Elkhart Cnty. Assessor v. Lexington Square, LLC
| Docket Number | 22T-TA-00007 |
| Decision Date | 01 September 2023 |
| Parties | ELKHART COUNTY ASSESSOR, Petitioner, v. LEXINGTON SQUARE, LLC, Respondent. |
| Court | Indiana Tax Court |
ON APPEAL FROM A FINAL DETERMINATION OF THE INDIANA BOARD OF TAX REVIEW
ATTORNEY FOR PETITIONER: BETH E. HENKEL LAW OFFICE OF BETH HENKEL, LLC Indianapolis, IN
ATTORNEY FOR RESPONDENT: CHRISTOPHER D. OAKES COX, OAKES & ASSOCIATES, LTD. Schaumburg, IL
In a final determination dated March 24, 2022, the Indiana Board of Tax Review determined that because neither the Elkhart County Assessor nor Lexington Square, LLC demonstrated what the correct assessment of Lexington Square's real property should have been for the 2016 through 2018 tax years, Indiana Code § 6-1.1-15-17.2 dictated that those assessments revert to the property's 2015 assessed value. The Assessor now appeals. Upon review, however, the Court affirms the Indiana Board's final determination.
In September of 2016, Lexington Square purchased a multi-building apartment complex in Elkhart, Indiana. (See, e.g., Cert Admin. R. at 978.) While that property had been assessed at $3,490,500 for tax year 2015, the Assessor increased the property's assessment to $7,683,000 for tax year 2016, $7,028,200 for tax year 2017, and $7,059,800 for tax year 2018. (See Cert. Admin. R. at 978-96, 2349.) The increases in value were attributable, in part, to the Assessor's removal of an obsolescence adjustment that the property had formerly received. (See, e.g., Cert. Admin. R. at 2492-93, 2539-41, 2555-56.)
Alleging that the 2016 to 2018 assessments were not only incorrect, but also were unfair when compared to the assessments of other apartment complexes in Elkhart County, Lexington Square initiated appeals first with the Elkhart County Property Tax Board of Appeals ("PTABOA") and then with the Indiana Board. (See Cert. Admin. R. at 1-721.) The Indiana Board conducted a consolidated hearing on all of Lexington Square's appeals on May 18, 2021. (See Cert. Admin. R. at 2298-2563.)
During the Indiana Board hearing, the Assessor admitted that because she increased the subject property's assessment by more than 5% between 2015 and 2016, Indiana Code § 6-1.1-15-17.2 dictated that she bore the burden of proof on the valuation issue. (See Cert. Admin. R. at 2317-19, 2349-50.) The parties agreed, however, that the burden of proof on the uniformity issue resided with Lexington Square. (See Cert. Admin. R. at 2317-19.) Accord Thorsness v. Porter Cnty. Assessor, 3 N.E.3d 49, 52 (Ind. Tax Ct. 2014) ().
To demonstrate that her assessment valuations were correct, the Assessor submitted an appraisal, completed in conformance with the Uniform Standards of Professional Appraisal Practice, that valued the subject property between $7,277,349 and $7,990,000 during each of the years at issue. (See Cert. Admin. R. at 1758-1852, 234951, 2358.) In rebuttal, Kevin Donohoe, the vice president of Lexington Square's property management company, testified that he believed the subject property's assessed value should have been between $6,776,466 and $7,535,545 during each of the years at issue. (See, e.g., Cert. Admin. R. at 2480, 2487-88, 2495.) Donohoe explained that he arrived at those values by applying a capitalization rate to the average of the property's actual net operating income for tax years 2015 through 2017.[1] (See, e.g., Cert. Admin. R. at 997-1507, 2469-97, 2515-17, 2526.)
With respect to the uniformity issue, Lexington Square presented the Indiana Board with evidence that compared recent sales prices of numerous other apartment complexes in Elkhart County to their assessment values, asserting that it demonstrated that those properties were "underassessed" on average by more than 26%. (See, e.g., Cert. Admin. R. at 941-75, 997-1283, 1506-1632, 2458-69, 2480-85, 2489-96, 2519-20.) Lexington Square asserted that its property, in contrast, was underassessed by only 4%. (See, e.g., Cert. Admin. R. at 978-96, 2127-36, 2526 ().)
