Relief Available for Indiana Property Taxpayers During COVID-19

With millions of businesses closing or shuttering for months — hotels, restaurants, shopping malls, commercial offices and retail businesses, to name just a few — COVID-19 (commonly known as the coronavirus) is wreaking havoc in ways that will have lasting effects on our economies and communities. One area almost certain to be impacted is property value. Owners of properties that are no longer generating cashflow or rent, or that otherwise have suddenly become less marketable or economically viable, are likely to need relief from the expenses — including taxes — relating to the property. In Indiana, both short-term and longer-term relief from taxes is available. Here, we address property tax relief.

Immediate Relief

Waiver of Late-Payment Penalties: On March 19, 2020, the Governor of Indiana issued Executive Order 20-05, which addressed a wide range of relief for Indiana residents and businesses. Among the relief announced was a waiver of penalties for late-paid property taxes:

Property taxes remain due on May 11, 2020, however counties are to waive penalties on payments made after May 11, 2020, for a period of 60 days. This waiver does not apply to tax payments which have been escrowed by financial institutions on behalf of property taxpayers.

Although the spring installment of property taxes is still technically due on May 11, the waiver of the 10% penalties for a period of 60 days should help struggling businesses — particularly those whose income has been dramatically curtailed or eliminated — by effectively removing what would otherwise be a substantial additional cost of paying late.

Six-Month Payment Plans: Even prior to the Governor’s Executive Order, a number of counties had in place payment plan options for taxpayers to schedule payments over a period of time. Payment plans are not uniform across the state, so interested taxpayers should research the particular requirements of the county in which their property is located.

Longer-Term Relief

Even before COVID-19, Indiana law allowed taxpayers to right-size the assessed value of their real estate and personal property. These tools — principally, assessment appeals for real property and self-reported tax returns for personal property — will surely be even more important as the value of both real estate and personal property is adversely impacted by the extreme, if temporary, losses due to COVID-19.

Real Property Appeals: For real property, the due date for assessment appeals is June 15 each year — whether that deadline relates to the 2019 assessment or the 2020 assessment will depend on the timing of the county’s assessment notices. We foresee enormous economic challenges and loss of property value for all businesses affected by COVID-19, and all property owners should continue tracking their income and expenses — and all relevant metrics showing decreases in business activity — even if the assessment appeals might not be heard by assessing authorities for some time. For Indiana property tax purposes, the standard of value is market value-in-use (which in most cases is equivalent to market value), and so any evidence of loss of value — e.g., for income-producing properties, the loss of rent, increasing vacancy, lower net operating income, higher cap rates — will be important to demonstrate entitlement to assessed value reductions of real property.

Personal Property: For personal property, the assessed value is typically established, per Indiana’s personal property rules, based on a cost-less-depreciation method. Personal property in Indiana is “self-reported,” and taxes are based, in the first instance, on what the taxpayer reports; if the assessor or county believes that a taxpayer has under-reported the value of its personal property, the county must act, often within a matter of months, to change the assessed value, or it becomes final.

Exceptional Circumstances; Abnormal Obsolescence: Indiana’s depreciation schedules set a 30% “floor” on the amount of depreciation applicable to personal property, unless the taxpayer claims — and, if challenged, can show — that the personal property suffers “abnormal obsolescence.” Claims of abnormal obsolescence should be included on the taxpayer’s personal property tax return filings. While Indiana boards have often rejected claims of abnormal obsolescence (when challenged by counties), there is good reason to believe, based on precedent from other cases of extraordinary circumstances, that abnormal obsolescence claims will be allowed based on COVID-19. For example, the terrorist attacks on September 11, 2001, and their catastrophic impact on the economy, particularly the airline industry, were found to support the application of significant reductions of personal property tax values for Indiana taxpayers impacted by the fallout from the unprecedented attacks.

While the quantification of obsolescence will be different for different types of property, the point here is that Indiana has well-established precedent for taxpayers to claim abnormal obsolescence affecting the value of personal property where the “cause” of the obsolescence is outside the petitioners’ control, of a non-recurring nature and could not reasonably have been foreseen by a prudent businessperson — all things that seem to fit the COVID-19 scenario today.

Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.