Howard County Assessor v. Kohl’s Indiana LP, No. 49T10-1502-TA-00004, 2016 Ind. Tax LEXIS 34 (Ind. Tax Ct. September 7, 2016)

The Indiana Tax Court affirmed the final decision of the Indiana Board of Tax Review (“Board”), upholding the appraisal value of a property owned by Kohl’s Indiana LP (“Kohl’s”).  Kohl’s owns a retail store in Kokomo, Indiana. The valuation of the property for the 2010, 2011 and 2012 tax years were set by the Howard County Property Tax Assessor.  Kohl’s challenged those assessment amounts.  The Board accepted Kohl’s appraisal amount as it “better reflected the meaning of market value-in-use” as described by Indiana statutes, regulations, and prior precedent of the Tax Court.

The primary issue on appeal was whether the use of “dark boxes” as comparable properties was appropriate when appraising the market value-in-use of the property.  Dark boxes are big box retail stores (exceeding 50,000 square feet) that are vacant at the time of sale. Kohl’s argued these were appropriate comparable properties because their sales prices reflected the value of the real property absent the value of the business or other fixtures, each of the properties was sold for continued retail use, and properties similar to these dark boxes were regularly sold in the market.  The assessor argued that dark boxes were not comparable properties because “dark boxes do not have any utility to either the original owner or another owner/user in the same retail tier,” and that the store was a special purpose property based on the modifications made by Kohl’s.  The assessor’s argument hinged on the idea that a “second-generation user” would have a significant expense in transforming the dark box into a usable space.

The Tax Court rejected the Assessor’s argument and plea to overturn past cases finding that sales of properties to second generation retailers are comparable under the market value-in-use standard. (See e.g. 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).  The Tax Court upheld that use of dark boxes are permissible as comparable properties for the Indiana market value-in-use valuation process.