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Switzerland County Assessor v. Belterra Resort Indiana, LLC

Tax Court of Indiana

May 24, 2018

SWITZERLAND COUNTY ASSESSOR, Petitioner,
v.
BELTERRA RESORT INDIANA, LLC, Respondent.

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

          ATTORNEYS FOR PETITIONER: JEFFREY T. BENNETT BRADLEY D. HASLER BINGHAM GREENEBAUM DOLL LLP Indianapolis, IN.

          ATTORNEYS FOR RESPONDENT: DAVID A. SUESS STEPHEN H. PAUL BENJAMIN A. BLAIR FAEGRE BAKER & DANIELS LLP Indianapolis, IN.

          WENTWORTH, J.

         During the course of an administrative appeal, both Belterra Resort Indiana, LLC and the Switzerland County Assessor presented appraisals valuing Belterra's casino property for purposes of the 2009 through 2014 assessment years. On March 30, 2017, the Indiana Board of Tax Review issued a final determination that reviewed those appraisals and, ultimately, formulated its own value conclusion. Belterra and the Assessor have each separately appealed the Indiana Board's final determination, which the Court now affirms in part and reverses in part.

         RELEVANT FACTS AND PROCEDURAL HISTORY[1]

         Belterra owns and operates the Belterra Casino Resort in Florence, Indiana. For purposes of this appeal, the Resort consists of a Riverboat, [2] a Hotel, [3] a Golf Course, [4] and a total of 250.22 acres of land. (See generally Cert. Admin. R. at 1811-23.) The vast majority of the Resort's total gross revenue is generated by gaming. (See generally Cert. Admin. R. at 1950-53.)

         During the years at issue, the Assessor's original assessment valued the Resort as follows:

2009:

$109, 276, 900

2010:

$108, 775, 300

2011:

$108, 226, 700

2012:

$ 92, 505, 200

2013:

$ 95, 843, 400

2014:

$ 93, 170, 100

(See Cert. Admin. R. at 12 ¶ 10, 1827, 4186-87, 4194-95, 4199-4200, 4205-06, 4211-12, 4217-18.) Believing those values to be too high, Belterra initiated appeals with the Switzerland County Property Tax Assessment Board of Appeals (PTABOA). (See Cert. Admin. R. at 4189, 4197, 4202, 4208, 4214, 4220.) On June 24, 2015, Belterra transitioned its appeals to the Indiana Board.[5] (See, e.g., Cert. Admin. R. at 4183.)

         In May of 2016, the Indiana Board conducted a consolidated hearing on all of Belterra's appeals. For purposes of the hearing, Belterra and the Assessor agreed to litigate only the Resort's 2009 and 2014 assessments, stipulating that the 2010 through 2013 assessments could then be determined with a trending formula based on the finally-determined 2009 and 2014 assessed values. (See Cert. Admin. R. at 4231-32.) Consequently, both Belterra and the Assessor's evidentiary presentations consisted of appraisals valuing the Resort for the 2009 and 2014 tax years alone. (See, e.g., Cert. Admin. R. at 10-12.)

         The Indiana Board Hearing: Belterra's Evidentiary Presentation

         Belterra presented appraisals by Robert Herman and David Lennhoff. Herman, a member of the Appraisal Institute (MAI), valued the Riverboat and Golf Course while Lennhoff, also an MAI, valued the Hotel. (See Cert. Admin. R. at 520, 979, 1659, 2337-39, 2783-84.) Both Herman and Lennhoff certified that their appraisals conformed to the Uniform Standards of Professional Appraisal Practice (USPAP). (Cert. Admin. R. at 525-26, 984-85, 1660.) The appraisals indicated a total Resort value of $44, 402, 000 for 2009 and $48, 675, 000 for 2014. (See Cert. Admin. R. at 28 ¶ 69 n. 20, 357 ¶ 12, 525-26, 984-85, 1660, 2636-41.)

