Attorneys for Appellant Attorneys for Appellee
Steve Carter Daniel P. Byron
Attorney General of Indiana Jeffrey T. Bennett
Michael S. Prakel
Ted J. Holaday Indianapolis, Indiana
Deputy Attorney General
Attorneys for Amici Curiae
Nandita G. Shepherd Indiana Chamber of
Commerce,
Deputy Attorney General Inc., Indiana
Manufacturers
Ass’n, and BP Products North
America, Inc.
Thomas M. Atherton
David A. Suess
Indianapolis, Indiana
________________________________________________________________________
In the
Indiana Supreme Court
_________________________________
No. 49S10-0307-TA-293
Dep’t of Local Gov’t Fin.,
as successor to the State Bd.
of Tax Comm’rs
Appellant (Respondent
below),
v.
Commonwealth Edison Co.
of Ind., Inc.
Appellee (Petitioner below).
_________________________________
Appeal from the Indiana Tax Court, Nos.
49T10-9507-TA-00067
49T10-9607-TA-00082
49T10-9707-TA-00163
49T10-9807-TA-00081
The Honorable Thomas G. Fisher, Judge
_________________________________
On Petition for Review
_________________________________
January 13, 2005
Sullivan, Justice.
An electric utility requested that State property tax authorities
provide it with property tax relief with respect to certain of its property
in Lake County on grounds that residential property owners in the County
paid less than Indiana property tax law required. As evidence, the utility
relied on studies that showed that the assessed valuation of residential
property in the County was well below its fair market value. Indiana
property tax law in effect at the time—now significantly reformed—provided
that property was to be assessed based on its “true tax value,” a basis
unrelated to its fair market value. Because the studies offered by the
utility in support of its requests were based on fair market value, not the
statutory standard of true tax value, the State properly denied the
requests.
Background
Over the past decade, the Indiana property tax system has been
overhauled as a consequence of a series of judicial, legislative, and
administrative decisions. Prior to this upheaval, property was not
assessed on the basis of its fair market value (“FMV”) but according to a
standard the Legislature called “true tax value” (“TTV”). True tax value,
to repeat, was not FMV but rather the value of property determined under
regulations promulgated by the State Board of Tax Commissioners (“State
Board”).[1] The new regime purports to assess property based on its FMV.
This case arises under the old order. It requires us to examine the
extent to which the FMV of property was relevant to determining assessed
valuation in the TTV world.
The property taxpayer here is Commonwealth Edison Company of Indiana,
Inc., a public utility company in the business of providing electricity,
which does business within Lake County. Because it is a public utility,
Commonwealth is subject to a separate chapter of the property tax code,
Indiana Code Sections 6-1.1-8-1 through 43. Under this chapter, public
utilities are considered to have two basic types of property subject to
property tax: “fixed” and “distributable.” “Fixed” property consists of
the tangible and real property that is not used to generate the utility’s
power or service. Ind. Code § 6-1.1-8-9(a) (2004). The township assessor
is responsible for assessing fixed property. I.C. § 6-1.1-8-24.
“Distributable” property consists of the equipment used to manufacture and
deliver the power or service. I.C. § 6-1.1-8-9(b). At the time relevant
to this dispute, the State Board was responsible for assessing
distributable property.[2] I.C. § 6-1.1-8-25.
Each year for three decades, Commonwealth had petitioned the State
Board for an “equalization adjustment” to the assessed valuation of its
distributable property. The basis for its petitions had been that
residential and commercial property owned by others in Lake County had been
assessed contrary to law at artificially low values, causing Commonwealth’s
property taxes to be higher than they would have been had this other
property been properly assessed. Until 1995, the State Board had granted
Commonwealth relief.
When the State Board issued tentative assessment values of
Commonwealth’s distributable property for the years 1995 through 1998,
Commonwealth again sought equalization adjustments. Unlike the prior
years, however, the State Board denied Commonwealth’s petitions.
Commonwealth appealed the decision of the State Board to the Indiana
Tax Court, and the Tax Court reversed. (Subsequent to Commonwealth’s
filing its appeal but prior to the Tax Court’s decision, the Department of
Local Government Finance was substituted for the State Board for the reason
discussed in footnote 1, supra.) Commonwealth Edison Co. of Ind. v. Dep’t
of Local Gov’t Fin., 780 N.E.2d 885 (Ind. Tax Ct. 2002). It held that
Commonwealth was entitled to equalization adjustments. Id. at 891. We
granted review, 804 N.E.2d 744 (Ind. 2003), and now affirm in part and
reverse in part the decision of the Tax Court.
