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 
JASPER WOOD PRODUCTS, INC.,        )

            )
    Petitioner,                )
            )    
    v.        ) Cause No. 49T10-0011-TA-120
            )
DEPARTMENT OF LOCAL        )
GOVERNMENT FINANCE, See footnote         )         
            )
    Respondent.            )    


ON APPEAL FROM A FINAL DETERMINATION OF
THE STATE BOARD OF TAX COMMISSIONERS



NOT FOR PUBLICATION
October 22, 2004


FISHER, J.
    Jasper Wood Products, Inc. (Jasper Wood) appeals the final determination of the State Board of Tax Commissioners (State Board) valuing its real property for the 1999 tax year. The issues before this Court are:
Whether Jasper Wood’s heating system has been valued twice; and

Whether Jasper Wood’s improvements are entitled to additional obsolescence depreciation. See footnote

FACTS AND PROCEDURAL HISTORY

    Jasper Wood owns land and improvements in Dubois County, Indiana. For the 1999 tax year, local assessing officials assigned Jasper Wood’s two light manufacturing buildings 10% obsolescence depreciation adjustments. For two specific sections of the buildings, assessing officials assigned “special feature” pricing to Jasper Wood’s boilers.
Jasper Wood appealed the assessment to the Dubois County Board of Review (BOR), claiming that additional obsolescence should be granted and that the cost for the building’s heating system should be removed from the base rate.See footnote The BOR upheld the assessment and, on September 7, 1999, Jasper Wood filed a Petition for Review of Assessment (Form 131) with the State Board.See footnote A hearing was held on Jasper Wood’s petition on February 17, 2000. On September 26, 2000, the State Board issued its final determination in which it applied 10% and 15% obsolescence to the two buildings and refused to remove the heating cost from the base rate. The State Board subsequently issued an amended final determination on November 2, 2000. In the amended final determination, the State Board again declined to adjust the base rate; however, it held that the boilers should not be assessed separately as special features and that the assessment should be adjusted accordingly. The State Board’s holding on the obsolescence issue remained unchanged.
    Jasper Wood filed an original tax appeal with this Court on November 13, 2000. The Court conducted a trial on March 23, 2001. The Court heard the parties’ oral arguments on September 24, 2001. Additional facts will be supplied as necessary.
ANALYSIS AND OPINION

Standard of Review

    This Court gives great deference to 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. The taxpayer bears the burden of showing that the final determination is invalid. Id.
Discussion
I. Heating System

Citing to the State Board’s first final determination, Jasper Wood contends that it has been subjected to double taxation because its boilers were assessed first through the GCI models and again when the boilers were assigned a “special feature” cost. (See Pet’r Br. at 3-4.) The State Board notes, however, that its amended final determination provided that the boilers were not to be assessed separately as special features and the assessment was ordered to be adjusted accordingly. (See Resp’t Br. at 5; Cert. Admin. R. at 108.)
    The record indicates that this adjustment was not made. See footnote Accordingly, the Court REMANDS this issue to the Indiana Board with instructions to deduct the cost of the boilers as a special feature.
II. 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. See also Ind. Admin. Code tit. 50, r. 2.2-10-7(e) (1996). Functional obsolescence is caused by factors internal to the property and is evidenced by conditions within the property itself. See 50 IAC 2.2-10-7(e). Economic obsolescence is caused by factors external to the property. Id.
    To establish obsolescence, the taxpayer must first identify the causes of obsolescence and then quantify the amount of obsolescence. See Clark v. State Bd. of Tax Comm’rs, 694 N.E.2d 1230, 1241 (Ind. Tax Ct. 1998). It is important to recognize, however, that each of these prongs requires a connection to an actual loss in property value. See id. at 1238. For example, when identifying factors that cause obsolescence, a taxpayer must show through the use of probative evidence that those causes of obsolescence are causing an actual loss of value to its property. See footnote See Miller Structures, Inc. v. State Bd. of Tax Comm’rs, 748 N.E.2d 943, 954 (Ind. Tax Ct. 2001) (footnote added). Likewise, when a taxpayer quantifies the amount of obsolescence to which it believes it is entitled, it is required to convert that actual loss of value (shown in the first prong) into a percentage reduction and apply it against the improvement’s overall value. See Clark, 694 N.E.2d at 1238.
    At the administrative hearing, Jasper Wood claimed that it was entitled to a 60% obsolescence depreciation adjustment. To support that claim, Jasper Wood presented an “Assessment Review and Analysis” (Analysis). (Cert. Admin. R. at 117-55.) The Analysis was prepared by Jasper Wood’s property tax consultant, M. Drew Miller (Miller) of Landmark Appraisals, Inc. The Analysis states:
[t]he subject property was originally constructed in 1924 with an estimated 70,000 SF brick and block wood framed two story structure with several additions over the years. The most recent addition being a steel framed block structure built in 1977. This add-on type of construction has created numerous bottle necks and inefficiencies with added production and material handling costs, due to multiple floors, limited floor load capacity, narrow doorways, areas of low clear ceiling heights, narrow bay spacing and excessive interior walls.

The subject lacks adequate lighting, insulation and thermal pane windows [ which] increases heating costs.

