Indiana Tax Court affirms rejection of Tenant’s claims that Assessor improperly included value of land in taxable leasehold interest

Indiana Tax Court affirms rejection of Tenant’s claims that Assessor improperly included value of land in taxable leasehold interest

Name: Square 74 Associates LLC v. Marion County Assessor

Date Issued: December 3, 2019

Property Type: 7-story 209,888 square foot public parking garage with 31,000 square feet of first floor retail consisting of five tenant suites

Tax Years: 2008 – 2011

Point of Interest: Where a lease failed to expressly carve out the land from a tenant’s leasehold interest, whether the assessment improperly assessed taxpayer-tenant for the value of land required subjective judgment, so use of the former Form 133 petition (used to address objective errors) to challenge the assessments was improper.

Synopsis: The City of Indianapolis owned a 7-story 209,888 square foot public parking garage in downtown Indianapolis and leased a portion of the ground floor, which consisted of five tenant spaces totaling 31,000 square feet. For assessment purposes, the public parking garage and five tenant spaces were assessed separately and assigned their own separate parcel numbers. Square 74 leased the tenant spaces from the City of Indianapolis for the operation of five restaurants. Square 74 filed Petitions for Correction of an Error (the now discontinued Form 133s) with the Marion County Auditor based on the belief the assessments of the five tenant spaces contained mathematical errors due to: (i) building components being double-assessed; and (ii) the assessment of its leasehold interest in the tenant spaces included the underlying land that was allegedly the responsibility of the City, as owner.

The Indiana Board granted the Assessor’s Cross-Motion to Dismiss for failure to state a claim. The Indiana Board determined that Square 74’s appeals could not be resolved under the Form 133 appeals process, a process limited to resolving objective issues. To the contrary, the Indiana Board found that a determination of how Square 74’s leasehold estate was to be valued was subjective. The Indiana Board explained that “the interest being assessed was Square 74’s possessory interest, not the land or improvements themselves or fee ownership in them.”

Leases did not expressly exclude land from the leasehold interest. On appeal, Square 74 maintained that the issue before the Court is objective based on the plain language of its lease agreement with the City of Indianapolis, Indiana Code §6-1.1-10-37(b), and 50 IAC 1-3-3. In the alternative, Square 74 requested that the Court correct the Marion County Property Tax Assessment Board of Appeal’s retroactive assessments of one of the five parcels, claiming the PTABOA exceeded its authority reassessing the property. Square 74’s alternative argument regarding the PTABOA’s authority to reassess one of the parcels was not made before the Indiana Board; therefore, the Tax Court found that Square 74 had waived this claim for failure to present it to the Board.

Square 74 first argued that by the terms of its lease agreement with the City, it “has no right, interest, or responsibility as to the land” beneath the tenant spaces. Square 74 further asserted that since it has no interest in the land, the land assessments were made against the wrong person and were illegal as a matter of law. The Tax Court explained that the lease documentation must explicitly state that Square 74’s leasehold interest in the tenant spaces excludes the land for the issue to be deemed objective. In reviewing the lease documents as presented in the certified record (exhibits purportedly describing the leased areas were either missing or did not exists), the Court found that none of the provisions contained therein expressly stated the leasehold interest in the tenant spaces excluded the land. Therefore, the Court determined that the resolution of this issue required subjective judgment and found no basis for reversing the Indiana Board’s final determination as to this claim.

Next, Square 74 argued that when read together Indiana Code § 6-1.1-10-37(b) and 50 IAC 1-3-3 exclude land from the leasehold interest. The Tax Court looked to the plain language of the statute and regulation and, in addition, considered Indiana Code § 6-1.1-1-15, which defines what constitutes “real property.” The Court concluded that an assessment for a leasehold could reflect the assessed value of land and buildings situated on the land, among other things; therefore, the statutory language fails to mandate the scope of Square 74’s leasehold estate subject to assessment.

Finally, the Court found that nothing within 50 IAC 1-3-3 suggests a per se rule that the assessment of leasehold estates excludes the underlying land. Therefore, Square 74 failed to show that the Indiana Board erred in dismissing its case for failure to state a claim upon which relief may be granted.

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

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