Lowe's Pellets and Grain, Inc. v. IN State Bd of Tax Comm.

ATTORNEY FOR PETITONER: ATTORNEYS FOR RESPONDENT:
TIMOTHY J. VRANA STEVE CARTER    
SHARPNACK, BIGLEY, ATTORNEY GENERAL OF INDIANA
DAVID & RUMPLE Indianapolis, Indiana
Columbus, Indiana
    
TED J. HOLADAY
Deputy Attorney General
                 Indianapolis, Indiana
 
________________________________________________________________
    
     IN THE INDIANA TAX COURT ________________________________________________________________________

LOWE'S PELLETS & ) GRAIN, INC. ) ) Petitioners, ) ) v. ) Cause No. 49T10-9702-TA-133 ) STATE BOARD OF TAX ) COMMISSIONERS ) )     )
Respondent.     )    
________________________________________________________________________
 
ON APPEAL FROM A FINAL DETERMINATION OF THE STATE BOARD OF TAX COMMISSIONERS
________________________________________________________________________

March 23, 2001
NOT FOR PUBLICATION
 

FISHER, J.
The petitioner, Lowe's Pellets and Grain, Inc. (Lowe's), appeals the final determination of the State Board of Tax Commissioners (State Board) for the 1994 tax year, whereby the State Board awarded Lowe's a 20% obsolescence factor on its grain storage facility (facility) to account for its current use as a grain storage facility from its previous use as a grain elevator. In its original tax appeal, Lowe's presents the following issues:
Whether its facility is entitled to a combined functional and economic obsolescence adjustment of 80%;

Whether the State Board's final determination awarding the facility a 20% obsolescence adjustment is supported with substantial evidence.

