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ATTORNEYS FOR PETITIONERS
Gregory F. Zoeller Attorney General of Indiana John D. Snethen Tax Litigation Chief Jessica E. Reagan Deputy Attorney General Indianapolis, Indiana

ATTORNEYS FOR RESPONDENT
Jeffrey T. Bennett Karl L. Mulvaney Bradley D. Hasler Bingham McHale LLP Indianapolis, Indiana

ATTORNEY FOR BOARD OF COMMISSIONERS OF THE COUNTY OF HAMILTON AMICUS CURIAE
Marilyn S. Meighen Meighen & Associates Carmel, Indiana

FILED
Dec 15 2010, 12:07 pm
of the supreme court, court of appeals and tax court

CLERK

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Indiana Supreme Court
_________________________________ No. 49S10-1003-TA-140 HAMILTON COUNTY PROPERTY TAX ASSESSMENT BOARD OF APPEALS & HAMILTON COUNTY ASSESSOR, Petitioners (Respondents below), v. OAKEN BUCKET PARTNERS, LLC, Respondent (Petitioner below). _________________________________ Appeal from the Indiana Tax Court, No. 49T10-0612-TA-113 The Honorable Thomas G. Fisher, Judge _________________________________ On Petition For Review _________________________________ December 15, 2010 Rucker, Justice.

In the

In this opinion we determine that charging below market rent for part of a building rented to a church is insufficient, standing alone, to justify a religious and charitable purpose property tax exemption. Instead, an owner of leased property must provide evidence that it possesses an exempt purpose separate and distinct from the exempt purpose of its lessee.

Facts and Procedural History

Oaken Bucket is a domestic for-profit limited liability company that owns a multi-unit office building on the northeast corner of Interstate 69 and Hague Road in Fishers. In 2001 Oaken Bucket leased approximately thirty-five percent, or 13,000 square feet of space, to the Heartland Church, Inc. ("Heartland") at a rate of $6.00 per square foot totaling $78,000 annually. In 2003 the parties executed a second lease in which Heartland rented an additional 15,000 square feet at a rate of $8.00 per square foot, totaling $120,000 annually. The leases were triple net leases requiring Heartland to escrow $1,250 per month for Oaken Bucket's property taxes.1 Over the course of the leases Heartland also paid in excess of $300,000 in build-out costs to improve the leased space.

Oaken Bucket leased the remaining space in the office building to two other entities: A.G. Edwards & Sons, Inc., at a rate of $15.50 per square foot and First Horizon Home Loan Corporation, at a rate of $15.00 per square foot. The A.G. Edwards and First Horizon leases were also triple net leases, but Oaken Bucket was responsible for improvements.

On May 17, 2004, Oaken Bucket filed an exemption application (Form 136) with the Hamilton County Property Tax Assessment Board of Appeals ("County Board") seeking a charitable and religious purposes exemption on the portion of its building leased to Heartland. The County Board denied the application. Oaken Bucket sought review before the Indiana Board of Tax Review ("State Board"), and a hearing was conducted on July 13, 2006.

To demonstrate it was entitled to an exemption, Oaken Bucket introduced evidence that Heartland is a non-denominational church of approximately 500 members that voluntarily
1

A triple-net lease generally requires the landlord to pay for structural repairs while the tenant pays for utilities, property taxes, insurance, and property maintenance. See, e.g., Appraisal Institute, The Appraisal of Real Estate 477 (12th ed. 2001).

2

associates with the Baptist General Conference and its regional organization, the Midwest Baptist Conference. Oaken Bucket showed that Heartland has been designated as a 501(c)(3) organization by the Internal Revenue Service; provided two weekly Sunday worship services; operated a non-profit daycare ministry for approximately 100 children from Monday through Friday; facilitated weekly youth ministries, adult Bible studies, and fellowship dinners throughout the year; and offered various classes to better acquaint individuals with the church and its beliefs. Oaken Bucket also introduced evidence that the church lacked the financial resources to purchase or provide a down payment for a comparable sized property, and that it charged the church below market rent thereby allowing the church to conduct its services in a space and location that facilitated an expansion of its ministry. The County Board disputed Oaken Bucket's claim concerning below market rent and introduced evidence demonstrating that the fair market value for comparable property in the area ranged between $8.00 and $10.00 per square foot

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