Data Labeling, Inc. 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 VILLEGAS
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN
    

_____________________________________________________________________

    IN THE INDIANA TAX COURT _____________________________________________________________________

DATA LABELING, INC., ) ) Petitioner, ) ) v. ) Cause No. 49T10-9811-TA-139 ) DEPARTMENT OF LOCAL ) GOVERNMENT FINANCE, See footnote         )
                )
    Respondent.            )    
_____________________________________________________________________
 
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
 
NOT FOR PUBLICATION
March 7, 2003
FISHER, J.
 
    Data Labeling, Inc. (Data) appeals the final determination of the State Board of Tax Commissioners (State Board) valuing its real property for the March 1, 1995 assessment (year at issue).
ISSUES
I. Whether the State Board erred in grading Data's improvement;

II. Whether the State Board erred in determining that Data's improvement was not entitled to an obsolescence adjustment; and

III. Whether Data's assessment should be invalidated on the basis that Indiana's property tax system is unconstitutional? See footnote
FACTS AND PROCEDURAL HISTORY
    Data owns a small manufacturing facility in Terre Haute, Indiana. On May 9, 1997, Data filed a Petition for Review of Assessment (Form 131) with the State Board challenging the assessment of its property for the year at issue. In its Form 131, Data claimed that its improvement was graded improperly, that it was entitled to an obsolescence adjustment, and that its assessment was unconstitutional. On September 15, 1998, after conducting an administrative hearing, the State Board issued its final determination on Data's Form 131, denying relief on all Data's claims.
    Data filed an original tax appeal on October 30, 1998. The Court conducted trial on July 26, 1999. 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.
    A taxpayer who challenges the propriety of a State Board final determination bears the burden of demonstrating its invalidity. Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct. 1998). To do so, 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. 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
In its Form 131, Data alleges that the State Board erred in grading its building. See footnote Data contends that the State Board should have reduced the grade on the building to an E+1. In the alternative, Data contends that the State Board erred in valuing its building under the General Commercial Industrial (GCI) cost schedule as opposed to the General Commercial Kit (GCK) cost schedule. Data is incorrect on both counts.
Pursuant to the State Board's regulations, improvements are assigned various grades based on their materials, design, and workmanship. Ind. Admin. Code tit. 50, r. 2.2-10-3; Whitley Prods., 704 N.E.2d at 1116. In determining grade, the assessor must "distinguish significant variations [in an improvement's] quality and design." Ind. Admin. Code tit. 50, r. 2.2-10-3(a). The State Board's regulations define the different characteristics that help assessors differentiate between grades. For instance, "‘C' grade buildings are moderately attractive and constructed with average quality materials and workmanship. These buildings have minimal to moderate architectural treatment . . . an average quality interior finish with adequate built-ins, standard quality fixtures, and mechanical features." Ind. Admin. Code tit. 50, r. 2.2-10-3(a)(3). On the other hand, "‘E' grade buildings are constructed with sub-standard grade materials . . . and very poor quality workmanship resulting from unskilled, inexperienced, do-it-yourself labor. They have low grade mechanical features and fixtures." Ind. Admin. Code tit. 50, r. 2.2-10-3(a)(5). The grading system also has a method of interpolation built into it:
Plus or minus two (+/- 2) indicates that the grade falls halfway between the assigned grade classification and the grade immediately above or below it. For example, a grade of "C+2" indicates that the quality and design grade classification is estimated to fall halfway between "C" and "B" or average to good construction. . . .

Plus or minus one (+/- 1) indicates that the grade falls slightly above or below the assigned grade classification, or at a point approximately twenty-five percent (25%) of the interval between the assigned grade classification and the grade immediately above or below it. For example, a grade of "C+1" indicates that the quality and design grade classification is estimated to be slightly better than average or approximately halfway between a "C" grade and a "C+2" grade.
 
