I. Select New Legislation
Senate Enrolled Act No. 228 (signed by Governor March 13, 2024)
The Act revised Indiana’s economic nexus threshold for sales tax, retroactive to January 1, 2024. If a retail merchant does not have a physical presence in Indiana, it will be required to register as a retail merchant and collect and remit Indiana sales tax on retail transactions made in Indiana if the merchant’s sales exceed $100,000, without regard for the number of Indiana transactions. The Act repealed a separate and independent threshold that previously required a merchant to collect and remit sales tax if it had 200 or more separate transactions delivered to Indiana.
The Act also allows a retail merchant that receives 75% or more of its receipts from the sale of prepared food to elect to claim an exemption of 50% of the gross retail tax imposed on transactions involving electricity purchased by the retail merchant that is derived through a single meter. A merchant who does not make this election remains free to claim a greater exemption by showing that electricity, gas, water, or steam is predominately used by the purchaser for an exempt purpose such as manufacturing.
II. Select Administrative and Case Updates
A. Sales and Use
Memorandum of Decision Number 04-20232061 (January 23, 2024) (Sales Tax) – Exemptions for Property and Services Used for Public Transportation
Taxpayer is an Indiana delivery service provider who contracts with a large retailer to deliver their products. Taxpayer regularly rents large vans to deliver said products. Taxpayer requested a refund of sales tax it paid to various auto rental companies for vehicles it used to transport retail goods to consumers of those goods. Taxpayer sought the refund under the public transportation exemption outlined in IC 6-2.5-5-27, which provides, “transactions involving tangible personal property and services are exempt from the state gross retail tax [] if the person acquiring the property or service directly uses or consumes it in providing public transportation for persons or property.”
Taxpayer provided sufficient documentation to establish that it does qualify for the exemption listed under IC 6-2.5-5-27 and is entitled to a refund of the sales tax paid to Indiana auto rental companies for which it provided corresponding invoices that confirm the amount of sales tax paid. However, Taxpayer was not entitled to a refund of a refund of sales tax paid to Ohio on rentals from Ohio locations. The Department also observed that Taxpayer was not being awarded any refund of auto rental excise tax, which is separate from the gross retail tax and has its own set of exemptions.
Final Order Denying Refund: 04-20231163 (December 6, 2023) (Sales Tax) – Exemption for Equipment Used in Providing Telecommunication Services
Taxpayer is an out-of-state communications company that sells telephone services to customers via new contracts. Taxpayer also offers warranty contracts to customers and provides replacement phones as needed under the warranty terms. Taxpayer filed a claim for refund of sales/use tax paid on cell phone purchases made during tax year 2018. The Department concluded that “free phones” provided as part of a new service contract as well as “replacement phones” provided under optional warranty contracts were subject to use tax. Taxpayer protested.
Taxpayer argued that its phone purchases were exempt from tax under IC 6-2.5-5-13, which states, in relevant part, “[t]ransactions involving tangible personal property are exempt from the state gross retail tax, if: (1) the property is: … radio or microwave transmitting or receiving equipment, …and (2) the person acquiring the property: (A) furnishes or sells intrastate telecommunication service in a retail transaction described in IC 6-2.5-4- 6….”
The Department agreed that cell phones are “radio or microwave transmitting or receiving equipment.” However, Taxpayer’s “use” of the phones is to provide the phones to customers via new contracts or replacement warranties, but the exemption provided under IC 6-2.5-5- 13 is applicable to equipment used in providing telecommunication services. Taxpayer does not operate the cell phones as radio or microwave transmitting or receiving equipment; rather Taxpayer’s customers use the phones in that manner. The Department concluded that Taxpayer’s reliance on IC 6-2.5-5-13 was misplaced, and this statute did not apply to Taxpayer’s purchase and disposition of the cell phones under protest. Taxpayer’s protest was denied.
Final Order Denying Refund: 04-20231386 (August 16, 2023) (Sales Tax) – Research and Development Exemption
Taxpayer is an Indiana company in the business of conducting chemical and pharmaceutical analyses and providing its customers development and intellectual property support. Taxpayer submitted a claim for a refund of sales tax paid on the purchase of tangible personal property used in research and development of Taxpayer’s products. Taxpayer sought a refund of approximately $210,000. The Department agreed that Taxpayer was entitled to a refund of approximately $165,000, but it denied the remaining $45,000 refund amount. Taxpayer protested.
