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Property Tax Resources

May
29

Cash in on Tax Savings for Green-Buildings

Energy-efficient buildings may not yet command premium rents and prices in smaller markets, but green features could mean property tax savings.

A growing number of commercial properties incorporate energy-efficient attributes that exceed basic code requirements. While conserving resources, these sustainable building strategies can also enhance the owner's bottom line by reducing operating costs. As investors consider developing or buying green properties in certain markets, though, they should consider a less-obvious source of savings – their property tax bills.

No single set of attributes defines a green building; rather, sustainable structures lie on a spectrum. At one end are otherwise-conventional buildings with modest upgrades, ranging to a high end of properties employing comprehensive design and operational strategies that approach zero net consumption of energy or water.

The features most commonly associated with green building tend to be efficient heating and cooling equipment, better insulation, rainwater catchment and on-site power generation methods such as solar, wind, or geothermal. While roof-top solar panels garner attention, other design attributes including passive solar collection, drought-tolerant landscaping, and building-control systems can be equally effective at achieving sustainability objectives. Ultimately, each attribute adds costs to the construction or operation of a property, while not necessarily generating the same incremental gain in value.

How green is the market?

Green design and operations have become standard for Class A properties in many primary markets. With above-average adoption rates, the investment premium for energy-efficient attributes may disappear and properties lacking those attributes may decline in value. Similarly, buildings without green features may be at a competitive disadvantage in attracting potential tenants and buyers.

In many secondary and tertiary markets including across the Midwest, Southeast, Great Plains and elsewhere, however, buyers and tenants have not shifted their preferences toward green construction. This greatly reduces the direct economic benefits of green features. When the pool of tenants willing to pay premium rent for energy-efficient features approaches zero, the pool of buyers demanding those features likewise declines.

Accordingly, whether green attributes have an overall positive or negative impact on a property's market value is highly dependent on the local market, even when the nation overall shifts demand toward such features. Energy-efficient construction may be a market prerequisite in one location, while constituting over-engineering and over-building in another. The question for owners of sustainable buildings evaluating their tax assessments, then, is how buyers and sellers in that market react to specific green features.

Necessary, adequate or superadequate?

Assessors often value properties, at least initially, based on the costs of construction, using either replacement cost tables or information from construction permits. But most green buildings have higher upfront costs, with a goal of achieving long-term efficiency objectives. A green building assessed purely on a cost basis, without considering whether its features are above-market, may be over-assessed and, as a result, overtaxed.

Any cost-based property valuation must account for all depreciation, from ordinary wear-and-tear to obsolescence brought about by market factors. One type of functional obsolescence is superadequacy, which applies to an attribute that exceeds current market requirements. Essentially, a superadequacy is a cost without a corresponding value increase.

Importantly, obsolescence is measured against the market, so even a newly constructed property with no physical deterioration could suffer from substantial obsolescence. A particular green feature might represent a positive value element, a market requirement, or functional or external obsolescence, depending on the property type and location.

Of course, as market demands evolve, some features that were superadequate when originally constructed may become standard. Tax assessments must reflect property and market conditions on a certain date, however, and until the market changes, must account for superadequacies.

And while superadequacy is an element of the cost approach to value, it should be a consideration in income- or sales-based analyses as well. The value of green features, like everything else in an appraisal, must be supported with market research and data. If no demand is found for the property's features, that must be reflected in the value conclusion.

Getting the value right

Assessors may ask: "If a green building has an out-of-pocket cost of $1 million, how can it appraise for only $750,000? Why would an investor spend the extra money?"

Certain items may motivate a particular owner, but property tax assessments are usually based on the real estate's market value alone, regardless of business value or intangible value. If the market does not recognize a feature as valuable, then the value a particular user assigns to that feature is irrelevant for property tax purposes.

In questioning how a green feature affects a property's market value (as opposed to its value to the user), consider whether the feature creates a direct monetary benefit to the property owner or user, either in the form of higher income or lower expenses. Sustainability features may boost the owner's business, perhaps resulting in goodwill or broader market recognition, but that increase will not necessarily accrue to the real property itself. And indirect benefits – those nonmonetary benefits to the community or environment – are unlikely to change real estate value.

Valuing a green building involves most of the techniques used for conventional properties, but the nuances and complexities require greater knowledge and training. Local tax assessors, particularly in smaller jurisdictions where sustainable features have not reached market acceptance, often lack that requisite knowledge. It is no wonder that assessments often fail to consider all of the relevant market factors, creating opportunities for taxpayers to appeal excessive assessments.

As demand for sustainable buildings expands, assessors want to capture that growth in the local tax base. But by focusing on whether the local market demands or ignores energy-efficient features, diligent owners can reduce their property's tax assessments and achieve significant savings.


Benjamin Blair is an attorney in the Indianapolis office of the international law firm of Faegre Baker Daniels LLP, the Indiana and Iowa member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
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Apr
11

Look Beyond Price to Cut Property Taxes

The Purchase amount isn't necessarily a valid proxy for taxable value.

Multifamily Property owners and Appraisers are often creatures of habit. They generally calculate a property's value for tax purposes the same way they do for an investment. If an apartment complex recently traded for 10 million, the buyer's appraiser may reason that the property would be assessed at $10 million for taxation purposes.

This line of thinking is particularly common in states that use market value as the standard and where the purchase price was based on an appraisal. While this approach might be reasonable for budgeting worst-case tax accruals, such thinking could result in missed opportunities to reduce the actual tax burden on the property.

PERMISSIBLE APPROACHES TO VALUATION VARY

There are several reasons a property's investment value, or even its market value, might differ from its value for tax purposes. Such considerations include whether the acquisition or investment value includes non-real estate items such as personal property, or intangibles such as long-term leases. Taxpayers should closely examine all of those issues to ensure that only taxable property is being assessed (and, then, at the correct value).

There's another,often-overlooked dimension of savings available to many taxpayers, in the form of seemingly hidden tax benefits conferred by statute. Indiana, for example, has a number of assessment statutes that dictate specific approaches to determining taxable value, depending on the type of property at issue. One property type receiving this unusual valuation treatment is apartment or multifamily rental properties.

Even as investors continue to bid up asking prices in the marketplace, Indiana law requires apartments to be assessed at the lowest valuation determined by applying the three standard approaches to valuation: cost, sales comparison, and income. This means owners and appraisers would miss the mark in estimating the taxable value of apartments or multifamily rental proper­ties if they applied only the typical approaches used to evaluate a property's investment value or market value.

The Indiana Board of Tax Review has issued several decisions confirming this mandate. One such case, Merrillville Lakes DE LLC v. Lake County Assessor, involved a taxpayer challenging his 2010-2014 assessments for an apartment complex in Merrillville, Ind. Both the assessor and the taxpayer presented appraisals at the administrative hearing, but only the taxpayer relied on the specific apartment-valuation statute to develop his opinion of taxable value. The board rejected the assessor's appraisal.

Based on the statutory code and the appraisal in the Merrillville Lakes case, the Indiana Board of Tax Review ultimately lowered the assessed value of the apartment complex for each contested year based on the taxpayer's cost analyses. Because the statute dictates that the lowest of three approaches determines the tax value, even if the owner had purchased the property for far more than the cost-approach indication of value, the board couldn't have increased the value to the higher sales price.

DUE DILIGENCE CAN YIELD SAVINGS

While it may seem like common sense to assume that a property's purchase price is a valid proxy for its taxable value, as the Indiana ruling shows, that's not always the case. A little due diligence could result in a lower valuation and, with that, significant savings.

David A. Suess is a partner in the Indianapolis office of the law firm Faegre Baker Daniels, the Indiana member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
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Apr
14

Five Ways Property Owners May Qualify For Property Tax Exemptions In Indiana

But in every instance, obtaining an exemption requires timely and accurate applications.

It is a common misconception in Indiana that property owners must also be non-profit corporations to qualify for a property tax exemption. While tax-exempt status is critical for the application of some exemptions, Indiana law provides for-profit property owners with opportunities to reduce their tax liabilities by claiming exemption.

To obtain the exemption, the property owner must show that it uses the property in a manner that qualifies for tax exemption, and the application must clear mandated procedural hurdles.

There are several property uses that may qualify for exemption from property tax liability. Here are five common scenarios:

  1. The property is owned, occupied and predominantly used for charitable, educational, religious, literary or scientific purposes — To qualify, the owner must file an exemption application and show that it owns the property to further one of these tax exempt purposes.

    Ownership, occupancy and use need not be unified in one entity, and the statute does not require the owner to be a non-profit.

    For example, the tax court in 2014 approved a 100 percent property tax exemption for an office building that a for-profit, limited liability company owned to further the charitable tissue bank operations of its tenant, a related public benefit corporation. The assessor failed to show that the for-profit owner, in fact, had a profit motive for the property.

    Similarly, in a final determination issued that same year, the Indiana Board of Tax Review — the state agency that adjudicates property tax exemption appeals — stated that "involvement of for-profit entities does not preclude a property tax exemption.

    In this latter case, a for-profit entity leased a building to another for-profit entity to provide early childhood education.

    A year earlier, the tax review board approved the 100 percent exemption of a building owned by an individual and leased to a for-profit, faith-based daycare.

