INDIANA TAX COURT
ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
CURTIS J. DICKINSON JEFFREY A. MODISETT
DAVID L. PIPPEN
Attorney General of Indiana
Dickinson & Abel Indianapolis, Indiana
TED J. HOLADAY
Deputy Attorney General
ZORN INDUSTRIES, )
v. ) Cause No.49T10-9701-TA-00039
STATE BOARD OF TAX COMMISSIONERS, )
ON APPEAL FROM A FINAL DETERMINATION
OF THE STATE BOARD OF TAX COMMISSIONERS
February 8, 2000
NOT FOR PUBLICATION
Zorn Industries (Zorn) appeals the final determination of the State Board of Tax
Commissioners (State Board) establishing the assessed value of its property as of the
March 1, 1991, assessment date. Zorn presents one issue for this Courts
Whether the State Boards final determination with respect to obsolescence depreciation
lacked substantial evidentiary support.
FACTS AND PROCEDURAL HISTORY
Zorn is an Indiana corporation located in Elkhart County, Indiana.
reveals that on August 24, 1992, the State Board received a Form 131
Petition for Review of Assessment (petition) for parcel number 25-06-06-227-005 (parcel 25) claiming
that additional obsolescence should be given to the subject property situated on parcel
25. The State Board held a hearing on Zorns petition on May
30, 1996, in Elkhart County. Zorn asserts that, at the hearing, it
presented substantial testimony and evidence describing errors in the assessment of the subject
property and requested that an 80% obsolescence depreciation factor be applied to the
subject property to lower the assessment. On November 22, 1996, the State
Board issued its final determination. In that final determination, the State Board
concluded otherwise and stated that Inspection of the property[,] along with review of
the evidence and review of the neighborhood[,] found symptoms of loss to value
due to limited use of the structure . . . . [As
a result] [o]bsolecence [d]epreciation is determined at 60%. (State Bd. Final Determination
¶ 2). Unsatisfied with that result, Zorn filed an original tax appeal
with this Court on January 3, 1997. On January 30, 1998, Zorn
filed a Motion for Summary Judgment believing it was entitled to judgment as
a matter of law. On May 13, 1998, this Court denied Zorns
Motion for Summary Judgment. On November 30, 1998, this Court conducted a
trial on the above issue. Additional facts will be supplied as necessary.
ANALYSIS AND OPINION
Standard of Review
As Indianas property tax experts, final determinations of the State Board are given
great deference by this Court when the State Board acts within the scope
of its authority. See Hoogenboom-Nofziger v. State Bd. of Tax Commrs, 715
N.E.2d 1018, 1021 (Ind. Tax Ct. 1999). This Court reverses final determinations
of the State Board only when they are unsupported by substantial evidence, are
arbitrary or capricious, constitute an abuse of discretion, or exceed statutory authority.
See id. Accordingly, the party challenging an assessment bears the burden of
demonstrating that the assessment is incorrect. See Vonnegut v. State Bd. of
Tax Commrs, 672 N.E.2d 87, 89 (Ind. Tax Ct. 1996).
Zorn contends that the State Boards decision allowing an application of 60% for
obsolescence depreciation to the subject property was erroneous. Zorn argues that the
subject property suffers from both functional and economic obsolescence, and, as a result,
the subject property should have been granted an application of 80% to account
for the obsolescence. (Petr Br. at 8.) Instead, the State Board
granted the subject property an application of 60% for obsolescence. (Respt Br.
at 2.) Both parties agree, however, that causes of obsolescence exist within
the subject property.
Obsolescence is a form of depreciation and is defined as a loss of
value and can either be classified as functional or economic. See Freudenberg-NOK
Gen. Partnership v. State Bd. of Tax Commrs, 715 N.E.2d 1026,1029 (Ind. Tax
Ct. 1999) (citing Ind. Admin. Code tit. 50, r. 2.1-5-1 (1992) (codified in
present form at id. r. 2.2-10-7(e) (1996)), review denied. Functional obsolescence is
either a physical element that buyers are unwilling to pay for or a
deficiency that impairs the utility of a property when compared to a more
modern replacement, thus leading to a loss in value. Id. (citations
omitted). Functional obsolescence works as a penalty against the propertys value.
See id. Economic obsolescence is caused by factors external to the property.