A sales tax exemption for research and development (“R&D”) property is available under IC 6-2.5-5-40. The current version of the statute also provides that certain activities are not considered R&D activities and clarifies that certain activities are considered incidental to R&D activities.
Taxpayer maintained that the Department erred by denying a refund of sales tax paid on several items such as a file organizer; four drawer lateral filing cabinet; extension cord; swivel task chair; and surge protector. Taxpayer explains that these items are essential and integral in performing its research activities because extension cords, for example, are used to power the computers and other items. Without power, the computers and lab equipment will not work. The filing aids are used by scientists to organize findings from experiments. Without these filing aids, paperwork would be misconstrued and lead to test results that are not accurate.
The Department did not agree that the extension cords, desks, filing equipment and the like were essential and integral in conducting research. The Department did agree that these items are useful and necessary because researchers need desks, chairs, and filing cabinets, but that does not necessarily qualify them for the exemption. The Department explained that it was not permitted to roam beyond the four-corners of that exemption because Taxpayer’s claims were not within “the exact letter of the law.” Indiana Dep’t of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96, 101 (Ind. Ct. App. 1974). Taxpayer’s protest was denied.
B. Property Tax
Majestic Properties, LLC v. Tippecanoe County Assessor, No. 22T-TA-00013 (Ind. Tax Ct. August 9, 2024) – Impact of Current Use on Assessed Value
Taxpayer owned a single-family home used as a rental property. Taxpayer appealed the property’s assessment and presented an appraisal which valued the property as income-producing residential rental property, while the Assessor valued the property using sales of owner-occupied homes. In proceedings below, the Indiana Board of Tax Review found the Assessor’s appraisal more credible than the taxpayer’s appraisal, concluding that the subject property’s use as residential rental property constitutes the same “residential use” as an owner-occupied home. On appeal, the taxpayer argued that the two uses are materially different and represent different markets, which could yield different valuations. The Court noted that Indiana’s assessment regulations provide that current use is determined by looking to “the utility received by the owner or by a similar user, from the property.” The Court found that an additional inquiry was necessary to determine whether there was any overlap in utility between the two uses. The Court remanded the case to the Indiana Board to reconsider this issue based solely on the evidence already in the administrative record.
Dr. Tulsi and Kamini Sawlani v. Lake County Assessor, No. 21T-TA-00044 (Ind. Tax Ct. July 24, 2024) – Constitutionality of One-Acre Limitation on One Percent Tax Cap
In a case of first impression, the taxpayers claimed that Indiana’s statutory one-acre limitation on the one percent tax cap was unconstitutional. Indiana’s Constitution at Article X, Section 1, provides several caps or “circuit breakers” on property tax liability, including a one-percent cap on “[t]angible property, including curtilage, used as a principal place of residence by an … owner of the property[.]” Indiana currently limits this classification to one acre of land, even though nothing in the Constitution imposes such a limitation. Taxpayers owned 3.9 acres of land surrounding their home, and 2.9 of those acres were classified as non-residential real property subject to a 3% cap, notwithstanding the fact that the entire property was used as their principal place of residence. The Court’s analysis largely turned on the interpretation of the word “curtilage” in the Indiana Constitution, which the Court found did not include an inherent one-acre limitation. Importantly, the Court did not find Indiana’s statutory one-acre limitation to be unconstitutional on its face, because its effect could be constitutional for those taxpayers with less than one acre of land, for example. As to other taxpayers, the Court held that constitutionality of the one-acre limitation would be decided depending on the factual circumstances of each case. The case was remanded to the Indiana Board with instructions to determine whether the taxpayers’ additional land qualified for the one percent cap in the absence of the one-acre limitation. Thus, the Court found that the one-acre limitation “may be” unconstitutional as applied to the taxpayers in this case.
The Assessor has filed a notice of intent to appeal the Tax Court’s decision to the Indiana Supreme Court.
