Shapiro v. Hamilton Cty. Assessor

231 N.E.3d 291

Brian J. SHAPIRO and Sarah K. Shapiro, Petitioners,

v.HAMILTON COUNTY ASSESSOR, Respondent.

Cause No. 22T-TA-00006

Tax Court of Indiana.

March 27, 2024

ON APPEAL FROM A FINAL DETERMINATION OF THE INDIANA BOARD OF TAX REVIEW

ATTORNEY FOR PETITIONERS: MARGARET L. SMITH, FROST BROWN TODD LLP, Indianapolis, IN

ATTORNEY FOR RESPONDENT: MARILYN S. MEIGHEN, ATTORNEY AT LAW, Carmel, IN

WENTWORTH, Senior Judge

Brian J. Shapiro and Sarah K. Shapiro challenge the Indiana Board of Tax Review’s final determination that found their Indiana property was ineligible for Indiana’s homestead deduction during the 2017 through 2020 tax years. Upon review, the Court affirms the Indiana Board’s final determination in part.

FACTS AND PROCEDURAL HISTORY

In 1991, the Shapiros purchased a single-story residence situated on an acre of land in the city of Zionsville, Hamilton County, Indiana (the "Indiana Property"). (See Cert. Admin. R. at 43-45, 114.) This property was titled in both of the Shapiros’ names as husband and wife and served as their martial residence. (See Cert. Admin. R. at 43, 110.) From 2017 through 2020, the Shapiros’ Indiana Property received Indiana’s homestead deduction. (See, e.g., Cert. Admin. R. at 55-57, 63.)

In June of 1996, Mrs. Shapiro purchased realty in Leelanau County, Omena, Michigan (the "Michigan Property"), titling the property in her name alone. (See Cert. Admin. R. at 39, 46-50, 114-15.) Mrs. Shapiro refinanced the Michigan Property in January 2016 and executed a quitclaim deed to transfer title of the Michigan Property to both of the Shapiros. (See Cert. Admin. R. at 40, 110.) That same year, the Shapiros executed another quitclaim deed, restoring exclusive ownership of the Michigan Property to Mrs. Shapiro. (See Cert. Admin. R. at 41, 110.) Subsequently, Mrs. Shapiro applied for and received Michigan’s principal residence exemption (the "Michigan PRE") for the Michigan Property for the 2017 through 2020 tax years. (See Cert. Admin. R. at 46-49, 114-15.)

At some point in 2020, the Hamilton County Auditor contracted with Tax Management Associates, a company "well versed in multiple states['] laws and residency-based benefits[,]" to review the county’s homestead deductions. (See Cert. Admin. R. at 115.) Based on the information Tax Management Associates provided, the Auditor sent a letter to the Shapiros in November 2020 to verify their eligibility for the homestead deduction on their Indiana Property for 2017 through 2019. (See Cert. Admin. R. at 50, 55-57, 114-15.) The next month, the Auditor notified the Shapiros that she had removed their homestead deductions for those years because the Indiana Property was not their principal place of residence during that time. (See Cert. Admin. R. at 58.) The Assessor also advised the Shapiros that they owed $12,319.57 in additional property taxes and penalties on the Indiana Property that they must remit before January 13, 2021. (See Cert. Admin. R. at 58-62.) Subsequently, the Auditor also removed the homestead deduction from their Indiana Property for the 2020 tax year.¹ (See, e.g., Cert. Admin. R. at 3-4, 6-7, 109.)

Believing the Auditor erred by removing their Indiana homestead deductions, the Shapiros sought review, first with the Hamilton County Property Tax Assessment Board of Appeals and then with the Indiana Board. (See Cert. Admin. R. at 1-29.) The Shapiros elected to have their Indiana Board proceedings conducted under the Indiana Board’s small claim procedures. (See, e.g., Cert. Admin. R. at 1-2, 108.)

On October 19, 2021, the Indiana Board held a hearing on the matter during which Mr. Shapiro appeared on behalf of the Shapiros. (See Cert. Admin. R. at 108-10.) Mr. Shapiro testified that he and his wife have been married since 1989, have continuously resided in Indiana to operate Shapiro’s Delicatessen in Indianapolis, and have always paid their Indiana property and income taxes. (See Cert. Admin. R. at 110-12.) Mr. Shapiro further explained that his wife had lived in Michigan since 2016, where she has voted, paid taxes, maintained a driver’s license, and currently "lives … [for] over 200 days a year."² (See Cert. Admin. R. at 110-11.) The Shapiros maintained that they were eligible for Indiana’s homestead deduction between 2017 and 2020 because the Michigan PRE, which Mrs. Shapiro received for her Michigan Property, was not "equivalent" to the homestead deduction under Indiana Code § 6-1.1-12-37(f) ("Subsection F").³ (See Cert. Admin. R. at 85-94.)

