AGO 2001-01.

• Case Date: January 04, 2001
• Court: Indiana

Indiana Attorney General Opinions 2001. AGO 2001-01. January 4, 2001Advisory Opinion 2001-1Timothy A. BrooksChairman State Board of Tax CommissionersIndiana Government Center North,N1058 Indianapolis, IN 46204RE: Constitutionality of Standard of Wealth In Proposed Assessment ManualsDear Chairman Brooks:

This letter responds to your request for a legal opinion under Indiana Code 4-6-2-5. You asked for an opinion on the legality of the standard of wealth proposed by the State Board of Tax Commissioners in proposed Assessment Manual alternatives published on December 1, 2000. The State Board published three alternative Assessment Manuals, for use in the General Reassessment to be completed by March 1, 2002. Specifically, you asked:

Does the definition of wealth set forth in the proposed Assessment Manual alternatives (24 IR 702 (Dec. 1, 2000)) meet the requirements of the Indiana Constitution as interpreted in the Town of St. John decisions to establish an objectively verifiable standard of measuring property wealth? Furthermore, does the proposal satisfy the requirements of Indiana Code 6-1.1-31-6(c) requiring that true tax value does not mean fair market value? You note that the concept of property wealth employed by the State Board is explained not only in the three alternative proposed Assessment Manuals but also in the State Boards publication, "True Tax Value: A Definition," a State Board "White Paper" you provided to this office in draft and final forms. We conclude that the standard of wealth contained in the State Boards three proposed Assessment Manuals, as further explained in the State Boards White Paper, generally complies with the requirements of the Town of St. John decisions issued by the Indiana Supreme Court and Indiana Tax Court. That is, the State Boards definition of wealth in the proposed Assessment Manuals is consistent with Indianas courts explication of the provisions of the Indiana Constitution governing property valuation. We further conclude that the State Boards approach is consistent with the statutory definition of "true tax value." These legal conclusions are based on our understanding of the relevant background facts, including the contents of the proposed Assessment Rule and other information you have provided to us. Before addressing the legal analysis more specifically, we recite the relevant facts and legal standards on which we base our opinion. Background Facts To comply with statutory mandates and the requirements set by the Tax Court in Town of St. John v. State Bd. of Tax Commrs, 729 N.E.2d 242 (Ind. Tax 2000), the State Board has published three proposed Assessment Manuals. 24 IR 702 (Dec. 1, 2000). Each of these manuals is independent of the other. To comply with the Tax Courts mandate that the State Board publish a final rule governing the next General Reassessment by June 1, 2001, the State Board could select any one of the three proposed Assessment Manuals or some combination of the three, so long as the State Board acts in accordance with Indiana Code 4-22, which governs the development and promulgation of final rules. Each of the three proposed Assessment Manuals begins with an introductory section, and the introductions of all three are virtually identical. Each introduction first quotes the Indiana Supreme Courts statement that Article 10, Section 1 of the Indiana Constitution requires:

a system of assessment and taxation characterized by uniformity, equality and just valuation based on property wealth, but the Clause does not require absolute and precise exactitude as to the uniformity and equality of each individual assessment.

Town of St. John v. State Bd. of Tax Commrs, 702 N.E.2d 1036, 1040 (Ind. 1998). Noting that Indiana Code 6-1.1.-31-6(c) requires the State Board to define "true tax value," which is the basis of assessment in Indiana, the State Board states the following definition:

True tax value, therefore, is defined as:

The market value in use of a property for its current use, as reflected by the utility received by the owner or a similar user, from the property, less that portion of use value representing subsistence housing for its owner (some punctuation omitted).

The introduction of each proposed Assessment Manual goes on to explain that True Tax Value in most cases will be the owners asking price because the asking price represents the utility the owner obtains from the property. In some cases, however, True Tax Value will not equal value in exchange because the utility derived is higher than the market price (for special use properties) or because owners may be motivated by non-market factors (such as retaining land in farm use even when it would be more valuable in another use). The introductions go on to explain that True Tax Value uses market data, but sometimes derives values that are not strictly based on market data. The introductions state that "the basis for True Tax Value outlined in this manual is value-in-use as opposed to value-in-exchange." The introductions define use value as "[t]he value a specific property has for a specific use." The introductions in Versions A and B go on to explain that the basic approach to valuation -- typical for mass appraisal systems -- is replacement cost. Version A derives its cost information from the Marshall & Swift commercial valuation service, and Version B incorporates Marshall & Swifts values in their entirety. Version C does not prescribe a particular approach to cost, but rather permits each assessor to choose a method or combination of methods, subject to State Board approval. The introductions then explain the two most frequent instances when value-in-use will diverge from value-in-exchange:

Th[e] first is for residential properties where the owner cannot freely transfer 100 percent of the sale price to some other asset type but rather must keep at least a minimal amount to be used to purchase alternative shelter. In this sense, the minimal amount required to provide a basic level of shelter is not a form of property wealth but rather is a minimal amount needed

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