ATTORNEY FOR PETITIONER:                        ATTORNEYS FOR RESPONDENT:
JOHN C. SLATTEN                                 PAUL M. JONES, JR.
MARION COUNTY ASSESSOR’S                        MATTHEW J. EHINGER
OFFICE                                          ICE MILLER LLP
Indianapolis, IN                                Indianapolis, IN



                               IN THE
                         INDIANA TAX COURT
                                                                       Sep 30 2015, 12:55 pm

MARION COUNTY ASSESSOR,                  )
                                         )
      Petitioner,                        )
                                         )
             v.                          )      Cause No. 49T10-1212-TA-00081
                                         )
GATEWAY ARTHUR, INC.,                    )
                                         )
      Respondent.                        )


                    ON APPEAL FROM A FINAL DETERMINATION OF
                        THE INDIANA BOARD OF TAX REVIEW

                                  FOR PUBLICATION
                                  September 30, 2015
FISHER, Senior Judge

      This case examines whether the Indiana Board of Tax Review erred in reducing

Gateway Arthur, Inc.’s real property assessments for the 2007, 2008, 2009, and 2010

tax years (the years at issue). The Court finds that the Indiana Board did not err.

                        FACTS AND PROCEDURAL HISTORY

      During the years at issue, Gateway Arthur owned a portion of the Indianapolis

retail shopping center known as The Shoppes at County Line Road.               Specifically,

Gateway Arthur owned six parcels that contained: 1) three buildings with about 270,000

square feet of leasable space; 2) a retention pond; 3) two access roads; and 4) a pylon
sign (hereinafter, “the subject property”). The Marion County Assessor assigned the

subject property a total assessed value of $17,426,500 for 2007, $18,112,000 for 2008,

$18,112,000 for 2009, and $17,003,100 for 2010.

       Gateway Arthur appealed the assessments, first to the Marion County Property

Tax Assessment Board of Appeals, and then to the Indiana Board. On May 10, 2012,

the Indiana Board held a hearing during which Gateway Arthur submitted an Appraisal,

prepared by two Indiana certified general appraisers, Richard Correll and Michael

Schlemmer, that valued the subject property under the income approach1 at

$12,800,000 for 2007, $13,800,000 for 2008, $12,900,000 for 2009, and $10,300,000

for 2010.2 (See Cert. Admin. R. at 643-716.)

       In response, the Assessor claimed that the Appraisal should be disregarded

because it used a loaded capitalization rate, it failed to account for the actual value of

the retention pond, pylon sign, and access roads, and it underestimated the value of the

subject property by about $1 million by failing to account for approximately $120,000 in

annual property tax reimbursements. (See Cert. Admin. R. at 1696-1700, 1705-11,

1720-21, 1737-38.) (Compare also Cert. Admin. R. at 705 with 934.) To further support

his assessments, the Assessor submitted an Income Analysis that valued solely the

subject property’s three buildings at $20,771,300 for 2007, $22,245,900 for 2008,


1
   The income approach, which “is used for income producing properties that are typically
rented[, ] converts an estimate of income, or rent, [a] property is expected to produce into value
through a mathematical process known as capitalization.” 2002 REAL PROPERTY ASSESSMENT
MANUAL (2004 Reprint) (incorporated by reference at 50 IND. ADMIN. CODE 2.3-1-2 (2002 Supp.))
at 3.
2
  Correll explained that the Appraisal, which was completed in conformance with the Uniform
Standards of Professional Appraisal Practice (USPAP), was a revision of an earlier appraisal
that, among other things, failed to account for certain property tax reimbursements. (See Cert.
Admin. R. at 1587-89; compare also Cert. Admin. R. at 706 with 935.)
                                                2
$18,786,400 for 2009, and $18,975,300 for 2010. (See Cert. Admin. R. at 946, 1697-

99, 1721-22.) Finally, the Assessor presented documentation indicating that Gateway

Arthur purchased the subject property in 2007 for $21,000,000. (See Cert. Admin. R. at

1443-45.)    The Assessor claimed that his Income Analysis, along with the subject

property’s 2007 purchase price, supported his assessments because their square foot

valuations were within a fairly “decent range[.]” (See Cert. Admin. R. at 1725-28.)

