ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
KENNETH D. REED JEFFREY A. MODISETT
Abrahamson, Reed & Adley Attorney General of Indiana
TED J. HOLADAY Deputy Attorney General
Dav-Con, Inc. (Dav-Con) appeals the final determination of the State Board of Tax Commissioners (State Board) assessing not-owned business personal property located on its premises as of March 1, 1992 pursuant to this Court's remand order in Dav-Con, Inc. v. State Board of Tax Commissioners, 644 N.E.2d 192 (Ind. Tax Ct. 1994) (Dav-Con
II. Whether the State Board erred when it applied a twenty percent penalty to the
amount Dav-Con underassessed its not-owned business personal property.
it was required by law to report. See Ind. Code Ann § 6-1.1-37-7(e) (West Supp.
The Court stated that once the actual cost of the steel was determined, the
Court would then determine the amount of the penalty to be applied for the
undervaluation of taxable personal property as required by statute. See id.
In Dav-Con I, of the seven companies owning steel located on Dav-Con's premises, four companies, Naylor Pipe, Mitsui, Venske Steel, and International Metals were found not to have reported their steel.See footnote 3 Pursuant to the Court's order remanding this case, the State Board conducted further proceedings and, again, contacted the four companies that owned steel in Dav-Con's possession in order to ascertain the actual cost of the steel. In reply, two of the four companies, Naylor Pipe and Mitsui, stated that the actual cost of the steel was either the same or materially the same as
the value of the steel previously reported. Accordingly, the State Board hearing officer
adopted these figures for the assessment of the steel owned by Naylor Pipe and Mitsui.
Of the remaining two companies, one company, Venske Steel, did not respond, and
correspondence to International Metals was returned by the post office as
undeliverable. (Stip. Ex. F).
For the assessment of Venske Steel, the State Board hearing officer concluded that because Naylor Pipe and Mitsui made no distinction between value and cost in their two responses, it would be reasonable to use the figure previously reported by Venske ($3,872.85) again. For International Metals, the hearing officer estimated the cost of inventory ($5,000) based on the storage invoice of the property. (Stip. Ex. D). On July 28, 1995, pursuant to this Court's remand order, the State Board held a hearing regarding the issues involved. Testimony and exhibits were received into evidence at the hearing. The end result of the hearing was that the amount of the assessment did not change from what was previously determined by the State Board, and the twenty percent (20%) penalty on the underreported amount was reinstated. On October 6, 1995, Dav-Con filed this original tax appeal to challenge the reassessment and the twenty percent penalty. Additional facts will be supplied as necessary.
only if it is unsupported by substantial evidence, constitutes an abuse of discretion,
exceeds statutory authority, or is arbitrary and capricious. Id.
personal property liable for personal property tax without first holding the owners of that
personal property liable for that tax. See Mid-America Mailers, Inc.v. State Bd. of Tax
Comm'rs, 639 N.E.2d 380, 384 (Ind. Tax Ct. 1994). As a result, the State Board is not
forced to pursue the owners of the steel for payment of the personal property tax before
it may pursue Dav-Con for payment of that tax.See footnote
Therefore, Dav-Con's argument is
posed the following questions:
1. Was the amount you previously submitted the same as the cost of the inventory stored at Dav-Con, Inc? Yes No ;
2. If the amount you previously submitted was not cost[,]what did the amount
represent? ; and,
3. If the amount you previously submitted was not cost[,]please provide the cost of the inventory. $
(Stip. Ex. D). The letter the State Board sent to International Metals was different
because International Metals had not responded previously. The correspondence to
International Metals stated:
Pursuant to the court's order[,] the State Board is now requesting that you submit the cost of your inventory located at Dav-Con, Inc. on March 1, 1992 per the enclosed storage invoice. Please submit the cost . . . by May 5, 1995. Copies of any information that you submit will be shared with Dav-Con. The field auditor originally estimated the amount of the inventory at $5,000.00. If you do not respond to this request by May 5, 1995, the State Board will consider the field auditor[']s estimate amount of $5,000.00 to be the best estimate of cost.
(Stip. Ex. D).
In Dav-Con I, the correspondence sent to the companies was insufficient in that it sought the value of the steel rather than the cost of the steel. On remand, the State Board followed the instructions given by this Court in that the second set of correspondence did include language that sought the cost of the steel. (Stip. Ex. D). Dav-Con received copies of the letters sent by the State Board to the four companies and their responses. Dav-Con, at that time, did not complain of the wording of the letters. Nor did Dav-Con attempt to contact the four companies to obtain cost estimates. Moreover, Dav-Con did not present any evidence to refute the State Board's proposed figures or to help in any other way to establish cost. (Stip. Ex. A).
Dav-Con asks the Court to hold that the State Board's final assessment determination
is invalid simply because it was based on responses to correspondence that did not
specifically define cost.
It is true that the State Board's correspondence could have defined cost with greater precision. This fact, in and of itself, does not entitle Dav-Con to relief. Instead, under this Court's standard of review, Dav-Con must demonstrate that the State Board's correspondence was not a reasonable method of ascertaining cost of the steel.
Dav-Con has not done so. The regulations define cost as the price paid or consideration given to acquire an asset. Ind. Admin. Code tit. 50 r. 4.2-5-5(a) (1996). Cost, in everyday usage means, inter alia, the amount or equivalent paid or given or charged or engaged to be paid or given for anything bought . . . . Webster's Third New International Dictionary 515 (1981). Therefore, the difference between the meaning of cost as it is used in the regulations and the meaning of cost in common ordinary usage is not great. As a result, this Court cannot hold that the correspondence was unreasonable. Consequently, Dav-Con's challenge to the State Board's final determination on the basis that the correspondence did not adequately define cost fails.
engage in separate analysis.
authority to determine the assessed value of property by any method that is
reasonable in light of the facts and circumstance and yields 'substantial evidence' of
the assessed value of the property. Dav-Con I, 644 N.E.2d at 196; (quoting South
Shore Marina, Inc. v. State Bd. Tax Comm'rs, 527 N.E.2d 738, 742-43 (Ind. Tax Ct.
