Canal Square Ltd. Partnership v. State Bd. of Tax Com'rs, 49T10-9608-TA-00095

• Decision Date: 24 April 1998
• Docket Number: No. 49T10-9608-TA-00095,49T10-9608-TA-00095
• Citation: 694 N.E.2d 801
• Parties: CANAL SQUARE LIMITED PARTNERSHIP, Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.
• Court: Indiana Tax Court

Page 801

694 N.E.2d 801

CANAL SQUARE LIMITED PARTNERSHIP, Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.

No. 49T10-9608-TA-00095.

Tax Court of Indiana.

April 24, 1998.

Larry J. Stroble and John T. Bailey, Barnes & Thornburg, Indianapolis, for petitioner.

Jeffrey A. Modisett, Attorney General, Angela L. Mansfield, Deputy Attorney General, Indianapolis, for respondent.

FISHER, Judge.

Canal Square Limited Partnership (Canal Square) appeals the final determination of the State Board of Tax Commissioners (State Board) assessing its property as of the March 1, 1992 assessment date. Canal Square presents two issues to the Court in its original tax appeal:

I. Whether the State Board rebutted Canal Square's prima facie case establishing the proper amount of obsolescence to be considered in valuing its property.

II. Whether the State Board must value Petitioner's land pursuant to that part of the Marion County Land Valuation Order that establishes values for apartment land.

Facts and Procedural History

Canal Square is an Indiana partnership with its principal place of business in Carmel, Indiana. Canal Square owns a parcel of land located in Center Township, Marion County, Indiana. The parcel is improved with an apartment complex known as the Canal Square Apartments (the Apartments). The Apartments are situated on land bounded by Vermont Street to the North, by New York Street to the South, the Indianapolis canal to the East, and West Street to the West.

On March 1, 1991, the Apartments were assessed as new construction. Canal Square filed a Form 134 Petition for Real Estate Reassessment ¹ with the State Board on March 25, 1992, requesting a reassessment as of March 1, 1992 (the Assessment Date). This petition was granted, and the Center Township Assessor issued a notice reassessing the property at $46,470 for the land and $4,639,530 for the improvements, resulting in a total assessed value of $4,686,000. On November 4, 1992, Canal Square filed a Form 130 Petition for Review of Assessment with the Marion County Board of Review (BOR). The BOR issued its assessment determination on June 25, 1993. This determination corrected the valuation of the plumbing and fixed the assessed value of the Apartments as of the assessment date at $46,470 for the land, and $4,587,530 for the improvements, resulting in a total assessed value of $4,634,000. Canal Square appealed the BOR's determination to the State Board on July 21, 1993, in a Form 131 Petition for Review of Assessment.

On February 28, 1996, a hearing was held by Ernest Clark, the State Board's Hearing Officer, concerning Canal Square's appeal of the assessment of the Apartments. On March 12, 1996, a supplemental hearing and walk-through of the Apartments was conducted by the State Board's Hearing Officer. The State Board issued its Final Assessment Determination on July 3, 1996, fixing the total assessed value of Canal Square's property at $3,786,830 as of the Assessment Date ($464,630 assessed value for the land and $3,322,200 assessed value for the improvements).

At the administrative hearing, Canal Square introduced the testimony of an expert witness, Thomas J. Kaliker, an appraiser certified as a Member of the Appraisal Institute (MAI). Mr. Kaliker testified that the definitions of functional and economic obsolescence in the State Board's regulations (the Assessment Manual) are identical to the definitions of functional and economic obsolescence used by appraisers in arriving at market value. The State Board's Hearing Officer testified in agreement with this proposition and acknowledged that the source of the definition of obsolescence in the Assessment Manual is a book published by the American Institute of Real Estate Appraisers. (Stipulation Exhibit 3, p. 9; Kaliker Testimony, Tr. at 31; Clark Testimony, Tr. at 48).

At the hearing, Canal Square introduced an appraisal study prepared by Mr. Kaliker that quantified the functional and economic obsolescence applicable to the property using recognized appraisal principles. (Stipulation Exhibit 3, p. 6; Kaliker Testimony, Tr. at 21-23, 30.). Mr. Kaliker identified several sources of obsolescence including the excessively narrow floor plan of certain rental units, an electrical substation on site, and the superadequate construction required by the City of Indianapolis. ² (Stipulation Exhibit 2-C, p. VI-50 through VI-52--Exhibit 3, p. 8-10; Kaliker Testimony, Tr. at 25-31). Mr. Kaliker concluded that the functional and economic obsolescence affecting the Apartments equaled 34.35% of the estimated replacement cost of the property (after physical depreciation). (Stipulation Exhibit 2-C, p. VI-52; Kaliker Testimony, Tr. at 23, 30).

