Mac's Convenience Stores, LLC v. Hendricks Cnty. Assessor

191 N.E.3d 285

MAC'S CONVENIENCE STORES, LLC, Petitioner,

v.HENDRICKS COUNTY ASSESSOR, Respondent.

Case No. 21T-TA-00005

Tax Court of Indiana.

June 14, 2022

ATTORNEY FOR PETITIONER: MELISSA G. MICHIE, TAX CONSULTANTS, INC., Columbus, IN

ATTORNEYS FOR RESPONDENT: MARILYN S. MEIGHEN, ATTORNEY AT LAW, Carmel, IN, BRIAN A. CUSIMANO ATTORNEY AT LAW, Indianapolis, IN

WENTWORTH, J.

Mac's Convenience Stores, LLC ("Macs") appeals the Indiana Board of Tax Review's final determination that upheld its real property assessments for the 2018 and 2019 tax years. Upon review, the Court reverses the Indiana Board's final determination.

FACTS AND PROCEDURAL HISTORY

In October of 2014, Macs purchased commercial property in Hendricks County, Indiana. (See, e.g., Cert. Admin. R. at 33-35.) Macs paid slightly more than $2.7 million for the property, which consisted of 3.2 acres of land, a 4,476 square foot convenience store with a gas station, a 1,219 square foot car wash, and a variety of personal property. (See Cert. Admin. R. at 33-35, 78-82.)

During the years at issue, the Hendricks County Assessor assigned Macs's real property an assessed value of $1,913,400 ($1,200,000 for land and $713,400 for improvements). (See Cert. Admin. R. at 33-38.) Believing those values to be too high, Macs sought review first with the Hendricks County Property Tax Assessment Board of Appeals and then with the Indiana Board. (See Cert. Admin. R. at 1 - 18.) Macs elected to have each of its Indiana Board appeals heard under the small claims docket. (See Cert. Admin. R. at 1 - 2, 11 - 12.) See also, e.g., 52 IND. ADMIN. CODE 4-5-5 (2022).

On September 29, 2020, the Indiana Board conducted a consolidated telephonic hearing on the appeals, during which the Assessor conceded that she bore the burden of proving the 2018 assessment was correct because it had increased by about 10% since 2017. (See Cert. Admin. R. at 182-84, 186.) See also IND. CODE § 6-1.1-15-17.2(a), (b) (2020) (explaining the burden of proof at the time the Indiana Board conducted its hearing) (repealed 2022). To meet that burden, the Assessor primarily relied on two distinct types of documentary evidence: (1) a sales disclosure form and (2) an appraisal report for the property. (Cert. Admin. R. at 185-86, 199-200.) With respect to the first, the sales disclosure form, the Assessor explained that it showed Macs purchased the convenience store for $1,982,000 and the related personal property for $720,000 in October 2014. (See Cert. Admin. R. at 78-82, 185-87.)

The second piece of evidence, the appraisal report, was prepared by Erick Landeen, an Indiana certified general appraiser. (See Cert. Admin. R. at 95-160.) Landeen did not appear at the Indiana Board hearing to testify, however, the appraisal report indicated that he had relied exclusively on the sales comparison approach¹ to estimate the value of Macs's property as of January 1, 2018.² (See Cert. Admin. R. at 97, 105, 182.) Specifically, Landeen used for comparison the sales of five convenience stores with gas stations in Hendricks, Johnson, and Marion counties, and after adjusting their sales prices to account for various factors, such as differences in their ages, the number of fuel pumps, and the presence of car washes, he valued Macs's real property at $2,100,000. (See Cert. Admin. R. at 140-55.) The Assessor maintained that the evidence supported both assessments because it showed that neither assessment exceeded the property's market value in 2014 or 2018. (See Cert. Admin. R. at 194, 199-200.)

In response, Macs cautioned against placing too much weight on its property's 2014 purchase price, noting that the Hendricks County properties used as sales comparables were assessed at a fraction of their 2014 sales prices of about $1.3 million. (See, e.g., Cert. Admin. R. at 39-46, 141-44, 194-95 (demonstrating that the two Hendricks County properties were assessed at $603,000 and $714,100 during the years at issue).) Macs also argued that the appraisal report should be "thrown out" because its valuation was not confined just to the real property. (See Cert. Admin. R. at 189-98.) Macs explained that when convenience stores with gas stations are sold, the sales prices typically reflect the value of not only the realty, but also the related personal property. (See Cert. Admin. R. at 190-92.) Macs pointed to its own sales disclosure form as support, explaining that approximately 27% of the 2014 purchase price was for fuel pumps, underground storage tanks, walk-in coolers, and portable racks and shelves. (See, e.g., Cert. Admin. R. at 191, 193.) Moreover, Macs offered an email that indicated the Marion County properties used as sales comparables in the appraisal report were not eligible for use in the annual trending process³ because "information on what personal property amount was included in the sale[s]" was unavailable. (See Cert. Admin. R. at 59-60, 196.) Indeed, Macs pointed out that instead of removing the personal property costs from the sales prices of the comparable properties, all of their sales prices were increased to account for the lack of personal property (i.e., fuel pumps) in relation to Macs's property.⁴ (See Cert. Admin. R. at 191-92, 195-96, 200.) Consequently, Macs claimed its 2018 and 2019 assessments should revert to its 2017 assessment of $1,734,100 because the Assessor had not shown that its 2018 assessment was correct. (See, e.g., Cert. Admin. R. at 196-98, 200-01.)