The Indiana Board's final determination issued on March 24, 2022, was based on this Court's decision in Southlake Indiana, LLC v. Lake County Assessor (Southlake II), 181 N.E.3d 484, 489 (Ind. Tax Ct. 2021), review denied, finding that the Assessor did not prove her assessment was "correct" because her appraisal evidence did not conclude "exactly and precisely" to the actual assessed values she applied during the years at issue. (See Cert. Admin. R. at 2222-23 ¶¶ 46-47.) Likewise, the Indiana Board found that Lexington Square had failed to show what the proper value of its property should have been because "Don[o]hoe based his analysis solely on the subject property's historical income, expenses, and occupancy without comparing that data to the market." (Cert. Admin. R. at 2223-24 ¶ 49.) Finally, regarding the uniformity issue, the Indiana Board determined that Lexington Square failed to demonstrate that it was unfairly assessed in comparison to other similarly-situated properties, explaining that its evidence failed to comport with any of the standards for ratio studies as set forth by both the Indiana Department of Local Government Finance and the International Association of Assessing Officers. (See, e.g., Cert. Admin. R. at 2227-33 ¶¶ 59-74.) Accordingly, because neither party proved the property's correct assessed value, the Indiana Board ordered that each of Lexington Square's contested assessments revert to the property's 2015 assessed value in accordance with Indiana Code § 6-1.1-15-17.2. (Cert. Admin. R. at 2238 ¶ 91.)
The Assessor petitioned for a rehearing, claiming that the Indiana Board had erroneously applied the burden of proof. (See Cert. Admin. R. at 2243-53.) In support, the Assessor argued that Indiana Code § 6-1.1-15-17.2 no longer applied to the appeal because three days before the Indiana Board issued its final determination, the Legislature simultaneously repealed Indiana Code § 6-1.1-15-17.2 and adopted a new statute, Indiana Code § 6-1.1-15-20, in its stead. (See, e.g., Cert. Admin. R. at 2244.) The Assessor explained that because the new statute 1) specified that it applied only to appeals filed after its effective date of March 21, 2022, and 2) did not specify that the provisions in Indiana Code § 6-1.1-15-17.2 still applied to pending appeals, "it was as if Indiana Code § 6-1.1-15-17.2 never existed." (See Cert. Admin. R. at 2243-53.) Thus, she concluded that she never bore the burden of proof at the Indiana Board's administrative hearing. (See Cert. Admin. R. at 2250-51.) The Indiana Board denied the Assessor's petition for rehearing. (See Cert. Admin. R. at 2296.)
The Assessor initiated this original tax appeal on May 5, 2022. The Court heard the parties' oral arguments on October 6, 2022. Additional facts will be supplied when necessary.
The party seeking to overturn an Indiana Board final determination bears the burden of demonstrating its invalidity. Osolo Twp. Assessor v. Elkhart Maple Lane Assocs., 789 N.E.2d 109, 111 (Ind. Tax Ct. 2003). Thus, to prevail in her appeal, the Assessor must demonstrate to the Court that the Indiana Board's final determination 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. See IND. CODE § 33-26-6-6(e)(1)-(5) (2023).
This Court has previously explained that prior to 2009, a taxpayer who challenged his property tax assessment always bore the burden of proof (i.e., the burden of persuading the fact-finder that the assessment was incorrect and the burden of producing evidence to demonstrate the correct assessment). Orange Cnty. Assessor v. Stout, 996 N.E.2d 871, 873 (Ind. Tax Ct. 2013) (citations omitted). Beginning in 2009, however, the Legislature enacted a series of statutory exceptions that required the assessing official, not the taxpayer, to bear the burden of proof in certain circumstances. See, e.g., IND. CODE § 6-1.1 -15-1(p) (eff. July 1,2009) (amended 2011); IND. CODE § 6-1.1-15-17 (2011) (repealed 2012); IND. CODE § 6-1.1-15-17.2 (2012) (repealed 2022).
The exception governing this appeal stated that if an assessing official increased a taxpayer's property assessment by more than 5% from one year to the next, the assessing official "making the assessment ha[d] the burden of proving that the assessment [was] correct in any review or appeal under this chapter and in any appeals taken to the Indiana board of tax review or to the Indiana tax court." IND. CODE § 6-1.1-15-17.2(a)-(b) (2016) (repealed 2022). Moreover, the event that triggered the authority of Indiana Code § 6-1.1-15-17.2 to shift the burden of proof to the assessing official was the filing of an appeal challenging the assessing official's assessment increase. See I.C. § 6-1.1-15-17.2(a); Stout, 996 N.E.2d at 875 ().
To demonstrate that her assessment was correct, Indiana Code § 6-1.1-15-17.2 requires the assessing official to present evidence that "exactly and precisely conclude[d] to her original...
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