ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN STEVE CARTER
ATTORNEY AT LAW ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
KATHRYN SYMMES KIRK
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
DEPUY, INC., )
) Cause No. 49T10-9912-TA-242
DEPARTMENT OF LOCAL )
See footnote )
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
September 2, 2004
Depuy, Inc. (Depuy) appeals the State Board of Tax Commissioners (State Board) final
determination valuing its real property for the 1992 tax year. The issues
for the Court to decide are: 1) whether the State Board erred when
it refused to assign obsolescence depreciation to Depuys improvement and, 2) whether the
State Board erred when it refused to reduce the grade assigned to Depuys
See footnote For the following reasons, the Court AFFIRMS the State Boards final
determination on both issues.
FACTS AND PROCEDURAL HISTORY
Depuy, a developer and manufacturer of orthopedic devices, owns an improvement in Wayne
Township, Kosciusko County, Indiana. The improvements core structure was constructed in 1974.
Between 1978 and 1990, however, multiple sections were added to the structure.
For the 1992 assessment year, local assessing officials assigned zero obsolescence depreciation
to Depuys improvement and the various sections of the improvement were assigned grades
ranging between D-1 and B-1.
Depuy appealed the assessment to the Kosciusko County Board of Review (BOR), claiming
that its improvement was entitled to obsolescence depreciation and grade adjustments. The
BOR denied Depuys claims for relief.See footnote Depuy then appealed the BORs determination
to the State Board; the State Board also denied Depuys requested relief.
Depuy subsequently filed an original tax appeal. On July 1, 1999, this
Court remanded the case to the State Board for further action.See footnote The
State Board conducted a remand hearing on September 2, 1999. On October
29, 1999, the State Board issued a final determination denying Depuys request for
an obsolescence adjustment and grade reductions. Depuy filed another original tax appeal
on December 13, 1999. On September 24, 2001, this Court heard the
parties oral arguments. Additional facts will be supplied as necessary.
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 is the functional or economic loss of property value. Clark v.
State Bd. of Tax Commrs, 694 N.E.2d 1230, 1238 (Ind. Tax Ct. 1998).
Functional obsolescence is caused by factors internal to the property; economic obsolescence
is caused by external factors. See id. See also Ind. Admin.
Code tit. 50, r. 2.1-5-1 (1992). Obsolescence is expressed as a percentage
reduction in the remaining value of an improvement. See 50 IAC 2.1-5-1.
When a taxpayer seeks an obsolescence adjustment, it must make a two prong
showing: 1) it must identify causes of the alleged obsolescence and 2)
it must quantify the amount of obsolescence to be applied to its improvement.
Clark, 694 N.E.2d at 1241. Each of these two prongs must
be tied to an improvements actual loss of value; in the commercial context,
that usually means the loss of income generated by the property. Id.
Depuy contends that the State Board erred when it failed to assign obsolescence
depreciation to its improvement. Specifically, Depuy claims that its improvement is entitled
to a 15% obsolescence adjustment. In support of its claim, at the
remand hearing Depuy presented an Assessment Review and Analysis (Analysis) prepared by its
tax representative, Mr. M. Drew Miller of Landmark Appraisals, Inc.
The Analysis stated that Depuys improvement suffered from obsolescence because:
[t]he subject has had no less than 10 additions over the years.
The resulting structure is of an irregular shape with varying clear ceiling heights,
an excessive amount of interior columns and walls.
Because of these additions there are numerous roof lines, seams and valleys which
are prone to more maintenance problems than a building with one roof.
The subjects manufacturing area contains a substantial amount of outdated fluorescent lighting.
Due to the inefficient city water service the subject is required to supply
and maintain two water storage tanks and pumps.
These items negatively impact the functional utility of the subject property which diminishes
the desirability and the marketability of the property.
(Cert. Admin. R. at 104.) The Analysis then quantified Depuys obsolescence at
11.3% by deducting the physical depreciation applied by the Wayne Township Assessor from
the total accrued depreciation as determined by the economic age-life method of measuring
property depreciation. (See Cert. Admin. R. at 106.) The Analysis then
estimated an additional 4% obsolescence to account for the inefficient city water service,
to arrive at a total obsolescence depreciation calculation of 15%. (See Cert.
Admin. R. at 106.)
To meet its burden, Depuy was required to translate its improvements loss in
value (due to the alleged causes of obsolescence) into a quantifiable amount of
obsolescence depreciation. See Clark, 694 N.E.2d at 1238. Here, Depuy presented
a calculation bearing no relationship to the alleged causes of obsolescence present in
its improvement. Indeed, nothing in the Analysis explained how the improvements shape,
ceiling heights, or fluorescent lighting caused it to lose value.
See footnote Consequently, Depuys
evidence failed to demonstrate that it was entitled to obsolescence depreciation. The
State Boards final determination with respect to obsolescence is therefore AFFIRMED.
The grading of improvements is an important part of Indianas property assessment system.
Under that system, assessors use improvement models and 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. Improvements are then assigned various grades based on the quality
of the materials used, their design, and the quality of the workmanship.
Id. See also Ind. Admin. Code tit. 50, r. 2.1-4-3(f) (1992) (providing
that grade is used to adjust the total base reproduction cost in order
to account for variations in standards of quality and design). The grades
represent multipliers that are applied to the subject improvements base reproduction cost.
Whitley Prods., 704 N.E.2d at 1116.
When an improvement deviates from the applicable model or cost schedule used to
assess it, the deviation often impacts the improvements base reproduction cost. Id.
at 1117. As this Court has previously explained, there are two methods
by which to account for such deviations:
The preferred method . . . is to use separate schedules that show
the costs of certain components and features present in the model. This
allows an assessor to adjust the base reproduction cost of the improvement objectively.
