Marion County Assessor v. Gateway Arthur, Inc. , 43 N.E.3d 279 ( 2015 )

ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
JOHN C. SLATTEN PAUL M. JONES, JR.
MARION COUNTY ASSESSOR’S MATTHEW J. EHINGER
OFFICE ICE MILLER LLP
Indianapolis, IN Indianapolis, IN
IN THE
INDIANA TAX COURT
Sep 30 2015, 12:55 pm
MARION COUNTY ASSESSOR, )
)
Petitioner, )
)
v. ) Cause No. 49T10-1212-TA-00081
)
GATEWAY ARTHUR, INC., )
)
Respondent. )
ON APPEAL FROM A FINAL DETERMINATION OF
THE INDIANA BOARD OF TAX REVIEW
FOR PUBLICATION
September 30, 2015
FISHER, Senior Judge
This case examines whether the Indiana Board of Tax Review erred in reducing
Gateway Arthur, Inc.’s real property assessments for the 2007, 2008, 2009, and 2010
tax years (the years at issue). The Court finds that the Indiana Board did not err.
FACTS AND PROCEDURAL HISTORY
During the years at issue, Gateway Arthur owned a portion of the Indianapolis
retail shopping center known as The Shoppes at County Line Road. Specifically,
Gateway Arthur owned six parcels that contained: 1) three buildings with about 270,000
square feet of leasable space; 2) a retention pond; 3) two access roads; and 4) a pylon
sign (hereinafter, “the subject property”). The Marion County Assessor assigned the
subject property a total assessed value of $17,426,500 for 2007, $18,112,000 for 2008,
$18,112,000 for 2009, and $17,003,100 for 2010.
Gateway Arthur appealed the assessments, first to the Marion County Property
Tax Assessment Board of Appeals, and then to the Indiana Board. On May 10, 2012,
the Indiana Board held a hearing during which Gateway Arthur submitted an Appraisal,
prepared by two Indiana certified general appraisers, Richard Correll and Michael
Schlemmer, that valued the subject property under the income approach1 at
$12,800,000 for 2007, $13,800,000 for 2008, $12,900,000 for 2009, and $10,300,000
for 2010.2 (See Cert. Admin. R. at 643-716.)
In response, the Assessor claimed that the Appraisal should be disregarded
because it used a loaded capitalization rate, it failed to account for the actual value of
the retention pond, pylon sign, and access roads, and it underestimated the value of the
subject property by about $1 million by failing to account for approximately $120,000 in
annual property tax reimbursements. (See Cert. Admin. R. at 1696-1700, 1705-11,
1720-21, 1737-38.) (Compare also Cert. Admin. R. at 705 with 934.) To further support
his assessments, the Assessor submitted an Income Analysis that valued solely the
subject property’s three buildings at $20,771,300 for 2007, $22,245,900 for 2008,
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The income approach, which “is used for income producing properties that are typically
rented[, ] converts an estimate of income, or rent, [a] property is expected to produce into value
through a mathematical process known as capitalization.” 2002 REAL PROPERTY ASSESSMENT
MANUAL (2004 Reprint) (incorporated by reference at 50 IND. ADMIN. CODE 2.3-1-2 (2002 Supp.))
at 3.
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Correll explained that the Appraisal, which was completed in conformance with the Uniform
Standards of Professional Appraisal Practice (USPAP), was a revision of an earlier appraisal
that, among other things, failed to account for certain property tax reimbursements. (See Cert.
Admin. R. at 1587-89; compare also Cert. Admin. R. at 706 with 935.)
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$18,786,400 for 2009, and $18,975,300 for 2010. (See Cert. Admin. R. at 946, 1697-
99, 1721-22.) Finally, the Assessor presented documentation indicating that Gateway
Arthur purchased the subject property in 2007 for $21,000,000. (See Cert. Admin. R. at
1443-45.) The Assessor claimed that his Income Analysis, along with the subject
property’s 2007 purchase price, supported his assessments because their square foot
valuations were within a fairly “decent range[.]” (See Cert. Admin. R. at 1725-28.)
On October 22, 2012, the Indiana Board issued a final determination in which it
explained that despite the fact the Appraisal undervalued the subject property by failing
to account for certain property tax reimbursements, it was still probative of the subject
property’s value. (See Cert. Admin. R. at 546-47 ¶¶ 55-58.) The Indiana Board further
explained that the Assessor’s evidence lacked probative value and, therefore, he did not
rebut the Appraisal’s valuations. (See Cert. Admin. R. at 547-50 ¶¶ 59, 61-63, 65-67.)
