Indiana Law Review Recent Developments in Indiana Taxation Lawrence A. Jegen, III* Adam J. Brown** Introduction The 1 13th General Assembly, the Governor ofIndiana, the Indiana Supreme Court, and the Indiana Tax Court contributed changes to the Indiana tax laws in 2004. This Article highlights the major developments that occurred throughout the year.^ Whenever the term "General Assembly" is used in this Article, such term shall refer only to the Indiana General Assembly. Whenever the term "State Board" is used in this Article, such term shall refer only to the Indiana State Board ofTax Commissioners. Whenever the term "Indiana Board" is used in this Article, such term shall refer only to the Indiana Board of Tax Review. Whenever the term "Department" is used in this Article, such term shall refer only to the Indiana Department of State Revenue. Whenever the term "Tax Court" is used in this Article, such term shall refer only to the Indiana Tax Court. I. Indiana General Assembly Legislation The 1 13th General Assembly passed several pieces of legislation affecting various areas of state and local taxation. The most significant changes were in the area of property taxes. This section highlights the majority of the General Assembly's changes from 2004 in the areas of corporate tax, sales tax, inheritance tax, and property tax. There are also several other changes noted in the miscellaneous section. A. Corporate Tax The General Assembly reduced the minimum size required for a building to be eligible for the Industrial Recovery Tax Credit from 300,000 to 250,000 square feet.^ A taxpayer is entitled to a credit against the adjusted gross income tax, insurance premiums tax, or financial institutions tax liability for a "qualified investment" on an industrial recovery site. The building or buildings comprising the industrial recovery site must: (1) contain at least 250,000 interior square feet; (2) be at least twenty years old; and (3) have been at least 75% vacant for at least * Thomas F. Sheehan Professor of Tax Law and Policy, Indiana University School of Law—Indianapolis; B.A., Beloit College; M.B.A., J.D,, University of Michigan; L.L.M., New York University. ** J.D, Candidate, 2005, Indiana University School ofLaw—Indianapolis; B.A., 2001, Ball State University, Muncie, Indiana. 1. For comprehensive information concerning the Indiana Tax Court, the Indiana Department ofState Revenue, the Indiana State Board ofTax Commissioners, and a variety ofother tax-related information, visit the Access Indiana website at http://www.accessindiana.org. 2. IND. Code §6-3.1-11-15 (2004). 1 342 INDIANA LAW REVIEW [Vol. 38:1341 two years.^ A qualified investment may consist of expenditures by the taxpayer for rehabilitation (including remodeling, repair, or betterment ofreal property in any manner or any enlargement or extension ofreal property, or the installation, repair, or retrofitting ofpersonal property) located within an industrial recovery site under a plan approved by the Enterprise Zone Board."^ Depending upon designation ofindustrial recovery sites by the Enterprise Zone Board, this change could potentially reduce revenue from the Adjusted Gross Income ("AGI") Tax, Insurance Premiums Tax, and Financial Institutions Tax.^ The General Assembly enacted legislation that will allow the Randolph County Council to use revenue generated from the county economic development income tax, imposed at a rate of0.25%, to finance the construction, acquisition, renovation, and equipping ofthe county courthouse.^ This bill changed the legal uses of revenue from the tax, but did not increase the tax rate.^ The General Assembly also made changes to simplify the calculation of Indiana net operating loss.^ The calculation starts with the taxpayer's federal net operating loss and then the taxpayer must add back state income taxes, property taxes, and charitable contributions, and then, deduct interest on U.S. Government obligations, and finally, apply the apportionment percentage to determine the Indiana portion of the net operating loss.^ The General Assembly also made the income tax credit for research expenses permanent by deleting the 2013 expiration date.^^ The General Assembly also authorized the award of reftindable "Economic Development for a Growing Economy" ("EDGE") credits to a trust, limited liability company, or limited liability partnership owned wholly or in part by an 3. Id. §§6-3.1-11-1,-14. 4. Legislative Servs. Agency, Fiscal Impact Statement HB 1 024 (2004) [hereinafter Fiscal Impact Statement 1024], available at http://www.in.gov/legislative/bills/2004/PDF/ FISCAL/HB 1 024.005 .pdf. 5. See id. at 1. 6. Ind. Code § 6-3.5-7-22.5. 7. Legislative Servs. Agency, Fiscal Impact Statement HB 1055, at 5 (2005) [hereinafter Fiscal Impact Statement 1055], available at http://www.in.gov/legislative/bills/ 2004/PDF/FISCAL/HB 1055.009.pdf ("[Public Law] 291-2001 allowed the Randolph County Council to impose an additional 0.25% CEDIT rate in order to finance, construct, acquire, renovate, and equip the county courthouse, the former county hospital (for additional office space), and other additional projects specified under current law. Following the passage of [Public Law] 29 1 -200 1 , the Randolph County Council raised their CEDIT rate from 0.25% to 0.5%. [Public Law] 224- 2003 removed the provision that allowed Randolph County to use additional CEDIT revenue generated by the rate increase allowed under P.L. 291-2001 for courthouse repairs."). 8. iND. Code §§ 6-3-1-3.5; 6-3-2-2.5, -2.6. 9. See Legislative Servs. Agency, Fiscal Impact Statement HB 1365 at 7 (2004) [hereinafter FISCAL Impact Statement 1365], available at http://www.in.gov/legislative/bills/ 2004/PDF/FISCAL/HB 1365.01 0.pdf 10. Ind. Code §6-3.1-4-6. 2005] TAX LAW 1343 electric cooperative that is incorporated in Indiana as a nonprofit corporation.^^ The conditions for the refundable EDGE credit include a finding by the EDGE Board that the average wage to be paid by the pass through entity will be at least twice the average wage paid within the county in which the pass through entity's project will be located. ^^ The General Assembly also extended the Hoosier Business Investment Tax Credit for two years through tax year 2007.'^ In addition, the General Assembly established three new tax incentives for businesses that locate new operations or expand existing operations within the boundaries of: (1) a military base that is scheduled for closing or closed; (2) a Military Base Reuse Area; (3) an Economic Development Area established in connection with a closed military base; or, (4) a Military Base Recovery Site.^"* As of March 10, 2004, there were three known areas in Indiana that were both Enterprise Zones and Military Base Reuse Areas—Grissom Air Force Base in Miami County, Fort Benjamin Harrison in Marion County, and the Indiana Army Ammunition Plant in Clark County. ^^ The tax incentives provided by the General Assembly to the qualifying businesses were as follows: (1) A sales tax exemption on the sales of utility services or commodities made to the qualifying business within five years ofthe start ofthe new operations;^^ (2) an adjusted gross income tax rate of5% (versus 8.5%) for the year of relocation and the following four taxable years; ^^ and, (3) a military base investment cost credit against state tax liability for a taxpayer who purchases an ownership interest in or otherwise invests in a qualifying business. ^^ These incentives are not available to a business that does not have operations in a qualified area and that substantially reduces or ceases its operations somewhere 11. Id. §§6-3.1-13-7,-21. 12. Id. 13. M § 6-3 . 1 -26-26. "[T]he EDGE Board is authorized to award a taxpayer (an individual, corporation, partnership, or other entity with a tax liability) a nonrefundable tax credit for expenditures on qualified investment that the Board determines will fosterjob creation and higher wages in Indiana. The tax credit is equal to 30% ofthe qualified investment. A taxpayer may claim the credit against a taxpayer's Adjusted Gross Income (AGI) Tax, Insurance Premiums Tax, or Financial Institutions Tax liability. If a pass through entity does not have a tax liability, the credit may be claimed by shareholders or partners in proportion to their distributive income from the pass through entity. The tax credit may only be awarded for qualified investment made during tax year 2004 or 2005. The credit is nonrefundable and may not be carried back. Unused tax credits may be carried over for up to nine years after the year in which the investment was made. The credit amount that the taxpayer may claim in the taxable year in which the investment is made is equal to the lesser of: (1) 30% of the qualified investment or (2) the taxpayer's state tax liability growth." Fiscal Impact Statement 1365, supra note 9, at 5. 14. See Fiscal Impact Statement 1365, supra note 9, at 8-9. 15. See id. at 9. 16. IND. Code § 6-2.5-4-5(c)(4). 17. Id §§6-3-2-1,-1.5. 18. Id §6-3.1-11.6-4. 1 344 INDIANA LAW REVIEW [Vol. 38:1341 else in Indiana in order to relocate that operation within the qualified area.