Cаnal Square Limited Partnership (Canal Square) appeals the final determination of the State Board of Tax Commissioners (State Board) assessing its property as of the March 1, 1992 assessment date. Canal Square presents two issues to the Court in its original tax appeal:
I. Whether the State Board rebutted Canal Square’s prima facie case establishing the proper amount of obsolescence to be considered in valuing its property.
II. Whether the State Board must value Petitioner’s land pursuant to that part of the Marion County Land Valuation Order that establishes values for apartment land.
Facts and Procedural History
Canal Square is an Indiana partnershiр with its principal place of business in Carmel, Indiana. Canal Square owns a parcel of land located in Center Township, Marion County, Indiana. The parcel is improved with an apartment complex known as the Canal Square Apartments (the Apartments). The Apartments are situated on land bounded by Vermont Street to the North, by New York Street to the South, the Indianapolis canal to the East, and West Street to the West.
On March 1, 1991, the Apartments were assessed as new construction. Canal Square filed a Form 134 Petition for Real Estate Reassessment 1 with the State Board on March 25, 1992, requesting a reassessment as of March 1, 1992 (the Assessment Date). This petition was granted, and the Center Township Assessor issued a notice reassessing the property at $46,470 for the land and $4,639,530 for the improvements, resulting in a total assessed value of $4,686,000. On November 4, 1992, Canal Square filed a Form 130 Petition for Review of Assessment with the Marion County Board of Review (BOR). The BOR issued its assessment determination on June 25, 1993. This determination corrected the valuation of the plumbing and fixed the assessed value of the Apartments as of the assessment date at $46,470 for the land, and $4,587,530 for the improvements, resulting in a total assessed value of $4,634,-000. Canal Square appealed the BOR’s determination to the State Board on July 21, 1993, in a Form 131 Petition for Review of Assessment.
. On February 28, 1996, a hearing was held by Ernest Clark, the State Board’s Hearing Officer, concerning Canal Square’s appeal of *803 the assessment of the Apartments. On March 12, 1996, a supplemental hearing and walk-through of the Apartments was conducted by the State Board’s Hearing Officer. The State Board issued its Final Assessment Determination on July 3, 1996, fixing the total assessed value of Canal Square’s property at $3,786,830 as of the Assessment Date ($464,630 assessed value for the land and $3,322,200 assessed value for the improvements). , .
At the administrative hearing, Canal Square introduced the testimony of an expert witness, Thomas J. Kaliker, an appraiser certified as a Member of the Appraisal Institute (MAI). Mr. Kaliker testified that the definitions of functional and economic obsolescence in the State Board’s regulations (the Assessment Manual) are identical to the definitions of functional and economic obsolescence used by appraisers in arriving at market value. The State Board’s Hearing Officer testified in agreement with this proposition and acknowledged that the source of the definition of obsolescence in the Assessment Manual is a book published by the American Institute of Real Estate Appraisers. (Stipulation Exhibit 3, p. 9; Kaliker Testimony, Tr. at 31; Clark Testimony, Tr. at 48).
At the hearing, Canal Square introduced an appraisal study prepared by Mr. Kaliker that quantified the functional and economic obsolescence applicable to the property using recognized appraisal principles. (Stipulation Exhibit 3, p. 6; Kaliker Testimony, Tr. at 21-23, 30.). Mr. Kaliker identified several sources of obsolescence including the excessively narrow floor plan of certain rental units, an electrical substation on site, and the superadequate construction required by the City of Indianapolis. 2 (Stipulation Exhibit 2-C, p. VI-50 through VI-52 — Exhibit 3, p. 8-10; Kaliker Testimony, Tr. at 25-31). Mr. Kaliker concluded that the functional and economic obsolescence affecting the Apartments equаled 34.35% of the estimated replacement cost of the property (after physical depreciation). (Stipulation Exhibit 2-C, p. VI-52; Kaliker Testimony, Tr. at 23, 30).
In contrast, the State Board did not prepare any calculations or studies quantifying the amount of obsolescence affecting the Apartments. (Clark Testimony, Tr. at 45-46). Nor did the State board provide any written finding in the administrative record that Canal Square’s quantification of the obsolescence at 34.35% was incorrect. Instead, the State Board allowed an obsolescence adjustment of 10%. At trial, the only evidence identified by the State Board in support of the 10% figure was the opinion of its Hearing Officer. (Stipulation Exhibit 3; Clark Testimony, Tr. at 45-46).
