ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN STEVE CARTER
ATTORNEY AT LAW ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
KAREN L. HSU
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
CHAMPLIN REALTY, )
v. ) Cause No. 49T10-0010-TA-106
DEPARTMENT OF LOCAL )
ON APPEAL FROM TWO FINAL DETERMINATIONS OF
THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
July 7, 2004
Champlin Realty (Champlin) appeals from two final determinations of the State Board of
Tax Commissioners (State Board) valuing its real property for the March 1, 1995
assessment date. The sole issue for the Court to decide is whether
Champlins improvements are entitled to additional obsolescence depreciation.
FACTS AND PROCEDURAL HISTORY
Champlin owns two parcels of real property in Elkhart, Indiana. For the
1995 assessment, the local assessing officials assigned the first parcel (Parcel No. 01-05-13-251-0020)
an assessed value of $533,970 and the second parcel (Parcel No. 01-05-13-277-013) an
assessed value of $40,900. In arriving at these values, Champlins improvements were
awarded obsolescence depreciation adjustments: the improvements on the first parcel received 15%
obsolescence adjustments (except for a warehouse that received 80%); the improvements on the
second parcel received 25% obsolescence adjustments.
On December 14, 1995, Champlin filed a Petition for Review of Assessment (Form
131) on each parcel with the State Board. In each of the
Forms 131, Champlin claimed that its improvements were entitled to additional obsolescence.
The State Board conducted one administrative hearing on both challenges. On August
16, 2000, the State Board issued two final determinations (one for each parcel)
denying Champlins claims.
On October 6, 2000, Champlin initiated an original tax appeal. In lieu
of a trial, the parties agreed to argue the case based on the
administrative record as well as on their written briefs filed with the Court.
The Court heard the parties oral arguments on August 20, 2001.
Additional facts will be supplied as necessary.
STANDARD OF REVIEW
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
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 factors internal to the property and is
evidenced by conditions within the property itself. See 50 IAC 2.2-10-7(e).
Economic obsolescence is caused by factors external to the property. Id.
This Court has previously 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(s). See Clark v. State Bd. of
Tax Commrs, 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. 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
See Miller Structures, Inc. v. State Bd. of Tax Commrs, 748
N.E.2d 943, 954 (Ind. Tax Ct. 2001). 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.
1. Parcel No. 01-05-13-251-0020
While the local assessing officials assigned the improvements on this parcel obsolescence depreciation
adjustments between 15% and 80%, Champlin claims that it should have received an
overall adjustment of 43%. To support that claim, Champlin presented an Assessment
Review and Analysis (Analysis) at the State Board hearing. (Stip. R. at
71-91.) The Analysis was prepared by Champlins property tax consultant, M. Drew
Miller (Miller) of Landmark Appraisals, Inc.
In the Analysis, Champlin provided a mathematical calculation in which it quantified its
obsolescence by first deducting the market value of its improvements from their reproduction
cost new. Champlin then took that difference, divided it by the reproduction
cost new figure, to arrive at the 43% depreciation allowance. (See Stip.
R. at 75.) Champlin contends that this method of quantifying obsolescence has
been explicitly approved by the State Board in its newsletter, The Communicator.
(See Stip. R. at 74, 135.) Accordingly, Champlins Analysis also contained, among
other things: 1) a settlement statement indicating that it sold the property
in 1997 for approximately $1,500,000 (Stip. R. at 77-78); 2) photocopies of Comparative
Cost Multipliers from the Marshall Swift Valuation Service manual which Champlin used to
convert a 1991 reproduction cost value of the property to a 1997 reproduction
cost value (see Stip. R. at 79-80); and 3) the propertys record cards
(Stip. R. at 81-91.)
In its final determination, the State Board explained that although Champlin used an
acceptable method to calculate accrued depreciation, there were several flaws with the numbers
it used. More specifically, it asserted that the settlement statement Champlin presented
did not indicate whether it sold the property in an arms-length transaction.
As a result, the State Board held that [i]t is  impossible .
. . to examine the terms of the contract to determine whether it
is a market sale. (Stip. R. at 44.) In addition, the
State Board asserted that because the remainder value Champlin used did not match
any of the numbers used by the local assessing officials, it would give
the calculation no weight. (Stip. R. at 44-45.) Accordingly, the State
Board ruled that Champlin failed to prove that it was entitled to additional
obsolescence. (Stip. R. at 45.)
While the Court agrees with the State Boards final determination in result, it
does not agree with how the State Board arrived at that result.
Indeed, while the State Board nitpicked Champlins calculations, it completely ignored a more
fundamental, underlying flaw that existed in Champlins Analysis.
Obsolescence must be tied to an actual loss in property value; in the
commercial context, this loss of value usually means a decrease in the propertys
income generating ability. Miller Structures, Inc., 748 N.E.2d at 953. In
this case, Champlin presented no evidence whatsoever indicating an actual loss i.e.,
how the various causes of obsolescence present in its property are causing it
to lose money.
See id. Champlins failure to provide this evidence
is fatal to its quantification of additional obsolescence.