^^ The General Assembly also expanded the number of taxpayers that could claim the Community Revitalization Enhancement District ("CRED") Tax Credit.^^ If a taxpayer is otherwise entitled to the CRED Tax Credit for a taxable year then the taxpayer may claim the credit whether or not the incremental income or sales tax revenue has been deposited in an incremental tax financing fund or allocated to the District.^' Also in relation to the CRED Credit, the General Assembly provided new conditions under which a taxpayer that reduces operations somewhere in Indiana to relocate to a District can remain eligible for the credit.^^ These new conditions are as follows. The taxpayer relocates all or part of its non-CRED operations [for any of the following reasons] or . . . the taxpayer has not terminated or reduced the pension or health insurance obligations payable to employees or former employees of the non-CRED operation with their consent: (A) The lease on property necessary for the non-CRED operation has been involuntarily lost through no fault of the taxpayer. (B) The space available at the location of the non-CRED operation cannot accommodate planned expansion needed by the taxpayer. (C) The building for the non-CRED operation has been certified as uninhabitable by a state or local building authority. (D) The building for the non-CRED operation has been totally destroyed through no fault of the taxpayer. (E) The renovation and construction costs at the location ofthe non-CRED operation are more than 1.5 times the costs of purchase, renovation, and construction of a facility in the CRED, as certified by three independent estimates. (F) The taxpayer had existing operations in the district, and the nondistrict operations relocated to the district are an expansion of the taxpayer's operations in the district.^^ Further, the General Assembly established the Interim Study Committee on Corporate Taxation to study the establishment and utilization of passive investment corporations by companies doing business in Indiana.^^ 19. Id. §§6-3-2-1, -1.5; 6-3.1-11.6-13. 20. Id. §6-3.1-19-3. 21. Id 22. Id. Previously any taxpayer substantially reducing operations to relocate was per se ineligible for the credit unless "(1) the taxpayer had existing operations in the CRED; and (2) the operations relocated to the CRED are an expansion ofthe taxpayer's operations in the CRED." See Fiscal Impact Statement 1365, supra note 9, at 10. 23. Fiscal Impact Statement 1365, supra note 9, at 1 1 . 24. Id. at 3. The Committee's final report is available at http://www.in.gov/legislative/ 2005] TAX LAW 1345 B. Sales Tax The General Assembly also provided that in a sale of bundled telecommunication services, which include both taxable and nontaxable services, the part of the services not ordinarily subject to the state sales tax is taxable unless the provider can reasonably identify the nontaxable part based on the provider's regularly kept business records.^^ Charges for phone calls made within the state are subject to Indiana's sales tax, while charges for long distance interstate calls are not.^^ Prior to this enrolled act, if the taxable and nontaxable service charges were not separately stated on the customer's bill, the entire bundled service charges were subject to the sales tax.^^ This legislation allows phone companies to state the bundled service charge on the bill and only remit the sales tax on the portion of the package that would be taxable if that portion of the service had been separately stated on the bill.^^ Also, the General Assembly made two changes to the sales and use tax credits and exemptions associated with the sale of motor vehicles, trailers, watercraft, and aircraft. The first change allows credit against Lidiana's sales and use tax for sales and use tax paid to another state. ^^ The transactions most affected were purchases of a vehicle by Indiana residents from an out of state dealer. For example, ifan Indiana resident were to buy an automobile in Virginia and pay a 4% sales tax in Virginia and immediately bring the vehicle back to Indiana for titling, then this person would receive a credit of4% against Indiana' s use tax of 6%, and therefore, would be liable for 2% in use tax to Indiana.^^ Previously, Indiana did not allow a credit for sales or use tax paid to another state in a transaction which involved the sale of a motor vehicle, trailer, watercraft, or aircraft. In addition, the General Assembly repealed a provision that previously allowed for an exemption from Indiana's sales tax with respect to a purchase of a motor vehicle, trailer, watercraft, or aircraft which was immediately transported out of Indiana to be titled in another state. ^' The General Assembly also repealed the sales tax with respect to complimentary hotel rooms, effective April 1, 2004.^^ The Legislative Services Agency estimated that repealing this provision would reduce state sales tax interim/committee/icct.html (last visited Apr. 20, 2005). 25. IND. Code § 6-2.5-4-6(d). 26. Legislative Servs. Agency, Fiscal Impact Statement HB 1 1 14, at 1 [hereinafter Fiscal Impact Statement 1 1 14] (2004), available at http://www.in.gov/legislative^ills/2004/ PDF/FISCAL/HBl 1 14.006.pdf. 27. See id. 28. See id. 29. iND. Code § 6-2.5-3-5 (part (b) was deleted). 30. See FISCAL Impact Statement 1365, supra note 9, at 5 for another example. 31. iND. Code § 6-2.5-5-15 (2003) (repealed 2004). 32. Id §§ 6-2.5-4-4.5, -6-15 (2003) (repealed 2004). 1346 INDIANA LAW REVIEW [Vol. 38:1341 revenues by about $2.1 million each year.^^ Further, the General Assembly passed legislation specifying that satellite broadcasts of radio or television signals that terminate in Indiana are subject to Indiana's sales tax.^"^ With respect to sales tax deductions, the General Assembly provided that deductions for bad debt are only assignable if the retail merchant that paid the sales tax liability assigns the right to the deduction in writing. ^^ The General Assembly also expanded the standards for determining whether or not an out-of-state business entity must register as a retail merchant in Indiana and collect Indiana's sales and use tax.^^ In conjunction with this provision the General Assembly expanded the definition ofthe term "retail merchant engaged in business in Indiana" in the use tax statute to include entities engaging in activities such as installing, repairing, assembling, setting up, accepting returns of, billing, or invoicing the "sales of tangible personal property or services to be used, stored, or consumed in Indiana. "^^ The General Assembly passed legislation providing that installation charges which are separately stated on a retail merchant's invoice are not subject to the sales tax.^^ The General Assembly also specified that "delivery charges" included, but were not limited to, charges for transportation, shipping, postage, handling, crating, and packing.^^ In relation to delivery charges, the General Assembly specified that for purposes of a retail merchant making a retail transaction, "a transfer is considered to have occurred after delivery of the property to the purchaser. '"^^ C Inheritance Tax The General Assembly enacted legislation stating that, for purposes of the Inheritance Tax, a stepchild of the transferor is a Class A transferee."^^ Prior to this legislation. Class A transferees under the Inheritance Tax included both (1) legally adopted children and (2) children who have been part of a loco parentis relationship for at least ten years where the relationship began before the child's 33. See FISCAL IMPACT STATEMENT 1365, supra note 9, at 6. 34. IND. Code § 6-2.5-4-1 1 (2004). Note that this language is a response to the Tax Court's decision in Grand Victoria Casino & Resort, LP v. Indiana Department of State Revenue, 789 N.E.2d 1041, 1044-1045 (Ind. Tax Ct. 2003), where the Tax Court held that Grand Victoria was entitled to a refund ofsales tax paid on the purchase ofsatellite services that originated in Kentucky and terminated in Indiana. 35. iND. Code § 6-2.5-6-9. 36. Id § 6-2.5-8-10. 37. Id. § 6-2.5-3-1 (the activities listed were added to the activities otherwise listed). 38. Id §6-2.5-1 -5(b)(6). 39. Id § 6-2.5-1 -5(a). 40. Id § 6-2.5-4- 1(e). 41. Id §6-4.1-1-3. 2005] TAX LAW 1347 fifteenth birthday."*^ Therefore, the General Assembly expanded the definition of Class A transferee to include all stepchildren/^ Previously, the individuals affected were classified as Class C transferees rather than Class A transferees for purposes of the standard Inheritance Tax exemption."^ The amount of the exemption for Class A transferees is $ 1 00,000 while the amount ofthe exemption for Class C transferees is $100/^ Also, the General Assembly passed legislation providing that for inheritance tax purposes an adopted child is not considered a Class A transferee, unless the child was adopted before the child was totally emancipated."^^ D. Property Tax The General Assembly made changes to the property tax system to better accommodate the needs ofthe taxpayers. These changes included the option for the Department of Local Government Finance to allow taxpayers to pay in installments and also options for the Department to waive penalties."