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Spencer County Assessor v. AK Steel Corp.

Tax Court of Indiana

October 5, 2016





          FISHER, Senior Judge

         Indiana Code § 6-1.1-3-23 provides integrated steel mills with the option of using "Pool 5" to value their personal property for purposes of taxation. The statute defines an "integrated steel mill" as "a person . . . that produces steel by processing iron ore and other raw materials in a blast furnace in Indiana[.]" See Ind. Code § 6-1.1-3-23(a)(3) (2008) (amended 2011). On appeal, the parties have asked the Court to examine whether the "in Indiana" language contained in that definition is constitutional. The Court finds that AK Steel has not shown a constitutional infirmity.



         Carbon steel is produced at either an integrated steel mill or a "minimill." (See, e.g., Cert. Admin. R. at 481-84.) At an integrated mill: (1) coal is purified into a high-carbon fuel called coke; (2) the coke is then combined with iron ore and limestone in a blast furnace to produce pig iron; (3) the molten pig iron is combined with some steel scrap in a basic oxygen furnace to produce liquid steel; (4) the liquid steel is then cast into slabs; and (5) the slabs are processed, or "finished, " into a variety of end products.[1](See Cert. Admin. R. at 378-80, 383-90, 1009, 2024-2028.) At a minimill, however, liquid steel is made by melting scrap steel or scrap substitutes in an electric arc furnace. (See Cert. Admin. R. at 1009, 2029.) The liquid steel produced at a minimill is then cast into slabs that are finished into a variety of end products, just like the liquid steel produced at an integrated mill. (See Cert. Admin. R. at 2029.)

         While integrated steel mills produce a higher quality carbon steel than minimills, they are no longer the more prevalent carbon steel producers. (See Cert. Admin. R. at 481, 1009.) Indeed, during the 1970's, 90% of all carbon steel was produced at integrated steel mills; now, however, only 40% of carbon steel is produced at integrated steel mills. (Cert. Admin. R. at 481.) That change in production resulted from the fact that the older technology utilized at an integrated steel mill (i.e., the blast furnace process) took "more steps (i.e., coke batteries, blast furnaces), [was] more capital intensive, and traditionally require[d] more man-hours per ton" than the newer technology used to produce carbon steel at minimills (i.e., the electric arc furnace process). (Cert. Admin. R. at 2029.)

         AK STEEL

         AK Steel, headquartered in West Chester, Ohio, produces carbon steel. (Cert. Admin. R. at 377, 629.) AK Steel produces its steel at multiple facilities located throughout the Midwest. For instance, it has two blast furnace facilities, one in Middletown, Ohio and the other in Ashland, Kentucky. (Cert. Admin. R. at 378.) AK Steel also has a finishing facility in Rockport, Indiana (Grass Township, Spencer County), known as "Rockport Works." (Cert. Admin. R. at 632.)

         Rockport Works opened in 1998. (Cert. Admin. R. at 1359 ¶ 44.) AK Steel constructed and equipped Rockport Works, at a cost of nearly $1.1 billion, because it no longer could finish all of its carbon steel, post hot-rolling, at its blast furnace facility in Middletown, Ohio. (See Cert. Admin. R. at 390-99, 1356 ¶ 17.) Consequently, AK Steel designed Rockport Works to receive, by rail, coils of its hot-rolled steel from the Middletown facility for final finishing. (Compare generally supra note 1 with Cert. Admin. R. at 392-98 and 1356-58 ¶¶ 21-31.) AK Steel received a significant property tax abatement/incentive package from Spencer County for locating Rockport Works in Rockport. (See Cert. Admin. R. at 1356 ¶ 16, 2845-49 (indicating that AK Steel's package was worth over $100, 000, 000 over a ten year period).)


