REPRESENTATIVES FOR PETITIONERS:
Jeffrey Bennett, Attorney for Petitioners
Bradley Hasler, Attorney for Petitioners
REPRESENTATIVES FOR RESPONDENTS:
Dixie Packard, Clay Township Assessor
Kevin Poore, Clay Township Assessor’s office
BEFORE THE
INDIANA BOARD OF TAX REVIEW
Brenwick TND Communities, LLC )
and BDC Cardinal Associates, LP, )
)
Petitioners,
)
)
vs.
)
)
Clay Township Assessor,
)
Hamilton County Assessor, and
)
Hamilton County Property Tax
)
Assessment Board of Appeals,
)
)
Respondents.
)
Petition Nos. Various (see attached list)
Parcel Nos.
Various (see attached list)
County:
Township:
Hamilton
Clay
Assessment Year: 2003
Appeal from the Final Determination of
Hamilton County Property Tax Assessment Board of Appeals
May 15, 2006
FINAL DETERMINATION
The Indiana Board of Tax Review (the Board) having reviewed the facts and evidence,
and having considered the issues, now finds and concludes the following:
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FINDINGS OF FACT AND CONCLUSIONS OF LAW
ISSUES
1. The parties presented multiple issues, which the Board restates as follows:
(1) Whether the common areas of the Village of West Clay and Prairie View subdivisions
had a market value-in-use of zero dollars as of the March 1, 2003, assessment date;
(2) Whether the assessment of the common areas of the Village of West Clay and
Prairie View subdivisions violates the Equal Protection Clause of the United States
Constitution;
(3) Whether the assessment of the Village of West Clay and Prairie View subdivisions
violates the Privileges and Immunities Clause of the Indiana Constitution; and
(4) Whether the Respondent assessed the common areas of the Village of West Clay and
Prairie View subdivisions in a uniform and equal manner in comparison to similarly
situated property within Hamilton County.
PROCEDURAL HISTORY
2. On or about May 7, 2004, Petitioners, Brenwick TND Communities, LLC (“Brenwick”) and
BDC Cardinal Associates, LP (“BDC”) filed Form 130 Petitions for Review of Assessment
concerning multiple parcels of real property located in Clay Township, Hamilton County,
Indiana and owned by each Petitioner separately.
The Hamilton County Property Tax
Assessment Board of Appeals (PTABOA) issued its final determinations with regard to the
assessments of the parcels owned by BDC on or about September 1, 2004. The PTABOA
issued its final determinations with regard to the assessments of the parcels owned by
Brenwick on or about September 16, 2004. The Petitioners filed a separate Form 131
Petition to the Indiana Board of Tax Review for Review of Assessment (Form 131 petition)
with respect to each parcel on October 1, 2004.
3. Due to the predominance of common legal and factual issues and to the similarity of
evidence presented by Brenwick and BDC, Petitioners moved for a consolidated hearing of
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their appeals before the Indiana Board of Tax Review on December 16, 2005. The parcels
under appeal (and their corresponding petition numbers) are set forth in the Agreed Notice
of Parcels Under Appeal (Agreed List), which was filed jointly by the parties on January 12,
2006, as requested by the Administrative Law Judge at the December 16, 2005, hearing. A
copy of that Agreed List is attached to this Final Determination, incorporated herein and
labeled as Exhibit 1. The Board granted the Petitioners’ motion for a consolidated hearing
and now issues this Final Determination on the consolidated appeals of Brenwick and BDC.
4. Pursuant to Ind. Code § 6-1.1-15-4 and § 6-1.5-4-1, a hearing was held on December 16,
2005, in Noblesville Indiana before David Pardo, the duly designated Administrative Law
Judge (ALJ) authorized by the Board under Ind. Code § 6-1.5-3-3.
HEARING FACTS AND OTHER MATTERS OF RECORD
5. The following persons were sworn and presented testimony at the hearing:
For the Petitioners:
Anthony Lehn, Capstone, LLC
For the Respondents:
Dixie Packard, Clay Township Assessor
Kevin Poore, Deputy Assessor, Clay Township
6. The Petitioners submitted the following exhibits:
Petitioners’ Exhibit A:
Petitioners’ Exhibit B:
Petitioners’ Exhibit C:
Petitioners’ Exhibit D:
Affidavit of Phyllis Bishop of Omni Management Services
regarding management of the Village of West Clay,
Affidavit of Phyllis Bishop of Omni Management Services
regarding management of Prairie View,1
Declaration of Covenants and Restrictions, The
Village of West Clay,
Declaration of Covenants and Restrictions, Prairie
View,
1
On or about February 14, 2006, the Petitioners filed Petitioners’ Unopposed Notice of Filing Substitution Pages for
Exhibits PA and PB (Notice). Pursuant to the Notice, the Petitioner averred that each exhibit was missing one line
of text. Counsel for the Petitioners averred that he had discussed the matter with the Respondent and that the
Respondent had no objection to the substitution. The Board therefore considers Exhibits PA and PB with the
substituted material.
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Petitioners’ Exhibit E:
Petitioners’ Exhibit F:
Petitioners’ Exhibit G:
Petitioners’ Exhibit H:
Petitioners’ Exhibit I:
Petitioners’ Exhibit J:
Petitioners’ Exhibit K:
Petitioners’ Exhibit L:
Market Value-in-Use Appraisal of the Common
Areas of Village of West Clay,
Market Value-in-Use Appraisal of the Common Areas of
Prairie View,
Property record cards for common areas of the Village of
West Clay,
Property record cards for common areas of Prairie View,
Aerial map of the Village of West Clay,
Aeriel map of Prairie View,
Excerpts from the 2002 Real Property Assessment
Manual,
Robert W. Owens, Subdivision Development,
Bridging Theory and Practice, 66 APPRAISAL JOURNAL 274
(July 1, 1998).
