ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN STEVE CARTER
ATTORNEY AT LAW ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
LINDA I. VILLEGAS
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
GOSHEN SASH & DOOR SMOKERCRAFT, )
) Cause No. 49T10-0005-TA-72
DEPARTMENT OF LOCAL )
See footnote )
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
April 23, 2004
Goshen Sash & Door Smokercraft (GSD) appeals the State Board of Tax
Commissioners (State Board) final determination valuing its real property for the 1995 tax
year. The sole issue for the Court to decide is whether three
of GSDs improvements are entitled to additional obsolescence depreciation adjustments.
FACTS AND PROCEDURAL HISTORY
GSD timely filed a Petition for Review of Assessment (Form 131) with the
State Board challenging the 1995 assessment of its New Paris, Indiana property.
In its Form 131, GSD claimed that its improvements were entitled to additional
obsolescence.See footnote After conducting an administrative hearing on March 1, 2000, the State
Board denied GSDs claim.
On May 15, 2000, GSD initiated an original tax appeal. The parties
subsequently agreed to argue the case based on the administrative record presented to
the State Board as well as on their briefs. Accordingly, the Court
heard the parties oral arguments on April 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 reassessment, the Elkhart County Board of Review (BOR) awarded GSDs
improvements a 10% obsolescence depreciation adjustment. (See Stip. R. at 5.)
GSD asserts, however, that three of its improvements are entitled to a 47%
oblsolescence depreciation adjustment.
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 GSDs improvements
See footnote , GSD bore
the burden of presenting evidence at the administrative hearing quantifying the amount of
obsolescence to be applied to its improvements.
To support its claim for additional obsolescence, GSD 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 47.) More
specifically, GSD asserted that
[t]he subject property was originally constructed in 1947 with a tile and wood
framed structure with several additions over the years. This out dated add-on
type of construction has created an irregular and inefficient floor plan for todays
market place as well as a higher maintenance structure. These inefficiencies cause
increased production and material handling costs as well as higher utility costs due
to lack of insulation and thermal pane windows, and numerous roof lines and
The subject is mostly constructed of block with steel and wood 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 47.) GSDs Analysis also contained: 1) a one-page
general description of obsolescence; 2) a cursory mathematical calculation showing how it arrived
at 47%; 3) the property record card for the subject property; 4) an
article titled Identifying, Measuring, and Treating Functional Obsolescence in an Appraisal; and 5)
the property record card from the State Board final determination for 1992.
See Stip. R. at 44-91 (footnote added).) 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, GSD 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, GSD 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. Likewise, GSD needed to support its claim
that it has incurred higher utility costs due to a lack of insulation,
thermal pane windows, numerous roof-lines and roof valleys, with evidence indicating the amount
of those higher utility costs. GSDs failure to provide this evidence is
fatal to its quantification of additional obsolescence.
In the alternative, GSD argues that because obsolescence was initially applied, whether [GSD]
presented evidence demonstrating a need for additional obsolescence has nothing to do with
whether the [10%] figure itself is supported by substantial evidence. (Petr Post-Hrg
Br., Findings of Fact and Conclusions of Law at 7 (internal quotation omitted).)
In other words, GSD 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. GSD is
This Court has held that it would 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 GSDs improvements was not triggered. See id.
Because GSD 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 determination of the State Board.
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),
Indiana Code Annotated § 6-1.1-30-1.1 (West Supp. 2003)(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. 2003)(eff. 1-1-02); 2001 Ind. Acts 198 §
95. Pursuant to Indiana Code Annotated § 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. 2003)(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.
GSD 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 GSDs claims and supporting arguments are identical to those previously
rejected by the Court, the Court will not address them.
GSD also claimed incorrect use-type allocation. However, this issue was
withdrawn during the administrative hearing. (
See Stip. R. at 42.)
By awarding the initial 10% obsolescence adjustment, the Elkhart County Board of
Review (BOR) agreed that obsolescence was present in GSDs 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 [taxpayer's] burden of offering probative evidence showing that the subject improvements
experience obsolescence"), review denied.
Apparently, GSD submitted the 1992 property records because two of the
improvements received 20% obsolescence and the third received 30%. No explanation was
given, however, as to how this determination relates to GSDs 1995 assessment.
At any rate, each tax year stands alone.
Glass Wholesalers, Inc. v.
State Bd. of Tax Commrs, 568 N.E.2d 1116, 1124 (Ind. Tax Ct. 1991).
Consequently, property is to be assessed separately and distinctly each year (i.e.,
a 1992 tax assessment will not be considered as probative evidence of the
proper tax assessment for a later year). See id.
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 GSDs actual loss of value.
Consequently, it is impossible for GSD to convert that loss of value into
an obsolescence quantification.