ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
CURTIS J. DICKINSON JEFFREY A. MODISETT
DAVID L. PIPPEN Attorney General of Indiana
Dickinson & Abel
Indianapolis, Indiana TED J. HOLADAY
Deputy Attorney General
INDIANA TAX COURT
WHITE SWAN REALTY, )
v. ) Cause No. 49T10-9701-TA-00019
STATE BOARD OF TAX COMMISSIONERS, )
May 24, 1999
ON APPEAL FROM FINAL DETERMINATIONS
OF THE STATE BOARD OF TAX COMMISSIONERS
White Swan Realty (White Swan) appeals the final determinationsSee footnote
of the State
Board of Tax Commissioners (State Board) fixing the assessed value of two real estate
parcels it owned located in Allen County, Indiana as of March 1, 1992. ISSUES
I. Whether the State Board's final determination with respect to division wall pricing of
the subject properties lacked substantial evidentiary support.
II. Whether the State Board's final determination with respect to the grade assigned to
the subject properties lacked substantial evidentiary support.
III. Whether the State Board's final determination with respect to obsolescence
depreciation lacked substantial evidentiary support.
IV. Whether the State Board's final determination with respect to condition lacked
substantial evidentiary support.
V. Whether the State Board's final determination with respect to land classification and
negative influence factor lacked substantial evidentiary support.
FACTS AND PROCEDURAL HISTORY
White Swan owns two parcels of real estate located in Allen County, Indiana. Both
parcels consist of land and improvements. These parcels are designated as #29-003-
0020 (Parcel 20) and #29-003-0049 (Parcel 49). On May 6, 1994, White Swan filed
two Form 131 petitions with the State Board challenging the assessments made by the
Allen County Board of Review (BOR).See footnote
A hearing on these petitions took place on November 9, 1995 in Allen County. On
November 22, 1996, the State Board issued final determinations with respect to the
petitions. In its final determinations, the State Board made adjustments to the earlier
assessment made by the BOR. Deeming the adjustments made by the State Board to
be insufficient, White Swan filed this original tax appeal on January 3, 1997. On June
15, 1998, the parties tried this case before this Court. Additional facts will be supplied
as necessary. ANALYSIS AND OPINION
Standard of Review
The State Board is afforded great deference when it acts within the scope of its
authority. See King Indus. Corp. v. State Bd. of Tax Comm'rs, 699 N.E.2d 338, 339
(Ind. Tax Ct. 1998). Accordingly, the Court will reverse a final determination made by
the State Board only when it is unsupported by substantial evidence, is arbitrary or
capricious, constitutes an abuse of discretion, or exceeds statutory authority. See id.
I. Division Wall Adjustment
At issue is a division wallSee footnote
joining buildings A and B situated on Parcel 20.
Originally, the wall in question was the exterior wall of building A. Subsequently, White
Swan added building B to building A. As a result, what was originally an exterior wall of
building A became a division wall separating the two buildings. For assessment
purposes, the buildings were assessed separately. (Resp't Br. at 12). The buildings in
question were priced from the General Commercial Mercantile (GCM) schedules with
building A priced as a supermarket and building B priced as a neighborhood shopping
White Swan contends that the division wall adjustment was improper and that even
if proper, the division wall adjustment was erroneously calculated. The State Board
contends that the division wall adjustment was warranted because neither of the
models used to assess buildings A and B contain division walls.See footnote
See Barth, Inc. v.
State Bd. of Tax Comm'rs, 699 N.E.2d 800, 802-03 (Ind. Tax Ct. 1998) (discussing
various ways in which buildings being assessed deviate from models used to assess
those buildings are accounted for in the regulations), reh'g denied, 705 N.E.2d 1084.
Therefore, according to the State Board, the division wall adjustment is necessary to
arrive at an accurate assessment in this case. See Ind. Admin. Code tit. 50, r. 2.1-4-
3(c) (1992) (codified in present form at id. r. 2.2-10-6.1(c)(2) (1996)).
