INDIANAPOLIS – The Indiana Supreme Court heard oral arguments Thursday from attorneys representing the Howard County assessor and Kohl’s in a case that’s garnered statewide attention because of the sweeping impact a ruling in favor of big-box stores could have on tax revenue.
The court will next decide whether to take jurisdiction over the case. If the court accepts jurisdiction, the state’s five justices will issue a decision.
The court could, however, deny the assessor’s petition for it to accept jurisdiction over the appeal, in which case a previous Indiana Tax Court ruling in favor of Kohl’s would go into effect.
There is no timeline for any court action.
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.
Now, it’s up to the Indiana Supreme Court to decide whether that ruling will stand, be affirmed or change.
Representing Howard County was attorney Mark GiaQuinta, a practitioner of property tax litigation. Representing Kohl’s was Paul Jones, whose website says he “focuses his practice on real estate tax appeals, exemptions and incentives in Indiana and Ohio."
During his initial testimony, GiaQuinta described the disparity between the two positions, which mostly comes down to differing approaches to value.
Effectively, the case amounts to whether vacant big-box stores, also known as “dark boxes,” can be used as comparable properties when deciding a property’s market value.
In front of the justices, GiaQuinta described the effect a ruling a favor of Kohl’s could have on tax revenue for Indiana cities and counties.
GiaQunita said 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.
A study done by Policy Analytics at the request of the Association of Indiana Counties and ICAA, 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.
In contrast, Jones provided the Kohl’s point of view following GiaQuinta's time infront of the court.
As explained in court documents, Kohl’s appraisers believe nine Midwestern big-box retail stores “were appropriate comparables to use in valuing the subject property because...they were vacant at the time of the sale and thus their sales prices reflected the value of the real property alone.”
Jones, who said Kohl’s officials took into account the “aftermath of the Great Recession” during its appraisals while Howard County did not, added that “there is a difference between occupancy and use.”
“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.”
GiaQuinta, who noted the Kohl’s property was custom-built, was given time for a rebuttal following Jones’ testimony. Specifically, he said Kohl’s misrepresented an approach allowing comparisons between general retail uses.
“But you don’t use Crazy Joe’s Fireworks as a [comparison] for a custom-built retail store occupied by a Kohl’s, because they are deriving different levels of utility which demonstrate the difference in the property wealth. And that’s what our system uses as its bedrock principle,” he said.
Following the hearing, Howard County Assessor Mindy Heady and Center Township Assessor Sheila Pullen gave their thoughts on the case and the morning’s oral arguments.
“I think [GiaQuinta] was able to present to them the impact, that there’s 160 cases waiting (on the outcome), and how huge the impact could be,” said Heady.
Much of the difference between the two sides resides in technical differences, specifically the discrepancy between market value-in-use and market value, Pullen explained. And the difference is the utility to the user, she noted.
Indiana is one of two states in the United States that utilizes the approach of market value-in-use, which discredits Kohl’s argument, said Pullen.
“There really isn’t a discrepancy in 48 states which are market value. Indiana is not market value,” she noted. “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.”
About the upcoming waiting game, both Pullen and Heady described themselves as “anxious,” but also confident about the county’s preparation and approach to the court battle.
Also present at the Statehouse Thursday morning was Howard County Council President Dick Miller, Howard County Auditor Martha Lake and Howard County Commissioner Paul Wyman.
With the support Howard County has gotten from organizations across the state, Wyman expressed optimism about the court’s possible future ruling.
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.
“Based on what I just heard here at the Supreme Court, I’m even more confident in our position and we’re hopeful that the court will see it our way and not only have a positive impact on Kokomo and Howard County but a positive impact across the state,” said Wyman.
“I certainly think the number of people and organizations around the state that got on board with our side of the case shows the strength of our case, and hopefully all those collective efforts will have an impact on the Supreme Court justices to where they’ll rule in favor of Howard County,” he added later.