^^ The General Assembly also made changes to the taxpayer's notice and process for appealing assessments'^^ including allowing the taxpayer to receive their refund automatically by eliminating the requirement for a taxpayer to file a claim for refund after a successful assessment appeal."^^ Other changes made by the General Assembly to accommodate taxpayers include allowing counties to issue provisional tax statements ifthe actual bills are not going to be delivered in a timely manner. The General Assembly also passed legislation permitting an individual who was eligible for, but who did not apply for the homestead credit (and/or certain deductions) prior to October 1 , 2003, to obtain such a credit if the individual applied for the credit before December 15, 2003.^^ The General Assembly also increased the cap on the income tax deduction for property taxes paid on a principal place of residence for homeowners who pay property taxes imposed for the March 1 , 2002, or January 15, 2003 assessment dates in 2004.^^ The General Assembly also required the Commission on State Tax and Financing to study elimination of property taxes 42. Legislative Servs. Agency, Fiscal Impact Statement HB 1154, at 1 (2004) [hereinafter Fiscal Impact Statement 1 154], available at http://www.in.gov/legislative/bills/ 2004/PDF/FISCAL/HBl 154.007.pdf 43. See id. 44. See id. at 2. 45. See id. 46. IND. Code §6-4.1-1-3. 47. Id §§ 6-1.1-21-5, -22-9, -37-9, -37-10, -37-10.5. 48. Id §§ 6.1.1-4-38, -15-1, -15-2.1, -15-3, -15-4, -15-10; Act ofDec. 12, 2003, § 79, 2004 Ind. Acts 1 . 49. Id §6-1.1-15-11. 50. Act of Dec. 12, 2003, § 68, 2004 Ind. Acts 1. 51. lND.CoDE§6-3-l-3.5(f). 1348 INDIANA LAW REVIEW [Vol. 38:1341 and alternative sources of revenue. ^^ The General Assembly authorized the Department of Local Government Finance to take over the 2003 general reassessment process in a county if the county's equalization study was not submitted to the Department before October 20, 2003 or if the Department determines that the county's reassessment is likely to be inaccurate. ^^ The General Assembly passed legislation requiring the property tax liability payable in 2006 and thereafter on residential rental properties that have more than four rental units to be computed using the lowest assessed valuation determined by applying each of the following appraisal techniques: (1) cost approach; (2) sales comparison approach; and, (3) income capitalization approach.^"^ This legislation also provided that the gross rent multiplier method is the preferred method for valuing rental properties that have fewer than five rental units and mobile homes. ^^ The General Assembly removed the prohibition against beer, wine, and liquor wholesalers receiving property tax abatements for the redevelopment or rehabilitation of real property in areas designated as economic revitalization areas. ^^ The General Assembly added sanitary sewers as an improvement that may be financed by a municipality by use of the Barrett Law.^^ For purposes of the Barrett Law applicable to municipalities, the General Assembly, through this legislation, allowed a municipal fiscal officer and municipal works board to establish procedures allowing the municipality to defer collection of a special assessment that is in default by preserving the assessment as a lien upon the property subject to the assessment.^^ This same legislation also required the collection of the preserved lien: (1) when ownership of the property is transferred; and, (2) before the final bond maturity date.^^ The General Assembly also provided that deferred assessments are treated similarly to delinquent property taxes.^^ Prior to this change, an assessment in default must have been collected through: (1) payment in full; (2) foreclosure on the property; or, (3) a conveyance in satisfaction of the assessment. The General Assembly passed legislation that approved the form of the question to appear on the ballot for the voters to ratify a constitutional amendment concerning property taxes. The form ofthe question was as follows: 52. Act of Dec. 12, 2003, § 82, 2004 Ind. Acts 1. The Commission on State Tax and Financing Policy's final report is available at http://www.in.gov/legislative/interim/committee/ stfp.html. 53. Ind. Code §6-1.1-4-35, -36. 54. Id. §6-1.1-4-39. 55. Id. 56. Id §6-l.l-12.1-3(e)(12)(c). 57. Id §36-9-37-11. 58. Id §36-9-37-19 to -22.5. 59. Id § 36-9-37-22.5. 60. Id §36-7-19-25. 2005] TAX LAW 1349 PUBLIC QUESTION #1 Shall Article 10, Section 1 of the Constitution ofthe State ofIndiana be amended to allow the General Assembly to make certain property exempt from property taxes, including (1) a homeowner's primary residence; (2) personal property used to produce income; and (3) inventory?^ ^ This constitutional amendment was ratified by the voters on November 2, 2004, which completed the constitutional amendment process.^^ The impact of this amendment will ultimately depend upon future action ofthe General Assembly. The General Assembly also passed legislation requiring a closing agent, in a residential real property financing or refinancing, to provide to each customer information on property tax deductions and the homestead credit on a form prescribed by the Department of Local Government Finance.^^ The legislation imposes a $25 penalty on a closing agent who does not comply with this provision.^"^ The legislation also provides that a closing agent is not liable for any other damages which may be claimed by a customer because of the closing agent's failure to provide the appropriate document to the customer.^^ In addition, the General Assembly passed a bill requiring the Department of Local Government Financing to set up a pilot program for 2005, 2006, and 2007, which program designates five counties^^ which are to include, with the county's property tax statement, the following information: (1) A breakdown showing the total property tax and special assessment liability and the amount ofthe taxpayer's liability that will be distributed to each taxing unit in the county. (2) A comparison showing any change in the assessed valuation for the property as compared to the previous year. (3) A comparison showing any change in the property tax and special assessment liability for the property as compared to the previous year. The information required under this subdivision must identify: (A) the amount of the taxpayer's liability distributable to each taxing unit in which the property is located in the current year and in the previous year; and (B) the percentage change, if any, in the amount of the taxpayer's liability distributable to each taxing unit in which the property is located from the previous year to the current year. (4) An explanation of the following: 61. Act of Mar. 19, 2004, 2004 Ind. Acts 11. 62. Ind. Const, art. 10, § 1 (see the history line for the ratification date). 63 . Ind. Code §6-1.1-1 2-43 (2004) (along with conforming language in Ind. Code § § 28- 1 5-6, 28-5-1-26, 28-6.1-6-25, 28-7-1-38, 34-30-2-16.6). 64. Id. 65. Id. 66. Id. §6-l.l-20-8(d). 1350 INDIANA LAW REVIEW [Vol. 38:1341 (A) The homestead credit and all property tax deductions. (B) The procedure and deadline for filing for the homestead credit and each deduction. (C) The procedure that a taxpayer must follow to: (i) appeal a current assessment; or (ii) petition for the correction of an error related to the taxpayer's property tax and special assessment liability. (D) The forms that must be filed for an appeal or petition described in clause (C). The department of local government finance shall provide the explanation required by this subdivision to each county treasurer. (5) A checklist that shows: (A) the homestead credit and all property tax deductions; and (B) whether the homestead credit and each property tax deduction applies in the current statement for the property transmitted under subsection (a)(1) or (a)(2).^^ Every county is to provide this information beginning in 2008. The legislation also permits each county to voluntarily provide the additional information about property taxes with property tax statements in 2004.^^ Also, the legislation provides for state reimbursement ofexpenditures made by a county to provide the additional information, not to exceed a statewide total of $50,000.^^ In addition, this legislation establishes the Property Tax Replacement Study Commission, consisting oftwenty-four members.^^ This Commission is charged with studying the affect of eliminating all or part of the current property tax.^^ The Commission is required to submit its work to the Legislative Council by November 30, 2004.^^ The legislation provides that the Commission will expire on January 1, 2005.^^ The General Assembly also authorized the counties of Allen, Grant, Huntington, Madison, and Wells^"^ to provide property tax abatements for logistical distribution equipment and information technology equipment, installed after June 30, 2004 and before January 1, 2006, in economic revitalization 67. Id. § 6- l.l-20-8(e) (Also note that "(a)(1) or (a)(2)" refers to IND. Code § 6-l.l-20-8(a), which requires the county treasurer to transmit the property tax statement either to the liable homeowner or to the mortgage company keeping an escrow account for the homeowner.). 