As a result, the Indiana Board determined that the subject property’s value was no more
than the Appraisal’s stated valuations, “augmented” by $1 million to account for the
property tax reimbursements, and ultimately valued the subject property at $13,800,000
for 2007, $14,800,000 for 2008, $13,900,000 for 2009, and $11,300,000 for 2010. (See
Cert. Admin. R. at 550-52 ¶¶ 69-71.)
On December 6, 2012, the Assessor initiated this original tax appeal. The Court
heard oral argument on November 22, 2013. Additional facts will be supplied as
necessary.
STANDARD OF REVIEW
The party seeking to overturn an Indiana Board final determination bears the
burden of demonstrating its invalidity. Hubler Realty Co. v. Hendricks Cnty. Assessor,
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938 N.E.2d 311, 313 (Ind. Tax Ct. 2010). The Court will reverse a final determination if
it is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with
law; contrary to constitutional right, power, privilege, or immunity; in excess of or short
of statutory jurisdiction, authority, or limitations; without observance of the procedure
required by law; or unsupported by substantial or reliable evidence. IND. CODE § 33-26-
6-6(e)(1)-(5) (2015).
ANALYSIS
The Assessor claims that the Indiana Board’s final determination must be
reversed because it erred in 1) determining that the Appraisal was probative of the
subject property’s value, 2) determining that the Assessor’s evidence lacked probative
value, and 3) increasing Gateway Arthur’s requested valuations by $1 million. The
Court will address these claims in turn.
1. The Appraisal’s Probative Value
The Assessor contends that the Indiana Board’s determination that the Appraisal
was probative of the subject property’s value is contrary to law because the Appraisal
used loaded capitalization rates to value the subject property, which Indiana’s
assessment guidelines do not allow. (See Oral Arg. Tr. at 9-14.) Contrary to the
Assessor’s contention, however, Indiana’s assessment guidelines do not prohibit the
use of loaded capitalization rates when valuing real property. See generally 2002 REAL
PROPERTY ASSESSMENT MANUAL (2004 Reprint) (“Manual”) (incorporated by reference at
50 IND. ADMIN. CODE 2.3-1-2 (2002 Supp.)); REAL PROPERTY ASSESSMENT GUIDELINES
FOR 2002 -- VERSION A (incorporated by reference at 50 I.A.C. 2.3-1-2), Bks. 1, 2.
Rather, they “explain the application of the cost approach in detail[,]” without specifying
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how the income approach should be applied, because Indiana’s assessing officials
primarily use the cost approach to value real property. Kooshtard Prop. VI, LLC v.
White River Twp. Assessor, 836 N.E.2d 501, 504-05 (Ind. Tax Ct. 2005), review denied;
see also generally Guidelines, Bks. 1, 2. But see, e.g., IND. CODE § 6-1.1-4-39(a) (2007)
(authorizing assessing officials to use the income approach with “an applicable
capitalization method and appropriate capitalization rates” to value certain real
property). Therefore, the Indiana Board’s determination that the Appraisal was
probative of the subject property’s value is not contrary to law on this basis.
The Assessor also asserts that the Appraisal lacked probative value because it
underestimated the value of the subject property by failing to account for the total
income of the retention pond, the pylon sign, and the access road parcels. (See Pet’r
Br. at 3-4; Oral Arg. Tr. at 4.) More specifically, the Assessor explains that because
developers typically would not “allow people to use [a] sign for free[,]” it was
unreasonable for the Indiana Board to assume that Gateway Arthur allowed other
retailers in the Shoppes, such as HH Gregg, to use those parcels free of charge. (See
Pet’r Br. at 3-4; Oral Arg. Tr. at 20-21.) Although the Assessor had tools to elicit data on
such a claim, the record evidence simply does not indicate that Gateway Arthur
collected rent from other retailers based on their use of those parcels. (See, e.g., Cert.
Admin. R. at 1688-89, 1736-39.) Consequently, the Court declines to find that the
Appraisal was not probative of the subject property’s value on this basis as well.