Clark County Assessor v. Dillard Department Stores, Inc., No. 22T-TA-00011 (Ind. Tax Ct. June 5, 2024) – Appraisal Methodology
Taxpayer appealed its assessment and presented an appraisal that developed the sales and income approaches but did not develop the cost approach. The Assessor submitted an appraisal using all three approaches to value. In proceedings below, the Indiana Board of Tax Review expressed concerns about the taxpayer’s sales comparison approach, and all three of the Assessor’s valuation approaches. Despite some concerns, the Indiana Board determined that the taxpayer’s valuation using the income approach was “the best evidence of value” and adopted it as its own. The Assessor argued that by including a “percentage of sales” methodology in this valuation, the taxpayer improperly included intangible business value in the valuation. However, the Court found that the Assessor had not presented any evidence that the percentage of sales methodology was inconsistent with generally accepted appraisal practice, and it noted that the Indiana Board had found the appraisal to be USPAP-compliant. The record also indicated that the taxpayer’s appraiser took steps to mitigate the risk of including intangible business value in his valuation.
The Assessor also contended that the taxpayer’s market rent calculation was based on arbitrary data. Citing precedent, the Court held that “the Indiana Board’s decision will stand so long as there is more than a scintilla of evidence such that a reasonable mind might accept as adequate.” The Indiana Board’s decision in favor of the taxpayer was affirmed.
Convention Headquarters Hotels, LLC v. Marion County Assessor, No. 19T-TA-00021 (Ind. Tax Ct., May 24, 2024) – Equal Protection, Uniformity and Equality
Taxpayer’s hotel was partially assessed by the Assessor during its construction, and Taxpayer challenged this on constitutional grounds, alleging that other property owners in the county were not similarly assessed with partial assessments during the construction of their properties, and this constituted disparate treatment under various constitutional provisions. The Assessor responded that the evidence did not show that he had failed to assess similarly situated Marion County properties which were also under construction, notwithstanding the fact that some “zero-dollar” construction assessments were used in instances where insufficient data existed to render construction assessments above zero. The Court determined that the question turned in part on whether all of the properties under construction during the relevant period were “assessed.”
The Court found that 62 commercial properties were under construction during the relevant period, 2006-2019. The Court then determined that the assessment process involves “discovery, listing and appraising” property. The Court concluded that the taxpayer failed to meet its burden to show that these three functions had not occurred, notwithstanding evidence such as, for example, property record cards without data concerning properties under construction. The Court did not agree that the lack of data meant that no assessment had occurred, noting that Indiana assessment law “does not require absolute and precise exactitude as to the uniformity and equality of each individual assessment.” The Court further noted that Indiana’s assessment guidelines do not prohibit a valuation of $0.00 for properties under construction when design features are not discernable on an assessment date. The Court found that the Assessor had assessed all of the commercial properties under construction and thus did not violate the taxpayer’s constitutional rights.
Kinser Group II, LLC v. Monroe County Assessor, Pet. Nos. 53-005-21-1-4-00741-21, et al. (Ind. Bd. Tax Rev. Feb. 20, 2024) – Appraisal Methodology; Quality of Comparables; COVID-19 Impact
The taxpayer owned an upper-midscale, limited-service, 102-room hotel on 1.5 acres, operated under a national flag. The taxpayer challenged the 2020 and 2021 assessments of $7,491,200 and $6,707,600, respectively. The taxpayer and the Assessor offered the testimony of independent appraisers.
The Board noted that hotels like the subject property are seldom, if ever, purchased solely for their real estate. They are instead purchased as going concerns that also include personal (FF&E) and intangible (business enterprise) property interests. Both appraisers used the Rushmore method in an attempt to extract the value of the subject real estate from the going concern.
The Board found the Assessor’s appraiser’s market segment analysis more nuanced, better reasoned, and better supported. This contributed to the Assessor’s appraiser more reliably projecting net income for the subject property than the taxpayer’s appraiser, who included property taxes as an expense which the Board noted distorted his conclusion. As a result, the Board found the Assessor’s appraiser’s income approach conclusion more reliable. In analyzing the appraisers’ sales-comparison approaches, the Board found the Assessor’s appraiser more persuasive, in part because taxpayer’s appraiser included comparable sales that were not listed and therefore not exposed to market forces. The Board found that the Assessor’s appraiser’s conclusions under the cost approach supported his ultimate value opinion, and the taxpayer’s appraiser’s failure to use the cost approach contributed to the Board’s ultimate opinion that Assessor’s appraiser’s valuation opinions were more persuasive.
