Pedcor Investments-1990-XIII, L.P. v. Franklin Township Assessor, 49T10-0206-TA-64
| Decision Date | 09 May 2007 |
| Docket Number | 49T10-0206-TA-64 |
| Parties | PEDCOR INVESTMENTS-1990-XIII, L.P., PEDCOR INVESTMENTS-1994-XXI, L.P., PEDCOR INVESTMENTS, LLC, Petitioners, v. FRANKLIN TOWNSHIP ASSESSOR, JOHNSON COUNTY, Respondent. |
| Court | Indiana Tax Court |
NOT FOR PUBLICATION
ON APPEAL FROM THREE FINAL DETERMINATIONS OF THE INDIANA BOARD OF TAX REVIEW
JAMES W. BEATTY STEPHEN M. TERRELL LANDMAN & BEATTY, ATTORNEYS FOR PETITIONER.
STEVE CARTER ATTORNEY GENERAL OF INDIANA, JOHN D. SNETHEN DEPUTY ATTORNEY GENERAL ATTORNEYS FOR RESPONDENT.
Pedcor Investments-1990-XIII, L.P., Pedcor Investments-1994-XXI L.P., and Pedcor Investments, LLC (collectively, Pedcor) appeal three final determinations of the Indiana Board of Tax Review (Indiana Board) valuing its real property for the March 1, 1995, 1996, and 1997 assessment dates (the years at issue). The sole issue for the Court to decide is whether the Indiana Board erred in denying Pedcor's low-income housing project an obsolescence depreciation adjustment.
Pedcor owns Lakeview Apartments in Franklin, Indiana. There are two sections to this complex: Phase I consists of 160 apartments Phase II consists of 64 apartments. A portion of the units in Phase I, and all the units in Phase II, are low-income housing and qualify for tax credits pursuant to Section 42 of the Internal Revenue Code (the LIHTC Program).1[]
Under the LIHTC program, Pedcor received approximately $2.7 million in tax credits to award to investors, over a ten-year period who provided financing for Phases I and II. In exchange for these tax credits, Pedcor agreed to rent 60% of the units in Phase I, and 100% of the units in Phase II, to individuals whose income was 60% or less of the area's median gross income (adjusted for family size) and subject to Indiana Housing Finance Authority (IHFA) rental guidelines. Pedcor agreed to abide by these rental restrictions for a period of 30 years.
For the March 1, 1995 assessment date, the Johnson County Board of Review (BOR) assigned the improvements in Phase I an assessed value of $1,209,800. Believing this value to be too high Pedcor appealed the assessment to the State Board of Tax Commissioners (State Board), claiming that Phase I was entitled to an economic obsolescence adjustment.
For the March 1, 1996 and March 1, 1997 assessment dates, the BOR assigned the improvements in Phase II an assessed value of $348,200 and $457,900 respectively. Pedcor appealed each of these assessments to the State Board as well, claiming that, like Phase I, Phase II was also entitled to an economic obsolescence adjustment.
On April 11, 2001, the State Board conducted one administrative hearing on all three of Pedcor's appeals. On April 23, 2002, the Indiana Board issued three final determinations denying Pedcor's requests for economic obsolescence.2[]
Pedcor filed an original tax appeal on June 4, 2002. The Court heard the parties' oral arguments on November 21, 2003. Additional facts will be supplied as necessary.
This Court gives great deference to final determinations of the Indiana Board when it acts within the scope of its authority. Wittenberg Lutheran Vill. Endowment Corp. v. Lake County Prop. Tax Assessment Bd. of Appeals, 782 N.E.2d 483, 486 (Ind. Tax Ct. 2003), review denied. Consequently, the Court will reverse a final determination of the Indiana Board only if it is:
See Ind. Code Ann. § 33-26-6-6(e)(1) - (5) (West 2007). The party seeking to overturn the Indiana Board's final determination bears the burden of proving its invalidity. Osolo Twp. Assessor v. Elkhart Maple Lane Assocs. L.P., 789 N.E.2d 109, 111 (Ind. Tax Ct. 2003).
Pedcor argues on appeal that the Indiana Board improperly denied the improvements in Phase I and Phase II economic obsolescence adjustments during the years at issue. Specifically, Pedcor contends that it presented a prima face case at the administrative hearing that Phase I was entitled to a 3.49% economic obsolescence adjustment for the 1995 assessment, and that Phase II was entitled to a 0.72% economic obsolescence adjustment for the 1996 assessment and a 3.89% adjustment for the 1997 assessment year.3[] Pedcor maintains that because the Assessor did not dispute or challenge its evidence, the Indiana Board's final determinations denying the adjustments are not supported by substantial evidence and therefore invalid.
