Lake County Assessor v. U.S. Steel Corp., 49T10-0703-TA-19.

Citation901 N.E.2d 85
Decision Date09 February 2009
Docket NumberNo. 49T10-0703-TA-19.,49T10-0703-TA-19.
PartiesLAKE COUNTY ASSESSOR, Calumet Township Assessor, and Lake County Property Tax Assessment Board of Appeals, Petitioners, v. UNITED STATES STEEL CORPORATION, Respondent.
CourtTax Court of Indiana

John S. Dull, Attorney at Law, Brian P. Popp, Laszlo & Popp PC, Dock McDowell Jr., The McDowell Law Firm, Merrillville, IN, Charles C. Meeker, Charles E. Raynal, Parker Poe Adams & Bernstein LLP, Raleigh, NC, Attorneys for Petitioners.

Thomas M. Atherton, David A. Suess, Bose McKinney & Evans LLP, Indianapolis, IN, Attorneys for Respondent.

FISHER, J.

The Lake County Assessor, the Calumet Township Assessor, and the Lake County Property Tax Assessment Board of Appeals (PTABOA) (collectively, Lake County) appeal the final determination of the Indiana Board of Tax Review (Indiana Board) valuing United States Steel Corporation's (U.S. Steel) real property as of the March 1, 2001 assessment date. Because the pleadings, orders, and other materials in this case have been filed under seal, see generally Indiana Administrative Rule 9, this Court's opinion will provide only that information necessary for the reader to understand its disposition of the issues.

RELEVANT FACTS AND PROCEDURAL HISTORY

US Steel owns and operates an integrated steel manufacturing plant, known as the Gary Works, in Calumet Township, Lake County, Indiana. The plant, which was initially constructed in 1906, has been greatly modified over the years to accommodate new technologies in the steelmaking industry. As of March 1, 2001, U.S. Steel's plant consisted of 3,155 acres of land and over 700 buildings with more than 15 million square feet of space. A portion of the Grand Calumet River runs through U.S. Steel's property.

For the year at issue, the Calumet Township Assessor (the Assessor) assigned U.S. Steel's plant an assessed value of $269,801,300: $59,582,900 for the land and $210,218,400 for the improvements. In arriving at the assessed value of the improvements, the Assessor applied a functional obsolescence adjustment of $23,112,230.

Believing the assessment to be too high, U.S. Steel filed an appeal with the PTABOA. The PTABOA denied U.S. Steel's request for relief. US Steel then filed an appeal with the Indiana Board, claiming that its improvements were entitled to a larger obsolescence adjustment and that its land was entitled to a reduction in value to account for the presence of environmental contamination therein.

In June of 2006, the Indiana Board conducted a four-day hearing on U.S. Steel's appeal. During the hearing, U.S. Steel presented two alternate calculations quantifying the amount of obsolescence it believed was present in its property. The first calculation was comprised of three separate parts: part one utilized a "change-in-pricing" methodology to calculate the amount of functional obsolescence present in the improvements due to superadequate construction, excessive clearance, and excessive building size; part two utilized an "excess operating cost" methodology to calculate the amount of functional obsolescence present in the improvements due to inefficient building layout; and part three utilized a "business enterprise value" methodology to calculate the amount of economic obsolescence present in the improvements due to excess global capacity, market competition, and reduced product demand (hereinafter, "Calculations # 1-A, # 1-B, and # 1-C"). US Steel's alternate obsolescence calculation quantified the total amount of obsolescence present in its property (i.e., functional and economic forms combined) by comparing the property's market value as determined by the Marshall & Swift cost approach with its market value as determined by a sales comparison approach (the difference between the two values representing total obsolescence) (hereinafter, "Calculation # 2").1 With respect to its land, U.S. Steel presented evidence demonstrating that the portion of the Grand Calumet River running through its property was environmentally contaminated as of the assessment date and what it subsequently spent to remediate that contamination.

On February 23, 2007, the Indiana Board issued its final determination in the matter. The Indiana Board found that U.S. Steel had prima facie demonstrated that its improvements were entitled to both functional and economic obsolescence adjustments, as it had both identified the causes of obsolescence from which its property suffered and then quantified the amount of obsolescence present using generally accepted appraisal techniques.2 The Indiana Board also found that U.S. Steel had prima facie demonstrated that its land was entitled to a reduction in value — equivalent to the amount it spent in its remediation efforts — to account for the environmental contamination present therein. As a result of its findings, U.S. Steel's total assessment was reduced to $90,000,000.