The valuation of Canal Square’s land was not an issue raised by either Canal Square or the State Board at the administrative hearing or at the supplemental hearing and walkthrough of the Apartments. (Stipulation, para. 11 and Exhibit 3). The State Board’s Final Assessment Determination issued July 3, 1996, however, increased the value of the Canal Square land from $1 per square foot to $10 per square foot — a value in excess of the Apartment Land Schedule on page 2 of the Marion County Land Valuation Order. (Stipulation Exhibits 3 and 4). In instances other than the valuation of the Canal Square land, the Center Township Assessor has vаlued land improved with apartments using the Apartment Land Schedule on page 2 of the Marion County Land Valuation Order. (Stipulation Exhibits 6, 7 and 8). In addition, the Assessors of Pike, Warren, and Washington Townships in Marion County have valued land improved with apartments using the Apartment Land Schedule on page 2 of the Marion County Land Valuation Order. (Stipulation Exhibits 11-12, 14, and 16-17).
See Indianapolis Historic Partners v. State Bd. of Tax Comm’rs,
This case was tried before the Court on July 21,1997, with the filing of a First Stipulation of Facts (the Stipulation) and the presentation of testimony of Thomas J. Kaliker and Ernest Clark. At trial, the Court admitted the Stipulation, Petitioner’s Exhibits 1 through 5, and Respondent’s Exhibit A (Tr. *804 at 12,14). The Court also admitted Exhibits 6 through 17 rеgarding the land valuation issue. (TV. at 14).
Standard of Review
The State Board is charged with the responsibility of interpreting the property tax laws and ensuring that property assessments are made in the manner prescribed by law.
See Zakutansky v. State Bd. of Tax Comm’rs,
Discussion and Analysis
I. Canal Square’s Prima Facie Case of Obsolescence
Taxpayer’s Prima Facie Case Will Prevail If the State Board Fails To Rеbut It
This Court’s decisions have articulated the standards that apply in evaluating a taxpayer’s claim that its property tax values are negatively affected by obsolescence.
In
Thorntown Telephone Co. v. State Board of Tax Commissioners,
Given that the taxpayer had established its prima facie case in
Thomtown II
the Court stated that “it was incumbent upon the State Board to rebut the [taxpayer’s] evidence.”
Id.
at 965. The Court found that the State Board had failed to do so. Instead, the State Board refused to consider the studies based on the unsupported assertion that “they resulted in “wide-spread and unexplained differences’ ” and the fact that they were prepared by the taxpayer.
Id.
The Court dismissed both bases for the State Board’s refusal to consider the taxpayer’s studies, stating that “unsupported conclusions or findings are insufficient to contradict a prima facie case.”
Id.
As the Court stated, “[t]he complexity involved ... makes it imperative that the State Board supply authoritative explanation and evidence” to support its quantification of obsolescence.
show how or why its method of depreciation accounts for economic obsolescence, the court must find that the State Board has not presented evidence sufficient to rebut the [taxpayer’s] prima facie case and that its ... assessment of the [taxpayer’s] property is unsupported by substantial evidence.
Id.; see also Clark,
In
GTE N. Inc. v. State Bd. of Tax Comm’rs,
In
Western Select Properties v. State Bd. of Tax Comm’rs,
These decisions establish that when a taxpayer presents a prima facie сase of the existence of obsolescence and introduces evidence quantifying its effect on the property’s value, the State Board cannot simply ignore such evidence. Instead, ‘"when a taxpayer offers probative evidence, that evidence must be dealt with in some meaningful manner.”
Clark,
Canal Square’s Prima Facie Case
At the administrative hearing, Canal Square presented the testimony of Thomas J. Kaliker, an MAI-certified appraiser, together with an appraisal he had prepared valuing the Canal Square Apartments as of March 1, 1992. (Stipulation Exhibit 2-C). The appraisal was prepared using recognized appraisal principles and utilized the three recognized approaches for valuing property— the income capitalization approach, the comparable sales approach, and the сost approach. (Stipulation Exhibit 2, p. 4). Mr. Kaliker arrived at an estimate of the fair market value of the property of $10,500,000 under the income capitalization approach, $10,800,000 under the comparable sales approach, and $10,600,000 under the cost approach. 3 Mr. Kaliker reconciled the three approaches to value in arriving at a final estimate of market value of $10,600,000. 4
In applying the cost approach, “the appraiser estimates the cost to construct a reproduction of or replacement for, the existing structure and then deducts all accrued depreciation in the property being appraised from the cost new of the reproduction or replacement structure.” Am. Inst, of Real Estate *806 Appraisers, The Appraisal of Real Estate, 321 (10th ed. 1992). Depreciation is the loss of value from all sources, including physical depreciation and functional and external obsolescence. Id. at 343.
