Saturday, June 29, 2013

Tax Court Schedules Five Hearings for July

Miller Pipeline Corp. v. Ind. Dept. of State Revenue (View)
Tuesday, July 09, 2013 10:00 AM - 11:00 AM

This is a hearing on Petitioner's Motion for Partial Summary Judgment.

For a detailed description on the merits of the case see Tax Summaries at

Hon. Thomas G. Fisher
Senior Judge

State House, Room 413
Indianapolis, IN 46204

Aztec Partners, LLC v. Ind. Dept. of Revenue (View)
Friday, July 12, 2013 10:00 AM - 11:00 AM

This is a trial.

For a description on the merits of the case see the Tax Summaries at

State House, Room 413
Indianapolis, IN 46204

Brandenburg Industrial Service Co. v. Ind. Dept. of State Revenue (View)
Wednesday, July 17, 2013 10:00 AM - 11:00 AM

This is a hearing on parties' motions.

For a description on the merits of the case see the Tax Summaries at

State House, Room 413
Indianapolis, IN 46204

Roderick E. Kellam v. Fountain County Assessor (View)
Thursday, July 25, 2013 10:00 AM - 11:00 AM

Taxpayer challenges whether the Indiana Board of Tax Review erred when it found he had not demonstrated that he was entitled to a homestead deduction.

State House, Room 413
Indianapolis, IN 46204

Columbia Sportswear USA Corp. v. Ind. Dept. of State Revenue (View)
Wednesday, July 31, 2013 10:00 AM - 11:00 AM

This is a hearing on Respondent's Motion for Summary Judgment.

For a description on the merits see the Tax Summaries at

State House, Room 413
Indianapolis, IN 46204

News and Tribune Reports New Albany Mayor Says Tax Collections Falling

From the Clark County News and Tribune:

New Albany Mayor Jeff Gahan says that changes in Indiana’s tax code will mean less money for the city.

“This action could result in a reduction in overall tax collections for the City of New Albany in the amount of approximately $1.1 million,” according to a press release.

Gahan said that changes in state tax code will result in public schools receiving a greater percentage of property taxes, which could result in the City of New Albany experiencing a reduction in their share of tax money this year. He said the decrease of city tax revenue is a forecast of the Department of Local Government Finance.

“These types of funding issues are always a possibility,” said City Controller Mary Ann Prestigiacomo in the release. “This is just another reason why we diligently work with department heads to ensure that expenditures remain on or under budget.

“There are many factors that will help minimize the effect of these potential circuit breaker reductions,” according to the release.

The state of Indiana limits how much money can be collected in property taxes. It limits property taxes for individual homeowners at 1 percent of the assessed value of the property; 2 percent for rental properties; and 3 percent for businesses.  Any amount over the percentages cannot be collected by taxing units.

There are funding sources Gahan says can offset the revenue drop.

The city already received the spring settlement of the property tax collections from Floyd County, which were about $700,000 higher than the projected number given by the DLGF, according to the press release.

“Additionally, because of the steps the city has taken to reduce expenses when necessary, the general fund ended the 2012 calendar year with a positive balance. This year, spending has remained under budget thus far,” according to the press release.

Gahan stated in the press release, “While we know that funding reductions are always a possibility, my staff and I will continue working closely with the city council to monitor the situation as the year progresses.”

TribStar Reports Terre Haute Lets Most Abatements Stand

From the Terre Haute Tribune-Star:

Terre Haute business leaders made their cases before the Terre Haute City Council Thursday evening concerning their tax abatements that had been found to be out of compliance with their original terms.

The council reviewed about one dozen abatements, many of which were “out of compliance” only because of paperwork errors. But a few were out of compliance because companies had promised to create or maintain a certain number of jobs when the abatements were granted and since have failed to do so.

Formal council review of abatement compliance is rather new and is a result of tighter city budgets, said Council President Norm Loudermilk. “We are actually the watch dogs for the taxpayers,” Loudermilk said during the approximately 90-minute hearing in City Hall.

Despite some firms not reaching or maintaining employment targets — in many cases targets set before the economic downturn of 2007 — the council in nearly every case permitted abatements to stand in light of economic hardships.

In most cases, the abatements, which are typically phased out over 10 years, had only one or two years remaining.

“If they’re trying to be compliant, I’m absolutely going to be lenient,” said Councilman Jim Chalos, D-at large, one of six council members present for Thursday evening’s hearing in City Hall.

Only a few of the non-compliant abatements were canceled or “denied” by the council. In each of those cases, the companies affected had failed to file the required paperwork and had made no effort to communicate with city officials to keep their abatements alive. One such was Black Dog Ranch LLC, a company that took over the former Standard Register property on Fruitridge Avenue.

On the other hand, companies struggling to meet employment goals that were allowed to retain their abatements included Bemis, DMS Real Estate, Gartland Foundry, Lenex Steel, Newspaper Holdings (The Tribune-Star) and Stone House Farms LLC.

In most of these cases, the recession of 2007-2009 was cited as a reason for the failure of companies to reach or maintain the number of employees promised when their abatements were granted by the City Council. In the case of Stone House Farms, the failure of Pfizer’s Exubera diabetes medicine also a reason for a smaller-than-expected workforce, a company official told the council.

In most cases, each of the firms coming before the council also indicated they have continued to invest in their Terre Haute operations despite operating with smaller numbers of employees than hoped. Bemis, for example, has transferred production to Terre Haute from closed facilities in other parts of the country and has recently added several dozen workers to its payroll in Terre Haute, said Sam Weatherford, who spoke on behalf of the plastic packaging manufacturer before the council.

Bemis is in a “recovery mode,” Weatherford said.

Some companies chose not to file annual paperwork for their abatements because they believed the abatements had expired. In other cases, they chose not to file because the abated property has worn out or is of little current value, company officials said. Abatements can be granted for real estate or for equipment investments.

Star-Press Reports Muncie Mayor Opposes Two New Local Income Taxes Proposed for Delaware County

From the Muncie Star-Press:

Two new local income taxes proposed this week to help Delaware County government’s financial problems won’t get the necessary support from the city of Muncie, Mayor Dennis Tyler said Wednesday.

“It’s just not the right thing to do,” Tyler told The Star Press.

Noting that Muncie City Council has to approve new local income taxes, even if they originate with county government, Tyler said, “You’d always like to have more revenue and resources to improve your community.

“However, I’m in constant contact with members of city council,” Tyler added. “We have no interest in moving forward with new taxes at this time.”

Tyler said Wednesday he still hadn’t seen a copy of the report delivered to a joint session of the Delaware County commissioners and Delaware County Council on Monday evening.

The report from Indianapolis financial consultants H.J. Umbaugh was requested by the commissioners as the county struggles with revenue decreases of millions of dollars and expenditures — particularly millions of dollars a year for health insurance — that threaten to bust the county’s budget this year and in 2014.

The Umbaugh report offered several recommendations, including reviewing the amounts contributed to employee health insurance by the county and by employees.

It also proposed a public safety local option income tax (LOIT) that could generate $2.4 million a year and a tax rate that would fund a cumulative capital development account of $1 million a year.

