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
    Indianapolis, IN
______________________________________________________________________
     IN THE INDIANA TAX COURT

MITCHEL & SCOTT MACHINE CO., INC.,           )         
             
                                                 
                                                 
                                    

            )
    Petitioner,                )
    v.        )
            ) Cause No. 49T10-0009-TA-97
DEPARTMENT OF LOCAL         )
GOVERNMENT FINANCE, See footnote         )
                )
    Respondent.            )    
______________________________________________________________________

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


NOT FOR PUBLICATION
May 28, 2004


FISHER, J.
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 & Scott’s improvement is entitled to additional obsolescence depreciation. See footnote
FACTS AND PROCEDURAL HISTORY

Mitchel & Scott owns land and an improvement in Indianapolis, Indiana. For the 1995 assessment, local assessing officials awarded Mitchel & Scott’s 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 & Scott’s 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. Dep’t of Local Gov’t 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.
Discussion


“Obsolescence, which is a form of depreciation, is defined as a loss of value and classified as either functional or economic.” Freudenberg-NOK Gen. P’ship v. State Bd. of Tax Comm’rs, 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 Comm’rs, 694 N.E.2d 1230, 1241 (Ind. Tax Ct. 1998). It is 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 Comm’rs, 748 N.E.2d 943, 954 (Ind. Tax Ct. 2001).
In the commercial context, loss of value usually means a decrease in the property’s 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 improvement’s 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 improvement’s loss in value (due to the causes) into a quantifiable amount of obsolescence depreciation. See Heart City Chrysler v. Dep’t of Local Gov’t 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 today’s 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 property’s record cards; a copy of this Court’s 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.)
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 of obsolescence).

CONCLUSION

    Mitchel & Scott has failed to meet its burden in this case. Therefore, the Court AFFIRMS the final determination of the State Board.











Footnote: 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), see 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.

Footnote: 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 Comm’rs, 756 N.E.2d 1124, 1127 n.1 (Ind. Tax Ct. 2001). Because Mitchel & Scott’s claims and supporting arguments are identical to those previously rejected by the Court, the Court will not address them.

Footnote: Because the local assessing officials awarded Mitchel & Scott an initial obsolescence adjustment of 15%, the parties essentially agree that obsolescence is present in Mitchel & Scott’s 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").

Footnote: “[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 Comm’rs, 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.