ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN STEVE CARTER
ATTORNEY AT LAW ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
BCD INVESTMENTS, )
v. ) Cause No. 49T10-9701-TA-82
DEPARTMENT OF LOCAL )
ON APPEAL FROM FOUR FINAL DETERMINATIONS OF
THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
April 28, 2003
BCD Investments (BCD) appeals the four final determinations of the State Board of
Tax Commissioners (State Board) that valued its real property for the March 1,
1989 - 1992 assessments.
I. Whether the State Board erred in determining the base rate for
BCDs improvement for the 1989, 1990, and 1991 assessments; and
II. Whether, for the 1992 assessment,
the State Board erred in:
A. calculating the perimeter-to-area ratio (PAR) of BCDs improvement;
B. grading BCDs improvement; and
C. determining the amount of obsolescence to which BCDs improvement was
FACTS AND PROCEDURAL HISTORY
BCD owns a small manufacturing plant in Fremont, Indiana. The buildings core,
approximately 19,200 square feet, was built in 1974 and is used for manufacturing.
Since 1974, BCD has made numerous additions to its buildings core.
In 1984, it added a 2,380 square foot office and a 6,400 square
foot warehouse. In 1989, it added another 31,600 square feet of warehouse
space. Finally, in 1991, it added an additional 21,600 square feet of
In December 1992, BCD filed three Petitions for Correction of an Error (Forms
133) with the Steuben County Auditor challenging its 1989, 1990, and 1991 property
assessments. The Forms 133 stated [i]ncorrect base rate used due to error
in reg[ulation] 17 for failure to provide reproduction costs for metal buildings.
(Cert. Admin. R. at 5, 8, 12.)
In March 1993, BCD filed a Petition for Review of Assessment (Form 131)
with the State Board challenging its 1992 property assessment. In its Form
131, BCD raised the following issues: (1) Improper calculation of the PAR.
Should be 1[;] (2) Improper grade factor applied to building [sections] 2,
3 & 4[; and] (3) Improper amount of obsolescence depreciation applied. (Cert.
Admin. R. at 16.)
The State Board conducted one hearing on all four of BCDs petitions on
December 6, 1995. On November 22, 1996, the State Board issued a
final determination on BCDs Form 131, recalculating the improvements PAR and grade, as
well as allowing a 5% obsolescence depreciation adjustment. On the same day,
however, the State Board denied relief to BCD on its Forms 133.
On January 6, 1997, BCD initiated an original tax appeal. On September
8, 1998, at the request of the State Board, this Court remanded the
case to the State Board for further consideration.
Two years later, and after conducting another administrative hearing, the State Board issued
new final determinations on each of BCDs four petitions. While the State
Board again refused relief to BCD on its Forms 133, it again changed
the PAR on a portion of BCDs improvement as requested on the Form
BCD filed an amended original tax appeal on February 3, 1999. Because
both parties requested to have the matter resolved based on the evidence stipulated
into the record as well as on their briefs, the Court did not
conduct a trial. The Court did, however, hear oral argument on July
17, 1999. Additional facts will be supplied as necessary.
STANDARD OF REVIEW
This Court accords great deference to the State Board when it acts within
the scope of its authority. Wetzel Enters., Inc. v. State Bd. of
Tax Commrs, 694 N.E.2d 1259, 1261 (Ind. Tax Ct. 1998). Accordingly, the
Court will reverse a State Board final determination only if it is unsupported
by substantial evidence, constitutes an abuse of discretion, exceeds statutory authority, or is
arbitrary and capricious. Id.
A taxpayer who challenges the propriety of a State Board final determination bears
the burden of demonstrating its invalidity. Clark v. State Bd. of Tax
Commrs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct. 1998). To do so,
the taxpayer must present a prima facie case, i.e., a case in which
the evidence is sufficient to establish a given fact and which if not
contradicted will remain sufficient. GTE North, Inc. v. State Bd. of
Tax Commrs, 634 N.E.2d 882, 887 (Ind. Tax Ct. 1994) (citations and internal
quotation marks omitted). To establish a prima facie case, the taxpayer must
offer probative evidence concerning the alleged assessment error. Miller Structures, Inc. v.
State Bd. of Tax Commrs, 748 N.E.2d 943, 947 (Ind. Tax Ct. 2001).
