Case Title: Delta Air Lines, Inc. v. Dept. of Rev.

Citation: 

Docket Number: S42866

State: oregon

Court: Oregon Supreme Court

Date: 1999-07-15T00:00:00Z

Document:
Filed: June 11, 1999

IN THE SUPREME COURT OF THE STATE OF OREGON

DELTA AIR LINES, INC.,

											Appellant,

	v.

DEPARTMENT OF REVENUE,

State of Oregon,

											Respondent.

(OTC 3278; SC S42866)

	On appeal from the Oregon Tax Court.*

	Carl N. Byers, Judge.

	Argued and submitted September 9, 1996.

	James W. McBride, of Baker, Donelson, Bearman & Caldwell,
Washington, D.C., argued the cause for appellant.  With him on
the briefs were Gregory G. Miner and Bruce Cahn, Portland, and
Stephen D. Goodwin, of Baker, Donelson, Bearman & Caldwell,
Memphis, Tennessee.

	Joseph A. Laronge, Assistant Attorney General, Salem, argued
the cause for respondent.  With him on the brief was Theodore R.
Kulongoski, Attorney General, Salem.

	Before Carson, Chief Justice, and Gillette, Van Hoomissen,
and Durham, Justices.**

	CARSON, C.J.

	The judgment of the Tax Court is modified, and the case is
remanded to the Tax Court for further proceedings.

    *13 OTR 372 (1995).

    **Fadeley, J., retired January 31, 1998,and did not
participate in this decision; Graber, J., resigned March 31,
1998, and did not participate in this decision.

		CARSON, C.J.

		This ad valorem tax case involves two claims filed by
Delta Air Lines, Inc. (Delta) against the Department of Revenue
(the department).  Among other things, Delta requested a set-aside of the department's assessment of its taxable property and
a determination of the value of that property.  The Tax Court
entered a single judgment that denied both claims.  Delta Air
Lines, Inc. v. Dept. of Rev. (II), 13 OTR 372 (1995).  

		Delta's first claim alleges discrimination in taxation
under 49 USC section 40116(2)(A), formerly codified as 49 USC
section 1513(d).  That claim is identical to claims raised by
other airlines in Northwest Airlines, Inc. v. Dept. of Rev., 325
Or 530, 943 P2d 175 (1997), which this court rejected.  Delta has
agreed that the holding in that case controls its federal
discrimination claim.  Accordingly, we reject Delta's claim under
49 USC section 40116(2)(A) without further discussion.

		Delta's second claim challenges the department's
valuation of its air transportation property, particularly its
leased aircraft, located in Oregon during the 1992-93 tax year. 
For the reasons that follow, we reject most of Delta's
contentions challenging the valuation of its owned and leased
taxable property.  However, we agree with Delta that the
department made some errors in appraising Delta's property. 
Accordingly, we modify the judgment of the Tax Court.

		I.  FACTS AND PROCEDURAL BACKGROUND

		We limit our factual discussion to Delta's valuation
claim.  Delta is an interstate air carrier that owns property
located in Oregon.  As of July 1, 1992, the assessment date at
issue in this case, Delta served 163 domestic cities in 45
states, the District of Columbia, and United States possessions,
and provided air transportation service to 33 foreign countries. 
It also operated six domestic and two international "hub"
airports within the United States, as well as a European hub in
Germany.  One of the international hub airports within the United
States was located in Portland.  That facility served both
international and domestic flights, and also served as a
maintenance facility.

Delta's air transportation property located in Oregon
was subject to ad valorem taxation under ORS 308.515.(1)  In
addition to owning property, Delta leased a significant number of
aircraft -- almost half its fleet.  Those leased aircraft also
were subject to taxation, assessable to Delta under ORS
308.510(1).(2)  The department assessed Delta's taxable property
using the unit method allowed under ORS 308.555 (1993),(3) by
valuing the property owned and leased by Delta system-wide and
then determining the proportion of that value of taxable property
attributable to Oregon.  The department initially determined that
the system-wide value of Delta's owned and leased property was
$10,257,000,000, and that the value allocatable to Oregon was
$63,029,000.  Delta challenged that Oregon valuation by filing a
complaint in the Tax Court.

		At trial, Delta presented an appraisal by an outside
appraiser that concluded that the system-wide value of Delta's
property did not exceed $5.4 billion and, using the department's
formula, the value allocatable to Oregon was $32,152,900 (as
corrected during trial).  The department abandoned its original
appraisal and presented a new appraisal ("the department's trial
appraisal" or "the department's appraisal") that concluded that
Delta's system-wide property value was $10,810,000,000, and its
Oregon value was $69,961,000. 

		In reaching their valuation figures, the appraisers for
Delta and the department both utilized three approaches to value,
or "value indicators" -- the income approach, the cost approach,
and a market-based "stock and debt" approach.  In following those
approaches, however, the two appraisers utilized different
procedures, the most significant of which concerned treatment of
Delta's leased aircraft.  In general, Delta's appraiser did not
include lease payments -- which the department asserts
represented the lessors' ownership interest in Delta's leased
aircraft -- as part of the unit value in the income and the stock
and debt indicators of value, reasoning that the value of leased
aircraft already was reflected in those indicators.  In contrast,
the department's appraiser made significant adjustments for
leased aircraft, adding a separate value for lease payments to
the system-wide unit value for Delta's owned property in both the
income and the stock and debt indicators, resulting in higher
unit values.

		The Tax Court concluded that Delta's approaches to
value were erroneous, because they focused upon the value of
Delta itself, rather than the value of Delta's taxable property. 
13 OTR at 376.  The Tax Court further concluded that the
department's system-wide valuation figure of $10,810,000,000 was
correct and, accordingly, entered judgment for the department. 
Id. at 383.  

II.  STANDARD OF REVIEW

		We first address an issue concerning the proper
standard of review.  When this case was briefed and argued in
this court, review of appeals from the Tax Court was de novo on
the record made in the Tax Court.  See ORS 305.445 (1995) (review
of Tax Court appeals "shall be in accordance with the procedure
in equity cases on appeal from a circuit court"); former ORS
19.125(3) (1995), renumbered as ORS 19.415(3) (1997) (in appeals
in equity cases, the Court of Appeals "shall try the cause anew
upon the record").  However, the 1995 Legislature amended ORS
305.445 to provide, in part:

	"The scope of the review of either a decision or
order of the tax court judge shall be limited to errors
or questions of law or lack of substantial evidence in
the record to support the tax court's decision or
order."  Or Laws 1995, ch 650, § 25.

