Clark v. DEPT. OF LOCAL GOVERNMENT FINANCE

• Decision Date: 17 December 2002
• Docket Number: No. 49T10-9808-TA-103.,49T10-9808-TA-103.
• Citation: 779 N.E.2d 1277
• Parties: Ronald D. CLARK d/b/a The Arches, Petitioner, v. DEPARTMENT OF LOCAL GOVERNMENT FINANCE, Respondent.
• Court: Indiana Tax Court

779 N.E.2d 1277

Ronald D. CLARK d/b/a The Arches, Petitioner, v. DEPARTMENT OF LOCAL GOVERNMENT FINANCE,¹ Respondent.

No. 49T10-9808-TA-103.

Tax Court of Indiana.

December 17, 2002.

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

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

FISHER, J.

Ronald D. Clark (Clark) challenges the State Board of Tax Commissioners' (State Board) March 1, 1993 assessment of his two apartment buildings. The Court finds that the dispositive issues are:

I. Whether Clark presented a prima facie case showing the proper grade for his apartment buildings; and

II. Whether Clark quantified the obsolescence depreciation he sought for his apartment buildings.²

For the reasons given below, the Court AFFIRMS the State Board's May 31, 1996 final determination on these issues.

FACTS AND PROCEDURAL HISTORY

This case arrives back in this Court from a previous remand to the State Board. See Clark v. State Bd. of Tax Comm'rs 694 N.E.2d 1230 (Ind. Tax Ct.1998) (Clark I)

. In that case, Clark initiated an original tax appeal from the State Board's final determination in which it valued his two apartment buildings (the "Woods Property" and the "Salisbury Property") for the March 1, 1993 assessment. In the final determination, the State Board assigned the properties a grade of C and 5% obsolescence.

In 1996, Clark appealed the final determination to this Court. At his trial, Clark presented a prima facie case showing that the C grade was excessive and improper and that the State Board had failed to quantify its award of 5% obsolescence to both apartment buildings. Accordingly, the Court remanded this case to the State Board for further proceedings so that Clark could present evidence showing what the grade of his apartments should have been and to quantify his request for obsolescence depreciation.

Following a remand hearing, the State Board issued a second final determination on Clark's assessment, raising the grade of his apartments to a C+1 and removing its original award of 5% obsolescence. Clark again initiated an original tax appeal and a trial was held on January 20, 1999. Oral arguments were held on August 6, 1999. 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. Walker Mfg. Co. v. Dep't of Local Gov't Fin., 772 N.E.2d 1, 4 (Ind. Tax Ct.2002). 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 carries the burden of establishing a prima facie case, the burden shifts to the State Board to rebut the taxpayer's evidence and justify its decision with substantial evidence." Clark I, 694 N.E.2d at 1233.

Discussion

I. Grade

The first issue is whether Clark presented a prima facie case as to what the correct grade should have been for his apartments. Clark argues that the State Board failed to provide a basis for its grade determination. Clark, however, is mistaken as to which party had the burden on remand.

In general, every improvement's materials, design, and workmanship are collectively assigned a grade from A to E, which represents a numeric multiplier that may raise or lower an improvement's assessment. Deer Creek Developers, Ltd. v. Dep't of Local Gov't Fin., 769 N.E.2d 259, 265 (Ind. Tax Ct.2002). The "C" grade is given to "[m]oderately attractive buildings constructed with average quality materials and workmanship throughout[.]" IND. ADMIN. CODE tit. 50, r. 2.1-4-3(f) (1992).

When challenging grade, a taxpayer may either submit probative evidence showing (1) that the grade given to its improvement by the State Board was improper or (2) what the proper grade for his improvement should have been. Deer Creek, 769 N.E.2d at 265-66. In Clark I, Clark submitted probative evidence showing that the C grade given to his two apartment buildings was improper. Clark I, 694 N.E.2d at 1236, 1242. Because Clark made a prima facie case as to whether his apartments had received the proper grade, he necessarily raised the issue of what the proper grade should be. When a taxpayer raises an issue, the burden is on the taxpayer to make a prima facie case regarding that issue. See id. at 1234 (holding that "[w]hat the taxpayer must demonstrate ... depends on the issues raised by the [taxpayer's] challenge" (emphasis added)). Thus, Clark—not the State Board—had the burden of proof as to this issue on remand.

