ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DANIEL P. BYRON STEVE CARTER
JEFFREY T. BENNETT ATTORNEY GENERAL OF INDIANA
BINGHAM McHALE, LLP Indianapolis, IN
TED J. HOLADAY
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
COMMONWEALTH EDISON COMPANY )
OF INDIANA, INC., )
v. ) Cause Nos. 49T10-9507-TA-67
DEPARTMENT OF LOCAL ) 49T10-9707-TA-163
ON APPEAL FROM FOUR FINAL DETERMINATIONS OF
THE STATE BOARD OF TAX COMMISSIONERS
December 23, 2002
Commonwealth Edison Company of Indiana, Inc. (Commonwealth) appeals the State Board of Tax
Commissioners (State Board) final assessments of its distributable property for the 1995, 1996,
1997, and 1998 assessment years (years at issue). The sole issue is
whether the State Board is required to apply equalization adjustments to Commonwealths assessments
for the years at issue.
FACTS AND PROCEDURAL HISTORY
Commonwealth is a public utility company that owns an electric generating station in
Lake County, Indiana. For each of the years at issue, Commonwealth filed
an annual statement of value with the State Board pursuant to Indiana Code
§ 6-1.1-8-19. With each statement, Commonwealth requested that the State Board apply
an equalization adjustment to its assessment to account for the disparate levels of
assessment in Lake County.
The State Board subsequently issued tentative assessments of Commonwealths property for each of
the years at issue without the requested adjustments. Commonwealth objected, and the
State Board held four separate hearings. The State Board then issued orders
making its tentative assessments final, stating that Commonwealth failed to show that its
property was entitled to equalization adjustments for the years at issue.
Commonwealth filed four original tax appeals, which the Court consolidated on October 19,
1998. The Court conducted a trial on February 22, 1999. Oral
arguments were heard on December 13, 1999. Additional facts will be supplied
STANDARD OF REVIEW
When this Court reviews a State Board assessment of public utility property, its
standard of review is set by statute:
When a public utility company initiates an appeal under section 30 [of Indiana
Code 6-1.1-8], the tax court may set aside the state board of tax
commissioners final assessment and refer the matter to the board with instructions to
make another assessment if:
(1) the company shows that boards final assessment, or the boards apportionment and
distribution of the final assessment, is clearly incorrect because the board violated the
law or committed fraud; or
(2) the company shows that the boards final assessment is not supported by
Ind. Code § 6-1.1-8-32. Substantial evidence means such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion. Glass Wholesalers,
Inc. v. State Bd. of Tax Commrs, 568 N.E.2d 1116, 1122 (Ind. Tax
Ct. 1991) (quoting State Bd. of Tax Commrs v. South Shore Marina, 422
N.E.2d 723, 731 (Ind. Ct. App. 1981). DISCUSSION & DECISION
The property owned or used by a public utility company shall be taxed
in the manner prescribed in [chapter eight of Indiana Code 6-1.1]. Ind.
Code § 6-1.1-8-1. Within Chapter eight is a centralized assessment scheme by
which the State Board assesses the operating property (distributable property) used in providing
utility services. Ind. Code § 6-1.1-8-25. In calculating the value of
the distributable property, the State Board first considers the total value (unit value)
of the public utility companys property and then subtracts the value of its
Ind. Code § 6-1.1-8-26(a).
Once the State Board determines the assessed value of a public utility companys
distributable property, it is required to equalize that assessment if necessary. Ind.
Code § 6-1.1-8-25(a). Equalization is a process applied to certain taxpayers and
their property by which the assessed value of a taxpayers property is adjusted
so that it bears the same relationship of assessment value to . .
. true tax value as other properties within the same taxing jurisdiction.
GTE North Inc. v. State Bd. of Tax Commrs, 634 N.E.2d 882, 886
(Ind. Tax Ct. 1994) (internal quotation and punctuation omitted). [T]he equalization process
provides the State Board with a method to cure assessment problems and bring
all assessments into compliance with Article X, § 1 of Indianas Constitution, id.,
which states that
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. See also Ind. Code § 6-1.1-2-2.
