Mitchell v. Clatsop County Assessor ( 2024 )

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Property Tax
MARIA MITCHELL, )
)
Plaintiff, ) TC-MD 220366R
)
v. )
)
CLATSOP COUNTY ASSESSOR, )
)
Defendant. ) DECISION
Plaintiff appealed Defendant’s tax roll values for Property Tax Accounts 9862 and 9829
(subject properties) for the 2019-20, 2020-21 and 2021-22 tax years. A remote trial was held on
March 8, 2023. Steve Anderson appeared on behalf of Plaintiff. W. Paul Jackson (Jackson), an
MAI appraiser, testified on behalf of Plaintiff. Christopher Leader (Leader) and Steve Gibson,
Clatsop County appraisers, appeared on behalf of Defendant. Leader testified on behalf of
Defendant. Plaintiff’s Exhibit 1 and Defendant’s Exhibits A and B were received into evidence
without objection.
I. STATEMENT OF FACTS
Plaintiff’s appeal concerns two adjacent tax lots, Account 9829 (also referred to as tax lot
2100), a 1.12-acre lot improved by a 792-square foot garage built in 1940, and Account 9862
(also referred to as tax lot 4900), a 1.04-acre (45,302-square foot) lot with a 1,347-square foot
single-family dwelling built in 1914, located in Seaside, Oregon. The subject properties are
situated along an estuary where the Necanicum River and Neawanna Creek converge and flow
into the Pacific Ocean in the northern end of Seaside. A city plat map divides the subject
properties into a total of 13 potential lots, although lots 4 and 5 in Account 9862 are located in a
flood zone, which the parties agree renders them unbuildable.
DECISION TC-MD 220366R 1
The plat map (above) includes two unbuilt streets along the waterfront that may not be buildable
due to their flood zoning, a partially built street (Mason Street) running from north to south
within Account 9862, and a partially improved street separating the two tax lots (Neawanna
Street).
The parties agree that the highest and best use of the lots is for development of a
subdivision containing nine single-family residences.1 They also concur that the sales
comparison approach is the appropriate valuation method despite the absence of recent sales of
comparable empty lots near the subject properties. Additionally, the parties agree on the existing
tax roll values for the improvements.
A. Plaintiff’s Evidence
Jackson prepared six retrospective appraisals for the subject properties, one for each tax
account in each of the three tax years at issue. Jackson evaluated the highest and best use as a
1
The parties disagree whether within Account 9862, unbuildable lots 4 and 5 can be combined with lots 3
and 6, respectively, to make two larger lots and effectively render lots 3 and 6 as waterfront properties.
DECISION TC-MD 220366R 2
single lot for redevelopment of a single-family residence and as land for subdivision
development, ultimately favoring the site for residential development.
For illustrative purposes, the court focuses on the 2019-20 tax year. For Account 9862,
Jackson selected five bare land parcel sales, opting for lower-priced properties due to the older
homes nearby potentially limiting higher-end improvements. Four sales were vacant lots on
Edgewood Street in southern Seaside, near the Necanicum River and several blocks from the
ocean. The fifth property was located on Highland Drive in a residential area in southern
Seaside and not adjacent to water. Each sale was approximately 0.17 acres, ranging in price
from $17.56 to $22.15 per square foot. Jackson adjusted the sales price down by 10 percent for
superior location because of their proximity to commercial activity. He noted a 6 to 16 percent
appreciation in Seaside residential properties over the last three years and applied an 11 percent
annual appreciation rate to adjust for comparable properties’ time of sale. Jackson also
accounted for a waterfront premium of $100,000 to $150,000 per lot, applying a $150,000
premium for each of the two lots. He did not classify lots 3 and 6 as waterfront due to a
proposed extension of Mason Street, potentially obstructing direct water access. Based on lot
areas and premiums, Jackson valued the lots at $767,523.
Jackson applied a discounted cash flow analysis due to infrastructure requirements and
time to sellout the lots. He considered five subdivision development costs from a rounded
$51,400 to $67,500 but estimated $45,000 per lot given the existing infrastructure. After
factoring in sellout expenses over six months and a discount rate, Jackson estimated the lots’
value at $427,000. His report reconciled this analysis with a highest and best use as a single
undivided property with a value of $400,000, although he later acknowledged this as an error
during cross-examination.
