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
LOGAN CENTER HOLDING CORP., )
) Cause No. 49T10-0011-TA-117
DEPARTMENT OF LOCAL )
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
July 26, 2004
Logan Center Holding Corp. (Logan) appeals the State Board of Tax Commissioners (State
Board) final determination valuing its real property for the 1995 tax year.
The issue to be decided by this Court is whether Logans improvements are
entitled to additional obsolescence depreciation.
FACTS AND PROCEDURAL HISTORY
Logan owns commercial land and improvements in Logansport, Indiana. For the 1995
assessment, the Cass County Board of Review (BOR) awarded between 10% and 40%
obsolescence depreciation to Logans improvements. Logan then timely filed Petitions for Review
of Assessment (Forms 131) with the State Board alleging, among other things, that
its improvements were entitled to additional obsolescence.
See footnote The State Board upheld the
BORs assessment, and Logan subsequently appealed to this Court on May 22, 2000.
Upon a joint motion filed by the parties, the Court remanded the
case to the State Board for review of Logans obsolescence.
The State Board held another administrative hearing on July 20, 2000, and subsequently
issued a second final determination, again sustaining the BORs assessment. Logan initiated
another original tax appeal on November 2, 2000. This Court heard the
parties oral arguments on November 7, 2001. Additional facts will be supplied
ANALYSIS AND OPINION
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.
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.
To receive an adjustment for obsolescence, a taxpayer must 1) identify the causes
of obsolescence present in its improvement and 2) quantify the amount of obsolescence
to which it believes it is entitled. 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 in 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.
While the BOR awarded Logans improvements between 10% and 40% obsolescence depreciation, Logan
claims that they are entitled to 84%. In support of its claim,
Logan presented an Assessment Review and Analysis (Analysis) at the State Board remand
hearing. (Stip. R. at 67-85.) The Analysis contained, among other items,
the following: a calculation of how the 84% figure was attained, copies
of the propertys record cards, a settlement statement of sale indicating that Logan
sold the property in 1996 for $2,400,000, and a photocopied page from the
State Boards newsletter, The Communicator. (See Stip. R. at 67-85.)
Logan quantified its obsolescence by first deducting the market value of its improvements
(as indicated in the settlement statement) from their reproduction cost new. Logan
then took that difference, divided it by the reproduction cost new figure, to
arrive at its 84% figure. (See Stip. R. at 75.) Logan
claimed this method of quantifying obsolescence was recognized by the State Board in
The Communicator, and is applicable to real estate in general. (See Stip.
R. at 449.)
In its final determination, the State Board explained that the method Logan used
to calculate obsolescence could not legitimately be the same method illustrated in The
Communicator. (See Stip. R. at 62-63.) The State Board further explained
that assuming arguendo that Logans calculation had any ties to a recognized method
of determining obsolescence, there was no probative evidence that the 1996 sale of
the property was at arms-length, let alone on the open market at all.
(Stip. R. at 63.) Consequently, the State Board determined that Logan
failed to prove its additional obsolescence claim. (See Stip. R. at 65.)
The State Board was correct in its final determination to deny additional obsolescence.
The Court believes, however, that the State Board should not have focused
on whether the sale was at arms-length. The State Board overlooked the
more obvious defect in Logans 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. See Miller Structures, Inc., 748 N.E.2d at 953-54.
Logan offered no evidence of an actual loss in value to its property.
Instead, Logan, through its tax representative Drew Miller, merely testified at the
State Board hearing what factors it believed were causing obsolescence to its improvements:
Basically its functional along with economic problems that the propertys been suffering from.
I mean the idea as it was originally constructed back in the
1960s just hasnt panned out.
[ ] I mean the demand for the space has diminished.
Q: And then this [other building] the main reason for obsolescence?
A: Is reflected in the vacancy as well as the lease rates.
(Stip. R. at 464.) A taxpayer may not merely name random factors
causing property to be entitled to an obsolescence adjustment; it must explain how
the purported causes of obsolescence cause the propertys improvements to suffer a loss
in value. See Champlin Realty Co. v. State Bd. of Tax Commrs,
745 N.E.2d 928, 936 (Ind. Tax Ct. 2001), review denied. In other
words, Logan needed to show how the propertys design had caused a loss
in value. In failing to provide such evidence, Logan is unable to
quantify additional obsolescence. CONCLUSION
In the alternative, Logan argues that because obsolescence was originally applied by the
BOR, the State Board must support the 10% and 40% obsolescence figures with
substantial evidence, regardless of whether or not Logans claim for additional obsolescence has
(See Petr Br. at 4 (footnote added).) Logan
is incorrect. Here, the State Board denied Logans request for additional obsolescence
rather than affirmatively determining whether Logan was entitled to the amount of obsolescence
initially awarded by the BOR. Since Logan did not meet its burden
of proof, the burden of going forward did not pass to the State
Because Logan has failed to link the factors causing the obsolescence with an
actual loss in its propertys value, it failed to make a prima facie
case quantifying the amount of additional obsolescence to which it believed it was
entitled. Thus, 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.
Logan 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 Logans claims and supporting arguments are identical to those previously
rejected by the Court, the Court will not address them.
Logan also alleged that the BOR failed to apply an influence factor
to its land. Logan, however, waived the issue at oral argument.
See Oral Argument Tr. at 3-4.)
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).
By upholding the initial obsolescence adjustments of 10% and 40%, the State
Board agreed that obsolescence was present in Logans improvement. Therefore, the quantification
of obsolescence, not the identification of causes thereof, is the issue here.
See Phelps Dodge v. State Bd. of Tax Commrs, 705 N.E.2d 1099, 1102
(Ind. Tax Ct. 1999), review denied. Nevertheless, while this case centers on
the second prong of Clark, it is important to recognize that both prongs
require a connection to an actual loss in property value. See
Clark v. State Bd. of Tax Commrs, 694 N.E.2d 1230, 1238 (Ind. Tax
Ct. 1998). Thus, 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. v. State Bd. of Tax Commrs, 748
N.E.2d 943, 954 (Ind. Tax Ct. 2001). 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 record lacks any evidence or explanation on the subject of
Logans actual loss of value.