ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN STEVE CARTER
ATTORNEY AT LAW ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
TED J. HOLADAY
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
VITCO, INC., )
v. ) Cause No. 49T10-9701-TA-52
DEPARTMENT OF LOCAL )
ON APPEAL FROM TWO FINAL DETERMINATIONS OF
THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
June 15, 2004
Vitco, Inc. (Vitco) appeals from the two final determinations of the State Board
of Tax Commissioners (State Board) valuing its real property for the March 1,
1989, 1990, and 1992 assessment dates. The issues for the Court to
decide are whether the State Board erred in calculating Vitcos perimeter-to-area ratio (PAR),
base rates, and the amount of obsolescence depreciation to which it is entitled.
FACTS AND PROCEDURAL HISTORY
Vitco owns real property in Elkhart County, Indiana. More specifically, Vitco owns
land and a manufacturing facility in Nappanee, Indiana.
In July of 1991, Vitco filed two Petitions for Correction of An Error
(Forms 133) one challenging its 1989 assessment, the other challenging its 1990
assessment. On each of the Forms 133, Vitco alleged [i]ncorrect perimeter area
ratio used, incorrect base rates used. (Cert. Admin. R. at 63, 69.)
Later, in June of 1993, Vitco filed a Petition for Review of Assessment
with the State Board of Tax Commissioners (Form 131) challenging its 1992 assessment.
In its Form 131, Vitco alleged [i]ncorrect amount of obsolescence depreciation applied[;]
[i]ncorrect calculation of the PAR[;] [i]ncorrect grade. (Cert. Admin. R. at 77.)
On November 22, 1996, the State Board issued final determinations on all three
assessment challenges. Specifically, the State Board issued two final determinations in which
it denied any relief on Vitcos Forms 133. The State Board also
issued a final determination on Vitcos Form 131, making several changes to Vitcos
1992 assessment. These changes included an adjustment for PAR ([a]fter inspecting the
building . . . it is determined the [PAR] of the main building
is in error. The [PAR] is one) as well as the application
of a 35% obsolescence depreciation adjustment to Vitcos facility. (See Petr Pet.
to Set Aside Final Determination of the State Bd. of Tax Commrs, filed
Jan. 6, 1997, at Ex. C.)
Vitco initiated an original tax appeal on January 6, 1997. On September
30, 1998, Vitco and the State Board filed a joint motion requesting a
The major issue . . . for [the] March 1, 1992 [assessment] involves
obsolescence depreciation. This Courts recent decision in Clark v. State Board of
Tax Commissioners[, 694 N.E.2d 1230 (Ind. Tax Ct. 1998),] necessitates remanding this case
to the State Board for hearing and determination consistent with that case.
The remainder of the case involves allegations of error for base rate and
perimeter area ratio . . . for years 1989 and 1990. Any
determination on the base rates and perimeter area ratio that existed in or
on the property must be verified by inspection of the property. The
remaining portion of the case . . . should be remanded for such
(Status Report and Mot. for Remand, Vitco, Inc. v. State Bd. of Tax
Commrs, Cause No. 49T10-9701-TA-52, filed Sept. 30, 1998 (footnote added).) The Court
granted the motion on October 9, 1998. STANDARD OF REVIEW
On February 11, 1999, the State Board conducted a remand hearing.
State Board did not, however, inspect Vitcos property. On April 7, 1999,
the State Board issued a final determination in which it denied Vitco the
relief it sought for the 1989 and 1990 assessments, as well as a
final determination in which it denied the relief Vitco sought for the 1992
Vitco filed another original tax appeal on May 21, 1999. In lieu
of a trial, the parties agreed to argue the case based on the
administrative record as well as on their written briefs submitted to the Court.
The Court heard the parties oral arguments on April 4, 2001.
Additional facts will be supplied as necessary.
This Court gives great deference to the 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). Thus, 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. When appealing
to this Court from a State Board final determination, the taxpayer bears the
burden of showing that the final determination is invalid. Id.
DISCUSSION & ANALYSIS
A. The 1989 and 1990 Appeals
1. PAR Calculation
Under Indianas property tax assessment scheme, PAR is an element used to calculate
the reproduction cost of a commercial improvement. PAR is defined as:
the total linear feet in the perimeter of a building divided by the
corresponding square foot area and multiplied by 100 to convert to a whole
number. The effective perimeter of the building is defined as the total
linear feet of exterior walls that are part of[,] and therefore to be
priced with[,] a particular building or building section. The area is defined
as the total square foot surface of a building.
