It’s round two for dark box assessment debate
It’s round two for dark box assessment debate
Posted: Thursday, January 7, 2016 11:00 pm
By Linda Lipp
The 2015 legislative fix that was supposed to protect local taxing bodies in Indiana against revenue losses from so-called “dark box” property assessments hasn’t resolved the issue.
The dark box property tax assessment method uses the value of vacant, big-box stores in other locations to successfully argue to the state that fully stocked, fully operational stores are assessed too highly, noted the Mayors and Commissioners Caucus of the Northeast Indiana Regional Partnership, which has made the issue one of its legislative priorities for 2016.
Senate Bill 436 was passed by the 2015 General Assembly in an effort to end the dark box assessment controversy, but faults in the measure began to appear shortly after it became law last summer.
“What we’ve found already, is that it was kind of a great first step…but we’re seeing that it was not quite the legal fix that people were hoping it would be for the dark stores issue,” said Brian Gould, director of government affairs for the Indiana Association of Cities and Towns.
Two more pieces of legislation are on tap for the 2016 session of the General Assembly, but those probably won’t be enough to bring an end to the controversy, he said.
“I think what you will see is this will not be a fix this session either,” Gould said. “We’re not going to have legislation signed into law this summer and the issue is done. It’s going to be a long-term issue that we’re going to have to continue to address.”
Tax revenue losses
Two back-to-back Indiana Board of Tax review cases in 2014 brought the issue to the attention of legislators and assessors. By including an empty store in the mix of “comparable” properties. For example, Michigan-based Meijer received a 63-percent reduction in the assessed value of a busy location in Indianapolis; and Kohl’s received a 40-percent reduction on a store in Kokomo.
The reduction of assessed value shifts the property tax burden to homeowners and other commercial property owners and has a direct impact on taxing districts. The direct impact to northeast Indiana taxing units could be a collective loss in assessed valuation of $69.9 million, the Mayors and Commissioners Caucus estimated.
The loss in tax revenues to the 12 northeast Indiana counties covered by Greater Fort Wayne Business Weekly could be more than $8.6 million per year, according to a study commissioned by the Indiana County Assessor’s Association and the Association of Indiana Counties.
Using 45-percent assessed value reductions as a benchmark, the study calculated the methodology could reduce the assessed value of 17,067 properties in the state by $3.5 billion. The cost to local taxing units across the state, with circuit breaker tax caps applied, would be $43.1 million in revenues per year, the study estimated. And tax increment financing districts, which depend on increasing property tax revenues to repay bonds issued to pay for improvements, would lose an estimated $25.6 million.
Last year’s Senate Bill 436 was directed specifically at so-called “big box” stores greater than 50,000 square feet. But it left a loophole for smaller stores and, last summer, a CVS store in Monroe County was able to use an empty store as a comparable to appeal its tax assessment because it was below the 50,000 square-foot minimum.
“That was the first, you could say red flag, that this issue was not done,” Gould said.
The next blip on the radar came in the form of using stores in assessment appeals that are not vacant, but are not truly comparable in terms of their sales volume, traffic, location and customer demographics.
In the same way that a 4,000-square-foot home in Carmel would be valued higher than the identical home in a city such as Fort Wayne or Anderson where the median income is not as high, it’s not accurate to compare a big-box retailer such as Home Depot in Carmel with a store in a less wealthy or even struggling city or neighborhood, Gould argued.
So, what legislators are looking to do this year is more clearly define what is a comparable and what is not by using a property comparison model called “market segmentation.” It won’t be easy.
“Appraisers have been very vocal that the most challenging aspect for them is to find a standard that we can use statewide,” Gould said.
That may mean considering stores as comparables if they are similar in the type of retail they do, the size of the structure and the value per square foot – even if the stores are not owned by the same retailer or even exactly the same type of retailer.
Under that system, a dollar store or other general retailer might be considered comparable to a budget grocer such as Aldi, Gould said.
Whatever measures are adopted this year are likely to face legal challenges, Gould predicted.
“We probably will see legislation that will work through the court process, which will then come back for additional legislation down the road and then we’ll go through the court process again.”