The Indiana Board of Tax Review must revisit its valuations of land owned by a northern Indiana manufacturer, the Indiana Tax Court has ruled.
The land at issue in Elkhart County Assessor v. E.R. Carpenter Company, Inc., 20T-TA-3, includes 43.25 acres in Elkhart.
The land, covering three parcels, is home to an 853,000-square-foot manufacturing facility for E.R. Carpenter Company, a cushion manufacturer, and a 6,400-square-foot truck service building. Carpenter challenged as too high the 2012, 2015 and 2016 assessed values for two of the three parcels of land, as well as the 2017 assessment for just one parcel.
In September 2018, the Indiana Board of Tax Review issued an appeal management plan limiting the administrative hearing on Carpenter’s appeals to only determining the values for the 2012 and 2016 tax years. According to the plan, the 2015 and 2017 values would be calculated using a pre-determined formula. The hearing was held in January 2019, during which it was determined that the three parcels should be valued as one economic unit that would be adjusted to remove Parcel 3, the one parcel not under appeal.
Under Carpenter’s cost approach valuation, the manufacturing facility was valued using the Marshall Valuation Service, or MVS, as opposed to the industrials/light manufacturing cost schedule. Carpenter’s assessor made that decision because under the manufacturing schedule, “the value of Carpenter’s manufacturing facility would have reflected built-in costs of 4% to 12% of finished office space even though it only actually contained 1% of finished office space.” Using that approach, the appealed parcels were valued at $12,480,000 for 2012 and $14,940,000 for 2016.
The Elkhart County assessor, however, used the manufacturing schedule in its cost approach valuation. The assessor’s valuation totaled $17,310,000 for all three parcels in 2012 and $16,550,000 for all three parcels in 2016. Parcel 3, which would be excluded, was valued at $241,800 for 2012 and $250,000 for 2016.
Ultimately, the board found the assessor’s valuations more credible, but deducted from the assessor’s total building costs “the costs attributable to the amount of office space included in the Manufacturing Schedule that exceeded the costs for Carpenter’s actual amount of office space … .” The board did not, however, make an additional adjustment for the values of Parcel 3.
Thus, applying the predetermined formula to the new 2016 estimate, the board concluded that the market value-in-use for the three parcels together could not exceed $16,153,610 for 2012; $14,966,585 for 2015; $15,047,747 for 2016; and $15,423,941 for 2017.
On appeal, the assessor challenged the board’s adjustment for excess office space. Indiana Tax Court Judge Martha Blood Wentworth agreed with the assessor’s argument, reversing the board’s final determination in a Tuesday opinion.
“… (T)he MVS evidence explains that when ‘[q]ualities  vary in buildings which are structurally similar, by reason of their interior finish[,] … [o]nly a thorough inspection by the appraiser or estimator of all items affecting quality, and the use of his experience or judgment, will give [the] correct [valuation] answers’ for identical buildings with differing interior finishes,” Wentworth wrote. “… Here, comparatively, the MVS evidence does not authorize any adjustment for atypical office space as it does for sprinklers and elevators, and the Indiana Board cannot make adjustment for different interior finishes because the record does not indicate that it inspected the property or that it has the necessary authority to appraise the property as the MVS directs.
“Furthermore, the Manufacturing Schedule includes costs for ‘[a]n average amount of office space commensurate with the quality of the building[,]’ typically between 4% and 12% of the total square footage,” the judge continued. “Coupled with the absence of an explicit excess office space adjustment, the Manufacturing Schedule’s incorporation of average costs as a range rather than as exact amounts reasonably indicates wide applicability, not a mandate that manufacturing buildings must contain a precise amount of finished office space.”
Additionally, the board chose the “8% midpoint” of that 4% to 12% range when making the excess office space adjustments without explaining why it chose 8%. What’s more, the judge wrote, “there is not even any evidence in the record that refers to, much less supports, any excess office space adjustment … . Accordingly, the Court holds that the Indiana Board’s excess office space adjustments were unsupported by substantial evidence and are arbitrary and capricious.”
Carpenter also appealed, claiming the board “failed to meaningfully deal with the evidence that demonstrated the combined cost approach valuations for Carpenter’s three parcels must be reduced by the value of Parcel 3, which was not appealed.” Wentworth again agreed, remanding the issue.
“As trier of fact, the Indiana Board is required to assign relevance and weight to the evidence before it,” she wrote. “… Accordingly, the Indiana Board may not simply refuse to consider probative evidence or the parties’ related arguments, as it has here, but must deal with both in some meaningful way.
“The Court will not invade the province of the Indiana Board as trier of fact, but instead remands the issue for the Indiana Board to weigh the evidence and argument that was before it regarding the amount and the impact of the value of Parcel 3 in determining the proper valuation of Carpenter’s two appealed parcels.”
After weighing that evidence, the board on remand must adjust the assessor’s 2012 and 2016 cost approach valuations accordingly and apply the pre-determined formula to the newly adjusted 2016 cost approach to determine the valuations for 2015 and 2017.