Western Select Properties, L.P. v. State Bd. of Tax Com'rs

Citation639 N.E.2d 1068
Decision Date09 September 1994
Docket NumberNo. 49T10-9212-TA-00106,49T10-9212-TA-00106
PartiesWESTERN SELECT PROPERTIES, L.P., Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.
CourtTax Court of Indiana

Robert J. Shuckit, Joseph D. Calderon, Jeffrey A. Abrams, Stacy L. Hill, Dann Pecar Newman Talesnick & Kleiman, P.C., Indianapolis, IN, for petitioner.

Pamela Carter, Atty. Gen., Thomas K. Caldwell, Marilyn S. Meighen, Deputy Attys. Gen., for respondent.

FISHER, Judge.

The Petitioner, Western Select Properties, L.P. (Western Select), appeals the final determination of the Respondent, the State Board of Tax Commissioners (the State Board), valuing its property improvements for the 1989 assessment.

ISSUES

I. Whether the State Board erred in refusing to allow obsolescence adjustments on Buildings 50 and 60.

II. Whether the State Board's award of an obsolescence adjustment on Building 20 is based on ascertainable standards.

III. Whether the State Board assessed Western Select's facility consistently with similar property of the same classification.

FACTS AND PROCEDURAL HISTORY

Western Select owns property in Warren Township, Marion County, Indiana. The property, formerly the Western Electric manufacturing plant, consists of a lot with six separate buildings (Buildings 20, 30, 40, 41, 50, and 60). Western Select purchased the For the 1989 assessment, the Warren Township Assessor (the Assessor) assessed Western Select's property at $4,670,330 ($422,100 for land and $4,248,230 for improvements). This assessment included functional obsolescence adjustments in the amount of 15 percent for Building 50 and 50 percent for Building 60. An economic obsolescence adjustment of 30 percent was awarded to the entire property.

property in 1987 and, at the time of the 1989 assessment, rented the buildings to various tenants, most of whom used the buildings as warehouse facilities.

Western Select filed a Form 130 Petition for Review with the Marion County Board of Review (the County Board), alleging the assessment of improvements was erroneous due to improper use classifications and grading, as well as inadequate functional and economic obsolescence adjustments. The County Board reevaluated the assessment and reduced it to $4,639,960 ($422,100 for land and $4,217,860 for improvements). The reduction, however, was based on changes made to the values of certain yard improvements 1 on the property; no changes were made, however, to the obsolescence adjustments previously granted by the Assessor.

On August 14, 1990, Western Select filed a Form 131 Petition for Review with the State Board, alleging that the assessment was still erroneous for the same reasons it stated in its Form 130. The State Board held a hearing on May 11, 1992, at which Western Select presented evidence indicating deficiencies in its buildings that warranted obsolescence adjustment increases. Western Select also provided evidence to show that the obsolescence adjustments awarded to its buildings were inadequate in relation to the obsolescence adjustments awarded to comparable buildings at the Chrysler plant across the street.

On June 16, 1992, State Board hearing officers Edward Bisch and Mike Watkins inspected Western Select's property. Subsequently, Bisch prepared and submitted a report to the State Board, recommending the elimination of the functional obsolescence adjustments previously awarded to Buildings 50 and 60. Bisch also recommended the elimination of the economic obsolescence adjustment attributed to the entire property.

In its final determination issued October 30, 1992, the State Board adopted Bisch's recommendations and eliminated the functional obsolescence adjustments on Buildings 50 and 60, as well as the economic obsolescence adjustment on the entire property. This appeal now follows. Additional facts will be provided as necessary.

STANDARD OF REVIEW

"When acting within the scope of its authority, the State Board is accorded great deference." Mahan v. State Bd. of Tax Comm'rs (1993), Ind.Tax, 622 N.E.2d 1058, 1061 (citing Wirth v. State Bd. of Tax Comm'rs (1993), Ind.Tax, 613 N.E.2d 874, 876). "Accordingly, the court will reverse the State Board's final determination only when it is unsupported by substantial evidence, constitutes an abuse of discretion, exceeds statutory authority, or is arbitrary or capricious." Id.

DISCUSSION AND DECISION

In Indiana, property is assessed based on its true tax value, not its market value. Wirth, 613 N.E.2d at 878 (citing IND.CODE 6-1.1-31-6(c); 6-1.1-31-7(d)). To calculate the true tax value of an improvement, 50 I.A.C. 2.1-5-1 provides the following formula:

REPRODUCTION COST - PHYSICAL DEPRECIATION = VALUE

VALUE - OBSOLESCENCE DEPRECIATION = TRUE TAX VALUE.

