COM. EDISON CO. v. DEPT. OF LOCAL GOV. FIN.

• Decision Date: 23 December 2002
• Docket Number: No. 49T10-9807-TA-81., No. 49T10-9707-TA-163, No. 49T10-9507-TA-67, No. 49T10-9607-TA-82
• Parties: COMMONWEALTH EDISON COMPANY OF INDIANA, INC., Petitioner, v. DEPARTMENT OF LOCAL GOVERNMENT FINANCE, Respondent.
• Court: Indiana Tax Court

780 N.E.2d 885

COMMONWEALTH EDISON COMPANY OF INDIANA, INC., Petitioner, v. DEPARTMENT OF LOCAL GOVERNMENT FINANCE, ¹ Respondent.

Nos. 49T10-9507-TA-67, 49T10-9607-TA-82, 49T10-9707-TA-163, 49T10-9807-TA-81.

Tax Court of Indiana.

December 23, 2002.

Daniel P. Byron, Jeffrey T. Bennett, Bingham McHale, LLP, Indianapolis, for Petitioner.

Steve Carter, Attorney General of Indiana, Ted J. Holaday, Deputy Attorney General, Indianapolis, for Respondent.

FISHER, J.

Commonwealth Edison Company of Indiana, Inc. (Commonwealth) appeals the State Board of Tax Commissioners' (State Board) final assessments of its distributable property for the 1995, 1996, 1997, and 1998 assessment years (years at issue). The sole issue is whether the State Board is required to apply equalization adjustments to Commonwealth's assessments for the years at issue.²

FACTS AND PROCEDURAL HISTORY

Commonwealth is a public utility company that owns an electric generating station in Lake County, Indiana. For each of the years at issue, Commonwealth filed an annual statement of value with the State Board pursuant to Indiana Code § 6-1.1-8-19. With each statement, Commonwealth requested that the State Board apply an equalization adjustment to its assessment to account for the disparate levels of assessment in Lake County.

The State Board subsequently issued tentative assessments of Commonwealth's property for each of the years at issue without the requested adjustments. Commonwealth objected, and the State Board held four separate hearings. The State Board then issued orders making its tentative assessments final, stating that Commonwealth failed to show that its property was entitled to equalization adjustments for the years at issue.³

Commonwealth filed four original tax appeals, which the Court consolidated on October 19, 1998. The Court conducted a trial on February 22, 1999. Oral arguments were heard on December 13, 1999. Additional facts will be supplied as necessary.

STANDARD OF REVIEW

When this Court reviews a State Board assessment of public utility property, its standard of review is set by statute:

When a public utility company initiates an appeal under section 30 [of Indiana Code 6-1.1-8], the tax court may set aside the state board of tax commissioners' final assessment and refer the matter to the board with instructions to make another assessment if:

(1) the company shows that board's final assessment, or the board's apportionment and distribution of the final assessment, is clearly incorrect because the board violated the law or committed fraud; or

(2) the company shows that the board's final assessment is not supported by substantial evidence.

IND. CODE § 6-1.1-8-32. "Substantial evidence `means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.'" Glass Wholesalers, Inc. v. State Bd. of Tax Comm'rs, 568 N.E.2d 1116, 1122 (Ind. Tax Ct.1991) (quoting State Bd. of Tax Comm'rs v. South Shore Marina, 422 N.E.2d 723, 731 (Ind.Ct.App.1981)).

DISCUSSION & DECISION

"The property owned or used by a public utility company shall be taxed in the manner prescribed in [chapter eight of Indiana Code 6-1.1]." IND. CODE § 6-1.1-8-1. Within Chapter eight is a centralized assessment scheme by which the State Board assesses the operating property (distributable property) used in providing utility services. IND. CODE § 6-1.1-8-25. In calculating the value of the distributable property, the State Board first considers the total value (unit value) of the public utility company's property and then subtracts the value of its fixed property.⁴ IND. CODE § 6-1.1-8-26(a).

Once the State Board determines the assessed value of a public utility company's distributable property, it is required to equalize that assessment if necessary. IND. CODE § 6-1.1-8-25(a). "Equalization is a process applied to certain taxpayers and their property by which the assessed value of a taxpayer's property is adjusted so that it bears the same relationship of assessment value to ... true tax value as other properties within the same taxing jurisdiction." GTE North Inc. v. State Bd. of Tax Comm'rs, 634 N.E.2d 882, 886 (Ind. Tax Ct.1994) (internal quotation and punctuation omitted). "[T]he equalization process provides the State Board with a method to cure assessment problems and bring all assessments into compliance with Article X, § 1" of Indiana's Constitution, id., which states that

The General Assembly shall provide, by law, for a uniform and equal rate of property assessment and taxation and shall prescribe regulations to secure a just valuation for taxation of all property, both real and personal.