For the reasons explained below, the Court finds for Lowe's and remands this case.
FACTS AND PROCEDURAL HISTORY
    In 1992, at a bankruptcy sale, Lowe's purchased a facility in Rush County that was once used as a grain elevator. See footnote At the time of assessment in 1994, the facility only stored grain. The Rush County Board of Review (BOR) declined to award any obsolescence depreciation to the facility. On appeal, the State Board granted the facility a 20% obsolescence factor in its final determination issued on January 17, 1997, based on the facility's change in use from a grain elevator to a grain storage facility. (Resp't Ex. A at 19). Still believing this number too low, Lowe's filed this original tax appeal on February 25, 1997, requesting an 80% obsolescence adjustment. The Court held a trial on November 7, 1997, followed by oral arguments from both parties on April 3, 1998. Additional facts will be supplied where necessary.
ANALYSIS AND OPINION
Standard of Review
    The Court accords great deference to the State Board when it has acted within the scope of its authority. Dav-Con, Inc. v. State Bd. of Tax Comm'rs, 702 N.E.2d 1137, 1140 (Ind. Tax Ct. 1998), review denied. The Court will reverse a final determination by the State Board only if it is unsupported by substantial evidence, constitutes an abuse of discretion, exceeds statutory authority, or is arbitrary and capricious. 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).
Discussion
     Lowe's argues that its facility should be given a combined functional and economic obsolescence adjustment of 80%. The State Board contends that its award of a 20% obsolescence adjustment for changed usage should be affirmed. The regulations define obsolescence as a functional and economic loss of value. Ind. Admin. Code tit. 50, r. 2.1-5-1 (1992) (codified in present form at id., r. 2.2-10-7(e)(1996)). Functional obsolescence is caused by factors internal to the property such as a poor land-to-building ratio, inefficient floor plans, and excessive or deficient floor load capacity and is evidenced by conditions within the property. Ind. Admin. Code tit. 50, r. 2.1-5-1. Economic obsolescence is caused by factors external to the property such as insufficiency of utilities or changing economic and social conditions. Ind. Admin. Code tit. 50, r. 2.1-5-1.
When an assessor determines obsolescence, a two-step inquiry is required. First, the assessor must identify the causes of obsolescence, and second, he must quantify the amount of obsolescence to be applied. Heart City Chrysler v. State Bd. of Tax Comm'rs, 714 N.E.2d 329, 333 (Ind. Tax Ct. 1999). In Clark, this Court held that future taxpayers must submit probative evidence to the State Board sufficient to establish a prima facie case concerning both the identification and quantification of obsolescence, in order to receive an increased adjustment. Clark, 694 N.E.2d at 1241. Since this case is pre-Clark however, Lowe's is only required to successfully establish a prima facie case as to the identification of such additional causes. Id. at 1238-41. With respect to challenging the State Board's quantification of obsolescence, the taxpayer in a pre-Clark case need not make a prima facie case on this issue. Id. Rather, the taxpayer is only required to show that the State Board did not support its final determination with substantial evidence. Id.
The State Board agrees with Lowe's that some obsolescence is present, a fact that is reflected in its final determination. See Heart City Chrysler, 714 N.E.2d at 333 n.13. However, Lowe's argues that it has identified additional causes of obsolescence not addressed by the State Board. Therefore, in order to receive an increased obsolescence adjustment, Lowe's must present probative evidence sufficient to establish a prima facie case (a case in which the evidence is sufficient to establish a given fact and which if not contradicted will remain sufficient) as to the identification of each additional cause. Damon Corp. v. State Bd. of Tax Comm'rs, 738 N.E.2d 1102, 1106 (Ind. Tax Ct. 2000). In this pre-Clark case, once a prima facie case has been established, the burden of production as to the identification and quantification of such issues shifts to the State Board to rebut the taxpayer's evidence and to support its determination with substantial evidence. See footnote Id.
Lowe's first argues that its low purchase price See footnote for the facility is not proportionate to the assessment made on it by the State Board, so an economic obsolescence adjustment must be made. Second, Lowe's argues that a railroad that once ran past its facility is no longer operational, causing its profitability to decline, a fact that Lowe's argues entitles it to an increased economic obsolescence adjustment. Lowe's next argues that since the majority of its facility remained vacant throughout the tax year, it should be entitled to a higher functional obsolescence adjustment. The Court will address each argument in turn.
I. Identification
Purchase Price
Lowe's first contends that the price paid for its facility did not warrant an assessment that was five times more than the purchase price, thus entitling it to a functional obsolescence adjustment to account for this discrepancy. The State Board considered this issue in its final determination, but did not change its overall determination as a result. (Resp't Ex. A at 18). The difference between the true tax value of the property and the price for which Lowe's purchased the property does not demonstrate a loss in value because the two numbers are not necessarily comparable. See Damon Corp., 738 N.E.2d at 1109 (citing State Bd. of Tax Comm'rs v. Town of St. John, 702 N.E.2d 1034, 1038 (Ind. 1998) (holding that "true tax value" is not exclusively or necessarily identical to fair market value)). Further, Ind. Code Ann. § 6-1.1-31-6(c) (West 2000) states that "[w]ith respect to the assessment of real property, true tax value does not mean fair market value. True tax value is the value determined under the rules of the state board of tax commissioners."
Using the State Board's obsolescence guidelines in the regulations, Lowe's taxpayer representative, Mr. Milo Smith, attempted to compare the facility to similar properties built at the same time and concluded that it was overassessed. (Trial Tr. at 13-14.) However, Lowe's offered no additional evidence concerning such comparables. Cf. Clark, 694 N.E.2d at 1239 n.13 (In the context of maintenance costs, Court concluded that without a proper comparison the State Board had no way to determine if such costs were normal or excessive.) The Court finds Lowe's evidence on this issue as non-probative and concludes that Lowe's has failed to make a prima case as to the identification of economic obsolescence on this issue. See Damon Corp., 738 N.E.2d at 1109.
 
