Hospitals, Hotels and Abatements — Indiana Tax Court tackles Property Tax Caps

Hospitals, Hotels and Abatements — Indiana Tax Court tackles Property Tax Caps

In two recent opinions and one from last spring, the Indiana Tax Court considered whether property taxes for hospitals and hotels should be calculated using the 2% or 3% tax caps.  In both opinions, the Court held that use of the 3% was appropriate under the plain language of the tax cap provisions.  In the third opinion, the Court determined that a property’s tax liability under the caps is determined before any applicable abatement deductions:  while exemptions are applied before determining a property’s “grossed assessed value” for tax cap purposes, deductions are not.

3% property tax cap applied to hospital, not 2% as “residential” or “long term care property.”

Plain language of tax cap statutes supported application of 3% cap to 85-bed hospital.

Name: Universal Health Realty v. Vanderburgh County Assessor

Date Issued: March 10, 2020

Property Type: Hospital

Tax Years: 2011 – 2015

Point of Interest: Plain statutory language excluded hospital from 2% property tax cap.

Synopsis: Taxpayer operated an 85-bed inpatient rehabilitative hospital, providing care to patients who had been discharged from acute care hospitals but were not ready to return home. The average stay was two weeks, with some patients staying up to three months. 80% of patients returned home after discharge, with the balance admitted to a nursing home, another acute care hospital or hospice.

During the tax years, the 3% property tax cap (for nonresidential property) was applied in calculating the hospital’s property tax liability. Taxpayer disagreed, arguing that the 2% cap under Ind. Code § 6-1.1-20.6-7.5 should have applied because the subject property was a hospital, a long term care property or a residential property.

The Court first noted that the cap is accomplished by applying a credit:

[in] the amount by which the person’s property tax liability attributable to the person’s:

(1) homestead exceeds one percent (1%);
(2) residential property exceeds two percent (2%);
(3) long term care property exceeds two percent (2%);
(4) agricultural land exceeds two percent (2%);
(5) nonresidential real property exceeds three percent (3%); or
(6) personal property exceeds three percent (3%);
of the gross assessed value of the property that is the basis for determination of property taxes for that calendar year.

Citing Ind. Code § 6-1.1-20.6-7.5(a). The legislature has further defined “residential property” and “long term care property.” See Ind. Code §§ 6-1.1-20.6-2.3, -4.

Taxpayer claimed that two memoranda issued by the Department of Local Government Finance assigned a 2% tax cap to hospitals. But its reliance on the memoranda was misplaced, the Court held. They merely offered non-binding guidance to local officials, leaving the tax cap decisions to local officials. Moreover, the Department “is not authorized to make any rules, regulations, or issue memoranda that are inconsistent with the statutes it administers or that add to or detract from the law as enacted.” (citations omitted). The legislature did not list hospital property as being eligible for the 2% cap.

The subject property was not a health care facility licensed under Ind. Code § 16-28, as required by the plain language of the tax cap statute. (It was licensed under Ind. Code § 16-21 instead.)

Finally, the subject property was not “residential property” with multiple “dwelling units.” Taxpayer’s reliance upon a definition under Indiana’s landlord-tenant law was “too remote to be reliable” in determining the meaning of “dwelling unit” under Indiana property tax law. Evidence showed that patients’ stays at the hospital were temporary. Thus, the “85 beds did not constitute 85 individual dwelling units.”

The plain language of the tax cap statutes supported the Indiana Board’s final determination, which the Court affirmed.

Hotel subject to the 3% tax cap, not the 2% cap for “residential property.”

Legislature specifically excluded hotels from the definition of “residential property” subject to the 2% property tax cap.

Name: Buckeye Hospitality Dupont, LLC v. Allen County Assessor

Date Issued: Feb. 28, 2020

Property Type: Hotel

Tax Years: 2013 – 2016

Point of Interest: Certified record contained insufficient evidence from the Indiana Board’s prior appeal, and therefore Court would not apply res judicata. 2014 amendment was a clarification of the definition of “residential property,” which expressly excludes hotels.

Synopsis: Taxpayer owned a four-story, 124-room hotel in Ft. Wayne. Each room contained a dining table and a kitchenette with a full-sized refrigerator/freezer and stove, as well as a microwave. Guests were not required to sign leases; most stayed for less than thirty days. All guests (either short- or long-term) had equal access to the property’s amenities. Evidence did not show if any long-term guests used the hotel as their address for mailing, voter registration or diver’s license purposes.

Assessor classified the property as nonresidential property, subject to the 3% cap. Using the now-discontinued Form 133 petition, Taxpayer claimed that the portion of property occupied by long-term guests should have been classified as residential property subject to the 2% tax cap for the years at issue.

The Tax Court noted that the definition of “residential property” (which receives the 2% cap) was amended, effective Jan. 1, 2014, to state that this term “does not include real property that consists of a commercial hotel, motel, inn, tourist camp, or tourist cabin.”