The Hamilton County Assessor responded that the Shapiro’s Indiana Property was not eligible, however, for Indiana’s homestead deduction under Indiana Code § 6-1.1-12-37(n) ("Subsection N") because the Michigan PRE and Indiana’s homestead deduction are "substantially similar" – each "exempt[ing] a principal residence from property taxes based upon the value of that residence." (See Cert. Admin. R. at 121-22.) (See also Cert. Admin. R. at 81-82 (stating both are residency based and remove part of the home’s value from taxation so property taxes are lowered).) Moreover, the Assessor acknowledged that "spouses may have separate principal places of residence but [to be eligible for Indiana’s homestead deduction,] neither spouse can have an ownership interest in the other spouse’s residence[, as here.]" (See Cert. Admin. R. at 81.)

On February 17, 2022, the Indiana Board issued its final determination, finding first that the Indiana Property was not eligible for the homestead deduction under Subsection N because Mrs. Shapiro had an ownership interest in both the Indiana Property and the Michigan Property during the years at issue. (See Cert. Admin. R. at 105 ¶ 14.) The Indiana Board then found the Shapiros’ Indiana Property ineligible for the homestead deduction under Subsection F on the basis that Mrs. Shapiro’s Michigan Property received the Michigan PRE, an exemption "equivalent" to Indiana’s homestead deduction. (See Cert. Admin. R. at 105 ¶ 14.) The Indiana Board clarified that the Legislature used the word "equivalent" to mean "substantially similar" because if "equivalent" meant "identical," Indiana’s homestead deduction "would never be applied." (See Cert. Admin. R. at 105 ¶ 14.)

On March 31, 2022, the Shapiros initiated this original tax appeal. The Court took the case under advisement on December 8, 2022. Additional facts will be supplied when necessary.

STANDARD OF REVIEW

[1] The party seeking to reverse 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). Consequently, the Shapiros must demonstrate to the Court that the Indiana Board’s final determination in this matter 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 procedur required by law; or unsupported by substantial or reliable evidence. Ind. Code § 33-26-6-6(e)(1)-(5) (2024).

LAW

All real property in Indiana is subject to assessment and taxation on the statutorily prescribed assessment date. See Ind. Code § 6-1.1-2-1 (2017). During the years at issue, "a homestead⁴ [was] eligible for a standard deduction from the assessed value of the homestead" on the annual January 1 assessment date. See Ind. Code § 6-1.1-12-37(b) (2017) (footnote added); Ind. Code § 6-1.1-2-1.5(a)(2) (2017). The homestead deduction removed the amount of property tax liability attributable to the homestead’s assessed value up to $45,000. See I.C. § 6-1.1-12-37(b)-(c). Subsections F and N detail specific circumstances under which individuals or married couples become ineligible for a homestead deduction.

The version of Subsection F effective for the 2017 assessment date states:

If an individual who is receiving the deduction provided by this section or who otherwise qualifies property for a deduction under this section;

* * * * *

(2) is no longer eligible for a deduction under this section on another parcel of property because:

(A) the individual would otherwise receive the benefit of more than one (1) deduction under this chapter; or

(B) the individual maintains the individual s principal place of residence with another individual who receives a deduction under this section;

the individual must file a certified statement with the auditor of the county, notifying the auditor of the change of use, not more than sixty (60) days after the date of that change.

I.C. § 6-1.1-12-37(f).

Several amendments to Subsection F followed, which newly included the word "equivalent" as a standard for determining eligibility. The versions of Subsection F that were effective during the 2018 through 2020 tax years all stated the following:

Except as provided in subsection (n), if a person who is receiving, or seeks to receive, the deduction provided by this section in the person’s name:

* * * *

(2) is not eligible for a deduction under this section because the person is already receiving:

(A) a deduction under this section in the person’s name as an individual or a spouse; or

(B) a deduction under the law of another state that is equivalent to the deduction provided by this section;

the person must file a certified statement with the auditor of the county, notifying the auditor of the person’s ineligibility, not more than sixty (60) days after the date of the change in eligibility.

See, e.g., Pub. L. No. 255-2017, § 13 (eff. July 1, 2017) (emphasis added).

While indicating that generally only one homestead deduction is available to a married couple, Subsection N specifies an exception that would allow each spouse to claim a separate homestead deduction on different properties:

A county auditor shall grant an individual a deduction under this section regardless of whether the individual and the individual’s spouse claim a deduction on two (2)...