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ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
JOHN R. RUMPLE JEFFREY A. MODISETT
SHARPNACK, BIGLEY, DAVID, & RUMPLE ATTORNEY GENERAL OF INDIANA
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
KING INDUSTRIAL CORP., )
v. )Cause No. 49T10-9610-TA-00151
STATE BOARD OF TAX COMMISSIONERS, )
September 15, 1998
ON APPEAL FROM THE STATE BOARD OF TAX COMMISSIONERS
King Industrial Corporation (King) appeals a final determination of the State
Board of Tax Commissioners (State Board) denying a kit adjustmentSee footnote 1
for property it
owns. This Court, finding that the State Board's decision to deny the kit adjustment and
to apply the D+1" grade is not supported by substantial evidence, REVERSES the
State Board's final determination.FACTS AND PROCEDURAL HISTORY
King is a tool and die manufacturer located in Jackson County, Indiana. King
conducts its operations in four buildings it owns. The buildings were constructed in
four stages. The first building was erected in 1945. A second building was added in
1964. As business continued to expand, King added a third building in 1973. Finally,
in 1986, King added a fourth building. The first three buildings are used in King's tool
and die manufacturing process. The fourth building is used by King for office space.See footnote 2
King's buildings were assessed as of March 1, 1993. King filed a Form 130
Petition for Review of Assessment with the Jackson County Board of Review on
January 11, 1994 for the 1993 tax year. The County Board of Review did not alter
King's assessment. King filed a Form 131 Petition for Review of Assessment with the
State Board on November 3, 1994 alleging that its buildings were entitled to a reduction
in base price because they were kit buildings. The State Board issued a final
determination on September 20, 1996 that denied King a kit adjustment. King filed this
original tax appeal on November 1, 1996, and a trial was held on November 17, 1997.
Additional facts will be supplied as necessary.
ANALYSIS AND OPINION
Standard of Review
This Court gives the final determinations of the State Board great deference
when it acts within the scope of its authority. Garcia v. State Bd. of Tax Comm'rs, 694
N.E.2d 794, 795-96 (Ind. Tax Ct. 1998). This Court reverses final determinations of the
State Board only when those decisions are unsupported by substantial evidence, are
arbitrary or capricious, constitute an abuse of discretion, or exceed statutory authority.
Id. at 796.
On February 22, 1991, the State Board ordered township assessors to reassess
pre-designed, pre-engineered buildings based on amendments to the State Board's
(Pet'r Ex. 2 at Ex. A and Ex. C). These amendments
provided for a
50% reduction in base price for some light pre-engineered or kit type buildings. (Pet'r
Ex. 2 at Ex. A and Ex. C);
Bock Prods., Inc. v. State Bd. of Tax Comm'rs,
683 N.E.2d 1368, 1372 (Ind. Tax Ct. 1997).
Kit buildings are generally made of light
weight and inexpensive materials and are fabricated at central manufacturing facilities
and shipped to the construction site ready for fast and efficient assembly.
(Pet'r Ex. 2
at Ex. D) (hereinafter Instructional Bulletin 91-8).
The reduction in base price was
offered due to the low cost and economical quality of materials used in kit buildings.
On October 1, 1991, the State Board issued Instructional Bulletin 91-8 to aid assessors
in determining which buildings qualified for the 50% reduction.
Instructional Bulletin 91-8 contains several examples of common characteristics
of low-cost kit buildings. Among these are Cold Form Cee Channel wall supports,
tapered roof beams, H columns, X bracing, metal or steel exterior skin, and round steel
columns. Instructional Bulletin 91-8 at 4-5. Instructional Bulletin 91-8 also states that
an economical kit building's steel purlins and girders are normally 14 to 16 gauge, that
the concrete floors have minimal tolerances, that all vertical supports must be spaced
evenly, and that normal building widths range from 30 feet to 120 feet. Instructional
Bulletin 91-8 at 6.
Although Bulletin 91-8 is designed to clarify the definition of a kit building, it has
often been more confusing than helpful. The bulletin's use of language such as
economical, minimal tolerances, normal, and heavy loads in the description of
common kit building components leaves much to the discretion of an assessor. In fact,
Instructional Bulletin 91-8 labels the kit building identification factors as clues rather
than calling them definitive characteristics or necessary components.See footnote 3
unclear definitions as minimal and normal, it is difficult to see how any consistency
or uniformity in applying the kit building adjustment can be achieved among assessors.