For purposes of this case, the most important part of Mr. Kaliker’s appraisal is the application of the cost approach because it explicitly requires the appraiser to estimate obsolescence. The State Board’s regulations also require the recognition of obsolescence and ties its definition of obsolescence directly to that applied by professional appraisers under the cost approach:
The estimation of depreciation is an essential element in the Cost Approach. An estimate must be predicated upon a comprehensive understanding of the nature, components, and theory of depreciation, as well as practical concepts for estimating its extent in improvements being valued.
The American Institute of Real Estate Appraisers defines depreciation as: an effect caused by deterioration and/or obsolescence. Physical Depreciation is evidenced by wear and tear, decay, dry rot, cracks, encrustations, or structural defects. Obsolescence Depreciation is composed of functional and economic loss of value. Functional Obsolescence may be due to a poor floor plan, mechanical inadequacy or superadequacy, functional inadequacy or superadequacy due to size, style, age, or other losses. It is evidenced by conditions within the property. Economic obsolescence is caused by factors external to the propеrty, such as inharmonious property uses.
Ind.Admin.Code tit. 50, r. 2.1-5-1. Mr. Ka-liker and the State Board’s Hearing Officer agreed that the Assessment Manual’s definition of obsolescence is identical to that contained in the appraisal profession’s textbook. (Kaliker Testimony, Tr. at 31; Clark Testimony, Tr. at 48). Therefore, Mr. Kaliker’s estimate of obsolescence in his appraisal is directly applicable in arriving at a proper allowance for obsolescence under the Assessment Manual.
In his appraisal, Mr. Kaliker identified several sources of functional and external obsolescence affecting the Canal Square Apartments, including a nаrrow floor plan, 5 excessive construction features required to meet the City of Indianapolis’ Canal Corridor Design Guidelines, 6 and the presence of an electrical power substation on the property site. 7 Consistent with the cost approach, Mr. Kaliker quantified the effect of such sources of obsolescence as representing a loss of value in the property compared to its estimated replacement cost (after deduction for physical obsolescence). Mr. Kaliker computed the amount of such obsolescence to be $4,900,000, or 34.35% of the replacement cost of the building (after physical depreciation). (Stipulation Exhibit 2-C, p. VI-52; Kaliker Testimony Tr. 30). To quantify obsolescence under the cost approach, Mr. Kaliker correlated the cost approach with the figures derived under the income capitalization method and the comparable sales method. Because he relied on the latter two most heavily in arriving at the market value estimate, 8 he concluded that the difference between the replacement cost of the property after physical depreciation and the value of the property as determined by the income capitalization method and the comparable sales method was necessarily attributable to obsolescence. That figure was $4,900,000 or 34.35%. (Kaliker Testimony, Tr. at 30-31, 33-35). Because the definition of obsolescence under the Assessment Manual is identical to that promulgated by the appraisal profession, it is appropriate to apply a *807 34.35% obsolescence factor to the equivalent replacement cost less depreciation derived for the Canal Square Apartments under the Assessment Manual. (Kaliker Testimony, Tr. 31-2).
Mr. Kaliker testified that this method of quantifying obsolescence in this case was consistent with recognized appraisal principles and that he knew of no better method of quantifying it in this case. (Kaliker Testimony, Tr. at 30-31). Except for an issue about certain measurements used by Mr. Kaliker in developing his replacement cost figure, 9 the State Board’s Hearing Officer did not disagree with the method used by Mr. Kaliker to quantify obsolescence. (Clark Testimony, Tr. at 38, 42, 45). This Court has also recognized the validity of Mr. Kaliker’s methodology for estimating obsolescence:
Economic obsolescence ... is ... difficult to quantify. One technique is to compare the replacement cost new, less physical deterioration, with the value of the property estimated under the income apрroach [that values property based on income capitalization], If the latter amount is lower, the difference may represent economic obsolescence —
Thorntown I,
Thus, by introducing an appraisal that quantified obsolescence in accordance with generally recognized appraisal principles, Canal Square established (at minimum) a prima facie case of the level of obsolescence affecting its property. Unless the State Board introduced evidence at the hearing that rebutted this prima facie case, the State Board could not properly refuse to accept its conclusions.
