Canal Realty-Indy Castor v. STATE BD. OF TAX

• Decision Date: 05 February 2001
• Docket Number: No. 49T10-9803-TA-23.,49T10-9803-TA-23.
• Citation: 744 N.E.2d 597
• Parties: CANAL REALTY-INDY CASTOR, Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.
• Court: Indiana Tax Court

744 N.E.2d 597

CANAL REALTY-INDY CASTOR, Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.

No. 49T10-9803-TA-23.

Tax Court of Indiana.

February 5, 2001.

David L. Pippen, Indianapolis, IN, Attorney for Petitioner.

Steve Carter, Attorney General of Indiana, Vincent S. Mirkov, Deputy Attorney General, Indianapolis, IN, Attorneys for Respondent.

FISHER, J.

Petitioner Canal Realty-Indy Castor (Canal) appeals the final determination of the State Board of Tax Commissioners (State Board) establishing the assessed value of Canal's property as of March 1, 1992. Canal presents various issues for the Court's consideration, which the Court restates as:

I. Whether the State Board erroneously denied Canal an additional obsolescence adjustment for the subject improvements;

II. Whether the State Board violated Canal's due process rights when it sua sponte assessed paving on the subject property after its hearing officer inspected the property, where the State Board only permitted Canal an opportunity to respond via written communication with the hearing officer; and

III. Whether the State Board incorrectly valued the paving on the subject property.¹

FACTS AND PROCEDURAL HISTORY

Canal owns the subject property located in Marion County, Indiana. The township assessor initially valued the subject land at $10,830 and the subject improvements at $86,900, and the Marion County Board of Review sustained these values. On February 9, 1994, Canal filed a Form 131 petition for review challenging these assessed values. Specifically, Canal asserted the following: "Excessive amount of land classified as primary. Additional obsolescence depreciation should be applied." (State Bd. Tr., Ex. A.) On November 17, 1995, the State Board conducted an administrative hearing on the petition.

At some point, Hearing Officer Norman Binford sent Canal's taxpayer representative, Mr. M. Drew Miller, a letter stating in part that "No assessment has been made in regards to the paving of this parcel. It is determined that 57,050 square feet of paving exists."² (Joint Ex. 1.) Furthermore, Binford indicated the condition and age of the paving and posited that it should be priced at ninety cents per square foot.³ Id. In the letter, Binford valued the paving at $8400. Id. The letter gave Miller ten days "to present any additional evidence that will have a bearing on these issues." Id.

Miller responded in a letter dated January 15, 1997, in which he opined that the "paving is in such poor condition that it does not add value to the property and should not be assessed." (State Bd. Tr., Ex. C.) In addition, Miller requested that Binford forward to him all evidence that was gathered outside the administrative hearing and further requested an opportunity to respond to the evidence. Id. He also wanted "[e]vidence gathered in determining that additional obsolescence depreciation should or should not be applied." Id.

In a letter dated April 23, 1997, Binford explained that the paving's age was an estimate and that he would consider any evidence showing the paving to be older. (State Bd. Tr., Ex. D.) He asked that Miller "forward any information that tends to prove [the paving's] actual age within ten (10) days." Id. Also, Binford stated that the paving's condition was determined by "physical examination of the property in November of 1996" and that its square footage was determined "from a photograph made in the spring of 1985 with a scale of enlargement of 1 [inch] to 100 [feet]."⁴ Id. As regards obsolescence, he wrote "Obsolescence applied by the [County Board of Review] is determined to be without error. No evidence is presented that additional obsolescence is warranted." Id.

Miller replied via letter dated April 30, 1997:

Again with regard to the paving, we need to know what evidence you gathered outside the hearing held 11/17/95 that the paving was in fact in existence on 03/01/92 or whether it was refurbished after 03/01/92 but before your inspection date. Also, how was it determined that all of the paving sits on this parcel[?] Finally what evidence did you gather to show that the paving actually adds value to the property[?]

(State Bd. Tr., Ex. E.)

The State Board issued its final determination on January 28, 1998. With respect to obsolescence, the State Board concluded: "Obsolescence depreciation can not be granted without either supportable evidence submitted by the petitioner or without verification from inspection of the structures. After inspecting the structures it is determined that there are no symptoms to support the application of additional obsolescence depreciation. It is determined there is no additional obsolescence granted."⁵ (State Bd. Tr., Ex. F.) Also, the State Board stated that, after inspection of the site, "it is determined there is 57,050 square feet of paving that was omitted from the assessment. A change is made as a result of this finding." Id.

