ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN STEVE CARTER
ATTORNEY AT LAW ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
TED J. HOLADAY
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
FORT WAYNE JOINT )
VENTURE BEST INNS, )
v. ) Cause No. 49T10-9803-TA-26
DEPARTMENT OF LOCAL )
ON APPEAL FROM A FINAL DETERMINATION
OF THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
March 7, 2003
The Petitioner, Fort Wayne Joint Venture Best Inns (Best Inns), appeals the
final determination of the State Board of Tax Commissioners (State Board) establishing the
assessed value of its real
property as of March 1, 1995. The
Court restates the issues as:
Whether the State Board properly applied a C grade to Best Inns improvement;
Whether the State Board properly denied an economic obsolescence depreciation adjustment to Best
See footnote FACTS AND PROCEDURAL HISTORY
For the reasons stated below, the Court REVERSES the State Boards final determination
on Issue I and REMANDS this issue to the Indiana Board of Tax
Review (Indiana Board).
See footnote The Court AFFIRMS the State Boards final determination on
Best Inns owns a motel located in Fort Wayne, Indiana. Best Inns
motel was assessed using the General Commercial Residential (GCR) model
and was given
a grade of C. Best Inns appealed to the Allen County Board
of Review (BOR), and the BOR made no change to the assessment.
Best Inns then appealed to the State Board, arguing, among other things, that
its C grade was excessive and that it should receive an obsolescence depreciation
adjustment because of its low occupancy rates. The State Board held a
hearing and issued its final determination on February 5, 1998, affirming the BORs
On March 23, 1998, Best Inns filed an original tax appeal. This
Court conducted a trial and heard oral arguments. Additional facts will be
supplied as needed.
ANALYSIS AND OPINION
Standard of Review
The Court gives great deference to the State Boards final determinations when it
acts within the scope of its authority. Miller Structures, Inc. v. Indiana
State Bd. of Tax Commrs, 748 N.E.2d 943, 947 (Ind. Tax Ct. 2001).
Accordingly, this Court reverses final determinations of the State Board only when
those decisions are unsupported by substantial evidence, are arbitrary or capricious, constitute an
abuse of discretion, or exceed statutory authority. Id.
The taxpayer bears the burden of demonstrating the invalidity of the State Boards
final determination. Id. The taxpayer must present a prima facie case,
i.e., a case in which the evidence is sufficient to establish a given
fact and which if not contradicted will remain sufficient. Id. (citation and
internal quotation marks omitted). To establish a prima facie case, the taxpayer
must offer probative evidence concerning the alleged error. Id. Once the
taxpayer carries the burden of establishing a prima facie case, the burden shifts
to the State Board to rebut the taxpayers evidence and justify its decision
with substantial evidence. Id. (quoting Clark v. State Bd. of Tax Commrs,
694 N.E.2d 1230, 1233 (Ind. Tax Ct. 1998)). The State Board must
do more, however, than merely assert that it assessed the property correctly.
Miller, 748 N.E.2d at 948. Instead, it must offer an authoritative explanation
of its decision to rebut the taxpayers prima facie showing. Id.
The first issue is whether the State Board properly applied a C grade
to Best Inns improvement. Best Inns argues that the C grade was
excessive because its improvements wall heights were less than the heights presumed in
the GCR models used to assess it. Although the State Board concedes
that Best Inns wall heights are less than those in the GCR models,
it still contends that Best Inns did not present a prima facie case.
Under Indianas true tax value system, improvements are assigned various grades based on
a buildings design and the quality of its materials and workmanship. See
Ind. Admin. Code tit. 50, rr. 2.2-1-30; 2.2-10-3 (1996). See also Miller, 748
N.E.2d at 952. The grades, which range from A to E, represent
multipliers that are applied to the base rate of an improvement.
See 50 IAC 2.2-10-3;
Miller, 748 N.E.2d at 952. The C grade,
which is the norm, conform[s] with the base specifications used to develop the
pricing schedules and is assigned when a building is moderately attractive and constructed
with average quality materials and workmanship. 50 IAC 2.2-10-3(a)(3); see also 50
IAC 2.2-10-3(b). A building with a C grade has an average quality
interior finish with adequate built-ins, standard quality fixtures, and mechanical features. 50
The regulations provide that [a]n adjustment [to the base rate] is [to be]
made based on [an improvements] actual wall height as compared to the model
height. Each foot of height variation is either added or deducted based
on the finish type of the specific model. Ind. Admin. Code tit.
50, r. 2.2-10-6.1(a)(6). The GCR model, however, does not set forth the
cost of wall height to be added or deducted to account for an
improvements variation from the model as do some of the other models contained
in the regulations. Compare Ind. Admin. Code tit. 50, r. 2.2-11-6, Sched.
A.3 (GCR) with 50 IAC 2.2-11-6, Scheds. A.1 (General Commercial Mercantile) and A.2.
