Attorneys for Appellant
Attorneys for Appellee
Steve Carter Daniel P. Byron
Attorney General of Indiana Jeffrey T. Bennett
Michael S. Prakel
Ted J. Holaday Indianapolis, Indiana
Deputy Attorney General
Attorneys for Amici Curiae
Nandita G. Shepherd Indiana Chamber of Commerce,
Deputy Attorney General Inc., Indiana Manufacturers
Assn, and BP Products North
Thomas M. Atherton
David A. Suess
This case arises under the old order. It requires us to examine
the extent to which the FMV of property was relevant to determining assessed
valuation in the TTV world.
The property taxpayer here is Commonwealth Edison Company of Indiana, Inc., a public
utility company in the business of providing electricity, which does business within Lake
County. Because it is a public utility, Commonwealth is subject to a
separate chapter of the property tax code, Indiana Code Sections 6-1.1-8-1 through 43.
Under this chapter, public utilities are considered to have two basic
types of property subject to property tax: fixed and distributable. Fixed property
consists of the tangible and real property that is not used to generate
the utilitys power or service. Ind. Code § 6-1.1-8-9(a) (2004). The
township assessor is responsible for assessing fixed property. I.C. § 6-1.1-8-24.
Distributable property consists of the equipment used to manufacture and deliver the power
or service. I.C. § 6-1.1-8-9(b). At the time relevant to this
dispute, the State Board was responsible for assessing distributable property.
See footnote I.C. §
Each year for three decades, Commonwealth had petitioned the State Board for an
equalization adjustment to the assessed valuation of its distributable property. The b
for its petitions had been that residential and commercial property owned by others
in Lake County had been assessed contrary to law at artificially low values,
causing Commonwealths property taxes to be higher than they would have been had
this other property been properly assessed. Until 1995, the State Board had
granted Commonwealth relief.
When the State Board issued tentative assessment values of Commonwealths distributable property for
the years 1995 through 1998, Commonwealth again sought equalization adjustments. Unlike the
prior years, however, the State Board denied Commonwealths petitions.
Commonwealth appealed the decision of the State Board to the Indiana Tax Court,
and the Tax Court reversed. (Subsequent to Commonwealths filing its appeal but
prior to the Tax Courts decision, the Department of Local Government Finance was
substituted for the State Board for the reason discussed in footnote 1, supra.)
Commonwealth Edison Co. of Ind. v. Dept of Local Govt Fin., 780
N.E.2d 885 (Ind. Tax Ct. 2002). It held that Commonwealth was entitled
to equalization adjustments. Id. at 891. We granted review, 804 N.E.2d
744 (Ind. 2003), and now affirm in part and reverse in part the
decision of the Tax Court.
The State summarizes its argument as follows:
The Legislature did not intend that an individual taxpayer be able to request an individual equalization adjustment. Nowhere in the property tax statutes has the Legislature explicitly stated that an individual may request an equalization adjustment. There is also no process enumerated in any statute for an individual to request an equalization adjustment.
Br. of Appellant at 24.
A look at the statute providing for equalization lends support to the States position. Indiana Code Section 6-1.1-14-5(a) reads as follows:
After holding the hearings referred to in [Indiana Code Section 6-1.1-14-4], the department of local government finance shall, in order to equalize assessed values in any county or in the state as a whole, issue an order increasing or decreasing assessed values of any tangible property if the department finds:
(1) that the assessed values in any county are not uniform and equal
as to townships, portions of the same township, or classes of property; or
(2) that the assessed values in this state are not uniform and equal
either as between counties or as to classes of property.
The hearings referenced in the initial phrase of this statute are part of another statute that requires the state to review the assessments of all tangible property made by the various counties of this state and consider modification of any countys assessments if it determines that the assessment of that county appears to be improper. I.C. § 6-1.1-14-4. See footnote
Read together, the intent of these statutes appears to be to authorize the
State to, as the State argues, provide classwide relief to remedy unequal assessments
either in a locality or within a class of property. Br. of
Appellant at 24. In other words, these sta
tutes provide the State with
the authority to rectify local assessment practices that result in assessed values that
do not comply with the constitutional mandate of uniform and equal assessments.