See Clark v. State Bd. of Tax Commrs, 694 N.E.2d 1230, 1238
(Ind. Tax Ct. 1998). The obsolescence of a given improvement must be
tied to a loss of value. See id. In the commercial
context, that loss of value usually means the loss of income generated by
the property. See id.
The determination of obsolescence is a two-step inquiry. First, the assessor
must identify the causes of obsolescence and second quantify the amount of obsolescence
to be applied. See Clark, 694 N.E.2d at 1238. With respect
to the second part of the Clark inquiry and despite the regulation governing
obsolescence providing inadequate guidance on quantification, the State Board still maintains the responsibility
of supporting its decision to quantify obsolescence with substantial evidence. See id.
Since the parties agree that causes of obsolescence exist, the only issue remaining
See Phelps Dodge, 705 N.E.2d at 1102. The rule
of law regarding obsolescence depreciation is quite clear: When the State Board
agrees that the subject property suffers from obsolescence and assigns a factor such
as 60%, it must support the same with substantial evidence.
See Clark, 694
N.E.2d at 1233. The State Boards duties notwithstanding, for reasons explained below,
the Court finds itself uncomfortable with the half-hearted presentation that Zorn made in
support of its case at both the administrative and trial levels.
The evidence that Zorn presented does not support a finding of 80% obsolescence
Yet, Zorn claims that it presented significant testimony and evidence
establishing [that] a greater obsolescence factor is necessary. (Petr Br. at 7.)
However, Zorn does not identify such evidence, and the Court, in its
search of the record, is unable to find any evidence that would support
an application of 80% obsolescence. See North Park Cinemas v. State Bd.
of Tax Commrs, 689 N.E.2d 765, 769 (Ind. Tax Ct. 1997) (expressing the
view that a party who stands to be adversely affected by a petition
for review has a responsibility to present evidence and argument in support of
its position). The record reflects that, in support of its claim for
obsolescence depreciation in the amount of 80%, the only evidence submitted by Zorn
is a contract for the sale of the subject property. (Joint Ex.
B.) Apparently, Zorn believes that the contract provides evidence that the assessed
value of the property exceeded the purchase price of the property and therefore
supports a claim for 80% obsolescence. (Respt Br. at 1.) With
respect to the contract, the Court finds itself in agreement with the State
Board when it stated that Although [the] evidence of the August 1990 sales
price was provided for the State Board, [Zorn] failed to explain . .
. how that information alone should be used to calculate 80% obsolescence. (Respt
Br. at 3.) At the administrative level and subsequently at trial, Zorn
simply provided the sale price information as evidence of the obsolescence and loss
in value but failed to translate that evidence into 80% obsolescence.
Zorn also fails to show how the contract would support any obsolescence, but
since the State Board agrees that causes of obsolescence exists, this lack of
evidence will not be considered at this time. See Phelps Dodge, 705
N.E.2d at 1102; see also generally State Bd. of Tax Commrs v. Gatling
Gun Club, Inc., 420 N.E.2d 1324 (Ind. Ct. App. 1981). Perhaps Zorn
believed that it was the State Boards responsibility to calculate the figure?
Cf. North Park Cinemas, 689 N.E.2d at 769 (stating that a hearing officer
does not have a duty to make a case on behalf of the
The case is also fraught with problems that are not related to Zorns
failure to quantify its evidence.
For example, at trial, counsel for Zorn
references the property record card, which was admitted below at the administrative level
but was not offered at trial. (Trial Tr. at 19.) This is
not an acceptable level of advocacy as it amounts to a drain on
judicial economy as well as making for a poor representation of the taxpayer
who expects and seeks to have justice properly rendered in this Court.
Yet, how can justice be rendered properly when the Court is without all
of the evidence?
Despite Zorns lackluster presentation, the Court finds itself torn between rewarding a litigant
who did nothing more than barely identify causes of obsolescence and rendering a
decision that is consistent with current case law. Because this case is
Clark, the Court believes that the better position is to remain consistent.
Zorn should note that if this case was heard post-Clark, the Courts analysis
would have differed.