In calculating a division wall adjustment, the assessor must first determine the
reproduction cost of the division wall.See footnote
Then the assessor must divide that cost by the
square footage of the entire building in order to determine the amount to be added to
the base rate of that building.See footnote
In its final determination, the State Board concluded that the presence of a division
wall added $3.65 to the base rate of building B. However, there is no evidence in the
record to support this figure. Accordingly, the Court is unable to determine how this
figure was calculated. This alone mandates reversal. See Clark v. State Bd. of Tax
Comm'rs, 694 N.E.2d 1230, 1240 (Ind. Tax Ct. 1998) (court must be apprised of the
basis of a State Board final determination). In addition, assuming arguendo that this
figure represents the proper reproduction cost (expressed in terms of cost per square
foot or cost per lineal foot, the record is silent as to which) of the division wall, there is
no evidence in the record to suggest that the assessor determined the proper
adjustment to the base rate of building B once the reproduction cost of the division wall
was determined. (There is a difference between the per square foot reproduction cost
of the division wall and how much that division wall adds to the per square foot
reproduction cost (i.e., base rate) of the building being assessed). In fact, the
testimony of the hearing officer indicates that the $3.65 figure was added directly into
the base rate of building B. (Trial Tr. at 23-24). This was improper.
Another problem with the State Board's final determination is the possibility of
double counting. Although the regulations state that the cost of the division wall must
be added,See footnote
care must be taken so as to avoid double counting one common wall.See footnote
addition, when two connected buildings are assessed separately, a division wall
adjustment is not warranted.See footnote
This is demonstrated by the facts of this case: neither
building B nor building A, on their own, have a division wall. Only when two connected
buildings are assessed as one does the division wall adjustment make sense.
Although it may be advisable to assess two connected buildings separately, the
assessor must not double count the common wall separating the two buildings. In this
case, the record indicates that the State Board assessed the buildings separately, but
added the cost of the common wall to building B, thereby double counting the common
For the above stated reasons, the State Board's final determination is reversed and
remanded for recalculation of the base rate consistent with the foregoing.
White Swan contends that the State Board's final determination with respect to
grade applied to Parcel 49 is erroneous. White Swan argues that because the
regulations governing grade have no ascertainable standardsSee footnote
, any final determination
of grade must be reversed See Ind. Const. art. I, § 12; see Harrington v. State Bd. of
Tax Comm'rs, 525 N.E.2d 360, 362 (Ind. Tax Ct. 1988) (quoting Commission on
General Educ. v. Union Township Sch., 410 N.E.2d 1358, 1362 (1990). (Ascertainable
standards are necessary to provide the Court with the tools necessary for effective
judicial review.). The grading of improvements is an important part of the true tax
value system. See Whitley Prods., Inc., 704 N.E.2d at 1116 (Ind. Tax Ct. 1998).
Assessors use cost schedules to determine the base reproduction cost of a particular
improvement. Id. Various grades are then assigned to an improvement based on the
quality of the improvement's materials, design, and workmanship. See Ind. Admin.
Code tit. 50, r. 2.1-4-3 (f) (1992) (codified in present form at id. r. 2.2-2-10-3 (a) (1996));
see also Barth, Inc., 699 N.E.2d at 804 n.12; Zakutansky v. State Bd. of Tax Comm'rs,
696 N.E.2d 494, 495 n.1 (Ind. Tax Ct. 1998). The grades represent multipliers that are
applied to the base reproduction cost of an improvement as calculated by using the
cost schedules provided in the regulations. See Whitley Prods., 704 N.E.2d at 1116
(citing Zakutansky, 696 N.E.2d at 496 n. 5; Garcia v. State Bd. of Tax Comm'rs, 694
N.E.2d 794, 796-97 (Ind. Tax Ct. 1998)).
This Court has held that a taxpayer may not simply point out the inadequacies of
the present system and expect to secure a reversal. See Phelps Dodge, 705 N.E.2d at
1104; Dana Corp. v. State Bd. of Tax Comm'rs, 694 N.E.2d 1244, 1247 (Ind. Tax Ct.
