Howard County Assessor v. Kohl's Indiana LP

ATTORNEYS FOR PETITIONER: ATTORNEY FOR RESPONDENT:
MARILYN S. MEIGHEN PAUL M. JONES, JR.
ATTORNEY AT LAW PAUL JONES LAW, LLC
Carmel, IN Indianapolis, IN

BRIAN A. CUSIMANO FILED
ATTORNEY AT LAW Sep 07 2016, 12:49 pm
Indianapolis, IN
CLERK
_____________________________________________________________________
Indiana Supreme Court
Court of Appeals
and Tax Court

IN THE
INDIANA TAX COURT
_____________________________________________________________________

HOWARD COUNTY ASSESSOR, )
)
Petitioner, )
)
v. ) Cause No. 49T10-1502-TA-00004
)
KOHL’S INDIANA LP, )
)
Respondent. )
______________________________________________________________________

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

FOR PUBLICATION
September 7, 2016

WENTWORTH, J.

On December 31, 2014, the Indiana Board of Tax Review issued a final

determination valuing the Kohl’s store in Kokomo, Indiana for purposes of the 2010,

2011, and 2012 assessments. The Howard County Assessor has challenged that final

determination, but the Court affirms.

RELEVANT FACTS AND PROCEDURAL HISTORY

Kohl’s Indiana LP owns and occupies an 88,242 square foot retail store on 10.65
acres of land at the Boulevard Crossing shopping center in Kokomo, Indiana (the

subject property). Kohl’s constructed the subject property in 2003.

For the 2010, 2011, and 2012 assessments, the Assessor valued the subject

property at $5,984,000, $5,685,300, and $5,906,300 respectively. Believing those

values to be too high, Kohl’s filed appeals with the Howard County Property Tax

Assessment Board of Appeals (PTABOA). The PTABOA affirmed the assessments and

Kohl’s subsequently filed appeals with the Indiana Board. After consolidating the three

appeals, the Indiana Board conducted an administrative hearing on the matter in

January of 2014.

During the hearing, both Kohl’s and the Assessor presented, among other things,

Summary Appraisal Reports, completed by certified appraisers in conformance with the

Uniform Standards of Professional Appraisal Practice (USPAP), that valued the subject

property for each of the assessment years at issue. The Kohl’s appraisal, which

employed the sales comparison, the income, and the cost approaches to value,

estimated the subject property’s market value-in-use to be $3,690,000 for the 2010

assessment; $3,820,000 for the 2011 assessment; and $3,680,000 for the 2012

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assessment.1 The Assessor’s appraisal, on the other hand, employed the sales

comparison and the cost approaches to value and estimated the subject property’s

market value-in-use to be $4,920,000 for the 2010 assessment, $4,770,000 for the 2011

assessment, and $4,810,000 for the 2012 assessment.

On December 31, 2014, the Indiana Board issued a final determination in the

matter, stating that the two parties “fundamentally disagreed” about how the subject

property should be appraised due to their differing interpretations of Indiana’s market

value-in-use standard. (See Cert. Admin. R. at 55 ¶ 1.) Their disagreement, the

Indiana Board explained, was demonstrated through their selection of different

comparable properties used in each of their appraisals. For instance, in valuing the

subject property, the Kohl’s appraisal relied on data from the fee simple sales of nine

midwestern “big box” retail stores.2 (See Cert. Admin. R. at 63 ¶¶ 24, 26.) The

appraiser for Kohl’s believed these properties were appropriate comparables to use in

1
Three generally accepted appraisal techniques may be used to calculate a property’s market
value-in-use:

The first approach, known as the cost approach, estimates the value of the land as
if vacant and then adds the depreciated cost new of the improvements to arrive at
a total estimate of value. The second approach, known as the sales comparison
approach, estimates the total value of the property directly by comparing it to
similar, or comparable, properties that have sold in the market. The third
approach, known as the income approach, is used for income producing properties
that are typically rented. It converts an estimate of income, or rent, the property is
expected to produce into value through a mathematical process known as
capitalization.