In the past, this Court has held that the
State Board commits no error when it denies an adjustment for obsolescence in
cases where the taxpayer fails to present or identify any evidence concerning obsolescence
at the administrative level. See White Swan Realty v. State Bd. of
Tax Commrs, 712 N.E.2d 555, 560 (Ind. Tax Ct. 1999), review denied; see
also Lake County Trust Co. v. State Bd. of Tax Commrs, 694 N.E.2d
1253, 1258 (Ind. Tax Ct. 1998). The distinguishing aspect about this case
is that the State Board agreed that causes of obsolescence exist within the
subject property by granting the subject property an application of 60% for obsolescence,
but it failed to support its own findings with substantial evidence. See
Hoogenboon-Nofziger, 715 N.E.2d at 1021 (citing King Indus. Corp v. State Bd. of
Tax Commrs, 699 N.E.2d 338, 339 (Ind. Tax Ct. 1998)).
As a result of the above discussion, the Court REVERSES and REMANDS the
State Boards final determination for further proceedings consistent with this Courts opinion.
Zorn, in its original tax appeal, initially raised two issues. The
first being the above-mentioned issue regarding obsolescence depreciation. The second issue raised
by Zorn involved constitutionality. This Court has recently held that the fact
that the system is flawed does not entitle the taxpayer to a reversal
of an assessment.
See Dana Corp. v. State Bd. of Tax Commrs,
694 N.E.2d 1244, 1247 (Ind. Tax Ct. 1998). The Court will not
deviate from that holding today. Thus, the Court will only deal with
the remaining issue involving obsolescence.
The record is silent as to the exact business activity in which
Zorn engages. The record does reflect that the subject property is an
industrial or manufacturing-type building. (Respt Br. at 2.)
As a result of Zorn requesting 80% obsolescence, and the State Board having
granted the subject improvement 60% obsolescence, the parties agree that the subject improvement
suffers from obsolescence. See Phelps Dodge v. State Bd. of Tax Commrs,
705 N.E.2d 1099, 1102 (Ind. Tax Ct. 1999), review denied. Thus, Zorns
burden of offering evidence of probative value is obviated. See id.
Moreover, in Loveless Construction Company v. State Board of Tax Commissioners, 695
N.E.2d 1045, 1048 (Ind. Tax Ct. 1998), this Court held that a taxpayer
is not always required to challenged the accuracy of an assessment in order
to challenge the basis of an assessment. See also Clark, 694 N.E.2d
at 1234. Therefore, Zorns only requirement is to challenge the basis of
the State Boards findings. See id.
At trial, counsel for the State Board objected to a question offered
by counsel for Zorn regarding the contract price, the use of generally accepted
appraisal techniques and the use of Regulation 17 as exceeding the scope of
the testimony that was submitted to the State Board. (Trial Tr. at
11,12.) The objection is SUSTAINED.
At trial, it was established that the expert witness, Mark Drew Miller
was a contingently paid witness. (Trial Tr. at 16.) This Court
has previously held that the testimony of contingently paid experts is not subject
to exclusion in Tax Court cases solely on the basis of the experts
See Wirth v. State Bd. of Tax Commrs, 613 N.E.2d
874, 877 (Ind. Tax Ct. 1993). However, the contingent nature of an
expert witnesss fee goes to the weight of the testimony, and the Court
will review such testimony in light of the experts fee arrangement. See
As a result of the hearing in this case taking place prior
to the date of the
Clark opinion, Zorn was not required to quantify
the obsolescence of the subject improvement. See Heart City Chrysler v. State
Bd. of Tax Commrs, 714 N.E.2d 329, 334 (Ind. Tax Ct. 1999).
However, pursuant to Clark, on remand Zorn will be required to quantify the
obsolescence that it wishes to have applied to the subject property with generally
accepted appraisal techniques. See id. Essentially what this means is that
Zorn will be expected to do more than offer the terms of the
contract as evidence of obsolescence. On remand, Zorn can rely on any
admissible evidence to support its claim for obsolescence. If Zorn chooses to
continue to rely on the contract and its terms, Zorn will have to
render those terms into a quantifiable form that translates into 80% obsolescence.
The State Board will then be required to deal with that evidence in
a meaningful manner. See Loveless Const. Co., 695 N.E.2d at 1049.
Further, the State Board will be required to rebut the evidence and support
its findings with substantial evidence by explaining its quantification techniques as they relate
to causes of obsolescence. See Clark, 694 N.E.2d at 1233.
The final determination does say why the 60% obsolescence was given, but does
not quantify its results. Had the State Board explained and submitted evidence
as to how it quantified its obsolescence adjustment, the Court would have found
for the State Board, because adequate quantification of its findings would have met
the substantial evidence requirement.