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

Decision Date22 December 1997
Docket NumberNo. 49T10-9309-TA-00070,49T10-9309-TA-00070
Citation690 N.E.2d 370
PartiesTOWN OF ST. JOHN, et al., James K. Gilday, Dimple Clarine Shelton and William E. Wise, Petitioners, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.
CourtIndiana Tax Court

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, Kenneth J. Falk, Indiana Civil Liberties Union, Indianapolis, Richard A. Waples, Indianapolis, for Petitioners.

Jeffrey A. Modisett, Attorney General, Jon S. Laramore, Deputy Attorney General, Indianapolis, Marilyn S. Meighen, Deputy Attorney General, Indianapolis, for Respondent.

FISHER, Judge.

The Town of St. John, James K. Gilday, Dimple Clarine Shelton, and William E. Wise (Petitioners or the Petitioners) challenge the constitutionality of Indiana's real property taxation system. In Town of St. John v. State Bd. of Tax Comm'rs, 665 N.E.2d 965 (Ind.Tax Ct.1996) (St. John I ), this Court held that Article X, section 1 of the Indiana Constitution requires a system of real property taxation based solely on fair market value. The Indiana Supreme Court reversed this holding and remanded the case to this Court to determine whether the True Tax Value system results in a uniform and equal rate of assessment and a just valuation based on property wealth. Boehm v. Town of St. John, 675 N.E.2d 318 (Ind.1996) (St. John II ). On remand, this Court holds that Indiana's property taxation system violates the Indiana Constitution.


I. Whether the True Tax Value system fails to secure a just valuation of property and fails to value property equally and uniformly based on property wealth in violation of Article X, section 1 of the Indiana Constitution.

II. Whether the True Tax Value system fails to provide ascertainable standards rendering property tax assessments arbitrary and capricious in violation of the Due Course of Law Clause of Article I, section 12 of the Indiana Constitution.

III. Whether Indiana's True Tax Value system violates the Due Process Clause of the Fourteenth Amendment to the United States Constitution on both procedural and substantive grounds.

IV. Whether Indiana's True Tax Value system violates the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution.



In Indiana, real property 1 is assessed on an ad valorem basis. The standard of value The State Board of Tax Commissioners (State Board) is an administrative agency created by the Indiana legislature. Id. § 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." Id. § 6-1.1-35-1. The State Board's authority to effectuate the regulatory scheme is outlined in Indiana's property tax statutes. See Miller v. Gibson County Solid Waste Mgmt. Dist., 622 N.E.2d 248, 259 (Ind.Tax Ct.1993). Accordingly, the State Board has promulgated regulations for determining the True Tax Value of real property. These regulations, collected in the Indiana Assessment Manual, are found in the Indiana Administrative Code, Title 50, Article 2.2 (Title 50).

                used is statutorily defined as True Tax Value.    IND.CODE ANN. § 6-1.1-31-6(b)(7) (West 1989).  "[T]rue tax value does not mean fair market value ... [but rather] the value determined under the rules of the state board of tax commissioners."  Id. § 6-1.1-31-6(c)

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. IND.ADMIN.CODE tit. 50, r. 2.2-2-1 (1996). See also IND.CODE ANN. § 6-1.1-4-13.6 (West 1989) (amended 1997). Each county has its own land valuation commission to collect and analyze sales data for the county and, on the basis of that information, the commission determines the values of the land contained therein. IND.ADMIN.CODE tit. 50, r. 2.2-4-5 (1996). These values are then either accepted by the State Board, or modified by the State Board without further input from the county commissions. 2 See IND.CODE ANN. § 6-1.1-4-13.6; IND.ADMIN.CODE tit. 50, r. 2.2-4-3(a) (1996). The State Board's final figures are then 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 ANN. § 6-1.1-4-13 (West Supp.1997). Each county has an agricultural land advisory committee. Unlike the county land valuation commission, however, this committee 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 crop production capacity. IND.ADMIN.CODE tit. 50, r. 2.2-5-6(5), 2.2-5-7 (1996) 3 As a result, the True Tax Value of agricultural land purports 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, minus any physical depreciation or obsolescence depreciation. IND.ADMIN.CODE tit. 50, r. 2.2-2-1(c) (1996); see also id. r. 2.2-7-9. Reproduction cost is defined as the "whole-dollar cost of reproducing the item." Id. r. 2.2-7-7.1(f)(8). 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. 5

