Barker v. STATE BD. OF TAX COM'RS, 49T10-9601-TA-00009.

• Decision Date: 27 May 1999
• Docket Number: No. 49T10-9601-TA-00009.,49T10-9601-TA-00009.
• Parties: Susan J. BARKER, Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.
• Court: Indiana Tax Court

712 N.E.2d 563

Susan J. BARKER, Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.

No. 49T10-9601-TA-00009.

Tax Court of Indiana.

May 27, 1999.

John R. Rumple, Sharpnack Bigley David & Rumple, Columbus, Indiana, Attorney for Petitioner.

Jeffrey A. Modisett, Attorney General of Indiana, Joel Schiff, Deputy Attorney General, Indianapolis, Indiana, Attorneys for Respondent.

FISHER, J.

Susan J. Barker appeals a final determination of the State Board of Tax Commissioners (State Board) fixing the assessed value of her real property as of March 1, 1993. Barker raises one issue for the Court's determination: whether the State Board erred in denying a kit adjustment to the subject improvement.

FACTS AND PROCEDURAL HISTORY

In 1991, Barker purchased a large warehouse located in Johnson County from Kokomo Grain, Inc. for $850,000. This warehouse is a light, pre-engineered building and was constructed at a cost of $835,200 in 1986. At some point after she purchased the warehouse, Barker filed a Form 130 Petition for Review of Assessment with the Johnson County Board of Review (BOR).¹ In that petition, Barker contended that the warehouse qualified for a kit adjustment. On August 16, 1994, the BOR denied Barker's petition. On October 3, 1994, Barker filed a Form 131 Petition for Review of Assessment with the State Board alleging that the warehouse qualified for the kit adjustment and that the grade of the warehouse should be lowered. On November 6, 1995, an administrative hearing was held before Mr. Steven King, a State Board hearing officer. On December 22, 1995, the State Board issued its final determination. In that final determination, the State Board lowered the grade of the warehouse from C to D, concluded that the subject improvement should be depreciated according to the 30-year Life Expectancy Table and denied the kit adjustment. This resulted in a true tax value for the subject improvement of $1,492,110.² On January 30, 1996, Barker filed this original tax appeal, and on September 6, 1996, the parties tried this cause before this Court.³ Additional facts will be added as necessary.

ANALYSIS AND OPINION

Standard of Review

The State Board is afforded great deference when it acts within the scope of its authority. See King Indus. Corp. v. State Bd. of Tax Comm'rs, 699 N.E.2d 338, 339 (Ind. Tax Ct.1998)

. Accordingly, the Court will only reverse a State Board final determination where that determination is unsupported by substantial evidence, is arbitrary or capricious, constitutes an abuse of discretion, or exceeds statutory authority. See id.

Discussion

In 1991, the State Board amended the regulations governing the 1989 general reassessment to include a 50% reduction in base price for "pre-engineered kit-type structure[s]." IND. ADMIN. CODE tit. 50, r. 2.1-4-5 Schedules A.1 and A.2 (1992) (codified in present form at id. r. 2.2-11-6 Schedule A.4 (1996)); Barth, Inc. v. State Bd. of Tax Comm'rs, 699 N.E.2d 800, 803 (Ind. Tax Ct.),reh'g denied,705 N.E.2d 1084 (1998); King Indus. Corp.,699 N.E.2d at 339; Bock Prods., Inc. v. State Bd. of Tax Comm'rs, 683 N.E.2d 1368, 1372 (Ind. Tax Ct.1997); Mahan v. State Bd. of Tax Comm'rs, 622 N.E.2d 1058,1063 (Ind. Tax Ct.1993). The reduction in the base price was to account for the lower costs of construction associated with kit buildings, see King Indus. Corp.,699 N.E.2d at 339, and, as the State Board notes in its brief, was in response to an inability of local assessing officials to properly assess kit buildings by using the pre-existing cost schedules and grade adjustments.⁴See Bock Prods., Inc.,683 N.E.2d at 1372. After the amendments, the regulations themselves contained no guidance⁵ on what constituted a "kit-type structure." Accordingly, the State Board issued a memorandum to all assessing officials on February 22, 1991 that contains a limited explanation of how the kit adjustment was to be applied. Memorandum from State Board of Tax Commissioners to All Assessing Officials (Feb. 22, 1991). Later that year, the State Board issued Instructional Bulletin 91-8 to further instruct assessing officials on how to determine which improvements qualified for the kit adjustment. Instructional Bulletin 91-8 provides examples of kit buildings and outlines several characteristics of kit buildings, e.g., Cold Cee Channel wall supports, X bracing, metal or steel exterior skin, and round steel columns. See King Indus. Corp.,699 N.E.2d at 339-41.