2. The Probative Value of the Assessor’s Evidence
Next, the Assessor claims that the Indiana Board erred in determining that his
evidence lacked probative value. More specifically, the Assessor argues that the record
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evidence does not support the Indiana Board’s determinations that a) the capitalization
rates used in the Income Analysis lacked probative value, b) the Income Analysis
misconstrued the effect of property taxes, and c) the subject property’s 2007 purchase
price lacked probative value. (See Resp’t Br. at 4-6; Oral Arg. Tr. at 4-5.)
a. The capitalization rates
The Assessor argues that the Indiana Board erred in discounting the Income
Analysis based on its use of national power centers’ capitalization rates because
Gateway Arthur never explained how the use of a different capitalization rate would alter
the Income Analysis’ stated valuations. (See Pet’r Br. at 5-6.) The certified
administrative record, however, reveals otherwise.
During the Indiana Board hearing, Correll testified that the subject property was a
“hybrid,” having elements of both power and neighborhood centers. (Cert. Admin. R. at
1581-82.) Correll explained that this distinction was important because appraisers
attempt to “define where [a property] fits into the universe” before estimating its value
because everything (i.e., an investor’s perception of a property’s risks/returns and, thus,
the use of one capitalization rate over another) flows from that definition. (Cert. Admin.
R. at 1582.) (See also, e.g., Cert. Admin. R. at 1601-02.) The Assessor, on the other
hand, never explained why a capitalization rate for a national power center was
applicable to the subject property or even challenged Correll’s hybrid center
classification. (See Cert. Admin. R. at 1695-1759.) The Indiana Board’s final
determination, therefore, indicates that the Indiana Board weighed the parties’ evidence
regarding this issue and ultimately found Gateway Arthur’s evidence more persuasive.
(See Cert. Admin. R. at 548 ¶ 61 (finding that the “subject property is more properly
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considered a hybrid center than purely a power center”).) Consequently, the Assessor
has not shown that the Indiana Board’s determination that the Income Analysis lacked
probative value based on its use of national power centers’ capitalization rates was
unsupported by substantial evidence. See Amax Inc. v. State Bd. of Tax Comm’rs, 552
N.E.2d 850, 852 (Ind. Tax Ct. 1990 (defining substantial evidence as that which a
reasonable mind might accept as adequate to support a conclusion).
b. The property taxes
The Assessor also argues that the Indiana Board’s determination that the Income
Analysis “grossly misconstrued the impact of property taxes on the subject property’s
[value because it] did not include property taxes in the 25% expense ratio” is not
supported by substantial evidence. (See Pet’r Br. at 4-5 (citing Cert. Admin. R. at 548 ¶
62); Oral Arg. Tr. at 4-5.) As support, the Assessor points out that the record evidence
affirmatively indicates that the 25% expense ratio included property taxes. (See Pet’r
Br. at 4-5 (citing Cert. Admin. R. at 1439 (providing that the median operating expense
for certain shopping centers was 26.41% when property taxes were included and
17.27% when property taxes were excluded)).)
Nevertheless, during cross-examination, the Assessor’s representative
specifically testified that the 25% expense ratio did not include property taxes. (See
Cert. Admin. R. at 1740.) That testimony was neither subsequently retracted nor
clarified. (See Cert. Admin. R. at 1740-59.) Consequently, when the Court is faced with
conflicting record evidence, as is the case here, it will defer to the Indiana Board so long
as a reasonable mind could find sufficient evidence in the record to support that finding.
See Hamilton Cnty. Prop. Tax Assessment Bd. of Appeals v. Oaken Bucket Partners,
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LLC, 938 N.E.2d 654, 657-58 (Ind. 2010). Accordingly, the Court cannot say that the
Indiana Board erred in discounting the Assessor’s Income Analysis on this basis either.
c. The 2007 purchase price
The Assessor further argues that the Indiana Board erred when it rejected the
subject property’s 2007 purchase price of $21,000,000 as evidence of its actual value.
(See Pet’r Br. at 4.) The evidence in the administrative record, however, reveals
otherwise.
During the Indiana Board hearing, the Assessor presented a computer printout
that indicated that Gateway Arthur purchased five of the subject property’s six parcels
for $21,000,000 in 2006. (See Cert. Admin. R. at 1443-45.) The Assessor explained
that although the subject property’s original sales disclosure form no longer existed, a
taxing official had recorded the information from that form into a computer database.
