KEAG Family Limited Partnership    Indianapolis, IN
Fort Wayne, IN     
    Indianapolis, IN


    IN THE INDIANA TAX COURT _____________________________________________________________________

KEAG FAMILY LIMITED PARTNERSHIP,                                          )
    Petitioner,                                                                )
    v.                                                                         )   Cause No. 02T10-9906-TA-145
STATE BOARD OF TAX COMMISSIONERS,                                              )
    Respondent.                                                                )    


September 17, 2001


    KEAG Family Partnership (KEAG), appeals six final determinations of the State Board of Tax Commissioners (State Board) finding that KEAG owed property taxes for the 1997 and 1998 tax years on three separate parcels. In its original tax appeal, KEAG raises these issues:
Whether its property tax liabilities are void because they were assessed and collected under a property tax system that has been declared unconstitutional by Indiana Courts?

Whether its parcels are exempt from property taxation because they are within the protection of federal land patents?


    KEAG contends that in 1997 and 1998, the State Board improperly assessed a property tax liability against three of its parcels in Allen County, Indiana. More specifically, while the State Board found that Parcels 95-2564-0186, 95-2564-0196, and 18-0009-0006 each had assessed values of $14,940, $1,400, and $14,670 respectively (Pet’r Ex. F, Ans. to Resp’t Motion), KEAG maintains that each of these parcels should have an assessed value of zero.
    Consequently, KEAG filed an original tax appeal with this Court on June 11, 1999, challenging all six final determinations. See footnote The Court heard oral arguments on April 27, 2000. Additional facts will be supplied as necessary.
Standard of Review

    This Court gives great deference to final determinations of the State Board. Wetzel Enters. Inc. v. State Bd. of Tax Comm’rs, 694 N.E.2d 1259, 1261 (Ind. Tax Ct. 1998). Accordingly, this Court will reverse State Board final determinations only when they are unsupported by substantial evidence, are arbitrary or capricious, constitute and abuse of discretion, or exceed statutory authority. Id. The taxpayer bears the burden of showing the invalidity of the State Board’s final determination. Clark v. State Bd. of Tax Comm’rs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct. 1998).
Constitutionality of KEAG’s Property Tax Assessments
Under Indiana’s Property Tax System

    KEAG’s first argument is that the 1997 and 1998 assessments on each of its three parcels are null and void because Indiana’s system of taxing tangible property has been declared unconstitutional. KEAG is mistaken.
    In 1998, the Indiana Supreme Court affirmed this Court’s ruling that “the existing cost schedules . . . violate the Property Taxation Clause of the Indiana Constitution.” State Bd. of Tax Comm’rs v. Town of St. John, 702 N.E.2d 1034, 1043 (Ind. 1998). That same year, however, this Court declared that “[r]eal property must still be assessed, and, until the new regulations are in place, must be assessed under the present system.” Whitley Prods., Inc. v. State Bd. of Tax Comm’rs, 704 N.E.2d 1113, 1121 (Ind. Tax Ct. 1998) review denied; see also Town of St. John v. State Bd. of Tax Comm’rs, 729 N.E.2d 242, 246, 251 (Ind. Tax Ct. 2000) (ordering real property in Indiana to be reassessed under constitutional regulations as of March 1, 2002 and providing that until then “real property tax assessments shall be made in accordance with the current system”). Consequently, the State Board did not err in determining that KEAG’s parcels were taxable under Indiana’s present system of property taxation.
II. Taxability of Land Issued Pursuant to Federal Land Patents

    KEAG also challenges the State’s right to assess taxes on its parcels because it was land that it acquired pursuant to a federal patent. Again, KEAG is mistaken.
    Under the Property Clause of the United State’s Constitution See footnote , Congress has the authority to regulate and dispose of federal public lands. This authority over federal lands, which Congress determines whether or not to exercise, is plenary. 63C Am.Jur.2d Public Lands §7 (1997) (footnotes and citations omitted). Consequently, until the issuance of a patent that conveys title, the United State has the fee of public lands and has broad management authority. Id.
    As the highest evidence of title, a patent is a deed by which the government conveys title to public lands. Id. at §48. A patent must be issued in order for the fee to public lands to pass from the government. Id. A patent is intended to quiet title to, and secure the enjoyment of, the land for the patentees and their successors. Id.
    KEAG argues that because land held by the federal government is exempt from taxation, Indiana Code §6-1.1-10-1, one of the “immunities” granted to it in its patent is the federal government’s immunity from taxation. In a case recently decided in our sister state of Oregon, however, the Oregon Supreme Court held that “the United States government cannot confer its privileges and immunities upon patent grantees.” Smith v. Dept. of Revenue, 998 P.2d 675, 677 (Or. 2000), cert. denied, 531 U.S. 1013 (2000). Rather, “the rights, privileges, and immunities recited in the patent are those appended to or attached to the land, not those inherent in the federal government.” Id. (emphasis added, internal quotation marks omitted). Other state courts have also found that land issued under federal land patents is taxable. See State v. Nichols, 44 N.W.2d 49, 58 (Iowa 1950) (land became “subject to taxation as soon as patent was issued by the government”). See also Cass County, Minnesota v. Leech Lake Band of Chippewa Indians, 524 U.S. 103, 115 (1998) (the sale of reservation land to non-Indians rendered the land taxable).
    Thus, as a quitclaim deed, a land patent conveys whatever interest the government has in the soil and the land. KEAG is entitled to all rights, privileges, immunities that attach to the land; it is not entitled to all rights, privileges, and immunities that attach to the federal government. KEAG’s property was originally tax-exempt because the federal government owned it. Once the government issued its patent, however, the title transferred ownership, free and clear, from the federal government to the assignee. KEAG, as the present assignee, is not a tax-exempt entity. Accordingly, this Court finds that the State Board did not err in determining that KEAG’s parcels were taxable for the years 1997 and 1998. See footnote

    For the aforementioned reasons, this Court AFFIRMS the final determinations of the State Board of Tax Commissioners.

Footnote: The State Board subsequently motioned this Court for summary judgment, asserting that because KEAG’s general partner, who is not an attorney, filed the appeal and represented KEAG in court, the Court lacks subject matter jurisdiction to hear the case. In an order issued simultaneously with this opinion, the Court denies the State Board’s motion.

Footnote: U.S. C onst., art. IV, §3.

Footnote: KEAG also alleged in its original tax appeal that it was entitled to damages under Indiana Code §6-1.1-15-18. Having determined that KEAG fails in its contentions that it is exempt from property tax, the issue of its entitlement to damages under Indiana Code §6-1.1-15-18 is rendered moot.