ATTORNEYS FOR APPELLANT
Karen M. Freeman-Wilson
Attorney General of Indiana
Deputy Attorney General
ATTORNEYS FOR APPELLEE
Stephen E. DeVoe
B. Keith Shake
SUPREME COURT OF INDIANA
STATE BOARD OF TAX )
Appellant (Respondent Below), )
) Indiana Supreme Court
v. ) Cause No. 49S10-0011-TA-631
INDIANAPOLIS RACQUET CLUB, )
Appellee (Petitioner Below). )
APPEAL FROM THE INDIANA TAX COURT
The Honorable Thomas Fisher, Judge
Cause No. 49T10-9607-TA-88
Cause No. 49T10-9609-TA-119
ON PETITION FOR REVIEW
March 6, 2001
We hold that the Tax Court erred in concluding that Indiana Code section
6-1.1-31-6 requires the State Board of Tax Commissioners and the county land valuation
commission to consider all of the listed factors as to each parcel.
The State Board may adopt rules providing that actual sales of comparable properties
may serve as a proxy for these factors. However, in this case
we conclude that the Indianapolis Racquet Club has demonstrated that the county commission
and the State Board failed to follow the State Boards rules in valuing
IRCs land by including it among noncomparable properties in its land order.
Accordingly, we remand to the State Board.
Factual and Procedural Background
Indianapolis Racquet Club (IRC) is the owner of two parcels of property located
in Washington Township at 82nd and Dean Road on the north side of
The facility consists of sixteen indoor tennis courts, eight outdoor courts,
and associated locker rooms and retail and administrative space. This litigation arises
out of the 1989 assessments of IRCs property. Specifically, IRC maintains that
this property was improperly classified in the Marion County Land Valuation Order as
part of the 82nd Street Corridor rather than designated Township-other. Land in
the 82nd Street Corridor is assessed at a base rate of $3.00 to
$4.00 per square foot, and land classified as Township-other is assessed at a
base rate of $1.50 to $3.00 per square foot. After inclusion in
the 82nd Street Corridor, IRCs land was assessed by the Washington township assessor
at a base rate of $3.00 per square foot.
IRC petitioned for review with the Marion County Board of Review, and the
Board ruled against it in late 1990 and early 1991. Further review
by the State Board resulted in hearings in the fall of 1995 and
final determinations adverse to IRC in the summer of 1996. IRC then
petitioned the Tax Court, and, on January 31, 2000, the Tax Court ordered
the petition remanded to the State Board. The Tax Court concluded that
the Marion County Land Commission and the State Board had erred in classifying
IRCs property as part of the 82nd Street Corridor because they had failed
to consider the nine statutory criteria listed in Indiana Code section 6-1.1-31-6.
Indianapolis Racquet Club, Inc. v. State Bd. of Tax Commrs, 722 N.E.2d 926,
935 (Ind. Tax 2000). The Tax Court directed the State Board to
reconsider the land classification using all of the statutory criteria and to determine
the appropriate base rate. Id. The State Board petitioned for review.
Standard of Review
Review of a decision of the Tax Court is subject to the same
clearly erroneous standard of review as that provided in Indiana Trial Rule 52(A),
which provides for appeal from trial court findings and conclusions. We consider
the evidence most favorable to the judgment on appeal and do not reweigh
the evidence. Chidester v. City of Hobart, 631 N.E.2d 908, 910 (Ind.
1994). In conducting our review, we recognize that the Indiana Tax Court
was established to develop and apply specialized expertise in the prompt, fair, and
uniform resolution of state tax cases. Indiana Dept of State Revenue v.
Caylor-Nickel Clinic, P.C., 587 N.E.2d 1311, 1313 (Ind. 1992). Therefore, with regard
to issues within the particular purview of the Tax Court, we exercise cautious
I. Indiana Code Section 6-1.1-31-6 and Use of Actual Sales Data as a
Indiana Code section 6-1.1-31-6 provides:
(a) With respect to the assessment of real property, the rules of the
state board of tax commissioners shall provide for:
(1) the classification of land on the basis of:
(vi) productivity or earning capacity;
(vii) applicable zoning provisions;
(viii) accessibility to highways, sewers, and other public services or facilities; and
(ix) any other factor that the board determines by rule is just and
. . . .
