Opinion ID: 2199686
Heading Depth: 1
Heading Rank: 2

Heading: Fair Market Value Assessment

Text: Having determined that legislative discretion to prescribe regulations securing just valuation is limited by the constitutional requirement for a uniform and equal rate of property assessment and taxation, subject to judicial review, we now turn to the appellant's second claim of Tax Court error. The State Board disputes the Tax Court's conclusion that Article 10, Section 1, requires Indiana's system of real property assessment and taxation to be based on a system which uses market value as the measure of equality and uniformity. Town of St. John, 665 N.E.2d at 974. From our examination of the constitutional language in the context of the history surrounding its drafting and ratification, we believe that the Tax Court was correct in its preliminary determination that: [W]hen Article 10, § 1 was adopted and later ratified as part of the 1851 Indiana Constitution, the Indiana property tax was intended to be a tax on property wealth. Thus, the great object of Article 10, § 1 was to ensure that property taxes were imposed on all forms of property wealth equally and uniformly. In other words, the framers of Article 10, § 1 intended that each taxpayer's property wealth bear its proportion of the overall property tax burden. 665 N.E.2d at 970 (emphasis in original). Accurately noting that the framers never explicitly stated that real property was to be assessed on the basis of its market value, the Tax Court acknowledged that it was left with no direct indication as to what they intended the `just value' of property to be. Town of St. John, 665 N.E.2d at 970. However, in reviewing subsequent court decisions and legislation interpreting and implementing Article 10, Section 1, the Tax Court was persuaded to conclude that property must be assessed solely according to market value. The State Board argues that neither the language nor the history of the state constitution requires a system based on fair market value. In reaching its conclusion that `just value' means market value, Town of St. John 665 N.E.2d at 973, the Tax Court places substantial reliance upon Bright, an 1866 decision of this Court, from which the Tax Court opines that there was one, and only one, standard by which property wealth was to be measuredits `just value.' Town of St. John, 665 N.E.2d at 970. In Bright, a taxpayer claimed that a tax for township road purposes, based on a fixed amount per acre, violated Article 10, Section 1, because it was not levied at a given percent of the property's appraised value. The appellee township trustees did not dispute the claim as to taxes levied exclusively for state purposes, but asserted that the constitutional provision did not apply to prohibit county and township taxes from being fixed and specific. In the course of addressing the question presented, this Court summarized: Taxes are public burdens, which should be borne by all, and it was evidently the object of the convention, in the adoption of this and other provisions of the constitution, to devise a system for the assessment and levy of taxes that would distribute these burdens, among those liable to them, upon principles of uniformity, equality, and justice. To this end the primary principle adopted is that taxes shall be assessed on the property liable thereto, according to its just value, and by a uniform and equal rate. Bright, 27 Ind. at 230. The holding in Bright was simply that the provisions of Article 10, Section 1, apply whether the levy be for the state at large or for a minor subdivision. Id. at 232. As the issue was not before it, the court did not decide whether tax assessments must be based solely upon appraised value. In Florer v. Sheridan, 137 Ind. 28, 36 N.E. 365 (1894), another case emphasized by the Tax Court, the issue was not whether Article 10, Section 1, required a fair market value rate of assessment and taxation. Florer was an action on behalf of the estate of a deceased taxpayer against the county treasurer and auditor to prevent the collection of taxes from the property of the decedent. The estate's claim was that the taxes had been erroneously assessed upon certain credits without deduction for debts related thereto, with proper valuation as prescribed by the then-existing statute. The treasurer and auditor argued that the statute violated the uniformity provisions of Article 10, Section 1, primarily because of the potential inconsistencies in the type of debt that a taxpayer may claim. The Florer court upheld the statutory provision permitting a taxpayer's credits to be offset by the creditor's debts to the taxpayer. The judicial tribunals have no concern with the prudence or wisdom of legislation not inconsistent with organic law. Id. at 38, 36 N.E. at 368. Although the court did not face any question regarding whether the property should be assessed on a fair market value basis, it generally stated, [w]e think the constitution requires that property, wealth, substantial values shall be taxed, but not imaginary values. Id. at 42, 36 N.E. at 369. In 1893, two parallel cases presented the question whether Article 10, Section 1, was violated by statutory provisions under which some property was assessed by local assessors, whereas other property was assessed by a state board. Upholding the legislation, both opinions included identical language: The first clause of [Article 10, Section 1] is certainly complied with when the same basis of assessment is fixed for all property, and the same rate of taxation is fixed within the district subject to taxation; that is to say, there is uniformity and equality of assessment and taxation when all the property is to be assessed at its true cash value, and the same rate is fixed on all property subject to assessment for the tax.... The law under consideration is not subject to objection on account of inequality in rate of assessment of taxation, for it provides that all property shall be assessed at its true cash value, and the rates are the same within the respective taxing districts, and no objection is urged to the law on this account. As to the latter clause of [Article 10, Section 1] providing that the General Assembly shall prescribe such regulations as shall secure a just valuation for taxation, it leaves it to the Legislature to prescribe the mode by which the valuation of all property shall be ascertained, enjoining upon them the one obligation to provide such regulations as shall secure a just valuation.... There is certainly no reason why the Legislature may not, under the Constitution of the State, provide for fixing the value of railroad track and rolling stock of railway companies, by the State Board of Tax Commissioners, while other property is assessed by local boards. The value is ascertained according to regulations prescribed by the Legislature, and we are unable to see any reason why a valuation secured in that way should not be a just