1988), aff'd, 543 N.E.2d 644 (Ind. 1989)). In this case, Dav-Con has offered no
evidence tending to show that this method of determining the cost of the steel was
unreasonable. See Precedent v. State Bd. of Tax Comm'rs, 659 N.E.2d 701, 706 (Ind.
Tax Ct. 1995).
In addition, Dav-Con has not demonstrated that the State Board's assessment was without substantial evidentiary support. The State Board based its assessment of the cost of the steel on a figure previously reported to it as the value of the property. It did so after observing that two other companies in the same type of business had reported that the value of the steel was the same, or substantially the same, as its value. This constitutes evidence that a reasonable mind might accept as adequate to support a conclusion. See Dav-Con I, 644 N.E.2d at 196.
To hold otherwise would place an intolerable burden on the State Board. In Indiana, the personal property tax system, unlike the real property tax system, is a self- assessment system. See Ind. Code § 6-1.1-3-9 (West 1989); see also Paul Heuring Motors, Inc. v. State Bd. of Tax Comm'rs, 620 N.E.2d 39, 41 (Ind. Tax Ct. 1993). Therefore, the system relies on taxpayers reporting taxable personal property. When the State Board assesses personal property, it often does so, as this case amply demonstrates, in absence of any information provided by the taxpayer. This lack of
information cannot be held against the State Board.See footnote
To do so would allow taxpayers to
profit from a refusal to comply with the law.
The State Board came to a reasonable conclusion regarding the assessment of the Steel owned by Venske in light of the evidence available to the State Board. Dav- Con could have offered additional evidence concerning the assessment. See North Park Cinemas v. State Bd. of Tax Comm'rs, 689 N.E.2d 765, 769 (Ind. Tax Ct. 1997) (A party who stands to be adversely affected [by a State Board decision] has an obvious responsibility to appear before the State Board and present evidence and argument in support of its position). Dav-Con chose not to do so. Cf. Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1235-36 n.4 (Ind. Tax Ct. 1998) (where taxpayer chooses not to present evidence at the State Board level, taxpayer must accept the consequences of that choice in an original tax appeal).
estimated to be five thousand dollars ($5,000). Based on the same analysis set out
above for Venske Steel, this Court holds that the State Board came to a reasonable
conclusion regarding the assessment of the steel owned by International Metals in light
of the evidence available to the State Board. Again, Dav-Con could have offered
additional evidence concerning the assessment, but it did not. See North Park
Cinemas, Inc., 689 N.E.2d at 769.
When the Court considers the efforts undertaken to secure the actual cost of the steel, the information that the estimates were based upon, combined with Dav-Con's failure to submit competing evidence, Dav-Con's arguments that the true-cost of the International Metal's steel was not obtained fail. Dav-Con cannot successfully argue that the State Board's final determination was not based on substantial evidence. Under this Court's standard of review, the Court will not reverse the State Board's final determination.
The Court is aware that the assessment of property is not an exact science and uncertainties exist in some taxation matters. See Clark, 694 N.E.2d at 1240-41 (citing Estate of McLendon v. Commissioner, 135 F.3d 1017,1021-23 (5th Cir. 1998) (due to uncertainty of calculations of the value of future interests, use of actuarial tables is tolerated); Yoon v. Commissioner, 135 F.3d 1007, 1013 (5th Cir. 1998) (establishment of taxpayers net worth does not have to be done with mathematical precision, rather the court must be satisfied that the IRS' determination of net worth is reasonably certain); Jones v. Commissioner, 903 F.2d 1301,1303-04 (10th Cir. 1990) (reconstruction of taxpayers income may be barred as non-arbitrary estimates)). Therefore, inherent in
cost estimates are opportunities for miscalculations. For example, there could have
very well been a miscalculation in the hearing officer's estimate of International Metal's
steel based on the storage invoice. However, if Dav-Con was sincere in its belief that
the hearing officer's estimate of International Metal's steel was an error (or that the
actual cost was not supplied by the true owners of the companies who responded), it
could have supplemented its cause with evidence. It did not do so. Therefore, the final
determination of the State Board stands.
II. Whether the State Board erred when it applied a twenty percent penalty to the amount Dav-Con underassessed its not-owned business personal property.
Dav-Con contends that it should not be required to pay a twenty percent penalty
payment. In Dav-Con I, the Court delayed deciding what amount of penalty would
apply until after the State Board determined the true cost of the steel. This was to
ensure an accurate penalty based on the underassessed amount. See Ind. Code § 6-
1.1-37-7(e); see also Dav-Con I, 644 N.E.2d at 198.
In this case, Dav-Con underreported its not-owned personal property. A penalty payment is required of those who undervalue their personal property on a personal property tax return by more than five percent (5%). See Ind. Code Ann. § 6- 1.1-37-7(e); see Dav-Con I, 644 N.E.2d at 198. If a taxpayer undervalues its property by more than five percent, the amount of the penalty applied is twenty percent of the additional taxes finally determined to be due as a result of the undervaluation. Dav- Con I, 644 N.E.2d at 198 (quoting Ind. Code 6-1-37-7(e)).
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