ATTORNEY FOR PETITONER:
ATTORNEYS FOR RESPONDENT:
TIMOTHY J. VRANA
ATTORNEY GENERAL OF INDIANA
DAVID & RUMPLE
TED J. HOLADAY
Deputy Attorney General
INDIANA TAX COURT
LOWES PELLETS & )
GRAIN, INC. )
v. ) Cause No. 49T10-9702-TA-133
STATE BOARD OF TAX )
ON APPEAL FROM A FINAL DETERMINATION OF THE STATE BOARD OF TAX COMMISSIONERS
March 23, 2001
NOT FOR PUBLICATION
The petitioner, Lowes
Pellets and Grain, Inc. (Lowes), appeals the final determination of the State Board
of Tax Commissioners (State Board) for the 1994 tax year, whereby the State
Board awarded Lowes a 20% obsolescence factor on its grain storage facility (facility)
to account for its current use as a grain storage facility from its
previous use as a grain elevator. In its original tax appeal, Lowes
presents the following issues:
Whether its facility is entitled to a combined functional and economic obsolescence adjustment
Whether the State Boards final determination awarding the facility a 20% obsolescence
adjustment is supported with substantial evidence.
For the reasons explained below, the Court finds for Lowes and remands this
FACTS AND PROCEDURAL HISTORY
In 1992, at a bankruptcy sale, Lowes purchased a facility in Rush County
that was once used as a grain elevator.
At the time of
assessment in 1994, the facility only stored grain. The Rush County Board
of Review (BOR) declined to award any obsolescence depreciation to the facility.
On appeal, the State Board granted the facility a 20% obsolescence factor in
its final determination issued on January 17, 1997, based on the facilitys change
in use from a grain elevator to a grain storage facility. (Respt
Ex. A at 19). Still believing this number too low, Lowes filed
this original tax appeal on February 25, 1997, requesting an 80% obsolescence adjustment.
The Court held a trial on November 7, 1997, followed by oral
arguments from both parties on April 3, 1998. Additional facts will be
supplied where necessary.
ANALYSIS AND OPINION
Standard of Review
The Court accords great deference to the State Board when it has acted
within the scope of its authority. Dav-Con, Inc. v. State Bd. of
Tax Commrs, 702 N.E.2d 1137, 1140 (Ind. Tax Ct. 1998), review denied.
The Court will reverse a final determination by the State Board only if
it is unsupported by substantial evidence, constitutes an abuse of discretion, exceeds statutory
authority, or is arbitrary and capricious. Id. The taxpayer bears the
burden of demonstrating the invalidity of the State Boards final determination. Clark
v. State Bd. of Tax Commrs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct.
Lowes argues that its facility should be given a combined functional
and economic obsolescence adjustment of 80%. The State Board contends that its
award of a 20% obsolescence adjustment for changed usage should be affirmed.
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 such as a poor land-to-building ratio, inefficient floor plans, and excessive or
deficient floor load capacity and is evidenced by conditions within the property.
Ind. Admin. Code tit. 50, r. 2.1-5-1. Economic obsolescence is caused by
factors external to the property such as insufficiency of utilities or changing economic
and social conditions. Ind. Admin. Code tit. 50, r. 2.1-5-1.
When an assessor determines obsolescence, a two-step inquiry is required. First, the
assessor must identify the causes of obsolescence, and second, he must quantify the
amount of obsolescence to be applied. Heart City Chrysler v. State Bd.
of Tax Commrs, 714 N.E.2d 329, 333 (Ind. Tax Ct. 1999). In
Clark, this Court held that future taxpayers must submit probative evidence to the
State Board sufficient to establish a prima facie case concerning both the identification
and quantification of obsolescence, in order to receive an increased adjustment.
Clark, 694 N.E.2d at 1241. Since this case is pre-Clark however, Lowes
is only required to successfully establish a prima facie case as to the
identification of such additional causes. Id. at 1238-41. With respect to
challenging the State Boards quantification of obsolescence, the taxpayer in a pre-Clark case
need not make a prima facie case on this issue. Id.
Rather, the taxpayer is only required to show that the State Board did
not support its final determination with substantial evidence. Id.