The Board found the Assessor’s appraiser’s 2021 valuations even more persuasive because of the appraisers’ different judgments on the impact of the COVID-19 pandemic. For example, in his market segment analyses, the Assessor’s appraiser relied on market analyses and projections that were later in 2020, and thus less pessimistic. Additionally, although the Board found the 2020 discount rates in each appraisers’ income approach were supported and reasonable, it found the Assessor’s appraiser’s more reliable in 2021 because it disagreed with the taxpayer’s appraiser’s decision to increase his rates to account for pandemic-related uncertainty. The Board found similar problems in taxpayer’s appraiser’s 2021 sales-comparison approach, noting that two of his four comparable sales were from March 2020, at the height of the pandemic. The Board believed Assessor’s appraiser’s 2021 valuations better reflected market thinking near the relevant valuation date.
The Board found the Assessor’s appraiser was more thorough in his analyses, better explained his underlying judgments, and relied on market data that was more tailored to the market segment in which the subject property competes, and thus found that his ultimate valuation opinions were the subject property’s true tax value: $8,000,000 for the 2020 assessment date and $7,500,000 for the 2021 assessment date.
Kohl’s Indiana, LP v. Madison County Assessor, Pet. Nos. 48-003-19-1-4-00291-20, et al. (Ind. Bd. Tax Rev. Feb. 19, 2024) – Appraisal Methodology; Quality of Comparables
The subject property of this assessment appeal spanning assessment years from 2019 to 2021 was an approximately 87,000 square foot retail store and site improvements on approximately 8 acres in a retail shopping complex in Anderson, Indiana, assessed at approximately $4.5M during the years at issue. The taxpayer and the Assessor offered the testimony of independent appraisers, each of whom developed the cost, income capitalization, and sales comparison approaches to value the subject property, although the Board concluded that the cost approach was the least applicable valuation due to the subject property’s age.
The Board found taxpayer’s appraiser’s sales comparison and income capitalization approaches lacked good comparable sales and leases, and those approaches suffered from poorly supported decisions regarding adjustments. For example, taxpayer’s appraiser included properties that were not big box stores in his comparable sales and leases despite having earlier stated that buildings less than 80,000 square feet had a stronger market and higher prices than big-box stores, which the Board viewed as admitting that such properties do not compete in the same market segment. Thus, the Board concluded that including such properties as comparable sales and comparable leases detracted from the reliability of taxpayer’s appraiser’s analysis.
In evaluating the Assessor’s appraiser’s comparable sales, the Board found similar issues. For instance, the appraiser relied on allocated sale prices from a portfolio sale. The Assessor’s appraiser also did not perform any research specific to this appraisal because he had a variety of other big box appraisal assignments in progress at the time and relied on a preselected set of comparable sales and leases. The Indiana Board concluded that the Assessor’s appraisals did not produce persuasive value conclusions.
On balance, even though the Board determined that the three approaches of the taxpayer’s appraiser “did not produce particularly strong value conclusions,” the Board was more persuaded by the opinion of the taxpayer’s appraiser and reduced the assessed values to approximately $2.3M for the years at issue.
C. Income Tax
Final Order Denying Refund: 02-20231802 (January 19, 2024) (Corporate Income Tax) – Alternative Apportionment Method and Prerequisite Request for Ruling
Taxpayer is a corporation domiciled in Indiana. Taxpayer operates manufacturing facilities in Indiana and other states, selling tangible property to customers within and without Indiana.
In 2018, Taxpayer sold one of its divisions located in Indiana (“Indiana Division”) as an asset sale to a third party. Taxpayer reported an approximately $30 million capital gain net income on the 2018 federal income tax return. Taxpayer apportioned that income among states, including Indiana, where it conducted its business and remitted its state income tax.
In October 2022, Taxpayer amended its 2018 return based on several reasons to request an approximately $1 million refund of income tax. Among those reasons, Taxpayer stated that its “amended return is intended to serve as a petition for alternative apportionment[.]” The Department granted a partial refund of approximately $10,000. Taxpayer protested.
Generally, when a taxpayer sells property that has been used to generate business income, the disposition of that property is an integral part of the taxpayer’s regular trade or business. As such, the gross receipts from disposition of that property are deemed business income subject to apportionment. When disposition of the property occurs in Indiana, the gross receipts from that sale are attributable to Indiana. As such, the gross receipts from that sale are required to be included in both numerator and denominator to compute the Indiana sales factor in order to apportion the taxpayer’s business income subject to Indiana income tax. Taxpayer’s original 2018 Indiana corporate income tax return reported its Indiana sales factor of 54.96 percent.
