Georgia-Pacific II v. Clatsop County Assessor

426 February 14, 2012 No. 52
IN THE OREGON TAX COURT
REGULAR DIVISION
GEORGIA-PACIFIC CONSUMER PRODUCTS LP,
fka Fort James Operating Co.,
Plaintiff,
v.
CLATSOP COUNTY ASSESSOR
and Department of Revenue,
Defendants.
(TC 4894)
Plaintiff (taxpayer) sought a ruling that the aggregate real market value
(RMV) of all of the subject property included in its property tax account would
constitute a ceiling for purposes of determining the amount of additional tax
that could be imposed as a result of disqualification of parts of the property from
Enterprise Zone exemption. Taxpayer advocated a calculation method using the
RMV of a group of assets in one tax account being determined by reference to a
hypothetical sale of all of those assets in one transaction. Defendant Department
of Revenue (the department) argued for a method whereby that amount would be
the sum of the separately determined RMV amounts for each item.
Oral argument on cross-motions for partial summary
judgment was held February 8, 2012, in the courtroom of
the Oregon Tax Court, Salem.
Per A. Ramfjord, Stoel Rives LLP, Portland, filed the
motion and argued the cause for Plaintiff (taxpayer).
Joseph A. Laronge, Senior Assistant Attorney General,
Department of Justice, Salem, filed the cross-motion and
argued the cause for Defendant Department of Revenue (the
department).
Decision for Defendants rendered February 14, 2012.
HENRY C. BREITHAUPT, Judge.
This matter is before the court on cross-motions
for partial summary judgment. Throughout this order, real
market value is referred to as “RMV,” maximum assessed
value is referred to as “MAV,” and assessed value is referred
to as “AV.” References to “CPR” are references to the
so-called “changed property ratio”—the ratio described in,
for example, ORS 308.153(1)(b). Any reference to “the Mill”
Cite as 20 OTR 426 (2012) 427
is a reference to the collection of properties contained in the
property tax account in question. References to “Measure
50” are references to Article 11, section 11 of the Oregon
Constitution. Reference is also made to this court’s order in
this matter of July 21, 2010, for a discussion of the factual
background.
Plaintiff (taxpayer) seeks a ruling that “the aggre-
gate RMV of all of the property included in the property
tax account for the Mill constitutes a ceiling for purposes
of determining the amount of additional tax that may be
imposed as a result of disqualification.” Taxpayer’s papers
and argument at the hearing on this matter show that the
method proposed by taxpayer for the determination of the
RMV of the property allegedly disqualified from Enterprise
Zone exemption (PM6) would be as follows:
(1) Determine for any relevant time the RMV of all the
property included in the tax account, determined on the
basis of a hypothetical sale of all such property to one
purchaser in one transaction. In this opinion, this sale is
referred to as a package sale.
(2) Subtract the RMV of the nonexempt property included
in the tax account for the corresponding year, taking as
such RMV the previously determined RMV for such prop-
erty if no current challenge to such RMV is possible.
(3) The remainder is the RMV of PM6 to be used in the deter-
mination of the taxes imposed under ORS 285C.240(3)(a),
provided that in no event will the previously determined
RMV for the nonexempt property be re-determined if stat-
utory appeal time limits in respect of such property have
run.
Defendants (collectively referred to as the depart-
ment) move to have dismissed any claim of taxpayer “that
the real market value of the aggregate property (i.e., the
previously 100% Enterprise Zone exempt qualified property
plus the nonexempt property) within the same property tax
account is less than the real market value on the roll for the
aggregate property.”
Viewed as a narrative statement, the position of the
department appears to be very similar to that of taxpayer—
RMV should be determined on an aggregate basis. All
428 Georgia-Pacific II v. Clatsop County Assessor
parties agree that for the years in question RMV was the
AV for all calculations because the MAV for property was, in
all cases, higher than any RMV for the property. However,
the department’s papers and argument at the hearing on
this matter make clear that the position of the department
is different from that of taxpayer in that the department
would determine the RMV of PM6 as follows:
(1) The previously determined RMV of the nonexempt
property would be left undisturbed and would not enter
into the calculation of the RMV for PM6 for any purpose.
(2) The RMV of PM6 would be determined separately and
without regard to the previously determined value of the
nonexempt property, in a trial with expert testimony as to
the stand-alone value of PM6.
(3) The amount of tax due in respect of the alleged dis-
qualification of PM6 would be calculated based on the sep-
arately determined RMV for PM6, adjusted only as might
be required under ORS 308.153.
