Local government taxing districts that include Southlake Mall likely will have to pay millions of dollars in refunds to the mall's owners after a long-running property tax assessment dispute was resolved Wednesday in the mall's favor.
The Indiana Supreme Court, in a 5-0 decision, ordered the valuation of the mall for property tax purposes restored to the 2010 assessment of approximately $110 million for the 2011, 2012, 2013 and 2014 tax years, undoing a 2014 reassessment that valued the mall at approximately $240 million.
The exact amount of the refunds to be paid by Lake County, Hobart, and the other taxing units due to the overassessment is not yet known.
But a former attorney for the Lake County Commissioners previously estimated the county alone may be on the hook to return as much as $12 million in property taxes paid by the mall during those years.
According to court records, mall owner Southlake Indiana LLC objected to the Ross Township assessor more than doubling the assessed value of the mall property at U.S. 30 and Mississippi Street that contains some 1.3 million square feet of retail space, a 12-screen AMC movie theater, and several restaurants.
The case eventually landed at the Indiana Board of Tax Review. Records show the board was unable to say whether the mall appraisal provided by the assessor or the valuation offered by the mall's appraiser was correct.
To resolve the issue, the Board of Tax Review created its own valuation for the mall for the four tax years at issue that was closer to what the assessor said the mall was worth than what mall officials believed the property was worth.
The appellate-level Indiana Tax Court affirmed the board's valuation of the mall, except for two minor issues, in December.
The Supreme Court, however, said both the tax review board and the tax court overstepped their bounds by independently devising and affirming a value for the mall, according to the ruling written by Justice Geoffrey Slaughter, a Crown Point native.
Slaughter said Indiana statutes clearly require the tax board, when a challenged valuation is 5% greater than the previous valuation, to accept as correct either the assessor's appraisal of a property or the property owner's appraisal — otherwise the valuation must revert to the previous assessment.
He said there's no statutory authority for the tax board to create its own assessment, as it did in this case, if it finds deficiencies in each of the provided appraisals.
Likewise, the tax court should not have affirmed the board's actions, Slaughter said.
"We apply the statute as written and do not second guess the Legislature's decision to limit the state board's flexibility when assessed values increase by more than the 5% percent threshold," Slaughter said.
"By failing to apply the reversionary clause, the tax court erred as a matter of law."
Brian Cusimano, attorney for the Lake County assessor, said he's very disappointed in the opinion issued by the state's high court.
"The assessor provided substantial evidence of the value of the property — an appraisal and a sale — which we believed supported the assessments issued by the Ross Township assessor," Cusimano said.
He pointed out the court-ordered reversion to the 2010 valuation reduces the value of the property to below even what the mall's appraiser calculated the mall was worth for the 2013 and 2014 tax years.
"In the coming months, we hope the Indiana Legislature will revisit the provisions of the statute so it is no longer applied in this way," Cusimano said.
Lead mall attorney David Suess said he's pleased Southlake finally will get a proper tax assessment based on Indiana law.
"The court's ruling vindicates the taxpayer protections wisely enacted by the General Assembly to prevent assessors from doing exactly what the assessor did in this case: substantially increasing Southlake's assessment without being able to prove that the increase was correct," Suess said.
"Our client looks forward to working with Lake County to promptly resolve all remaining assessment disputes."
Records show Southlake Mall recently was foreclosed on in Israel after its former owner, Starwood, refinanced its mall portfolio in 2018 and then defaulted last year due to the COVID-19 pandemic.
California-based Pacific Retail Capital Partners and New York City-based Golden East Investors were installed as trustees running the mall, the second-largest in Indiana and the anchor of Northwest Indiana's biggest commercial trade district.
A valuation of the mall provided to Starwood in 2018 by Chicago-based NPV Adviors pegged its fair value at $302 million as of Sept. 30, 2017.