Fine Art 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 _____________________________________________________________________

FINE ART COMPANY, ) ) Petitioner, ) ) v. ) Cause No. 49T10-9812-TA-197 ) 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NOT FOR PUBLICATION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 11, 2003
FISHER, J.
 
    The Petitioner, Fine Art Company (Fine Art), appeals the final determination of the State Board of Tax Commissioners (State Board) establishing the assessed value of its real property as of March 1, 1995. The Court restates the issues as:
Whether the State Board's final determination supports a 15% obsolescence depreciation adjustment to Fine Art's improvement; and

Whether the State Board properly reviewed and determined Fine Art's challenge to its land value. See footnote
 
    For the reasons stated below, the Court REMANDS Issue I to the Indiana Board of Tax Review (Indiana Board). See footnote The Court AFFIRMS the State Board's final determination on Issue II.
FACTS AND PROCEDURAL HISTORY
    Fine Art owns land and an improvement in Warren Township, Marion County, Indiana. Fine Art appealed its assessment to the State Board, arguing that it was entitled to 50% obsolescence, and that its "land value [was] excessive and/or a negative influence factor should be applied[.]" (Joint Ex. 2 at 11.) The State Board held a hearing and issued its final determination October 28, 1998. The State Board applied a 15% obsolescence depreciation adjustment to Fine Art's improvement and found that the land value was correct and that no additional negative influence factor was warranted.
    On December 10, 1998, Fine Art filed an original tax appeal. This Court conducted a trial on July 22, 1999. Additional facts will be supplied as needed.
ANALYSIS AND OPINION
Standard of Review
    The Court gives great deference to the State Board's final determinations when it acts within the scope of its authority. Miller Structures, Inc. v. State Bd. of Tax Comm'rs, 748 N.E.2d 943, 947 (Ind. Tax Ct. 2001). Accordingly, this Court reverses final determinations of the State Board only when those decisions are unsupported by substantial evidence, are arbitrary or capricious, constitute an abuse of discretion, or exceed statutory authority. Id.
    The taxpayer bears the burden of demonstrating the invalidity of the State Board's final determination. Id. 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." Id. (citation and internal quotation marks omitted). To establish a prima facie case, the taxpayer must offer probative evidence concerning the alleged error. 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." Id. (quoting Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1233 (Ind. Tax Ct. 1998)). To carry its burden, the State Board must do more than merely assert that it assessed the property correctly. Miller Structures, 748 N.E.2d at 948. Instead, the State Board must offer an authoritative explanation of its decision to rebut the taxpayer's prima facie showing. Id.
Discussion
I. Obsolescence
    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. The determination of obsolescence is a two-step inquiry. Id. The assessor must identify causes of obsolescence and then quantify the amount of obsolescence to be applied. Id.
In this case, the State Board awarded a 15% obsolescence adjustment to Fine Art's improvement. The State Board now concedes, however, that its final determination is in error. (Resp't Br. at 3; Trial Tr. at 4-5.) Specifically, the State Board admits that it did not support its quantification of 15% obsolescence with substantial evidence, and therefore seeks to have the issue remanded for further proceedings. On remand, the State Board contends that it will review the causes and quantification of obsolescence. Fine Art argues that only the quantification aspect should be reviewed on remand. The Court agrees with Fine Art.
By initially awarding 15% obsolescence to Fine Art's improvement, the State Board agreed that the improvement suffered from obsolescence. See Freudenberg-NOK, 715 N.E.2d at 1031 n.7; Heart City Chrysler v. State Bd. of Tax Comm'rs, 714 N.E.2d 329, 333, n.13 (Ind. Tax Ct. 1999). "When the State Board determines that the property has obsolescence, it cannot be heard to complain that the taxpayer did not show causes of obsolescence." Freudenberg-NOK, 715 N.E.2d at 1031 n.8. Thus, on remand, only the quantification of obsolescence will be at issue. See footnote The Court, therefore, REMANDS this issue to the Indiana Board.
II. Land Value
    The next issue is whether the State Board properly reviewed and determined Fine Art's land value challenge. Fine Art argues that the State Board did not provide a meaningful review of its land value issue, including its challenge of its base rate, influence factor, and acreage. The Court does not agree.
A. Base Rate
    First, the State Board properly determined First Art's base rate. In its 131 Petition for Review of Assessment (131 Petition), Fine Art argued that its "land value is excessive and/or a negative influence factor should be applied[.]" (Joint Ex. 2 at 11.) At the administrative hearing, Fine Art argued that its property was not properly priced under the Marion County Land Valuation Order (land order). See footnote The portion of the land order submitted into evidence contained the following designations and associated rates per square foot for commercial and industrial property in Warren Township:
Area Primary
Low Value    High Value Secondary
