Robert and Doris E. Kesler Trust 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
    
     JOEL SCHIFF
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN
    
_____________________________________________________________________
 
    IN THE INDIANA TAX COURT _____________________________________________________________________

ROBERT and DORIS E. KESLER TRUST, ) ) Petitioner, ) ) v. ) Cause No. 49T10-9806-TA-64 ) DEPARTMENT OF LOCAL ) GOVERNMENT FINANCE, See footnote         )
            )
    Respondent.                )
                )    
______________________________________________________________________________
 
ON APPEAL FROM A FINAL DETERMINATION
OF THE STATE BOARD OF TAX COMMISSIONERS
______________________________________________________________________________

NOT FOR PUBLICATION
May 19, 2003
FISHER, J.
 
    The Petitioner, Robert and Doris Kesler Trust, 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, 1996. The Court restates the issues as:
Whether the State Board exceeded its legislative authority in conducting a hearing without having issued a letter of appointment or a prescription of duties to its hearing officer;

Whether the State Board properly refused to apply a negative influence factor to the Petitioner's property;

Whether the State Board properly refused to apply the General Commercial Kit (GCK) pricing schedule to Petitioner's improvements, or in the alternative, whether the State Board properly applied a D-1 grade to the Petitioner's improvements. See footnote

    For the reasons stated below, the Court AFFIRMS the State Board's final determination.
 
