ATTORNEY FOR PETITIONER:    ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN    STEVE CARTER    
ATTORNEY AT LAW     ATTORNEY GENERAL OF INDIANA
Indianapolis, IN    Indianapolis, IN
    
     JOEL SCHIFF
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN
_____________________________________________________________________
     IN THE INDIANA TAX COURT _____________________________________________________________________

PHELPS DODGE,                                                             )
                                                                               )
    Petitioner,                                                                )
                                                                               )
    v.                                                                         )   Cause No. 49T10-0002-TA-18
                                                                               )
DEPARTMENT OF LOCAL                                                            )
GOVERNMENT FINANCE,
                                                           
                                                 
                                                                      
See footnote         )
                )
    Respondent.            )    
_____________________________________________________________________

ON APPEAL FROM TWO FINAL DETERMINATIONS OF
THE STATE BOARD OF TAX COMMISSIONERS

NOT FOR PUBLICATION
April 28, 2004


FISHER, J.

    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 PD’s improvements. See footnote
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 PD’s 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 PD’s improvements. See Phelps Dodge v. State Bd. of Tax Comm’rs, 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 Court’s opinion in Clark v. State Board of Tax Commissioners, 694 N.E.2d 1230 (Ind. Tax Ct. 1998). See footnote See id. at 1102. See footnote
    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 PD’s 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. Dep’t of Local Gov’t 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. (Pet’r Post-Hr’g 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 Board’s final determinations “[are] without support and ignore[] the facts established in this case.” (See Stip. R. at 111, 133; Pet’r Post-Hr’g 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. P’ship v. State Bd. of Tax Comm’rs, 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 footnote See Miller Structures, Inc. v. State Bd. of Tax Comm’rs, 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 improvement’s 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 PD’s 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. See footnote (Stip. R. at 111, 133 (footnote added).) In so doing, Miller concluded that PD’s 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 PD’s 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. Dep’t of Local Gov’t 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 Comm’rs, 704 N.E.2d 1113, 1119 (Ind. Tax Ct. 1998), review denied. Accordingly, the State Board’s final determinations are AFFIRMED.
CONCLUSION

For the aforementioned reasons, the Court AFFIRMS the State Board’s final determinations.


Footnote: 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), see 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.

Footnote: 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 Comm’rs, 756 N.E.2d 1124, 1127 n.1 (Ind. Tax Ct. 2001). Because PD’s claims and supporting arguments are identical to those previously rejected by the Court, the Court will not address them.

Footnote: On April 24, 1998, this Court issued an opinion in Clark 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.

Footnote:
The Court also remanded a land valuation issue. See Phelps Dodge v. State Bd. of Tax Comm’rs, 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.

Footnote: In the commercial context, this loss of value usually means a decrease in the property’s income generating ability. See Miller Structures, Inc. v. State Bd. of Tax Comm’rs, 748 N.E.2d 943, 953 (Ind. Tax Ct. 2001).


Footnote: Miller valued PD’s 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).