Canal filed this original tax appeal on March 13, 1998. The Court conducted a trial on November 9, 1998. Additional facts will be supplied where necessary.

ANALYSIS AND OPINION

Standard of Review

The Court gives great deference to the State Board's final determinations when the State Board acts within the scope of its authority. Wetzel Enters., Inc. v. State Bd. of Tax Comm'rs, 694 N.E.2d 1259, 1261 (Ind. Tax Ct.1998). Accordingly, this Court reverses final determinations of the State Board only when those decisions are unsupported by substantial evidence, are arbitrary or capricious, constitute an abuse of discretion, or exceed statutory authority. Id. The taxpayer bears the burden of demonstrating the invalidity of the State Board's final determination. Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct.1998).

Discussion

I. Obsolescence

Canal contends that the State Board failed to meaningfully consider its evidence of obsolescence and provided no evidence or explanation for its determination that an additional obsolescence adjustment was not warranted under the circumstances. According to Canal, it "presented the State Board with an accepted appraisal method and data necessary to properly calculate obsolescence depreciation." (Pet'r Br. at 5.) The State Board maintains that Canal failed to show why the assigned obsolescence adjustment was incorrect. The State Board argues that Canal offers no probative evidence as to obsolescence, so that the State Board's duty to support its final determination with substantial evidence on this issue was never triggered. (Resp't Br. at 6-8) (citing Whitley Prods., Inc. v. State Bd. of Tax Comm'rs, 704 N.E.2d 1113 (Ind. Tax Ct.1998),review denied).

"Obsolescence Depreciation is composed of functional and economic loss of value. Functional Obsolescence . . . is evidenced by conditions within the property. Economic obsolescence is caused by factors external to the property." IND.ADMIN.CODE tit. 50, r. 2.1-5-1 (1992) (codified in present form at id., 2.2-10-7(e) (1996)). Obsolescence is expressed as a percentage reduction in the remaining value of the subject improvement. Id. (codified in present form at id., r. 2.2-10-7(f) (1996)). Determination of obsolescence involves (1) identification of causes of obsolescence and (2) quantification of the amount of obsolescence to be applied. Clark, 694 N.E.2d at 1238. The regulations list various causes of functional and economic obsolescence. IND.ADMIN.CODE tit. 50, r. 2.1-5-1 (1992). The list is illustrative, not exhaustive. Lake County Trust v. State Bd. of Tax Comm'rs, 694 N.E.2d 1253, 1257 (Ind. Tax Ct.1998), review denied. To quantify obsolescence, parties may use generally recognized appraisal methods. Clark, 694 N.E.2d at 1242 n. 18.

The parties agree that obsolescence is present in the subject improvements. Therefore, quantification of obsolescence, not the identification of causes thereof, is the issue here. Phelps Dodge v. State Bd. of Tax Comm'rs, 705 N.E.2d 1099, 1102 (Ind. Tax Ct.1999) (stating that fact that parties agree on causes of obsolescence "obviates [taxpayer's] burden of offering probative evidence showing that the subject improvements experience obsolescence"), review denied. Canal submitted an "Assessment Review and Analysis" (Review) to support its argument for an increased obsolescence adjustment.⁶ (Joint Ex. 2.) The Review states that "60% overall obsolescence should be applied" to the subject property. (Joint Ex. 2.) Included in the Review are four pages from a manual on property assessment. Canal does not identify the title of the manual. At trial, a witness for Canal, Mr. Lance Rickard, identified the information as a section from the Property Assessment Valuation Manual and stated that it is a publication by the International Association of Assessing Officers (IAAO). (Trial Tr. at 12.) The section copied is titled "Methods of Measuring Depreciation" and states "There are six methods used to measure accrued depreciation," including the "Comparative Sales Data Method." (Joint Ex. 2.) According to the IAAO's Manual, this method estimates accrued depreciation by using the replacement cost new of the subject building and incorporating sales data from "Buildings of similar age, condition, and desirability that have been sold recently." Id. The Review also contains data from two sales of allegedly comparable properties. Id.

Assuming, without holding, that the comparative sales data method advocated by Canal is a generally recognized appraisal method,⁷ the Court observes that Canal has failed to present a prima facie case as to quantification of obsolescence. First, that a sixty percent obsolescence adjustment should be applied is a conclusory observation that does not constitute probative evidence.⁸ Cf. CDI, Inc. v. State Bd. of Tax Comm'rs, 725 N.E.2d 1015, 1019 (Ind. Tax Ct.2000)

(addressing grade). Second, the Review does not explain how the listed sales information, when using the comparative sales data method, supports application...