In Monday’s presentation, Paige Sansone of Umbaugh recommended the county work “with the city of Muncie” in adopting the public safety LOIT.

Tyler said he was aware of county government’s financial struggles. But the retired firefighter said that even to bolster public safety funds he couldn’t support a new local tax.

“No, I wouldn’t,” Tyler said.

See the full article here:

Journal & Courier Reports Tippecanoe County Eyes Revenue Pressures in 2014

From the Lafayette Journal & Courier:

There are no crystal balls for revenue predictions, but a recent forecast reviewed by Tippecanoe County officials hints that the next few years might be a little leaner than 2013.

“If we look at the year-to-date numbers, we’re overall OK. Just OK,” Tippecanoe County Commissioner Tom Murtaugh said. “But there are some areas where the shortfalls are fairly significant.

Murtaugh and other members of the county’s revenue committee met Thursday morning to review the forecast revenue and expenses for 2014 through 2016. The other members are county Auditor Jennifer Weston, Treasurer Bob Plantenga and county Councilman Andy Gutwein.

Together they pored over the analysis prepared by the county’s financial adviser, Greg Guerrettaz of Financial Solutions Group.

With half the year in the rearview mirror, the county has collected just 40 percent of the $1.1 million it expected from the Department of Correction for housing its inmates. Next year, the predictions are this revenue stream will shrink by 10 percent compared with 2013’s projected revenue.

“We’re already seeing a decline this year because we haven’t had a full house,” Weston said, referring to the Tippecanoe County Jail.

There are other signs from this year’s collections that revenues may be off next year.

“We’re kind of falling behind in collections for probations,” Murtaugh said. “The clerk’s filing fees are down. That means that fewer people are filing cases. That may be a good thing.

“But the estimated revenues are certainly down. Those are always a concern.”

A known shortfall for 2014 is the inheritance tax. It goes away in 2014. That tax generated $372,870 for county coffers in 2012. For now, though, the inheritance tax already has surpassed last year’s budgeted forecast of $100,000. The county has collected $151,290 so far this year.

While $100,000 budgeted for inheritance tax revenue is minute, the county will have to find revenue to offset the loss with another revenue stream in what is typically a tight budget.

The 2014 revenue forecast also braces for a 5 percent loss in money generated from gambling establishments in the state and a 2 percent loss in 2015. The dip in gambling revenue is attributed to competition from casinos in Illinois and Ohio that are expected to siphon away gamblers from Indiana horse tracks and casinos.

See the full article here:

Herald-Times Reports Tax Abatements Credited for $34 Million in Salaries in Bloomington

From the Bloomington Herald-Times:

Tax abatements continue to provide breaks to about a dozen projects in Bloomington, but the city’s Department of Economic and Sustainable Development estimates those projects have brought more than $34 million in new salaries to the local business community over their lifespan.

The biggest contributor has been Cook Pharmica, according to Danise Alano-Martin, the city’s director for economic and sustainable development, who presented annual review of tax abatements Wednesday night before the city council.

The medical device company, which was granted 10-year abatements on its property and real estate in 2004, has poured almost $150 million in improvements into its facility at 1300 S. Patterson Drive. An abatement offers property owners deductions on the assessed value of a property after improvements, usually on a sliding scale, with a tax break of 100 percent coming in the first year.

In the case of Cook Pharmica, city officials believe the tax break created the incentive that spawned $30 million in salaries for 444 employees, well above Cook’s original estimate of about $9.5 million for 200 employees when the abatement was granted.

All but one abatement in the city’s portfolio was regarded as “significantly compliant” in meeting its promises associated with the tax break. That one project was a Habitat for Humanity house, but the city intends to be lenient with the owner and not pull the abatement, Alano-Martin said.

See the full article here:

Three Appeals Filed in Tax Court in June

06/21/13Utilimaster Corporation v. Indiana Dept. of State Revenue N/A49T10-1306-TA-56
06/21/13William E. Schmidt, Jr. and Danielle R. Schmidt v. Indiana Dept. of State Revenue N/A49T10-1306-TA-55
06/07/13Schilli Leasing, Inc. v. Indiana Department of Revenue N/A49T10-1306-TA-54

Tax Court Finds Classification of Beneficiaries for Inheritance Tax Purposes Does Not Violate Indiana Constitution

Excerpts of the Tax Court decision follow:

The Estate contends the creation of “classes” for the determination and collection of inheritance tax that base both the amount of exemption and tax rate on the relationship between a decedent and a transferee violates Indiana’s Constitution Article 1, Sections 1, 12, 23, and Article 4, Section 22. (See Appellant’s Br. at 6.) The Department, however, claims that the Indiana Supreme Court found the inheritance tax classification scheme constitutional over ninety years ago in Crittenberger v. State Savings & Trust Company, 127 N.E. 552 (Ind. 1920). (See Appellee’s Br. at 1, 5-7.)

Courts should not pass upon constitutional questions and declare statutes invalid unless a decision upon that very point becomes necessary to the resolution of a cause. See Indiana Wholesale Wine & Liquor Co. v. State ex rel. Indiana Alcoholic Beverage Comm’n, 695 N.E.2d 99, 107 (Ind. 1998) (citation omitted). Thus, even if the quality of litigation is sufficient to support a constitutional determination, a court should avoid constitutional issues when it can sustain a judgment on non-constitutional grounds. See id. As such, the Court must first determine whether Crittenberger resolves any of the claims in this case.

In Crittenberger, the Indiana Supreme Court determined that a statute, which exempted certain educational and charitable bequests and devises from inheritance tax, comported with Article 1, Section 10 (the uniformity and equality of assessment and taxation clause) of our Constitution. Crittenberger, 127 N.E. at 555-56. In reaching that conclusion, the Indiana Supreme Court explained that the right to take property by descent or devise is a right owing its existence to the authority of legislative enactment and is not a natural right; thus, the right is subject to legislative abrogation and regulation. Id. at 556 (footnote added). In other words,

the Legislature may make [the inheritance tax] applicable to one class of persons or corporations and inapplicable to another class, provided the tax is uniform as to the class upon which it operates. The state[] may tax the right or privilege of taking property by descent or devise, discriminate between relatives, and between these and strangers, and grant exemptions, and [is] not precluded from this power by the provisions of the [] state Constitution[] requiring uniformity and equality of taxation.

Id. (emphasis added) (citations omitted).

Crittenberger, therefore, clearly provides that inheritance tax classification schemes that distinguish between lineal relatives, collateral relatives, and strangers are both equitable and reasonable when the classifications and statutory schemes operate on the classes uniformly. See id. at 555-56 (citations omitted). Consequently, the Supreme Court’s holding in Crittenberger resolves the Estate’s Article 1, Section 1 and Article 1, Section 23 claims in favor of the Department. Accordingly, the Court turns to the Estate’s remaining constitutional claims.

