Aurora Ltd., et al v. Department of Local Government Finance

ATTORNEY FOR PETITIONER:    ATTORNEYS FOR RESPONDENT:
TAMATHA A. STEVENS    STEVE CARTER
McMAINS, GOODIN & ORZESKE, P.C.    ATTORNEY GENERAL OF INDIANA
Indianapolis, IN    Indianapolis, IN
    
     KATHRYN SYMMES KIRK
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN
_____________________________________________________________________
 
    IN THE INDIANA TAX COURT _____________________________________________________________________

AURORA LTD. C/O LOVELESS ) CONSTRUCTION, RIVER PARK ) APARTMENTS, ) ) Petitioner, ) ) v. ) Cause No. 49T10-9701-TA-103 ) DEPARTMENT OF LOCAL ) GOVERNMENT FINANCE, See footnote         )
            )
    Respondent.                )
______________________________________________________________________________
 
ON APPEAL FROM A FINAL DETERMINATION
OF THE STATE BOARD OF TAX COMMISSIONERS
______________________________________________________________________________

NOT FOR PUBLICATION
July 19, 2002
FISHER, J.
 
    The Petitioner, Aurora Ltd. c/o Loveless Construction, River Park Apartments (Aurora), appeals the final determination of the State Board of Tax Commissioners (State Board) establishing the assessed value of Aurora's property as of March 1, 1991-1994. Aurora raises various issues, which the Court restates as:
Whether the State Board should have reduced Aurora's unit finish adjustment for the 1991-1993 tax years because it assessed Aurora for central air conditioning that it does not have;

Whether Aurora is entitled to a reclassification of its land for the 1991-1993 tax years; and

Whether the State Board should have applied obsolescence depreciation to Aurora's paving for the 1994 tax year.

