Updates to Indiana’s Business Personal Property Tax: Senate Bill 1 (SB 1)

In the last legislative session, the Indiana General Assembly introduced and passed significant changes to Indiana’s business personal property tax regime. The changes in Indiana’s SB 1, along with subsequent amendments from House Enrolled Act 1427, aim to reduce businesses’ tax burdens and encourage investment in new equipment.

Two key changes and their implications for businesses operating in the state of Indiana are outlined below.

Raises De Minimis Exemption Threshold

SB 1 significantly raises the de minimis exemption threshold for business personal property. Effective January 1, 2026, the threshold for business personal property tax will increase from $80,000 to $2 million. If the total business personal property acquisition costs in a county are below $2 million, then the business will be exempt from the business personal property tax. Taxpayers will still be required to file a business personal property return even if they qualify for the new exemption threshold. See IC 6-1.1-3-7.2

Removal of the 30% Minimum Valuation Floor

SB 1 removes the 30% minimum valuation floor for new depreciable business personal property placed in service as of January 1, 2025. Prior to the passage of this bill, business personal property assets retained a taxable value of at least 30% of their original cost, even when fully depreciated. With this legislative change, new property can depreciate to zero, lowering the property's taxable value.

Business should be cautious to consider when the assets were placed into service. Assets placed in service before January 1, 2025, will remain subject to the 30% floor. Additionally, property located in tax increment financing districts is still subject to the 30% floor. As a practical matter, businesses will need to track old and new assets separately to comply with the differing tax treatment. See 50 IAC 4.2-4-9

Michigan Supreme Court Set to Tackle the Definition of “Additions” for Real Property Tax Cap

Knier v. City of Bay City, 2025 Mich. 946, SC: 167593 (Mich. 2025); Knier, Powers, Martin, & Smith, LLC v. City of Bay City, 2024 Mich App. 6126, No. 366114 (Mich. Ct. App. 2024)

The Michigan Supreme Court accepted an appeal of the First District Court of Appeals’ decision in Knier, Powers, Martin, & Smith, LLC v. City of Bay City, promising further clarity on the definition of “additions” in the context of Michigan’s property tax regime. Under Michigan law, the taxable value of real property can only increase by the inflation rate or 5%, whichever is lower. If an “addition” is made to a property, 50% of the true cash value of the addition can be added to the taxable value of the property without violating the real property tax cap. The First District held that a commercial roof replacement qualified as an “addition,” allowing assessors to add 50% of the improvement’s true cash value to the taxable value, beyond the 5% or inflation cap.

In the case before the court, a law firm replaced their building’s roof in 2021, leading Bay City to reassess the property’s taxable value for 2022 and increasing the taxable value by 12.42%. The court of appeals ruled that the roof replacement was an “addition” because the roof is a “new construction”— property not existing on the prior Tax Day. The court rejected the law firm’s arguments that the term “property” is limited to land and buildings. It also rejected arguments that the replacement was not “new construction” since a roof existed before and after the construction project, noting the new roof’s distinct value. In coming to its decision, the court also evaluated a similar provision in MCL § 211.27(2)(b), which addresses the impact of changes to residential properties on the taxable cap. The court noted that MCL § 211.27(2)(b) contains a specific carve-out for residential roof repair from the definition of “addition.” Because the residential statute contained a specific carve out for roof repairs, the court agreed that a nonresidential roof (for which the statute did not contain a carve out) would therefore be an “addition.”

The pending Supreme Court review may refine the scope of “additions.” Commercial property owners should anticipate that significant repairs, like roof replacements, may trigger taxable value increases beyond the statutory cap.

County Property Appraiser Goes on the Offensive; Sues Disney over Assessment of Disney Springs Hotel

Orange County Property Appraiser Amy Mercado has filed a lawsuit against Disney over a property tax dispute involving the Hilton Doubletree hotel near Disney Springs. The conflict centers on the Orange County Value Adjustment Board's (VAB) decision to reduce the hotel's assessed value for 2024 from $30.3 million to $26.3 million—a $4 million drop.

Mercado argues the VAB's decision is "unlawful and invalid" and is asking the court to overturn it, reinstate her office’s original valuation, and require Disney to cover legal fees. She maintains her office used standard, professionally accepted appraisal methods.

This marks the first time since taking office in 2020 that Mercado has sued Disney. Historically, Disney has been the one filing lawsuits to challenge its property assessments, including multiple complaints in late 2024 covering theme parks, hotels, and other properties.

The outcome of this case carries high financial stakes, not just for Disney but also for local public institutions like Orange County Public Schools, which rely on property tax revenue.

Industry Spotlight: Data Centers

Data Centers: Key Trends and Insights for Owners and Occupants

Data centers are critical infrastructure in today’s world, but they present unique and significant challenges for property tax valuation. Many jurisdictions have provided property tax incentives or abatements for newly built facilities, but will this trend continue? What happens after the property tax incentive ends? Demand for data centers is anticipated to grow rapidly—driven by cloud computing, AI, and digital services. However, many tax assessors lack the expertise to value data centers correctly, potentially leading to inaccurate assessments or over-assessments, causing owners and tenants to pay too much in real property tax.

Overview

As of March 2025, the United States leads the world in the number of data centers, with approximately 5,426 operational facilities. As demand continues to increase, there has been a shift from large markets due to factors such as energy capacity, availability of real estate, favorable zoning regulations, and costs. The availability of affordable energy and tax incentives has made new markets attractive for hyperscale and colocation facilities.