Discussion
I
We believe the crux of this case involves the use of FMV data to
achieve assessment uniformity in a regime in which assessments were
determined by their TTV. But before reaching that issue, we address
several additional issues raised by this case.
A
First, the relief sought by Commonwealth is referred to by both
parties as an “equalization” adjustment to its assessed valuation. The
State maintains that an individual taxpayer is not authorized by law to
seek such relief; that equalization relief can only be provided by the
State to a class of taxpayers. [3] Commonwealth—supported by an extremely
helpful amici curiae brief—argues more persuasively that the Legislature,
if not our Constitution, has provided an administrative and state court
remedy for taxpayers with claims of the nature of Commonwealth’s here.
The State summarizes its argument as follows:
The Legislature did not intend that an individual taxpayer be
able to request an individual equalization adjustment. Nowhere in the
property tax statutes has the Legislature explicitly stated that an
individual may request an equalization adjustment. There is also no
process enumerated in any statute for an individual to request an
equalization adjustment.
Br. of Appellant at 24.
A look at the statute providing for equalization lends support to the
State’s position. Indiana Code Section 6-1.1-14-5(a) reads as follows:
After holding the hearings referred to in [Indiana Code Section
6-1.1-14-4], the department of local government finance shall, in
order to equalize assessed values in any county or in the state as a
whole, issue an order increasing or decreasing assessed values of any
tangible property if the department finds:
(1) that the assessed values in any county are not uniform and
equal as to townships, portions of the same township, or classes of
property; or
(2) that the assessed values in this state are not uniform and
equal either as between counties or as to classes of property.
The hearings referenced in the initial phrase of this statute are part
of another statute that requires the state to review the assessments of all
tangible property made by the various counties of this state and consider
modification of any county’s assessments if it determines that the
assessment of that county appears to be improper. I.C. § 6-1.1-14-4.[4]
Read together, the intent of these statutes appears to be to authorize
the State to, as the State argues, “provide classwide relief to remedy
unequal assessments either in a locality or within a class of property.”
Br. of Appellant at 24. In other words, these statutes provide the State
with the authority to rectify local assessment practices that result in
assessed values that do not comply with the constitutional mandate of
uniform and equal assessments.[5]
But even though these statutes do not appear to authorize Commonwealth
to seek an individual “equalization” adjustment under Indiana Code Section
6-1.1-14-4, we believe that Commonwealth has ample authority—in this case,
under Indiana Code Section 6-1.1-8-30 (applicable to utility distributable
property), and for property taxpayers generally, under Indiana Code Section
6-1.1-15-1—to contend that its property taxes were higher than they would
have been had other property been properly assessed. This issue was
decided for all practical purposes in the epic Town of St. John litigation
where the plaintiffs appealed their individual assessments to challenge and
(ultimately bring down) the way in which all property was assessed.[6]
While the State initially contended, at least in general terms, that
administrative remedies were not available to the taxpayers bringing this
claim, the Tax Court emphatically rejected the State’s contention in the
first of the Town of St. John opinions (Bielski v. Zorn, 627 N.E.2d 880,
886 (Ind. Tax Ct. 1994)), and the point was never contested thereafter.[7]
The State also makes the argument that Commonwealth is not entitled to
an equalization adjustment based on this Court’s statement in State Bd. of
Tax Comm'rs v. Town of St. John, 702 N.E.2d 1034, 1043 (Ind. 1998) (“Town
of St. John V”), that the “Property Taxation Clause of the Indiana
Constitution does not establish a substantive right to individual
assessments evaluating property wealth, nor does it mandate the
consideration of independent property wealth evidence in individual tax
appeals.” But in Town of St. John V, this Court also said that “[t]he fact
that the Property Taxation Clause does not require the abstract evaluation
of property wealth as to individual assessments or give rise to a
substantive right to present property wealth evidence in tax appeals of
individual assessments does not diminish the existing procedural rights of
taxpayers to seek administrative and judicial review.” Id. at 1040 n.8.
That is, while there is no state constitutional right to “an equalization
adjustment,” a taxpayer is not foreclosed from pursuing any equalization
adjustment provided by existing statute or regulation. Of course, the
precise extent of “existing procedural rights of taxpayers to seek
administrative and judicial review” is one of the issues being litigated
here. But an equalization adjustment is not precluded by Town of St. John
V.
Commonwealth was entitled to seek an adjustment to the assessed
valuation of its distributable property under Indiana Code Section 6-1.1-8-
30 on grounds that its property taxes were higher than they would have been
had other property in Lake County been properly assessed.
