Tube Processing Corporation 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
    
     JOEL SCHIFF
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN
_____________________________________________________________________

    IN THE INDIANA TAX COURT _____________________________________________________________________

TUBE PROCESSING CORP., ) ) Petitioner, ) ) v. ) Cause No. 49T10-0002-TA-25 ) DEPARTMENT OF LOCAL ) GOVERNMENT FINANCE, See footnote         )
                )
    Respondent.            )    
_____________________________________________________________________
 
ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS
 
NOT FOR PUBLICATION
SEPTEMBER 9, 2003

FISHER, J.
    Tube Processing Corp. (Tube) appeals the State Board of Tax Commissioners' (State Board) final determination valuing its real property for the 1995 tax year. The issues See footnote for the Court to decide are: 1) whether the State Board erred when it refused to increase the amount of obsolescence depreciation assigned to Tube's improvements; and, 2) whether the State Board erred when it refused to reduce the grade of one of those improvements from "C" to "D." For the following reasons, the Court AFFIRMS the State Board's final determination on both issues.
FACTS AND PROCEDURAL HISTORY
    Tube owns two commercial improvements in Marion County, Indiana. For the 1995 assessment year, the local assessing officials assigned Tube's improvements 25% and 20% obsolescence depreciation adjustments, respectively. Furthermore, the local assessing officials determined that one of the improvements should be graded a "C." Tube appealed this assessment to the Marion County Board of Review (BOR) arguing that additional obsolescence was warranted for both improvements; the BOR denied Tube's appeal. Tube then appealed the BOR's decision to the State Board arguing again that both improvements were entitled to increased obsolescence depreciation and that the "C" graded improvement should have been graded "D." After a hearing on March 4, 1999, the State Board issued a final determination denying Tube's requests.
    On February 4, 2001, Tube initiated an original tax appeal. The parties stipulated to the record and, on February 21, 2001, this Court heard the parties' 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). 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.
    Furthermore, a taxpayer who appeals to this Court from a State Board final determination bears the burden of showing that the final determination was invalid. Id. To do so, the taxpayer must present a prima facie case by submitting probative evidence, i.e., evidence sufficient to establish a given fact that, if not contradicted, will remain sufficient. Id. 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. Id.
Discussion
Issue #1: Obsolescence
    Tube contends that the State Board erred in refusing to award additional obsolescence depreciation to its improvements. See footnote Obsolescence is the functional or economic loss of property value; it is expressed as a percentage reduction in the remaining value of the subject improvement. Clark v. State Bd. of Tax Comm'rs, 742 N.E.2d 46, 51 (Ind. Tax. Ct. 2001). Functional obsolescence is caused by internal factors; economic obsolescence is caused by external factors. See Ind. Admin. Code tit. 50, r. 2.2-10-7(e),(f) (1996). The determination of obsolescence involves (1) identification of causes of obsolescence and (2) quantification of the amount of obsolescence to be applied. See Clark, 742 N.E.2d at 51 (citations omitted). Thus, the nexus between the causes of obsolescence and the effects of such obsolescence must be examined in tandem when determining the percentage of obsolescence depreciation to be applied to a specific improvement.
    In this case, the State Board awarded obsolescence depreciation allowances for both improvements; therefore, the existence of obsolescence itself is not at issue. See Heart City Chrysler v. State Bd. of Tax Comm'rs, 714 N.E.2d 329, 333 n.13 (Ind. Tax. Ct. 1999). Consequently, the burden was on Tube to present probative evidence quantifying the amount of additional obsolescence it requested. In an attempt to satisfy its burden, Tube presented an exhibit at the administrative hearing entitled "Assessment Review and Analysis" (Analysis) prepared by its tax representative, M. Drew Miller of Landmark Appraisals, Inc. (Miller). See (Stip. R. at 49 & 61.) See footnote
In the Analysis, Miller determined that the improvements were entitled to additional obsolescence depreciation ranging from 40% - 60% as ascertained by "deducting the physical depreciation that is already applied by the County from the total accrued depreciation that is calculated using the Economic Life Method." (Stip. R. at 53 & 64.) Attached to Miller's calculations are photocopied photographs of the buildings; a one-page description of the "Economic Age-Life Method" calculation formula; a chart titled "Depreciation - Commercial Properties" and, a chart titled "Life Expectancy Guidelines (Typical Building Lives)."
To meet its burden, Tube was required "to make a factual case at the State Board level in order . . . to get relief in this Court." See Hoogenboom-Nofziger v. State Bd. of Tax Comm'rs, 715 N.E.2d 1018, 1023 (Ind. Tax. Ct. 1999). The submission of generalized, non-specific evidence containing conclusory assertions without support, however, does not constitute probative evidence. See Whitley Prods., Inc. v. State Bd. of Tax Comm'rs, 704 N.E.2d 1113, 1119 (Ind. Tax. Ct. 1998) review denied. Tube failed to explain to the State Board or this Court how the information included in the Analysis report related to the request for increased obsolescence depreciation. Instead, it merely presented its conclusion that it was entitled to additional obsolescence without further explanation. Thus, Tube failed to make a prima facie case that it was entitled to increased obsolescence.
Issue #2: Grading
    Tube next contends that the State Board erred when it refused to reduce the grade of one of its improvements from a "C" to a "D." Grade is defined as "the classification of an improvement based on certain construction specifications and quality of materials and workmanship." Ind. Admin. Code tit. 50, r. 2.2-1-30 (1996). When determining grade, the assessor uses his judgment to distinguish significant variations in quality and design. Ind. Admin. Code tit. 50, r. 2.2-10-3(a) (1996). In this case, the assessor determined that Tube's improvement fit within the grade "C" category; "C" grade buildings are "moderately attractive and constructed with average quality materials and workmanship." Ind. Admin. Code tit. 50, r. 2.2-10-3(a)(3) (1996).
Tube again had the burden of establishing a prima facie case that the State Board's grade assignment was erroneous. See Whitley Prods., 704 N.E.2d at 1119. In an attempt to meet its burden, Miller's Analysis contained a page titled "Errors and Contentions" in which he states that the "subject is substantially inferior to the base model" for ten reasons. See footnote (Stip. R. at 51.) For instance, Miller asserts that "subject has single pane windows" and "subject lacks insulation." (Stip. R. at 51.) Such assertions, however, do not illustrate how the deficiencies relate to Tube's request for a decrease in grade from "C" to "D." These statements are merely conclusions, and do not constitute probative evidence concerning the grading of improvements. See Whitley Prods., 704 N.E.2d at 1119.
Tube failed to make a prima facie case that the State Board's grade of "C" was erroneous. Consequently, the State Board properly rejected Tube's request to change the grade assignment.
CONCLUSION
    For the aforementioned reasons, the Court AFFIRMS the State Board's final determination on both the issues of obsolescence and grade.

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, Tube 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 Tube's claims and supporting arguments are identical to those previously rejected by the Court, the Court will not address them.
Footnote: Tube uses the same argument to support its claim for additional obsolescence on both improvements; the Board reviewed the obsolescence claim on both parcels together and the Court will do so as well.
Footnote: Two individual analysis reports, one for each parcel, were prepared by Miller and submitted as exhibits during the hearing; essentially the reports were identical with respect to content, but for the differences in numerical calculations specific to each property. Consequently, the Court's references to the Analysis refer to both submissions.
Footnote: In only one of the ten reasons does Miller even attempt to show how its improvement differs from the model: "[t]he subject has approximately 740 [linear feet] of partitions, the model includes approximately 2,100 [linear feet]." (Stip. R. at 51.)