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Howard County Assessor v. Kohl's Indiana LP

Tax Court of Indiana

September 7, 2016

KOHL'S INDIANA LP, Respondent.



          BRIAN A. CUSIMANO ATTORNEY AT LAW Indianapolis, IN


          WENTWORTH, J.

         On December 31, 2014, the Indiana Board of Tax Review issued a final determination valuing the Kohl's store in Kokomo, Indiana for purposes of the 2010, 2011, and 2012 assessments. The Howard County Assessor has challenged that final determination, but the Court affirms.


         Kohl's Indiana LP owns and occupies an 88, 242 square foot retail store on 10.65 acres of land at the Boulevard Crossing shopping center in Kokomo, Indiana (the subject property). Kohl's constructed the subject property in 2003.

         For the 2010, 2011, and 2012 assessments, the Assessor valued the subject property at $5, 984, 000, $5, 685, 300, and $5, 906, 300 respectively. Believing those values to be too high, Kohl's filed appeals with the Howard County Property Tax Assessment Board of Appeals (PTABOA). The PTABOA affirmed the assessments and Kohl's subsequently filed appeals with the Indiana Board. After consolidating the three appeals, the Indiana Board conducted an administrative hearing on the matter in January of 2014.

         During the hearing, both Kohl's and the Assessor presented, among other things, Summary Appraisal Reports, completed by certified appraisers in conformance with the Uniform Standards of Professional Appraisal Practice (USPAP), that valued the subject property for each of the assessment years at issue. The Kohl's appraisal, which employed the sales comparison, the income, and the cost approaches to value, estimated the subject property's market value-in-use to be $3, 690, 000 for the 2010 assessment; $3, 820, 000 for the 2011 assessment; and $3, 680, 000 for the 2012 assessment.[1] The Assessor's appraisal, on the other hand, employed the sales comparison and the cost approaches to value and estimated the subject property's market value-in-use to be $4, 920, 000 for the 2010 assessment, $4, 770, 000 for the 2011 assessment, and $4, 810, 000 for the 2012 assessment.

         On December 31, 2014, the Indiana Board issued a final determination in the matter, stating that the two parties "fundamentally disagreed" about how the subject property should be appraised due to their differing interpretations of Indiana's market value-in-use standard. (See Cert. Admin. R. at 55 ¶ 1.) Their disagreement, the Indiana Board explained, was demonstrated through their selection of different comparable properties used in each of their appraisals. For instance, in valuing the subject property, the Kohl's appraisal relied on data from the fee simple sales of nine midwestern "big box" retail stores.[2] (See Cert. Admin. R. at 63 ¶¶ 24, 26.) The appraiser for Kohl's believed these properties were appropriate comparables to use in valuing the subject property because: 1) they were vacant at the time of the sale and thus their sales prices reflected the value of the real property alone (as opposed to intangible values, such as tenant quality, that are often included in the sale of leased fees); 2) they all sold for a continued retail use; and 3) similar big box properties were regularly sold in the market. (See Cert. Admin. R. at 63-64 ¶¶ 24-28, 75 ¶ 67.)

         In contrast, the Indiana Board noted that the Assessor's appraiser believed that the use of the "dark boxes" by Kohl's was not appropriate to value the subject property for the following reasons: 1) dark boxes do not have any utility to either the original owner or another owner/user "in the same retail tier" and 2) the subject property was a special purpose property because Kohl's built it to its own specifications. (See, e.g., Cert. Admin. R. at 70-71 ¶¶ 50, 53, 73 ¶ 59, 82-83 ¶¶ 89, 92-93.) Accordingly, by using the dark boxes as comparables, the Assessor's appraiser claimed that Kohl's had determined the subject property's market value rather than its market value-in-use.[3](See Cert. Admin. R. at 82 ¶ 89, 88-89 ¶ 110.) The Assessor's appraisal relied instead on data from sales of big boxes with leases to either Kohl's or another "first generation" user that were in place at the time of the sale (i.e., leased fee sales). (See, e.g., Cert. Admin. R. at 82 ¶ 89, 84 ¶ 95, 87-89 ¶¶ 107, 110 (contending that because the subject property is an operating Kohl's store, the value of its utility could best be determined in relation to other operating Kohl's stores).)

         After weighing the competing appraisals, the Indiana Board found the one submitted by Kohl's more probative than the one submitted by the Assessor because it better reflected the meaning of market value-in-use as stated in Indiana's assessment manual and as consistently interpreted in Tax Court jurisprudence. (See Cert. Admin. R. at 55-56 ¶ 1, 91-92 ¶¶ 117-19, 107 ¶ 160.) Indeed, the Indiana Board explained that pursuant to Tax Court case law, "where a non-special purpose property is put to its highest and best use and is of a type that regularly exchanges for the same general use, the property's [market value-in-use] will equal its market value." (Cert. Admin. R. at 94 ¶ 124 (citing 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).) After reviewing the evidence presented, the Indiana Board found that because the Assessor 1) acknowledged that properties like the subject property frequently trade in the market for a general retail use, 2) indicated that the subject property's current use was its highest and best use, and 3) failed to demonstrate that the subject property was in fact a special purpose property, the Kohl's appraisal better reflected the subject property's market value-in-use. (See Cert. Admin. R. at 83 ¶ 93, 94-97 ¶¶ 124, 126-31.) (See also Cert. Admin. R. at 97 ¶ 132 (explaining that the Assessor's appraisal measured the value of a property that was better than, and not similar to, the subject property because it included the costs to adapt the dark box to meet the specific business model of Kohl's).) Accordingly, the Indiana Board reduced the subject property's 2010 assessment to $3, 690, 000; the 2011 assessment to $3, 820, 000; and 2012 assessment to $3, 680, 000.

         The Assessor initiated this original tax appeal on February 13, 2015. The Court heard the parties' oral arguments on January 15, 2016. Additional facts will be supplied as necessary.

         STANDARD ...

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