ATTORNEY FOR PETITIONER:         ATTORNEYS FOR RESPONDENT:
JOHN R. RUMPLE                 JEFFREY A. MODISETT
SHARPNACK BIGLEY DAVID & Attorney General of Indiana
RUMPLE                        Indianapolis, Indiana Columbus, Indiana                     
                            JOEL SCHIFF
                            Deputy Attorney General
                            Indianapolis, Indiana
_____________________________________________________________________

SUSAN J. BARKER,                                                   )    
                                                                        )                    
                                                                        )
             Petitioner,                                                )
                                                                        )
v.                                                                      ) Cause No. 49T10-9601-TA-00009
                                                                        )
STATE BOARD OF TAX COMMISSIONERS,                                       )                                             
                                                                        )
                         Respondent.                                    )
_____________________________________________________________________
  

                                                                    
ON APPEAL FROM A FINAL DETERMINATION OF THE STATE BOARD OF TAX
 

before this Court.See footnote 3 Additional facts will be added as necessary.

King Indus. Corp., 699 N.E.2d at 339, and, as the State Board notes in its brief, was in response to an inability of local assessing officials to properly assess kit buildings by using the pre-existing cost schedules and grade adjustments.See footnote 4 See Bock Prods, Inc., 683 N.E.2d at 1372. After the amendments, the regulations themselves contained no guidanceSee footnote 5 on what constituted a “kit-type structure.” Accordingly, the State Board issued a memorandum to all assessing officials on February 22, 1991 that contains a limited explanation of how the kit adjustment was to be applied. Memorandum from State Board of Tax Commissioners to All Assessing Officials (Feb. 22, 1991). Later that year, the State Board issued Instructional Bulletin 91-8 to further instruct assessing officials on how to determine which improvements qualified for the kit adjustment. Instructional Bulletin 91-8 provides examples of kit buildings and outlines several characteristics of kit buildings, e.g., Cold Cee Channel wall supports, X bracing, metal or steel exterior skin, and round steel columns. See King Indus. Corp., 699 N.E.2d at 339-41.
    Although the stated purpose of the Instructional Bulletin 91-8 was to clarify the meaning of “kit-type structures” as that term is used in the regulations, Instructional

Bulletin 91-8 has “often been more confusing than helpful.” Id. at 339. As noted in King Industrial Corp., the use of language such as “economical,” “minimal tolerances,” “normal,” and “heavy loads” in Instructional Bulletin 91-8 necessarily leaves much to the discretion of an individual assessor and makes it “difficult to see how any consistency or uniformity in applying the kit building adjustment can be achieved among assessors.” Id. at 340. Moreover, instead of providing strict requirements for an improvement to qualify for a kit adjustment, Instructional Bulletin 91-8 lists some of the kit building identification features as “clues.” Furthermore, Instructional Bulletin 91- 8 allows improvements to vary from the basic kit model and still qualify for the kit adjustment. See Componx, Inc. v. State Bd. of Tax Comm'rs, 683 N.E.2d 1372, 1374 (Ind. Tax Ct. 1997). Not surprisingly, this has led to some confusion in the application of the kit adjustment and has made effective judicial review of cases involving kit adjustments difficult. See King Indus. Corp., 699 N.E.2d at 340 n.4 (Instructional Bulletin 91-8 is “woefully inadequate for purposes of determining with any degree of certainty whether a building is, in fact, a kit building.”).
    The inadequacy of Instructional Bulletin 91-8 lies not so much in the inability of taxpayers to identify what evidence is relevant to the determination of what is a kit building, see Whitley Prods., Inc., 704 N.E.2d at 1121, but rather in that Instructional Bulletin 91-8 fails to provide adequate guidance on how that evidence is to be evaluated.See footnote 6 For example, Instructional Bulletin 91-8 fails to specify which “clues” are

