Town of St. John v. State Bd. of Tax Com'rs

• Decision Date: 31 May 1996
• Docket Number: No. 49T10-9309-TA-00070,49T10-9309-TA-00070
• Citation: Town of St. John v. State Bd. of Tax Com'rs, 665 N.E.2d 965 (Ind. Tax 1996)
• Parties: TOWN OF ST. JOHN, et al., James K. Gilday, Dimple Clarine Shelton and William E. Wise, Petitioners, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.
• Court: Indiana Tax Court

Page 965

665 N.E.2d 965

TOWN OF ST. JOHN, et al., James K. Gilday, Dimple Clarine Shelton and William E. Wise, Petitioners, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.

No. 49T10-9309-TA-00070.

Tax Court of Indiana.

May 31, 1996.

Thomas M. Atherton, Dutton Overman Goldstein & Pinkus, Indianapolis, Peter H. Donahoe, Hill Fulwider McDowell Funk & Matthews, P.C., Indianapolis, James K. Gilday, Wood Tuohy Gleason Mercer & Herrin, Indianapolis, Richard A. Waples, Indiana Civil Liberties Union, Indianapolis, for petitioners.

Pamela Carter, Attorney General of Indiana, Jon S. Laramore, Deputy Attorney General, Indianapolis, Marilyn S. Meighen, Deputy Attorney General, Indianapolis, for respondent.

Indiana Association of Realtors, Inc., By: Jodi Tuttle, Indianapolis, Amicus Curiae in support of Petitioners.

FISHER, Judge.

STATEMENT OF THE CASE

The Town of St. John, James K. Gilday, Dimple Clarine Shelton, and William E. Wise (the Taxpayers) challenge the constitutionality of Indiana's statutory system of real property taxation.

ISSUE

The Taxpayers have raised four issues for the court's consideration. Because the court finds that one of those issues is dispositive, it will address that issue only:

Whether Article 10, § 1 of the Indiana Constitution requires that all real property assessments be based on market value.

BACKGROUND

In Indiana, real property ¹ is assessed on the basis of its "true tax value." IND.CODE 6-1.1-31-6(c). " '[T]rue tax value does not mean fair market value ² ... [but rather] the value determined under the rules of the state board of tax commissioners.' " Id. (footnote added).

The State Board of Tax Commissioners (the State Board) is an administrative agency created by the Indiana legislature. IND.CODE 6-1.1-30-1. It is required by law to: "(1) interpret the property tax laws of this state; (2) instruct property tax officials about their taxation and assessment duties; and (3) see that all property assessments are made in the manner provided by law." IND.CODE 6-1.1-35-1. Implicit in this grant of power is the State Board's authority to effectuate the regulatory scheme outlined in Indiana's property tax statutes. See Miller v. Gibson County Solid Waste Management Dist., 622 N.E.2d 248, 259 (Ind.Tax 1993). Accordingly, the State Board has promulgated regulations for determining the "true tax value" of real property. These regulations, collectively known as the Indiana Assessment Manual, are found in the Indiana Administrative Code, Title 50, Article 2.1 (Title 50).

Under Title 50, the "true tax value" of non-agricultural land (i.e., commercial, industrial, and residential land) is determined by a county land valuation commission and subsequently approved by the State Board. 50 I.A.C. 2.1-2-1. See also IND.CODE 6-1.1-4-13.6. Each county has its own land valuation commission to collect and analyze sales data for the county and, on the basis of that information, it determines the values of all the land contained therein. 50 I.A.C. 2.1-2-1. After the values have been approved by the State Board, they are compiled in a County Land Valuation Order. In theory, the "true tax value" of non-agricultural land approximates its market value.

The "true tax value" of agricultural land is determined by a county agricultural land advisory committee. See IND.CODE 6-1.1-4-13. Each county has its own county agricultural land advisory committee. Unlike the county land valuation commission, however, it does not collect and analyze sales data for agricultural land within the county. Rather, it determines the "true tax value" of agricultural land by taking a base rate of $495 per acre and then making adjustments up or down to reflect the soil's capacity to produce crops. 50 I.A.C. 2.1-2-2. ³ As a result, the "true tax value" of agricultural land is an attempt to approximate a value based in part on its earning capacity.

The "true tax value" of an improvement ⁴ is calculated by the "reproduction cost" of the item, less any physical depreciation or obsolescence depreciation to which it is entitled. 50 I.A.C. 2.1-5-1. Reproduction cost is defined as the "whole-dollar cost of reproducing the item." 50 I.A.C. 2.1-3-3. The "reproduction cost" of an improvement, however, is not the actual cost of reproducing the item. Rather, it is the "reproduction cost" as specified in the State Board's "cost schedules." See 50 I.A.C. 2.1-3-3; 50 I.A.C. 2.1-3-5; 50 I.A.C. 2.1-4-5. ⁵ Thus, the "true tax value" of an improvement does not necessarily approximate its market value.