This, of course, presents the danger that the Indiana Constitution's requirement of
uniform and equal property assessments will be violated. See Ind. Const. art. X, §
1(a). However, this Court is also aware that a precise and inflexible definition might
hinder an assessor's efforts to arrive at the proper assessment for a building.See footnote 4
Instructional Bulletin 91-8 also discusses the use of grade factorsSee footnote 5
with the kit building adjustment. Grade factors can be applied to adjust for various
additional building features included in a kit building. However, the instructional
bulletin notes that if the additional features of the kit building result in the building no
longer being economical, then it cannot qualify for the kit adjustment.See footnote 6
Bulletin 91-8 at 7. If the building does not qualify for the kit adjustment, the assessor
may apply a low grade and design factor to account for the lower cost of
See footnote 7
(Resp't Br. at 6).
Regardless, the Court notes that the kit adjustment,
the grading system, and the assessment process in general are a means to an end.
Clearly, the goal of the entire assessment process is to arrive at the correct True Tax
ValueSee footnote 8
for each improvement and parcel of land in Indiana. Whether a kit adjustment is
given and then the building's grade is adjusted to account for additional amenities, or a
kit adjustment is denied and a grade factor is assigned to account for the lower quality
of the materials used, should be of little import.See footnote 9
What is important is that a correct
assessment is attained.See footnote 10
With this in mind the Court now turns to the merits of this
King argues that its buildings are kit buildings and should be given the 50%
reduction in base price under the General Commercial Industrial cost schedule.
Ind. Admin. Code tit. 50, r. 2.1-4-5, Schedule A.2.
King points out that its buildings are
brand name kit type dealer distributed structure[s]. (Pet'r Br. at 1). King submitted a
letter into evidence from the manufacturer of two of its buildings stating that the
buildings are pre-engineered steel buildings. (Pet'r Ex. 2 at Ex. F). In addition, King
argues that its buildings contain at least ten of the State Board's kit building
characteristics. (Pet'r Br. at 2).
For instance, King argues that its concrete floors can only support minimal
tolerances. King points out that the floors are cracked where fork trucks have driven on
them and had to be reinforced in locations where heavy machinery sits. (Pet'r Ex. 1)
(Tr. at 22-23). King also argues that the buildings' support columns and roof beams
can only support minimal tolerances. In support of this assertion, King offered
testimony to indicate that its two hoists, which are free standing, would be attached to
the building were the building able to support the weight. (Pet'r Ex. 1) (Tr. at 24).
The State Board argues that the steel columns in King's buildings support
greater tolerances than those allowed by the kit adjustment. (Resp't Br. at 6) (Tr. at 57-
60). Moreover, King's buildings have the minimum bay spacing allowed under Bulletin
91-8 and the buildings are not of standard kit building size and shape. (Resp't Br. at
6) (Tr. at 61). Finally, the State Board offered testimony that a portion of King's
buildings appeared to be of custom design. (Tr. at 62). However, none of these things
absolutely disqualify a building from receiving the kit adjustment.
The clues included in Bulletin 91-8 to aid assessors in determining whether a
building qualifies as a kit building are vague at best. The decision to award the kit
building adjustment or a lower grade factor is entirely subjective with few, if any,
In this case, the State Board's hearing officer admitted that
he was unsure whether the reinforced concrete flooring was confined only to those
areas underneath heavy machinery. (Tr. at 60). The hearing officer testified that he
may have made a mistake regarding the concrete flooring. (Tr. at 62).
fact that King's buildings are not of standard size and shape are of no avail. This Court
has previously held that a building may still qualify for the kit adjustment even though it
contains minor enhancements. [S]light additions to the basic 'kit' model can be
accounted for by simply raising the grade factor. Componx, Inc. v. State Bd. of Tax
Comm'rs, 683 N.E.2d 1372, 1375 (Ind. Tax Ct. 1997). Therefore, modifications King
has made to its buildings do not necessarily disqualify them from receiving the kit
adjustment.See footnote 11
In addition to its denial of the kit adjustment, the State Board applied a grade
factor of D+1 to King's buildings to account for the low quality of the materials used.
