Sunbeam Development Corp. v. Dept. of Local Government Finance

ATTORNEY FOR PETITIONER
JOSEPH D. GEESLIN, JR.
ATTORNEY AT LAW
Indianapolis, IN
ATTORNEYS FOR THE RESPONDENT
STEVE CARTER
ATTORNEY GENERAL OF INDIANA
Indianapolis, IN

VINCENT S. MIRKOV
JEFFERY S. McQUARY
DEPUTY ATTORNEYS GENERAL
Indianapolis, IN _____________________________________________________________________

    IN THE INDIANA TAX COURT _____________________________________________________________________

SUNBEAM DEVELOPMENT CORP., ) COMPANY, Successor in Merger with ) Petitioner, ) ) v. ) Cause Nos. 49T10-9805-TA-46 ) 49T10-9805-TA-47 DEPARTMENT OF LOCAL ) 49T10-9806-TA-68 GOVERNMENT FINANCE, See footnote         )
                )
    Respondents.        )    
                                    
 
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
                                _____
 
NOT FOR PUBLICATION
October 30, 2002
FISHER, J.
Sunbeam Development Corporation (Sunbeam) appeals three final determinations of the State Board of Tax Commissioners (State Board) assessing Sunbeam's two parcels of land and an improvement for the 1995 tax year. The Court restates the issues as:
I.    Whether Sunbeam's land should be classified as agricultural land;

II.    Whether the assessment of Sunbeam's improvement should be reduced to account for economic obsolescence; and

III.    Whether the State Board abused its discretion by grading Sunbeam's improvement as a "C+2."
 
For the reasons stated below, the Court AFFIRMS the State Board's final determination on each issue.
FACTS AND PROCEDURAL HISTORY
For the 1995 tax year, Sunbeam owned three parcels of real property in Hamilton County, Indiana. Two parcels were land only, and the third was land and a one-story office building. Parcel 1 was classified as "commercial undeveloped useable" land. Parcel 2 was classified as a one-acre homesite with the remaining acreage classified as "residential excess acreage." On parcel 3, Sunbeam's office building was graded a "C+2." Sunbeam appealed the three assessments to the Hamilton County Board of Review (BOR). On March 7, 1997, the BOR denied any relief to Sunbeam.
On March 20, 1997, Sunbeam filed three Form 131 Petitions for Review of Assessment (131 Petitions), appealing the BOR's final determinations to the State Board. On December 9, 1997, the State Board held a joint hearing on all three of Sunbeam's claims. Sunbeam argued that (1) the land on parcels 1 and 2 should be classified as agricultural land, (2) the improvement should be given a "C" grade, and (3) the improvement was entitled to twenty percent economic obsolescence depreciation. On March 26, 1998, the State Board issued a final determination, making no changes to the land classifications for parcels 1 and 2, and denying Sunbeam's request for grade and obsolescence adjustments.
On May 11, 1998, Sunbeam initiated three original tax appeals. The Court heard all three claims at one trial on January 8, 1999. Additional facts will be supplied as needed.
ANALYSIS AND OPINION
Standard of Review
This Court gives great deference to the final determinations of the State Board when it acts within the scope of its authority. Walker Mfg. Co. v. Dep't of Local Gov't Fin., 772 N.E.2d 1, 4 (Ind. Tax Ct. 2002). This Court will reverse a final determination of the State Board only when it is unsupported by substantial evidence, arbitrary, capricious, constitutes an abuse of discretion, or exceeds statutory authority. Id.
Furthermore, a taxpayer who appeals to this Court from a State Board final determination bears the burden of showing that the final determination is invalid. Id. To do so, the taxpayer must present a prima facie case by submitting probative evidence, i.e., evidence sufficient to establish a given fact that, if not contradicted, will remain sufficient. Id. "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 v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct. 1998).
Discussion
I.    Agricultural land
The first issue is whether the land in parcels 1 and 2 should be reclassified from commercial and residential land to agricultural land. See footnote Sunbeam contends that it submitted probative evidence showing that parcels 1 and 2 were farmed in 1994 and 1995. The State Board, on the other hand, asserts that Sunbeam submitted no probative evidence to support its claim. The State Board is correct.
Indiana Code Section 6-1.1-4-13 provides: "In assessing or reassessing land, the land shall be assessed as agricultural land only when it is devoted to agricultural use." Ind. Code Ann. § 6-1.1-4-13(a) (West 1989). See also Ind. Admin. Code tit. 50, r. 2.2-5-2 (2001) (providing for farmland use types). To show that parcels 1 and 2 were agricultural land, Sunbeam submitted several documents. First, Sunbeam submitted an aerial photograph of Delaware Township that includes parcels 1 and 2. (Stip. Ex. 9.) In conjunction with the aerial photograph, Sunbeam also submitted evidence showing that other parcels in Delaware Township had been classified as agricultural land for the 1995 tax year and argued that those parcels, as depicted on the aerial map, were nearly indistinguishable in appearance from parcels 1 and 2. (Trial Tr. at 5556; Stip. Exs. 8, 9.)
In addition to the aerial map, Sunbeam submitted a letter from its Director of Properties stating that Sunbeam had leased as farmland "any useable acreage that was available" in 1994 and 1995. (Stip. Ex. 2.) The letter, however, does not indicate specifically whether parcels 1 and 2 were part of the "useable acreage that was available" for the 1995 tax year. (Trial Tr. at 6162; Stip. Ex. 2.)
Next, Sunbeam submitted a copy of a signed lease agreement it entered into with a local farmer. (Stip. Ex. 6.) The lease, however, does not specify that parcels 1 and 2 were in fact the parcels leased. (See id.) Rather, the lease merely provides that it was for "approximately thirty-five . . . acres tillable, more or less, and as shown shaded in Exhibit ‘A' attached hereto and made a part hereof." (Id.) The exhibit attached to the lease is a hand-drawn map of Delaware Township that bears a series of hash marks in the lower right corner with the handwritten legend "denotes land included in lease[.]" (Id.) The areas so shaded with hash marks on the attached lease exhibit do not, however, correspond to parcels 1 and 2. (Cf. id., Stip. Ex. 9.)
Sunbeam also submitted a black-and-white photocopy of an aerial photograph showing parcel 1 as of March 1996. (Stip. Ex. 5.) Sunbeam proposes that the photocopy "depicts a harvest from 1995." (Pet'r Proposed Findings of Fact and Conclusions of Law at 11.) What the photocopy shows, however, is a field of tall weeds next to a parking lot. See footnote ( See Stip. Ex. 5.)
Finally, Sunbeam presented the testimony of its tax consultant, William H. Price:
Q.[Geeslin]:    Mr. Price, do you know personally if this property was farmed in 1994 and 1995?

