ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN STEVE CARTER
ATTORNEY AT LAW ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
ELKHART BEDDING/CAROL DARR, )
) Cause No. 49T10-0101-TA-8
DEPARTMENT OF LOCAL )
See footnote )
ON APPEAL FROM TWO FINAL DETERMINATIONS OF
THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
February 7, 2005
Elkhart Bedding/Carol Darr (Elkhart) appeals the State Board of Tax Commissioners (State Board)
final determinations valuing its real property for the 1999 tax year. The
sole issue for the Court to decide is whether Elkharts improvements are entitled
to obsolescence depreciation adjustments.
FACTS AND PROCEDURAL HISTORY
Elkhart filed two Petitions for Review of Assessment (Forms 131) with the State
Board challenging the 1999 assessment on two of its industrial properties: one
located in Wakarusa, Indiana and the other in Elkhart, Indiana. In its
Forms 131, Elkhart claimed that the improvements on those parcels were entitled to
obsolescence. After conducting an administrative hearing on October 12, 2000, the State
Board denied Elkharts claim.
On January 4, 2001, Elkhart initiated an original tax appeal. In lieu
of a trial, the parties agreed to argue the case based on the
administrative record as well as on their written briefs filed with the Court.
The Court did, however, hear the parties oral arguments on March 11,
2002. Additional facts will be supplied as necessary.
ANALYSIS AND OPINION
Standard of Review
This Court gives great deference to the final determinations of the State Board
when it acts within the scope of its authority. Hamstra Builders, Inc.
v. Dept of Local Govt Fin., 783 N.E.2d 387, 390 (Ind. Tax Ct.
2003). Thus, this Court will reverse a final determination of the State
Board only when its findings are unsupported by substantial evidence, arbitrary, capricious, constitute
an abuse of discretion, or exceed statutory authority. Id.
A taxpayer who appeals to this Court from a State Board final determination
bears the burden of showing that the final determination is invalid. Clark
v. Dept of Local Govt Fin., 779 N.E.2d 1277, 1281 (Ind. Tax Ct.
2002). The taxpayer must present a prima facie case through the use
of probative evidence (i.e., evidence sufficient to establish a given fact that, if
not contradicted, will remain sufficient). Id. Only after the taxpayer has
made a prima facie case does the burden shift to the State Board
to rebut the taxpayers evidence and to justify its decision with substantial evidence.
Id. (citation omitted).
Obsolescence, which is a form of depreciation, is defined as a loss of
value and classified as either functional or economic. Freudenberg-NOK Gen. Pship v.
State Bd. of Tax Commrs, 715 N.E.2d 1026, 1029 (Ind. Tax Ct. 1999),
review denied. See also Ind. Admin Code tit. 50, r. 2.2-10-7(e) (1996).
Functional obsolescence is caused by factors internal to the property and is
evidenced by conditions within the property itself. See 50 IAC 2.2-10-7(e).
Economic obsolescence is caused by factors external to the property. Id.
This Court has previously explained that when a taxpayer seeks an obsolescence adjustment,
it must make a two-pronged showing: 1) it must identify the causes
of the alleged obsolescence and 2) it must quantify the amount of obsolescence
to be applied to its improvement(s). See Clark v. State Bd. of
Tax Commrs, 694 N.E.2d 1230, 1241 (Ind. Tax Ct. 1998). It is
important to recognize, however, that each of these prongs requires a connection to
an actual loss in property value. For example, when identifying factors that
cause obsolescence, a taxpayer must show through the use of probative evidence that
those causes of obsolescence are causing an actual loss of value to its
See Miller Structures, Inc. v. State Bd. of Tax Commrs, 748
N.E.2d 943, 954 (Ind. Tax Ct. 2001) (footnote added). Then, when the
taxpayer quantifies the amount of obsolescence to which it believes it is entitled,
it is required to convert that actual loss of value (shown in the
first prong) into a percentage reduction and apply it against the improvements overall
value. See Clark, 694 N.E.2d at 1238.
1. The Wakarusa, Indiana Property
For the 1999 assessment, the Elkhart Property Tax Assessment Board of Appeals (PTABOA)
awarded the improvement on this parcel 0% obsolescence. Elkhart contends, however, that
the improvement is entitled to a 42% obsolescence depreciation adjustment.
To support its claim for obsolescence, Elkhart presented an Assessment Review and Analysis
(Analysis) in which it stated that [t]he subject property suffers a loss in
value due [to] some causes of obsolescence. (Stip. R. at 90.)
More specifically, Elkhart asserted that
the flat roof design is of high maintenance and more prone to leaks.
The subject is mostly constructed of brick and block with steel framing
materials. In todays market this is considered to be a superadequacy as
well as an obsolete design, as a modern building  with better utility
could be constructed with a less expensive light pre-engineered metal building. The
subject property has a maximum ceiling height of 15 feet and is limited
by the lowest ceiling height in the building at 13 feet. In
todays manufacturing market a much higher ceiling height is the desirable feature.