      On October 22, 2012, the Indiana Board issued a final determination in which it

explained that despite the fact the Appraisal undervalued the subject property by failing

to account for certain property tax reimbursements, it was still probative of the subject

property’s value. (See Cert. Admin. R. at 546-47 ¶¶ 55-58.) The Indiana Board further

explained that the Assessor’s evidence lacked probative value and, therefore, he did not

rebut the Appraisal’s valuations. (See Cert. Admin. R. at 547-50 ¶¶ 59, 61-63, 65-67.)

As a result, the Indiana Board determined that the subject property’s value was no more

than the Appraisal’s stated valuations, “augmented” by $1 million to account for the

property tax reimbursements, and ultimately valued the subject property at $13,800,000

for 2007, $14,800,000 for 2008, $13,900,000 for 2009, and $11,300,000 for 2010. (See

Cert. Admin. R. at 550-52 ¶¶ 69-71.)

      On December 6, 2012, the Assessor initiated this original tax appeal. The Court

heard oral argument on November 22, 2013.          Additional facts will be supplied as

necessary.

                               STANDARD OF REVIEW

      The party seeking to overturn an Indiana Board final determination bears the

burden of demonstrating its invalidity. Hubler Realty Co. v. Hendricks Cnty. Assessor,



                                            3
938 N.E.2d 311, 313 (Ind. Tax Ct. 2010). The Court will reverse a final determination if

it is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with

law; contrary to constitutional right, power, privilege, or immunity; in excess of or short

of statutory jurisdiction, authority, or limitations; without observance of the procedure

required by law; or unsupported by substantial or reliable evidence. IND. CODE § 33-26-

6-6(e)(1)-(5) (2015).

                                       ANALYSIS

       The Assessor claims that the Indiana Board’s final determination must be

reversed because it erred in 1) determining that the Appraisal was probative of the

subject property’s value, 2) determining that the Assessor’s evidence lacked probative

value, and 3) increasing Gateway Arthur’s requested valuations by $1 million. The

Court will address these claims in turn.

                         1. The Appraisal’s Probative Value

       The Assessor contends that the Indiana Board’s determination that the Appraisal

was probative of the subject property’s value is contrary to law because the Appraisal

used loaded capitalization rates to value the subject property, which Indiana’s

assessment guidelines do not allow.        (See Oral Arg. Tr. at 9-14.)   Contrary to the

Assessor’s contention, however, Indiana’s assessment guidelines do not prohibit the

use of loaded capitalization rates when valuing real property. See generally 2002 REAL

PROPERTY ASSESSMENT MANUAL (2004 Reprint) (“Manual”) (incorporated by reference at

50 IND. ADMIN. CODE 2.3-1-2 (2002 Supp.)); REAL PROPERTY ASSESSMENT GUIDELINES

FOR 2002 -- VERSION A (incorporated by reference at 50 I.A.C. 2.3-1-2), Bks. 1, 2.

Rather, they “explain the application of the cost approach in detail[,]” without specifying



                                             4
how the income approach should be applied, because Indiana’s assessing officials

primarily use the cost approach to value real property. Kooshtard Prop. VI, LLC v.

White River Twp. Assessor, 836 N.E.2d 501, 504-05 (Ind. Tax Ct. 2005), review denied;

see also generally Guidelines, Bks. 1, 2. But see, e.g., IND. CODE § 6-1.1-4-39(a) (2007)

(authorizing assessing officials to use the income approach with “an applicable

capitalization method and appropriate capitalization rates” to value certain real

property).   Therefore, the Indiana Board’s determination that the Appraisal was

probative of the subject property’s value is not contrary to law on this basis.

       The Assessor also asserts that the Appraisal lacked probative value because it

underestimated the value of the subject property by failing to account for the total

income of the retention pond, the pylon sign, and the access road parcels. (See Pet’r

Br. at 3-4; Oral Arg. Tr. at 4.) More specifically, the Assessor explains that because

developers typically would not “allow people to use [a] sign for free[,]” it was

unreasonable for the Indiana Board to assume that Gateway Arthur allowed other

retailers in the Shoppes, such as HH Gregg, to use those parcels free of charge. (See

Pet’r Br. at 3-4; Oral Arg. Tr. at 20-21.) Although the Assessor had tools to elicit data on

such a claim, the record evidence simply does not indicate that Gateway Arthur

collected rent from other retailers based on their use of those parcels. (See, e.g., Cert.

Admin. R. at 1688-89, 1736-39.) Consequently, the Court declines to find that the

Appraisal was not probative of the subject property’s value on this basis as well.

