Louis D. Realty Corp. v. STATE BD. OF TAX COM'RS, 49T10-9701-TA-36.

• Decision Date: 18 January 2001
• Docket Number: No. 49T10-9701-TA-36.,49T10-9701-TA-36.
• Citation: 743 N.E.2d 379
• Parties: LOUIS D. REALTY CORPORATION, Petitioner, v. INDIANA STATE BOARD OF TAX COMMISSIONERS, Respondent.
• Court: Indiana Tax Court

743 N.E.2d 379

LOUIS D. REALTY CORPORATION, Petitioner, v. INDIANA STATE BOARD OF TAX COMMISSIONERS, Respondent.

No. 49T10-9701-TA-36.

Tax Court of Indiana.

January 18, 2001.

Curtis J. Dickson, Dickinson & Abel, David L. Pippen, Attorney at Law, Indianapolis, IN, for Petitioner.

Stephen R. Carter, Attorney General of Indiana, Laureanne Nordstrom, Deputy Attorney General, Indianapolis, IN, for Respondent.

FISHER, J.

Louis D. Realty Corporation (Louis Realty) appeals the State Board of Tax Commissioners' (State Board) final determinations that assessed its properties as of the March 1, 1992 assessment date. Louis Realty presents the following issues for this Court's review on appeal:

1) whether the State Board's Regulations regarding grade, condition, or obsolescence are unconstitutional because they lack ascertainable standards and are therefore arbitrary and capricious as a matter of law; and

2) whether the State Board's determinations of grade, condition, or obsolescence in Realty's specific case are arbitrary or capricious or unsupported by substantial evidence;

FACTS AND PROCEDURAL HISTORY

Louis Realty owns two pieces of property located in Allen County, Indiana.¹ On November 17, 1992, Louis Realty filed two form 131 petitions for review of assessment (131 Petitions) with the State Board seeking review of the March 1, 1992 assessment of its properties claiming that the improper base rate and obsolescence depreciation were applied to parcel one and that parcel two was entitled to additional obsolescence. Thereafter, the State Board held a hearing on the petitions. On November 22, 1996, the State Board issued its final determinations wherein on both properties it changed the land type classification and the pricing of the paving. In addition, the State Board changed the perimeter-to-area ratio on parcel one. No changes were made to grade, the depreciation table, or obsolescence on either parcel.² On January 3, 1997, Louis Realty filed its original tax appeal in this Court. Additional facts will be provided as necessary.

ANALYSIS AND OPINION

Standard of Review

This Court gives final determinations of the State Board great deference when the State Board acts within the scope of its authority. Freudenberg-NOK General Partnership v. State Bd. of Tax Comm'rs, 715 N.E.2d 1026, 1028-29 (Ind. Tax Ct.1999). Accordingly, this Court reverses final determinations of the State Board only when they are unsupported by substantial evidence, are arbitrary or capricious, constitute an abuse of discretion, or exceed statutory authority. Id. at 1029.

In addition, a taxpayer challenging the validity of the State Board's final determination bears the burden of demonstrating the invalidity of the final determination. Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct.1998). The taxpayer must present a prima facie case (a case in which the evidence is "sufficient to establish a given fact and which if not contradicted will remain sufficient"). GTE North Inc. v. State Bd. of Tax Comm'rs, 634 N.E.2d 882, 887 (Ind. Tax Ct.1994) (citations and internal quotation marks omitted). To establish a prima facie case, the taxpayer must offer probative evidence concerning the alleged error. King Indus. v. State Bd. of Tax Comm'rs, 699 N.E.2d 338, 343 (Ind. Tax Ct.1998); Whitley Prods., Inc. v. State Bd. of Tax Comm'rs, 704 N.E.2d 1113, 1119 (Ind. Tax Ct.1998), review denied. "Once the taxpayer carries the burden of establishing a prima facie case, the burden shifts to the State Board to rebut the taxpayer's evidence and justify its decision with substantial evidence." Clark, 694 N.E.2d at 1233. To carry its burden, the State Board must do more than merely assert that it assessed the property correctly. Loveless Const. Co. v. State Bd. of Tax Comm'rs, 695 N.E.2d 1045, 1049 (Ind. Tax Ct.1998), review denied. Instead, the State Board must offer an authoritative explanation of its decision to rebut the taxpayer's prima facie showing. Id.

Discussion

I.

The first issue is whether the State Board's Regulations regarding grade, condition, or obsolescence are unconstitutional because they lack ascertainable standards and are therefore arbitrary and capricious as a matter of law. Louis Realty wages a general attack on the method of determining grade, condition, and obsolescence set forth under the Regulations.

