Garcia v. State Bd. of Tax Com'rs

• Decision Date: 24 April 1998
• Docket Number: No. 71T10-9601-TA-00004,71T10-9601-TA-00004
• Citation: 694 N.E.2d 794
• Parties: Juan C. GARCIA and Maria N. Garcia, Petitioners, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.
• Court: Indiana Tax Court

Page 794

694 N.E.2d 794

Juan C. GARCIA and Maria N. Garcia, Petitioners, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.

No. 71T10-9601-TA-00004.

Tax Court of Indiana.

April 24, 1998.

Timothy D. Hernly, James A. O'Brien, Philip J. Faccenda, Jr., Barnes & Thornburg, South Bend, for petitioners.

Jeffrey A. Modisett Attorney General, Marilyn S. Meighen, Deputy Attorney General, Indianapolis, for respondent.

FISHER, Judge.

The Petitioners, Juan C. Garcia and Maria N. Garcia, appeal a final determination of the State Board of Tax Commissioners (State Board) assessing their real property as of March 1, 1993. The Garcias raise two issues in this original tax appeal:

I. Whether the application of an "A + 4" (240%) grade and design factor to the Garcias' home was erroneous.

II. Whether the application of a grade and design factor to the Garcias' swimming pool enclosure was erroneous.

FACTS AND PROCEDURAL HISTORY

The Garcias' home is located in South Bend, Indiana and consists of approximately 10,000 square feet of living space including a 2,717 square foot indoor swimming pool area. The swimming pool enclosure was constructed by the same builder who constructed the Garcias' home. The Garcias' home contains cherry wood kitchen cabinets, four furnaces, vaulted ceilings, unusually large gas and water supply lines, more than twenty windows on the front of the home, and various other amenities.

Originally, the Penn Township assessor assigned the Garcias' home an "A + 10" grade. See IND.ADMIN.CODE tit. 50, r. 2.1-3-2 (1992) (presently codified at id. r. 2.2-7-6 (1996)). The Garcias filed a Form 130 Petition for Review of Assessment with the St. Joseph County Auditor. The Auditor determined that the Garcias' home was properly assessed, and therefore no change in the Garcias' assessment resulted.

On March 15, 1994, the Garcias filed a Form 131 Petition for Review of Assessment with the State Board. A hearing was held on July 14, 1994. The State Board issued its final determination on December 8, 1995, listing fifteen specific findings. In its final determination, the State Board reduced the grade applied to the Garcias' home from "A + 10" to "A + 4" and applied an "A+4" grade factor to the swimming pool enclosure. The result of the State Board's findings is that the assessed value of the Garcias' home decreased by $51,130. The Garcias filed this original tax appeal on January 19, 1996. A trial was held on July 11, 1996, followed by oral argument on November 7, 1996. Additional facts will be supplied as necessary.

ANALYSIS AND OPINION

Standard of Review

This Court gives the final determinations of the State Board great deference

when the State Board acts within the scope of its authority. Indiana Sugars, Inc. v. State Bd. of Tax Comm'rs, 683 N.E.2d 1383, 1385 (Ind. Tax Ct.1997). 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.

Discussion

I. Was the application of an A + 4 (240%) grade and design

factor to the Garcias' home in error?

The Garcias' first contention is that the State Board's application of an "A + 4" grade factor was an abuse of discretion, was arbitrary or capricious, was unsupported by substantial evidence, and results in a nonuniform and unequal assessment of the Garcias' home. The Garcias argue that the regulations regarding the application of grade factors provide no ascertainable standards allowing a taxpayer or this Court a meaningful opportunity to review an assessment. The requirement of ascertainable standards is imposed to ensure that "[a]dministrative decisions are fair, orderly and consistent rather than irrational and arbitrary. The standards should be written with sufficient precision to give fair warning as to what the agency will consider in making its decision." Podgor v. Indiana Univ., 178 Ind.App. 245, 258, 381 N.E.2d 1274, 1283 (1978); see also Town of St. John v. St. Bd. of Tax Comm'rs, 690 N.E.2d 370, 372-73 (Ind. Tax Ct.1997), review granted; Mechanics Laundry & Supply, Inc. v. Department of State Revenue, 650 N.E.2d 1223, 1233 (Ind. Tax Ct.1995); Harlan Sprague Dawley, Inc. v. Department of State Revenue, 605 N.E.2d 1222, 1232 (Ind. Tax Ct.1992); Harrington v. State Bd. of Tax Comm'rs, 525 N.E.2d 360, 361 (Ind. Tax Ct.1988). When the State Board applies vague regulations and assessment techniques, the Court cannot effectively review the assessment and is compelled to find the assessment arbitrary and capricious. See Harrington, 525 N.E.2d at 362.

