CLARK COUNTY ASSESSOR, Pеtitioner, v. MEIJER STORES LP, Respondent.
Cause No. 18T-TA-00003
IN THE INDIANA TAX COURT
February 8, 2019
WENTWORTH, J.
ON APPEAL FROM A FINAL DETERMINATION OF THE INDIANA BOARD OF TAX REVIEW; FOR PUBLICATION
BRIAN CUSIMANO
ATTORNEY AT LAW
Indianapolis, IN
MARILYN S. MEIGHEN
ATTORNEY AT LAW
Carmel, IN
ATTORNEYS FOR RESPONDENT:
BRENT A. AUBERRY
BENJAMIN A. BLAIR
DAVID A. SUESS
FAEGRE BAKER DANIELS LLP
Indianapolis, IN
MICHAEL B. SHAPIRO
HONIGMAN MILLER SCHWARTZ AND COHN LLP
Detroit, MI
WENTWORTH, J.
The Clark County Assessor has challenged the Indiana Board of Tax Review’s final determination that lowered the assessed value of the Meijer store in Jeffersonville, Indiana for each of the 2008 through 2016 assessment years. Upon review, the Court affirms the Indiana Board’s final determination.
Meijer Stores LP owns and operates a 180,000 square foot retail store and a 2,432 square foot gas station/convenience store, both situated on one 32.42 acre parcel of land in Jeffersonville, Indiana (the subject property). Meijer constructed the stores in 1998/1999.
During the years at issue, the Assessor assigned the follоwing assessed values to the subject property:
2008: $12,160,100
2009: $12,167,000
2010: $11,732,600
2011: $11,732,600
2012: $10,017,000
2013: $ 9,904,400
2014: $10,021,000
2015: $ 9,966,000
2016: $ 9,969,100
(See Cert. Admin. R. at 1-2, 13-14, 26-27, 40-41, 52-53, 72-73, 86-87, 105-06, 142-43.) Believing those values to be too high, Meijer filed appeals first with the Clark County Property Tax Assessment Board of Appeals and then with the Indiana Board.
In November of 2017, the Indiana Board conducted one administrative hearing on all of Meijer’s appeals. For purposes of the hearing, however, Meijer and the Assessor agreed to litigate only the subject property’s 2012 assessment,
The Indiana Board Hearing: Meijer’s Evidence
During the Indiana Board hearing, Meijer presented, among other things, an Appraisal Report, completed in conformance with the Uniform Standards of Professional Appraisal Practice (USPAP), that valued the subject property as of March 1, 2012. Meijer also presented the testimony of Laurence Allen, a member of the Appraisal Institute (MAI), who prepared the Appraisal Report (“Meijer Appraisal“).
To value the subject property, Allen first employed the sales comparison approach.1 Under this approach, he examined data relating to the fee simple sales of numerоus other big-box stores that had occurred throughout the Midwest between 2006 and 2013. (See, e.g., Cert. Admin. R. at 389, 431-40, 1633-44.) After adjusting the sales prices of those properties to account for differences in the age and condition of their improvements, their location, as well as the condition of the market at the time of sale, Allen used the data to determine a probable sales price for the subject property of $7,570,000. (See Cert. Admin. R. at 450-98, 1645-54, 1658.)
Ultimately, Allen reconciled his sales comparison and income approach values into a final value conclusion for 2012 of $7,600,000. (See Cert. Admin. R. at 1676-77.) In concluding this final value, Allen explained that he did not consider the third generally accepted appraisal technique, the cost approach,3 to be a reliable method of valuing the subject property for two reasons. First, he stated that buyers and sellers of big-bоx stores typically do not rely on the cost approach to determine
The Indiana Board Hearing: The Assessor‘s Evidence
During the Indiana Board hearing, the Assessor offered her own USPAP-certified appraisal that valued Meijer‘s property for the 2012 tax year (“Assessor‘s Appraisal“) at $11,200,000. (See, e.g., Cert. Admin. R. at 1728-32.) In addition, she presented the testimony of David Hall, MAI, the primary author of the Assessor‘s Appraisal.