Ind. Admin. Code tit. 50, r. 2.2-10-3(c).
The State Board's regulations also include a cost schedule for certain light, pre-engineered buildings, i.e., kit buildings. See Ind. Admin. Code tit. 50, r. 2.2-11-6 (Schedule A4). The pricing for kit buildings under the GCK schedule is reflective of the economical quality and low cost of materials used in these structures. See footnote Miller Structures, 748 N.E.2d at 949. See also Williams Indus. v. State Bd. of Tax Comm'rs, 648 N.E.2d 713, 717 n.4 (Ind. Tax Ct. 1995). The key elements used to identify a kit building are, simply, the types of interior column and roof beam support used in the building. Componx, Inc. v. State Bd. of Tax Comm'rs, 683 N.E.2d 1372, 1374 (Ind. Tax Ct. 1997). Kit building interior columns and roof beam supports may include cold form cee channel supports, tapered columns, H-columns, and steel pole (or post) columns. Miller Structures, 748 N.E.2d at 950. Consequently, "it should not be difficult for taxpayers to identify those characteristics in an improvement alleged to [be a kit building]." Whitley Prods., 704 N.E.2d at 1121. Indeed, a taxpayer meets its burden with regard to a kit building where the taxpayer shows that its improvement's type of column and roof beam support meet the criteria for a kit building. See Componx, 683 N.E.2d at 1374.
Occasionally, the State Board uses grade factors in conjunction with the kit building pricing. In other words, it applies grade factors to adjust for various additional building features that are included in a kit building. See King Indus. Corp v. State Bd. of Tax Comm'rs, 699 N.E.2d 338, 340 (Ind. Tax Ct. 1998). "However . . . if the additional features of the kit building result in the building no longer being economical, then it cannot quality for the kit adjustment. If the building does not qualify for the kit adjustment, the assessor may apply a low grade and design factor to account for the lower cost of construction." Id. at 340-41 (footnotes, internal citations, and internal quotation marks omitted).
    At the State Board hearing, Data's tax representative, M. Drew Miller (Miller) of Landmark Appraisals, Inc., testified:
As far as the grade goes, we would like that adjusted as it does not conform with the C grade model that is listed in the manual and there are very few guidelines that determine what degree it varies. We would recommend that it be priced from the GCK pricing [inaudible] and or a grade of E+1.
 
(Jt. Ex. 1.) (See also Jt. Ex. 3 at 3.) This evidence is not probative at all.
First, with respect to the grade issue, Miller's testimony is nothing more than an assertion that the grade "is this" and "it should be that." He failed to provide any explanation whatsoever as to why the grade should be an E+1: he neither explains how he calculated his suggested grade of E+1, nor does he identify any specific instances where a similarly structured improvement was assigned a grade of E+1. Because Miller's statement is nothing more than a conclusion, it does not constitute probative evidence. Whitley Prods., 704 N.E.2d at 1119. Thus, Data has not shown that it is entitled to a grade reduction.
With respect to the kit building pricing, Miller's testimony is not indicative as to the types of interior columns and roof supports used in the building at issue. The testimonial statement that "the subject facility is a pre-engineered building and should be priced from the GCK model" is also nothing more than a conclusion. See id. Thus, Data has not shown that its building is a kit building. See footnote
Because Data has failed to provide the State Board with any probative evidence to support its position on this issue, it has failed to make a prima facie case. Consequently, the State Board's determination as to the issue of grade and pricing is AFFIRMED.