The dispute in this case arises from the State Boards refusal to apply
equalization adjustments to Commonwealths assessments for the years at issue. As Commonwealth
there has been a chronic disparity between the level of assessment generally prevailing
in Lake County, and the level of assessment specifically applying to Commonwealth[s] distributable
property. Because Commonwealth  must pay the same tax rates as all
other taxpayers in Lake County (which have historically been inflated to the highest
levels in the state because of [its] underassessment problem ), this disparity of
assessment has been especially hurtful for Commonwealth[.]
(Petr Br. at 1-2.) More specifically, Commonwealth argues that while its property
is assessed at approximately 33% of its full market value, other taxpayers are
assessed at an inordinately low percentage of actual or market value. (Petr
Ex. D-1 at 35.) This, Commonwealth maintains, violates the Article X,
§ 1 guarantee that its assessment is uniform with others in the state.
A. Evidence of Market Value in Equalization Cases
Commonwealth, like any other party challenging the propriety of a State Board final
determination, bears the burden of demonstrating its invalidity. See Clark v. State
Bd. of Tax Commrs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct. 1998).
Thus, Commonwealth must present a prima facie case, or one in which the
evidence is sufficient to establish a given fact and which if not contradicted
will remain sufficient. Id. (internal quotation and citation omitted).
To meet its burden, Commonwealth prepared numerous sales/assessment-ratio studies and submitted them at
its administrative hearings. (Petr Exs. H-2, H-3, and H-4.) These studies,
prepared by a North Carolina statistical studies consulting firm, examined a random sampling
of approximately 200 arms length sales of real property in Lake County during
the years at issue and compared the sales prices on those properties to
their corresponding assessed values. The studies indicated that for the years at
issue, property in Lake County was generally assessed at between 10% and 11.82%
of its actual, or market value, as compared to the 33% difference between
Commonwealths assessed value and market value. (Petr Br. at 3.) In
order to remedy this disparity, Commonwealth requested that the State Board equalize its
assessments for each of the years at issue.
Although Commonwealths burden of proof does not shift, the duty of going forward
with evidence may shift several times. See Thorntown Telephone Co., Inc. v.
State Bd. of Tax Commrs, 629 N.E.2d 962, 965 (Ind. Tax Ct. 1994).
Thus, it was incumbent upon the State Board to rebut Commonwealths evidence.
The State Board did not. Instead, in its final determinations, the
State Board refused to consider Commonwealths sales/assessment-ratio studies. Specifically, the State Board
[t]he quality of the evidence presented by [Commonwealth] regarding the level of assessment
in Lake County and its market value is suspect. However, none of
it would matter, even if it were credible. The standard for the
valuation of property is true tax value, not market value.
(See, e.g., Respt Ex. 1 at 59.) The Court disagrees.
The State Board is correct that Indiana does not assess property on the
basis of its fair market value. Indeed, during the years at issue,
property was assessed pursuant to the statutory standard of true tax value.
See Ind. Code § 6-1.1-31-5. True tax value was not fair market
value, but rather the value that was determined under the State Boards assessment
regulations. See Ind. Code § 6-1.1-31-7(d). The use of the true
tax value standard in Indiana has caused numerous problems, the most relevant being
the lack of uniformity in assessment amongst taxpayers.
In states where assessment is based on market value, the most widely used
and accepted tool for measuring assessment uniformity is the sales/assessment-ratio study. See
Jerrold F. Janata, ed., Property Taxation 154 (2d. ed. 1993); (Trial Tr. at
62-3.) See also Louisville Natl R.R. Co. v. Public Serv. Commn, 493
F.Supp. 162, 164 n.2 (M.D. Ten. 1978) affd by 631 F.2d 426 (6th
Cir. 1980) (stating that properly conducted, sales/assessment-ratio studies are objective, efficient, and standard
methods of measuring uniformity). To date, however, neither the State Board, the
legislature, nor the courts have provided any guidance as to how to measure
uniformity in a state such as Indiana, where market value is not the
assessment standard and, as the State Board contends, irrelevant.
Nevertheless, the State Board has been using market value sales/assessment-ratio studies
for years as a basis for providing equalization adjustments to public utility companies.
See Janata at 162-64 (discussing the State Boards acceptance of sales assessment-ratio
studies premised on a market value analysis as the basis for equalization relief
to railroad, electric, and telephone utilities). Furthermore, the State Board has used
these sales/assessment-ratio studies for approximately thirty years as the basis for granting equalization
adjustments to Commonwealth. (Respt Exs. 1 at 62; 2 at 62; 3
at 93; and 4 at 51.)
