Elkhart Cnty. Assessor v. E R Carpenter Co.
| Decision Date | 12 January 2021 |
| Docket Number | Cause No. 20T-TA-00003 |
| Parties | ELKHART COUNTY ASSESSOR, Petitioner, v. E R CARPENTER CO., INC., Respondent. |
| Court | Indiana Tax Court |
ATTORNEY FOR PETITIONER: BETH H. HENKEL, LAW OFFICE OF BETH HENKEL LLC, Indianapolis, IN
ATTORNEY FOR RESPONDENT: BRADLEY D. HASLER, DENTONS BINGHAM GREENEBAUM LLP, Indianapolis, IN
The Elkhart County Assessor has appealed the Indiana Board of Tax Review's final determination that established the values of E R Carpenter Co., Inc.'s real property for the 2012, 2015, 2016, and 2017 tax years.1 Specifically, the Assessor claims that the Indiana Board erred by applying excess office space adjustments to the valuations of Carpenter's manufacturing facility. Upon review, the Court reverses the Indiana Board's final determination.
Carpenter, the "world's largest manufacturer of comfort cushion products," owns three contiguous parcels of land totaling 43.25 acres in Elkhart, Indiana. (See Cert. Admin. R. at 454, 1547.) An 853,000 square foot manufacturing facility built in phases between 1982 and 2003, a 6,400 square foot truck service building constructed in 1985, and various other improvements (e.g., utility sheds, fencing, paving, and other buildings) are situated on the land. (See Cert. Admin. R. 454, 596-600.)
Believing the assessed values of two of its three parcels were too high, Carpenter sought review with the Elkhart County Property Tax Assessment Board of Appeals and then with the Indiana Board. (See, e.g., Cert. Admin. R. at 1 - 6, 11 - 12.) Carpenter did not appeal the assessment of its parcel with 9.83 acres ("Parcel 3"). (See, e.g., Cert. Admin. R. at 603-04, 1098, 1138.) It claimed, however, that its other two parcels were overassessed for the 2012, 2015, and 2016 tax years and one was also overassessed for the 2017 tax year. (See, e.g., Cert. Admin. R. at 11 - 12, 23, 40, 64.) The assessments of the appealed parcels totaled $17,514,200 for 2012, $18,056,100 for 2015, $17,020,400 for 2016, and $10,543,800 for 2017. (See Cert. Admin. R. at 13 - 17, 45-49, 60-63, 81-82, 115-16.)
On September 12, 2018, consistent with the parties' agreement, the Indiana Board issued an appeal management plan that limited the administrative hearing on Carpenter's appeals to determining the values of the parcels for the 2012 and 2016 tax years. (Cert. Admin. R. at 157, 161.) The Indiana Board explained that the parcels' 2015 and 2017 values would be determined based on the parties' pre-determined formula. (Cert. Admin. R. at 157.)
In January of 2019, the Indiana Board conducted the hearing on Carpenter's appeals. Although the parties could not agree on the value of the parcels, they did agree that Carpenter's three parcels formed, and should be valued as, one economic unit that then would be adjusted to remove the value of Parcel 3 that was not under appeal. (See Cert. Admin. R. at 1301, 1554-55.) Accordingly, the parties presented appraisals that valued all three parcels as one for the 2012 and 2016 tax years. (Cert. Admin. R. at 228-834.) Carpenter's appraisals used the cost approach and the sales comparison approach, but not the income approach to estimate value. (See, e.g., Cert. Admin. R. at 240-41, 328-29.) The Assessor's appraisals also used those same two methodologies for 2012, but used all three appraisal methodologies for 2016. (See, e.g., Cert. Admin. R. at 428, 653.) The Indiana Board ultimately rejected both parties' sales comparison approach valuations and the Assessor's income approach valuation, finding that they lacked probative value. (Cert. Admin. R. at 1261-62 ¶¶ 92-94.) Neither party has challenged those findings on appeal.
Carpenter's cost approach valuations, prepared by Sara Coers, a certified appraiser and member of the Appraisal Institute (MAI), "estimate[d] the value of the land as if vacant and then add[ed] the depreciated cost new of the improvements to arrive at a total estimate of value." (See, e.g., Cert. Admin. R. at 399-400.) See also 2011 REAL PROPERTY ASSESSMENT MANUAL () at 2. To value the manufacturing facility, Coers used Marshall Valuation Service ("MVS") cost schedules to determine its replacement cost for each year. (See, e.g., Cert. Admin. R. at 284, 1321-22.) Coers observed that if she had used the "industrials/light manufacturing" cost schedule (the "Manufacturing Schedule"), the value of Carpenter's manufacturing facility would have reflected built-in costs of 4% to 12% of finished office space even though it actually only contained 1% of finished office space. (See, e.g., Cert. Admin. R. at 372, 1031, 1044, 1322-23.) Thus, Coers believed that using the Manufacturing Schedule would overstate the value of Carpenter's manufacturing facility by millions of dollars because finished office space costs more than industrial shell square footage. (See Cert. Admin. R. at 1322-23, 1448-49.) (See also Cert. Admin. R. at 1114-15, 1180.)