more important than the others,See footnote 7 or even how many of the “clues” must be satisfied in order to qualify for the kit adjustment. Additionally, Instructional Bulletin 91-8 provides little specific guidance concerning when an improvement's deviation from the basic kit model disqualifies the improvement for the kit adjustment and when an improvement's deviation from the basic kit model does not. However, Instructional Bulletin 91-8 does contain a general line of demarcation separating deviations that disqualify a particular improvement from receiving the kit adjustment and deviations that do not. The relevant consideration is the effect of the particular deviation or deviations on the cost of the improvement. Where the deviations render the particular improvement no longer “economical,” the improvement no longer qualifies for the kit adjustment. See Instructional Bulletin 91-8 at 7; King Indus. Corp., 699 N.E.2d at 340 n.6; Componx, 683 N.E.2d at 1375. Unfortunately, Instructional Bulletin 91-8 does not define “economical,” thereby leaving taxpayers, assessors, and the courts with an imprecise standard to distinguish kit buildings from other light pre-engineered buildings. Cf. Garcia v. State Bd. of Tax Comm'rs, 694 N.E.2d 794, 798 (Ind. Tax Ct. 1998) (criticizing lack of precision in State Board's regulations concerning grade).
    Another problem with the kit adjustment and Instructional Bulletin 91-8 is

structural in nature. In Indiana, improvements are assessed based on models. See Barth, Inc., 699 N.E.2d at 802-03. These models contain certain components, which are presumed to be possessed by the improvement being assessed. See id. at 802. All but one of the models for commercial improvements falling under the General Commercial Industrial (GCI) and General Commercial Mercantile (GCM) general use typesSee footnote 8 contain concrete or brick walls.See footnote 9 As a result, in the vast majority of cases, assessors must use models that have concrete or brick walls to assess steel skinned improvements required to be assessed under the GCM or GCI general use type categories. This, as can be readily foreseen, creates difficulties in assessing these improvements: Steel skinned improvements do not possess concrete or brick walls, but the models (with one exception that applies to very few improvements) used to assess them do.
    The State Board's solution to this problem was to adopt the kit adjustment amendmentsSee footnote 10 and the associated Instructional Bulletins. This solution did not solve

the entire problem. Although steel skin is a characteristic of a kit building, not all steel skinned improvements qualify for the kit adjustment. See Instructional Bulletin 91-8 at 3. As a result, the State Board's solution leaves many steel skinned improvements still being assessed with models that contain concrete or brick walls. This coupled with the vagueness of Instructional Bulletin 91-8 means that taxpayers, assessors, and the courts are left to guess at how much of the problem of assessing steel skinned improvements with models that contain concrete or brick walls the State Board intended to solve when it adopted the kit adjustment amendments.
    Although the problems described above make judicial review difficult in these kit adjustment cases, taxpayers are still entitled to effective judicial review when the State Board denies kit adjustments. See State Bd. of Tax Comm'rs v. Town of St. John, 702 N.E.2d 1034, 1040 n.8 (Ind. 1998). In these cases, taxpayers are required to offer probative evidence tending to demonstrate that the improvement is a kit building. See King Indus. Corp., 699 N.E.2d at 343. Once that is done, the State Board must come forward with probative evidence to rebut the taxpayer's showing. See id. In so doing, the State Board must deal with the taxpayer's evidence in a meaningful manner, see id., and where the State Board fails to take relevant evidence into consideration, reversal is mandated. See Whitley Prods., Inc., 704 N.E.2d at 1117 n.3; Vonnegut v. State Bd. of Tax Comm'rs, 672 N.E.2d 87, 90 (Ind. Tax Ct. 1996), review denied; Simmons v. State Bd. of Tax Comm'rs, 642 N.E.2d 559 (Ind. Tax Ct. 1994); see also Katzson Bros. v. Environmental Protection Agency, 839 F.2d 1396, 1401 (10th Cir. 1988) (where agency failed to consider relevant information in determining amount of

fine, agency decision reversed).         
    At trial, Barker met this burden of production.See footnote 11 Barker presented evidence that the subject improvement was a large pre-engineered steel frame structure with light steel skin,See footnote 12 no interior partitions, no insulation, no interior finish, no heating or air conditioning and a light weight roof and roof support structure.See footnote 13 (Trial Tr. at 6-8). In addition, according to the evidence presented by Barker, the subject improvement contained the standard X bracing in the walls and the ceilings. (Trial Tr. at 6). Finally, Barker presented an affidavit of the builder of the subject improvement stating that the subject improvement was constructed in 1986 at a cost of $835,200.See footnote 14 (Pet'r Ex. 5). This is almost half of the subject improvement's true tax value after depreciation.
    In its final determination, the State Board did not dispute Barker's evidence, instead, the State Board identified four features of the subject improvement that, in the State Board's view, disqualified the subject improvement for the kit adjustment. The

