ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
CURTIS J. DICKINSON JEFFREY A. MODISETT
DAVID L. PIPPEN Attorney General of Indiana
Dickinson & Abel Indianapolis, Indiana
ANGELA L. MANSFIELD Deputy Attorney General
Phelps Dodge (Phelps) appeals the final determination of the State Board of Tax Commissioners (State Board) fixing the assessed value of Phelps' property as of March 1, 1992. Phelps presents four issues for this Court's consideration which the
Court restates as follows:
I. Whether the State Board's final determinations with regard to the
obsolescence depreciation of the subject improvements were without
substantial evidentiary support.
II. Whether the State Board's final determinations with regard to the condition of the subject improvements were without substantial evidentiary support.
III. Whether the State Board's final determinations with regard to negative influence factors were without substantial evidentiary support.
IV. Whether the State Board determined the correct age of the subject improvements and utilized the correct physical depreciation in determining the physical depreciation of the subject improvements.
The State Board issued its final assessment determinations on the 131 Petitions on
November 22, 1996. Unsatisfied with the changes made by the State Board, Phelps
filed this original tax appeal on January 6, 1997. On January 12, 1998, the parties tried
this cause before this Court. Additional facts will be supplied as necessary.
The sole issue for this Court's review with regard to the obsolescence of the subject improvements is whether the State Board's decision to quantify the obsolescence of the subject improvements on Parcels 16 and 19 in varying amountsSee footnote 2
has any evidentiary support. (Joint Ex. B). In Clark v. State Board of Tax
Commissioners, 694 N.E.2d 1230 (Ind. Tax Ct. 1998), the Court evaluated whether the
State Board's decision to award 5% obsolescence to the subject apartment buildings
was supported by substantial evidence. At the outset of its analysis, the Court noted
that the determination of obsolescence is a two-step inquiry. The assessor must
identify the causes of obsolescence and then quantify the amount of obsolescence to
be applied. Id. at 1238. With respect to the second part of the inquiry, the Court
noted that although the regulation governing obsolescence provided no guidance on
how the obsolescence of a particular improvement was to be quantified, this did not
absolve the State Board of the responsibility to support its quantification of
obsolescence with substantial evidence. See id. at 1240.
In this case, the State Board complains that Phelps provided no evidence concerning the obsolescence depreciation of the subject improvements. However, the fact that the parties agree on the causes of obsolescence obviates Phelps' burden of offering probative evidence showing that the subject improvements experience obsolescence. As for the quantification of obsolescence, as noted above, the regulations provide no guidance concerning how to quantify the effect of that obsolescence on the value of the subject improvements.
In this Court's decision in Clark, the Court noted the problems with the fact that the regulations governing obsolescence provided no guidance on how obsolescence should be quantified. The Court addressed those problems by issuing a prospective rule that taxpayers could use professional appraisal techniques to quantify
obsolescence. This allows taxpayers to make detailed factual presentations to the
State Board, the acknowledged property tax experts. See id. at 1241.See footnote
In this case, both parties agree that the small bays and limited use cause obsolescence in the subject improvements. The State Board quantified the effect of these causes of obsolescence for the subject improvements at varying percentages. However, there is no evidence in the record, including the State Board's final determination, to support the State Board's quantification of obsolescence except the unsupported subjective opinion of the State Board's hearing officer. (Trial Tr. at 27). See Canal Square Ltd. Partnership v. State Bd. of Tax Comm'rs, 694 N.E.2d 801, 808 (Ind. Tax Ct. 1998).
The State Board offered no evidence as to how it quantified the obsolescence of the subject improvements. Consequently, this Court's holding in Clark mandates reversal.See footnote 4 However, in Clark, the Court noted its frustration with that result because the Court was compelled to choose between holding for the taxpayer, who presented no evidence of how the . . . [p]roperty's obsolescence should be quantified . . . and holding
for the State Board, when the State Board had absolutely no evidence to support its
choice of 5% obsolescence . . . . Id. at 1241. This case presents the same problem:
Neither the State Board nor Phelps offered the Court any evidence concerning the
quantification of obsolescence of the subject improvements. This issue is REMANDED
for further consideration consistent with this opinion and this Court's opinion in Clark.
