Tax Court upholds application of 100% influence factor to commercial land; Court refuses to consider newly raised arguments

In Kooshtard Property VIII, LLC v. Shelby County Assessor, Cause No. 49T10-1011-TA-58 (April 29, 2013), the Tax Court affirms the Indiana Board of Tax Review’s final determination upholding the value of two acres of land supporting a convenience store and gas station.  The Assessor had applied a 100% influence factor to the land, increasing its base rate from $200,000 to $400,000 per acre.  Owner appealed the 2006 and 2007 assessments, which the Indiana Board affirmed.  The Court explained that base rates for commercial land “merely provide the starting point” for assessors.  Slip op. at 3.  Assessors may need to adjust values to arrive at the property’s market value-in-use.  Id.  “For example, assessing officials may apply an influence factor to a land assessment to account for an increase or decrease in value caused by the land’s shape, size, view, or any other peculiar condition.”  Id. (citing Guidelines, Bk. 1, Ch. 2 at 93-96).

Owner claimed the 100% positive influence factor was incorrectly applied because adjacent properties didn’t have the factor and “uniformity requires that [the factor] be applied to all similar land.”  Slip op. at 4.  And Owner claimed that sales data from similar properties supported a lower assessment (but the data was presented to the local Property Tax Assessment Board of Appeals or PTABOA, not to the Indiana Board).  Owner presented no market-based evidence to support its claims.  Slip op. at 5.  It merely concluded – without support – that the factor should be eliminated from its assessment because the Assessor did not apply the same 100% positive influence factor to other nearby commercial property.  Id.

Owner raised new arguments for the first time on appeal to the Tax Court.  The Court explains that it “generally” can’t review an issue or argument for the first time on appeal, because there would be no written findings to review on the newly presented issue.  Slip op. at 6 (citations omitted).  Owner’s new arguments were not raised before the Indiana Board and were therefore waived.  Id.

Reliance on historical occupancy rates alone undermined Owner’s income capitalization approach

The Indiana Tax Court in Indiana MHC, LLC v. Scott County Assessor, Cause No. 39-T10-1009-TA-52 (May 3, 2013) affirms the Indiana Board’s assessment of a manufactured home community for the 2007 tax year.  The community contains 205 rentable pads on approximately 33 acres of land.  The property was initially assessed at about $5.4 million, but its assessment was later reduced to $3,377,000 by the PTABOA.  On further appeal to the Indiana Board, Owner’s managing partner testified that only 40% of the property’s pads were rented between 2005 and 2008 due to the industry’s “credit crises.”  The partner calculated a value under the income capitalization approach using the property’s actual data from 2007.  The calculation included income from only the 40% of rented pads and concluded to a value of slightly more than $1 million.  

The Indiana Board affirmed the PTABOA’s assessment.  The Board explained, “[I]t is appropriate to consider the historic and projected income and expenses data of the property in question, but it is also necessary to consider that same kind of data from other comparable properties in order to make accurate, realistic projections about the income stream a property should produce.”  Slip op. at 3 (citation to record omitted).  Because Owner’s income capitalization approach failed to analyze and take into account any market data whatsoever, the Board concluded it lacked probative value and thus didn’t support a lower valuation.  Id.

The Tax Court’s discussion first notes that a taxpayer on appeal may present evidence showing the property’s value using the income capitalization approach.  Slip op. at 4 (citing 2002 Real Property Assessment Manual, at 3).  That approach is “informed not only by the principle of anticipation but also by the expectations and behaviors of typical market participants.” Slip op. at 5 (citing Appraisal Institute, The Appraisal of Real Estate  471-72 (12th ed. 2001)).  Accordingly, the Court observes:  “[T]o provide a sound value indicated under the income capitalization approach, one must not only examine the historical and current income, expenses, and occupancy rates for the subject property, but the income, expenses and occupancy rates of comparable properties in the market as well.”  Slip op. at 5 (citing The Appraisal of Real Estate  at 493, 501, 509, 511-12) (emphasis in original).  Owner’s income capitalization approach “failed to comply with generally accepted appraisal principles because it did not consider the occupancy rates of comparable properties in the market.”  Slip op. at 5.  Its 40% occupancy rate was “actually the anomaly in the market place” based on evidence in the record of five other mobile home communities in the vicinity.  Id.  Owner failed to examine, analyze and reconcile its 40% occupancy rate with these higher prevalent rates in the market.  Id.  Its calculation lacked probative value, so the Indiana Board’s final determination stood.   Id.