The Respondent submitted the following exhibits:
Respondent’s Exhibit A:
Respondent’s Exhibit B:
Respondent’s Exhibit C:
Respondent’s Exhibit D:
Respondent’s Exhibit E:
Respondent’s Exhibit F:
Respondent’s Exhibit G:
Respondent’s Exhibit H:
Respondent’s Exhibit I:
Respondent’s Exhibit J:
Respondent’s Exhibit K:
Clay Township Assessor – Preliminary Hearing
Notes,
Clay Township Assessor – Summary Report for
State Hearings,
PTABOA Land Value Guidelines,
An unsigned copy of findings of fact and conclusions of
law issued by the Board in the case of Pine Valley
Community Ass’n v. Allen County Property Tax
Assessment Bd. of Appeals, Pet. No. 02-057-00-2-8-00009,
Excerpt from 2002 Real Property Assessment Manual,
Excerpt from an unidentified publication of the Appraisal
Institute,
Copy of Ind. Code § 6-1.1-2-1,
Excerpt from an appraisal of Timber Creek
Condominiums,
Aerial map, property record cards and sales disclosure
forms for parcels within Village of West Clay Section
3004,
Aerial map for a portion of Woodshire subdivision,
brochure for Woodshire subdivision, property record cards
and sales disclosure statements for three parcels
within Woodshire subdivision,
Respondent’s Summary of Witness Testimony and
Evidence.
7. The following additional items are officially recognized as part of the record of proceedings
and labeled Board Exhibits:
Board Exhibit A:
Form 131 Petitions,
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Board Exhibit B:
Board Exhibit C:
Board Exhibit D:
Board Exhibit E:
Board Exhibit F:
Board Exhibit G:
Hearing Notices,
Letter from counsel for Petitioners waiving requirement under Ind.
Code § 6-1.1-15-4(g) that hearings be held within nine (9) months
from the date of filing,
Exhibits from the PTABOA hearings,2
Hearing sign-in sheet.
The Petitioners’ Unopposed Notice of Filing Substitution Pages for
Exhibits PA and PB,
Petitioners’ Post Hearing Brief and proposed Final Determination,
Findings of Fact and Conclusions of Law3
8. The one-hundred-and-seven (107) parcels under appeal consist of land and some
improvements located in subdivisions in Carmel commonly known as Village of West Clay
(West Clay) and Prairie View. See Exhibits PA, PB, PE, PF, PI, PJ. Brenwick, which is the
developer of West Clay, owns the parcels located in West Clay.
BDC, which is the
developer of Prairie View, owns the parcels located in Prairie View. The parcels under
appeal are the common areas of West Clay and Prairie View. See Exhibits PA, PB. Unless
the context clearly indicates otherwise, the Board shall refer to the parcels under appeal
collectively as the “Common Areas” throughout this Final Determination.
9. A list of the assessed values for the individual Common Area parcels is attached to this Final
Determination, incorporated herein, and labeled as Exhibit 2. The total assessed values for
Common Area parcels located within Prairie View are as follows:
Land $227,300,
Improvements $551,700. The total assessed values for Common Area parcels located within
West Clay are as follows: Land $500,200; Improvements $2,781,900.
10. The Petitioners request that the Common Areas in West Clay and Prairie View be assessed
for zero dollars ($0.00).
11. The ALJ did not conduct an on-site inspection of the subject properties
2
The Hamilton County Assessor forwarded the exhibits from the PTABOA hearing to the Board. The ALJ
provided the parties with a copy of the assessor’s correspondence and the exhibits from the PTABOA hearing
because it was unclear whether those documents were also served on the parties. The ALJ indicated that those
exhibits would not become part of the evidentiary record unless they were introduced into evidence by one of the
parties. Neither party offered the PTABOA exhibits into evidence, although those exhibits appear to be duplicative
of other exhibits offered by the parties.
3
At the hearing, the ALJ provided the parties with sixty (60) days in which to file post hearing briefs and proposed
findings of fact and conclusions of law. The Petitioner timely filed both documents. The Respondent did not submit
a post hearing brief or proposed findings of fact and conclusions of law.
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JURISDICTIONAL FRAMEWORK
12. The Indiana Board is charged with conducting an impartial review of all appeals concerning:
(1) the assessed valuation of tangible property; (2) property tax deductions; and (3) property
tax exemptions; that are made from a determination by an assessing official or a county
property tax assessment board of appeals to the Indiana board under any law. Ind. Code § 61.5-4-1(a). All such appeals are conducted under Ind. Code § 6-1.1-15. See Ind. Code § 61.5-4-1(b); Ind. Code § 6-1.1-15-4.
ADMINISTRATIVE REVIEW AND THE PETITIONERS’ BURDEN
13. A Petitioner seeking review of a determination of the county property tax assessment board
of appeals has the burden to establish a prima facie case proving that the current assessment
is incorrect, and specifically what the correct assessment would be. See Meridian Towers
East & West v. Washington Twp. Assessor, 805 N.E.2d 475, 478 (Ind. Tax Ct. 2003); see
also, Clark v. State Bd. of Tax Comm’rs, 694 N.E.2d 1230 (Ind. Tax Ct. 1998).
14. In making its case, the taxpayer must explain how each piece of evidence is relevant to the
requested assessment. See Indianapolis Racquet Club, Inc. v. Washington Twp. Assessor,
802 N.E.2d 1018, 1022 (Ind. Tax Ct. 2004) (“[I]t is the taxpayer's duty to walk the Indiana
Board . . . through every element of the analysis.”).
15. Once the petitioner establishes a prima facie case, the burden shifts to the assessing official to
rebut the petitioner’s evidence. See American United Life Ins. Co. v. Maley, 803 N.E.2d 276
(Ind. Tax Ct. 2004). The assessing official must offer evidence that impeaches or rebuts the
petitioner’s evidence. Id.; Meridian Towers, 805 N.E.2d at 479.
ANALYSIS
Issue 1
Whether the common areas of the Village of West Clay and Prairie View subdivisions had a
market value-in-use of zero dollars ($0.00) as of the March 1, 2003, assessment date
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Parties’ Contentions
16. The Petitioners contend that the Common Areas are burdened by easements and restrictions
upon their use and conveyance to such an extent that they have no market value-in-use.
According to the Petitioners, the value of the Common Areas is fully reflected and captured
in the premium paid by residential lot owners within the two subdivisions.