    Starting in 2015, the Indiana Legislature explicitly authorized the exemption of property owned by a for-profit provider of certain early childhood education services.
  2. The property is leased to a state agency — Property owned by a for-profit entity and leased to an Indiana state agency qualifies for exemption, but the lease must require the state agency to reimburse the property owner for property taxes.
    The exemption applies only to the assessed value attributable to the part of the real estate that the agency leases.
  3. The property is leased to a political subdivision — Structures leased to political subdivisions, including municipal corporations, are exempt from property tax.
  4. The property is leased to a public university — The Indiana Board of Tax Review considered this provision in 2013, applying a 13 percent property tax exemption for the portion of a for-profit commercial property owner's building that was leased to Purdue University for use as classrooms.
  5. The property is used as a public airport — To qualify for this measure, the owner of an Indiana airport must hold a valid and current public airport certificate issued by the State Department of Transportation. The law states that the applicant may claim an exemption "for only so much of the land as is reasonably necessary to and used for public airport purposes."

Eligible property includes not only the ground used for taking off and landing of aircraft, but also real estate "owned by the airport owner and used directly for airport operation and maintenance purposes" or "used in providing for the shelter, storage, or care of aircraft, including hangars."

The exemption does not apply to areas used solely for purposes unrelated to aviation.

How to apply

What is the process for claiming a tax exemption? Beginning in 2016, applications are due April 1, six weeks earlier than in past years. Indiana's Department of Local Government Finance provides a standard exemption form, Form 136, available on the agency's website at http://www.in.gov/dlgf/8516.htm.

The form can be used to claim both real and personal property tax exemptions. It includes three pages of questions and identifies the information and documents needed to process the request.

The property owner is responsible for explaining why the property is exempt to the assessor and to the county property tax assessment board of appeals, which has the authority to review and approve or reject each application.

Owners may need to provide in-formation beyond what the form requires. For example, assessors often want to review the relevant leases, such as a lease to a state agency or political subdivision. Indiana has 92 counties, and each county has its own procedures for processing applications.

There is no universally reliable test for weighing applications for tax exemption, so each claim stands on its own facts. Whether an owner's property qualifies for the exemption will depend on the statute under which the exemption is claimed and the particular evidence provided to support the claim.

Miss the filing deadline?

Exemptions are not automatically applied each year, but property that has been previously granted an exemption under certain provisions may not require new applications annually, depending on the facts of the case.

If the exemption does not carry forward and the owner fails to properly claim an exemption, it may be waived.

Even if the exemption is waived, however, hope remains. The owner may be able to obtain a legislative solution that permits a retroactive filing for an otherwise untimely application.

 

Brent AuberryBrent A. Auberry is a partner in the Indianapolis office of the law firm Faegre Baker Daniels LLP, the Indiana member of American Property Tax Counsel (APTC), the natonal affiliation of property tax attorneys. Mr. Auberry can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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Jun
30

Retail Property Tax Valuation Debate Heats Up in Hoosier State

Indiana has become the latest battleground in the debate over how assessors should value retail real estate and other commercial properties for property tax purposes. The debate’s conclusion will likely affect owners of retail, office and even industrial properties in Indiana, and may affect taxpayers grappling with similar issues in other states.

At the heart of the debate is the question of what assessors should value under Indiana’s market value-in-use standard. Though that term can seem somewhat puzzling, the Indiana Supreme Court has stated that any valuation standard must be based on objective data while also protecting Indiana taxpayers who choose to use their properties at something less than full market potential.

How is market value in-use different from market value? In many if not most situations, they are identical. Where a property is being used for its highest and best use, the property’s market value-in-use will be the same as its market value.

Because a property can be used for something less than its highest and best use, however, its market value-in-use may be lower than its market value. This is the case in the example of agricultural land surrounded by commercial development.

A property cannot be used for something greater than its highest and best use, however; by definition, nothing is higher or better than the highest and best use. Accordingly, a property’s market value-in-use cannot exceed its market value.

Importantly, market value-in-use does not mean the value to the individual user. This distinction may seem like mere semantics, but how the state defines market value-in-use affects many commercial taxpayers. A series of Indiana cases show why.

Since at least 2010, when the Indiana Tax Court issued a pair of decisions addressing the meaning of market value-in-use, Indiana has recognized that market value-in-use as determined by objectively verifiable market data, is the value of a property for its use, not the value of its use to the particular user.

Indiana courts also recognize that in markets where both buyers and sellers frequently exchange and use properties for the same general purpose, a sale often indicates value. The Indiana Board of Tax Review has affirmed and applied these rulings in subsequent cases, including a pair of decisions issued in December 2014 involving big-box retail stores.

These decisions followed longstanding precedent from the Indiana’s Tax Court and kept Indiana in line with the overwhelming majority of other states that have considered the question. Had the board instead agreed with the assessors’ interpretation of market value-in-use as being the value of the use, it would potentially have created a number of anomalous outcomes, including similar properties being assessed differently based on the property owners’ characteristics and not on the properties’ characteristics.

Following the board’s decisions, local governments petitioned the Indiana legislature to change the valuation standard for commercial properties. After a heated debate, legislators left the market value-in-use standard unchanged but amended the property tax statute to modify the evidence available to prove a property’s value, based on the facts of the case.

It is too early to know the full ramifications of the new statute. Assessors’ repeated attacks on the market value-in-use standard, however, will produce one certain result, Taxpayers that own property in Indiana or are considering doing business there will face increasing uncertainty. For that reason, taxpayers must monitor their assessments to ensure fairness as the debate continues.

paul Ben Blair jpgStephen Paul is a partner and Benjamin Blair is an associate in the Indianapolis office of the law firm of Faegre Baker Daniels, LLP, the Indiana and Iowa member of American Property Tax Counsel. They can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..  The views expressed here are the authors' own.

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May
29

What's The Basis For Your Assessment?

Assessors must value only the 'sticks and bricks,' not the business enterprise.

What can Indiana assessors value for property tax purposes? The answer is simple – the fee simple interest and nothing more. Yet assessors stray from that straightforward rule with alarming frequency.

In valuing land and improvements, assessors are not permitted to assign value to personal property; that is assessed separately. They also must refrain from assessing intangible assets – which are non-taxable – or the business operations conducted on or within a property. Profits may be subject to corporate income tax, but not property tax.

The fee simple interest is the absolute, unencumbered ownership of the real property, the sticks and bricks, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.

A fee simple interest means the owner retains the right to sell, lease or occupy the property. If the assessor values more than the fee simple interest, he or she has gone too far. Such assessments are not only erroneous as a matter of law, but also bad public policy because they result in double or otherwise illegal taxation.

Establishing Precedent

The Indiana Board of Tax Review, which oversees property tax appeals at the state level, has recognized that the market value and market value-in-use standards do not permit “assessors to assess things other than real property rights for ad valorem taxation.” In fact, the Indiana Tax Court has dismissed assessors’ efforts to value more than a property’s fee simple interest.

In 2013, the court rejected an assessor’s reliance on above-market contract rents to establish a commercial property’s value. The taxpayer based its rents on sale-leaseback transactions, which included an investment component, and thus sold more than ownership rights in property.

In an earlier ruling, the court agreed that “one should approach the rental data from [sale-leaseback] transactions with caution, taking care to ascertain whether the sales prices/contract rents reflect real property value alone, or whether they include the value of certain other economic interests.”

Indiana law requires assessors to determine a property’s true tax value, which for property other than agricultural land means the “market value-in-use of a property for its current use, as reflected by the utility received by the owner or by a similar user, from the property.”

Too often assessors misunderstand and misapply this standard by seeking to value the taxpayer’s specific, on-site business operations.

Profitability is Irrelevant

Even if the taxpayer’s business is successful, the building in which its business is regularly conducted must be valued no differently than a similar, vacant building. Consider this ex-ample:

In an industrial park, two 10-year-old buildings sit side-by-side, identical in size, shape, condition, construction materials and workmanship. The same external or economic factors impact both properties’ values.

On the assessment date, an extremely profitable business uses Building A at full capacity and around the clock. In contrast, Building B is vacant, though it had previously served the same general purpose as Building A. Despite the owner’s best efforts, no business is conducted on the property.

Objective, reliable market evidence undisputedly indicates that the true tax value of the fee simple interest of Building B is $1 million as of the date of value.

What is the indicated value of the fee simple interest of Building A? It’s (fee) simple: $1 million.

How can that be, especially when business is going gangbusters inside Building A? The answer is that we are not valuing that business activity. In an arm’s length transaction, assuming a fair sale occurs, a reasonable and prudent third party looking to acquire either building would pay no more than the value of the sticks and bricks – $1 million – regardless of the profitability or lack thereof of business operations conducted there.

Let’s further assume that the owner of Building A was instead the third-party buyer, faced with the same choice of two identical buildings, one vacant and the other occupied for profitable uses.

Even knowing with near certainty that its business operations would be remarkably lucrative, the buyer would not pay $1 more for either property than the market would bear. According to the market, both properties are valued at $1 million.

The buyer is not acquiring a trade name or workforce, or the seller’s trademarks, trade secrets, machinery and equipment, customer lists, licenses or contracts. It is acquiring land, a building, and yard improvements, and the value of those for both buildings is the same.

Nobody said determining the fair value of property is always easy. But in Indiana it should always be fee simple.

Brent Auberry

Brent A. Auberry is a Partner in the Indianapolis law firm of Faegre Baker Daniels LLP, the Indiana member of the American Property Tax Counsel. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..  

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Jan
01

Indiana Property Tax Updates

UPDATED JUNE 2019

2019 Changes to Property Tax Assessment Laws by the Indiana General Assembly

The following grid provides a summary of various provisions impacting property tax assessments that passed in the 2019 session of the Indiana General Assembly.

BILL                             2019 Legislation - Notes

HB1001

  • Sections 102-104 add IC §§ 6-1.1-3-26 to -28Requires development of a personal property tax online submission portal to provide a single point for submission and review of returns and related information.  It shall be available for taxpayer use no later than January 1, 2021.