2002 REAL PROPERTY ASSESSMENT MANUAL (2004 Reprint) (“2002 Manual”) (incorporated by
reference at 50 IND. ADMIN. CODE 2.3-1-2 (2002 Supp.)) at 3 (emphases omitted); 2011 REAL
PROPERTY ASSESSMENT MANUAL (“2011 Manual”) (incorporated by reference at 50 IND. ADMIN.
CODE 2.4-1-2 (2011) (see http://www.in.gov/legislative/iac/)) at 2 (emphases omitted).

2
“A ‘big box property’ is any free standing building in excess of 50,000 square feet with minimal
interior divisions that is used for retail purposes.” Meijer Stores Ltd. P’ship v. Smith, 926 N.E.2d
1134, 1137 n.6 (Ind. Tax Ct. 2010).

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valuing the subject property because: 1) they were vacant at the time of the sale and

thus their sales prices reflected the value of the real property alone (as opposed to

intangible values, such as tenant quality, that are often included in the sale of leased

fees); 2) they all sold for a continued retail use; and 3) similar big box properties were

regularly sold in the market. (See Cert. Admin. R. at 63-64 ¶¶ 24-28, 75 ¶ 67.)

In contrast, the Indiana Board noted that the Assessor’s appraiser believed that

the use of the “dark boxes” by Kohl’s was not appropriate to value the subject property

for the following reasons: 1) dark boxes do not have any utility to either the original

owner or another owner/user “in the same retail tier” and 2) the subject property was a

special purpose property because Kohl’s built it to its own specifications. (See, e.g.,

Cert. Admin. R. at 70-71 ¶¶ 50, 53, 73 ¶ 59, 82-83 ¶¶ 89, 92-93.) Accordingly, by using

the dark boxes as comparables, the Assessor’s appraiser claimed that Kohl’s had

determined the subject property’s market value rather than its market value-in-use.3

(See Cert. Admin. R. at 82 ¶ 89, 88-89 ¶ 110.) The Assessor’s appraisal relied instead

on data from sales of big boxes with leases to either Kohl’s or another “first generation”

user that were in place at the time of the sale (i.e., leased fee sales). (See, e.g., Cert.

Admin. R. at 82 ¶ 89, 84 ¶ 95, 87-89 ¶¶ 107, 110 (contending that because the subject

property is an operating Kohl’s store, the value of its utility could best be determined in

relation to other operating Kohl’s stores).)

After weighing the competing appraisals, the Indiana Board found the one

submitted by Kohl’s more probative than the one submitted by the Assessor because it

3
For instance, the Assessor asserted that a retailer that purchases a dark box – i.e., a
secondary or “second-generation” user – needs to invest a significant amount of money beyond
the purchase price to adapt the building to its own business model and thus create utility. (See
Cert. Admin. R. at 73-74 ¶ 60, 82-83 ¶ 91, 87-88 ¶ 107.)

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better reflected the meaning of market value-in-use as stated in Indiana’s assessment

manual and as consistently interpreted in Tax Court jurisprudence. (See Cert. Admin.

R. at 55-56 ¶ 1, 91-92 ¶¶ 117-19, 107 ¶ 160.) Indeed, the Indiana Board explained that

pursuant to Tax Court case law, “where a non-special purpose property is put to its

highest and best use and is of a type that regularly exchanges for the same general

use, the property’s [market value-in-use] will equal its market value.” (Cert. Admin. R. at

94 ¶ 124 (citing Meijer Stores Ltd. P’ship v. Smith, 926 N.E.2d 1134 (Ind. Tax Ct. 2010);

Stinson v. Trimas Fasteners, Inc., 923 N.E.2d 496 (Ind. Tax Ct. 2010); Millennium Real

Estate Inv., LLC v. Assessor, Benton Cnty., 979 N.E.2d 192 (Ind. Tax Ct. 2012), review

denied).) After reviewing the evidence presented, the Indiana Board found that

because the Assessor 1) acknowledged that properties like the subject property

frequently trade in the market for a general retail use, 2) indicated that the subject

property’s current use was its highest and best use, and 3) failed to demonstrate that

the subject property was in fact a special purpose property, the Kohl’s appraisal better

reflected the subject property’s market value-in-use. (See Cert. Admin. R. at 83 ¶ 93,