However, an exception to the standard rule allows “the employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer’s income.” IC 6-3-2-2(l)(2018). When a taxpayer petitions for the use of an alternative method to effectuate an equitable apportionment of the taxpayer’s income, the taxpayer must demonstrate that (1) the standard formula fails to fairly reflect taxpayer’s business activity in Indiana and (2) its proposed alternative formula is reasonable. Further, the taxpayer “must request in writing” to obtain “a ruling which permits [] the use of a different formula which more fairly reflects its income from Indiana sources.” 45 IAC 3.1-1-39; 45 IAC 3.1-1-62.
In late 2022, to claim the approximately $1 million refund, Taxpayer amended its 2018 return, stating, in part, the following:
“During the 2018 tax year, the taxpayer sold a division of its business. This sale was a one-time exceptional transaction that significantly distorted the taxpayer’s apportionment. Including the gross receipts from the sale of this division in the sales factor did not fairly represent the taxpayer’s income derived from sources within Indiana. Therefore[,] on this return, [approximately $30 million] in gross receipts from this transaction have [] been removed from the numerator and denominator.”
Referencing IC 6-3-2-2(l)(4) and 45 IAC 3.1-1-50, Taxpayer asserted that its “gross receipts should be disregarded in determining the sales factor to effectuate an equitable apportionment.” Taxpayer’s amended return stated a proposed 2.30 percent Indiana sales factor.
The Department noted that the assets of Taxpayer’s Indiana Division were located in Indiana, and the sale of those assets to the new owner took place in Indiana. The Department reasoned that Taxpayer’s higher Indiana apportionment percentage for 2018 due to the large Indiana receipts does not mean there was a distortion.
The Department determined that Taxpayer’s proposal to simply exclude the $30 million from its sales factor was not reasonable because it failed to substantiate that the standard method “works a hardship or injustice upon the taxpayer, results in an arbitrary division of income, or in other respects does not fairly attribute income to this state or other states.” 45 IAC 3.1-1-62.
Moreover, before deviating from the applicable standard apportionment method, Taxpayer was required to “request in writing” to obtain “a ruling which permits [] the use of a different formula which more fairly reflects its income from Indiana sources.” Thus, Taxpayer was required to submit its written request to the Department’s Policy Division prior to filing its amended return. Taxpayer failed to do so. The Department denied Taxpayer’s additional refund request.
Revenue Ruling # 2023-01FIT (July 21, 2023) (Financial Institutions Tax and Adjusted Gross Income) – Sales of Mortgages
Taxpayer is an Indiana corporation and is headquartered in Indiana. Subsidiary operates under an Indiana charter and has depository branches in Indiana. Both Taxpayer and Subsidiary are taxpayers for purposes of Indiana financial institutions tax under IC 6-5.5.
Subsidiary has two lines of business. The first line of business is its standard banking and retail lending line, in which employees at Subsidiary’s lending offices deal directly with borrowers seeking loans, generally secured by real property. Once a loan is approved, Subsidiary will provide the funds directly to the borrower. In many cases, Subsidiary will sell the loans it originates to third-party investors. These loans are generally packaged into investment vehicles and priced to downstream investors in a manner similar to other securities.
Subsidiary’s second line of business is a “mortgage warehousing service line.” This line consists of loans that Subsidiary does not originate. Instead, the loan is originated by a third party and title continues to be held by the third-party originator. Subsidiary has the right to a pro rata share of all payments in the underlying loan. For instance, if Subsidiary purchases a 35% participation interest in the loan, Subsidiary is entitled to 35% of all payments. The third-party originator is required to either sell the loan or issue mortgage-backed securities on behalf of Subsidiary based on the percentage of its participation interest in the loan. Subsidiary is entitled to a portion of the receipts from the sale of the loan or mortgage-backed securities.
The Ruling addresses the amount of receipts reportable for purposes of financial institutions tax. For instance, assuming Subsidiary acquires a mortgage for $200,000 and then sells the mortgage for $250,000, is the amount reported $250,000 (gross receipts) or $50,000 (gain)?