In his testimony, Hall first stated that he disagreed with Allen regarding the propriety of using the cost approach. Indeed, Hall reasoned that the cost approach was the best approach to value the subject property because it was depreciating at a rate consistent with its age and suffered from no obsolescence whatsoever. (See, e.g., Cert. Admin. R. at 892-94, 919-20, 1849 (stating there could be no functional obsolescence because “the subject has been continuously occupied since completion of construction, and [] the buildings are consistent with market norms in
Hall also performed an income approach to value the subject property. In calculating net operating income, Hall, unlike Allen, used rental, occupancy, and expense rates derived from built-to-suit leases (i.e., leases to first-generation users). (See Cert. Admin. R. at 971-74, 1877-80, 1882-85.) Like Allen, however, Hall considered investor surveys and comparable property sales and performed a band-of-investment analysis to determine the capitalization rate to apply against his net operating income estimate. (See, e.g., Cert. Admin. R. at 1888-91.) Ultimately, under his income approach, Hall estimated the 2012 value of the subject property was $11,200,000. (Cert. Admin. R. at 1891.)
Finally, Hall valued the subject property using two separate sales comparison approaches. In his first sales comparison valuation, Hall used the leased-fee sales of occupied big-box properties as his comparables. (See Cert. Admin. R. at 1751-52, 1853 (asserting that the leased-fee properties best reflected Meijer‘s utility because they were 100% occupied as rеtail space at the time of their sale).) Hall maintained that The Appraisal of Real Estate, 14th edition, instructed that because the leased-fee properties were all leased at market rates, no adjustments were necessary to account for the difference in the type of property rights conveyed. (See, e.g., Cert. Admin. R. at 922-24, 928-37, 1746, 1853-55, 1857, 1876.) Based
For his second sales comparison valuation, Hall relied on fee simple sales of vacant big-box properties as his comparables. (Seе Cert. Admin. R. at 1751-52, 1853 (explaining that these comparables transferred fee simple property rights and were not new construction, just like the subject property).) Hall adjusted the sales prices of these comparables by 45% to account for the fact that they, unlike the subject property, were vacant. (See, e.g., Cert. Admin. R. at 787-91, 927, 958-69, 1748-51 (explaining that “[v]acancy adversely impacts a property‘s utility” because it might indicate atypical motivations to sell, such as excess supply or duress, that adversely influence sale price).) From this analysis, Hall determined a probable sales price for the subject prоperty was $10,900,000. (See Cert. Admin. R. at 2251-52.)
Hall reconciled all four values into one final value conclusion of $11,200,000. (Cert. Admin. R. at 1898.) His reconciliation gave his second sales comparison approach value the least amount of weight. (See Cert. Admin. R. at 1899.)
The Indiana Board‘s Final Determination
The Indiana Board issued its final determination on December 1, 2017. In it, the Indiana Board explained that because both Meijer and the Assessor presented USPAP-compliant appraisals from qualified experts, it needed to weigh the competing appraisals and determine which one was more persuasive. (See Cert. Admin. R. at 2423 ¶ 78.) Ultimately, the Indiana Board determined that Mеijer‘s Appraisal was more persuasive than the Assessor‘s Appraisal.
In [its first] sales analysis, we find that [the Assessor‘s Appraisal] actually measured the leased[-]fee value of the subject property. In [its second] sales analysis, we find [the] vacancy adjustment entirely unsupported. These two errors render [the Assessor‘s] sales-comparison approaches entirely unreliable[.]
(Cert. Admin. R. at 2431-32 ¶ 105.) In fact, the Indiana Board held that these two errors were so significant and fundamental that they effectively undermined any probative valuе overall that the Assessor‘s Appraisal may have had otherwise. (See Cert. Admin. R. at 2398 ¶ 1, 2435 ¶ 114.)
Finally, in addressing the use of the cost approach to value the subject property, the Indiana Board explained that it was not necessary to apply the cost approach because deriving an obsolescence adjustment from the sales comparison and income approaches alone was appropriate. (Cert. Admin. R. at 2425 ¶ 85, 2430 ¶ 100.) Thus, the Indiana Board found that the fact that Allen did not perform a cost approach to value the subject property was not improper. (See Cеrt. Admin. R. at 2425 ¶ 85, 2430 ¶ 100.) The Indiana Board reasoned that due to the “large
Finding that the Meijer Appraisal was more persuasive than the Assessor‘s Appraisal, the Indiana Board reduced the subject property’s 2012 assessment consistent with the Meijer Appraisal’s reconciled value of $7,600,000. (Cert. Admin. R. at 2435-36 ¶¶ 114-15.) The Assessor subsequently initiated this original tax appeal on January 12, 2018, and the Court conducted oral argument on the matter on July 19, 2018. Additional facts will be supplied as necessary.
