ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN STEVE CARTER
ATTORNEY AT LAW
ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
LINDA I. VILLEGAS
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
MITCHEL & SCOTT MACHINE CO., INC., )
) Cause No. 49T10-0009-TA-97
DEPARTMENT OF LOCAL )
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
May 28, 2004
Mitchel & Scott Machine Company, Inc. (Mitchel & Scott) appeals the State Board
of Tax Commissioners (State Board) final determination valuing its real property for the
1995 tax year. The issue before this Court is whether Mitchel &
Scotts improvement is entitled to additional obsolescence depreciation.
FACTS AND PROCEDURAL HISTORY
Mitchel & Scott owns land and an improvement in Indianapolis, Indiana. For
the 1995 assessment, local assessing officials awarded Mitchel & Scotts improvement a 15%
obsolescence depreciation adjustment. Mitchel & Scott subsequently filed a Petition for Review
of Assessment (Form 131) with the State Board challenging the assessment. In
its Form 131, Mitchel & Scott claimed that its improvement was entitled to
additional obsolescence. The State Board denied Mitchel & Scotts claim after holding
an administrative hearing on March 20, 2000.
Mitchel & Scott filed an original tax appeal on September 5, 2000.
This Court heard the parties oral arguments on July 2, 2001. Additional
facts will be supplied as necessary.
ANALYSIS AND OPINION
Standard of Review
This Court gives great deference to final determinations of the State Board
when it acts within the scope of its authority. Hamstra Builders, Inc.
v. Dept of Local Govt Fin., 783 N.E.2d 387, 390 (Ind. Tax Ct.
2003). 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. The taxpayer bears
the burden of showing that the final determination is invalid. Id.
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. 2.2-10-7(e) (1996).
Functional obsolescence is caused by internal factors to the property and economic obsolescence
is caused by external factors. See 50 IAC 2.2-10-7(e).
To establish obsolescence, the taxpayer must first identify the causes of obsolescence and
then quantify the amount of obsolescence.
See Clark v. State Bd. of
Tax Commrs, 694 N.E.2d 1230, 1241 (Ind. Tax Ct. 1998).
important to recognize, however, that each of these prongs requires a connection to
an actual loss in property value.
See id at 1238. 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 Miller Structures, Inc. v. State
Bd. of Tax Commrs, 748 N.E.2d 943, 954 (Ind. Tax Ct. 2001).
In the commercial context, loss of value usually means a decrease in the
propertys income generating ability. See id at 953. Accordingly, when a
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 improvements overall
value. See Clark, 694 N.E.2d at 1238.
Although the only issue in this case is the quantification of obsolescence,
See footnote Mitchel
& Scott was necessarily required to explain its causes of obsolescence in order
to translate its improvements loss in value (due to the causes) into a
quantifiable amount of obsolescence depreciation.
See Heart City Chrysler v. Dept of
Local Govt Fin., 801 N.E.2d 215, 218 (Ind. Tax Ct. 2004).
At the administrative hearing, Mitchel & Scott claimed that it was entitled to
44% obsolescence depreciation adjustment. To support this claim, Mitchel & Scott presented
a document titled Assessment Review and Analysis (Analysis). (Stip. R. at 27.)
The Analysis states:
[t]he subject property was originally constructed in 1920 with an estimated 7,800 SF
brick and steel framed structure with several additions over the years. This
add-on type of construction has created numerous bottle necks and inefficiencies with added
material handling costs, due to, areas of low clear ceiling heights, narrow bay
spacing and excessive interior walls.
The subject lacks adequate lighting, insulation and thermal pane windows.
Ingress and egress of vehicles is inadequate. The subject is located in
an older inner-city neighborhood with a mix of residential and industrial properties and
with a land to building ratio of 1.027 to 1, there is little
room for truck turnaround and parking.
The subject is mostly constructed of brick and block materials. In todays
market this is considered to be a superadequacy as well as an obsolete
design, as a modern building [ ] with better utility could be constructed
with a less expensive and more efficient light pre-engineered metal building.
(Stip. R. at 33.) The Analysis also contained the following: uncaptioned photos
of the exterior of the property; a calculation of how the 44% figure
was determined; the propertys record cards; a copy of this Courts opinion in
Freudenberg-NOK General Partnership v. State Board of Tax Commissioners; and an article titled
Identifying, Measuring, and Treating Functional Obsolescence in an Appraisal.
See footnote (
See Stip. R.
at 30-57.) CONCLUSION
When seeking an obsolescence adjustment, a taxpayer must link the cause of obsolescence
to an actual loss in property value. See Miller Structures, 748 N.E.2d
at 953. Here, Mitchel & Scott did not present any evidence of
an actual loss. For example, Mitchel & Scott states that the property
lacks adequate lighting, insulation, and thermal pane windows. (Stip. R. at 33.)
However, it does not submit probative evidence showing how these deficiencies are
causing an actual decrease in income-generating ability (i.e., perhaps increased utility bills).
Similarly, Mitchel & Scott did not submit evidence showing what increased material handling
costs were incurred due to various inefficiencies in the building.
Moreover, in arriving at the 44% figure, Mitchel & Scott compared the reproduction
cost of the improvement to its replacement cost. (See Stip. R. at
35-36). This Court has previously held that this method does not sufficiently
link the causes of obsolescence to an actual loss. See Heart City
Chrysler, 801 N.E.2d at 218 (quantifications need to be linked to the causes
Mitchel & Scott has failed to meet its burden in this case.
Therefore, the Court AFFIRMS the final determination of the State Board.
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 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 Annotated § 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.
Mitchel & Scott 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 Commrs, 756 N.E.2d 1124, 1127 n.1 (Ind.
Tax Ct. 2001). Because Mitchel & Scotts claims and supporting arguments are
identical to those previously rejected by the Court, the Court will not address
Because the local assessing officials awarded Mitchel & Scott an initial obsolescence
adjustment of 15%, the parties essentially agree that obsolescence is present in Mitchel
& Scotts improvement. (Stip. R. at 61.) Accordingly, the issue is
not identification of the causes of obsolescence, but rather the quantification of obsolescence.
See Phelps Dodge v. State Bd. of Tax Comm'rs, 705 N.E.2d 1099,
1102 (Ind. Tax Ct.1999), review denied (stating that the fact that the
parties agree on the causes of obsolescence obviates [the taxpayer's] burden of offering
probative evidence showing that the subject improvements experience obsolescence").
[P]hotographs, without further explanation, are not probative evidence as to causes [or
quantification] of obsolescence.
Canal Realty-Indy Castor v. State Bd. of Tax Commrs,
744 N.E.2d 597, 601 n.6 (Ind. Tax Ct. 2001), (citation omitted).
Likewise, a copy of a court opinion and an article about obsolescence
without any discussion as to their applicability to the case at bar
do not constitute probative evidence.