Nevertheless, Champlin argues that because the local assessing officials applied obsolescence in the
first instance, everyone is in agreement as to what the causes of obsolescence
are. (See Oral Argument Tr. at 24-27.) As a result, it
asserts that all it had to do in order to make a prima
facie case was to provide a calculation as to the proper amount of
obsolescence to be applied to its improvements, not what the causes of the
Champlin misses the point.
Admittedly, this case does center on the second prong (the quantification prong) of
the Clark test. Champlin forgets, however, that both prongs require a connection
to an actual loss in property value. See Clark, 694 N.E.2d
at 1238. Thus, the quantification of obsolescence is intrinsically tied to the
actual loss of value suffered by the improvements 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). The stipulated record lacks any evidence or explanation
on the subject of Champlins actual loss of value. Consequently, it is
impossible for Champlin to convert that loss of value into an obsolescence quantification.
Because Champlin failed to link the factors causing obsolescence with an actual loss
in its propertys value, it could not make a prima facie case quantifying
the amount of obsolescence to which it was entitled. Thus, the Court
AFFIRMS the final determination of the State Board valuing this parcel for the
1995 tax year.
2. Parcel No. 01-05-13-277-013
For the 1995 reassessment, the local assessing officials awarded Champlins improvements on this
parcel 25% obsolescence depreciation adjustments. Champlin asserts, however, that the improvements are
entitled to 65% obsolescence adjustments.
Because the assessing officials obviously agreed that causes of obsolescence existed within Champlins
, Champlin again bore the burden of presenting evidence at the State Board
hearing quantifying the amount of obsolescence to be applied to its improvements.
Consequently, Champlin presented another Assessment Review and Analysis (Analysis #2) in which it
argued that its property suffered from both functional and economic obsolescence because the
building lacked thermal pane windows and insulation, its layout was inefficient, and it
did not facilitate a network of computer and phone lines. (Stip. R.
at 123.) As a result, Champlin claims the property is at an
economic disadvantage in the marketplace, incurring higher utility, maintenance, material handling costs and
labor costs. (Stip. R. at 123.) Analysis #2 also contains:
1) a mathematical calculation showing how it arrived at 65%; 2) several photocopied
pages from the Marshall Swift Valuation Services manual; 3) a photocopied page from
the eighth edition of The Appraisal of Real Estate; and 4) the propertys
record cards. (See Stip. R. at 124-133.)
All Champlin has done with respect to this parcel is provide the State
Board with a laundry list of factors that may cause obsolescence to its
improvement and then say as a result, were entitled to a 65% obsolescence
adjustment. However, Champlin needed to link one with the other by showing
an actual loss of value. See Miller Structures, 748 N.E.2d at 954.
Again, the administrative record is completely devoid of any evidence indicating
and explaining an actual loss of value.
See footnote Because Champlin has not shown
how or why its improvements value has been negatively impacted by the factors
that it alleges are causing obsolescence, it has not satisfied its burden.
Thus, the State Boards final determination valuing this parcel for the 1995 assessment
Because Champlin failed to link the factors causing obsolescence with an
in its properties value, it failed to make a prima facie case quantifying
the amount of obsolescence to which it was entitled. The Court therefore
AFFIRMS the two final determinations of the State Board valuing Champlins properties for
the 1995 assessment.
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),
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.
Champlin 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 Champlins claims and supporting arguments are identical to those
previously rejected by the Court, the Court will not address them.
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).
In fact, the administrative record is completely bereft as to what
Champlin alleges the causes of its obsolescence to be. The Township Assessor
could not provide any insight either: at the administrative hearing, she explained
that Elkhart County hired an outside firm to conduct its 1995 general reassessment.
See Stip. R. at 136.) She admitted that while that firm
(and hence, her office) had assigned the 15% and 80% obsolescence factors to
Champlins improvements, she really had no idea why. (See Stip. R. at
137 (I assume it is [because] the building is cut up some .
. . [and because] they dont have current heating and air conditioning
By awarding the initial obsolescence adjustments, the local assessing officials agreed
that obsolescence was present in Champlins improvements. Therefore, quantification of obsolescence, not
the identification of causes thereof, is the issue here.
See Phelps Dodge
v. State Bd. of Tax Comm'rs, 705 N.E.2d 1099, 1102 (Ind. Tax Ct.1999),
Stated differently: although the only issue in this case was
the quantification of obsolescence, Champlin was, nonetheless, necessarily required to explain the alleged
causes of obsolescence in order to translate its improvements loss in value (due
to those causes) into a quantifiable amount of obsolescence depreciation.
694 N.E.2d at 1238. Instead, Champlin presented a mathematical calculation bearing no
relationship to the causes of obsolescence alleged to exist or to evidence of
an actual loss in property value. Without more, Champlin did not establish
a prima facie case that it was entitled to any additional obsolescence depreciation.
See Whitley Prods., Inc. v. State Bd. of Tax Commrs, 704 N.E.2d
1113, 1119 (Ind. Tax Ct. 1998), review denied.
See footnote 5, supra.
For example, Champlin needed to support its allegation that its
and inefficient floor plan has caused increased production and material handling costs with
calculations indicating the amount of those increased costs. Likewise, Champlin needed to
support its claim that it has incurred higher utility costs due to a
lack of insulation and thermal pane windows with evidence indicating the amount of
those higher utility costs.