Indianapolis, Indiana Indianapolis, Indiana

Deputy Attorney General
                 Indianapolis, Indiana

     IN THE INDIANA TAX COURT ________________________________________________________________________

LEES INN OF AMERICA                                                          )
            Petitioner,                                                           )
v.                                                                                )          Cause No. 49T10-9701-TA-18
                                                                           STATE BOARD OF TAX                                                                )
COMMISSIONERS,                                                                    )    

Respondent.     )    



March 21, 2001

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. See footnote
For the reasons stated below, the Court affirms the State Board’s 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 3, 1997.
On May 28, 1998, the State Board filed a motion to remand this case in order to deal with the obsolescence issue, citing the Court’s then-recent decision in Clark v. State Bd. of Tax Comm’rs, 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. See footnote Following a remand hearing on August 17, 1998, the State Board issued its amended final determination on September 8, 1998, again affirming the BOR’s findings in all respects. The Court then held a trial in this matter on January 25, 1999. Additional facts will be supplied where necessary.
Standard of Review

The Court gives great deference to the State Board’s final determinations when the State Board acts within the scope of its authority. Kemp v. State Bd. of Tax Comm’rs, 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 Board’s 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 Comm’rs, 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 Board’s 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. (Resp’t. 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 Comm’rs 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 Comm’rs, 715 N.E.2d 1018, 1022 (Ind. Tax Ct. 1999).
II. Obsolescence

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 Comm’rs, 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 motel’s 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 motel’s 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 motel’s 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 Miller’s 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 we’ve 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 Comm’rs, 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 BOR’s 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 Comm’rs, 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. See footnote Id.
    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 Comm’rs, 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 BOR’s determination stands.

    For the above stated reasons, the Court AFFIRMS the State Board’s final determination in all respects.

Footnote: Lees also raises an issue not considered by the Court: Whether the State Board’s 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 Comm’rs, 704 N.E.2d 1113, 1121 (Ind. Tax Ct. 1998) (citations omitted). Therefore, the Court will not address this issue.

Footnote: 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.

Footnote: In addition, a fourth category of land classification now exists—unusable 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).