The premise of taxpayer’s position is that in deter-
mining the RMV of property for purposes of Measure 50 and
the statutes implementing that constitutional provision, in a
case where there is more than one item of property in a prop-
erty tax account, the constitutional mandate that the AV of
property cannot exceed the RMV of the property can only
be achieved through the use of its suggested method. That
method the court views as, and will refer to as, a “residual
method.” That is, the RMV of any item in the tax account
is to be determined by first determining the RMV of all the
property in the account, by reference to a hypothetical sale
of the entire package of assets, and then subtracting the
RMV for all other property in the account so as to determine
the RMV of the item in question. The residual value remain-
ing after determination of the RMV of the whole account
and subtraction of the RMV of other items would, using the
method proposed by taxpayer, be the RMV of PM6.
The method suggested by the department is viewed
by the court, and will be referred to, as the “additive method.”
For Measure 50 purposes, if it is relevant to determine the
RMV of all items in a tax account, that amount is the sum of
the separately determined RMV amounts for each item. By
Cite as 20 OTR 426 (2012) 429
definition, the RMV of the whole will not exceed the sum of
the RMVs for the items in the account, whether individual
items are considered or the collection of items is considered.
In the opinion of the court, the additive method pro-
posed by the department is the proper method to be used.
In reaching this conclusion the court notes that the depart-
ment does not in any way disagree with taxpayer as to the
general proposition that AV is not to be greater than RMV.
Nor does the department disagree with the proposition that
the aggregate MAV of property in a tax account is to be
compared with the aggregate RMV of the property in the
tax account in the process of determining compliance with
the constitutional limits. The issue that separates the par-
ties is how to go about determining the RMV for assets that
together constitute the group of properties contained in the
same tax account.
Most importantly, the approach of taxpayer starts
with the assumption that the RMV of a group of assets in
one tax account must be determined by reference to a hypo-
thetical sale of all of those assets in one transaction and to
one purchaser. Nothing in Measure 50 or the implementing
statutes supports that methodology. It may be that deter-
mination of the RMV of one item is difficult if one has to
assume that it is to be separately determined from the value
of other items in the account—especially as here where the
operations of the one item are apparently integrated with
or interrelated to the operation of the other assets in the
account. However, that difficulty existed before the adoption
of Measure 50 in respect of the valuation of properties that
were, to some extent, integrated or interrelated in opera-
tion. No party has pointed to, and the court is not aware
of, any indication that the voters of Oregon sought, in the
adoption of Measure 50, to address that difficulty, much less
to express constitutional limitations as to the methodology
for the determination of any given asset in a property tax
account.
The decision of the Oregon Supreme Court in
Flavorland Foods v. Washington County Assessor, 334 Or
562, 54 P3d 582 (2002) (Flavorland) did address the problem
of application of Measure 50 in the case of separate items of
430 Georgia-Pacific II v. Clatsop County Assessor
property being found in one tax account—in that case land
and an improvement to the land. In that case the court con-
cerned itself with the determination of MAV, not RMV, and
held that the MAV limit was to be determined for the entire
tax account. The court concluded that the constitutional ref-
erence to a “unit of property” was a reference to all property
in a tax account. Id. at 574. The court in Flavorland had
before it stipulated RMV figures and MAV figures for the
land and improvement, separately determined. The sum of
those figures was compared to the sum of the MAV figures
for the components of the account to determine if the consti-
tutional requirement that AV be the lesser of RMV or MAV
was satisfied. Flavorland does not supply an answer here
but it suggests, on its own facts, that an additive methodol-
ogy is the appropriate one.
Logically, it would be necessary to make determi-
nations of MAV in a multiple asset account on an asset-
by-asset basis. This is so because the assets comprising
the account, whether including formerly exempt property
or property that was always taxable, could well have been
added to the account in different years. That being a possi-
bility, the calculation would need to accommodate the possi-
bility that the MAV for different assets would be determined
using different CPRs, depending on the year acquired. MAV
for any given asset would be determined individually and
not by application of a residual methodology because there
would, in such instances, be no way to state a total MAV for
the account except by the additive method. That being the
case, the court is of the opinion that the RMV for the assets
in the account should be determined in the same way, by
summation of the individually determined asset RMVs—the
additive method—and not by a residual method.
The residual method suggested by taxpayer for the
determination of RMV for an account is both potentially
unrealistic and cumbersome. The method is potentially
unrealistic as its most important assumption is that valua-
tion should be done on the basis of a hypothetical sale of all
assets in the account. While such a sale might occur, it is
also possible that assets from an account could, hypotheti-
cally or actually, be sold individually or in groups including
Cite as 20 OTR 426 (2012) 431
less than all assets in the account. As mentioned above,
there is no indication in the text or history of Measure 50
to suggest that the amendment adding its provisions was
directed to the specifics of how appraisers would determine
the RMV of assets.