State Board's written findings state:
        This building does not qualify as a pre-designed steel frame economy kit
    structure. The first two feet of the wall is concrete, not steel. With a width of     240 feet and a wall height of 24 feet, the building is too large to qualify as a kit.     In addition, the roof beams are of a design that is not described in STB Bulletin     91-8 as typical of kit buildings.

(State Bd. Final Determination at 2).

At trial, the State Board hearing officer elaborated on these findings. He testified that the size of building meant that the subject improvement had to have special design features to deal with the increased stresses that large buildings encounter. (Trial Tr. at 51). In addition, the State Board hearing officer testified that the first seven feet of the steel skinned walls was reinforced.See footnote 15 (Trial Tr. at 50, 53). Lastly, the State Board hearing officer testified that because of these features, the building appeared to be of custom design, thereby, in the hearing officer's view, disqualifying the subject improvement for the kit adjustment. (Trial Tr. at 51). However, none of the features identified by the State Board's written findings or the State Board's hearing officer expressly disqualify a particular improvement from receiving a kit adjustment.
    With regard to the size of the subject improvement, the State Board contends

that the width, wall See footnote 16 height and the overall size of the subject improvement disqualify it from receiving the kit adjustment. Instructional Bulletin 91-8 states that kit buildings widths are normally 30 feet to 120 feet. The subject improvement is double that width. That fact does give pause for concern. However, the use of the word normally leads to an inference that a particular improvement may deviate from the 120 foot width referenced in Instructional Bulletin 91-8. Additionally, when read as a whole,See footnote 17 Instructional Bulletin 91-8 clearly allows deviations from the basic kit model. See Componx, 683 N.E.2d at 1375. This supports the inference that the width of the subject improvement is not, in and of itself, dispositive. Cf. King Indus. Corp., 699 N.E.2d at 342 (fact that improvements were not “standard size and shape” did not disqualify improvements for kit adjustment). Furthermore, even without the use of the word normally, the fact that the width of an improvement is but one “clue” in a list of ten “clues” supports the inference that a particular improvement is not required to fall within the prescribed range of widths in order to qualify for the kit adjustment. Accordingly, the Court finds that the width of the subject improvement does not automatically disqualify the subject improvement for the kit adjustment. As for the wall height of 24 feet, the Court notes that the 24 foot wall height is within the parameters of Instructional Bulletin 91-8. Consequently, this feature actually supports the granting of the kit

adjustment.See footnote 18
    As for the size itself, at trial, the hearing officer contended that the size itself rendered the subject improvement uneconomical.See footnote 19 (Trial Tr. at 71). Apparently, the hearing officer was considering only the total reproduction cost of the subject improvement rather than looking to its per square foot cost. This was improper. Large improvements are indeed expensive to build. However, in calculating the True Tax Value of an improvement, the assessor determines the per square foot reproduction cost of that improvement. See Barth, Inc., 699 N.E.2d at 802 n.5. Accordingly, the determination of whether an improvement is “economical” must be taken with reference to its per square foot reproduction cost.
     The fact that the first two feet of the wall of the subject improvement is concrete also does not disqualify the subject improvement from receiving the kit adjustment. Instructional Bulletin 91-8 states that kit buildings may have “minimal building feature options,” such as stone or masonry fronts or other feature options and still qualify for the kit adjustment. Instructional Bulletin 91-8 at 7; Componx, 683 N.E.2d at 1375. There is nothing in the record before the Court to suggest that the concrete wall is anything more than a minimal feature option that could be accounted for by adjusting