                 2. The Probative Value of the Assessor’s Evidence

       Next, the Assessor claims that the Indiana Board erred in determining that his

evidence lacked probative value. More specifically, the Assessor argues that the record



                                             5
evidence does not support the Indiana Board’s determinations that a) the capitalization

rates used in the Income Analysis lacked probative value, b) the Income Analysis

misconstrued the effect of property taxes, and c) the subject property’s 2007 purchase

price lacked probative value. (See Resp’t Br. at 4-6; Oral Arg. Tr. at 4-5.)

                               a. The capitalization rates

       The Assessor argues that the Indiana Board erred in discounting the Income

Analysis based on its use of national power centers’ capitalization rates because

Gateway Arthur never explained how the use of a different capitalization rate would alter

the Income Analysis’ stated valuations.          (See Pet’r Br. at 5-6.)       The certified

administrative record, however, reveals otherwise.

       During the Indiana Board hearing, Correll testified that the subject property was a

“hybrid,” having elements of both power and neighborhood centers. (Cert. Admin. R. at

1581-82.)    Correll explained that this distinction was important because appraisers

attempt to “define where [a property] fits into the universe” before estimating its value

because everything (i.e., an investor’s perception of a property’s risks/returns and, thus,

the use of one capitalization rate over another) flows from that definition. (Cert. Admin.

R. at 1582.) (See also, e.g., Cert. Admin. R. at 1601-02.) The Assessor, on the other

hand, never explained why a capitalization rate for a national power center was

applicable to the subject property or even challenged Correll’s hybrid center

classification.   (See Cert. Admin. R. at 1695-1759.)         The Indiana Board’s final

determination, therefore, indicates that the Indiana Board weighed the parties’ evidence

regarding this issue and ultimately found Gateway Arthur’s evidence more persuasive.

(See Cert. Admin. R. at 548 ¶ 61 (finding that the “subject property is more properly



                                             6
considered a hybrid center than purely a power center”).) Consequently, the Assessor

has not shown that the Indiana Board’s determination that the Income Analysis lacked

probative value based on its use of national power centers’ capitalization rates was

unsupported by substantial evidence. See Amax Inc. v. State Bd. of Tax Comm’rs, 552

N.E.2d 850, 852 (Ind. Tax Ct. 1990 (defining substantial evidence as that which a

reasonable mind might accept as adequate to support a conclusion).

                                   b. The property taxes

       The Assessor also argues that the Indiana Board’s determination that the Income

Analysis “grossly misconstrued the impact of property taxes on the subject property’s

[value because it] did not include property taxes in the 25% expense ratio” is not

supported by substantial evidence. (See Pet’r Br. at 4-5 (citing Cert. Admin. R. at 548 ¶

62); Oral Arg. Tr. at 4-5.) As support, the Assessor points out that the record evidence

affirmatively indicates that the 25% expense ratio included property taxes. (See Pet’r

Br. at 4-5 (citing Cert. Admin. R. at 1439 (providing that the median operating expense

for certain shopping centers was 26.41% when property taxes were included and

17.27% when property taxes were excluded)).)

       Nevertheless,    during     cross-examination,   the   Assessor’s    representative

specifically testified that the 25% expense ratio did not include property taxes. (See

Cert. Admin. R. at 1740.)        That testimony was neither subsequently retracted nor

clarified. (See Cert. Admin. R. at 1740-59.) Consequently, when the Court is faced with

conflicting record evidence, as is the case here, it will defer to the Indiana Board so long

as a reasonable mind could find sufficient evidence in the record to support that finding.

See Hamilton Cnty. Prop. Tax Assessment Bd. of Appeals v. Oaken Bucket Partners,



                                             7
LLC, 938 N.E.2d 654, 657-58 (Ind. 2010). Accordingly, the Court cannot say that the

Indiana Board erred in discounting the Assessor’s Income Analysis on this basis either.

                              c. The 2007 purchase price

       The Assessor further argues that the Indiana Board erred when it rejected the

subject property’s 2007 purchase price of $21,000,000 as evidence of its actual value.

(See Pet’r Br. at 4.)    The evidence in the administrative record, however, reveals

otherwise.

       During the Indiana Board hearing, the Assessor presented a computer printout

that indicated that Gateway Arthur purchased five of the subject property’s six parcels

for $21,000,000 in 2006. (See Cert. Admin. R. at 1443-45.) The Assessor explained

that although the subject property’s original sales disclosure form no longer existed, a

taxing official had recorded the information from that form into a computer database.

