ATTORNEY FOR PETITIONERS:
TOM ATHERTON
KATZ & KORIN, PC
Indianapolis, IN
ATTORNEYS FOR RESPONDENT:
STEVE CARTER
ATTORNEY GENERAL OF INDIANA
Indianapolis, IN

GEOFFREY SLAUGHTER
MAGGIE L. SMITH

SOMMER & BARNARD, PC
Indianapolis, IN


_____________________________________________________________________

    IN THE INDIANA TAX COURT _____________________________________________________________________

APARTMENT ASSOCIATION OF INDIANA,                                         )

INC.; CARRIAGE HOUSE OF ELKHART                                                )
ASSOCIATES, L.P.; FOREST MANOR                                                 )
ASSOCIATES; AND ZENDER FAMILY L.P.                                             )
                                                                               )
    Petitioners,                                                               )
    v.                                                                         )
                                                                               )   Cause No. 49T10-0110-TA-88
DEPARTMENT OF LOCAL                                                            )
GOVERNMENT FINANCE See footnote         )
                )
    Respondent.            )
                                    

ON APPEAL FROM A FINAL DETERMINATION
OF THE STATE BOARD OF TAX COMMISSIONERS

                                _____

NOT FOR PUBLICATION
March 20, 2002

FISHER, J.
The Apartment Association of Indiana, Inc., See footnote Carriage House of Elkhart Associates, L.P.,See footnote Forest Manor Associates,See footnote and Zender Family L.P.See footnote (collectively the Association) allege that Indiana’s Shelter Allowance violates Article X, Section 1 of the Indiana Constitution because it does not provide for a uniform and equal rate of property assessment. The sole issue before the Court today, however, is whether it has subject matter jurisdiction over the Association’s claim.
For the reasons stated below, the Court DENIES the Department of Local Government Finance’s (DLGF) Motion to Dismiss for Lack of Subject Matter Jurisdiction.
FACTS AND PROCEDURAL HISTORY

On December 5, 2000, the State Board issued the Proposed 2002 Real Property Assessment Manual (Proposed 2002 Manual), which contained a provision for a “Shelter Allowance.” Under the Shelter Allowance, the State Board proposed to exempt a portion of the taxable value of certain residential properties. On January 30, 2001, the State Board held a public hearing on the Proposed 2002 Manual. At the hearing, the Association argued that the Shelter Allowance violated the Indiana Constitution because, while it would exempt the value of some residential property from assessment and taxation, it would not exempt all residential property, such as the Association’s property.
The State Board rejected the Association’s argument and on May 10, 2001, formally adopted the final 2002 Real Property Assessment Manual (2002 Manual), containing the Shelter Allowance.See footnote It provides:
The Shelter Allowance is based on the foundation that Indiana’s tax system uses property wealth, as opposed to strict market value, to determine property taxes. Property wealth is a relative concept that reflects the difference between property owned by the taxpayer and the minimum amount necessary to sustain life. A basic level of shelter is not property wealth because such subsistence shelter cannot be substituted with other types of assets. However, all people require a basic amount of shelter that no amount or type of other assets can replace.

In this sense, shelter does not share the characteristics of disposability that are exhibited in other forms of property wealth such as business and industrial property, agricultural land, or residential property above the subsistence level. These other types of property wealth can be disposed of in return for equivalent amounts of other asset types while continuing to meet the person’s basic needs. But, a person that sells a residence must reinvest at least the subsistence level of shelter or in some way still incur the cost of such subsistence amount of shelter. Consequently, this Manual will refer to Shelter Allowance as the amount necessary to sustain life at a subsistence level that is not part of property wealth.

2002 Real Property Assessment Manual 20 (2001) (2002 Manual). The Shelter Allowance creates a property tax exemption for owner-occupied residential property. Id. The exemptions are the same amount within a county, but they range from $16,000 to $22,700 among counties. See footnote Id. at 23. All owner-occupied residential properties are entitled to the Shelter Allowance. Id. at 21.
    On October 31, 2001, the Association commenced an original tax appeal, claiming that the Shelter Allowance violates Article X, Section 1 of the Indiana Constitution. See footnote On January 4, 2002, the DLGF filed a Motion to Dismiss for Lack of Subject Matter Jurisdiction under Trial Rule 12(B)(1), arguing that this Court lacked subject matter jurisdiction over the Association’s claim because the claim did not arise under Indiana tax laws and was not an initial appeal of a State Board final determination. The Court held a hearing on the DLGF’s motion on January 22, 2002. Additional facts will be supplied as necessary.