Where the taxpayer has failed to provide the State Board with probative
evidence supporting its position on the alleged assessment error, the State Boards duty
to support its final determination with substantial evidence is not triggered. Whitley
Prods., Inc. v. State Bd. of Tax Commrs, 704 N.E.2d 1113, 1119-20 (Ind.
Tax Ct. 1998), review denied.
I. BCDs 1989, 1990, and 1991 Assessments
For each of its 1989, 1990, and 1991 assessments, BCD filed a Form
133 in which it asserted that [i]ncorrect base rate used due to error
in reg[ulation] 17 for failure to provide reproduction costs for metal buildings.
(Cert. Admin. R. at 5, 8, 12.) During the administrative hearing, however,
BCDs tax representative, Drew Miller of Landmark Appraisals, testified that the base rate
was incorrect because the calculation of the buildings perimeter was incorrect. When
the State Board issued its final determinations on BCDs Forms 133, it denied
relief to BCD on the basis that it presented no probative evidence to
support its contention that the building was metal and that a different base
rate should have applied. (See Amended Cert. Admin. R. at 33.)
BCD now contends the State Board erred in deciding its Forms 133 because
it interpreted BCDs issue too narrowly it claims that the gist of
its argument was that the base rate was incorrect and, thus, the reason
why is not necessarily relevant. (See Oral Argument Tr. at 17-20.)
The fundamental purpose of pleadings in the administrative process is to inform
each party of the others position so that each can properly prepare.
Yunker v. Porter County Sheriffs Merit Bd., 382 N.E.2d 977, 981 (Ind. Ct.
App. 1978). To that end, this Court has encouraged taxpayers to complete
their appeal forms (i.e., administrative pleadings) with specificity, and to include mathematical calculations
if applicable. See Wareco Enters., Inc. v. State Bd. of Tax Commrs,
689 N.E.2d 1299, 1302 n. 3 (Ind. Tax Ct. 1997). Admittedly, on
the basis of its administrative pleadings, it is difficult to discern what BCD
is attempting to argue.
Nevertheless, when an issue (or the theory behind it) is not raised in
the administrative pleading but is actually litigated at the hearing, the failure to
object at the hearing to the introduction of that issue has the same
effect as amending the pleading to include that issue. See Yunker, 382
N.E.2d at 981. Here, it appears from the administrative record that the
State Board initially believed BCD sought a kit building adjustment to account for
the fact that the improvement was a light, pre-engineered building. During the
administrative hearing, however, Miller argued that the base rate was incorrect because the
buildings perimeter was improperly calculated.
The State Board hearing officer subsequently asked
Miller if he was substituting the argument for the issue stated on the
Forms 133, to which Miller responded: it will adjust for part of
it. (Audiotape of Admin. Hearing.)
Because Miller argued the perimeter issue at the administrative hearing without objection from
the State Board, he effectively amended BCDs pleading to include that issue.
See Yunker, 382 N.E.2d at 981. Consequently, the State Board erroneously disregarded
BCDs argument that the perimeter of its building was improperly calculated. Accordingly,
the Court REMANDS the issue to the Indiana Board
to recalculate the buildings
perimeter and base rate for the tax years 1989, 1990, and 1991, consistent
with this opinion.
II. BCDs 1992 Assessment
BCD also filed a Form 131 with the State Board challenging its 1992
assessment. In that Form 131, BCD challenged its improvements PAR calculation, its
grade, and its entitlement to obsolescence depreciation. The Court will address each
of those challenges in turn.
A. PAR Calculation
BCD contends that the State Board acted arbitrarily and capriciously when it assessed
its improvement with five separate PARs for the 1992 assessment.
Argument Tr. at 11.) BCD argues that pursuant to the State Boards
rules, its improvement should have been assessed with a single PAR. The
State Board alleges, on the other hand, that BCD failed to make a
prima facie case that the State Board miscalculated the PAR. The State
Board is incorrect.
Under Indianas property tax assessment scheme, PAR is an element used to calculate
the reproduction cost of a commercial improvement. PAR is defined as:
the total linear feet in the perimeter of a building divided by the
corresponding square foot area and multiplied by 100 to convert to a whole
number. The effective perimeter of the building is defined as the total
linear feet of exterior walls that are part of[,] and therefore to be
priced with a particular building or building section. The area is defined
as the total square foot surface of a building.
Ind. Admin. Code tit. 50, r. 2.1-4-1 (1992) (emphasis added).
further states that when pricing a building with mixed use, framing, or wall
heights, the computation of PAR for the entire building should be performed; thereafter,
adjustments to the pricing schedule should be made to reflect those variations.