    For the reasons stated below, the Court REMANDS Issue I to the Indiana Board See footnote for further proceedings and AFFIRMS the State Board's final determination on Issues II and III.
FACTS AND PROCEDURAL HISTORY
    Aurora owns the land and improvements at River Park Apartments in Dearborn County, Indiana. River Park Apartments consists of five apartment buildings and one building used for office, clubhouse, and laundry purposes. On September 9, 1994, Aurora filed three Form 133 Petitions for Correction of an Error (133 Petition), one each for the 1991-1993 tax years. See footnote In each 133 Petition, Aurora raised one issue: that the unit finish adjustment price should be reduced to account for the fact that each apartment had a single unit air conditioner as opposed to central air conditioning. On November 10, 1995, the Dearborn County Board of Review (BOR) denied all of Aurora's 133 Petitions. On November 13, 1995, Aurora requested that the BOR transmit its Petitions to the State Board for review.
    On April 17, 1995, Aurora filed a Form 131 Petition for Review of Assessment (131 Petition) for the 1994 tax year. Aurora raised the following issues: (1) an excessive amount of its land had been classified as primary; (2) the unit finish adjustment price should be reduced to account for the fact that each apartment had a single unit air conditioner as opposed to central air conditioning; (3) its grade should be reduced to D+1; and (4) functional obsolescence should be applied to its office and apartment buildings.
    On November 22, 1996, the State Board issued its final determination on Aurora's 131 Petition. The State Board reclassified Aurora's land, lowered the unit finish adjustment price to reflect the absence of central air conditioning, changed Aurora's grade to D+1, and applied 20% obsolescence to the office building and 10% obsolescence to apartment buildings 1, 3, 4, and 5 to account for building damage due to abnormal settling. The State Board also made some changes to Aurora's assessment on issues not raised by Aurora. Among those changes, the State Board lowered the physical depreciation of Aurora's paving from 50% to 5%.
    On January 6, 1997, Aurora appealed both its 131 and 133 Petitions to this Court. See footnote This Court conducted a trial and heard oral arguments. Additional facts will be supplied as needed.
ANALYSIS AND OPINION
Standard of Review
    The Court gives great deference to the State Board's final determinations when the State Board acted within the scope of its authority. Wetzel Enters., Inc. v. State Bd. of Tax Comm'rs, 694 N.E.2d 1259, 1261 (Ind. Tax Ct. 1998). Accordingly, this Court reverses final determinations of the State Board only when those decisions are unsupported by substantial evidence, are arbitrary or capricious, constitute an abuse of discretion, or exceed statutory authority. Id.
    The taxpayer bears the burden of demonstrating the invalidity of the State Board's final determination. Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct. 1998). The taxpayer must present a prima facie case, i.e., a case 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, 634 N.E.2d 882, 887 (Ind. Tax Ct. 1994) (citations and internal quotation marks omitted). To establish a prima facie case, the taxpayer must offer probative evidence concerning the alleged error. Miller Structures, Inc. v. Indiana State Bd. of Tax Comm'rs, 748 N.E.2d 943, 947 (Ind. Tax Ct. 2001). "Once the taxpayer carries the burden of establishing a prima facie case, the burden shifts to the State Board to rebut the taxpayer's evidence and justify its decision with substantial evidence." Clark, 694 N.E.2d at 1233. To carry its burden, the State Board must do more than merely assert that it assessed the property correctly. Loveless Const. Co. v. State Bd. of Tax Comm'rs, 695 N.E.2d 1045, 1049 (Ind. Tax Ct. 1998), review denied. Instead, the State Board must offer an authoritative explanation of its decision to rebut the taxpayer's prima facie showing. Id.
Discussion
I. Unit Finish Adjustment
The first issue is whether the State Board should have reduced Aurora's unit finish adjustment for 1991-1993 tax years because it assessed Aurora for central air conditioning that it does not have. Specifically, Aurora argues that the State Board applied the incorrect unit finish adjustment cost because it only had single unit air conditioning units and not central air conditioning. As further evidence that the reduction should be made, Aurora relies on the fact that the State Board corrected the unit finish adjustment for 1994 as a result of Aurora's 131 Petition. See footnote
     Improvements in Indiana are assessed using generally descriptive models. See Ind. Admin. Code tit. 50, r. 2.1-4-7 (1992) (providing model descriptions). An assessor locates the model that best describes an improvement then finds the appropriate cost schedule, which shows the costs of various components and features associated with that model. Ind. Admin. Code tit. 50, rr. 2.1-4-3(a); 2.1-4-4; 2.1-4-5 (1992). In so doing, if an assessor makes an error that "can be corrected without resort to subjective judgment and according to objective standards," then a taxpayer may file a 133 Petition to correct the error. Hatcher v. State Bd. of Tax Comm'rs, 561 N.E.2d 852, 857 (Ind. Tax Ct. 1990). Therefore, a taxpayer who files a 133 Petition must: (1) show that the alleged error is objective and (2) quantify the error by using the State Board's schedules. Barth, Inc. v. State Bd. of Tax Comm'rs, 756 N.E.2d 1124, 112829 (Ind. Tax Ct. 2001); Rinker Boat Co. v. State Bd. of Tax Comm'rs, 722 N.E.2d 919, 922 (Ind. Tax Ct. 1999). Accordingly, the burden was on Aurora to: (1) show that the assessment of its improvements for central air conditioning was an objective error and (2) use the State Board's cost schedules to quantify the cost for the lack of central air conditioning.
    To show that the assessment of its improvements for central air conditioning was an objective error, Aurora introduced a photograph and testimony. The evidence showed that Aurora's apartment buildings had single unit air conditioners for each of the apartments. (Joint Ex. L; Trial Tr. at 22, 26-27.) Because an assessor need only look at Aurora's single unit air conditioners to determine that there is no central air conditioning system, Aurora has met its burden of showing that the assessment of its improvements for central air conditioning was an objective error. See Rinker Boat, 722 N.E.2d at 922 (stating that the determination of an objective error "involves a simple observation of fact without resort to subjective judgment").
    Further, Aurora used the State Board's cost schedules to quantify the cost for lack of central air conditioning. On its 133 Petitions, Aurora stated that, pursuant to the State Board's regulations, See footnote the unit finish adjustment cost for apartment buildings 1, 2, and 3 should be $5.65 and that buildings 4 and 5 should be $4.25. (Joint Exs. B-D.)
    Aurora did not have central air conditioning; therefore, the State Board should not have included the cost of air conditioning when determining the unit finish adjustment of Aurora's apartments. Because Aurora showed that the assessment of its improvements for central air conditioning was an objective error and quantified the error by using the State Board's cost schedules, it met its burden of making a prima facie case. Accordingly, the burden shifted to the State Board to rebut the Aurora's evidence and justify its decision with substantial evidence. Clark, 694 N.E.2d at 1233. The State Board, however, did not present any evidence to support its decision. Therefore, this Court REMANDS this issue to the Indiana Board with instructions to reduce Aurora's unit price adjustment cost to reflect the lack of central air conditioning.
II. Land Classification
    The next issue is whether Aurora is entitled to an adjustment of its land classification for the 1991-1993 tax years. The State Board argues that Aurora has improperly raised this argument because it did not raise land classification as an issue in its 133 Petitions. While Aurora admits that it did not raise land classification in its 133 Petitions, it argues that land classification does not require an assessor's subjective judgment and thus should be correctable on a 133 Petition. Furthermore, Aurora argues that its land should be reclassified for the 1991-1993 tax years because the State Board reclassified its land for the 1994 tax year via its 131 Petition. The Court disagrees.
    The State Board acts in an arbitrary and capricious manner when it refuses to correct errors alleged and shown to exist. Wareco Enters., Inc. v. State Bd. of Tax Comm'rs, 689 N.E.2d 1299, 1302 (Ind. Tax Ct. 1997) (citing Hatcher, 561 N.E.2d at 858). While Aurora is correct in that objective errors are correctable via a 133 Petition, it seems to be confused about its burden to raise those types of errors to the State Board. Aurora was required to allege and show in its 133 Petitions that an objective error existed. See Thousand Trails, Inc. v. State Bd. of Tax Comm'rs, 757 N.E.2d 1072, 1077 (Ind. Tax Ct. 2001). However, Aurora only raised the issue of unit finish adjustment. Aurora made no allegation nor showed that its land classification was in error. Moreover, because each assessment and each tax year stands alone, evidence as to the assessment of Aurora's land classification in 1994 is not probative as to its assessed value for 1991-1993. See id. at 1077; Quality Farm and Fleet, 747 N.E.2d at 93. Thus, the State Board did not act arbitrarily and capriciously in refusing to change Aurora's land classification for the 1991-1993 tax years. Accordingly, this Court AFFIRMS the State Board's final determination on this issue.
III. Obsolescence
    The final issue is whether the State Board should have applied obsolescence depreciation to Aurora's paving for the 1994 tax year. The State Board argues that this issue is not proper because in its 131 Petition, Aurora raised the issue of obsolescence in regard to its buildings only and not to its paving. Aurora admits that it did not specifically include a paving obsolescence issue in its 131 Petition (Oral Argument Tr. at 8) but contends that the State Board's sua sponte decrease of the physical depreciation from 50% to 5% on of its paving gave rise to its current paving obsolescence claim.
    The State Board, upon hearing an appeal initiated by a taxpayer under the Form 131 Petition process, "may assess the property in question, correcting any errors which may have been made." Ind. Code § 6-1.1-15-4(a). Thus, the State Board "may address and correct all errors in an assessment, even those errors not raised in the taxpayer's petition for review." Castello v. State Bd. of Tax Comm'rs, 638 N.E.2d 1362, 1364 (Ind. Tax Ct. 1994) (citations omitted). However, if the State Board chooses to address issues not raised by the taxpayer, "the taxpayer is constitutionally empowered to respond to the State Board's disposition of those issues." Id.
    Because the State Board made a sua sponte change to Aurora's physical depreciation of its paving, Aurora would have been afforded an opportunity to respond to the decrease of 50% to 5% in physical depreciation. See id. The Court might have even afforded Aurora an opportunity to respond to the State Board's sua sponte paving change because the decrease in the physical depreciation ultimately increased the assessed value of Aurora's paving. However, in Aurora's Assessment Review and Analysis submitted as evidence at the State Board hearing, Aurora stated that its paving should receive 5% physical depreciation and 0% obsolescence depreciation. (Joint Ex. G at 10.) That is exactly what Aurora received. Therefore, Aurora's argument that it is now entitled to a hearing on the obsolescence of its paving is without merit. Accordingly, this Court AFFIRMS the State Board's final determination on this issue.
CONCLUSION
    For the aforementioned reasons, the Court REMANDS Issue I to the Indiana Board for further proceedings consistent with this opinion and AFFIRMS the State Board's final determination on Issues II and III.