"Obsolescence [d]epreciation is composed of functional and economic loss of value." 50 I.A.C. 2.1-5-1. "Functional obsolescence is a form of depreciation resulting in loss of value due to lack of utility or desirability inherent Limited use or excessive material and product handling costs caused by irregular or inefficient floor plans, varying floor elevations, inadequate clearance, or cut up interiors with small bays and an excessive number of walls, posts or columns

                in the design of the property."   Property Taxation 114 (Jerrold F. Janata, ed., 2d ed. 1993).  There are numerous causes of functional obsolescence
                

. . . . .

Excessive or deficient floor load capacity

Insufficient or inadequate elevator service

. . . . .

Inadequate power distribution, heating, ventilating, air conditioning, or lighting systems

Poor ratio of land area to building area

Inadequate parking, truck or railroad loading or unloading facilities

50 I.A.C. 2.1-5-1. Economic obsolescence, on the other hand, is a form of depreciation that results from deficiencies external to the property:

Causes of Economic Obsolescence: The assessor must make a thorough investigation of the economic background of each individual structure in order to determine the degree of obsolescence which exists.

Location of structure unappropriate [sic.] for its neighborhood

A neighborhood that is in transition of use

. . . . .

Market acceptability of the product or devices for which the property was constructed or is currently used

Termination of the need of the property due to actual or probable changes in economic or social conditions

. . . . .

Id.

I

Western Select contends that various deficiencies have rendered Buildings 50 and 60 obsolete as warehouses and, therefore, obsolescence adjustments are necessary to reflect the loss. As the taxpayer, Western Select bears the burden to show that the State Board's determination is inaccurate. See 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). Consequently, it "must present a prima facie case, or one 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 (1994), Ind.Tax, 634 N.E.2d 882, 887 (quoting Thorntown Telephone Co. v. State Bd. of Tax Comm'rs (1994), Ind.Tax, 629 N.E.2d 962, 964).

To support its claim for obsolescence, Western Select presented evidence at the State Board hearing on June 16, 1992, showing that Buildings 50 and 60 have low ceilings, inadequate floor load capacities, improper column spacing, nonfunctional elevators and truck docks, and unused mezzanine space. Petitioner's Exhibits 1, 2, and 3. Western Select also presented evidence regarding the leases in place in each building, as well as the amount of rent each tenant pays annually. Petitioner's Exhibit 3. Furthermore, Western Select showed that Building 50 was 28 percent vacant on the date of assessment and Building 60 was 85 percent vacant on the date of assessment. Petitioner's Exhibit 2. Finally, Western Select presented evidence that the State Board awarded the Chrysler facility a 60 percent overall obsolescence adjustment, while Western Select's overall obsolescence adjustment was reduced from 30 percent to zero percent. 2 Petitioner's Exhibit 1.

Although Western Select's burden of proof does not shift, the duty of going forward with evidence may shift several times.

                See GTE North, 634 N.E.2d at 887 (citing Thorntown, 629 N.E.2d at 964).   Thus, once Western Select presented its prima facie case, it was incumbent on the State Board to rebut Western Select's evidence.  The State Board, however, did not.  Instead, it rejected the evidence, claiming that its method of valuation already accounted for any deficiencies present in Buildings 50 and 60
                

More specifically, the State Board asserts that because it valued the buildings based on their actual or current use as warehouses, and not on their original intended use as manufacturing facilities, only normal deficiencies exist. Bisch explained at trial that "normal deficiencies would be included in the normal depreciation ... [and] abnormal deficiencies would be valued at--or considered a loss to value by using the obsolescence depreciation on top of the physical depreciation." Transcript at 88, 90. In other words, the State Board argues that normal obsolescence deficiencies are accounted for by physical depreciation, and abnormal obsolescence deficiencies are accounted for by obsolescence depreciation. The State Board is mistaken.

First, physical depreciation is defined as "the impairment of condition as a result of wear and tear and disintegration." 50 I.A.C. 2.1-5-1. "Physical depreciation is a combination of age and condition." Id. There is no mention in that definition, however, of "excessive or deficient floor load capacity," "inadequate power distribution ...," "market acceptability ... for which the property ... is currently being used," or other factors considered in awarding obsolescence adjustments. Indeed, comparing physical depreciation to obsolescence depreciation is...

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