ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
TAMATHA A. STEVENS JEFFREY A. MODISETT
McMains, Goodin & Orzeske Attorney General of Indiana Indianapolis, Indiana Indianapolis, Indiana
KATHRYN SYMMES KIRK
Deputy Attorney General
BARTH, INC., ) ) ) Petitioner, ) ) v. ) Cause No. 49T10-9701-TA-00086 ) STATE BOARD OF TAX COMMISSIONERS, ) ) Respondent. ) _____________________________________________________________________COMMISSIONERS _____________________________________________________________________
ON APPEAL FROM FINAL DETERMINATIONS OF THE STATE BOARD OF TAX
property are incorrect, that the buildings were entitled to a kit adjustment as of March 1,
See footnote 1
and that two of the buildings should have been depreciated according to a 30-
year life expectancy table instead of a 40-year life expectancy table.
buildings be depreciated according to the 30-year life expectancy table. This original
tax appeal ensued. On December 22, 1997, the parties tried this cause before this
Court. Additional facts will be added as necessary.
view, the alleged error was not correctable via a Form 133 Petition; therefore, the State
Board did not substantively review Barth's allegation that the base rate was calculated
The calculation of base rate is an element in calculating the reproduction cost of a given improvement. See Bock Prods., 683 N.E.2d at 1371. The base rate for an improvement is calculated by choosing the model that most resembles the physical characteristics of the subject improvementSee footnote 4 4 and then applying the pricing scheduleSee footnote 5 5 associated with that model to the improvement. See Ind. Admin. Code tit. 50, r. 2.1-4- 3(a); Clark, 694 N.E.2d at 1235; Wareco Enters. v. State Bd. of Tax Comm'rs, 689 N.E.2d 1299, 1302 (Ind. Tax Ct. 1997); Bock Prods., 683 N.E.2d at 1371. The State Board has recognized that not all improvements will conform exactly to the particular pricing schedule used to assess the improvement. See Bock Prods., 683 N.E.2d at 1371. Consequently, the State Board has provided separate schedules showing the costs of certain components and features in order to allow assessors to adjust the base rate to account for an improvement's deviation from the model used to develop the pricing schedule. See Ind. Admin. Code tit. 50, r. 2.1-4-3(b)-(e) (1992) (codified in present form at id. r. 2.2-10-6.1(b)-(e) (1996)); Clark, 694 N.E.2d at 1236 n.6; Wareco
Enters., 689 N.E.2d at 1302; Bock Prods., 683 N.E.2d at 1371; see also Hatcher v.
State Bd. of Tax Comm'rs, 601 N.E.2d 19, 21-22 (Ind. Tax Ct. 1992).
One of these schedules, Schedule C, details many of the component costs of the interior and mechanical features contained in the models. In general, where an improvement does not contain a component presumed to exist in the model, and a cost for that component is listed in Schedule C, a deduction from the base rate is made pursuant to that schedule. As this Court has held, these type of base rate adjustments often involve objective determinationsSee footnote 6 6 or, in other words, an uncomplicated true or false finding of fact that is correctable via a Form 133. Bock Prods., 683 N.E.2d at 1371 (internal quotation marks and citation omitted). Where the model contains a feature to which a value has been assigned, but that feature does not exist in the subject improvement, the value assigned should be subtracted from the improvement's base rate. See Hatcher v. State Bd. of Tax Comm'rs, 561 N.E.2d 852, 857-58 (Ind. Tax Ct. 1990).
In this case, Barth has alleged that the subject improvements lack features presumed to exist in the model,See footnote 7 7 such as a lack of partitioning and a lack of interior
finish. (Trial Tr. at 8-9). If these features are not present in the subject buildings and values for these features have been assigned to the buildings, those values must be subtracted.See footnote 8 8 As this Court stated in Hatcher, 561 N.E.2d at 857-58, If a fireplace
exists, then it is assessed. If no fireplace exists, then its value can be subtracted from
the computation. Similarly, for any item that exists and a value is assigned to that item
by the property record card, if the item no longer exists, then the auditor should be
permitted to subtract that value, as well. Determining whether certain values that have
been assigned should have been subtracted involves a simple observation of fact
without resort to subjective judgment. See Wareco Enters., 689 N.E.2d at 1302.
Accordingly, the Form 133 Petition is the appropriate method to correct these alleged
errors, and the State Board erred in concluding that it was not. Therefore, this issue is
REMANDED to the State Board so that it may evaluate Barth's contention that the base
rate calculation was erroneous.
