Hamilton County Assessor v. Charles E. Duke
2017 WL 461593, 2017 Ind. Tax LEXIS 4, 69 N.E.3d 567 (2017)
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Rule of Law:
To qualify for a partial property tax exemption under Indiana's predominant use test, a taxpayer must provide specific evidence comparing the amount of time the property is used for exempt purposes to the total time the property is used, demonstrating that the exempt use exceeds 50% of the total usage.
Facts:
- Charles E. Duke owns a 5,298 square foot facility in Carmel, Indiana.
- In 1987, Duke incorporated Little Lamb Daycare, Inc., a for-profit corporation, to operate a daycare on the property.
- Duke does not charge Little Lamb any rent for its use of his property.
- During the years at issue (2009-2011), Little Lamb operated on weekdays, caring for children up to six years old.
- The daily schedule for the children included approximately 1.25 hours of instruction in subjects like reading, math, and science.
- Little Lamb's curriculum was Bible-based, though not governed by a specific church.
- The remainder of the day was filled with non-instructional activities, including 2 hours for naps, 2.5 hours for meals, and 1.75 hours of free play and recess.
Procedural Posture:
- Charles E. Duke filed Applications for Property Tax Exemption for the 2009-2011 tax years with the Hamilton County Property Tax Assessment Board of Appeals (PTABOA), the local administrative body.
- The PTABOA denied Duke's applications for both educational and religious exemptions.
- Duke appealed the denials to the Indiana Board of Tax Review, a statewide administrative body.
- Following a hearing, the Indiana Board of Tax Review issued a final determination granting a partial educational purposes exemption but denying a partial religious purposes exemption.
- The Hamilton County Assessor, as petitioner, initiated an original tax appeal in the Indiana Tax Court, challenging the Indiana Board's decision to grant the educational exemption.
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Issue:
Does a property qualify for a partial tax exemption for educational or religious purposes under Indiana's predominant use test when the owner fails to provide evidence comparing the time spent on exempt activities to the total time the property is used?
Opinions:
Majority - Wentworth, J.
No. A property does not qualify for a partial tax exemption under Indiana's predominant use test if the taxpayer fails to provide a time-usage comparison demonstrating that the property was used for exempt purposes more than 50% of the time it was occupied. The court reasoned that the plain language of Indiana Code § 6-l.l-10-36.3(a) requires a quantitative analysis focusing on the amount of time property is used for exempt purposes versus its total usage. Duke argued that the daycare created an 'atmosphere of education,' but this is insufficient. The court found that Duke failed to identify which specific activities were educational or religious and, crucially, failed to compare the time spent on those activities to the total time the daycare was in operation. Citing precedent like New Castle Lodge #147, the court held that a failure to provide this time comparison is fatal to a claim for exemption. Therefore, the Indiana Board's decision to grant the educational exemption was contrary to law, and its decision to deny the religious exemption was correct, as Duke failed to meet his evidentiary burden for both claims.
Analysis:
This decision solidifies a strict evidentiary requirement for taxpayers seeking partial property tax exemptions under Indiana's 'predominant use' statute. It clarifies that a qualitative assessment, such as creating an 'atmosphere' of education, is insufficient to meet the statutory test. The ruling mandates a quantitative, time-based analysis, effectively requiring taxpayers to maintain detailed logs and records to prove that exempt activities constitute more than 50% of a property's use. This raises the bar for entities like daycares or multi-use facilities to successfully claim partial exemptions and distinguishes the 'predominant use' test from the less-quantitative 'exclusive use' test.