B
Second, Commonwealth contends that because the State had for decades
granted it the same relief it seeks here on the same grounds, it is
estopped or otherwise precluded from denying these petitions.
We do not believe that the State’s record of granting the same or
similar relief to Commonwealth in the past created any obligation for it to
do so here. First, the State’s record of granting relief in prior years
constitutes no more than settlements of discrete taxpayer claims. The law
encourages parties to engage in settlement negotiations in several ways.
It prohibits the use of settlement terms or even settlement negotiations to
prove liability for or invalidity of a claim or its amount. Ind. Evidence
Rule 408. It provides that a settlement is neither a judgment nor an
admission of liability. Four Winns, Inc. v. Cincinnati Ins. Co., 471
N.E.2d 1187, 1190 (Ind. Ct. App. 1984), transfer denied. The Tax Court
pointed out a strong policy justification for denying settlements
precedential effect in property tax cases: “to allow the Taxpayers to use
the settlement would have a chilling effect on the incentive of all
assessing officials to resolve cases outside the courtroom.” Boehning v.
State Bd. of Tax Comm’rs, 763 N.E.2d 502, 505 (Ind. Tax Ct. 2001).
Apart from these general rules about settlements, there is specific
precedent that equitable estoppel may not be invoked against governmental
entities. We recently reaffirmed that proposition in Equicor Dev. Inc. v.
Westfield-Washington Twp. Plan Comm’n, 758 N.E.2d 34, 39 (Ind. 2001).[8]
We find its application particularly appropriate here where the State
appears to have abandoned past efforts to resolve individual challenges to
acknowledged weaknesses in the State’s property tax system in favor of
systemic reform.
C
Third, in its reply brief in this case, Commonwealth claims the same
entitlement to a uniformity adjustment as matter of federal and state
constitutional law as it does under the equalization and other statutes.
The Tax Court considered and rejected these arguments, Commonwealth, 780
N.E.2d at 887 n.2, and Commonwealth did not appeal the Tax Court’s
determination on this issue. The fact that Commonwealth raised this issue
in its reply brief is not enough to invoke our jurisdiction. Compare the
appellate rules governing transfer cases (Ind. Appellate Rule 58(A) (last
sentence) and tax cases (App. R. 63(K)).
II
As noted supra, when the State Board issued tentative assessment
values of Commonwealth’s distributable property for the years 1995 through
1998, Commonwealth sought equalization adjustments. Because it was
challenging the State Board’s determination, Commonwealth had the burden of
demonstrating the invalidity of the State’s determination. State Bd. of
Tax Comm’rs v. Indianapolis Racquet Club, 743 N.E.2d 247, 252 (Ind. 2001).
To meet that burden, Commonwealth submitted “sales/assessment-ratio”
studies that compared the assessed valuation (as determined by the township
assessors) of certain primarily residential (but also some commercial)
properties in Lake County with those properties’ sales prices, i.e., their
fair market value. Commonwealth’s argument in general was this: (1) the
tentative assessed value of Commonwealth’s distributable property (as
determined by the State Board) equaled approximately those properties’ FMV;
(2) the sales/assessment-ratio studies showed that other properties in Lake
County were assessed for property tax purposes well below FMV; and (3)
assessment uniformity requirements embodied in Indiana statutes and the
United States and Indiana Constitutions dictated that the tentative
assessed value of Commonwealth’s distributable property be adjusted
downward (“equalized”) so that the ratio it bore to its FMV was
approximately the same ratio as the ratio of assessed valuations to sales
prices of the properties in the sales/assessment-ratio studies.
The State Board denied Commonwealth’s petitions for the years in
question. It did so on the basis that the sales/assessment-ratio studies
were irrelevant for this purpose because the studies were based on FMV and
the standard for valuing property at the time was true tax value.
Commonwealth appealed the decision of the State Board to the Indiana
Tax Court and the Tax Court reversed. The Tax Court’s analysis was roughly
this: Commonwealth met its burden of establishing a prima facie case that
it was entitled to adjustments to its distributive property’s assessed
valuation from the years in question by presenting the sales/assessment-
ratio studies; once it established this prima facie case, the burden
shifted to the State to rebut this evidence; because the State did not
rebut this evidence, Commonwealth was entitled to adjustments for the years
in question. Commonwealth, 780 N.E.2d at 890, 891.
