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
PHELPS DODGE, )
v. ) Cause No. 49T10-0002-TA-18
DEPARTMENT OF LOCAL )
ON APPEAL FROM TWO FINAL DETERMINATIONS OF
THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
April 28, 2004
Phelps Dodge (PD) appeals from two final determinations of the State Board of
Tax Commissioners (State Board) valuing its real property for the March 1, 1992
assessment date. The sole issue for the Court to decide is whether
the State Board erred when it refused to award obsolescence depreciation to PDs
FACTS AND PROCEDURAL HISTORY
PD owns two parcels of real property in Fort Wayne, Indiana. For
the 1992 assessment year, local assessing officials awarded the improvements on one of
the parcels an overall obsolescence depreciation adjustment of 40%; the improvements on the
second parcel received an overall obsolescence depreciation adjustment of 45%. (See Stip.
R. at 50, 92.)
PD appealed the assessments to the State Board, claiming, among other things, that
the improvements were entitled to additional obsolescence depreciation. After conducting an administrative
hearing, the State Board recalculated the obsolescence adjustments awarded by the local assessing
officials. As a result, the State Board awarded each of PDs improvements
varying amounts of obsolescence, ranging from 0% to 75%.
PD subsequently filed an original tax appeal. This Court, after conducting a
trial, issued an opinion in which it held that neither PD nor the
State Board had presented any evidence to support the quantification of obsolescence of
PDs improvements. See Phelps Dodge v. State Bd. of Tax Commrs, 705
N.E.2d 1099, 1103 (Ind. Tax Ct. 1999), review denied. Consequently, the Court
remanded the issue with instructions for PD to quantify the obsolescence of its
improvements consistent with this Courts opinion in Clark v. State Board of Tax
Commissioners, 694 N.E.2d 1230 (Ind. Tax Ct. 1998).
See id. at 1102.
On September 10, 1999, the State Board conducted a remand hearing. On
December 10, 1999, the State Board issued two final determinations in which it
removed all obsolescence depreciation applied to PDs improvements.
PD now initiates another original tax appeal. In lieu of a trial,
the parties agreed to argue the case based on the administrative record presented
to the State Board as well as on their briefs submitted to this
Court. Accordingly, the Court heard the parties oral arguments on April 20,
2001. Additional facts will be supplied as necessary.
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.
DISCUSSION & ANALYSIS
PD contends that the State Board has failed to establish any lawful basis
for its final determinations on remand. (Petr Post-Hrg Br., Findings of Fact
and Conclusions of Law at 1.) More specifically, PD argues that because
it presented evidence indicating that its improvements were entitled to at least 70%
obsolescence adjustments, the State Boards final determinations [are] without support and ignore
the facts established in this case. (See Stip. R. at 111, 133;
Petr Post-Hrg Br., Findings of Fact and Conclusions of Law at 6.)
PD is incorrect.
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. 2.1-5-1 (1992).
Functional obsolescence is caused by factors internal to the property and is
evidenced by conditions within the property itself. See 50 IAC 2.1-5-1.
Economic obsolescence is caused by factors external to the property. Id.
This Court has previously explained that when a taxpayer seeks an obsolescence adjustment,
it 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, 694 N.E.2d at 1238,
1241. 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). Then,
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.
Although the only issue for the parties to consider on remand was the
quantification of obsolescence, see Phelps Dodge, 705 N.E.2d at 1103, PD was necessarily
required to explain its causes of obsolescence in order to translate its improvements
loss in value (due to those causes) into a quantifiable amount of obsolescence
depreciation. See Clark, 694 N.E.2d at 1238. At the remand hearing,
PD submitted two Assessment Review and Analysis documents, which were prepared by its
tax representative, M. Drew Miller of Landmark Appraisals, Inc. In each of
these documents, Miller quantified PDs obsolescence by deducting the physical depreciation applied by
the local county assessing officials from the total accrued depreciation that was calculated
by using the economic life method of measuring property depreciation.
at 111, 133 (footnote added).) In so doing, Miller concluded that PDs
improvements were entitled to obsolescence depreciation adjustments in the amounts of 70% and
89%. (See Stip. R. at 111, 133.) Miller, however, did not
link his quantifications with the alleged causes of PDs improvements obsolescence.
A taxpayer cannot quantify its obsolescence depreciation without relating the causes of obsolescence,
and the actual loss in value to the improvement incurred as a result
of those causes, to the amount of obsolescence it seeks. See Clark,
694 N.E.2d at 1238; see also Miller Structures, Inc., 748 N.E.2d at 954.
PD was required to carefully, methodically, and in detail brief this Court
as to what the amount of obsolescence should be and why. Clark
v. Dept of Local Govt Fin., 779 N.E.2d 1277, 1282 n.4 (Ind. Tax
Ct. 2002) (emphasis added). Instead, PD presented two mathematical calculations bearing no
relationship to the causes of obsolescence alleged to exist or to evidence of
an actual loss in property value. Without more, PD did not establish
a prima facie case that it was entitled to obsolescence depreciation. See
Whitley Prods., Inc. v. State Bd. of Tax Commrs, 704 N.E.2d 1113, 1119
(Ind. Tax Ct. 1998), review denied. Accordingly, the State Boards final determinations
For the aforementioned
reasons, the Court AFFIRMS the State Boards final determinations.
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 § 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.
PD 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 PDs claims and supporting arguments are identical to those
previously rejected by the Court, the Court will not address them.
On April 24, 1998, this Court issued an opinion in
v. State Board of Tax Commissioners, 694 N.E.2d 1230 (Ind. Tax Ct. 1998).
Clark set forth what this Court expects from taxpayers and the State
Board in appeals involving issues of obsolescence. See id. More specifically,
the Court 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.
Id. at 1241.
The Court also remanded a land valuation issue.
Dodge v. State Bd. of Tax Commrs, 705 N.E.2d 1099, 1105-06 (Ind. Tax
Ct. 1999), review denied. However, PD did not address this issue during
the remand hearing, nor did it address the issue during the oral argument
or in its briefs filed with the Court. Consequently, the Court considers
the issue waived.
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 (Ind. Tax Ct. 2001).
Miller valued PDs property with the economic life method, also
referred to as the age-life method. The age-life method depreciates the value
of an improvement based on the ratio between its effective age, i.e., the
age of the improvement indicated by its condition and utility according to market
perceptions, and its economic life expectancy.
Appraisal Inst., The Appraisal of Real
Estate 385, 392 (12th ed. 2001).