DocketNumber: Nos. (TC-MD 070136C (Control); 070137C, 070138C, 070139C, 070140C, 070141C, 070142C, 070143C, 070144C).
Citation Numbers: 19 Or. Tax 445
Judges: <bold>DAN ROBINSON, Magistrate.</bold>
Filed Date: 1/29/2008
Status: Precedential
Modified Date: 7/6/2016
Plaintiff appeals the value of nine outdoor advertising signs (a.k.a. billboards) added to the assessment and tax rolls in 2006 as omitted property.1 Each sign has a separate assessor account number.2 The omitted property assessments added value for tax years 2000-01 through 2005-06, except for sign #4 (Account 10985387), for which value was only added back to the 2001-02 tax year.3 Plaintiff also asserts double taxation by Defendant on two of the signs, contending that they were valued as both personal and real property.
Trial was held July 18, 2007. Plaintiff was represented by Stephen Croft (Croft), Plaintiff's registered agent and manager/marketer. Testifying for Plaintiff were Cory Shumway (Shumway), General Manager, Lamar Outdoor Advertising; and Bernie Conklin (Conklin), former Regional Sales Manager, Viacom Communications. Defendant was represented by David Arrasmith (Arrasmith), Deputy Assessor, Jackson County. The parties submitted post trial briefs, and the record closed August 2, 2007.
Plaintiff's nine signs range in size from 10 x 20 feet to 10 x 28 feet. Six of the nine signs are double-faced (i.e., constructed with two "faces" to allow two signs, one on each side), and the remaining three are single-face signs. The signs were built by the former owner of the company between 1993 and 2000. Plaintiff reports the following gross income for the signs: $9,210 (sign #1), $3,675 (sign #2), $16,600 (sign #3), $7,374 (sign #5), $22,846 (sign #6), $6,600 (sign #7), $7,804 (sign #8), and $23,460 (sign #9). There is no income information for sign #4.
Defendant was initially unaware of the billboards, and, consequently, they escaped assessment and taxation for many years. Defendant became aware of their existence in 2006 and issued omitted property assessment notices adding the values of the signs to the rolls back to the 2000-2001 tax year. Plaintiff challenged Defendant's value determinations administratively as provided in ORS
For purposes of its omitted property assessments, Defendant determined that the real market values (RMV) for the signs, for the 2005-06 tax year, were between $27,700 (sign #2) and $190,350 (sign #9), with three of the nine signs valued well in excess of $100,000. The current total (cumulative) RMV on the assessment and tax rolls for the nine signs for tax year 2005-06 is $799,190. Plaintiff insists the *Page 449 values of all nine signs exceed actual market value. Plaintiff is requesting a total reduction in value to $135,150, asserting that the RMV of the signs for all years under appeal is between $12,250 (sign #8) and $18,750 (sign #9). Defendant acknowledges that reductions are in order for eight of the nine signs. Defendant requests values between $29,700 (sign #5) and $126,500 (sign #9), resulting in an overall reduction from $799,190 to $580,700. Defendant requests an increase for sign #2 from $27,700 to $56,500.
The numbers for the 2005-06 tax year are as follows:
Sign No. Account No. Current RMV Ptf's Request Def's Request 1 10984032 $ 79,250 $ 13,050 $ 60,300 2 10984033 $ 27,700 $ 12,250 $ 56,500 3 10984025 $ 134,060 $ 16,950 $ 92,600 4 10985387 $ 92,860 $ 16,950 $ 53,100 5 10984031 $ 39,900 $ 14,500 $ 29,700 6 10984030 $ 146,510 $ 15,950 $ 95,900 7 10984026 $ 48,460 $ 14,500 $ 35,100 8 10984052 $ 40,100 $ 12,250 $ 31,000 9 10984028 $ 190,350 $ 18,750 $ 126,500 TOTAL: $ 799,190 $ 135,150 $ 580,700Plaintiff proposes that the RMV be determined based on the cost approach to value. Defendant relies on both the income and cost approaches. Defendant did provide some information on comparable sales, but due to the limited number of sales in Oregon, Defendant did not rely on that approach in its value estimate.
(1) Are billboards classified as real or personal property?
(2) What are the values of the billboards?