A.[Price]:    Yes, I do.
Q.[Mirkov]:    Preliminary question?
The Court:    Proceed.
Q.[Mirkov]:    Had you presented this testimony down below? The answer to this question you've just been asked?

A.[Price]:    I was not asked this question down below.
Q.:    That was not my question. Did you present this testimony?

A.:    Yes, I did.
Q.:    You presented the testimonythe answer to this question that you've just been asked?

A.:    That I had personal knowledge of its being farmed?

Q.:    Yes.
A.:    Yes.
Mirkov:    Withdraw the question, your Honor.
The Court:    Proceed.
Q.[Geeslin]:    Was this property farmed in 1997?
A.[Price]:    The parcels in question, I don't believe they were.
(Trial Tr. at 12223.) Price's testimony does not expressly indicate that the parcels were farmed during the period in question. Consequently, Price's testimony does not showespecially when considered with Stipulated Exhibit 5that the parcels were devoted to agricultural use for the 1995 tax year. Because Sunbeam has neither submitted evidence nor testimony showing that parcels 1 and 2 were devoted to agricultural use, it has not made a prima facie case that they should be reclassified as agricultural land. The Court therefore AFFIRMS the State Board's final determination on this issue.
II.    Economic obsolescence
The second issue is whether Sunbeam's improvement should have been given twenty percent economic obsolescence adjustment. Sunbeam argues that its improvement was entitled to the obsolescence adjustment because it was approximately forty percent vacant during the 1995 calendar year. The State Board contends that Sunbeam submitted no probative evidence to support its claim.
Economic obsolescence means "a diminishing of a property's desirability and usefulness brought about by . . . adverse economic factors external to the property." See footnote Ind. Admin. Code tit. 50, r. 2.2-1-40 (2001); see also Ind. Admin. Code tit. 50, r. 2.2-1-24 (2001) (defining economic obsolescence as "obsolescence caused by factors extraneous to the property"). In cases where the State Board has held a hearing on the taxpayer's claim prior to this Court's opinion in Clark (such as the case here), the taxpayer makes a prima facie case of economic obsolescence merely by identifying the cause of the obsolescence. Louis D. Realty Corp. v. State Bd. of Tax Comm'rs, 743 N.E.2d 379, 38586 (Ind. Tax Ct. 2001). See footnote
The burden was on Sunbeam to present probative evidence showing the cause of its improvement's obsolescence. See Deer Creek Developers, Ltd. v. Dep't of Local Gov't Fin., 769 N.E.2d 259, 263 (Ind. Tax Ct. 2002). Sunbeam's only evidence was a letter from its Director of Properties providing a monthly breakdown of Sunbeam's vacancy rate for calendar year 1995. (Stip. Ex. 2.) As this Court has previously held, "[v]acancy by itself does not prove any obsolescence." Deer Creek, 769 N.E.2d at 263. "Vacancy is merely a sign of possible obsolescence; a taxpayer seeking an obsolescence reduction because of building vacancy must still present probative evidence showing the reason why its building is vacant." Id. (emphasis in original). Sunbeam did not submit any evidence showing why its improvement was vacant, and therefore did not meet its initial burden of proof. As a result, the Court AFFIRMS the State Board's final determination of this issue. See footnote
III.    Grade
Sunbeam's final issue is that the State Board abused its discretion by grading Sunbeam's improvement a "C+2." Again, the State Board argues that Sunbeam offered no probative evidence in support of its claim.
In general, the State Board's rules provide for grades from "A" to "E," which represent numeric multipliers that raise or lower the assessed value of an improvement. Walker, 772 N.E.2d at 7. "Grade is used . . . to account for deviations from the norm or ‘C' grade. The quality and design of a building are the most significant variables in establishing grade." Ind. Admin. Code tit. 50, r. 2.2-10-3(a) (2001). "[A] ‘C' grade indicates a multiplier of one hundred percent[.]" Ind. Admin. Code tit. 50, r. 2.2-10-3(b)(3) (2001). A "C+2" grade indicates a multiplier of 110%. Ind. Admin. Code tit. 50, r. 2.2-10-3(c)(1) (2001).
When challenging grade, a taxpayer satisfies its initial burden by either (1) submitting probative evidence showing that the grade it received was unwarranted, or (2) submitting probative evidence showing that the grade it seeks is warranted. See Walker, 772 N.E.2d at 8; see also Deer Creek, 769 N.E.2d at 26566. The administrative record indicates that Sunbeam submitted no evidence with respect to the appropriate grade, or why the "C+2" grade was unwarranted to the State Board. Because it submitted no evidence, Sunbeam did not make a prima facie case as to grade. Accordingly, the Court AFFIRMS the State Board's final determination of this issue. See footnote
CONCLUSION
For the aforementioned reasons, the Court AFFIRMS the State Board's final determinations on Issues I , II, and III.
 

