ATTORNEY FOR PETITIONER:    ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN    STEVE CARTER
ATTORNEY AT LAW     ATTORNEY GENERAL OF INDIANA
Indianapolis, IN    Indianapolis, IN
    
    JOEL SCHIFF
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN
______________________________________________________________________
     IN THE INDIANA TAX COURT

MITCHEL & SCOTT MACHINE CO., INC.,          )

                                                 )
    Petitioner,                                  )
    v.                                           )

            ) Cause No. 49T10-0010-TA-113
DEPARTMENT OF LOCAL         )
GOVERNMENT FINANCE, See footnote         )
                )
    Respondent.            )    
______________________________________________________________________

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


NOT FOR PUBLICATION
June 8, 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 1996 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 1996 assessment, local assessing officials awarded Mitchel & Scott’s improvement a 20% 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. An administrative hearing was held on August 19, 1999. The State Board denied Mitchel & Scott’s claim in its final determination issued August 22, 2000.
Mitchel & Scott filed an original tax appeal on October 10, 2000. This Court heard the parties’ oral arguments on September 10, 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 factors internal to the property; economic obsolescence is caused by factors external to the property. See 50 IAC 2.2-10-7(e).
To establish obsolescence, a taxpayer must 1) identify the causes of obsolescence; and 2) 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 prong requires a connection to an actual loss in property value. See footnote See id. at 1238 (footnote added). Consequently, 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, 953-54 (Ind. Tax Ct. 2001). In turn, 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.
Because the local assessing officials awarded Mitchel & Scott an initial obsolescence adjustment of 20%, the parties agree that obsolescence is present in the subject improvement. 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"). In order to prevail, Mitchel & Scott was required to translate its improvement’s loss in value (due to the causes) into a quantifiable amount of obsolescence depreciation. See id.
At the administrative hearing, Mitchel & Scott claimed that it was entitled to a 55% obsolescence depreciation adjustment. To support this claim, Mitchel & Scott presented a document titled “Assessment Review and Analysis” (Analysis). (Stip. R. at 34-48.) The Analysis includes a section titled “Issues and Errors” which states:
The subject suffers from a substantial loss in value due to numerous causes of functional and economic obsolescence. Those causes include but are not limited to the following:
    
The subject was originally constructed with little or no concern for heating and cooling efficiencies as evidenced by the lack of insulation and single pane windows.

The neighborhood problems include, inharmonious uses (residential and industrial)[,] access by a one way street and narrow streets through residential neighborhoods, [and] vandalism (causing the necessity of a barbed wire fence around the parking lot).

The subject has a low land to building ratio of .85 to 1, and is bordered to the south by a railroad track leaving no access to the south side of the building.

The narrow bays, limited ceiling heights and the location of the dock facilities cause an inefficient work and product flow as well as excessive costs.

The subject’s brick and block construction is considered to be superadequate, as it is more expensive and not necessary to the manufacturing process.

(Stip. R. at 36.) The Analysis also contained the following: four photos of the interior of the improvement; an aerial image of the improvement; a map showing where the land and improvement are located; a calculation of obsolescence at 57.6% using the reproduction cost vs. replacement cost method; a calculation of obsolescence at 54.5% using the economic age-life method; “Life Expectancy Guidelines” for typical building lives; “Depreciation-Commercial Properties” showing depreciation tables; a page explaining the economic age-life method; and the property’s record cards. See footnote ( See Stip. R. at 34-48.) Mitchel & Scott also submitted an article titled “Identifying, Measuring, and Treating Functional Obsolescence in an Appraisal.” (See Stip. R. at 49-61.)
When seeking an obsolescence adjustment, a taxpayer must link the causes of obsolescence to an actual loss in property value. See Miller Structures, Inc., 748 N.E.2d at 953. In this case, Mitchel & Scott did not present any evidence of an actual loss. For instance, Mitchel & Scott stated that the building suffers from heating and cooling inefficiencies. (Stip. R. at 36.) However, it does not submit probative evidence showing how these inefficiencies are causing an actual decrease in income-generating ability. Moreover, this Court has previously held that mathematical calculations of obsolescence which do not relate to the causes of obsolescence are not sufficient in quantifying an actual loss. See Heart City Chrysler v. Dep’t of Local Gov’t Fin., 801 N.E.2d 215, 218 (Ind. Tax Ct. 2004) (quantifications need to be linked to the causes of obsolescence).
Mitchel & Scott has failed to explain how it was entitled to additional obsolescence depreciation. Thus, it did not meet its burden in this case.

CONCLUSION

For the foregoing reasons, 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: In the commercial context, loss of value usually means a decrease in the property’s income generating ability. See Miller Structures, Inc. v. State Bd. of Tax Comm’rs, 748 N.E.2d 943, 953 (Ind. Tax Ct. 2001).

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). Similarly, a copy of an article about obsolescence, building life expectancy guidelines, and depreciation tables – without any discussion as to their applicability to the case at bar – do not constitute probative evidence.