Discerning the true meaning of the term “market value-in-use” is the central task now before the Indiana Supreme Court as it considers whether to accept review of a tax case that attorneys say will have a far-reaching effect on Indiana’s assessment system.
In oral arguments on petition to review in the case of Howard County Assessor v. Kohl’s Indiana LP, 49T10-1502-TA-00004, Mark GiaQuinta, counsel for the Howard County assessor, urged the justices to take the case and reverse the decision of the Indiana Tax Court, which allowed Kohl’s to base its 2010, 2011 and 2012 assessed values on the sale prices of similar vacant retail properties, or “dark boxes.” GiaQuinta told the justices that the Tax Court had changed Indiana’s true tax value standard from a standard of value-in-use to fair market value.
Specifically, GiaQuinta said the Tax Court had redefined “market value-in-use” by not requiring that the user be the current user or by assessing a utility value to the current user. Instead, during the assessment process, GiaQuinta said the appraiser for Kohl’s took value out of the company’s custom-built building to lower it to that of a vacant retail building by taking out features that the appraiser said general retailers would not pay for.
Justice Robert Rucker told the attorney that his argument seemed to be one of fact, not law, but GiaQuinta disagreed, noting that the Kohl’s appraiser referred to her work as “value-in-use appraisals” while simultaneously removing value from the Kohl’s property.
But Paul Jones, counsel for Kohl’s, told the court that the company’s appraiser had not taken value out of the building, but rather had looked at other retail buildings used for retail use in a sales-comparison approach. Additionally, Jones said the appraiser adjusted a cost-approach valuation for “external obsolescence,” or in this situation, the fact that the tax years at issue were years immediately following the Great Recession. The Howard County assessor’s appraisal did not account for that external obsolescence, Jones said.
Further, there is no difference between utility of an occupied retail building or a “dark box,” Jones said, because regardless of whether the building is occupied, it retains the utility for a retail use. But according to GiaQuinta, building costs reflect the utility to the owner of the building and, thus, reflect the specific owner’s property wealth.
But Jones said according to the state’s tax manual, an assessment can be made by looking at the utility received by the owner of the property or a “similar user.” To account for the utility to a similar user, the attorney said it is necessary for an appraiser to look at the market, as the Kohl’s appraiser did. Justice Geoffrey Slaughter asked Jones if the court should undertake defining the phrase “similar user,” but Jones said that would not be necessary because appraisers can determine that definition themselves. Further, Jones told Slaughter that the definition is a question of fact, not law.
Responding to a question from Chief Justice Loretta Rush about his long-term concerns over the Tax Court’s interpretation of “market -value-in-use,” GiaQuinta said his concerns are already coming to life as operating factories are trying to use closed warehouses as comparables in the tax assessment process.
“It’s starting, and this is going to have a tremendous impact on the redistribution of the tax burden across the state,” GiaQuinta said.
The full oral arguments in the case can be viewed here.