Thorntown Telephone Co., Inc. v. State Bd of Tax Com'rs

• Decision Date: 25 February 1994
• Docket Number: TRI-COUNTY,49T10-9210-TA-00082,Nos. 49T10-9210-TA-00083,s. 49T10-9210-TA-00083
• Citation: 629 N.E.2d 962
• Parties: THORNTOWN TELEPHONE COMPANY, INC., Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, C. Kurt Zorn, Chairman, Gordon E. McIntyre, Member, Wanda K. Watts, Member, Respondents.TELEPHONE COMPANY, INC. Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, C. Kurt Zorn, Chairman, Gordon E. McIntyre, Member, Wanda K. Watts, Member, Respondents.
• Court: Indiana Tax Court

Page 962

629 N.E.2d 962

THORNTOWN TELEPHONE COMPANY, INC., Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, C. Kurt Zorn, Chairman, Gordon E. McIntyre, Member, Wanda K. Watts, Member, Respondents.

TRI-COUNTY TELEPHONE COMPANY, INC. Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, C. Kurt Zorn, Chairman, Gordon E. McIntyre, Member, Wanda K. Watts, Member, Respondents.

Nos. 49T10-9210-TA-00083, 49T10-9210-TA-00082.

Tax Court of Indiana.

Feb. 25, 1994.

Daniel P. Byron and Jeffrey T. Bennett, McHale, Cook & Welch, P.C., Indianapolis, for petitioners.

Pamela Carter, Atty. Gen. of Indiana, Joel Schiff and Marilyn S. Meighen, Deputy Attys. Gen., Indianapolis, for respondents.

FISHER, Judge.

Thorntown Telephone Company, Inc. and Tri-County Telephone Company, Inc. (the Companies) appeal the State Board of Tax Commissioners' (the State Board) final determination denying an adjustment for economic obsolescence on their distributable property for 1990.

ISSUE

Whether the State Board must apply an adjustment for economic obsolescence in the assessment of the Companies' property.

FACTS AND PROCEDURAL HISTORY

The Companies are public utilities that do business and own distributable property in Indiana. This court first addressed the assessment of the Companies' property in Thorntown Telephone Co. v. State Board of Tax Commissioners (1992), Ind.Tax, 588 N.E.2d 613 (Thorntown I ), and stated the following facts:

Within the general framework for determining unit value under 50 I.A.C. 5-4-2, the State Board's methods of assessment vary among the different classes of public utility companies. In 1989, the State Board incorporated an economic obsolescence adjustment in its method of assessing railroad property.... During 1990, the year at issue, the State Board exclusively applied the schedule to the assessment of railroad property.

Notwithstanding, when Thorntown and Tri-County provided the State Board with information for their 1990 assessments, they ... requested adjustments for economic obsolescence calculated according to the [railroad] schedule.

On June 1, 1990, the State Board issued tentative assessments of Thorntown's and Tri-County's property, without the requested adjustments for economic obsolescence. Thorntown and Tri-County objected, and the State Board held a hearing on the matter on June 27, 1990. On June 29, 1990, the State Board issued orders making Thorntown's and Tri-County's tentative assessments final.

Id. at 615-16. The court held the State Board was not required to apply the economic obsolescence adjustments calculated for railroad property to telephone property. Id. at 617. Nevertheless, the court remanded the case to the State Board to "consider the issue of whether adjustments for economic obsolescence are necessary ... in arriving at just valuations of Thorntown's and Tri-County's property ..." Id. at 620.

On remand, the State Board again denied the adjustments, stating the Companies had

not identified any property that required adjustments for economic obsolescence. The Companies now appeal. Additional facts will be introduced as necessary.

STANDARD OF REVIEW

When the court reviews a State Board assessment of public utility property, its standard of review is set by statute:

When a public utility company initiates an appeal under section 30 of [IND.CODE 6-1.1-8], the tax court may set aside the state board of tax commissioners' final assessment and refer the matter to the board with instructions to make another assessment if:

(1) the company shows that the board's final assessment, or the board's apportionment and distribution of the final assessment, is clearly incorrect because the board violated the law or committed fraud; or

(2) the company shows that the board's final assessment is not supported by substantial evidence.

IND.CODE 6-1.1-8-32. "Substantial evidence 'means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.' " Glass Wholesalers, Inc. v. State Bd. of Tax Comm'rs (1991), Ind.Tax, 568 N.E.2d 1116, 1122 (quoting State Bd. of Tax Comm'rs v. South Shore Marina (1981), Ind.App., 422 N.E.2d 723, 731).

