ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN STEVE CARTER
ATTORNEY AT LAW ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
KATHRYN SYMMES KIRK
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
INDIAN INDUSTRIES, INC., )
v. ) Cause No. 49T10-9811-TA-165
DEPARTMENT OF LOCAL )
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
May 19, 2003
Indian Industries, Inc. (Indian) appeals the final determination of the State Board of
Tax Commissioners (State Board) valuing its real property for the March 1, 1992
I. Whether the State Board erred in applying a 35% obsolescence
depreciation adjustment to Indians improvement;
II. Whether the State Board erred in grading Indians improvement; and
III. Whether the State Board erred in valuing Indians land?
FACTS AND PROCEDURAL HISTORY
Indian owns land and an improvement in Evansville, Indiana. For the 1992
assessment date, the Vanderburgh County Board of Review (BOR) assigned Indians property an
assessed value of $794,230 (land at $70,630 and the improvement at $723,600).
In arriving at that value, the BOR: 1) applied a 35% obsolescence
adjustment to Indians improvement; and 2) assigned sections 1, 2, and 3 of
Indians improvement a grade of C-2, and section 4 a grade of C+1.
(See Ex. L at 2-3.) The BOR also valued Indians land
at $17,424 per acre. (See Ex. L at 1.)
Believing the assessment to be too high, Indian filed a Petition for Review
of Assessment (Form 131) with the State Board on December 22, 1993.
In its Form 131, Indian raised one issue: that [a]n additional amount
of obsolescence depreciation should be applied based on type of construction, plant layout
and functional utility. (Ex. J.)
Following an administrative hearing, the State Board issued a final determination on Indians
Form 131, affirming the BORs decision. Dissatisfied with the result, Indian filed
an appeal with this Court on January 3, 1997. On June 19,
1998, the Court remanded the action to the State Board for further proceedings.
(Ex. A at 3.)
On September 3, 1998, the State Board conducted a remand hearing. At
the hearing, Indian offered testimony describing certain errors in its property assessment that
were in addition to the obsolescence issue originally alleged in its Form 131.
These additional errors included improper land value, overstated grade, improper computation of
a framing adjustment and sprinkler pricing, and erroneous assessment of a dock floor.
On September 22, 1998, the State Board issued its final determination, lowering
the assessed value of Indian Industries improvement to $686,430. The lowered valuation
resulted from the State Boards reductions to the improvements framing and sprinkler pricing.
Indian Industries again appealed the State Boards final determination to this Court on
November 5, 1998. Trial was held on October 14, 1999. Oral
arguments were heard on December 4, 2000. Additional facts will be supplied
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. Thousand Trails, Inc.
v. State Bd. of Tax Commrs, 757 N.E.2d 1072, 1075 (Ind. Tax Ct.
2001). 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.
Furthermore, a taxpayer who appeals to this Court from a State Board final
determination bears the burden of showing that the final determination was invalid.
Id. The taxpayer must present a prima facie case by submitting probative evidence
(i.e., evidence sufficient to establish a given fact that, if not contradicted, will
remain sufficient). Id. Once the taxpayer presents a prima facie case,
the burden shifts to the State Board to rebut the taxpayers evidence and
support its findings with substantial evidence. Id.
I. Obsolescence Depreciation
Indian contends that the State Boards final determination affirming the BORs application of
a 35% obsolescence depreciation adjustment is baseless or otherwise in error. (Petr
Post-Hrg Br., Findings of Fact and Conclusions of Law at 3.) More
specifically, Indian argues that it submitted probative evidence indicating that it was entitled
to a 70% obsolescence adjustment. Indian 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.
The State Boards regulations cite several examples of causes of obsolescence, such as
limited use or excessive material and product handling costs due to an irregular
or inefficient floor plan (functional) and the location of the building is inappropriate
for the neighborhood (economic). Id.
This Court has previously explained that 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, 1238 (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.