Real property in Indiana is assessed on the basis of its "true tax value." Ind. Code Ann. § 6-1.1-31-6(c) (West 2007). During the years at issue, a commercial improvement's true tax value was equal to its reproduction cost (as calculated under the State Board's assessment regulations) less any physical and/or obsolescence depreciation present therein. See 50 Ind. Admin Code 2.2-10-7(f) (1996) (repealed 2002). Obsolescence depreciation was defined as either the functional or economic loss of value to a property. 50 I.A.C. 2.2-10-7(e). For instance, functional obsolescence (or a loss of value resulting from factors internal to the property) could be caused by the fact that an improvement had limited use due to an irregular or inefficient floor plan, inadequate or unsuited utility space, or an excessive/deficient load capacity. See 50 I.A.C. 2.2-10-7(e). In contrast, economic obsolescence (or a loss of value resulting from factors external to the property) could be caused by the fact that an improvement was located in an inappropriate area, subject to inoperative or inadequate zoning ordinances or deed restrictions, or constructed for a need which has subsequently been terminated due to actual or probable changes in economic or social conditions. 50 I.A.C. 2.2-10-7(e).
This Court has previously held that in order to make a prima facie case for obsolescence at the administrative level, a taxpayer must present probative evidence that 1) identifies the causes of the obsolescence from which its property suffers and 2) quantifies the amount of obsolescence to which it believes it is entitled. See Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1238 (Ind. Tax Ct. 1998). More specifically, however, the Court has explained that when identifying causes of obsolescence, the taxpayer's probative evidence must show how the alleged causes result in an actual loss of value to its property (i.e., how the property's ability to generate income is affected). See Miller Structures, Inc. v. State Bd. of Tax Comm'rs, 748 N.E.2d 943, 953-54 (Ind. Tax Ct. 2001). The Court has also explained that, in quantifying obsolescence, the taxpayer must use generally recognized appraisal methods for calculating the market value of an improvement, converting the obsolescence as determined thereunder into a percentage to be applied against the property's true tax value.4[] See Clark, 694 N.E2d 1230, 1242 n.18 (footnote added). See also Lacy Diversified Indus., Ltd. v. Dep't of Local Gov't Fin., 799 N.E.2d 1215, 1223 (Ind. Tax Ct. 2003); Inland Steel Co. v. State Bd. of Tax Comm'rs, 739 N.E.2d 201, 211 (Ind. Tax Ct. 2000), review denied; Canal Square Ltd. P'ship v. State Bd. of Tax Comm'rs, 694 N.E.2d 801, 806-07 (Ind. Tax Ct. 1998).
During the administrative hearing in this case, one of Pedcor's vice-presidents, Ms Maureen Hougland, testified that the rental restrictions imposed on the units in Phase I and Phase II were causing obsolescence because they negatively impacted their ability to generate income.5[] 6[] To support this claim, Hougland testified that while Pedcor was able to charge rents of $473 and $549 per month for the non rent-restricted one-bedroom and two-bedroom units Phase I, it charged approximately $413 and $475 per month for the identical rent-restricted units in Phase I. (See Cert. Admin. R. at 408, 1552-53.) In turn, Pedcor explains that Hougland then presented a quantification "done in accordance with standard principles of appraisal" which converted Phase I's loss of income to an obsolescence adjustment of 3.49% for the 1995 assessment year.7[] (Pet'r Br. at 11-12.) Pedcor maintains that because the Assessor did not dispute or challenge this evidence at the administrative hearing, the Indiana Board improperly denied Pedcor the relief to which it claims it is entitled. (See Pet'r Br. at 7-8, 12, 16.) The Court, however, must disagree.
The Court has repeatedly reminded taxpayers that, as part of making a prima facie case, "[i]t is the taxpayer's duty to walk the [State Board, the] Indiana Board and this Court through every element of its analysis." See Fidelity Fed. Sav. & Loan v. Jennings County Assessor, 836 N.E.2d 1075, 1082 (Ind. Tax Ct. 2005) (quoting Clark v. Dep't of Local Gov't Fin., 779 N.E.2d 1277, 1282 n.4 (Ind. Tax Ct. 2002). See also Davidson Indus. v. State Bd. of Tax Comm'rs, 744 N.E.2d 1067, 1071 (Ind. Tax Ct. 2001). Consequently, this Court has rejected, as non-probative, evidence such as mathematical calculations and photographs that have not been accompanied by an explanation. See Indian Indus., Inc. v Dep't of Local Gov't Fin., 791 N.E.2d 286, 289-90 (Ind. Tax Ct. 2003); Heart City Chrysler v. State Bd. of Tax Comm'rs, 714 N.E.2d 329, 333 (Ind. Tax Ct. 1999). Likewise, the Court has frequently reminded taxpayers that, in making their presentations, conclusory statements do not constitute probative evidence. See, e.g., Whitley Prods., Inc. v. State Bd. of Tax Comm'rs, 704 N.E.2d...
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