ATTORNEY FOR PETITONER:
ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN
Attorney at Law
ATTORNEY GENERAL OF INDIANA
Deputy Attorney General
INDIANA TAX COURT
LEES INN OF AMERICA )
v. ) Cause No. 49T10-9701-TA-18
STATE BOARD OF TAX )
ON APPEAL FROM A FINAL DETERMINATION OF THE STATE BOARD OF TAX COMMISSIONERS
March 21, 2001
NOT FOR PUBLICATION
FACTS AND PROCEDURAL HISTORY
Lees Inn of America (Lees)
appeals the final determination of the State Board of Tax Commissioners (State Board)
for the 1992 tax year. In its original tax appeal, Lees raises
several issues that the Court consolidates and restates as:
Whether the failure of the State Board to appoint its hearing officer
in writing necessarily voids Lees assessment;
Whether its property is entitled to a 95% obsolescence adjustment and;
(3) Whether the land classification assigned to the property was correct.
For the reasons stated below, the Court affirms the State Boards final determination.
The subject property is a ninety-five room motel located on 2.44 acres in
Greensburg, Indiana. Lees first filed its Form 131 petition with the State
Board on July 24, 1992 following a decision made by the Decatur County
Board of Review (BOR) on July 2, 1992, which granted a 10% obsolescence
factor to the property. The BOR also classified all 2.44 acres of
Lees land as primary. Following a hearing on March 4, 1996, the
State Board issued its final determination on November 22, 1996, affirming the BOR
in all respects. Lees then filed its original tax appeal on January
On May 28, 1998, the State Board filed a motion to remand this
case in order to deal with the obsolescence issue, citing the Courts then-recent
decision in Clark v. State Bd. of Tax Commrs, 694 N.E.2d 1230, 1241
(Ind. Tax Ct. 1998), which discussed the procedures taxpayers must follow when claiming
obsolescence adjustments. The Court granted this motion and stayed the proceedings on
May 29, 1998.
Following a remand hearing on August 17, 1998, the
State Board issued its amended final determination on September 8, 1998, again affirming
the BORs findings in all respects. The Court then held a trial
in this matter on January 25, 1999. Additional facts will be supplied
ANALYSIS AND OPINION
Standard of Review
The Court gives great deference
to the State Boards final determinations when the State Board acts within the
scope of its authority. Kemp v. State Bd. of Tax Commrs, 726
N.E.2d 395, 399 (Ind. Tax Ct. 2000). 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. Clark, 694 N.E.2d at 1233.
In order to prevail, the taxpayer must present a prima facie case
(a case in which the evidence is sufficient to establish a given fact
and which if not contradicted will remain sufficient as to the issue raised).
Damon Corp. v. State Bd. of Tax Commrs, 738 N.E.2d 1102, 1106
(Ind. Tax Ct. 2000) (citation omitted). To establish a prima facie case,
the taxpayer must offer probative evidence concerning the alleged error. Id.
Once a prima facie case is established, the State Board has a duty
to support its final determination with substantial evidence. Whitley Prods. Inc., 704
N.E.2d at 1119.
I. Hearing Officer
Lees first argues that the State Boards failure to appoint a hearing officer
in writing necessarily voids Lees assessment. After receiving a petition for review,
the State Board is required to conduct a hearing. Ind. Code Ann.
§ 6-1.1-15-4(a) (West 2000). In doing so, the State Board may, by
written order, appoint hearing officers. Ind. Code Ann. § 6-1.1-30-11(a) (West 2000).
In this case, the State Board admits that it did not appoint its
hearing officer, Mr. Kurt Barrow, in writing. (Respt. Br. at 4.)
Lees first raises this issue in its post-trial brief. The Court is
bound by the evidence and issues presented and raised at the administrative level.
State Bd. of Tax Commrs v. Gatling Gun Club, 420 N.E.2d 1324,
1328 (Ind. Ct. App. 1981). In addition, Lees did not object to
the authority of Mr. Barrow at the administrative level. Therefore, the Court
finds that such silence at the hearing constituted consent to the hearing.
Lees thus waived the issue and may not now raise it for the
first time on appeal. Hoogenboom-Nofziger v. State Bd. of Tax Commrs, 715
N.E.2d 1018, 1022 (Ind. Tax Ct. 1999).