Low Value    High Value 38th Street (A) 1.00        2.00 .70        1.40 38th Street (B) 2.00        3.00 1.40        2.10 38th Street (C) 1.00        2.00 .70        1.40 Washington Pointe 4.00        5.00 2.80        3.50 "Other" 1.00        2.00 .70        1.40 Rural Commercial .70        1.00 .49        .70
(Joint Ex. 3 at 7.) Fine Art contends that its land, which was located on Arlington Avenue, should be assessed on an acreage basis because there was no specific designation for Arlington Avenue in the land order. Fine Art misses the obvious. Fine Art's land was assessed on a square foot basis under the "Other" designation of the land order. The "Other" designation serves as a catch-all category for geographic areas not otherwise designated on the land order. The Precedent v. State Bd. of Tax Comm'rs, 659 N.E.2d 701, 706 (Ind. Tax Ct. 1995). Because Fine Art's land was not otherwise designated on the land order, it properly assessed under the "Other" category of the land order. See Eastgate P'ship v. Dep't of Local Gov't Fin., 780 N.E.2d 435, 438-39 (Ind. Tax Ct. 2002); Precedent, 659 N.E.2d at 706.
B. Negative Influence Factor
Second, the State Board properly determined that Fine Art was not entitled to a negative influence factor. An influence factor refers to a condition peculiar to the land that dictates an adjustment, either positive or negative, to the extended value to account for variations from the norm. Ind. Admin. Code tit. 50, r. 2.2-4-10(a)(9) (1996). The State Board may use influence factors to adjust values in a land order for properties that possess unique characteristics. Phelps Dodge v. State Bd. of Tax Comm'rs, 705 N.E.2d 1099, 1105 (Ind. Tax Ct. 1999), review denied. In applying an influence factor, an assessing official must first identify the deviations from the norm and then quantify the variations as a percentage. Fleet Supply, Inc. v. State Bd. of Tax Comm'rs, 747 N.E.2d 645, 652 (Ind. Tax Ct. 2001), review denied. An influence factor is expressed as a percentage increase or decrease in the subject land's assessed value, with the percentage representing the composite effect of the factors that influence the value. White Swan Realty v. State Bd. of Tax Comm'rs, 712 N.E.2d 555, 562 (Ind. Tax Ct. 1999), review denied. A taxpayer seeking the application of a negative influence factor has the burden to produce "probative evidence that would support an application of a negative influence factor and a quantification of that influence factor." Phelps Dodge, 705 N.E.2d at 1106.
At the administrative hearing, Fine Art stated that it should receive a negative influence factor because its property was in a blighted area that did not have any other industrial or retail properties. Thus, it appears that Fine Art is seeking a negative influence factor based on the "misimprovement" classification in the State Board's regulations. See footnote See 50 IAC 2.2-4-10(a)(9)(E). A negative influence factor for a "misimprovement" is used when a parcel of land does not have the same use as surrounding parcels. Fleet Supply, 747 N.E.2d at 653 (citing 50 IAC 2.2-4-10(a)(9)(E)). To properly identify a misimprovement, Fine Art needed to submit probative evidence sufficient to show that: (1) its parcel did not have the same use as surrounding parcels and (2) the inconsistent usage negatively impacted the subject parcel's value. See Quality Farm and Fleet, Inc. v. State Bd. of Tax Comm'rs, 747 N.E.2d 88, 91-92 (Ind. Tax Ct. 2001); Fleet Supply, 747 N.E.2d at 653.
The only evidence Fine Art submitted to support its negative influence factor claim was testimony that the State Board needed to give recognition to the fact that Fine Art's property did not have the same use as surrounding parcels. The State Board's regulations, however, "do not require an automatic downward adjustment in a parcel's value simply because it is used differently than surrounding parcels." Quality Farm and Fleet, 747 N.E.2d at 92 (emphasis in original). Fine Art's evidence focuses exclusively on the identification of differing land uses and ignores the need to identify a decrease in value. Because Fine Art did not submit evidence to show how any alleged inconsistent usage decreased the value of its property, it failed to make a prima facie case that it was entitled to a negative influence factor. See Quality Farm and Fleet, 747 N.E.2d at 92; Fleet Supply, 747 N.E.2d at 653.
C. Acreage
Finally, Fine Art argues that the State Board erroneously failed to review its challenge to its acreage as part of its land value issue. Again, Fine Art is incorrect. At the administrative hearing, Fine Art argued that it had been assessed with an excessive amount of acreage. To support its argument, Fine Art introduced into evidence a survey of its property and stated that it had only 6.144 acres of land but had been assessed as having eight acres of land.
Although the State Board's final determination stated that it was not going to consider the acreage issue because it was not specified on the 131 Petition, it did apparently correct the amount of acreage and assessed Fine Art for six acres. See footnote Thus, Fine Art cannot complain that the State Board did not properly review its challenge to its acreage.
Because the State Board properly reviewed and determined Fine Art's challenges to its land value issue, including its base rate, influence factor, and acreage. Thus, this Court AFFIRMS the State Board's final determination as to Issue II.
CONCLUSION
    For the aforementioned reasons, the Court REMANDS Issue I to the Indiana Board for further proceedings consistent with this opinion. The Court AFFIRMS the State Board's final determination on Issue II.

