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

EFP ACQUISITION CORP.,        )
                                 )
    Petitioner,                  )
                                 )
    v.                           )   Cause No. 49T10-0101-TA-15
                                 )
DEPARTMENT OF LOCAL              )
GOVERNMENT FINANCE, See footnote         )
                )
    Respondent.            )    
                )    
______________________________________________________________________

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

NOT FOR PUBLICATION
March 8, 2005

FISHER, J.
EFP Acquisition Corp. (EFP) appeals from a final determination of the State Board of Tax Commissioners (State Board) valuing its real property for the 1995 tax year. The issue this Court must address is whether EFP’s improvements are entitled to additional functional obsolescence depreciation. See footnote
FACTS AND PROCEDURAL HISTORY

EFP owns an industrial facility in Elkhart County, Indiana. For the 1995 tax year, the Elkhart County Board of Review (BOR) applied a 10% obsolescence depreciation adjustment to EFP’s improvements. EFP timely filed a Petition for Review of Assessment (Form 131) with the State Board. EFP argued that additional obsolescence depreciation should have been applied to the value of its property. The State Board held an administrative hearing on EFP’s petition on March 1, 2000. On December 5, 2000, the State Board issued its final determination in which it denied EFP’s request for relief.
EFP initiated an original tax appeal on January 19, 2001. In lieu of a trial, both parties agreed to have the case resolved on the basis of their briefs and the stipulated administrative record. The Court heard the parties’ oral arguments on March 25, 2001. 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. When appealing to this Court from a State Board final determination, the taxpayer bears the burden of showing that the final determination is invalid. Id.
Discussion

    For the 1995 tax year EFP’s improvements received a 10% obsolescence depreciation adjustment. (See Stip. R. at 7.) EFP asserts, however, that it submitted evidence showing that its improvements were entitled to a 36% obsolescence depreciation adjustment, and that the State Board simply ignored this evidence. (Pet’r Post-Hr’g Br., Findings of Fact and Conclusions of Law at 5-6.)
    “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.
To receive an adjustment for obsolescence, a taxpayer must: 1) identify the causes of obsolescence present in its improvement; and 2) quantify the amount of obsolescence to which it believes it is entitled. Clark v. State Bd. of Tax Comm’rs, 694 N.E.2d 1230, 1241 (Ind. Tax Ct. 1998). Because the BOR obviously agreed that causes of obsolescence existed within EFP’s improvements, See footnote EFP bore the burden of presenting evidence at the State Board hearing quantifying the amount of obsolescence to be applied to its improvements.
To support its claim for additional obsolescence, EFP presented an “Assessment Review and Analysis” (Analysis) in which it stated that “[t]he subject property suffers, to some degree, from just about all of the causes of functional and economic obsolescence as described in the assessing regulations.” (Stip. R. at 58.) More specifically, EFP asserted that
[t]he subject property was originally constructed in 1963 with an estimated 18,000 [square feet] concrete block structure with several additions over the years. The most recent addition being a steel framed block structure built in 1978. This add-on type of construction has created an irregular and inefficient floor plan for today’s market place. These inefficiencies cause increased production and material handling costs.

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.

(Stip. R. at 58.) EFP’s Analysis also contained: 1) a one-page general description of obsolescence; 2) a cursory mathematical calculation showing how it arrived at 36%; 3) the property record card for the subject property; 4) an article titled “Identifying, Measuring, and Treating Functional Obsolescence in an Appraisal”; 5) page 474 from The Appraisal of Real Estate (Eighth Edition); 6) depreciation and life expectancy guidelines from the Marshall Valuation Service; and 7) photographs of the subject property. (See Stip. R. at 45-78.)
    Obsolescence must be tied to an actual loss in property value; 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, 953-54 (Ind. Tax Ct. 2001). Consequently, when a taxpayer quantifies the amount of obsolescence to which it believes it is entitled, it is required to convert that actual loss of value into a percentage reduction and apply it against the improvement’s overall value. See Clark, 694 N.E.2d at 1238. In this case, EFP presented no evidence whatsoever indicating an actual loss – i.e., how the various causes of obsolescence present in its property are causing it to lose money. See id. For example, EFP needed to support its allegation that its irregular and inefficient floor plan has caused increased production and material handling costs with calculations indicating the amount of those increased costs. EFP’s failure to provide this evidence is fatal to its quantification of additional obsolescence. See footnote
    In addition, it appears that EFP claims that whether or not it supported its claim for additional obsolescence, the State Board was required, at the very least, to support the application of 10% obsolescence with substantial evidence. (See Pet’r Post-Hrg Br., Findings of Fact and Conclusions of Law at 1.) EFP is incorrect. This Court has held that it will not consider taxpayer complaints concerning obsolescence in cases where the State Board holds administrative hearings after April 24, 1998, “unless the taxpayer has identified the causes of the alleged obsolescence and presented probative evidence that would support a quantification of obsolescence at the administrative level.” Clark, 694 N.E.2d at 1241 (April 24, 1998 being the date of Clark). Thus, in pre-Clark cases, if a taxpayer fails to quantify obsolescence, the State Board is nonetheless obligated to support its quantification of obsolescence with substantial evidence. See Canal-Realty Indy Castor v. State Bd. of Tax Comm’rs, 744 N.E.2d 597, 603 (Ind. Tax Ct. 2001). In post-Clark cases, however, if a taxpayer fails to quantify obsolescence, the State Board’s duty to support its quantification with substantial evidence is not triggered. See id. This being a post-Clark case, the State Board’s duty to support its quantification of the obsolescence present in EFP’s improvements was not triggered. See id.

CONCLUSION

Because EFP failed to link the factors causing obsolescence with an actual loss in its property’s value, it failed to make a prima facie case quantifying the amount of obsolescence to which it was entitled. Thus, the Court AFFIRMS the State Board’s final determination.





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. § 6-1.5-1-3 (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: EFP 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 EFP’s claims and supporting arguments are identical to those previously rejected by the Court, the Court will not address them.

Footnote: By awarding the initial 10% obsolescence adjustment, the Elkhart County Board of Review (BOR) agreed that obsolescence was present in EFP’s improvements. Therefore, quantification of obsolescence, not the identification of causes thereof, is the issue here. See Phelps Dodge v. State Bd. of Tax Comm'rs, 705 N.E.2d 1099, 1102 (Ind. Tax Ct. 1999) (stating that the fact that parties agree on causes of obsolescence "obviates [the taxpayer's] burden of offering probative evidence showing that the subject improvements experience obsolescence"), review denied.

Footnote:      While this case centers on the second prong of Clark, 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. v. State Bd. of Tax Comm’rs, 748 N.E.2d 943, 954 (Ind. Tax Ct. 2001). 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 stipulated record lacks any evidence or explanation on the subject of EFP’s actual loss of value. Consequently, it is impossible for EFP to convert that loss of value into an obsolescence quantification.