II. Whether the State Board's final determination with regard to the condition of the subject improvements was without substantial evidentiary support.
The True Tax Value system takes the physical depreciation of improvements into
account in arriving at their True Tax Value. The physical depreciation of a particular
improvement is based on its age, condition, and structure type. See Ind. Admin. Code
tit. 50, r. 2.1-5-1 (1992) (codified in present form at id. r. 2.2-12-4(c) (1996)). An
improvement's physical depreciation is expressed as a percentage. See id. This
percentage is determined by ascertaining the age and condition of the improvement
and then consulting the economic life table corresponding to the structure type of the
improvement. See id.; see also Barth, Inc. v. State Bd. of Tax Comm'rs, 699 N.E.2d
800, 808 (Ind. Tax Ct. 1998), reh'g denied, No. 49T10-9701-TA-00086, 1998 WL
813404 (Ind. Tax Ct. Nov. 24, 1998).
The condition of an improvement represents the improvement's remaining usefulness. See Ind. Admin. Code tit. 50, r. 2.1-5-1. An improvement's condition is determined by an observation of the amount of physical deterioration relative to the age of that improvement and the degree of maintenance relative to the age of that
improvement. See id. To estimate the level of condition, the assessor must determine
the average condition of similar structures, [and] then relate the structure being
[assessed] to that established average. Id. Once the assessor does this, the
assessor must then choose one of seven levels of condition ranging from Excellent to
Very Poor to assign to the improvement being assessed. See id.
Phelps contends that the State Board's final determination with respect to the condition of the subject improvements is erroneous because those final determinations are based on a regulation that lacks ascertainable standards. Phelps argues, in effect, that any determination of condition is per se reversible due to the problems with the regulation governing condition. Phelps makes this generalized contention without making specific allegations with respect to the condition of each of the subject improvements.See footnote 5 In addition, Phelps offered no evidence relating specifically to the amount of physical deterioration of the subject improvements.
Phelps is correct in its assertion that the regulation governing condition is seriously flawed. An almost identical regulation has recently been declared unconstitutional.See footnote 6 See State Bd. of Tax Comm'rs v. Town of St. John, 702 N.E.2d 1034, 1039 & n.7 (Ind. 1998), aff'g in part, rev'g in part, 690 N.E.2d 370, 386 (Ind. Tax Ct.
1997). However, the fact that the subject improvements were assessed under an
unconstitutional regulation does not mandate reversal in this case. See Whitley
Prods., Inc. v. State Bd. of Tax Comm'rs, No. 49T10-9701-TA-00048, slip op. at 15
(Ind. Tax Ct. Dec. 21, 1998), petition for review filed, Jan. 20, 1999 (citing Dana Corp.
v. State Bd. of Tax Comm'rs, 694 N.E.2d 1244, 1247 (Ind. Tax Ct. 1998); Town of St.
John v. State Bd. of Tax Comm'rs, 691 N.E.2d 1387 (Ind. Tax Ct. 1998) (order and
judgment entry), rev'd in part, aff'd in part, 702 N.E.2d 1034 (Ind. 1998)). Real
property must still be assessed, and, until the new regulations are in place, must be
assessed under the present system. This reality means that a taxpayer will not be able
to come into court, point out the inadequacies of the present system and obtain a
reversal of an assessment. Id. Instead, a taxpayer must offer probative evidence
relating to the error that the taxpayer has raised.See footnote
See id. at 11, 15.
This is not an onerous requirement. Despite the fact that the flaws in the regulation governing condition make it very difficult, if not impossible, for a taxpayer to conclusively establish the level of condition of a particular improvement,See footnote 8 see Whitley Prods., Inc., No. 49T10-9701-TA-00048, slip op. at 12 n.12, a taxpayer is not precluded from offering probative evidence concerning the amount of physical deterioration of that improvement. Although it is not for the Court to explain to taxpayers how to make their
cases, see Monarch Steel Co. v. State Bd. of Tax Comm'rs, 699 N.E.2d 809, 812 (Ind.