17. The Petitioners presented the following evidence and argument in support of their position:
A. Brenwick and BDC, as developers of West Clay and Prairie View, currently own the
Common Areas within those subdivisions. Lehn testimony; see also Exs. PA, PB. The
Common Areas, however, are intended for the common benefit of the owners of
residential lots throughout West Clay and Prairie View. Id. Brenwick and BDC intend to
convey the Common Areas to the homeowners’ associations after all lots are sold within
the respective subdivisions.
Id.
The Common Areas generally consist of parks,
irregularly shaped green space, drainage areas, roundabouts, lakes, ponds and community
buildings. See Lehn testimony; Exs. PI, PJ.
B. The covenants and restrictions applicable to West Clay create an easement for the owners
and occupants of residential lots within the subdivision to use the West Clay Common
Areas. See Lehn testimony; Ex. PC at ¶21(d), pp. 32-33. Similarly, the covenants and
restrictions applicable to Prairie View create an easement for the owners of residential
lots within the subdivisions and their guests to use the Prairie View Common Areas. See
Lehn testimony; Ex. PD at ¶19(d), ¶19(f), pp. 22-24. Thus, while the Petitioners own the
Common Areas, those areas exist solely for the benefit and use of lot owners and
occupants of West Clay and Prairie View. Lehn testimony.
C. The covenants applicable to West Clay do not allow conveyance of the Common Areas to
persons other than a “Permitted Title Holder.” See Lehn testimony; Ex. PC at ¶21(a), p.
32, ¶21(h), p. 35. A “Permitted Title Holder” is defined to include certain non-profit
owners’ associations, any educational institution, the City of Carmel or a non-profit or
governmental entity. See Lehn testimony; Ex. PC at ¶1, pp. 2, 4, 7. In addition to
limiting the persons or entities to which the Common Areas may be conveyed, the
covenants applicable to West Clay further restrict the use of the Common Areas by a
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Permitted Title Holder. A conveyance may be made to a Permitted Title Holder only for
use as a park, right-of-way, public utility, or for other public purpose.
See Lehn
testimony; Exhibit PC, ¶21(a), page 32. In other words, Common Areas may only be
conveyed for purposes generally of public benefit, most of which would be exempt from
taxation. See Ind. Code § 6-1.1-10-1 et seq.
D. Similarly, the covenants applicable to Prairie View provide that the Common Areas may
be transferred by the developer or the non-profit homeowners’ association to a public
agency, authority or utility for use as roads, utilities, parks, or other public purposes. See
Lehn Testimony; Ex. PD at ¶19(a), p. 22. Thus, according to BDC, the entities to which
the Common Areas of Prairie View may be conveyed and the uses to which the Common
Areas may be devoted are significantly restricted.
E. Moreover, the limited pool of potential purchasers of the Common Areas in each
subdivision would also face practical limitations upon acquiring the Common Areas.
Constructing improvements on the Common Areas would be highly impractical, as many
of them are small and irregularly shaped, or even flooded as ponds or lakes. See Lehn
testimony; Exhibits PI, PJ.
F. Anthony Lehn of Capstone, LLC, who qualified as an expert appraiser without objection
at the hearing, prepared Limited Summary Report Appraisals for the Common Areas of
West Clay and Prairie View. Lehn testimony; Exs. PE, PF.
Mr. Lehn prepared those
appraisals in conformance with the Uniform Standards of Appraisal Practice (“USPAP”).
Id. Mr. Lehn concluded that the March 1, 2003, market value-in-use of the Common
Areas was zero ($0.00). Id.4 Mr. Lehn reached his conclusion based largely on the
impact of the easements burdening the Common Areas and the restrictions on transfer of
the Common Areas. See id.
I. Mr. Lehn explained that the people who are deriving value from the Common Areas are
the lot owners of West Clay and Prairie View, respectively, and not the record owners of
the Common Areas. According to Mr. Lehn, a residential subdivision developer recovers
its development costs and seeks to gain a profit not by selling common areas, but rather
by selling residential lots. See Lehn testimony; Ex. PL at 1-4; Exs. PE, PF. Thus, the
4
Mr. Lehn explained in his testimony that, in trending back to the January 1, 1999, valuation date pursuant to the
2002 Indiana Real Property Assessment Manual, the March 1, 2003, value of the Common Areas remains zero. See
Lehn testimony.
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price at which the developer is willing to sell a lot necessarily accounts for the costs
incurred in developing and constructing common areas. Id. Correspondingly, the value
derived by lot owners from the Common Areas is reflected in the sale price of each lot,
because the desirability of the Common Areas adds a premium to the price that a buyer is
willing to pay for a lot. Id. Thus, any value that is being derived from the Common
Areas is fully captured in a premium that is attached to the price of each lot in West Clay
and Prairie View on a pro-rata basis. Id.
J. Mr. Lehn also considered the possibility that Common Area facilities might be rented to
third parties.
See Lehn testimony.
Even if such rentals were to occur, the leased
Common Areas would remain burdened by the same restrictions on their use and
marketability. Any income from the leasing of the Common Areas would go to the
homeowners, either in the form of cash payments or through a reduction in the
assessment of maintenance fees. Lehn testimony. Thus, the potential for leasing the
Common Areas did not affect Mr. Lehn’s opinion of value. See Lehn testimony.
18. The Respondent, Clay Township Assessor, contends that the Common Areas have some
market value-in-use beyond any increase in value to the individual residential lots within
Prairie View and West Clay.
19. The Respondent presented the following evidence and argument in support of its position:
A. The Respondent’s witness, Kevin Poore, acknowledged that the Petitioners made a
“compelling” case.
Poore testimony.
Nonetheless, the Respondent believes that it
followed the standards set forth by the PTABOA in assessing the Common Areas. Id. In
the absence of specific guidance in the 2002 Real Property Assessment Manual (Manual)
or the Real Property Assessment Guidelines for 2002 – Version A (Guidelines), the
PTABOA created a “land order” and accompanying guidelines to address the unique
issues posed by common area land. Id.; Ex. RC. Pursuant to the PTABOA’s land order,
unimproved common area land within Hamilton County subdivisions, subdivision ponds
and private roadways are to be priced at the rate for undeveloped unusable commercial
land, which is $3,000 per acre. Id. Improved/developed common area land is to be
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priced using the appropriate commercial rate for commercial land that is not included in
any delineated commercial neighborhood. That rate is derived from the residential rate
for the particular neighborhood in which the common area land is located. Id. Because it
followed the PTABOA’s standard in assessing the Common Areas, and because the issue
at hand could affect subdivisions throughout the county, the Respondent believes that any
change in the assessment of the Common Areas should be made pursuant to a directive
from the Board or Indiana Tax Court. Poore testimony.