The Tax Court concluded that the commission and the State Board had erred
in failing to consider all of the listed factors under subsection (a)(1) in
arriving at the classification of IRCs property within the 82nd Street Corridor.
The State Board counters that the statute does not support the position that
all of these factors must be considered as to each land valuation order.
Rather, the State Board argues that the statute requires only that it
take these factors into consideration in promulgating its rules for assessment of real
property. The State Board contends that the Tax Court erred in concluding
each of the statutory factors must be applied by the local assessing authority
to each individual parcel, and claims that such a requirement would create a
substantial if not enormous administrative burden to no good end. The State
Boards rules provide, in broad brush, that actual sales data of comparable properties,
where available, reflect the sum of the effects of these factors on individual
parcels. The State Board argues that it is within its expertise to
promulgate rules providing for use of sales data as a proxy for the
statutory factors, and that the existing rules establish an acceptable practice for making
Consistent with its position in this Court, the State Board has determined that
land is to be assessed by comparison to actual sales of comparable properties,
with adjustments to account for differences in frontage, improvements, depth, and similar factors
to arrive at a value of land in the area. Ind.Admin. Code
tit. 50, r. 2.1-2-1 to -2 (1987). Under this method, land value
maps are developed that divide political subdivisions into neighborhoods based on characteristics that
distinguish [each] from surrounding neighborhoods, such as value ranges of improvements, zoning, or
other restrictions on land use. Id.
The Tax Court found this practice inconsistent with the statute. Although it
acknowledged that [t]he plain language of the section does not concretely require the
State Board to consider each of the nine factors in classifying land .
. . it could be reasonably interpreted to have such meaning.
722 N.E.2d at 933. Considered in light of the General Assemblys constitutional
mandate to provide for a uniform and equal rate of property assessment and
taxation, Ind. Const. art. X, § 1, the Tax Court concluded, the logical
interpretation is that the General Assembly intended for the State Board to consider
the listed factors in placing a particular parcel within a specific category of
a land valuation order. IRC, 722 N.E.2d at 933.
All parties agree that the statute requires consideration of the listed factors in
promulgating rules for assessing parcels. The statute says that in so many
words. It reads: [w]ith respect to the assessment of real property, the
rules of the state board of tax commissioners shall provide for . .
. . I.C. § 6-1.1-31-6 (emphasis added). The State Board disagrees
with the Tax Court in the next step of the analysis. The
State Board contends that a rule providing a rational basis to value parcels
in light of the statutory factors is sufficient. The Tax Court reasoned
that a more particularized judgment is required and that the statutory factors must
be evident as to each parcel. We agree with the State Board.
We see no barrier to procedures designed to arrive at a fair
assessment that reflects the statutory factors, but does not take each factor into
account as to each individual parcel.
The statute does not use the term land order. But land orders
classifying parcels as to land valuation are adopted pursuant to the rules governing
assessment promulgated by the State Board. The rules of the State Board
are found in title 50 of the Indiana Administrative Code, article 2.1, rule
2 (i.e., the 1989 Real Property Assessment Manual), which details procedures for local
assessors to follow in the valuation of land. As the Tax Court
has frequently pointed out, land orders are initially proposed by county commissions, but
become rules of the State Board after review by the Board.
722 N.E.2d at 931; Precedent v. State Bd. of Tax Commrs, 659 N.E.2d
701, 704 (Ind. Tax 1995); Poracky v. State Bd. of Tax Commrs, 635
N.E.2d 235, 236-37 (Ind. Tax 1994); Mahan v. State Bd. of Tax Commrs,
622 N.E.2d 1058, 1062 (Ind. Tax 1993); Johnson County Farm Bureau Coop. Assn
v. Indiana Dept of State Revenue, 568 N.E.2d 578, 586 (Ind. Tax 1991).