ANALYSIS AND OPINION
Standard of Review

A court’s subject matter jurisdiction is a question of its constitutional or statutory authority to hear and decide a general class of cases to which a petitioner’s claim belongs. Whetzel v. Dep’t of Local Gov’t Finance, 761 N.E.2d 904, 906 (Ind. Tax Ct. 2002). When a court considers a motion to dismiss for lack of subject matter jurisdiction under Indiana Trial Rule 12(B)(1), “it must decide upon the complaint, the motion, and any affidavits or other evidence submitted whether it possesses the authority to further adjudicate the action.” Common Council of City of Hammond v. Matonovich , 691 N.E.2d 1326, 1328 (Ind. Ct. App. 1998). “Further, when considering a motion to dismiss for lack of subject matter jurisdiction, the court may weigh the evidence to determine the existence of jurisdictional facts.” Id.
Discussion

The sole issue is whether this Court has subject matter jurisdiction over the Association’s claim. This Court interprets its jurisdictional mandate broadly and has jurisdiction over any claim that arises under the tax laws of Indiana and is an initial appeal of a final determination of the State Board. See Ind. Code § 33-3-5-2(a) (1998); State v. Sproles , 672 N.E.2d 1353, 1356 (Ind. 1996); Bielski v. Zorn , 627 N.E.2d 880, 886 (Ind. Tax Ct. 1994).
The DLGF argues that the Court lacks subject matter jurisdiction because the Association’s claim does not arise under Indiana tax laws, is not an initial appeal of a State Board final determination, and the Association has not first exhausted its available administrative remedies. The Association responds that its claim does arise under Indiana tax laws because the Shelter Allowance is part of the Indiana property tax system. Moreover, the Association argues that the Shelter Allowance constitutes a final determination because the Association consummated an administrative process (i.e., the public hearing) where it raised its constitutional claim. Specifically, the Association contends that the Shelter Allowance determines, as a final matter, the Association’s ineligibility for the Shelter Allowance, which will result in the Association bearing more of the property tax burden than residential property owners who receive the Shelter Allowance. This disparity, the Association argues, is a violation of the Indiana Constitution.
I.    Arises under Indiana tax laws

The first question is whether the Association’s claim arises under the tax laws of Indiana. The DLGF argues that the Association’s claim does not arise under any Indiana tax law because “no tax statute creates any right to seek relief directly in this Court upon the promulgation of an agency rule.” (Resp’t Mem. in Supp. of Mot. to Dismiss at 3.) The Association, on the other hand, contends that its claim does arise under Indiana tax laws because its claim challenges the constitutionality of the Shelter Allowance, which is incorporated into Indiana’s Property Assessment Manual. See footnote
It is well established that a taxpayer’s case arises under the tax laws of Indiana if the taxpayer’s claim is reasonably related to an Indiana tax statute. See Sproles , 672 N.E.2d at 1357 (holding that a facial challenge to a tax statute’s constitutionality satisfied the “arises under” requirement); Ispat Inland v. State Bd. of Tax Comm’rs, 757 N.E.2d 1078, 1083 (Ind. Tax Ct. 2001) (holding that a claim satisfied the “arises under” requirement when it challenged an assessor’s statutory authority to delegate his duty, to disclose confidential information from personal property tax returns, and to change a personal property assessment); Montgomery v. State Bd. of Tax Comm’rs, 708 N.E.2d 936, 940 n.5 (Ind. Tax Ct. 1999) (Montgomery I) (suggesting that matters reasonably related to “the property tax arena” satisfy the “arises under” requirement of Indiana Code § 33-3-5-2(a)), rev’d on other grounds by 730 N.E.2d 680 (Ind. 2000). By statute, the State Board has a specific duty to regulate property assessment, which is part of its general duty to ensure that property taxes are assessed and collected. Ind. Code § 6-1.1-30-14 (1998); Ind. Code § 6-1.1-31-1(a)(3) (1998).
Here, the State Board issued the Shelter Allowance pursuant to its statutory mandate to regulate property assessment and taxation. Thus, the State Board issued the Shelter Allowance pursuant to the Indiana tax laws providing for the assessment and taxation of real property. This Court, therefore, finds that the Association’s claim that the Shelter Allowance violates Article X, Section 1 is reasonably related to the Indiana tax statutes providing for real property assessment and arises under Indiana tax laws. See I.C. § 33-3-5-2(a); Sproles , 672 N.E.2d at 1357; Ispat Inland, 757 N.E.2d at 1083; Montgomery I , 708 N.E.2d at 940 n.5.
II.    Final determination

