Opinion
Cause No. 39T10-9610-TA-00127.
October 21, 1998.
On Appeal from the State Board of Tax Commissioners.
Robert P. Hamilton, Lorch Naville, New Albany, IN, Attorney for Petitioner.
Jeffrey A. Modisett, Attorney General of Indiana, Vincent S. Mirkov, Deputy Attorney General, Indianapolis, IN, Attorneys for Respondent.
New Albany Mall, Inc. (New Albany) appeals from a final determination of the State Board of Tax Commissioners (State Board) that resulted in no change being made to New Albany's property tax assessment. New Albany claims that it is entitled to additional obsolescence depreciation above the 50% granted by the Floyd County assessor.
FACTS AND PROCEDURAL HISTORY
New Albany owns a strip mall located in New Albany, Indiana. In 1992, New Albany appealed is property tax assessment to the Floyd County Board of Review (BOR). New Albany claimed that it should be awarded additional obsolescence above the 50% awarded by the Floyd County assessor. New Albany based this claim on the fact that the mall was not economically sound and that a "high income tenant" had vacated the premises. The BOR determined that New Albany was not entitled to any additional obsolescence. Thereafter, on September 29, 1992, New Albany filed a Form 131 Petition for Review of Assessment with the State Board. Again, New Albany claimed that it was entitled to additional obsolescence depreciation.
The State Board held a hearing on the petition on July 15, 1994. Hearing Officer Dennis Stroud subsequently made a recommendation to the State Board that no additional obsolescence be granted to New Albany. On August 16, 1996, the State Board issued a final determination adopting the recommendation of Mr. Stroud, refusing to grant additional obsolescence to New Albany. On October 1, 1996, New Albany filed an original tax appeal in this Court. A trial was held on April 16, 1998. Additional facts will be supplied as necessary.
ANALYSIS AND OPINION Standard of Review
This Court gives the final determinations of the State Board great deference when it acts within the scope of its authority. Garcia v. State Bd. of Tax Comm'rs, 694 N.E.2d 794, 795-96 (Ind. Tax Ct. 1998). 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. at 796.
Discussion
New Albany claims that it is entitled to an increase in the amount of obsolescence depreciation applied to its buildings. Obsolescence depreciation is defined as a functional and economic loss of value. Ind. Admin. Code tit. 50, r. 2.1-5-1 (1992) (codified in present form at id. r. 2.2-10-7(e) (1996)). There are two varieties of obsolescence, functional and economic. New Albany claims that its property suffers from economic obsolescence. Economic obsolescence is caused by factors external to the property. Id. The regulations state that an "[a]ccurate determination of Obsolescence Depreciation will require the assessor to recognize the symptoms of obsolescence and exercise sound judgment in equating his observation of the property to the correct deduction in value from Reproduction Cost New." Id.
In the present case New Albany identified some causes of possible economic obsolescence. New Albany pointed to the fact that one of its largest tenants had vacated its portion of the mall. Moreover, New Albany provided financial statements to the State Board detailing the finances of the mall, which tended to show that the mall was not a profitable business. This evidence, claims New Albany, shows that a greater amount of obsolescence depreciation should be applied.
The State Board did not rebut this evidence. Nor did the State Board provide a reason for its decision to apply 50% obsolescence. Instead, the State Board merely asserted that 50% was "more than adequate." (Resp't Ex. A at 24). In light of the evidence presented to the State Board by New Albany, the State Board should provide some reason for the application of 50% obsolescence. However, there is no evidence in the record to support the State Board's final determination of 50% obsolescence other than the unsupported and unexplained word of the hearing officer. See Clark v. State Bd. of Tax Comm'rs, 694 N.E.2d 1230, 1240-41 (Ind.Tax Ct. 1998) (quoting Bailey Seed Farms v. State Bd. of Tax Comm'rs, 542 N.E.2d 1389, 1391 (Ind.Tax Ct. 1989)). Therefore, the State Board's final determination cannot stand.
CONCLUSION AND INSTRUCTIONS ON REMAND
Recently, this Court discussed the issue of the quantification of obsolescence. In Clark, this Court held that the State Board must provide some factual predicate for its decision to apply a particular amount of obsolescence. Id. at 1241. Moreover, this Court held that it would no longer consider taxpayer complaints regarding obsolescence unless the taxpayer identifies the causes of obsolescence and presents probative evidence to support a quantification of obsolescence at the administrative level. Id. These requirements serve to foster an efficient and equitable resolution to a dispute over obsolescence. Therefore, these are the standards that must be met by both parties on remand in this case.
For the foregoing reasons, this cause is remanded to the State Board for further consideration consistent with this opinion and with the admonitions and instructions given in Clark regarding the identification and quantification of obsolescence.