68. Id. §6-l.l-20-8(d). 69. Id §6-l.l-20-8(g). 70. Act of Mar. 19, 2004, § 39, 2004 Ind. Acts 64. 71. Id 72. Id. The Commission published a report available at http://www.in.gov/legislative/interim/ committee/ptrc.html (last visited Apr. 20, 2005). 73. Id 74. Legislative Servs. Agency, Fiscal Impact Statement HB 1005, at 5-6 (2004) [hereinafter FISCAL IMPACT STATEMENT 1005], available at http://www.in.gov/legislative/bills/ 2004/PDF/FISCAL/HB1005.008.pdf 2005] TAX LAW 1351 areas. ^^ These abatements are available for up to ten years7^ The equipment eligible for the abatements as logistical distribution equipment includes racks, scanners, separators, conveyors, forklifts, moving equipment, packaging equipment, sorting and picking equipment, and software.^^ The equipment eligible for the abatements as information technology equipment includes equipment and software used in the fields of information processing, office automation, telecommunication facilities and networks, informatics, network administration, software development, and fiber optics.^^ Prior to the passage of this legislation, property tax abatement was allowed for new manufacturing equipment and new research and development equipment. Further, the General Assembly also authorized local governments to impose a property tax abatement fee.^^ The General Assembly specified that the fee is to be calculated by: (1) determining the additional property taxes the taxpayer would have paid if not for the abatement; and then, (2) multiplying that additional amount by a percentage as determined by the designating body.^^ The statutory language specifies that the fee could not exceed 15% of the unabated property tax liability or $100,000.^^ The statute also gives the designating body the right to revoke the abatement if the taxpayer does not pay the fee.^^ In addition, the General Assembly passed legislation disallowing the value of federal income tax credits awarded under Section 42 of the Internal Revenue Code to be considered in determining the assessed value oflow-income housing tax credit property. ^^ Also, the General Assembly passed legislation authorizing a religious institution to "retroactively file for a property tax exemption on real property for property taxes payable in 2001 and 2002 if the organization[:] (1) acquired the property in 1 999; (2) the property was exempt from property tax in 2000; and, (3) the organization failed to file the required exemption application for 2001 and 2002 taxes. "^"^ A religious institution could also file retroactively if the institution: "(1) acquired the property in 2000 under contract with another religious institution; (2) the property was exempt from property tax in 2000; and (3) the organization failed to file the required exemption application for 2001, 2002, 2003, and 2004 taxes."^^ If, after review by the county property tax 75. IND. Code § 6-1.1-12.1-1(13) (2004). 76. See FISCAL IMPACT STATEMENT 1005, supra note 74, at 5. 77. See id. 78. See id. at 6. 79. iND. Code §6-1.1-12.1-14. 80. Id. (Designating body is defined in section 6- 1 . 1 - 1 2. 1 - 1 (7) as "(A) For a county that does not contain a consolidated city, the fiscal body of the county, city, or town. (B) For a county containing a consolidated city, the metropolitan development commission."). 81. Id 82. Id 83. M 6-1.1-12.1-14. 84. See FISCAL IMPACT STATEMENT 1055, supra note 7, at 3-4. 85. See id. 1352 INDIANA LAW REVIEW [Vol. 38:1341 assessment board of appeals and the Department of Local Government Finance the application is approved, the religious institution may file a claim with the county auditor for a refund of the applicable taxes. ^^ The General Assembly also authorized amendedbusiness property tax filings for a taxpayer located in Marion County and meeting the conditions of the statute.^^ A taxpayer is authorized to amend the taxpayer's return for 2002 to claim an industrial waste control facility exemption, an industrial air purification exemption, and an interstate commerce exemption for finished goods inventory to be shipped out of state. ^^ The General Assembly also authorized a youth baseball and softball organization for an additional period in which to file an application for a property tax exemption. ^^ Further, the General Assemblypassed legislation increasing certain property tax deductions as follows: (1) elderly,^^ disabled,^^ and disabled veteran (not service related)^^ deductions were raised from $9000 to $12,480; (2) service related disable veteran^^ from $12,000 to $24,960; and, (3) widow of veteran^"^ and World War I veteran^^ from $9000 to $18,720. This same legislation also raised by 108% the deductions for rehabilitated property.^^ E. Miscellaneous The General Assembly passed legislation allowing a custodial parent to bring an action to recover delinquent child support by intercepting the child support obligor's state income tax reftind.^^ The legislation required that the noncustodial parent must: (1) be in arrears of $1500 or more in child support; and, (2) have intentionally violated the terms of the most recent child support order for the petition to intercept the tax refund to be granted.^^ The General Assembly also provided that even if the custodial parent filed a joint return with the noncustodial parent, the custodial parent could petition the court to intercept 86. Act of Mar. 18, 2004, §§ 13-14, 2004 Ind. Acts 90. 87. /J. § 1 6. The conditions listed involve the previous filing ofcertain tax forms on certain dates as listed in part (b) of the statute. 88. Id 89. Id § 15. The provision applied to the Southport Little League that failed to renew its exemption. 90. Ind. Code §6-1.1-12-9 (2004). 91. Id §6-1.1-12-11. 92. Id §6-1.1-12-14. 93. Id §6-1.1-12-13. 94. Id §6-1.1-12-16. 95. Id §6-1.1-12-17.4. 96. Id §§ 6-1.1-12-18, -12-22, -12.1-4.1. 97. Id §31-16-12.5-2. 98. Id 2005] TAX LAW 1353 the noncustodial parent's half of the retum.^^ The legislation specifically provided that this option is not available for support orders which were entered in Title IV-D cases. *^^ The bill also contained a requirement that the court notify both the noncustodial parent and a person who filed a joint state income tax return with the noncustodial parent ofthe hearing by certified mail, return receipt requested. ^^^ The General Assembly enacted legislation requiring the Department ofState Revenue to collect and maintain information for all retail merchants concerning the merchants' industry codes under the North American Industry Classification System Manual. ^^^ A portion of retail merchants currently registered in Indiana are categorized in DOR records based on the Standard Industrial Classification ("SIC") codes. ^^^ The SIC system was used by government and industry until it was replaced in 1997 by the North American Industry Classification system ("NAICS"). In some cases, it is possible to directly link all ofthe business types listed under one SIC code to a single corresponding NAICS code. However, many businesses currently classified under the one SIC code also correspond to a number of different NAICS codes. As a result of this legislation, the Department ofRevenue was required to develop a method of collecting NAICS codes directly from merchants currently categorized under the SIC system. ^^"^ The General Assembly also eliminated certain tax credits provided to members of the Indiana Comprehensive Health Insurance Association ("ICHIA").^^^ Prior to this legislation ICHIA members ofthe organization were assessed losses based proportionately on the number ofpremiums collected from Indiana residents who were involved in the ICHIA program. The members were then allowed to take a credit against Indiana Premium Taxes, Adjusted Gross Income Taxes, or any combination of these or similar taxes, or charge higher premiums sufficient to recoup the assessments. Although the General Assembly eliminated the tax credits, members with unused credits are permitted to carryover the remaining credit for tax years beginning after December 31, 2006.^°^ However, the carryover credit is limited to 10% per year of the credit that remained on January 1, 2005.^^^ The General Assembly extended the deadline from July 1 , 2003 to January 99. Id. §31-16-12.5-4(a). 100. Id. §31-14-12-2.5. 101. Id §31-16-12.5-5(c). 102. Id § 6-2.5-10-5. 103. Legislative Servs. Agency, Fiscal Impact Statement SB 278, at 1 (2004) [hereinafter FiscalImpact Statement 278], available «?http://www.in.gov/legislative^ills/2004/ PDF/FISCAL/SB0278.008.pdf. 104. See id. 105. Ind. Code § 27-8- 1 0-2. 1 . (Note: All carriers, health maintenance organizations, limited service health maintenance organizations, and self-insurers providing health insurance or health care services in Indiana are members ofthe Indiana Comprehensive Health Insurance Association.). 106. Id § 27-8-10-2.4. 