Article 1, Section 12

Article 1, Section 12 of the Indiana Constitution provides: “All courts shall be open; and every person, for injury done to him in his person, property, or reputation, shall have a remedy by due course of law. Justice shall be administered freely, and without purchase; completely, and without denial; speedily, and without delay.” IND. CONST. art. 1, § 12. The Estate claims Indiana’s inheritance tax classification scheme violates this constitutional provision by producing inequitable administration costs and remedies through its imposition of varying inheritance tax liabilities based on arbitrary familial distinctions. (See Appellant’s Br. at 6-9, 11 (arguing that Floyd’s beneficiaries, as Class B and Class C transferees, paid 458% more in tax than they would have as Class A transferees).)

The remedies clause of Article 1, Section 12 prescribes procedural fairness, guaranteeing a “‘remedy by due course of law’ for injuries to ‘person, property, or reputation.’” McIntosh v. Melroe Co., a Div. of Clark Equipment Co., Inc., 729 N.E.2d 972, 975 (Ind. 2000) (citation omitted). This constitutional assurance of a remedy for injury, however, does not create any new substantive right to recover for a particular harm. Id. at 977 (citation omitted). “‘Rather, the clause promises that, for injuries recognized elsewhere in law, the courts will be open for meaningful redress.’” Id. (citation omitted).

The Legislature has provided the Estate with four alternative remedies by which to challenge the determination and collection of inheritance tax. See Sibbitt v. Indiana Dep’t of State Revenue, 563 N.E.2d 146, 147-48 (Ind. Ct. App. 1990), trans. denied. The Estate has taken advantage of one of those remedies, the claim for refund process. See supra pp. 2-3 (noting that the Estate has, and currently is using, the claim for refund process to challenge its purportedly improper inheritance tax liability); IND. CODE § 6-4.1-10-1 et seq. (2009). In so doing, the Estate has been able to present to both the probate court and this Court its claims via written motions, written briefs, and oral argument. Consequently, the Estate has not demonstrated that the inheritance tax classification scheme violates Section 12 by imposing inequitable administration costs and remedies.

Article 4, Section 22

Article 4, Section 22 prohibits the enactment of “local” or “special” laws regarding, among other things, “the assessment and collection of taxes for State, county, township, or road purposes.” IND. CONST. art. 4, § 22. The Estate contends that the inheritance tax classifications constitute prohibited special laws because they are not based on consanguinity or any other “uniquely meaningful” or inherently distinguishable characteristic. (See Oral Argument Tr. at 19-20; Appellant’s Br. at 7, 10-11.) The Court disagrees.

“The determination of whether a law is special or general is a threshold question in determining its constitutionality under” Article 4, Section 22. Alpha Psi Ch. of Pi Kappa Phi Fraternity, Inc. v. Auditor of Monroe Cnty., 849 N.E.2d 1131, 1136 (Ind. 2006) (citation omitted). “A statute is ‘special’ if it ‘pertains to and affects a particular case, person, place, or thing, as opposed to the general public.’” Municipal City of South Bend v. Kimsey, 781 N.E.2d 683, 689 (Ind. 2003) (citation omitted). “A statute is ‘general’ if it applies ‘to all persons or places of a specified class throughout the state.’” Id. (citation omitted). Contrary to the Estate’s contention, therefore, the statutes classifying beneficiaries for the determination and collection of inheritance tax are not special laws; rather, they are general laws because they apply to beneficiaries throughout the entire state in the same manner. Accordingly, the Estate has not shown that Indiana’s inheritance tax classification statutes are special laws in violation of Section 22.

Chairman Wente Resigns from Indiana Board of Tax Review

Contact Us
Indiana Board of Tax Review
100 North Senate Avenue, Room N-1026
Indianapolis, IN 46204
Telephone: (317) 232-3786
Fax: (317)234-5589
For general questions or information, email:
The Board is located on the 10th floor in the Indiana Government Center North Building. 
The Board:
Betsy J. Brand
Terry G. Duga 

Senior Administrative Law Judges:
Ted Holaday
David Pardo
Administrative Law Judges:
Rick Barter
Jennifer Bippus
Ron Gudgel
Jaime Harris
Patti Kindler
Tom Martindale
Dalene McMillen
Joe Stanford
Paul Stultz
Ellen Yuhan
Operations Director: Beth Hammer

Appeals Coordinator:
Jane Chrisman
Administrative Assistants:
Nickie Brewer
Cheryl Murrell

Friday, June 28, 2013

Board Finds Taxpayer Failed to Raise a Prima Facie Case Based on an Income Capitalization Valuation

Excerpt of the Board's Determination follow:

Arneo made several arguments about its property taxes, including claims about the level of its taxes as a percentage of the subject parcels’ fixed income. The Board, however, lacks jurisdiction to hear general claims that a petitioner’s taxes are too high or that those taxes are higher than the taxes paid by other property owners. The Board is a creation of the legislature and has only the powers conferred by statute. Whetzel v. Dep’t of Local Gov’t Fin., 761 N.E.2d 904, 908 (Ind. Tax Ct. 2002) (citing Matonovich v. State Bd. of Tax Comm’rs, 705 N.E.2d 1093, 1096 (Ind. Tax Ct. 1999)). Indiana Code § 6-1.5-4-1 gives the Board authority to determine appeals concerning assessed valuation, deductions, exemptions, and credits. The Board therefore has no authority to address general disputes over taxes or tax rates.

Of course, Arneo’s taxes are based on the subject parcels’ assessments. And the Board does have jurisdiction to hear Arneo’s challenge to those assessments. There appears to be no dispute about how the Assessor classified Arneo’s land. Mr. Nagel testified that the Assessor made changes to the land after reviewing its geographic information system (“GIS”) and surveys, and that Mr. Kramer did not dispute those changes at the PTABOA hearing. The same is true for the Board’s hearing—while Mr. Kramer referred to a letter from a surveyor estimating that roughly 40 acres of the farm was in a flood hazard area or flood zone, Mr. Kramer did not claim that the Assessor failed to accurately classify that portion of the subject parcels.

Instead, Mr. Kramer focused on the fact that Arneo had enrolled a significant part of the farm in the CRP and received a fixed income under that program. Mr. Kramer therefore proposed using the income capitalization approach to value the parcels. Assuming without deciding that a taxpayer or assessor can prove the market value-in-use value of agricultural land other than through using the base rates adopted by the DLGF and applying the methodology laid out in the DLGF’s guidelines, we find that Mr. Kramer’s income capitalization analysis lacks probative weight.

Under the income capitalization approach,

[T]he income expected to be earned by the subject property is estimated, allowing for reasonable expenses, vacancy, and/or collection loss, to arrive at net operating income (NOI). The NOI is subsequently converted to a present value by dividing it by a capitalization rate. The capitalization rate generally reflects the annual rate of return necessary to attract investment capital and is influenced by such factors as “apparent risk, market attitudes toward future inflation, the prospective rates of return for alternative investments, the rates of return earned by comparable properties in the past, the supply of and demand for mortgage funds, and the availability of tax shelters.”

Lacy Diversified Indust. v. Dep’t of Local Gov’t Fin., 799 N.E.2d 1215, 1224 (Ind. Tax Ct. 2003)(quoting, AM INST. OF REAL ESTATE APPRAISERS, THE APPRAISAL OF REAL ESTATE, 417 (10th ed. 1992)). Although Mr. Kramer followed the income capitalization approach’s general formula of dividing income by a rate of return (capitalization rate), he did not consider any of the factors required by generally accepted appraisal principles in calculating net income or choosing a capitalization rate. To the contrary, Mr. Kramer’s analysis is entirely conclusory and therefore lacks probative weight.