(See Cert. Admin. R. at 1445, 1728-30.) In rebuttal, Gateway Arthur submitted an

affidavit and warranty deed that indicated that it purchased the subject property, along

with 35 other properties, in a portfolio sale for $423.5 million in 2007, and that it would

not have purchased the subject property on a stand-alone basis. (See Cert. Admin. R.

at 717-28, 1752.) Correll also testified that when a property is sold as part of a portfolio,

an appraiser should ascertain what variables the allocated sales price is based upon

(i.e., does it include something more than the “sticks and bricks”) before using that sale

in a property valuation. (See Cert. Admin. R. at 1596-97.)

       The Indiana Board determined that the $21,000,000 purchase price was not

probative because the Assessor’s computer printout, among other things, failed to

indicate who entered the data, failed to include all six parcels, and contained the wrong



                                             8
“sale” and “deed” dates.    (See Cert. Admin. R. at 549 ¶ 65.)       The Indiana Board,

therefore, weighed the parties’ evidence regarding the subject property’s 2007 purchase

price and ultimately determined that Gateway Arthur’s evidence was more persuasive.

Accordingly, the Court finds no basis for reversing the Indiana Board’s rejection of the

subject property’s 2007 purchase price. See, e.g., French Lick Twp. Tr. Assessor v.

Kimball Int’l, Inc., 865 N.E.2d 732, 739 (Ind. Tax Ct. 2007) (explaining that when the

Indiana Board understands a taxpayer’s evidence and finds that it had probative value,

the Court will not overturn that determination absent an abuse of discretion).

                     3. Gateway Arthur’s Requested Valuations

      The Assessor’s final claim is that the Indiana Board exceeded its authority when

it increased Gateway Arthur’s requested valuations by $1 million for each of the years at

issue. (See Pet’r Br. at 1-3; Oral Arg. Tr. at 3-4, 26.) The Assessor explains that once

the Indiana Board determined that the Appraisal was flawed, it should have found that

the Assessor rebutted Gateway Arthur’s prima facie case, not “salvaged” Gateway

Arthur’s case by correcting the Appraisal. (See Pet’r Br. at 2-3; Oral Arg. Tr. at 32-33;

Cert. Admin. R. at 550-51 ¶ 69-71.) The Assessor claims that the Court’s case law

supports his position. (See Pet’r Br. at 3 (citing Meridian Towers E. & W. v. Washington

Twp. Assessor, 805 N.E.2d 475, 480 (Ind. Tax Ct. 2003) (holding that the Indiana Board

erred in using a treatise to reject a taxpayer’s evidence because the treatise was not

introduced into evidence)).) (See also Oral Arg. Tr. at 26-27 (citing Meijer Stores Ltd.

P’ship v. Smith, 926 N.E.2d 1134, 1138-39 (Ind. Tax Ct. 2010) (explaining that the

Indiana Board’s rejection of a taxpayer’s evidence “was not based on substantial

evidence [because there was] no evidence against which to weigh or discount [the



                                            9
taxpayer’s] evidence”)).)

       The administrative record reveals that the parties agreed that the Appraisal failed

to include certain annual property taxes reimbursements. (Compare Cert. Admin. R. at

1706-09, 1711 (where the Assessor asserts that the Appraisal omitted about $120,000

in property tax reimbursements that would have increased the value of the subject

property by $1 million annually) with Cert. Admin. R. at 1769-70 (where Correll admits

that the Appraisal should have accounted for those property tax reimbursements in its

valuations).)   The Indiana Board subsequently determined that the undervaluation

ranged from $981,193 to $1,047,120 by using the Appraisal’s loaded capitalization rates

(i.e., 11.46% and 12.23%) to capitalize the omitted property tax reimbursements (i.e.,

$120,000). (See Cert. Admin. R. at 546-47 ¶ 57, 708.) The Indiana Board’s final

determination, therefore, indicates that it found the Assessor’s position persuasive with

respect to this issue, not that it corrected the Appraisal. Accordingly, the Meijer and

Meridian Towers cases do not apply here because the Indiana Board’s actions were

based on, and supported by, the record evidence. See Meijer Stores, 926 N.E.2d at

1138-39; Meridian Towers, 805 N.E.2d at 480. Consequently, the Indiana Board did not

exceed its authority by increasing Gateway Arthur’s requested valuations by $1 million

for each of the years at issue.

                                     CONCLUSION

       For the above-stated reasons, the final determination of the Indiana Board is

AFFIRMED.




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