107. Id 1354 INDIANA LAW REVIEW [Vol. 38:1341 1, 2005 for second class cities and the city of Marion, Indiana to be allowed to establish a Professional Sports and Convention Development Areas ("PSCDA"). ^^^ The bill also repealed a statute that prohibited a PSCDA in Gary, Indiana from containing more than one facility or containing a facility used by a professional sports franchise for practice or competitive sporting events. '^^ Prior to this change a Gary PSCDA was authorized to contain a facility used principally for convention or tourism-related events. ^^^ A Professional Sports and Convention Development Tax Area is a special zone in which certain state and local tax revenues earned in the area are diverted and deposited into a special fund.^^^ This fund is dedicated to capital improvement in the development area. As of March 10, 2004, PSCDAs were being operated by Marion County, Allen County, Evansville, Huntingburg, and South Bend.'^^ The state and local taxes that are allowed to be captured by PSCDAs include sales tax and the state and local individual income taxes. This capturing oftax revenue is capped at $5 per resident ofthe establishing entity. ^^^ The General Assembly also passed legislation requiring the maximum appropriation and property tax levy for community mental health centers be recalculated annually based on the increase in the assessed value growth quotient. ^'"^ The growth quotient is equal to the six-year average annual increase in Indiana nonfarm personal income. '^^ The growth quotient was 4.8% in 2003 and 4.7% in 2004.*^^ After this legislation, all counties will have the same growth rate. The General Assembly passed legislation requiring the Department of Revenue to compile a list oftaxpayers subject to tax warrants in excess of $ 1 000 that have been outstanding for at least two years. ^^^ This legislation also requires the Department to publish the list on the Accesslndiana website,^ ^^ as well as make the list available for public inspection.^ '^ The delinquent taxpayer must be notified two weeks prior to the publishing of their name on the list.*^^ 108. Id. §36-7-31.1-9. 109. See FISCAL IMPACT STATEMENT 1005, supra note 74, at 4. 110. See id. 111. See id. 112. See id. at 5. 113. IND. Code §36-7-31.1-10. 114. /c/. §6-l.l-18.5-10(a)(l)(A). 115. Legislative Servs. Agency, Fiscal Impact Statement HB 1320, at 4 (2004) [hereinafter FISCAL IMPACT STATEMENT 1320], available at http://www.in.gov/legislative/bills/ 2004/PDF/FISCAL/HB 1 320.009.pdf. 116. See id. 117. iND. Code §6-8.1-3-16. 1 1 8. See http://www.ai.org. 119. iND. Code §6-8.1-3-16. 120. Id 2005] TAX LAW 1355 II. Indiana Supreme Court Decisions The Indiana Supreme Court ("supreme court") rendered a variety ofopinions from January 1, 2004, to December 31, 2004. The supreme court issued three opinions in the area of taxation. Two of these decisions involved sales and use taxes and one of them involved an individual's right to a tax sale surplus. A. Sales and Use Tax 1. Indiana Department of Revenue v. 1 Stop Auto Sales.^^^—1 Stop Auto Sales ("Dealership") was an automobile dealership that sold vehicles on what it called a "buy-here, pay-here" basis. ^^^ Dealership loaned its customers the money for both the purchase price and the sales tax due on the vehicle. ^^^ The Department of State Revenue ("Department") audited Dealership in 1997 and assessed it for an additional sales tax ofapproximately $132,000 plus interest.^^'* The Department found that Dealership was deducting all bad and uncollectible debts in computing its sales tax liability, but for purposes ofthis calculation was not subtracting the value of the property which Dealership was repossessing. ^^^ In 2002, the Tax Court held that Dealership ' s bad debt deduction from its Indiana sales tax liability was required to be equal to the amount Dealership deducted for federal income tax purposes. ^^^ Then, in a 2003 rehearing, the Tax Court reversed itself and held that Dealership "may deduct an amount equal, in part, to the amount of its uncollectible Indiana receivables it removed from its books as a loss for federal tax purposes, not merely the amount it deducted as federal bad debt."^^^ The supreme court granted the Department's request for review and reversed the Tax Court's decision. ^^^ Dealership argued that the "equal to" language in Indiana Code section 6-2.5-6-9'^^ applies only to "receivables" and not to "for federal tax purposes," and also, that the General Assembly did not 121. 810 N.E.2d 686 (Ind. 2004). 122. Id. 123. Mat 686-87. 124. Mat 687-88. 125. Mat 688. 126. Id. (citing 1 Stop Auto Sales, Inc. v. Ind. Dep't of State Revenue, 779 N.E.2d 614 (Ind. Tax Ct. 2002)). 127. Id. (quoting 1 Stop Auto Sales, Inc. v. Ind. Dep't ofState Revenue, 785 N.E.2d 672, 674 (Ind. Tax Ct. 2003) (Op. on reh'g)). 128. Id 129. Id. at 687-88 (quoting iND. CODE § 6-2.5-6-9(a) which provides: "In determining the amount of state gross retail and use taxes which he must remit ... a retail merchant shall deduct from his gross retail income from retail transactions made during a particular reporting period, an amount equal to his receivables which: (1) Resulted from retail transactions in which the retail merchant did not collect the state gross retail or use tax from the purchaser; (2) Resulted from retail transactions in which the retail merchant has previously paid the state gross retail or use tax liability to the department; and (3) Were written offas an uncollectible debt for federal tax purposes during the particular reporting period"). 1356 INDIANA LAW REVIEW [Vol. 38:1341 intend "to incorporate Internal Revenue Code Section 166 mathematics into the calculation. "^^^ Dealership also claimed that their interpretation of the statute was in line with the General Assembly's intent to allow retail merchants to recover from the Department the amount of sales tax that the customer did not pay as a result of their default on the loan.^^* The supreme court disagreed with Dealership and held that ifthe General Assembly had intended not to incorporate Internal Revenue Code section 166 mathematics, then the General Assembly would not have referenced federal tax law at all.^^^ The supreme court pointed out that the Tax Court took a similar approach in Cooper Industries v. Indiana Department of State RevenueP^ The supreme court also noted that any ambiguity in an exemption statute is to be strictly construed against the taxpayer. ^^'^ The supreme court was also swayed by the Department's prior consistent interpretation that bad debt in these cases was net debt, and also the Department's argument that conventional legal, accounting, and tax jargon considers bad debt or uncollectible debt to mean net debt.'^^ 2. Indiana Department of State Revenue, v. Trump Indiana, Inc.^^^—Trump Indiana, Inc. ("Trump") operated a casino riverboat on Indiana's shore on Lake Michigan. *^^ When Trump bought the boat in 1996, it was built in Florida and delivered in Indiana. ^^^ Trump did not pay did not pay any sales or use tax to any state, but did pay Indiana real property taxes since 1997.^^^ The Tax Court, in 2003, held that Trump's boat was not personal property and not subject to use tax in Indiana. '"^^ The Tax Court held that the boat became real property upon delivery, and therefore, was not subject to the use tax.^"^^ The supreme court reversed, and held that until the boat is actually put to use as a casino riverboat 130. Id. at 689 (quoting Appellee's Br. in Resp. to Pet. for Review at 2). 131. Id. ^ 132. Id 133. Id. at 689 n.3 (citing Cooper Indus, v. Ind. Dep't of State Revenue, 673 N.E.2d 1209, 1213 (Ind. Tax Ct. 1996) where the Tax Court found that although "the Revenue Department argued that ... a corporate taxpayer must begin calculating its Indiana adjusted gross income with the total amount the taxpayer reported as taxable income on its federal return. . . . The statute provided that the term 'adjusted gross income' shall mean ... in the case ofcorporations, the same as 'taxable income' as defined in Section 63 of the Internal Revenue Code"). See also Ind. Code § 6-3-1-3.5 (2004). The Tax Court in Cooper held that the Department was required to calculate taxable income in accordance with Section 63—to use Internal Revenue Code Section 63 mathematics. Cooper Indus., 673 N.E.2d at 1212. 134. 1 Stop Auto Sales, 810 N.E.2d at 689 (citing Gen. Motors Corp. v. Ind. Dep't of State Revenue, 578 N.E.2d 399, 404 (Ind. Tax Ct. 1991)). 135. /J. at 690. 136. 814 N.E.2d 1017 (Ind. 2004). 137. Id at 1018. 138. Id 139. Id 140. Id 141. Mat 1019. 2005] TAX LAW 1357 it was not real property, ^"^^ but rather personal property, and therefore. Trump is liable for use tax on the purchase ofthe boat.^"^^ The supreme court noted that if the definitions of "property" in the property tax statutes were applied in all contexts of the sales and use tax, then many items that are clearly taxable under the sales and use tax would suddenly become non-taxable. '"^"^ B. Tax Sale Surplus: Lake County Auditor v. Burks '"^^ In 1998, the Auditor sold the home where Lonnie Burks ("Burks") lived in order to satisfy delinquent taxes on the property, which sale brought in more money than was owed in property taxes. ^"^^ Burks, although not the record owner, was the intestate heir and beneficiary under the unprobated will of the deceased record owner. ^"^^ Burks sued for the tax sale surplus on April 12, 2000 and the trial court ruled that as "'the only surviving heir of the record owner' of the property, Burks was entitled to the surplus."