America's Property Tax Advisor

Indiana Dark Stores Methodology Upheld


In a major victory for big-box retail stores, the Indiana Supreme Court decided not to review a case involving "dark stores" assessment methodology. The case centered on whether vacant big-box stores can be used as comparable properties when deciding market-value-in-use for tax assessment purposes.


Previous Ruling Will Stand


The Indiana Tax Court ruled in favor of retailer Kohl's department stores in Howard County Assessor v Kohl's Indiana LP. After hearing oral arguments, the state Supreme Court denied Howard County's petition for review of the case.


Kohl’s claimed their 88,000-square-foot store was over assessed from 2010 to 2012 by millions of dollars in combined totals. After appealing the valuation of the property, the Howard County Board of Appeals affirmed the county’s assessments. However, the Indiana Board of Tax Review later ruled in favor of Kohl’s. That ruling was upheld by the Indiana Tax Court.


Market Value-in-Use Standard


Kohl’s and Howard County fundamentally disagreed about how the property should be appraised due to differing interpretations of Indiana’s market value-in-use standard. This was demonstrated through their selection of different comparable properties used in each of their appraisals.


For instance, the Kohl’s appraisal relied on data from the fee simple sales of nine Midwestern big box retail stores. The appraiser for Kohl’s believed these properties were appropriate comparables to use because:




They were vacant at the time of the sale and thus their sales prices reflected the value of the real property alone, as opposed to intangible values that are often included in the sale of leased fees.



They all sold for a continued retail use.



Similar big box properties were regularly sold in the market.


In contrast, the Howard County Assessor’s appraiser believed the use of the dark stores by Kohl’s was not appropriate to value the property for the following reasons:




Dark stores do not have any utility to either the original owner or another owner/user in the same retail tier.



The property was a special purpose property because Kohl’s built it to its own specifications.


By using dark stores as comparables, the Assessor’s appraiser claimed that Kohl’s had determined the subject property’s market value, rather than its market value-in-use. The county’s appraisal relied on data from sales of big boxes with leases to either Kohl’s or another “first generation” user that were in place at the time of the sale. The appraiser contended that since the subject property is operating a Kohl’s store, the value of its utility is best determined in relation to other operating Kohl’s stores.


The Indiana Board explained that pursuant to Tax Court case law, “where a non-special purpose property is put to its highest and best use and is of a type that regularly exchanges for the same general use, the property’s market value-in-use will equal its market value.”