the grade of the subject improvement after applying the kit adjustment.See footnote 20 Instructional Bulletin 91-8 at 7. As a result, the existence of the concrete wall does not disqualify the subject improvement for the kit adjustment.
    The State Board hearing officer also referred to the fact that the first seven feet of the steel walls were reinforced to support the State Board's denial of the kit adjustment. Nowhere in Instructional Bulletin 91-8 is this feature described as disqualifying the subject improvement for the kit adjustment. Additionally, Instructional Bulletin 91-8 allows kit buildings to have stronger structural support systems than that of the basic kit model. Accordingly, the fact that the walls were reinforced does not disqualify the subject improvement from receiving the kit adjustment.
    The State Board also argues that the fact that the subject improvement's roof structure is not specifically referenced in Instructional Bulletin 91-8 disqualifies the subject improvement from the kit adjustment. This argument is without merit. First of all, Instructional Bulletin 91-8 does not limit the roof beam support systems to those specifically mentioned in Instructional Bulletin 91-8. Second, and more importantly, the evidence presented at trial demonstrated that the roof structure was inexpensive and light weight. (Trial Tr. at 6, 18, 52).
    Lastly, the State Board hearing officer referred to the “custom” design of the subject improvement. In the State Board hearing officer's view, the “custom” design was necessary to deal with the increased stresses that large buildings encounter due to

their size. This too does not support the denial of the kit adjustment in this case. See King Indus. Corp., 699 N.E.2d at 341-42 (fact that portion of building appeared to be of custom design did not disqualify improvement from receiving a kit adjustment). The State Board hearing officer's view perhaps resulted from a mistaken reading of the State Board's February 22, 1991 memorandum, which bars improvements built to the buyer's exact specifications from receiving the kit adjustment. There is a difference between an improvement built to a buyer's exact specifications and an improvement with some customization. Most improvements, including kit buildings, will contain some degree of customization. Instructional Bulletin 91-8 recognizes this by allowing for structural “upgrades,” modest interior finishes, and decorative fronts. As a result, the fact that an improvement has some degree of customization, without more, is insufficient to disqualify an improvement for a kit adjustment.
    In the past, this Court has rejected State Board attempts to justify a denial of the kit adjustment by merely pointing to features that do not disqualify the particular improvement for the kit adjustment. See id.; Componx, 683 N.E.2d at 1375 (a few additional features could only disqualify an improvement for a kit adjustment “if the building in question displayed such extant characteristics that the structure could no longer be considered economical” ). Although not explicitly stated in those opinions, to allow the State Board to deny the subject improvement a kit adjustment by pointing to the aforementioned features of the subject improvement would be contrary to Instructional Bulletin 91-8, which, as stated above, contemplates deviations from the basic kit model. If deviations from the basic kit model, in and of themselves, are

nowhere treated as disqualifying a particular improvement for the kit adjustment in Instructional Bulletin 91-8, the State Board cannot point to those deviations to support a denial of the kit adjustment in specific cases.See footnote 21 Instead, the State Board must articulate why an improvement's deviations from the basic kit model disqualify that improvement for the kit adjustment in that particular case. It is not enough to say that sometimes deviations from the basic kit model disqualify an improvement and sometimes they do not_and, in this case, it is decided that they do. If the reasons for the denial of the kit adjustment are not, in all cases, dispositive of the qualification of an improvement for the kit adjustment, then those reasons cannot be used, without further explanation, to deny the kit adjustment in a particular case. Therefore, the State Board's denial of the kit adjustment cannot be upheld merely on the basis that the subject improvement contains deviations from the basic kit model.
    In reaching this conclusion, the Court is not unaware of its highly deferential standard of review. See Clark, 694 N.E.2d at 1233-35. As Indiana's assessing expert, the State Board is afforded a great deal of discretion. However, the discretion that is properly reposed in the State Board cannot be allowed to mask unrestrained and arbitrary decisionmaking. See Canal Square Ltd. Partnership v. State Bd. of Tax Comm'rs, 694 N.E.2d 801, 808 (Ind. Tax Ct. 1998). If the State Board were allowed to simply point to the fact that an improvement deviates from the basic kit model to justify