Ind. Admin. Code tit. 50, r. 2.1-4-1 (1992).
Vitco contends that the
State Board erred in calculating its PAR for the 1989 and 1990 assessments.
At the remand hearing, Vitcos property tax consultant, M. Drew Miller (Miller) of
Landmark Appraisals, Inc., presented a document titled Assessment Review and Analysis (Analysis).
The Analysis states:
The . . . total lineal feet of exterior walls on the
main building of the subject [has been incorrectly calculated] at 2,786 LF.
The correct calculation is 1,513 LF.
The county has erred in calculating the number of exterior lineal feet at
940 SF. The correct lineal feet is 760. This would reduce
the calculated PAR.
(Cert. Admin. R. at 76.) During the hearing, Miller supplemented the Analysis
with the following testimony: *****
Okay, on the 133s for 89 and 90, on the PAR issue, the
County currently has on the main plant there in calculating the PAR they
have a total exterior wall measurement of 2,786 lineal feet. The correct
calculation which was done by the State  Boards 92 determination which we
agree with the total exterior lineal that should be used for the calculation
is 1,513 lineal feet of exterior walls.
Also on  two [other] sections the County calculated the total exterior of
lineal feet for the PAR calculation at 940. There is actually only
760 lineal feet of exterior walls, which should affect the PAR which would
thus affect the base rate.
(Cert. Admin. R. at 130, 132.)
The State Board denied Vitcos claim that the PAR was incorrect, explaining that
on remand the parties were required to start over with respect to calculating
PAR. (See Cert. Admin. R. at 22-23.) Thus, the State Board
concluded, Vitco was required to present probative evidence that the PAR calculation was
incorrect before the State Boards responsibility to inspect the property was even triggered.
(See Cert. Admin. R. at 23.) The State Board determined that
instead of presenting probative evidence as to the proper PAR calculation, Vitco presented
a seriously flawed and queer argument that the PAR used for the 1992
assessment should be applied to the 1989 and 1990 assessments. (See Cert.
Admin. R. at 22.)
The State Board got sidetracked. Both Vitco and the State Board requested
this Court to remand the PAR issue so that it could be verified
by inspection of the property. (Status Report and Mot. for Remand, Vitco,
Inc. v. State Bd. of Tax Commrs, Cause No. 49T10-9701-TA-52, filed Sept. 30,
1998.) This meant that representatives from Vitco and the State Board were
required to meet at the property, armed with tape measures and calculators, so
that - together - they could determine the improvements effective perimeter and
square footage (measurements necessary to determine PAR). This should have been a
fairly simple and quick calculation; instead, both parties wasted valuable time and resources
in their stubbornness and failure to work with each other.
As a result, the Court now REMANDS the issue (again) with the
1) the Indiana Board of Tax Review (Indiana Board)
will instruct both the
local assessing officials and Vitco to each designate a representative to meet at
the subject property;
2) those representatives will work together in calculating the appropriate PAR to be
applied to the building, consistent with the provisions of 50 IAC 2.1-4-1;
3) the representatives will preserve all appropriate measurements, drawings, calculations, etc. 2. Base Rate Adjustments
During the years at issue, assessors used cost schedules to determine the base
reproduction cost of a particular improvement. Whitley Prods., Inc. v. State Bd.
of Tax Commrs, 704 N.E.2d 1113, 1116 (Ind. Tax Ct. 1998), review denied.
See also Ind. Admin. Code tit. 50, r. 2.1-4-5 (1992). To
help identify and define various classes of buildings, Indianas assessment regulations categorized improvements
into numerous models based upon their physical characteristics. See Ind. Admin. Code
tit. 50, r. 2.1-4-7 (1992). See also Herb v. State Bd. of
Tax Commrs, 656 N.E.2d 890, 893 (Ind. Tax Ct. 1995) (stating that while
the model names are reflective of use, the model specifications actually reflect the
physical features that are incorporated into the structure). In other words, the
improvement models replicated the reproduction costs of any given structure by assuming the
presence of certain construction elements. See Ind. Admin. Code tit. 50, r.
2.1-4-3(a) (1992). The assessment regulations also provided that when an improvement varied
from the model, adjustments were to be made to the base price to
account for the variations. 50 IAC 2.1-4-3(c). These adjustments were generally
accomplished via an application of the assessment regulations unit-in-place cost tables. See
Ind. Admin. Code, tit. 50, r. 2.1-4-10 (1992).
Vitco alleges that for the 1989 and 1990 assessments the State Board applied
incorrect base rates to its facility. (Cert. Admin. R. at 63, 69.)