Rail Service
Lowe's next contends that since its facility lacks rail service, it is entitled to a higher economic obsolescence adjustment. While lack of rail service is not itself listed in the regulations, the inappropriateness of a structure in relation to its location is listed as a cause of economic obsolescence. Ind. Admin. Code tit. 50, r. 2.1-5-1. In the past, rail service existed near Lowe's facility. (Trial Tr. at 14-15.) The railroad formally represented the most inexpensive and efficient way to deliver grain. (Trial Tr. at 18, 37-38.) With the departure of the railroad, Lowe's used trucks to haul its own grain to and from the market, which served as the cheapest form of transportation available to it at the time of its assessment. (Trial Tr. at 18, 37.) The departure of the railroad also caused Lowe's to alter its facility's use from a grain elevator to a grain storage facility, causing its profitability to decline. (Trial Tr. at 32-33.) Finally, the railroad's demise also caused farmers to ship their own grain directly, thus eliminating the farmers' need for Lowe's grain storage facility. (Trial Tr. at 35.)
Despite these statements, Smith did not demonstrate how the departure of the railroad directly contributed to the facility's loss in value. Cf. Damon Corp., 738 N.E.2d at 1108 ("In the commercial context, a loss in value usually represents a decrease in the improvement's income generating ability.") A taxpayer's conclusory statements do not constitute probative evidence. Kemp v. State Bd. of Tax Comm'rs, 726 N.E.2d 395, 400 (Ind. Tax Ct. 2000). Therefore, Lowe's has failed to establish a prima facie case as to the identification of this cause of economic obsolescence. See Damon, 738 N.E.2d at 1106.
C. Excessive Capacity
Lowe's finally argues that since a large portion of its facility remained vacant at the time of assessment, it is entitled to an increased functional obsolescence adjustment. The regulations provide that inadequate or unsuited utility space is a cause of functional obsolescence. Ind. Admin. Code tit. 50, r. 2.1-5-1. However, the 1992 regulations provide no specific guidance concerning the application of functional obsolescence to grain storage facilities. See footnote
    In support of its argument, Lowe's submitted a grain inventory sheet (sheet) showing the percentage of the facility in use from December 31, 1992 through July 31, 1994. (Pet'r Ex. 5.) This sheet shows that the average occupancy of Lowe's facility during this time period was 41.59% of capacity. See footnote (Pet'r Ex. 5); (Trial Tr. at 22.) Mr. Smith testified that if the facility were bringing in as much grain as it shipped out, the above figure would be lower. (Trial Tr. at 37.) According to Mr. Smith, the goal of the facility was to facilitate the movement of grain to and from the site as quickly as possible, but without the increased volume the facility held more grain than it normally would, a fact the 41.59% average occupancy rate reflects. (Trial Tr. at 36, 42, 45.)
Lowe's did not present any additional evidence relating to the figures quoted above. These figures, on their face, do not demonstrate a loss in value for the facility. Cf. Damon Corp., 738 N.E.2d at 1109-10. Without more, it cannot be said that Lowe's has established a prima case as to the identification of this functional obsolescence factor. Cf. id. Lowe's has failed to establish a prima facie case as to the identification of functional obsolescence.
II. Quantification
Lowe's next argues that the State Board's final determination is not supported with substantial evidence. As noted above, the State Board granted Lowe's a 20% obsolescence adjustment based on the property's change in use. Supra at 2. At trial, King stated that his calculations could not be supported. (Trial Tr. at 75.) The only evidence offered in support of the State Board's final determination on this issue was a statement from Mr. King regarding his quantification of the obsolescence given to the facility. (Trial Tr. at 74-75.) He stated, "it simply is an estimation of reduced traffic, reduced usage, reduced through-put, and a result of changing economic conditions." This Court has stated before that such conclusory statements are insufficient to support a State Board final determination. See Morris v. State Bd. of Tax Comm'rs, 712 N.E.2d 1120, 1125 (Ind. Tax Ct. 1999) (observing that "conclusory statements, standing alone, are insufficient to support a State Board final determination"). The Court finds that the State Board has failed to support its final determination with substantial evidence. Therefore, Lowe's is entitled to a remand in order to redetermine the obsolescence adjustment for its facility.
On remand, the entire issue of obsolescence is open for reconsideration. Lowe's must present a prima facie case as to both the identification and quantification of obsolescence in order to shift the burden of production to the State Board. Damon Corp., 738 N.E.2d at 1106. The State Board will then be required to deal with such evidence in a meaningful manner. See footnote Loveless Const. Co. v. State Bd. of Tax Comm'rs, 695 N.E.2d 1045, 1049 (Ind. Tax Ct. 1998), review denied.
CONCLUSION
For the reasons stated above, the Court finds that Lowe's is entitled to a remand on its economic and functional obsolescence factors. The Court REVERSES the State Board's final determination and REMANDS this case for further consideration consistent with this opinion.

Footnote: At trial, Lowe's taxpayer representative, Mr. Milo Smith, testified that while grain elevators have the ability to both store and process grain into feed, Lowe's facility was priced as grain storage by the State Board because its grain elevator components were no longer being used. (Trial Tr. at 13, 32, 35.)
Footnote: In post-Clark appeals, the burden of production only shifts after the taxpayer has made a prima facie case as to both identification and quantification. Clark, 694 N.E.2d at 1241.

Footnote: Lowe's paid $79,500 total for the facility and one other parcel of land that is not at issue in this case. (Trial Tr. at 10.)
Footnote: While the 1996 regulations contain material pertinent to applying functional obsolescence to grain elevators, they do not contain any such material for grain storage facilities. Ind. Admin. Code tit. 50, r. 2.2-12-6.1 (1996).

Footnote: These figures are based on a total capacity for the facility of 386,260 bushels, which is what the USDA certified Lowe's facility to hold. (Trial Tr. at 29-30.)

Footnote: On remand, Lowe's may quantify its evidence by using generally accepted appraisal methods. See Loveless Const. Co., 695 N.E.2d at 1050.