         1. Herman's Riverboat Valuations

         There are three generally accepted appraisal techniques for valuing real property.[6] In valuing the Riverboat, Herman's appraisals employed two of them: the sales comparison approach and the cost approach. (See, e.g., Cert. Admin. R. at 527, 986.) Under the sales comparison approach, Herman estimated the Riverboat's market value-in-use to be $4, 500, 000 in 2009 and $3, 500, 000 in 2014 based on the price it would have garnered on the open market. (See Cert. Admin. R. at 574-602, 1033-86.) Under the cost approach, Herman estimated the Riverboat's market value-in-use as $8, 600, 000 for 2009 and $3, 700, 000 for 2014. (See Cert. Admin. R. at 604-16, 1088-1100.) Herman testified that he considered the third technique, the income approach, to be inappropriate to value the Riverboat because the Riverboat had no "discrete rental [income] stream" and it did not constitute a substantial portion of the Resort's total going concern value. (See, e.g., Cert. Admin. R. at 527, 986, 2370-74.)

         Herman reconciled his two values for each year into one final value conclusion: $4, 327, 000 for 2009 and $3, 500, 000 for 2014. (See, e.g., Cert. Admin. R. at 617-18, 1100-02.) More specifically, he chose the lowest value of the two approaches indicated for each year (i.e., the $4, 500, 000 for 2009 and the $3, 500, 000 for 2014), and then trended the 2009 value back to its valuation date of January 1, 2008. (See Cert. Admin. R. at 618, 1102.) See also generally Ind. Code § 6-1.1-4-39.5(b) (2009); Ind. Code § 4-33-2-17 (2009) (together explaining that the assessed value of a riverboat was the lowest valuation determined under the cost, sales comparison, and income approaches); 50 Ind. Admin. Code 21-3-3(b) (2006) (indicating that prior to 2010, a property's March 1 assessment was to reflect a property's market value-in-use on January 1 of the preceding year) (repealed 2010).

         2. Herman's Golf Course Valuations

         To value the Golf Course for 2009, Herman's appraisal used the cost approach and arrived at a value of $2, 500, 000. (See, e.g., Cert. Admin. R. at 533, 535, 2519-30.) For 2014, however, Herman's appraisal used the income approach and arrived at a value of $3, 000, 000. (See, e.g., Cert. Admin. R. at 985, 992, 1604-07, 2530-45, 2636-41.) Herman testified during the Indiana Board hearing that Indiana's Assessment Manual and Guidelines required him to value the Golf Course in 2009 using the cost schedules it provided, but for 2014, he used the income approach to value the Golf Course as mandated by the newly enacted Indiana Code § 6-1.1-4-42. (See, e.g., Cert. Admin. R. at 2518-19, 2531-33.)

         3. Lennhoff's Hotel Valuation

         Lennhoff's appraisal used the income approach to value the Hotel. (See, e.g., Cert. Admin. R. at 1733-34 (explaining why he believed the sales comparison and cost approaches were not applicable to valuing the Hotel).) Under this approach, Lennhoff valued the Hotel at $37, 575, 000 for 2009 and $42, 175, 000 for 2014.[7] (See Cert. Admin. R. at 1731, 1769.)

         Lennhoff explained that in completing his income approach, he treated the Hotel as if it were a "stand-alone, " full-service hotel owned and operated independently of the casino operation. (See Cert. Admin. R. at 1720-21 (stating that this premise was necessary to extract any value that solely benefitted the casino operation because Belterra operated the Hotel as a marketing tool for the casino and, thus, as a "loss-leader").) Moreover, he relied on market income and expense data published in national investor surveys for full-service hotels as opposed to the Hotel's actual operating data, given the Hotel's prevalent practice of "comping" rooms in order to generate gaming business. (See, e.g., Cert. Admin. R. at 1739-49 (indicating that paying guests represented only a small percentage of the Hotel's total annual occupancy), 2885-86 (implying that had he used the Hotel's actual operating data, he would have produced a negative value), 2910 (stating that he put very little weight on the Hotel's actual income and expense figures).) Lennhoff noted that several other hotels that operated near casinos, but were owned independently from the casinos, generally performed about the same as full-service hotels. (See, e.g., Cert. Admin. R. at 2860-61, 2895-97, 2908-25.) Lennhoff acknowledged, however, that as a "stand-alone" hotel, the Hotel was "super-adequate" (i.e., over-improved) in relation to other full-service hotels. (Cert. Admin. R. at 1708, 1720-21.)

