Ray Envelope Co. v. Dept. of Local Government Finance

ATTORNEY FOR PETITIONER:    ATTORNEYS FOR RESPONDENT:
DAVID L. PIPPEN    STEVE CARTER    
ATTORNEY AT LAW     ATTORNEY GENERAL OF INDIANA
Indianapolis, IN    Indianapolis, IN
    
     LINDA I. VILLEGAS
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN
    

_____________________________________________________________________

    IN THE INDIANA TAX COURT _____________________________________________________________________

RAY ENVELOPE COMPANY, ) ) Petitioner, ) ) v. ) Cause No. 49T10-9904-TA-99 ) DEPARTMENT OF LOCAL ) GOVERNMENT FINANCE, See footnote         )
                )
    Respondent.            )    
_____________________________________________________________________
 
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
 
NOT FOR PUBLICATION
April 29, 2003
FISHER, J.
 
    Ray Envelope Company (Ray Envelope) appeals the final determination of the State Board of Tax Commissioners (State Board) valuing its real property for the March 1, 1995 assessment date.
ISSUES
I.     Whether the State Board erred in assigning a grade of "C-1" to Ray Envelope's improvement;

II.    Whether the State Board erred in denying Ray Envelope's improvement an obsolescence adjustment; and

III.     Whether Ray Envelope's property assessment violates the U.S. Constitution?
 
FACTS AND PROCEDURAL HISTORY
    Ray Envelope owns a commercial building in Warren Township, Marion County, Indiana. For the 1995 assessment, the Marion County Board of Review (BOR) assessed Ray Envelope's improvement with a value of $242,700. In so doing, the BOR assigned Ray Envelope's improvement a grade of "C-1" and did not grant a functional obsolescence adjustment.
    In December 1997, Ray Envelope challenged its assessment by filing a Petition for Review of Assessment (Form 131) with the State Board. In its Form 131, Ray Envelope asserted that the grade of "C-1" was excessive and that its improvement was entitled to an obsolescence adjustment.
    Following an administrative hearing, the State Board issued a final determination on Ray Envelope's Form 131 in which it upheld the grade and obsolescence determinations of the BOR.
    Ray Envelope appealed the State Board's final determination to this Court on April 26, 1999. In lieu of a trial, the parties argued this case based on the administrative record as well as on their briefs. Accordingly, the Court heard oral argument on December 6, 2000. Additional facts will be supplied as necessary.
STANDARD OF REVIEW
    This Court accords great deference to the State Board when it acts 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, the Court will reverse a State Board final determination only if it is unsupported by substantial evidence, constitutes an abuse of discretion, exceeds statutory authority, or is arbitrary and capricious. Id.
    Furthermore, 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). In bearing this burden, 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 assessment error. Miller Structures, Inc. v. State Bd. of Tax Comm'rs, 748 N.E.2d 943, 947 (Ind. Tax Ct. 2001). Where the taxpayer has failed to provide the State Board with probative evidence supporting its position on the alleged assessment error, the State Board's duty to support its final determination with substantial evidence is not triggered. See Whitley Prods., Inc. v. State Bd. of Tax Comm'rs, 704 N.E.2d 1113, 1119-20 (Ind. Tax Ct. 1998), review denied.
DISCUSSION
I. Grade
    Ray Envelope alleges that the State Board erred in assigning its improvement a grade of "C-1." Ray Envelope contends that the State Board should have graded its improvement "D+1." Ray Envelope is incorrect.
    Under Indiana's property assessment system, assessors use improvement models and cost schedules to determine the base reproduction cost of a particular improvement. See id. at 1116. Improvements are then assigned various grades based on their materials, design, and workmanship. Id. See also Ind. Admin. Code tit. 50, r. 2.2-10-3(a) (1996). The grades represent multipliers that are applied to the subject improvement's base reproduction cost. Whitley Prods., 704 N.E.2d at 1116.
    When an improvement deviates from the applicable improvement model or cost schedule, it impacts the improvement's base reproduction cost. Id. at 1117. As this Court has previously explained, there are two methods by which to account for such deviations:
The preferred method . . . is to use separate schedules that show the costs of certain components and features present in the model. This allows an assessor to adjust the base reproduction cost of the improvement objectively.

