ATTORNEY FOR PETITIONER:    ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN    STEVE CARTER
ATTORNEY AT LAW     ATTORNEY GENERAL OF INDIANA
Indianapolis, IN    Indianapolis, IN
    
    LAUREANNE NORDSTROM
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN
______________________________________________________________________
     IN THE INDIANA TAX COURT

ELKHART BEDDING/CAROL DARR,         )
                                     )
    Petitioner,                      )
                                     )
    v.                               )

            ) Cause No. 49T10-0101-TA-8
DEPARTMENT OF LOCAL         )
GOVERNMENT FINANCE, See footnote         )
                )
    Respondent.            )    
______________________________________________________________________

ON APPEAL FROM TWO FINAL DETERMINATIONS OF
THE STATE BOARD OF TAX COMMISSIONERS

NOT FOR PUBLICATION
February 7, 2005

FISHER, J.
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 Elkhart’s improvements are entitled to obsolescence depreciation adjustments. See footnote
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 Elkhart’s 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. Dep’t of Local Gov’t 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. Dep’t of Local Gov’t 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 taxpayer’s evidence and to justify its decision with substantial evidence. Id. (citation omitted).
Discussion

    “Obsolescence, which is a form of depreciation, is defined as a loss of value and classified as either functional or economic.” Freudenberg-NOK Gen. P’ship v. State Bd. of Tax Comm’rs, 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 Comm’rs, 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 property. See footnote See Miller Structures, Inc. v. State Bd. of Tax Comm’rs, 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 improvement’s 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 today’s 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 today[’]s manufacturing market a much higher ceiling height is the desirable feature.

(Stip. R. at 90.) Elkhart’s 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 roof’s 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 property’s value. This failure, in turn,
is fatal to its quantification of obsolescence. See footnote Accordingly, the State Board’s duty to rebut Elkhart’s evidence has not been triggered. The State Board’s final determination with respect to Elkhart’s Wakarusa property is therefore AFFIRMED.
2. The Elkhart, Indiana Property

Elkhart’s challenge on its Elkhart property’s assessment suffers the same fate as its challenge on the Wakarusa property’s 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 property’s value, it cannot quantify obsolescence. Accordingly, the State Board’s duty to rebut Elkhart’s evidence has, again, not been triggered. The State Board’s final determination with respect to Elkhart’s Elkhart property is therefore AFFIRMED.


CONCLUSION

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.





Footnote: 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), see 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.

Footnote: 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 Comm’rs, 756 N.E.2d 1124, 1127 n.1 (Ind. Tax Ct. 2001). Because Elkhart’s claims and supporting arguments are identical to those previously rejected by the Court, the Court will not address them.

Footnote: In the commercial context, this loss of value usually means a decrease in the property’s income generating ability. See Miller Structures, Inc. v. State Bd. of Tax Comm’rs, 748 N.E.2d 943, 953 (Ind. Tax Ct. 2001).


Footnote:      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 Comm’rs, 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 Comm’rs, 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 Elkhart’s actual loss of value. Consequently, it is impossible for Elkhart to convert that loss of value into an obsolescence quantification.