Lees next argues that its property is entitled to a 95% obsolescence adjustment
because of excessive capacity. The regulations define obsolescence as a functional and
economic loss of value. Ind. Admin. Code tit. 50, r. 2.1-5-1 (1992)
(codified in present form at id., 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. Ind. Admin Code tit. 50, r. 2.1-5-1; Clark, 694 N.E.2d at
1238. Economic obsolescence is caused by factors external to the property.
Ind. Admin. Code tit. 50, r. 2.1-5-1; Clark, 694 N.E.2d at 1238.
When an assessing officer determines obsolescence, a two-step inquiry is required. Heart
City Chrysler v. State Bd. of Tax Commrs, 714 N.E.2d 329, 333 (Ind.
Tax Ct. 1999). First, he must identify the causes of obsolescence, and second,
he must quantify the amount of obsolescence to be applied. Id.
In Clark, 694 N.E.2d at 1241, this Court stated that when appealing
an assessment, taxpayers must not only identify alleged causes of obsolescence but also
quantify them, in order to receive an adjustment. In addition, a taxpayer
must present probative evidence sufficient to establish a prima facie case in order
to receive an increased obsolescence adjustment. Damon Corp., 738 N.E.2d at 1106.
In support of its argument, Lees taxpayer representative, Mr. M. Drew Miller, submitted
the original construction contract for the motel (contract), an assessment review and analysis
(assessment review) for the motel and a market and economic analysis (analysis) prepared
in 1985, before the property was constructed. (Joint Exs. 5, 6, 9).
Lees also argues that increased competition in the area caused the motels
occupancy rate to diminish. Both the contract and analysis were merely submitted
as evidence at trial with virtually no explanation. Thus, the Court will
only consider Lees assessment review, as well as its increased competition arguments.
Miller offered some explanation as to Lees submission of the assessment
review. He concluded that the average vacancy rate of its motel was
51.3%. (Trial Tr. at 13); (Joint Ex. 6 at 4, 9.)
This was achieved by looking at the motels 1991 operating statement. (Joint
Ex. 6 at 4,9). Miller then took the total number of rooms
available for the year (34,675) and multiplied it by 51.3% to achieve a
total number of 17,778 unrented rooms for the 1992 tax year. (Trial
Tr. at 13); (Joint Ex. 6 at 4.) Miller took this number
and multiplied it by $24.00, which represented the lost revenue on each room,
for an annual lost income of $426,912. (Trial Tr. at 14.); (Joint
Ex. 6 at 4.) Miller then determined that an investor would expect
to see a 10% profit in this type of venture. To complete
the equation, Miller divided $426,912 by 10% to achieve a total loss in
value of $4,269,120. (Trial Tr. at 14); (Joint Ex. 6 at 4.)
Although the State Board acknowledged that Lees equation may be a valid way
of quantifying obsolescence, it found that Lees did not offer any evidence supporting
its use of the above-cited numbers. (Joint Ex. 10 at 9.)
Therefore, the State Board afforded the calculation no weight in its determination.
(Joint Ex. 10 at 9.) At trial, Miller stated that the calculation
was done by taking the income producing capacity of the property and measuring
the difference between the motels total number of rooms and what was actually
rented. (Trial Tr. at 14.) Miller also argued that the property
could be expected to have a 100% occupancy rate every night. (Trial
Tr. at 23.) However, upon further questioning by the Court, Miller admitted
that such occurrences are a rarity. (Trial Tr. at 33.) In
fact, Lees own evidence suggests that the property could only be expected to
have a 60% average occupancy rate during its first year of operation, followed
by 75% occupancy after the second or third years. (Trial Tr. at
23); (Joint Ex. 5 at 8, 10.) Since Lees offered no supporting proof
that would substantiate the numbers used in the assessment review or Millers testimony,
the Court deems the assessment review as non-probative with regard to Lees obsolescence
claim. See Damon Corp., 738 N.E.2d at 1106.
Lees finally argues that increased competition in the area caused Lees occupancy rate
to diminish. (Trial Tr. at 29.) However, the only evidence offered on
this point was a statement by Miller that, There was an economic boom
in the hotel industry from the mid 80s up till the late 80s,
and then there was an over capacity, and an overabundance of hotel rooms
available . . . now weve come out of that, and the occupancy
rates on hotels is increased. (Trial Tr. at 29.) Lees did not
present any evidence regarding the number of hotels present in Greensburg, nor the
performance of its motel relative to other hotels in the area. Cf.
