Southlake Ind., LLC v. Lake Cnty. Assessor

181 N.E.3d 484

SOUTHLAKE INDIANA, LLC, Petitioner,

v.LAKE COUNTY ASSESSOR, Respondent.

Case No. 19T-TA-00022

Tax Court of Indiana.

December 13, 2021

ATTORNEYS FOR PETITIONER: DAVID A. SUESS, BENJAMIN A. BLAIR, ABRAHAM M. BENSON, FAEGRE DRINKER BIDDLE & REATH LLP, Indianapolis, IN

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

WENTWORTH, J.

Southlake Indiana, LLC has challenged the assessment of its real property for both the 2015 and 2016 tax years.¹ The Court holds that neither party met its requisite burden of proof under Indiana Code § 6-1.1-15-17.2 and, as a result, Southlake's 2015 and 2016 assessments shall revert to the assessment that was in place for tax year 2010.

FACTS AND PROCEDURAL HISTORY

Southlake owns the Southlake Mall, a super-regional shopping mall located in Hobart, Indiana. (See, e.g., Pet'r Trial Ex. P-3 at 2, 14.) For purposes of this appeal, the portions of the Southlake Mall at issue include twelve separate tax parcels that comprise its: vacant land, surface parking lots, and retention ponds; inline retail space, as well as the attached JCPenney and Dick's Sporting Goods stores; several outlot parcels with free-standing improvements that are used as a movie theatre, a Gander Mountain store, restaurants, and various other retail spaces. (See, e.g., Pet'r Trial Ex. P-3 at 2, 47, 89, 91, 94, 97; Resp't Trial Ex. A at iv-ix, 82.) This opinion refers to all twelve parcels collectively as "the Mall."²

For both of the years at issue, the Mall was assigned an assessed value of $242,890,500. (See Pet'r Pet. Jud. Rev. Prop. Tax Assessments ("Pet'r Pet.") at 2 ¶¶ 6, 9.) Believing the value to be too high, Southlake appealed the assessments and, after the Lake County Property Tax Assessment Board of Appeals failed to act on them, Southlake sought relief with the Indiana Board of Tax Review. (See Pet'r Pet. at 2-3 ¶¶ 7, 10-11.) When the Indiana Board also failed to timely act on its assessment protests, Southlake filed a direct appeal pursuant to Indiana Code § 6-1.1-15-5(g). (See Pet'r Pet. at 3 ¶¶ 12-14.)

The Court conducted a five-day trial on Southlake's appeal, beginning on August 17, 2020. During trial, both parties presented, among other things, professional appraisal reports and expert appraiser testimony regarding the Mall's market value-in-use as a fee simple estate. (See, e.g., Resp't Trial Ex. A at 189, 191; Pet'r Trial Ex. P-3 at 119-20.) While both parties’ appraisers considered all three standard appraisal approaches to valuing the Mall (i.e., the cost approach, the sales comparison approach, and the income capitalization approach) in their appraisal reports, they both relied primarily on the income capitalization approach. (See, e.g., Resp't Trial Ex. A at 189; Pet'r Trial Ex. P-3 at 119; Tr. Vol. 1 at 115-16; Tr. Vol. 3. at 775-79, 805.)³

The Assessor was the first of the two parties to present evidence during trial because, as she acknowledged, she bore the burden of proof under Indiana Code § 6-1.1-15-17.2. (See Tr. Vol. 1 at 5.) Under the income capitalization approach, the Assessor's appraiser, Mark Kenney, MAI (Member of the Appraisal Institute), estimated that 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. (See Resp't Trial Ex. A at 189, 191; Tr. Vol. 1 at 36-43.) Southlake's appraiser, John Mackris, MAI, also applied the income capitalization approach and estimated that the Mall's market value-in-use for the 2015 and 2016 tax years was much lower: $142,300,000 and $144,500,00 respectively.⁴ (See Pet'r Trial Ex. P-3 at 119; Tr. Vol. 3 at 651-62; Tr. Vol. 4 at 946, 950-57.)

In addition to presenting their own appraisal reports, both parties called witnesses who had reviewed the other party's appraisal report. Southlake's review of the Assessor's appraisal report was performed by David Lennhoff, MAI. (See Pet'r Trial Exs. P-1, P-2; Tr. Vol. 2 at 496-578.) The Assessor's review of Southlake's appraisal report was performed by William Miller, Managing Director of Integra Realty Resources – Chicago. (See Resp't Trial Ex. B; Tr. Vol. 4 at 1133-1248; Tr. Vol. 5 at 1255-1304.)

The Court concluded the evidentiary portion of the trial on August 21, 2020. Upon receiving the completed trial transcript from the court reporter, the Court established a post-trial briefing schedule for the parties, and on January 14, 2021, heard their closing arguments and took the matter under advisement. Additional facts will be supplied when necessary.