B. The Respondent contends that the Common Areas cannot have zero value because Ind.
Code § 6-1.1-2-1 requires all property within the State of Indiana as of the assessment
date of a given year to be assessed and taxed for that year. Poore testimony; Ex. RG. In
support of its position, the Respondent submitted an unsigned decision of the Board in
Pine Valley Community Ass’n v. Allen County Property Tax Assessment Bd. of Appeals,
Pet. No. 02-057-00-2-8-00009. In that case, the Board denied a taxpayer’s claim for
exemption of common area land based upon the taxpayer’s purported charitable use of
that land, and held that the property at issue was subject to 100% taxation. Id.
C. The Respondent also points to following definition of “true tax value” contained in the
Manual: “the market value-in-use of a property for its current use, as reflected by the
utility received by the owner or a similar user, from the property.” Ex. RB. The
Respondent submitted an excerpt from an unidentified publication of the Appraisal
Institute, defining “use value” as “the value a specific property has for a specific use.”
Exs., RB, RF. The Respondent contends that, while value-in-use and value-in-exchange
may be viewed as the same in efficient markets where properties are regularly traded,
such is not the case for certain special-purpose properties like the Common Areas. Poore
testimony; Ex. RB. According to the Respondent, the Common Areas were created for
various reasons, including: to provide water retention and drainage, to serve as a buffer,
to provide community improvements such as pools and clubhouses, and to provide green
space. Id.
Each of those functions may be viewed as having some utility to the
subdivisions the Common Areas service as well as to the homeowners within those
subdivisions. Id.
D. Moreover, although the Respondent recognizes that the Common Areas have “limited to
zero marketability,” it contends that there are at least some instances where common area
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land might be transferred.
Ex. RB; see also Poore testimony.
For example, the
Respondent posits that a city or county might seek to acquire common area land in order
to widen a roadway. Id. According to the Respondent, such acquisitions involve the
payment of money to the homeowners’ association and/or the individual lot owners. In
support of that position, the Respondent submitted a portion of an appraisal of Timber
Creek condominium complex. Poore testimony; Ex. RH. The appraisal was prepared for
the City of Carmel in conjunction with its acquisition of a portion of the complex’s
common area land for purposes of widening a road. Id. The Respondent also contends
that there have been some instances where individual lot owners seeking to widen their
lots have acquired portions of common areas in other subdivisions in Hamilton County.
Poore Testimony. According to Mr. Poore, that is precisely what happened in Woodshire
subdivision. Id. Mr. Poore testified that the developer of Woodshire split a tract of land
within the subdivision into separate parcels, despite the fact that the developer’s brochure
had promoted the tract as a “preserve.” Poore testimony; Ex. RJ. The developer then
sold those parcels to individuals who constructed homes on them. Id.
E. The Respondent also pointed to transfers within West Clay itself. The Respondent
submitted an aerial map of a portion of West Clay containing Parcel No. 17-09-28-00004.000 (Parcel 4), which is one of the parcels under appeal. Ex. RI; Board Ex. A (Pet
No. 29-003-03-1-5-00082). Mr. Poore testified that, beginning in 2000, Brenwick split a
larger parcel of land containing what is now identified as Parcel 4 into smaller units,
including Parcel Nos. 17-09-28-00-06-004.001 (Parcel 001), 17-09-28-00-06-004.002
(Parcel 002), 17-09-28-00-06-004.003 (Parcel 003), and 17-09-28-00-06-004.004 (Parcel
004). Poore Testimony; Ex. RI.
The Respondent submitted property record cards and
sales disclosure statements showing that Brenwick sold some of the split parcels in 2003
– 2005. Id. Most of the sales disclosure statements do not contain information regarding
the parcel numbers or sale prices of the properties at issue; however, it appears that
Brenwick sold Parcel 002 to BB Retail Enterprises, LLC for $107,490 on November 12,
2003. Ex. RI.
F. Finally, the Respondent attempted to impeach Mr. Lehn’s opinion of value on two
grounds. First, the Respondent pointed to what it views as a contradiction in Mr. Lehn’s
appraisals. In the body of his appraisals, Mr. Lehn indicates that the market value-in-use
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of the Common Areas is “virtually $0.00,” whereas his final conclusion of value in each
appraisal is $0.00. The Respondent contends that “virtually $0.00” is different from
“$0.00.”
Second, the Respondent questioned Mr. Lehn regarding whether he would
view a private church or school as having no market value, given that those types of
properties also provide a community benefit. Poore cross examination of Lehn.
Discussion
20. Insofar as the Board can determine, the Petitioners’ claims that the Common Areas should be
assessed at zero value presents a question of first impression under Indiana law. The Parties
agree that the 2002 Real Property Assessment Manual (Manual) and the Real Property
Assessment Guidelines for 2002 – Version A (Guidelines) are silent with respect to the
assessment of common areas of subdivisions where those common areas are held for the
benefit of the owners of lots within the subdivision. Similarly, the Board finds no Indiana
cases directly on point.
A number of courts from other jurisdictions, however, have
addressed that precise issue. See, e.g., Forrest Lake Property Owners Ass’n, Inc. v. Baldwin
County Bd. of Equalization, 659 So.2d 607 (Ala. 1995); Recreation Centers of Sun City, Inc.
v. Maricopa County, 62 Az. 281, 782 P.2d 1174 (1989); Quivira Falls Community Ass’n v.
Johnson County, 634 P.2d 1115 (Kan. 1981); Supervisor of Assessments of Anne Arundel
County v. Bay Ridge Properties, Inc., 310 A.2d 773, 776 (Md. 1973); Sun City Summerlin
Community Ass’n v. State of Nevada, 113 Nev. 835, 944 P.2d 234, 239 (1997); Locke Lake
Colony Ass’n, Inc. v. Town of Barnstead, 489 A.2d 120, 121 (N.H. 1985); Tualatin
Development Co. v. Department of Revenue, 473 P.2d 660, 664 (Or. 1970); Lake Monticello
Owners’ Ass’n v. Ritter, 327 S.E.2d 117, 121 (Va. 1985); Twin Lakes Golf & Country Club v.