In contrast, the State Board did not prepare any calculations or studies quantifying the amount of obsolescence affecting the Apartments. (Clark Testimony, Tr. at 45-46). Nor did the State board provide any written finding in the administrative record that Canal Square's quantification of the obsolescence at 34.35% was incorrect. Instead, the State Board allowed an obsolescence adjustment of 10%. At trial, the only evidence identified by the State Board in support of the 10% figure was the opinion of its Hearing Officer. (Stipulation Exhibit 3; Clark Testimony, Tr. at 45-46).

The valuation of Canal Square's land was not an issue raised by either Canal Square or the State Board at the administrative hearing or at the supplemental hearing and walkthrough of the Apartments. (Stipulation, para. 11 and Exhibit 3). The State Board's Final Assessment Determination issued July 3, 1996, however, increased the value of the Canal Square land from $1 per square foot to $10 per square foot--a value in excess of the Apartment Land Schedule on page 2 of the Marion County Land Valuation Order. (Stipulation Exhibits 3 and 4). In instances other than the valuation of the Canal Square land, the Center Township Assessor has valued land improved with apartments using the Apartment Land Schedule on page 2 of the Marion County Land Valuation Order. (Stipulation Exhibits 6, 7 and 8). In addition, the Assessors of Pike, Warren, and Washington Townships in Marion County have valued land improved with apartments using the Apartment Land Schedule on page 2 of the Marion County Land Valuation Order. (Stipulation Exhibits 11-12, 14, and 16-17). See Indianapolis Historic Partners v. State Bd. of Tax Comm'rs, 694 N.E.2d 1224 (Ind.Tax Ct.1998) (discussing Land Order in detail).

This case was tried before the Court on July 21, 1997, with the filing of a First Stipulation of Facts (the Stipulation) and the presentation of testimony of Thomas J. Kaliker and Ernest Clark. At trial, the Court admitted the Stipulation, Petitioner's Exhibits 1 through 5, and Respondent's Exhibit A. (Tr. at 12, 14). The Court also admitted Exhibits 6 through 17 regarding the land valuation issue. (Tr. at 14).

Standard of Review

The State Board is charged with the responsibility of interpreting the property tax laws and ensuring that property assessments are made in the manner prescribed by law. See Zakutansky v. State Bd. of Tax Comm'rs, 691 N.E.2d 1365, 1367 (Ind.Tax Ct.1997). This Court has recognized that the State Board must be given a great deal of discretion in carrying out these responsibilities. Consequently, the party challenging an assessment bears the burden of demonstrating that the assessment is unsupported by substantial evidence, constitutes an abuse of discretion, exceeds the State Board's statutory authority, or is arbitrary or capricious. Vonnegut v. State Bd. of Tax Comm'rs, 672 N.E.2d 87, 89 (Ind.Tax Ct.1996), review denied.

Discussion and Analysis

I. Canal Square's Prima Facie Case of Obsolescence Taxpayer's Prima Facie Case Will Prevail If the State Board Fails To Rebut It

This Court's decisions have articulated the standards that apply in evaluating a taxpayer's claim that its property tax values are negatively affected by obsolescence.

In Thorntown Telephone Co. v. State Board of Tax Commissioners, 588 N.E.2d 613 (Ind.Tax Ct.1992) (Thorntown I ) and Thorntown Telephone Co. v. State Board of Tax Commissioners, 629 N.E.2d 962 (Ind.Tax Ct.1994) (Thorntown II ) (together the Thorntown cases), the taxpayer challenged the State Board's final determination denying an obsolescence adjustment for the taxpayer's property. This Court stated that when a taxpayer appeals the State Board's determination of obsolescence, it bears the burden of showing that the State Board's assessment is inaccurate. Thorntown II, 629 N.E.2d at 964. This burden can be met when the taxpayer presents a prima facie case in support of its position. Id. The Court defined a prima facie case as one which presents "such evidence as is sufficient to establish a given fact and which if not contradicted will remain sufficient." Id. (quoting Plough v. Farmers State Bank, 437 N.E.2d 471, 475 (Ind.Ct.App.1982)); see also Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1233-1235 (Ind.Tax Ct. 1998). The taxpayer in the Thorntown cases presented, among other things, "studies and statistics on costs of reproduction less depreciation [and] capitalization of income" that quantified the obsolescence it was contending should be applied to its property. 629 N.E.2d at 964. The Court recognized these studies as establishing a prima facie case of obsolescence. Id. at 964-65.

Given that the taxpayer had established its prima facie case in Thorntown II the Court stated that "it was incumbent upon the State Board to rebut the [taxpayer's] evidence." Id. at 965. The Court found that the State Board had failed to do so. Instead, the State Board refused to consider the studies based on the unsupported assertion that "they resulted in 'wide-spread and unexplained differences' " and the fact that they were prepared by the taxpayer. Id. The Court dismissed both bases for the State Board's refusal to consider the taxpayer's studies, stating that ...