The Indiana Supreme Court decided late Thursday to not review a case involving the Howard County assessor and Kohl’s, a decision that could cost Indiana counties billions of dollars in tax revenue.
After oral arguments were heard by the court Thursday morning, a majority of justices denied Howard County’s petition for review of the case, meaning a previous Indiana Tax Court ruling in favor of Kohl’s will stand.
A Supreme Court document shows that Chief Justice Loretta Rush and Justice Steve David voted to review the case. Justices Robert Rucker, Mark Massa and Geoffrey Slaughter voted to deny the petition to review.
The ruling, which likely ends the case, is a major victory for big-box stores in Indiana, who now stand to pay less in property taxes, costing counties significant amounts of tax revenue. It’s unclear how the ruling could affect other property classes, although county officials have expressed concerns about a “domino effect.”
Effectively, the case amounted to whether vacant big-box stores, also known as “dark boxes,” can be used as comparable properties when deciding a property’s market value. County officials fought the approach, saying it didn’t appropriately reflect Indiana market value-in-use standard.
"Very disappointed," said Howard County Assessor Mindy Heady Friday. "Kind of shocked. I thought our attorney did such a great job yesterday, so I thought they were going to hear it."
About the effect of the ruling, Heady said the county will "have to play it by ear."
However, Heady expressed optimism about the chance that legislators could in the next General Assembly session pass legislation to outlaw using "dark box sales" as comparable properties.
"It's not over," said Heady. "They won the battle, but we are still fighting."
In the case, Kohl’s officials say their roughly 88,000-square-foot Boulevard Crossing store was over-assessed from 2010 to 2012 by millions of dollars in combined totals.
After Kohl’s appealed the valuation of its property, the Howard County Property Tax Assessment Board of Appeals affirmed the county’s assessments. However, the Indiana Board of Tax Review later ruled, on Dec. 31, 2014, that Howard County over-assessed the Kohl’s property.
The IBTR ruling was affirmed on Sept. 7 by the Indiana Tax Court.
Since those rulings, Howard County officials have fought the position staked out by Kohl’s representatives.
“There really isn’t a discrepancy in 48 states which are market value. Indiana is not market value,” noted Center Township Assessor Sheila Pullen following Thursday’s hearing. “We are market value-in-use, and there is a value to the user. That (vacant) property isn’t as valuable as a property that is in use.”
Representing Kohl’s in the case was attorney Greg Jones, who argued that “dark boxes” do act as effective comparable properties.
“There’s this notion from the assessor’s position that because a property is not occupied it’s worth less, does not bear itself out in the market,” he said.
“An easy example is a home,” Jones continued later. “If you’re in your home, it’s your residence, you vacate it, you move to a bigger house, you put your house on the market, that property is still a residential property that be purchased by someone. It’s not worth less because you moved out of it.”
However, a study done by Policy Analytics, LLC, at the request of the Association of Indiana Counties and Indiana County Assessors Association, showed the “potential local property tax revenue impact that may occur if the 'dark sales' pricing methodology becomes the de jure methodology of property tax assessment for large and retail structures.”
The study found that the “dark sales” assessment methodology could result in an assessed value reduction of 45 percent for affected parcels, including commercial supermarkets, industrial foundries and heavy manufacturing, commercial full line department stores and more.
And based on the analysis, the company found that using such a methodology could, in a worst-case scenario, cause an assessed value reduction of nearly $3.5 billion. Additionally, the study found that the affected commercial and industrial property classes could experience roughly $120 million in savings each year.
Moreover, the study determined that $50 million could be shifted to other property classes, while a total of $70 million in tax revenue could go uncollected.
Additionally, Mark GiaQuinta, who represented Howard County in the case, said that the case’s impact has already been seen “across the board,” even with operating factories that have tried to use closed warehouse buildings as comparable properties.
“It’s starting, and this is going to have a tremendous impact on the redistribution of the tax burden across the state,” he said.
About GiaQuinta’s approach, Heady said on Thursday morning: “I think he was able to present to them the impact, that there’s 160 cases waiting (on the outcome), and how huge the impact could be.”
The ruling comes despite strong statewide support for Howard County’s position.
The Indiana County Assessors Association, the Indiana Municipal Lawyers Association and Accelerate Indiana Municipalities, formerly known as the Indiana Association of Cities and Towns, each filed a brief in support of the Supreme Court’s review of the case.