Twelve Days of Property Tax Protections for Indiana Taxpayers – Day No. 1: The 5% Burden Shifting Rule

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Faegre Drinker Biddle & Reath LLP

As we dive into the 2021 holiday season, I wanted to reflect over the next few weeks on a dozen (or so) gifts that have been given to Hoosier taxpayers by the Indiana General Assembly to protect them from excessive, unfair and improper property tax assessments.  First up:  one of the most important taxpayer protections enacted in at least the past two decades (when I have been practicing property tax law in Indiana):  the 5%+ burden shifting (or burden altering) statute found at Ind. Code § 6-1.1-15-17.2 (Section 17.2).

What is it?  Simply stated:  if an assessor increases a property’s assessment year-over-year by more than 5% and the property’s physical status and use has not materially changed, the assessor – not the taxpayer – has the burden of proof on appeal to prove the assessment is correct.  If the assessor fails to prove their case, the assessment reverts to the prior year’s final, lower value.  The taxpayer may still attempt to prove that an even lower value is appropriate; if it fails to do so, the assessment still returns to the last year’s lower value.

What does it say? Key language from Section 17.2 provides, in part:

(a) . . . [T]his section applies to any review or appeal of an assessment under this chapter if the assessment that is the subject of the review or appeal is an increase of more than five percent (5%) over the assessment for the same property for the prior tax year. . . .

(b) Under this section, the county assessor or township assessor making the assessment has the burden of proving that the assessment is correct in any review or appeal under this chapter and in any appeals taken to the Indiana board of tax review or to the Indiana tax court. If a county assessor or township assessor fails to meet the burden of proof under this section, the taxpayer may introduce evidence to prove the correct assessment. If neither the assessing official nor the taxpayer meets the burden of proof under this section, the assessment reverts to the assessment for the prior tax year, which is the original assessment for that prior tax year or, if applicable, the assessment for that prior tax year:

(1) as last corrected by an assessing official;

(2) as stipulated or settled by the taxpayer and the assessing official; or

(3) as determined by the reviewing authority.

Notably, Section 17.2 does not apply if the new, contested assessment is based on (i) substantial renovations or new improvements, (ii) zoning, or (iii) uses “that were not considered in the assessment for the prior tax year.”

Also of note, under subsection (d) the assessor has the burden of proof to show the new, higher assessment is correct – regardless of the percentage increase – where, in an appeal for the prior year’s assessment date, “the gross assessed value of the real property was reduced by the assessing official or reviewing authority in an appeal conducted under IC 6-1.1-15.”  (This added protection, however, does not apply “if the real property was valued using the income capitalization approach in the appeal.”)

Why is it important? The Indiana General Assembly has plainly spoken that an assessment increase of more than 5% year-over-year, with no significant change in the property, is (and should be) considered atypical.  To sustain the large increase on appeal, the assessor must be able to prove the new value is correct using probative evidence and applying generally accepted appraisal and assessment principles. This is extremely fair.  Before hammering a taxpayer with a hefty assessment increase (which will lead to a considerable property tax payment), the assessor must have a cogent explanation supported by credible evidence.  The responsible assessor is not overly burdened by having to show, with data and logic, why the increase is appropriate. The taxpayer must meet the same standard to prove a value lower than the prior year’s finally determined value.

Section 17.2 is considered and applied in virtually every valuation appeal to the Indiana Board of Tax Review.  The Indiana Board’s recent decision in Willis v. Kosciusko County Assessor (September 20, 2021) illustrates this point. This appeal involved the 2020 assessment of a cabin (not the supporting land, which was leased) with use restrictions.  The Indiana Board addressed Section 17.2, noting the cabin’s assessment had increased from $32,900 in 2019 to $46,900 in 2020 – more than 5% – and concluding “the burden shifting provisions of [Section 17.2] apply and the [Assessor] has the burden to prove the 2020 assessment is correct.”  To meet that burden, the Assessor submitted a market analysis by a licensed residential appraiser who relied on four purported comparable sales from the same neighborhood as the subject.  But proximity alone was deemed insufficient. The Board ruled:

Simply because a property is located in the same neighborhood does not mean it is comparable. The appraiser offered largely conclusory explanations for how the comparables were chose or how they were different or similar than the subject property. . . .  The Assessor also offered several additional comparable sales but did little to show how they related to the subject property or any analysis that complied with generally accepted appraisal principles. Thus, we find the Respondent failed to offer probative evidence showing the 2020 assessment is correct.  Because the Respondent failed to meet their burden of proof, the Petitioners are entitled to have their assessment reverted to its 2019 value of $32,900.

The cabin’s value increased by more than 5% year-over-year, and the Assessor could not produce sufficient evidence to prove that the substantial increase was valid. As a taxpayer protection provision, Section 17.2 did its job.

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