The 1995 Legislature further provided that the changes to the tax
laws set out in chapter 650 would "become[] operative on
September 1, 1997."  Or Laws 1995, ch 650, § 116(1). 

		We must determine whether the legislature intended the
new standard of review -- errors of law or substantial evidence 
-- to apply retroactively to cases that were commenced in this
court before September 1, 1997, the operative date of the 1995
amendment, and that still were pending on that date.  To answer
that question, we first examine the text and context of the 1995
amendment to ORS 305.445.  See PGE v. Bureau of Labor and
Industries, 317 Or 606, 610-11, 859 P2d 1143 (1993) (setting out
methodology); Owens v. Maass, 323 Or 430, 433, 918 P2d 808 (1996)
(applying PGE when determining whether an amended statutory time
limitation should apply retroactively).  Context includes all
provisions of Oregon Laws 1995, chapter 650, including the
operative date set out in section 116(1).  See Owens, 323 Or at
434 & n 5 (context includes all parts of law as enacted and
contained in session laws).  

		As noted, the new standard of review provision
originally was set out in section 25 of Oregon Laws 1995, chapter
650, which provides:

	"ORS 305.445 is amended to read:

	"305.445.  The sole and exclusive remedy for
review of any decision or order of the judge of the tax
court shall be by appeal to the Supreme Court. 
Jurisdiction hereby is vested in the Supreme Court to
hear and determine all appeals from final decisions and
final orders of the judge of the tax court[, except
with respect to the small claims division of the tax
court].  The scope of the review of either a decision
or order of the tax court judge shall be limited to
errors or questions of law or lack of substantial
evidence in the record to support the tax court's
decision or order.  Such appeals, and the review of
final decisions and final orders of the tax court,
shall be in accordance with the procedure in [equity
cases] actions at law on appeal from a circuit court,
but without regard to the sum involved.  Upon such
appeal and review, the Supreme Court shall have power
to affirm, modify or reverse the order or decision of
the tax court appealed from, with or without remanding
the case for further hearing, as justice may require." 
Or Laws 1995, ch 650, § 25 (new text in boldface;
deleted text in brackets and italics).  

In order to understand the changes made to ORS 305.445, it is
important to note that, in enacting chapter 650, the 1995
Legislature reorganized the tax appeals process, by replacing the
departmental hearings process with a new process established in
the magistrate division of the Tax Court.  See generally Or Laws
1995, ch 650, § 2 (establishing magistrate division).

		Turning, then, to section 25, we first observe that the
text does not indicate whether the new standard of review applies
to cases commenced in this court before September 1, 1997.  Other
aspects of section 25, however, suggest that the new standard
applies only to cases filed in the Tax Court on or after
September 1, 1997.  For example, by adding the words "judge of
the" before "tax court" in two other sentences, the legislature
clarified that, as of September 1, 1997, the Tax Court included
the magistrate division, staffed with magistrates, as well as the
regular division, staffed with a judge.  See Or Laws 1995, ch
650, § 104 (so providing).  It is plausible, therefore, that the
new standard of review provision, which similarly refers to the
"tax court judge," applies only to cases appealed from the Tax
Court after the new magistrate and regular divisions began
operation.

The context of section 25 supports that reading.  With
one minor exception,(4) all the amendments, new statutory
provisions, and repeal provisions set out in chapter 650 relate
to the creation of the new magistrate division and certain
processes related to that division, and the adaptation of
existing tax statutes to the new appeals process.  It therefore
is logical to conclude that the legislature intended the new
standard of review to be a part of that new process.  We have
found nothing in the text or context of Oregon Laws 1995, chapter
650, that points to a contrary reading of the standard of review
provision in section 25.

		We conclude that the new standard of review was
intended to apply only to cases filed in or transferred to the
Tax Court on or after September 1, 1997.  It follows that the new
standard of review does not apply retroactively to this case. 
Accordingly, we proceed to review this case de novo under ORS
305.445 (1995).  Delta must prove its claims by a preponderance
of the evidence.  ORS 305.427.  

		III.  LEASED-EQUIPMENT ADJUSTMENT

A.   Approaches to Value and Final Appraisal Calculations

		The central dispute between the parties is whether the
unit valuation of Delta's taxable property should have included a
so-called "leased-equipment adjustment," that is, an adjustment
for aircraft leased, rather than owned, by Delta.  Stated
differently, in determining a value for Delta's taxable property,
the issue is whether it was permissible for the department to
include in that value a separate calculation of the value of
aircraft that Delta leases.  In order to understand the parties'
contentions concerning the leased-equipment adjustment, it first
is necessary to explain the three approaches to value and how the
parties' appraisers applied them in this case.

	1.   Income approach

		The income approach to value focuses upon investor
anticipation of future benefits to be derived from property owned
and used by a company.  Generally speaking, the income approach
measures the present value of the anticipated future stream of
income attributable to the company's operating property, by
discounting the company's anticipated cash flows to present value
using a capitalization rate that reflects the company's costs of
investment. 

		Delta's appraiser followed a "perpetuity" model in his
income approach, which assumed that Delta would continue
operation into the indefinite future.  He first estimated a
perpetual, annual revenue figure of $11.5 billion.  He then
applied an estimated operating margin of 7.5 percent to that
figure, resulting in an estimated, annual net operating income of
$862.5 million.  The effect of that calculation was to remove
lease payments to Delta's lessors from the income stream subject
to capitalization.  Next, Delta's appraiser deducted estimated
taxes from net operating income, resulting in $552 million to be
capitalized into present value.  Applying a capitalization rate
of 12 percent, he then determined that the present value of
Delta's estimated, annual cash flow, derived from its system-wide
operating property, both owned and leased, totaled $4.6 billion.

		The department's appraiser, in contrast, followed a
"limited-life" model in his income approach.  That model sought
to determine the income that reasonably could have been expected
to be generated from the group of assets subject to valuation,
for the average anticipated life of those assets.  The
department's appraiser first concluded that the average, annual
income projection from Delta's owned assets was $250 million.  He
then added in noncash expenses, such as depreciation, for a
total, annual income figure to be capitalized of $806,634,000,
based upon an average asset life of 13 years.  Applying a
capitalization rate of 12.3 percent, the department's appraiser
next calculated a net present-value figure of $5,428,736,000,
which included a separate, residual-value calculation of
$322,295,000, representing the value of Delta's owned assets at
the end of their useful lives.  He then calculated the present
value of the average, annual lease payments on all Delta's leased
aircraft, using a capitalization rate that reflected the airline
industry's cost of debt, plus the residual value of the leased
aircraft to the lessors at the end of the lease terms, which
together totaled $5,778,594,000.  Finally, the department's
appraiser added the two present-value figures (income, including
residual values of owned property, plus lease payments, including
residual values of leased property), for a total valuation figure
of $11,207,330,000 for Delta's operating unit.