See id. Thus, although use costs, framing costs, or wall height
costs will differ within the improvement, the PAR will be the same. B. Grade
In this case, BCDs building is but one improvement with multi-uses. Nevertheless,
the State Board assessed each addition to the building as a separate improvement.
In so doing, the State Board assessed the improvement with five separate
PARs: the buildings core was assessed with a PAR of six, the
office with a PAR of two, the 6,400 square foot warehouse section with
a PAR of four, the 31,600 warehouse space with a PAR of two,
and the final warehouse section with a PAR of two. Had a
single PAR been calculated for the entire improvement, it would have been a
PAR of two.
Because the per-square foot base cost of an improvement
increases as its PAR increases, both the buildings core and the 6,400 square
foot warehouse section were priced well above what they would have been priced
with a PAR of two.
The State Board must follow its own rules for assessing real property.
See Ind. Code § 6-1.1-15-14 (1998); Castello v. State Bd. of Tax Commrs,
638 N.E.2d 1362, 1364 (Ind. Tax Ct. 1994). The State Boards rules
provide for one course of action: one improvement, despite its multi-uses, receives
a single PAR. Damico v. Dept of Local Govt Fin., 769 N.E.2d
715, 723 (Ind. Tax Ct. 2002).
Accordingly, the Court REVERSES the State
Boards final determination on this issue, and REMANDS the issue to the Indiana
Board with instructions to use a single PAR of two for BCDs 1992
BCD also alleges that the State Board erred in grading the 19,200 square
foot manufacturing portion of its building, the 6,400 square foot warehouse portion of
its building, as well as the 21,600 square feet of warehouse space.
The State Board graded these sections C-1, D+1, and D+1 respectively. BCD
contends that the State Board should have graded these sections D-1. BCD
The grading of improvements is an important part of Indianas property assessment system.
Under that system, assessors use improvement models and cost schedules to determine
the base reproduction cost of a particular improvement. See Whitley Prods., 704
N.E.2d at 1116. Improvements are then assigned various grades based on their
materials, design, and workmanship. Id. See also Ind. Admin. Code tit.
50, r. 2.1-4-3(f) (1992) (Grade is used to adjust the total base reproduction
cost determined [by using the improvement models and cost schedules] to account for
variations in the quality of materials, workmanship, and design). The grades represent
multipliers that are applied to the subject improvements base reproduction cost. Whitley
Prods., 704 N.E.2d at 1116.
There are times, however, when an improvement deviates from the applicable improvement model
or cost schedule. Such a deviation impacts the improvements base reproduction cost.
Id. at 1117. As this Court has previously explained, there
are two methods by which to account for such deviations:
The preferred method . . . is to use separate schedules that show
the costs of certain components and features present in the model. This
allows an assessor to adjust the base reproduction cost of the improvement objectively.
The other means of accounting for an improvements deviation from the model used
to develop the cost schedule is via an adjustment to the grade of
the improvement. This type of adjustment requires the assessors subjective judgment.
Where possible, this type of an adjustment should be avoided. However, because
the component (base rate adjustment) schedules are not comprehensive, this type of adjustment
may be necessary.
Id. (internal citations, quotations, and footnotes omitted.)
BCD alleges that sections 2, 3, and 4 of its improvement lack certain
features presumed in the applicable model, and therefore their respective grades must be
adjusted downward. As evidence, BCD (by way of Miller) prepared and presented
an Assessment Review and Analysis which contains the following statement:
The subject property lacks the quality of materials and workmanship that is described
for a C Grade structure. Some of these items include:
-- Gas forced air heating system[.]
-- 8 solid concrete block partitioning with a density of 60 SF
-- 25% vented steel sash glass windows.
-- Concrete block exterior walls.
To account for these differences, a Grade no higher than a D-1 is
(Petr Ex. 1 at 3.) Millers testimony at the administrative hearing did
nothing to elaborate on the statement he essentially read the statement into
BCD bears the burden of proof on this issue and must offer probative
evidence concerning the alleged grading error. Clark, 694 N.E.2d at 1233; Miller
Structures, 748 N.E.2d at 947. BCDs review and Millers testimony are nothing
more than conclusions that the grade is this and it should be that.