Plaintiff contends that the billboards should be valued as personal property. Defendant disagrees, arguing that *Page 450
the Tax Court's decision in Seven-Up Bottling Co. ofSalem v. Dept. of Rev.,
B. Valuation
1. RMV
The OMIA comprehensively regulates signs visible from public highways. Generally speaking, the OMIA requires such signs to have a permit, regulates the location of the signs, "and effectively caps the number of permits at the number of outdoor advertising signs located in commercial or industrial zones as of June 12, 1975." Outdoor Media Dimensions v. Dept. ofTransportation,
Although the permitting requirements were struck by the Oregon Supreme Court in 2006 in Outdoor Media II, the legislature reacted in 2007 by enacting legislation (House Bill 2273-A) to amend the applicable statutes to impose billboard regulations similar to those previously in existence, including the permit requirements.6 See, e.g., ORS
There are additional risks involved in the ownership of highway roadside billboards. Plaintiff leases the land on which its billboards are located, which is typical in the industry. The lease agreements contain a removal clause whereby the landowner can require removal of the sign with 30 or 60 days' notice. Plaintiff was forced to remove several signs under such removal clauses due to the landowner's planned development of the property.
The signs are also heavily regulated by the state (in addition to the permit requirements), and are subject to removal through condemnation at the behest of the government for road construction or expansion. Plaintiff was forced to remove several signs because of highway projects, and was only compensated in one instance. The state has required the removal of some of Plaintiff's other signs (not any of the nine under appeal herein) for noncompliance with state regulations pertaining to roadside billboards. Such regulations include compliance with location, size, and zoning requirements, as well as compliance with applicable federal laws. According to the uncontroverted testimony, Plaintiff had to remove 10 signs after its defeat at the Supreme Court in 2001 in OutdoorMedia I because of the failure to comply with those regulations.
The state will issue a permit for the relocation of a lawfully erected sign as provided in ORS
RMV is defined as "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[.]" ORS
The burden of proof in an appeal to the Tax Court is a "preponderance" of the evidence. ORS
*Page 454"`Preponderance' derives from the Latin word `praeponderare,' which translates to `outweigh, be of greater weight.' 8 Oxford English Dictionary 1289 (1933). With regard to the burden of proof or persuasion in civil actions, it is generally accepted to mean the greater weight of evidence."
Riley Hill General Contractor v. Tandy Corp.,
The burden falls upon the party seeking affirmative relief. ORS
Plaintiff also presented evidence of failed efforts to sell the subject signs. According to the testimony of Croft and Conklin, in 2002, Plaintiff offered to sell the nine billboards here at issue, and possibly two others, to Viacom for approximately $190,000. Viacom countered with an offer of $160,000. Plaintiff's asking price and Viacom's counteroffer were both considerably below the cumulative RMV on the rolls, which is approximately $800,000. Viacom's counter-offer was contingent upon assurances that the signs could be permitted. Viacom could not get a guarantee from ODOT that permits could be obtained. Viacom was also concerned that the signs failed to meet current federal structural requirements imposed after two people in Georgia were killed by a blown-down sign during a windstorm. Viacom's concerns back in 2002 prevented the parties from consummating the deal.
For its income approach, Arrasmith used a combination of actual and estimated income, a vacancy rate of seven percent, market evidence for ground lease costs, lighting, insurance, and Plaintiff's reported management expense of 20 percent, to arrive at net operating income (NOI). Defendant then used a cap rate of 10 percent to estimate the value of Plaintiff's billboards for 2006. Defendant back-trended the estimated values by 2.06 percent per year based on the Portland annual Consumer Price Index to establish a value for the 2000-2001 tax year. MAV was then determined by applying the ratio of average maximum assessed value to average real market value for similarly classified property. *Page 456 Defendant's capitalization rate is a composite of an extrapolated rate of 9.96 percent derived from a single billboard sale in Lane County, and a built-up cap rate of 10 percent using the band-of-investment method. Croft asserts that the vacancy rate should be higher, but presented no market evidence to support that claim.
Defendant's cost approach recognizes direct costs, indirect costs, and entrepreneurial profit. Arrasmith used cost factors reported in a DOR publication pertaining to billboards. Significantly, Arrasmith increased the adjusted base cost of six of the nine signs by 100 percent for entrepreneurial profit, and by 50 percent for the remaining three signs. Arrasmith rejected DOR's estimated entrepreneurial profit figure of 10 percent because it extrapolated a profit of 246 percent from the sale of the billboard in Eugene (using the sale price of $225,000 minus the construction cost of $65,000). Also, Arrasmith found a billboard appraisal valuation article, which stated that "many appraisers are surprised to learn that the market price for a billboard is normally many times the cost of construction."
Defendant's estimates fail to account for the risk associated with Plaintiff's nonconforming signs, discussed above. It is for that reason that this court's earlier decision inWilcox does not control here. Defendant could have included risk in its capitalization rate under its income approach, but selected a rate of 10 percent, which does not seem to adequately account for all the associated risks. Defendant also doubles its values under the cost approach by estimating entrepreneurial profit to be 100 percent, despite Arrasmith's acknowledgment that DOR, the agency charged with over-sight of the state's property tax system, has estimated entrepreneurial profit for billboards to be only 10 percent.