	2.	Cost approach

		The cost approach to value is based upon the principle
of substitution, that is, it assumes that property is worth its
cost or the cost of a satisfactory substitute with equal utility. 
Thus, the cost approach seeks to determine the cost of the unit
that is being valued.  

In his cost approach, Delta's appraiser first
determined the original, or historical, cost of Delta's owned
assets, by examining Delta's books.  He then deducted accrued
depreciation, also obtained from the books, leaving a total of
$5,880,394,000.  Delta's appraiser next determined the cost of
Delta's leased aircraft and deducted accrued book depreciation
for those aircraft, for a total of $4,792,698,000.  He then added
those two figures (for owned property and for leased property),
for a total of $10,673,092,000.  Next, he calculated an
obsolescence factor of 56.7 percent, which purportedly
represented the difference between the market value and the cost
of Delta's taxable property due to functional and economic
obsolescence.(5)  In calculating his obsolescence factor, Delta's
appraiser followed the "income-deficiency" method, which relied
to a significant degree upon his earlier results in his income
approach to value.(6)  Finally, he applied that factor to his total
cost figure, less depreciation, for a total cost value of
$4,621,449,000. 

		The department's appraiser used different approaches to
determine cost, depending upon the type of asset being valued. 
For airport terminal property and certain equipment, he followed
an approach similar to Delta's appraiser, using Delta's books to
determine historical costs and depreciation.  In contrast, for
both owned and leased aircraft, the department's appraiser began
with historical costs, but then applied his own depreciation
scheme, based upon his analysis of market transactions as
reported in a 1991 publication by Avmark, Inc., an aviation
marketing and management organization.  The department's
appraiser concluded that, under the cost approach, Delta's owned
and leased property had a value of $11,750,000,000 (as corrected
during trial).  He did not make a separate adjustment for
obsolescence because, in his view, his market depreciation
analysis accounted for any obsolescence that might have existed.

	3.	Stock and debt approach

		The stock and debt approach to value, which is a
substitute for a market-sales approach, is based upon the premise
that the value of assets is equal to total liabilities plus
equity.  Thus, the stock and debt approach assumes that the
market value of a company's assets can be imputed from the market
value of its equity and debt.

		In his stock and debt approach, Delta's appraiser
calculated a gross stock and debt value of $9,845,817,000, which
included Delta's stock, long-term debt, capital-lease obligations
(but not operating-lease obligations), and current liabilities. 
His stock calculation included $1 billion of preferred stock
issued on July 1, 1992, the assessment date at issue in this
case.  Delta's appraiser then deducted the value of nontaxable
assets from that figure, resulting in a system-wide stock and
debt value of $6,786,155,000.  Delta's appraiser did not make a
leased-equipment adjustment because, in his view, the value of
Delta's leased aircraft was reflected in the value of its
securities, particularly in the current market value of its
stock.  He also did not include the value of Delta's deferred
credits, comprised primarily of deferred income taxes and
deferred gains on certain sale and lease-back transactions, in
his debt calculation.  

Like Delta's appraiser, the department's appraiser
determined a value for all Delta's stock and debt.  However, he
utilized stock prices and long-term debt figures that differed
from those used by Delta's appraiser.  He also did not include
the July 1, 1992, $1 billion preferred-stock issuance in his
stock calculation.  Additionally, unlike Delta's appraiser, the
department's appraiser included the value of deferred credits in
his debt calculation because, in his view, such credits
represented potential claims against Delta's assets.  After
calculating a preliminary stock and debt total, the department's
appraiser made adjustments for nontaxable property, resulting in
a total of $6,774,133,000.  Finally, he added $5,259,994,000,
which represented the present value of Delta's lease payments,(7)
to that figure, reaching a final stock and debt value of
$12,034,127,000.

	4.	Final valuation calculations

		After completing the three approaches to value, both
appraisers then used their results under those approaches to
calculate a system-wide value for Delta's taxable property. 
Delta's appraiser gave substantial weight to the income approach,
some weight to the stock and debt approach, and limited weight to
the cost approach, calculating a total system-wide value of $5.4
billion.  In contrast, the department's appraiser gave
substantial weight to both the cost and the stock and debt
approaches, but only limited weight to the income approach,
calculating a total system-wide value of approximately $10.8
billion.  In order to determine the Oregon value of Delta's
property subject to taxation, both appraisers then applied an
allocation factor of 0.6472 percent to their system-wide figures
and also made an additional real market value adjustment of eight
percent.  Delta's appraiser concluded that the final Oregon value
of Delta's taxable property was $32,152,900; the department's
appraiser concluded that the final Oregon value was $69,961,000.

B.	Appropriateness of Leased-Equipment Adjustment

		As can be seen, in the income and the stock and debt
approaches to value, Delta's appraiser did not make a separate
adjustment for aircraft leased by Delta.  In addition, although
his cost approach included the cost of leased aircraft, Delta's
appraiser relied upon figures calculated in his income approach,
which did not adjust for leased aircraft, to calculate
obsolescence.  In contrast, the department's appraiser made a
separate adjustment for leased aircraft in both the income and
the stock and debt approaches, and included the cost of leased
aircraft, without relying upon figures from the income approach,
in the cost approach.

		Delta argues that, because the concept of unit
valuation seeks to value an integrated set of assets as a single
operating unit, it was inappropriate for the department to make a
separate adjustment for leased equipment.  In Delta's view, such
an adjustment effectively combined the unit concept with the
summation concept, which values individual assets separately and
then adds those values to calculate a final valuation figure. 
Delta further argues that making a separate adjustment for leased
equipment, as the department did, resulted in a "double-counting"
of that equipment.  Specifically, in the income approach, Delta
reasons that its final valuation figure, as calculated by its
appraiser, represented all the income generated by all Delta's
owned and leased aircraft, and, therefore, the value of its
leased aircraft was captured in that final valuation figure.  In
the stock and debt approach, Delta similarly reasons that the
value of leased aircraft already was reflected in the value of
its stock and other securities, and, therefore, the department's
leased-equipment adjustment double-counted that value. 

