The Indiana Tax Court affirmed the Indiana Board of Tax Review’s final determinations of a pharmacy’s real property tax values for the March 1, 2007 and 2008 assessment dates. In Shelby County Assessor v. CVS Pharmacy, Inc. #6637-02, Cause No. 49T10-1112-TA-96 (Sept. 23, 2013), CVS and the Assessor both presented income approach calculations to support their values. Their calculations “differed in one major aspect: CVS used market rents and the Assessor used contractual rent.” Slip op. at 2. At the administrative hearing, CVS argued that it typically uses sale-leaseback transactions as financing tools, so that the lease payments it makes to its lessors “do not reflect merely the value of the real estate, but rather the broader business value of CVS itself.” Slip op. at 3. Accordingly, the “spread” between the contractual rent of $27.20 per square foot and the approximate $10 per square foot “market” rents for leases of other pharmacies “represented the investor’s expected return on its investment in CVS.” Id. CVS argued for a nearly 50% reduction in value. The Assessor asserted that the contractual rent reflected “the CVS market.” Slip op. at 3. In fact, the Assessor requested an increased value based on the contractual rent. The Board’s final determination expressed doubt that either party presented evidence of a value “more credible or reliable” than the original values and upheld those assessments. Slip op. at 4. The assessments remained the same.
On appeal to the Tax Court, the Assessor argued that the property’s market value-in-use “can only be measured in relation to other CVS stores” and not “second generation tenants.” Slip op. at 3, 6. The Indiana Board’s failure to apply contract rent, the Assessor contended, “completely ignored the subject property’s utility as a fully-functioning CVS store.” Slip op. at 6. But CVS had presented probative evidence showing a “significance difference” between the property’s market and contract rent and that it used sale-leaseback transactions “as a means to generate additional business capital from investors.” Slip op. at 7. The Board concluded that the Assessor’s calculation was likely “capturing more than the value of the real property (i.e. the ‘sticks and bricks’) in her computation.” Slip op. at 7. The Board gave the Assessor’s valuation no weight. Id. Its conclusion was supported by the Tax Court’s case law. Id. (citations omitted). The Assessor in realty was arguing that the Court’s prior holdings were wrong, but the Court stood by those decisions. Slip op. at 8 n.5. The Tax Court refused to reweigh the evidence and would not increase the Assessor’s original values. Slip op. at 8.