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) 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); 2001 Ind. Acts 198 §§ 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); 2001 Ind. Acts 198 § 95. Moreover, 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: Fine Art also argues that its assessment should be voided because portions of Indiana's regulations for taxing tangible property have been declared unconstitutional. Indeed, in 1998, the Indiana Supreme Court affirmed this Court's determination that "the existing cost schedules . . . violate the Property Taxation Clause of the Indiana Constitution." State Bd. of Tax Comm'rs v. Town of St. John, 702 N.E.2d 1034, 1043 (Ind. 1998). That same year, however, this Court declared 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., Inc. v. State Bd. of Tax Comm'rs, 704 N.E.2d 1113, 1121 (Ind. Tax Ct. 1998), review denied; 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"). The Court, therefore, will not analyze Fine Art's constitutional claim in this opinion.

Footnote: All cases that would have previously 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. Final determinations made by the Indiana Board are subject to review by this Court pursuant to Indiana Code § 6-1.1-15. Ind. Code §§ 6-1.5-5-7; 33-3-5-2 (West Supp. 2002).
Footnote: On remand, Fine Art has the burden to produce probative evidence quantifying the amount of obsolescence to which its improvement is entitled. See Freudenberg-NOK Gen. P'ship v. State Bd. of Tax Comm'rs, 715 N.E.2d 1026, 1031 (Ind. Tax Ct. 1999), review denied. Thus, Fine Art will be required to tie its evidence of quantification of obsolescence to any actual loss of value suffered by the improvement. See Heart City Chrysler v. State Bd. of Tax Comm'rs, 714 N.E.2d 329, 334 (Ind. Tax Ct. 1999) (stating that attempts to quantify obsolescence must correlate to the causes of obsolescence). Thereafter, the State Board is to deal with that evidence in a meaningful manner and, if necessary, to support its decision with substantial evidence. See Freudenberg-NOK, 715 N.E.2d at 1031.
Footnote: A land order is a set of land values used to assess real property. Eastgate P'ship v. Dep't of Local Gov't Fin., 780 N.E.2d 435, 438 (Ind. Tax Ct. 2002). These land values are expressed as ranges of base rates that are applied to various geographic areas delineated within the land order. Id.
Footnote: If Fine Art seeks the application of an influence factor based on one of the types specified in the regulations, see Ind. Admin. Code tit. 50, r. 2.2-4-10(a)(9), it should specifically identify that type at the administrative level and on appeal. See Clark v. Dep't of Local Gov't Fin., 779 N.E.2d 1277, 1283 (Ind. Tax Ct. 2002) (requiring specificity in a taxpayer's argument.)

Footnote: Originally, Fine Art was given a 10% negative influence factor to account for the shape and size of its land. See Ind. Admin. Code tit. 50, r. 2.2-4-10(a)(9)(D). During the administrative hearing, the Township Assessor stated that if Fine Art indeed had only six acres as alleged, he would correct it but would remove the 10% negative influence factor because land less than seven acres was not entitled to a negative influence factor for shape and size. Although the property record card does not list the exact amount of acreage assessed, it does reflect that the 10% influence factor had been removed. Thus, it is reasonable to infer that Fine Art's acreage amount had been corrected to reflect six acres.