HB1056

  • IC § 6-1.1-15-1.1, -1.2, -2.5, -3, -4, -5, eff. 1/1/20Provides notice to and expands authorized participation by the county auditor for appeals involving matters within the auditor’s discretion.
  • Section 6 (IC § 6-1.1-15-4), eff. 1/1/20Authorizes notice to the party or its representative.
  • Section 8 (IC § 6-1.1-15-6), eff. 1/1/20: IBTR must file notice of completion of certified record within 45 days of a petition’s filing; requires explanations for delays in filing; allows for revised due date to file or, if delay due to cause within petitioner’s control, dismissal of petition.
  • Section 17 (IC § 6-1.5-3-4.5), eff. 1/1/20: Removes this section requiring IBTR to recommend settlement or mediation in certain appeals.

HB1305

  • Provides for a $25 penalty for late filing of schedules by owners or their agents of oil and gas interest, as well as 10% penalty for failure to file within 30 days of due date.

HB1345

  • Section 1 (IC § 6-1.1-4-12), eff. 1/1/20: “Land in inventory” acquired by a for-profit entity from a school corporation or local governmental unit shall be assessed at the ag rate as of the next assessment date following acquisition.
  • Section 2 (IC § 6-1.1-10-48), eff. upon passage and applies to assessment dates starting 1/1/17Adds an exemption for property (i) owned by an Indiana non-profit public benefit corporation exempt from tax under IRC 501(c)(3), (ii) used in the operation of a nonprofit health, fitness, aquatics and community center, and (iii) funds have been in part provided under the regional cities initiative.

HB1405

  • Section 1 (IC § 6-1.1-10-44), eff. 7/1/19Increases the required investment for Indiana data centers from $10 Million to $25 Million in real and personal property; eliminates need for property to be located in a “high technology district area.”

HB1427

  • Section 13 (IC § 6-1.1-4-12), eff. 1/1/20: Similar to HB 1345, Sec. 1; if acquired from a local government unit, it applies only if the unit “has held the land for not less than three (3) years prior to the date on which the for-profit land developer acquires it from the local unit of government.”
  • Section 17 (IC § 6-1.1-11-3), eff. upon passage:  Adding subsection (i), allows a person seeking an exemption under IC § 6-1.1-10-16 to file an application up to 30 days after the deadline, if the person pays the lower of (i) a late-fee of $25 for each day after the deadline or (ii) $250.
  • Section 30 (IC § 6-1.1-15-1.1), eff. 7/1/19New June 15th appeal deadlines starting with 1/1/2019 assessments apply only to real property; for personal property, appeals must be filed within 45 days of assessor’s mailing of the change of assessment notice (for modified assessments or the addition of personal property).
  • Section 31 (IC § 6-1.1-15-4), eff. 7/1/19Requires IBTR to conduct a hearing within 1 year; limits extensions for IBTR to issue final determination to 180 days; excludes from calculation of days various actions by parties; requires party to request an IBTR hearing before seeking a direct appeal to the Tax Court and to wait at least 60 days.
  • Section 62 (IC § 6-1.1-31-9), eff. 7/1/19: New DLGF rules may not apply to the assessment of a property contemporaneously being conducted under a county’s reassessment plan

SB 233

  • Section 2 (IC § 6-1.1-3-7.2), eff. 7/1/19 (applies first to 1/1/20 assessment) – expands the exemption for personal property from $20,000 to $40,000 of acquisition cost.  (Section 3 eliminates the optional $50 service fee.)

 SB 582

  • Section 1 (IC § 6-1.1-15-1.1), eff. 7/1/17 (retroactive).  Adds subsection (h), prohibiting a taxpayer from challenging the legality or constitutionality of a (i) a user fee, (ii) any other charge, fee or rate imposed by a political subdivision, or (iii) any tax other than a property tax.
  • Section 2 (IC § 33-23-1-10.5), eff. 12/1/15 (retroactive)Defines and lists various “user fees.”
  • Assigns jurisdiction to user fee challenges to local courts.


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American Property Tax Counsel (APTC)

Tax Court has jurisdiction over challenge to Storm Water charges, which Court held constituted a tax – not a user fee.

Name:  Daw, Hoback, Co-Trustees of Sagacious Sentinel Sycamore Revocable Trust v. Hancock County Assessor

Date Issued: December 5, 2018

Property Type: 54 acres of land, with 37 acres leased to a farmer

Assessment Date: January 1, 2016

Point of Interest:  Court had jurisdiction to hear claims regarding storm water charges, as the Court considered the charges to be taxes and not user fees. IBTR’s ruling that it lacked jurisdiction to hear Taxpayer’s annexation and storm water claims was a final determination that could be appealed.  

Synopsis: Taxpayer appealed the $88,400 assessment of their 54.05 acres of land.  37 acres of the property was leased to farmer who used no-till practices.  Before the IBTR, Taxpayer argued that (i) its tax bill was incorrect, because the subject property had been annexed to the Town of McCordsville pursuant to an invalid ordinance, (ii) it did not owe storm water charges and penalties imposed by the Town’s improper imposition of tax, and (iii) the assessment of the land was excessive. IBTR ruled that it lacked jurisdiction over the annexation and storm water claims.  The Board further found that 1.05 acres of land should have been assessed as non-tillable land but no other changes were warranted.

Tax Court has jurisdiction over “original tax appeals,” which are cases that (i) arise under Indiana’s tax laws and (ii) are appeals of final determinations of the IBTR. (citing ind. code§ 33-26-3-1).  Taxpayer claimed they were contesting the Town’s unauthorized attempt to collect special benefit taxes.  Assessor argued the storm water charges were user fees and not taxes, and further asserted the IBTR had not issued a final determination.

The Court first determined the charges constituted a tax.  The Court first noted that it “should consider the character, operation, and effect of the charge rather than merely its label.” Traditionally, the Court observed, “amounts collected to build, operate, and maintain a special taxing district’s local public improvement (e.g. a sewer system) have been traditionally characterized as taxes in Indiana.” In addition, taxes are compulsory, not optional.  In contrast, user fees are optional and represent a charge for the use of a publicly-owned or publicly-provided facility or service.  Here, the Town imposes the storm water charges on all property within its corporate boundaries, and they are billed on a monthly or bi-annual basis (with the Spring and Fall property tax statements).  The charges are compulsory – property owners cannot decline the storm water services or control the extent of the use of the service. 

Moreover, benefits received from the charges are not limited to the properties or the owners of the properties. “Indeed, [i] improved water quality, [ii] avoiding penalties for improper discharge, and [iii] creating a mechanism to remove excess water from the property and prevent flooding are goals that benefit all the Town’s residents and do not necessarily enhance the value of property.” 

Taxpayer raised defenses to the collection of a tax, and their claims satisfied the “arising under” requirement for purposes of determining the Court’s subject matter jurisdiction.

Taxpayer appealed a final determination of the IBTR. Because the Board had not reached the merits of Taxpayer’s annexation and storm water claims, Assessor argued they had not appealed a final determination. A final determination is an “order that determines the rights of, or imposes obligations on, the parties as a consummation of the administrative process.” (quoting Grandville Co-op., Inc. v. O’Connor, 25 N.E.3d 833, 837 (Ind. Tax Ct. 2015)). The Board determined it had no jurisdiction over Taxpayer’s claims, which ruling ended the administrative process with respect to those claims. Taxpayer was compelled to appeal to the Tax Court at that point. Taxpayer therefore satisfied the final determination requirement.

In addition, the Court explained, this case involved the imposition of a tax, not primarily the allocation of property tax revenues. 

Taxpayer did not show assessment reduction was warranted – valuation method did not comport with generally accepted appraisal principles.  An assessment prepared under the Indiana Real Property Tax Assessment Guidelines is presumed to be correct. Taxpayer claimed its assessment should be reduced to about $61,860 to reflect its decreased productivity.  The Board concluded, “nothing within the certified administrative record demonstrates that [Taxpayer’s] evidence actually converts the decreased crop production capacity into a value or that their valuation method comports with generally accepted appraisal principles.” 

Court may not consider evidence from outside the record. The Court also noted that it did not consider several articles regarding soil productivity of agricultural land that Taxpayer identified, explaining that “[b]ecause the evidence was not presented to the Indiana Board during the course of the administrative proceedings in this case, the Court may not consider it on appeal.” (citing State Bd. of Tax Comm’rs v. Gatling Gun Club, Inc., 420 N.E.2d 1324 (Ind. Ct. App. 1981)).

Appeal remanded to IBTR. While the IBTR lacked authority to determine the validity of the annexation and storm water ordinances at issue, the Court remanded the case to the Board to make factual findings for the Court to use in resolving the matter. The Board was directed to consider whether the Town or any other entity should be joined as a party under Ind. Trial Rule 19, to conduct another hearing on the annexation and storm water claims (allowing additional evidence), and to enter specific findings of fact. The Court ordered the certified record of the supplemental proceedings to be filed as expeditiously as possible.

Taxpayer failed to follow statutory steps to challenge annexation; Town as Intervenor permitted to raise new arguments on rehearing.

Name:  Daw, Hoback, Co-Trustees of Sagacious Sentinel Sycamore Revocable Trust v. Hancock County Assessor and Town of McCordsville

Date Issued: March 8, 2019

Property Type: 54 acres of land, with 37 acres leased to a farmer

Assessment Date: January 1, 2016

Point of Interest: Taxpayer failed to take the proper statutorily prescribed steps to challenge annexation; on rehearing, Town as intervenor was permitted to raise new arguments.