There is no evidentiary support for the decision to assign a grade of D+1 and on the
basis of the record the Court has no way of determining whether a D+1, as opposed
to any other grade, is the correct grade. See Corey v. State Bd. of Tax Comm'rs, 674
N.E.2d 1062, 1066 (Ind. Tax Ct. 1997) (Court must be apprised of the basis of a State
Board final determination so that it may properly review a final determination); see also
Bailey Seed Farms v. State Bd. of Tax Comm'rs, 542 N.E.2d 1389, 1392 (Ind. Tax Ct.
1989). When a building is graded a D+1, the reproduction cost is subsequently
reduced by 15%. Accordingly, the State Board must show how the particular
characteristics of a building translate into that lower reproduction cost. In other words,
the State Board must quantify the effects of a building's deviations from the C grade
on the reproduction cost of that building.
See Clark, 694 N.E.2d at 1237; see also
Zakutansky, 696 N.E.2d at 496; see also Garcia, 694 N.E.2d at 798.
State Board has failed to provide any support for its application of the D+1" grade
assigned to King's buildings. The State Board may not support its findings with
unsupported subjective opinions. See Canal Square Ltd. Partners v. State Bd. of Tax
Comm'rs, 694 N.E.2d 801, 808 (Ind. Tax Ct. 1998); see also Corey v. State Bd. of Tax
Comm'rs, 674 N.E.2d 1062, 1066 (Ind. Tax Ct. 1997).
Although the Court has little to guide it regarding the important characteristics of
a kit building, the Court cannot hold for the State Board when its own hearing officer
admits a possible mistake in assessing the building. Furthermore, there is no
evidentiary support for the State Board's decision to apply the D+1" grade factor to
King's buildings. The State Board has not attempted to show how any of the materials
used in King's buildings equate to a grade of D+1." Regardless of whether the State
Board granted the kit adjustment, denied the kit adjustment, or lowered the grade
factor, it must support its decision with substantial evidence. See Clark, 694 N.E.2d at
1237; see also Zakutansky v. State Bd. of Tax Comm'rs, 696 N.E.2d 494, 496 (Ind. Tax
Ct. 1998); see also Garcia, 694 N.E.2d at 798. It has not done so. Therefore, this
Court is compelled to hold that the State Board's final determination is arbitrary and
capricious and is unsupported by substantial evidence. This Court must REMAND this
issue to the State Board for further consideration. CONCLUSION AND REMAND
This Court has held that in certain circumstances a taxpayer must offer evidence
of a competing view of an assessment in order to demonstrate the invalidity of a State
Board assessment. See Clark, 694 N.E.2d at 1234 (discussing prima facie case
formulation). Such a requirement allows this Court a reasonable opportunity to
understand the competing view points and aids this Court in arriving at a decision. See
id. at 1241 (noting how the failure of the taxpayer to present a full and complete case
results in a waste of time and scarce judicial resources). However, once the taxpayer
has presented a prima facie case, the State Board must offer evidence to rebut the
taxpayer's claim. Id. This results from the State Board's duty not to act arbitrarily and
capriciously. Id. at 1235; see also Western Select Properties v. State Bd. of Tax
Comm'rs, 639 N.E.2d 1068, 1075 (Ind. Tax Ct. 1994) (State Board cannot simply refuse
to recognize taxpayer's evidence). The kit building adjustment is one example of a
case where the taxpayer must attempt to offer such a competing view of the
The taxpayer must offer probative evidence tending to prove it is entitled to the
kit adjustment. Once the taxpayer has made a prima facie case, the State Board must
either award the kit adjustment or offer evidence and an explanation as to why the
taxpayer is not entitled to it. This process will not only allow disputes to be resolved at
the State Board level, but will allow this Court the opportunity to determine whether the
State Board has considered and dealt with the taxpayer's evidence in a meaningful
manner. Clark, 694 N.E.2d at 1235.
On remand, the State Board may decide to award King the kit adjustment and
adjust for any additional amenities included in King's buildings by using a grade factor.
The State Board may determine that King's buildings do not qualify for the kit
adjustment and may then adjust downward using a grade factor. In either case, the
State Board must provide evidentiary support and reasoning for its final determination.