Ingress and egress of vehicles is inadequate. Access to the plant is limited to only one side due to the extreme slope of the land. The subject was originally constructed with use of rail service which no longer exists.

The subject is mostly constructed of brick and block with wood framing materials. In today’s market this is considered to be a superadequacy as well as an obsolete design, as a modern building [] with better utility could be constructed with a less expensive light pre-engineered metal building.

(Cert. Admin. R. at 133.) The Analysis also contains the following: photos of the subject property; a map showing the layout of the subject property; the property’s record cards; calculations for obsolescence and a description of the methods used; a list of the causes of obsolescence; life expectancy and depreciation tables; an excerpt from an article titled “Identifying, Measuring, and Treating Functional Obsolescence”; and property record cards and photographs from another property owned by Jasper Wood. (See Cert. Admin. R. at 117-55.)
    Although the only issue in this case is the quantification of obsolescence, See footnote Jasper Wood was necessarily required to explain its causes of obsolescence in order to translate its improvement’s loss in value (due to the causes) into a quantifiable amount of obsolescence depreciation. See Heart City Chrysler v. Dep’t of Local Gov’t Fin., 801 N.E.2d 215, 218 (Ind. Tax Ct. 2004). In other words, Jasper Wood was required to link the causes of its obsolescence to an actual loss in its property’s value. See Miller Structures, 748 N.E.2d at 953. Here, Jasper Wood did not present any evidence of an actual loss. For example, Jasper Wood states that the property “lacks adequate lighting, insulation and thermal pane windows.” (Cert. Admin. R. at 133.) However, it does not submit probative evidence showing how these deficiencies are causing an actual decrease in income-generating ability. Instead, Jasper Wood, via Miller, has merely stated that these deficiencies have caused increased heating costs. (Cert. Admin. R. at 133.) No evidence was provided to substantiate the increase in heating costs.
    Because Jasper Wood failed to link the factors causing obsolescence with an actual loss in its property’s value, it could not quantify the amount of obsolescence to which it was entitled. Thus, the Court AFFIRMS the State Board’s final determination with respect to obsolescence depreciation.


CONCLUSION

    For the foregoing reasons, the Court AFFIRMS the State Board’s final determination with respect to the obsolescence issue. The Court, however, REMANDS the heating issue to the Indiana Board for further proceedings consistent with this opinion.


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 Annotated § 6-1.1-30-1.1 (West Supp. 2004)(eff. 1-1-02); 2001 Ind. Acts 198 § 66, and the Indiana Board of Tax Review (Indiana Board). Ind. Code Ann. § 6-1.5-1-3 (West Supp. 2004)(eff. 1-1-02); 2001 Ind. Acts 198 § 95. Pursuant to Indiana Code Annotated § 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 Ann. § 6-1.5-5-8 (West Supp. 2004)(eff. 1-1-02); 2001 Ind. Acts 198 § 95. Nevertheless, the law in effect prior to January 1, 2002 applies to these appeals. A.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: Jasper Wood also 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 Jasper Wood’s claims and supporting arguments are identical to those previously rejected by the Court, the Court will not address them.
Footnote: The sections of the buildings where the boilers are located were assessed from the General Commercial Industrial (GCI) Light Manufacturing and Light Utility Models which presume “[g]as fired, forced air” heating and “[g]as space heaters with fan,” respectively. Ind. Admin. Code tit. 50, r. 2.2-11-2(4) and (25) (1996). Jasper Wood argues that assessing its boiler heating system under these models and as special features resulted in double taxation.
Footnote: In its appeal to the State Board, Jasper Wood also raised issues relating to grade, sprinkler pricing, and condition rating. The sprinkler pricing and condition rating issues were withdrawn, however, at the administrative hearing. (Cert. Admin. R. at 108.) The grade issue was not addressed at oral argument nor in the briefs submitted to this Court. Consequently, the Court considers the issue waived for review on this appeal.
Footnote: The value of each of the boilers was listed as $33,500 on the property record cards issued with the State Board’s first final determination. (Cert. Admin. R. at 48, 52.) However, there is no calculation or detail provided for the boilers on the property record cards issued with the State Board’s amended final determination. (Cert. Admin. R. at 81-87.) Those property record cards only reflect a downward adjustment of $3,330 in total assessed value. (Cert. Admin. R. at 41, 82.) This adjustment does not account for the total cost of the boilers and both parties noted this mistake during oral argument before this Court. ( See Oral Argument Tr. at 4-5, 11.)
Footnote: In the commercial context, loss of value usually means a decrease in the property’s income generating ability. See Miller Structures, Inc. v. State Bd. of Tax Comm’rs, 748 N.E.2d 943, 953 (Ind. Tax Ct. 2001).
Footnote: Because the local assessing officials awarded Jasper Wood an initial obsolescence adjustment of 10%, the parties essentially agree that obsolescence is present in Jasper Wood’s improvements. Accordingly, the issue is not identification of the causes of obsolescence, but rather the quantification of obsolescence. See Phelps Dodge v. State Bd. of Tax Comm’rs, 705 N.E.2d 1099, 1102 (Ind. Tax Ct. 1999), review denied (stating that “the fact that the parties agree on the causes of obsolescence obviates [the taxpayer’s] burden of offering probative evidence showing that the subject improvements experience obsolescence”).