ATTORNEY FOR PETITIONERS:
KATZ & KORIN, PC
ATTORNEYS FOR RESPONDENT:
ATTORNEY GENERAL OF INDIANA
MAGGIE L. SMITH
SOMMER & BARNARD, PC
INDIANA TAX COURT
APARTMENT ASSOCIATION OF INDIANA, )
INC.; CARRIAGE HOUSE OF ELKHART )
ASSOCIATES, L.P.; FOREST MANOR )
ASSOCIATES; AND ZENDER FAMILY L.P. )
) Cause No. 49T10-0110-TA-88
DEPARTMENT OF LOCAL )
ON APPEAL FROM A FINAL DETERMINATION
OF THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
March 20, 2002
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 Indianas 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 Associations claim.
For the reasons stated below, the Court DENIES the Department of Local Government
Finances (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
The State Board rejected the Associations 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 Indianas 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
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 persons 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.
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.
Id. at 23. All owner-occupied residential properties
are entitled to the Shelter Allowance. Id. at 21.
ANALYSIS AND OPINION
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.
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 Associations 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 DLGFs motion
on January 22, 2002. Additional facts will be supplied as necessary.
Standard of Review
A courts subject matter jurisdiction is a question of its constitutional or statutory
authority to hear and decide a general class of cases to which a
petitioners claim belongs. Whetzel v. Dept of Local Govt 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.
, 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.
The sole issue is whether this Court has subject matter jurisdiction over the
Associations 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.
, 672 N.E.2d 1353, 1356 (Ind.
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 Associations
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 Associations 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 Associations claim arises under the tax laws
of Indiana. The DLGF argues that the Associations 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.
(Respt 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 Indianas Property Assessment Manual.
It is well established that a taxpayers case arises under the tax laws
of Indiana if the taxpayers claim is reasonably related to an Indiana tax
, 672 N.E.2d at 1357 (holding that a facial challenge
to a tax statutes constitutionality satisfied the arises under requirement);
State Bd. of Tax Commrs, 757 N.E.2d 1078, 1083 (Ind. Tax Ct. 2001)
(holding that a claim satisfied the arises under requirement when it challenged an
assessors statutory authority to delegate his duty, to disclose confidential information from personal
property tax returns, and to change a personal property assessment);
Bd. of Tax Commrs, 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)), revd 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 Associations 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);
, 672 N.E.2d at 1357;
Inland, 757 N.E.2d at 1083;
, 708 N.E.2d at 940 n.5.
II. Final determination
The second question is whether the Associations 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 Associations ineligibility for the
property tax exemptions provided by the Shelter Allowance. This decision, argues
the Association, places a higher tax burden on the Associations 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
v. State Bd. of Tax Commrs,
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 Associations
claim, thereby deciding as a final matter the Associations 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 2002 Manual at 2123.
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 Ispat Inland, 757 N.E.2d at 1083 (holding that
whether a State Board action is a final determination depends on the actions
effect on a partys rights or obligations); Alfred C.
, 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 Boards final determination of the Shelter
Allowances 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 Associations rights such that this Court may reasonably treat it
as a final determination.
, 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 Associations
claim is an initial appeal from that final determination.
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 Commrs v. Montgomery, 730 N.E.2d 680, 684 (Ind. 2000) (Montgomery
In this case, the State Board had an opportunity to autonomously correct any
errors in the Shelter Allowance after it considered the Associations constitutional arguments.
Moreover, the 2002 Manual provides this Court with an adequate record for review
by (1) memorializing the State Boards 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 2023. Finally, litigation of the Associations 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.
For the reasons stated, the Court DENIES the DLGFs motion to dismiss for
lack of subject matter jurisdiction. This matter is set for an attorneys
conference in the Courts 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
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
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,
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 units 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 2021 (2001) (2002
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.
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, §
Title 50, article 2.3 of the Indiana Administrative Code regulates property assessment.
Ind. Admin. Code tit. 50, r. 2.3-1-1 (2001).
The DLGF also contends that Shelter Allowance is not a final determination
because the Associations 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 Associations claim was
ready for this Courts review.
v. State Bd. of Tax
Commrs, 705 N.E.2d 1093, 1095 (Ind. Tax Ct. 1999), review denied.
Furthermore, Indiana Code Section 33-3-5-2(a) does not expressly limit this Courts subject
matter jurisdiction to final determinations issued pursuant to quasi-adjudicatory proceedings.
§ 33-3-5-2(a) (1998).
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
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, 84041 (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 Associations contention that the Shelter Allowance is a final determination.
See Downs, 129 N.E. at 763; Price, 650 N.Y.S.2d at 84041.
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.