		The department responds that it did not violate the
unit concept when it calculated a separate value for Delta's
leased aircraft and included that value in the income and in the
stock and debt approaches.  The department asserts that the
purpose of a unit valuation is to capture the incremental
increase in value that derives from the operation of several
assets as a unit.  It follows, in the department's view, that
Delta's income and its stock and debt approaches valued only
Delta's owned property and the incremental benefit derived from
Delta's owned and leased property operating as a unit.  The
department continues, however, that Delta's income and its stock
and debt approaches did not capture the value of Delta's leased
aircraft, represented by lease payments to the lessors.  In the
department's view, a leased-equipment adjustment is required in
order to capture the lessors' ownership interest in the leased
aircraft.

		Before this court and the Tax Court, both parties
focused their arguments upon the theoretical propriety of making
a leased-equipment adjustment when appraising Delta's taxable
property.  We need not engage in that debate, however, because an
administrative rule answers the question whether such an
adjustment is permissible.  OAR 150-308.205-(B) provides, in
part:

	"The Western States Association of Tax
Administrators (WSATA) 1989 Handbook on 'Valuation of
Utility and Railroad Property,' is adopted as the
official valuation guide for property assessed by the
Oregon Department of Revenue under ORS 308.505 to
308.660 and 308.705 to 308.730 for ad valorem taxes.

	"* * * * *

	"(7) PROCEDURE FOR VALUATION OF AIR TRANSPORTATION
AND AIR EXPRESS COMPANIES.

	"(a) The property of air transportation companies
shall be valued using one or more of the following
appraisal approaches:

	"(A) A cost indicator utilizing either
reproduction, replacement, or historical cost data[,]
which ever is most appropriate depending on degree of
regulation and availability of data. * * *

	"(B) Income capitalization methods as described in
the WSATA 'Handbook on Valuation of Utility and
Railroad Property.'  * * *

	"(C) The stock and debt indicator as described in
the WSATA 'Handbook on Valuation of Utility and
Railroad Property.'

	"(D) The market data approach.

	"(b) The reconciled unit value estimate shall be
adjusted to include taxable property not included in
the unit, i.e., full value of lessors' interest in
equipment leased from others or to exclude nontaxable
property included in the unit.

	"* * * * *

	"(11) EFFECTIVE DATE:

	"This rule first applies to property valuation as
of January 1, 1990."  (Emphasis added.)

Thus, OAR 150-308.205-(B)(7)(b) specifically requires
that, in valuing an air-transportation company such as Delta, the
department make an adjustment for leased equipment to value fully
the lessors' interest, i.e., the ownership interest in the leased
aircraft.  In light of that express requirement, Delta cannot
argue persuasively that the Tax Court erred in approving the
department's decision to make leased-equipment adjustments in its
approaches to value.(8)  We hold that, as a general matter, it was
permissible -- indeed, required -- for the department to make a
separate adjustment for Delta's leased equipment in its
appraisal.

		Delta raises additional issues that concern the manner
in which the department adjusted for Delta's leased aircraft,
which we address below.  Before doing so, we note that OAR 150-308.205-(B) adopts the Western States Association of Tax
Administrators Appraisal Handbook on "Valuation of Utility and
Railroad Property" (1989) (WSATA Handbook) as the official
valuation guide for assessing property under ORS 308.510(1), ORS
308.515, and ORS 308.555.  Further, OAR 150-308.205-(B)(7)(a)(B)
and (C) specifically require the department to refer to the WSATA
Handbook when completing the income and the stock and debt
approaches in the valuation of an air transportation company. 
The WSATA Handbook, therefore, is pivotal to our determination of
several of Delta's challenges.

C.	Specific Challenges to the Department's Manner of

	Adjusting for Leased Equipment

	1.	Type of leased-equipment adjustment

		Delta first contends that, even if a leased-equipment
adjustment were required, the department should have employed the
traditional method of adjusting for such equipment.  According to
the record, the traditional method treats leased property as if
it were owned by the lessee.  Under that method, in the income
approach, lease expenses are not deducted when determining net
operating income; however, deductions are taken from that income
figure for the depreciation and taxes that would result if the
leased property actually were owned by the lessee.  In contrast
to that method, in his income approach, the department's
appraiser calculated a separate present-value figure for Delta's
lease payments, including the residual values remaining at the
end of the lease terms, and added that figure to its present
value figure for the cash flows generated from Delta's owned
property operating as a unit.  Similarly, in his stock and debt
approach, the department's appraiser added a separate present-value figure for Delta's lease payments (but not the residual
values).  Delta contends that there is no support for the
department's method of adjusting for leased property, emphasizing
that the department's own expert witness on unitary appraisal, as
well as its own supporting documentation, advocated only the
traditional method of adjusting for leased equipment.

		The WSATA Handbook is helpful in answering the question
before us.  In discussing the income approach, the handbook first
explains that the traditional approach -- treating leased
property as if it were owned -- is a straightforward method for
capturing the value of noncapitalized leased assets.  WSATA
Handbook at 71.  However, the handbook then notes that, if the
cost of capital for leased assets is different from the cost for
owned assets, then the traditional approach can result in
significant value distortions.  Ibid.  In such a circumstance,
the handbook suggests the alternative approach of capitalizing
the lease payments and adding that amount to the capitalized
income figure for owned property.  Ibid.  Further, the WSATA
Handbook also specifically approves of the same method of
adjusting for leased equipment in the stock and debt approach,
which the department's appraiser followed in this case.  See
WSATA Handbook at 97 (requiring leased-equipment adjustment in
the stock and debt approach, which may be made "by adding to the
stock and debt valuation the present value of the remaining
annual lease payments for a long term lease").

		The department's appraisal noted that the traditional
method for valuing leased equipment improperly would skew the
income approach results in this case, due to certain cost
differences between owned and leased assets.  Consequently, the
department's appraiser followed the second approach approved in
the WSATA Handbook.  In light of the directive in OAR 150-308.205-(B)(7)(a)(B) and (B)(7)(b), it was not error for the Tax
Court to approve that manner of adjusting for Delta's leased
aircraft in the income approach.  Further, in light of OAR 150-308.205-(B)(7)(a)(C) and (B)(7)(b), we also approve of the
department's manner of adjusting for Delta's leased aircraft in
the stock and debt approach.  However, as explained below, we
hold that the amount of the leased-equipment adjustment must be
modified in both the income and the stock and debt approaches.