A taxpayer's conclusory statements do not constitute probative evidence concerning the grading
of the subject improvement. Sterling Mgmt.-Orchard Ridge Apartments v. State Bd. of
Tax Comm'rs, 730 N.E.2d 828, 838 (Ind.Tax Ct. 2000).
Instead, BCD should have explained how it calculated the suggested grade of D-1.
Indeed, BCD should have compared the features in the applicable improvement model(s)
with the features (or lack thereof) in its own improvement.
See footnote BCD should
have then attempted to calculate the value of the features in the model
and translate that lack of value into a grade adjustment. A taxpayer
cannot simply point to alleged deficiencies in a building and expect to make
a prima facie case as to grade or any other issue.
Miller Structures, 748 N.E.2d at 953. BCD made no comparisons, made no
calculations, and, consequently, made no case. The State Boards final determination on
this issue is therefore AFFIRMED.
The final issue is whether the State Board erred in denying BCDs improvement
an obsolescence adjustment greater than 5%. BCD argues that it has shown
that it is entitled to an obsolescence adjustment of 20%. BCD is,
The State Boards regulations define obsolescence as a functional and economic loss of
value. Ind. Admin. Code tit. 50, r. 2.1-5-1 (1992). Functional obsolescence
is caused by factors internal to the property and is evidenced by conditions
within the property itself. Id. Economic obsolescence is caused by factors
external to the property. Id. The State Boards regulations cite a
number of examples of causes of obsolescence, such as limited use or excessive
material and product handling costs caused by an irregular or inefficient floor plan
(functional) and location of the building is inappropriate for the neighborhood (economic).
Id. It is important to keep in mind, however, that the obsolescence
of a given improvement must be tied to a loss of value.
In the commercial context, that loss of value usually means the loss of
income generated by the property. Miller Structures, 748 N.E.2d at 953.
In its presentation to the State Board, BCD (via Miller) argued that its
building suffered from obsolescence because of its add-on nature. However, BCD did
not present any evidence whatsoever demonstrating that this factor actually caused the improvement
to experience a loss in value.
See Loveless Constr. Co. v. State
Bd. of Tax Commrs, 695 N.E.2d 1045, 1047 (Ind. Tax Ct. 1998) (stating
that under the State Boards regulations, obsolescence causes a loss in value), review
denied. Therefore, BCDs obsolescence claim is fatally deficient. See White Swan
Realty v. State Bd. of Tax Commrs, 712 N.E.2d 555, 560 (Ind. Tax
Ct. 1999) review denied. Accordingly, the Court AFFIRMS the State Boards final
determination with respect to obsolescence.
For the aforementioned reasons, the State Boards final
determination is AFFIRMED in part and REVERSED in part. Specifically, the Court
REVERSES and REMANDS the State Boards final determination with respect to issues I
and IIA to the Indiana Board for proceedings consistent with this opinion.
The Court AFFIRMS the State Boards final determination with respect to issues IIB
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. 198 Ind. Acts 2001 § 119(b)(2). Effective January
1, 2002, the legislature created the Department of Local Government Finance (DLGF),
Indiana Code § 6-1.1-30-1.1 (West Supp. 2001)(eff. 1-1-02); 198 Ind. Acts 2001 §
66, and the Indiana Board of Tax Review (Indiana Board). Ind. Code
§ 6-1.5-1-3 (West Supp. 2001)(eff. 1-1-02); 198 Ind. Acts 2001 § 95.
Pursuant to Indiana Code § 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 § 6-1.5-5-8 (West Supp. 2001)(eff. 1-1-02);
198 Ind. Acts 2001, § 95. Nevertheless, the law in effect prior
to January 1, 2002 applies to these appeals. Id. See also
198 Ind. Acts 2001 § 117. Although the DLGF has been substituted
as the Respondent, this Court will still reference the State Board throughout this
BCD also makes a number of arguments concerning the constitutionality of
Indianas property tax system. The thrust of these arguments is that because
the system has been declared unconstitutional,
see State Board of Tax Commissioners v.
Town of St. John, 702 N.E.2d 1034, 1043 (Ind. 1998), any assessment of
property thereunder (including its own) is void and should be reversed. (See
Petr Br. and Findings of Fact and Conclusions of Law at 9-12.)