DISCUSSION AND DECISION

In Thorntown I, the court stated:

'Economic obsolescence is loss in value resulting from external economic factors such as decreased demand, governmental restrictions and social changes. A deduction should be made for economic obsolescence to reflect depressed earning capacity and other economic factors affecting the value of property.'

Thorntown I, 588 N.E.2d at 617 (quoting J. Amdur, Property Taxation of Regulated Industries, 40 TAX LAWYER 339, 360 (1987) (footnotes omitted)). See also 50 I.A.C. 2.1-5-1. Obsolescence, expressed as a percentage reduction, is applied to the value of the property after physical depreciation has been taken into account. ¹ Id.

"Like any other party appealing an administrative decision, the taxpayer bears the burden to show the State Board's assessment was inaccurate." Paul Heuring Motors, Inc. v. State Bd. of Tax Comm'rs (1993), Ind.Tax, 620 N.E.2d 39, 41 (citing Meridian Hills Country Club v. State Bd. of Tax Comm'rs (1987), Ind.Tax, 512 N.E.2d 911, 913). Thus, the Companies must present a prima facie case. "A 'prima facie case' is one which presents 'such evidence as is sufficient to establish a given fact and which if not contradicted will remain sufficient.' " Plough v. Farmers State Bank of Henry County (1982), Ind.App., 437 N.E.2d 471, 475 (citing Rene's Restaurant Corp. v. Fro-Du-Co Corp. (1965), 137 Ind.App. 559, 564, 210 N.E.2d 385; Floyd v. Jay County Rural Elec. Membership Corp. (1980), Ind.App., 405 N.E.2d 630). Consequently, the Companies submitted various studies on remand to support their argument that economic obsolescence adjustments were necessary. More specifically, each Company submitted studies and statistics on costs of reproduction less depreciation, ² capitalization of income, ³ as well as "Blue Chip" studies which had been prepared by General Telephone (GTE). ⁴ The court recognized these factors as methods of quantifying economic obsolescence in Thorntown I, 588 N.E.2d at 619, n. 11 (citing IND.CODE 6-1.1-8-26(b)).

Although the Companies' burden of proof does not shift, the duty of going forward with evidence may shift several times. See Scott v. Sisco (1959), 129 Ind.App. 364, 377, 156 N.E.2d 895, 901. Thus, it was incumbent upon the State Board to rebut the Companies' evidence. The State Board did not. Instead, in its final determination after remand, the State Board refused to consider the Companies' studies because they resulted in "wide-spread and unexplained differences." Respondent's Brief at 14. The State Board also concluded the "Blue Chip" studies were unverified and compiled by an "interested" party. ⁵

The court recognizes that the State Board may consider many factors in determining unit value of a public utility, including:

(6) statistics and reports prepared or filed by the company;

(7) statistics and reports prepared by another governmental agency or by a private organization if the organization is considered reliable by investors and investment dealers;

. . . . .

IC 6-1.1-8-26(b). The court also recognizes that the State Board has the discretion to reject submitted statistics and reports if they are unreliable. Here, the State Board argues that because the "Blue Chip" studies were prepared by an interested party, they were unreliable, and therefore did not fall within the scope of IC 6-1.1-8-26(b)(7). The studies do fall, however, within the purview of IC 6-1.1-8-26(b)(6). Regardless which subsection is proper, the State Board cannot refuse to consider the studies merely because they were prepared by an interested party. Rather, the State Board must give some explanation or make some showing that the studies are indeed unreliable. Unsupported conclusions or findings are insufficient to contradict a prima facie case. See Mahan v. State Bd. of Tax Comm'rs (1993), Ind.Tax, 622 N.E.2d 1058, 1061 (final determinations unsupported by substantial evidence will be reversed).

The State Board also contends, as it did in Thorntown I, that it uses an accelerated federal tax depreciation method to assess telephone companies. Accordingly, the State Board asserts "the method of depreciation used by telephone companies adequately reflects losses in the value of property from economic obsolescence and, therefore, that an adjustment for economic obsolescence is unnecessary in determining the unit value of telephone companies." Thorntown I, 588 N.E.2d at 619. The court rejected this argument in Thorntown I because the "State Board ma[de] no finding, nor [did] the record contain any evidence, that the method of depreciation used by telephone companies adequately account[ed] for losses in the value of ... Thorntown's and Tri-County's property from economic obsolescence." Id. Therefore, to succeed with this argument the second time, the State Board must supply the court with the necessary findings...