King County, 548 P.2d 538, 539 (Wash. 1976).
21. In Supervisor of Assessments of Anne Arundel County v. Bay Ridge Properties, Inc., 310
A.2d 773 (Md. 1973), Maryland’s highest court addressed an appeal from an order of the tax
court abating and cancelling the assessment of beach property owned by the developer of a
residential subdivision. Bay Ridge, 310 A.2d at 773-74. The developer’s predecessor had
recorded subdivision plats showing a beach area.
Id. at 774.
The developer and its
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predecessor conveyed lots within the subdivision by reference to the plats, and, in some
cases, conveyed deeds containing a specific right to use the beach area for bathing, boating or
fishing. Id.
In some instances, the developer and its predecessor also covenanted not to
erect or permit the erection of dwellings, bathhouses or commercial buildings on the beach.
Id. Consequently, the developer retained bare legal title to the beach area, but it was
precluded from making any disposition or gainful use of the area. Id.
22. The county supervisor argued that, although the existence of an easement may diminish the
value of the servient estate burdened by that easement, the fact that 380 lots in the
subdivision remained unsold meant that the beach area retained assessable value upon which
the developer should pay annual taxes. Id. at 775. The court rejected the supervisor’s
argument for two reasons. First, the court found that, by implication, the easements were
intended to attach to lots as soon as the plats were recorded and the first lot was sold. Id. at
776.
Second, the court found that the combination of the grant of easements and the
imposition of restrictions against disposition and improvement deprived the beach area of
whatever value it otherwise might have had. Id. In support of its position, the court cited the
following testimony of the developer’s appraiser:
It is not the beach itself that has value, it is the lots that lie behind the beach that
have the value; and this is shown in the price that the lots sell for and it is
consequently shown in the assessed value of those lots. But the beach itself has no
fair market value. . . .
Id. (footnote omitted) (emphasis added).
23. Maryland is not the only state to recognize that common area properties encumbered by
restrictions may be devoid of value. In Locke Lake Colony Ass’n, Inc. v. Town of Barnstead,
489 A.2d 120 (N.H. 1985), the property at issue was owned by a homeowners’ association
and consisted of common area parcels containing a lake, community lodge, golf course, ski
slope, marina, ball fields, tennis courts, beaches, swimming pools and other recreational
areas. 489 A.2d at 121. The New Hampshire Supreme Court affirmed the lower court’s
ruling that the common area parcels were so encumbered by an easement in favor of the lot
owners that they had no taxable value. 489 A.2d at 124. This was the case even though twothirds of the members of the homeowners’ association could vote to amend the instruments
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that encumbered the common area parcels with easements. 489 A.2d at 123. In reaching its
holding, the Loch Lake court rejected the town’s claim that assigning a zero value to the
common areas would encourage taxpayers to create homeowners’ associations to avoid the
payment of taxes on valuable property, reasoning:
Municipalities will not lose significant tax revenues in cases such as the one
before us, because, although "a landowner whose property is subject to an
easement is entitled to a reduced valuation, the value of the easement [is] added to
the estate of the dominant owner." Gowen v. Swain, 90 N.H. 383, 387-88, 10 A.2d
249, 252 (1939). "Presumably assessors take into account this effect of easements
on value in making their appraisals." Id. at 387, 10 A.2d at 252.
489 A.2d at 123-24. See also Ritter, 327 S.E.2d 117 (reversing trial court’s decision that
common area consisting of a golf course and clubhouse should be assessed at full value and
remanding for assessment at nominal value); Twin Lakes Golf & Country Club, 548 P.2d 538
(affirming trial court’s decision that golf course burdened by easements in favor of
surrounding lot owners had no fair market value, even though the covenants creating the
easements could be amended by a 75% majority of the lot owners); Tualatin Development
Co., 473 P.2d 660 (holding that a golf course should be assessed at zero value where the
property was designated as open space under local zoning ordinances, and where there was
no meaningful market for the property due to the restrictions on its use).
24. There also are a number of decisions in which courts have rejected claims by developers or
homeowners’ associations that common areas held for the benefit of surrounding lot owners
should be assessed at zero or nominal value. See, e.g., Forrest Lake Property Owners Ass’n,
Inc. v. Baldwin County Bd. of Equalization, 659 So.2d 607 (Ala. 1995); Quivira Falls
Community Ass’n v. Johnson County, 634 P.2d 1115 (Kan. 1981); Timber Trails Community
Ass’n v. County of Monroe, 614 A.2d 342 (Pa. Commw. 1992); Sun City Summerlin
Community Ass’n v. State of Nevada, 113 Nev. 835, 944 P.2d 234, 239 (1997); Recreation
Centers of Sun City, Inc. v. Maricopa County, 62 Az. 281, 782 P.2d 1174 (1989). In many of
those cases, however, the courts addressing the issue have not rejected the possibility that
such common areas might have zero or only nominal value, but rather have held that the
taxpayers did not make a factual showing to support such a finding. Thus, for example, the
Alabama Supreme Court indicated that it had “no quarrel” with the rationale expressed in
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Twin Lakes, supra, that “when the use of land is so restricted that its ownership is of no
benefit or value, the assessment for tax purposes should be nothing.” Timber Trails, 659
So.2d at 609 (quoting Twin Lakes, 548 P.2d at 540). The court did note, however, that it
believed that encumbrances to a property are only one factor among many that an assessor
must make in determining the just value of the property. Id. (citing Dep’t of Revenue v.
