Indiana Tax Court finds no evidence supports increased assessments of convenience store and gas station

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Property Type:  Convenience store, with gas station

Date Issued:  June 14, 2022

Assessment Years:  2018, 2019

Synopsis:  Assessor defended the subject property’s $1.9 Million assessment with a 2014 sales disclosure form ($1.3 Million) and an appraisal as of January 1, 2018 ($2.1 Million).  The Indiana Board of Tax Review (IBTR) upheld the assessments.  Indiana Tax Court reversed, finding: (i) the appraisal, which relied on the sales comparison approach, valued more than real property – “contrary to Indiana’s real property assessment laws”; and (ii) no evidence supported the annual 3% market adjustment of the 2014 purchase price relied on by the Assessor and IBTR.

Summary:  Assessor increased the subject property’s value by approximately 10% over its 2017 assessment, shifting the burden of proof to Assessor under Indiana’s former burden-shifting statute.  To meet their burden, Assessor relied upon a 2014 sales disclosure form, showing the property was acquired for $1,982,000 (and related personal property of $720,000) in October 2014.  In addition, Assessor submitted an appraisal report, developing and relying exclusively on the sales comparison approach, which analyzed five convenience stores with gas stations and concluded to a value of $2,100,000.  The report’s author did not testify at the hearing. This evidence, Assessor argued, showed the contested assessments did not exceed the property’s market value.

The IBTR conceded that sales prices of convenience stores with gas stations likely included both real and personal property, but it reasoned that personal property likely did not play a significant role in the appraiser’s valuation of the subject property.  Moreover, the purchase price, when adjusted to exclude personal property, supported the assessments because the appraiser concluded that the market for convenience stores appreciated by 3% annually between October 2014 and January 1, 2018 – “which more than offset the subject property’s depreciation over that same period.” (internal quotes omitted, emphasis added).  The IBTR ruled that the assessments should remain unchanged.

The appraisal valued “more than real property.”  Assessor failed to provide evidence showing that the value of personal property was excluded in the appraisal’s conclusion of value.  “The Assessor’s evidence, however, did not reveal whether the five comparable properties used in the appraisal report (convenience stores that also sold fuel) included or excluded non-realty costs in their unadjusted sales prices.”  Sales disclosure forms for the comparable sales relied on by the appraiser listed one unadjusted price, i.e. they did not break out the values assigned to real and personal property.

In addition, the appraisal made upward adjustments of $21,000 per fuel pump to the comparable sales in a purported effort to create an “apples-to-apples comparison” with the subject property, which had more pumps.  The Court held: “Regardless of whether this fuel pump adjustment reflected the value of just the fuel pumps or represented intangible business value, it shows that non-realty costs were included in the appraisal report’s value conclusion.”  Assessor pointed to no authority indicating that an appraisal of real property is probative if the report’s value conclusion is based on value attributable to some personal property.  The totality of the evidence showed that the appraisal “valued more than real property contrary to Indiana’s real property assessment laws.”

IBTR “flirts” with advocacy, and record fails to support market adjustment.  The IBTR found that any depreciation of the subject between its 2014 purchase and the 2018 assessment date was offset by the annual 3% upwards market adjustment identified in the appraisal.  The Court explained, however, that the record “contains no evidence or analysis regarding the extent of the subject property’s depreciation since its 2014 purchase.”  Importantly, the IBTR, “flirting with taking an advocacy role as it sometimes does, did little to explain how the ‘offset’ would work, and it did not, and could not, point to any evidence or argument from either party for this concept.”

No record evidence supported the market adjustment, which is based on only a “conclusory general overview of the regional and area markets.”  Accordingly, the Tax Court held that the IBTR “abused its discretion by finding the 3% market conditions adjustment was sufficient to relate [Owner’s] 2014 purchase price to the relevant assessment dates because that finding was based on speculation, not evidence.”

The Court ordered the assessment reduced to its 2017 value, according to the recently eliminated burden-shifting statute.

The case can be accessed here.

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