Mr. Kramer also identified the following additional issues: (1) a highway bisects the farm, (3) power lines run on and off the farm, (3) there is an interceptor sewer at the back of the farm, and (4) the house and other buildings are simple and have not been remodeled. But Mr. Kramer did not claim that the Assessor failed to properly address those issues in applying the DLGF’s guidelines, nor did he offer any probative evidence to quantify how they affect the farm’s market value-in-use.

Board Finds Respondent Failed to Support Assessed Value of Property Resulting in Return of Assessment to Previous Year's Value; Taxpayer Failed to Support Lower Value

Excerpts of the Board's Determination follow:

Here, the assessment under review—the PTABOA’s determination of $240,600—represents an 18.4% increase over what the Assessor had determined for the immediately preceding assessment date. Part of that increase stemmed from the PTABOA determining that the Assessor’s valuation did not properly account for the subject basement’s actual finish and therefore arguably was not an increase in the assessment for the “same property” that was assessed in 2010. See Mac’s Convenience Stores, LLC v. Johnson County Assessor, pet. nos. 41-025-08-1-4-00960 and 41-025-09-1-4-01106 (Ind. Bd. of Tax Rev. July 25, 2012) (explaining that the increase in a parcel’s assessment between 2008 and 2009 was based partly on the PTABOA’s decision to include two previously omitted utility sheds, and therefore the 2009 assessment was not “for the same property” that had been assessed in 2008).

But adding the extra basement finish only increased the March 1, 2011 assessment from $221,200 to $240,600. The parcel’s assessment had already changed from $203,200 for March 1, 2010, to $221,200 for March 1, 2011—an increase of 8.85%. And there is nothing to suggest that the 8.85% increase stemmed from any intervening changes to the property or from adding items that previously had not been assessed. Based on those facts, the Board finds that the Assessor had the burden of proving that the subject property’s March 1, 2011, assessment was correct.

The Assessor spent significant time trying to show that each entry on the subject property’s record card was accurate. But that does little to prove that the subject property’s market value-in-use was $240,600. As the Tax Court and Board have repeatedly held, the DLGF’s guidelines are only a starting point. See Eckerling, 841 N.E.2d at 646. Thus, to prove a property’s market value-in-use on appeal, parties normally must do more than strictly apply those guidelines; they must instead offer the types of evidence described above.

The Assessor also pointed to his own ratio study to support the subject property’s assessment. More specifically, he argued that because the median ratio for each area met the DLGF’s standards for an acceptable mass appraisal, the subject property’s assessment must be correct. The Assessor, however, offered no support for the notion that a ratio study may be used to prove that an individual property’s assessment reflects its market value-in-use. Indeed, the International Association of Assessing Officers Standard on Ratio Studies, which 50 IAC 27-1-4 incorporates by reference, says otherwise:

Assessors, appeal boards, taxpayers, and taxing authorities can use ratio studies to evaluate the fairness of funding distributions, the merits of class action claims, or the degree of discrimination. . . . . However, ratio study statistics cannot be used to judge the level of appraisal of an individual parcel. Such statistics can be used to adjust assessed values on appealed properties to the common level.

INTERNATIONAL ASSOCIATION OF ASSESSING OFFICERS STANDARD ON RATIO STUDIES VERSION 17.03 Part 2.3 (Approved by IAAO Executive Board 07/21/2007) (bold added, italics in original).

Because the Assessor did not offer probative evidence to show the subject property’s market value-in-use, he failed to make a prima facie case that the property’s March 1, 2011 assessment was correct. The Reeds are therefore entitled to have the property’s assessment returned to its March 1, 2010, level of $203,200.

But the Reeds sought an assessment of only $191,000. Consequently, they had the burden of proving the lower amount. It is to that issue that the Board now turns.

The Reeds hired Robert Green, a licensed residential appraiser, to appraise the subject property. Mr. Green estimated the property’s market value at $191,000 as of March 1, 2011. In reaching that conclusion, Mr. Green used both the sales comparison and the cost approaches to value, but gave the most weight to his conclusions under the sales-comparison approach.

The Assessor, however, seriously impeached the credibility of Mr. Green’s valuation opinion. The Assessor persuasively showed that Mr. Green used the assessments for comparables 1 and 2 instead of their sale prices. The transfer history on each comparable property’s record card shows no transfers for the prices or dates that Mr. Green listed in his appraisal. But the property record card for comparable 1 lists a $0 transfer just one day before the date that Mr. Green listed as the sale date in his appraisal, and comparable 2’s card lists a $0 transfer on the same date that Mr. Green used as the property’s sale date. Plus, Mr. Green used prices that are identical to each property’s March 1, 2010, assessment.

Mr. Green’s error fundamentally affected his valuation opinion. Mr. Green admitted that “you don’t use an assessed value, you need a bona fide sale with a sale date and a willing buyer.” Green testimony. Yet he relied most heavily on comparables 1 and 2 in reaching his valuation opinion. Indeed, Mr. Weterick, the other appraiser who testified, acknowledged that Mr. Green’s remaining sales were from rural areas and therefore were not particularly comparable to the subject property. Under those circumstances, Mr. Green’s valuation opinion carries little or no probative weight.

Mr. Weterick’s opinion fares no better. Mr. Weterick based his opinion partly on Mr. Green’s appraisal and acknowledged that he simply assumed that Mr. Green used accurate data. As already explained, however, Mr. Green’s data was inaccurate for the two “sales” that Mr. Weterick felt were most comparable to the subject property.

Mr. Weterick did point to some more recent sales, but he acknowledged that he did not independently appraise the subject property’s market value-in-use as of March 1, 2011. Thus, for example, he did little to explain how the more recently sold properties compared to the subject property or how any relevant differences affected the properties’ relative values. See Long, 821 N.E.2d at 471 (rejecting taxpayers’ sales-comparison data where taxpayers failed to explain how their property’s characteristics compared to the purportedly comparable properties and how any differences affected the properties’ relative market values-in-use). At most, Mr. Weterick vaguely testified that the market had decreased somewhere from 10% to 15% between the date that he appraised the subject property and Mr. Green’s more recent appraisal. Mr. Weterick, however, based that opinion largely on literature that he did not specifically identify. Mr. Weterick therefore did not support his opinion sufficiently for the Board to find that the subject property was worth any specific amount as of March 1, 2011, much less that it was worth only $191,000 as opposed to $203,200.

Finally, Mr. Reed offered assessment data for various other properties on the subject property’s street. Indiana Code § 6-1.1-15-18 allows parties to offer evidence about comparable properties’ assessments to prove the value for a property under appeal. But that statute does not automatically make evidence of other properties’ assessments probative. Instead, the party relying on those assessments must apply generally accepted appraisal and assessment practices to show that the properties are comparable to the property under appeal. See I.C. § 6-1.1-15-18 (“The determination of whether properties are comparable shall be made using generally accepted appraisal and assessment practices.”).