More specifically, Vitco argues that its improvements base rate should have been
adjusted to reflect the fact that the sprinkler system, flooring finish, heating system,
and exterior wall types are different than those prescribed in the model used
to assess it. (See Cert. Admin. R. at 76.) The State
Board denied Vitcos request for these various adjustments, claiming that Vitco did nothing
more than merely opin[e] that [the base rate adjustments] should be made.
(See Cert. Admin. R. at 24-29.)
This issue, like the PAR issue, was remanded at the request of both
parties so that it could be verified by inspection of the property.
(Status Report and Mot. for Remand, Vitco, Inc. v. State Bd. of Tax
Commrs, Cause No. 49T10-9701-TA-52, filed Sept. 30, 1998.) No such inspection was
held. As a result, the Court now REMANDS the issue (again) with
the following instructions:
1) the Indiana Board will instruct both the local assessing officials and Vitco
to each designate a representative to meet at the subject property;
2) those representatives will walk the subject improvement together in order to determine
whether Vitco is entitled to the base rate adjustments it seeks (i.e., adjustments
for sprinklers, floor finish, heating system, and exterior wall types only); B. The 1992 Appeal
3) however, to be entitled to any of the base rate adjustments it
seeks, Vitco must (during the walk-through) physically point out where and how its
building does not contain construction elements listed in the model used to assess
it or that its building contains construction elements that are not listed in
the models. See Barth, Inc. v. State Bd. of Tax Commrs, 756
N.E.2d 1124, 1129 (Ind. Tax Ct. 2001). Vitco then has the burden
to ascertain the cost of each component (i.e., the amount of the requested
adjustment) based on the assessment regulations. See id.
With respect to its 1992 assessment, Vitco contends that the 35% obsolescence adjustment
initially awarded by the State Board to its improvement is in error.
More specifically, Vitco contends that it is entitled to a 75% obsolescence adjustment.
(Cert. Admin. R. at 89.) The Court disagrees.
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. 2.1-5-1 (1992).
Functional obsolescence is caused by factors internal to the property and is
evidenced by conditions within the property itself. See 50 IAC 2.1-5-1.
Economic obsolescence is caused by factors external to the property. Id.
This Court has explained that when a taxpayer seeks an obsolescence adjustment, it
must make a two-pronged showing: 1) it must identify the causes of
the alleged obsolescence and 2) it must quantify the amount of obsolescence to
be applied to its improvement. See Clark, 694 N.E.2d at 1238, 1241.
It is important to recognize, however, that each of these prongs requires
a connection to an actual loss in property value.
See footnote 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) (footnote added).
In turn, when the 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.
Because the State Board initially awarded Vitco an obsolescence adjustment of 35%, the
parties agree that obsolescence is present in the subject improvement. Accordingly, the
issue on remand was not the identification of the causes of obsolescence, but
rather the quantification of obsolescence. See Phelps Dodge v. State Bd. of
Tax Commrs, 705 N.E.2d 1099, 1102 (Ind. Tax Ct. 1999) (stating that the
fact that the parties agree on the causes of obsolescence obviates [the taxpayers]
burden of offering probative evidence showing that the subject improvement experience[s] obsolescence), review
denied. In order to prevail on its claim, therefore, Vitco was necessarily
required to translate its improvements loss in value (resulting from the causes of
obsolescence) into a quantifiable amount of obsolescence depreciation. See id.
At the remand hearing, Vitco submitted another Assessment Review and Analysis (prepared again
by Miller) in which it claimed that its improvement suffered from both functional
and economic forms of obsolescence because the improvement lacked thermal pane windows and
insulation, its layout was inefficient, it had low ceilings, and it did not
facilitate a network of computer and phone lines. (Cert. Admin. R. at
91.) As a result, Vitco claims the property is at an economic
disadvantage in the market place, incurring higher utility, maintenance, material handling costs and
labor costs. (Cert. Admin. R. at 91.)
To translate this loss of value into a quantifiable amount of obsolescence, Vitcos
Analysis concluded that based on its application of the market extraction method for
determining depreciation, its property was entitled to an obsolescence adjustment of 75%.
More specifically, the Analysis identified four allegedly comparable properties in nearby Elkhart and
Bristol, Indiana. The Analysis then estimated the amount of obsolescence present in
those improvements and applied that range to Vitcos improvement. (See Cert. Admin.
