ATTORNEYS FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
CURTIS J. DICKINSON JEFFREY A. MODISETT
DAVID L. PIPPEN Attorney General of Indiana DICKINSON & ABEL Indianapolis, Indiana
VINCENT S. MIRKOV
Deputy Attorney General
WHITLEY PRODUCTS, INC., ) ) ) Petitioner, ) ) v. ) Cause No. 49T10-9701-TA-00048 ) STATE BOARD OF TAX COMMISSIONERS, ) ) Respondent. ) _____________________________________________________________________COMMISSIONERS _____________________________________________________________________
ON APPEAL FROM A FINAL DETERMINATION OF THE STATE BOARD OF TAX
3) Did the State Board err in denying functional and economic
obsolescence to the subject improvement?
State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1236 & n.1 (Ind. Tax Ct. 1998). The
grades represent multipliers that are applied to the base reproduction cost of an
improvement as calculated by using the cost schedules provided in State Board
regulations. See Zakutansky, 696 N.E.2d at 496 n.5; Garcia, 694 N.E.2d at 796-97.
Whitley Products challenges the grading of the subject improvement. As noted
above, the three sections were graded separately. However, Whitley Products does
not make specific arguments with respect to each section. Instead, Whitley Products
makes a generalized contention that the State Board failed to take into consideration
the quality of the materials and workmanship of the subject improvement when
evaluating the grading of the subject improvement. Whitley Products also contends
that the State Board's regulations concerning grade fail to provide any ascertainable
standards by which this Court and taxpayers may evaluate a determination of grade
under the regulations.
With respect to the grading of the subject improvement, the State Board concluded in its final determination:
This building does not qualify as a steel kit building. . . . However, the overall quality of the materials and workmanship does resemble a steel kit building. To account for the lower cost of construction pursuant to 50 IAC 2.1-4-3(f), the grade of sections B and C has been reduced to D.
(State Bd. Final Determination at 2). The State Board did not alter the C grade already
assigned to section A of the subject improvement.
The above-quoted language would seem to undermine Whitley Products' contention that the State Board failed to take the quality of the materials and
workmanship into account when arriving at the grade of the subject improvement.See footnote
However, the evidence offered at trial paints a different picture of how the State Board
arrived at the D grade.
At trial, the State Board hearing officer, Ms. Ellen Yuhan, testified that she arrived at the D grade by calculating the deviations of the subject improvement from the model used to develop the cost schedule. Under the regulations, a C grade is given to a
[m]oderately attractive building constructed with average quality materials and workmanship throughout and conforming with the base specifications used to develop the pricing [cost] schedule. Minimal to moderate architectural treatment. Average quality interior finish with adequate built-in features. Standard grade mechanical features and fixtures.
Ind. Admin. Code tit. 50, r. 2.1-4-3(f); see also Clark, 694 N.E.2d at 1235.
When an improvement deviates from the model and associated cost schedule used to assess the improvement, the deviation often has an effect on the reproduction cost of the improvement. See Clark, 694 N.E.2d at 1236-37 & n.9; Componx v. State Bd. of Tax Comm'rs, 683 N.E.2d 1372, 1375 (Ind. Tax Ct. 1997). The preferred method of accounting for this deviation is to use separate schedules that show the costs of certain components and features present in the model. 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; see also Ind. Admin. Code tit. 50, r. 2.1-4-10 (1992) (codified in
present form at id. r. 2.2-15-1 (1996)). This allows an assessor to adjust the base
reproduction cost of the improvement objectively.See footnote
See Barth, Inc., 699 N.E.2d at 802-
03; Clark, 694 N.E.2d at 1236 n.6; Wareco Enters. v. State Bd. of Tax Comm'rs, 689
N.E.2d 1299, 1302 (Ind. Tax Ct. 1997); Hatcher v. State Bd. of Tax Comm'rs, 561
N.E.2d 852, 857 (Ind. Tax Ct. 1990).
The other means of accounting for an improvement's 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 assessor's subjective judgment. See Reams v. State Bd. of Tax Comm'rs, 620 N.E.2d 758, 760 (Ind. Tax Ct. 1993). Where possible, this type of an adjustment should be avoided. See Clark, 694 N.E.2d at 1236 n.6. However, because the component (base rate adjustment) schedules are not comprehensive, this type of adjustment may be necessary. See Hatcher v. State Bd. of Tax Comm'rs, 601 N.E.2d 19, 21-22 (Ind. Tax Ct. 1992); see also Barth, 699 N.E.2d at 803 n.8.