Beyond the fact that the properties are located on the same street, Mr. Reed did not meaningfully compare the other properties to the subject property, much less account for any relevant ways in which the properties differed from each other. Instead, he seized on the fact that the Assessor assigned the subject property a condition rating of “average” and extrapolated that the subject property should therefore be assessed using the average price per square foot for the other properties. That does not comply with generally accepted appraisal or assessment practices.

Thursday, June 27, 2013

Revenue Sustains Taxpayer's Argument that Income Not Derived from Indiana Sources

Taxpayers are individuals residing outside Indiana. The husband is a partner in a law firm which conducts a portion of its operations in Indiana. The husband received a form WH-18 which reported Indiana income and tax withheld. Taxpayers filed a return reporting zero Indiana source income. The Indiana Department of Revenue ("Department") determined that Taxpayers had Indiana-source income base on the form WH-18. As a result, the Department disallowed Taxpayers' refund claim and assessed additional tax for 2009 and 2010.

Taxpayers protest three years of refund denials and two years of assessments for individual income tax. The issue is whether Taxpayers derived income from Indiana sources and, if so, how much income was so derived.
IC § 6-8.1-5-1(c) provides in relevant part that "[t]he notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made."
IC § 6-3-2-2(a) provides in relevant part:
With regard to corporations and nonresident persons, "adjusted gross income derived from sources within Indiana", for the purposes of this article, shall mean and include:
(1) income from real or tangible personal property located in this state;
(2) income from doing business in this state;
(3) income from a trade or profession conducted in this state;
(4) compensation for labor or services rendered within this state; and
(5) income from stocks, bonds, notes, bank deposits, patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other intangible personal property to the extent that the income is apportioned to Indiana under this section or if the income is allocated to Indiana or considered to be derived from sources within Indiana under this section.
Income from a pass through entity shall be characterized in a manner consistent with the income's characterization for federal income tax purposes and shall be considered Indiana source income as if the person, corporation, or pass through entity that received the income had directly engaged in the income producing activity.
The husband states that his purported Indiana-source income was based on his status as a "non-capital partner." Taxpayers explain that a "non-capital partner" is a partner who has no ownership stake in the firm and does not earn a share of the law firm's profits. Taxpayers have provided copies of the law firm's partnership agreement, including amendments to the agreement, which substantiate Taxpayers' contentions regarding the voting and profit rights from the law firm. Further, Taxpayers provided a listing of the law firms' non-capital partners and salary information; that list of the non-capital partners included the husband. Based on the information provided, Taxpayers have substantiated that their claimed Indiana income was not from Indiana labor or from a trade or business conducted in Indiana. Instead, Taxpayers have established that their income was from salaries derived outside Indiana. Therefore, Taxpayers' income was not derived from Indiana sources and thus Taxpayers' protest is sustained.

Herald-Bulletin Reports Madison County Amends Wheel Tax

From the Anderson Herald-Bulletin:

The county council also passed a motion to slightly amend the recently reinstated Wheel Tax. The only change was an alteration to one sentence at the beginning of the ordinance which reads, "... trucks of less than 11,000 pounds will not be subject to the tax." The new sentence will read, "... trucks declared at a weight that does not exceed 11,000 pounds ..."

The change was called a clarifying amendment, but still drew "no" votes from McCartney and Gardner. The other five members voted in favor of the amendment.

The tax, which will take effect Jan. 1, is expected to provide the city and county with additional revenue for road paving and maintenance projects, something the council majority has said is sorely needed.

Truth Reports Elkhart Completes Abatement Review

From the Elkhart Truth:

City Council finished its annual reviewing of tax abatement agreements Tuesday night, June 25.

Council reviewed 22 agreements during two meetings to determine if the companies are meeting expectations in job growth, investment and related wages after being granted tax abatement in previous years.

Council did not vote to void any tax abatement agreements. In three instances, though, council failed to collect enough votes to pass a motion indicating they found the company to be in compliance with previously stated expectations.

On Tuesday, only five of the nine council members attended the meeting. To pass any motions, council had to have five votes.

In those three instances, a lack of a vote in support of or against is much like a “no recommendation,” said Barkley Garrett, director of economic development for the city.

The review by council will now be submitted to the Elkhart County auditor.

Riley: Consultant Answer for Delaware County Budget Shortfall

By Larry Riley in the Muncie Star-Press:

How do I tax thee? Let me count the ways.

Oh, and if any more ways are available, Delaware County government wants to know about them. Care for a few new ones?

The most important question asked of H.J. Umbaugh & Associates, consultants for Delaware County commissioners and by default the county council, evidently was, “How can we squeeze more money out of county taxpayers?”

Silly me for thinking anything else when the Indianapolis-based accounting firm contracted for up to $25,000 to tell local government what its financial status is, notwithstanding that’s what the county auditor does.

The long awaited report from the consultant got delivered to a joint meeting of commissioners and council on Monday, and one must admit the lead consultant said her report was “to include suggestions to fund budget shortfalls.”

Not to address the shortfalls or suggest trimming the budget to reduce shortfalls, which, again one must admit, is the job of county officials, not consultants.

But if county officials won’t do their jobs, maybe we could farm the task out to somebody else.
Though perhaps not these consultants, whose summary of the county’s finances sounded downright rosy.

To wit, on the overall budget, said CPA Paige Sansone, “You’re not in critical condition at all.” Oh?
Then she called the rainy day fund “healthy.” Healthy? As of June 4, the rainy day fund had a grand total of $43,333.25, and all of that is reserved to pay attorney fees (which won’t be enough) in the county’s legal battle with its own judiciary over mandated appropriations.

To make regular operating expense ends meet in March, the council borrowed $2.9 million from the rainy day fund with little hope of repayment.

The council also, speaking of “health,” raided the rainy day fund for $1 million in February and March to pay health care costs of county employees.

See the full article here:

Tax Court Posts Oral Argument in Peters

THU, JUN 27, 2013 at 10:00 AMLee and Sally Peters v. Lisa Garoffolo, Boone County Assessor, et. al. TaxMarion

Herald-Times Reports Monroe County Begins Budget Consideration

From the Bloomington Herald-Times:

With revenues still unknown and at least one definite increase for the 2014 Monroe County budget, there is one cost that will not increase for the county next year: the health benefit rate.

At its meeting Tuesday, the county council discussed the fringe benefit rate for employees, which is about 40 percent, meaning that the county spends 40 cents on benefits for every $1 it spends on salary, according to Monroe County Council President Geoff McKim.  Monroe County’s fringe benefit rate will already see a slight increase as the Public Employee Retirement Fund rises about 1.25 percent, a mandatory increase by the state of Indiana, to 10.75 percent.  However, the county can control the health care portion of the fringe rate. Council members seemed in agreement that, with the fringe rate already increasing slightly because of the retirement fund, it might be prudent for the county to continue to maintain the same health care rate for 2014, even though it may need to dip into its health care reserve fund. The health care reserve fund has about $2.6 million in it.  Ryan Langley noted the fringe rate is revisited yearly, and can be increased next year if necessary. He said he didn’t think the county needed the increase just to maintain the reserves for this year.  “I don’t really see any need to arbitrarily jump to break-even,” Rick Dietz said, agreeing with Langley.  But Marty Hawk warned that just because the numbers seem healthy now, it does not mean they will remain that way.  “We need to keep an eye on that,” Hawk said. “It doesn’t really take much to change those numbers drastically.”