Defendant did produce evidence of one sale of a billboard in Oregon in March 2007 for $225,000, reference to which is made above. That sign, however, is in a very good location and is larger than any of the subject signs. It was also built after the Supreme Court's 2006 decision striking the permit requirement and, regardless of future legislation *Page 457 that may reimpose the permit requirement, Shumway testified that the sign will be "grandfathered in," thereby eliminating the need for such a permit.
Defendant contends that the Oregon Supreme Court's 2006 opinion striking the state permit requirement rendered Plaintiff's signs legal structures, thereby removing the risk of state-compelled removal, which, in turn, increases the value of the signs (or at least eliminates the loss in value stemming from the sign's nonconforming status). The court disagrees, both because legislative enactments subsequent to the court's decision appear to continue the permit requirements and, more importantly, because that court decision was not rendered until after the applicable assessment date for the tax years at issue. Thus, regardless of what impact the court's 2006 opinion has, that outcome was unknown at the time of the applicable assessment dates in this case, which are January 1 for each of the six calendar years 2000 through 2005. Potential market participants at that time would therefore have no knowledge of that outcome and, would instead, be operating under the then-known risks and uncertainties.
Defendant shall allocate the $175,000 total RMV as it deems appropriate between the nine billboards to arrive at an RMV for each sign as of January 1, 2002. Defendant shall then apply the 2.06 percent backward trend it presented to the court at trial to arrive at an RMV as of January 1, 2000, for each sign except #4. As for sign #4, Defendant shall apply that backward trend to January 1, 2001, which is as far back as the assessment went for that billboard (Account 10985387). Those base year values shall constitute the adjudicated values for each account, as provided in ORS
C. Double Taxation
Plaintiff contends that two of the nine signs (signs #5 and #7) were taxed by Defendant as personal property and that the taxation of those two signs as real property via the omitted property assessments constitutes double taxation. There was insufficient information on that issue at trial, and the parties were given two weeks to either resolve the matter or submit evidence to the court supporting their positions. The parties did not resolve the issue and Plaintiff did not address it in his post-trial brief. Defendant indicates in its post-trial brief that it researched the question and concluded that those billboards were not previously taxed as personal property. Plaintiff is the party seeking affirmative relief on the issue of double taxation, and therefore bears the burden of proof. ORS
1. Defendant shall calculate the RMV for the nine billboards using a January 1, 2002, total RMV of $175,000.
2. Defendant shall allocate that value as it deems appropriate among the nine billboards.
3. Defendant shall then apply the 2.06 percent backward trend to each value to establish a base year RMV for each billboard, based on the earliest year of assessment for each account. That assessment date is January 1, 2000, for all but one account; sign #4 (Account 10985387) was only added to the rolls back to the 2001-02 tax year, and therefore has an assessment date of January 1, 2001.
4. Defendant shall then apply the applicable CPR (as discussed above) to each account to establish the respective MAVs and determine the appropriate assessed value (AV) as provided under law as the lesser of RMV and MAV.
5. Defendant shall calculate the RMVs for each year subsequent to the relevant base year as provided in ORS
6. Finally, Defendant shall index the AV in accordance with ORS
IT IS THE DECISION OF THIS COURT that Plaintiff's appeal on the classification of the billboards is denied, and that the billboards shall be classified as real property;
IT IS FURTHER DECIDED that Plaintiff's appeal seeking a reduction in value is granted, and Defendant shall reduce the values of the subject property in accordance with the above, refunding any excess taxes paid with statutory interest; and
IT IS FURTHER DECIDED that Plaintiff's appeal on the issue of double taxation is denied.
"When the determination of real market value or the correct valuation of any property subject to special assessment is an issue before the tax court, the court has jurisdiction to determine the real market value or correct valuation on the basis of the evidence before the court, without regard to the values pleaded by the parties."
Outdoor Media Dimensions, Inc. v. Department of ... , 340 Or. 275 ( 2006 )
Union Pacific Railroad v. Department of Revenue , 315 Or. 11 ( 1992 )
Riley Hill General Contractor, Inc. v. Tandy Corp. , 303 Or. 390 ( 1987 )
Outdoor Media Dimensions Inc. v. State , 331 Or. 634 ( 2001 )
Seven-Up Bottling Co. of Salem v. Dept. of Rev. , 10 Or. Tax 400 ( 1987 )