ATTORNEY FOR PETITIONER:
DAVID L. PIPPEN
ATTORNEY AT LAW
ATTORNEYS FOR RESPONDENTS:
ATTORNEY GENERAL OF INDIANA
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
CAPITAL MACHINE CO., INC., )
v. ) Cause No. 49T10-0004-TA-46
DEPARTMENT OF LOCAL )
ON APPEAL FROM A FINAL DETERMINATION
OF THE STATE BOARD OF TAX COMMISSIONERS
NOT FOR PUBLICATION
July 30, 2003
Capital Machine Co., Inc. (Capital) appeals the final determination of the State Board
of Tax Commissioners (State Board) valuing its improvement for the 1995 tax year.
The issue for the Court to decide is whether the State Board
erred when it refused to award Capitals improvement additional obsolescence depreciation.
See footnote For
the following reasons, the Court AFFIRMS the State Boards final determination.
FACTS AND PROCEDURAL HISTORY
Capital owns a commercial improvement in Marion County, Indiana. For the 1995
assessment year, Capitals improvement was awarded 20% functional obsolescence depreciation. Capital appealed
its assessment to the Marion County Board of Review (BOR), arguing that additional
obsolescence was warranted. The BOR denied Capitals appeal. On May
4, 1998, Capital appealed the BORs decision to the State Board, arguing that
its improvement was entitled to 86.6% functional obsolescence depreciation. The State Board
held a hearing and, on March 10, 2000, it issued a final determination
denying Capitals request.
On April 26, 2000, Capital initiated an original tax appeal. The parties
stipulated to the record and, on April 26, 2001, presented oral arguments.
Additional facts will be supplied as needed.
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. Thousand Trails, Inc.
v. State Bd. of Tax Commrs, 757 N.E.2d 1072, 1075 (Ind. Tax Ct.
2001). 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.
Furthermore, a taxpayer who appeals to this Court from a State Board final
determination bears the burden of showing that the final determination was invalid.
Id. The taxpayer must present a prima facie case by submitting probative evidence,
i.e., evidence sufficient to establish a given fact that, if not contradicted, will
remain sufficient. Id. Once the taxpayer presents a prima facie case,
the burden shifts to the State Board to rebut the taxpayers evidence and
support its findings with substantial evidence. Id.
The sole issue is whether the State Board erred when it refused to
award additional obsolescence depreciation to Capitals improvement. Obsolescence is the functional or
economic loss of property value; it is expressed as a percentage reduction in
the remaining value of the subject improvement. Clark v. Dept of Local
Govt Fin., 779 N.E.2d 1277, 1283 (Ind. Tax Ct. 2002) (Clark II); Clark
v. State Board of Tax Commrs, 742 N.E.2d 46, 51 (Ind. Tax Ct.
2001) (Clark I) (citing Ind. Admin. Code tit. 50, r. 2.1-5-1 (1992)).
"Functional obsolescence is caused by factors internal to the property and is evidenced
by conditions within the property." Clark II, 779 N.E.2d at 1283 (internal
quotation marks omitted). "Economic obsolescence is caused by factors external to the
property." Id. (internal quotation marks omitted). Determination of obsolescence involves
(1) identification of causes of obsolescence and (2) quantification of the amount of
obsolescence to be applied. Clark I, 742 N.E.2d at 51.
The question in this case is whether Capital submitted probative evidence quantifying its
request for obsolescence.
See footnote At the administrative hearing, Capital presented a document entitled
Assessment Review and Analysis (Analysis), which was prepared by its tax representative, M.
Drew Miller of Landmark Appraisals, Inc. (Stip. R. at 2530.) In
the Analysis, Miller submitted a cursory mathematical calculation to quantify Capitals request, explaining
that [a]fter deducting the physical depreciation that is already applied by the County
from the total accrued depreciation that is calculated using the Economic Life Method,
86.6% is the amount attributable to obsolescence depreciation.See footnote (Stip. R. at 27.)
Attached to Millers calculation is a table from the Marshall Swift Valuation
Service showing ranges of typical life expectancies for garages, industrials and warehouses.
(Stip. R. at 2829.)
To quantify functional obsolescence, Capital must carefully, methodically, and in detail
logical relationship between the existence of obsolescence and the quantification of the effects
of obsolescence. See Clark II, 779 N.E.2d at 1282 n.4. Instead,
Capital merely submitted some conclusory math juxtaposed against a page of life expectancy
tables from the Marshall Swift Valuation Service. Indeed, it never showed the
relationship between a cause of obsolescence and the need for an additional 66.6%
See footnote In short, the difference between probative evidence and Capitals evidence is
the difference between lightning and a lightning bug. Capitals evidence does not illuminate
the reason behind its request for additional obsolescence; the State Board was entitled
to reject it.
For the aforementioned reasons, the Court AFFIRMS the State Boards final determination.
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), and the
Indiana Board of Tax Review (Indiana Board).
Ind. Code §§ 6-1.1-30-1.1; 6-1.5-1-3
(West Supp. 2001); 2001 Ind. Acts 198 §§ 66, 95. Pursuant to
Indiana Code § 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 § 6-1.5-5-8 (West Supp. 2001) (eff. 2002); 2001
Ind. Acts 198 § 95. Nevertheless, the law in effect prior to
January 1, 2002 applies to these appeals. 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
In addition, Capital raises various state and federal constitutional claims that this
Court has declined to reach in previous cases.
See, e.g., Barth, Inc.
v. State Bd. of Tax Commrs, 756 N.E.2d 1124, 1127 n.1 (Ind. Tax
Ct. 2001). Because Capitals claims and supporting arguments are identical to those
previously rejected by the Court, the Court will not address them.
The State Boards allowance of a 20% obsolescence depreciation indicates that obsolescence
exists, therefore, the first prong of
Clark I is not at issue here.
Miller valued Capitals property with the economic life method, also referred to
as the age-life method. The age-life method depreciates the value of an
improvement based on the ratio between its effective age, i.e., the age of
the improvement indicated by its condition and utility according to market perceptions, and
its economic life expectancy.
Appraisal Inst., The Appraisal of Real Estate 385,
392 (12th ed. 2001). Here, Miller assumed that the improvements effective age was
fifty-two years and divided that value by a putative total economic life of
fifty-five years to arrive at a quotient of 96%, which he says equals
the improvements total accrued depreciation, both physical and obsolescence. (See Stip. R.
Although Miller states he derived his age calculations from the Marshall Swift
Valuation Service, he did not explain why he chose these particular tables as
opposed to any other. (
See Stip. R. at 27.) Moreover, an
appraiser who uses the age-life method must, at the very least, [c]onduct research
to identify the anticipated total economic life of similar structures in the market
area[.] Appraisal Inst., supra note 3 at 392. No such research
was presented in Millers Analysis.