DECISION TC-MD 220366R 3
For Account 9829, the parties agreed that there are seven buildable lots, with two
considered waterfront. Similar analyses were conducted for Account 9829 across the three tax
years at issue, concluding with a value of $556,000 for the 2019-20 tax year (ignoring the
reconciliation).
The following table displays Jackson’s real market value conclusions for each property
tax account during the tax years at issue:
Tax Year Account Number Real Market Value
2019-20 9862 $427,000
2019-20 9829 $556,000
2020-21 9862 $461,000
2020-21 9829 $620,000
2021-22 9862 $418,000
2021-22 9829 $529,000
B. Defendant’s Evidence
Leader testified he has been an appraiser since 2003 and has worked for Defendant since
2011, currently serving as an appraisal supervisor. Defendant agrees with Plaintiff that the city’s
plat map shows 13 potential individual lots within the subject properties, but only 11 are
buildable due to setback requirements in the flood zone area. Leader asserts that the two
unbuildable lots situated within Account 9862, lots 4 and 5, could be merged with lots 3 and 6 to
convert the interior lots into waterfront properties. In Leader’s opinion, the proposed extension
of Mason Street between the lots could be disregarded, despite an email from the City Attorney
indicating that platted streets are generally not vacated.
Leader developed retrospective values for the subject properties by finding an opinion for
the 2019-20 tax year and adjusting the values upward for the next two years. He testified that he
could not find recent comparable sales of vacant land adjacent to an estuary. Therefore, Leader
considered the sale of five improved properties with estuary frontage, adjusted for the time of
DECISION TC-MD 220366R 4
sale, and extracted the value of the improvements to determine a bare land value for each sale.
Leader then calculated the value of the lots per waterfront footage. Leader determined the vacant
lot value by discounting improvements for depreciation and subtracting $19,200 from each sale
for landscaping and on-site development. He gave less weight to the highest value comparable
property and concluded that $3,700 per frontage foot should be applied to homesites with more
than 100 feet of estuary frontage, and $5,700 per frontage foot for the two homesites with 50 feet
of estuary footage. Leader found three interior lots near the subject properties with average
recent sales of $78,081. He assumed that two of the unbuildable lots adjacent to the waterfront
would be combined with the lots next to them, converting them to waterfront values. 2 Leader
also assumed that the lot with the greatest estuary frontage would be valued without deduction
for development costs, while the remaining lots would be discounted by 25 percent or $71,250
per lot. Leader concluded the 2019-20 real market value for Account 9862 was $1,205,572.
Leader trended that value forward for the 2020-21 and 2021-22 tax years using 7 and 13 percent
appreciation rates, respectively, resulting in real market values of $1,289,962 and $1,457,657.
For Account 9829, Leader valued the lots assuming two waterfront lots and five interior
lots. Using the same methodology, Leader valued the first lot at full value, $384,800, and the
second lot with a 25 percent discount, resulting in a value of $288,600. He valued each of the
five interior lots at $80,000 discounted by 25 percent, resulting in values of $60,000 each.
Leader’s total real market value for the 2019-20 tax year amounted to $993,702. He projected
those values forward for the 2020-21 and 2021-22 tax years to $1,063,261 and $1,201,485,
respectively.
2
Leader submitted a letter from the City of Seaside indicating the streets closest to the water would
probably not be developed. The email was vague about whether the street between the two undevelopable lots
(Mason Street) would be developed.
DECISION TC-MD 220366R 5
Based on his conclusions of value for each property tax account at issue, Leader argues
Plaintiff failed to show a reduction from the roll values of at least 20 percent, and thus, the court
lacks authority to change the roll values under ORS 305.288(1). 3
II. ANALYSIS
The issue in this case is the real market value of the subject properties for tax years 2019-
20, 2020-21, and 2021-22. Because the parties agreed that the highest and best use of the
properties is as residential lots, the focus of the appraisals was on valuing the 11 individual
platted and buildable lots. The burden of proof falls on Plaintiff, the party seeking affirmative
relief from the tax assessment. See ORS 305.427. 4 To prove her case, Plaintiff must
demonstrate by a “preponderance of the evidence” that she is entitled to relief, which means
showing that her claims are “more probably true than false[.]” Cook v. Michael, 214 Or 513,
527, 330 P2d 1026 (1958). Plaintiff’s burden is modified here since she did not appeal to the
board of property tax appeals for any of the tax years at issue, as ORS 309.100 otherwise
prescribes. Consequently, she must prove the real market value of the subject properties was at
least 20 percent below the roll values for the court to have authority to order a change to the roll
value pursuant to ORS 305.288(1). 5
///
3
Tax Account 9829 RMV Roll Values: 2019-20, $1,199,652; 2020-21, $1,297,275; 2021-22 $1,491,472.