STANDARD OF REVIEW

This Court hears direct appeals initiated under Indiana Code § 6-1.1-15-5(g) de novo. IND. CODE § 6-1.1-15-5(g) (2020). Moreover, the procedural posture here requires the Court to examine each of the parties’ evidentiary presentations through the lens of Indiana Code § 6-1.1-15-17.2, which provides that when a taxpayer appeals an assessment that increased more than 5% from one year to the next,

the county assessor or township assessor making the assessment has the burden of proving that the assessment is correct in any review or appeal under this chapter and in any appeals taken to the Indiana board of tax review or to the Indiana tax court. If a county assessor or township assessor fails to meet the burden of proof under this section, the taxpayer may introduce evidence to prove the correct assessment. If neither the assessing official nor the taxpayer meets the burden of proof under this section, the assessment reverts to the assessment for the prior tax year, which is the original assessment for that prior tax year or, if applicable, the assessment for that prior tax year:

(1) as last corrected by an assessing official;

(2) as stipulated or settled by the taxpayer and the assessing official; or

(3) as determined by the reviewing authority.

IND. CODE § 6-1.1-15-17.2(a), (b) (2021) (emphases added). See also Southlake Indiana, LLC v. Lake Cnty. Assessor, 174 N.E.3d 177, 178-81 (Ind. 2021) (explaining the burden of proof under Indiana Code § 6-1.1-15-17.2 with respect to Southlake's appeals of the Mall's 2011-2014 assessments).

LAW

Indiana property is assessed on the basis of its market value-in-use. See IND. CODE § 6-1.1-31-6 (2015) (amended 2016); 2011 REAL PROPERTY ASSESSMENT MANUAL ("Manual") (incorporated by reference at 50 IND. ADMIN. CODE 2.4-1-2 (2011) ) at 2. A property's market value-in-use is equivalent to its market value when the property's current use is consistent with its highest and best use, and there are regular exchanges within its market so that ask and offer prices converge. Millennium Real Est. Inv., LLC v. Assessor, Benton Cnty., 979 N.E.2d 192, 196 (Ind. Tax Ct. 2012), review denied. See also Manual at 5-6 (defining "market value" as "[t]he most probable price, as of a specified date, in cash, or in terms equivalent to cash ... for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress"). Here, both parties have agreed that the Mall's market value-in-use and market value are equivalent. (See, e.g., Resp't Trial Ex. A at 129; Pet'r Trial Ex. P-3 at 60-61; Tr. Vol. 1 at 57; Tr. Vol. 3 at 774-75; Initial Br. Pet'r ("Petr Br.") at 40 n.25.)

"Income-producing real estate is typically purchased as an investment, and from an investor's point of view[,] earning power is the critical element affecting property value." Appraisal Institute, THE APPRAISAL OF REAL ESTATE 413 (15th ed. 2020). "The income to investment properties consists primarily of rent." Id. at 420. Thus, for purposes of assessing Indiana properties, the income capitalization approach applies to those "income producing properties that are typically rented[ and] converts an estimate of income, or rent, [a] property is expected to produce into value through a mathematical process known as capitalization." Manual at 2.

DISCUSSION & ANALYSIS

I. The Assessor's Evidentiary Presentation

As stated above, the Assessor bears the burden of proof under Indiana Code § 6-1.1-15-17.2, which expressly provides that she must prove her 2015 and 2016 assessments of the Mall were "correct." See I.C. § 6-1.1-15-17.2(a), (b). To meet her burden, the Assessor produced a USPAP appraisal that valued the Mall at $258,990,000 for the 2015 tax year and $241,690,000 for the 2016 tax year. Neither of these appraisal values, however, is identical to the $242,890,500 assessed value the Assessor originally assigned to the Mall for either of the tax years. Thus, the Court must decide whether either of the Assessor's appraised values demonstrates that her original assessments are "correct."

When interpreting a statute, the Court's primary goal is to determine and implement the intent of the Legislature in enacting that statute. Hamilton Square Inv., LLC v. Hamilton Cnty. Assessor, 60 N.E.3d 313, 317 (Ind. Tax Ct. 2016), review denied. The best evidence of that intent is found in the statute's plain language that was chosen by the Legislature. Id. See also Southlake Indiana, 174 N.E.3d at 179 (stating that "[w]hen interpreting a statute, we start with its clear and unambiguous meaning and apply its terms in their plain, ordinary, and usual sense" (citation omitted)).

Indiana Code § 6-1.1-15-17.2 does not define the word "correct." See I.C. § 6-1.1-15-17.2. Thus, the non-technical, undefined word will be given its ordinary and accepted meaning. See Johnson Cnty. Farm Bureau Coop. Ass'n v. Indiana Dep't of State Revenue, 568 N.E.2d 578, 581 (Ind. Tax Ct. 1991) (explaining that non-technical statutory words and phrases are to be understood in their plain, ordinary, and usual sense), aff'd, 585 N.E.2d 1336 (Ind. 1992).

To determine words and phrases in their plain or ordinary and usual sense, Indiana courts commonly refer to "general-language"...