In finding that Commonwealth’s sales/assessment-ratio studies were
sufficient evidence to establish Commonwealth’s entitlement to assessed
valuation adjustments, the Tax Court rejected the State’s contention that
because they were based on FMV, not TTV, the studies were not relevant
evidence:
[W]hen comparing assessments to determine uniformity, an
external unit or standard of measurement must be used—one which is
objectively verifiable. Our Supreme Court has said that fair market
value may well be the standard. See [Boehm v. Town of St. John, 675
N.E.2d 318, 327 (Ind. 1996) (“Town of St. John II”)]. This Court
believes that fair market value is the standard, and will continue to
do so until the State Board rebuts that presumption. Thus, the use of
market value based sales/assessment-ratio studies is an acceptable
way, within the context of public utility assessment, to determine
whether equalization adjustments are necessary to achieve assessment
uniformity.
Commonwealth, 780 N.E.2d at 890 (full citation form substituted for short
form) (footnote omitted).
To decide this question, we need to start with the nature of the TTV
system.[9] As discussed at the outset under Background, supra, during the
years in question, Indiana did not assess property on the basis of its FMV
but rather under the State Board’s assessment regulations. Ind. Code § 6-
1.1-31-7(d) (2004). The assessors (usually township elected officials but
sometimes others, e.g., the State Board in cases of utility distributive
property) would apply the regulations to the applicable class of property
and this would generate the TTV of the parcel or piece of property. An
individual assessor might perform this process correctly—or incorrectly.
There is substantial discussion in the papers in this and other cases that
residential property in Lake County was “systematically underassessed”
during the years at issue in this case. Assuming this to have been the
case, it means that the township assessors systematically determined the
TTV of Lake County residential property to be less than what the TTV would
have been if the assessors had properly applied the assessment regulations.
This point bears repeating: if residential property in Lake County was
“systematically underassessed” during the years at issue in this case, it
means that the township assessors systematically determined the TTV of Lake
County residential property to be less than what the TTV would have been if
the assessors had properly applied the assessment regulations. Note as
well what this does not mean: it does not mean that that the township
assessors systematically determined the TTV of Lake County residential
property to be less than its FMV. That would have been the case if Indiana
had assessed property on the basis of FMV, but Indiana did not.
The point we made in Town of St. John II, to which the Tax Court
alludes in the passage quoted above, was not that FMV is a standard by
which uniformity could be measured in the TTV system. Rather, it was
simply that a system that assessed all property on the basis of its FMV
would meet “our constitution’s requirements for uniform and equal rates of
assessment and taxation and for just valuation.” Town of St. John II, 675
N.E.2d at 327. We believe that the standard by which uniformity was
measured in the TTV system was as follows: property of the class in
question accurately assessed in accordance with the applicable regulations
of the State Board.
Commonwealth’s evidence compared the TTV (as determined by the
township assessors) of certain residential and commercial properties with
the FMV of those residential and commercial properties. It then asserted,
apparently without evidence, that the TTV (as determined by the State
Board) of its own distributable property equaled the FMV of that property.
It then asked for an adjustment of the assessed valuation of its
distributable property so that the ratio of the adjusted value of its
distributable property to its FMV would equal the ratio of the TTV (as
determined by the township assessors) of certain residential and commercial
properties to the FMV of those residential and commercial properties.
Because Commonwealth’s evidence of that latter ratio was based on FMV
as the standard by which uniformity would be measured, it was not relevant
to determining whether Commonwealth was entitled to an adjustment in the
TTV system. To establish its claim for an adjustment, Commonwealth was
required to produce evidence that the assessed values in Lake County were
not uniform and equal with respect to the TTV of the classes of property in
question.[10] That is, it was required to come forward with evidence that
the assessed valuation as determined by the State Board of its
distributable property in Lake County in proportion to the TTV of that
property was not uniform and equal to the assessed valuation as determined
by the township assessors of other taxable property in the County in
proportion to the TTV of that property.
We acknowledge that the TTV system is subject to the criticism that,
because the regulations for assessing different classes of property
operated differently from one another, there was no common standard for
measuring uniformity. The Tax Court’s desire for a common standard for
measuring uniformity is understandable—and apparently achieved in the new
FMV world in which we now live. But so long as TTV was set differently for
different classes of property, uniformity under the statute consisted of
the assessed valuations (as determined by the appropriate assessing
authorities) of each class of property in question being in proportion to
the TTV of each respective class.
Conclusion
We affirm in part and reverse in part the decision of the Tax Court.
The State Board properly dismissed Commonwealth’s petitions.
Shepard, C.J., and Dickson, Boehm, and Rucker, JJ., concur.
