King Indus. Corp. v. State Bd. of Tax Com'rs, 49T10-9610-TA-00151

• Decision Date: 15 September 1998
• Docket Number: No. 49T10-9610-TA-00151,49T10-9610-TA-00151
• Citation: 699 N.E.2d 338
• Parties: KING INDUSTRIAL CORP., Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.
• Court: Indiana Tax Court

Page 338

699 N.E.2d 338

KING INDUSTRIAL CORP., Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.

No. 49T10-9610-TA-00151.

Tax Court of Indiana.

Sept. 15, 1998.

John R. Rumple, Sharpnack, Bigley, David & Rumple, Columbus, for Petitioner.

Jeffrey A. Modisett, Attorney General, Joel Schiff, Deputy Attorney General, Indianapolis, for Respondent.

FISHER, Judge.

King Industrial Corporation (King) appeals a final determination of the State Board of Tax Commissioners (State Board) denying a kit adjustment ¹ for property it owns. This Court, finding that the State Board's decision to deny the kit adjustment and to apply the "D+1" grade is not supported by substantial evidence, REVERSES the State Board's final determination.

FACTS AND PROCEDURAL HISTORY

King is a tool and die manufacturer located in Jackson County, Indiana. King conducts its operations in four buildings it owns. The buildings were constructed in four stages. The first building was erected in 1945. A second building was added in 1964. As business continued to expand, King added a third building in 1973. Finally, in 1986, King added a fourth building. The first three buildings are used in King's tool and die manufacturing process. The fourth building is used by King for office space. ²

King's buildings were assessed as of March 1, 1993. King filed a Form 130 Petition for Review of Assessment with the Jackson County Board of Review on January 11, 1994 for the 1993 tax year. The County Board of Review did not alter King's assessment. King filed a Form 131 Petition for Review of Assessment with the State Board on November 3, 1994 alleging that its buildings were entitled to a reduction in base price because they were kit buildings. The State Board issued a final determination on September 20, 1996 that denied King a kit adjustment. King filed this original tax appeal on November 1, 1996, and a trial was held on November 17, 1997. 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 it acts within the scope of its authority. Garcia v. State Bd. of Tax Comm'rs, 694 N.E.2d 794, 795-96 (Ind. Tax Ct.1998). 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. at 796.

Discussion

On February 22, 1991, the State Board ordered township assessors to reassess pre-designed, pre-engineered buildings based on amendments to the State Board's cost schedules. (Pet'r Ex. 2 at Ex. "A" and Ex. "C"). These amendments provided for a 50% reduction in base price for some light pre-engineered or kit type buildings. (Pet'r Ex. 2 at Ex. "A" and Ex. "C"); see also Bock Prods., Inc. v. State Bd. of Tax Comm'rs, 683 N.E.2d 1368, 1372 (Ind. Tax Ct.1997). Kit buildings are generally made of light weight and inexpensive materials and are "fabricated at central manufacturing facilities and shipped to the construction site ready for fast and efficient assembly." (Pet'r Ex. 2 at Ex. "D") (hereinafter Instructional Bulletin 91-8). The reduction in base price was offered due to the low cost and economical quality of materials used in kit buildings. On October 1, 1991, the State Board issued Instructional Bulletin 91-8 to aid assessors in determining which buildings qualified for the 50% reduction.

Instructional Bulletin 91-8 contains several examples of common characteristics of low-cost kit buildings. Among these are Cold Form Cee Channel wall supports, tapered roof beams, H columns, X bracing, metal or steel exterior skin, and round steel columns. Instructional Bulletin 91-8 at 4-5. Instructional Bulletin 91-8 also states that an economical kit building's steel purlins and girders are normally 14 to 16 gauge, that the concrete floors have minimal tolerances, that all vertical supports must be spaced evenly, and that normal building widths range from 30 feet to 120 feet. Instructional Bulletin 91-8 at 6.