^"^^ The Auditor appealed claiming that under the Indiana Code section 6-1 . l-24-7(b), Burks did not fall within the list ofpeople permitted to an administrative refund ofthe surplus. '"^^ The statute provides that in certain counties the: (1) owner; (2) purchaser; or, (3) a person with a substantial property interest of record, may file a claim that, if approved by the auditor, would entitle the person to the surplus. ^^^ Lake County was not included in the statute, and therefore, Burks was not entitled to the administrative claim for the surplus. ^^' Relying on this statute the court of appeals agreed with 142. IND. Code § 6-1.1-1-15(5) (2004) (defining a casino riverboat as real property). 143. Trump, 814 N.E.2d at 1020. 144. Id. (quotinglND.CODE§ 6-1. 1-1-1 1(a)(6)). The supreme court's example here was that: "property tax definitions are designed to impose property taxes on furniture held in inventory by a retailer, but to exempt furniture in a home. This is accomplished by the requirement in item (6) that 'other property' be 'held for sale' before it is considered 'tangible personal property,'" Id. 145. 802 N.E.2d 896 (Ind. 2004). 146. Mat 897. 147. Id 148. Mat 898. 149. Id 1 50. Id. at 898-99 (citing iND. CODE §6-1.1 -24-7(b) which provides that "[t]he: ( 1 ) owner of record of the real property at the time the tax deed is issued who is divested of ownership by the issuance of a tax deed; or (2) tax sale purchaser or purchaser's assignee, upon redemption of the tract or item of real property; (3) person with a substantial property interest of public record, as defined in section 1.9 of this chapter and as evidenced by the issuance of a tax deed to a tax sale purchaser, in a county: (1) having a population ofmore than two hundred thousand (200,000) but less than four hundred thousand (400,000); (2) having a consolidated city; or (3) in which the county auditor and the county treasurer have an agreement under [Ind. Code §] 6- 1 . 1 -25-4.7; may file a verified claim for money which is deposited in the tax sale surplus fund. If the claim is approved by the county auditor and the county treasurer, the county auditor shall issue a warrant to the claimant for the amount due"). 151. Mat 899. 1358 INDIANA LAW REVIEW [Vol. 38:1341 the Auditor that Burks was not entitled to the surplus. ^^^ The supreme court reversed the court ofappeals and affirmed the trial court, holding that Burks was entitled to the surplus.*" The supreme court relied on the court ofappeals decision in Brewer v. EMC Mortgage Corp., 743 N.E.2d 322 (Ind. Ct. App. 2001).*^^ In Brewer, the court ofappeals held that subsection (b)(3) ofthe statute'^^ allowed an administrative remedy in the included counties, but the court ofappeals also held that the statute was permissive and not mandatory, and therefore, the remedy of a lawsuit remained available in all counties. '^^ The supreme court held that although that subsection was removed, the permissive interpretation should apply to the whole statute, and therefore the statute does not preclude Burks from bringing a lawsuit to claim the surplus. *^^ The supreme court stated that because the listed parties in the statute are generally easily identified and in most cases there is no dispute that they are the proper claimant, allowing them the quicker, less expensive administrative remedy was a sensible interpretation.*^^ The supreme court also noted that interpreting the statute as the court ofappeals suggested could present a "taking" of property in violation of the Fifth Amendment to the U.S. Constitution.*^^ III. Indiana Tax Court Decisions The Indiana Tax Court ("Tax Court") rendered a variety of opinions from January 1, 2004 to December 31, 2004. Specifically, the Tax Court issued eighteen published opinions, ten of which concerned Indiana real property tax matters. The remaining cases are divided as follows: four cases regarding Indiana sales and use tax; three cases involving corporate income tax matters; and one case involving individual income tax. Each decision is summarized separately below. A. Real Property Taxes 1. Heart City Chrysler/Lockmandy Motors v. Department of Local Government Finance. *^^—Heart operated a car dealership in Elkhart County, Indiana.*^* Heart filed an original tax appeal on June 24, 1999 to dispute the State Board's determination awarding Heart's improvements only a 10% 152. Id. 153. Mat 899-900. 1 54. Id. at 899 (citing Brewer v. EMC Mortgage Corp., 743 N.E.2d 322 (Ind. Ct. App. 200 1)). 155. Ind. Code § 6-l.l-24-7(b)(3) (removed in a 2001 amendment). 156. 802 N.E.2d 896 at 899. 157. Mat 899-900. 158. Mat 900. 159. Id at 899 (citing United States v. Lawton, 1 10 U.S. 146, 150 (1884)). 160. 801 N.E.2d 215 (Ind. Tax Ct. 2004). 161. Mat 216. 2005] TAX LAW 1359 obsolescence depreciation adjustment, ^^^ as well as the State Board's reduction of the improvements' physical depreciation factor from 45% to 35%. The Tax Court reversed and remanded the case to the State Board, and the Tax Court instructed Heart to quantify the obsolescence ofthe improvements with generally accepted appraisal techniques. ^^^ On rehearing in October of 1999, the State Board kept the obsolescence adjustment at 10% and returned the physical depreciation factor to 45%).^^'^ On December 2, 1999, Heart filed this second action, appealing the State Board's determination on rehearing. ^^^ Heart claimed the State Board erred by disregarding Heart's evidence quantifying the obsolescence depreciation present in its improvements.'^^ The Tax Court stated that in seeking an obsolescence adjustment Heart was required to: (1) identify causes ofalleged obsolescence; and, (2) quantify the amount of obsolescence to be applied to the improvements.'^^ The Tax Court in affirming the State Board, found that Heart did quantify the improvements' obsolescence, but failed to link those quantifications to the causes ofthe obsolescence.'^^ The Tax Court found that Heart failed by presenting only a mathematical calculation bearing no relationships to the causes of the obsolescence depreciation that allegedly existed. '^^ 2. Indianapolis Racquet Club, Inc. v. Washington Township (Marion County) Assessor. '^^—Indianapolis Racquet Club ("IRC") initiated this action on June 3, 2002, appealing the Assessor's determination to value IRC's "primary" land at $4.80 per square foot and its "secondary" land at $3.36 per square foot.'^' IRC claims that the Land Order was invalidly applied because IRC's tennis facility was lumped in with noncomparable "high value retail properties."'^^ IRC claimed that a "misimprovement" influence factor should 162. Id. at 217 (stating that "[o]bsolescence is the functional or economic loss of property value. Functional obsolescence is caused by factors internal to the property; economic obsolescence is caused by external factors. Obsolescence is expressed as a percentage reduction in the remaining value of an improvement") (citations omitted). 163. Id. 164. Id 165. Id 166. Id. ("Heart requested a 25% adjustment to its 1990 and 1991 assessment, and a 37% adjustment to its 1995 assessment"). 167. Id. at 218 (citing Clark v. State Bd. ofTax Comm'rs, 694 N.E.2d 1230, 1238 (Ind. Tax Ct.l998)). 168. Id 169. Id 170. 802 N.E.2d 1018 (Ind. Tax Ct. 2004). 171. M at 1 1 9 n. 1 (reasoning "[f] or the 1995 assessment, commercial and industrial land was classified according to its use. Consequently, 'primary commercial or industrial land' refers to the primary building or plant site, whereas 'secondary commercial or industrial land' refers to land utilized for purposes secondary to the primary use of the land") (citations omitted). 172. Id. at 1021 (quoting Pet'r Br. at 4). 1360 INDIANA LAW REVIEW [Vol. 38:1341 have been applied to its land.'^^ The Tax Court stated that IRC was required to: (1) submit probative evidence to show its parcel had a different use than surrounding parcels; and, (2) submit probative evidence to show that this inconsistent use had a negative impact on the land's value. ^^"^ The Tax Court held that IRC failed to establish that its land's use was different than the surrounding land, and therefore IRC was not entitled to a negative influence factor. ^^^ The only evidence IRC presented was a transcript from its 1989 appeal on this same issue, and the Tax Court found that the transcript alone was not enough to establish IRC's prima facie case.^^^ The Tax Court stated that IRC could not merely say the facts had not changed, but that IRC still was obligated to make a careful, methodical, and detailed factual presentation on the issues presented. ^^^ 3. American United Life Insurance Company (AUL) v. Maley.'