White Swan Realty v. STATE BD. OF TAX COM'RS, 49T10-9701-TA-00019.

• Decision Date: 24 May 1999
• Docket Number: No. 49T10-9701-TA-00019.,49T10-9701-TA-00019.
• Citation: 712 N.E.2d 555
• Parties: WHITE SWAN REALTY, Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.
• Court: Indiana Tax Court

712 N.E.2d 555

WHITE SWAN REALTY, Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent.

No. 49T10-9701-TA-00019.

Tax Court of Indiana.

May 24, 1999.

Curtis J. Dickinson, David L. Pippen, Dickinson & Abel, Indianapolis, Indiana, Attorneys for Petitioner.

Jeffrey A. Modisett, Attorney General of Indiana, Ted J. Holaday, Deputy Attorney General, Indianapolis, Indiana, Attorneys for Respondent.

FISHER, J.

White Swan Realty (White Swan) appeals the final determinations¹ of the State Board of Tax Commissioners (State Board) fixing the assessed value of two real estate parcels it owned located in Allen County, Indiana as of March 1,1992.

ISSUES

I. Whether the State Board's final determination with respect to division wall pricing of the subject properties lacked substantial evidentiary support.

II. Whether the State Board's final determination with respect to the grade assigned to the subject properties lacked substantial evidentiary support.

III. Whether the State Board's final determination with respect to obsolescence depreciation lacked substantial evidentiary support.

IV. Whether the State Board's final determination with respect to condition lacked substantial evidentiary support.

V. Whether the State Board's final determination with respect to land classification and negative influence factor lacked substantial evidentiary support.

FACTS AND PROCEDURAL HISTORY

White Swan owns two parcels of real estate located in Allen County, Indiana. Both parcels consist of land and improvements. These parcels are designated as # XX-XXX-XXXX (Parcel 20) and # XX-XXX-XXXX (Parcel 49). On May 6, 1994, White Swan filed two Form 131 petitions with the State Board challenging the assessments made by the Allen County Board of Review (BOR).²

A hearing on these petitions took place on November 9, 1995 in Allen County. On November 22, 1996, the State Board issued final determinations with respect to the petitions.

In its final determinations, the State Board made adjustments to the earlier assessment made by the BOR. Deeming the adjustments made by the State Board to be insufficient, White Swan filed this original tax appeal on January 3, 1997. On June 15, 1998, the parties tried this case before this Court. Additional facts will be supplied as necessary.

ANALYSIS AND OPINION

Standard of Review

The State Board is afforded great deference when it acts within the scope of its authority. See King Indus. Corp. v. State Bd. of Tax Comm'rs, 699 N.E.2d 338, 339 (Ind. Tax Ct.1998)

. Accordingly, the Court will reverse a final determination made by the State Board only when it is unsupported by substantial evidence, is arbitrary or capricious, constitutes an abuse of discretion, or exceeds statutory authority. See id.

Discussion

I. Division Wall Adjustment

At issue is a division wall³ joining buildings A and B situated on Parcel 20. Originally, the wall in question was the exterior wall of building A. Subsequently, White Swan added building B to building A. As a result, what was originally an exterior wall of building A became a division wall separating the two buildings. For assessment purposes, the buildings were assessed separately. (Resp't Br. at 12). The buildings in question were priced from the General Commercial Mercantile (GCM) schedules with building A priced as a supermarket and building B priced as a neighborhood shopping center. White Swan contends that the division wall adjustment was improper and that even if proper, the division wall adjustment was erroneously calculated. The State Board contends that the division wall adjustment was warranted because neither of the models used to assess buildings A and B contain division walls.⁴See Barth, Inc. v. State Bd. of Tax Comm'rs, 699 N.E.2d 800, 802-03 (Ind. Tax Ct.1998)

(discussing various ways in which buildings being assessed deviate from models used to assess those buildings are accounted for in the regulations), reh'g denied, 705 N.E.2d 1084. Therefore, according to the State Board, the division wall adjustment is necessary to arrive at an accurate assessment in this case. See IND. ADMIN. CODE tit. 50, r. 2.1-4-3(c) (1992) (codified in present form at id. r. 2.2-10-6.1(c)(2) (1996)).