Footnote: The State Board of Tax Commissioners (State Board) was originally the Respondent in this appeal. However, as of December 31, 2001, the legislature abolished the State Board. P.L. 198-2001, § 119(b)(2). Effective January 1, 2002, the legislature created the Department of Local Government Finance (DLGF), Ind. Code § 6-1.1-30-1.1 (West Supp. 2001)(eff. 1-1-02); P.L. 198-2001, § 66, and the Indiana Board of Tax Review (Indiana Board). Ind. Code § 6-1.5-1-3 (West Supp. 2001)(eff. 1-1-02); P.L. 198-2001, § 95. Pursuant to Indiana Code § 6-1.5-5-8, the DLGF is substituted for the State Board in appeals from final determinations of the State Board that were issued before January 1, 2002. Ind. Code § 6-1.5-5-8 (West Supp. 2001)(eff. 1-1-02); P.L. 198-2001, § 95. Moreover, the law in effect prior to January 1, 2002 applies to these appeals. Ind. Code § 6-1.5-5-8 (West Supp. 2001)(eff. 1-1-02); P.L. 198-2001, §§ 95, 117. Although the DLGF has been substituted as the Respondent, this Court will still reference the State Board throughout this opinion.
Footnote: All cases that would have previously been remanded to the State Board are now remanded to the Indiana Board. Ind. Code § 6-1.1-15-8. Final determinations made by the Indiana Board are subject to review by this Court pursuant to Indiana Code § 6-1.1-15. Ind. Code §§ 6-1.5-5-7; 33-3-5-2.
Footnote: Aurora also filed a 133 Petition for the 1990 tax year o n September 9, 1994. (Joint Ex. A.) In its brief and at trial and oral argument, Aurora did not contend that its arguments raised in its 133 Petitions should also apply to the 1990 tax year. In its reply brief, however, it included argument about its 133 Petitions that included the 1990 tax year. Although a taxpayer can file a 133 Petition at any time, it can only be applied retroactively up to three years from the date the taxes were first due (or May 1994, in this case). See Ind. Code § 6-1.1-26-1(2); Town of St. John v. State Bd. of Tax Comm'rs, 691 N.E.2d 1387, 1390 (Ind. Tax Ct. 1998), rev'd on other grounds, 702 N.E.2d 1034 (Ind. 1998). Thus, Aurora cannot seek a refund for 1990 because it filed its 133 Petition after the three-year period allowed by statute. See Ind. Code § 6-1.1-26-1(2).