Synopsis:  Following the Court’s December 5, 2018 decision, the Town of McCordsville intervened and filed a petition for rehearing. The Court granted rehearing, but not as to the issue of whether the storm water charges are taxes.  On rehearing, the Town argued that further proceedings were unnecessary because it was too late for Taxpayer to challenge the annexation.  The Court observed that “[a]nnexation is an essentially legislative function that is subject to judicial review only as provided by statute.” (citing Bradley v. City of New Castle, 764 N.E.2d 212, 2015 (Ind. 2002) (citation omitted).  There are two methods for challenging a town’s annexation: (i) remonstrance (“the exclusive manner for landowners of the annexation area to obtain relief from annexation proceedings”); and (ii) a declaratory judgment suit (“available only to taxpayers of the annexing town”). (citing Deaton v. City of Greenwood, 582 N.E.2d 882, 885 (Ind. Ct. App. 1991), internal brackets omitted). 

Taxpayer failed to properly challenge the annexation.  Taxpayer conceded it did not remonstrate. Instead, it sought relief via a declaratory judgment action. But Taxpayer was not entitled to initiate such an action, because “it generally is available to taxpayers of the annexing town only, not landowners [like Taxpayer] of the annexation area.” (citing Deaton, 582 N.E.2d at 885). Taxpayer further failed to make other necessary allegations (i.e. its land was not contiguous to the Town’s boundaries or that the Town failed to implement a fiscal plan). (citation omitted).

As Intervenor, Town was permitted to raise new arguments post-judgment.  Taxpayer, on rehearing, argued that the Tax Court was not permitted to consider the Towns’ new arguments.  But Trial Rule 24(C) “expressly recognizes a party’s right to intervene post-judgment for purposes of seeking relief from the judgment or filing an appeal of that judgment.” (citing Panos v. Perchez, 546 N.E.2d 1253, 1255 (Ind. Ct. App. 1989)).  Furthermore, an intervenor “may litigate other issues or claims that were not already determined by the court.” Id.  Accordingly, the Town’s petition and new arguments were permissible. 

The certified record included showed that the Town had adopted three ordinances regarding storm water management.  One ordinance allowed for the development of storm water drainage facilities and systems. Had the Town created a plan for its storm water project, adopted the plan by resolution, and held a public hearing after the adoption, Taxpayer could have then filed a written remonstrance.  If that failed, Taxpayer could have then filed an appeal with the local court. The record did not establish that Taxpayer “used the specified statutory process to pursue their storm water claim in the prescribed period and appropriate forum.”  The Court held that Taxpayer’s storm water claim was untimely, explaining the “object of the declaratory judgment statute is to afford a new form of relief, not a new choice of tribunals.” (citing Quiring v. GEICO Gen. Ins. Co., 953 N.E.2d 119, 126 (Ind. Ct. App. 2011) (citation omitted)). 

The Court vacated the part of its December 2018 decision that remanded Taxpayer’s annexation and storm water claims to the IBTR. That decision was otherwise affirmed. The Court entered final judgment in favor of the Assessor and Town.

NOTE:  In 2019, the Indiana General Assembly responded to this decision by passing legislation stating that storm water charges are fees and disallowing challenges to user fees from the property tax appeals process. Local courts now have jurisdiction over these claims.

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Ruling from the Indiana Board of Tax Review discuss its Jurisdiction and the Burden of Proof on Appeal

Jurisdiction.  The Indiana Board of Tax Review is charged with reviewing and ruling on appeals of property tax assessments, exemptions, and limited other matters. Following are recent rulings where the IBTR concluded that it lacked jurisdiction to consider the claims raised or to order the remedy requested. 

  1. IBTR did not have authority to calculate refunds or compel Assessor to act on refunds.  Hoovler v. Clinton County Assessor, Pet. No. 12-012-15-1-1-00890-16 (10/9/18) (2015 tax year).  Taxpayer requested that IBTR: (i) calculate refunds she was owed; (ii) order the Assessor to provide those refunds; and (iii) order an investigation of the Assessor’s office.  “The Board is a creation of the Indiana Legislature, and it only has those powers conferred by statute.”  Taxpayer cited no authority requiring these actions and noted that Ind. Code § 6-1.1-26-2.1 “explains the requirements for obtaining a refund.”
  2. IBTR refused to issue time for Assessor to implement assessment changes.  Hoovler v. Clinton County Assessor, Pet. No. 12-012-16-1-5-00749-17 (10/9/18) (2016 tax year). Assessor conceded a lower value, and Taxpayer asked IBTR to issue a timeline for Assessor to apply that change. Taxpayer further requested the IBTR require Assessor to provide proof to Taxpayer and IBTR of the change.  Taxpayer failed to cite authority permitting the request. Again noting it is a “creature of statute with powers limited by statute,” IBTR denied the request.

  3. IBTR could not address Taxpayer’s claims that tax bills, including delinquencies and penalties, were improper.  Hiatt v. Delaware County Assessor, Pet. Nos. 18-007-12-3-5-00897-17 et seq. (11/26/18) (2012 – 2015 tax years).  Taxpayers contested the taxes applied to their assessments. “The Board, however, lacks jurisdiction to address appeals where taxpayers contest only their tax bill and not their property’s assessment.”  Similarly, “the Board lacks the authority granted in the enabling statute to review either penalties or delinquencies.”

  4. IBTR lacks authority to change a statute. Dover Hills v. Hendricks County Assessor, Pet. No. 32-016-16-2-8-01340-16 (12/19/18) (2016 tax year). Taxpayer requested IBTR to order a “jury trial” to nullify the 2015 early childhood property tax exemption law.  The Board declined this request, explaining “The statutes governing the Board’s operations do not contemplate jury trials.”

  5. IBTR cannot order attorneys’ fees or appoint a different assessor.  Draheim v. Marion County Assessor, Pet. Nos. 49-101-12-3-4-01535-17 et seq. (1/14/19) (2012 – 2017 tax years).  Taxpayer’s “motion for attorney’s fees and her request for the Board to appoint a different assessor are both denied.  The Board is a creature of statute and cannot act beyond its statutory authority.  No statute gives the Board the power to supplant an elected assessor.”

  6. PTABOA’s Form 115 issued after Taxpayer’s appeal deemed “nullity”.  TLC Properties, Inc. v. Lake County Assessor, Pet. Nos. 45-018-15-1-5-01442-16 et seq. (2/4/19) (2015 and 2016 tax years).  Taxpayer appealed directly to the IBTR as permitted by Ind. Code § 6-1.115-1.2(k).  IBTR treated the Form 115 notice for the 2015 assessment issued after that appeal as a “nullity.” 

Burden of Proof.  Depending on the facts of the property and the assessment, Taxpayer or Assessor may have the burden of proof for Indiana property tax appeals 

Following are summaries of various rulings of the Indiana Board of Tax Review involving the burden of proof in property tax appeals.  The summary addresses two statutes —ind. code§§ 6-1.1-15-17.1 and -17.2, which dictate which party (the Taxpayer or the Assessor) has the burden of proof. Generally, the Assessor has the burden of proof when he or she changes the classification of land under Section 17.1. In addition, the Assessor typically has the burden of proof if the property’s assessment has increased by more than 5% over the last assessment date but the subject property’s physical status or use has not materially changed year-over-year.  If the Taxpayer successfully appealed the assessment for the immediately prior year, any increase in value (not just 5%+) shifts the burden of proof to the Assessor.

  1. New construction. Kappa Investments, LLC v. Shelby County Assessor, Pet. Nos. 73-002-11-1-4-82434-15 et seq. (10/2/2018) (2011, 2012, 2013 tax years). Assessor asserted that the burden of proof should not shift under Ind. Code § 6-1.1-15-17.2 because improvements were constructed at the subject property between the March 1, 2010 and 2011 assessment dates. Taxpayer conceded it had the burden of proof, so the IBTR concluded the burden of proof remained with Taxpayer.

  2. IBTR reverses ALJ’s determination due to prior year’s successful appeal. Hoovler v. Clinton County Assessor, Pet. No. 12-012-15-1-1-00890-16 (10/9/18) (2015 tax year). The Administrative Law Judge initially ruled that Taxpayer had the burden of proof. In 2017, the IBTR issued a final determination lowering the subject property’s 2014 assessment. “Because this was a successful appeal, any increase in assessment causes the burden to shift.” The 2015 assessment increased $1,100 above the finally determined 2014 assessment. IBTR concluded that Assessor, in fact, had the burden of proof.

  3. Failing to show change of use for land, Assessor had burden of proof on appeal. Russell Family Partnership v. Bartholomew County Assessor, Pet. Nos. 03-011-15-1-5-00305-15 et seq. (10/16/18) (2015, 2016, 2017 tax years). Assessor conceded that the assessment increased by more than 5% from the March 1, 2014 to 2015 assessments. But Assessor claimed the change was due to the reclassification of the properties’ land classification from agricultural to excessive residential. The burden-shifting provision does not apply if the new assessment is based on a use that was not considered in the prior year’s assessment. Ind. Code § 6-1.1-15-17.2(c)(3). But the Assessor failed to show that there was change of the properties’ actual use.

  4. Assessor had burden to show change of land classification was correct. In addition, Assessor under Ind. Code § 6-1.1-15-17.1(2) had the burden to show the change in land classification was correct. Thus, Assessor had the burden of proof for the March 1, 2015 assessment. Assigning the burden for the 2016 and 2017 years depends on the IBTR’s ruling for 2015 assessment.

  5. Burden-shifting statute applies to contested assessments – not homestead deduction challenges. Sickmeier v. Hamilton County Assessor, Pet. Nos. 29-007-14-1-5-00410-18 et seq. (12/10/18) (2014, 2015, 2016 tax years). Taxpayer requested application of the homestead deduction and mortgage deduction. “Because the Petitioner did not challenge the current assessments of the subject property, the burden shifting provisions of Ind. Code § 6-1.1-15-17.2 do not apply.”