Any decision to deny the kit adjustment must be based on clearly explained factors
contained in the State Board's final determination. Moreover, any grade factor applied
must be supported by evidence showing the grade factor is related to actual features
that increase or decrease the reproduction cost of the building.
In this case, the State Board's hearing officer admitted that he may have made
an error in reviewing King's buildings. Furthermore, this Court has previously held that
minor modifications in a kit building do not automatically disqualify it from receiving the
kit adjustment. Moreover, the State Board has failed to provide evidentiary support for
its decision to apply the D+1" grade to King's buildings. Therefore, the State Board's
final determination is arbitrary and capricious and not supported by substantial
evidence. This Court REMANDS this matter to the State Board for further
consideration consistent with this opinion.
Footnote: 1 1
The kit adjustment is a 50% reduction in base price. The adjustment is
designed to be applied to some light pre-engineered, or kit type, buildings to account
for their low cost economical design and construction. See Ind. Admin. Code tit. 50, r.
2.1-4-5 (1992) (presently codified at id. r. 2.2-11-6 (1996)).
Footnote: 2 2
King's four buildings are connected to one another. Throughout this opinion, all
of King's buildings will be referred to collectively as the buildings or King's buildings.
Footnote: 3 3It is unclear whether the State Board intends Instructional Bulletin 91-8 to be a
precise definition of a kit building or a set of flexible rules allowing discretion on the
part of assessors so that they may arrive at the correct assessment. Based on the
vague language used in Bulletin 91-8, it appears that the latter is more likely. In raising
this point, the Court merely wishes to explain that the entire dispute in this case might
have been avoided had the definition and characteristics of a kit building been clearly
delineated by the State Board. Although a precise and inflexible definition would have
prevented some economical pre-engineered buildings from receiving the kit adjustment,
this should be of no consequence because the kit adjustment should only be a means
to an end. That end is to arrive at the correct assessment. The correct assessment
could be arrived at through other means such as an adjustment in grade.
In Indiana, taxpayers are required pay property taxes based on assessments
determined under the State Board's regulations. Whether the correct assessment is
attained through a kit adjustment or through the application of a reduced grade factor
should not be the primary point of concern. Rather, arriving at the correct final
assessed value of the property should be the target at which we aim.
Footnote: 4 4In any system of mass appraisal, a certain amount of flexibility and subjective
judgment must be included in the assessment process. The use of cost schedules,
models, and land classifications are commonly used to save time and money when
assessing property. These mechanisms allow an assessor to compare basic
characteristics of a subject property to models and arrive at an estimate of the
property's value. See Town of St. John v. State Bd. of Tax Comm'rs, 690 N.E.2d 370,
378 n.16 (Ind. Tax Ct. 1997) (the use of cost schedules in and of itself is not a problem)
review granted, 695 N.E.2d 123 (Ind. 1998). However, in any such mass appraisal
system, invariably, certain properties are over-assessed and some are under-
assessed. In most states, these inevitable flaws in the mass appraisal techniques are
corrected, inter alia, through the presentation of evidence of actual value during the
In states that allow such evidence, sales data from the area, actual construction
costs, and income capitalization are all instructive as to the actual value of a piece of
property. Indiana, however, has elected to shun such information and not accept it as
probative of value. See Dawkins v. State Bd. of Tax Comm'rs, 659 N.E.2d at 709; see
also Town of St. John, 690 N.E.2d at 374. This creates a troublesome situation. Either
the taxpayer accepts the State Board's entirely subjective, self-referential,
determination, or the taxpayer attempts to challenge the assessment and argue over
vague and undefined terms, such as heavy or minimal.
The Court must then attempt to apply regulations that are better suited for mass
appraisal than the adjudication of specific cases. Such is the problem here.
Instructional Bulletin 91-8 may provide excellent instructions aiding an assessor in
quickly spotting a candidate for the kit adjustment. It is, however, woefully inadequate
for purposes of determining with any degree of certainty whether a building is, in fact, a
kit building. Typically in these appeals, the State Board attempts to mask the problem
of uncertainty by referring to its discretion. See Canal Square, 674 N.E.2d at 808.