The other means of accounting for an improvement's deviation from the model used to develop the cost schedule is via an adjustment to the grade of the improvement. This type of adjustment requires the assessor's subjective judgment. Where possible, this type of an adjustment should be avoided. However, because the component (base rate adjustment) schedules are not comprehensive, this type of adjustment may be necessary.

Id. (internal citations, quotations, and footnotes omitted.)
Ray Envelope alleges that its improvement lacks certain features presumed in the applicable model, and therefore its grade of "C-1" must be adjusted downward. As evidence, Ray Envelope's tax representative, M. Drew Miller of Landmark Appraisals, Inc., prepared and presented an "Assessment Review and Analysis" at the State Board administrative hearing. Miller's review contains the following statement:
The C-1 grade applied by the county overstates the overall quality of construction and workmanship. The subject lacks the amount of partitioning that is assumed present in the base model, as [well as] the amount of vented steel sash windows. It also has an inferior heating system (unit heaters), lighting and office finish. The subject is void of architectural treatment and has substandard quality interior finish with minimal built-in features, substandard quality electrical and plumbing fixtures. A grade no higher than a D+1 should be applied to this structure.

(Jt. Ex. C at 5.) Miller's testimony at the administrative hearing did nothing to elaborate on this statement he essentially read it into the record. (Jt. Ex. B.)
Ray Envelope bears the burden of proof on this issue and must offer probative evidence concerning the alleged grading error. Clark, 694 N.E.2d at 1233; Miller Structures, 748 N.E.2d at 947. Miller's review and testimony are nothing more than conclusions that "the grade is this" and "it should be that." "A taxpayer's conclusory statements do not constitute probative evidence concerning the grading of the subject improvement." Sterling Mgmt-Orchard Ridge Apartments v. State Bd. of Tax Comm'rs, 730 N.E.2d 828, 838 (Ind.Tax Ct. 2000).
    Instead, Ray Envelope should have explained how it calculated its suggested grade of "D+1." Indeed, it should have compared the features in the applicable improvement model(s) with the features (or lack thereof) in its own improvement. Ray Envelope should have then attempted to calculate the value of the features in the model and translate that lack of value into a grade adjustment. A taxpayer cannot simply point to alleged deficiencies in a building and expect to make a prima facie case as to grade (or any other issue, for that matter). See Miller Structures, 748 N.E.2d at 953. Ray Envelope made no comparisons, made no calculations, and, consequently, made no case. The State Board's final determination on this issue is therefore AFFIRMED. See footnote
II. Obsolescence
    Ray Envelope also contends that its improvement is entitled to at least a 60% functional obosolescence adjustment. The State Board, on the other hand, argues that Ray Envelope failed to make a prima facie case with respect to this issue. The State Board is correct.    
    "Obsolescence, which is a form of depreciation, is defined as a loss of value and classified as either functional or economic." Freudenberg-NOK Gen. P'ship v. State Bd. of Tax Comm'rs, 715 N.E.2d 1026, 1029 (Ind. Tax Ct. 1999), review denied. See also Ind. Admin Code tit. 50, r. 2.2-10-7(e) (1996). Functional obsolescence is evidenced by conditions inherent within the property itself. Id. The State Board's regulations cite a number of factors that may cause functional obsolescence:    
Limited use or excessive material and product handling costs caused by an irregular or inefficient floor plan[;]

Inadequate or unsuited utility space[;]

Excessive or deficient floor load capacity.