Tax Account 9862 RMV Roll Values: 2019-20, $1,414,709; 2020-21, $1,531,327; 2021 -22, $1,769,818.
4
The court’s references to the Oregon Revised Statutes (ORS) are to 2019.
5
The court notes that Defendant never objected to the inclusion of Tax Account 9829 in Plaintiff’s appeal,
even though it did not contain a “single-family dwelling” as required by ORS 305.288(1)(a). However, this court
stated in Gray v Department of Revenue, 23 OTR 220, 226 (2018): “[t]he Tax Court recently has stated, in Work v.
Dept. of Rev. [22 OTR 396 (2017) ] that motions to dismiss for failure to satisfy the requirements of ORS 305.275
and 305.288 are properly characterized as motions to dismiss for failure to state a claim, rather than motions to
dismiss for lack of subject matter jurisdiction[.]” Per Tax Court Rule 21 G(2), defenses that a claim is time barred
are waived if not made by motion. Further, a defense of failure to state a claim is certainly waived if not presented
at trial. See id.DECISION TC-MD 220366R 6
Real market value for the purposes of tax assessment is defined by ORS 308.205(1) as:
“Real market value of all property, real and personal, means the amount in cash
that could reasonably be expected to be paid by an informed buyer to an informed
seller, each acting without compulsion in an arm’s-length transaction occurring as
of the assessment date for the tax year.”
Ultimately, this court has jurisdiction to determine real market value “without regard to the
values pleaded by the parties.” ORS 305.412.
A. The Parties’ Valuation Methodology
The primary valuation challenge here stems from the absence of recent vacant lot sales
near the subject properties. Plaintiff addressed the challenge by selecting vacant lots in a
different part of town, adjusting for location, time of sale, and a significant upward adjustment
for waterfront lots. Plaintiff then applied a discounted cash flow analysis to consider the time
and expense required to develop the property, resulting in a final conclusion of value.
Defendant’s strategy was to select property sales in close proximity to the subject
properties containing improvements, adjust to the assessment date, and extract the on -site
development by using Defendant’s depreciated replacement costs, subtracting out landscaping,
and trending the real market values for each successive year. Defendant kept th e value of the
first lot at the full market value and reduced the other lots by 25 percent to account for
development costs. Defendant’s conclusion of value is lower than the roll value, however, the
difference is less than 20 percent and thus Defendant asserts the court does not have authority
under ORS 305.288(1) to order a change to the roll value.
1. Subdivision residual analysis
Jackson’s strategy in selecting property sales outside the immediate vicinity appears
viable due to a lack of nearby sales of vacant lots. The selections are concentrated in one area
and differ in urban locations and without a direct waterfront view, but adjustments can overcome
DECISION TC-MD 220366R 7
these challenges. Jackson’s $150,000 upward adjustment for waterfront was supported by his
experience. However, the court agrees with Defendant’s critique that two additional buildable
lots in Account 9862 would effectively be waterfront properties, resulting in an increase of
$300,000 to $767,523 for the 2019-20 tax year for Account 9862, resulting in a total lot value of
$1,067,523.
2. Discounted cash flow (DCF)
Jackson applied a DCF analysis to address the delay in selling all of the lots in the
subdivision, for the expense of development of water, sewer, electricity, and streets, sellout
expenses, and a discount for the time value of money. Th at adjustment lops more than 44
percent from the lot values determined above.
In analyzing the DCF, this court has previously looked to the following description as
informative:
“[W]here the gross revenue from future developable land sales is estimated (using
the values concluded in the Sales Comparison Approach), development and sales
costs are deducted, and the anticipated future cash flows are discounted to a
present value at an appropriate rate to reflect the as-is value of the property * * *.”