^^—^AUL initiated this action on October 15, 2002, appealing the 1995 assessment of AUL's building. '^^ AUL owned an entire city block in downtown Indianapolis on which AUL's thirty-eight-floor building stood. '^^ AUL claimed that the Center Township Assessor ("Assessor") should have assigned the building an "A-2" grade factor, instead of an "A" grade factor. ^^^ AUL established its prima facie case for an "A-2" grade by providing a floor by floor analysis by property tax experts. '^^ AUL also compared the interior of its building with that of other prominent downtown buildings that all had been assigned "A-2" grades. ^^^ AUL conceded that the outside of their building was "A" grade, but claimed the interior was "B+1" grade; therefore, they were entitled to an overall "A-2" grade. ^^"^ After AUL established its prima facie case, the burden then shifted to 1 73 . Id at 1 02 1 n.3 (stating "IRC does not ask for an influence factor per se. Rather, it merely asserts that the appropriate rate to be applied to its land is $2.40 for 'primary' land and $1.68 for 'secondary' land. Given the fact that 1) the application of an influence factor is the only way by which the value of IRC's land can be reduced under this Land Order; and 2) a 'misimprovement' influence factor most accurately reflects IRC's argument, this Court construes IRC's request as one for the application of a 'misimprovement' influence factor") (citations omitted). 174. Id (citing Quality Farm & Fleet, Inc. v. State Bd. of Tax Comm'rs, 747 N.E.2d 88, 91 (Ind. Tax Ct. 2001)). 175. Id at 1022. 176. Id 111. Id 178. 803 N.E.2d 276 (Ind. Tax Ct. 2004), trans, denied, 2004 Ind. LEXIS 450 (Ind. May 14, 2004). 179. /J. at 278. 180. Id 181. Id.2A 279 (the grading ofimprovements is set forth at iND. ADMIN. CODE tit. 50, r. 2.2-10- 3). 182. Mat 280. 183. M at 28 1 (buildings compared were Market Tower, First Indiana Plaza, and One Indiana Square). 184. Mat 280. 2005] TAX LAW 1361 the Assessor to rebut AUL's evidence. ^^^ The Tax Court in holding for AUL on this point, found that the Assessor simply failed to impeach or rebut AUL's evidence. ^^^ AUL next claimed that some of its land should have been valued at $20 per square foot, instead of all of the land being valued at $75 per square foot.^^^ AUL presented the "Square 34" land order which stated that AUL's land bounded by New York Street from Illinois Street to Capital Avenue was to be valued at $10-$20 per square foot.^^^ The Tax Court agreed that under the plain meaning of the land order AUL's land was to be valued at $70-$ 100 per square foot, except for the triangle mentioned above. ^^^ The Tax Court again held for AUL, finding that the Assessor's interpretation that the land order authorized use of one base rate of $70-$ 100 was in error because that interpretation would ignore the $10-$20 rate, and the Tax Court presumed that all the language used in the order has meaning. ^^^ Finally, AUL asserted that it was entitled to a negative influence factor of 25% be applied to its land.^^^ AUL was seeking a misimprovement influence factor, and thus, AUL was required to submit evidence demonstrating: (1) its land did not have the same use as surrounding land; and, (2) the different use had a negative impact on the land value. ^^^ The Tax Court found that AUL was not entitled to the negative influence factor. ^^^ The Tax Court stated that AUL's evidence that its building only occupied 49% ofits parcel versus surrounding buildings occupying 80% to 99% oftheir parcels was not itselfevidence ofdifferent "use."^^"^ The Tax Court also stated that even assuming arguendo that AUL had shown that this was a different "use," they still failed to quantify how the land suffered a loss in value due to that different "use."^'' 4. Waterfumace International, Inc. v. Department of Local Government 185. Mat28L 186. /J. at 282. 187. /J. at 283. 1 88. Id. (noting the land order provided " 1 . $70-$ 1 00 per square foot for the southern portion of the property bounded by Ohio Street from Illinois Street to Capitol Avenue; 2. $10-$20 per square foot for the northern portion of the property bounded by New York Street from Illinois Street to Capital Avenue; and, 3. $70-$ 100 per square foot for a northwest to southeast diagonal portion ofthe property, which at one time was bisected by Indiana Avenue from Ohio Street to New York Street (Indiana Avenue was vacated in 1979)"). 189. Mat 283. 190. Id. (citing The Precedent v. State Bd. of Tax Comm'rs, 659 N.E.2d 701, 704 (Ind. Tax Ct. 1995)). 191. Id.2A 284 (citing Quality Farm & Fleet, Inc. v. State Bd. of Tax Comm'rs, 747 N.E.2d 88, 91 (Ind. Tax Ct. 2001) (quoting iND. ADMIN. CODE tit. 50, r. 2.2-4- 17(c)(8) (1996) "[a]n influence factor 'refers to a condition peculiar to the acreage tract that dictates an adjustment to the extended value to account for variations from the norm'")). 192. Id. at 284-85 (citing Quality Farm & Fleet, Inc., lAl N.E.2d at 92). 193. Mat 285. 194. Id 195. Id 1362 INDIANA LAW REVIEW [Vol. 38:1341 Finance. ^^^—Waterflimace owned land and improvements in Fort Wayne, Indiana, and initiated this appeal on May 15, 2000 challenging the State Board of Tax Commissioner's final assessment. ^^^ Waterfiimace claimed that the improvement should have been assessed under the General Commercial Kit ("GCK") schedule and not the General Commercial Industrial ("GCI") schedule. ^^^ Waterfumace presented evidence of features establishing that the improvement should have been assessed under the GCK schedule. ^^^ "Specifically, Waterfumace 's evidence indicated that its improvement has: (1) 26-gauge exterior metal walls; (2) interior metal walls with 4-inch vinyl insulation; and (3) unfinished interior flooring, ceilings, and sidewalls."^^^ The Tax Court then held that the burden shifted to the State Board to bring forward probative evidence to rebut Waterfumace's showing.^^' The State Board in using the GCI schedule relied on the fact that the improvement had a 3-foot high wall and a rubber roof system that were not on the GCK schedule.^^^ The Tax Court held that this evidence was not enough to rebut Waterfumace's showing because the State Board provided no evidence of specifically why these features disqualified the improvement from the GCK schedule.^^^ Therefore, the Tax Court reversed the State Board's determination and remanded the case with instmctions that Waterfumace's improvement be assessed under the GCK schedule.^'" 5. Clarkson v. Department ofLocal Government Finance.^^^—^The Clarksons owned and operated a manufacturing facility in Franklin, Indiana, and initiated this appeal on July 6, 1999 to challenge the State Board's 1995 assessment ofthe facility.^^^ Specifically, the Clarksons claimed the State Board erred in assessing their property as "commercial" rather than "industrial" under the Johnson County Land Order.^^^ Because the Land Order did not define "commercial" or "industrial", the Clarksons asked the Tax Court to follow the definitions from the Indiana assessment manual and the Indiana Administrative Code.^^^ The assessment manual defined the term "land classification" as "the classification 196. 806 N.E.2d 891 (Ind. Tax Ct. 2001) (order published July 14, 2004). 197. Mat 892. 198. Id. 199. Mat 893. 200. Id. 201. Id 202. Id 203. Id at 893-94. 204. Id at 894. 205. 812 N.E.2d 255 (Ind. Tax Ct. 2004). 206. Mat 256. 207. Id. at 257 (The base rate for "commercial" land could be between $6500 and $84,900 per acre, while the rate for "industrial" land is capped at $19,500 per acre.). 208. Id. (citing the Indiana assessment manual and iND. Admin. Code tit. 50, r. 2.2-4-1(13) (1996)). 2005] TAX LAW 1363 ofland based upon its capabilities for use."^^^ The Clarksons presented evidence oftheir actual primary use ofthe land for manufacturing.^^^ The Tax Court stated that the State Board had not substantially supported its final determination, and seemed to value the land as "commercial" merely because it was near other commercial properties.^^ ^ Therefore, the Tax Court reversed the State Board, and held that the land should be assessed as "industrial. "^^^ 6. Keag Family Ltd. Partnership v. Indiana Board ofTax Review.^ ^^—Keag challenged the Indiana Board's assessment ofKeag' s land for the 2000 and 2001 tax years.^^"^ In order for the Tax Court to have jurisdiction, Keag first had to get an extension to file the Certified Administrative Record ("Record").^ ^^ The State Board mailed the Record to Keag on March 1 9, 2004 and there exists a rebuttable presumption that once the Record is mailed by the State Board, it is received by Keag.^^^ Keag attempted to rebut the presumption with evidence showing that Keag's office was closed from March 19, 2004 to April 13, 2004 for "vacation shutdown."^*^ Keag provided as evidence a return itinerary proving a return date ofApril 11, 2004.^^^ The Tax Court dismissed the motion for extension holding that Keag had failed to rebut the presumption.^^^ The Tax Court cited as its rationale the lack of departure evidence, and the fact that Keag was still able to file the Record by the Tax Court's April 21, 2004 deadline.^^^ 7. K.P. Oil, Inc. V. Madison Township Assessor.