This Court addressed the same challenge to grade, condition, and obsolescence in Town of St. John v. State Board of Tax Commissioners, 690 N.E.2d 370, 386-387 (Ind. Tax Ct.1997) (St. John III), rev'd in part on other grounds by State Board of Tax Commissioners v. Town of St. John, 702 N.E.2d 1034 (Ind.1998) (St. John V). In St. John III this Court concluded that the current system lacked ascertainable standards. Id. at 384. More specifically, this Court held that "the State Board regulations fail to provide ascertainable standards to guide the discretion of assessing officials and to measure the fairness of administrative action. Taxpayers as a whole are denied a meaningful opportunity to challenge their taxes on any objective basis." Id. at 384-85. The Court then discussed examples of those regulations that lack ascertainable standards including, among others, those set forth to determine condition, grade, and obsolescence. Id. at 386-87. This Court stated that "[t]here are no objective standards to determine whether an opinion of condition is correct." Id. at 386. With regard to grade this Court concluded that many elements of grade "are so subjective as to be unclear." Id. Moreover, the Court noted that "[t]he lack of ascertainable standards is particularly pronounced in the `A' grade classification. There is no guidance in the manual differentiating between and `A' and an `A + 10' dwelling." Id.; Accord Garcia v. State Bd. of Tax Comm'rs, 694 N.E.2d 794, 797-98 (Ind. Tax Ct.1998). Finally, with regard to economic obsolescence, this Court stated that "[t]here are no objective standards used for measuring obsolescence and, therefore, no way to apply equality and uniformity." St. John III,690 N.E.2d at 386.

Notwithstanding the above conclusions that this Court made in St. John III, this Court has also recognized that the fact that the subject improvement was assessed under an unconstitutional regulation does not mean that the assessment will be invalidated on that basis. Whitley Prods., 704 N.E.2d at 1121; See also White Swan Realty v. State Bd. of Tax Comm'rs, 712 N.E.2d 555, 559 (Ind. Tax Ct.1999) (discussing with regard to grade), review denied; Phelps Dodge v. State Bd. of Tax Comm'rs, 705 N.E.2d 1099, 1104 (Ind. Tax Ct.1999) (discussing with regard to condition), review denied. "Real property must still be assessed, and, until the new regulations are in place, must be assessed under the present system." Whitley Prods., 704 N.E.2d at 1121; See also Town of St. John v. State Bd. of Tax Comm'rs, 729 N.E.2d 242, 250-251 (Ind. Tax Ct.2000). This means that a taxpayer cannot come into court, point out the inadequacies of the present system and obtain a reversal of an assessment. Whitley Prods., 704 N.E.2d at 1121. Instead, the taxpayer must come forward with probative evidence relating to the issue the taxpayer raises.³ Id. But see Clark, 694 N.E.2d at 1241 & Freudenberg-NOK, 715 N.E.2d at 1029-1030 (collectively concluding that in cases that arose prior to Clark, the taxpayer does not need to present probative evidence to trigger the State Board's substantial evidence requirement where the State Board approved or modified the county board's quantification of obsolescence).

Louis Realty argues that the determinations of grade, condition, and obsolescence pursuant to the regulations are arbitrary and capricious because the regulations do not contain ascertainable standards. Thus, too much discretion is left to the subjective judgment of the assessing official. While this Court has previously stated that the regulations lack ascertainable standards, this Court has also stated that assessments will not be reversed solely on that basis. See Whitley Prods, 704 N.E.2d at 1121. As this Court said previously, until the new regulations are in place, real property must be assessed under the present system. See id. Therefore, Louis Realty's argument that the final determinations should be reversed because the regulations do not contain ascertainable standards cannot prevail.

II.

The second issue is whether the State Board's determinations of grade, condition, or obsolescence in Louis Realty's specific case are arbitrary or capricious or unsupported by substantial evidence. This Court will address each of his contentions with regard to grade, condition, and obsolescence in turn.

A. Grade

Louis Realty argues that the State Board's determinations of grade are arbitrary and capricious as a matter of law. The grading of improvements is an important aspect of the True Tax Value system. White Swan Realty, 712 N.E.2d at 559. Assessors use cost schedules to determine the base reproduction cost of a particular improvement. Id. Various grades are then assigned to an improvement based on the quality of the improvement's materials, design, and workmanship. Id. See also IND. ADMIN. CODE tit. 50, r. 2.1-4-3(f) (1992) (codified in present form at id., r. 2.2-10-3(a) (1996)). The grades represent multipliers that are applied to the base reproduction cost of an improvement as calculated by using the cost schedules provided in the regulations. White Swan Realty, 712 N.E.2d at 559.

Here, Louis Realty must offer probative evidence to demonstrate that the State Board's final determinations as to grade are arbitrary or capricious. See id. However, Louis Realty has not offered any evidence to support its assertion that the State Board erred in determining the grade of the properties in this case. Allegations, unsupported by factual evidence, remain mere allegations. Herb v. State Bd. of Tax Comm'rs, 656 N.E.2d 890, 893 (Ind. Tax...