Supreme Court declines to weigh in on dark-box assessment case

27 Apr 2017 4:22 PM | Administrator (Administrator)

Indiana’s Supreme Court on Thursday decided not to review a property tax assessment case, which means a lower court’s ruling favoring big-box retailers will stand.


The case is important because big-box retailers have successfully appealed property tax assessments in several counties. Those appeals mean the retailers pay less property tax and the counties stand to collect less tax revenue.


The counties were hoping Indiana’s highest court would hear its appeal of the Tax Court decision and reverse the outcome, but the court’s denial of the petition for review essentially ends the case. Chief Justice Loretta Rush and Justice Steven David voted to review the case. Justices Robert Rucker, Mark Massa and Geoffrey Slaughter voted to deny the petition for review.


The case, Howard County Assessor vs. Kohl’s Indiana LP, involved the property tax assessment of a Kohl’s store in Kokomo between 2010-12. Kohl’s appealed the assessment and the case was heard by the Indiana Board of Tax Review and the Indiana Tax Court. After both of those appeals, it was determined the assessments should be about 20 percent less than the county’s revised assessments.


The Indiana Board of Tax Review, in its Dec. 31, 2014 determination, said the difference is in the “comparable” properties each used to determine the assessed value. The appraiser for Kohl’s used sales data from nine other midwestern “big-box” stores to help determine the value. The stores were vacant at the time of the sale, also known as “dark boxes.”


The appraiser for the assessor used data from sales of big box stores with leases to Kohl’s or other retailers like it. The Tax Court noted the appraiser for the assessor “believed that the use of dark boxes by Kohl’s was not appropriate to value the subject property for the following reasons: 1) dark boxes do not have any utility to either the original owner or another owner/user ‘in the same retail tier’ and, 2) the subject property was a special purpose property because Kohl’s built it to its own specifications.”


As such, the assessor’s appraiser claimed, Kohl’s had reached the property’s market value and not its market value-in-use. This is an important distinction. Relying on previous Tax Court decisions, the Indiana Board of Tax Review sided with Kohl’s. It determined the retailer’s appraisal better reflected the market value-in-use standard found in the state’s assessment manual and interpreted by the Tax Court.


The Tax Court on Sept. 7, 2016 denied the assessor’s appeal and reiterated its findings in three other cases, which meant the lower assessments were to be used to determine Kohl’s property tax bill.


The Indiana County Assessors Association, in a friend-of-the-court brief, contended the Tax Court “ceated a new valuation standard which violates the spirit of the landmark valuation standard set forth by (the Indiana Supreme Court),” changing the state’s property tax assessment practices.


The stakes were high for local governments and for retailers in the state. The state Supreme Court’s decision not to hear the case means the Tax Court’s standard applies to pending cases involving big-box retailers, so local governments will collect less in property taxes across the state. The big-box retailers will see reduced property tax bills under this scenario.  


Indiana Fiscal Policy Institute

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