But even though these statutes do not appear to authorize Commonwealth to seek
an individual equalization adjustment under Indiana Code Section 6-1.1-14-4, we b
elieve that Commonwealth
has ample authorityin this case, under Indiana Code Section 6-1.1-8-30 (applicable to utility
distributable property), and for property taxpayers generally, under Indiana Code Section 6-1.1-15-1to contend
that its property taxes were higher than they would have been had other
property been properly assessed. This issue was decided for all practical purposes
in the epic Town of St. John litigation where the plaintiffs appealed their
individual assessments to challenge and (ultimately bring down) the way in which all
property was assessed.
See footnote While the State initially contended, at least in general
terms, that administrative remedies were not available to the taxpayers brin
ging this claim,
the Tax Court emphatically rejected the States contention in the first of the
Town of St. John opinions (Bielski v. Zorn, 627 N.E.2d 880, 886 (Ind.
Tax Ct. 1994)), and the point was never contested thereafter.
The State also makes the argument that Commonwealth is not entitled to an
equalization adjustment based on this Courts statement in
State Bd. of Tax Comm'rs
v. Town of St. John, 702 N.E.2d 1034, 1043 (Ind. 1998) (Town of
St. John V), that the Property Taxation Clause of the Indiana Constitution does
not establish a substantive right to individual assessments evaluating property wealth, nor does
it mandate the consideration of independent property wealth evidence in individual tax appeals.
But in Town of St. John V, this Court also said that
[t]he fact that the Property Taxation Clause does not require the abstract evaluation
of property wealth as to individual assessments or give rise to a substantive
right to present property wealth evidence in tax appeals of individual assessments does
not diminish the existing procedural rights of taxpayers to seek administrative and judicial
review. Id. at 1040 n.8. That is, while there is no
state constitutional right to an equalization adjustment, a taxpayer is not foreclosed from
pursuing any equalization adjustment provided by existing statute or regulation. Of course,
the precise extent of existing procedural rights of taxpayers to seek administrative and
judicial review is one of the issues being litigated here. But an
equalization adjustment is not precluded by Town of St. John V.
Commonwealth was entitled to seek an adjustment to the assessed valuation of its
distributable property under Indiana Code Section 6-1.1-8-30 on grounds that its property taxes
were higher than they would have been had other property in Lake County
been properly assessed.
We do not believe that the States record of granting the same or
similar relief to Commonwealth in the past created any obligation for it to
do so here. First, the States record of granting relief in prior
years constitutes no more than settlements of discrete taxpayer claims. The law
encourages parties to engage in settlement negotiations in several ways. It prohibits
the use of settlement terms or even settlement negotiations to prove liability for
or invalidity of a claim or its amount. Ind. Evidence Rule 408.
It provides that a settlement is neither a judgment nor an admission
of liability. Four Winns, Inc. v. Cincinnati Ins. Co., 471 N.E.2d 1187,
1190 (Ind. Ct. App. 1984), transfer denied. The Tax Court pointed out
a strong policy justification for denying settlements precedential effect in property tax cases:
to allow the Taxpayers to use the settlement would have a chilling effect
on the incentive of all assessing officials to resolve cases outside the courtroom.
Boehning v. State Bd. of Tax Commrs, 763 N.E.2d 502, 505 (Ind.
Tax Ct. 2001).
Apart from these general rules about settlements, there is specific precedent that equitable
estoppel may not be invoked against governmental entities. We recently reaffirmed that
proposition in Equicor Dev. Inc. v. Westfield-Washington Twp. Plan Commn, 758 N.E.2d 34,
39 (Ind. 2001).
See footnote We find its application partic
ularly appropriate here where the
State appears to have abandoned past efforts to resolve individual challenges to acknowledged
weaknesses in the States property tax system in favor of systemic reform.
The State Board denied Commonwealths petitions for the years in question. It
did so on the basis that the sales/assessment-ratio studies were irrelevant for this
purpose because the studies were based on FMV and the standard for valuing
property at the time was true tax value.
Commonwealth appealed the decision of the State Board to the Indiana Tax Court
and the Tax Court reversed. The Tax Courts analysis was roughly this:
Commonwealth met its burden of establishing a prima facie case that it was
entitled to adjustments to its distributive propertys assessed valuation from the years in
question by presenting the sales/assessment-ratio studies; once it established this prima facie case,
the burden shifted to the State to rebut this evidence; because the State
did not rebut this evidence, Commonwealth was entitled to adjustments for the years
in question. Commonwealth, 780 N.E.2d at 890, 891.
