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Malls fight for tax savings: Owners see appeals pay off; inconsistencies plague process

December 19, 2005

Shopping mall owners were ecstatic when their property tax bills dropped as a result of reassessment in 2002. Some of them are even giddier now.

Three of Indianapolis' enclosed malls-Castleton Square, Lafayette Square and Glendale-have since won large appeals and had their combined annual property taxes reduced almost $1 million. Pending appeals of the taxes at Circle Centre and Fashion Mall will be decided within months and could mean even more money in the pockets of mall owners.

Before 2002, assessors determined property values by adding up the construction cost of a building and subtracting any depreciation due to age. In 2002, the state switched to a system based on a property's market value-a move aimed in part at making assessments more uniform across the state.

However, a recent study by the Indiana Fiscal Policy Institute found the state still has a long way to go. It highlighted serious issues with the "lack of uniformity in assessment practice and assessment results."

A look at the appeals filed by Indianapolis-based Simon Property Group Inc. over three of its local malls-Lafayette Square, Castleton Square and Greenwood Park-shows just how disparate the system can be.

In 2001, the assessed value of Lafayette Square Mall was $36 million. In 2002, when the state switched to market value assessments, the tax value of the property rose to $46 million.

Like all malls in the area, Lafayette Square sits on numerous parcels of land. To calculate mall taxes, IBJ added up the values for all parcels, excluding outlots.

Since the previous system generally had undervalued residential property, taxes on the mall dropped despite the increase in assessed value. Simon pocketed a handsome savings when its taxes fell from $1.2 million to $1.1 million.

Many business owners would tuck and run after a six-figure windfall, but Simon decided to let it ride. The company appealed and forwarded Pike Township an appraisal done by Indianapolis-based Access Valuation that showed the mall was worth closer to $32 million-$14 million less than its assessment.

Pike Township officials agreed without much of a fight. They never asked an independent auditor to review the appraisal submitted by Simon. Rather, they spoke with an assessor in a neighboring township and decided the appraisal was a fair compromise, said Chief Deputy Assessor Joseph O'Connor. As a result, the mall's tax liability is now $755,000 annually-a $357,000 reduction.

Neither Simon nor Access Valuation returned calls for comment.

More scrutiny

Getting a tax break for Castleton Square Mall in Lawrence Township wasn't as easy. The building was assessed at $68 million in 2001. After the switch to market value, its assessment jumped to $94 million. Simon executives pulled out the same playbook, but met with different results.

Lawrence Township Assessor Paul Ricketts didn't rubber-stamp Simon's appraisal. Instead, he hired Tim VanKirk, president of Indianapolis-based Assessment Advisors Inc., to judge its merits. After he did, the two parties settled on an assessment of $82 million and taxes of $1.7 million, a $200,000 reduction.

"In the end, I don't think we lost that much value," Ricketts said. He emphasized that shopping mall property taxes aren't as big-ticket as they might appear.

Lawrence Township, for instance, collects roughly $207 million a year in property taxes, so the $200,000 knocked off Castleton's bill isn't a significant amount of money. Moreover, the township collects $1.2 million in property taxes on new construction annually. The money from new construction more than offsets the Castleton reduction.

Simon isn't trying to skate away with taxpayer money without good reason, VanKirk argued in an e-mail response to IBJ questions. Malls simply aren't worth as much as they used to be as big-box retailers continue taking traffic away from them. He said that means their taxes should be going down.

"As these mall properties change hands due to consolidation or closings, the mall anchor properties become 'second or third generation' department stores" and they don't bring in as much revenue, VanKirk wrote. "As a result, appeals on mall properties throughout the Midwest are on the rise."

But Pleasant Township assessors in Johnson County don't buy the gloom-anddoom talk. When Simon filed an appeal on the $1.2 million it pays in taxes at Greenwood Park Mall, township officials asked for income statements for all the tenants in order to pinpoint the mall's market value. Simon balked. The appeal was denied.

Appeals rampant

Shopping mall owners are far from alone in fighting for lower taxes. In 2002, Marion County had 11,000 property tax appeals for residential and commercial property, County Assessor Joni Romeril said. While the number of appeals has decreased each year since the reassessment, county officials are still weeding through some 3-year-old appeals.

Despite the massive volume, no standard adjudication process exists at the lowest levels. Appeals pass through four stages, beginning with the township and ending with the State Tax Court, but townships tend to play by their own rules.

Surprisingly, the state has no idea how much has been knocked off property tax bills as a result of appeals.

"It's a very complicated process," said Betsey Brand, commissioner of the Indiana Board of Tax Review that issues final determinations on appeal petitions that make it to the state level. "A lot of things come into play. I suppose that someone might do some guess-estimation, but our agency's not in a position to make that calculation."

For mall owners, the savings from a successful appeal isn't pocket change. The $307,306 reduction that Indianapolis-based Kite Realty Group won for Glendale Mall represented more than 10 percent of the property's annual retail revenue, according to a company filing with the Securities and Exchange Commission.

Yet while mall owners are pleased, school districts are frustrated. As the largest recipient of property taxes, the reductions mean a direct hit on their budgets. Even without appeals, Indianapolis Public Schools is already expecting a shortfall of $23.5 million in 2006.

"It's a fact of life we live with," said Rodney Black, IPS business manager, when asked about property tax reductions. The bigger issue, he said, is the effect of Senate Bill 1, passed by the General Assembly in 2003. The law makes it illegal for school districts to collect extra property taxes in anticipation of losing some appeals.

The law's not going to change, said Sen. Luke Kenley, a Republican from Noblesville. But the Legislature may consider a bill to create a "recovery mechanism" that allows townships to recover unpaid property taxes.
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