On January 11, 2021, the Indiana Board issued a final determination, finding that the Assessor met her burden of proving that Macs's 2018 assessment was correct. (See Cert. Admin. R. at 165-78.) Viewing the appraisal report and the 2014 purchase price together, the Indiana Board explained that:

(1) with respect to the sale of convenience stores with gas stations, including the sales comparables, "it [was] likely that the real estate and personal property[, i.e., the fuel pumps, underground storage tanks, walk-in coolers, and portable racks/shelves,] transferred as a part of a single transaction with a single sale price – the same price Landeen used in his analysis[;]"

(2) the appraisal report's imperfections did not deprive it of all probative weight because none of the evidence showed that its inclusion of personal property had "played a significant role in Landeen's value conclusion[;]" nonetheless, the imperfections "caution[ed] against raising [either] assessment to $2.1 million as the Assessor [had] request[ed;]" and (3) the property's 2014 purchase price, when adjusted to exclude the cost of the personal property, supported the assessments because "Landeen concluded that the market for convenience stores appreciated by 3% per year" between the subject property's date of sale (i.e., October 2014) and the 2018 valuation date, which "more than offset" the subject property's depreciation over that same period.

(See Cert. Admin. R. at 172-76 ¶¶ 36-53.) The Indiana Board further explained that because Macs had attacked the assessment methodology without offering any market-based evidence of its own, it had failed to show that either of its assessments were incorrect. (See Cert. Admin. R. at 176-77 ¶¶ 54-59.) Accordingly, the Indiana Board concluded that Macs's 2018 and 2019 assessments should remain at $1,913,400. (See Cert. Admin. R. at 177-78 ¶ 60.)

On February 16, 2021, Macs initiated this original tax appeal. The Court conducted an oral argument on July 15, 2021. Additional facts will be supplied when necessary.

STANDARD OF REVIEW

The party seeking to overturn an Indiana Board final determination bears the burden of demonstrating its invalidity. Lowe's Home Ctrs., Inc. v. Monroe Cnty. Assessor, 160 N.E.3d 263, 268 (Ind. Tax Ct. 2020). Thus, to prevail in its appeal, Macs must demonstrate to the Court that the Indiana Board's final determination is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to constitutional right, power, privilege, or immunity; in excess of or short of statutory jurisdiction, authority, or limitations; without observance of the procedure required by law; or unsupported by substantial or reliable evidence. See IND. CODE § 33-26-6-6(e)(1)-(5) (2022).

LAW AND ANALYSIS

On appeal, Macs contends that the Indiana Board's final determination must be reversed because it is contrary to law and constitutes an abuse of discretion. (See, e.g., Pet'r Br. at 1; Oral Arg. Tr. at 8-9, 14.) More specifically, Macs claims that the Indiana Board erred in finding that the Assessor met her burden of proving its 2018 assessment was correct because the evidence upon which that finding is based – the appraisal report and the property's 2014 purchase price – have no probative value. (See Pet'r Br. at 7-10; Oral Arg. Tr. at 8-17.) Consequently, Macs maintains that its 2018 and 2019 assessments should revert to the 2017 assessment of $1,734,100. (See Pet'r Br. at 12.)

The Appraisal Report

Macs asserts that the appraisal report contravenes Indiana's real property assessment guidelines because its value conclusion includes personal property, and thus, fails to establish the value of the real property alone.⁵ (See Pet'r Br. at 7-9; Oral Arg. Tr. at 8-14.) In response, the Assessor claims that Macs's assertions rest largely on argument rather than the actual evidence. (See Resp't Br. at 9-13.) The Assessor maintains that the appraisal report "does not value anything beyond the real property" because it states that the personal property was not listed as a site improvement and that "[n]either the subject nor the [sales] comparables include[d] any non-realty components[.]" (Resp't Br. at 11 (citing Cert. Admin. R. at 113, 153), 13.) The Assessor therefore urges the Court to refrain from "reweigh[ing] the evidence as [Macs] pleads for it to do" because the appraisal report supports both assessments despite its alleged "warts and flaws[.]" (See Resp't Br. at 13; Oral Arg. Tr. at 29.)

The Legislature has adopted different...