See the full article here:

Wednesday, June 26, 2013

Revenue Waives Penalty Where Dishonor of Check was Miscommunication with Bank

Taxpayer is an Indiana resident who made a payment to the Indiana Department of Revenue ("Department") towards her Indiana individual income tax. Taxpayer made the payment by check; the payment was returned unpaid by Taxpayer's bank. The Department then assessed a ten percent penalty and imposed interest. Taxpayer protests the imposition of the penalty and interest.

Taxpayer's protest letter, dated January 24, 2013, states the following:
An estimated payment for 2012 taxes was made in the amount of [...] for the 2012 tax year. This was done to prepay expected tax that would result from an unusually large capital gain near the end of 2012. This amount is not actually due yet.
The protest letter further states:
Because the amount of money in [Taxpayer's] bank account was unusually large due to the capital gain, she had prudently requested the bank to place a red flag on the account to prevent unauthorized withdrawls. Upon issuing the [...] check to the Indiana Department of Revenue, she believed that the red flag had been removed, and there were sufficient funds to pay the check upon presentation. However, there apparently was a miscommunication between [Taxpayer], and the bank personnel.
In other words, Taxpayer made a payment by check to the Department; the check was returned because a security hold had been placed on Taxpayer's bank account. The Department assessed a penalty pursuant to IC § 6-8.1-10-5, which states:
(a) If a person makes a tax payment with a check, credit card, debit card, or electronic funds transfer, and the department is unable to obtain payment on the check, credit card, debit card, or electronic funds transfer for its full face amount when the check, credit card, debit card, or electronic funds transfer is presented for payment through normal banking channels, a penalty of ten percent (10[percent]) of the unpaid tax or the value of the check, credit card, debit card, or electronic funds transfer, whichever is smaller, is imposed.
(b) When a penalty is imposed under subsection (a), the department shall notify the person by mail that the check, credit card, debit card, or electronic funds transfer was not honored and that the person has ten (10) days after the date the notice is mailed to pay the tax and the penalty either in cash, by certified check, or other guaranteed payment. If the person fails to make the payment within the ten (10) day period, the penalty is increased to one hundred percent (100[percent]) multiplied by the value of the check, credit card, debit card, or electronic funds transfer, or the unpaid tax, whichever is smaller.
(c) If a person has been assessed a penalty under subsection (a) more than one (1) time, the department may require all future payments for all listed taxes to be remitted with guaranteed funds.
(d) If the person subject to the penalty under this section can show that there is reasonable cause for the check, credit card, debit card, or electronic funds transfer not being honored, the department may waive the penalty imposed under this section. (Emphasis added).
Taxpayer provided the Department with a copy of a letter from her bank, explaining that a miscommunication between Taxpayer and the bank had occurred regarding the account. Taxpayer has established that there was reasonable cause for the check not being honored. Also, Taxpayer protested the imposition of interest. Under IC § 6-8.1-10-1(e) interest cannot be waived by the Department. However, in Taxpayer's case, she was making a payment before the tax due date–in effect, Taxpayer made an estimated tax payment in advance of the due date (and as noted, the check was returned unpaid by Taxpayer's bank). In Taxpayer's case it is not a matter of interest waiver–no interest was in fact due.

NWI Reports Portage Schools Ask to be Carved Out of Future TIF District

From the Northwest Indiana Times:

Citing a loss of tax revenue, Portage Township Schools is formally asking it be carved out of any future city tax increment financing districts.

The School Board this week approved sending a letter to Portage Mayor James Snyder, who also chairs the city's Redevelopment Commission, asking the schools be exempt from all TIFs initiated after Sunday.

"Unfortunately, the recently enacted 'Property Tax Caps' have had a negative impact on our property tax-based funds," Superintendent E. Ric Frataccia writes in the letter. "The combination of a loss in revenue due to the 'Property Tax Caps' and to the TIF Development Areas pose a burden on the property tax-based funds of the Annual Budget of the Portage Township School Corporation."

Frataccia, who serves on the Porter County Redevelopment Commission, said in the letter that both the city and schools have improving economic development as a goal.

The idea to "carve out" the school district, said Frataccia, isn't new. It is allowed by state statute.

Frataccia first suggested the action last summer when he said he believed the school district has lost some $1 million in tax revenue since the city's TIF district was created in 1991.

When a TIF district is formed or expanded, the portion of real property taxes sent to the TIF districts are those above the base value of the property when the TIF district was created. While the base value may rise over time, the school district will receive less in tax dollars than it would have received if the TIF district hadn't been created.

NWI Reports Hebron Apartment Appeals Loss of Exemption

From the Northwest Indiana Times:

The owners of the Misty Glen apartment complex in Hebron are challenging a local decision to withdraw their tax exempt status.

The Porter County Property Tax Assessment Board of Appeals determined after a March hearing that Hebron-Vision LLC failed to show it qualifies for the breaks through charitable efforts.

Hebron-Vision LLC filed an appeal with the Indiana Board of Tax Review arguing the property is used to provide "safe, decent and affordable housing in a charitable manner for ... low-income and very low-income individuals and families."

"Through those acts, a benefit inures to the public sufficient to justify the loss of tax revenue," according to the appeal.

Porter County Assessor Jon Snyder, who initiated the effort to withdraw the tax exempt status, said, "Although I am disappointed with this choice by the ownership of Misty Glen, I sincerely respect a taxpayer's right to appeal and I look forward to a timely resolution with the state and Misty Glen in this matter."

It could take up to a year before the appeal is heard, according to Sandy Bickel, an Indianapolis attorney representing Hebron-Vision.

The five-building, 80-apartment complex at 99 Misty Lane was granted tax exempt status in 2009 by the Indiana Board of Tax Review.

In preparation for an appeal, Property Tax Assessment Board of Appeals member Nicholas Sommer had said the tax exempt status is being pulled because there was no evidence presented during the March hearing of charitable or educational efforts on behalf of the apartment operators.

See the full article here:

Revenue Finds Taxpayer Responsible for UST Fees, but Waives Penalty Due to Lack of Negligence

Excerpts of Revenue's Determination follow:

Taxpayer is a School in Indiana. A waste water treatment plant and a small gas station are on the Taxpayer's property. At the gas station was one underground storage tank (UST). Taxpayer contacted the Indiana Department of Environmental Management (IDEM) to discuss whether to replace or improve the water plant. IDEM suggested that Taxpayer build a new plant. Taxpayer inquired about how to remove the tank properly because building the new plant would require Taxpayer to move the fueling station. Taxpayer discovered in 2012 that it was required to have paid an annual UST registration fee for 1999-2011. Taxpayer protests the environmental penalties, the Department's statutorily mandated ten percent penalty, and interest.