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 these factors are causing an actual loss of value to its
See Miller Structures 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,
through the use of professional appraisal techniques, 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.
During the administrative hearing, Indian presented an Assessment Review and Analysis in which
it argued that its property suffered from both functional and economic obsolescence because
the building lacked thermal pane windows and insulation, its layout was inefficient, it
did not facilitate a network of computer and phone lines, it lacked adequate
parking, and it was in an older declining neighborhood with narrow streets and
a mix of inharmonious uses. (Ex. B at 5-6.) As a
result, Indian claims the property is at an economic disadvantage in the market
place, incurring higher utility, maintenance, material handling, and labor costs. (Ex. B
at 6.) Indians Assessment Review and Analysis also contains: 1) a
cursory mathematical calculation showing how it arrived at 70% (see Exs. B at
30, and D); 2) a statement of consolidated income for Escalade, Inc. and
its subsidiaries for fiscal years 1990 and 1991 (see Ex. E);
an analysis of cost of sales for 1989-1992. (See Ex. F.)
All Indian has done in this case is provide the State Board with
a laundry list of factors that may cause obsolescence to its improvement and
then say as a result, were entitled to a 70% obsolescence adjustment.
However, Indian needed to link one with the other by showing an actual
loss of value. See Miller Structures, 748 N.E.2d at 954.
Instead, the administrative record, as well as the case Indian presented at trial,
is completely devoid of any evidence indicating and explaining Indians actual loss of
value. Because Indian has not shown how or why its improvements value
is negatively impacted by the factors that generally cause obsolescence, it has not
satisfied its burden. Thus, the State Boards final determination on this issue
Indian also alleges that the State Board erred in grading various sections of
its improvement. Specifically, Indian alleges that while the State Board assigned sections
1, 2, and 3 a grade of C-2, and section 4 a grade
of C+1, it (Indian) submitted probative evidence to support respective grades of D,
D-1, D, and C. Indian is incorrect.
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) (providing that 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.)
Indian alleges that all four sections of its improvement lack certain features presumed
in the applicable model, and therefore their respective grades should be adjusted downward.
As evidence, Indians Assessment Review and Analysis contains the following statement:
[Sections 1 and 3 are] substantially inferior to the base model from which
[they are] being priced. The subject[s] lacks insulation, thermal pane windows and
partitioning that make up the light manufacturing base model. In addition, [they
have] an inferior wood block floor, and inferior unit heaters as well as
substandard workmanship. The [sections] also lack any architectural attractiveness. To adjust
for this inferior quality a grade no higher than a D . .
. should be applied.
[Section 4] is close to matching the model from which it is priced,
though falling short in some areas. The grade of C+1 applied by
the county is in error. A grade no higher than a C
. . . . should be applied.
[Section 2] is also substantially inferior to the base model. The subject
is inferior in that it is constructed with only 8 feet high concrete
block walls with the remaining 24 feet being a metal skin, and the
subject lacks the partitioning that is presumed present. In addition the subject
lacks any architectural attractiveness. . . . To adjust for these differences a
grade no higher tha[n] a D-1 . . . should be applied.
(Ex. B at 4-5.) III. Land Value
Indian bears the burden of proof on this issue and must offer probative
evidence concerning the alleged grading error. Miller Structures, 748 N.E.2d at 947;
Clark, 694 N.E.2d at 1233. Indians evidence is nothing more than conclusions
that the grade is this and it should be that. A taxpayers
conclusory statements do not constitute probative evidence concerning the grading of the subject
improvement. Sterling Mgmt.-Orchard Ridge Apartments v. State Bd. of Tax Commrs, 730
N.E.2d 828, 838 (Ind. Tax Ct. 2000).
Instead, Indian should have explained how it calculated its suggested grades of D,
C, and D-1. Indeed, Indian should have compared the features in the
applicable improvement model(s) with the features (or lack thereof) in its own improvement.