	2.	Amount of leased-equipment adjustment

		Delta next contends that, even if we agree with the
department's manner of adjusting for leased equipment, the
department's appraiser calculated an excessive value for Delta's
leased aircraft both in his income and in his stock and debt
approaches to value.  Delta first argues that the department's
appraiser erred in capitalizing Delta's gross lease-payment
figures, rather than allowing for operating expenses, including
depreciation and taxes.  Second, Delta argues that the
department's appraiser improperly capitalized Delta's lease
payments by using a capitalization rate that represented the
industry's cost of debt, rather than Delta's weighted average
cost of capital.

		At trial, the department's appraiser conceded that an
adjustment similar to the one now advocated by Delta would be
reasonable in the income approach.  He presented an alternative
calculation at trial of the value of Delta's leased aircraft that
focused upon the cash flow to the lessors in the form of lease
payments.  Rather than capitalizing the gross lease payments at
the industry's cost of debt, the appraiser's alternative
calculation deducted the lessors' estimated taxes and
depreciation from Delta's gross lease payments and then
calculated the present value of the lease payments and residual
values, using a capitalization rate that represented the lessors'
weighted average cost of capital.  That alternative calculation
reached a present-value figure for Delta's lease payments of
$4,448,460,053 and a residual-value figure on the leases of
$644,257,966, for a total present-value figure in the income
approach for Delta's leased aircraft of $5,092,718,019.  That
final leased-aircraft figure was almost $686 million less than
the total reflected in the department's trial appraisal.  The
department's appraiser expressed confidence in his alternative
calculation, testifying that, if the court concluded that that
type of calculation were necessary in order to value the lessors'
interest, then the new figure of almost $5.1 billion would be a
reasonable estimation of the present value of Delta's leased
aircraft.

On rebuttal, Delta's appraiser criticized the
department's alternative calculation, reiterating his earlier
contention -- which we already have rejected -- that it was
erroneous for the department to include a separate leased-equipment adjustment of any kind.  Nonetheless, as noted above,
Delta now asks this court to approve a calculation of value that
adjusts for certain expenses related to Delta's leased aircraft,
such as depreciation and taxes.  That proposed adjustment
theoretically is similar to the alternative calculation that the
department's appraiser presented at trial.  The parties continue
to dispute, however, the type of capitalization rate that should
have been used in calculating the present value of Delta's lease
payments, with Delta contending that that rate must represent
Delta's weighted average cost of capital, rather than either the
industry's cost of debt (as used in the department's appraisal)
or the lessors' weighted average cost of capital (as used in the
department's alternative trial calculation).

After considering the parties' arguments and reviewing
the record, we conclude that the alternative calculation
presented at trial by the department's appraiser, which
incorporated the lessors' weighted average cost of capital,(9)
represents the most reasonable calculation of the present value
of Delta's lease payments in this record.  See generally Reynolds
Metals Co. v. Dept. of Rev., 299 Or 592, 602-03, 705 P2d 712
(1985) (demonstrating that Supreme Court must determine
appropriate figures in valuation cases on de novo review, based
upon available evidence in the record, even where such evidence
is less than ideal).  Accordingly, we make the following
modifications to the figures contained in the department's trial
appraisal.  First, as to the department's income approach, we
reduce the present value of the lease payments, which included
the residual values of the leased aircraft, from $5,778,594,000
to $5,092,718,019.  That new, modified figure incorporates a
present-value figure for the lease payments of $4,448,460,053 and
a residual-value figure of $644,257,966.  Using that modified
figure, we calculate a new, system-wide value figure under the
income approach of $10,521,454,019.  Second, as to the
department's stock and debt approach, we reduce the present value
of the lease payments from $5,259,994,000 to $4,448,460,053, for
a new, system-wide value figure of $11,222,593,053.(10)

IV.  OTHER VALUATION ISSUES

A.	Income Approach

	1.	Limited-life and perpetuity models

Delta next contends that the Tax Court should not have
used the department's income approach, because it improperly
utilized a limited-life model.  As noted above, the department's
limited-life model forecasted the income expected to be derived
from the subject unit of assets over the remaining economic life
of those assets.  Using that model, the department's appraiser
concluded that, before accounting for residual value in the
assets, Delta's projected, annual income to be capitalized
totaled approximately $806.6 million.  In contrast, Delta's
appraiser followed a perpetuity model in his income approach,
which forecasted the income to be capitalized into perpetuity. 
Delta's appraiser concluded that Delta's projected operating
income, after deducting estimated taxes, totaled $552 million,
almost $255 million less than the department's calculation.

In challenging the department's use of the limited-life
model, Delta specifically argues that that model was
inappropriate, because the department was valuing an ongoing unit
of operating property.(11)  At trial, the department's appraiser
defended his use of the limited-life model, although he
acknowledged that it might have overstated the present value of
future income.  He further testified that the perpetuity model
was inappropriate here, because the objective was to value
Delta's assets, which have finite lives, rather than Delta as a
firm, which might continue into perpetuity.

As noted earlier, OAR 150-308.205-(B)(7)(a)(B)
specifically requires that, when valuing an air-transportation
company using the income approach, the department use the methods
described in the WSATA Handbook.  The handbook, in turn, answers
the question whether use of the limited-life or perpetuity model
was appropriate in this case.  The handbook provides that, when
the taxation requirement is to value assets that exist on the
assessment date, it is proper to forecast the expected income
"over the remaining economic life of the existing assets," i.e.,
to follow a limited-life model.  WSATA Handbook at 45.  In
contrast, the handbook provides that "[f]orecasting income into
perpetuity is proper when the corporate entity is being valued." 
Ibid. 

		Under Oregon law, taxable property must be assessed as
of a particular assessment date.  See ORS 308.515 (the department
shall make an annual assessment of certain property having a
situs in this state, including air transportation property); ORS
308.540 (1993) (the department shall prepare an assessment roll
each year, "in which shall be assessed, as of July 1 at 1:00 a.m.
of such year, the real market value of all the properties of the
several companies subject to taxation under ORS 308.505 to
308.665").  Thus, the department's task in this case was to value
Delta's taxable property, as a unit, as of the assessment date at
issue.  As discussed above, the WSATA Handbook provides that the
limited-life model is the appropriate manner of valuing such
property when using the income approach.  In contrast, the
perpetuity model would not have been appropriate here, because
the department's task was to determine the value of Delta's
assets, not the value of Delta as a firm.  Accordingly, we reject
Delta's contention that the department erroneously applied the
limited-life model in its income approach.

