Property Tax Assessment Appeal Issues Continue

Last session, county officials sought drastic changes to Indiana’s property tax assessment methodology in reaction to two decisions from the Indiana Board of Tax Review (IBTR) involving “big-box” retail stores (e.g., a Meijer and a Kohl’s store). Officials complained that assessment appeals were being wrongly decided because the IBTR allowed the consideration of the sale price of like buildings that had been closed and were vacant at the time of the transaction as evidence of the value of the operating stores. Assessing officials called these transactions “dark sales” and contended such sales should be precluded from being considered in determining the assessment of like structures that remain open and occupied by large retail entities. The legislative result was something of a standoff between county officials and affected taxpayers. The ultimate legislation (SB 436) left a lot to be desired since the interested parties maintained such disparate viewpoints. They were – and remain – fundamentally divided on how real estate should be valued under Indiana law.

The issue came to the forefront again last month when the IBTR issued another decision that resulted in a significant reduction to a large commercial entity; this time, a CVS Pharmacy store in Bloomington. Interestingly enough, this case did not involve a “big-box” and was not based on the application of “dark sales” (even though you would have thought so from the way it was being publicly described by many.) Nevertheless, it was cited as another case where the IBTR had somehow gotten it wrong and was making a bad decision.

The situation essentially reveals: Assessors and county officials believe that large national chains should be taxed more because they are large national chains (and refuse to acknowledge the state of the law which just doesn’t support their higher assessments.) The IBTR has merely been doing its job, applying case law that has developed from Tax Court decisions issued since 2010 and before.

What’s more, assessors and county officials do not want to assess the property based on its fair market value, they want to assess it based on the value of the business operations that take place on the property — what I call “value to the user.” Property tax is supposed to be a tax on the value of real estate, not a tax on the investment value that real estate has to the owner. This debate arises out of the statutory and administrative rule definitions that govern our assessment system. Indiana defines true tax value as something different than the market value-in-exchange (what the property could sell for); instead it creates a hybrid standard referred to as “market value-in-use”. This hybrid was created to protect some properties from higher taxes. The best example is when a highly valuable piece of prime commercial real estate is actually used for agricultural or residential purposes.

But now there is a movement to interpret market value-in-use as a means for taxing the value the property has to its specific user, i.e., the national retail chain owner. This is not only subjective, unfair and inequitable; it is unworkable. It would result in nearly identical buildings being assessed at widely differing values based on the financial status and circumstances of the particular owner. Such a standard is contrary to our Indiana Constitution and would effectively undermine the integrity of our entire assessment system.

It is an important issue and appears it is going to be taken back up next month by the Interim Committee on Fiscal Policy, which has scheduled meetings for October 7, 13 and 21.

New Tax Guide a Valuable Asset for Indiana Businesses

We take great pride in helping to educate our members and customers through our many publications. The latest example is the newest edition of the Indiana Taxation Handbook, a valuable resource for those who deal with Indiana tax issues.

As a result of changes in tax law and policy over the last two legislative sessions, new and revised sections of the Indiana Tax Handbook: 2013-14 Edition include:

  • Elimination of the Indiana Inheritance Tax
  • Reduction in the Indiana Corporate Income Tax
  • New consolidated filing options for Indiana businesses
  • Overview of the new rolling reassessments for real property in Indiana
  • Adjustments to the property tax appeals process, and new obstacles that must be overcome in appealing property tax assessments
  • Impact of the automatic taxpayer refunds, and where Indiana taxpayers will receive savings

This informative publication is authored by attorneys at Ice Miller, LLP and is available for $111.75 for Indiana Chamber members and $149 for non-members. Order your copy today by calling (800) 824-6885 or through our web site.

Indiana’s Business Tax Climate: Not a Perfect One, But a Good 10

We’re No. 10! We’re No. 10! Not exactly the rallying cry one is used to hearing, but a refrain that deserves more plaudits than usual. Here’s why Indiana’s ranking in the Tax Foundation’s 2011 State Business Tax Climate Index is noteworthy:

  • It’s not easy to make substantial improvements in this area. Indiana has ranged between No.12 and No. 14 over the last five years
  • The top eight seemingly head the list by default as they do not impose one of the big three taxes (sales, income or corporate income). So, without too much of a stretch, you could say Indiana is second on the list
  • We’re far away from the bottom 10; in order from No. 50, that’s New York, California, New Jersey, Connecticut, Ohio, Iowa, Maryland, Minnesota, Rhode Island and North Carolina

The Indiana Chamber’s advocacy efforts certainly are contributing factors to the state ranking. Historic tax restructuring in 2002 (including elimination of the inventory and corporate gross receipts levies) is among the Decade of Policy Victories document reflecting major legislative accomplishments from 2000-2009. The Chamber has also achieved success in general property tax reductions and an expansion of a variety of tax credits (good for business, but not earning high marks in this report).