         The Indiana Board Hearing: The Assessor's Evidentiary Presentation

         The Assessor offered her own evidence, presenting the USPAP-certified appraisals of Michael Cahill, MAI, that estimated the market value-in-use of the Resort's real property as $134, 300, 000 for the 2009 tax year and $127, 000, 000 for 2014 tax year.[8] (See Cert. Admin. R. at 1840-41, 1846-47, 2062-63, 2068-69.) These values were notably higher than the 2009 and 2014 assessed values she initially assigned to the property.

         Cahill's appraisals first used the income approach to determine that the going concern value of the entire Resort was $220, 000, 000 in 2009 and $190, 000, 000 in 2014. (See Cert. Admin. R. at 1843-45, 2065-67.) (See also e.g., Cert. Admin. R. at 1934-37, 1942, 1949 (explaining in part why he did not believe either the cost approach or the sales comparison approach were applicable to valuing casino properties), 3203-04, 3207-09 (explaining his view that appraising casino properties based on their going concern values was the most accurate method to reflect the relationship between tangible and intangible assets and that market participants rely upon this measure of value when deciding whether to invest).) More specifically, Cahill used a discounted cash flow ("DCF") analysis to calculate the present value of the Resort's earnings before interest, taxes, depreciation, and amortization ("EBITDA")[9] over a 10-year holding period, to which he then added the present value of proceeds received from a hypothetical sale of the Resort in year 11. (See, e.g., Cert. Admin. R. at 1949, 1961, 1967, 2177, 2189, 2196.) For his 2009 valuation of the Resort, Cahill projected that EBITDA would grow by 19.6% between 2009 and 2012, and then 3% in each of the remaining seven years, for a total of 46.6% over the 10-year projection period. (See Cert. Admin. R. at 1961, 1963, 1967, 3766-67.) For his 2014 valuation, Cahill projected the Resort's EBITDA would grow by 17.8% between 2014 and 2017, and then 3% in each of the remaining seven years, for a total of 44.7% over the 10-year projection period. (See Cert. Admin. R. at 2189, 2191, 2196, 3767-68.)

         From the going concern values, Cahill deducted the value he attributed to each of the Resort's non-realty components (i.e., the personal property, the gaming license, and the business enterprise) to arrive at the market value-in-use of the Resort's real property of $134, 300, 000 for 2009 and $127, 000, 000 for 2014. (See, e.g., Cert. Admin. R. at 1843-45, 1970-78, 2065-68, 2201-11.) Specifically, Cahill valued the Resort's personal property relying on the personal property tax returns Belterra previously filed with the Assessor. (See Cert. Admin. R. at 1970-71, 2201-02.) To determine the value of the gaming license, Cahill applied a multiplier to the Resort's EBITDA to account for its monopolistic value in a restricted market casino state. (See Cert. Admin. R. at 104 ¶ 296, 1971-75, 2202-07.) To determine the value of the business enterprise, Cahill used a "Dark Casino Theory, " which computed two income capitalization approaches: one for the property as if closed, the other for the property upon reopening, attributing the difference between the two, plus any "pre-opening costs, " as the business enterprise value. (See Cert. Admin. R. at 1975-77, 2207-10.)

         Cahill then allocated approximately 55% of these real property values to the Riverboat and the other 45% to the Hotel and Golf Course. (See Cert. Admin. R. at 1979-81, 2212-13.) He based his allocations on the relative percentages of developmental income derived from, and costs incurred by, the Riverboat, Hotel, and Golf Course. (See Cert. Admin. R. at 1979-81, 2212-13.)

         The Indiana Board's Final Determination

         By the end of the administrative hearing, Belterra and the Assessor had presented the Indiana Board with two competing market value-in-use estimates derived from entirely different methodologies. Those positions were, again, as follows:

Belterra

Assessor

2009 Riverboat:

$ 4, 327, 000

$76, 200, 000

2009 Golf Course:

$ 2, 500, 000

2009 Hotel:

2009 Hotel & Golf Course Combined:

$37, 575, 000

$58, 100, 000

2009 Total:

$44, 402, 000

$134, 300, 000

Belterra

Assessor

2014 Riverboat:

$ 3, 500, 000

$68, 100, 000

2014 Golf Course:

$ 3, 000, 000

2014 Hotel:

$42, 175, 000

2014 Hotel & Golf Course Combined:

$58, 400, 000

2014 Total:

$48, 675, 000

$127, 000, 000[10]


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