Pedcor Investments-1995-XXIII, L.P. v. Portage Township Assessor
| Decision Date | 09 May 2007 |
| Docket Number | 49T10-0206-TA-66 |
| Parties | PEDCOR INVESTMENTS-1995-XXIII, L.P., Petitioner, v. PORTAGE TOWNSHIP ASSESSOR, Respondent. |
| Court | Indiana Tax Court |
NOT FOR PUBLICATION
ON APPEAL FROM A FINAL DETERMINATION OF THE INDIANA BOARD OF TAX REVIEW
ATTORNEYS FOR PETITIONER: JAMES W. BEATTY, STEPHEN M TERRELL, LANDMAN & BEATTY
ATTORNEYS FOR RESPONDENT: STEVE CARTER, ATTORNEY GENERAL OF INDIANA, JOEL SCHIFF, DEPUTY ATTORNEY GENERAL
Pedcor Investments-1995-XXIII, L.P. (Pedcor) appeals from a final determination of the Indiana Board of Tax Review (Indiana Board) valuing its real property for the March 1, 1998 assessment date. 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 the Port Crossing apartment complex in Portage, Indiana. A portion of this complex, known as "Phase III," is low-income housing and qualifies for tax credits pursuant to Section 42 of the Internal Revenue Code (the LIHTC Program).1[]
Under the LIHTC program, Pedcor received approximately $1.9 million in tax credits to award to investors, over a ten-year period who provided financing for Phase III. In exchange for these tax credits, Pedcor agreed to rent 96 of the 176 units in Phase III 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, 1998 assessment date, the Portage Township Assessor (Assessor) assigned an assessed value of $1,088,530 to the improvements in Phase III. Believing this value to be too high, Pedcor appealed the assessment, first to the Porter County Property Tax Assessment Board of Appeals (PTABOA) and then to the State Board of Tax Commissioners (State Board), claiming that Phase III was suffering from economic obsolescence.
On February 8, 2001, the State Board conducted an administrative hearing on Pedcor's appeal. On April 23, 2002, the Indiana Board issued a final determination denying Pedcor's request 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 only reverse a final determination of the Indiana Board 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 III an economic obsolescence adjustment. Specifically, Pedcor contends that it presented a prima face case at the administrative hearing that it was entitled to a 17.19% economic obsolescence adjustment for the year at issue and that the Assessor failed to rebut this prima facie case. As a result, Pedcor maintains that the Indiana Board's final determination is 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 year 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 id. 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 that the improvement was constructed for a need which has subsequently been terminated due to actual or probable changes in economic or social conditions. Id.
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.3[] 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 III were causing obsolescence because they negatively impacted Phase III's ability to generate income.[4],[5] To support this claim, Hougland testified that while Pedcor was able to charge rents of $555, $672, and $740 for the non rent-restricted one-bedroom, two-bedroom, and three-bedroom units in Phase III, it only charged $435, $525, and $635 per month for the identical rent-restricted units in Phase III. (See Cert. Admin. R. at 271, 527.) In turn, Pedcor explains that Hougland then presented a quantification "done in accordance with standard principles of appraisal" which converted this loss of income to an obsolescence adjustment of 17.19% for the 1998 assessment year. (Pet'r Br. at 9-10.) 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, 13-14.) 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 1113, 1119 (Ind. Tax Ct. 1998), review denied. To its detriment, Pedcor has failed to heed these reminders.
During the administrative hearing, Hougland presented a three-page worksheet quantifying the obsolescence present in Phase III for the 1998 tax year at 17.19%. (Cert. Admin. R. at 271-73.) Hougland arrived at the 17.19% after she:
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