1998); see also Town of St. John v. State Bd. of Tax Comm'rs, 691 N.E.2d 1387, 1389-
90 (Ind. Tax Ct.) (order and judgment entry), rev'd in part, aff'd in part, 702 N.E.2d 1034
(Ind. 1998)). Instead, the taxpayer must offer probative evidence relating to the grade
issue. Whitley Prods., Inc., 704 N.E.2d at 1121. White Swan has not done so. Thus,
the State Board's final determination is affirmed on the grade issue.
White Swan argues that the State Board's final determination with respect to the
issue of obsolescence is incorrect. For an assessor to properly analyze obsolescence,
a two-step inquiry is required. See Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d at
1238. First, the assessor must identify the causes of obsolescence, and second, the
assessor must quantify the amount of obsolescence to be applied. See id. With
respect to the first part of the Clark obsolescence test, the State Board hearing officer,
in his review of the property, did not discover any causes of obsolescence. In addition,
White Swan presented no evidence tending to prove a cause of obsolescence. The
State Board therefore determined that the property did not experience obsolescence.
The State Board then adopted the hearing officer's findings. In its final determinations,
the State Board stated:
A review of this property and the evidence determined it has had a history of little
or [no] vacancy and is in a good business location without excessive competition[,]
[p]etitioner failed to present any substantial evidence to show an obsolescence
adjustment is warranted. Without other evidence[,] obsolescence depreciation is
No change was made.
(Joint Ex. C-1).
White Swan's failure to present or identify any evidence concerning obsolescence
at the administrative hearing is fatal to its contention that the State Board erred in
finding no causes of obsolescence. In Lake County Trust Co. v. State Board of Tax
Commissioners, 694 N.E.2d 1253, 1258 (Ind. Tax Ct. 1998), review denied, this Court
held that when challenging the State Board's determination denying an obsolescence
adjustment, the taxpayer has to offer evidence tending to prove causes of
obsolescence. In this case, White Swan failed to do so. There is no evidence in the
record showing that the property suffers from any cause of obsolescence. Where
there is no cause of obsolescence, there is no obsolescence to quantify. Id. at 1257.
As a result, the State Board's final determinations must be affirmed. IV. Condition
White Swan contends that the State Board's findings regarding condition are also
erroneous. Condition is an element of depreciation which measures the remaining
usefulness of a structure based on its age. See Ind. Admin. Code tit. 50, r. 2.1-5-1
(1992) (codified in present form at id. r. 2.2-10-7(b) (1996)). Condition is measured by
the amount of physical deterioration and the degree of maintenance relative to the age
of the structure. See id.; see also Town of St. John v. State Bd. of Tax Comm'rs, 690
N.E.2d 370, 386 (Ind. Tax Ct. 1997), aff'd in part and rev'd in part, 702 N.E.2d 1034
(Ind. 1998). An assessor can determine from the regulation's life expectancy
(depreciation) tables the effect of the improvement's condition and age on its true tax
value. See Barth, Inc., 699 N.E.2d at 808 (citing Ind. Admin. Code tit. 50, r. 2.1-5-1).
Using these tables, the assessor will then convert his findings into a percentage factor
for physical depreciation. See Ind. Admin. Code tit. 50, r. 2.1-5-1 . Once the
percentage factor is applied, the true tax value can be determined. See id.
White Swan contends that reversal of the State Board's final determinations with
respect to the condition of the subject improvements is warranted because the
regulations governing condition lack ascertainable standards. Recently, this Court
addressed the same issue. In Phelps Dodge, this Court held that a taxpayer may not
secure a reversal of a State Board final determination of the condition of a given
improvement simply by pointing out the inadequacy of the regulations governing
condition. See Phelps Dodge, 705 N.E.2d at 1104. Rather, the taxpayer must offer
probative evidence concerning the condition of that improvement.See footnote
See Id. In this
case, White Swan has offered no evidence relating to the condition of the subject
improvement. Therefore, the Court will not reverse the State Board's final
determination on this issue.
