Preview:

ATTORNEYS FOR PETITIONER: JEFFREY T. BENNETT BRADLEY D. HASLER BINGHAM MCHALE LLP Indianapolis, IN

ATTORNEYS FOR RESPONDENTS: GREGORY F. ZOELLER ATTORNEY GENERAL OF INDIANA JESSICA E. REAGAN DEPUTY ATTORNEY GENERAL Indianapolis, IN _____________________________________________________________________

CLERK _____________________________________________________________________
of the supreme court, court of appeals and tax court

IN THE INDIANA TAX COURT

FILED

Jul 24 2009, 2:50 pm

) OAKEN BUCKET PARTNERS, LLC, ) ) Petitioner, ) ) v. ) Cause No. 49T10-0612-TA-113 ) HAMILTON COUNTY PROPERTY TAX ) ASSESSMENT BOARD OF APPEALS ) and HAMILTON COUNTY ASSESSOR, ) ) Respondents. ) _____________________________________________________________________ ON APPEAL FROM A FINAL DETERMINATION OF THE INDIANA BOARD OF TAX REVIEW FOR PUBLICATION July 24, 2009 FISHER, J. Oaken Bucket Partners, LLC (Oaken Bucket) challenges the final determination of the Indiana Board of Tax Review (Indiana Board) which denied its property tax exemption application for the 2004 tax year (year at issue). The issue for review, as restated by the Court, is whether the Indiana Board erred when it determined that Oaken Buckets real property was neither owned nor predominately used for religious/charitable purposes during the year at issue.

FACTS AND PROCEDURAL HISTORY Oaken Bucket, a domestic limited liability company, owns the subject property: a two-story, multi-tenant office building, situated on the northeast corner of I-69 and Hague Road in Fishers, Indiana. During the year at issue, Oaken Bucket leased 28,000 square feet of its building to Heartland Church, Inc. (Heartland).1 The other portion of its building was initially leased to A.G. Edwards & Sons, Inc. (A.G. Edwards), and then to First Horizon Home Loan Corporation (First Horizon). All three of these lessees, under the terms of their triple net leases, paid an annual base rent and certain other expenses including property taxes to their landlords.2,3 On May 17, 2004, Oaken Bucket timely filed an exemption application (Form 136) with the Hamilton County Property Tax Assessment Board of Appeals (PTABOA), seeking a charitable/religious purposes exemption on the portion of its building leased to Heartland (hereinafter, the Heartland space). The PTABOA subsequently denied the application because it believed Oaken Bucket leased the property to Heartland "for a profitable gain per month[.]" (Cert. Admin. R. at 14.) Heartland is a non-denominational church of approximately 500 members that voluntarily associates with "[t]he Baptist General Conference and its regional expression, [t]he Midwest Baptist Conference." (Cert. Admin. R. at 187.) Heartland has been designated as a 501(c)(3) organization by the Internal Revenue Service; its income is therefore exempt from federal taxation. (See Cert. Admin. R. at 184, 210-16.) 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). In contrast, under the provisions of a gross lease (an example of a non-triple net lease), the landlord pays all of the expenses and the tenant only pays rent. Id. Boomerang Investments, Inc. (Boomerang) executed the leases with both A.G. Edwards and First Horizon; nevertheless, the parties found this fact to be irrelevant because Boomerang and Oaken Bucket were primarily owned and managed by the same individual. (See Cert. Admin. R. at 446-49, 479-80.) 2
3 2 1

On July 21, 2004, Oaken Bucket filed a Petition for Review of Exemption (Form 132) with the Indiana Board. The Indiana Board conducted a hearing on the matter on July 13, 2006. At the hearing, Oaken Bucket claimed the Heartland space qualified for a charitable/religious purposes exemption, as it was owned, occupied, and predominately used for charitable/religious purposes. More specifically, Oaken Bucket claimed that the mere fact that it leased the majority of its building to Heartland demonstrated that it owned the Heartland space for charitable/religious purposes. (See Cert. Admin. R. at 412-13.) Oaken Bucket explained that through its leases with

Heartland, it signified its express consent that the space be dedicated to, and used to further, Heartlands religious purposes. (See Cert. Admin. R. at 412-13.) To that end, Heartlands treasurer, Mr. David Wilkinson, explained that Heartland: 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. (Cert. Admin. R. at 432-33.) In addition, Oaken Bucket claimed that its charitable ownership and use of the property was exemplified by its decision to charge Heartland below market rent. (See Cert. Admin. R. at 411.) To support that claim, Oaken Bucket presented the A.G.

Edwards lease and the First Horizon lease. The A.G. Edwards lease required A.G. Edwards to remit an annual base rent of $15.50 per square foot for approximately 9,500 square feet of space. (Cert. Admin. R. at 217.) First Horizons lease required it to pay an annual base rent of $15.00 per square foot for 10,421 square feet of space. (Cert.

3

Admin. R. at 226.)

Furthermore, Mr. Wilkinson explained that he had recently

"shopped" the area for rental properties and found that market rent in comparable buildings ranged from $15.00 to $17.00 per square foot. (Cert. Admin. R. at 451.) In contrast, Heartland leased 15,000 square feet of space for $8.00 per square foot and another 13,000 square feet for $6.00 per square foot per annum. (See Cert. Admin. R. at 158, 176, 445-46, 451-52.) Finally, Mr. Warren Byrd, a member of the church, explained that the space was both owned and used for charitable/religious purposes because Heartland was "just a start up church with very few members" when it executed the leases with Oaken Bucket. (Cert. Admin. R. at 408.) Mr. Byrd explained that although Heartlands services had transitioned from its pastors home to a room at the Holiday Inn, the church lacked the financial wherewithal to purchase or provide a down payment for a property of that size. (Cert. Admin. R. at 409, 452, 466.) According to Mr. Byrd, the below market rent

ultimately allowed the church to conduct its services in a space and location that facilitated an expansion of its ministry. (See Cert. Admin. R. at 408-09, 466.) The PTABOA, however, asserted that Oaken Buckets ownership and use of the space had little to do with religion or benevolence.4 According to the PTABOA, Oaken Buckets ownership and use of its property was analogous to that of any other landlord: it only owned and used the property for investment/profit-generating purposes. (See Cert. Admin. R. at 420, 468.) The PTABOA pointed to four aspects of Heartlands leases which it claimed evidenced a lack of charity on the part of Oaken Bucket. The PTABOA first noted that Oaken Bucket had not dedicated the Heartland The PTABOA did not dispute that the Heartland space was occupied for religious purposes. (See Cert. Admin. R. at 467-68.) 4
4

space exclusively to charitable/religious purposes because one of the lease provisions permitted the space to be used for commercial purposes. (See Cert. Admin. R. at 165

Download Oaken Bucket Partners, LLC v. Hamilton County Property Tax Assessment Board of

Indiana Law