Taxpayer protests the imposition of UST fees for unpaid underground storage tank fees.
IC § 13-23-12-1 imposes a fee on underground storage tanks. Although the Indiana Department of Environmental Management (IDEM) regulates USTs for the State, IC § 13-23-12-4 mandates that the Indiana Department of Revenue collect and deposit the underground storage tank fees. IC § 6-8.1-1-1 defines "listed tax" to include "the underground storage tank fee (IC 13-23)." The laws and regulations concerning the Department's collection of listed taxes apply to the Department's collection of the underground storage tank fees. All tax assessments are presumed to be accurate and the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c).
Pursuant to the imposition statute, the UST annual registration fee is imposed on all USTs open and available for use on July 1 of that year. The party who owns the property during the tax period is the person liable for payment of the UST fees.
IC § 13-11-2-150(a)(1)(A) describes an "owner" of a UST to mean "a person who owns the underground storage tank." IC § 13-23-12-1 states that "the owner of an underground storage tank that has not been closed before July 1... shall pay to the department of state revenue an annual registration fee." The UST-4 form states that "[i]f you were the legal owner as of July 1st of the current year, you are responsible for the yearly fees." Taxpayer does not dispute ownership.
Pursuant to IC § 6-8.1-10-1(e), the Department does not have the authority to waive the interest.
Taxpayer was not aware that they needed to register the UST. Taxpayer called IDEM to get assistance to remove the tank properly. Taxpayer has provided sufficient documentation demonstrating that the failure to pay tax was due to reasonable cause and not due to negligence. IDEM visited Taxpayer's water plant annually for inspection purposes. IDEM did not inspect the gas station and did not inform Taxpayer of the need to register any tanks.

Journal-Gazette Reports Fort Wayne Passes Income Tax Increase

From the Fort Wayne Journal-Gazette:

Allen County residents will pay more in income taxes starting Oct. 1.

Fort Wayne City Council members Tuesday approved increasing the local option income tax from 1 percent to 1.35 percent, a move they said was necessary to pay for critical gaps in police, fire, parks and roads.

The measure designates 0.25 percent for property tax relief, which will add a new credit to every property owner's tax bill, and 0.10 percent to public safety, which will send new revenue to every taxing body in the county that provides public safety, including the city, county and some towns and townships. The property tax relief portion will also, thanks to complicated tax calculations, result in more property tax revenue for entities such as schools and the library.

The council also gave approval to a new property tax called a Cumulative Capital Development Fund, expected to raise about $800,000 next year and up to $2.1 million in future years.

Mayor Tom Henry praised the measure, which was a compromise from one his administration pushed to close an expected budget gap for 2014. He said the new revenue will not only sustain the city but position it for success.

"Fort Wayne City Council tonight voted favorably on one of the most important initiatives in the history of the city of Fort Wayne," Henry said in a written statement. "By investing in ourselves, we're saying we're committed to a great quality of life, tremendous neighborhoods, new jobs, and business growth."

The tax increases each passed 6-2. Voting against the increases were Mitch Harper, R-4th, and Russ Jehl, R-2nd. Marty Bender, R-at large, was absent, but John Crawford, R-at large, said he had spoken to Bender, who was celebrating his daughter's wedding, and that Bender said he supported the income tax proposal and would have voted for it if present.

Crawford, who shepherded the proposal through months of discussion – which included increasing the city's property taxes to the maximum allowed – said the package is not really a tax hike.

"This is not a huge tax increase, it's catching up to what we lost," Crawford said, citing the property tax caps imposed in 2009. "Just because we decreased property tax revenues doesn't mean the cost of running the city went down."

The city has lost $53 million in revenue since the caps were put in the state constitution and is expected to lose $20 million more next year. The package approved increases revenue about $13.5 million.

In addition to the lost revenue, officials said, the city is behind in areas critical to the quality of life:

•Declining fuel tax money has meant the city has put off fixing roads for years, leading to a $60 million backlog of roadwork that needs to be done.

•Budget cuts have depleted the ranks of the police and fire departments, with each one short dozens. They need $2.8 million to hold academy classes and begin hiring again.

•The parks department doesn't have enough money to maintain its facilities and needs about $3 million more a year.

Crawford said months of studying city finances had convinced him that without the tax hikes, drastic cuts would be required that would harm the city, hurting economic development and lowering property values.

County income taxes are determined by the Allen County Income Tax Council, where the city of Fort Wayne holds more than 70 percent of the votes and thus decides for everyone. Collection of the tax begins Oct. 1, and the revenue will begin flowing to taxing bodies with public safety functions on Jan. 1.

Harper said he is most concerned that the increased revenues will increase the temptation for the city to borrow. One of the arguments in favor of the tax hikes was that the city needs to stop its cycle of borrow and spend.

"We haven't seen pay-as-you-go up to now," Harper said. "We have no history of that."

The plan Harper and Jehl proposed did not increase income taxes but did raise current property taxes the same as the approved plan and also called for $6 million in new borrowing to ease cash flow until revenues improved.

After the income tax was approved, Jehl and Crawford co-sponsored a nonbinding resolution seeking to guide how community economic development income tax money is spent.

The mayor controls CEDIT funds, but the resolution calls for them to be used for priorities such as roads and parks as more CEDIT money is freed up by the new revenue and repaid debt. Crawford called it a "gentlemen's agreement" that since the council entrusted the administration with more money, it needs to agree to use it for the priorities all sides agreed upon during the discussions. That measure passed unanimously.

Star-Press Reports Muncie School Board Agrees to Move Forward with $6.5 Million Referendum

From the Muncie Star-Press:

The Muncie Community School Board has agreed to move forward with a $6.5 million referendum that would help cover the cost of school buses and other services that would otherwise be in jeopardy.

The board on Tuesday unanimously approved the special election referendum for Nov. 5 “to consider a ballot question establishing a property tax rate to sustain district services and operations jeopardized as a result of locally excessive Circuit Breaker credits.”

The referendum would mean about a 40-cent increase for homeowners. That adds up to $64.99 a year for a taxpayer with a home that has an assessed value of about $75,000 (the average in Muncie).

Herald-Times Reports Bloomington Reviewing Tax Abatements

From the Bloomington Herald-Times:

An annual review of tax abatements awarded by the Bloomington City Council to local businesses will be presented at 7:30 Wednesday night during a special council session in City Hall.  Danise Alano-Martin, the city’s director of economic and sustainable development, will present the review. It includes just one new project — a tax abatement awarded to Hoosier Energy in January for its new administrative facility at Tech Park and Schmalz boulevards.  Eleven abatements are currently active, meaning the city is not collecting full tax revenue from the properties. On the other hand, five abatements have expired, including multiple Habitat for Humanity properties on Hay and 14th streets, Morton Street Properties and Metropolitan Printing Services on Morton Street, and Lockerbie Court Condominiums on Walnut Street.