V. Land Classification and Negative Influence Factor
The BOR initially classified all of the land on Parcel 49 as primary. Along with the
primary land classification, the BOR awarded the parcel a forty-percent negative
influence factor because the parcel was oversized.See footnote
White Swan appealed the land
classification arguing that all of Parcel 49 should not be classified as primary. The
State Board subsequently reclassified the land into three segments; primary,
secondary, and undeveloped. Also, after reclassification of the land, the State Board
reduced the negative influence factor from forty-percent to fifteen-percent. Accordingly,
this Court must evaluate the State Board's classification of the land as well as its
decision to lower the negative influence factor. This Court will evaluate the land
classification issue first and then turn to a discussion of the negative influence factor
applied upon reclassification of the land.
A. Land Classification
The regulations include a set of instructions that serve as a guide to assessors in
the classification of land. See Ind. Admin. Code tit. 50, r. 2.1-4-2 (1992) (codified in
present form at id. r. 2.2-4-17 (1996); see also State Bd. of Tax Comm'rs v. Two Market
Square Associates L.P., 679 N.E.2d 882, 884 (Ind. 1997). Under the regulations
adopted by the State Board, land can be classified as primary, secondary, or
undeveloped. See Ind. Admin. Code tit. 50, r. 2.1-4-2(f) (1992) (codified in present form
at id. r. 2.2-4-17 (1996)). A land parcel's base value depends on the classification it
receives. Land parcels are not restricted to one classification, i.e., the particular parcel
may have parts that are primary, secondary, or undeveloped. To illustrate, the BOR
originally classified all land as primary, assigning a base value of $2.75 per square
foot. In its final determination, the State Board reclassified parts of the parcel as
secondary and undeveloped. Thus part of the parcel was assigned a base value of
$1.23 per square foot as secondary, and another assigned a value of $.53 as
undeveloped. A separate part of the land remained classified as primarySee footnote
White Swan failed to sufficiently place land classification at issue by failing to
provide probative evidence relating to this issue. See Whitley Prods., 704 N.E.2d at
1119-20 (where taxpayer fails to present probative evidence regarding an issue, the
substantial evidence standard is not triggered). White Swan raises the issue of land
classification, but does not provide the Court with a cogent argument regarding the
actual reclassification of the land.See footnote
Instead, White Swan's argument is directed at the
State Board's decision to lower the negative influence factor as a result of the
reclassification. As a result, the Court will affirm the State Board's reclassification of
B. Negative Influence Factor
The value of a particular parcel of land is determined by the Land Order, the
classification of the land, and, if applicable, an influence factor. Land Orders are
developed from the collection and analysis of comparable sales data for the
neighborhood and surrounding areas where the parcel of land is situated. See Ind.
Code Ann. § 6-1.1-4-13.6 (1989) (amended 1993 & 1997); see also Ind. Admin. Code tit.
50, r. 2.1-2.1 (1992) (codified in present form at id. r. 2.2-4-17 (c)(8) (1996)); see also
Ind. Admin. Code tit. 50, r. 2.1-4-2(f). The sales data is studied by the County Land
Valuation Commission, which recommends a range of values for the property in a
neighborhood. See Phelps Dodge, 705 N.E.2d at 1105. The State Board then sets the
final range of values in a Land Order. This range of values is used by the assessor in
assigning an extended value to each parcel based on the Land Order. See id. See
also Precedent v. State Bd. of Tax Comm'rs, 659 N.E.2d 701, 706 (Ind. Tax Ct. 1995).
The term influence factor refers to a condition peculiar to a parcel of land (e.g.,
size or shape) that prescribes either a positive or negative adjustment to the extended
value of the land to account for variations from the norm. See Ind. Admin. Code tit. 50,
r. 2.1-2-1; see also Phelps Dodge, 705 N.E.2d at 1105; see also Talesnick v. State Bd.
of Tax Comm'rs, 693 N.E.2d 657, 660 (Ind. Tax Ct. 1998). Influence factors are used
to take into account positive and negative attributes of a particular property in arriving
at the value of a particular parcel. In order to properly quantify an influence factor, the
assessor must first identify deviations from the norm and then quantify the variation.