  6. Burden-shifting statute does not apply to uniformity claims. 546 Investments, LLC v. Bartholomew County Assessor, Pet. Nos. 03-005-16-1-5-01514-17 et seq. (12/27/17) (2016 and 2017 tax years). Taxpayer “raises a claim based on a lack of uniformity and equity in assessments. The burden-shifting rule under Ind. Code § 6-1.1-15-17.2 does not apply to such claims.” (citing Thorsness v. Porter County Assessor, 3 N.E.3d 49, 52 (Ind. Tax Ct. 2014)).

  7. Assessor failed to meet his burden, but IBTR applied value conceded by Taxpayer. Bishop v. Bartholomew County Assessor, Pet. Nos. 03-005-15-1-5-00342-15 et seq. (1/7/19) (2015, 2016, 2017 tax years). Assessor had, and failed to meet, his burden of proof for the March 1, 2015 assessment date. Therefore, the 2015 assessment under the burden-shifting statute would be reduced to its 2014 assessment of $340,500. However, Taxpayer requested a 2015 assessment of $350,500. The Board accepted and applied this concession.

  8. Burden of proof switched during hearing based on prior successful appeal. Geroulis v. Porter County Assessor, Pet. No. 64-09-19-379-008.000-019 (9/6/18) (2016 tax year). ALJ made a preliminary determination that Taxpayers had the burden of proof. But during the hearing ALJ realized that Taxpayers had successfully appealed their 2015 assessment and therefore told the parties that Assessor had the burden of proof.

  9. Assessor re-classified land from agricultural to residential, causing a substantial increase year-over-year; assessor had burden of proof under two statutes. Susan Mudge-Trustee/Trust v. Bartholomew County Assessor, Pet. No. 03-001-17-1-5-01515-17 (3/11/19) (2017 tax year). The assessment of Taxpayer’s land increased from $8000 to $101,100, after Assessor changed the land’s classification. Therefore, Assessor had the burden of proof under both Ind. Code §§ 6-1.1-15-17.1 (changed land classification) and -17.2 (5+% increase).

Voluntary withdrawals of IBTR appeals

Whether a party, typically the Taxpayer, can voluntarily withdraw an appeal from the Indiana Board of Tax Review recently has been discussed in several cases. The rulings tend to focus on whether the responding party, typically the Assessor, is potentially prejudiced by the requested withdrawal. Following are summaries of some of these cases.

  1. Withdrawals permitted – no substantial expense incurred by Assessor.  Cornerstone Holdings LLC v. Bartholomew County Assessor, Pet. Nos. 03-005-12-1-3-20426-15 et seq. (10/22/18) (2012 and 2015 tax years).  Taxpayer requested withdrawals of its appeals 34 days before the scheduled hearing, after Assessor engaged an appraiser.  Assessor objected, claiming it had expended too many resources.  IBTR analyzed the issue under Indiana Trial Rule 41(A), citing 52 IAC 2-1.2-1 and noting that the trial rules may be applied to the extent they do not conflict with the Board’s procedural rules or applicable statutes.  The standard is “substantial expense” – not simply an “expense.” Taxpayer had denied the appraiser access to the parcel, and the appraisal was “put on hold.”  Assessor had not incurred the “substantial expense of a completed appraisal.” (citing Joyce Sportswear Co. v. State Bd. of Tax Comm’rs, 684 N.E.2d 1189, 1193 (Ind. Tax Ct. 1997). The withdrawals were granted.

  2. Withdrawals prohibited – Late withdrawal would “squander” resources; Assessor demonstrated substantial expense ($900 appraisal) and legal prejudice.  TLC Properties, Inc. v. Lake County Assessor, Pet. Nos. 45-018-15-1-5-01442-16 et seq. (2/4/19) (2015 and 2016 tax years). In this appeal of land supporting a billboard sign, Taxpayer sought to withdraw its appeals eight days before the hearing.  IBTR observed that to allow the withdrawals “at such an advanced stage would mean the Board and the parties squandered substantial time and effort.” IBTR found that Assessor’s $900 appraisal was a “strong showing of substantial expense.”  In addition, Assessor would be legally prejudiced by not being able to seek an increase of assessment.  “Because the assessor demonstrated both substantial expense and legal prejudice, and because it preserves the Board’s and parties’ limited resources,” IBTR denied Taxpayer’s request for voluntary dismissals. 

  3. Withdrawals prohibited – substantial expense incurred by Assessor. Russell Properties, LLC v. Bartholomew County Assessor, Pet. No. 03-005-15-1-3-00097-16 (11/8/18) (2015 tax year). The IBTR discussed its 2014 ruling in Props v. Hamilton County Assessor, where it found that “a taxpayer’s last-minute request to withdrawal should be granted over the assessor’s objection because the assessor did not seek to raise the assessment [thus, no legal prejudice to the assessor] and did not present evidence of substantial expense.”  In this appeal, Assessor was seeking to raise the assessment and demonstrated a substantial expense had been incurred.  The Assessor’s objection to the withdrawal was sustained.Voluntary dismissal reversed; trending stipulation maintained. CVS Corporation #2519-01 v. Lake County Assessor, Pet. Nos. 45-036-07-1-4-99024-15 et seq. (1/4/19) (2007 - 2014 tax years).  Taxpayer’s request for voluntary dismissals was granted.  Assessor objected, and IBTR reinstated the Form 131 petitions.  IBTR also rejected Taxpayer’s request to set aside the trending stipulation to which the parties had agreed.

Default judgments / Judgment on the Evidence.

  1. IBTR prefers to resolve cases on the merits.  Draheim v. Marion County Assessor, Pet. Nos. 49-101-12-3-4-01535-17 et seq. (1/14/19) (2012 – 2017 tax years).  Assessor filed a motion to dismiss, claiming use of Form 133s [which form has now been eliminated and incorporated into the Form 130] was improper.  IBTR overruled the motion, reasoning: “In Indiana, there is a longstanding preference for resolving the case on the merits.” (citing Keener v. Kendallville, 191 N.E.2d 6, 7 (Ind. 1963)).
  2. Default judgment denied. CVS Corporation #0434-01 v. Lake County Assessor, Pet. Nos. 45-045-12-1-4-00001 et seq. (1/4/19) (2012 - 2016 tax years). Assessor alleged that an anonymous email to the press contained allegations of misconduct against him. The email, the Assessor contended, included information about the case not available to the public.  Assessor argued this was abusive conduct and justified default judgment under 52 IAC 2-10-2.  Taxpayer denied knowledge of the email.  Noting the email was not placed into evidence and that the record contained no proof that Taxpayer engaged in abusive conduct, IBTR described the situation as “troubling” but denied the request.

  3. Motion for Judgment on the Evidence rejected.  Draheim v. Marion County Assessor, Pet. Nos. 49-101-12-3-4-01535-17 et seq. (1/14/19) (2012 – 2017 tax years).  Assessor moved for judgment on the evidence, citing Trial Rule 50, before commencing his case-in-chief.  Noting that its rules allow it discretion to apply the trial rules, IBTR explained that a “litigant is always free to rest on the burden of proof without offering additional evidence.”  Here, Assessor chose to proceed with his valuation case. Assessor’s appraiser concluded to a value of the subject property that was $100,000 lower than the January 1, 2016 assessment (the only date for which Taxpayer filed a Form 130 appeal petition).  The Board denied the motion, reasoning that to ignore “such evidence would be unfair and against the interest of justice.” 

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Faegre Baker Daniels LLP
American Property Tax Counsel (APTC)

Indiana Board of Tax Review Denies Real Property Tax Exemptions for Early Childhood Educational Facilities for Lack of Proper Certifications

Name: Rainbow Rascals Warsaw, LLC v. Kosciusko County Assessor

Date Issued: April 10, 2019

Property Type: Childcare Facility

Assessment Year(s): 2015-2018

Point of Interest: Tangible property owned, occupied, or used by a for-profit provider of early childhood education services to children ages 4-5 years old may qualify for an educational exemption only if the requirements set forth in Ind. Code § 6-1.1-10-16(p) and Ind. Code § 6-1.1-10-46 are met.

Synopsis: Rainbow Rascals Warsaw, LLC (“Rainbow”) timely filed Form 136 exemption applications on two of its early childhood educational facilities in Warsaw for the 2015 to 2018 assessment dates. The Kosciusko Property Tax Assessment Board of Appeals (the “PTABOA”) denied each of the applications. Rainbow contested the denials, filing Form 132 appeal petitions with the Indiana Board of Tax Review for all four assessment dates.

Motion to dismiss not addressed. Rainbow had 45 days to appeal the PTABOA’s exemption denials. The Assessor asked the Indiana Board to dismiss the 2015 to 2017 appeals, because Rainbow had filed those petitions more than 45 days past the date listed on the PTABOA’s Form 120 notices denying the exemptions. Rainbow claimed it never received the PTABOA’s notices. The Indiana Board observed that Rainbow did “little to show” that it had not received, but then discarded, the notices. However, because the Indiana Board ultimately determined Rainbow failed to make its case on the merits, it declined to address the motion to dismiss.

Lacking required program ratings, Taxpayer failed to show it qualified for exemption. Indiana Code § 6-1.1-10-46 (“Section 46”) provides the requirements that a for-profit early childhood educational provider must meet to be eligible for a property tax exemption. Section 46 provides in part:

(a) Tangible property owned, occupied, or used by a for-profit provider of early childhood education services to children who are at least four (4) but less than six (6) years of age is exempt from property taxation under section 16 of this chapter only if all the following requirements are satisfied:
(1) The primary purpose of the provider is educational.
(2) The provider is the property owner and the provider also predominantly occupies and uses the tangible property for providing early childhood education services to children who are at least four (4) but less than six (6) years of age.
(3) The provider meets the standards of quality recognized by a Level 3 or Level 4 Paths to QUALITY program rating under IC 12-17.2-2-14.2 or has a comparable rating from a nationally recognized accrediting body.