94-97 ¶¶ 124, 126-31.) (See also Cert. Admin. R. at 97 ¶ 132 (explaining that the

Assessor’s appraisal measured the value of a property that was better than, and not

similar to, the subject property because it included the costs to adapt the dark box to

meet the specific business model of Kohl’s).) Accordingly, the Indiana Board reduced

the subject property’s 2010 assessment to $3,690,000; the 2011 assessment to

$3,820,000; and 2012 assessment to $3,680,000.

The Assessor initiated this original tax appeal on February 13, 2015. The Court

heard the parties’ oral arguments on January 15, 2016. Additional facts will be supplied

5
as necessary.

STANDARD OF REVIEW

The party seeking to overturn an Indiana Board final determination bears the

burden of demonstrating its invalidity. Osolo Twp. Assessor v. Elkhart Maple Lane

Assocs., 789 N.E.2d 109, 111 (Ind. Tax Ct. 2003). Accordingly, the Assessor 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 procedure required

by law; or unsupported by substantial or reliable evidence. See IND. CODE § 33-26-6-

6(e)(1)-(5) (2016).

LAW

Indiana’s Constitution does not require a system of property assessment and

taxation based exclusively on market value. Boehm v. Town of St. John, 675 N.E.2d

318, 328 (Ind. 1996). And, while the Legislature has provided that Indiana assesses

and taxes property on the basis of its “true tax value” and that “true tax value does not

mean fair market value[,]” it has left it to the Department of Local Government Finance

(DLGF) to determine what “true tax value” should mean. See IND. CODE § 6-1.1-31-6(c)

(2016).

The DLGF has promulgated regulations stating that a property’s true tax value is

its “market value-in-use.” 2002 REAL PROPERTY ASSESSMENT MANUAL (2004 Reprint)

(“2002 Manual”) (incorporated by reference at 50 IND. ADMIN. CODE 2.3-1-2 (2002

Supp.)) at 2; 2011 REAL PROPERTY ASSESSMENT MANUAL (“2011 Manual”) (incorporated

6
by reference at 50 IND. ADMIN. CODE 2.4-1-2 (2011) (see

http://www.in.gov/legislative/iac/)) at 2. Market value-in-use, in turn, is defined as the

value “of a property for its current use, as reflected by the utility received by the owner

or a similar user, from the property.” 2002 Manual at 2. Accord 2011 Manual at 2.

Because Indiana’s property tax system taxes the value of real property – and not

business value, investment value, or the value of contractual rights – this Court has

explained that “market value-in-use, as determined by objectively verifiable market data,

is the value of a property for its use, not the value of its use.” Trimas Fasteners, 923

N.E.2d at 501 (citation omitted). See also IND. CODE § 6-1.1-1-15 (2016) (stating what

constitutes “real property” for purposes of assessment).

Most of the time, a property’s market value-in-use will be equivalent to its market

value; nonetheless, there are certain instances where a property’s market value-in-use

will not be equal to its market value.4 See 2002 Manual at 2-4; 2011 Manual at 2. More

specifically, “when a 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,

a property’s market value-in-use will equal its market value because the sales price fully

captures the property’s utility.” Millennium, 979 N.E.2d at 196 (citing 2002 Manual at 2).

See also 2011 Manual at 2. “[W]hen[, however,] a property’s current use is inconsistent

4
For purposes of assessment, Indiana defines “market value” as

The most probable price (in terms of money) which a property should bring in a
competitive and open market under all conditions requisite to a fair sale, the
buyer and seller each acting prudently and knowledgeably, and assuming the
price is not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from seller
to buyer under [certain] conditions[.]