Under IC 6-5.5-4-2(1) and IC 6-5.5-1-10, the definition of “receipts” turns on the definition of gross income under IRC section 61, which is ambiguous as to the sale of loans. Based on the history of case law under IRC section 6501, the Department interpreted “gross income” as the amount received as opposed to the gain or loss on the sale or disposition of the property. Thus, the Department will treat the gross proceeds of the sale or other disposition of the property as the “gross income” for purposes of applying IC 6-5.5-4.
The Ruling also addressed the sourcing of loan transactions for purposes of determining whether receipts are attributable to Indiana or other states for financial institutions tax purposes. Under IC 6-5.5-4-4, “[i]nterest income and other receipts from assets in the nature of loans or installment sales contracts that are primarily secured by or deal with real or tangible personal property must be attributed to Indiana if the security or sale property is located in Indiana.” The Department reasoned that, in the case of mortgages, this treats receipts as attributable to Indiana if the real property associated with the receipts is in Indiana. The Department also relied on IC 6-5.5-4-9, which provides that receipts from the sale of an asset are attributable to Indiana in the same manner that the income from the asset is attributed. Based on this, the Department reasoned that if a mortgage or other secured loan–either a direct mortgage or a participation interest–is sold, the sale of the mortgage or secured loan is treated as being from Indiana if the underlying property securing the loan is in Indiana.
The Department ruled that (a) receipts from the sale of mortgages and similar loans are treated as reportable based on a gross receipts basis, and (b) to the extent the mortgages are secured by Indiana property, the receipts are treated as being from Indiana for financial institutions tax apportionment.
D. Motor Carrier Fuel Tax
B.L. Reever Transport, Inc., et. al v. Ind. Dept. of State Rev., No. 20T-TA-00009 (Ind. Tax Ct. Jan. 10, 2024) – Motor Carrier Fuel Tax
Taxpayers claimed a refund for motor carrier fuel tax (“MCFT”) on fuel consumed on the Indiana toll road, disputing whether the toll road was a “highway” for purposes of the MCFT. The word “highway” is defined for purposes of the MCFT as including “every publicly maintained way that is open in any part to the use of the public for purposes of vehicular travel.” Taxpayers claimed the toll road did not meet the “publicly maintained” element because it was leased to a private entity that assumed responsibility for the toll road’s upkeep. The Court found that maintenance activities performed by a concessionaire under the toll road lease were done on behalf of a public agency, and constituted an essential governmental, public and corporate function. Thus, the Court held that the toll road was “publicly maintained,” and it therefore met the definition of “highway” for purposes of the MCFT.
Taxpayers also cited certain “admissions” made by the Department of Revenue in a related federal case, arguing that the Department was bound by such admissions. The Court noted, however, that such statements were not made in actual pleadings, but rather in motions and responses to motions, and thus they cannot be considered “judicial admissions” to which the Department would be bound. Similarly, the taxpayers asserted that the Court should bar the Department from claiming that the toll road was publicly maintained based on a resolution of related federal litigation. The Court noted that at most, this argument was an indirect implication that unidentified equitable principles be applied. The Court found that the two federal cases were sufficiently distinguishable from the present case. The Court granted summary judgment granted in favor of the Department and against the taxpayers.
E. Administrative/Procedural
Lowe’s Home Centers, Inc. v. Madison County Assessor, Pet. Nos. 48-003-20-1-4-00822-20, et al. (Ind. Bd. Tax Rev. Feb. 29, 2024) – Burden of Proof
The subject property of this assessment appeal was an approximately 140,000 square foot retail store situated on 18.58 acres in Anderson, Indiana. Assessment years 2020 and 2021 were under appeal, with each of those years being assessed at $6,742,800, an approximately 12.5% increase from the 2019 assessed value of $5,989,400. The taxpayer filed its appeals of the 2020 and 2021 assessments on June 5, 2020, and May 24, 2021, respectively, at which time Ind. Code § 6-1.1-15-17.2 would have imposed the burden of proof on the Assessor because the assessment under appeal had increased more than 5% over the prior year’s assessment.