(emphasis added). Additionally, the exemption percentage is calculated based on the percentage of children (out of the total enrollment of children) that are ages 4-5.

The Indiana Board pointed to the requirement set forth by Ind. Code § 6-1.1-10-46(a)(3) requiring that the provider meet the standards of quality recognized by a Level 3 or Level 4 Path to QUALITY program rating under Ind. Code § 12-17.2-2-14.2 or has a comparable rating from a nationally recognized accrediting body. One of Rainbow’s facilities did not receive its Level 3 certification until October 2018 – well after the assessment dates at issue — and the other facility had only a Level 1 certification. Moreover, even had the certifications been in place, Rainbow failed to provide necessary information to prove what an appropriate exemption percentage would have been. Having failed to show that the childcare facilities were properly certified on the assessment dates, the two facilities did not qualify for an educational exemption for any of the assessment dates at issue.

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Faegre Baker Daniels LLP
American Property Tax Counsel (APTC)

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Jul
15

Protecting Taxpayers: Indiana Shifts Burden of Proof to Assessors

A recent legal change in Indiana has created a model for property tax reform across the country. Starting in 2011, the Hoosier State has compelled assessing officials to defend excessive assessment increases with objective evidence and meaningful arguments in appeals.

The statute applies whenever the appealed property's value has increased by more than 5 percent over its prior year's value. Moreover, where the prior year's value was reduced on appeal and the reduction was not based on the income approach, the assessor now has the burden of proof to support any increase. Failure to defend the assessment automatically reduces the property's assessment to the prior year's level, and the taxpayer can press to further reduce the value.

Assessors on the defensive

This simple change gives Indiana taxpayers greater protections in appeals than taxpayers have in most other jurisdictions. Why? With no burden of proof on appeal, an assessor may contend that her value is presumed correct. Instead of explaining how she derived a property's value, the assessor may attempt only to discredit the taxpayer's case.

With the burden of proof, however, the assessor must produce probative evidence and logical arguments to support her value. She must explain why her assessment meets the jurisdiction's valuation standard. She must walk the local or state tribunal through her analysis. In short, she must explain how she did her job and produce evidence justifying her increased valuation.

An assessor that fails in those steps will likely lose. To avoid the time, expense and potential embarrassment of a loss, the assessor who carries the burden of proof is more likely to settle a case.

Limits on burden-shifting

For the burden-shifting statute to apply, the property under appeal must be the same property for both the current and prior years. It does not apply where the disputed assessment is based on structural improvements, zoning or uses that were not considered in the assessment for the prior tax year.

If significant new construction or demolitions occur at the property between the prior and current assessment dates, the taxpayer maintains the burden of proof. If the increase in value is due to the assessment of omitted property, such as when the assessor added square footage previously overlooked, then the taxpayer maintains the burden of proof.

The burden-shifting statute applies only to an increase of assessed value, not to an increase in tax burden. Taxpayers carry the burden of proof to show the value should be lower than the prior year's value.

The burden of proof can shift several times during an appeal. For example, assume that an Indiana commercial property is assessed at $800,000 in Year 1. In Year 2, the assessment increases by more than 5 percent to $1 million.

The property's physical status and use are the same in both years, and the taxpayer has an appraisal supporting a value of $500,000 in Year 2. The assessor carries the initial burden of proof to show her $1 million value is proper. If she fails to make a convincing case, the property's assessment will at minimum revert to its Year 1 value of $800,000. The taxpayer then has the burden of proof to show that its appraised value of $500,000 is correct.

If persuasive, the appraised value likely will carry the day; the Indiana Tax Court has said that an appraisal compliant with the Uniform Standards of Professional Appraisal Practice is often the best evidence of value. Even if the appraisal is unpersuasive, the property's assessment will still be lowered to its Year 1 value.

What are the drawbacks?

Who has the burden is sometimes unclear, so deciding the burden of proof may add an argument to the appeal. Parties may file motions in advance of a hearing to decide the burden of proof issue. If multiple years are under appeal, different parties may (depending on the values from year to year) have the burden of proof for different years, which could complicate the presentation of arguments and evidence at the administrative hearing.

The burden-shifting statute is one reason that more assessors are hiring counsel and paying for appraisals in appeals, which might prolong the appeals process in some cases. Taken as a whole, however, Indiana's burden-shifting experience has been a positive one for taxpayers. Taxpayers have always had to present evidence and arguments to prevail and now, in many cases, so do the assessors.

Indiana has compelled assessing officials to explain how they did their jobs correctly—or lose on appeal. Assessors who can't or won't defend their assessments are more likely to settle, saving taxpayers considerable time and resources. Taxpayers in other states should consider pressing lawmakers in their jurisdictions to replicate this Heartland property tax experiment.

Brent AuberryBrent A. Auberry is a partner in the Indianapolis office of the law firm Faegre Baker Daniels LLP, the Indiana member of American Property Tax Counsel (APTC), the natonal affiliation of property tax attorneys. Mr. Auberry can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

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Jan
01

The Supreme Court Speaks; Some Taxpayers Shudder

"It was not of constitutional moment, the court decided, that the Indianapolis lump-sum payers were stuck for the full amount of their assessments while the installment payers received forgiveness reductions. Terminating the installment payers' obligations to make their remaining installments, the court observed, permitted the city to avoid "maintaining an administrative system for years ..."

By Elliott B. Pollack, Esq., Commercial Property Executive, January 2013

Property owners frequently raise legitimate questions about hard-to-fathom differences between assessments of similar properties, as well as the failure of municipal and county assessors to equalize values. Property owners may question the constitutionality of such unreasonable governmental actions in court. Attorneys, however, have long counseled clients that attempting to toss out an assessment, or a valuation system, on constitutional grounds is a very steep hill to climb. The U.S. Supreme Court underscored the accuracy of this advice last June in a rather prosaic piece of litigation involving sewer assessments.

The city of Indianapolis' policy to pay for sewer construction and line extensions was to apportion the cost among abutting lots. After assessing the initial project, the city divided the cost among the number of affected lots. The city also made adjustments to reflect differences in lot size and configuration. Upon completion of the project, each lot received a final assessment. So far, so good.

Once in receipt of the proposed assessment, a lot owner could choose to pay the amount due in a lump sum or in installments, a choice typically given to property owners facing capital assessments in most U.S. jurisdictions. One particular sewer extension project affected 180 Indianapolis homeowners; 38 chose to pay their obligations at once, and the remainder opted for installments.

Just one year later, the city abandoned the lot apportionment assessment methodology, instead adopting a complicated payment plan based on project bond financing, which need not be discussed here. The key to the new system was that it reduced the liability of the individual lot owners affected by this project.

This was good news for the 142 homeowners who had opted for the installment payment plan, but it went over like a lead balloon for the 38 homeowners who had paid in full. Why? Because in the course of adopting the new financing plan, the city forgave all remaining installments owed under the old format but did not attempt to make refunds to those homeowners who had paid in full.

Understandably upset that they did not receive the same financial consideration that the installment payers received, the lump sum payers initiated refund litigation. The property owners met with initial success but lost the case in the Indiana Supreme Court, which ruled that the city had a rational basis for forgiving the remaining installment payments. Among the reasons the city offered, and the court approved, was a reduction in the city's administrative costs because the cost of calculating refunds to the lump sum payers and making refunds did not warrant doing so. The city also indicated an interest in providing financial relief to the installment payment homeowners. The homeowners took their case to the U.S. Supreme Court, which agreed to hear their appeals.

The Supreme Court concluded that as long as "there is any reasonably conceivable state of facts which could provide a rational basis for the decision" made by Indianapolis, it was constitutional. This thinking is in keeping with a long line of rulings that make it clear the justices are almost always unwilling to wade into the tax-fairness swamp. Commentators suggest that this reluctance is based on the court's perception that once it starts deciding whether a particular tax or tax refund plan is constitutional, it will be deluged with hundreds of cases from all over the country. As a result, the court has developed a jurisprudence that requires it to defer broadly to the judgment of local taxing authorities, except in extreme circumstances.

It was not of constitutional moment, the court decided, that the Indianapolis lump-sum payers were stuck for the full amount of their assessments while the installment payers received forgiveness reductions. Terminating the installment payers' obligations to make their remaining installments, the court observed, permitted the city to avoid "maintaining an administrative system for years ... to collect debts arising out of (many different construction) projects involving monthly payments as low as $25 per household."

The fact that Indianapolis authorities were concerned about potential financial hardships that might be suffered by certain installment payers if their remaining obligations were not forgiven stuck in the craw of the lump sum payers and probably made them wonder why the city did not think of their potential financial hardship, as well. Nevertheless, the Supreme Court ruled that the "city's administrative concerns are sufficient to show a rational basis" for its action. Once the court discerned a rational basis, it refused to take its fairness and constitutional analysis any further.

The June 4, 2012, ruling was signed by Justices Breyer, Kennedy, Thomas, Ginsburg, Sotomayor and Kagan. Justices Scalia and Alito joined Chief Justice Roberts' vigorous dissenting opinion.