	2.	Specific challenges to the department's 

		limited-life model

		Delta also challenges certain aspects of the
department's use of the limited-life model, contending that the
department's appraiser improperly calculated the cost of capital
maintenance and did not account for future capital investment
requirements.  As to the latter issue, we reject Delta's
argument, because it primarily pertains to replacement costs of
assets in the unit, which the department's appraiser did not
account for, and the record and the WSATA Handbook indicate that
the limited-life model is not concerned with such replacement
costs.  See WSATA Handbook at 66 (limited-life model values only
assets existing as of the assessment date; "future forecasts
leave out both revenues and expenses associated with future
replacement assets").  As to the former issue, although the
record indicates that the department's appraiser might have
overestimated the cost of Delta's capital maintenance, we cannot
determine from the record the extent, if any, of that
overestimation.  Consequently, we cannot conclude that Delta has
met its burden of proof in challenging the department's
calculations using the limited-life model in the income approach. 
See generally Publishers Paper Co. v. Dept. of Rev., 270 Or 737,
750, 530 P2d 88 (1974) (in challenging departmental assessment,
taxpayer need not prove all the proposed change; rather, "[h]e
must do no more than show that a reduction is appropriate and
furnish the court with information sufficient to calculate the
reduction proved to be in order" (emphasis added)).

B.	Cost Approach

	1.	Obsolescence

		Delta next contends that the Tax Court erred in
rejecting Delta's cost approach, specifically, its use of the
income-deficiency method to calculate an obsolescence factor of
56.7 percent.  As noted, Delta's income-deficiency method
calculated obsolescence by comparing the rate of return on the
assets subject to taxation to the rate of return required to
attract investment.  Thus, that method relied upon figures
calculated in Delta's income approach to determine obsolescence
in the cost approach.  See ___ Or at ___ n 6 (slip op at 12 n 6)
(explaining Delta's use of the income-deficiency method).  In
Delta's view, an obsolescence adjustment was required in the cost
approach, because the appraiser was required to determine what an
investor would have been willing to pay for the assets in their
present state as of the assessment date.  As discussed earlier,
Delta's appraiser calculated a preliminary value of Delta's
taxable property, owned and leased, of $10,673,092,000 and, after
using the income-deficiency method to calculate obsolescence,
calculated a final value under the cost approach of
$4,621,449,000.

		The department responds that Delta's income-deficiency
method was fundamentally flawed, because it relied upon the net
operating income figure from Delta's income approach, which did
not incorporate a leased-equipment adjustment.  In the
department's view, such reliance upon the income approach always
will result in a valuation figure in the cost approach that
mirrors the valuation figure in the income approach.  In contrast
to Delta's appraiser, the department's appraiser, who calculated
a total value under the cost approach of $11,750,000,000 (as
corrected during trial), did not make a separate adjustment for
obsolescence.  

After reviewing the record, we conclude that Delta has
not proved by a preponderance of the evidence that we must adopt
its cost approach incorporating the income-deficiency method. 
Predictably, each appraiser testified that his approach was
correct; no other witness testimony supported either competing
contention.  In addition, Delta submitted two articles, only one
of which supported its use of the income-deficiency method in the
cost approach to value.  In short, we are unable to conclude from
the evidence before us what type of obsolescence adjustment -- if
any -- is required.(12)

		Further, we find it significant that, as Delta's
appraiser testified, by using the income-deficiency method, his
cost indicator always would have equaled his income indicator,
because his cost indicator measured obsolescence by examining the
projected income stream.  At best, therefore, Delta's income
deficiency method is illogical, because it incorporates income
figures that account for only owned assets, while it uses cost
figures that account for both owned and leased assets.  At worst,
Delta's income-deficiency method strips the cost approach of its
use as an independent determiner of value, because it always will
track the result under the income approach.  

		For the foregoing reasons, we conclude that Delta's
arguments concerning the income-deficiency method are not well
taken.

	2.	Depreciation

		Delta also challenges the department's cost approach to
value because, in Delta's view, the department's appraiser used
inaccurate depreciation figures that inflated his final value
calculation.  As noted earlier, the department's appraiser
developed his own market-based depreciation scheme -- which, in
his view, incorporated obsolescence -- for all Delta's owned and
leased aircraft, by relying upon value figures reported by
Avmark, Inc., an organization that provides various services in
the airline industry, including appraisals and valuation studies. 
In contrast, Delta's appraiser applied book depreciation for all
Delta's taxable assets in his cost approach, rather than
conducting a separate market-transaction analysis.

		Delta asserts that it is not feasible to conduct a true
market-transaction analysis of the aircraft market and,
consequently, Delta's use of book depreciation was appropriate
when calculating value in the cost approach.  Additionally, Delta
argues that the Avmark data relied upon by the department's
appraiser to calculate depreciation did not accurately reflect
aircraft-sales transactions and, as a result, his entire cost
approach was fundamentally flawed.  

		The department responds that Delta's use of book
depreciation was inappropriate in the cost approach, because book
depreciation is irrelevant when determining the true value of the
assets subject to taxation.  Thus, in the department's view, an
actual market-transaction analysis was required.  The department
further contends that the Avmark data provided a reliable source
of the information necessary to conduct such an analysis.

		The parties' competing contentions center upon the
validity of certain Avmark data as accurate indicators of the
market value of aircraft similar to those owned and leased by
Delta.  The department's appraiser relied upon a 1991 Avmark
publication, entitled "Current Aircraft Values," to develop his
depreciation scheme.  The department contends that the data set
out in that publication were derived from an analysis of actual
market transactions.  In response, Delta contends that the data
were unreliable and, consequently, did not provide an accurate
basis to calculate depreciation.

The evidence in the record supports Delta's contention. 
First, the record demonstrates that it is difficult to develop a
pricing schedule in the airline industry, because there is little
reliable information concerning aircraft market prices.  For
example, in contrast to the "blue book" in the motor-vehicle
market, there are comparatively fewer sales in the aircraft
market, and sales agreements often are confidential.  In
addition, sales of aircraft often involves "extras," such as
spare parts and training.