Morganwoods Greentree, Inc., 341 So.2d 756, 758 (Fla. 1976)). The trial court had heard
conflicting evidence regarding the value of the common areas and the effect of the
encumbrances, and it found that the assessment reflected the impact of the encumbrances on
the value of the property. Id. The Alabama Supreme Court found that the trial court’s
decision was supported by substantial evidence. Id. See also Quivira Falls Community
Ass’n 634 P.2d at 1121 (distinguishing Twin Lakes, Bay Ridge and Taulatin on grounds that
most, if not all, of those cases involved evidence that the common areas had little or no value
or that the value was included in the valuation of the surrounding lots, whereas, in the case
before it, neither of the taxpayer’s witnesses testified that the property had no value); Sun
City, 944 P.2d at 239 (recognizing proposition that restrictions on use and alienability of land
might be extreme enough to render land valueless for tax purposes, but finding that
restrictions in case before it were not sufficiently severe to do so); but see Recreation Centers
of Sun City, 782 P.2d 1174.
25. Thus, the majority of courts that have addressed the issue have recognized that common
areas of a housing development may be burdened with easements and other restrictions on
their use and transfer to such a degree as to render those common areas devoid of market
value. Whether any given common area is burdened so severely as to deprive it of any
market value, however, is a factual question that the taxpayer must prove through competent
evidence.
26. This view is consistent with the general legal principles underlying Indiana’s scheme of real
property assessment. The Indiana General Assembly has mandated that real property is to be
assessed based upon its “true tax value.” The Manual defines “true tax value” as, “the
market value-in-use of a property for its current use, as reflected by the utility received by the
owner or a similar user, from the property.” 2002 REAL PROPERTY ASSESSMENT MANUAL at 2
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(incorporated by reference at 50 IAC 2.3-1-2). Thus, like the jurisdictions from which the
above-cited cases arose, the market value of a property is central to its proper assessment.
27. The Respondent, however, appears to argue that Indiana’s system of assessment is distinct
from the other systems at issue because of its focus on “value-in-use” as opposed to purely
market value. Thus, according to the Respondent, although special-purpose properties such
as the Common Areas may not exchange in the market, they still have utility to their owners.
See Poore testimony; MANUAL at 4 (“A seller of a special-purpose industrial property would
accept nothing less than the utility being gained from the property. For properties currently
in use, this amount would be termed the value-in-use (i.e. the ask price.”).
28. The concept of value-in-use, however, does not mean that the legal titleholder of a property
always derives economic utility from that property. It is true that, although certain types of
property exchange only infrequently due to their unique uses, there often is an amount of
money that would entice the owner of such a property to part with it, because the money
replaces the economic utility derived from the property. In the present case, however, the
Petitioners do not contend that the reason the Common Areas and properties like them do not
readily exchange has anything to do with the unwillingness of buyers to pay an amount
sufficient to replace the utility being gained from those properties. To the contrary, the
Petitioners contend that the reason those properties do not sell is because the developer has
already transferred valuable property rights in exchange for an economic benefit sufficient to
replace the utility gained by the developer from the property - the increase in value to the
residential lots that the developer will sell.
29. Moreover, both the Guidelines and decisions of the Indiana Tax Court make clear that
easements and other restrictions on the use of property must be considered in determining the
property’s true tax value. See Talesnick v. St. Bd. of Tax Comm’rs, 756 N.E.2d 1104, 110809 (Ind. Tax Ct. 2001)(remanding to State Board of Tax Commissioners for proceeding to
determine the extent to which a taxpayer was entitled to a negative influence factor based
upon a water flowage easement burdening his land); REAL PROPERTY ASSESSMENT
GUIDELINES FOR 2002 – VERSION A, ch. 2 at 78, 94 (incorporated by reference at 50 IAC 2.3-
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1-2)(providing for negative influence factors to account for decreases in value based upon
“encumbrances, restrictive covenants, or obstructions that limit the use of the land.”). In fact,
the Guidelines expressly contemplate circumstances in which a property may have no market
value-in-use to its legal title-holder due to restrictions on the owner’s use of the land. For
example, the Guidelines require application of a 100% negative influence factor to classified
forest land, classified wildlife habitat, classified riparian land, classified windbreak land and
classified filter strip land. GUIDELINES, ch. 2 at 102-03.
30. Thus, common areas within a subdivision may be so encumbered as to deprive them of any
market value-in-use. Clearly, the encumbrances must be severe and a taxpayer seeking to
demonstrate that real property is devoid of any market value-in-use bears a heavy burden.
Nonetheless, it is a factual question. The Board therefore turns to the evidence presented by
the Petitioners.
31. A property’s market value-in-use, as ascertained through application of the cost approach set
forth in the Guidelines, is presumed to be accurate. See MANUAL at 5; Kooshtard Property
VI, LLC v. White River Twp. Assessor, 836 N.E.2d 501, 505 (Ind. Tax Ct. 2005) reh’g den.
sub nom. P/A Builders & Developers, LLC, 842 N.E.2d 899 (Ind. Tax 2006). A taxpayer,
however, may use an appraisal prepared in accordance with the Manual’s definition of true
tax value to rebut the presumption that an assessment is correct. MANUAL at 5; Kooshtard
Property VI, 836 N.E.2d at 505-06 n.1 (“[T]he Court believes (and has for quite some time)
that the most effective method to rebut the presumption that an assessment is correct is
through the presentation of a market value-in-use appraisal, completed in conformance with
the Uniform Standards of Professional Appraisal Practice [USPAP].”).
32. Mr. Lehn performed an appraisal of the Common Areas of each subdivision.
Lehn
testimony; Exs. PE, PF. Mr. Lehn performed those appraisals “in accordance with generally
accepted appraisal standards set forth by the Appraisal subcommittee of the Federal Financial
Institution Examination Council and by the Appraisal Foundation in accordance with
USPAP.” Id.; see also Lehn testimony. In each instance, Mr. Lehn concluded that the
Common Areas had a market value-in-use of zero. Id. Mr. Lehn based his opinion on the
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easements burdening the Common Areas as well as on the severe restrictions on their transfer
and use. Id. Mr. Lehn found that the Common Areas “have no market value in use as to
their owner because the areas are not marketable for sale and are restricted so as to benefit
only persons other than the owner. . . . Any utility gained from the [Common Areas] is
reflected entirely in the higher lot premiums, and the higher property wealth of the lot
owners. . . .”
Exs. E, F. Mr. Lehn further testified that it would be impractical for any
potential purchaser to construct improvements on the Common Areas, as many of the parcels
are small and irregularly shaped, and in some instances, consist of lakes and ponds. Lehn
testimony.