According to the Tax Foundation, the worst tax codes tend to have:

  • Complex, multi-rate corporate and individual income taxes with above-average tax rates
  • Above-average sales tax rates that don’t exempt business-to-business purchases
  • Complex, high-rate unemployment tax systems
  • High property tax collections as a percentage of personal income

Indiana’s rankings in the five categories are: corporate tax index, 21st; individual income tax index, 11th; sales tax index, 20th; unemployment insurance tax index, 12th; and property index, 4th.

Since this tax analysis game is not for the faint of heart, a little more from the Tax Foundation on how it all works.

The methodology of the State Business Tax Climate Index is centered on the idea of economic neutrality. If a state’s tax system maintains a “level playing field” for businesses, the index considers it neutral and ranks it highly. However, each state’s final score depends on a comparison with the other 49 states.

The overall index is composed of five specific indexes devoted to major features of a state’s tax system. Each of these five indexes is composed of several sub-indexes.

Each state’s laws and tax collections were assessed as of July 1, 2010, the first day of the 2011 fiscal year. Newer tax changes are the subject of commentary in an appendix but are not tallied in the scores and rankings.

The Tax Foundation has data charts, further analysis and a full 60-page report. By the way, you have to go west for most of the rest of the top 10 (in order): South Dakota, Alaska, Wyoming, Nevada, Florida, Montana, New Hampshire, Delaware and Utah.

And finally, going into a state budget year that will bring pressure to raise revenues, let’s all keep the vital importance of the tax climate in mind on business attraction and expansion decisions.

Lacy: Hoosiers Benefit When Legislators Work Together

Our Chairman of the Board, Andre Lacy, provides convincing commentary for Inside INdiana Business outlining how true bipartisanship is necessary for successful governing.

We recommend you take a look at the column in its entirety, but here are some highlights and examples he offers:

In 1999, Indiana moved to the forefront of K-12 education standards and accountability measures. A key driver was the General Assembly working in a bipartisan fashion to create Indiana’s Education Roundtable. This group of education and business community leaders was able to come together (leaving politics at the door) to monitor and refine standards that remain highly regarded by national experts. It took additional bipartisan legislative support to make these initiatives a reality.

In 2002, the governor teamed with legislative leaders of both parties to help craft comprehensive tax reform that provided property tax relief and made Indiana much more competitive as a business location through (among other substantial changes) the elimination of the inventory tax. That started a series of legislative sessions that featured cooperation across the aisles and passage of important economic development initiatives such as telecommunications and further tax reforms. The results have been substantial new investment and thousands of new jobs.

Full Impact of Property Tax Reform Remains to Be Seen

Passed in the midst of what was perceived by many (but not all) as a crisis, the primary objective of HEA 1001-2008 was to reduce property taxes for homeowners. In this regard, it is bound to be largely successful by combining additional sales tax revenue (over $900 million) with reducing property tax levies, allowing individuals to deduct 35% of their homeowner assessment and, beginning in 2010, capping residential assessments at 1% of their gross assessed value.

These actions may not be enough to satisfy everyone, but in a state in which the homeowners’ burden was ranked as the 33rd lowest nationally (and now will drop into the bottom 10), they should be seen as more than adequate for most. Still, we can’t immediately measure its success. Like most major endeavors of this type, many questions will not be immediately answerable. They include:

* How successful will the multitude of other changes to the tax structure be at accomplishing their intended objectives?

* Will counties adopt local income taxes to serve as property tax replacements, as is the intent of the drafters?

* Will the referenda requirements dramatically affect capital projects? 

* How accurate were projections of taxpayer savings and the impact of the circuit breakers?

* How will the reforms affect business decisions?

* How will the legislation and post-enactment developments bear on the fall elections?

Diligent as they may be, the magnitude of these changes prevents surefire predictions of the outcomes. To review the Chamber’s positions on these matters, click here.