Although the legislature has dictated factors that must be considered in the State
Boards rules for assessment of real property, it has left it to the
Boards discretion to adopt rules that accomplish that end. In simple terms,
the statute directs the goal, but not the means. This is standard
operating procedure for administrative agencies.
Cf. I Kenneth Culp Davis & Richard
J. Pierce, Jr., Administrative Law Treatise § 2.6, at 67 (3d ed. 1994)
([The legislature] routinely delegates to agencies the power to make major policy decisions
in the form of rules of conduct that bind all citizens. When
[a legislative body] delegates authority to an agency, it accompanies that grant of
power with substantive standards.). The State Board has followed the statutory directive.
By rule, see 50 IAC 2.1-2-1 to -2, the State Board has
adopted the procedure for the adoption of land orders, which themselves become rules
if adopted pursuant to that procedure. The State Board has determined that
use of comparable sales in formulating the land order meets the requirement to
consider the relevant statutory factors. This is a far different proposition from
the Tax Courts view that construes the statute to require every factor to
be considered not only in the promulgation of the State Boards rules, as
the statute expressly provides, but also in the individual valuation of every parcel
of land, unless the criterion is simply inapplicable.
We agree with the State Board and IRC that use of comparable sales
is an appropriate assessment procedure, and that it is well within the discretion
of the State Board to promulgate rules that give appropriate consideration to the
nine statutory factors by looking to actual sales data, and making the rational
assumption that the cumulative effect of the individual factors is reflected in the
sales prices reached by buyers and sellers in the market. Accordingly, we
disagree that the State Board or local assessors are required to assess each
parcel in the light of the effect of each statutory factor on its
II. The Land Order
Under its rules, the State Board has approved the use of actual market
sales data as a proxy for some of the listed criteria of Indiana
Code section 6-1.1-31-6. We agree with the State Board that this practice
has been implicitly authorized by the General Assembly in the General Assemblys approval
of generally accepted appraisal practices. See Ind.Code § 6-1.1-31-3(4) (1998) (The state
board of tax commissioners may consider: . . . (4) generally accepted practices
of appraisers, including generally accepted property assessment valuation and mass appraisal principles and
practices . . . .). Under the State Boards own rules, however,
the use of actual sales data presumes that the parcels included in the
data are comparable to the property sought to be assessed. The rules
demand first that neighborhoods be rationally identified: Each neighborhood can be delineated based
on characteristics that distinguish it from surrounding neighborhoods. Ind.Admin. Code tit. 50,
r. 2.1-2-1(c) (1987). Second, the rules demand that values to be used
for any given neighborhood be determined by comparing several sales of similar properties.
Id. 2.1-2-1(c). Thus, the political subdivision must be correctly broken down
into neighborhoods consisting of comparable parcels of property and the parcels within a
neighborhood must be comparable with those from which the sales data is derived.
IRCs principal contention is not that the 1989 Assessment Manual failed to account
for the criteria set forth in Indiana Code section 6-1.1-31-6. Nor does
IRC challenge the legitimacy of the State Boards rules. To the contrary,
Stephen DeVoe, President of IRC, testified that, we think as a taxpayer were
entitled to have the procedures in the manual followed. Consistent with this
view, IRCs primary argument all along has been that its property differs significantly
from the surrounding properties with which it has been grouped and that IRC
would have been more properly classified as other. In simple terms, IRC
does not challenge the use of sales of comparable properties to establish the
land values of its parcels. It simply contends that it was not
grouped with comparable parcels when it was classified in the 82nd Street Corridor.
Because we agree that a land order may look to sales of comparable
properties to determine assessment value, the issue in this case is simply whether
the township assessor correctly classified IRC as part of the 82nd Street Corridor
and whether the State Board was correct in adhering to that determination.