See Ind. Admin. Code tit. 50, r. 2.1-4-2. The variation is then expressed as a
percentage. The percentage represents the composite effect of the factors that
influence the value. Id.
In the case at bar, the land in question initially had a forty-percent influence factor
applied to it because the parcel was considered oversized. After reclassification of the
land, however, the State Board contends that a reduction of the influence factor from
forty-percent to fifteen-percent was required. (Joint Ex. C-2). Thus, it appears that the
State Board treated land classification and negative influence factor as interdependent.
The State Board was incorrect. In fact, land classification and influence factors are
independent of each other. The regulations do not require a change in one factor
because there was a change in the other. As a result, the State Board, if it decides to
lower a negative influence factor because of land reclassificationSee footnote
, must demonstrate
in its final determination how a change in one affects the other.See footnote
The State Board's errors are highlighted further by the testimony of the hearing
officer. At trial, the hearing officer admitted that he did not know the basis behind the
fifteen-percent negative influence factor application, or, for that matter, the basis of the
initial forty-percent application. (Trial Tr. at 14). The hearing officer also admitted that
it is possible that the fifteen-percent negative influence factor applied does not
accurately account for the effect of the size of the property on its per square foot or per
acre value. (Trial Tr. at 14). Thus, because the State Board altered the negative
influence factor without articulating reasons for the reduction in its final determination,
this Court finds that the State Board's final determinations lacked substantial
evidentiary support. See Phelps Dodge, 705 N.E.2d at 1106 (citing Talesnick, 693
N.E.2d at 661; Western Select Properties, 639 N.E.2d at 1073; Canal Square Ltd.
Partnership v. State Bd. of Tax Comm'rs, 694 N.E.2d 801, 810 (Ind. Tax Ct. 1998)
(State Board's reasoning for its decision must be contained in its written findings.).
Accordingly, the Court reverses and remands the final determination of the State
On remand, White Swan will be required to present probative evidence that
supports what it believes to be the proper amount of negative influence factor to be
applied. See Phelps Dodge, 705 N.E.2d at 1106. The State Board, of course, must
then deal with the evidence in a meaningful manner. See Loveless Const. Co., 695
N.E.2d at 1049.
For the foregoing reasons, the Court AFFIRMS the State Board's final
determinations with respect to issues II, III, IV and V-A. The Court REVERSES and
REMANDS issues I and V-B, to the State Board for further consideration consistent
with this opinion.
Footnote: 1Although the State Board issued two final determinations in this matter for two
parcels, the record indicates that both final determinations were merged into one.
Thus, the Court will refer to the final determinations as one by using the term final
Footnote: 2See Ind. Code Ann. § 6-1.1-15-3 (a) (West Supp. 1998).
Footnote: 3The regulations governing the assessment of commercial property fail to offer a
formal definition of a division wall. However, the Court infers the meaning of that term
by examining the regulation's description of a row adjustment for residential properties.
See Ind. Admin. Code tit. 50, r. 2.1-3-4(b) (1992) (codified in present form at id. r. 2.2-7-
8.1(b) (1996)); Phelps Dodge v. State Bd. of Tax Comm'rs, 705 N.E.2d 1099, 1105 n.
11 (Ind. Tax Ct. 1999)(Although the Court cannot assume that language in one
regulation is applicable to another, the Court can use one regulation to determine
, petition for review filed,
Mar. 20, 1999
. But cf. Western
Select Properties v. State Bd. of Tax Comm'rs, 639 N.E.2d 1068, 1073 (Ind. Tax Ct.
1994) (The Court can refuse to import the meaning of one regulation into the meaning
of another.). A row house division wall is defined as a common or party wall that
separates the individual dwelling units. See Ind. Admin. Code tit. 50, r. 2.1-3-4(b).
Accordingly, a division wall in the commercial property context is a common or party
wall that separates two individual commercial units or structures. Buildings A and B are
separated by such a common wall.
