J. R. Simplot Co. v. Department of Revenue , 1993 Ore. Tax LEXIS 13 ( 1993 )

This matter is before the court on plaintiff's Motion for Reconsideration. The court allowed oral and written arguments by the parties and amici curiae.

Plaintiff and amici curiae contend the court erred in holding that ORS 308.411(2) results in an elected value which is or may be different from true cash value. They believe the value intended by the legislature and directed by the statute is true cash value.⁶ They argue that the court must look at all of ORS308.411 and consider it in context. The court finds that such an examination does not change its opinion.

DETERMINING TRUE CASH VALUE

The legislative directive to value an industrial plant at its true cash value is found in ORS 308.411(1).⁷ That subsection states:

"Except as provided in subsections (2) to (9) of this section, an industrial plant shall be valued for ad valorem tax purposes under ORS 308.205, 308.232 and 308.235 at its true cash value utilizing the market data approach (sales of comparable properties), the cost approach (reproduction or replacement cost of the plant) or the income approach (capitalization of income) or by two or more approaches." (Emphasis added.)

The exception clause implies that if the election is made and subsections (2) through (9) are applicable, the assessed value of the property may not be true cash value. The statutes referred to, ORS 308.205, 308.232 and 308.235, are all directed at true cash value. If the election is made, the value will not be established in accordance with those statutes.

1. ORS 308.411(2) raises a fundamental problem. True cash value or market value⁸ is the value at which property would change hands in the marketplace between knowledgeable parties. An appraiser's use of the three approaches to value is merely an attempt, in an organized and somewhat scientific way, to estimate that value. Since the marketplace does take into consideration the income approach and any detectable functional or economic obsolescence, excluding consideration of such matters cannot result in an estimate of market value. An appraiser who followed subsection (2) and yet claimed the result represented true cash value would be in gross violation of established professional standards.

REEXAMINATION OF ORS 308.411

2. At plaintiff's urging, the court has reexamined ORS 308.411. That examination does not show the legislature intended or believed the election would result in true cash value. This conclusion is based upon the language used by the legislature in the various subsections. Subsection (3)

In subsection (3), the plant owner gives notice of election "to have the plant valued in accordance with subsection (2)." It does not provide that the owner elects to have the plant valued at its true cash value. Rather, the election is to have the plant valued by methods which do not result in true cash value.

Subsection (4)

In subsection (4), if the plant owner does not make the election, the owner must give the department information "needed to determine true cash value." This language recognizes that without certain information the department will be unable to determine true cash value. If the owner is able to withhold essential information, the legislature must have recognized that the result would not be true cash value.

Subsection (5)

Subsection (5) prohibits the electing owner from introducing evidence relating to the use of the income approach or the allowance of functional or economic obsolescence. This prevents the owner from introducing evidence which would establish true cash value.

Subsection (6)

In subsection (6), if an owner is dissatisfied with the election, the owner can request the department to "revalue the plant for the next assessment year using the appraisal methods set forth in subsection (1)." Since subsection (1) specifies that the goal is true cash value using all three approaches, the implication is that the elected value under subsection (2) is something else.

Subsection (7)

Subsection (7) allows the plant owner to request a conference with the department or assessor after a physical reappraisal of the plant or an appraisal is updated for use in a subsequent year. This subsection does refer to the "determination of true cash value," but it is not limited or directed to electing owners. Any industrial plant owner may request a conference. Therefore, the subsection indicates nothing about the legislature's intent with regard to the elected value. Subsection (8)

Subsection (8) permits an electing plant owner to withhold income and expense information from use in an income approach or for determination of functional or economic obsolescence. This subsection seems to assume that obsolescence is calculated or based on income and expense information. While it may be read to imply that obsolescence not based on the withheld information may be considered, that inference runs counter to the express language of subsection (2). The thrust of this subsection is not to set forth why the income approach and obsolescence can or cannot be considered, but to define the scope of the protection enjoyed by the plant owner.