         The Legislation

         In 2003, the Legislature enacted Indiana Code § 6-1.1-3-23. See P.L. 120-2003, § 1 (2003). That statute provided that:

1) beginning with the March 1, 2003 assessment, an integrated steel mill could elect to value its "special equipment, "[2] for purposes of Indiana's personal property tax, in accordance with a particular valuation table designated as "Pool 5";
2) an integrated steel mill was "a person that produces steel by processing iron ore and other raw materials in a blast furnace"; and
3) if an integrated steel mill elected to use Pool 5, it agreed to not seek additional abnormal obsolescence adjustments on its personal property.

See generally P.L. 120-2003, § 1 (2003). AK Steel reported the 2004 value of its personal property located at Rockport Works using Pool 5. (See Cert. Admin. R. at 255 ¶ 69 (finding that AK Steel did so because it produced steel "by processing iron ore and other raw materials in a blast furnace").)

         In 2005, the Legislature amended its statutory definition of "integrated steel mill" twice. Those two amendments, which were given retroactive effect to January 1, 2004, altered the definition of an integrated steel mill to read "a person, including a subsidiary of a corporation, that produces steel by processing iron ore and other raw materials in a blast furnace in Indiana[.]" See P.L. 228-2005, § 2 (2005); P.L. 246-2005, § 59 (2005). Even though it did not have any blast furnaces in Indiana, AK Steel continued to report the value of its personal property at Rockport Works using Pool 5. (See, e.g., Cert. Admin. R. at 257-58 ¶ 83 (indicating that AK Steel had initiated personal property tax appeals prior to 2008, the year at issue in this case).)

         In 2008, the Legislature enacted a comprehensive non-code provision[3] that stated:

In enacting [Indiana Code §] 6-1.1-3-23, the general assembly finds the following:
(1) The economy of northern Indiana has historically been heavily dependent upon:
(A) the domestic steel industry, particularly the integrated steel mill business, which produces steel from basic raw materials through blast furnace and related operations . . .
(2) Northern Indiana is the only area of Indiana with integrated steelmaking facilities.
(3) During the last thirty (30) years the domestic steel industry has experienced significant financial difficulties. More than one-half (½) of the integrated steel mills in the United States were shut down or deintegrated, with the remainder requiring significant investment and the addition of new processes to make the facilities economically competitive with newer foreign and domestic steelmaking facilities and processes.
(5) Given the economic conditions affecting older integrated steelmaking facilities, integrated steel mills claimed abnormal obsolescence in reporting the assessed value of equipment located at the integrated steelmaking facilities that began operations before 1970, thereby reporting the equipment's assessed value at far below thirty percent (30%) of the equipment's total cost (far below the "thirty percent (30%) floor" value generally applicable to equipment exhibiting only normal obsolescence under the current department of local government finance rules).
(6) Current law existing before [January 1, 2003, ] obligates the taxpayers making abnormal obsolescence claims to pay personal property taxes based only on, and permits communities to determine property tax budgets and rates based only on, the reported personal property assessed values until the personal property appeals are resolved. Consequently, as a result of abnormal obsolescence claims, the property tax base of communities in northern Indiana is severely reduced for an indeterminate period (if not permanently). The prospect of future appeals and their attendant problems on an ongoing basis must be addressed.
(7) A new, optional method for valuing the equipment of integrated steel mills and entities that are at least fifty percent (50%) owned by an affiliate of an integrated steel mill ("related entities") . . . in northern Indiana is needed. That optional method:
(A) recognizes the loss of value and difficulty in valuing equipment at integrated steelmaking facilities . . . that commenced operations decades ago and at the facilities of related entities;
(B) recognizes that depreciable personal property used in integrated steelmaking . . . and by related entities is affected by different economic and market forces than depreciable personal property used in other industries and certain other segments of the steel industry and therefore experiences different amounts of obsolescence and depreciation; and
(C) can be used to simply and efficiently arrive at a value commensurate with that property's age, use, obsolescence, and market circumstances instead of the current method and its potentially contentious and lengthy appeals. Such an optional method would ...

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