ATTORNEYS FOR PETITIONER:        ATTORNEYS FOR RESPONDENT:
CURTIS J. DICKINSON                JEFFREY A. MODISETT
DAVID L. PIPPEN                  Attorney General of Indiana
Dickinson & Abel                    Indianapolis, Indiana
Indianapolis, Indiana            
    TED J. HOLADAY Deputy Attorney General
Indianapolis, Indiana
_________________________________________

IN THE INDIANA TAX COURT
_________________________________________
 ZORN INDUSTRIES,                )

                                           )
Petitioner,                                )

 v.                                 ) Cause No.49T10-9701-TA-00039
)
STATE BOARD OF TAX COMMISSIONERS,    )
)
Respondent.            )
)                
_____________________________________________________________________

ON APPEAL FROM A FINAL DETERMINATION
OF THE STATE BOARD OF TAX COMMISSIONERS

_____________________________________________________________________

February 8, 2000

NOT FOR PUBLICATION



FISHER, J.


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 Court’s consideration: See footnote Whether the State Board’s 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. See footnote The record 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 Zorn’s 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 Zorn’s 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 Indiana’s 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 Comm’rs, 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 Comm’rs, 672 N.E.2d 87, 89 (Ind. Tax Ct. 1996).


Discussion
Zorn contends that the State Board’s 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. (Pet’r Br. at 8.) Instead, the State Board granted the subject property an application of 60% for obsolescence. (Resp’t Br. at 2.) Both parties agree, however, that causes of obsolescence exist within the subject property. See footnote
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 Comm’rs, 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 property’s value. See id. Economic obsolescence is caused by factors external to the property. See Clark v. State Bd. of Tax Comm’rs, 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. at 1240.
Since the parties agree that causes of obsolescence exist, the only issue remaining is quantification. 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 footnote See Clark, 694 N.E.2d at 1233. The State Board’s 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.” (Pet’r 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 Comm’rs, 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. (Resp’t 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.” (Resp’t 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. See footnote 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 Comm’rs v. Gatling Gun Club, Inc., 420 N.E.2d 1324 (Ind. Ct. App. 1981). Perhaps Zorn believed that it was the State Board’s 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 taxpayer).
The case is also fraught with problems that are not related to Zorn’s failure to quantify its evidence. See footnote 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 Zorn’s 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 pre- Clark, the Court believes that the better position is to remain consistent. Zorn should note that if this case was heard post-Clark, the Court’s analysis would have differed. See footnote 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 Comm’rs, 712 N.E.2d 555, 560 (Ind. Tax Ct. 1999), review denied; see also Lake County Trust Co. v. State Bd. of Tax Comm’rs, 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 Comm’rs, 699 N.E.2d 338, 339 (Ind. Tax Ct. 1998)). See footnote

CONCLUSION

    As a result of the above discussion, the Court REVERSES and REMANDS the State Board’s final determination for further proceedings consistent with this Court’s opinion.


Footnote: 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 Comm’rs, 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.

Footnote:
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. (Resp’t Br. at 2.)

Footnote: 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 Comm’rs, 705 N.E.2d 1099, 1102 (Ind. Tax Ct. 1999), review denied. Thus, Zorn’s burden of offering evidence of probative value is obviated. See id.

Footnote: 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, Zorn’s only requirement is to challenge the basis of the State Board’s findings. See id.

Footnote:
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.

Footnote:
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 expert’s contingent fee. See Wirth v. State Bd. of Tax Comm’rs, 613 N.E.2d 874, 877 (Ind. Tax Ct. 1993). However, the contingent nature of an expert witness’s fee goes to the weight of the testimony, and the Court will review such testimony in light of the expert’s fee arrangement. See id.

Footnote: 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 Comm’rs, 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.

Footnote:
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.