In its final determination, the State Board denied the kit adjustment for the buildings at
issue on this basis. In this case, two of the buildings alleged to qualify for the kit
adjustment had already received a D grade, and the remaining two buildings received a
C-2 grade.See footnote 12
Therefore, the State Board concluded that there was no error in the
assessment and did not reach the issue of whether the buildings qualified for the kit
At trial, the parties spent a great deal of time trying to show whether the buildings at issue were or were not kit buildings. This was premature. See 20th Century Fiberglass v. State Bd. of Tax Comm'rs, 683 N.E.2d 1376, 1378 (Ind. Tax Ct. 1997) In its final determination, the State Board never reached the issue of whether
the buildings qualified for the kit adjustment because it found the fact that the buildings
had already received a lower grade dispositive. Because the factual determination of
whether the buildings qualified for the kit adjustment was not made by the State Board,
the Court is in no position to review whether the buildings qualified for the adjustment
unless the determination can be made as a matter of law. See Alte Salems Kirche,
Inc., 694 N.E.2d at 815-16 n.6; 20th Century Fiberglass, 683 N.E.2d at 1378. Not
surprisingly, the evidence presented at trial does not allow the Court to resolve this
issue as a matter of law. Accordingly, the State Board's final determination may only
be upheld if the Form 133 Petition was properly denied on the basis that the buildings
had already received a lower grade.
Under the State Board regulations, a building must be given a kit adjustment if it qualifies for that adjustment. See Ind. Admin. Code tit. 50, r. 2.1-4-5 Schedules A1 and A2 (Deduct 50% of base price (1st floor) for pre-engineered kit-type structure.); King Industrial Corp., No. 49T10-9610-TA-00151, slip op. at 9See footnote 13 13 ( Where the improvement qualifies for the kit adjustment, the application of the kit adjustment is mandatory, not discretionary. ). Cf. Zakutansky, 696 N.E.2d at 497 (The taxpayer is entitled to have his property assessed using the correct cost schedule. Only after this is done may
adjustments for quality be made.). Instructional Bulletin 92-1 conflicts with this
regulation. See Two Market Square Associates v. State Bd. of Tax Comm'rs, 679
N.E.2d 882, 886 (Ind. 1997) (agency's interpretation of its own regulation given great
weight unless it is inconsistent with regulation itself). In essence, Instructional Bulletin
92-1 treats the kit adjustment as discretionary in certain cases. This is incorrect. The
plain language of the regulation admits of no exceptions and requires the kit adjustment
to be given where the building qualifies for the adjustment, whether local assessing
officials have previously decided to give the building a lower grade or not.
the Court holds that the State Board erred when it refused to consider whether the
buildings at issue qualified for the kit adjustment.
The Court's conclusion is buttressed by an examination of the results that would ensue were the Court to follow State Board's interpretation of the regulation. In its memorandum of February 22, 1991 to assessing officials, the State Board ordered local assessing authorities to reassess all buildings that qualified for the kit adjustment. This includes buildings that were already given a lower grade to account for the lower construction cost. However, the State Board, relying on Instructional Bulletin 92-1, proposes different treatment for buildings that qualify for the kit adjustment, were given a lower grade, but were not reassessed by local assessing authorities. The State Board seeks to deny kit adjustments in these cases by foreclosing a taxpayer's right to appeal.
This will not do. A taxpayer's right to appeal a specific error in an assessment
should not be at the mercy of inaction by local assessing officials.See footnote 14
See Zakutansky v.
State Bd. of Tax Comm'rs, 691 N.E.2d 1365, 1368 (Ind. Tax Ct. 1998). Adherence to
the State Board's position would make the failure of a local assessing official to give a
kit adjustment to buildings, which have already received a lower grade, unreviewable.See footnote 15
This is contrary to the State Board's statutory duty to review the actions of local
assessing officials. See id. at 1368-69; see also Joyce Sportswear Co. v. State Bd. of
Tax Comm'rs, 684 N.E.2d 1189, 1191 (Ind. Tax Ct. 1997), appeal dismissed. The
Court is aware of the enormous burden borne by the State Board in administering the
property tax system of this State. See Harrington v. State Bd. of Tax Comm'rs, 525
N.E.2d 360, 363 (Ind. Tax Ct. 1988). However, the State Board may not lighten its load
by foreclosing review of these assessments.
As additional support for its position, the State Board strenuously argues that
awarding the kit adjustment in this case will result in a windfall for the taxpayer because
the grade of the buildings, which may have been lowered to account for the decreased
construction cost,See footnote 16
now cannot be changed. This, the State Board argues, results from
the fact that the taxpayer's Form 133 Petition, which may only be used to correct
objective errors, may not be used to change the lower grade (a subjective
determination, see Reams v. State Bd. of Tax Comm'rs, 620 N.E.2d 758, 760 (Ind. Tax
Ct. 1993)) already given to the buildings at issue.See footnote 17
See Hatcher, 561 N.E.2d at 857.