Tax Ct. 1998), the Court notes that the regulation governing condition gives specific
examples of physical deterioration, such as dry rot, cracks, structural defects. Ind.
Admin. Code tit. 50, r. 2.1-5-1. The taxpayer could offer evidence of such problems.See footnote
In addition, the taxpayer could offer evidence of comparable properties to demonstrate error in the State Board's determination of the condition of a particular improvement.See footnote 10 As noted above, the regulation governing condition requires an assessor to evaluate similar properties in arriving at the proper level of condition for a particular improvement. See Ind. Admin. Code tit. 50, r. 2.1-5-1. Finally, the taxpayer may offer evidence tending to establish how much maintenance would be required to restore the improvement to perfect condition. See id. tit. 50, r. 2.1-3-3 (1993) (codified in present form at id. r. 2.2-7-7.1(19) (1996)). Although this concept is not found in the regulations governing commercial and industrial property, it would not be inappropriate
to offer probative evidence on this point.See footnote
In this case, Phelps presented no evidence relating to the condition of the subject improvements. Therefore, the Court will not reverse the State Board's determination of the condition of the subject improvements, and the Court AFFIRMS the final determinations of the State Board on this issue.See footnote 12
III. Whether the State Board's final determinations with regard to negative
influence factors were without substantial evidentiary support.
Phelps contends that it is entitled to an increase in the negative influence factors applied to the subject properties because the State Board's quantification of those negative influence factors lacks substantial evidentiary support. The State Board applied negative influence factors of thirty-five percent (35%) and sixty-five percent (65%) to the parcels at issue.
Generally, land values in a given neighborhood are determined through the application of a Land Order. Ind. Admin. Code tit. 50, r. 2.1-2-1 (1992) (codified in present form at Ind. Admin. Code tit. 50, r. 2.2-4-2,-6 (1996)). Land Orders are developed by collecting and analyzing comparable sales data for an the neighborhood and surrounding areas. See Talesnick v. State Bd. of Tax Comm'rs, 693 N.E.2d 657, 659 n. 5 (Ind. Tax Ct. 1998) (citing Ind. Code Ann. § 6-1.1-4-13.6; Ind. Admin. Code tit.
50, r. 2.1-2-1); Poracky v. State Bd. of Tax Comm'rs, 635 N.E.2d 235, 238 (Ind. Tax Ct.
1994). The County Land Valuation Commission studies the sales data and
recommends a range of values for the property in a neighborhood. Talesnick, 693
N.E.2d at 659 n.5 (citing Ind. Code Ann. § 6-1.1-4-13.6). The State Board then sets the
final values in a Land Order and assigns a value to each parcel in a neighborhood
based on the range provided in the promulgated Land Order. Id. (citing Wirth v. State
Bd. of Tax Comm'rs, 613 N.E.2d 874, 878 (Ind. Tax Ct. 1993)).
Influence factors may be used by the State Board to adjust Land Order values for properties that possess characteristics that make those properties unique. A[n] . . . influence factor is justified in instances where property has a 'condition peculiar to the land that dictates an adjustment, either positive or negative, . . . to account for variations from the norm.' See Talesnick, 693 N.E.2d at 660 (citing Ind. Admin. Code tit. 50, r. 2.1-2-1 (codified in present form at id. 2.2-4-10(a)(9) (1996))); see also Poracky, 635 N.E.2d at 236 (taxpayer's land was given a 25% negative influence factor to account for inadequate seawall protection). In order to apply an influence factor, the assessor must identify deviations in the subject property from the norm. See Ind. Admin. Code tit. 50, r. 2.1-2-1. These deviations are expressed as a percentage that reflects the composite effect of the factor or factors that influence the value.See footnote 13 Id.
