Indiana Tax Court reverses classification of an apartment complex’s common area, modifying application of the 2% v. 3% tax caps

Indiana Tax Court reverses classification of an apartment complex’s common area, modifying application of the 2% v. 3% tax caps

tax caps

The Indiana Tax Court reversed a ruling affirming the allocation of an apartment complex’s residential (subject to a 2% cap) and nonresidential (subject to a 3% cap) property.

The Tax Court in Hamilton Square Investment, LLC v Hamilton County Assessor (Oct. 5, 2016) explained, “Indiana’s property tax caps provide taxpayers with credits against their Indiana property tax liabilities” and the “amount of a credit depends on, among other things, a property’s classification (e.g., homestead, residential, agricultural, or nonresidential) and its overall gross assessed value.”  Slip op. at 1-2 (citing Ind. Code § 6-1.1-20.6-7.5).  For the March 1, 2012, assessment, Taxpayer challenged the classification of its 200-unit apartment complex.  The Assessor had “classified about 70% of the property as residential (i.e., the apartment buildings, attached balconies, and land thereunder) and 30% as nonresidential (i.e., the paving, storage/utility sheds, pool, clubhouse, and all remaining land)” – a 2% cap applies to the residential component and a 3% cap applies to the nonresidential component.  Slip op. at 2.

The crux of the dispute was the definition of “common areas.”  Taxpayer argued that the 2% cap should apply to common areas beyond the complex’s building footprint.  The Assessor countered that the term “excluded ‘standalone structures’ and their supporting land (e.g., clubhouses and sheds).”  Slip op. at 6 (citations omitted).  The Court rejected the Assessor’s narrow interpretation and concluded that “common area,” as interpreted logically in light of all of the relevant statutory language, “must be understood to include land and improvements that are both attached to, and separated from, a multi-unit apartment building so long as the area is available for the shared use of tenants.”  Slip op. at 7.  Therefore, the Court reversed the Indiana Board of Tax Review’s ruling affirming the Assessor’s allocation.  Slip op. at 8.

The legislature adopted language defining “common areas” in 2013 but the Court found that it did not have to address that change in order to resolve the appeal.  Slip op. at 7 n.4 (citing Indiana Code § 6-1.1-20.6-1.2).

As of this posting, the Hamilton County Assessor is seeking review of this ruling by the Indiana Supreme Court.

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