Pollack Headshot150pxElliott B. Pollack is chair of the Property Valuation Department of the Connecticut law firm Pullman & Comley L.L.C. The firm is the Connecticut member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Jun
23

Disparate Treatment under City's Assessment Forgiveness Plan is Ruled Constitutional: Armour v. City of Indianapolis

By Stephen H. Paul, Esq. and Benjamin A. Blair, Esq. as published by IPT - Tax Report, July 2012

On June 4, 2012, the Supreme Court of the United States issued a significant decision in Armour v. City of Indianapolis, No. 11-161, finding that a city's forgiveness of sewer assessments for some property owners without offering refunds to others did not violate the Equal Protection Clause. Applying a rational basis standard of review, the Court held that administrative concerns can be sufficient to justify tax-related distinctions without running afoul of the Constitution.

Introduction
On June 4, 2012, the Supreme Court of the United States decided Armour v. City of Indianapolis, No. 11-161, which affirmed the Indiana Supreme Court's ruling that when a city switches from one method of infrastructure financing to another, the city's decision to forgive certain financial obligations arising under the prior financing method may be justified by administrative concerns even when the forgiveness creates disparate consequences. Although ostensibly a sewer-financing case, the Supreme Court's decision directly affects the scope of state and municipal taxing authority and the impact of the Equal Protection Clause on tax-related distinctions.

Facts
For more than a century, cities in Indiana have been permitted to apportion the costs of infrastructure projects among all affected property owners by a statute called Barrett Law. When a city built a Barrett Law project, the city would divide the total cost of the project equally amongst the affected lots. The city would issue a lot-by-lot assessment and would collect payment of the assessment in the same manner as other taxes. Barrett Law allowed lot owners to pay the assessment either in a single lump sum or as installment payments over a period of 10, 20, or 30 years with accruing interest. Until fully paid, an assessment constituted a lien against the property, and the city could foreclose on the property in the event of a default.

For several decades, the City of Indianapolis (the "City") used the Barrett Law system to fund sewer projects. One of the Barrett Law projects was the Brisbane/Manning Project, which began in 2001. It connected about 180 homes to the City's sewer infrastructure, and in July 2004, the homeowners were sent formal notice of their payment obligations. Each property was assessed $9,278 for the project, with options for 10-, 20-, and 30-year payment plans at 3.5% interest. Thirty-eight homeowners paid the assessment in full.

In 2005, the City adopted a new system of sewer-financing, the Septic Tank Elimination Program ("STEP"), in which each homeowner was charged a flat fee and the remainder of the cost was financed by bonds paid by all taxpayers. STEP had the advantage of lowering sewer-connection costs for individual lot owners. However, more than 40 Barrett Law sewer projects had been constructed before STEP was adopted, and more than half of those projects still had installment paying lot owners, including the Brisbane/Manning Project, which had been in place for only a year. In enacting STEP, the City decided to forgive all outstanding assessments under the Barrett Law system because the system presented financial hardships on lower income homeowners who most needed sanitary sewer service. However, no refunds would be issued for assessments already paid. Thus, while 38 of the homeowners in the Brisbane/Manning project had paid $9,278, others paid as little as $309.27 for the same sewer connection.

The homeowners who had paid in a lump sum brought a lawsuit seeking a refund from the City, claiming that the City's refusal to provide refunds at the same time that the City forgave outstanding assessments of other homeowners violated the Federal Constitution's Equal Protection Clause, which provides that "no state shall ... deny to any person within its jurisdiction the equal protection of the laws." The trial court granted summary judgment in favor of the homeowners, and the Indiana Court of Appeals affirmed that judgment. The Indiana Supreme Court reversed the lower court, finding that the City's distinction was "rationally related to its legitimate interest in reducing its administrative costs, providing relief for property owners experiencing financial hardship, establishing a clear transition from Barrett Law to STEP, and preserving its limited resources." Slip op. at 5. The homeowners appealed to the U.S. Supreme Court to consider the equal protection question.

Holding
In a 6-3 decision, the Supreme Court held that the City's tax-related distinction was supported by a rational basis and thus did not violate the Equal Protection Clause.

Analysis
The Court began by finding that the proper question was whether the City's distinction between homeowners had a rational basis. Although the Equal Protection Clause strongly protects individual rights in certain circumstances, a classification that does not involve fundamental rights and which does not proceed along suspect lines "cannot run afoul of the Equal Protection Clause if there is a rational relationship between the disparity of treatment and some legitimate purpose." Slip op. at 6. Rational basis review requires deference to reasonable underlying legislative judgments, and legislatures have "especially broad latitude" in creating classifications and distinctions in tax statutes. Id.

The City's classification involved neither a fundamental right nor a suspect classification. "Its subject matter is local, economic, social, and commercial." Id. The City did not discriminate against out-of-state commerce or new residents, actions which would have increased the degree of scrutiny the Court would give to the City's action. The distinction between fully-paid homeowners and those who had their debt forgiven was simply "a tax classification." Id. Hence, the Court found that the case fell directly within the scope of its precedents holding such a law constitutionally valid

if there is a plausible policy reason for the classification, the legislative facts on which the classification is apparently based rationally may have been considered true by the governmental decision maker, and the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational.

Slip op. at 7 (quoting Nordlinger v. Hahn, 505 U.S. 1, 11 (1992)).

The Court found that the City's decision to stop collecting outstanding Barrett Law debts was based on rational administrative concerns. Administrative considerations can justify a tax-related distinction. The City's administrative burdens would have included the need to maintain parallel and expensive administrative systems to monitor both the new and the old financing systems, with the possible need to track down defaulting debtors and bring legal action. The fixed administrative costs would have continued to increase on a per-debtor basis as debts were paid off. Further, the City would have to calculate and administer refunds, which would require appropriating funds from other city programs. In other words, the entire purpose of transitioning from Barrett Law to STEP would have been defeated. While the homeowners put forth systems they deemed superior to the one implemented by the City, the Court noted that "the Constitution does not require the City to draw the perfect line nor even to draw a line superior to some other line it might have drawn... only that the line actually drawn be a rational line." Slip op. at 11.

Although the Indiana court held that relieving financial hardship was also a rational governmental concern, the Court noted that it did not need to consider that argument, explicitly holding that "the administrative considerations we have mentioned are sufficient to show a rational basis for the City's distinction." Slip op. at 10. The homeowners correctly stated that administrative considerations could not justify a system where a city arbitrarily allocated taxes among a few citizens while forgiving others simply because it is easier to collect taxes from a few people than from many. "But that is not because administrative considerations can never justify tax differences." Slip op. at 11. "The question is whether reducing those expenses, in the particular circumstances, provides a rational basis justifying the tax difference in question." Slip op. at 12. The Court held that the homeowners had not met their burden of showing that there was no rational basis justifying the distinction.

In a spirited dissent, Chief Justice Roberts noted that the Court had never before held that administrative burdens alone justify grossly disparate tax treatment of those who should be treated alike. "The reason we have rejected this argument is obvious: The Equal Protection Clause does not provide that no State shall 'deny to any person within its jurisdiction the equal protection of the laws, unless it's too much of a bother.'" Dissent at 4. Similarly, the City's argument that the unequal burden was justified because it would have been "fiscally challenging" to issue refunds "gives euphemism a bad name." Dissent at 5. The dissent disagreed that the City could evade returning money to its rightful owner by the "simple expedient of spending it." Dissent at 6.

The City had been presented with three choices: 1) continue to collect installment payments from all homeowners; 2) forgive the debts of installment-plan homeowners and give equivalent refunds to lump-sum homeowners; or 3) forgive future payments and offer no refunds of past payments. "The first two choices had the benefit of complying with state law, treating all of Indianapolis' citizens equally, and comporting with the Constitution." Dissent at 2. The City chose the third option, and the dissent saw the equal protection violation as plain.

The Ongoing Vitality of Allegheny
The Court's decision in Armour will have a significant impact beyond the limits of Indianapolis' sewer system, particularly in the realm of equal protection challenges to state tax regimes.

The most substantial disagreement between the majority and the dissent, and the area where some commentators have expressed concern, is the continuing vitality of Allegheny Pittsburgh Coal Co. v. Commission of Webster County, 488 U.S. 336 (1989). That case involved a county assessor who valued real property on the basis of its recent purchase price, except where the property had not been recently transferred, in which case the assessment for each property remained essentially flat. The system resulted in gross disparities in the assessed value of generally comparable properties. The Constitution allows a State to divide property into different classes, but the division must not be arbitrary and the distinctions in practice must follow state law. The Supreme Court held that the assessments violated the Equal Protection Clause because the Clause requires that similarly situated property owners achieve rough equality in tax treatment.

The majority in Armour distinguished the earlier decision by emphasizing that Allegheny was "the rare case where the facts precluded any alternative reading of state law and thus any alternative rational basis." Slip op. at 13. There, the assessor "clearly and dramatically violated" a clear state law requirement of equal valuation. In contrast, the City in Armour followed state law by apportioning the cost of its Barrett Law projects equally. State law said nothing about how to design a forgiveness program or how to draw rational distinctions in doing so. Thus, to adopt the view of the homeowners "would risk transforming ordinary violations of ordinary state tax law into violations of the Federal Constitution." Slip op. at 13-14.

The dissent found the equal protection violations to be identical between Armour and Allegheny. Whereas the majority spent little time on the Allegheny decision, the dissent saw the cases as direct analogs, even down to the levels of disparity. Whereas the majority found that the City complied with state law, the dissent viewed the state law as requiring the assessment to be equally apportioned amongst the homeowners. The result of the City's decision was that some homeowners were charged 30 times what the City charged their neighbors for the same service.

The fundamentally different treatments given by the majority and the dissent treatments to Allegheny show that Allegheny is still an important case in equal protection claims relating to taxation. The sides disagreed about how central Allegheny is to the argument for rational basis and the manner in which compliance with state law demonstrates a rational basis.