Id.
    In cases (such as this one) where the State Board held its administrative hearing prior to this Court's decision in Clark, a taxpayer can make its prima facie case for functional obsolescence merely by identifying the cause or causes of the obsolescence. Louis D. Realty Corp. v. State Bd. of Tax Comm'rs, 743 N.E.2d 379, 385-86 (Ind. Tax Ct. 2001), review denied. See footnote Nevertheless, it is important to keep in mind that the functional obsolescence of a given improvement must be tied to a loss of value. See Miller Structures, 748 N.E.2d at 953-54. In the commercial context, this loss of value usually means a decrease in the property's income generating ability. See id. at 953. Thus, in making its prima facie case, Ray Envelope was required to show that factors inherent in the property itself have adversely affected its ability to generate income. See id.
    Ray Envelope contends that it is entitled to at least a 60% functional obsolescence adjustment. To support its claim, Ray Envelope again relies on both Miller's "Assessment Review and Analysis" and testimony from the administrative hearing. However, Miller's review and testimony are nothing more than unsupported allegations.
    Indeed, Miller's review provides the following explanation of Ray Envelope's obsolescence challenge:
The subject building was originally constructed in 1951. This age of construction and design create inefficiencies of material handling, utilities and maintenance. Causes of obsolescence include, but are not limited to[:] conversion of use from a single occupant to a multi-ten[a]nt, single pane windows and lack of insulation, out[-]dated dock floor, was not built to meet current building codes and limited ceiling heights. These causes of obsolescence are best measured by analyzing the market's reaction to there [sic] observed condition. The sales comparison method has been used in estimating first the total accrued depreciation, then deducting the physical depreciation to arrive at the obsolescence depreciation. The following data and analysis supports total accrued depreciation of 80%. After deducting for the physical depreciation that has already been applied by the county the indicated obsolescence depreciation of the subject is no less than 60%.

(Jt. Ex. C at 5.) Miller's testimony at the administrative hearing did nothing to elaborate on his statement contained in his review like the grade issue, supra, Miller essentially read the statement into the record. (Jt. Ex. B.)
    Miller's review and hearing testimony are not probative as to the causes of functional obsolescence. Indeed, all Miller presented was a laundry list of factors that may be causing functional obsolescence to its improvement. Ray Envelope needed to submit factual evidence showing that these factors had caused an actual loss in its property value. See Miller Structures, 748 N.E.2d at 953-54. Indeed, causes of obsolescence are irrelevant if a taxpayer cannot show actual loss in value. See Clark, 694 N.E.2d at 1238; Miller Structures, 748 N.E.2d at 954. Accordingly, Ray Envelope has not made a prima facie case showing that it is entitled to functional obsolescence, and the State Board's final determination on this issue is AFFIRMED.
 
II. Federal Constitutional Claims
In 1997, this Court determined that Indiana's property tax system violated Article X, section 1 of the Indiana Constitution (the Property Taxation Clause) See footnote because it did not accurately measure property wealth nor was it based on objectively verifiable data. Town of St. John v. State Bd. of Tax Comm'rs, 690 N.E.2d 370, 382-83 (Ind. Tax Ct. 1997), rev'd in part on other grounds by 702 N.E.2d 1034 (Ind. 1998). The Court rejected the notion, however, that the system violated a taxpayer's rights to due process and equal protection as guaranteed by the Fourteenth Amendment to the U.S. Constitution. See id. at 38897.
Despite the system's state constitutional infirmities, this Court declared that "[r]eal property must still be assessed, and, until [] new regulations are in place, must be assessed under the present system." Whitley Prods., 704 N.E.2d at 1121. See also Town of St. John v. State Bd. of Tax Comm'rs, 729 N.E.2d 242, 246 & 251 (Ind. Tax Ct. 2000) (ordering real property in Indiana to be reassessed under constitutional regulations as of March 1, 2002 and providing that until then, "real property tax assessments shall be made in accordance with the current system"). As a result, this Court has refused to analyze the subsequent claims of taxpayers alleging that, on their face, their property assessments violate either the state or federal constitutions, or both. See, e.g., Barth, Inc. v. State Bd. of Tax Comm'rs, 756 N.E.2d 1124, 1127 n.1 (Ind. Tax. Ct. 2001).
In this case, Ray Envelope contends that because Indiana's system of taxing tangible property is not "based upon objectively verifiable data, [it] condemns any determination [thereunder] to federally impermissible vagueness," (Pet'r Post-Hearing Br. and Findings of Fact and Conclusions of Law at 9), and thus its due process rights under the Fifth and Fourteenth Amendments to the U.S. Constitution are violated. As just mentioned, this Court has previously rejected legal arguments analogous to Ray Envelope's. See Town of St. John, 690 N.E.2d at 38897. Ray Envelope nonetheless attempts to convince the Court, however, that its argument is somehow different than that which was decided in the Town of St. John case. (Oral Argument Tr. at 16.) Cf. Town of St. John, 690 N.E.2d at 388-97. Ray Envelope's attempt is unsuccessful.
In briefing the issue, Ray Envelope does little more than quote the Fifth and Fourteenth Amendments and then make the sweeping statement that the State Board's failure "to draft regulations that afford taxpayers fair warning of what is required of them under the tax regulations" violates the Federal Constitution. (Pet'r Post-Hearing Br. and Findings of Fact and Conclusions of Law at 10.) Briefs supplied to this Court in property tax appeals, however, should be prepared like those in appellate cases -- "so that [a] judge, considering the brief alone and independent of the transcript, can intelligently consider each question presented." See Pluard v. Patients Compensation Fund, 705 N.E.2d 1035, 1038 (Ind. Ct. App. 1999), trans. denied.
Here, Ray Envelope has failed to show how its claim is different from those decided in Town of St. John. Indeed, Ray Envelope provides the Court with no clear statement of the issue, no analysis or cogent reasoning, and specifies no particular relief. Accord Ind. Appellate Rule 46(A)(8)(a) (stating that a brief submitted to an appellate court must provide an argument supported by "cogent reasoning"). This Court is not in the business of making taxpayers' cases for them. See Davidson Indus. v. State Bd. of Tax Comm'rs, 744 N.E.2d 1067, 1071 (Ind. Tax Ct. 2001). Accordingly, it rejects Ray Envelope's federal constitutional claim.
CONCLUSION
For the aforementioned reasons, the State Board's final determination is AFFIRMED.
 