FACTS AND PROCEDURAL HISTORY
    Petitioner owns land and improvements in Kosciusko County, Indiana. Petitioner's property is used as a van conversion operation and consists of fifteen buildings. During the 1996 assessment, some of Petitioner's improvements were assessed using the General Commercial Industrial (GCI) schedule and were given a grade of C.
    Petitioner appealed its assessment to the State Board, arguing, among other things, that its land should receive a 95% negative influence factor for a misimprovement and that some of its improvements should be priced from the GCK schedule, or in the alternative, should be assigned a grade of D-2. The State Board held a hearing and issued its final determination June 5, 1998. The State Board found that neither a negative influence factor nor a change in the pricing schedule was warranted, but it did change the grade of Petitioner's buildings to a D-1.
    On June 19, 1998, Petitioner filed an original tax appeal. This Court conducted a trial and heard oral arguments. 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.
Discussion
I. Hearing Officer's Appointment
    The first issue is whether the State Board exceeded its legislative authority in conducting a hearing without having issued a letter of appointment or a prescription of duties to its hearing officer. Petitioner contends that the State Board conducted no lawful administrative hearing in this matter because the State Board never issued a written order of appointment or any written prescription of duties to its hearing officer, Mr. Steven C. Schultz, pursuant to Indiana Code §§ 4-22-5-1 and 6-1.1-30-11.
    There is no evidence in the record that Petitioner objected to the authority of Schultz to hear its appeal. Petitioner's silence constituted its acceptance of Schultz's authority to conduct a hearing. See Quality Farm and Fleet, Inc. v. State Bd. of Tax Comm'rs, 747 N.E.2d 88, 91 (Ind. Tax Ct. 2001); Kemp v. State Bd. of Tax Comm'rs, 726 N.E.2d 395, 399 (Ind. Tax Ct. 2000). Thus, Petitioner has waived the issue and may not now raise it for the first time in its original tax appeal. See Quality Farm and Fleet, 747 N.E.2d at 91; Kemp, 726 N.E.2d at 399.
II. Negative Influence Factor
The next issue is whether the State Board properly determined that Petitioner was not entitled to a negative influence factor. Petitioner argues that its land should receive a 95% negative influence factor for a "misimprovement" because its industrial land was surrounded by agricultural land. Petitioner is incorrect.
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). 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 v. State Bd. of Tax Comm'rs, 705 N.E.2d 1099, 1106 (Ind. Tax Ct. 1999), review denied.
The State Board's regulations list seven factors that may be the basis for an influence factor adjustment. See Ind. Admin. Code tit. 50, r. 2.2-4-10(a)(9)(A)-(G). Petitioner claims that one of these, the "misimprovement" factor, applies to its land. 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. See Fleet Supply, 747 N.E.2d at 653 (citing 50 IAC 2.2-4-10(a)(9)(E)). To properly identify a misimprovement, Petitioner 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, 747 N.E.2d at 91-92; Fleet Supply, 747 N.E.2d at 653.
    To support its negative influence factor claim, Petitioner merely argues that the State Board's regulations "require" or "mandate" the application of the misimprovement influence factor because its property did not have the same use as surrounding parcels. (Pet'r Post-Hrg. Br. at 8; Oral Argument Tr. at 16.) 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). Petitioner focuses exclusively on the identification of differing land uses and ignores the need to identify a decrease in value. Because Petitioner 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 id.; Fleet Supply, 747 N.E.2d at 653. Accordingly, this Court AFFIRMS the State Board's final determination on this issue.
III. GCK / Grade
    The last issue is whether the State Board properly refused to apply the GCK pricing schedule to Petitioner's improvements, or in the alternative, whether the State Board properly applied a D-1 grade to those improvements. The Court will review both of Petitioner's arguments in turn.
A. GCK
    Petitioner contends that the State Board erred in valuing some of its improvements See footnote under the GCI cost schedule, as opposed to the GCK cost schedule. Petitioner is incorrect.
The State Board's regulations 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 A.4) (1996). The pricing for kit buildings under the GCK schedule is reflective of the economical quality and low cost of materials used in constructing these structures. Miller Structures, 748 N.E.2d at 949. It is important to note, however, that a building does not qualify for pricing as a kit building under the GCK cost schedule merely because it is a pre-engineered building. See footnote See Damon Corp. v. State Bd. of Tax Comm'rs, 738 N.E.2d 1102, 1111 (Ind. Tax Ct. 2000).
In an attempt to meet its prima facie burden of showing that its improvements should be priced from the GCK cost schedule, Petitioner's tax representative, Stephen M. Hay of Landmark Appraisals, Inc., testified that Petitioner's improvements should be priced from the GCK schedule merely because they were pre-engineered steel buildings. (Trial Tr. at 13.) Petitioner also submitted several uncaptioned photographs: two aerial photographs of its buildings and some photographs of the exterior of a few of its buildings. In addition, Petitioner submitted a photocopy of a page from the State Board's regulations that shows a graded photograph of a kit building.
    None of this evidence, however, is probative of why the buildings should be priced as kit buildings under the GCK cost schedule. Hay's testimony that the buildings should be priced from the GCK schedule is nothing more than a conclusion. Conclusory statements do not qualify as probative evidence. Whitley Prods., 704 N.E.2d at 1119. Furthermore, neither Petitioner's uncaptioned photographs nor Hay's testimony explains how the photographs tend to prove that the buildings qualify as kit-type buildings under the GCK schedule. See Quality Farm and Fleet, 747 N.E.2d at 93. Finally, the copy of the photograph of a kit building from the State Board's regulations does nothing to help Petitioner meet its burden. The State Board's rules, standing alone, constitute unsupported allegations and do not qualify as probative evidence. See Herb v. State Bd. of Tax Comm'rs, 656 N.E.2d 890, 893 (Ind. Tax Ct. 1995) (stating that "[a]llegations, unsupported by factual evidence, remain mere allegations."). Thus, Petitioner has failed to make a prima facie case that its buildings should be priced under the GCK cost schedule. See footnote
B. Grade
    In the alternative, Petitioner contends that the State Board improperly applied a D-1 grade to the Petitioner's improvements. Specifically, Petitioner claims that it should have received a D-2 grade. Again, Petitioner is incorrect.
    Under Indiana's true tax value system, improvements are assigned various grades based on a building's design and the quality of its materials and workmanship. See Ind. Admin. Code tit. 50, rr. 2.2-1-30, 2.2-10-3 (1996). See also Miller Structures, 748 N.E.2d at 952. The grades, which range from A to E, represent multipliers that are applied to the base rate of an improvement. See footnote See 50 IAC 2.2-10-3; Miller Structures, 748 N.E.2d at 952. 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. The D grade is assigned when a building is "constructed with economy materials and fair workmanship." 50 IAC 2.2-10-3(a)(4). D grade buildings "are devoid of architectural treatment and have a substandard quality interior finish with minimal built-in features, substandard quality electrical and plumbing fixtures, and a substandard quality heating system." Id.
    Intermediate grade levels may be assigned to a building to indicate that the building's grade falls between the major grade classifications. 50 IAC 2.2-10-3(c). A plus or minus two (+/- 2) indicates that the grade falls halfway between the assigned grade classification and the grade immediately above or below it. 50 IAC 2.2-10-3(c)(1). A 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." 50 IAC 2.2-10-3(c)(2).
The burden was on Petitioner to submit probative evidence showing that the State Board either improperly gave its buildings a D-1 grade or improperly denied its buildings a D-2 grade. See footnote See Deer Creek Developers, Ltd. v. Dep't of Local Gov't Fin., 769 N.E.2d 259, 265-66 (Ind. Tax Ct. 2002). In examining the evidence presented, the Court determines that Petitioner has not met its burden of presenting a prima facie case on grade. At trial, Hay testified that the buildings should receive a D-2 grade because they deviated from the GCI model used to assess them. Indeed, the State Board agreed that there was a deviation from the model and lowered Petitioner's grade to a D-1 from the C grade that the County had given it. Nevertheless, at trial and in its post-hearing brief, Petitioner argues that it should receive a D-2 grade because the State Board erroneously graded its buildings with a C grade. (Pet'r Post-Hrg Br. at 9; Trial Tr. at 15-16.) Hay's testimony is nothing more than an conclusion that the grade should be D-2 and does not constitute probative evidence. See Whitley Prods., 704 N.E.2d at 1119. Petitioner failed to provide any explanation whatsoever as to why a D-2 grade is more appropriate than the D-1 grade the State Board gave it. Thus, Petitioner has not shown that it is entitled to a grade reduction. See Quality Farm and Fleet, 747 N.E.2d at 94.
Petitioner has not provided probative evidence to support its contentions that the State Board erroneously applied the GCI pricing schedule or erroneously applied a D-1 grade to Petitioner's improvements. Thus, it has failed to make a prima facie case. Accordingly, this Court AFFIRMS the State Board's final determination on this issue.
CONCLUSION
    For the aforementioned reasons, the Court AFFIRMS the State Board's final determination in this matter.

