Property tax questions: watch for annual adjustments to value.

• Position: ADVICE: LEGAL - Interview

WE RECENTLY SAT DOWN with David Suess and Tom Atherton, attorneys from Bose McKinney & Evans LLP who practice law together in the area of property-tax litigation, and asked them how businesses are likely to be affected by recent changes in the property tax arena.

What is the biggest change in property taxation in recent years?

Suess: In 2002, Indiana moved from a highly subjective system to a system based on market-value concepts. We are just beginning to see decisions from the Indiana Board of Tax Review and Tax Court, interpreting the new market-based rules. Under the new system, taxpayers armed with objective, market-based evidence are in a much better position to challenge assessments than under the old system.

What was the net effect of the shift from the old system to the new market-based system? Who won and who lost with the change?

Atherton: It really depends where a home or business is located and what type of property is owned. For residential property, owners of newer homes generally fared better than owners of older homes.

For businesses, the answer is more complex and is likely to change over time. The new system is still heavily reliant on the "cost approach" to value, which places great emphasis on construction costs. For business owners operating in a fluctuating market in which sales of business properties or decreasing revenues indicate that a property is losing value, assessors may not be accurately capturing the loss in value. Unfortunately, that can lead to over-valuation and over-taxation of the property.

Suess: This is especially true for older businesses in a rapidly changing industry if the business hasn't been able to upgrade its facilities, causing "functional obsolescence." Similarly, "economic obsolescence" can reduce property values due to market and industry conditions that adversely impact such things as product prices, raw material costs, etc. The new system is better equipped to identify and quantify losses in value under such circumstances.

Atherton: Business owners should evaluate the property's assessed value relative to the property's likely sales price, or the sales prices of other comparable properties, to...