In Hatcher, this Court held that the State Board could not correct a subjective error not
raised by the taxpayer that the State Board discovers when reviewing a Form 133
Petition. In so holding, this Court invalidated a State Board regulation adopted in 1988
that provides: If a taxpayer files a petition for correction of error (Form 133) (50 IAC
4.2-2-9) with respect to a . . . real . . . property assessment, they [sic] open that entire
assessment to review. Ind. Admin. Code tit. 50, r. 4.2-3-12 (1996).
The State Board's argument is not well-taken because it was the State Board that created the problem faced by the Court today. The State Board that chose the Form 133 process as the appropriate vehicle for taxpayers to challenge a denial of a kit
adjustment.See footnote 18
Now the State Board asks this Court to limit a taxpayer's right to
challenge an assessment based on limitations on the State Board's authority to correct
assessments when the State Board reviews a Form 133 Petition. The State Board has
tied its own hands and expects the Court to bind the taxpayer with the same rope.
However, a taxpayer's right to allege errors on a Form 133 Petition is in no way linked
to the State Board's authority to correct errors other than those raised by the
taxpayer.See footnote 19
The issue here is not the scope of the State Board's authority to correct an
error in an assessment that was not raised by the taxpayer when a taxpayer files a
Form 133 Petition, but rather what errors may be raised by a taxpayer in a Form 133
Besides the fact that the State Board's argument erroneously predicates the taxpayer's right to use the Form 133 process on the State Board's ability to correct errors not raised by the taxpayer when the State Board reviews a Form 133 Petition, the State Board's argument fails for another reason. As previously noted, the State Board chose the Form 133 process for kit adjustment appeals. Therefore, the State
Board cannot be heard to complain where a taxpayer uses the very process the State
Board has chosen. To allow the State Board to do so would upset the legitimate
reliance interests of taxpayers.
The Court does acknowledge the State Board's concern about a taxpayer receiving a windfall based on the State Board's inability to correct the grade of an improvement when a taxpayer files a Form 133 Petition challenging a denial of a kit adjustment. Cf. Kent Co., 685 N.E.2d at 1161. Where a taxpayer receives a windfall, that taxpayer does not bear its fair share of the tax burden. If it is possible to do so consistent with the law, this situation is to be avoided.
If the buildings in this case qualify for the kit adjustment, then, in order to arrive at the correct assessment of those buildings, the grading of those buildings will likely require revision. Therefore, the kit adjustment and the grading of the buildings, though discrete issues, are inextricably linked. Where a taxpayer alleges that its building qualifies for the kit adjustment, the allegation itself, as a purely practical matter, puts the grade assigned to the building at issue. Consequently, it would be nonsensical to refuse to allow the State Board to adjust the grade of the buildings if the kit adjustment is determined to be warranted. Cf. King Industrial Corp., No. 49T10-9610-TA-00151, slip. op. at 6-7 (goal of entire assessment process is to arrive at correct assessments).
This Court's decision in Hatcher does not require a different result. In Hatcher, this Court did not deal with the issue arising when the correction of an objective error in an assessment creates a subjective error in the assessment. For that reason, it does not control the outcome here. Hatcher was concerned about the expansion of the State
Board's authority beyond that granted under section 6-1.1-15-12 to include conducting
a complete reassessment of the subject property. But cf. Ind. Code Ann. § 6-1.1-15-
4(a) (West Supp. 1998); Joyce Sportswear, 684 N.E.2d at 1191.
The same concerns are not present in this case. Here, assuming that the failure to grant a kit adjustment to the subject buildings was erroneous, the correction of that objective error will almost certainly cause an error in the grading of the buildings. The error in grade merely derives from the correction of the objective error. This is a vastly different situation from the situation where State Board attempts to open an entire assessment for review simply because a taxpayer seeks the correction of an objective error.
For the reasons stated above, this issue is REMANDED to the State Board for further consideration so that the State Board may examine whether the buildings at issue qualify for the kit adjustment. If the State Board decides that the kit adjustment is warranted, the State Board may adjust the grades of the buildings that qualify for the kit adjustment as of March 1, 1991.
been depreciated according to the 30-year life expectancy table.