(Stip. R. at 90.) Elkharts Analysis also contained: 1) a one-page
general description of obsolescence; 2) a cursory mathematical calculation showing how it arrived
at 42%; and 3) an article titled Identifying, Measuring, and Treating Functional Obsolescence
in an Appraisal. (Stip. R. at 89, 91-104.)
Obsolescence must be tied to an actual loss in property value. Miller
Structures, Inc., 748 N.E.2d at 953-54. In this case, Elkhart presented no
evidence whatsoever indicating an actual loss i.e., how the alleged causes of
obsolescence present in its property are causing it to lose money. See
Clark, 694 N.E.2d at 1238. For example, Elkhart needed to support its
allegation that its ceiling heights have caused increased production and material handling costs
with calculations indicating the amount of those increased costs. See 50 IAC
2.2-10-7(e) (stating that excessive material and product handling costs may be the result
of functional obsolescence). Likewise, Elkhart needed to show how the roofs design
has caused it to incur higher maintenance costs, thereby negatively affecting its ability
to generate income.
Elkhart has not made a prima facie case with respect to linking the
alleged causes of obsolescence with an actual loss to its propertys
value. This failure, in turn,
is fatal to its quantification of obsolescence.
See footnote Accordingly, the State Boards duty
to rebut Elkharts evidence has not been triggered. The State Boards final
determination with respect to Elkharts Wakarusa property is therefore AFFIRMED.
2. The Elkhart, Indiana Property
Elkharts challenge on its Elkhart propertys assessment suffers the same fate as its
challenge on the Wakarusa propertys assessment. Indeed, Elkhart merely provided the State
Board with a laundry-list of alleged causes of obsolescence present in its property
and then stated that it was therefore entitled to 78.7% obsolescence. (See
Stip. R. at 125-26.) Elkhart presented no evidence, however, regarding how those
alleged causes of obsolescence are causing its property to lose money. See
Clark, 694 N.E.2d at 1238.
Because Elkhart has not linked the alleged causes of obsolescence with
an actual loss to its propertys value, it cannot quantify obsolescence. Accordingly,
the State Boards duty to rebut Elkharts evidence has, again, not been triggered.
The State Boards final determination with respect to Elkharts Elkhart property is
Because Elkhart failed to link the factors causing obsolescence with an actual loss
in its properties value, it failed to make a prima facie case quantifying
the amount of obsolescence to which it was entitled. Thus, the Court
AFFIRMS the determinations of the State Board.
The State Board of Tax Commissioners (State Board) was originally the Respondent
in this appeal. However, the legislature abolished the State Board as of
December 31, 2001. 2001 Ind. Acts 198 § 119(b)(2). Effective January
1, 2002, the legislature created the Department of Local Government Finance (DLGF),
Indiana Code § 6-1.1-30-1.1 (West Supp. 2004-2005)(eff. 1-1-02); 2001 Ind. Acts 198 §
66, and the Indiana Board of Tax Review (Indiana Board). Ind. Code
Ann. § 6-1.5-2-1 (West Supp. 2004-2005)(eff. 1-1-02); 2001 Ind. Acts 198 § 95.
Pursuant to Indiana Code § 6-1.5-5-8, the DLGF is substituted for the
State Board in appeals from final determinations of the State Board that were
issued before January 1, 2002. Ind. Code Ann. § 6-1.5-5-8 (West Supp.
2004-2005)(eff. 1-1-02); 2001 Ind. Acts 198 § 95. Nevertheless, the law in
effect prior to January 1, 2002 applies to these appeals. A.I.C. §
6-1.5-5-8. See also 2001 Ind. Acts 198 § 117. Although the
DLGF has been substituted as the Respondent, this Court will still reference the
State Board throughout this opinion.
Elkhart also raised various state and federal constitutional claims that this Court
has declined to reach in previous cases.
See, e.g., Barth, Inc. v.
State Bd. of Tax Commrs, 756 N.E.2d 1124, 1127 n.1 (Ind. Tax Ct.
2001). Because Elkharts claims and supporting arguments are identical to those previously
rejected by the Court, the Court will not address them.
In the commercial context, this loss of value usually means a
decrease in the propertys income generating ability.
See Miller Structures, Inc. v.
State Bd. of Tax Commrs, 748 N.E.2d 943, 953 (Ind. Tax Ct. 2001).
It is important to recognize that both prongs require a connection to
an actual loss in property value.
See Clark v. State Bd.
of Tax Commrs, 694 N.E.2d 1230, 1238 (Ind. Tax Ct. 1998). Thus,
the quantification of obsolescence is intrinsically tied to the actual loss of value
suffered by the improvement from the alleged causes of obsolescence. See Miller
Structures, Inc., 748 N.E.2d at 954. See also Heart City Chrysler v.
State Bd. of Tax Commrs, 714 N.E.2d 329, 334 (Ind. Tax Ct. 1999)
(stating that attempts to quantify obsolescence must correlate to the causes of obsolescence).
The administrative record lacks any evidence or explanation on the subject of
Elkharts actual loss of value. Consequently, it is impossible for Elkhart to
convert that loss of value into an obsolescence quantification.