The cost schedules are divided into several basic classes: Residential Dwellings, id. r. 2.2-7-11, Mobile and Manufactured Homes, id. r. 2.2-8-7, Residential Yard and Agricultural Improvements, id. r. 2.2-9-6, Commercial/Industrial Improvements, id. r. 2.2-11-6, Commercial/Industrial Yard Improvements, id. r. 2.2-12-5, Special Use Commercial Properties, id. r. 2.2-13-8, and Unit-in-Place, id. r. 2.2-15-1. The regulations provide assessors with "models to help identify and define various classes of buildings." Herb v. State Bd. of Tax Comm'rs, 656 N.E.2d 890, 893 (Ind.Tax Ct.1995). These models direct the assessors to the applicable cost schedule. The schedules are made up of values (base prices in hundreds of dollars) that are then adjusted for various factors (additions, interior and exterior features, quality, grade, life expectancy, etc.). Such factoring may increase or decrease the value. Regardless of what category the property falls under, the only determination of value is made via the schedules. These cost schedules and adjustment factors are the only information that may be used in determining an improvement's True Tax Value.

In summary, True Tax Value is a figure produced by the application of a closed set of self-referential rules and formulas contained in Title 50. Everything needed to calculate True Tax Value is set forth in Title 50; evidence of value external to Title 50 is irrelevant. See Dawkins v. State Bd. of Tax Comm'rs, 659 N.E.2d 706, 709 (Ind.Tax Ct.1995); See also INSTITUTE OF PROPERTY TAXATION, PROPERTY TAXATION 159 (Jerrold F. Janata, ed., 2d ed. 1993). As a result, evidence of an improvement's actual reproduction cost or evidence of the actual value of land is irrelevant under the True Tax Value system.

Article X, Section 1

and the Intent of the Framers

In St. John II, 675 N.E.2d at 324, the Indiana Supreme Court made it clear that the constitutional requirements of uniformity and equality provide judicially cognizable standards by which Indiana's real property taxation system may be evaluated. As the Supreme Court explained, "Article X, section 1 does not immunize legislative policy judgments from judicial oversight, but rather establishes mandatory minimum requirements for our system of property assessment and taxation." Id. The specific language used by the framers in the Indiana Constitution requires the legislature to provide for a "uniform and equal rate of property assessment and taxation," and to secure a "just valuation for taxation of all property, both real and personal." IND. CONST. art. X, § 1(a). Therefore, a crucial step in this Court's analysis of the current property tax scheme is to determine what minimum requirements the framers intended by using the "uniform and equal" and "just valuation" language.

In order to determine the intent of the framers in drafting our constitution, one must consider the "history of the times, and examine the state of things existing when the constitution or any part thereof was framed and adopted, to ascertain the old law, the mischief, and the remedy." St. John II, 675 N.E.2d at 321 (citations omitted). There were two problems that led to the adoption of Article X, section 1.

First, under the tax system then in place, some property escaped taxation while other property did not. 6 Not surprisingly, this was considered unfair. Governor James Whitcomb stated, "[I]t is quite manifest that a large amount of the invisible wealth of our community ... is not found upon assessment rolls. This description of taxables is generally owned by those best able to pay." INDIANA HOUSE JOURNAL, 32d Sess. 125 (1848) (emphasis added). This observation was echoed by the comments of Daniel Read, the delegate to the Constitutional Convention who proposed Article X, section 1:

There is manifest injustice in permitting property, in the hands of the wealthy, which ought to be taxed as other property,

to escape taxation altogether, or to be taxed only on a very small part of its value. It is to me a strange doctrine, that, in this country, a man may invest his money in any kind of stocks, and claim for it an...

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