Marlette Homes, Inc. v. Department 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 MARLETTE HOMES, INC., ) ) Petitioner, ) ) v. ) Cause No. 49T10-0101-TA-5 ) DEPARTMENT OF LOCAL ) GOVERNMENT FINANCE, See footnote         )
                )
    Respondent.            )    
_____________________________________________________________________
 
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
 
NOT FOR PUBLICATION
November 19, 2003
FISHER, J.
Marlette Homes, Inc. (Marlette) appeals the State Board of Tax Commissioners' (State Board) final determination valuing its real property for the 1995 tax year. The issue for the Court to decide is whether the State Board erred in grading Marlette's light manufacturing improvement (improvement) a "D." See footnote For the following reasons, the Court REVERSES the State Board's final determination.
FACTS AND PROCEDURAL HISTORY
Marlette owns land and improvements (used for warehousing, manufacturing, and office purposes associated with its business) in Elkhart County, Indiana. The subject improvement is a low-cost, pre-engineered building. For the 1995 tax year, the local assessing officials valued Marlette's improvement using the General Commercial Industrial (GCI) Schedule and assigned it a "D" grade.
Marlette appealed the assessment to the Elkhart County Board of Review (BOR), claiming that the improvement's grade should be an "E." The BOR denied Marlette's claim. Marlette then appealed the BOR's determination to the State Board. After a hearing on October 12, 2000, the State Board also denied Marlette's claim.
On January 4, 2001, Marlette initiated an original tax appeal. The parties stipulated to the record and, on March 18, 2002, this Court heard their oral arguments. Additional facts will be supplied as necessary.

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. Hamstra Builders, Inc. v. Dep't of Local Gov't Fin., 783 N.E.2d 387, 390 (Ind. Tax. Ct. 2003). Thus, this Court will reverse a final determination of the State Board only when its findings are unsupported by substantial evidence, arbitrary, capricious, constitute an abuse of discretion, or exceed statutory authority. Id. When appealing to this Court from a State Board final determination, the taxpayer bears the burden of showing that the final determination is invalid. Id.
Discussion
The grading of improvements is an important part of Indiana's property assessment system. Under that system, assessors use improvement models and cost schedules to determine the base reproduction cost of a particular improvement. Whitley Prods., Inc. v. State Bd. of Tax Comm'rs, 704 N.E.2d 1113, 1116 (Ind. Tax. Ct. 1998), review denied. Improvements are then assigned various grades based on their materials, design, and workmanship. Id. See also Ind. Admin. Code tit. 50, r. 2.2-10-6.1(f) (1996) (providing that grade is used to adjust the total base reproduction cost in order to account for variations in standards of quality and design). The grades represent multipliers that are applied to the subject improvement's base reproduction cost. Whitley Prods., 704 N.E.2d at 1116.
    There are times, however, when an improvement deviates from the applicable improvement model or cost schedule. Such a deviation 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).
Marlette claims that the State Board erred in assigning a "D" grade to its improvement. Specifically, Marlette alleges that because its building lacks certain features present in the GCI model, its grade should be reduced to an "E." To support its claim, Marlette presented an "Assessment Review and Analysis" (Analysis). See footnote In the Analysis, Marlette described the improvement as a "light pre-engineered structure[], constructed of rigid steel framing, with purlins and girders with a 14 gauge, along with the standard X bracing. Walls are made up of 28 gauge metal siding with exposed insulation on the interior." (Stip. R. at 135.)

Marlette then explained that, while the improvement would normally be priced under the General Commercial Kit (GCK) ScheduleSee footnote , "it was the policy of the [BOR] at that time . . . that very few if any buildings were priced from the GCK schedule." (Stip. R. at 188.) Rather, the BOR "just appl[ied] a lower grade . . . as opposed to using the GCK Schedule." See footnote (Stip. R. at 188 (footnote added).) Consequently, Marlette presented a calculation to justify its request for an "E" grade: first, it calculated the value of the improvement utilizing the General Commercial Kit (GCK) Schedule, establishing an alternate reproduction cost for the improvement. (Stip. R. at 135.) In comparing that alternate reproduction cost with that of the base reproduction cost under the GCI pricing schedule, Marlette calculated a 60% difference. (Stip. R. at 135.) Marlette then asserted that if the current grade were reduced to an "E," the values would be equalized with those as calculated under the GCK Schedule.
The State Board denied Marlette's claim, finding that "the difference between pricing schedules does not constitute probative evidence that the grade of the subject building is incorrect." (Stip. R. at 68.) In doing so, the State Board erred. Indeed, Marlette's evidence demonstrated that it was entitled to GCK pricingSee footnote ; thus, because the BOR admitted that it was its practice to reduce grades rather than utilize GCK pricing ( see Stip. R. at 189), Marlette has shown it was entitled to a grade reduction to "E" on its improvement. In light of the BOR's own admission, the State Board improperly ignored Marlette's calculation demonstrating that an "E" grade would be an equivalent value to the GCK value for its improvement.
Marlette established a prima facie case that it was entitled to GCK pricing and, thus, a grade of "E." The State Board, however, failed to rebut Marlette's evidence and support its findings with substantial evidence. See Hamstra Builders, 783 N.E.2d at 390 (stating that once the taxpayer presents a prima facie case, the burden shifts to the State Board to rebut the taxpayer's evidence and support its findings with substantial evidence). Accordingly, the State Board's final determination cannot stand.
CONCLUSION
For the reasons stated above, the Court REVERSES the final determination of the State Board and REMANDS the issue to the Indiana Board of Tax Review (Indiana Board) See footnote to instruct the local assessing officials to lower the grade of Marlette's improvement to "E," consistent with this opinion.     

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. I.C. 6-1.5-5-8. 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: In addition, Marlette raises various state and federal constitutional claims that this Court has declined to reach in previous cases. See, e.g., Barth, Inc. v. State Bd. of Tax Comm'rs, 756 N.E.2d 1124, 1127 n.1 (Ind. Tax. Ct. 2001). Because Marlette's claims and supporting arguments are identical to those previously rejected by the Court, the Court will not address them.
Footnote: Marlette's "Assessment Review and Analysis" was prepared by its property assessment consultant, Mr. M. Drew Miller of Landmark Appraisals, Inc.
Footnote: The General Commercial Kit (GCK) Schedule provides base rates for pre-engineered and pole framed buildings (kit buildings) and is used for valuing kit buildings which are used for commercial and industrial purposes. See Ind. Admin. Code tit. 50, r. 2.2-11-6 (Schedule A.4) (1996). See also Ind. Admin. Code tit. 50, r. 2.2-10-6.1(a)(1)(D) (1996).
Footnote: While the Court disfavors such a practice, it recognizes that such was common procedure. See King Indus. Corp. v. State Bd. of Tax Comm'rs, 699 N.E.2d 338, 340-41 (Ind. Tax. Ct. 1998).
Footnote: In fact, the stipulated record provides evidence that for the 1998 and 1999 assessments, the State Board valued Marlette's improvement using the GCK Schedule. ( See Stip. R. at 74, 84, 90, 100.)
Footnote: All cases that would have been remanded to the State Board are now remanded to the Indiana Board of Tax Review (Indiana Board). Ind. Code § 6-1.1-15-8 (West Supp. 2003). Final determinations made by the Indiana Board are subject to review by this Court pursuant to Ind. Code § 6-1.1-15. Ind. Code §§ 6-1.5-5-7 (West Supp. 2003); 3-33-5-2.