STANDARD OF REVIEW
The party seeking to overturn an Indiana Board final determination bears the burden of demonstrating its invalidity. Osolo Twp. Assessor v. Elkhart Maple Lane Assocs., 789 N.E.2d 109, 111 (Ind. Tax Ct. 2003). Accordingly, the Assessor must demonstrate to the Court that the Indiana Board‘s final determination in this matter is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to constitutional right, power, privilege, or immunity; in excess of or short of statutory jurisdiction, authority, or limitations; without observance of the procedure required by law; or unsupported by substantial or reliable evidence. See
The Assessor claims the Indiana Board‘s final determination must be reversed because it is contrary to law, not supported by substantial evidence, and constitutes an abuse of discretion. More specifically, she asserts that the final determination is contrary to law because in accepting Meijer‘s valuation over hers, the Indiana Board ignored the generally accepted appraisal practices that 1) rеquired Allen to adjust his sales comparables to account for expenditures incurred after those properties were purchased, and 2) permitted Hall to use leased-fee sales as comparable properties. (Pet‘r Br. at 7-15; Oral Arg. Tr. at 4-6, 25-27.) The Assessor also argues that the final determination must be reversed because there is no evidence to support the Indiana Board‘s conclusion that 1) the leased-fee sales used in her first sales comparison valuation were not credible and reliable, and 2) Meijer‘s property suffered from obsolescence. (Pet‘r Br. at 15-20; Oral Arg. Tr. at 29, 35-37.) Finally, the Assessor аrgues that the Indiana Board‘s final determination constitutes an abuse of discretion because it “failed to apply a consistent burden of proof[.]” (Pet‘r Br. at 20-21; Oral Arg. Tr. at 39-41.)
Contrary to Law
1) Post-Purchase Adjustments to Sales Comparables
On appeal, the Assessor explains that she presented evidence demonstrating that several properties used as comparables in the Meijer Appraisal’s sales comparison approach incurred large post-purchase expenditures. (See Pet‘r Br. at 4-5 (citing Cert. Admin. R. at 705, 1294, 1301, 1310, 1326); Pet‘r Reply Br. at 2.) The Assessor contends that pursuant to The Appraisal of Real Estate, 14th edition,
First, the two pages of The Appraisal of Real Estate that the Assessor cites do not mandate adjustments for post-purchase expenditures. (Compare Pet‘r Br. at 10 with APPRAISAL INSTITUTE, THE APPRAISAL OF REAL ESTATE 412-13 (14th ed. 2013).) Rather, they (along with a few other pages) indicate that adjustments for certain tyрes of post-purchase expenditures may be appropriate but only after the terms of the sale transaction have been verified through interviews with the transaction‘s participants. See THE APPRAISAL OF REAL ESTATE at 404-05, 412-14. (See also Oral Arg. Tr. at 18 (where the Assessor concedes that The Appraisal of Real Estate does not mandate the adjustments but then “clarifies” that an appraiser should, at a minimum, consider whether a post-purchase expense adjustment is appropriate).)
Notwithstanding, both the Assessor and Meijer have indicated that adjustments for post-purchase “re-imaging” costs are not necessary.4 (Comрare Pet‘r Reply Br. at 3 with Cert. Admin. R. at 454-77, 592-93 and Resp‘t Resp. Br. at 11-12.) The evidence to which the Assessor cites indicates how much the owners of
Second, and more importantly, a final determination of the Indiana Board is contrary to law only if it violates a statute, constitutional provision, legal principle, or rule of substantive or procedural law. Shelbyville MHPI, LLC v. Thurston, 978 N.E.2d 527, 529 (Ind. Tax Ct. 2012). The Appraisal of Real Estate is not a statute, constitutional provision, legal principle, or rule of substantive or procedural law; it is a textbook, used by the appraisal profession, to instruct its members on the “principles of appraisal and the sound application of recognized valuation methodology.” THE APPRAISAL OF REAL ESTATE at ix. To the extent an appraiser relies on the guidance provided in The Appraisal of Real Estate to complete an appraisal assignment, the result, his appraisal, is still merely his opinion. See Stinson v. Trimas Fasteners, Inc., 923 N.E.2d 496, 502 (Ind. Tax Ct. 2010) (explaining that the appraisal of property is not a science). Consequently, the Assessor has not shown that the Indiana Board‘s final determination is contrary to law on this basis.