 

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. 2001 Ind. Acts 198 § 119(b)(2). Effective January 1, 2002, the legislature created the Department of Local Government Finance ("DLGF"), see Indiana Code § 6-1.1-30-1.1 (West Supp. 2001)(eff. 1-1-02); 2001 Ind. Acts 198 § 66, and the Indiana Board of Tax Review ("Indiana Board"). Ind. Code § 6-1.5-1-3 (West Supp. 2001)(eff. 1-1-02); 2001 Ind. Acts 198 § 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); 2001 Ind. Acts 198 § 95. Nevertheless, the law in effect prior to January 1, 2002 applies to these appeals. Id. See also 2001 Ind. Acts 198 § 117. Although the DLGF has been substituted as the Respondent, this Court will still reference the State Board throughout this opinion.
Footnote: Throughout Ray Envelope's grade argument, it asserts that the State Board failed to provide a basis or support for its grade determination. ( See Pet'r Post-Hearing Br., Findings of Fact and Conclusions of Law at 4.) Ray Envelope, however, is mistaken as to which party had the burden of proof in this case. Indeed, the taxpayer who challenges a State Board final determination bears the burden of proving its invalidity. Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct. 1998). Because Ray Envelope failed to provide the State Board with probative evidence supporting its position on the alleged grading error in the first place, the State Board's duty to support its final determination with substantial evidence is not triggered. See Whitley Prods., Inc. v. State Bd. of Tax Comm'rs, 704 N.E.2d 1113, 1119-20 (Ind. Tax Ct. 1998), review denied.
Footnote: In cases where the State Board held its administrative hearing after this Court's opinion in Clark, the taxpayer must not only identify the cause of obsolescence to make its prima facie case, but it must also quantify the amount of obsolescence to which it believes it is entitled. Louis D. Realty Corp. v. State Bd. of Tax Comm'rs, 743 N.E.2d 379, 385-86 (Ind. Tax Ct. 2001), review denied.
 
Footnote: Indiana's Property Taxation Clause provides:

The General Assembly shall provide, by law, for a uniform and equal rate of property assessment and taxation and shall prescribe regulations to secure a just valuation for taxation of all property, both real and personal.
 
Ind. Const. Art. X, § 1. See also Ind. Code § 6-1.1-2-2.