Kevin Fasick, the chief values deputy for the Washington Townships Assessor office in
1989, testified at trial that several characteristics of IRC had not been taken
into account in its 1989 assessment. Notably it did not consider that
one of the parcels did not abut 82nd Street and that neither parcel
had direct access to 82nd Street. It is also significant that no
consideration was given to the fact that, unlike the other properties in the
area, IRC was zoned SU-3, which does not allow the high-intensity retail traffic
of the surrounding properties.
In reviewing a decision of the State Board, the Tax Court is to
give great deference to the State Board when the Board acts within the
scope of its authority. Wetzel Enters., Inc. v. State Bd. of Tax
Commrs, 694 N.E.2d 1259, 1261 (Ind. Tax 1998). The Tax Court is
to reverse a final determination of the State Board only when its decision
is unsupported by substantial evidence, is arbitrary or capricious, constitutes an abuse of
discretion, or exceeds statutory authority. Id. The taxpayer bears the burden
of demonstrating that the State Boards final determination is invalid. IRC, 722
N.E.2d at 930 (citing Clark v. State Bd. of Tax Commrs, 694 N.E.2d
1230, 1233 (Ind. Tax 1998)). Because we have concluded that the State
Boards rules require that properties within a land grouping be comparable and that
sales data be obtained from the sale of properties that are truly comparable,
we agree with the Tax Court that IRC has met its burden of
demonstrating that the State Boards final determination was invalid. Specifically, the lack
of frontage on 82nd Street and lack of access to 82nd Street differentiate
it from the high value retail properties in the corridor. The same
is true of IRCs zoning.
The State Board argues that, even if this Court determines that its final
determination was invalid, IRC should still lose because IRC cannot prove that it
was harmed by the land valuation order. Citing State Board of Tax
Commissioners v. Town of St. John, 702 N.E.2d 1034, 1040 (Ind. 1998), the
State Board also notes that a taxpayer does not have a constitutional entitlement
to a precisely accurate assessment of property. More specifically, the State Board
notes that IRCs property was valued at a base rate of $3.00 per
square foot, which is at the top of the range for property classified
as other in Washington Township. Thus, even if IRCs property is reclassified
as other it is possible that IRCs base rate will not change.
We disagree with the State Boards conclusion that because of this possibility IRC
has failed to establish that the State Boards final determination is invalid.
The State Board admits the existence of several factors that devalue IRCs property
in comparison with surrounding properties. It also concedes that these factors were
not considered in the classification of IRCs property. If nothing else, it
is clear that, if the local assessing authority had determined that IRCs property
belonged to the other category, IRC would not have been worse off than
it is now. We think it indisputable that, in order for a
determination to be valid, both the initial classification and the base rate must
have been derived according to the State Boards rules. Cf. Zakutansky v.
State Bd. of Tax Commrs, 696 N.E.2d 494, 497 (Ind. Tax 1998) (remanding
to State Board where incorrect cost schedule to assess buildings was used, although
under the proper cost schedule the assessment might not vary significantly). Because
IRC has proved that its classification was not arrived at according to the
State Boards rules, it has carried its burden of showing that the State
Boards final determination was invalid. It has also submitted evidence that suggests
its property is neither comparable to surrounding properties nor the market data used
as a proxy for the criteria of Indiana Code section 6-1.1-31-6. On
remand, as the Tax Court pointed out, IRC bears the burden of going
forward with probative evidence concerning the proper classification of [its property] within the
Order and the appropriate base rate to be assigned the parcels. IRC,
722 N.E.2d at 941.
We remand to the State Board for further proceedings consistent with this opinion.
SHEPARD, C.J., and DICKSON, SULLIVAN, and RUCKER, JJ., concur.
The State Board concedes that it inadvertently omitted from its Petition
for Review caption a second party to this action, Racquet Square Associates (RSA).
The State Board initially moved to amend its petition and then withdrew
its motion. Accordingly, the State Board is not petitioning for review from
the Tax Courts determinations affecting the assessment of RSAs property.