The State Board agrees with Lowes that some obsolescence is present,
a fact that is reflected in its final determination. See Heart City
Chrysler, 714 N.E.2d at 333 n.13. However, Lowes argues that it has
identified additional causes of obsolescence not addressed by the State Board. Therefore,
in order to receive an increased obsolescence adjustment, Lowes must present probative evidence
sufficient to establish 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 identification of each additional cause. Damon Corp.
v. State Bd. of Tax Commrs, 738 N.E.2d 1102, 1106 (Ind. Tax Ct.
2000). In this pre-Clark case, once a prima facie case has been
established, the burden of production as to the identification and quantification of such
issues shifts to the State Board to rebut the taxpayers evidence and to
support its determination with substantial evidence.
Lowes first argues that its low purchase price
for the facility
is not proportionate to the assessment made on it by the State Board,
so an economic obsolescence adjustment must be made. Second, Lowes argues that
a railroad that once ran past its facility is no longer operational, causing
its profitability to decline, a fact that Lowes argues entitles it to an
increased economic obsolescence adjustment. Lowes next argues that since the majority of
its facility remained vacant throughout the tax year, it should be entitled to
a higher functional obsolescence adjustment. The Court will address each argument in
Lowes first contends that the price paid for its facility did not warrant
an assessment that was five times more than the purchase price, thus entitling
it to a functional obsolescence adjustment to account for this discrepancy. The
State Board considered this issue in its final determination, but did not change
its overall determination as a result. (Respt Ex. A at 18).
The difference between the true tax value of the property and the price
for which Lowes purchased the property does not demonstrate a loss in value
because the two numbers are not necessarily comparable. See Damon Corp., 738
N.E.2d at 1109 (citing State Bd. of Tax Commrs v. Town of St.
John, 702 N.E.2d 1034, 1038 (Ind. 1998) (holding that true tax value is
not exclusively or necessarily identical to fair market value)). Further, Ind. Code
Ann. § 6-1.1-31-6(c) (West 2000) states that [w]ith respect to the assessment of
real property, true tax value does not mean fair market value. True
tax value is the value determined under the rules of the state board
of tax commissioners.
Using the State Boards obsolescence guidelines in the regulations, Lowes taxpayer representative, Mr.
Milo Smith, attempted to compare the facility to similar properties built at the
same time and concluded that it was overassessed. (Trial Tr. at 13-14.)
However, Lowes offered no additional evidence concerning such comparables. 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.) The Court finds Lowes evidence
on this issue as non-probative and concludes that Lowes has failed to make
a prima case as to the identification of economic obsolescence on this issue.
See Damon Corp., 738 N.E.2d at 1109.
Lowes next contends that since its facility lacks rail service, it is entitled
to a higher economic obsolescence adjustment. While lack of rail service is
not itself listed in the regulations, the inappropriateness of a structure in relation
to its location is listed as a cause of economic obsolescence. Ind.
Admin. Code tit. 50, r. 2.1-5-1. In the past, rail service existed
near Lowes facility. (Trial Tr. at 14-15.) The railroad formally represented
the most inexpensive and efficient way to deliver grain. (Trial Tr. at
18, 37-38.) With the departure of the railroad, Lowes used trucks to
haul its own grain to and from the market, which served as the
cheapest form of transportation available to it at the time of its assessment.
(Trial Tr. at 18, 37.) The departure of the railroad
also caused Lowes to alter its facilitys use from a grain elevator to
a grain storage facility, causing its profitability to decline. (Trial Tr. at
32-33.) Finally, the railroads demise also caused farmers to ship their own
grain directly, thus eliminating the farmers need for Lowes grain storage facility.
(Trial Tr. at 35.)
Despite these statements, Smith did not demonstrate how the departure of the railroad
directly contributed to the facilitys loss in value. Cf. Damon Corp., 738
N.E.2d at 1108 (In the commercial context, a loss in value usually represents
a decrease in the improvements income generating ability.) A taxpayers conclusory statements
do not constitute probative evidence. Kemp v. State Bd. of Tax Commrs,
726 N.E.2d 395, 400 (Ind. Tax Ct. 2000). Therefore, Lowes has failed
to establish a prima facie case as to the identification of this cause
of economic obsolescence. See Damon, 738 N.E.2d at 1106.