Second, the record demonstrates that the Avmark data at
issue were not based solely upon an analysis of market-sales
transactions.  According to the testimony of the department's
appraiser, he understood that the schedules that he used from the
1991 "Current Aircraft Values" were based upon such transactions. 
However, Delta's appraiser testified persuasively on rebuttal
that a sales-price analysis constituted only a small component of
the figures set out in that publication.  According to Delta's
appraiser, Avmark developed the figures that the department's
appraiser relied upon by projecting revenues and expenses,
discounted to present value, and then adjusting those figures to
compensate for a variety of factors that, in Avmark's subjective
judgment, might have been relevant to estimating market value. 
One of those factors was sales price.  Avmark calculated its
figures in that manner because there was insufficient sales-price
information available to develop values based only upon such
prices.  In short, the figures that the department's appraiser
relied upon did not represent market-transaction figures in and
of themselves; rather, they represented Avmark's projected values
based only in small part upon available market-transaction data. 
As a result, the data relied upon by the department's appraiser
did not measure market activity to the extent that he had
testified and, consequently, did not accurately measure market
depreciation.(13)

Finally, two other witnesses, both of whom were airline
employees engaged in the acquisition of aircraft, testified in
Delta's behalf that Avmark typically overstated the value of
aircraft.  Those witnesses cited specific examples demonstrating
that Avmark had overestimated the value of certain airplanes by
between $2 million and $12 million.  The department presented no
evidence to contradict that testimony.

In sum, we conclude that Delta has proved by a
preponderance of the evidence that the depreciation figures in
the department's cost approach to value were based upon
unreliable information.(14)  The next question before us, then, is
how to remedy that problem.  The record demonstrates that a
market-based depreciation scheme would have been preferable to
book depreciation, because a market-based scheme more accurately
would have reflected the value of property under the cost
approach.  However, the record contains only book-depreciation
figures, used by Delta's appraiser, and depreciation figures
based upon Avmark data -- which we have concluded did not
accurately reflect depreciation -- used by the department's
appraiser.  In view of the fact that the record contains only
those two competing choices, a choice must be made.  We conclude
that, in this case, Delta's use of book depreciation in the cost
approach was more reliable than the department's depreciation
scheme.

		At bottom, we still must determine the appropriate
value of Delta's taxable property under the cost approach. 
Delta's appraiser concluded that the historical cost of Delta's
property less book depreciation totaled $10,673,092,000.  He then
applied his obsolescence factor of 56.7 percent, which we have
rejected as a reliable indicator of obsolescence, and concluded
that the value of Delta's taxable assets under the cost approach
was $4,621,449,000.  The department's appraiser concluded that
Delta's historical costs less depreciation, based upon his Avmark
depreciation scheme, totaled $11,750,000,000 (as corrected during
trial).  The department's appraiser did not make a separate
adjustment for obsolescence because, in his view, his market
analysis based upon Avmark data accounted for all types of
obsolescence.  In short, Delta's appraiser made a separate
adjustment for depreciation, which we have approved, and for
obsolescence, which we have rejected; the department's appraiser
made only one adjustment that accounted for both depreciation and
obsolescence, which we have rejected.  The difficulty, then, is
determining an appropriate valuation figure under the cost
approach, when there is insufficient information in the record
concerning the appropriate obsolescence adjustment, if any.

		We conclude that a reasonable value of Delta's taxable
property under the cost approach is $10,673,092,000, which was
Delta's determination of historical cost less book depreciation,
before adjusting for obsolescence.  That figure is more than   
$1 billion less than the department's value using the cost
approach, although it also is more than $6 billion above Delta's
value using the cost approach, which made a separate deduction
for obsolescence.  We recognize that an obsolescence adjustment
might result in a more accurate figure; however, as we have
discussed, there is insufficient information in the record
concerning such an adjustment.  See generally Reynolds Metals
Co., 299 Or at 602-03 (demonstrating that, if possible, court
must determine reasonable valuation figure based upon record);
Publishers Paper Co., 270 Or at 750 (record at least must contain
sufficient information to calculate warranted reduction).  We
further conclude that, because our determination of value under
the cost approach likely is incomplete, the cost approach should
be given the least amount of weight of the three approaches to
value when calculating a final value of Delta's taxable property. 
C.	Stock and Debt Approach

		Finally, Delta challenges two aspects of the
department's stock and debt approach, aside from its contention 
-- which we have rejected -- that the department should not have
made a leased-equipment adjustment.  First, Delta argues that the
department's appraiser erroneously included certain deferred
credits when calculating Delta's liabilities.  In Delta's view,
such credits, which represented deferred taxes and gains on
certain sale and lease-back transactions, were not traded
securities and did not contribute capital to Delta (as did equity
and debt); rather, they merely represented accounting or
bookkeeping adjustments.  Second, Delta contends that the
department's appraiser incorporated the incorrect total of shares
of stock in his approach.  In Delta's view, this court should
accept its stock and debt value of $6,786,155,000, and reject the
department's final value in its trial appraisal of
$12,034,127,000.

At trial, Delta demonstrated that the department's
appraiser incorporated questionable figures in his stock and debt
approach, and did not understand fully either the nature of
Delta's deferred credits or the extent to which those credits
should have been included when calculating Delta's total debt.(15) 
However, as did the Tax Court, we find it significant that,
before the leased-equipment adjustment, the department's
preliminary value under the stock and debt approach --
$6,774,133,000 -- was remarkably similar to Delta's final value,
which did not include a leased-equipment adjustment.(16)  As
explained earlier, it was proper for the department to make a
leased-equipment adjustment under OAR 150-308.205-(B)(7)(b).  See
___ Or at ___ (slip op at 19-20) (so explaining).  We therefore
conclude that the department's initial stock and debt value of
$6,774,133,000, when added to the modified leased-equipment
adjustment of $4,448,460,053, see ___ Or at ___ (slip op at 26)
(explaining modified adjustment), reflects the most reasonable
calculation of Delta's taxable property under the stock and debt
approach.  Accordingly, we hold that the appropriate value of
Delta's taxable property under the department's stock and debt
approach is $11,222,593,053.  However, in view of the problems in
the department's approach exposed by Delta at trial, we conclude
that the department's stock and debt value, as modified, should
not be given great weight in calculating a final, system-wide
valuation figure for Delta's taxable property.

V.  CONCLUSION

In sum, we conclude that it was permissible for the
department to make a leased-equipment adjustment in its income
and its stock and debt approaches to valuing Delta's taxable
property.  However, we adopt a modified leased-equipment
adjustment under those two approaches, as well as a modified
value figure under the cost approach, as set out below.

As to the income approach, other than our modification
of the amount of the leased-equipment adjustment, we reject
Delta's specific challenges to the department's manner of
adjusting for the value of Delta's leased aircraft, as well as
its other criticisms of the department's income approach.  We
conclude that a reasonable value under the income approach is
$10,521,454,019, rather than the $11,207,330,000 value figure
included in the department's trial appraisal.