GLC-South Hillsboro, LLC v. Washington County Assessor, TC-MD 180141R, 2021 WL
2290314 at *2 (Or Tax M Div, June 4, 2021) (Citation omitted). However, this court has
traditionally rejected the application of the DCF on smaller subdivisions. First Interstate Bank v.
Dept. of Rev., 10 OTR 452, 457 (1987), aff’d, 306 Or 450, 760 P2d 880 (1988); Powell Street I,
LLC v. Multnomah County Assessor, 365 Or 245, 260, 445 P3d 297 (2019); Park Development,
Inc. v. Clackamas County Assessor, TC-MD 150187N, 2015 WL 7753162 at *6 (Or Tax M Div,
Dec 1, 2015). The following quote is instructive:
“Reduction by this method [DCF] results in a determination of the properties’
value to the current owner or their value as an investment. This is not the market
value, which is the price that each property would receive on the open market.
DECISION TC-MD 220366R 8
OAR 150-308.205(A)(1)(a). While in certain circumstances the value to the
owner might equal the market value, the value to the owner cannot be equated
with the market value.
“There is no dispute that the highest and best use of each lot is for the
construction of a single-family residence. Only by valuing the property at its
highest and best use can the true cash value of a property be determined. Sabin v.
Dept. of Rev., 270 Or 422, 426-27, 528 P2d 69 (1974). The developer’s discount
does not assess the value of the properties if put to their highest and best use, but
reduces their value to arrive at the value of the properties considered as an
investment. Investment is not the highest and best use of the properties.”
First Interstate Bank, 306 Or at 454-55.
In this case, the parties agree the highest and best use is as a residential subdivision ,
selling individual lots rather than as an investment property. Per the cases cited above, Jackson’s
DCF approach does align with court precedent. This court’s holding in GLC-South Hillsboro
was an exception due to the unique circumstances of the property’s size and potential bulk
purchase by developers or investors. Consequently, the court rejects Jackson’s DCF adjustment.
3. Development costs
Despite rejecting the DCF adjustment, the court acknowledges potential development
costs associated with maximizing the value of the lots. A potential buyer would consider these
costs, especially if infrastructure like water, sewer, and electricity is not already in place.
Plaintiff’s estimate of $45,000 per property ($495,000 in total) based on comparable subdivision
developments is more persuasive than Defendant’s blanket percentage beginning with the second
property.
4. Determination of the subject properties’ values
Considering Plaintiff’s sales comparables for Account 9862, upward adjustments for
waterfront properties, rejection of the DCF adjustment, and subtracting development costs, the
court finds the 2019-20 real market value of Account 9862 at $887,523 ($767,523 + $300,000 -
DECISION TC-MD 220366R 9
$180,000). (Ex 1 at 50.) Following the same logic, the 2020-21 and 2021-22 tax roll values for
lot 9862 are $932,049 ($812,049 + $300,000 - $180,000) and $876,392, respectively. (Id. at
170, 288.) With regard to lot 9829, the court finds the 2019-20, 2020-21, and 2021-22 tax year
real market values at $865,808 ($1,180,808 - ($45,000 x 7)), $949,166, and $831,070,
respectively. (Id. at 110, 228, 347.)
III. CONCLUSION
After careful consideration, the court finds the real market valu es as listed above.
Additionally, the court finds that in accordance with ORS 305.288(1)(b), the real market values
determined differ from the real market values on the assessment and tax roll for each of the tax
years at issue by 20 percent or greater. Consequently, the court possesses the authority to order
reductions to the tax roll values. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is granted. Property Tax
Accounts 9862 and 9829 real market values for the 2019-20, 2020-21, and 2021-22 tax years,
should be adjusted in accordance with this Decision.
Dated this ____ day of May, 2024.
RICHARD DAVIS
MAGISTRATE
If you want to appeal this Decision, file a complaint in the Regular Division of
the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563;
or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of this Decision
or this Decision cannot be changed. TCR-MD 19 B.
This document was signed by Magistrate Davis and entered on May 6, 2024.
DECISION TC-MD 220366R 10