Coers therefore estimated replacement costs using the MVS alternate calculator method, beginning with the "light industrial/warehouse shell building" cost schedule (the "Warehouse Shell Schedule") to "price out the [facility] as an industrial shell [without] any office space" and then using the "industrial interior office space" cost schedule (the "Office Space Schedule") to add in costs for "the office finish to the exact square footage[.]" (See, e.g., Cert. Admin. R. at 372-74, 1062, 1065, 1321-24.) For the 2012 tax year, Coers concluded to a total value for all three parcels of $12,700,000, and after subtracting the $220,000 value of Parcel 3, arrived at a final value for the two appealed parcels of $12,480,000. (See Cert. Admin. R. at 289, 1319-38.) For the 2016 tax year, Coers concluded to a total value for all three parcels of $15,220,000, and after subtracting the $280,000 value of Parcel 3, arrived at a final value for the two appealed parcels of $14,940,000. (See Cert. Admin. R. at 377, 1363-69.)
The Assessor's cost approach valuations were prepared by Michael C. Lady, a certified general appraiser and real estate broker, and J. David Hall, a certified general appraiser. (See, e.g., Cert. Admin. R. at 424-26, 583-85.) Hall and Lady, unlike Coers, used the Manufacturing Schedule to estimate the value of Carpenter's manufacturing facility because the property was used for manufacturing purposes, not primarily for storage. (See Cert. Admin. R. at 1031, 1044, 1458-60, 1563.) In addition, Hall testified that the inherent construction differences between manufacturing facilities and industrial warehouse shells (e.g., the amount of insulation, the weight of concrete slabs, and the need for electrical power) supported the use of the Manufacturing Schedule. (See Cert. Admin. R. at 1459-60.) For purposes of the cost approach, the appraisal reports valued all three parcels at $17,310,000 for the 2012 tax year and $16,550,000 for the 2016 tax year. (See Cert. Admin. R. at 433, 435, 771.) In addition, knowing that Parcel 3 was not under appeal and would be excluded, the appraisers developed a value for Parcel 3 in the amount of $241,800 for 2012 and $250,000 for the 2016 tax year. (See Cert. Admin. R. at 841, 1651-52, 1749-50.)
The Indiana Board issued its final determination on December 9, 2019. (See Cert. Admin. R. at 1239-66.) Specifically, it found the Assessor's cost approach valuations were more credible than Carpenter's cost approach valuations. (See Cert. Admin. R at 1262-64 ¶¶ 97-100.) Notwithstanding, the Indiana Board concluded that the Assessor's estimates overvalued the manufacturing facility by failing to adjust for its "atypical" office space. (See Cert. Admin. R. at 1264-65 ¶ 101.) As a result, the Indiana Board deducted from the Assessor's total building costs the costs attributable to the amount of office space included in the Manufacturing Schedule that exceeded the costs for Carpenter's actual amount of office space (i.e., the excess office space adjustments). (See Cert. Admin. R. at 1264-65 ¶ 101.)
The Indiana Board did not make an additional adjustment for the values for Parcel 3, stating that it "declines to make an allocation for [Parcel 3, which is] not on appeal, but orders that the combined assessed values of the three parcels shall not exceed the values concluded in this determination." (Cert. Admin. R. at 1264-65 ¶¶ 101-04.) Accordingly, after applying the pre-determined formula to its new 2016 estimate, the Indiana Board concluded that the market value-in-use of the three parcels together must not exceed $16,153,610 for 2012, $14,966,585 for 2015, $15,047,747 for 2016, and $15,423,941 for 2017. (Cert. Admin. R. at 1264-65 ¶¶ 101-04.)
On January 22, 2020, the Assessor initiated this original tax appeal. The Court heard the parties' oral arguments remotely on July 16, 2020. Additional facts will be supplied when necessary.
The party seeking to overturn an Indiana Board final determination bears the burden of demonstrating its invalidity. CVS Corp. v. Searcy, 137 N.E.3d 1053, 1055 (Ind. Tax Ct. 2019). Accordingly, the Assessor must demonstrate to the Court that the Indiana Board's final determination in this matter is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to constitutional right, power, privilege, or immunity; in excess of or short of statutory jurisdiction, authority, or limitations; without observance of the procedure required by law; or unsupported by substantial or reliable evidence. See IND. CODE § 33-26-6-6(e)(1)-(5) (2021).
On appeal, the Assessor claims that the Indiana Board's final determination must be reversed because its adjustments for excess office space are arbitrary and capricious and unsupported by substantial evidence.2 (See Pet'r Br. at 14, 16-19; Oral Arg....
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