French Lick Tp. Trustee v. Kimball Intern.

• Decision Date: 03 May 2007
• Docket Number: No. 49T10-0604-TA-44.,49T10-0604-TA-44.
• Parties: FRENCH LICK TOWNSHIP TRUSTEE ASSESSOR (Orange County, In), Petitioner, v. KIMBALL INTERNATIONAL, INC., Respondent.
• Court: Indiana Tax Court

865 N.E.2d 732

FRENCH LICK TOWNSHIP TRUSTEE ASSESSOR (Orange County, In), Petitioner, v. KIMBALL INTERNATIONAL, INC., Respondent.

No. 49T10-0604-TA-44.

Tax Court of Indiana.

May 3, 2007.

Marilyn S. Meighen, Meighen & Associates, PC, Carmel, IN, Attorney for Petitioner.

Larry J. Stroble, Randal J. Kaltenmark, Ziaaddin Mollabashy, Barnes & Thornburg, Indianapolis, IN, Attorneys for Respondent.

FISHER, J.

The French Lick Township Trustee Assessor of Orange County, Indiana (Assessor) appeals the final determination of the Indiana Board of Tax Review (Indiana Board) valuing the real property of Kimball International, Inc. (Kimball) for the 2002 tax year. The issue for the Court to decide is whether the Indiana Board's determination was improper.

FACTS AND PROCEDURAL HISTORY

Kimball owns a vacant industrial plant in French Lick Township, Orange County, Indiana. For the 2002 assessment, the Assessor valued Kimball's plant at $2,912,300 ($164,600 for the land and $2,747,700 for the improvements). Kimball filed an appeal with the Orange County Property Tax Assessment Board of Appeals (PTABOA), claiming that the assessment did not accurately reflect the property's market value-in-use. After a hearing, the PTABOA reduced Kimball's assessed value to $2,595,200 ($164,600 for the land and $2,430,600 for the improvements).

Kimball subsequently filed a Petition to the Indiana Board of Tax Review For Review of Assessment (Form 131). The Indiana Board held a hearing on Kimball's Form 131 on August 30, 2005. On March 14, 2006, the Indiana Board issued a final determination in which it reduced Kimball's assessment to $1,685,000.

On April 27, 2006, the Assessor initiated an original tax appeal, claiming that the Indiana Board's final determination was not supported by the evidence. The Court heard the parties' oral arguments on February 2, 2007. Additional facts will be supplied as necessary.

STANDARD OF REVIEW

This Court gives great deference to final determinations of the Indiana Board when it acts within the scope of its authority. Wittenberg Lutheran Vill. Endowment Corp. v. Lake County Prop. Tax Assessment Bd. of Appeals, 782 N.E.2d 483, 486 (Ind. Tax Ct.2003), review denied. Consequently, the Court will reverse a final determination of the Indiana Board only if it is:

(1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;

(2) contrary to constitutional right, power, privilege, or immunity;

(3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory jurisdiction, authority, or limitations (4) without observance of procedure required by law; or

(5) unsupported by substantial or reliable evidence.

IND.CODE ANN. § 33-26-6-6(e)(1)-(5) (West 2007). The party seeking to overturn the Indiana Board's final determination bears the burden of proving its invalidity. Osolo Twp. Assessor v. Elkhart Maple Lane Assocs., 789 N.E.2d 109, 111 (Ind. Tax Ct.2003).

DISCUSSION AND ANALYSIS

Under Indiana's assessment system, real property is assessed on the basis of its "true tax value." IND.CODE ANN. § 6-1.1-31-6 (West 2002). "True tax value" does not mean fair market value, but rather "[t]he market value-in-use of a property for its current use, as reflected by the utility received by the owner or a similar user, from the property[.]" 2002 REAL PROPERTY ASSESSMENT MANUAL (2004 Reprint) (hereinafter, Manual) (incorporated by reference at 50 IND. ADMIN. CODE 2.3-1-2 (2002 Supp.)) at 2. See also A.I.C. § 6-1.1-31-6(c). In turn, a property's market value-in-use "may be thought of as the ask price of property by its owner, because this value ... represents the utility obtained from the property, and the ask price represents how much utility must be replaced to induce the owner to abandon the property."¹ Manual at 2 (footnote added).

In order to determine market value-in-use,² Indiana has promulgated a series of guidelines that explain the valuation process for both land and improvements. See REAL PROPERTY ASSESSMENT GUIDELINES FOR 2002—VERSION A (2004 Reprint) (hereinafter, Guidelines) (incorporated by reference at 50 I.A.C. 2.3-1-2(c)), Books 1 and 2 (footnote added). Because assessors often operate under the constraints of limited time and resources, Indiana employs a mass appraisal system; therefore, the Guidelines provide a starting point for an assessor to determine a property's market value-in-use.³ See Manual at 3; Guidelines Book 1 at 1 (footnote added). To the extent that an assessor may err in applying the Guidelines, however, the assessment will not necessarily be invalidated so long as the assessment accurately reflects the property's market value-in-use. See 50 IND. ADMIN. CODE 2.3-1-1(d) (2002 Supp.).