Footnote: The State Board of Tax Commissioners (State Board) was originally the Respondent in this appeal. However, the Legislature abolished the State Board as of December 31, 2001. Pub. L. No. 198-2001, § 119(b)(2). Effective January 1, 2002, the Legislature created the Department of Local Government Finance (DLGF) and the Indiana Board of Tax Review (Indiana Board). Ind. Code §§ 6-1.1-30-1.1; 6-1.5-1-3 (West Supp. 2001); Pub. L. No. 198-2001, §§ 66, 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. 2002); Pub. L. No. 198-2001, § 95. Nevertheless, the law in effect prior to January 1, 2002 applies to these appeals. I.C. § 6-1.5-5-8. See also Pub. L. No. 198-2001, § 117. Although the DLGF has been substituted as the Respondent, this Court will still reference the State Board throughout this opinion.
Footnote: The base rate for agricultural land is $495 per acre. Ind. Admin. Code tit. 50, r. 2.2-5-6(5) (2001). See also Blackbird Farms Apartments, LP v. Dep't of Local Gov't Fin., 765 N.E.2d 711, 713 (Ind. Tax Ct. 2002) (explaining how the true tax value of land is calculated).
Footnote: Had the land in the photocopy been harvested six months prior, furrow marks would have been apparent; none was apparent in Stipulated Exhibit 5. ( See Stip. Ex. 5.) Furthermore, one would not expect such prolific weed growth if the ground had been harvested just six month earlier with most of the winter season intervening.
Footnote: In the commercial setting, economic obsolescence is usually manifested by a decline in an improvement's income generating ability. Louis D. Realty Corp. v. State Bd. of Tax Comm'rs, 743 N.E.2d 379, 385 (Ind. Tax Ct. 2001).
Footnote: In cases where the State Board has held its hearing after this Court's opinion in Clark, the taxpayer must (1) identify the cause of obsolescence and (2) quantify the obsolescence to make a prima facie case. Louis D. Realty, 743 N.E.2d at 38586.
Footnote: Sunbeam claimed for the first time in its reply brief that its improvement should have been given a functional obsolescence adjustment to account for the height of its walls. (Pet'r Reply Br. at 6.) Sunbeam's evidence of functional obsolescence is its claim that it was granted functional obsolescence for its wall height in 1991 and 1992. ( See Pet'r Reply Br. at 6.) However, as this Court has held on numerous occasions, each tax year stands alone, and evidence of what was or was not assessed for one tax year is not probative evidence for any other tax year. See, e.g., Thousand Trails, Inc. v. State Bd. of Tax Comm'rs, 757 N.E.2d 1072, 1077 (Ind. Tax Ct. 2001). Accordingly, Sunbeam has not made a prima facie case with regard to functional obsolescence and is not entitled to relief on this issue.
Footnote: At trial, the Hearing Officer testified that he considered the putative cost to construct the obliquely-angled perimeter walls of Sunbeam's improvement as justification for a "C+2" grade. (Trial Tr. at 71.) Consequently, in its reply brief, Sunbeam advanced the legal theory that its grade should be a "C" because the State Board's formula for calculating the perimeter to area ratio (PAR) accounts for the construction cost of the perimeter walls. See generally Damico v. Dep't of Local Gov't Fin., 769 N.E.2d 715, 722 n.12 (Ind. Tax Ct. 2002) (discussing the concept of PAR). Although this is a novel legal argument, the Court cannot reach the State Board's ostensible justification for its final determination on this issue because Sunbeam failed to satisfy its initial burden of proof as to grade. See Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct. 1998) (providing that the State Board's justification for its final determination is not an issue until the taxpayer satisfies its initial burden of proof).