Board Finds It Has No Jurisdiction to Address Taxpayer's Challenge to the Constitutionality of Personal Property Statute

Excerpts of the Board's Determination follow:

Indiana Code § 6-1.1-3-23(b), the operative portion of the statute granting the benefits of Pool No. 5, provides in relevant part:

[A] taxpayer may elect to calculate the true tax value of the taxpayer's special integrated steel mill…equipment by multiplying the adjusted cost of that equipment by the percentage set forth in the following table…”

Indiana Code § 6-1.1-3-23(a)(7) specifically defines “special integrated steel mill equipment” as “depreciable personal property … that is owned, leased, or used by an integrated steel mill or an entity that is at least fifty percent (50%) owned by an affiliate of an integrated steel mill; and falls within Asset Class 33.4 as set forth in IRS Rev. Proc. 87-56, 1987-2, C.B. 647.”

The Respondents argue that AK Steel’s equipment is not special integrated steel mill equipment and, therefore, that it should not be valued under Pool No. 5 because AK Steel’s Rockport Works facility is not an “integrated steel mill.” Even though the 2005 amendment to the Pool No. 5 statute requires only that an integrated steel mill have its blast furnace in Indiana, the Respondents argue that only facilities with on-site blast furnaces are “integrated steel mills” for purposes of Pool No. 5. At the same time, however, they stipulated that the equipment in the I/N Tek and I/N Kote facilities in St. Joseph County may be valued using Pool No. 5. I/N Kote and I/N Tek both conduct the same finishing operations that are conducted at AK Steel’s Rockport Works and neither has a blast furnace located in Indiana. Indeed, neither of these facilities has a blast furnace at all. Each is partially owned by a separate legal entity that has its own blast furnace located in Indiana, but that blast furnace is at a facility located two counties away.

The Respondent’s argument on this point lacks merit. The statute clearly defines the term “integrated steel mill” in reference to the owner of property that qualifies for the benefits of Pool No. 5, not the facility where the equipment is located:

“integrated steel mill” means a person, including a subsidiary of a corporation, that produces steel by processing iron ore and other raw materials in a blast furnace in Indiana.

Ind. Code §6-1.1-3-23(a)(3) (emphasis added). Because this term is specifically defined by statute, the Respondent’s attempt to prove the meaning as a “term of art” used in the steel industry has very little, if any significance.

Further, only the Petitioner’s argument is consistent with the definition of “special integrated steel mill equipment” (the personal property whose assessment depends on the operation of the Pool No. 5 Statute) found elsewhere in the Pool No. 5 statute.

Reconciling the Respondent's definition of "integrated steel mill" with the definition of "integrated steelmaking equipment" is impossible because a facility cannot own, lease, or use equipment and it cannot have an affiliate who can own at least half of such equipment.

Under the unambiguous language of the statute an “integrated steel mill” is a person or entity, such as AK Steel, and not a specific geographical place such as Rockport Works.

Evidence in the record supports this four-corners interpretation of the statute. For example, the Fiscal Impact Statement prepared by the Indiana Legislative Services Agency Office of Fiscal and Management Analysis for S.B. 327 (Sess. 2005), the ultimate bill that became P.L. 228-2005, discusses the then-pending bill as follows:

Under current law, an integrated steel mill is defined as a producer of steel by processing raw materials in a blast furnace. Beginning with taxes paid in CY 2005, this bill would require that the blast furnace be located in Indiana to meet the definition and in order for a taxpayer to use Pool 5 depreciation. There is currently at least one taxpayer, in Spencer County, that has its blast furnace in another state but used Pool 5 depreciation for its Indiana property.

The flaws in the Respondents’ reasoning are further evidenced by the fact that at least two steel finishing facilities located in Indiana—I/N Kote and I/N Tek—qualify for the benefits of Pool No. 5 even though both conduct the same finishing operations that are conducted at AK Steel’s Rockport Works and neither has a blast furnace located in Indiana. Indeed, neither of those facilities has a blast furnace at all. Each is partially owned by a separate legal entity with its own blast furnace located in Indiana, although that blast furnace is connected to and affiliated with another facility altogether.

AK Steel is “a person… that produces steel by processing iron ore and other raw materials in a blast furnace.” And it is uncontested that AK Steel’s personal property at Rockport Works meets the requirements of Ind. Code § 6-1.1-3-23(a)(7)(A)(ii).

Therefore, the personal property at issue is “special integrated steel mill equipment” that qualifies for the benefits of Pool No. 5, except for the “in Indiana” language added to the statute by the 2005 Amendment that AK Steel has challenged as unconstitutional.

AK Steel’s present appeal is a challenge to the constitutionality of P.L. 228-2005, § 2, which amended Ind. Code § 6-1.1-3-23 (“the Pool No. 5 Statute”) in 2005, retroactive to January 1, 2004.

In Indiana, to contest the constitutionality of a personal property tax statute, a taxpayer must first bring an action at the administrative level. State v. Sproles, 672 N.E.2d 1353, 1360-62 (Ind. 1996); see also Felix v. Indiana Dept. of State Revenue, 502 N.E.2d 119 (Ind. Ct. App. 1986); Goldstein v. Indiana Dept. of Local Government Finance 876 N.E.2d 391, 393-95 (Ind. Tax 2007).

Had AK Steel not appealed, it would have had no method to contest the constitutionality of the 2005 amendment. See State Bd. of Tax Com'rs v. Montgomery, 730 N.E.2d 680 (Ind. 2000) (“Even if the ground of complaint is the unconstitutionality of the statute, which may be beyond the agency's power to resolve, exhaustion may still be required because ‘administrative action may resolve the case on other grounds without confronting broader legal issues.’ Sproles, 672 N.E.2d at 1358.”).

Both AK Steel and the Respondent acknowledged that this Board’s limited grant of statutory authority to adjudicate property tax appeals prevents the Board from declaring a statute unconstitutional. More specifically, Ind. Code §6-1.5-4-1(a) confers limited authority on this Board to conduct an impartial review of all appeals concerning the assessed valuation of tangible property, property tax deductions, property tax exemptions and property tax credits.

The Board’s jurisdiction is limited to those areas specifically enumerated by statute, and “unless a grant of power and authority can be found in the statute it must be concluded that there is none.” Ind. Bell Tel. Co., Inc. v. Ind. Utility Reg. Comm’n, 715 N.E.2d 351, 354 n.3 (Ind. 1999). In State Board of Tax Comm’s v. Montgomery, 730 N.E.2d 680, 686 (Ind. 2000), the Indiana Supreme Court held that administrative agencies do not have the authority to decide constitutional challenges to statutes. See also State v. Sproles, 672 N.E.2d 1353 (Ind. 1996).

Therefore, the Indiana Board may not consider the merits of AK Steel’s constitutional challenges. The Indiana Board is powerless to declare any statute unconstitutional. Rather, our statutory mandate (or lack thereof) compels us to affirm the decision of Spencer County PTABOA as to AK Steel’s eligibility to claim the benefits of Pool No. 5, without further discussion of the merits of AK Steel’s constitutional challenges.

Because the Assessor agreed that AK Steel is entitled to its abatement deductions as claimed in the event that AK Steel is not entitled to the use of Pool No. 5 to depreciate its personal property located in Spencer County, and because this Board cannot reverse the PTABOA’s determination that AK Steel is not entitled to the use of Pool No. 5, we therefore conclude that AK Steel is entitled to its abatement deductions in full as originally claimed for the March 1, 2008 assessment date.