Here,
there is no dispute that the Petitioner’s property is a Section 42 apartment
complex. And Indiana Code § 6-1.1-4-41
defines the true tax value of a Section 42 property as follows:
(a)For
purposes of this section:
(1)
"low income rental property" means real property used to provide low
income housing eligible for federal income tax credits awarded under Section 42
of the Internal Revenue Code; and
(2) "rental period" means the period
during which low income rental property is eligible for federal income tax
credits awarded under Section 42 of the Internal Revenue Code.
(b)
For assessment dates after February 28, 2006, the true tax value of low income
rental property is the greater of the true tax value:
(1)
determined using the income capitalization approach; or
(2)
that results in a gross annual tax liability equal to five percent (5%) of the total
gross rent received from the rental of all units in the property for the most recent
taxpayer fiscal year that ends before the assessment date. . . .
Ind.
Code § 6-1.1-4-41(emphasis added).
The
Petitioner’s representative contends that Indiana Code § 6-1.1-4-41 is
particularly relevant to this dispute because the assessor did not assess the
subject property in accordance with guidelines set forth by the statue. Archer
testimony. The Respondent’s representative acknowledged that the
Petitioner’s property was valued for the 2007, 2008, and 2009 assessment years
using the cost approach outlined in the Real Property Assessment Guidelines and
all directives set forth by the Department of Local Government Finance. Ward
testimony. As such, the county’s methodology would be inconsistent with
Indiana Code § 6-1.1-4-41(b).
The
Petitioner’s representative argues that because he sufficiently showed that the
property was assessed in error, the Respondent has the burden of proving the
assessed value of the property was correct for 2007, 2008, and 2009. Mr. Archer,
however, is mistaken in his legal argument.6 A Petitioner seeking review of a
determination of an assessing official has the burden to establish a prima
facie case proving that the property’s assessment was incorrect, and
specifically what the correct assessment would be. See Meridian Towers East
& West v. Washington Township Assessor, 805 N.E.2d 475, 478 (Ind. Tax
Ct. 2003); see also, Clark v. State Board of Tax Commissioners, 694 N.E.2d
1230 (Ind. Tax Ct. 1998). Thus, the Petitioner’s burden is a two-prong burden:
it must show that property’s assessment is incorrect and it must also present
probative evidence showing what the correct assessment should be. See
Meridian Towers East &
West,
805
N.E.2d at 478.
Despite
arguing that the Petitioner had no obligation to prove the value of the
property, however, Mr. Archer presented an income capitalization approach and
he calculated the gross annual tax liability based on five percent of the total
gross rent received for the 2007, 2008, and 2009 assessment years. Petitioner
Exhibit 17. “The income approach to value is based on the assumption that
potential buyers will pay no more for the subject property … than it would cost
them to purchase an equally desirable substitute investment that offers the
same return and risk as the subject property.” MANUAL at 14. The income approach, thus, focuses on the
intrinsic value of the property, not upon the Petitioner’s operation of the
property because property-specific rents or expenses may reflect elements other
than the value of the property “such as quality of management, skill of work
force, competition and the like.” Thorntown Telephone Company, Inc. v. State
Board of Tax Commissioners, 588 N.E.2d 613, 619 (Ind. Tax Ct. 1992). See
also MANUAL at 5 (“[C]hallenges to assessments [must] be proven with
aggregate data, rather than individual evidence of property wealth. … [I]t is
not permissible to use individual data without first establishing its
comparability or lack thereof to the aggregate data”).
Here,
Mr. Archer’s analysis was based solely on property-specific financial
information. Mr. Archer failed to provide any evidence to demonstrate that the
Petitioner’s property’s income, vacancy losses and expenses were typical for
comparable properties in the market. Thus, any low income or high vacancy
losses or expenses may be attributed to the Petitioner’s management of the
property as opposed to the property’s market value. See Lake County Trust
Co. No. 1163 v. State Board of Tax Commissioners, 694 N.E.2d 1253, 1257-58 (Ind.
Tax Ct. 1998) (economic obsolescence was not warranted where taxpayer executed
unfavorable leases resulting in a failure to realize as much net income from
the subject property).
Moreover,
Mr. Archer failed to adequately support his choice of capitalization rates. A capitalization
rate “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 rate of return earned by comparable properties in the past, the supply of
and demand for mortgage funds, and the availability of tax shelters.” See
Hometowne Associates, L.P. v. Maley, 839 N.E.2d 269, 275 (Ind. Tax Ct.
2005). Here, Mr. Archer failed to provide any explanation or support for the
use of a 10% capitalization rate for 2007, 2008, or 2009. He merely contends it
is a “general rule of thumb” capitalization rate. But while the rules of
evidence generally do not apply in the Board’s hearings, the Board requires
some proof of the accuracy and credibility of the evidence. Statements that are
unsupported by probative evidence are conclusory and of no value to the Board
in making its determination. Whitley Products, Inc. v. State Board of Tax
Commissioners, 704 N.E.2d 1113, 1118 (Ind. Tax Ct. 1998); and Herb v.
State Board of Tax Commissioners, 656 N.E.2d 890, 893 (Ind. Tax Ct. 1995).
Ultimately,
Mr. Archer failed to show that his income approach methodology conformed to the
Uniform Standards of Professional Appraisal Practice (USPAP) or any other generally
accepted standards. Consequently, the Petitioner’s income approach calculation
lacks probative value in this case. See Inland Steel Co. v. State Board of
Tax Commissioners, 739 N.E.2d 201, 220 (Ind. Tax Ct. 2000) (holding that an
appraiser’s opinion lacked probative value where the appraiser failed to
explain what a producer price index was, how it was calculated or that its use
as a deflator was a generally accepted appraisal technique).
The
Board’s analysis is complicated by the fact that the statute provides
alternative methods of proving the value of Section 42 housing and Mr. Archer
calculated the property’s value “that results in a gross annual tax liability
equal to five percent (5%) of the total gross rent received from the rental of
all units in the property for the most recent taxpayer fiscal year that ends
before the assessment date.” Ind. Code § 6-1.1-4-41(b)(2). But the law requires
“the greater of the true tax value” as determined by the income approach or
calculated based on the gross annual tax liability. Ind. Code § 6-1.1-4-41(b). Therefore,
without probative evidence of the property’s income value – which the Board found
above was not presented in this case – the Board cannot determine the higher of
the two values. Thus, the Board can only conclude that the Petitioner failed to
raise a prima facie case for a reduction in the assessed value of its property
for the 2007, 2008 and 2009 assessment years.