The other means of accounting for an improvements deviation from the model used
to develop the cost schedule is via an adjustment to the grade of
the improvement. This type of adjustment requires the assessors subjective judgment.
Where possible, this type of an adjustment should be avoided.
Id. (internal citations, quotations, and footnotes omitted).
Depuy claims that it is entitled to grade adjustments because the sections of
its improvement lack certain features contained in the models used to assess them.
To support its claim, Depuys Analysis contained several photographs depicting the interior
and exterior photographs of the improvement. (See Cert. Admin. R. at 80-86.)
The Analysis also compared the pricing for components claimed to be absent
in each section of Depuys improvement with the pricing for the components actually
present. (See Cert. Admin. R. at 91-102.) The Analysis attributed the
differences to its requested grade reductions for each section.
Depuy falls short of establishing its prima facie case on grade because its
evidence does not support the conclusory statements in the Analysis. More specifically,
photographs without explanations detailing what is being depicted are of no probative value.
For instance, one photograph appears to show office space with removable partitioning
a claimed deviation for section one of Depuys improvement. (
Admin. R. at 83.) However, there is no evidence demonstrating that the
partitioning occupies only 25% of the office space, or if the photograph is
even depicting the section one office space since the same allegation is raised
with respect to another office section of Depuys improvement as well. Moreover,
statements that a section of the improvement has this and does not have
that, without supporting evidence, are nothing more than conclusions. See Miller Structures,
Inc. v. State Bd. of Tax Commrs, 748 N.E.2d 943, 953 (Ind. Tax
Ct. 2001) (stating, [a] taxpayers conclusory statements do not constitute probative evidence concerning
the grading of the subject improvement) (internal quotation and citation omitted). Thus,
Depuys mathematical calculations contain no evidentiary support. Without first proving what components
were or were not present in the various sections of its improvement, the
results of Depuys calculations are meaningless. Accordingly, Depuy has failed to demonstrate
that it is entitled to the grade reductions it requests and the State
Boards final determination is AFFIRMED.
Depuy failed to demonstrate that it was entitled to the obsolescence and grade
adjustments it requested.
See footnote Consequently, the Court AFFIRMS the final determination of the
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) (amended 2004); 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) (amended 2004); 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) (amended 2004); 2001 Ind. Acts
198 § 95. Nevertheless, the law in effect prior to January 1,
2002 applies to those 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.
Depuy also raises various state and federal constitutional claims in its briefs
submitted to this Court. [T]he general rule is that the Court is
bound by the issues and evidence raised at the administrative level.
Structures, Inc. v. State Bd. of Tax Commrs, 748 N.E.2d 943, 948 (Ind.
Tax Ct. 2001). Accordingly, because the issues were not raised at the
administrative level, the issues are waived and may not now be considered by
the Court. See id.
The BOR did make other adjustments to Depuys assessment; those adjustments, however,
are not at issue in this appeal.
Footnote: The remand order included, in addition to obsolescence and grade, the issues
of land classification, base pricing of land, deviations from the model, and yard
improvement pricing. (
See Cert. Admin. R. at 24-25.) Depuy did not
address the other issues in its oral argument or briefs submitted to this
Court. Therefore, the Court considers those issues waived for review on this
For example, Depuy claims that the numerous roof lines of its improvement
can be prone to more maintenance problems. (
See Cert. Admin. R. at
104.) While Depuy submitted photographs depicting the multiple roof lines of its
improvement, it failed to introduce evidence demonstrating that it had incurred higher maintenance
or repair costs associated with the roofs design. (See Cert. Admin. R.
at 80, 84-85.)
To help identify and define various classes of buildings, Indianas assessment regulations
have categorized improvements into numerous models based upon their physical characteristics. See
Ind. Admin. Code tit. 50, r. 2.1-4-7 (1992). The cost schedules associated
with the improvement models replicate the reproduction costs of a given structure by
assuming the presence of certain construction elements. See Ind. Admin. Code tit.
50, rr. 2.1-4-3, -5 (1992).
For instance, section one of the improvement is priced from the General
Commercial Industrial Office model.
See Ind. Admin. Code tit. 50, r. 2.1-4-7(b)
(1992). The Analysis states that for section one, [t]he areas of deviation
from the model includes 25% of the area has only removable partitions .
. . no terrazzo or equal flooring. (Cert. Admin. R. at 91.)
To account for these deviations, Depuy multiplied the value of partitions, listed
in the regulations at $9.10 per square foot, by 25% (to account for
the partitioning present) to arrive at a value of $2.27 per square foot.
See Ind. Admin. Code tit. 50, r. 2.1-4-5 (Schedule C) (1992).
(See also Petr Br. at 4.) Depuy next divided the $2.27 by
a base rate of $35.9 per square foot to arrive at a 6%
reduction in value. (See Petr Br. at 4.) Depuy then took
the difference in value between carpeting and terrazzo flooring ($1.65 per square foot
and $3.90 per square foot) and multiplied it by 15% (the amount of
terrazzo presumed in the model) to arrive at another 1% percent reduction in
value. (See Petr Br. at 4.)
The Court notes that Depuys evidence does appear to show that some
features of its improvement may deviate from the models used to assess each
section. However, it was not the State Boards duty, nor is it
this Courts, to make Depuys case for it. The administration of this states
property taxation system is best served by having taxpayers make detailed
to the State Board[.] . . . [T]o allow taxpayers who present no
probative evidence at the administrative level to obtain reversal of a State Board
final determination would result in a tremendous waste of time and scarce judicial
resources. Whitley Prods., Inc. v. State Bd. of Tax Commrs, 704 N.E.2d
1113, 1120 (Ind. Tax Ct. 1998) (internal quotations and citation omitted), review denied.