In calculating a division wall adjustment, the assessor must first determine the reproduction cost of the division wall.⁵ Then the assessor must divide that cost by the square footage of the entire building in order to determine the amount to be added to the base rate of that building.⁶

In its final determination, the State Board concluded that the presence of a division wall added $3.65 to the base rate of building B. However, there is no evidence in the record to support this figure. Accordingly, the Court is unable to determine how this figure was calculated. This alone mandates reversal. See Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1240 (Ind. Tax Ct.1998)

(court must be apprised of the basis of a State Board final determination). In addition, assuming arguendo that this figure represents the proper reproduction cost (expressed in terms of cost per square foot or cost per lineal foot, the record is silent as to which) of the division wall, there is no evidence in the record to suggest that the assessor determined the proper adjustment to the base rate of building B once the reproduction cost of the division wall was determined. (There is a difference between the per square foot reproduction cost of the division wall and how much that division wall adds to the per square foot or per lineal foot reproduction cost (i.e., base rate) of the building being assessed). In fact, the testimony of the hearing officer indicates that the $3.65 figure was added directly into the base rate of building B. (Trial Tr. at 23-24). This was improper.

Another problem with the State Board's final determination is the possibility of double counting. Although the regulations state that the cost of the division wall must be added,⁷ care must be taken so as to avoid double counting one common wall.⁸ In addition, when two connected buildings are assessed separately, a division wall adjustment is not warranted.⁹ This is demonstrated by the facts of this case: neither building B nor building A, on their own, have a division wall. Only when two connected buildings are assessed as one does the division wall adjustment make sense. Although it may be advisable to assess two connected buildings separately, the assessor must not double count the common wall separating the two buildings. In this case, the record indicates that the State Board assessed the buildings separately, but added the cost of the common wall to building B, thereby double counting the common wall.¹⁰

For the above stated reasons, the State Board's final determination is reversed and remanded for recalculation of the base rate consistent with the foregoing.

II. Grade

White Swan contends that the State Board's final determination with respect to grade applied to Parcel 49 is erroneous. White Swan argues that because the regulations governing grade have no ascertainable standards¹¹, any final determination of grade must be reversed. See IND. CONST. art. I, § 12; see Harrington v. State Bd. of Tax Comm'rs, 525 N.E.2d 360, 362 (Ind. Tax Ct.1988)

(quoting Commission on General Educ. v. Union Township Sch., 410 N.E.2d 1358, 1362 (1980)). (Ascertainable standards are necessary to "provide the Court with the tools necessary for effective judicial review."). The grading of improvements is an important part of the true tax value system. See Whitley Prods., Inc., 704 N.E.2d at 1116 (Ind. Tax Ct.1998). 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. See IND. ADMIN. CODE tit. 50, r. 2.1-4-3(f) (1992) (codified in present form at id. r. 2.2-2-10-3(a) (1996)); see also Barth, Inc.,

699 N.E.2d at 804 n. 12; Zakutansky v. State Bd. of Tax Comm'rs, 696 N.E.2d 494, 495 n. 1 (Ind. Tax Ct.1998). 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. See Whitley Prods., 704 N.E.2d at 1116 (citing Zakutansky, 696 N.E.2d at 496 n. 5; Garcia v. State Bd. of Tax Comm'rs, 694 N.E.2d 794, 796-97 (Ind. Tax Ct.1998)).

This Court has held that a taxpayer may not simply point out the inadequacies of the present system and expect to secure a reversal. See Phelps Dodge, 705 N.E.2d at 1104; Dana Corp. v. State Bd. of Tax Comm'rs, 694 N.E.2d 1244, 1247 (Ind. Tax Ct.1998); see also Town of St. John v. State Bd. of Tax Comm'rs, 691 N.E.2d 1387, 1389-90 (Ind. Tax Ct.)

(order and judgment entry), rev'd in part, aff'd. in part, 702 N.E.2d 1034 (Ind. 1998). Instead, the taxpayer must offer probative evidence relating to the grade issue. Whitley Prods., Inc.,

704 N.E.2d at 1121. White Swan has not done so. Thus, the State Board's final determination is affirmed on the grade issue.

III. Obsolescence

White Swan argues that the State Board's final determination with respect to the issue of obsolescence is incorrect. For an assessor to properly analyze obsolescence, a two-step inquiry is required. See Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d at 1238

. First, the assessor must identify the causes of obsolescence, and second, the assessor must quantify the amount of obsolescence to be applied. See id. With respect to the first part of the Clark obsolescence test, the State Board hearing officer, in his review of the property, did not discover any causes of obsolescence. In addition, White Swan presented no evidence tending to prove a cause of obsolescence. The State Board therefore determined that the property did not experience obsolescence. The State Board then adopted the hearing officer's findings. In its final determinations, the State Board stated:

A review

...