In short, the assessed value of a particular piece of property must initially fall within the given range provided in a Land Order. However, properties often posess
peculiar attributes that do not allow them to be lumped with each of the surrounding
properties for purposes of valuaton. Therefore, the State Board has developed the
concept of influence factors in an effort to allow assesors to account for this problem by
adjusting, either upward or downward, the value placed on a piece of property by the
In the case at bar, the State Board applied negative influence factors to the subject properties to account for the size and shape of the parcel and for underimprovement. (Trial Tr. at 29). The State Board, however, offered no evidence to demonstrate how it calculated the negative influence factors that it applied. In fact, the State Board failed to mention the issue of influence factors in its brief. Further, the hearing officer admitted at trial that he was not entirely sure how the negative influence factors were quantified. (Trial Tr. at 29). This does not constitute the substantial evidence necessary to support a State Board final determination. See Talesnick, 693 N.E.2d at 661; see also Western Select Properties v. State Bd. of Tax Comm'rs, 639 N.E.2d 1068, 1073 (Ind. Tax Ct. 1994); see also Canal Square, 694 N.E.2d at 801.
The State Board has a duty to support its decisions with substantial evidence and no evidence as to the percentages of negative influence factors granted for the subject properties was provided. Therefore, the Court REMANDS this issue.
On remand, the negative influence factor of the subject properties will have to be quantified despite the fact that the regulations give little or no guidance on how this is to be done. In dealing with a similar situation, the Court noted that the administration of
this state's property tax system is best served by having taxpayers make factual
presentations before County Boards of Review, the State Board, and this Court. See
Clark, 694 N.E.2d at 1241. Moreover, as the Court stated in Clark, [t]he fact that the
State Board's regulations . . . are less than satisfactory does not alter this conclusion.
Id. Therefore, this Court will not consider taxpayer complaints concerning influence
factors in cases where the State Board holds a hearing concerning an assessment after
the date of this opinion, unless the taxpayer has presented probative evidence that
would support an application of a negative influence factor and a quantification of that
influence factor at the administrative level. Id. This begs the question of how the
taxpayer is to quantify the influence factors affecting his property.
As noted above, the Land Orders promulgated by the State Board are based on comparable sales data collected from the subject neighborhood and surrounding areas. See Ind. Admin. Code tit. 50, r. 2.1-2-1. The comparable sales data is used to arrive at a property valuation range for the properties located in the particular neighborhood. Thus, the values assigned to the properties in a neighborhood are based on relevant market data. Influence factors are then applied to account for deviations of the subject property from the norm.
These influence factors, expressed as a percentage, reflect a deviation from the market based range of values assigned to the property through the Land Order. Therefore, influence factors may be quantified by the use of market data in order to effectively reflect the actual deviation from the market value assigned a piece of
property through the Land Order.See footnote
Consequently, the Court holds that in any hearing
regarding influence factors, market data may be used to quantify influence factors. See
Talesnick, 693 N.E.2d at 657; see also Vonnegut, 672 N.E.2d at 90.
IV. Whether the State Board correctly determined the age of the subject
improvements and utilized the correct physical depreciation in
determining the physical depreciation of the subject improvements.
Phelps contends that the State Board utilized improper physical depreciation
tables and incorrectly determined the age of the subject improvements in determining
the applicable amount of physical depreciation for the subject improvements. In
response, the State Board argues that the issue is waived because Phelps did not refer
these issues until its post-trial brief.
This Court may not address issues that were not raised at the administrative level. Ind. Code Ann. § 33-3-5-14 (West 1996); State Bd. of Tax Comm'rs v. Gatling Gun Club, Inc., 420 N.E.2d 1324 (Ind. Ct. App. 1981). This rule holds true even where the taxpayer could have established entitlement to relief. See Harbor Food Plaza, Inc. v. State Bd. of Tax Comm'rs, 638 N.E.2d 898, 901 (Ind. Tax Ct. 1994).
Phelps never raised these issues in its contentions nor did it offer any evidence
concerning these issues at the State Board hearing. Therefore, these issues are
waived, and the State Board's final determinations with respect to the age and choice
of physical depreciation tables are AFFIRMED.
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