Subsection (9)

3. Subsection (9) specifies that "[i]n no event shall the application of subsection (2) of this section operate to value an industrial plant below its true cash value for ad valorem tax purposes under ORS 308.205, 308.232 and 308.235." Again, this seems to be a recognition by the legislature that the values established under ORS 308.205, 308.232 and 308.235 are different from the value arrived at under subsection (2). This language also suggests that true cash value is the lowest possible value, not the highest. Subsection (9) further provides that the election:

"[S]hall constitute an irrevocable waiver of any subsequent claim that the failure of the assessor or the department to consider the income approach or functional or economic obsolescence resulted in a valuation in excess of the true cash value of the plant under ORS 308.205, 308.232 and 308.235." ORS 308.411(9) (emphasis added).

This is an express recognition and a warning to owners that the election could result in an assessed value which exceeds true cash value.

4. To summarize: In the absence of an election, the assessor or the department is to use all three approaches to find true cash value. Where the owner makes the election, only two approaches can be used and neither functional nor economic obsolescence can be considered. With these elected constraints, the only rational conclusion consistent with appraisal theory is that the elected value is something other than true cash value. An industrial plant without any functional or economic obsolescence would be extremely rare. Consequently, it would be extremely rare that an elected value would ever be the same as true cash value.

LEGISLATIVE HISTORY

Amici curiae argue that the legislative history shows the intent was only to protect confidential information. They conclude that the court should interpret the statute to exclude only express or specific calculations of functional or economic obsolescence. They interpret the statute so that implied or general estimates of obsolescence which are not based on confidential information can be taken into consideration. The court cannot accept this position.

5. If the legislature intended to distinguish between obsolescence based on confidential information and obsolescence based on other information, it did not express that intent in the statute. For the court to make that distinction, it would have to add words to the statute, something the legislature expressly prohibits. ORS 174.010. The court has examined the legislative history of ORS 308.411 and found nothing to indicate an intent to distinguish obsolescence based on the methods by which it is measured.

COURT RULINGS

Plaintiff acknowledges that the legislature did not delve into the details of appraising. The court, however, must delve into the details when deciding cases. If appraisers estimate items of obsolescence, whether in general terms or incorporated into other concepts, the court must take such matters into consideration in determining which estimates are most accurate. Leaving out details in estimates of obsolescence or related factors does not somehow remove the elements of obsolescence. For example, an appraiser who folds functional obsolescence into the appraisal by estimating the useful life of equipment does not remove functional obsolescence from consideration. The appraiser merely makes it more difficult for the court to consider it. See Publishers Paper Co. v. Dept. of Rev., 270 Or. 737,748-49, 530 P.2d 88 (1974).

Plaintiff argues that the court's ruling in this case essentially overrules Johnson v. Dept. of Rev., 10 OTR 218 (1985). Plaintiff contends that Johnson was a correct interpretation of the statute and that the present decision goes too far. However, Johnson focused on ORS 308.411(5) and what evidence was to be excluded. Based on the court's experience and analysis since Johnson, it now reluctantly⁹ concludes that to the extent that Johnson is inconsistent with the opinion herein and this order, it is overruled.

It is worth emphasizing that the statute not only applies to appraisers, but also forbids the court from taking functional and economic obsolescence into consideration. If appraisers use estimates of useful life in a cost approach or estimates of functional obsolescence in a sales comparison approach, the court must take those factors into consideration to resolve the differences between the appraisers' opinions. This is clearly prohibited by the statute. The statute specifies that the value will be set without taking functional or economic obsolescence into consideration.

Based on the above, the court finds that plaintiff's Motion for Reconsideration should be denied. Now therefore,

IT IS ORDERED that plaintiffs' Motion for Reconsideration is denied.

⁶ Due to the adoption of Article XI, section 11b, of the Oregon Constitution, ORS 308.411 was amended in 1991 to specify real market value.

⁷ Unless otherwise noted, all references to Oregon Revised Statutes and Oregon Administrative Rules are to the 1983 Replacement Part.

⁸ OAR 150-308-205-A1.a. defines market value as follows:

"Market Value as a basis for true cash value shall be taken to mean the highest price in terms of money which a property will bring if exposed for sale in the open market, allowing a period of time typical for the particular type of property involved and under conditions where both parties to the transaction are under no undue compulsion to sell or buy and are able, willing and reasonably well-informed."

⁹ Plaintiff points out that many plant owners relied on Johnson to their detriment. If now overruled, it will be to their great disadvantage. The court regrets this, but as plaintiff acknowledges, that point must be a minor consideration in interpreting the statute.