C. Excessive Capacity
Lowes finally argues that since a large portion of its facility remained vacant
at the time of assessment, it is entitled to an increased functional obsolescence
adjustment. The regulations provide that inadequate or unsuited utility space is a
cause of functional obsolescence. Ind. Admin. Code tit. 50, r. 2.1-5-1.
However, the 1992 regulations provide no specific guidance concerning the application of functional
obsolescence to grain storage facilities.
In support of its argument, Lowes submitted a grain inventory sheet (sheet) showing
the percentage of the facility in use from December 31, 1992 through July
31, 1994. (Petr Ex. 5.) This sheet shows that the average
occupancy of Lowes facility during this time period was 41.59% of capacity.
Ex. 5); (Trial Tr. at 22.) Mr. Smith testified that if the
facility were bringing in as much grain as it shipped out, the above
figure would be lower. (Trial Tr. at 37.) According to Mr.
Smith, the goal of the facility was to facilitate the movement of grain
to and from the site as quickly as possible, but without the increased
volume the facility held more grain than it normally would, a fact the
41.59% average occupancy rate reflects. (Trial Tr. at 36, 42, 45.)
Lowes did not present any additional evidence relating to the figures quoted above.
These figures, on their face, do not demonstrate a loss in value
for the facility. Cf. Damon Corp., 738 N.E.2d at 1109-10. Without
more, it cannot be said that Lowes has established a prima case as
to the identification of this functional obsolescence factor. Cf. id. Lowes
has failed to establish a prima facie case as to the identification of
Lowes next argues that the State Boards final determination is not supported with
substantial evidence. As noted above, the State Board granted Lowes a 20%
obsolescence adjustment based on the propertys change in use. Supra at 2.
At trial, King stated that his calculations could not be supported. (Trial
Tr. at 75.) The only evidence offered in support of the State
Boards final determination on this issue was a statement from Mr. King regarding
his quantification of the obsolescence given to the facility. (Trial Tr. at
74-75.) He stated, it simply is an estimation of reduced traffic, reduced
usage, reduced through-put, and a result of changing economic conditions. This Court
has stated before that such conclusory statements are insufficient to support a State
Board final determination. See Morris v. State Bd. of Tax Commrs, 712
N.E.2d 1120, 1125 (Ind. Tax Ct. 1999) (observing that conclusory statements, standing alone,
are insufficient to support a State Board final determination). The Court finds
that the State Board has failed to support its final determination with substantial
evidence. Therefore, Lowes is entitled to a remand in order to redetermine
the obsolescence adjustment for its facility.
On remand, the entire issue of obsolescence is open for reconsideration. Lowes
must present a prima facie case as to both the identification and quantification
of obsolescence in order to shift the burden of production to the State
Board. Damon Corp., 738 N.E.2d at 1106. The State Board will
then be required to deal with such evidence in a meaningful manner.
Loveless Const. Co. v. State Bd. of Tax Commrs, 695 N.E.2d 1045, 1049
(Ind. Tax Ct. 1998), review denied.
For the reasons stated above, the Court finds that Lowes is entitled to
a remand on its economic and functional obsolescence factors. The Court REVERSES
the State Boards final determination and REMANDS this case for further consideration consistent
with this opinion.
At trial, Lowes taxpayer representative, Mr. Milo Smith, testified that
while grain elevators have the ability to both store and process grain into
feed, Lowes facility was priced as grain storage by the State Board because
its grain elevator components were no longer being used. (Trial Tr. at
13, 32, 35.)
In post-Clark appeals, the burden of production only shifts after
the taxpayer has made a prima facie case as to both identification and
quantification. Clark, 694 N.E.2d at 1241.
Lowes paid $79,500 total for the facility and one other
parcel of land that is not at issue in this case. (Trial
Tr. at 10.)
While the 1996 regulations contain material pertinent to applying functional
obsolescence to grain elevators, they do not contain any such material for grain
storage facilities. Ind. Admin. Code tit. 50, r. 2.2-12-6.1 (1996).
These figures are based on a total capacity for the
facility of 386,260 bushels, which is what the USDA certified Lowes facility to
hold. (Trial Tr. at 29-30.)
On remand, Lowes may quantify its evidence by using generally accepted
appraisal methods. See Loveless Const. Co., 695 N.E.2d at 1050.