Kooshtard Property VI v. White River Tp., 49T10-0412-TA-57.

• Decision Date: 03 November 2005
• Docket Number: No. 49T10-0412-TA-57.,49T10-0412-TA-57.
• Citation: 836 N.E.2d 501
• Parties: KOOSHTARD PROPERTY VI, LLC, Petitioner, v. WHITE RIVER TOWNSHIP ASSESSOR, Respondent.
• Court: Indiana Tax Court

836 N.E.2d 501

KOOSHTARD PROPERTY VI, LLC, Petitioner, v. WHITE RIVER TOWNSHIP ASSESSOR, Respondent.

No. 49T10-0412-TA-57.

Tax Court of Indiana.

November 3, 2005.

Timothy J. Vrana, Attorney at Law, Columbus, for Petitioner.

Steve Carter, Attorney General of Indiana, Allen R. Morford, Deputy Attorney General, Indianapolis, for Respondent.

FISHER, J.

Kooshtard Property VI, LLC (Kooshtard) appeals the final determination of the Indiana Board of Tax Review (Indiana Board) valuing its real property for the March 1, 2002 assessment date. The sole issue before the Court is whether the Indiana Board erred in valuing Kooshtard's improvement.

FACTS AND PROCEDURAL HISTORY

Kooshtard owns a gas station/convenience store in Johnson County, Indiana. The property was constructed in 1983 and remodeled in 1995. For the 2002 assessment date, Kooshtard's improvement was assigned a true tax value of $195,400. In arriving at that value, local assessing officials assigned Kooshtard's improvement an effective age of three and a condition rating of "average." Accordingly, Kooshtard's improvement received a nine percent (9%) physical depreciation adjustment.

Kooshtard, subsequently filed a Petition for Review of Assessment with the Indiana Board (Form 131) on November 17, 2003. In its Form 131, Kooshtard challenged the computation of its improvement's effective age. Specifically, Kooshtard claimed that under Indiana's Assessment Guidelines, its improvement had an effective age of 17. In turn, Kooshtard explained that an improvement with an effective age of 17 and a condition rating of "average" is entitled to receive a 37% physical depreciation adjustment.

The Indiana Board held a hearing on Kooshtard's Form 131 on August 19, 2004. On November 12, 2004, the Indiana Board issued its final determination in which it denied Kooshtard's request for relief.

Kooshtard filed an original tax appeal on December 17, 2004. The Court heard the parties' oral arguments on August 5, 2005. 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. Miller Village Prop. Co. v. Indiana Bd. of Tax Review, 779 N.E.2d 986, 988 (Ind. Tax Ct.2002), 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 2005).

The party seeking to overturn the Indiana Board's final determination bears the burden of proving its invalidity. Osolo Township Assessor v. Elkhart Maple Lane Assocs. L.P., 789 N.E.2d 109, 111 (Ind. Tax Ct.2003). In order to meet that burden, the party seeking reversal must have submitted, during the administrative hearing process, probative evidence regarding the alleged assessment error. Id. (footnote omitted). If that party meets its burden of proof and prima facie establishes that the Indiana Board's final determination is erroneous, the burden then shifts to the opposing party to rebut the challenging party's evidence. See Meridian Towers East & West v. Washington Township Assessor, 805 N.E.2d 475, 479 (Ind. Tax Ct.2003).

DISCUSSION AND ANALYSIS

Under Indiana's assessment system, real property is assessed on the basis of its "true tax value." "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." IND. CODE ANN. § 6-1.1-31-6(c) (West Supp.2005-2006); 2002 REAL PROPERTY ASSESSMENT MANUAL (2004 Reprint) (hereinafter, Manual) (incorporated by reference at IND. ADMIN. CODE tit. 50, r. 2.3-1-2 (2002 Supp.)) at 2. 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).

Three generally accepted appraisal techniques may be used to calculate a property's market value-in-use. See id. at 3. More specifically:

The first approach, known as the cost approach, estimates the value of the land as if vacant and then adds the depreciated cost new of the improvements to arrive at a total estimate of value. The second approach, known as the sales comparison approach, estimates the total value of the property directly by comparing it to similar, or comparable, properties that have sold in the market. The third approach, known as the income approach, is used for income producing properties that are typically rented. It converts an estimate of income, or rent, the property is expected to produce into value through a mathematical process known as capitalization.

Id. Indiana recognizes, however, that because "assessing officials are faced with the responsibility of valuing all properties within their jurisdictions during a reassessment[, they] often times do not have the data or time to apply all three approaches to each property." Id. Accordingly, the primary method for Indiana assessing officials to determine a property's market value-in-use is the cost approach.² To that end, Indiana (through the now non-existent State Board of Tax Commissioners) has promulgated a series of guidelines that explain the application of the cost approach in detail. See REAL PROPERTY ASSESSMENT GUIDELINES FOR 2002 — VERSION A (2004 Reprint) (hereinafter, Guidelines), Books 1 and 2.³

A property's market value-in-use (i.e., true tax value) as ascertained through an application of the Guidelines' cost approach is presumed to be accurate. See Manual at 5. Nevertheless, that presumption is rebuttable. 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 as 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.

Whatever approach is utilized, the Manual provides that the goal, or end-result, should be the same: to ascertain a property's market value-in-use. Consequently, while "[a]ll three [] approaches, when properly processed, should produce approximately the same estimate of value[,]" id. at 3, "situations may arise that are not explained or that result in assessments that may be inconsistent with th[e] definition [of market value-in-use]. In those cases the assessor shall be expected to adjust the assessment to comply with this definition and may . . . consider additional factors . . . to accomplish th[at] adjustment." Id. at 2.

Kooshtard asserts that pursuant to the instructions set forth in the Guidelines' cost approach, its improvement should have an effective age of 17 and, in turn, an improvement with an effective age of 17 and a condition rating of "average" is entitled to a 37% physical depreciation adjustment. (See Pet'r Br. at 3; Cert. Admin. R. at 19.) The Assessor argues, however, that Kooshtard's assessment should remain unchanged for two reasons: 1) Kooshtard's calculation of effective age fails to take into account the improvement's 1995 remodeling; and 2) Kooshtard's argument is based entirely on methodology and not on ascertaining the property's true true tax value. (Resp't Br. at 3-4.)

The market value-in-use of an improvement must reflect, among other things, the presence of any physical depreciation. See Guidelines, Book 2, App. F at 4. Physical depreciation "is [the] loss in value caused by the building materials wearing out over time. It may be caused by wear and tear, use or abuse, action of the elements, and/or insect infestation." Id. Determining the degree of physical depreciation from which an improvement suffers involves, at its most basic level, a comparison of the improvement's condition relative to its age. See id. at 4-6, 24, 25, 31. Consequently, an improvement's condition rating must take into account any and all maintenance and modernization to the improvement.⁴ See id. at 6 (footnote added).

As Kooshtard correctly explains, the Guidelines do provide that an improvement with an actual age of 16⁵ and a condition rating of "average" has an effective age of 17 and is therefore entitled to a 37% physical depreciation adjustment. See id. at 24, 25, 31. Nevertheless, in determining the true tax value of Kooshtard's improvement, the maintenance and modernization to its improvement resulting from the 1995 remodel were to be taken into account. See id. at 6. Here, the administrative record reveals that the Assessor "tweaked" the effective age of Kooshtard's improvement not only to reflect the modernization and maintenance to the improvement as a result of its 1995 remodeling, but to make the improvement's true tax value (i.e., its market value-in-use) more consistent with its 2001 purchase price of $1,127,302. (Cert. Admin. R. at 78-79.) On the other hand, the...