ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DOUGLAS J. DEGLOPPER
ATTORNEY AT LAW
ATTORNEY GENERAL OF INDIANA
ANDREW W. SWAIN
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
WAL MART STORES, INC., )
v. ) Cause No. 49T10-0206-TA-75
WAYNE TOWNSHIP ASSESSOR, )
ON APPEAL FROM A FINAL DETERMINATION OF
THE INDIANA BOARD OF TAX REVIEW
April 8, 2005
Wal Mart Stores, Inc. (Wal Mart) appeals the final determination of the Indiana
Board of Tax Review (Indiana Board) valuing its real property for the 2001
tax year. The sole issue before this Court is whether Wal Marts
improvements are entitled to obsolescence depreciation.
FACTS AND PROCEDURAL HISTORY
In 1999, Wal Mart had owned and operated one of its standard-sized stores
in Richmond, Indiana for approximately eight years. That same year, Wal Mart
decided to redevelop that site and construct a new Wal Mart Supercenter directly
behind the existing store. The development plans called for the old store
to be demolished after the new store was completed and open for business.
Construction began on the new store in July of 2000 and was completed
by February of 2001. The old store remained open for business while
the new store was being constructed and stocked. On March 13, 2001,
the old store closed. The new store opened the following day, March
14, 2001, with demolition of the old store commencing that same day.
The old store was completely removed by April 1, 2001.
Because both buildings were standing on the March 1, 2001 assessment date, both
were assessed for property tax purposes. The old store was assessed at
$2,872,800 and the new store was assessed at $5,619,100. Neither building received
an obsolescence depreciation adjustment.
Wal Mart appealed the assessments to the Wayne County Property Tax Assessment Board
of Appeals (PTABOA), arguing that both stores were entitled to some measure of
obsolescence. The PTABOA upheld the assessments and, on August 8, 2001, Wal
Mart filed two Petitions for Review of Assessment (Forms 131) with the State
Board of Tax Commissioners (State Board). Wal Mart contended that: (1) the
old store was entitled to a 95% obsolescence depreciation adjustment because it only
remained standing for thirteen days after the assessment date; and (2) the new
store was entitled to a 25% obsolescence depreciation adjustment because it was not
open for business until March 14, 2001. The Indiana Board subsequently held
a hearing on Wal Marts Forms 131 and, on May 2, 2002, issued
its final determination denying obsolescence for both buildings.
Wal Mart initiated an original tax appeal on June 17, 2002. 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 January 25, 2005. Additional facts will be supplied as necessary.
ANALYSIS AND OPINION
Standard of Review
This Court gives great deference to final determinations of the Indiana Board.
Wittenberg Lutheran Vill. Endowment Corp. v. Lake County Prop. Tax Assessment Bd. of
Appeals, 782 N.E.2d 483, 486 (Ind. Tax Ct. 2003), review denied. Consequently,
the Court will reverse a final determination of the Indiana Board only if
arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law;
contrary to constitutional right, power, privilege,
in excess of statutory jurisdiction, authority, or
limitations, or short of statutory jurisdiction,
authority, or limitations;
without observance of procedure required by law; or
unsupported by substantial or reliable
Ind. Code Ann. § 33-26-6-6(e)(1)-(5) (West Supp. 2004-2005). The party seeking to
overturn the Indiana Boards final determination bears the burden of proving its invalidity.
Osolo Township Assessor v. Elkhart Maple Lane Assocs., L.P., 789 N.E.2d 109,
111 (Ind. Tax Ct. 2003).
Obsolescence, which is a form of depreciation, is defined as a loss of
[property] 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 establish obsolescence, a taxpayer must make a two-pronged showing: 1) it must
identify the causes of the alleged obsolescence; and 2) it must quantify the
amount of obsolescence to be applied to its improvement(s). See Clark v.
State Bd. of Tax Commrs, 694 N.E.2d 1230, 1241 (Ind. Tax Ct. 1998).
It is important to recognize, however, that each of these prongs requires
a connection to an actual loss in property value. For example, when
identifying factors that cause obsolescence, a taxpayer must show through the use of
probative evidence that those causes of obsolescence are causing an actual loss of
value to its property. See Miller Structures, Inc. v. State Bd. of
Tax Commrs, 748 N.E.2d 943, 954 (Ind. Tax Ct. 2001). In the
commercial context, this loss of value usually means a decrease in the propertys
income generating ability. See id. at 953. In turn, when the
taxpayer quantifies the amount of obsolescence to which it believes it is entitled,
it is required to convert that actual loss of value (shown in the
first prong) into a percentage reduction and apply it against the improvements overall
value. See Clark, 694 N.E.2d at 1238.
I. The Old Store
Wal Mart claims that its old store is entitled to a 95% obsolescence
depreciation adjustment because it only remained standing for thirteen days after the assessment
date. More specifically, Wal Mart contends that because the store was only
days away from demolition, and because it was going to be replaced by
a bigger, newer store, it was both functionally and economically obsolete and therefore
had only a minimal salvage value. (Petr Br. at 5.)
Assuming arguendo that Wal Mart has shown valid causes of obsolescence in the
old store, it has still failed to meet its burden of tying those
casues to an actual loss in value and properly quantifying the obsolescence it
See Clark, 694 N.E.2d at 1241 (stating that once a taxpayer
has identified causes of obsolescence, he must present probative evidence that would support
a quantification of obsolescence at the administrative level) (footnote added). Wal Mart
claims that the old stores value was merely salvage; however, it offers no
support for its conclusion that salvage value corresponds to a 95% obsolescence adjustment.
Indeed, it appears that Wal Mart has arrived at this figure solely
through guesswork and estimation. (
See Petr Br. at 11 (stating that it
is doubtful that the pile of  debris and rubble from this site
could have any value which would exceed 5% of [its] assessed value[.]