(General Commercial Industrial)). When an improvement deviates from the model and associated
cost schedule used to assess the improvement, the deviation often has an effect
on the reproduction cost of the improvement. Whitley Prods., Inc. v. State
Bd. of Tax Commrs, 704 N.E.2d 1113, 1117 (Ind. Tax Ct. 1998), review
denied. Therefore, when an improvement deviates from the model, an assessor may
account for that deviation by adjusting the grade of the improvement.
id. The burden was on Best Inns to submit probative evidence showing
that the State Board either improperly graded its building or improperly denied the
grade which Best Inns sought.
See Deer Creek Developers, Ltd. v. Dept
of Local Govt Fin., 769 N.E.2d 259, 265-66 (Ind. Tax Ct. 2002).
In examining the evidence presented, the Court determines that Best Inns has met
its burden of presenting a prima facie case on grade by showing an
error in the C grade assigned by the State Board. Best Inns
was assessed using the GCR motel service and GCR motel unit models.
The GCR pricing schedule for motels presumes the existence of twelve foot wall
heights in the GCR motel service model and nine foot wall heights in
the GCR motel unit model. See Ind. Admin. Code tit. 50, rr.
2.2-11-3(9); 2.2-11-3(11). Best Inns offered evidence, and the State Board concurred, that
all of Best Inns wall heights were only eight feet high. Because
Best Inns has demonstrated that its improvement lacks the wall heights presumed in
the GCR models used to assess it, it has made a prima facie
showing that the State Board erred in assessing its improvement with a C
grade. See Clark, 694 N.E.2d at 1236. See also 50 IAC
2.2-10-6.1(a)(6). Thus, the burden shifts to the State Board to rebut Best
Inns evidence and to explain why the C grade was appropriate. Clark,
694 N.E.2d at 1233, 1236.
At trial, the State Board hearing officer testified in a conclusory fashion
that the improvement had other features, such as interior wall finish, ceiling finish,
interior doors, and window openings, that were above average and exceeded the models
specifications for a C grade, and he concluded that these features made up
for the fact that wall heights were less than those in the model.
(Trial Tr. at 15-16, 43-45.) The State Board, however, did not
document these reasons in its final determination. Indeed, in its final determination,
the State Board stated: After inspecting the property and considering 50 IAC
2.2-10-3[,] it is determined [that] the structure is moderately attractive, constructed with average
quality materials and workmanship with an average quality interior finish with adequate built-ins
and mechanical features and is best described as a grade C[.] (Def.s
Ex. A at 14.) It is well settled that the State Board,
in general, may not offer post hoc rationalizations to support a final determination.
Miller, 748 N.E.2d at 954, n.5. Thus, the State Board has
not met its burden of rebutting Best Inns prima facie case. Accordingly,
this Court REVERSES the State Boards final determination on this issue and REMANDS
it to the Indiana Board.
The last issue is whether the State Board properly denied an economic obsolescence
depreciation adjustment to Best Inns improvement. Best Inns argues that it is
entitled to a 30% economic obsolescence depreciation adjustment because its motel had a
low occupancy rate of 64% (or, stated another way, that it had a
36% vacancy rate) during the tax year at issue. The State Board
contends that Best Inns failed to meet its burden.
In cases (such as this one) where the State Board held its administrative
hearing prior to this Courts decision in Clark, a taxpayer can make its
prima facie case for economic obsolescence by identifying the cause of the obsolescence.
Louis D. Realty Corp. v. State Bd. of Tax Commrs, 743 N.E.2d
379, 385-86 (Ind. Tax Ct. 2001), review denied. The burden, therefore, was
on Best Inns to present probative evidence showing the cause of its improvements
obsolescence. See Deer Creek, 769 N.E.2d at 263.
Economic obsolescence is defined as a loss of property value due to factors
external to the property. Ind. Admin. Code tit. 50, r. 2.2-10-7(e) (1996);
Louis D. Realty, 743 N.E.2d at 385. Economic obsolescence of a given
improvement must be tied to a loss of value. See Miller, 748
N.E.2d at 953. In the commercial context, this loss of value usually
means a decrease in the propertys income generating ability. See id. at
953. Thus, in making its prima facie case, Best Inns is required
to show that factors external to the property have adversely affected its generation
of income. See id.
The Court finds that Best Inns has failed to meet its burden.
Best Inns submitted a comparative income statement showing that its motel had a
64% occupancy rate during the 1995 tax year. Best Inns contends that
it is entitled to an economic obsolescence adjustment merely because it had a
36% vacancy rate. However, vacancy by itself does not prove any obsolescence.
Deer Creek, 769 N.E.2d at 263. While vacancy may signify
the possible existence of economic obsolescence, a taxpayer seeking an obsolescence reduction because
of building vacancy must still present probative evidence showing the reason why its
building is vacant. Id. (citing Louis D. Realty, 743 N.E.2d at
387; Damon Corp. v. State Bd. of Tax Commrs, 738 N.E.2d 1102, 1109
(Ind. Tax Ct. 2000). Best Inns did not submit any evidence showing
why its motel was vacant, nor did it present any evidence of a
loss of value. Its mere claim that the motel had a 36%
vacancy rate does not, by itself, constitute probative evidence of economic obsolescence.