R. at 92-107.) Vitcos Analysis also contained documentation asserting that its facilitys
fair market value was approximately $350,000. (See Cert. Admin. R. at 109-11,
Vitcos Analysis is fatally flawed for several reasons. First, although Vitco only
had to meet the second prong i.e., the quantification prong to
prove its entitlement to obsolescence, what it fails to recognize is that the
quantification of obsolescence is intrinsically tied to the actual loss of value suffered
by the improvement from the alleged causes of obsolescence. See Miller Structures,
Inc., 748 N.E.2d at 954. See also Heart City Chrysler v. State
Bd. of Tax Commrs, 714 N.E.2d 329, 334 (Ind. Tax Ct. 1999) (stating
that attempts to quantify obsolescence must correlate to the causes of obsolescence).
Because Vitco has not shown any actual loss in the first place, it
is impossible to convert that loss into an obsolescence quantification.
Furthermore, Vitcos Analysis states that under the market extraction method, comparable properties should
have similar physical, functional, and external characteristics as the subject, and they should
have incurred similar amounts and types of depreciation. (Cert. Admin. R. at
95.) Neither Vitcos Analysis, nor Millers testimony at the remand hearing, provided
any explanation whatsoever as to what types of obsolescence the allegedly four comparable
properties suffered from. (See Cert. Admin. R. at 82-134.) Without such
an explanation, the State Board was simply unable to make any correlation between
the obsolescence present in the allegedly comparable properties and its property. Cf.
Blackbird Farms Apartments, LP v. Dept of Local Govt Fin., 765 N.E.2d 711,
715 (Ind. Tax Ct. 2002) (stating that without any comparison of lot sizes,
shapes, topography, geographical features, lot accessibility, and uses, taxpayers assertion that certain parcel
of land were comparable did not constitute probative evidence).
Vitco has failed to substantiate how it was entitled to additional obsolescence.
Thus, the State Boards final determination relating to Vitcos 1992 assessment is AFFIRMED.
For the aforementioned
reasons, the Court REVERSES the State Boards final determination relating to Vitcos 1989
and 1990 assessment challenges (the PAR and base rate adjustment issues). That
final determination is REMANDED to the Indiana Board for further proceedings consistent with
the instructions provided by the Court in this opinion. The State Boards
final determination relating to Vitcos 1992 assessment challenge (obsolescence depreciation), however, is AFFIRMED.
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 § 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.
Vitco also alleged that
[Indianas assessment manual] systematically creates excessive valuations
for all properties similar to this subject property. This assessment is arbitrary,
capricious, unreasonable and is not uniform nor based upon a just valuation.
(See Cert. Admin. R. at 63, 69.) (See also Petr Br./Findings of Fact
and Conclusions of Law at 9-12.) Vitcos allegation implicates 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 Vitcos claims and supporting
arguments are identical to those previously rejected by the Court, the Court will
not address them.
On April 24, 1998, this Court issued an opinion in
v. State Board of Tax Commissioners, 694 N.E.2d 1230 (Ind. Tax Ct. 1998).
Clark sets forth what this Court expects from taxpayers and the State
Board in appeals involving issues of obsolescence. See Clark, 694 N.E.2d at
1241. As a result of that directive, many cases involving obsolescence that
were pending before the Court were remanded to the State Board for further
consideration in light of Clark.
The State Board conducted one hearing on all three of Vitcos
PAR is a means of converting a per lineal foot
price into easily measured square foot units. See Ind. Admin. Code tit.
50, r. 2.1-4-1 (1992). PAR essentially measures how efficiently the building space
is used; indeed, [a] rectangular building requires a larger amount of perimeter walls
than a square building to encompass the same amount of floor area[.]
Id. The PAR calculation translates this reality to a measurable, and taxable,
All cases that would have been remanded to the State Board
are now remanded to the Indiana Board of Tax Review (Indiana Board).
Ind. Code Ann.§ 6-1.1-15-8 (West Supp. 2003). Final determinations made by the
Indiana Board are subject to review by this Court pursuant to Indiana Code
§ 6-1.1-15. Ind. Code Ann. §§ 6-1.5-5-7, 33-3-5-2 (West Supp. 2003).
In the commercial context, this loss of value usually means a
decrease in the propertys income generating ability. See Miller Structures, Inc. v.
State Bd. of Tax Commrs, 748 N.E.2d 943, 953 (Ind. Tax Ct. 2001).
For instance, Vitco did not submit any probative evidence indicating how
its improvements alleged deficiencies/inefficiencies are causing an actual decrease in its ability to
See Miller Structures, Inc., 748 N.E.2d at 953.