As a result, an obsolescence factor of 95% would seem to be entirely
reasonable and justifiable under the circumstances) (emphases added).)
Pulling a number out of thin air is not a valid method of
quantifying obsolescence. Rather, Wal Mart was required to show, through the use
of generally recognized appraisal principles, how it arrived at 95%. See, e.g.,
Meridian Towers East & West, LLC v. Washington Township Assessor, 805 N.E.2d 475,
479 (Ind. Tax Ct. 2003); Canal Square Ltd. Pship v. State Bd. of
Tax Commrs, 694 N.E.2d 801, 807 (Ind. Tax Ct. 1998) (both cases holding
that the taxpayer established a prima facie case where it provided an appraisal
quantifying obsolescence in accordance with generally recognized appraisal principles). No such showing
has been made here.
Wal Mart may, indeed, have a meritorious argument that because the old store
was about to be demolished, it was entitled to some measure of obsolescence.
Nonetheless, because it failed to take that argument one step further by
properly quantifying the obsolescence to which it was entitled, Wal Marts obsolescence claim
on the old store is fatally deficient. See Hoogenboom-Nofziger v. State Bd.
of Tax Commrs, 715 N.E.2d 1018, 1025 26 (Ind. Tax Ct. 1999).
II. The New Store
Wal Mart contends that its new store is entitled to 20% obsolescence because
it was not open, and therefore not generating income, on the assessment date.
See Petr Br. at 12 (footnote added).) This Court has
previously held, however, that to allow for an obsolescence adjustment merely because a
building is vacant while it is under construction would lead to palpably absurd
results. Pedcor Invs.-1990-XIII, L.P. v. State Bd. of Tax Commrs, 715 N.E.2d
432, 440 (Ind. Tax Ct. 1999). After all, a building cannot possibly
be obsolete when its useful life has not yet begun. It is
true, as Wal Mart notes, that a store that is not yet open
for business cannot generate income. Nevertheless, when construction on the store began,
it was not generating income. Consequently, from the date of the beginning
of construction until the assessment date, the new store did not suffer a
loss of income-generating ability since it never generated income in the first place.
See id. Therefore, the fact that the new store was not
yet open for business is not evidence of an actual loss of value
and no obsolescence adjustment is warranted.
See id. (footnote added).
Wal Mart characterizes this case as a difficult one. (See Petr Br. at
6; Oral Argument Tr. at 3.) It is, however, both simple and
straightforward. Both buildings were standing on the March 1, 2001 assessment date;
therefore, both buildings should have been assessed. See Ind. Code Ann. §
6-1.1-2-1 (West 2001) (providing that all tangible property which is within the
jurisdiction of this state on the assessment date of a year is subject
to assessment and taxation for that year). Wal Marts business judgment in
having both stores standing on the assessment date is not, by itself, a
cause for obsolescence.
See footnote Moreover, even assuming that Wal Mart showed valid causes
of obsolescence resulting from this situation, it completely failed to quantify the obsolescence
it sought. Accordingly, Wal Marts requests for obsolescence on both the old
and new stores are therefore denied.
For the foregoing reasons, the Court AFFIRMS the final determination of the Indiana
Board valuing Wal Marts property for the 2001 tax year.
Footnote: The State Board of Tax Commissioners was abolished by the legislature as
of December 31, 2001. 2001 Ind. Acts 198 § 119(b)(2). Effective
January 1, 2002, the Indiana Board of Tax Review (Indiana Board) was created
as the State Boards replacement.
See Ind. Code Ann. §§ 6-1.5-1-3; 6-1.5-4-1
(West Supp. 2004-2005); 2001 Ind. Acts 198 § 95.
Wal Mart appears to be advancing two arguments regarding causes of obsolescence
in the old store: (1) the store was demolished because it had become
obsolete; and (2) the store was obsolete because it was scheduled for demolition.
There is no need, however, for the Court to sort through these
arguments since Wal Mart has failed to properly quantify the obsolescence it seeks.
Footnote: Indianas assessment manual defines salvage value as the price one would be
justified in paying for an item of property to be removed from the
premises and used elsewhere.
Ind. Admin. Code tit. 50, r. 2.2-1-54 (1996).
At different stages of the appeals process, Wal Mart has requested different
amounts of obsolescence to be applied to the new store. Before the
PTABOA, Wal Mart made no specific request for the new store. (
Cert. Admin. R. at 18-19.) In its Form 131 petition to the
State Board, Wal Mart requested 25% obsolescence. (Cert. Admin. R. at 17.)
At the administrative hearing, however, Wal Mart requested only 15% obsolescence.
(Cert. Admin. R. at 120.) Now, for purposes of its tax appeal,
Wal Mart has settled on a request of 20%. (Petr Br. at
Likewise, the fact that the store was only open for nine
and a half months during the 2001 tax year does not demonstrate a
loss in value that would warrant an obsolescence adjustment. (
See Petr Br.
at 12.) As previously explained, the store suffered no loss in value
during the two and a half months before it opened.
The Court notes that not only did Wal Mart have notice
of the March 1 assessment date, the Wayne Township Assessor also attempted to
help Wal Mart out by encourag[ing] them to do whatever they could to
get the old [store] down before March 1 or at least be in
the process of demolition. (Cert. Admin. R. at 130.) Indeed, as
early as December, the Assessor was in contact with Wal Mart officials, notifying
them that if they had even begun the demolition process by March 1,
the old store would not be assessed. (
See Cert. Admin. R. at
129-30.) Regardless of this advice, however, an internal Wal Mart memorandum shows
that as of January 9, 2001, Wal Marts scheduled demolition date for the
old store was still March 14. (See Cert. Admin. R. at 75.)