Although the stated purpose of the Instructional Bulletin 91-8 was to clarify the meaning of "kit-type structures" as that term is used in the regulations, Instructional Bulletin 91-8 has "often been more confusing than helpful." Id. at 339. As noted in King Industrial Corp., the use of language such as "economical," "minimal tolerances," "normal," and "heavy loads" in Instructional Bulletin 91-8 necessarily leaves much to the discretion of an individual assessor and makes it "difficult to see how any consistency or uniformity in applying the kit building adjustment can be achieved among assessors." Id. at 340. Moreover, instead of providing strict requirements for an improvement to qualify for a kit adjustment, Instructional Bulletin 91-8 lists some of the kit building identification features as "clues." Furthermore, Instructional Bulletin 91-8 allows improvements to vary from the basic kit model and still qualify for the kit adjustment. See Componx, Inc. v. State Bd. of Tax Comm'rs, 683 N.E.2d 1372, 1374 (Ind. Tax Ct.1997)

. Not surprisingly, this has led to some confusion in the application of the kit adjustment and has made effective judicial review of cases involving kit adjustments difficult. See King Indus. Corp.,

699 N.E.2d at 340 n. 4 (Instructional Bulletin 91-8 is "woefully inadequate for purposes of determining with any degree of certainty whether a building is, in fact, a kit building.").

The inadequacy of Instructional Bulletin 91-8 lies not so much in the inability of taxpayers to identify what evidence is relevant to the determination of what is a kit building, see Whitley Prods., Inc.,704 N.E.2d at 1121, but rather in that Instructional Bulletin 91-8 fails to provide adequate guidance on how that evidence is to be evaluated.⁶ For example, Instructional Bulletin 91-8 fails to specify which "clues" are more important than the others,⁷ or even how many of the "clues" must be satisfied in order to qualify for the kit adjustment. Additionally, Instructional Bulletin 91-8 provides little specific guidance concerning when an improvement's deviation from the basic kit model disqualifies the improvement for the kit adjustment and when an improvement's deviation from the basic kit model does not. However, Instructional Bulletin 91-8 does contain a general line of demarcation separating deviations that disqualify a particular improvement from receiving the kit adjustment and deviations that do not. The relevant consideration is the effect of the particular deviation or deviations on the cost of the improvement. Where the deviations render the particular improvement no longer "economical," the improvement no longer qualifies for the kit adjustment. See Instructional Bulletin 91-8 at 7; King Indus. Corp.,699 N.E.2d at 340 n. 6; Componx, 683 N.E.2d at 1375. Unfortunately, Instructional Bulletin 91-8 does not define "economical," thereby leaving taxpayers, assessors, and the courts with an imprecise standard to distinguish kit buildings from other light pre-engineered buildings. Cf. Garcia v. State Bd. of Tax Comm'rs, 694 N.E.2d 794, 798 (Ind. Tax Ct.1998)

(criticizing lack of precision in State Board's regulations concerning grade).

Another problem with the kit adjustment and Instructional Bulletin 91-8 is structural in nature. In Indiana, improvements are assessed based on models. See Barth, Inc., 699 N.E.2d at 802-03. These models contain certain components, which are presumed to be possessed by the improvement being assessed. See id. at 802. All but one of the models for commercial improvements falling under the General Commercial Industrial (GCI) and General Commercial Mercantile (GCM) general use types⁸ contain concrete or brick walls.⁹ As a result, in the vast majority of cases, assessors must use models that have concrete or brick walls to assess steel skinned improvements required to be assessed under the GCM or GCI general use type categories. This, as can be readily foreseen, creates difficulties in assessing these improvements: Steel skinned improvements do not possess concrete or brick walls, but the models (with one exception that applies to very few improvements) used to assess them do.

The State Board's solution to this problem was to adopt the kit adjustment amendments¹⁰ and the associated Instructional Bulletins. This solution did not solve the entire problem. Although steel skin is a characteristic of a kit building, not all steel skinned improvements qualify for the kit adjustment. See Instructional Bulletin 91-8 at 3. As a result, the State Board's solution leaves many steel skinned improvements still being assessed with models that contain concrete or brick walls. This coupled with the vagueness of Instructional Bulletin 91-8 means that taxpayers, assessors, and the courts are left to guess at how much of the problem of assessing steel skinned improvements with models that contain concrete or brick walls the State Board intended to solve when it adopted the kit adjustment amendments.

Although the problems described above make judicial review difficult in these kit adjustment cases, taxpayers are still entitled to effective judicial review when the State Board denies kit adjustments. See State Bd. of Tax Comm'rs v. Town of St. John, 702 N.E.2d 1034, 1040 n. 8 (Ind.1998)

. In these cases, taxpayers are required to offer probative evidence tending to demonstrate that the improvement is a kit building.

See King Indus. Corp.,

699 N.E.2d at 343. Once that is done, the State Board must come forward...