While a property's market value-in-use (i.e., true tax value), as ascertained through an application of the Guidelines, is presumed to be accurate, that presumption is rebuttable. See Manual at 6. Thus, a taxpayer

shall be permitted to offer evidence relevant to the fair market value-in-use of the property to rebut such presumption and to establish the actual true tax value of the property so long as such information is consistent with the definition of true tax value provided in this [M]anual and was readily available to the assessor at the time the assessment was made. Such evidence may include actual construction costs, sales information regarding the subject or comparable properties, appraisals that are relevant to the market value-in-use of the property, and any other information compiled in accordance with generally accepted appraisal principles.

Id. (emphases added). Accordingly, when a taxpayer chooses to challenge an assessment, he must show that the assessor's assessed value does not accurately reflect the property's market value-in-use.⁴

At the administrative hearing, Kimball presented a "Summary Report of a Retrospective Complete Appraisal" (appraisal) and letters from its realty company to show that its property's actual market value-in-use was $1,685,000.⁵ (See Cert. Admin. R. at 115-20, 224-76 (footnote added).) The appraisal, which was prepared by Mr. Donald Feicht, Jr., an appraiser licensed in Ohio and Florida, employed the cost approach, the income approach, and the sales comparison approach to estimate the value of the property.

Under the cost approach, Mr. Feicht estimated that the total value of the subject property was $1,800,000 as of January 1, 1999. (See Cert. Admin. R. at 250-51 (stating that Mr. Feicht modified Marshall & Swift construction costs to reflect costs as of January 1, 1999 and to be specific to Orange County, Indiana).) See also Manual at 4 (explaining that a 2002 general assessment is to reflect a property's market value-in-use as of January 1, 1999). Under the income approach, Mr. Feicht estimated the value of the property was $1,700,000.⁶ (See Cert. Admin. R. at 262-64 64 (footnote added).) In so doing, Mr. Feicht utilized a 13.183% capitalization rate (which accounted for a pessimistic market, taxes, and a decrease in tenant desirability) and a 35% vacancy rate. Under the sales comparison approach, Mr. Feicht examined sales data from six properties similar to the subject property. (See Cert. Admin. R. at 252-53.) Mr. Feicht adjusted the sales prices of the comparable properties to account for differences between those properties and the subject property (i.e., condition, grade, age, size, height, land area, and land cost); the sales prices were also adjusted to reflect the 1999 value of those properties. (See Cert. Admin. R. at 252-53.) Based on the adjusted sales prices, Mr. Feicht concluded that the value of the subject property was $1,650,000. (Cert. Admin. R. at 253.) Mr. Feicht then reconciled the three estimates of value to arrive at a final estimate of value of $1,685,000.⁷ (Cert. Admin. R. at 265 (footnote added).)

Also during the administrative hearing, Mr. Tracey Carboni, Kimball's tax representative, submitted letters from Kimball's realtor, the Hart Corporation (Hart). (See Cert. Admin. R. at 115-120, 288-91.) Hart listed the subject property for sale beginning in 2002. In its letters to Kimball, Hart discussed the difficulty and inability to sell the property for Kimball's initial asking price of $2,500,000. The letters also indicated that Kimball reduced the asking price to $1,500,000 in 2004. (See Cert. Admin. R. at 120, 291.)

In its final determination, the Indiana Board concluded that the appraisal and the Hart letters constituted probative evidence of the property's market value-in-use. Specifically, the Indiana Board stated that on its face, the appraisal indicated that it was prepared in accordance with USPAP standards, and it estimated the market value of the property using the three generally accepted methods of appraisal as outlined in the Manual. (Cert. Admin. R. at 41-42.) The Indiana Board also noted that the appraisal provided at least some evidence that the estimate of value was related to a January 1, 1999 value. (Cert. Admin. R. at 42.) In addition, the Indiana Board held that the letters from Hart, indicating that Kimball was unable to sell the property for $2,500,000, were indicative "that the subject property's [actual] market value-in-use was less than its assessed value of $2,595,200."⁸ (Cert. Admin. R. at 42 (footnote added).) Consequently, the Indiana Board held that Kimball presented evidence sufficient to prima facie establish that its assessment was incorrect and to shift the burden to the Assessor to rebut that evidence. (Cert. Admin. R. at 43.)

On rebuttal, the Assessor questioned the reliability of the appraisal. (See Cert. Admin. R. at 298-338.) Specifically, the Assessor's witness, Mr. Tim Vankirk, an MAI appraiser, argued that the appraisal's income approach (1) improperly employed a 35% vacancy rate based on post-2002 market data; and (2) failed to explain and support Mr. Feicht's decision to increase the capitalization rate by 2.5% to account for a...