^^^—K.P., during the 1997 and 1998 assessment years, owned a platted parcel of land in Jefferson County, Indiana.^^^ A Jefferson County Land Order provided that parcels that were not platted should have been priced no higher than $24,750 per acre, while commercial platted lots should have been priced no higher than $900 per front foot.^^^ The Assessor, in 1995, assessed the land at the $900 per front foot rate resulting in a total assessment of $32,230.^^"^ K.P. appealed claiming that the 209. Id. (citing the Indiana assessment manual). 210. /J. at 258. 211. Id. 1\1. Id?Xl5%-59. in. 815 N.E.2d 567 (Ind. Tax Ct. 2004). 214. Mat 568. 215. /J. at 568, 570. 216. Id. at 569 (citing Carter v. Review Bd. ofInd. Dep't ofEmployment & Training Servs., 526 N.E.2d 717, 718-19 (Ind. Ct. App. 1988) (stating that "when an administrative agency sends notice through the regular course of mail, a rebuttable presumption arises that such notice is received")). 217. Id 218. Mat 570. 219. Id 220. Id 221. 818 N.E.2d 1006 (Ind. Tax Ct. 2004). 222. Mat 1007. 223. Id 224. Id 1364 INDIANA LAW REVIEW [Vol. 38:1341 parcel should have been assessed at the $24,750 per acre rate, rather than the $900 per front foot.^^^ The State Board found the land was not platted and reversed the Assessor, holding that the land should be assessed at the $24,750 per acre rate.^^^ The Assessor asked for a rehearing, which was denied.^^^ On September 8, 1 999 the Assessor performed an interim assessment and found that the land was indeed platted, resulting in a reassessment of the land at the $900 per front foot rate.^^^ The State Board, seeing its mistake from the previous hearing, affirmed the interim assessment. K.P. appealed on November 1 5, 2002, claiming that the interim assessment was not validly conducted because there were no changes to the subject property between the 1995 general assessment and the 1999 interim assessment.^^^ The Tax Court in finding for K.P. held that the State Board error in the first hearing in finding the land was not platted did not justify an interim reassessment when there was no change to the subject property.^^^ The Tax Court noted that the Assessor could not have appealed the State Board's first determination because the refund at issue did not meet the minimum jurisdictional requirement for an appeal to the Tax Court."^^^ The Tax Court, acknowledging that this decision seemed harsh, also noted that the General Assembly, in the 2001 Session, enacted legislation allowing an assessor to petition for judicial review regardless of the amount of refund in -ITT controversy. 8. Majestic Star Casino, LLC v. Blumenburg.^^^—Majestic Star was an Indiana limited liability company that operated a casino riverboat on Lake Michigan.^^"^ Majestic was granted their riverboat gaming license at the same time as Trump Casino.^^^ Trump had their boat ready for business before Majestic, so in order not to lose the competitive advantage. Majestic leased and renovated a dinner cruise boat (Star I) while waiting for their bigger riverboat (Star II) to be completed.^^^ Majestic operated the Star I from June 1996 through October 1997.^^^ The State Board's final property tax assessment of the Star I was approximately $3.2 million.^^^ Majestic believed this assessment was too high, and initiated this tax appeal on May 23, 2003.^^^ Majestic argued that the 225. Id. 226. Id 227. Id 228. Id 229. Id 230. Id at 1008-09. 231. Id at 1009 n.5 (citing IND. CODE § 6-l.l-15-5(e)). 232. Id (citing iND. CODE § 6-l.l-15-5(e)). 233. 817 N.E.2d 322 (Ind. Tax Ct. 2004). 234. Id at 324. 235. Mat324n.l. 236. Id 237. Id at 324. 238. Id 239. Id 2005] TAX LAW 1365 State Board's assessment violated article X, section 1 ofthe Indiana Constitution (the "Property Taxation Clause").^"^^ Specifically Majestic argued that this assessment resulted in the Star I, which they claimed was physically still a dinner cruise boat, being assessed at a much higher value as a casino riverboat, and therefore, the assessment violated the Property Taxation Clause requirements of: (1) uniformity and equality in assessment; (2) uniformity and equality as to rate of taxation; and, (3) a just valuation for taxation.^"*^ The Tax Court acknowledged the boat had substantially the same physical characteristics,^"^^ but held that Majestic had to prove that the contested classification as a casino riverboat was "not based upon differences naturally inhering in the property or in the subject matter ofthe legislation that creates the classification. "^"^^ The Tax Court upheld the casino riverboat assessment classification.^'^'^ The Tax Court found that the General Assembly's choice to classify casino riverboats separately for property tax assessment purposes was constitutional as based on differences naturally inhering in the subject matter of the legislation that created the classification.^"^^ The Tax Court also held that all taxpayers within the classification were treated equally."^"^^ Majestic also claimed that there was an improper withdrawal of admissions by the State Board at the State Board's hearing in December of 2002.^"^^ The Tax Court agreed with Majestic and reinstated the admissions regarding their entitlement to a 55% physical depreciation adjustment and an 80% obsolescence depreciation adjustment.^"^^ Because the admissions were reinstated, the Tax Court held that Majestic was entitled to the 55% adjustment.^"^^ However, the Tax Court held that Majestic was entitled to only 40.7% ofthe obsolescence adjustment because although the admission was reinstated, Majestic had argued before the Tax Court that the adjustment was only 40.7%.^^^ 9. Lidianapolis Osteopathic Hospital, Lie. v. Department of Local Government Finance.^^^—Westview Hospital ("Westview") and Health Listitute ofIndiana, Inc. (HII) (collectively "Hospital") filed an original tax appeal in both 240. IND. Const, art. X, § 1 ("The General Assembly shall provide, by law, for a uniform and equal rate of property assessment and taxation and shall prescribe regulations to secure a just valuation for taxation of all property, both real and personal."). 241. Mye^^zc, 817 N.E.2d at 325-26. 242. Id. at 326. 243. Id. at 327-28 (citing State Bd. ofTax Comm'rs v. Town of St. John, 702 N.E.2d 1034, 1037 (Ind. 1998)). 244. Id at 328. 245. Id 246. Id 247. Id 248. Id at 329. 249. Mat 331. 250. Id 25 1 . 818 N.E.2d 1009 (Ind. Tax Ct. 2004), trans, denied, 2005 Ind. LEXIS 375 (Ind. Apr. 14, 2005). 1366 INDIANA LAW REVIEW [Vol. 38:1341 1999 and 2000 appealing the property tax assessment by the State Board ofTax Commissioners ofthe Hospital's real and personal property that was part oftheir Healthplex.^^^ Seventy-four percent of the Healthplex was devoted for use as a sportsclub ("Club") and the other 26% was devoted for use as the medical pavilion ("MP").^" The Hospital claimed that 100% ofthe Club and 91% ofthe MP should be exempt from property tax under Indiana Code section 6-1.1-10- 16.^^"* Both Westview and HII were recognized as I.R.C. section 501(c)(3) organizations.^^^ In 1 999, the State Board originally allowed a 9% exemption on the improvement of the Club and MP property, but after a rehearing, the State Board removed the exemption entirely.^^^ In 2000, the State Board allowed a 9% exemption only for the improvements to the Club and MP property and denied an exemption for the land on which the facilities sit. The State Board did not allow any exemption for the personal property within the facilities in either 1 999 or 2000. The Hospital argued that the land, facility and personal property should all be exempt under the charitable exemption because they were used for the Hospital's charitable purpose. The Hospital specifically argued that "there should be no legal difference between the delivery of health care in the traditional sense . . . and the activities . . . aimed at preventing disease in the first instance."^^^ The State Board argued that the facility was essentially a commercial health club that was neither affordable nor accessible.^^^ The Tax Court, relying on an opinion from the 1994 Tennessee Court ofAppeals,^^^ held that the Club did not qualify for the charitable purposes exemption.-^^^ The Tax Court's holding cited, as a relevant factor, the evidence that the Club offers many ofthe same programs and also advertises to compete with for-profit businesses. ^^^ The Tax Court reversed the State Board, in part, in holding that 38% of the MP was entitled to the exemption.^^^ The Tax Court found that the evidence supported the exemption because 38% of the MP was used to support the inpatient facility (which has a charitable purpose).^^^ The Hospital also claimed that the State Board, in denying the exemption, violated article I, section 23 of 252. Mat 1011. 253. Id. 25A. Id. at 1013 (specifically the Hospital relied on IND. Code § 6-l.l-10-16(a), which provides that "[a] 11 or part of a building is exempt form property taxation if it is owned, occupied, and used [ ] for . . . charitable purposes"). 255 . M at 1 1 1 (citing Internal Revenue Code § 50 1 (c)(3) which exempts certain corporations from federal income tax). 256. Id at 1013. 257. Id at 1016. 258. Id 259. /