However, the mere fact that the system is flawed does not entitle the
taxpayer to a reversal of an assessment. See Town of St. John,
702 N.E.2d at 1043. Indeed, this Court has stated that [r]eal 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) review
denied; see also Town of St. John v. State Bd. of Tax Commrs,
729 N.E.2d 242, 246 & 251 (Ind. Tax Ct. 2000) (ordering real property
in Indiana to be reassessed under constitutional regulations as of March 1, 2002
and providing that until then, real property tax assessments shall be made in
accordance with the current system). Thus, the Court need not analyze BCDs
constitutional claims in this opinion.
These additions are typically three-sided: the fourth wall is actually
one of the walls of the pre-existing structure.
Footnote: Miller even stated at the administrative hearing that while BCDs building
is a light pre-engineered building, it is not a kit building. (Cert.
Admin. R. at 30.)
Footnote: All cases that would have previously been remanded to the State
Board are now remanded to the Indiana Board of Tax Review (Indiana Board).
See Ind. Code § 6-1.1-15-8 (Supp. 2002). Final determinations made by
the Indiana Board are subject to review by this Court pursuant to Indiana
Code § 6-1.1-15. Ind. Code §§ 6-1.5-5-7; 33-3-5-2 (Supp. 2002).
Recalculating the improvements perimeter will necessarily affect its perimeter-to-area ratio (PAR)
Footnote: The State Board assigned a PAR to the buildings core, as
well as to each of the four separate additions. BCD a
when the State Board did this, it erroneously double-counted certain interior (i.e., shared)
walls to arrive at the improvements total linear feet.
PAR is a means of converting a per lineal foot
price into easily measured square foot units. See Ind. Admin. Code tit.
50, r. 2.1-4-1 (1992). PAR essentially measures how efficiently the building space
is used; indeed, [a] rectangular building requires a larger amount of perimeter walls
than a square building to encompass the same amount of floor area[.]
Id. The PAR calculation translates this reality to a measurable, and taxable,
In 1992, BCDs improvement had a perimeter of 1,298 linear feet
(28 + 85 + 28 + 35 + 160 + 120 + 20
+ 40 + 120 + 180 + 120 + 200 + 120 +
42) and an area of 81,180 square feet. The quotient of 1,298
divided by 81,180 is 0.0159. The product of 0.0159 multiplied by 100
is 1.59 which, when rounded to the nearest whole number, is 2.
See 50 IAC 2.1-4-1.
Some assessors, however, choose to calculate PAR by using the section
method, which is aimed at simplifying the calculations for the entire building.
Use of this method requires an assessor to use percentages to avoid double
taxation of interior or partition walls. Wareco Enters., Inc. v. State Bd.
of Tax Commrs, 689 N.E.2d 1299, 1301 (Ind. Tax Ct. 1997).
Regardless of which methodology is used, the calculation of PAR should the
same total lineal feet of exterior walls divided by total square foot
area of the building.
It is unclear from the record what models were in fact
used to assess sections 2, 3, and 4 of BCDs improvement. Essentially,
BCDs claim is that the sections deviate from the model, but it doesnt
even tell the Court which models were used. This Court will not
make a taxpayers case for it.
See Davidson Indus. v. State
Bd. of Tax Commrs, 744 N.E.2d 1067, 1071 (Ind. Tax Ct. 2001).
In any event, the State Board did find that BCDs improvement
lacked vented sash windows. The final determination provides the State Boards own
analysis as to the value of those windows, and then a grade assignment
to BCDs improvement to account for that lack of value. (Cert. Admin.
R. at 21-22.) If there are any issues with the State Boards
calculation, they do not mandate reversal. Indeed, because BCD has failed to
provide the State Board with probative evidence supporting its position on the alleged
grading error in the first place, the State Boards duty to support its
final determination with substantial evidence is not triggered.
See Whitley Prods.,704 N.E.2d
When the State Board hearing officer offered Miller an opportunity to
produce some kind of profit/loss statement or income statement to substantiate BCDs loss
of income- generating ability, he refused, stating I disagree with your philosophy.
(Audiotape of Admin. Hearing.) Later, Miller stated Im not saying [the improvement]
is obsolete at all. Im saying it suffers a loss in value
due to the symptoms [sic] of obsolescence. (Audiotape of Admin. Hearing.)
Signs of obsolescence are irrelevant, however, if a taxpayer cannot show actual loss
See Clark v. State Bd. of Tax Commrs, 694 N.E.2d
1230, 1239 (Ind. Tax Ct. 1998); Miller Structures, Inc. v. State Bd. of
Tax Commrs, 748 N.E.2d 943, 954 (Ind. Tax Ct. 2001).