In Indiana, property is assessed according to its True Tax Value. See IND.CODE ANN. § 6-1.1-31-6 (West 1989); see also Town of St. John, 690 N.E.2d at 384-85 (describing the True Tax Value system). The True Tax Value of a residential improvement is calculated by determining the whole dollar cost of reproducing the improvement as determined under the rules and regulations of the State Board. See IND.ADMIN.CODE tit. 50, r. 2.2-7-7.1, -9 (1996); see also id. r. 2.2-2-1(c) (1996); see also Town of St. John, 690 N.E.2d at 373. Assessors use cost schedules to determine the base reproduction cost of a dwelling. See IND.ADMIN.CODE tit. 50, r. 2.1-3-5 (1992) (presently codified at IND.ADMIN.CODE tit. 50, r. 2.2-7-11 (1996)). Grade factors ranging from "A" to "E" are then applied to account for the particular construction qualities and amenities of a particular home. See IND.ADMIN.CODE tit. 50, r. 2.1-3-2.

The selection of which grade should be applied to an improvement calls for a subjective judgment and is committed to the discretion of the assessor. See Mahan v. State Bd. of Tax Comm'rs, 622 N.E.2d 1058, 1064 (Ind. Tax Ct.1993). The assessor must make a "composite judgment of overall quality and design.... [I]t is sometimes necessary to weigh the quality of individual major components in order to arrive at the proper composite quality rating." See IND.ADMIN.CODE tit. 50, r. 2.1-4-3(f) (1992) (presently codified at id. r. 2.2-7-6(f) (1996)). Although the selection of a grade is a subjective determination, subjective determinations are still subject to judicial review. See Corey v. State Bd. of Tax Comm'rs, 674 N.E.2d 1062, 1066 (Ind. Tax Ct.1997). The State Board's regulations define the different characteristics that help assessors differentiate between grades. For instance, "A" grade dwellings have an "outstanding architectural style and design and ... are constructed with the finest quality materials and workmanship throughout." See IND.ADMIN.CODE tit. 50, r. 2.1-3-2. "B" grade dwellings are "architecturally attractive dwellings constructed with good quality materials and workmanship throughout." Id. "C" grade dwellings are "moderately attractive dwellings constructed with average quality materials." Id. "D" grade dwellings are "constructed with economy quality materials" The State Board has also included a table in its regulations that offers some guidance for assessors in selecting the basic grade classification. See id. (presently codified at id. r. 2.2-7-6(b)). The Grade Specification Table gives examples of elements and construction qualities that are indicative of the respective grades. The regulations also recognize that an improvement might contain elements indicative of more than one grade. Therefore, an assessor is instructed to "weigh the quality of individual major components in order to arrive at the proper composite quality rating." Id.

and are described as "void of architectural treatment." Id. "E" grade dwellings are constructed with "very cheap grade materials ... and very poor quality workmanship." Id.

Under the State Board's regulations, "C" grade dwellings are considered average and are assigned a grade factor of 100%, (i.e., 100% of the reproduction cost as determined under the State Board's regulations). See id. (presently codified at id. r. 2.2-7-6(e)). The remaining grades indicate a factor of 160% of the base price for "A" grade dwellings, 120% for "B" grade dwellings, 80% for "D" grade dwellings, and 60% for "E" grade dwellings. Id.

The State Board recognized that "[d]wellings sometimes fall in between the major classifications, or at intermediate grade levels." See id. (presently codified at id. r. 2.2-7-6(e)). Therefore:

[a] method of interpolation is ... built into the system whereby intermediate grade levels are indicated by suffixing the letter symbol ("A" through "E") of the major classification with one of the following[:]

+ /-2 to indicate that the grade falls halfway between the assigned grade classification and the grade immediately above or below it....

+ /-1 to indicate that the grade falls slightly above or below the assigned grade classification....

Grades that fall below "E" ... are indicated by "-1" through "-4" (each of which represents a reduction of the factor by 10%, so that "E-4" equals a factor of 0%).

Grades that fall above "A" are indicated by "+ 1" through "+ 10" (each of which represents an increase of the factor by 20%, so that "A + 10" equals a factor of 360%).

Id. Unlike the definitions of the major grade classifications, there is no guidance in the regulations differentiating an "A" grade dwelling from an "A + 10" dwelling. See Town of St. John, 690 N.E.2d at 386. However, the difference to the taxpayer of an "A" or "A + 10" assessment is enormous. Id. An "A" dwelling is priced at 160% of its base price, but an "A + 10" dwelling is priced at 360% of its base price. See IND.ADMIN.CODE tit. 50, r. 2.1-3-2; see also Town of St. John, 690 N.E.2d at 386.

The decision of whether a dwelling is an "A" grade or an "A + 10" or an "A + 4" is entirely left to the assessor's subjective judgment. Not only does this fail to provide ascertainable standards; it provides no standards whatsoever. This Court has recently said "[t]he lack of ascertainable standards is particularly pronounced in the 'A' grade...