As previously indicated, the Indiana Board rejected the Assessor‘s sales comparison approach analysis that used leased-fee sales of occupied big-box properties as comparables because it failed to measure the fee simple value. The Assessor contends, however, that the Indiana Board‘s rejection of that analysis was contrary to law because it ignored the generally acceрted appraisal practice noted in The Appraisal of Real Estate that permits the use of leased-fee sales as comparable properties in the sales comparison approach. (See Pet‘r Br. at 11-15; Oral Arg. Tr. at 20-27.) The Assessor‘s claim fails because, as the Court just explained, The Appraisal of Real Estate is not law.
Furthermore, the Court notes that the Indiana Board rejected the Assessor‘s first sales comparison approach as unreliable because it was not supported by the evidence. (See Cert. Admin. R. at 2433 ¶ 108.) Indeed, the final determination acknowledged that thе leased-fee sales may be used as comparables, but only if they are properly adjusted to put them on “a level playing field” with the subject property.6 (See Cert. Admin. R. at 2426 ¶ 87.) Hall did not make any adjustments, however, to account for the differences in the type of property rights conveyed between the subject property and the leased-fee sales comparables; instead, he asserted that his leased-fee sales comparables did not require adjustment because they were all leased at market rates. (See Cert. Admin. R. at 922-24, 928-37, 1746, 1853-57, 1876.) The Indiana Board found that even if his assertion that market rate leases relieved the requirement to adjust were correct, Hall failed to prove that the
Not Supported by Substantial Evidence
Next, the Assessor argues on appeal that the final determination must be reversed because it is not supported by substantial evidence. Specifically, she maintains that there is no evidence to support the Indiana Board‘s conclusion that 1) the leased-fee sales comparables she used in her first sales comparison approach were not credible and reliable, and 2) Meijer‘s property suffered from obsolescence. (Pet‘r Br. at 15-20; Oral Arg. Tr. at 29, 35-37.)
1) The Credibility and Reliability of the Assessor‘s Leased-Fee Sales
As previously discussed, the Indiana Board gave no wеight to Hall‘s first sales comparison analysis because the Assessor did not prove that his leased-fee sales comparables were leased at market rents. The Assessor claims on appeal, however, that “the evidence, facts, and circumstances surrounding th[ose] sales . . . undoubtedly support the conclusion that the[y] . . . were leased[] at market rent” and therefore the first sales comparison approach “provided a reliable and credible opinion of value [that] should have been adopted by the [Indiana] Board.” (Pet‘r Br. at 11-12, 15.)
First of all, her argument is argumentum ad ignorantiam, meaning that she claims “a proposition is true simply on the basis that it hаs not been proved false[.]” PHILOSOPHY 103: INTRODUCTION TO LOGIC ARGUMENTUM AD IGNORANTIAM, https://philosophy.lander.edu/logic/ignorance.html (last visited Feb. 6, 2019). This “logical fallacy” is a type of argument used to shift the burden of proof improperly from the one who actually bears it. ARGUMENT FROM IGNORANCE,
Second, the final determination states that the only evidence Hall relied on to support his conclusion that the rental rates were at market levels was his own income approach analysis. (See, e.g., Cert. Admin. R. at 2415-16 ¶ 56 (citing Cert. Admin. R. at 931, 934), 2432 ¶ 107 (noting that Hall‘s reasoning was circular because he used the same comparables in both his income аpproach and his first sales comparison approach analysis).) If, however, the Assessor wanted the Indiana Board to follow a specific path to conclude that the leased-fee rental rates were at market levels (e.g., comparing her rental rates to with those used by Allen in the Meijer Appraisal), she needed to walk the Indiana Board down that path during the administrative process. Because the Assessor failed to do so, she cannot now rectify her misstep. See, e.g., Blesich v. Lake Cty. Assessor, 46 N.E.3d 14, 17 (Ind. Tax Ct. 2015); Long v. Wayne Twp. Assessor, 821 N.E.2d 466, 471 (Ind. Tax Ct. 2005), review denied; Davidson Indus. v. Indiana State Bd. of Tax Comm‘rs, 744 N.E.2d 1067, 1071 (Ind. Tax Ct. 2001) (all indicating that this Court has repeatedly reminded litigants that they have a duty to walk the Indiana Board, and ultimately this Court, through every element of their analyses; they cannot assume that the evidence speaks for itself).