Cf. Borchers v. Commissioner,
The State Board’s Failure To Rebut Canal Square’s Prima Facie Case
At the administrative hearing, the State Board did not provide any evidence or explanation to support its subsequent determination that 10% is the appropriate amount of obsolescence depreciation to apply to the Apartments. Its Final Assessment Determination does not even mention Mr. Kaliker’s appraisal study, let alone attempt to rebut it. (Stipulation Exhibit 4 — Clark Testimony, Tr. 41). Thus, the State Board made no findings questioning Mr. Kaliker’s testimony, his appraisal, or his quantification of the obsolescence affecting the Apartments. The lack of findings is not surprising given that there was no evidence in the record that rebutted the evidence provided by Mr. Kaliker.
The State Board also did not provide any calculations or rationale to support its application . of a 10% obsolescence depreciation deduction. (Clark Testimony, Tr. at 46). In fact, the State Board’s determination with regard to obsolescence does not even mention the amount it allowed. One must examine thе attached property record card to discover what the amount of obsolescence was determined to be. Because the State Board failed to make any showing or present any evidence supporting its determination of obsolescence depreciation, it has not rebutted Canal Square’s prima facie case. As this Court has held in the
Thomtown
cases and
GTE North,
it will not uphold a decision of the State Board rejecting the taxpayer’s evidence of obsolescence when the State Board fails to make any findings that the taxpayer’s evidence is inaccurate or unreliable.
Thorntown II,
In addition, the testimony presented by the State Board at trial supplied no additional support for the State Board’s decision to allow 10% obsolescence rather than 34.35% as determined by Canal Square’s appraiser. *808 The State Board’s obsolescence figure of 10% was based solely on the subjective judgment of the Hearing Officer with no cogent explanation of his reasoning. The Hearing Officer testified at trial:
Q. But there was no actual calculation or measurement made?
A. No.
Q. To come up with 10 percent?
A. No.
Q. If you didn’t do a calculation, how do you know if your obsolescence shouldn’t have been 20 percent or 30 percent?
A. That was my opinion.
Q. And what did you base your opinion on?
A. Twenty-three years of experience.
(Clark Testimony, Tr. at 46).
This Court has previously held that an unsupported subjective opinion of a hearing officer cannot rebut a taxpayer’s prima facie case of obsolescence. In Western Select, the Court held that substantially identical testimony of a hearing officer could not support a determination to award 75% obsolescence to a building rather than 95%:
Q. Okay. Well, can you tell me how you can get more obsolete than being totally vacant and defunct?
A. That’s hard to answer.
Q. Sounds like 100 percent; doesn’t it.
A. No, it doesn’t provide for 100 percent. The regulation provides for five percent to 95 percent.
Q. Right. It’s closer than 95 — to 95 than 75 when it’s totally vacant and defunct; isn’t it?
A. It may be. As I stated earlier, it’s subjective.
Q. You don’t really have any basis for saying it’s 75 versus 95; right?
A. No.
The State Board cannot disregard such a prima facie case and adopt some different obsolescence figure based on the unsupported subjective opinion of its Hearing Officer.
See Clark,
Post Hoc Rationalization
At trial, the State Board’s Hearing Officer asserted that Canal Square’s appraisal study contained an error because it relied on a square foot amount and unit count for the Apartments with which he disagreed. (Clark Testimony, Tr. 42-43). This question about Mr. Kaliker’s appraisal study was not raised in the administrative proceedings below, nor was it referred to in the written findings in the Final Assеssment Determination. For this reason, it will not be considered by this Court.
It has long been established in Indiana that the scope of review of the trial court in a case involving the State Board is limited to a consideration of whether there is substantial evidence to support the findings and order of the State Board and whether the State Board’s action constitutes an abuse of discretion, or is arbitrary or capricious.
*809
State Bd. of Tax Comm’rs v. Gatling Gun Club, Inc.,
Under this limited scope of review, the Court has refused to consider additional reasons supporting a State Board determination that are raised before it for the first time.
