The Howard County and Center Township recently concluded a week-long assessment appeal hearing with Kohl’s Department Store. Kohl’s filed an assessment appeal to the Indiana Board of Tax Review (IBTR) after the Property Tax Assessment Board of Appeals (PTABOA) denied its request. The years under appeal are March 1, 2010, 2011, and 2012.
The main issue being disputed in this case is thoroughly defining the elements of the market value-in-use system. In the late 1990s, the outcome of an Indiana Tax Court decision with the Town of St. John’s changed the true tax value system that was based exclusively on the cost approach to a market approach using value-in-use. Since the result, professionals in the assessment/appraisal field disagree on how to arrive at the value for special retail properties such as big box stores.
Without a clear statutory definition of how to achieve the assessment of value-in-use, court decisions often referred to as case law, are dictating the path of distributing the overall tax burden. A couple problems exist with allowing case law to set standard practices. One, the cost associated with properly defending a case is prohibitive for most counties. Assessors are faced with assessing all properties on a mass assessment level relying on statistical models such as multiple regression analysis and geographic information systems (GIS); however, once appealed, the property is looked at on a fee simple basis which has a different set of guidelines and standards. Mass assessment is utilized because it is the most cost effective approach in distributing the tax burden for taxpayers.
Another problem with case law is that individual circumstance within the county or even the township reflects in the decision. For example, in one individual case the appraisal which was submitted by the company had many errors which could have potentially impacted the final value. Since the township assessor did not provide an appraisal, the court used the only appraisal they did have on record, even flawed. Every county determines how best to properly defend its local assessment and in many occurrences, other counties are left with the results.
By definition, market value-in-use of property is based on its current use, as reflected by the utility. Further interpretation states that true tax value may be considered as the price that would induce the owner to sell the real property, and the price at which the buyer would purchase the real property for a continuation of use of the property for its current use. The emphasis here is on continuation of the current use. The current use of the subject property is Kohl’s -- a very successful Kohl’s.
The submitted appraisal from Kohl’s used all vacant, dark building sales as comparables when establishing the value. This drastically diminished the appraised value. Vacant stores often sell at a discount because it will require remodeling to accommodate the new and possibly different use as well as being exposed to the market forces. Howard County had an unbiased third party appraisal of the same property that concluded the value was $1.2 million more than the Kohl’s appraisal. Howard County officials reached out to multiple professionals that had more than 100 years combined experience in the field of appraising. Those professionals do not recommend using vacant box sales (sales where a property has been vacant for multiple years). They all agreed that that using sales of properties that are being used for their designed and intended use in estimating market value-in-use would seem preferable to using sales of stores that are vacant without a current use and may be purchased for a use different than its pre-vacancy use. They did not believe a vacant building of two years would be comparable in price as a property that has a current successful, thriving business.
Indiana’s property tax system is based on the ability to pay. It differs from our surrounding states that value on the pure market not taking into consideration the current use. The difference being a mom and pop store or farmland in Indiana is valued as a mom and pop store or farmland. In other states it could be valued as a potential industrial site if that is the determined highest and best use. The method used in some other states is highly volatile in nature and could cause unexpected shifts in the tax burden every year.
We did not believe Kohl’s warranted such a drastic change based on one opinion to value. I do not believe the current appeal decisions from the state adequately address the differences in philosophy to derive market value-in-use. My goal is to achieve fair and equitable assessments for all Howard County taxpayers. This could potentially shift a heavy portion of large retail business tax to the homeowners, farmers, and small businesses.
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