The second question is whether the Association’s claim is an initial appeal of a final determination of the State Board. The DLGF argues that the Shelter Allowance is not a final determination because it does not determine the rights of, or impose obligations on the Association. The Association responds that it consummated an administrative process by disputing the constitutionality of the Shelter Allowance at the public hearing. Furthermore, the Association contends that the Shelter Allowance is a final determination because it ultimately decides the Association’s ineligibility for the property tax exemptions provided by the Shelter Allowance. This decision, argues the Association, places a higher tax burden on the Association’s property by lowering the tax burden for owner-occupied residences.
A final determination decides the rights of, or imposes obligations on a party as the consummation of an administrative process. Whetzel, 761 N.E.2d at 906. Furthermore, when an agency action sufficiently affects the rights or obligations of specific property owners, then the courts may treat the action as a final determination of the agency. See Matonovich v. State Bd. of Tax Comm’rs, 705 N.E.2d 1093, 1095 (Ind. Tax Ct. 1999), review denied.
In this case, the Association consummated an administrative process by arguing its constitutional claim before the State Board at the public hearing on the proposed Shelter Allowance. By issuing the Shelter Allowance, the State Board rejected the Association’s claim, thereby deciding as a final matter the Association’s ineligibility for the Shelter Allowance. Specifically, the State Board created a county-specific property tax exemption based, not only on the residential nature of the property, but also on the nature of the property owner (i.e., whether the owner occupies the residence). See footnote See 2002 Manual at 21–23.
The DLGF additionally argues that the Shelter Allowance is not a final determination because the State Board issued it pursuant to a rule-making process, not a quasi-adjudicatory process. The Court, however, bases its analysis on the effect of the Shelter Allowance on the Association, not the form of the proceeding from which it issued. See footnote See Ispat Inland, 757 N.E.2d at 1083 (holding that whether a State Board action is a final determination depends on the action’s effect on a party’s rights or obligations); Alfred C. Aman , Jr. & William T. Mayton, Administrative Law 146 (2d ed. 2001) (stating that whether an agency action is quasi-adjudicatory depends on the effect of its action, not on its label). It is the State Board’s final determination of the Shelter Allowance’s specific exemptions, and its applicability to and effect on the Association that are significant. Thus, the Court disagrees with the DLGF; the Shelter Allowance sufficiently affects the Association’s rights such that this Court may reasonably treat it as a final determination. See footnote See Matonovich , 705 N.E.2d at 1095; see also Whetzel, 761 N.E.2d at 906. Accordingly, this Court holds that the Shelter Allowance is a final determination of the State Board and that the Association’s claim is an initial appeal from that final determination.
III.    Exhaustion

The final question is whether the Association must exhaust its administrative remedies. The DLGF argues that the Association must exhaust its administrative remedies before this Court may exercise subject matter jurisdiction over its claim. There are at least three important reasons why courts require a petitioner to exhaust its administrative remedies when challenging an administrative action: (1) it gives the administrative agency the opportunity and autonomy to correct its own errors, (2) it creates an adequate record for judicial review, and (3) it avoids premature litigation. State Bd. of Tax Comm’rs v. Montgomery, 730 N.E.2d 680, 684 (Ind. 2000) (Montgomery II).
In this case, the State Board had an opportunity to autonomously correct any errors in the Shelter Allowance after it considered the Association’s constitutional arguments. Moreover, the 2002 Manual provides this Court with an adequate record for review by (1) memorializing the State Board’s reasoning and policy justification for the Shelter Allowance, (2) recording the methodology the State Board used to calculate the county-specific exemptions, and (3) incorporating by reference the evidence that supports those calculations. See 2002 Manual at 20–23. Finally, litigation of the Association’s claim is not premature because the applicability and values of the Shelter Allowance exemptions have, as a final matter, been decided for each property owner in every county, including the Association. To require the Association to pursue administrative remedies at this point would be requiring it to indulge in an “essentially pro forma objection[] to no practical purpose.” Montgomery II, 730 N.E.2d at 684. Consequently, this Court finds that the Association need not pursue further administrative remedies because the reasons for exhausting administrative remedies have been satisfied. See footnote See id.
CONCLUSION

    For the reasons stated, the Court DENIES the DLGF’s motion to dismiss for lack of subject matter jurisdiction. This matter is set for an attorneys conference in the Court’s chambers at 1:30 p.m. on April 1, 2002.
    SO ORDERED this 20th day of March, 2002.

    _____________________________
        Thomas G. Fisher, Judge
        Indiana Tax Court


Footnote: The Legislature abolished the State Board of Tax Commissioners (State Board) as of December 31, 2001. Pub. L. No. 198-2001, § 119(b)(2). Effective January 1, 2002, the Legislature created the Department of Local Government Finance (DLGF), and the Indiana Board of Tax Review (Indiana Board). Ind. Code §§ 6-1.1-30-1.1; 6-1.5-1-3 (West Supp. 2001)(eff. 1-1-02); Pub. L. No. 198-2001, §§ 66, 95. Pursuant to Indiana Code Section 6-1.5-5-8, the DLGF is substituted for the State Board in appeals from final determinations of the State Board issued before January 1, 2002. Ind. Code § 6-1.5-5-8 (West Supp. 2001)(eff. 1-1-02); Pub. L. No. 198-2001, § 95. Nevertheless, the law in effect prior to January 1, 2002 applies to these appeals. I.C. § 6-1.5-5-8. See also Pub. L. No. 198-2001, § 117. Although the DLGF has been substituted as the Respondent, this Court will still reference the State Board in this opinion when necessary .

