Hebron-Vision, LLC v. Porter Cnty. Assessor, Cause No. 18T-TA-00019

• Decision Date: 28 October 2019
• Docket Number: Cause No. 18T-TA-00019
• Citation: 134 N.E.3d 1077
• Parties: HEBRON-VISION, LLC, Petitioner, v. PORTER COUNTY ASSESSOR, Respondent.
• Court: Indiana Tax Court

134 N.E.3d 1077

HEBRON-VISION, LLC, Petitioner,

v.PORTER COUNTY ASSESSOR, Respondent.

Cause No. 18T-TA-00019

Tax Court of Indiana.

October 28, 2019

ATTORNEYS FOR PETITIONER: MICHAEL N. RED MORSE & BICKEL, P.C. Indianapolis, IN PAUL M. JONES, JR. PAUL JONES LAW, LLC Greenwood, IN

ATTORNEYS FOR RESPONDENT: CURTIS T. HILL, JR. ATTORNEY GENERAL OF INDIANA WINSTON LIN ZACHARY D. PRICE DEPUTY ATTORNEYS GENERAL Indianapolis, IN JOHN P. BUSHEMI ALFREDO ESTRADA BURKE COSTANZA & CARBERRY, LLP Merrillville, IN

FISHER, Senior Judge

Hebron-Vision, LLC appeals the Indiana Board of Tax Review's final determination that Hebron-Vision failed to establish that it qualified for a charitable purposes exemption for the 2012 through 2015 tax years. Upon review, the Court reverses the Indiana Board's final determination.

FACTS AND PROCEDURAL HISTORY¹

On April 19, 2006, Hebron-Vision, a single-member limited liability company, was formed pursuant to the Indiana Business Flexibility Act. (See Cert. Admin. R. at 711-15, 2293-94, 2348.) See also, e.g., IND. CODE § 23-18-2-4(a) (2019) (providing that a person "may form a limited liability company by causing articles of organization to be executed and filed for record with the office of the secretary of state"). Its Articles of Organization require Vision Communities, Inc. ("Vision Communities"),² its sole member, to manage the company in accordance with its stated purposes:

[T]o acquire, own and operate the Misty Glen Apartments in Porter County, Indiana and to perform the following additional activities in connection with the properties:

(a) To expand opportunities available to disadvantaged residents to obtain adequate affordable housing accommodations by constructing, rehabilitating, operating and providing decent, safe and sanitary housing for said residents who otherwise would not be able to find or afford a suitable place to live;

(b) To help relieve the poor, distresse[d], underprivileged and indigent by enabling them to secure the basic human needs of decent shelter and to thus lessen the burdens of government and promote the social welfare;

(c) To provide such housing through rehabilitation of existing substandard buildings and construction of new facilities in the place of blighted structures or blighted adjacent vacant sites for the purpose of combating the deterioration of the community and contributing to its physical improvement; and

(d) In furtherance of the aforesaid purposes to conduct any and all lawful business and activities for which limited liability companies may be organized under the [Indiana Business Flexibility] Act, provided such business or activity is not inconsistent with the charitable purposes or status of [Hebron-Vision's] sole member, [Vision Communities]."

(Cert. Admin. R. at 711-12, 717.)

To that end, at some point in 2007, Hebron-Vision purchased Misty Glen Apartments ("Misty Glen"), a Section 42³ 80-unit apartment complex situated on 6.45 acres of land in Porter County, Boone Township, Hebron, Indiana.⁴ (See Cert. Admin. R. at 423, 426, 2294, 2651-52.) Although Hebron-Vision did not receive any tax credits when it acquired the property, it continued to operate Misty Glen as a Section 42 apartment complex. (See Cert. Admin. R. at 2307-09, 2327, 2341, 2451-53, 2531-34.) As such, approximately 95% of the residents' annual incomes were at or below 60% of the area median income (adjusted for family size) during the years at issue.⁵ (See Cert. Admin. R. at 2531-34, 2997-3001.)

In 2008, Hebron-Vision applied for, and eventually received, a charitable purposes exemption for Misty Glen for that year. (See Cert. Admin. R. at 34-58, 2311-12.) In 2010 and 2012, Hebron-Vision submitted a statement to the Porter County Assessor stating that its property should remain exempt because its use of the property had not changed since 2008. (Cert. Admin. R. at 27-28, 32-33.)

On May 30, 2013, the Porter County Property Tax Assessment Board of Appeals (the "PTABOA") determined that the property was ineligible for the exemption in 2012. (Cert. Admin. R. at 6 -26.) Consequently, Hebron-Vision filed a petition for review with the Indiana Board on June 21, 2013. (Cert. Admin. R. at 1 -73.) Thereafter, Hebron-Vision filed applications for exemption for the 2014 and 2015 tax years,⁶ which the PTABOA denied, and Hebron-Vision sought review with the Indiana Board for those years as well. (Cert. Admin. R. at 74-253.) In January 2017, the Indiana Board conducted a consolidated two-day hearing on all of Hebron-Vision's appeals.