33. Moreover, the Petitioners supported Mr. Lehn’s conclusions by introducing evidence
establishing the extent of the easements and restrictions upon which Mr. Lehn predicated his
opinion of value.
The undisputed evidence demonstrates that the Common Areas are
burdened by easements in favor of the owners of the residential lots throughout West Clay
and Prairie View and their guests. See Lehn testimony; Ex. PC at ¶ 21(d), pp. 32-33; Ex. PD
at ¶ 19(d), 19(f), pp. 22-24. In addition to the easements, the covenants applicable to both
subdivisions impose severe restrictions on the entities to whom the Common Areas may be
conveyed and the uses to which the Common Areas may be devoted. Thus, the covenants of
West Clay limit the transfer of the West Clay Common Areas to certain non-profit owners’
associations, any educational institution, the City of Carmel or a non-profit or governmental
entity. Lehn testimony; Ex. PC at ¶ 21(h) p. 35, ¶ 1 pp. 2,4,7. Similarly, the covenants of
Prairie View provide that the developer or homeowners’ association can convey the Common
Areas to public agencies, authorities or utilities. Lehn testimony; Ex. PD at ¶ 19(a), p. 22.
Moreover, the respective covenants of the subdivisions limit the use of the Common Areas to
public uses such as parks, roads, rights-of-way, and public utilities. Ex. PC at ¶ 21(d), pp.
32-33; Ex. PD at ¶ 19(a), p. 22.
34. Thus, the Petitioners presented the type of evidence contemplated by the Manual and Tax
Court as relevant to rebut the presumption of the correctness of an assessment. Based upon
this evidence, the Petitioners established a prima facie case that the current assessments of
the Common Areas are incorrect and that the Common Areas should be assessed for zero
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value. The burden therefore shifted to the Respondent to introduce evidence to rebut or
impeach the Petitioners’ evidence. See Meridian Towers East & West 805 N.E.2d at 479.
35. The Respondent attempted to impeach Mr. Lehn’s opinion of value in two ways. First, it
pointed to language in Mr. Lehn’s appraisals indicating that the market value-in-use of the
Common Areas is “virtually zero.”
Poore testimony; Exs. PE, PF.
According to the
Respondent, this statement conflicts with Mr. Lehn’s ultimate opinion that the Common
Areas have zero value. At best, however, this is a minor contradiction. The difference
between “virtually zero” and “zero,” may be little more than semantics. It is clear both from
Mr. Lehn’s appraisal and his testimony, that he found the market value-in-use of the
Common Areas to be zero.
36. The Respondent also questioned Mr. Lehn regarding whether he would reach a different
conclusion in appraising a privately owned church or school, both of which provide a
community benefit similar to the benefit provided by the Common Areas. Poore cross
examination of Lehn. Mr. Lehn, however, answered that he would need to examine whether
there were any covenants or restrictions on transfer of the property in question. If there were
no such restrictions, Mr. Lehn testified that he likely would arrive at a different conclusion of
value than the conclusion he arrived at for the Common Areas. Lehn testimony. Mr. Lehn’s
answer was consistent with his appraisals and with his testimony on direct examination.
Although Mr. Lehn testified that the utility of the Common Areas is ultimately reflected in
the increased market value of the residential lots throughout the subdivisions and that the lots
closest to the Common Areas sell for comparatively higher premiums than do the more
distant lots, Mr. Lehn based his opinion of value on the burdens and restrictions imposed on
the Common Areas, not upon the increase in value of the residential lots. Thus, the case at
hand is distinct from situations where the value of neighboring properties is increased due to
their location near private churches, schools and other amenities.
In those cases, the
properties containing the amenities are not necessarily encumbered and restricted for the
benefit of the neighboring lots, and they continue to have economic utility for their owners.
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37. Next, the Respondent points to Ind. Code § 6-1.1-2-1 for the proposition that all property
located within Indiana on an assessment date is subject to tax and assessment. Poore
testimony; Ex. RG. According to the Respondent, if a property is not exempt from taxation,
it must be assessed and taxed for some value. Poore testimony. Ind. Code § 6-1.1-2-1,
however, does not preclude a property from being assessed for zero value, if that is reflective
of its market value-in-use. In fact, as discussed supra, the Guidelines expressly contemplate
the application of a 100% negative influence factor to certain types of classified land.
GUIDELINES, ch. 2 at 102-03. Application of such an influence factor results in a value of
zero.5
38. The Respondent also claims that even though the Common Areas have “limited to zero
marketability,” they nonetheless have a value-in-use. Ex. RB; see also Poore testimony. For
example, the Respondent points to various uses for the Common Areas, such as water
retention, drainage, buffers, community improvements such as pools and clubhouses, and
green space. According to the Respondent, each of those uses can be viewed as having some
utility to the subdivisions that the Common Areas serve. The utility of the Common Areas to
the lots in the subdivision, however, is largely a function of the easements in favor of those
lots. To the extent that the common areas have utility to the owners of the lots benefited by
those easements, that utility should be reflected in the assessments of those individual
residential lots.
39. The appropriate question is not whether the Common Areas have utility to the owners of
residential lots within the subdivision, but instead whether the Common Areas have any
economic utility to the Petitioners, or similar users, as legal title-holders. The Respondent
attempts to identify such utility by positing narrow circumstances under which the Common
Areas “theoretically” could be transferred. Ex. RB; Poore testimony.
According to the
Respondent, one such circumstance would be a transfer to the city or county for the creation
of or widening of a road. In support of that position, the Respondent submitted a portion of
5
The Respondent also submitted an unsigned decision of the Board in which the Board concluded that a
homeowners’ association was not entitled to a charitable use exemption for the common areas of Pine Valley
subdivision. See Ex. RD; Poore testimony. That decision does not address a claim by the homeowners’ association
that the common areas in question had limited or no market value-in-use. See id. The Board therefore finds that the
decision has no relevance to the issues presented in this case.
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an appraisal of Timber Creek condominium complex. Poore testimony; Ex. RH.
