Will COVID-19 Impact Your Eligibility for an Indiana Property Tax Exemption?

Indiana property tax exemption applications must be filed on or before April 1, 2021. To grant an exemption, a county’s property tax assessment board of appeals will look at both the physical status and use of a property as of January 1, 2021 — and will consider its use during the prior calendar year. Many Indiana taxpayers were in lockdown or working remotely for most of the past year. How will that situation impact granting of property tax exemptions this year (for taxes due and payable in 2022)? There is no one-size-fits-all answer: whether the coronavirus has an impact on exemption decisions will depend on the property, its use, the type of exemption requested, the evidence presented and how a particular assessor and county board chooses to apply the exemption statutes based on the specific facts.

Taxpayers must file an exemption application no later than April 1. For a taxpayer to claim an Indiana real or personal property tax exemption, it must first file an application. This is true whether the taxpayer is a nonprofit or a for-profit corporation. The Department of Local Government Finance has created the Form 136 application for property tax exemptions for this purpose. Failure to timely file the application may result in loss of an exemption for at least one year. Over the years, some taxpayers have learned this lesson the hard way. As discussed in a 2010 ruling by the Indiana Board of Tax Review, Things to Come Mission, Inc. v. Marion County Assessor, a nonprofit purchased a house and pole barn to use as its headquarters and offices for its foreign mission. The Mission began operating its new headquarters on November 1, 2006, but it did not file its application for property tax exemption until August 1, 2007. The Indiana Board concluded that its hands were tied, observing: “An exemption is a privilege that may be waived by a person who would otherwise qualify for it. If the Petitioner does not comply with the statutory procedures for obtaining an exemption, the exemption is waived.” (citations removed). The property’s religious use was not at issue. Rather, the Indiana Board explained that the “fundamental problem” was the Mission’s “failure to acknowledge and accept its own responsibility for actually filling-out and filing the application for exemption form as the statutes specifically require.” Because no exception to the filing requirement applied, the exemption was denied.

To qualify for an exemption, a property must be predominantly used for an exempt purpose. Indiana has numerous exemption statutes, but the most prevalent is that permitted under Ind. Code § 6-1.1-10-16, which provides, “All or part of a building is exempt from property taxation if it is owned, occupied, and used by a person for educational, literary, scientific, religious, or charitable purposes.” The Indiana Tax Court has observed, “The exemption also generally extends to the land on which the exempt building is situated, as well as the personal property that is contained therein.” See Jamestown Homes of Mishawaka, Inc. v. St. Joseph County Assessor, 909 N.E.2d 1138, 1141 (Ind. Tax Ct. 2010) (citations omitted). Consequently, a taxpayer must meet a three-prong test to qualify its property for an exemption under Section 16. The property must be (i) owned, (ii) occupied, and (iii) used to further the exempt purpose. As the Tax Court has long observed, the exempt purpose must be the property's “predominant use.” See College Corner, L.P. v. Dep’t of Local Gov’t Fin., 840 N.E.2d 905, 908 (Ind. Tax Ct. 2006) (citations omitted). According to the legislature, “property is predominantly used or occupied for” an exempt purpose “if it is used or occupied for one (1) or more of those [exempt] purposes during more than fifty percent (50%) of the time that it is used or occupied in the year that ends on the assessment date of the property.” Ind. Code § 6-1.1-10-36.3.

Remote working due to COVID-19 may have impacted a property’s use in 2020. Throughout most of 2020, nonprofit and for-profit taxpayers across Indiana shifted from working on site to working remotely. This change might impact a property’s eligibility for an exemption and could influence whether a taxpayer should refile for an exemption this year. Using facts similar to those presented in the Things to Come Mission case, consider the following hypothetical. A religious nonprofit with a few employees operating from its headquarters shifts from working on site to working remotely in mid-March 2020. The headquarters is neither “vacant” nor “abandoned.” The office still has furniture and equipment, the nonprofit continues to receive mail there and staff occasionally enters the building to perform tasks that they cannot easily do from home.

In this scenario, despite its employees working off site for most of the calendar year preceding the January 1, 2021 assessment date, the nonprofit effectively continues to both occupy and use the property. Assuming the nonprofit is furthering a bona fide religious purpose, the headquarters, the underlying land, and the nonprofit’s personal property should qualify for exemption in 2021 (for taxes due and payable in 2022).

“Predominant use” is measured by the time a property is actually used. The Tax Court has provided helpful guidance regarding the measurement of a property’s “predominant use.” In Hamilton County Assessor v. SPD Realty, LLC, 9 N.E.3d 773 (Ind. Tax Ct. 2014), the taxpayer purchased an office building in late 2008 and partially leased it to a related nonprofit for use as a tissue bank. The assessor argued that, to qualify for a charitable exemption under Section 16, the property had to be used for the charitable purpose for more than half the year before the assessment date, whereas the property in question had only been used as a tissue bank for four months. In rejecting the assessor’s argument, the Tax Court explained that “predominant use” means “that a property [must] be used or occupied for charitable purposes for more than 50% of the time that it is actually used or occupied during the tax year at issue.” See id. at 778 (emphasis in original). In the SPD Realty case, the evidence showed that in the four months the property was used and occupied, it was used 100% of the time for the charitable purpose. Id.

In our example, the nonprofit continuously used its real and personal property throughout the pandemic to further its religious mission. Even if an assessor attempts to exclude consideration of the months of remote working, the property should still qualify for an exemption. Whenever employees were on site, whether for just a few days or weeks in 2020, during that time they used the property for religious purposes.

Property tax exemptions are not automatic. Ownership by a nonprofit corporation alone is not enough to qualify. A taxpayer must both qualify and timely file for exemption under the applicable statutory provisions. Whether a property qualifies will depend on a number of factors, particularly the property’s use, which may have been impacted by COVID-19. If an application is required, a failure to timely file may result in a waiver and loss of the exemption. To avoid losing the exemption, it is important to review the property, its use and how the use was impacted by the global pandemic.