In summary, "true tax value" is a figure which is produced by the application of the State Board's mechanical rules and formulas set forth in Title 50. See also Jerrold F. Janata, ed., Property Taxation 159 (2d ed. 1993). Everything needed to calculate "true tax value" is set forth in Title 50; evidence of value external to Title 50 is irrelevant. As a result, evidence of an improvement's actual reproduction cost or evidence of the actual market value of land is irrelevant under the "true tax value" system.

FACTS AND PROCEDURAL HISTORY

This case arose on September 3, 1993, when the Town of St. John ⁶ filed an original tax appeal against the State Board. Later, James K. Gilday, Dimple Clarine Shelton, and William E. Wise, each of whom owns real property in Marion County, Indiana, also filed original tax appeals against the State Board. Because each of these petitioners raised the same issue, the court consolidated their cases. See Russell v. Johnson, 220 Ind. 649, 658-59, 46 N.E.2d 219, 223 (1943) (quoting Lumiansky v. Tessier, 213 Mass. 182, 188-89, 99 N.E. 1051, 1053-54 (1912)).

The Taxpayers argue that the "true tax value" system is inequitable because its application yields different "true tax values" for properties with comparable market values. The Taxpayers assert that for the 1989 general reassessment, some properties were assessed with "true tax values" equal to their market values, others were assessed with "true tax values" in excess of their market values, and still others were assessed with "true tax values" well below their market values. Thus, they contend that the State Board's "true tax value" system violates Article 10, § 1 of the Indiana Constitution which states:

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. 10, § 1(a) (emphasis added). Furthermore, the Taxpayers contend that the term "just value" (or "just valuation" as it is used in Article 10, § 1) is synonymous with the term market value. Indeed, they maintain that market value is the only meaningful standard by which the equality and uniformity of real property assessment and taxation can be measured.

The State Board claims, however, that the "just value" of real property is not necessarily its market value; rather it is a value that is determined through the use of any rational method of property valuation. The State Board explains that a method of property valuation is rational when it places identical values on properties that are "physically identical and used identically." Post-Trial Brief of Respondents on Constitutional Issues (filed Dec. 4, 1995) at 15. Thus, the State Board maintains that although Indiana's "true tax value" system values real property on a basis other than market value, it values physically identical properties identically thereby meeting the constitutional mandate that property be assessed according to its "just value."

This court must therefore determine the meaning of the language in Article 10, § 1 as it applies to the assessment and taxation of real property. ⁷

DISCUSSION AND ANALYSIS

When a court is called upon to interpret a constitutional provision, it must seek the meaning intended by both those who framed it and those who ratified it. Bayh v. Sonnenburg, 573 N.E.2d 398, 412 (Ind.1991), reh'g denied, cert. denied, 502 U.S. 1094, 112 S.Ct. 1170, 117 L.Ed.2d 415-16 (1992). To accomplish this, the court examines "the language of the text in the context of the history surrounding its drafting and ratification, the purpose and structure of [the] constitution, and case law interpreting the specific provision[ ]." Indiana Gaming Comm'n v. Moseley, 643 N.E.2d 296, 298 (Ind.1994).

A. THE HISTORY AND THE PURPOSE OF ARTICLE 10, § 1

The portion of Article 10, § 1 at issue today was adopted by the Constitutional Convention in 1851. The Convention was called to address the various economic problems associated with the development of Indiana's infrastructure. See Lafayette, M. & B.R.R. v. Geiger, 34 Ind. 185, 205 (1870). In his annual message to the General Assembly in January of 1848, Governor James Whitcomb explained that one of these economic problems was "the great disparity between the amount of the [State's] debt, and the ability of the State for its discharge by means of taxation." House Journal, 32d sess. 127 (1848). Whitcomb attributed this disparity, in part, to the inadequacies of the existing property tax system:

A slight examination of our ... system will be sufficient to demonstrate its susceptibility of improvement. Under its workings, it is quite manifest that a large amount of the invisible wealth of the community, such as corporation and other stock, cash on hand, or at interest, and the more portable and valuable kind of personal property, &c., is not found upon assessment rolls. This description of taxables is generally owned by those best able to pay, and their non-assessment leaves the burden of taxation so much the heavier on property, which is visible, and especially on lands which cannot escape notice and scrutiny, &c., which the true policy of our State requires should not be visited with disfavor.

House Journal, 32d sess. 125 (1848).

The substance of Article 10, § 1 was first proposed at the Convention by Delegate Daniel Read...