Footnote: Apartment Association of Indiana, Inc., is a non-profit Indiana corporation that represents owners of more than 195,000 apartment units throughout the State.

Footnote: Carriage House of Elkhart Associates, L.P., owns 230 apartment units in Elkhart, Indiana.

Footnote: Forest Manor Associates owns a forty-unit apartment complex in Indianapolis.

Footnote: Zender Family L.P. owns a 136-unit apartment complex in Indianapolis.

Footnote: The record does not show whether the Shelter Allowance that the State Board formally adopted is identical to the Shelter Allowance it originally proposed. Because neither party claims that the final Shelter Allowance materially differs from the proposed Shelter Allowance, the Court assumes that the final Shelter Allowance is the same as the proposed Shelter Allowance.

Footnote: The minimum Shelter Allowance for Indiana was calculated starting with the lowest fair market value rent for the smallest apartment unit as determined by the U.S. Department of Housing and Urban Development (HUD) effective January 1, 1999 ($3,360 annualized). From that amount, the State Board subtracted a 3% vacancy loss factor and expenses. The expenses were calculated from data published by the Institute of Real Estate Management, with adjustments made for factors related to the land or to financing of the property. With the adjustments, the resulting net operating income of a unit was determined to be $1,027. The State Board then calculated the present value of the unit’s net operating income over a 30-year period, using the rate for a 30-year Treasury Bond as of January 4, 1999. 2002 Real Property Assessment Manual 20–21 (2001) (2002 Manual).
Once the State Board determined the minimum amount of Shelter Allowance for Indiana, it determined the minimum amount of Shelter Allowance for each county based on (1) a determination of the “minimal rental rate” for apartments in the county as of January 1, 1999, and (2) a percentage adjustment (as needed) for counties whose rental rate was higher than the lowest fair market value rent for the smallest unit as determined by HUD. Id. at 21.

Footnote: Article X, Section 1(a) of the Indiana Constitution states: “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.” Ind. Const. art. X, § 1(a).

Footnote: Title 50, article 2.3 of the Indiana Administrative Code regulates property assessment. Ind. Admin. Code tit. 50, r. 2.3-1-1 (2001).

Footnote: The DLGF also contends that Shelter Allowance is not a final determination because the Association’s claim is premature until its property actually has been assessed. The Court disagrees. Once the State Board reached a final decision on (1) the applicability of specific Shelter Allowance exemptions to specific property owners and (2) the amount of exemption for each county, the Association’s claim was ready for this Court’s review. See Matonovich v. State Bd. of Tax Comm’rs, 705 N.E.2d 1093, 1095 (Ind. Tax Ct. 1999), review denied.

Footnote: Furthermore, Indiana Code Section 33-3-5-2(a) does not expressly limit this Court’s subject matter jurisdiction to final determinations issued pursuant to quasi-adjudicatory proceedings. Ind. Code § 33-3-5-2(a) (1998).

Footnote: To reach the issue of whether an agency action is a final determination, other jurisdictions have considered the nature of the obligations imposed on government actors. For example, the Supreme Court of Illinois held that an order to open a road was a “final determination” because the government agent charged with opening the road had no discretion whether or not to perform the act. Downs v. Curry, 129 N.E. 761, 763 (Ill. 1921). In New York, the courts have held that an agency issues a “final determination” when it commits itself to a definite course of action. Price v. County of Westchester, 650 N.Y.S.2d 839, 840–41 (1996). Similar to the government actors in Downs and Price, under the Shelter Allowance, township assessors are committed to determining which residential properties are owner-occupied and have no choice but to apply the Shelter Allowance to these properties (as opposed to non owner-occupied properties). See 2002 Manual at 21. In other words, the Shelter Allowance clearly commits assessing officials to a specific, non-discretionary course of action in applying the Shelter Allowance exemptions to residential properties. See id. This fact gives credence to the Association’s contention that the Shelter Allowance is a final determination. See Downs, 129 N.E. at 763; Price, 650 N.Y.S.2d at 840–41.

Footnote: The Association argues that its administrative remedies are inadequate because they will prolong this litigation and likely cause a fiscal deficit if refunds were ordered. Because this Court holds that the reasons for exhausting remedies are satisfied in the instant case, it will not address these concerns.