Clark 694 N.E.2d at 1239 n.13 (In the context of maintenance costs, Court
concluded that without a proper comparison the State Board had no way to
determine if such costs were normal or excessive); (Trial Tr. at 29.)
Instead, Miller stated that the regulations offer no guidance as to the effects
of location and use. (Trial Tr. 31.) Without more, the above evidence
is nothing more than an unsupported bare allegation that the Court refuses to
consider. See Herb v. State Bd. of Tax Commrs, 656 N.E.2d 890,
893 (Ind. Tax Ct. 1995) (Allegations, unsupported by factual evidence, remain mere allegations);
Cf. Clark, 694 N.E.2d at 1239 n.13 ([I]n cases where there is little
guidance on what kinds of evidence are to be considered, prudent litigants would
err on the side of offering more evidence rather than less evidence.)
Since this case is post-Clark, Lees was required to both identify and quantify
its evidence concerning obsolescence. It did not do so. The State
Board deemed Lees evidence non-probative, thereby affirming the BORs quantification of obsolescence.
Lees did not present probative evidence sufficient to establish a prima facie case
as to obsolescence. See Damon Corp., 738 N.E.2d at 1106. Therefore,
the State Board was not required to identify or quantify its evidence to
support its determination on this issue with substantial evidence. The 10% obsolescence
adjustment given to the property by the BOR stands.
III. Land Classification
Lees next argues that 1.72 acres of its land should be classified as
primary land and the remaining 0.72 acres as useable undeveloped land, instead of
the current classification of its land as entirely primary. Land Type refers
to a code that denotes the classification of all or part of a
parcel according to its use. Ind. Admin. Code tit. 50, r. 2.1-4-2(f)
(1992) (codified in present form at id., r. 2.2-4-17(b)(1996)); see also White Swan
Realty, Inc. v. State Bd. of Tax Commrs, 712 N.E.2d 555, 561 (Ind.
Tax Ct. 1999) (discussing land classification), review denied. Primary land is that
land which is utilized as the primary building or plant site and includes
in pertinent part the footprint of the building as well as the primary
parking area. Ind. Admin. Code tit. 50, r. 2.1-4-2(f); see also State
Board Reassessment Bulletin No. RO-33 (1989). Secondary land is that portion of
the land utilized for secondary uses such as yard storage or a refuse
dump. Ind. Admin. Code tit. 50, r. 2.1-4-2(f). Undeveloped land is
that portion of land that is usable but undeveloped.
In order to arrive at this breakdown, Miller took the square footage and
footprint of the building (which were taken from Lees property record card) and
then added in the parking lot, for a total of 1.72 acres of
primary land. (Joint Ex. 4); (Trial Tr. at 11-12.) Miller then
concluded that the remaining 0.72 acres must be useable undeveloped land. (Trial
Tr. at 12.) Beyond this, Lees presented no evidence concerning the composition
of the 0.72 acres claimed as useable undeveloped land. The Court refuses
to make Lees case for it. CGC Enters. v. State Bd. of
Tax Commrs, 714 N.E.2d 801, 803 (Ind. Tax Ct. 1999). Such unsubstantiated
statements are nothing more than bare allegations. Herb, 656 N.E.2d at 893.
The Court deems the above evidence as conclusory and thus non-probative as
to land classification. Since Lees has not presented a prima facie case
concerning land classification, the BORs determination stands.
For the above stated reasons, the Court AFFIRMS the State Boards final determination
in all respects.
Lees also raises an issue not considered by the Court:
Whether the State Boards property assessment system, on its face, violates the
Indiana Constitution. The Court has stated that even though the current regulations
are unconstitutional, Real 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) (citations omitted). Therefore, the Court will not address this issue.
In an amended order issued on June 10, 1998, the
Court, at the behest of Lees, also added the land classification issue to
its original remand order of May 29, 1998.
In addition, a fourth category of land classification now existsunusable
undeveloped land. While the 1992 regulations do not define this type of
land, the 1996 regulations state that unusable undeveloped land is The amount of
vacant acreage that is unusable for commercial or industrial purposes, and not used
for agricultural purposes. Ind. Admin. Code tit. 50, r. 2.2-4-17(b)(1996).