Indian 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. See Miller Structures, 748 N.E.2d at 953. Indian made no
comparisons, made no calculations, and, consequently, made no case. The State Boards
final determination on this issue is therefore AFFIRMED.
Indians final issue is that its land was improperly valued by the State
Board. Specifically, Indian contends that it presented comparable properties within Vanderburg[h] County
to demonstrate [that its land] was not properly placed within the RANGE of
[values as prescribed in the Vanderburgh County Land Order]. (Petr Post-Hrg Br.,
Findings of Fact and Conclusions of Law at 6.) Indian is incorrect.
Under Indianas true tax value system, commercial, residential, and industrial land values are
compiled into a land order. See Ind. Code § 6-1.1-4-13.6 (West 1989).
The land values are typically expressed in ranges of base rates that
assessing officials apply to various geographic areas, subdivisions, or neighborhoods based on their
distinguishing characteristics or boundaries. Ind. Admin. Code tit. 50, r. 2.1-2-1 (1992).
To challenge the base rate applied to its land, a taxpayer must present
probative evidence showing that either (1) comparable properties were assessed and taxed differently
than its own under the land order or (2) its land was improperly
assessed under the wrong section of the land order. See Park Steckley
I v. Dept of Local Govt Fin., 779 N.E.2d 1270, 1273 (Ind. Tax
Ct. 2002); Blackbird Farms v. State Bd. of Tax Commrs, 765 N.E.2d 711,
714 (Ind. Tax Ct. 2002). Accordingly, when a taxpayer challenges its assessment
under a land order, it is essential for the Court to have an
opportunity to read and analyze the relevant portion of the applicable land order.
In particular, the Court must be able to evaluate the application of
the land order to the taxpayers property or comparable propertiesor bothso that it
may determine if a remedy is warranted and, if so, its nature and
extent. See Blackbird Farms, 765 N.E.2d at 715 n.4. See also
Eastgate Pship v. Dept of Local Govt Fin., 780 N.E.2d 435, 43839 (Ind.
Tax Ct. 2002) (evaluating different portions of a disputed land order); Park Steckley,
779 N.E.2d at 1273 (same).
Indian, having the burden of proof in this case, has not provided the
Court with a copy of the land order that is the subject of
its appeal. (See Oral Argument Tr. at 23.) This Court does
not have its own copies of land orders, nor is it able to
infer what may or may not be in the land order. See
Davidson Indus. v. State Bd. of Tax Commrs, 744 N.E.2d 1067, 1071 (Ind.
Tax Ct. 2001) (stating that the Court will not make a partys case
for it). Consequently, without the opportunity to read and evaluate the land
order, this Court is unable to reach the merits of Indians claim.
Thus, the State Boards final determination with respect to this issue is also
For the aforementioned reasons, the State Boards final
determination is AFFIRMED in all parts.
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 § 6-1.1-30-1.1 (West Supp. 2001)(eff. 1-1-02); 2001 Ind. Acts 198 §
66, and the Indiana Board of Tax Review (Indiana Board). Ind. Code
§ 6-1.5-1-3 (West Supp. 2001)(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 § 6-1.5-5-8 (West Supp. 2001)(eff. 1-1-02);
2001 Ind. Acts 198 § 95. Nevertheless, the law in effect prior
to January 1, 2002 applies to these appeals. Id. 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
Indian also argues that its assessment should be voided because portions
of Indianas regulations for taxing tangible property have been declared unconstitutional. Indeed,
in 1998, the Indiana Supreme Court affirmed this Courts determination that the existing
cost schedules . . . violate the Property Taxation Clause of the Indiana
State Bd. of Tax Commrs v. Town of St. John, 702
N.E.2d 1034, 1043 (Ind. 1998). That same year, however, this Court declared
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). The Court, therefore, will not
analyze Indians state constitutional claim in this opinion.