During the hearing, Hebron-Vision presented to the Indiana Board nearly forty separate exhibits and the testimony of four witnesses to demonstrate that it owned, occupied, and used its property solely for charitable purposes during the years at issue. (See, e.g., Cert. Admin. R. at v-vi.) More specifically, Hebron-Vision claimed that it qualified for a charitable purposes exemption because all the evidence showed that

1) the government had assumed the burden of providing affordable housing to those who were in need;

2) Hebron-Vision's operation of Misty Glen, via Vision Communities, lessened the government's burden because it provided safe, decent, and sanitary housing at below-market rental rates to people who were in need;

3) the motives of Hebron-Vision and Vision Communities were altruistic because neither received government funding to operate Misty Glen as a Section 42 apartment complex nor improperly profited from the operation of the property; and

4) Hebron-Vision used Misty Glen to satisfy the needs and wants of its residents by promoting a sense of brotherhood for them through its provision of several services⁷ that typically were not offered by for-profit/market rate apartment complexes.

(See, e.g., Cert. Admin. R. at 2257-61, 2289, 2292-2302, 2306-08, 2342-43, 2364-65, 2371-73, 2384-87, 2393, 2404-05, 2440-43, 2459, 2509-34, 2794-2828, 2882-85, 2984-07, 3022-23, 3174-77.) (See also, e.g., Cert. Admin. R. at 419-60 (Rent Analysis), 707-10 (Conflict of Interest and Excess Benefit Policies), 1018-84 (HUD's rental information and median income limit documentation for Porter County).)

In response, the Assessor objected to Hebron-Vision's Rent Analysis and the testimony of its preparer, claiming that the evidence was inadmissible because Hebron-Vision failed to comply with the disclosure requirements of 52 IAC 2-7-1.⁸ (See Cert. Admin. R. at 2770-74.) The Assessor also presented two exhibits⁹ and his own testimony to demonstrate that the totality of the evidence showed

1) Hebron-Vision did not relieve any governmental burden because it received indirect subsidies (e.g., rent or utility assistance) from government and non-governmental sources;

2) Hebron-Vision used its property for a noncharitable profit motive by paying excessive management fees to its offsite property manager, Flaherty & Collins Properties,¹⁰ a for-profit company whose owners helped form Hebron-Vision and Vision Communities;

3) Misty Glen's rental rates were not below-market;

4) Hebron-Vision's policies mirrored those of a typical landlord because it screened prospective tenants based on their ability to pay rent on time, excluding those with poor credit histories and unsatisfactory landlord references; required security deposits; charged late fees; evicted tenants for nonpayment of rent; and did not have a rent forgiveness program;

5) Misty Glen's tenants were not truly in need of charity because the evidence did not show their income levels were any different than those of other area renters; and

6) Hebron-Vision's provision of other services, while noble, actually reflected the charitable acts of those agencies only and was merely incidental to its noncharitable purpose of providing affordable housing to moderate- to low-income individuals and families.

(See, e.g., Cert. Admin. R. at 2272-73, 2344-47, 2615-2633, 2839-73, 3053-90, 3105-18, 3203-42, 3262-69, 3278.) (See also, e.g., Cert. Admin. R. at 1992 (the Assessor's Market Study), 2026-38 and 2049-55 (the Assessor's post-hearing submissions).)

On May 23, 2018, the Indiana Board issued a final determination, concluding that Hebron-Vision failed to prove that its property was predominately owned, occupied, and used for charitable purposes during the years at issue. (See Cert. Admin. R. at 2089-90 ¶¶ 93-96.) Specifically, after overruling the Assessor's objection, the Indiana Board determined that the evidence regarding the a) management fees, b) rental rates, c) residents' income levels and screening process, and d) provision of additional services failed to show that the property qualified for a charitable purposes exemption. (See Cert. Admin. R. at 2071 ¶ 30, 2086-89 ¶¶ 84-94.)

On July 6, 2018, Hebron-Vision initiated this original tax appeal. The Court heard oral argument on August 9, 2019. 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. Osolo Twp. Assessor v. Elkhart Maple Lane Assocs., 789 N.E.2d 109, 111 (Ind. Tax Ct. 2003). Accordingly, Hebron-Vision 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 the 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) (2019).

LAW

The charitable purposes exemption, set forth in Indiana Code § 6-1.1-10-16, provides that "[a]ll or part of a building is exempt from property taxation if it is owned, occupied, and used ... for ... charitable purposes." IND. CODE § 6-1.1-10-16(a) (2012) (amended 2016). The exemption also extends to the land on which an exempt building is situated and the personal property that is contained therein. See I.C. §...