The cumbersome aspect of the residual method sug-
gested by taxpayer appears in considering that it would need
to apply not only in cases where, as here, there had been an
earlier determination of RMV for one asset group out of two,
but also in cases where no such earlier determination had
occurred or where more than two assets or groups of assets
were found in an account. In the case of a group of assets,
none of which had been subject to an earlier RMV determi-
nation, the residual method cannot be applied until there is
a determination of the total RMV in the hypothetical pack-
age sale and a separate RMV for a number of assets equal to
N – 1, where
N = the total number of assets or asset
groups in the account.
Accordingly the number of RMV determinations in all events
would be 1, for the package + (N-1), for the individual assets
or groups. Without that determination having been made, it
is impossible to know what amount is to be subtracted from
the total RMV in order to derive a residual RMV for any
asset subject to examination.
Consider: if there are assets A, B and C in an
account and the appraised value of a package RMV for the
total is 100, the RMV for asset A can be determined by the
residual method only if one computes not only the package
RMV and the RMV for two of the assets. If one is interested
in the RMV of asset A, one would need to compute, in addi-
tion to the package RMV, the RMV for assets B and C.
Even in the case of only two assets or asset groups
in an account, the number of RMV determinations could be
two: one for the package RMV and a second (the N-1) for the
asset or group other than the asset or group for which one is
seeking an RMV.
432 Georgia-Pacific II v. Clatsop County Assessor
Thus, it appears that there is no economy of calcu-
lation in the method proposed by taxpayer. Economy of cal-
culation would not be relevant in the face of a constitutional
command to take certain actions, but, as already discussed,
there is no text, context or history suggesting that the meth-
odology suggested by taxpayer was included as a require-
ment in Measure 50. That being the case, the problem of
economy of calculation works against the residual method.
Further, the residual method would cause signifi-
cant differences to occur where the very same assets are
present but are combined in different ways in tax accounts.
Consider that the method for which taxpayer contends in this
case—where PM6 is in the same tax account as the histori-
cally nonexempt property—would not be the method applied
if the assessor had included PM6 in one tax account and the
historically exempt property in a different tax account.1 In
that case, there would be no basis, even under taxpayer’s
proposed theory, for determining a package RMV for all the
assets in the two tax accounts. The previously determined
RMV for the historically nonexempt property would remain
where it had been determined to be and would play no role
in determining the RMV of PM6. The RMV of PM6 would be
separately determined. That use of different methodologies
depending on the location of assets in one tax account or
two does not occur with use of the method proposed by the
department. Rather, whether the total of the assets are in
one tax account or two, the RMV is determined in the same
way—with the focus on a hypothetical sale of the asset in
question and not a further assumption as to the contents of
a package sale of all assets at any given location. This differ-
ence in substantive results, depending only on the permissi-
ble actions of an assessor, suggests strongly that the method
suggested by taxpayer is not of constitutional magnitude.
Finally, the court adheres to the logic and con-
clusions in the order previously entered in this case and
withdrawn pending a more comprehensive and intelligible
debate between the parties, a goal achieved in the briefs and
oral argument on the pending motions. The court adopts the
1
There appears to be no constitutional or statutory limitation on this result
occurring.
Cite as 20 OTR 426 (2012) 433
substance of the prior order by reference. That earlier order
concluded that a disqualification under the Enterprise Zone
statutes should be no occasion to revisit the RMV determina-
tions made for nonexempt property in the tax account after
the time limits to challenge those determinations had run.
In this proceeding taxpayer has sought to revisit the ear-
lier RMV determinations, made in now closed years, for the
nonexempt assets in the account. The court is of the opinion
that for the conclusive and appropriately preclusive effect
to be given to those earlier determinations, they cannot be
taken into account in any way in later determinations of the
RMV of other assets in the account. That result occurs with
the rejection of the residual method, a rejection that, for the
reasons stated above, is, in the opinion of the court, the cor-
rect reading of the statutes and constitutional provisions.
As discussed at the hearing on this matter, the par-
ties are to consult as to the appropriate form of order car-
rying out this opinion. The case will be continued for trial.
Now, therefore,
IT IS ORDERED that Plaintiff’s Amended Motion
for Partial Summary Judgment is denied; and
IT IS FURTHER ORDERED that Defendant’s
cross-motion for partial summary judgment is granted.