-----------------------
[1] On January 1, 2002, the Legislature abolished the State Board of Tax
Commissioners and divided the responsibilities previously assigned to the
State Board in part to a new Indiana Board of Tax Review and in part a new
Department of Local Government Finance. Ind. Code §§ 6-1.5-1-1; 6-1.5-4-1
(Supp. 2001); 2001 Ind. Acts 198 § 95. For simplicity sake, we will refer
to these various entities as the “State” in this opinion except where more
specificity is required or helpful.
[2] Under the 2001 statute, see supra note 1, the Department of Local
Government Finance now has this responsibility, i.e., it continues to be a
State responsibility.
[3] The State says in its brief that, based on its “determination that
local assessing officials were systematically underassessing residential
property,” it adjusted all 1998 utility property assessments, i.e., it
provided equalization relief for a class of all utility taxpayers. Br. of
Appellant at 6. The State acknowledges that this was less relief than
Commonwealth requested. Id.
[4] These statutes explicitly apply to utility distributive property. Ind.
Code § 6-1.1-8-25(a) (2004).
[5] In 2002, after the years at issue in this case, the State promulgated a
series of rules governing equalization proceedings under Indiana Code
Section 6-1.1-14-5. See Ind. Admin Code tit. 50, rr. 14-1-1 though 10
(2004). These rules are consistent with the State’s interpretation of the
statute, i.e., they set forth procedures governing classwide relief to
remedy unequal assessments either in a locality or within a class of
property.
[6] See Boehm v. Town of St. John, 675 N.E.2d 318, 320 n.2 (Ind. 1996)
(“The petitioners include . . . individually named taxpayers and a
certified class of taxpayers who own real estate . . . and appealed their
individual property assessments.”); Town of St. John v. State Bd. of Tax
Comm’rs, 665 N.E.2d 965, 968 n.6 (Ind. Tax Ct. 1996) (“The Town of St. John
. . . represents a group of taxpayers who: (1) own real estate in either
the Town of St. John . . . or St. John Township . . . ; and (2) appealed
their individual property assessments for 1989.”); Bielski v. Zorn, 627
N.E.2d 880, 886 (Ind. Tax Ct. 1994) (“In the case at bar, the Landowners
filed their Petition with the State Board . . . , alleging that scores of
errors in the 1989 general reassessment affected the Landowners and the
class they seek to represent.”).
[7] Perhaps because it was not a point of contention after Bielski, the
Town of St. John opinions do not indicate the precise procedure for filing
claims of this nature. We believe there is ample authority for proceeding
under Indiana Code Section 6-1.1-15-1 and Indiana Administrative Code Title
50, Regulation 4.2-3-4 using Forms 130 and 131. See Lake County Prop. Tax
Assessment Bd. of Appeals v. BP Amoco Corp., No. 49S10-0309-TA-400, __
N.E.2d __, slip op. at 2 (Ind. Jan. 13, 2005); Lake Co. Prop. Tax
Assessment Bd. of Appeals v. United States Steel Corp., No. 49S10-0309-TA-
401, __ N.E.2d __, slip op. at 4 (Ind. Jan. 13, 2005); Town of St. John v.
State Bd. of Tax Comm’rs, 698 N.E.2d 399, 400 (Ind. Tax Ct. 1998); Bielski,
627 N.E.2d at 885 n.10 & 886. For utility taxpayers like Commonwealth, of
course, the special provisions of Ind. Code § 6-1.1-8 apply.
[8] Equicor was a highly unusual case in which the estoppel was applied.
But none of the circumstances which caused us to create an exception to the
general rule in Equicor are present in this case. See Fulton County
Advisory Plan Comm’n v. Groninger, 810 N.E.2d 704, 710 (Ind. 2004)
(explaining why Equicor was “highly unusual”).
[9] In an attempt to simplify the discussion somewhat, we ignore the fact
that “assessed value” and “assessed valuation” were defined by statute
during the years in question to mean an amount equal to 33-1/3% of the TTV
of property. Ind. Code § 6-1.1-1-3 (1992 & 1996). The 33-1/3% is a
constant that has no economic effect for any purposes in this discussion.
The 33-1/3% factor has been repealed for assessment dates after February
28, 2001. See P.L. 6-1997 § 6.
[10] See GTE N. Inc. v. State Bd. of Tax Comm’rs, 634 N.E.2d 882, 886 (Ind.
Tax Ct. 1994) (“Equalization ‘is a process applied to certain taxpayers and
their property by which the assessed value of a taxpayer’s property is
adjusted so that it bears the same relationship of assess[ment] value to .
. . [true tax value] as other properties within the same taxing
jurisdiction.’”) (quoting Jerrold F. Janata, ed., Property Taxation 608 (2d
ed. 1993)) (bracketed material in original) (emphasis added).