As our Supreme Court stated, in order to achieve the uniformity and equality
requirement of Article X, § 1, property assessment and taxation in Indiana must
be based on property wealth. Boehm v. Town of St. John, 675
N.E.2d 318, 328 (Ind. 1996) (Town of St. John II). Property wealth
is measured through objectively verifiable data. State Bd. of Tax Commrs v.
Town of St. John, 702 N.E.2d 1034, 1041 (Ind. 1998) (Town of St.
John V). It is appropriate for the State Board to calculate
assessments based on true tax value; however, when comparing assessments to determine uniformity,
an external unit or standard of measurement must be used -- one which
is objectively verifiable. Our Supreme Court has said that fair market
value may well be the standard. See Town of St. John II,
675 N.E.2d at 327. This Court believes that fair market value is
the standard, and will continue to do so until the State Board rebuts
See footnote 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.
B. The Quality of Commonwealths Sales/Assessment Ratio Study
The State Board also contends that, market value aside, Commonwealths sales/assessment-ratio studies are
unreliable. Again, the Court disagrees.
The Court recognizes that the State Board may consider many factors in determining
unit value of (as well as the application of equalization adjustments to) a
public utility, including:
* * * *
(6) statistics and reports prepared or filed by the company;
(7) statistics and reports prepared by another governmental agency or by a private
organization if the organization is considered reliable by investors and investment dealers;* * * *
(9) any other information which the [state] board considers relevant.
Ind. Code § 6-1.1-8-26(b). The Court also recognizes that the State Board
has the discretion to reject submitted statistics and reports if they are unreliable.
Here, the State Board argues that Commonwealths sales/assessment-ratio studies are unreliable for
several reasons, including: 1) the studies are based on a sample of
sales taken exclusively from two Multiple Listing Services (MLS) only (it should be
based on the MLS, as well as all property transfers reflected in the
deed book); 2) the random sample of approximately 200 properties was too small;
3) the studies are based primarily on the sale of residential properties in
Lake County (the studies should include sales of industrial, commercial, and agricultural properties);
4) it appears the sales prices analyzed in the studies included items not
assessable as real property (i.e, personal property); and 5) the sales used were
from the year prior to the actual date of assessment (i.e, while the
sales prices reflected market value as of March 1, 1994, the assessments were
reflective of the March 1, 1995 assessment date). (See generally Respt Ex.
1 at 51-53.) These are hollow objections. Conclusion
Commonwealth explained in general how sales/assessment-ratio studies are prepared in accordance with IAAO
principles and guidelines, what is and is not included in the sample, and
why residential sales are more prevalent in such studies. (Trial Tr. at
57-98.) Because Commonwealths studies were prepared within these parameters, and given that
market value based sales/assessment-ratio studies are the only way by which to measure
disparity in assessment uniformity, it made a prima facie case that it was
entitled to the requested equalization adjustments. In turn, the State Board simply
cannot claim that Commonwealths studies are unreliable. Rather, it must present substantial
evidence indicating what tools taxpayers like Commonwealth can use to measure disparities in
For the foregoing reasons, Commonwealth has made an unrebutted prima facie showing that
its property is entitled to equalization adjustments for the years at issue.
Accordingly, the Court REVERSES the State Boards final determination and REMANDS the case
to the Indiana Board of Tax Review
for proceedings consistent with this opinion.
The State Board of Tax Commissioners (State Board) was originally the Respondent
in this appeal. However, the legislature abolished the State Board as of
December 31, 2001. P.L. 198-2001, § 119(b)(2). Effective January 1, 2002,
the legislature created the Department of Local Government Finance (DLGF),
see Indiana Code
§ 6-1.1-30-1.1 (West Supp. 2001)(eff. 1-1-02); P.L. 198-2001, § 66, and the Indiana
Board of Tax Review (Indiana Board). Ind. Code § 6-1.5-1-3 (West Supp.
2001)(eff. 1-1-02); P.L. 198-2001, § 95. Pursuant to Indiana Code § 6-1.5-5-8,
the DLGF is substituted for the State Board in appeals from final determinations
of the State Board that were issued before January 1, 2002. Ind.