Effective March 21, 2022, the Legislature repealed Ind. Code § 6-1.1-15-17.2. In Elkhart Cty. Ass’r v. Lexington Square, LLC, 219 N.E.3d 236, 238-40 (Ind. Tax Ct. 2023), the Indiana Tax Court drew a bright-line rule that appeals filed before the effective date the repeal would be governed by the old statute. Accordingly, even though the evidentiary hearing was held after the statute’s repeal, the Board found that Ind. Code § 6-1.1-15-17.2 applied because the taxpayer filed these assessment appeals before the repeal’s effective date.
The Indiana Board determined that the Assessor failed to meet his burden of proof under Ind. Code § 6-1.1-15-1 7.2’s exacting standards, which required him to offer evidence that exactly matched the challenged assessments. The Assessor relied solely on its expert’s appraisal and its valuation opinion of $7,070,000, which did not “exactly and precisely conclude to” the challenged assessment of $6,742,800. The taxpayer’s expert did not offer any valuation opinion but instead argued that the cost approach is essentially a “calculator method” that allows line-item edits, and thus the taxpayer’s expert should be permitted to correct alleged errors in the appraisal of the Assessor’s expert using objective market data. The Board disagreed because appraisers must exercise judgment when applying virtually every component of the cost approach, and Board declined to “cobbl[e] together a value that no expert proffered as his opinion.” Therefore, the Board concluded that Indiana Code § 6-1.1-15-17.2(b) required the assessment for each year to revert to the prior year’s level, and thus determined that the 2020 and 2021 assessments should be changed to $5,989,400.
Marion County Assessor v. Square 74 Associates, LLC, No. 22T-TA-00009 (Ind. Tax Ct. Feb. 14, 2024) – Valuation Methodology; Burden Shifting Rule
The taxpayer had a leasehold interest in a downtown Indianapolis parking garage and sub-leased that space to several restaurants. In administrative proceedings before the Indiana Board of Tax Review, the taxpayer presented an appraisal that valued its leasehold interest over nine assessment years at issue, which included separate cost and income approach estimates reconciled into a final value for each year. While the Assessor had several criticisms of the appraisal, the Assessor did not provide an appraisal of his own. For assessment year 2010, the Indiana Board found that the improvement value under the taxpayer’s cost approach, combined with the land valuation under the taxpayer’s income approach, was probative. However, it rejected the taxpayer’s valuation for the remaining years because no value was attributed to the land. For those subsequent years, the Indiana Board applied IC 6-1.1-15-7.2 (the “Reversion Statute”) because the challenged assessments each increased by more than 5% over the prior year’s assessment. Under the Reversion Statute, if neither party meets the burden of proof for changing an assessment, the assessment under appeal reverts to the prior assessment year’s value, which was assessment year 2010 under these facts (the Reversion Statute has since undergone several amendments). The Assessor appealed to the Tax Court.
The Assessor argued that the Indiana Board improperly used data from two different aspects of the taxpayer’s appraisal to reach an assessment—the improvements valued under the cost approach and the land valued under the income approach. The Court disagreed, noting that the Indiana Board simply exercised its discretion by weighing the evidence before it. The Assessor also took issue with the application of the Reversion Statute, claiming that 2010 was not a “prior tax year” as used in that statute. The Court found the statutory language to be straightforward, and it found that the Indiana Board’s interpretation was within the meaning of the statutory language. The Court added that the Assessor had taken a substantial strategic risk by electing not to introduce appraisal evidence of his own. The Indiana Board’s decision in favor of the taxpayer was affirmed.
Letter of Findings: 02-20221085 (August 18, 2023) (Corporate Income Tax) – Collection Fees
The Department determined that Taxpayer owed additional corporate income tax for year 2015 and issued a proposed assessment for the additional tax. When the Department did not receive payment or any other contact from Taxpayer regarding the proposed assessment, the Department issued a demand notice and then a tax warrant. At that point, the Department also hired a third-party collection agency to collect the base tax plus interest and associated fees, including a collection fee for the collection agency. The collection agency levied Taxpayer’s bank account and collected for all assessed amounts. Taxpayer filed a claim for refund of the collected amounts, and the Department refunded the base tax itself, but not the related fees. Taxpayer protested.
Taxpayer established that it did timely contact the Department once it received notice of the proposed assessment. Since Taxpayer contacted the Department to dispute the underlying tax assessment in a timely manner, the Department should have stopped the billing process and not hired the collection agency. Thus, the Department concluded that the collection fees should not have been incurred by Taxpayer and should be refunded.
September_, 2024
