Commercial Real Estate Assessed Values - Recent Indiana Tax Court Decisions Regarding the Effect of Market

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Many owners of Indiana commercial real estate believe their assessments, and thus their property taxes, are inflated due to market forces and eroded property values. Such owners might be wise to consider two fairly recent decisions from the Indiana Tax Court. Both decisions, Meijer Stores Limited Partnership v. Betty Smith, Wayne Twp. Assessor, et al., No. 49T10-0609-TA-89 and Sue Ann Stinson, Washington Twp Assessor, et al. v. Trimas Fasteners, Inc., No 49T10-0702-TA-4, support a concept known as external obsolescence as justification for lowered assessments due to extrinsic market factors.

Copies of Meijer Stores and Trimas Fasteners are attached, and this bulletin summarizes some of the highlights. The theme of both cases is that an assessment should depend upon property value as perceived in the market, rather than the perceived value to the owner.

Basic Concepts Considered in Both Cases

• Market Value-in-Use: Indiana real property is assessed based on its market value-in-use, which is the value of property for its current use as reflected by the utility received from the property by the owner or a similar user.

• Three generally accepted appraisal techniques may be used to calculate a property’s market value-in-use (and, thus, to challenge the real property assessment upon which property tax rates are based).

o Cost Approach – Estimates the value of the land as if vacant and then adds the depreciated cost of the improvements to arrive a total estimated value.

o Sales Comparison Approach – Estimates the total value of the property directly by comparing it to similar, or comparable, properties that have sold in the market.

o Income Approach – Used for income producing (i.e., rented) properties, and converts an estimate of expected rent into value through a capitalization calculation.

• External Obsolescence is the diminishment of a property’s desirability and usefulness brought on by economic/market factors. Examples include:

o Oversupply in the market of the type of space provided

o Light or noise pollution

o Crime

o Inharmonious land use

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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