News and Insights

Indiana State Senate Bill 436 may Negatively Impact the State’s Real Property Tax Assessment System

Tax Development Mar 13, 2015

Indiana State Senate Bill 436 (“S.B. 436”) may negatively impact Indiana’s real property tax assessment system. The bill passed the Senate last month by a vote of 49-1 and has been referred to the Ways and Means Committee in the House for consideration.

The bill makes significant changes to the way certain commercial properties—particularly special purpose properties and sale lease-back properties—are valued for property tax purposes by requiring that they be valued using the Cost Approach. It also would apply these changes retroactively to March 1, 2015 as follows:

  • Real property assessed on or after the March 1, 2015 assessment date would be subject to the new requirements.
  • Real property assessed on assessment dates preceding the March 1, 2015 assessment date also would be subject to the new change if an administrative appeal or judicial proceeding concerning the assessment is pending on March 1, 2015, regardless of whether a hearing or oral argument has been held in the administrative appeal or judicial proceeding.

Excluded from this new valuation requirement are various provisions under § 6-1.1-4, such as the assessment of low income rental housing and low income housing eligible for federal income tax credits. Also excluded is the assessment of industrial facilities under § 6-1.1-8.5 and § 6-1.1-8.7 and the assessment of real property after the real property is sold in an arm’s length sale transaction.

Senator Brandt Hershman (R) and Senator John Broden (D) are sponsoring the bill.

Under the bill, any commercial building erected by or for the original owner or user could be designated as “special purpose” property. This significantly broadens the definition of “special purpose” properties and is not consistent with definitions found in property appraisal methodology guides and literature. The end result is that county assessors, boards, and courts could ignore market-based data for these “special purpose” properties.

Ryan Principal Thomas Brannigan said that the cost schedules used within the Cost Approach were deemed unconstitutional in Town of St. John v. State Board of Commissioners (Tax Court – 690 N.E. 2d 370 - 1997) and State Board of Tax Commissioners v. Town of St. John (Indiana Supreme Court - 702 N.E. 2d 1034 - 1998). The Cost Approach is rarely used or considered by market participants when they value real property in market transactions. This bill would reverse much of that and bring the state back to an approach that is more driven by the demands of local government budgets than a uniform and equal assessment system.

Brannigan said that the bill, if passed into law, would result in non-uniform and unequal assessments based solely on whether the utility of the property is to the first occupant or the second. “Two identical properties across the street from one another would have different tax bills based solely on whether someone bought the property from the original owner. Destructively, it retroactively applies a change in the substantive valuation standards to all pending appeals,” Brannigan said.

Ryan, the Council On State Taxation, and other interested parties have voiced major concerns with this bill. Click here for a copy of S.B. 436.

S.B. 436 may be detrimental to existing Indiana businesses and could potentially be a deterrent to prospective businesses looking to develop in Indiana. A bill that takes the state of Indiana back in time to a largely Cost Approach driven method of valuation guarantees ever-steadying increases in property tax bills for those that would erect or occupy new properties. Indiana’s current property tax system is one that is pro-economic development and one that is fair to taxpayers.

Taxpayers concerned about S.B. 436 should contact members of the Indiana House of Representatives directly. Click here for a link to the Democratic Caucus and here for the Republican Caucus.


Thomas Brannigan