On March 29, 2007, Lake County initiated this original tax appeal. The Court heard the parties' oral arguments on December 21, 2007. Additional facts will be supplied as necessary.

ISSUES

On appeal, Lake County presents several issues for the Court to decide. The Court restates those issues as:

I. Whether the Indiana Board erred when it admitted U.S. Steel's Excess Cost Report under Calculation # 1-B because it was not "scientifically reliable";

II. Whether the Indiana Board erred when it failed to discount U.S. Steel's total functional obsolescence award by $23,112, 230;

III. Whether the Indiana Board erred when it failed to find that Calculation # 2 was invalid because it utilized bankruptcy sales in its sales comparison approach;

IV. Whether the Indiana Board erred when it held that U.S. Steel was entitled to an obsolescence adjustment at all, given the result of Calculation # 1-C; and

V. Whether the Indiana Board erred in reducing the assessed value of U.S. Steel's land.

ANALYSIS AND OPINION
Standard of Review

When this Court reviews an Indiana Board final determination, it is limited to determining whether 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 2009). The party seeking to overturn the Indiana Board's final determination bears the burden of demonstrating its invalidity. Osolo Twp. Assessor v. Elkhart Maple Lane Assocs., 789 N.E.2d 109, 111 (Ind. Tax Ct.2003).

Discussion
I. The Admissiblity of U.S. Steel's Excess Cost Report

In its final determination, the Indiana Board held that, under Calculation # 1-B, U.S. Steel presented an unrebutted prima facie case that its plant was entitled to a functional obsolescence adjustment due to an inefficient building layout. Indeed, the Indiana Board explained that U.S. Steel presented probative evidence explaining why and how its improvements were inefficiently laid out and then, through its "Excess Cost Report" (Report), used generally recognized appraisal techniques to quantify the negative impact the layout had on the value of its property.3 (See Cert. Admin. R., Vol. 1 ¶¶ 74-76, 78 at 482-83, ¶¶ 115-36, 143-51 at 489-96 (footnote added).) (See also Cert. Admin. R., Vol. 5 at 1403-06, 1732-50, 2263-305.)

On appeal, Lake County argues that the Indiana Board erred in finding that U.S. Steel prima facie quantified the impact its building design had on the value of its property. Specifically, Lake County contends that the foundation of U.S Steel's quantification — its Report — was "scientifically unreliable" pursuant to Indiana Evidence Rule 702(b) and the holding in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993).4 (See Pet'r Br. at 33-41 (footnote added).) As a result, Lake County asserts that the Indiana Board should have excluded the Report as evidence and found instead that U.S. Steel failed to meet its burden.5 (See Pet'r Br. at 33-41 (footnote added).) The Court must disagree, given that Lake County's claim simply ignores the law.

Time and time again, over the course of the last ten years, this Court has explained that generally recognized appraisal techniques are acceptable methods by which to quantify obsolescence in Indiana's pre-2002 assessment system. See, e.g., Meadowbrook N. Apartments v. Conner, 854 N.E.2d 950, 957 (Ind. Tax Ct.2005); Heart City Chrysler/Lockmandy Motors v. Dep't of Local Gov't Fin., 801 N.E.2d 215, 217 (Ind. Tax Ct.2004); Inland Steel Co. v. State Bd. of Tax Comm'rs, 739 N.E.2d 201, 211 (Ind. Tax Ct.2000), review denied; Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1242 n. 18 (Ind. Tax Ct.1998). Furthermore, the Court has held that the method utilized by U.S. Steel in its Report is a generally recognized appraisal technique for calculating functional obsolescence. See Inland Steel, 739 N.E.2d at 214-18. The Indiana Board's final determination with respect to this issue is therefore AFFIRMED.6

II. Discounting U.S. Steel's Total Functional Obsolescence Award

Prior to the administrative hearing in this matter, U.S. Steel and Lake County provided the Indiana Board with a stipulation as to the value of all improvements at Gary Works after application of scheduled depreciation pursuant to the [Indiana] Assessment Manual, subject to the following[:] ... [1)] that U.S. Steel may introduce evidence at the hearing, if otherwise admissible, of additional obsolescence it contends existed at the Gary Works property as of March 1, 2001[; and 2)] ... that Lake County ... may introduce evidence at the hearing, if otherwise admissible, of additional obsolescence [it] contend[s] is already factored into the [] value[.]

(Cert. Admin. R., Vol. 8 at...

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