The State Board's regulations recognize that physical depreciation causes improvements to experience a loss in value. See Ind. Admin. Code tit. 50, r. 2.1-5-1 (1992) (codified in present form at id. r. 2.2-10-7 (1996)); Wareco Enters., 689 N.E.2d at 1302. Accordingly, the State Board's regulations contain life expectancy (depreciation) tables by which an assessor calculates the effect of the improvement's condition and age on its value. See Ind. Admin. Code tit. 50, r. 2.1-5-1. Light pre- engineered buildings are depreciated according to the 30-year life expectancy table, and fire-resistant buildings, not listed elsewhere, are depreciated according to the 40- year life expectancy table. See id. Therefore, a light pre-engineered building that is also fire-resistant is depreciated according to the 30-year life expectancy table. See Wareco Enters., 689 N.E.2d at 1303.
In Wareco Enterprises, this Court found that the State Board's refusal to apply the 30-year depreciation table to a structure conceded to be a light pre-engineered building was contrary to law. This case is different. There is a factual issue concerning whether the buildings at issue are light pre-engineered buildings. If, as Barth contends, the buildings at issue qualify for the kit adjustment,See footnote 20 20 then they would also automatically qualify for the 30-year life expectancy table, thus making the use of the 40-year life expectancy table erroneous. This error would be correctable on a Form 133 Petition because it would require an uncomplicated application of the State Board regulation.
See Wareco Enters., 689 N.E.2d at 1302-03; see also 20th Century Fiberglass, 683
N.E.2d at 1379;
Rott Devel. Co. v. State Bd. of Tax Comm'rs, 647 N.E.2d 1157, 1160
(Ind. Tax Ct. 1995)
. Therefore, if on remand, the State Board finds that the subject
buildings qualify for the kit adjustment, the State Board must depreciate the buildings
according to the 30-year life expectancy table.
However, a problem arises if one or both of the buildings alleged to qualify for the 30-year life expectancy tables are pre-engineered, but do not qualify for the kit adjustment. See Componx, 683 N.E.2d at 1374 (Not all pre-engineered buildings qualify for the kit adjustment.). The question is whether the determination that a building is pre-engineered involves subjective judgment on the part of the assessor. The Court has previously found that it does: The application of the correct Life Expectancy Table is an objective computation after the subjective determination of the structure typeSee footnote 21 21 and condition. 20th Century Fiberglass, 683 N.E.2d at 1379 (emphasis added). Therefore, if the subject buildings do not qualify for the kit
adjustment, no alleged error in the application of the life expectancy tables may be
the State Board's view, this Court may not consider them. See Ind. Code Ann. § 33-3-
5-14 (West 1996); Gatling Gun Club, Inc. v. State Bd. of Tax Comm'rs, 420 N.E.2d
1324 (Ind. Ct. App. 1981). In original tax appeals from final determinations of the State
Board, this Court must recreate the record of what evidence and issues were presented
at the administrative level. See Dana Corp. v. State Bd. of Tax Comm'rs, 694 N.E.2d
1244, 1248 (Ind. Tax Ct. 1998); Gatling Gun Club, 420 N.E.2d at 1329. This results
from the operation of section 6-1.1-15-6, which requires that the State Board file a
transcript of the proceedings before the State Board with this Court. However, the
transcript shall not include the evidence compiled by the board with respect to the
proceedings. Ind. Code Ann. § 6-1.1-15-6 (West 1989).
Consequently, the Court is forced to rely on the parties to develop much of the record of what occurred at the administrative level. In this case, Mr. Miller testified that he discussed these issues with Mr. Leininger, the State Board hearing officer. (Trial Tr. at 9). Mr. Leininger testified that he did not recall whether adjustments to the base rate were requested by Mr. Miller. (Trial Tr. at 23).
The Court notes that the State Board did not make a contemporaneous objection to Mr. Miller's trial testimony. See Indiana Ass'n of Seventh Day-Adventists v. State Bd. of Tax Comm'rs, 512 N.E.2d 936, 940 (Ind. Tax Ct. 1987) (The court assumes that the same evidence was presented at the administrative hearing since there was no objection to the testimony at trial.). In addition, Mr. Leininger did not directly state that the issue of base rate adjustments was not raised by Mr. Miller. Consequently, the Court is left with Mr. Miller's testimony. Therefore, the Court finds that Barth properly raised the base rate adjustments at the administrative level.
The Court notes that this problem could have been avoided had Mr. Miller taken the time to state specifically what was erroneous about the base rate calculation on the Form 133 Petition. Although this is not required by law, see Wareco Enters., 689 N.E.2d at 1302 n.3, this may have saved the parties a great deal of time and trouble. The State Board is by no means blameless either. It is well within the authority of the State Board to issue regulations to address the problem of taxpayers raising additional issues at administrative hearings besides those raised in petitions for review. The State Board has chosen not to do so.
Converted by Andrew Scriven