However, subjective decisions are still subject to judicial review, see Clark v. State Bd.
of Tax Comm'rs, 694 N.E.2d 1230, 1236 (Ind. Tax Ct. 1998), and the State Board may
not support a final determination with an unsupported subjective determination.
Footnote: 5 5
See Ind. Admin. Code tit. 50, r. 2.1-4-3 (1992) (presently codified at id. r. 2.2-10-
Footnote: 6 6
The Court notes that Instructional Bulletin 91-8 does not define economical nor
does the bulletin disclose any method of determining what is economical. Bulletin 91-8
does refer to the increase in construction cost associated with the use of higher
tolerance materials as a factor that renders a kit building no longer economical.
Instructional Bulletin 91-8 at 7. The use of actual construction cost as a measure of
whether a building is economical is somewhat peculiar in light of the fact that
assessments in Indiana are not based on actual reproduction costs but rather the
reproduction cost as calculated under the State Board's regulations. See Ind. Code
Ann. § 6-1.1-31-6 (West 1989); Dawkins v. State Bd. of Tax Comm'rs, 659 N.E.2d 706,
709 (Ind. Tax Ct. 1995).
Footnote: 7 7Grade factors ranging from A to E are applied to account for the construction
qualities of a particular building. See Ind. Admin. Code tit. 50, r. 2.1-4-3 (1992)
(presently codified at id. r. 2.2-10-3 (1996)). Under the State Board's regulations, a C
grade building is considered average and is assigned a grade factor of 100%, (i.e.,
100% of the reproduction cost as determined under the State Board's regulations).
See id. The remaining grades indicate a factor of 160% of the base price for A grade
buildings, 120% for B grade buildings, 80% for D grade buildings, and 60% for E
grade buildings. Id.
The State Board recognizes that buildings sometimes fall between the major
grade classifications. Therefore, intermediate grade levels may be assigned to indicate
the building's grade falls between the major grade classifications. Id. A designation of
+/-2 indicates the grade falls halfway between the major grade classifications. Id. A
+/-1 indicates that the grade is slightly above or below the major grade assigned. Id.
The selection of which grade to apply calls for the subjective judgment of the assessor
and should be a composite judgment of overall quality and design. See Ind. Admin.
Code tit. 50, r. 2.1-4-3(f) (1992) (presently codified at id. r. 2.2-10-3(a) (1996)); see
also Garcia, 694 N.E.2d at 796.
Footnote: 8 8See Ind. Code Ann. § 6-1.1-31-6.
Footnote: 9 9The Court understands that some taxpayers may prefer to have their
assessment begin at a lower point (i.e., 50% of the base price) and then have the
assessment be increased based on the application of a grade factor instead of the
opposite. However, the Court does not consider the effect of such a preference to be
relevant in arriving at a correct assessment.
Footnote: 10 10As previously discussed, the True Tax Value of a building may only be
calculated through the application of the State Board's regulations. See Ind. Code
Ann. § 6-1.1-31-6; see also Dawkins, 659 N.E.2d at 709; see also Town of St. John,
690 N.E.2d at 374. This Court has previously noted that the State Board's regulations
contain numerous examples of imprecise self-referential terms and definitions. See
Garcia, 694 N.E.2d at 798; see also Town of St. John, 690 N.E.2d at 386. The ill-
defined kit adjustment standards are simply another example of the subjective
tautological nature of the State Board's regulations.
Footnote: 11 11In Componx, this Court held that an adjustment in grade factor was appropriate
because none of the modifications done to the subject building affected the structure
but were merely cosmetic enhancements. Componx, 683 N.E.2d at 1375. This is not
to say that slight modifications or variations in the structural components of a pre-
engineered building necessarily prevent it from qualifying for the kit adjustment. This is
evidenced by the language of Instructional Bulletin 91-8. Not only does the bulletin use
language such as minimal and normal (leading to the inference that slight variations in
structure are acceptable), but Bulletin 91-8 specifically refers to the use of increased
grade to account for quality differences of the . . . supports and/or roof beams.
Instructional Bulletin 91-8 at 7. Moreover, Bulletin 91-8 specifically allows some
buildings to qualify for the kit adjustment in spite of mixed support systems, described
as upgrades. Instructional Bulletin 91-8 at 7.
Converted by Andrew Scriven