The
appraisal was prepared for the City of Carmel in conjunction with its acquisition of a portion
of the complex’s common area land for purposes of widening a road. Id. The Respondent
also contends that there have been some instances in which individual lot owners seeking to
widen their lots have acquired portions of common areas in other subdivisions in Hamilton
County. Poore Testimony. According to Mr. Poore, that is precisely what happened in
Woodshire subdivision. Id.; Ex. RJ. The Respondent further points to transfers occurring
within West Clay. Specifically, the Respondent points to the split of the larger tract of land
containing what is now Parcel 4. Poore testimony; Exs. RI.
40. The Board assigns no weight to the Respondent’s evidence concerning the appraisal of the
common areas of Timber Creek condominium complex and the transfer of parcels within
Woodshire subdivision. The Respondent did not sufficiently explain how that evidence is
relevant to the proper valuation of the Common Areas. First, absent a detailed explanation of
its relevance and reliability, the Board will not assign any weight to an excerpt from an
appraisal of an entirely different property than the properties under appeal. Moreover, the
Timber Creek appraisal does not purport to value the interest of a developer or homeowner’s
association in the common areas of the condominium complex. To the contrary, it appears
that the appraisal sought to value the interest of the owners of the individual units within the
condominium complex, given that each owner had 1/192 interest in the common area. See
Ex. RH. Similarly, the Respondent did not present any evidence to establish what, if any,
easements or restrictions burdened the Woodshire parcels, or how such easements or
restrictions were similar to those burdening the Common Areas within West Clay and Prairie
View. Absent such evidence, the Board cannot infer that the covenants applicable to West
Clay or Prairie View would permit similar transfers.
41. The Respondent’s evidence concerning the splitting of West Clay Parcel 4 is another matter.
That parcel, at least as it currently exists, is one of the Common Area parcels under appeal.
See Board Ex. A (Petition No. 29-003-03-1-5-00082). What is not as clear, however, is
whether the larger parcel, as it existed prior to the split, was designated as common area. The
Petitioners submitted an aerial map of West Clay with the common areas outlined in purple.
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See Lehn testimony; Ex. PI. Neither Parcel 4, nor the larger tract of which the Respondent
alleges Parcel 4 was a part, are outlined in purple on the Respondent’s aerial map. Ex. PI.
Moreover, neither party submitted a copy of the plat or plats referenced by the West Clay
Covenants as delineating the Common Areas at issue in this appeal. Consequently, the Board
finds that the Respondent did not prove that Brenwick transferred any portion of the
Common Areas.
42. Moreover, even if the split parcels had been part of the Common Areas of West Clay, the
Respondent did not explain how the conveyance of those parcels demonstrates that the
Common Areas have a market value-in-use greater than zero. The Respondent did not
present any evidence concerning either the amount of the proceeds of the sales or how those
proceeds were distributed. The sale of a parcel burdened by easements could occur in one of
two ways. It could involve the purchase of the property subject to those easements, or it
could involve a payment to the beneficiaries of the easements to release their equitable
interests in the servient estate. If a property is sufficiently burdened by easements, it is
possible that virtually the entire sale price would be attributable to purchasing the equitable
interests of the easement beneficiaries rather than the bare legal title to the servient estate.
43. Finally, there is evidence that the covenants for each subdivision allow for the improved
portions of the Common Areas to be leased to third parties. Lehn testimony. The Board
finds this to be significant, in that the exclusivity of lot owners’ rights to use common areas is
an important factor in judicial recognition of the Petitioners’ theory that common areas of
residential subdivisions may have zero market value. See, e.g., Timber Trails, 614 A.2d at
346 (reversing trial court’s finding that common areas, including golf courses, had zero value
where individuals who were not property owners in relevant subdivisions were extended
membership privileges and charged membership fees). The parties, however, did not identify
the provisions under the covenants allowing the Common Areas to be rented, the frequency
with which the Common Areas are rented, or the amount of income generated from renting
the Common Areas. Moreover, Mr. Lehn testified without contradiction that any money
generated from renting the common areas would go to the homeowners within the
subdivision either as cash payments or through a pro-rata reduction in maintenance fees.
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Lehn testimony. Consequently, Mr. Lehn’s vague testimony that the Common Areas could
be leased is insufficient to demonstrate that the Common Areas have any market value-inuse.
44. Based upon the foregoing, the Petitioners demonstrated by a preponderance of the evidence
that the current assessment is incorrect and that the Common areas should be assessed for
zero value.
45. The Board, however, emphasizes that its finding is based upon the unique facts presented in
this case. The Petitioners presented the expert opinion of a qualified appraiser to support its
claim, whereas the Respondent relied largely upon general concepts regarding market valuein-use and suppositions about the utility of the Common Areas. The Respondent’s chief
witness repeatedly testified that the Petitioners had made a “compelling case” and that the
Common Areas likely have “little to zero marketability.” See Poore testimony; Ex. RB.
While the Respondent asserted that the Common Areas had some utility to the Petitioners
and similar users, it did not present a countervailing appraisal or any other evidence to
quantify that utility.
46. Finally, the Board’s resolution of the above referenced issue renders it unnecessary to
address the Petitioners’ remaining claims.
SUMMARY OF FINAL DETERMINATION
48. Petitioners have established a prima facie case that the 2003 assessed value of the Common
Areas is zero.
Respondents’ evidence failed to rebut Petitioners’ prima facie case.
Respondents are hereby ordered to change the 2003 assessed value of the Common Areas to
zero.
_________
Date
_____________________________________
Commissioner, Indiana Board of Tax Review
1028960
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IMPORTANT NOTICE
- Appeal Rights You may petition for judicial review of this final determination pursuant to the provisions
of Indiana Code § 6-1.1-15-5. The action shall be taken to the Indiana Tax Court under
Indiana Code § 4-21.5-5. To initiate a proceeding for judicial review you must take the
action required within forty-five (45) days of the date of this notice. You must name in the
petition and in the petition’s caption the persons who were parties to any proceeding that led
to the agency action under Indiana Tax Court Rule 4(B)(2), Indiana Trial Rule 10(A), and
Indiana Code §§ 4-21.5-5-7(b)(4), 6-1.1-15-5(b). The Tax Court Rules provide a sample
petition for judicial review. The Indiana Tax Court Rules are available on the Internet at
. The Indiana Trial Rules are available on the
Internet at . The Indiana Code is
available on the Internet at .
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