2002 Manual at 10. See also 2011 Manual at 5-6.

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with its highest and best use, then market value-in-use will not equal market value

because the sales price will not reflect the property’s utility.” Millennium, 979 N.E.2d at

196 (citing 2002 Manual at 2). See also 2011 Manual at 2. The DLGF has explained

that the latter occurs with respect to 1) properties “where owners are motivated by non-

market factors such as the maintenance of a farming lifestyle even in the face of a

higher use value for some other purpose” or 2) special purpose properties.5 2002

Manual at 2-4; 2011 Manual at 2.

In reviewing evidence relating to the price at which a buyer would purchase real

property in order to continue its current use, the Court has frequently been called upon

to decide what properties, under the market value-in-use standard, are appropriate

comparables for purposes of valuing a particular parcel of property. In answering that

call, the Court has repeatedly interpreted the meaning of “current use” broadly, rejecting

the contention that with respect to commercial and industrial properties, properties that

have been sold to “secondary users” cannot be considered comparable. See, e.g.,

Marion Cnty. Assessor v. Washington Square Mall, LLC, 46 N.E.3d 1, 9-10 (Ind. Tax Ct.

2015) (explaining that for purposes of market value-in-use, a regional mall and a

discount mall are similar uses); Shelby Cnty. Assessor v. CVS Pharmacy, Inc. # 6637-

02, 994 N.E.2d 350, 354 (Ind. Tax Ct. 2013) (observing that it was proper to measure a

5
A special-purpose property is “[a] limited-market property with unique physical design, special
construction materials, or a layout that restricts its utility to the use for which it was built.” 2002
REAL PROPERTY ASSESSMENT GUIDELINES FOR 2002 – VERSION A (2004 Reprint) (“2002
Guidelines”) (incorporated by reference at 50 I.A.C. 2.3-1-2), Bk. 2, App. F at 17 (emphasis
omitted). See also 2002 Manual at 4 (defining a special use/purpose property as one that is “so
uniquely designed and adapted for the business conducted upon it or the use made of it and
which cannot be converted to other uses without the expenditure of significant sums of money”).
Examples of special purpose properties are steel mills, theaters, auditoriums, and churches.
2002 Guidelines, Bk. 2, Glossary at 19; 2011 REAL PROPERTY ASSESSMENT GUIDELINES
(incorporated by reference at 50 I.A.C. 2.4-1-2), Glossary at 21.

8
CVS store’s market value-in-use in relation to participants within the commercial/retail

market generally, and not solely against other CVS stores); Grant Cnty. Assessor v.

Kerasotes Showplace Theatres, LLC, 955 N.E.2d 876, 881 n.10 (Ind. Tax Ct. 2011)

(rejecting the claim that in relying on an appraisal that did not use theatre properties that

sold in sale-leaseback transactions as comparable properties, the Indiana Board

adopted “a value ‘more representative of a market value for a second generation user,

not a value[-in-]use’” (citation omitted)); Meijer, 926 N.E.2d at 1137 (explaining that

pursuant to the sales comparison approach, the market value-in-use of a retail property

should be measured against properties with a comparable use as opposed to properties

with identical users). Likewise, the Court has also disavowed the contention that vacant

properties cannot be comparable to occupied properties. See Trimas Fasteners, 923

N.E.2d at 501 (rejecting the argument that while the market value-in-use of a vacant

building “is just the value of [its] ‘sticks and bricks,’” the market value-in-use of an

occupied building “should be ‘over and above’ that”).

ANALYSIS

On appeal, the Assessor asserts that the Indiana Board’s final determination

must be reversed. In advancing that assertion, the Assessor has not argued that the

Indiana Board erred when it determined that 1) properties like the subject property

frequently trade in the market for a general retail use, 2) the subject property’s current

use was its highest and best use, or 3) she had not demonstrated that the subject

property was a special purpose property. Rather, the Assessor argues that the Indiana

Board’s final determination must be reversed because the Meijer, Trimas Fasteners,

and Millenium cases upon which it relied were wrongly decided. Indeed, the Assessor

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believes that, contrary to the Tax Court’s holdings in those cases, the sales of

properties to secondary users cannot be the type of comparables contemplated under