Although Bulletin 91-8 is designed to clarify the definition of a kit building, it has often been more confusing than helpful. The bulletin's use of language such as "economical," "minimal tolerances," "normal," and "heavy loads" in the description of common kit building components leaves much to the discretion of an assessor. In fact, Instructional Bulletin 91-8 labels the kit building identification factors as "clues" rather than calling them definitive characteristics or necessary components. ³ With such unclear definitions as "minimal" and "normal," it is difficult to see how any consistency or uniformity in applying the kit building adjustment can be achieved among assessors. This, of course, presents the danger that the Indiana Constitution's requirement of uniform and equal property assessments will be violated. See IND. CONST. art. X, § 1(a). However, this Court is also aware that a precise and inflexible definition might hinder an assessor's efforts to arrive at the proper assessment for a building. ⁴

Instructional Bulletin 91-8 also discusses the use of grade factors ⁵ in conjunction with the kit building adjustment. Grade factors can be applied to adjust for various additional building features included in a kit building. However, the instructional bulletin notes that if the additional features of the kit building result in the building no longer being economical, then it cannot qualify for the kit adjustment. ⁶ Instructional Bulletin 91-8 at 7. If the building does not qualify for the kit adjustment, the assessor may apply "a low grade and design factor to account for the lower cost of construction." ⁷ (Resp't Br. at 6). Regardless, the Court notes that the kit adjustment, the grading system, and the assessment process in general are a means to an end. Clearly, the goal of the entire assessment process is to arrive at the correct True Tax Value ⁸ for each improvement and parcel of land in Indiana. Whether a kit adjustment is given and then the building's grade is adjusted to account for additional amenities, or a kit adjustment is denied and a grade factor is assigned to account for the lower quality of the materials used, should be of little import. ⁹ What is important is that a correct assessment is attained. ¹⁰ With this in mind the Court now turns to the merits of this case.

King argues that its buildings are kit buildings and should be given the 50% reduction in base price under the General Commercial Industrial cost schedule. See IND. ADMIN. CODE tit. 50, r. 2.1-4-5, Schedule A.2. King points out that its buildings are "brand name kit type dealer distributed structure[s]." (Pet'r Br. at 1). King submitted a letter into evidence from the manufacturer of two of its buildings stating that the buildings are pre-engineered steel buildings. (Pet'r Ex. 2 at Ex. "F"). In addition, King argues that its buildings contain at least ten of the State Board's kit building characteristics. (Pet'r Br. at 2).

For instance, King argues that its concrete floors can only support minimal tolerances. King points out that the floors are cracked where fork trucks have driven on them and had to be reinforced in locations where heavy machinery sits. (Pet'r Ex. 1) (Tr. at 22-23). King also argues that the buildings' support columns and roof beams can only support minimal tolerances. In support of this assertion, King offered testimony to indicate that its two hoists, which are free standing, would be attached to the building were the building able to support the weight. (Pet'r Ex. 1) (Tr. at 24).

The State Board argues that the steel columns in King's buildings support greater tolerances than those allowed by the kit adjustment. (Resp't Br. at 6) (Tr. at 57-60). Moreover, King's buildings have the minimum bay spacing allowed under Bulletin 91-8 and the buildings are not of standard kit building size and shape. (Resp't Br. at 6) (Tr. at 61). Finally, the State Board offered testimony that a portion of King's buildings appeared to be of custom design. (Tr. at 62). However, none of these things absolutely disqualify a building from receiving the kit adjustment.

The "clues" included in Bulletin 91-8 to aid assessors in determining whether a building qualifies as a kit building are vague at best. The decision to award the kit building adjustment or a lower grade factor is entirely subjective with few, if any, ascertainable standards. In this case, the State Board's hearing officer admitted that he was unsure whether the reinforced concrete flooring was confined only to those areas underneath heavy machinery. (Tr. at 60). The hearing officer testified that he "may have made a mistake" regarding the concrete flooring. (Tr. at 62). Moreover, the fact that King's buildings are not of standard size and shape are of no avail. This Court has previously held that a building may still qualify for the kit adjustment even though it contains minor enhancements. "[S]light additions to the basic 'kit' model can be accounted for by simply raising the grade factor." Componx, Inc. v. State Bd. of Tax Comm'rs, 683 N.E.2d 1372, 1375 (Ind. Tax Ct.1997). Therefore, modifications King has made to its buildings do not necessarily disqualify them from receiving the kit adjustment. ¹¹

In addition to its denial of the kit adjustment, the State Board applied a grade factor of D+1 to King's buildings to account for the low quality of the materials used. There is no evidentiary support for the decision to assign a grade of "D+1" and on the basis of the record the Court has no way of determining whether a "D+1," as opposed to any other grade, is the correct grade. See Corey v. State Bd. of Tax Comm'rs, 674 N.E.2d 1062, 1066 (Ind. Tax Ct.1997) (Court must be apprised of the basis of a State Board final determination so that it may properly review a final determination); see also Bailey Seed Farms v. State Bd. of Tax...