Indian also contends that because Indianas system of taxing tangible property is not
based upon objectively verifiable data, (see Petr Br., Findings of Fact and Conclusions
of Law at 8-9), its due process rights under the Fifth and Fourteenth
Amendments to the U.S. Constitution are violated. This Court has in the
past rejected legal arguments analogous to Indians. See Town of St. John
v. State Bd. of Tax Commrs, 690 N.E.2d 370, 38897 (Ind. Tax Ct.
1997), revd in part on other grounds by 702 N.E.2d 1034 (Ind. 1998).
Even if Indians federal constitutional claims had merit, real property must still
be assessed, and, until the new regulations are in place, must be assessed
under the present system. See Whitley Prods., 704 N.E.2d at 1121.
The Court, therefore, will not analyze Indians federal constitutional claim in this opinion
On April 24, 1998, this Court issued an opinion in
v. State Bd. of Tax Commrs, 694 N.E.2d 1230 (Ind. Tax Ct. 1998).
In essence, Clark set forth what this Court expects from taxpayers and
the State Board in appeals involving issues of obsolescence. See Clark, 694
N.E.2d at 1241. As a result of that directive, many cases involving
obsolescence that were pending before the Court were remanded to the State Board
for further consideration in light of Clark.
Indeed, [w]here there is no cause of obsolescence, there is no
obsolescence to quantify.
Lake County Trust v. State Bd. of Tax Commrs,
694 N.E.2d 1253, 1257 (Ind. Tax Ct. 1998), review denied.
In the commercial context, this loss of value usually means a
decrease in the propertys income generating ability. See Miller Structures v. State
Bd. of Tax Commrs, 748 N.E.2d 943, 953 (Ind. Tax Ct. 2001).
The Court has not been apprised as to how Indian Industries
is related to Escalade, Inc.
Footnote: Indian also asserts that [b]ecause the State Board applied obsolescence .
. . whether Indian presented evidence demonstrating a need for additional obsolescence has
nothing to do with whether the 35% figure itself is supported by substantial
evidence. (Petr Post-Hrg Br., Findings of Fact and Conclusions of Law at
4 (internal brackets omitted).) Indian misses the point.
When this Court remanded the case to the State Board, it afforded both
Indian and the State Board an opportunity to work together to quantify the
appropriate amount of obsolescence. What Indian fails to recognize is that the
quantification of obsolescence is intrinsically tied to the actual loss of value suffered
by the improvement from the alleged causes.
See Miller Structures, 748 N.E.2d
at 954. 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). Because Indian has
not shown actual loss in the first place, it is impossible to convert
that loss of value into an obsolescence quantification.
Furthermore, even if
there are any issues with the State Boards calculation, they do not mandate
reversal at this time. Indeed, if the Court were to reverse and
remand the State Boards final determination, Indian would lose its 35% obsolescence adjustment
altogether and would start back at square one (having to prove both causes
and quantification pursuant to Clark). (See Oral Argument Tr. at 8.)
This is an extremely risky proposition considering, up to this point, Indian has
not been able to show that it has even suffered a loss of
Indian submitted evidence of properties in a neighboring township in Vanderburgh County
see Oral Argument Tr. at 14) that it claims are (1) comparable to
its own and (2) that sold for less than what its property was
assessed for under the land order. Assuming arguendo that the properties are
comparable to Indians, this Court cannot determine whether the same portion of the
land order that applies to Indians land also applies to these properties without
reading the land order. See Blackbird Farms Apartments, LP v. Dept of
Local Govt Fin., 765 N.E.2d 711, 715 n.4 (Ind. Tax Ct. 2002).
Indeed, properties that are literally across the street from each other can receive
different assessments under a land order. See, e.g., Park Steckley I v.
Dept of Local Govt Fin., 779 N.E.2d 1270, 1274 (Ind. Tax Ct. 2002).
Thus, the fact that the alleged comparables are in the same county
does not give rise to a reasonable inference that they were assessed under
the same portion of a land order.