Don Lippert, Jr.
T +1 312 602 8042
T +1 312 602 8282
Jamie C. Yesnowitz
T +1 202 521 1504
T +1 312 602 8517
T +1 513 345 4540
T +1 215 814 1743
On Sept. 22, 2021, the Indiana Supreme Court held that a shopping mall’s property tax assessment should revert to the prior year’s assessed value because it increased by more than 5% from the previous year and the state’s board of tax review found that neither the local assessor’s nor the property owner’s assessment values were correct.1
Reversing a lower court ruling, the Court unanimously found that the mall’s assessments for the 2011-2014 tax years must be in the amount of the assessment for the 2010 tax year.
The taxpayer, Southlake Indiana LLC (Southlake), owns the Southlake Mall, located in Lake County, Indiana. For the 2014 tax year, the Ross Township assessor in Lake County increased the property tax assessment for the mall, and also issued notices changing property tax assessments for the 2011-2013 tax years. The assessor increased Southlake’s assessment value to approximately $240 million for the 2011-2014 tax years, which was more than double the 2010 assessment value of $110 million.
Southlake appealed the assessments for the 2011-2013 tax years to the Lake County Property Tax Assessment Board of Appeals, which denied the appeals. Southlake appealed that decision to the Indiana Board of Tax Review (Board) and filed a separate appeal for the 2014 tax year, which also came before the Board.
During a hearing, the Lake County assessor presented testimony from professional appraisers that valued the mall at a range of approximately $239 million to $256 million for the 2011-2014 tax years. In contrast, Southlake’s appraiser valued the mall between approximately $98 million and $146 million for the same tax years. Finding deficiencies in both expert assessments, the Board adjusted the assessed values to a range of $173.5 million to $190.6 million for the four tax years at issue.
Southlake appealed the Board’s decision to the Indiana Tax Court, which generally affirmed the Board’s decision.2
Southlake’s appeal to the Indiana Supreme Court followed.
Supreme Court decision
On appeal, Southlake argued that Indiana law required the assessments to revert to the previous year’s assessment, since the Board concluded that neither the assessor nor the taxpayer met the burden of proving the correct assessment. The relevant statutory provision states that the county or township assessor has the burden of proving that the assessment is correct during any review or appeal, and that if the assessor fails to meet the burden of proof, the taxpayer may introduce evidence to prove the correct assessment.3
However, “[i]f 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 year.”4
The provision applies to assessments that increase by more than 5% over the assessment from the prior tax year.5
Since the parties did not dispute that the mall’s assessed value increased by more than 5% from 2010 to 2011, the issue before the Court was whether the parties failed to meet their burden of proof, thus triggering the statute’s reversionary clause. Applying the statute’s plain meaning, the Court noted that the Board found that both parties’ proposed assessments were lacking, meaning that neither party met its burden of proof under the law. Accordingly, the Court determined that the law required the Tax Court to hold that the assessments reverted to the assessment in the prior tax year, which the Tax Court failed to do.
The Court noted that the Tax Court affirmed the Board because the Board would otherwise be unable to resolve conflicting probative evidence in applying the plain language of the statute. Recognizing that the Tax Court may be correct regarding the Board’s limited discretion, the Court concluded that the result, “whatever its policy merits, is the legislature’s call and not ours.” In applying the statute as written, the Court declined to “second guess” the legislature’s decision to limit the Board’s flexibility when assessed values increase by more than 5%.
The Court next rejected the Tax Court’s conclusion that the law required only that the parties submit probative evidence to avoid the reversionary clause, finding that the Tax Court’s reading of the statutory “burden of proof” as a mere “burden of production” contradicted the plain terms of the statute. Instead, the Court noted that the two terms have different meanings. “Burden of proof” means a party’s duty to prove a disputed assertion and includes both the burden of persuasion and the burden of production.6
In contrast, “burden of production” means a party’s duty to introduce enough evidence on an issue to have the issue decided by the fact-finder.7
The Court found that the Tax Court incorrectly concluded that the reversionary clause did not apply in finding that the parties met their respective burdens of production, because the statute requires that the parties meet the burden of proof standard.
Finally, the Court determined that the Tax Court’s decision rendered meaningless the plain terms of the statute, which requires “the parties not only to present probative evidence of the assessment but also to prove that their proffered assessment is correct.” For these reasons, the Court reversed the judgment of the Tax Court and instructed the Board to enter assessments for the 2011-2014 tax years in the amount of the mall’s 2010 assessment.
In rejecting the assessments by the Ross Township assessor and reversing the ruling of the Indiana Tax Court, the Indiana Supreme Court determined that it was required to apply the reversionary clause of the provision at issue, according to the plain meaning of the statute. Since the record showed that neither the assessor nor Southlake met the burden of proof to support the correct assessment amounts for the 2011-2014 tax years, and it was undisputed that the assessments increased by more than 5% from the 2010 tax year, the Court concluded that the assessments must revert to the mall’s 2010 assessment value. The Court acknowledged that there may have been good policy reasons supporting the Indiana Board of Tax Review’s decision to adjust the assessment amounts proposed by both parties based on deficiencies in the evidence presented. However, the Court noted that it was constrained by the language of the statute, suggesting that the limited discretion of the Board in resolving conflicting evidence is a matter left to the state legislature to rectify.
It is apparent that in real estate markets in which property is substantially appreciating in a short period time, taxpayers would want to rely on the power of a reversionary clause as a possible way to prevent significant retroactive assessments. Of course, all real estate markets are unequal, and as seen during the COVID-19 pandemic, the pendulum can swing the other way as well. Therefore, it will be interesting to see whether this unique provision of Indiana property tax law could possibly be invoked in connection with property tax assessment appeals for businesses with property values that have been adversely affected by the pandemic. It is possible that the reversionary clause could be applied to retain an artificially high assessment in the event that both county assessors and taxpayers are unable to provide correct assessment values for commercial properties that have potentially decreased in value during the 2020-2021 tax years as a result of the pandemic.
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.