valuation. Cleveland, Cincinnati, Chicago & St. Louis Ry. Co. v. Backus, 133 Ind. 513, 535-36, 33 N.E. 421, 428 (1893); Pittsburgh, Cincinnati, Chicago & St. Louis Ry. Co. v. Backus, 133 Ind. 625, 647-48, 33 N.E. 432, 439 (1893). As in Bright and Florer, these opinions do not address the issue of whether the Indiana Constitution requires assessment to be based solely on fair market value. The same is true in Fesler v. Bosson, 189 Ind. 484, 128 N.E. 145 (1920), which recited the following summary: [T]hree basic propositions stand out in bold relief: (1) Uniformity and equality in assessment; (2) uniformity and equality as to rate of taxation; and (3) a just value for taxation. Each of these propositions are interlocking and mandatory. They are the constitutional basis of a valid tax law. Id. at 492, 128 N.E. at 147. However, the question presented in Fesler was only whether the state board of tax commissioners, in issuing a certain order, acted within legislative authorization. There was no issue of constitutional interpretation. Id. at 491, 128 N.E. at 147. In numerous other cases decided since the adoption of our 1851 Constitution, we find discussions regarding the requirement that assessments be based upon actual, true, fair cash, or market value. These cases do not actually involve enforcement of Article 10, Section 1, but rather the application of existing statutes providing for methods of assessment and taxation substantially equivalent to fair market value, as this was the principal standard for assessment provided by statute until 1984. [6] For example, in Willis v. Crowder, 134 Ind. 515, 34 N.E. 315 (1893), the court stated [i]t is manifest that the taxable value of property is its fair cash value, a fair cash value being the market or usual selling price, and if there is no market value, then it is the actual value that rules. Id. at 517, 34 N.E. at 316. However, by such language the court was merely construing a then-existing statutory requirement for fair cash value assessment rather than interpreting the requirements of Article 10, Section 1. See also, e.g., Davis v. Sexton, 210 Ind. 138, 200 N.E. 233 (1936); Miles v. Dep't of Treasury, 209 Ind. 172, 199 N.E. 372 (1935); Smith v. Stephens, 173 Ind. 564, 91 N.E. 167 (1910). This was likewise true in Wright v. Steers, 242 Ind. 582, 179 N.E.2d 721 (1962), wherein this Court reviewed a motor vehicle tax rate which was not equal to the rate of taxation for other property, finding in part that it does not meet the requirement that the rate of taxation shall be uniform and equal on all property. Id. at 586, 179 N.E.2d at 724. As in the cases discussed above, the issue was not whether the assessment was required to be based solely on market value. We understand Wright to hold not that our constitution requires all property taxes to be ad valorem, but rather that the legislation therein challenged, which prescribed ad valorem property taxes, was unconstitutional because it failed to tax motor vehicles at a rate equal and uniform to other property. The second clause of Article 10, Section 1, requiring the General Assembly to prescribe regulations to secure a just valuation for taxation of all property, has been interpreted to authorize substantial, but not unlimited, legislative discretion in the methods utilized to achieve the standards of uniformity and equality of rates of assessment and taxation. This Court in Louisville and N.A.R.R. Co. v. State ex rel. McCarty, 25 Ind. 177 (1865), upheld a special statutory method for appraising the real estate of railroad companies, finding that the constitution does not require a uniform method of valuation of property, only regulations that are just. Id. at 180. The court observed that while the elements that make up the value of a railroad are not identical with those that give value to other property, ... an intelligent appraiser would naturally give weight to all these things in making an estimate of the value of the railroad. Id. The court did not hold that the rates of assessment and taxation did not have to be uniform and equal, merely that the varying methods of valuation could be used, so long as they achieved a just valuation. As we previously noted, the language in the Cleveland and Pittsburgh cases would permit the legislature to prescribe the mode of ascertaining the valuation. Cleveland, 133 Ind. at 536, 33 N.E. at 428; Pittsburgh, 133 Ind. at 647, 33 N.E. at 439. Similarly, in Bd. of Comm'rs of Johnson County v. Johnson, 173 Ind. 76, 89 N.E. 590 (1909), we recognized that, although perfect uniformity in the method of assessment is not required, the constitution does require a just valuation of all property, so that the burdens may be distributed with uniformity. That is a legislative function. It does require a rate that is uniform and equal. 173 Ind. at 92, 89 N.E. at 596. Legislative discretion to devise methods of valuation, however, is subject to judicial oversight. In Finney v. Johnson, 242 Ind. 465, 179 N.E.2d 718 (1962), this Court was not concerned with any question as to uniform and equal rate of assessment or taxation. Rather, this Court held that the second clause of Article 10, Section 1requiring that the valuation be just on all propertywas violated by a statute providing that household goods be assessed, by formula, at an amount equal to five per cent of the assessed valuation of the improvements in which the goods were kept. It was held that, between those petitioning for a reassessment and those under-assessed there would be no just valuation of all property. Id. at 471, 179 N.E.2d at 720. From our review of past decisions we are unable to affirm the Tax Court's conclusion that an assessment system based solely on actual market value is compelled by the uniform and equal clause of Article 10, Section 1. Clearly, past decisions have unequivocally recognized that fair market value (or its substantial equivalent), as a method or mode of valuation, satisfies the constitution's requirement for uniformity, equality, and just valuation. While a careful and accurate fair market value assessment may well be the system closest to our constitution's requirements for uniform and equal rates of assessment and taxation and for just valuation, a system based solely upon strict fair market value is not expressly required either by the text of the constitution, by the purpose and intent of its framers, or by the subsequent case law. We do not agree with the Tax Court's conclusion that decisions since the adoption of Article 10, Section 1, implicitly acknowledge that the terms [just value and market value] are equivalent. Town of St. John, 665 N.E.2d at 971. Seeking to ensure that each taxpayer's property wealth bear its proportion of the overall property tax burden, the Indiana Constitution requires that our property tax system achieve substantially uniform and equal rates of property assessment and taxation and authorizes the legislature to allow a variety of methods to secure such just valuation.