IND. CONST. Art. X, § 1. See also IND. CODE § 6-1.1-2-2.

The dispute in this case arises from the State Board's refusal to apply equalization adjustments to Commonwealth's assessments for the years at issue. As Commonwealth explains:

there has been a chronic disparity between the level of assessment generally prevailing in Lake County, and the level of assessment specifically applying to Commonwealth[`s] distributable property. Because Commonwealth [ ] must pay the same tax rates as all other taxpayers in Lake County (which have historically been inflated to the highest levels in the state because of [its] underassessment problem [ ]), this disparity of assessment has been especially hurtful for Commonwealth[.]

(Pet'r Br. at 1-2.) More specifically, Commonwealth argues that while its property is assessed at approximately 33% of its full market value, "other taxpayers are assessed at an inordinately low percentage of actual or market value." (Pet'r Ex. D-1 at 35.) This, Commonwealth maintains, violates the Article X, § 1 guarantee that its assessment is uniform with others in the state.

Commonwealth, like any other party challenging the propriety of a State Board final determination, bears the burden of demonstrating its invalidity. See Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct.1998)

. Thus, Commonwealth must present a prima facie case, or one in which the evidence is "sufficient to establish a given fact and which if not contradicted will remain sufficient." Id. (internal quotation and citation omitted).

To meet its burden, Commonwealth prepared numerous sales/assessment-ratio studies and submitted them at its administrative hearings. (Pet'r Exs. H-2, H-3, and H-4.) These studies, prepared by a North Carolina statistical studies consulting firm, examined a random sampling of approximately 200 arm's length sales of real property in Lake County during the years at issue and compared the sales prices on those properties to their corresponding assessed values. The studies indicated that for the years at issue, property in Lake County was generally assessed at between 10% and 11.82% of its actual, or market value, as compared to the 33% difference between Commonwealth's assessed value and market value. (Pet'r Br. at 3.) In order to remedy this disparity, Commonwealth requested that the State Board equalize its assessments for each of the years at issue.

Although Commonwealth's burden of proof does not shift, the duty of going forward with evidence may shift several times. See Thorntown Telephone Co., Inc. v. State Bd. of Tax Comm'rs, 629 N.E.2d 962, 965 (Ind. Tax Ct.1994)

. Thus, it was incumbent upon the State Board to rebut Commonwealth's evidence. The State Board did not. Instead, in its final determinations, the State Board refused to consider Commonwealth's sales/assessment-ratio studies. Specifically, the State Board found that

[t]he quality of the evidence presented by [Commonwealth] regarding the level of assessment in Lake County and its market value is suspect. However, none of it would matter, even if it were credible. The standard for the valuation of property is true tax value, not market value.

(See, e.g., Resp't Ex. 1 at 59.) The Court disagrees.

A. Evidence of Market Value in Equalization Cases

The State Board is correct that Indiana does not assess property on the basis of its fair market value. Indeed, during the years at issue, property was assessed pursuant to the statutory standard of "true tax value." See IND. CODE § 6-1.1-31-5. True tax value was not fair market value, but rather the value that was determined under the State Board's assessment regulations. See IND. CODE § 6-1.1-31-7(d). The use of the "true tax value" standard in Indiana has caused numerous problems, the most relevant being the lack of uniformity in assessment amongst taxpayers.⁵ In states where assessment is based on market value, the most widely used and accepted tool for measuring assessment uniformity is the sales/assessment-ratio study. See JERROLD F. JANATA, ED., PROPERTY TAXATION 154 (2d. ed.1993); (Trial Tr. at 62-3.) See also Louisville Nash. R.R. Co. v. Public Serv. Comm'n, 493 F.Supp. 162, 164 n. 2 (M.D.Ten.1978)

aff'd by 631 F.2d 426 (6th Cir.1980) (stating that properly conducted, sales/assessment-ratio studies are objective, efficient, and standard methods of measuring uniformity). To date, however, neither the State Board, the legislature, nor the courts have provided any guidance as to how to measure uniformity in a state such as Indiana, where market value is not the assessment standard and, as the State Board contends, irrelevant.

Nevertheless, the State Board has been using market value sales/assessment-ratio studies for years as a basis for providing equalization adjustments to public utility companies. See JANATA at 162-64 (discussing the State Board's acceptance of sales assessment-ratio studies premised on a market value analysis as the basis for equalization relief to railroad, electric, and telephone utilities). Furthermore, the State Board has used these sales/assessment-ratio studies for approximately thirty years as the basis for granting equalization adjustments to Commonwealth. (Resp't Exs. 1 at 62; 2 at 62; 3 at 93; and 4 at 51.)

As our Supreme Court stated, in order to...