According to Ms. Yuhan, the latter method is how the State Board accounted for the deviations of the subject improvement from the model. Upon inspecting the subject improvement, Ms. Yuhan determined that a number of components presumed to exist in
the model did not exist in sections B and C of the subject improvement. (Trial Tr. at
30). She then calculated the reproduction cost of the missing components by using the
component schedules. This reduced the reproduction cost of the subject improvement
by about 20%. (Trial Tr. at 19). This reduction corresponded to the D grade,See footnote
the State Board adopted in its final determination for sections B and C of the subject
As for the quality of materials and workmanship, Ms. Yuhan indicated that they were not considered in arriving at the D grade, except for the metal framing and the reinforced concrete. (Trial Tr. at 33). In arriving at the D grade, Ms. Yuhan started by assuming that but for the deviations from the model, the C grade was appropriate. (Trial Tr. at 30). Ipso facto, this means that she considered the quality of the materials and workmanship to be average.
This is inconsistent with the State Board's final determination, which refers to the quality of materials and workmanship as being a reason for the reduction in grade. Previous decisions of this Court and the Indiana Court of Appeals have long stressed the need for the State Board to outline its reasoning in its written findings.See footnote 7 See Barth,
Inc., 699 N.E.2d at 802 n.6; Zakutansky, 696 N.E.2d at 495 n.2; Loveless Constr. Co.,
695 N.E.2d at 1050 n.8; Alte Salems Kirche v. State Bd. of Tax Comm'rs, 694 N.E.2d
810, 814 n.4 (Ind. Tax Ct. 1998); Canal Square Ltd. Partnership v. State Bd. of Tax
Comm'rs, 694 N.E.2d 801, 810 (Ind. Tax Ct. 1998); Clark, 694 N.E.2d at 1243 n.23;
Indianapolis Historic Partners v. State Bd. of Tax Comm'rs, 694 N.E.2d 1224, 1226-27
n.3; 20th Century Fiberglass v. State Bd. of Tax Comm'rs, 683 N.E.2d 1376, 1377 (Ind.
Tax Ct. 1997); Scheid v. State Bd. of Tax Comm'rs, 560 N.E.2d 1283, 1284 (Ind. Tax
Ct. 1990); State Bd. of Tax Comm'rs v. Gatling Gun Club, Inc., 420 N.E.2d 1324, 1329
n.5 (Ind. Ct. App. 1980); Stokely-Van Camp, Inc. v. State Bd. of Tax Comm'rs, 394
N.E.2d 209, 211 (Ind. Ct. App. 1979). As this case demonstrates, there is also a need
for the State Board to accurately outline the reasons for its decisions in its written
The disparity between Ms. Yuhan's explanation of how the D grade was calculated and what the State Board referred to in its final determination is troubling because it makes judicial review of the State Board's factual conclusions concerning the grading of the subject improvement difficult, if not impossible. In this case, there is no way of knowing whether the State Board determined that the quality of the materials and workmanship of sections B and C of the subject improvement were average or whether they were more consistent with the D grade.
In addition, the grading of the subject improvement was necessarily flawed. If Ms. Yuhan's version of how the grade of sections B and C was determined is accepted by the Court, the quality of the materials and workmanship, as is required by the
regulations, could not have been taken into account in the State Board's determination
of the grade of those sections. If the State Board's written findings, which refer to the
quality of the materials and workmanship, are accepted as the accurate version of how
the grade of sections B and C was determined, then the deviations from the model
could not have been taken into account in determining the grade of those sections.See footnote
These problems with the State Board's final determination, however, do not mandate reversal with respect to the grade issue. As the case law makes clear, State Board hearing officers do not have the duty to make a case for the taxpayer. See Clark, 694 N.E.2d at 1237 n.10; North Park Cinemas, Inc. v. State Bd. of Tax Comm'rs, 689 N.E.2d 765, 769 (Ind. Tax Ct. 1997). This means that when a taxpayer challenges a real property assessment, the State Board need not search the property to find errors, the correction of which is beneficial to the taxpayer. Rather, the State Board has every right to expect that any errors in an assessment will be brought to the State Board's attention by the taxpayer. See Clark, 694 N.E.2d at 1237 n.10.