Code § 6-1.5-5-8 (West Supp. 2001)(eff. 1-1-02); P.L. 198-2001, § 95. Nevertheless,
the law in effect prior to January 1, 2002 applies to these appeals.
Id. See also P.L. 198-2001, § 117. Although the DLGF
has been substituted as the Respondent, this Court will still reference the State
Board throughout this opinion.
In its complaint, Commonwealth also made the following allegations: 1)
Indianas assessment of tangible property on any basis other than market value violates
Article X, § 1 of the Indiana Constitution; 2) capping agricultural land assessments
at $495 an acre unfairly discriminates against taxpayers such as Commonwealth and violates
Article X, § 1 of the Indiana Constitution; and 3) numerous exemptions and
deductions within Indianas property tax scheme are not provided for in the Indiana
Constitution and have the effect of favoring certain types of taxpayers over others,
in violation of Article X, § 1 of the Indiana Constitution. (
generally Petr Ex. D-1.) The Court need not, however, analyze these state
constitutional claims in this opinion. Indeed, in 1998, the Indiana Supreme Court
affirmed this Courts determination that the State Boards assessment regulations violate Article X,
§ 1 of the Indiana Constitution. See State Bd. of Tax Commrs
v. Town of St. John, 702 N.E.2d 1034, 1043 (Ind. 1998) (Town of
St. John V). 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 Commrs, 704 N.E.2d 1113, 1121 (Ind. Tax Ct. 1998), review
denied; see also Town of St. John v. State Bd. of Tax Commrs,
729 N.E.2d 242, 246 & 251 (Ind. Tax Ct. 2000) (Town of St.
John VI) (ordering real property in Indiana to be reassessed under constitutional regulations
as of March 1, 2002 and providing that until then, property tax assessments
shall be made in accordance with the current system).
Commonwealth also complains that in denying the equalization adjustments, the State Board violated
its equal protection rights under the Fourteenth Amendment to the U.S. Constitution.
(See Petr Br. at 22-23.) As a result of this alleged violation,
Commonwealth claims that it is entitled to relief under 42 U.S.C. §§ 1983
and 1988. This Court has in the past rejected analogous equal protection
arguments, see Town of St. John v. State Board of Tax Commissioners, 690
N.E.2d 370, 388-97 (Ind. Tax Ct. 1997) (Town of St. John III), revd
in part on other grounds by 702 N.E.2d 1034 (Ind. 1998), and does
so now. Consequently, the Court denies Commonwealth relief under the provisions of
42 U.S.C. §§ 1983 and 1988.
For the years 1995, 1996, and 1997, the State Board awarded
Commonwealth no equalization adjustment whatsoever. While the State Board did award an
adjustment for 1998, Commonwealth maintains that the adjustment is grossly inadequate.
The fixed property (i.e., non-operating property) of the public utility company
is assessed locally by township assessors. Ind. Code § 6-1.1-8-24(b).
For nearly a decade, Indianas property tax assessment system has been
the subject of extensive state court litigation.
See Town of St. John
et. al v. State Board of Tax Commissioners, 665 N.E.2d 965 (Ind. Tax
Ct. 1996) (Town of St. John I) and its prolific progeny. At
the heart of this litigation has been the disparity in assessment between similar
properties. Ironically, the Town of St. John litigation also originated in Lake
One way or another, an assessor must refer to market value
in assessing real property for ad valorem tax purposes. Market value is
the basis, the touchstone upon which any equitable assessment must rest.
F. Janata, ed., Property Taxation 167 (2d. ed. 1993).
The International Association of Assessing Officers (IAAO) is an educational
and research association of individuals in the assessment/property taxation profession.
the State Board asserts that the only assessment-ratio studies it
finds useful in determining whether disparities exist in Indiana assessments are the assessment
to assessment ratio studies. Essentially, in these studies, the State Board reviews
assessments previously performed by local assessors. If the State Board arrives at
a different true tax value than the local assessors, the difference constitutes the
disparity. These studies show nothing more than the inability of both local
assessors and the State Board to consistently apply the assessment rules and regulations.
All cases that would have previously been remanded to the State Board
are now remanded to the Indiana Board.
Ind. Code § 6-1.1-15-8.
Final determinations made by the Indiana Board are subject to review by this
Court pursuant to Indiana Code § 6-1.1-15. Ind. Code §§ 6-1.5-5-7; 33-3-5-2.