(See Cert. Admin. R. at 1445, 1728-30.) In rebuttal, Gateway Arthur submitted an
affidavit and warranty deed that indicated that it purchased the subject property, along
with 35 other properties, in a portfolio sale for $423.5 million in 2007, and that it would
not have purchased the subject property on a stand-alone basis. (See Cert. Admin. R.
at 717-28, 1752.) Correll also testified that when a property is sold as part of a portfolio,
an appraiser should ascertain what variables the allocated sales price is based upon
(i.e., does it include something more than the “sticks and bricks”) before using that sale
in a property valuation. (See Cert. Admin. R. at 1596-97.)
The Indiana Board determined that the $21,000,000 purchase price was not
probative because the Assessor’s computer printout, among other things, failed to
indicate who entered the data, failed to include all six parcels, and contained the wrong
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“sale” and “deed” dates. (See Cert. Admin. R. at 549 ¶ 65.) The Indiana Board,
therefore, weighed the parties’ evidence regarding the subject property’s 2007 purchase
price and ultimately determined that Gateway Arthur’s evidence was more persuasive.
Accordingly, the Court finds no basis for reversing the Indiana Board’s rejection of the
subject property’s 2007 purchase price. See, e.g., French Lick Twp. Tr. Assessor v.
Kimball Int’l, Inc., 865 N.E.2d 732, 739 (Ind. Tax Ct. 2007) (explaining that when the
Indiana Board understands a taxpayer’s evidence and finds that it had probative value,
the Court will not overturn that determination absent an abuse of discretion).
3. Gateway Arthur’s Requested Valuations
The Assessor’s final claim is that the Indiana Board exceeded its authority when
it increased Gateway Arthur’s requested valuations by $1 million for each of the years at
issue. (See Pet’r Br. at 1-3; Oral Arg. Tr. at 3-4, 26.) The Assessor explains that once
the Indiana Board determined that the Appraisal was flawed, it should have found that
the Assessor rebutted Gateway Arthur’s prima facie case, not “salvaged” Gateway
Arthur’s case by correcting the Appraisal. (See Pet’r Br. at 2-3; Oral Arg. Tr. at 32-33;
Cert. Admin. R. at 550-51 ¶ 69-71.) The Assessor claims that the Court’s case law
supports his position. (See Pet’r Br. at 3 (citing Meridian Towers E. & W. v. Washington
Twp. Assessor, 805 N.E.2d 475, 480 (Ind. Tax Ct. 2003) (holding that the Indiana Board
erred in using a treatise to reject a taxpayer’s evidence because the treatise was not
introduced into evidence)).) (See also Oral Arg. Tr. at 26-27 (citing Meijer Stores Ltd.
P’ship v. Smith, 926 N.E.2d 1134, 1138-39 (Ind. Tax Ct. 2010) (explaining that the
Indiana Board’s rejection of a taxpayer’s evidence “was not based on substantial
evidence [because there was] no evidence against which to weigh or discount [the
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taxpayer’s] evidence”)).)
The administrative record reveals that the parties agreed that the Appraisal failed
to include certain annual property taxes reimbursements. (Compare Cert. Admin. R. at
1706-09, 1711 (where the Assessor asserts that the Appraisal omitted about $120,000
in property tax reimbursements that would have increased the value of the subject
property by $1 million annually) with Cert. Admin. R. at 1769-70 (where Correll admits
that the Appraisal should have accounted for those property tax reimbursements in its
valuations).) The Indiana Board subsequently determined that the undervaluation
ranged from $981,193 to $1,047,120 by using the Appraisal’s loaded capitalization rates
(i.e., 11.46% and 12.23%) to capitalize the omitted property tax reimbursements (i.e.,
$120,000). (See Cert. Admin. R. at 546-47 ¶ 57, 708.) The Indiana Board’s final
determination, therefore, indicates that it found the Assessor’s position persuasive with
respect to this issue, not that it corrected the Appraisal. Accordingly, the Meijer and
Meridian Towers cases do not apply here because the Indiana Board’s actions were
based on, and supported by, the record evidence. See Meijer Stores, 926 N.E.2d at
1138-39; Meridian Towers, 805 N.E.2d at 480. Consequently, the Indiana Board did not
exceed its authority by increasing Gateway Arthur’s requested valuations by $1 million
for each of the years at issue.
CONCLUSION
For the above-stated reasons, the final determination of the Indiana Board is
AFFIRMED.
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