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
INDIANA TAX COURT
EFP ACQUISITION CORP., )
v. ) Cause No. 49T10-0101-TA-15
DEPARTMENT OF LOCAL )
See footnote )
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
March 8, 2005
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 EFPs improvements are
entitled to additional functional obsolescence depreciation.
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 EFPs 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 EFPs petition on March 1,
2000. On December 5, 2000, the State Board issued its final determination
in which it denied EFPs 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. Dept of Local Govt 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.
For the 1995 tax year EFPs 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. (Petr Post-Hrg 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. Pship v.
State Bd. of Tax Commrs, 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 Commrs, 694 N.E.2d 1230, 1241 (Ind. Tax Ct. 1998). Because the
BOR obviously agreed that causes of obsolescence existed within EFPs 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
todays 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 todays 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.) EFPs 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.) CONCLUSION
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 propertys
income generating ability. See Miller Structures, Inc. v. State Bd. of Tax
Commrs, 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 improvements 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. EFPs failure to provide this evidence is
fatal to its quantification of additional obsolescence.
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
Petr 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 Commrs, 744 N.E.2d 597, 603 (Ind. Tax Ct. 2001).
In post-Clark cases, however, if a taxpayer fails to quantify obsolescence, the State
Boards duty to support its quantification with substantial evidence is not triggered.
See id. This being a post-Clark case, the State Boards duty to
support its quantification of the obsolescence present in EFPs improvements was not triggered.
Because EFP failed to link the factors causing obsolescence with an actual loss
in its propertys 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 Boards 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.
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 Commrs, 756 N.E.2d 1124, 1127 n.1 (Ind. Tax
Ct. 2001). Because EFPs claims and supporting arguments are identical to those
previously rejected by the Court, the Court will not address them.
By awarding the initial 10% obsolescence adjustment, the Elkhart County Board of
Review (BOR) agreed that obsolescence was present in EFPs 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.
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 Commrs,
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 Commrs, 748 N.E.2d 943, 954 (Ind. Tax Ct. 2001).
See also Heart City Chrysler v. State Bd. of Tax Commrs, 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 EFPs actual loss of value.
Consequently, it is impossible for EFP to convert that loss of value into
an obsolescence quantification.