Court would not apply res judicata Assessor first asserted that Taxpayer’s claims were barred under res judicata, because the Board had determined in a prior administrative proceeding that Taxpayer’s property was not “residential property.” In discussing this issue, the Court observed the “test generally applied when determining whether a suit is barred by res judicata is whether identical evidence will support the issues involved in both actions.” (citation, internal quotes and brackets omitted). But the record from the prior appeal was not in the certified record or designated evidence for the current appeal. The Court was unable to determine if the prior and current appeals “actually involved the same claims, the same evidence, and the same parties.” The Court would not apply res judicata.

Plain language and legislative history showing clarification of existing statute excluded hotels from 2% cap.  Taxpayer argued that the term “dwelling unit” (described by the Court as “the term central to defining ‘residential property”) should be understood based on a property’s actual use (not, instead, on the property’s intended use). Thus, according to Taxpayer, those portions of the hotel used for more than 30 days should qualify for the 2% tax cap. The amended tax cap language, noted above, expressly limits the scope of “residential property” to exclude hotels. In addition, the Fiscal Impact Statement for the amendment explains that the language “is a clarification to the definition of residential property” and therefore should have no fiscal impact. (emphasis in original omitted.)

Because the 2014 amendment was a clarification, it applied to all years at issue. The subject property’s status was consistent with the plain language of “hotel,” as well as the definition under Indiana’s assessment guidelines. Moreover, Taxpayer admitted that part of the subject property was a commercial hotel. The definition of “hotel,” the Court reasoned, does not depend on the length of a guest’s stay; rather, the property (among other things) must provide “overnight lodging to the transient public.” (citing Webster’s Third New International Dictionary, 1094-95 (2002 ed.).)

The Tax Court affirmed the Indiana Board’s final determination clarifying the hotel as nonresidential property, which was subject to the 3% tax cap.

Tax cap applied before – not after – abatement deduction

Legislature did not intend to include “deductions” within the meaning of “exemptions.”

Name: Kokomo Urban Development, LLC v. Howard County Assessor

Date Issued: May 13, 2019

Property Type: Apartment complex

Tax Year: 2016

Point of Interest: In calculating application of Indiana’s property tax caps, the Legislature did not intend to include “deduction” within the scope of “exemption,” meaning that property tax caps were calculated before application of an abatement deduction (even though taxpayer may not receive the full benefit of the abatement granted).

Synopsis: Taxpayer’s apartment complex qualified for a 50% abatement deduction for the January 1, 2016 assessment date. After application of the deduction, but applying the 3.8342% tax rate, the tax liability was $47,720. This was less than what Taxpayer would have paid ($49,134) by applying the 2% tax cap to the property’s full assessed value. However, Taxpayer asserted its property tax liability should have been $24,892 – representing 2% of the property’s assessed value after applying a 50% abatement deduction to the subject improvements. As the Court summarized the issue: “the difference between the Assessor’s and Kokomo Urban’s calculations was whether the 2% tax cap was to be applied to the property before or after the application of the ERA deduction.”

Tax caps apply to a property’s “gross assessed value.” Under Ind. Code § 6-1.1-20.6-7.5(a), the 2% tax cap for “residential property” applied to the apartment’s “gross assessed value” – defined as “the assessed value of property after the application of all exemptions under IC 6-1.1-10 or any other provision.” (quoting Ind. Code § 6-1.1-20.6-1.6). Taxpayer argued that “exemptions,” as used in this definition, meant any provision or situation where property is not taxable – including property subject to abatement deductions.

The Legislature did not include “deductions” within the term “exemption.” The Court noted, however, that the Indiana General Assembly provided “discrete statutory definitions” for the terms “exemption” and “deduction.” (emphasis in original removed). “Given these independent and substantively distinct definitions, the Legislature could not have intended the term ‘exemptions’ to include the differently defined term ‘deductions’ or to use the two terms interchangeably” in defining “grossed assessed value” for tax cap purposes. To bolster its conclusion, the Court further reasoned: “This conclusion is supported by the principle of expressio unius est exclusio alterius, which instructs that the enumeration of certain things in a statute implies the exclusion of all others.” (citation omitted).

The Court would not add to the definition of “gross assessed value.” Taxpayer attempted to shoehorn “abatements” under the phrase “or any other provision” in “gross assessed value.” That phrase, Taxpayer asserted, means “or any other provision that reduces a property’s gross assessed value,” including an abatement deduction. But the Court refused to read words into the statute that “simply are not there.” As structured, “any other provision” means “exemptions under any other provision.”

In a footnote, the Court declined to address Taxpayer’s argument that the misapplication of the tax cap in this case violated its right to contract under the Indiana and United States Constitutions – because there was no misapplication of the tax caps. It was irrelevant that Taxpayer did not receive a benefit to which it thought it was entitled. Taxpayer “is not entitled to a windfall merely because it relied on its own misinterpretation of the law that governed its agreement [with the City of Kokomo] and the benefit it thought it would receive.”

The Tax Court affirmed the Indiana Board’s final determination.

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