its decision to deny the kit adjustment when the particular deviation does not disqualify the subject improvement for the kit adjustment, it is difficult to see how the decision to deny the kit adjustment was based on any principle other than the fact that the State Board said so. The law demands more of the State Board. See Clark, 694 N.E.2d at 1240.
    This leads to the question of how the subject improvement's deviations from the basic kit model are to be treated. As stated above, Instructional Bulletin 91-8 provides a general demarcation line separating kit buildings from other pre-engineered buildings. This general demarcation line directs the inquiry in these cases to how much the deviations from the basic kit model add to the cost of the particular improvement. The State Board's final determination, however, does not reflect that this inquiry was undertaken. Nowhere in the State Board's written findings is an evaluation of how the deviations of the subject improvement from the basic kit model increased the cost of the subject improvement so as to make it uneconomical.See footnote 22 Although the State Board, Indiana's assessing expert, is afforded deference in making this inquiry, see Loveless Constr. Co., 695 N.E.2d at 1047, the State Board does not have the discretion to abandon the inquiry altogether. See Arkansas v. Oklahoma, 503 U.S. 91, 113, 112 S. Ct. 1046, 1060 (1992) (agency action arbitrary and capricious where agency fails to consider “an important aspect of the problem”). By not undertaking an inquiry required

by law, the State Board abused its discretion in this case, and, accordingly, the State Board's final determination must be reversed.

the subject improvement.
    Finally, the Court notes that Barker presented evidence of the actual construction cost of the subject improvement in this case. Such evidence is not dispositive of the assessed value of a particular improvement. See Dawkins v. State Bd. of Tax Comm'rs, 659 N.E.2d 706, 709 (Ind. Tax Ct. 1995). However, evidence of actual reproduction cost may have relevance in certain cases. See, e.g., Zakutansky v. State Bd. of Tax Comm'rs, 696 N.E.2d 494, 495-96 (Ind. Tax Ct. 1998); cf. Phelps Dodge v. State Bd. of Tax Comm'rs, 705 N.E.2d 1099, 1106-07 (Ind. Tax Ct. 1999) (taxpayers may offer market data in quantifying influence factors), petition for review filed, Mar. 22, 1999; Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1241-42 & n.18 (taxpayers may use generally recognized appraisal techniques for quantifying obsolescence). By using the terms “economical” and “dollar cost” in Instructional Bulletin 91-8, the State Board may have decided that a particular improvement's actual reproduction cost is relevant in determining whether an improvement qualifies for the kit adjustment. See King Indus. Corp., 699 N.E.2d at n.6. As stated above, Barker offered evidence of the subject improvement's actual construction cost. This (putting aside the issue of the credibility of that evidence) showed a wide disparity in the actual reproduction cost of the subject improvement and its true tax value, i.e., its reproduction cost of the improvement as calculated by using the State Board's regulations. At first glance, the wide disparity in this case between the purported actual construction cost of the subject improvement and its true tax value seems, at the very least, to give pause for concern. It tends to suggest that the subject improvement is overassessed to a

significant degree and that the subject improvement is indeed “economical.”
    If this evidence was indeed relevant, the State Board was obliged to consider it in arriving at its final determination. According to the testimony of the State Board hearing officer, the State Board did not do so. (Trial Tr. at 59). However, rather than resolve this issue, the Court will allow the State Board, the agency charged with administering this state's property tax system, to pass on this issue first. Accordingly, if Barker chooses to offer evidence of the actual reproduction cost by offering the actual construction cost of the subject improvement or otherwise on remand, the State Board will be required to expressly determine the relevancy of that evidence.

grade adjustments to kit buildings. Perhaps this explains why Instructional Bulletin 91- 8, like most of the rest of the rules governing the assessment of real property in Indiana, is better suited for mass appraisal than the adjudication of specific cases. See King Indus. Corp., 699 N.E.2d at 340 n.4.

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