Indiana’s market value-in-use standard because they simply do not provide evidence of

utility, and thus value, for the “first generation” user.6 (See Pet’r Br. at 7, 9-12, 14; Oral

Arg. Tr. at 11, 23, 31, 44.) (See also Pet’r Br. at 7-8 (explaining that given this

“conceptual” argument, “the specifics of the various appraisals and appraisal reviews

[presented to the Indiana Board need] not [be] expanded upon”).) Accordingly, the

Assessor invites the Court to reconsider – and abandon – its holdings in Meijer, Trimas

Fasteners, and Millenium. (See, e.g., Oral Arg. Tr. at 4-7, 47-48.) The Court, however,

finds no infirmities in its decisions and therefore declines the Assessor’s invitation on

the basis of stare decisis.

As the U.S. Supreme Court recently stated:

Overruling precedent is never a small matter. Stare decisis – in
English, the idea that today’s [c]ourt should stand by yesterday’s
decisions – is “a foundation stone of the rule of law.” Application of
that doctrine, although “not an inexorable command,” is the
“preferred course because it promotes the evenhanded, predictable,
and consistent development of legal principles, fosters reliance on
judicial decisions, and contributes to the actual and perceived
integrity of the judicial process.” It also reduces incentives for
challenging settled precedents, saving parties and courts the
expense of endless relitigation.

Respecting stare decisis [even] means sticking to some wrong
decisions. The doctrine rests on the idea . . . that it is usually “more
important that the applicable rule of law be settled than it be settled
right.” Indeed, stare decisis has consequence only to the extent it

6
In fact, the Assessor claimed that because the Legislature believed the holdings in Meijer,
Trimas Fasteners, and Millenium were “repugnant” to the intended meaning of market value-in-
use, it enacted Indiana Code §§ 6-1.1-4-43 and -44. (See Pet’r Br. at 11.) See also IND. CODE
§§ 6-1.1-4-43, -44 (2015) (repealed 2016). The Legislature’s repeal of those statutes less than
a year after enacting them provides no clear indication that the Legislature intended to override
the Court’s decisions in those cases.

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 sustains incorrect decisions; correct judgments have no need for that
principle to prop them up. Accordingly, an argument that [a court]
got something wrong – even a good argument to that effect – cannot
by itself justify scrapping settled precedent. . . . To reverse course
. . . “special justification”[ is required ] – over and above the belief
“that the precedent was wrongly decided.”

Kimble v. Marvel Entm’t, LLC, 135 S.Ct. 2401, 2409 (2015) (citations omitted). On

appeal, the Assessor has done nothing more than express her disagreement with the

Court’s decisions in the Meijer, Trimas Fasteners, and Millenium cases. The Court,

however, does not believe it “got it wrong” and therefore continues to stand by those

decisions.7

CONCLUSION

For the foregoing reasons, the Indiana Board’s final determination in this matter

is AFFIRMED.

7
The attorney for the Assessor in this case made the same argument several years ago while
representing a different assessor. See Shelby Cnty. Assessor v. CVS Pharmacy, Inc. # 6637-
02, 994 N.E.2d 350, 354 n.5 (Ind. Tax Ct. 2013) (noting that the assessor’s “real” argument on
appeal in that case was that the holdings in Meijer and Trimas Fasteners were wrong and, that
in holding as it did, the Court was “impermissibly attempting to convert Indiana’s market value-
in-use system into a fair market value system”).) Another attorney who has represented a third
assessor has also made the same argument. See Marion Cnty. Assessor v. Simon DeBartolo
Group, LP, 52 N.E.3d 65, 68-69 (Ind. Tax Ct. 2016); Marion Cnty. Assessor v. Washington
Square Mall, LLC, 46 N.E.3d 1, 9-10 (Ind. Tax Ct. 2015). The Court rejected those arguments
then as it does again today. Simon DeBartolo Group, 52 N.E.3d at 68-69; Washington Square
Mall, 46 N.E.3d at 9-10; Shelby Cnty. Assessor, 994 N.E.2d at 354 n.5.

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