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October 20, 2017

Don't Get Overtaxed: Successful Tax Assessment Challenge Shows Benefits of Apartment Owner Due Diligence

By statute, a variety of property types are assessed based on specific approaches to value – in some cases, at the lowest value indicated by a number of valuation approaches. Apartments are one such property type and, as investors bid up the “price” of apartment properties in the marketplace, it is important to remember that Indiana law requires apartments to be assessed at the lowest of the three approaches to value: the cost, sales comparison and income approaches. In August, the Indiana Board of Tax Review — the state agency that reviews property tax appeals from county boards of review — issued an administrative ruling confirming this mandate.  

In Merrillville Lakes DE, LLC v. Lake County Assessor, a taxpayer challenged the 2010-2014 assessments for its apartment complex in Merrillville. Both the assessor and taxpayer presented appraisals at the administrative hearing. The taxpayer’s appraiser developed all three approaches to value. The assessor’s appraiser developed only the sales and income approaches to value, arguing that the cost approach was unreliable. The Indiana Board, however, disagreed with the assessor’s appraisal, explaining:

[A] specific statute applies to the valuation of certain rental properties such as the one at issue. Specifically, Ind. Code § 6-1.1-4-39(a) provides in part that the true tax value of real property regularly used to rent or otherwise furnish residential accommodations for periods of 30 days or more and that has more than four rental units is the lowest valuation as determined under the cost approach, the sales comparison approach, and the income valuation approach. [The taxpayer] emphasized the importance of this statute, while [the assessor] simply ignored it altogether.

The cost approach values developed by the taxpayer’s appraiser yielded the lowest values, and the assessor did nothing to show that those values were inaccurate. The Indiana Board concluded that the assessor’s omission of a cost approach analysis was a “significant flaw” in his case, though in a number of prior cases involving the same statute, the Board has determined the assessed value of apartment property at the lowest valuation even when fewer than all three approaches have been used. See Meadow Lake of Mooresville, LLC, and Kendallville Associates, LP. v. Noble County Assessor.  In this case, the Board ultimately lowered the assessed value of the apartment complex for each contested year based on taxpayer’s cost analyses.

The ruling serves as a useful reminder for apartment complex owners to always be sure their property is appraised at the lowest of the three approaches to value. A little due diligence could result in a lower valuation and, as such, significant savings.

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