The majority seems to have taken steps to avoid dealing with Allegheny, despite the obvious parallels between the cases. The Court only discussed Allegheny after finding that the City had a rational basis for the distinction. Whereas Allegheny stands for the notion that failure to comply with state law demonstrates a lack of rational basis, the majority found a rational basis and then read the state law in a way that supported its finding.

The dissent viewed compliance with state law as central to the argument for rational basis. If a City's tax regime fails to comply with state law, it fails rational basis review. Thus while the majority took a broad view of compliance, saying that the assessment itself complied with state law, the dissent took a narrow view of compliance, saying that the end result of the tax regime must comply with state law.

Allegheny, though a "rare case", has long provided taxpayers with some guidance on how to proceed in an equal protection challenge to an unequal tax regime. The decision in Armour shows how rare Allegheny truly is, and how difficult the path for future taxpayers will be. The most significant lesson for taxpayers seeking to overturn a tax regime on equal protection grounds is that the bar is set extremely high. Taxpayers who attack legislative line-drawing have the burden of showing that it was not rational for the City to draw the line to avoid an administrative burden. Slip op. at 12. Taxpayers must show that the administrative burden on the municipality is "too insubstantial to justify the classification." Id. The homeowners in Armour were unable to do so. The discriminatory effect in future cases will need to be egregious in order for taxpayers to successfully show an equal protection violation in light of Armour.

The Impact of Armour on Amnesty Programs
The Court's decision in Armour is also significant because it may be broadly interpreted to give state and municipal governments a wide berth in crafting amnesty programs and other tax policies.

The Court drew a parallel between Indianapolis' assessment forgiveness and other common amnesty programs involving mortgage payments, taxes, and parking tickets. Slip op. at 9-10. The City's distinction between past payments and future obligations is a line consistently drawn by courts between actions previously taken and those yet to come. The Court implied that to overturn the City's sewer-financing distinction would require overturning tax amnesty programs that are regularly used by governments.

The dissent, however, emphasized that the Court's analogy to typical amnesty programs was misplaced. "Amnesty programs are designed to entice those who are unlikely ever to pay their debts to come forward and pay at least a portion of what they owe." Dissent at 5. Because administrative convenience alone does not justify those programs, their constitutionality would not be in question.

The Court's decision continues the line of cases allowing under the Equal Protection Clause distinctions between taxpayers in forgiveness situations. As more states offer tax amnesty programs to increase tax revenues and encourage future compliance, they can feel secure that their programs should receive broad support from the courts, so long as they serve a rational purpose.

Conclusion
The question in Armour was summarized by Justice Breyer, the eventual author of the decision, near the close of oral argument as whether the City's choices were rational. To the majority of the Court – including, notably, Justice Thomas who broke with the conservative wing of the Court – found that administrative considerations alone can justify a tax-related distinction between taxpayers and a city's decision to stop collecting on certain assessments. Despite an invitation by the dissent, the Court refused to say "enough is enough" to continuing pressures on the Equal Protection Clause. The Supreme Court rarely grants certiorari to state tax cases, and the decision in Armour shows that taxpayers will continue to have an high burden when they do reach the courthouse steps.

Blair Ben small

Benjamin A. Blair, Esq. is a partner in the Indianapolis office of Faegre Baker Daniels, the Indiana member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

 Paul Steve

Stephen H. Paul is a partner in the Indianapolis office of Faegre Baker Daniels, the Indiana member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

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Jan
16

Facts Before Tax

Assessors Often Overvalue Centers, Ignoring Vacancies and Other Issues

"Landlords must diligently review property taxes yearly, looking at assessments based on current marketplace conditions."

Most shopping center owners are being overtaxed and do not even know it. Or they do not realize it until they get their tax bill. The problem is in the way taxes are figured by local assessors- a methodology that was only adequate, at best, during good times, but which has become a severe handicap to landlords during this lengthy economic downturn.

In most states assessors take a mass appraisal approach, trying to determine as quickly and ubiquitously as possible the fair market value of all the shopping centers within a tax district using existing data. The assessor is looking at the market value of the property based upon fee-simple value, which is the value of the real estate without encumbrances - that is, what it would sell for if it were vacant and available for sale or lease at market rates.

"The reality is, there are few cases of commercial property selling where you have a vacant building for sale without encumbrances," said Kieran Jennings, a Cleveland-based partner at Siegel, Siegel, Johnson & Jennings. "Typically, it is partially occupied, fully occupied, et cetera. Often there are deed restrictions in place." Jennings is a member of the Washington-based American Property Tax Counsel, which assists property owners in the U.S. and Canada with tax issues.

"Assessors will look at a market, they will review published sources on cap rates, et cetera, to come up with a model that will be used on shopping centers across the board," said Darlene Sullivan, a partner at Austin, Texas-based Popp, Gray & Hutcheson, and also a member of the APTC. "They have to get their numbers out quickly and apply the model without looking specifically into any condition."

Assessments are levied in similar fashion in Michigan. "In Michigan, as in most states, value is based on market as opposed to contract rent," said Michael Shapiro, a Detroit-based partner at Honigman Miller Schwartz and Cohn, and an APTC member. "In general, the assessor uses a cost approach that has not adequately accounted for obsolescence in the market, reduced demand for property, greater vacancies and increased cap rates. All these factors have a negative impact on value. "There are two general ways overtaxing occurs. The first is the time-lag effect of a slumping market, and the second involves the lease adjustments often made to keep tenants in place, but which assessors do not take into account.

Indiana landlords were being victimized by the calendar until laws there were changed, says Stephen Paul, an Indianapolis-based partner at Baker & Daniels and an APTC member. "Our assessment date is a year behind our value date," Paul said. "For example, the assessment date was March 1, 2009, but the valuation date was January 1, 2008, and the market changed dramatically. On March 1, 2009, market conditions were worse than at the value date. People were taxed currently, but based on values when the market was much better."

The more common failure in tax assessments is the inflexibility of assessors or their inability to consider the lease inducements necessary to keep tenants. "I have a number of clients that are regional and local shopping center owners," said Jennings. "Since the fall of the real estate market, there has been tremendous pressure on them to keep tenants in place. So they have gone from net leases to gross leases, put in buildouts and removed square footage."

All these things mean that actual rents are less than what they appear to be to the assessor. Jennings gives one example where tenants will stay in place, but take up less space. To keep tenants, landlords will allow them to halve their space, which means they have effectively cut income in half. "Now when the assessors come along, they see all of your storefronts are occupied, but many of the tenants have reduced space," said Jennings. ''The landlord has pockets of dead space that will probably never be used again. The assessor is assessing you at rents that are $15 to $20 a square foot, but only half that space is being used, so the effective rent is really $7.50 to $10 a square foot. And it is not showing up in any published data, and assessors can only work from what is published."

That problem rarely gets rectified because, for competitive reasons, shopping center owners are reluctant to share information, which means, of course, that the assessors are working from incomplete data. "Shopping center owners are not amenable to giving out information to assessors," said Paul. "The landlord doesn't want to give out the details of a lease, so the assessor will say: 'If I'm not entitled to look at the lease, I have to make my own assumptions, which will be done on incorrect information. Afterward the taxpayer has to file an appeal against the assessment and layout the reasons why it was excessive."

Overtaxing is a problem not just for the shopping center owners, but for the tenants as well. Most leases are triple-net, which means that taxes are passed through to tenants, so a lower tax will benefit the tenant in the end, Sullivan says. "Tenants need someone to be aggressive for them to keep those triple nets down," she said.

This can also be problem with competitive shopping centers. Consider two similar shopping centers across the street from each other, each with the same type of vacancy. One center is valued at $100 per square foot, and the other at $130 per square foot. Because of triple net, tenants will be enticed to the center taxed at the lower rate, because all things considered, the expense of leasing will be lower.

An assessor equipped with nothing more than the cost approach will find it difficult to quantify value losses without going through a detailed income approach, something that assessor is going to lack the time to do. Most appeals processes will recognize this and adjust accordingly.

In Michigan when an appeal is filed, the parties generally get together and discuss the specifics, and usually the matter is resolved without a hearing or trial, says Shapiro. "We have handled many shopping center appeals, and in recent years we have not gone to trial on a shopping center. Some get resolved while preparing for trial, and some get resolved when a formal, independent appraisal is submitted.

"Not every place is so easy. In Ohio and Pennsylvania third parties such as school systems have joined the fray: fighting to keep assessments high because so much funding comes from levies. Lower assessments mean less revenue for the school districts. "In the event, you are able to convince the assessor to reduce taxes based on, say, half the leased space used," said Jennings. "The school districts in Ohio and Pennsylvania can come in and file their own tax appeal to raise the value of a given property." Landlords must diligently review property taxes yearly, looking at assessments based on current marketplace ' conditions, Shapiro says. "My clients are fighting assessments," he said, "because assessors were ignoring the function obsolescence of their properties, which in some cases meant a 50 percent reduction in value."

DarleneSullivan140 Darlene Sullivan is a partner with the Austin law firm of Popp, Gray & Hutcheson LLP, the Texas member of the American Property Tax Counsel (APTC). She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

Paul Steve

Stephen H. Paul is a partner in the Indianapolis office of Faegre Baker Daniels, the Indiana member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

kjennings

Kieran Jennings is a partner with the law firm of Siegel & Jennings, which focuses its practice on property tax disputes and is the Ohio and Western Pennsylvania member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

 

shaprio150

Michael Shapiro chairs the tax appeals practice group at Michigan law firm Honigman Miller Schwartz and Cohn LLP. The firm is the Michigan member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

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