Footnote:      Despite Aurora's November 13, 1995 request that the Dearborn County Board of Review (BOR) transmit its 133 Petitions to the State Board for review, the State Board had still not issued a final determination on those Petitions when Aurora filed its original tax appeal on January 6, 1997. The State Board moved to dismiss Aurora's 133 Petitions for lack of subject matter jurisdiction, claiming that it did not issue a final determination because it never received the petitions. At trial, this Court denied the State Board's motion to dismiss. (Trial Tr. at 18-20.) The evidence shows that the State Board received a copy of the 133 Petitions from the county on April 17, 1997 but has never issued a final determination. While Aurora should have waited until April 1998 one year after the inaction of the State Board to appeal its 133 Petitions to this Court, see Ind. Code § 6-1.1-15-4(e) (1995), the Court's dismissal of Aurora's appeal on its 133 Petitions would simply result in Aurora re-filing its appeal and reappearing before this Court. Such action is not an efficient use of the Court's time and resources. Thus, the Court denies the State Board's motion to dismiss and will review Aurora's claims from its 133 Petitions.
Footnote: Aurora's reliance on the 1994 corrected unit finish adjustment, however, is improper. As this Court has stated numerous times, each assessment and each tax year stands alone. Quality Farm and Fleet, Inc. v. State Bd. of Tax Comm'rs, 747 N.E.2d 88, 93 (Ind. Tax Ct. 2001) (citing Glass Wholesalers, Inc. v. State Bd. of Tax Comm'rs, 568 N.E.2d 1116, 1124 (Ind. Tax Ct. 1991)). Thus, evidence as to the assessment of Aurora's improvements in 1994 is not probative as to its assessed value for the tax years under review. See Quality Farm and Fleet, 747 N.E.2d at 93.
Footnote: The unit finish adjustment cost for apartments (with and without air conditioning) is contained in Schedule C of the State Board's regulations. Ind. Admin. Code tit. 50, r. 2.1-4-5 (1992) (Schedule C). The regulations provide that an apartment is assessed for air conditioning under Schedule C if it has central air conditioning. See Ind. Admin. Code tit. 50, r. 2.1-4-3(c) (1992).