ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
MARILYN S. MEIGHEN JEFFREY S. DIBLE
MEIGHEN & ASSOCIATES, PC THOMAS F. BEDSOLE
Carmel, IN LOCKE REYNOLDS, LLP
INDIANA TAX COURT
WILLIAMS REALTY FOUR, LLP, )
v. ) Cause No. 49T10-0305-TA-23
BARBARA M. HURST, ASSESSOR )
OF PIKE TOWNSHIP, MARION COUNTY, )
et al., )
ON APPEAL FROM A FINAL DETERMINATION OF
THE INDIANA BOARD OF TAX REVIEW
NOT FOR PUBLICATION
May 18, 2004
Williams Realty Four, LLP (Williams Realty) appeals the final determination of the Indiana
Board of Tax Review (Indiana Board) valuing its real property for the March
1, 2001 assessment date. The sole issue for the Court to decide
is whether the Indiana Board erred in denying an obsolescence adjustment to Williams
FACTS AND PROCEDURAL HISTORY
Williams Realty owns and operates the Crooked Creek Shopping Center located at the
southwest corner of the intersection of 79th Street and Michigan Road in Indianapolis,
Indiana. For the 2001 tax year, local assessing officials assigned Williams Realtys
improvement an assessed value (i.e., true tax value) of $1,433,700.
at that value, no obsolescence depreciation was awarded.
Williams Realty subsequently filed a Form 130 Petition for Review of Assessment with
the Marion County Property Tax Assessment Board of Appeals (PTABOA), alleging that its
improvement was entitled to an obsolescence depreciation adjustment. The PTABOA declined to
change the value of the property.
On November 16, 2001, Williams Realty appealed the PTABOAs determination to the State
Board of Tax Commissioners. On February 20, 2002, the Indiana Board
an administrative hearing on the matter. On May 6, 2002, the Indiana
Board issued a final determination in which it rejected Williams Realtys request for
an obsolescence depreciation adjustment.
Williams Realty timely initiated an original tax appeal. On November 1, 2002,
however, this Court remanded the matter to the Indiana Board due to an
incomplete administrative record. The Indiana Board conducted a remand hearing and, on
March 28, 2003, issued another final determination in which it, again, denied Williams
Realtys request for an obsolescence depreciation adjustment.
Williams Realty now appeals the Indiana Boards final determination. The Court heard
the parties oral arguments on January 30, 2004. Additional facts will be
supplied as necessary.
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
(1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;
(2) contrary to constitutional right, power, privilege, or immunity;
(3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory jurisdiction,
authority, or limitations;
(4) without observance of procedure required by law; or
(5) unsupported by substantial or reliable evidence.
Ind. Code Ann. § 33-3-5-14.8(e)(1)-(5) (West Supp. 2003). 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).
In 2001, commercial improvements in Indiana were assessed pursuant to the statutory standard
of true tax value. See Ind. Code Ann. § 6-1.1-31-5 (West 2001)
(amended 2002). True tax value did not mean fair market value, but rather
the value that was determined by an application of Indianas assessment regulations.
Ind. Code Ann. § 6-1.1-31-6(c) (West 2001) (amended 2002). More specifically, true
tax value was determined by calculating an improvements reproduction cost and then subtracting
any physical and obsolescence depreciation. See Ind. Admin. Code tit. 50, r.
2.2-10-5(d)(13)-(17) (1996). In turn, [o]bsolescence . . . is defined as a
loss of value and classified as either functional or economic.
Pship v. State Bd. of Tax Commrs, 715 N.E.2d 1026, 1029 (Ind. Tax
Ct. 1999), review denied (footnote added). In the commercial context, this loss
of value usually represents a decrease in the improvements income generating ability.
See Miller Structures, Inc. v. State Bd. of Tax Commrs, 748 N.E.2d 943,
953 (Ind. Tax Ct. 2001).
When a taxpayer seeks an obsolescence adjustment, it must make a two-pronged showing.
See Clark v. State Bd. of Tax Commrs, 694 N.E.2d 1230, 1239
(Ind. Tax Ct. 1998). First, the taxpayer must identify specific factors that
are causing, or have caused, its improvement to suffer a loss of value.
See id. Only after this showing does the taxpayer proceed to
the second prong: quantifying the amount of obsolescence to be applied.
See id. (footnote added).
During the administrative hearing, Williams Realty asserted that its improvement suffered from both
functional and economic forms of obsolescence. More specifically, Williams Realty complained that
its improvement was constructed with an odd, V-shaped layout that did not accommodate
an anchor store. (Cert. Admin. R. at 140; see also Petr Br.
at 8-9.) Because [p]otential tenants will not consider leasing in a center
without an anchor draw[,] . . . [the center] is difficult to lease[.]
(Petr Br. at 1-2.) Furthermore, Williams Realty explained that potential tenants
preferred to locate in the booming and more affluent area along and north
of 86th Street. (Cert. Admin. R. at 152.) Williams Realty also
complained that its improvement lacked poor visibility from the street, resulting in poor
customer draw, which in turn affected its tenant draw. (See Cert. Admin.