The Valuation Paradox

When it comes to real property tax assessments, data centers are often misunderstood and often overtaxed. What drives these assessments? Large data center developments often involve significant investment, resulting in complex financing deals and announcements of substantial capital investment. However, tax assessors struggle to value data centers accurately. While there is often significant capital investment, the majority of the investment in a data center is in the business components, which are not real estate and therefore should not be taxed as such.

Property taxes are often the largest single operating expense (assuming the property is not receiving property tax abatements). While there may be up-front incentives abating property taxes for an initial period, what happens after the abatement expires?

The Valuation Challenge

The real estate component of a data center is similar to a warehouse. However, a sophisticated data center will have many specific requirements that far exceed the requirements for a typical warehouse. These requirements include substantial electrical components to operate the servers, with the ability to have an uninterrupted power supply and redundancy to ensure the facility operates 24/7/365. Additionally, the data center must have structural improvements to support the fiber optics and cabling, as well as reinforced or specialized flooring to support the weight of equipment, battery backups, and cooling systems. The facilities also often have redundant electrical systems, extensive water or air handling components, double roofs, and increased security requirements. All of these components are constructed with the facility but, in most cases, may not meet the definition of real estate for taxation purposes in a particular jurisdiction. Real estate taxation should only be based upon the value of the real estate. However, because modern data centers are still relatively new in most jurisdictions, many assessors haven’t determined how to exclusively value only the real estate without incorporating the value of the non-real estate components that are often difficult to separate from the real estate itself. Owners and operators should not lose sight of the fact that even if the property is receiving tax incentives, community development charges could be tied to valuation, or the incentive will end or ratchet down over time, exposing the owner or operator to a tax burden not tied only to the value of the real property.

Valuation Methods Applied to Assess Data Centers

As with any real estate, tax assessors employ three standard methodologies to value the real property: the cost approach, the sales comparison approach, and the income approach to value. Which approach is the best to value only the real estate for a data center?

All three approaches can be useful; however, all have potential issues that must be evaluated to determine the proper assessment of the real property. Let’s first consider some of the flaws with the different approaches to value. Both the sales comparison approach and income approach may not be appropriate for the valuation of a data center.

Starting with the sales comparison approach, a data center is likely to trade in the market as a business operation or going concern. This means that the buyer is purchasing more than just the real estate. The buyer is purchasing the personal property and potentially service contracts or other intangibles. Further, the purchase of a build-to-suit property for a specific user is going to include not only the real estate but also the personal property or business fixtures that should not be considered real property. Any knowledgeable market participant understands that the purchase of a data center is more than just the building and land, making sales of data center facilities suspect to value only the real estate.

Second, the income approach to value suffers from some of the same issues as the sales comparison approach – the inability to isolate only the value of the real estate. There are numerous types of leases and service agreements in the data center industry. The more equipment and services included in the lease agreement, typically leads to a higher lease rate. But again, this is not only for the use of the land and building but often includes components that are considered personal property or business fixtures in certain jurisdictions or services such as security. Leases can vary substantially from one to another. With a NNN lease, the tenant would rent shell space in the data center and be responsible for connecting to power, its equipment, cooling, and security. At the other end of the spectrum would be a lease that could provide full service, including equipment and utilities. These two different lease structures demonstrate the difficulty in evaluating the components included within the lease rate and, in part, account for the differences in the lease rate itself. But they do not effectively account for the rent associated with the real estate alone. Instead, the exercise of trying to isolate the contributory real estate component of the overall lease rate is speculative at best, especially as other factors such as access to energy and the necessary infrastructure (powered shell) may be increasingly driving rental rates for data centers.

Finally, the cost approach to value data centers can be a useful method if properly developed and if only items that are real estate are included within the approach to value. If the cost approach is properly developed, it will best reflect the value of the real estate. A cost valuation approach starts with estimating the cost, often through valuation manuals. From there, depreciation is determined, and the value of the land is added to the depreciated improvements. This results in a determination of the fee simple value for the real property. However, there are still challenges with this approach, especially in jurisdictions that do not tax personal property or have business fixture definitions that may exclude certain components from the definition of real property. With these factors in mind, the cost approach is the best method to isolate the value of only the real property.

Final Thoughts

As data centers become more prevalent across the country, the impact of real estate tax assessment will evolve and change. However, until each tax assessor recognizes the flaws with the methods they employ, data center owners and occupants should carefully review their real property tax assessments to determine if the value reflects only the value of the real property. Even if the properties are subject to tax incentives, the review process is still important because there may be other charges such as community development charges tied to value, and because, importantly, the property will become fully taxable in the future.

Valuation Deadlines Quickly Approaching Across the U.S.

Taxpayers seeking to contest real property tax values established by assessing jurisdictions across the country often have a short window of opportunity to contest their new valuation. The below map highlights some upcoming deadlines across the U.S. Click on the map to enlarge the image.

Property taxes are frequently the largest non-productive expense incurred by property owners, and proactive management of this expense may result in increased profitability. Now is the time to review your tax assessments to make sure that each property is valued appropriately and that you are paying your fair share, and only your fair share, of the property tax burden.

Vorys has significant experience in analyzing real property tax values and securing real property tax savings for taxpayers across the country. To discuss an analysis of the opinions of value assigned by your local assessing jurisdiction, please contact us to discuss further.

*The map is for informational purposes only and does not constitute legal advice. In some cases appeal dates vary by jurisdiction and notice date.

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