Thus, where a taxpayer petitions the State Board for a review of an assessment, the State Board may limit its inquiry to only those errors raised by the taxpayer.See footnote 9 Cf.
Barth, Inc., 699 N.E.2d 806-07 & nn.17 & 19 (focusing on error raised by taxpayer and
distinguishing between error raised by taxpayer and error raised by State Board). This
means that all other constituent parts of the assessment, if the State Board declines to
review them, will not be changed, and, as far as the law is concerned, will be deemed
to be correct. This results from the Court's scope of review, which precludes the Court
from considering issues and evidence not presented to the State Board. See Ind. Code
Ann. § 33-3-5-14 (West 1996).
In order to avoid this occurrence, a taxpayer may specifically allege that every constituent part that makes up an assessment is erroneous. This, theoretically, would place the entire assessment at issue and could have the practical effect of forcing the State Board to make a case for the taxpayer because, like any other administrative agency, the State Board must have substantial evidence to support its decisions, see Clark, 694 N.E.2d 1233-35 & n.2, and where there is no evidence in the record to support a State Board final determination, the law mandates reversal.See footnote 10 See id. at 1234.
See Clark, 694 N.E.2d at 1241 n.17. Accordingly, Whitley Products
failed to place the grading of the subject improvement at issue so as to trigger the
substantial evidence standard. Therefore, the problems with respect to the State
Board's grading of the subject improvement are insufficient to overturn the State
This may seem a somewhat harsh result because Whitley Products has demonstrated that there were flaws in the State Board's grading of the subject improvement. However, in the Court's view, it is not too much to ask that a taxpayer present probative evidence concerning the error the taxpayer alleges. To do otherwise, as stated above, would have the practical effect of forcing the State Board make a case for the taxpayer.
In this case, instead of presenting probative evidence with respect to the grading of the subject improvement at the administrative level, Whitley Products waited to attack the State Board's methodology in an original tax appeal. Although the Court was dealing with obsolescence rather than grade when it stated, The administration of this state's property taxation system is best served by having taxpayers make detailed factual presentations to the State Board, the acknowledged property tax experts,
Clark, 694 N.E.2d at 1241 (emphasis added), this statement holds true for grade as
well. In addition, to 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. Id.
Consequently, it is impossible to conclude that Whitley Products is suffering an
In reaching this conclusion the Court is well aware that Indiana's real property tax system is not a self-assessment system. See Dav-Con, Inc. v. State Bd. of Tax Comm'rs, No. 45T10-9510-TA-00114, slip op. at 10 (Ind. Tax Ct. Dec. 8, 1998). However, the fact that the State Board and lower assessing officials are charged with the duty of assessing property does not mean that a taxpayer may sit idly by while the State Board attempts to evaluate the taxpayer's allegation of error. Cf. North Park Cinemas, 689 N.E.2d at 769 (A party who stands to be adversely affected [by a State Board final determination] has an obvious responsibility to . . . present evidence and argument in support of its position.).
The Court is also aware that in this case the State Board changed the determination of the BOR, rather than simply upholding the BOR. This fact is of no moment. First of all, the fact that Whitley Products presented no probative evidence concerning the grading of the subject improvement means that, despite the fact that the BOR's grading of the subject improvement was incorrect,See footnote 13 the State Board could have
refused to examine the issue, thereby allowing the incorrect grading to stand. This
decision, as indicated above, would not have been disturbed by the Court. However,
the State Board, rather than simply refusing to examine the issue, lowered the grade of
sections B and C of the subject improvement, thereby benefiting Whitley Products.
Therefore, this action did not prejudice Whitley Products. Accordingly, the Court will
not reverse the State Board's grading of the subject improvement, in the absence of
evidence presented by the taxpayer, on this basis.
In addition, to allow Whitley Products to secure a reversal because the State Board changed the BOR's determination would mean that this Court's standard of review depends on whether the State Board is changing or upholding an assessment. This is contrary to law. See Loveless Constr. Co., 695 N.E.2d at 1048. This Court has but one standard by which it reviews final determinations of the State Board.See footnote 14 This standard does not change.
Whitley Products next argues that the State Board's final determination with respect to the grading of the subject improvement should be reversed because regulations governing grade fail to establish any ascertainable standards by which the Court may review the State Board's final determination. As a starting point for its analysis, the Court notes that an almost identical regulationSee footnote 15 governing grade has
been declared unconstitutional. See Town of St. John, No. 49S10-9806-TA-00340, slip
op. at 10 & n.7, aff'g in part and rev'g in part 690 N.E.2d 370, 386 (Ind. Tax Ct. 1997).