R. at 153.) Finally, Williams Realty also implied that the commercial retail
market in its immediate neighborhood was saturated, as across the street there was
a newer, more modern shopping center, and a second center was under construction
as of the March 1, 2001 assessment date. (See Cert. Admin. R.
at 135, 176.)
In turn, Williams Realty offered evidence indicating that, in order to keep the
improvement leased and occupied given these functional and economic deficiencies, it was required
to lease its space for less than what was charged by its competitors.
(Cert. Admin. R. at 155.) Indeed, Williams Realty submitted evidence indicating
that while the properties across the street were asking rents of approximately $13.75
per square foot, it was only able to collect an average rent of
$10.80 per square foot. (Cert. Admin. R. at 154.)
Having established that its improvement has suffered an actual loss in value due
to obsolescence, Williams Realty was required to quantify the amount of obsolescence to
which it believes it is entitled.
See Clark, 694 N.E.2d at 1241.
As the Court has previously held, a permissible means of quantifying the
obsolescence present in an improvement is to use generally accepted appraisal methods and
their associated economic analyses. See Loveless Const. Co. v. State Bd. of
Tax Commrs, 695 N.E.2d 1045, 1050 (Ind. Tax Ct. 1998), review denied.
At the Indiana Board hearing, Williams Realty attempted to quantify the obsolescence of
its property by translating the rent differential (i.e., the loss in the propertys
value) into an obsolescence adjustment. More specifically, Williams Realty determined that, due
to obsolescence, its annual rent loss was $147,500.
See footnote It then divided that
annual rent loss by an 11% capitalization rate to arrive at a total
loss in value of $1,340,909. This, Williams Realty asserts, is equivalent to
a 93.5% obsolescence adjustment.See footnote
Williams Realtys attempt to quantify the obsolescence of its property in this manner
is flawed. The obsolescence of a particular improvement is tied to the
loss of the improvements income generating ability. The income generated by an
improvement is measured in real dollars, not [t]rue [t]ax [v]alue dollars.
Therefore, subtracting a real world dollar value from a true tax
value dollar value is essentially meaningless. See id. Accordingly, Williams Realty
did not meet its burden in quantifying its request for obsolescence.
For the aforementioned reasons, the Indiana Boards final
determination is AFFIRMED.
For the March 1, 2001 assessment date, a propertys assessed value
was the same as its true tax value.
Ind. Code Ann. §
6-1.1-1-3 (West 2001) (amended 2002). Prior to that, however, assessed value was
33 1/3% of true tax value. See id.
On December 31, 2001, the legislature abolished the State Board of
Tax Commissioners (State Board). 2001 Ind. Acts 198 § 119(b)(2). Effective
January 1, 2002, the legislature created the Indiana Board of Tax Review (Indiana
Board) as successor to the State Board.
Ind. Code Ann. §§ 6-1.5-1-3;
6-1.5-4-1 (West Supp. 2003); 2001 Ind. Acts 198 § 95. Thus, the
Indiana Board conducted the hearing on Williams Realtys appeal and issued the final
Functional obsolescence is caused by factors internal to the property and is
evidenced by conditions within the property itself. Ind. Admin. Code tit. 50,
r. 2.2-10-7(e) (1996). For instance, functional obsolescence may be caused by limited
use of an improvement due to an irregular or inefficient floor plan.
50 IAC 2.2-10-7(e)(1)(A). Economic obsolescence is caused by factors external to the
property. 50 IAC 2.2-10-7(e). Economic obsolescence may be caused by
the decreased market acceptability for which the improvement was constructed or currently used.
50 IAC 2.2-10-7(e)(2)(D).
Each of these prongs requires a connection to an actual loss in
property value. For example, when identifying factors that cause obsolescence, a taxpayer
these factors 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). Furthermore, when a taxpayer quantifies
the amount of obsolescence to which it believes it is entitled, it is
required to convert the actual loss of value (shown in the first prong)
into a percentage reduction and apply it against the improvements overall value.
See Clark v. State Bd. of Tax Commrs, 694 N.E.2d 1230, 1238 (Ind.
Tax Ct. 1998).
At the time of the assessment, Crooked Creek Shopping Center was
98% occupied. As this Court has previously noted, a high occupancy rate
does not necessarily mean that obsolescence does not exist in an improvement, as
a taxpayer may have had to reduce the rent to maintain the high
Clark, 694 N.E.2d at 1239.
Williams Realty took the rent differential of $2.95 per square foot
($13.75 minus $10.80) and multiplied that by the total square feet (50,000) in
its shopping center.
$1,340,909 is 93.5% of the improvements true tax value of
Instead, Williams Realty could have converted its improvements true tax value
to a real world dollar value (i.e., fair market value), and then compared
the capitalized rental income lost to that value.
See, e.g., Canal Square
Ltd. Pship v. State Bd. of Tax Commrs, 694 N.E.2d 801, 805-07 (Ind.
Tax Ct. 1998).