In finding that Commonwealths sales/assessment-ratio studies were sufficient evidence to establish Commonwealths entitlement
to assessed valuation adjustments, the Tax Court rejected the States contention that because
they were based on FMV, not TTV, the studies were not relevant evidence:
[W]hen comparing assessments to determine uniformity, an external unit or standard of measurement must be usedone which is objectively verifiable. Our Supreme Court has said that fair market value may well be the standard. See [Boehm v. Town of St. John, 675 N.E.2d 318, 327 (Ind. 1996) (Town of St. John II)]. This Court believes that fair market value is the standard, and will continue to do so until the State Board rebuts that presumption. Thus, the use of market value based sales/assessment-ratio studies is an acceptable way, within the context of public utility assessment, to determine whether equalization adjustments are necessary to achieve assessment uniformity.
Commonwealth, 780 N.E.2d at 890 (full citation form substituted for short form) (footnote omitted).
To decide this question, we need to start with the nature of the TTV system. See footnote As di scussed at the outset under Background, supra, during the years in question, Indiana did not assess property on the basis of its FMV but rather under the State Boards assessment regulations. Ind. Code § 6-1.1-31-7(d) (2004). The assessors (usually township elected officials but sometimes others, e.g., the State Board in cases of utility distributive property) would apply the regulations to the applicable class of property and this would generate the TTV of the parcel or piece of property. An individual assessor might perform this process correctlyor incorrectly. There is substantial discussion in the papers in this and other cases that residential property in Lake County was systematically underassessed during the years at issue in this case. Assuming this to have been the case, it means that the township assessors systematically determined the TTV of Lake County residential property to be less than what the TTV would have been if the assessors had properly applied the assessment regulations.
This point bears repeating: if residential property in Lake County was systematically underassessed
during the years at issue in this case, it means that the township
assessors systematically determined the TTV of Lake County residential property to be less
than what the TTV would have been if the assessors had properly applied
the assessment regulations. Note as well what this does not mean: it
does not mean that that the township assessors systematically determined the TTV of
Lake County residential property to be less than its FMV. That would
have been the case if Indiana had assessed property on the basis of
FMV, but Indiana did not.
The point we made in Town of St. John II, to which the
Tax Court alludes in the passage quoted above, was not that FMV is
a standard by which uniformity could be measured in the TTV system.
Rather, it was simply that a system that assessed all property on the
basis of its FMV would meet our constitutions requirements for uniform and equal
rates of assessment and taxation and for just valuation. Town of St.
John II, 675 N.E.2d at 327. We believe that the standard by
which uniformity was measured in the TTV system was as follows: property of
the class in question accurately assessed in accordance with the applicable regulations of
the State Board.
Commonwealths evidence compared the TTV (as determined by the township assessors) of certain
residential and commercial properties with the FMV of those residential and commercial properties.
It then asserted, apparently without evidence, that the TTV (as determined by
the State Board) of its own distributable property equaled the FMV of that
property. It then asked for an adjustment of the assessed valuation of
its distributable property so that the ratio of the adjusted value of its
distributable property to its FMV would equal the ratio of the TTV (as
determined by the township assessors) of certain residential and commercial properties to the
FMV of those residential and commercial properties.
Because Commonwealths evidence of that latter ratio was based on FMV as the
standard by which uniformity would be measured, it was not relevant to determining
whether Commonwealth was entitled to an adjustment in the TTV system. To
establish its claim for an adjustment, Commonwealth was required to produce evidence that
the assessed values in Lake County were not uniform and equal with respect
to the TTV of the classes of property in question.See footnote That is,
it was required to come forward with evidence that the assessed valuation as
determined by the State Board of its distributable property in Lake County in
proportion to the TTV of that property was not uniform and equal to
the assessed valuation as determined by the township assessors of other taxable property
in the County in proportion to the TTV of that property.
We acknowledge that the TTV system is subject to the criticism that, because
the regulations for assessing different classes of property operated differently from one another,
there was no common standard for measuring uniformity. The Tax Courts desire
for a common standard for measuring uniformity is understandableand apparently achieved in the
new FMV world in which we now live. But so long as
TTV was set differently for different classes of property, uniformity under the statute
consisted of the assessed valuations (as determined by the appropriate assessing authorities) of
each class of property in question being in proportion to the TTV of
each respective class.