However, the fact that the subject improvement was graded under an
unconstitutional regulation does not mean that the assessment will be invalidated on
that basis. See Dana Corp. v. State Bd. of Tax Comm'rs, 694 N.E.2d 1244, 1247 (Ind.
Tax Ct. 1998); Town of St. John v. State Bd. of Tax Comm'rs, 691 N.E.2d 1387 (Ind.
Tax Ct. 1998) (order and judgment entry), aff'd in part, rev'd in part, No. 49S10-9806-
TA-00340 (Ind. Dec. 4, 1998). Real property must still be assessed, and, until the new
regulations are in place, must be assessed under the present system. This reality
means that a taxpayer will not be able to come into court, point out the inadequacies of
the present system and obtain a reversal of an assessment. See Dana Corp., 694
N.E.2d at 1247. Instead, the taxpayer must come forward with probative evidence
relating to the issue the taxpayer raises.See footnote
In this case, Whitley Products presented no
probative evidence relating to the grade issue. Therefore, the Court will not reverse
the State Board's determination of grade, and the Court AFFIRMS the final
determination of the State Board on this issue.
the base rate for certain light pre-engineered or kit-type buildings. See Barth, Inc., 699
N.E.2d at 803; Ind. Admin. Code tit. 50, r. 2.1-4-5 Schedules A1 and A2 (1992) (codified
in present form at id. r. 2.2-11-6 (1996) (Deduct 50% of base price (1st floor) for pre-
engineered kit-type structure.). Later that year, the State Board issued Instructional
Bulletin 91-8 to provide guidance to assessors on how to determine which light pre-
engineered buildings qualified for the reduction. See Componx, Inc., 683 N.E.2d at
1374 (The fact that a building is pre-engineered does not necessarily mean that it
qualifies for the kit adjustment.). Instructional Bulletin 91-8 lists several characteristics
common to kit buildings, such as Cold Form Open Cee Channel wall supports, X
bracing, and round steel columns. See King Indus. Corp., 699 N.E.2d at 339
(describing Instructional Bulletin 91-8). According to Instructional Bulletin 91-8, the
key element in identifying this low cost economical 'kit-type' structure is the type of
interior column and roof beam support. Instructional Bulletin 91-8 at 4. Instructional
Bulletin 91-8 also provides assessors with other identification clues. Instructional
Bulletin 91-8 at 6; see also King Indus. Corp., 699 N.E.2d at 339-40.
When a taxpayer seeks a kit adjustment, it is incumbent upon the taxpayer to offer evidence tending to show the improvement qualifies for the kit adjustment. See King Indus. Corp., 699 N.E.2d at 343. If the taxpayer fails to do so, the taxpayer's claim fails. See id. This is not an onerous burden. Although Instructional Bulletin 91-8 is somewhat flawed, see generally id. at 339-41, Instructional Bulletin 91-8 outlines a large number of specific characteristics of kit buildings. Accordingly, it should not be difficult for taxpayers to identify those characteristics in an improvement alleged to
qualify for the kit adjustment.
In this case, the evidence presented at trial, which is presumed to be the evidence presented at the administrative level,See footnote 17 did not tend to show that the subject improvement qualified for the kit adjustment. The only evidence offered by Whitley Products consisted of photographs of the subject improvement and the testimonySee footnote 18 of Ms. Yuhan who stated that the subject improvement resembled a kit building. (Trial Tr. at 19). (Ms. Yuhan's observation was echoed in the State Board's final determination. (State Bd. Final Determination at 2)). The photographs only showed the outside of the subject improvement and did not show any characteristics that distinguished the subject improvement from any other light pre-engineered structure. Therefore, the photographs did not tend to show that the subject improvement qualified for the kit adjustment. Similarly, Whitley Products did not make the required showing through Ms. Yuhan's testimony. Testimony that a given improvement resembles a kit building is not sufficient to show that the subject improvement is a kit building.
Because Whitley Products has failed to offer any evidence tending to show that the subject improvement qualified for the kit adjustment, the Court AFFIRMS the final
determination of the State Board on this issue.
§ 6-1.1-15-12 (West Supp. 1998), there are some limitations on that power. See Barth, Inc., 699 N.E.2d at 806-07; Hatcher, 561 N.E.2d at 857.
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