisal offered by Assessor had minor flaws but sufficiently established a prima facie case supporting the assessed value of a vacant lot. Relying on the appraisal and the appraiser’s testimony, the Indiana Board of Tax review did not abuse its discretion in affirming the assessed value.

Synopsis:  A 6,000 SF rectangular vacant lot, which was zoned residential, was “buildable,” but several issues would make any construction more costly than normal, i.e. it had a “severe slope,” a lack of rear access, the need for septic installation, and a proximity to overhead power lines. Though the County Board had reduced the assessment from $220,000 to $132,000, Owner appealed to the Indiana Board of Tax Review.

Before the Indiana Board, Assessor had the burden of proof. Assessor engaged an appraiser who, relying on sales of three vacant lots, estimated the property’s vale at $160,000 as of January 1, 2015. Owner challenged the comparability of the three sales and claimed the appraiser made other errors. The Indiana Board affirmed the $132,000 assessment despite “minor flaws” in the appraisal, ruling the Assessor had made a prima facie case supporting the property’s assessment, which Owner failed to rebut with probative, market evidence. Assessor had not asked for an increase in the lot’s value.

Before the Tax Court, Owner repeated his arguments from the administrative appeal and asserted that the Indiana Board improperly deferred to the “perfidious” appraisal offered by the Assessor. The Tax Court observed, “When, as here, the Indiana Board determines the evidence presented at the administrative level has probative value, the Court will not reverse its determination that a litigant made a prima facie case absent an abuse of discretion.” Here, the Indiana Board concluded that the appraisal, despite its problems, and the appraiser’s testimony “provided a sufficient explanation of the methods and information used to derive the estimate of value.” Owner did not establish that the Indiana Board had abused its discretion because its final determination “comports with the law and is supported by substantial evidence.” The Tax Court affirmed the Indiana Board’s ruling.

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Faegre Baker Daniels LLP
American Property Tax Counsel (APTC)

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