Thus, Best Inns did not make a prima facie case with regard to
economic obsolescence. See Deer Creek, 769 N.E.2d at 263; Damon, 738 N.E.2d
at 1109. Accordingly, the Court AFFIRMS the State Boards final determination on
For the aforementioned reasons, the Court REVERSES the State Boards final determination on
Issue I and REMANDS this issue to the Indiana Board for further proceedings
consistent with this opinion.
The Court AFFIRMS the State Boards final determination
on Issue II.
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) and
the Indiana Board of Tax Review (Indiana Board).
Ind. Code §§ 6-1.1-30-1.1;
6-1.5-1-3 (West Supp. 2001); 2001 Ind. Acts 198 §§ 66, 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 § 6-1.5-5-8 (West Supp. 2001) (eff. 2002);
2001 Ind. Acts 198 § 95. Moreover, the law in effect prior
to January 1, 2002 applies to these appeals. 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.
Best Inns also argues that its assessment should be voided because
portions of Indianas regulations for taxing tangible property have been declared unconstitutional.
Indeed, in 1998, the Indiana Supreme Court affirmed this Courts determination that the
existing cost schedules . . . violate the Property Taxation Clause of the
State Bd. of Tax Commrs v. Town of St. John,
702 N.E.2d 1034, 1043 (Ind. 1998). That same year, however, this Court
declared that [r]eal property must still be assessed, and, until the new regulations
are in place, must be assessed under the present system. Whitley Prods.,
Inc. v. State Bd. of Tax Commrs, 704 N.E.2d 1113, 1121 (Ind. Tax
Ct. 1998), review denied; see also Town of St. John v. State Bd.
of Tax Commrs, 729 N.E.2d 242, 246 & 251 (Ind. Tax Ct. 2000)
(ordering real property in Indiana to be reassessed under constitutional regulations as of
March 1, 2002 and providing that until then, real property tax assessments shall
be made in accordance with the current system). The Court, therefore, will
not analyze Best Inns state constitutional claim in this opinion.
All cases that would have previously been remanded to the State Board
are now remanded to the Indiana Board of Tax Review.
§ 6-1.1-15-8. Final determinations made by the Indiana Board are subject to
review by this Court pursuant to Indiana Code § 6-1.1-15. Ind. Code
§§ 6-1.5-5-7; 33-3-5-2 (West Supp. 2002).
General Commercial Residential (GCR) motel service and GCR motel
unit models were used to assess Best Inns.
The C grade is assigned a multiplier of 100% (i.e., 100%
of the reproduction cost as determined under the State Boards regulations).
Ind. Admin. Code tit. 50, r. 2.2-10-3(b)(3); King Indus. Corp. v. State Bd.
of Tax Commrs, 699 N.E.2d 338, 340 n.7 (Ind. Tax Ct. 1998).
The remaining multipliers are 160% for an A grade, 120% for a B
grade, 80% for a D grade, and 40% for an E grade.
50 IAC 2.2-10-3(b).
However, the preferred method of accounting for an improvements deviation
from the model is to use the separate schedules that show the costs
of certain components and features present in the model.
N.E.2d at 1117. Because the use of a grade adjustment requires an
assessors subjective judgment, the Court generally discourages a grade adjustment to account for
deviations from the model. See id. Nonetheless, a grade adjustment is
sometimes necessary when the component schedules are not comprehensive (as is the case
here where the GCR model does not set forth the cost of wall
height to be added or deducted to account for an improvements variation from
the model). See id.; see also Ind. Admin. Code tit. 50, r.
2.2-11-6, Sched. A.3.
Note, however, that a taxpayer who presents a grade issue
to the Indiana Board after December 17, 2002, will be required to submit
probative evidence of
what his grade should have been in order to meet
his prima facie burden. See Clark v. Dept of Local Govt Fin.,
779 N.E.2d 1277, 1282 (Ind. Tax Ct. 2002) (emphasis in original).
In cases where the State Board held its administrative hearing
after this Courts opinion in
Clark v. State Bd. of Tax Commrs, 694
N.E.2d 1230 (Ind. Tax Ct. 1998), a taxpayer must not only identify the
cause of obsolescence to make its prima facie case, but it must also
quantify the amount of obsolescence to which it believes it is entitled.
Louis D. Realty Corp. v. State Bd. of Tax Commrs, 743 N.E.2d 379,
385-86 (Ind. Tax Ct. 2001).
The taxpayer is reminded that when it presents its grade
issue on remand, it will be required to submit probative evidence of
[its] grade should have been in order to meet its prima facie burden.
See Clark, 779 N.E.2d at 1282.