 
II. Obsolescence
    The second issue in this case is whether the State Board erred in denying Data's improvement an obsolescence adjustment. Data argues that the State Board ignored the evidence it presented establishing causes of obsolescence, namely the improvement's add-on construction and its location in a residential neighborhood. While the State Board admits that Data has established possible causes of obsolescence, it argues that Data has not established that its improvement suffers from obsolescence. The State Board is correct.
The State Board's regulations define obsolescence as a functional and economic loss of value. Ind. Admin. Code tit. 50, r. 2.2-10-7(e). Functional obsolescence is caused by factors internal to the property and is evidenced by conditions within the property itself. Id. Economic obsolescence is caused by factors external to the property. Id. The State Board's regulations cite a number of examples of causes of obsolescence, such as limited use or excessive material and product handling costs caused by an irregular or inefficient floor plan (functional) and location of the building is inappropriate for the neighborhood (economic). Id. It is important to keep in mind, however, that the obsolescence of a given improvement must be tied to a loss of value. In the commercial context, that loss of value usually means the loss of income generated by the property. Miller Structures, 748 N.E.2d at 953.
    In its presentation to the State Board, Data (via Miller) argued that its building suffered from obsolescence because it had an irregular floor plan and it was located in a residential neighborhood. However, Data did not present any evidence whatsoever demonstrating that these two factors caused the subject improvement to experience a loss in value. See Loveless Constr. Co. v. State Bd. of Tax Comm'rs, 695 N.E.2d 1045, 1047 (Ind. Tax Ct. 1998) (stating that under the State Board's regulations, obsolescence causes a loss in value), review denied. Therefore, Data's obsolescence claim is fatally deficient. See White Swan Realty v. State Bd. of Tax Comm'rs, 712 N.E.2d 555, 560 (Ind. Tax Ct. 1999), review denied. Accordingly, the Court AFFIRMS the State Board's final determination with respect to obsolescence.
III.
Data also makes a number of arguments concerning the constitutionality of the property tax system. The thrust of these arguments is that because the system has been declared unconstitutional, see State Board of Tax Commissioners v. Town of St. John, 702 N.E.2d 1034, 1043 (Ind. 1998), any assessment of property thereunder, including its own, is void and should be reversed. However, the mere fact that the system is flawed does not entitle the taxpayer to a reversal of an assessment. See id. Indeed, this Court has stated that "[r]eal property must still be assessed, and, until the 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"). Thus, the Court need not analyze Data's constitutional claims in this opinion.
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. 198 Ind. Acts 2001 § 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); 198 Ind. Acts 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); 198 Ind. Acts 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); 198 Ind. Acts 2001, § 95. Nevertheless, the law in effect prior to January 1, 2002 applies to these appeals. Id. See also 198 Ind. Acts 2001 § 117. Although the DLGF has been substituted as the Respondent, this Court will still reference the State Board throughout this opinion.
Footnote: At the State Board hearing and at trial, Data attempted to raise two issues that were not stated on its Form 131: first, that the State Board had improperly calculated its improvement's perimeter-to-area ratio, and second, that the State Board utilized the wrong depreciation schedule. ( See Jt. Ex. 3 at 3.) (See also Trial Tr. at 7-8.) Data contends that the State Board abused its discretion when it ignored the evidence and failed to determine those issues. (See Pet'r Post-Hearing Br. at 9-10.) Data is incorrect.
When a taxpayer petitions the State Board for a review of an assessment, the State Board may limit its inquiry to only those errors raised by the taxpayer. Whitley Prods. v. State Bd. of Tax Comm'rs, 704 N.E.2d 1113, 1119 (Ind. Tax Ct. 1998), review denied. This means that all other constituent parts of the assessment, if the State Board declines to review them, will not be changed, and as far as the law is concerned, will be deemed to be correct. Id. Consequently, because the two issues were not originally raised on Data's Form 131 (see Jt. Ex. 2 at 3), the State Board did not abuse its discretion when it declined to review those issues at the hearing. See Whitley Prods., 704 N.E.2d at 1119..
Furthermore, the two additional issues were not even discussed at the State Board hearing. (Jt. Ex. 1.) Rather, the only mention of these two issues was in a document entitled "Assessment Review and Analysis," which was presented to the State Board hearing officer by Data's tax consultant, M. Drew Miller (Miller). (Jt. Ex. 3 at 3.) Miller, however, never offered any explanation regarding the two additional issues, let alone verbally communicate to the hearing officer that there were two additional issues he wanted to raise. In his silence, Miller did not make a prima facie case, and it was not up to the State Board hearing officer to make his case for him. See Hoogenboom-Nofziger v. State Bd. of Tax Comm'rs, 715 N.E.2d 1018, 1024 (Ind. Tax Ct. 1999).
Footnote: The State Board assigned the office portion of the building a C-2 grade, and the remainder of the building a D grade.
 
Footnote: "[K]it buildings are made of light weight and inexpensive materials and are fabricated at central manufacturing facilities and shipped to the construction site ready for fast and efficient assembly." Miller Structures, Inc. v. State Bd. of Tax Comm'rs, 748 N.E.2d 943, 949 (Ind. Tax Ct. 2001) (citation and quotes omitted).
Footnote: Data attempts to rely on a previous State Board final determination in which the subject improvement was assessed under the GCK schedule. Nevertheless, each tax year stands alone, and evidence of a prior assessment will not be considered as probative evidence of the property tax assessment for a later years. Glass Wholesalers, Inc. v. State Bd. of Tax Comm'rs, 568 N.E.2d 1116, 1124 (Ind. Tax Ct. 1991).