On remand Clark only submitted evidence showing that the C grade given to his apartments was excessive and improper. However, Clark had already made that case. On remand, Clark was supposed to move forward and show what his grade should have been. Instead, Clark stood still. Clark admits that he presented no evidence to show what grade his two apartment buildings should have received. (Oral Argument Tr. at 19.) As a result, he failed to make a prima facie case as to grade.

The State Board, on the other hand, rather than deny relief to Clark for failing to make a prima facie case, increased Clark's grade to a C+1. "Upon remand the state board of tax commissioners may take action only on those issues specified in the decision of the tax court." IND.CODE § 6-1.1-15-8(a) (emphasis added). Nothing in this Court's remand order specified that the State Board should raise Clark's grade; its attempt to do so here is void.

The Court's opinion in Clark I was to serve as a North Star to guide Clark and the State Board across a sea of property tax law. But Clark never got his ship out of port, and the State Board sailed its ship right off the map. This is a decade-old case in which there has been a terrific expenditure of public and private resources. The Court feels constrained by these events to take reasonable steps against their occurring again.

The "procedure and practice in all actions jurisdictionally cognizable in the Indiana Tax Court ... shall ... secure the just, speedy and inexpensive determination of every action." Ind. Tax Court Rule 1 (2002). Given the procedural history of this case, the Court believes that it will "secure the just, speedy and inexpensive determination" of actions involving issues of grade if a taxpayer who challenges the assessment of grade is required to present a prima facie case at the administrative level showing what the correct grade assessment should be. Therefore, going forward, this Court will not consider taxpayer complaints concerning grade unless the taxpayer asserts what his grade should have been and submits probative evidence to support that claim at the administrative level.³ Cf. Clark I, 694 N.E.2d at 1241-42

(holding that a taxpayer must now identify and quantify obsolescence at the administrative level before his case is heard in this court).

Because Clark failed to make a prima facie case showing what the correct grade of his two apartment buildings should have been, the Court AFFIRMS the State Board's original final determination of a C grade for both apartment buildings.

II. Obsolescence

The second issue is whether Clark presented a prima facie case on remand quantifying the amount of obsolescence to be applied to his apartments. Clark argues that the State Board failed to deal meaningfully with his evidence of obsolescence.⁴ Again, Clark is mistaken. Obsolescence is the functional or economic loss of property value. Clark I, 694 N.E.2d at 1238. "Functional obsolescence is caused by factors internal to the property and is evidenced by conditions within the property." Id. (citations and internal quotation marks omitted). "Economic obsolescence is caused by factors external to the property." Id. Clark fails to distinguish between economic or functional obsolescence in his brief. The two types of obsolescence are not synonymous. Accordingly, in all cases where the Indiana Board of Tax Review holds a hearing on a taxpayer's claim of obsolescence after the date of this case, taxpayers are required to specify whether they are seeking economic or functional obsolescence, or both. The Court will not accept creative ambiguity that leaves it to the taxing authorities or this Court to determine what type of obsolescence is being sought and whether the evidence identifies and quantifies it. See Davidson Industries v. Indiana State Bd. of Tax Comm'rs, 744 N.E.2d 1067, 1071 (Ind. Tax Ct.2001)

(holding that the Court will not make a taxpayer's case for it); see also Clark I, 694 N.E.2d at 1241 (holding that taxpayers must identify and quantify obsolescence to make a prima facie case).

In Clark I, this Court found that the State Board's explanation that it had awarded 5% obsolescence to Clark's Woods Property because of fire code violations was not supported by substantial evidence. Clark I, 694 N.E.2d at 1240-41. Likewise, the Court found that the State Board had not provided substantial evidence supporting its 5% obsolescence depreciation adjustment to Clark's Salisbury Property. Id. at 1243. Nevertheless, the initial burden of quantifying obsolescence on remand belonged to Clark, not to the State Board. See id. at 1241 n. 17.

At the second trial in this matter, Clark's appraiser testified that he could not quantify the obsolescence for the Salisbury Property. (Trial Tr. at 37.) As for the Woods Property, the appraiser—considering persistent fire code...