Ellison I v. Clackamas County Assessor

No. 21 December 3, 2015 201
21
Ellison I v. Clackamas County Assessor December22
3, OTR
2015
IN THE OREGON TAX COURT
REGULAR DIVISION
Barbara ELLISON,
Plaintiff,
v.
CLACKAMAS COUNTY ASSESSOR
and Department of Revenue,
Defendants.
(TC 5177)
Plaintiff (taxpayer) appealed from a Magistrate Division decision as to the
real market value (RMV) of her high-end equestrian facility and adjacent resi-
dence. Taxpayer requested a value below that determined by BOPTA. Defendants
submitted a counterclaim that requested a value considerably higher than that
determined by BOPTA. Appraisers for both parties relied on the cost indicator of
value. The court found that taxpayer had not borne her burden of proof that the
value placed on the property as of the assessment date was lower than that found
by BOPTA. Nor had Defendants borne their burden on the counterclaim value,
with a result that the court found the RMV to be that established by BOPTA.
Trial was held March 3 through 5, 2014, in the courtroom
of the Oregon Tax Court, Salem.
Jack L. Orchard, Jr., Ball Janik LLP, Portland, argued
the cause for Plaintiff (taxpayer).
Kathleen J. Rastetter, Clackamas County Assistant
County Counsel, Oregon City, argued the cause for Defendant
Clackamas County Assessor (the county).
Dan Paul, Assistant Attorney General, Department of
Justice, Salem, filed a brief for Defendant Department of
Revenue (the department).
Decision rendered December 3, 2015.
HENRY C. BREITHAUPT, Judge.
I. INTRODUCTION
This property tax case presents the question of
the real market value (RMV) of land and improvements
(the property) which together comprise a high-end horse
breeding and training property, together with associated
202 Ellison I v. Clackamas County Assessor
residence, located near Wilsonville, Oregon. The valuation
date was January 1, 2011.
Following a determination of RMV and exception
maximum assessed value (MAV) for the property by the
Clackamas County Board of Tax Appeals (BOPTA), Plaintiff
(taxpayer) appealed the orders of BOPTA to this court.
Following a decision by the Magistrate Division, taxpayer
appealed to this division of the court. Taxpayer withdrew
her appeal as to certain accounts, leaving only accounts
00816941 and 00817012 at issue.
Defendants Department of Revenue and Clackamas
County Assessor (the department and the county) filed coun-
terclaims.1 Taxpayer bears the burden of proof as to any
value less than that found by BOPTA. The department and
county bear the burden of proof as to any value in excess of
that found by BOPTA. ORS 305.427.
II. FACTS
The property in question is part of a high-end horse
breeding and training facility. The property includes a large
well-appointed residence house, worker housing, barns,
arenas and other facilities typical of such operations. A
detailed description of the assets is not necessary for pur-
poses of this opinion.
The appraisal experts for all parties agreed to value
the assets at issue as a group. The appraisal experts arrived
at virtually identical RMV amounts for the land in question.
As to the RMV amounts for improvements, the
appraisers differed as to the basic standard of valuation.
The appraiser for Defendants took the view that the provi-
sions of ORS 308.205(2)(c) applied, arguing that the prop-
erty had no immediate market value as of the valuation
1
In referring to “counterclaims” the court is making a generic reference to a
position that the RMV of the property is greater than that found by BOPTA. Such
an assertion can affect the proceedings in this court even if they are not, strictly
speaking, counterclaims. This court has concluded that counterclaims, as such,
have no statutory validity in this court. Village at Main Street Phase II, LLC II v.
Dept. of Rev., 22 OTR 52 (2015). However, even without use of a counterclaim, a
party can request that the court reach a proper value above or below that deter-
mined in prior proceedings. See ORS 305.412 (jurisdiction of court to find correct
value, regardless of positions contained in pleading of the parties).
Cite as 22 OTR 201 (2015) 203
date and that its RMV was therefore an amount that would
justly compensate taxpayer for the loss of the property. The
appraiser concluded that the actual costs incurred by tax-
payer in constructing the property were the measure of just
compensation.
The appraiser for taxpayer asserted that the prop-
erty did have an immediate market value. Although the
appraiser considered evidence as to a comparable sales indi-
cator of value, his conclusion as to RMV was based upon
the cost approach. In considering the cost approach, the
appraiser concluded that there was some physical depre-
ciation to be deducted from replacement cost new. Most
importantly, the appraiser for taxpayer concluded that a
significant deduction was required in respect of economic
obsolescence, some fifty percent in amount.
III. ISSUE
The sole issue in this case is the RMV for the prop-
erty in question as of January 1, 2011.
IV. ANALYSIS
At the hearing on this matter, the court raised the
question as to whether the provisions of ORS 308.205(2)(c)
are consistent with the constitutional definition of RMV
found in Article XI, section 11, of the Oregon Constitution,
which provides:
“The real market value of property shall be the amount
in cash that could reasonably be expected to be paid by
an informed buyer to an informed seller, each acting with-
out compulsion in an arm’s length transaction occurring as
of the assessment date for the tax year, as established by
law.”2
The department argues that the statutory provision
in ORS 308.205(2)(c) is not in conflict with the constitutional
definition. In making that argument the department points
to its administrative rule in OAR 150-308.205-(A)(3) which
specifies that:
“Because a general market for the property does not exist,
the property has no apparent immediate market value.