Footnote: 4White Swan implies that the common wall is actually a partition wall and
therefore would be accounted for in the models. The Court cannot agree. There is a
difference between a partition wall and a division wall. Partition walls are found inside
a structure and are used to separate different sections found within that structure. A
division wall is a common wall that separates two different structures. Therefore, the
Court finds that the wall that separates buildings A and B is a division wall.
Footnote: 5In making this calculation, the assessor should, if possible, use the unit-in-
place cost tables found in Ind. Admin. Code tit. 50, r. 2.1-4-10 (1992) (codified in
present form at id. r. 2.2-15-1 (1996)). See Whitley Prods., Inc. v. State Bd. of Tax
Comm'rs, 704 N.E.2d 1113, 1117 (Ind. Tax Ct. 1998), review denied.
Footnote: 6The base rate of a building is stated as a per square foot value. See Barth,
Inc., 699 N.E.2d at 802 n.5.
Footnote: 7See Ind. Admin. Code tit. 50, r. 2.1-4-3 (c).
The double counting problem arises even when there is no division wall
adjustment and two buildings are assessed separately.
Footnote: 9It is important to note that two freestanding units will have a higher reproduction
cost than two units connected by a common wall.
Footnote: 10As Indiana's property tax expert, the State Board should be able to explain in a
final determination how these types of special problems (i.e., the assessment of two
connected buildings) were resolved when it reviews an assessment. Cf. Thorntown
Tel. Co. v. State Bd. of Tax Comm'rs, 629 N.E.2d 962, 966 (Ind. Tax Ct. 1994)
(because obsolescence calculations are complex State Board must give an
authoritative explanation in its written findings). This was not done in this case.
Footnote: 11Recently, a similar regulation governing grade has been declared
unconstitutional for this reason. See Whitley Prods., Inc., 704 N.E.2d at 1121 (citing
State Bd. of Tax Comm'rs v. Town of St. John, 702 N.E.2d 1034, 1039 & n. 7 (Ind.
1998), aff'g in part, rev'g in part, 690 N.E.2d 370, 386 (Ind. Tax Ct. 1997)).
Footnote: 12Although the regulations governing condition have flaws, they do not, however,
limit what evidence a taxpayer may offer on that issue. In fact, taxpayers may offer any
evidence that bears on the amount of physical deterioration suffered by a particular
improvement. Phelps Dodge, 705 N.E.2d at 1104 n. 9 (citing Lake County Trust Co.,
694 N.E.2d at 1257). Rather, the problem is how the factual observations of how a
given improvement has deteriorated get translated into a level of condition. See id. at
1104. Therefore, a taxpayer who presents no probative evidence with respect to the
condition of a given improvement cannot complain that the regulation governing
condition was flawed because the flaws in the regulation do not prejudice the
taxpayer's ability to offer probative evidence.
Apparently, White Swan had no problem with the 40% negative influence factor
that was determined by the BOR, as it was not included in any of White Swan's
arguments to this court, nor was presented as an issue to the State Board.
Footnote: 14The State Board stated in its brief that White Swan contended that all of its
land should not be classified as primary. (Resp't Br. at 8). As a result of this
contention, the State Board reclassified a substantial part of the land to secondary or
undeveloped land. (Resp't Br. at 8-9).
Footnote: 15This leads the Court to believe that White Swan's true complaint is with the
State Board's decision to lower the negative influence factor as a result of the
reclassification as opposed to the actual reclassification of the land itself.
A change in land classification from primary to secondary does not necessarily
mean that a lower influence factor is in order. Conversely, a change from secondary to
primary does not necessarily mean that a higher influence factor is in order.
Assuming arguendo that it was proper to reduce the negative influence factor,
the State Board still failed to explain how the fifteen-percent factor, as opposed to any
other figure, was the correct negative influence factor. See Clark, 694 N.E.2d 1230,
1240 (Ind. Tax Ct. 1998); see also Loveless Const. Co. v. State Bd. of Tax Comm'rs,
695 N.E.2d 1045, 1048 (Ind. Tax Ct. 1998), review denied.
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