“Fiction” trumps “facts” in the application of the 5% burden-shifting rule. Once sold by developer, subdivided lots were not the “same property,” so buyers had the burden to prove the lots’ property tax assessments were incorrect.

Indiana Assessors have the burden of proof on appeal to show that their assessments are correct, “if the assessment that is the subject of the review or appeal increased by more than five percent (5%) over the assessed value determined by the [assessor] for the immediately preceding assessment date for the same property.” Ind. Code § 6-1.1-15-17.2 (formerly Ind. Code § 6-1.1-15-17, emphasis added). This is a relatively new provision, becoming effective nearly a year ago.  As I have posted (see April 22, 2012 post at http://bit.ly/MhkYWd, this burden-shifting rule applies to any appeals pending before the Indiana Board of Tax Review as of July 1, 2011.  The Indiana Board of Tax Review has frequently analyzed the provision over the last several months (see e.g. http://bit.ly/PVmV9M), and last month in two final determinations the Board considered the 5% rule’s application to an assessment increase caused by removal of the developer’s discount. 

Both cases involved vacant lots in Howard County acquired from a developer at auction by non-developers.  In Paul B. and Mirella A. Markiewicz Revocable Living Trust v. Howard County Assessor, Pet. Nos. 34-002-10-1-5-00020 and -00021 (May 31, 2012), the properties under appeal were two vacant lots bought for a total of $6,000 but assessed at $52,800 as of the March 1, 2010 assessment date.  See http://1.usa.gov/MJDotA.  In Norris v. Howard County Assessor, Pet. Nos. 34-002-10-1-5-00149 and -00151 (May 31, 2012), the two lots were bought for a total of $4,500 but assessed at $71,000 for this same assessment date.  See http://1.usa.gov/LNEnrG.

In both cases, the Indiana Board resolved the lots’ disputed assessments by relying on their purchase prices.  The Board’s analysis in Norris is explained at http://bit.ly/PVqahr.  The evidence and analysis were substantially similar in Markiewicz, and the results in the two appeals were the same.  In Markiewicz, the Indiana Board identified the key facts as:  (1) the developer’s inability to sell a single lot for construction in five years; and (2) the high number of lots – 144 – offered for sale in the auction.   (Page 9, ¶ 19(c).)  The Board also referenced hearsay testimony by the Trust’s witness in Markiewicz that three brokers had listed lots in the neighborhood for sale for as little as $5,000 without success.  The “totality of the circumstances” indicated that the purchase price was “some evidence of the properties’ market value-in-use.” Id.

In both cases, the purchase prices supported reductions in the contested values.  In both cases, the lots’ 2010 values were more than 5% above their 2009 values.  But the Board concluded in both cases that the property owners – not the assessor – had the burden of proof on appeal.  I will cite to the paragraphs in Markiewicz, but both decisions apply the same reasoning, focusing on the requirement in the burden-shifting statute that the “same property” be at issue. 

The Indiana Board characterized the “developer’s discount” as a “fiction” that allows developers to maintain the lower, agricultural land base rate for farmland that the developer acquires, subdivides into lots and then resells for residential purposes.  (Pages 7-8, ¶ 16) (citing Ind. Code § 6-1.1-4-12).  The statute prohibits the reassessment of the developer’s “land in inventory” until the next assessment date following the earliest of:  (1) the date on which title to the land is transferred by a developer or successor developer to a non-developer; (2) the date on which construction of a structure begins on the land; or (3) the date on which a building permit is issued for construction of a building or structure on the land.  Ind. Code § 6-1.1-4-12(h). 

The Indiana Board reasoned that the lots in 2009 were not the “same property” as the lots in 2010.  (Pages 8, ¶ 18.)  As of the March 1, 2009 assessment date, the lots were owned by the developer and infrastructure for the residential neighborhood was being constructed.  But they were assessed as agricultural land under the “developer’s discount.”  After the lots were sold at auction, they were “no longer entitled to the protections of the developer’s discount.” Id.  The assessor was required to assess the lots for their new use as residential property. Id.  According to the Board:

Thus, the assessor was assessing agricultural property in 2009 and residential property in 2010. Because the assessor was not assessing the “same property” in 2010 as she assessed in 2009, the Board finds that the Petitioner has the burden to prove its properties’ assessed values were incorrect in this case.

(Page 8, ¶ 18.)  As noted above, the Board opines that the “developer’s discount” creates an assessment that is “fiction,” i.e. “land in inventory” that is not farmed is nevertheless valued (much lower) as agricultural land.  In other words, the vacant land is valued as something (agricultural land) it is not.  But between the 2009 and 2010 assessment dates, the record does not show that the lots at issue changed either physically or in their use.  Both in 2009 and 2010, the vacant lots were held for future residential use.  The lots appear to be the “same property.”  Regardless of the “facts,” however, the Board concludes that the “fiction” controls.  In the eyes of the Indiana General Assembly, for purposes of assessment and the burden-shifting provisions, the same vacant lots had different uses – agricultural in 2009 and residential in 2010.   Because the legally determined uses were different, the vacant lots in 2009 were not the “same property” under appeal for 2010.

The final determinations issued in Markiewicz and Norris seemingly address a question that the Indiana Board in the prior month had left for another day.  On April 12, 2012, the Board concluded in Wineinger v. Dubois County Assessor, Pet. No. 19-006-09-1-5-00019 [Small Claims Docket] that because the assessor had produced no proof that the subject property’s use had changed between assessment dates, “The Board therefore need not decide if an intervening change in a property‘s use affects whether Ind. Code § 6-1.1-15-17.2‘s burden-shifting provision is triggered in the first place.” See http://1.usa.gov/LtHgy0. (Page 6, ¶ 19(c) n.3.)  Based on the rulings in Markiewicz and Norris, the answer appears to be “yes”:  an intervening change in the property’s use means that the property under appeal is not the “same property” from the prior assessment date, so the taxpayer has the burden of proof.