Based on its review of the evidence in the administrative record, the Court is not persuaded that the Indiana Board‘s determination that the Assessor failed to demonstrate that the rents used in her first sales comparison approach were at market levels was against the logic and effect of the facts and circumstances before
2) Obsolescence
The Assessor also argues that there is no evidence in the administrative record to suppоrt the Indiana Board‘s conclusion that the subject property suffers from obsolescence. (Pet‘r Br. at 15-17.) She asserts that simply because sales prices were much lower per square foot than the per square foot value under the cost approach does not prove obsolescence has occurred. (See Pet‘r Br. at 16; Pet‘r Reply Br. at 8.) As a result, she concludes that Meijer failed to both identify and quantify the amount of obsolescence it claimed was present in its property. (See Pet‘r Br. at 15-18; Oral Arg. Tr. at 35-36.) See also Hometowne Assocs. v. Maley, 839 N.E.2d 269, 273-74 (Ind. Tax Ct. 2005) (explaining that a taxpayer must support its claim that obsolescence has diminished the value of its property with probative evidence that 1) identifies the causes of the alleged obsolescence and 2) quantifies the amount of obsolescence to be applied to its improvements).
Under the substantial evidence standard, this Court reviews the administrative record to determine whether, when viewed as a whole, it provides a reasonably sound basis of evidentiary support for the Indiana Board‘s decision. Switzerland Cty. Assessor v. Belterra Resort Indiana, LLC, 101 N.E.3d 895, 904 (Ind. Tax Ct. 2018), review denied. See also Starke Cty. Assessor v. Porter-Starke Servs., Inc., 88 N.E.3d 814, 820 (Ind. Tax Ct. 2017) (defining substantial evidence as “more than a scintilla“; it is such relevant evidence as a reasonable mind might accept as adequate to support a сonclusion). Because the substantial evidence
Allen testified at length about what he believed had a diminishing effect on the value of Meijer‘s property. Indeed, he explained numerous times that big-box properties generally, and the subject property specifically, suffer from obsolescence immediately upon construction because they are built for first-generation users to their exact specifications, and in turn, subsequent users will never pay “cost” for these properties because they must incur extensive expenditures to adapt the properties to their own use. (See Cert. Admin. R. at 415-17, 421-24, 430-31, 592-94, 597-98.) Allen‘s testimony adequately identifies the cause of the obsolescence and is consistent with a paradigm this Court has long accepted as valid. See, e.g., Meijer Stores Ltd. P’ship v. Smith, 926 N.E.2d 1134, 1137-39 (Ind. Tax Ct. 2010) (indicating that a newly constructed Meijer store was adversely impacted by obsolescence).
Furthermore, Meijer‘s Appraisal quantifies the amount of obsolescence Allen claimed was the result of that cause. As this Court has previously explained, all three approaches to valuation quantify obsolescence, they just do it differently. Indeed, while the cost approach to valuation accounts for the obsolescence explicitly, the sales comparison and income approaches account for it implicitly. Millennium Real Estate Inv., LLC v. Benton Cty. Assessor, 979 N.E.2d 192, 197-98 (Ind. Tax Ct. 2012), review denied. Allen‘s conclusion is buttressed by the fact that,
The Court holds that there is a reasonably sound basis of support in administrative record for the Indiana Board‘s conclusion that the subject property suffered from obsolescence. Accordingly, the Court will not reverse the Indiana Board‘s determination on this issue either.
Abuse of Discretion
Finally, thе Assessor contends that the Indiana Board‘s final determination constitutes an abuse of discretion because it failed to apply a consistent burden of proof. Specifically, she complains that “[p]articularly as to rebuttal evidence and the credibility of the data and witnesses, the [Indiana] Board‘s expectations and the burden of proof fluctuated without any apparent authority.” (Pet‘r Br. at 20.)
In essence, the Assessor‘s complaint is a restatement of the burden-shifting arguments already peppered throughout her appeal presentation. (See Pet‘r Br. at 20-21 (claiming Meijer bore the burden of рroof on the issue relating to adjustments to account for post-purchase expenditures as well as on the issue whether the rental rates for Hall‘s leased fee sales were not at market levels).) The Court has already
CONCLUSION
The Assessor has not demonstrated to the Court that the Indiana Board‘s final determination is contrary to law, unsupported by substantial evidence, or constitutes an abuse of discretion. Accordingly, the Indiana Board‘s final determination in this matter is AFFIRMED.