Scheid v. State Bd. of Tax Comm’rs,
Post Hoc Failure
The basis of the State Board’s post hoc gripe about the Canal Square appraisal study is that, in applying the cost approach, the appraiser used an allegedly incorrect square footage figure and unit count. The State Board’s Hearing Officer asserted that Mr. Kaliker may have relied on the Cоunty Board of Review’s square foot figure, which the Hearing Officer believed to be too small. However, the hearing officer could not recall what the difference in area was. (Clark Testimony, Tr. at 42-43). He also stated that there were “approximately” eight additional apartment units considered in the County Board’s assessment compared to his count of units. Mr. Kaliker’s appraisal identified the Apartments as consisting of 275 units. (Stipulation Exhibit 2-C, p. V-27). The property record cards attached to the State Board’s Final Assessment Determination also reflect 275 units. (Stipulation Exhibit 4 — 133 + 27 + 115 = 275). This observation undermines the claim that there is any real difference in Mr. Kalikеr’s and the Hearing Officer’s measurements.
Even if this Court were to consider these post hoc rationalizations the State Board has also failed to show that, if there were any differences in the measurements used by Mr. Kaliker and the Hearing Officer, it would have made any material difference in Mr. Kaliker’s calculations under the cost approach. 12 Mr. Kaliker estimated the replacement cost of the apartments in reliance on three sources of data — the Marshall Valuation Service, the actual historical costs of construction, and a cost figure derived from a comparable property. (Stipulation Exhibit 2-C, аt p. VI-47 and VI-48). Thus, even if the State Board had established that the square foot figure' used by the appraiser was erroneous — which it has not — there is no basis in the record to conclude that its overall estimate of replacement cost would have changed materially.
*810
In any event, the Hearing Officer never shared his estimate of the building measurements with Canal Square or its representatives either, during or after the hearing. (Clark Testimony, Tr. 44-46). Thus, no opportunity existed to compare or reconcile the building measurements used by the parties, and the vague and unquantified (and seemingly incorrect) allegation that there may have been such differеnces in no way rebuts or undermines Mr. Kaliker’s appraisal conclusions. This type of controversy underscores precisely why the State Board’s reasons for its decisions need to be in writing.
See Stokely-Van Camp,
II. Canal Square’s Land Valuation under the Marion County Land Order
Other than making a general reference to the Marion County Land Valuation Order, the State Boаrd has not explained in its Final Assessment Determination (Stipulation Exhibit 4) or at trial the basis for the $10 per square foot figure it assigned to Canal Square’s land. It has done so, however, in another case.
See Indianapolis Historic Partners v. State Bd. of Tax Comm’rs,
Conclusion
For the reasons stated above, the State Board’s final determination is REVERSED and this case is REMANDED to the State Board for the purpose of granting Canal Square an obsolescence depreciation deduction consistent with this opinion. The State Board is also instructed to assign the Canal Square land an acreage value from the Marion County Land Valuation Order in a manner consistent with the Indianapolis Historic Partners opinion.
Notes
. The Form 134 method of review was repealed effective January 1, 1994.
See Bender v. State Bd. of Tax Comm'rs,
. These sources are noted in the State Board's regulations. See Ind.Admin.Code tit. 50, r. 2.1-5-1 (1992) (recodified in present form at id. r. 2.2-10-7(e) (1996)) and discussion infra.
. Stipulation Exhibit 2-C, p. VII-1.
. Stipulation Exhibit 2-C, p. VII-2.
. Stipulation Exhibit 2, p. 9; Exhibit 2-C, pp. VI-50; Exhibit 3, pp. 10; Kaliker Testimony, Tr. at 25-26.
. Stipulation Exhibit 2, pр. 10-11; Exhibit 2-C. pp. VI-50; Exhibit 3, pp. 8; Kaliker Testimony, Tr. at 24-25.
. Stipulation Exhibit 2, pp. 11-12; Exhibit 2-C, pp. Ill — 12 and VI-51; Exhibit 3, pp. 9-10; Ka-liker Testimony, Tr. at 26-27.
.While True Tax Value is not market value, economic obsolescence obviously incorporates market value concepts. Therefore, a market value estimate is appropriate in the context of obsolescence. There is really no choice in this matter: the Court (and taxpayers) must either accept quantifications based on "experience” thereby making them unreviewable, or we must use market concepts.
. See discussion infra.
, See also The Appraisal of Real Estate at 360, which explains in more detail the theory underlying this mеthod for quantifying obsolescence.
. Section 33-3-5-14 provides:
With respect to determinations as to whether any issues or evidence may be heard in an original tax appeal that was not heard in the administrative hearing or proceeding, the tax court is governed by the law that applied before the creation of the tax court to appeals to trial courts of final determinations made by the department of state revenue and the state board of tax commissioners.
. It should be noted that the cost approach is being used in this matter only for the determination of obsolescence, not for the determination of the property’s value.