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: Petitioner originally raised two additional issues before the State Board. First, Petitioner raised an issue regarding obsolescence. Upon motion by the State Board, the Court remanded the issue for further proceedings. Thus, the Court need not review Petitioner's obsolescence issue in this opinion.
Petitioner also argued that its assessment should be voided because portions of Indiana's regulations for taxing tangible property have been declared unconstitutional. However, the fact that the subject property was assessed under an unconstitutional regulation does not mean the assessment will be invalidated on that basis. Whitley Prods., Inc. v. State Bd. of Tax Comm'rs, 704 N.E.2d 1113, 1121 (Ind. Tax Ct. 1998) (citations omitted), review denied. "Real property must still be assessed, and, until the new regulations are in place, must be assessed under the present system." Id. 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 Petitioner's constitutional claim in this opinion.

Footnote: Petitioner has not specified which of its buildings it contends should be assessed under the GCK cost schedule.

Footnote: The GCK cost schedule provides minimal detail in describing the essential characteristics of a kit building that may be classified under it. See Ind. Admin. Code tit. 50, r. 2.2-11-6 (Schedule A.4) (1996). Before the State Board amended its regulations to include a GCK cost schedule, certain light, pre-engineered or kit buildings were given a 50% reduction from the existing cost schedules to account for the inexpensive construction. See Ind. Admin. Code tit. 50, r. 2.1-4-5 (Schedules A.1 & A.2) (1992). Thereafter, the State Board issued Instructional Bulletins 91-8 and 92-1 to provide guidance to assessors in determining which light, pre-engineered buildings qualified for the reduction. See Componx, Inc. v. State Bd. of Tax Comm'rs, 741 N.E.2d 442, 444-45 (Ind. Tax Ct. 2000). For example, these bulletins provide that the key elements used in identifying a kit building are, simply, the types of interior column and roof beam support used in the building, which include cold form cee channel supports, tapered columns, H-columns, and steel pole or post columns. Id. at 447. Although these bulletins have been superseded by the GCK cost schedule, they still offer guidance in determining whether a building may be assessed as a kit building under the GCK schedule.
Footnote: Petitioner contends that it met its prima facie burden of showing that its improvements should be priced from the GCK cost schedule because the hearing officer agreed that Petitioner's buildings were light, pre-engineered buildings. While this may be probative evidence, alone it is insufficient to establish a prima facie case that the buildings should be assessed as kit buildings. See Quality Farm and Fleet, Inc. v. State Bd. of Tax Comm'rs, 747 N.E.2d 88, 93 (Ind. Tax Ct. 2001). Furthermore, a building does not qualify for pricing as a kit building under the GCK cost schedule merely because it is a pre-engineered building. See Damon Corp. v. State Bd. of Tax Comm'rs, 738 N.E.2d 1102, 1111 (Ind. Tax Ct. 2000).
 
Footnote: The C grade is assigned a multiplier of 100% (i.e., 100% of the reproduction cost as determined under the State Board's regulations). See Ind. Admin. Code tit. 50, r. 2.2-10-3(b)(3); King Indus. Corp. v. State Bd. of Tax Comm'rs, 699 N.E.2d 338, 340 n.7 (Ind. Tax Ct. 1998). The remaining multipliers are 160% for an A grade, 120% for a B grade, 80% for a D grade, and 40% for an E grade. 50 IAC 2.2-10-3(b).
 
Footnote: Note, however, that a taxpayer who presents a grade issue to the Indiana Board of Tax Review after December 17, 2002, will be required to submit probative evidence of " what his grade should have been" in order to meet his prima facie burden. See Clark v. Dep't of Local Gov't Fin., 779 N.E.2d 1277, 1282 (Ind. Tax Ct. 2002) (emphasis in original).