2
The court’s references to the Oregon Revised Statutes (ORS) are to 2011.
204 Ellison I v. Clackamas County Assessor
Real market value must be determined by estimating just
compensation for loss to the owner of the unit of property
through either the cost or income approaches, whichever is
applicable, or a combination of both.”
In this case, neither taxpayer nor Defendants assert
that the comparable sales indicator of value should be relied
upon to determine RMV. Neither does either party rely on
the income indicator of value. That being the case, all parties
rely on the cost indicator. It follows that this case presents
no occasion to analyze further the question presented by the
court. This case can be resolved based on the strength of the
case made by the two appraisers.
That said, the strength of each appraiser’s case
must be separately analyzed. As to taxpayer’s claim for a
RMV of $8,800,000, the question is whether taxpayer has
demonstrated more probably than not, that the value of the
property was as asserted.
However, as to the counterclaim of Defendants that
the value of the property in question is $19,815,225, the
question is whether Defendants have demonstrated, more
probably than not, that the value of the property was as
asserted by the Defendants.
As to taxpayer’s case for a value below that found by
BOPTA, that case depends upon the persuasiveness of her
appraiser’s conclusion as to replacement cost new, his con-
clusion as to physical depreciation and, most importantly,
his conclusion as to economic or external obsolescence.
Defendants challenged the conclusion of taxpay-
er’s appraiser as to his starting cost number, noting that it
was approximately $4 million less than actual construction
costs and also approximately the same amount below his
calculation of cost using the Marshall & Swift cost factors.
The appraiser did not give a persuasive explanation of these
differences.
As to physical depreciation, taxpayer’s appraiser
took not insignificant subtractions from initial cost even
though the properties in question were essentially new. The
explanation given by the appraiser was that these proper-
ties, like new cars, experience immediate depreciation once
Cite as 22 OTR 201 (2015) 205
any use occurs. That explanation seems at odds with the
age life method the appraiser purportedly used. Again the
approach of the appraiser is not persuasive.
The most important adjustment to initial cost made
by taxpayer’s expert was in respect of economic obsoles-
cence. As to this adjustment the appraiser relied upon work
and analysis done by other appraisers in other regions of
the county as to horse properties and upon other more local
appraisers as to obsolescence affecting the residence. None
of these appraisers testified or were available for cross-
examination. In addition, except for a summary writing
prepared by one of these appraisers, very little narrative
explanation was given as to what the appraisers had done.
Based on this work by others, taxpayer’s expert established
a range of economic obsolescence levels and chose one in the
middle of the range.
The court acknowledges the experience of taxpay-
er’s appraiser with respect to agricultural properties in gen-
eral and horse properties in particular. The court has no
difficulty accepting the general conclusion reached by tax-
payer’s appraiser—that external or economic obsolescence
affected the property in question in more than insignificant
amounts. His testimony about the depressed state of the
national market for horse properties as of the appraisal date
supports the general conclusion.
However, the court can give no more than limited
weight to the evidence presented by taxpayer on this point
in determining what specific amount of economic obsoles-
cence was experienced by the property in question. It rests
on the work of persons who gave no persuasive written dis-
cussions of their work and the conclusions that followed
and were not available to be tested by cross-examination.
In addition, other than accepting the appraiser’s judgment
alone, there appeared to be little reason for arriving at the
ultimate obsolescence level ultimately chosen.
The court concludes that taxpayer has not borne her
burden of proof that the value placed on the property as of
the assessment date was lower than that found by BOPTA.
Taxpayer’s claim on appeal is not established.
206 Ellison I v. Clackamas County Assessor
As to the counterclaim of Defendants, the same
conclusion exists. The appraiser for Defendants lacked any
experience in appraising the types of property at issue. The
appraiser made very limited inquiry into the state of the
market for properties of this type. This failure may have
been due to his view (which the court finds unsupported)
that the only market into which he could inquire was the
local market. The evidence presented by taxpayer estab-
lishes without question that horse properties of the type
involved here are bought and sold in a national market.
The appraiser for Defendants simply concluded that
just compensation for taxpayer would be a complete refund
of all costs incurred in bringing the property into exis-
tence. Throughout his report and testimony, the appraiser
for Defendants repeatedly indicated a profound inability to
distinguish between value in use and market value. This
may well have been a product of the belief of this appraiser
that this property was “especial” property. The acceptance
by Defendants’ witness of a premise that cost is equivalent
to value ignores taxpayer’s persuasive evidence that exter-
nal obsolescence of a not insignificant amount affected this
property.
The court places no reliance upon the conclusions
of the witness for the Defendants. Accordingly, they are not
entitled to prevail on their counterclaim.
V. CONCLUSION
The parties have been unsuccessful in bearing
their respective burdens of proof. This is not a case where
the court is able to rely on the conclusions of either appraiser
as to some components of the analysis, making adjustments
to component parts of an analysis on which the court cannot
rely.
On this record, the court is not in a position to reach
a conclusion of value for the property at some point between
the values asserted by the parties. Now, therefore,
IT IS THE OPINION OF THIS COURT that the
RMV of the property at issue is as found by BOPTA.