Neither an assessor nor a longtime northern Indiana shopping mall met their burdens of proof in an appeal contesting tax assessments of the mall’s property for 2015 and 2016, the Indiana Tax Court concluded, ordering for the assessments to revert back to their 2010 value.
Southlake Indiana LLC owns Southlake Mall, a super-regional shopping mall in Hobart comprised of 12 tax parcels. The parcels include vacant land, surface parking lots and retention ponds; inline retail space and two attached stores; and several outlot parcels with free-standing improvements that are used as a movie theater, restaurants and various other retail spaces.
In Southlake Indiana, LLC v. Lake County Assessor, 19T-TA-22, the mall challenged the assessed value of its real property for the 2015 and 2016 tax years, $242,890,500. It argued that value was too high and appealed to the Lake County Property Tax Assessment Board of Appeals.
When that board failed to act, Southlake sought relief with the Indiana Board of Tax Review to no avail. The Indiana Tax Board failed to timely act on the mall’s assessment protests, so Southlake filed a direct appeal pursuant to Indiana Code § 6-1.1-15-5(g).
The Indiana Tax Court conducted a five-day trial in August 2020, where both parties’ appraisers relied primarily on the income capitalization approach to valuing the mall.
The Lake County assessor’s appraiser, Mark Kenney, estimated the mall’s market value-in-use was $258,990,000 during the 2015 tax year and $241,690,000 during the 2016 tax year. For its part, Southlake’s appraiser, John Mackris, estimated the market value-in-use for the 2015 and 2016 tax years was much lower: $142,300,000 and $144,500,000, respectively.
Tax Court Judge Martha Blood Wentworth found issue with both parties and their arguments, concluding neither met their respective requisite burden of proof under I.C. 6-1.1-15-17.2. She ordered that the 2015 and 2016 assessments revert to the assessment that was in place for tax year 2010.
Wentworth initially noted that unless and until the Indiana Legislature defines the word “correct” as used in I.C. § 6-1.1-15-17.2 differently, evidence presented by an assessing official to prove an assessment is “correct” under the statute must exactly and precisely conclude to the original assessment.
“In this case, the Assessor’s evidence does not exactly and precisely conclude to the assessments she originally assigned to the Mall,” Wentworth wrote. “Indeed, if the values offered as evidence in Kenney’s appraisal are correct, then the Assessor’s assessments are not correct.
“Alternatively, if Kenney’s appraisal values are not correct, then the Assessor has not met her burden to prove that her assessments are in fact correct,” Wentworth continued. “Either way, the Assessor has failed to meet her burden to prove that her original assessments are correct under Indiana Code § 6-1.1-5-17.2.”
As for the mall, the judge similarly concluded that Mackris’ capitalization rate was flawed and his appraisal report lacked probative value. Thus, Wentworth found that Mackris could not provide sufficient detail to demonstrate the similarity of his net operating income figures for each of the five properties to the mall’s NOI, and that he did not analyze how the risk profiles of the five malls from his sales comparison approach compared to the Southlake Mall’s risk profile.
“Consequently, his choice of a capitalization rate at the high end of the range is an arbitrary conclusion rather than one based on facts,” she wrote.
In a footnote, Wentworth acknowledged that in previous litigation, Southlake challenged the mall’s 2011-2014 assessments, which eventually made its way to the Indiana Supreme Court. The justices ordered the reinstatement of a tax assessment that was tens of millions less than the assessed values upheld by the Tax Court.
Wentworth declined the assessor’s request in the case at hand to take judicial notice of an excerpt from an appraisal of the mall contained in the certified administrative record of that previous case, claiming it would lend support to Kenney’s classification of the mall.
The Tax Court noted “generally a trial court may not take judicial notice of its own records in another case previously before it, even on a related subject with related parties.
“… That said, taking judicial notice of the classification in the previous case would not alter the Court’s holding that the Kenney appraisal did not show that the Assessor’s assessments of the Mall were correct,” the court concluded.