Legislation protects county assessments on big-box stores

A new measure on the taxation of big-box stores is expected to help Indiana counties avoid fiscal disaster, but national retailers aren’t happy about it.

The Indiana General Assembly easily approved Senate Bill 436, which deals with a host of local taxation issues, including the valuation of big-box retail stores. The final version of the bill passed 98-0 in the House and 49-0 in the Senate. It could be signed into law as soon as this week.

Authored by Sen. Brandt Hershman, R-Buck Creek, the legislation prevents appraisals of thriving big-box stores from drawing comparisons to closed stores.

County assessors across Indiana worried that the so-called “dark box” theory of appraisal would force them to dramatically lower the value of big-box stores because of two recent decisions by the Indiana Board of Tax Review, or IBTR.

One decision dealt with the Meijer store on East 96th Street in Marion County, which slashed its value in half. Another similar case dealt with a Kohl’s store in Howard County.

The Association of Indiana Counties is pleased with the legislation, Executive Director David Bottorff said. The language is retroactive to 2014 assessments and applies to cases pending before the IBTR. The legislation will apply to about 500 appeals, which include multiple years at one location, Bottorff said.

“It takes us back to pre-January, before these two cases came down,” Bottorff said.

The legislation applies to non-income-producing property at least 50,000 square feet in size that’s occupied by the original owner or tenant. It doesn’t apply to strip malls or malls.

Appraisals of buildings less than 10 years old must use the cost approach, which considers construction costs. Comparable sales must include properties that have been on the market for less than a year, that are used for a similar purpose, and that were sold at arm’s length. Comparisons cannot include property with substantial deed restrictions.

“We think the legislation was totally unnecessary,” said Stephen Paul, a partner at Faegre Baker Daniels who represents Michigan-based Meijer and other retailers. “We have a system, and it worked as it should’ve.”

Paul said national retailers and the Indiana Retail Council lobbied against the legislation. He thinks lawmakers were reacting to the potential revenue loss, but they haven’t said that the tax review board’s decision was faulty. “This was a very thoughtful decision,” Paul said of the case involving the Meijer on 96th Street. “The property was wildly over-assessed.”

County assessors disagree, and the debate about valuing retail property will continue. The legislation also calls for the topic to be taken up in the summer study session.