As to the cost approach, we agree with Delta that the
department utilized erroneous depreciation figures and conclude
that $10,673,092,000, rather than the $11,750,000,000 value
figure presented by the department's appraiser (as corrected
during trial), is a reasonable value figure.  We further conclude
that, in calculating a final value figure, the cost approach
should be given the least weight of the three approaches to
value.

Finally, as to the stock and debt approach, we conclude
that $11,222,593,053 is a reasonable value figure, rather than
the $12,034,127,000 figure included in the department's trial
appraisal.  We further conclude that, in light of certain
methodological errors highlighted by Delta at trial, the
department's stock and debt approach should not be given
significant weight in calculating a final value figure.

Consistent with the foregoing, we calculate a new,
system-wide value for Delta's operating property, as follows
(rounded to the nearest dollar):

	Income:	$10,521,454,019 x 60%	=	$6,312,872,411

	Cost:	 10,673,092,000 x 10%	=	 1,067,309,200

	Stock and Debt:	 11,222,593,053 x 30%	=	 3,366,777,916

	__________________________________________________________

	Total System-Wide Value:		$10,746,959,527	

See generally United Telephone Co. v. Dept. of Rev., 307 Or 428,
447, 770 P2d 43 (1989) (employing same reconciliation
methodology).

		As did both parties in their appraisals, we now
determine the Oregon value of Delta's taxable property by
applying an allocation factor of 0.6742 percent and a real market
value adjustment of eight percent, as follows (rounded to the
nearest dollar):

	System-Wide Value:	$10,746,959,527

	x Allocation Factor:	     x .006742

		_______________

			 72,456,001

	Less 8% RMV Adjustment:		 (5,796,480)

		_______________

	Total Oregon Value:	$    66,659,521

The judgment of the Tax Court is modified accordingly.

		The judgment of the Tax Court is modified, and the case
is remanded to the Tax Court for further proceedings.

1.     1	ORS 308.515 provides, in part: 

"(1) The Department of Revenue shall make an
annual assessment, upon an assessment roll to be
prepared by the division of the department charged with
property tax administration, of the following property
having a situs in this state:

	"(a) [With exceptions that do not apply here], any
property used or held for its own future use by any
company in performing or maintaining any of the
following businesses or services or in selling any of
the following commodities, whether in domestic or
interstate commerce or both, and whether  mutually, or
for hire, sale or consumption by other persons:  * * *
air transportation * * *."

2.     2	For purposes of taxation, ORS 308.510(1) defines
"property" as:

"[A]ll property, real and personal, tangible and
intangible, used or held by a company as owner,
occupant, lessee, or otherwise, for or in use in the
performance or maintenance of a business or service or
in a sale of any commodity, * * * but does not include
[assets that are not at issue here]."  (Emphasis
added.)

The property at issue here is aircraft held by Delta under
operating leases, which are leases in the more traditional sense
of that term.  Both Delta and the department treat aircraft held
by Delta under capital leases -- which, by their nature, are more
akin to ownership of property -- as if Delta had owned those
aircraft.

3.     3	ORS 308.555 (1993) provided, in part:

"The department, for the purpose of arriving at
the real market value of the property assessable by it,
may value the entire property, both within and without
the State of Oregon, as a unit.  If it values the
entire property as a unit, either within or without the
State of Oregon, or both, the department shall make
deductions of the property of the company situated
outside the state, and not connected directly with the
business thereof, as may be just, to the end that the
fair proportion of the property of the company in this
state may be ascertained.  If the department values the
entire property within the State of Oregon as a unit,
it shall make deductions of the property of the company
situated in Oregon, and assessed by the county
assessors, to an amount that shall be just. * * *"

4.     4	Section 6a of Oregon Laws 1995, chapter 650, defined
the term "frivolous position" in the context of tax cases.

5.     5	"Functional obsolescence" represents a decline in value
due to factors internal to the property, such as technological
inefficiencies; "economic obsolescence" represents a decline in
value due to factors external to the property, such as economic
conditions and government regulations.

6.     6	The "income-deficiency" method compares market value
and cost, and deems the difference between the two to be
obsolescence.  Using that method, Delta's appraiser first
determined the actual rate of return on the property being valued
by dividing net operating income, as determined in his income
approach ($552,000,000), by the total cost of owned and leased
property less depreciation, as determined in his cost approach
($10,673,092,000).  That calculation resulted in an actual rate
of return of 5.2 percent.  Next, Delta's appraiser divided that
actual rate of return by a capitalization rate of 12 percent,
reaching a figure of 43.3 percent.  He then subtracted the 43.3
percent figure from 100 percent, resulting in an obsolescence
factor of 56.7 percent.  

7.     7	In his income approach, in addition to calculating the
present-value figure of $5,259,994,000 for Delta's lease
payments, the department's appraiser also calculated the present
value of the residual value remaining at the end of each lease
term and added that residual figure to the lease-payment figure,
reaching a total leased-equipment adjustment of $5,778,594,000. 
See ___ Or at ___ (slip op at 11) (explaining the department's
leased-equipment adjustment in its income approach).  According
to the record, the income approach included a residual-value
calculation on the leased aircraft because the purpose of the
income approach was to measure the projected stream of income to
be derived from Delta's assets, including its leased aircraft.

		In contrast, the "debt" component of the stock and debt
approach measured the level of Delta's obligations, which, in the
department's appraisal, included the present value of the lease
payments.  Accordingly, the department's stock and debt approach
did not incorporate residual values.  Rather, the department's
appraiser included only the $5,259,994,000 lease-payment figure
in his leased-equipment adjustment in the stock and debt
approach.

8.     8	Delta does not challenge the validity of the
administrative rule; rather, it challenges the department's
decision to make a leased-equipment adjustment, as well as its
manner of doing so.

9.     9	Delta has not proved by a preponderance of the evidence
either that the capitalization rate must have incorporated
Delta's weighted average cost of capital or that it was improper
for the department's appraiser to use the lessors' weighted
average cost of capital in his alternative calculation.

10.     10	As noted earlier, the department's stock and debt
approach did not include an amount representing the residual
value remaining at the end of each lease term.  See ___ Or at ___
& n 7 (slip op at 15 & n 7) (so explaining).  Therefore, we also
do not include a residual-value figure when calculating the
appropriate leased-equipment adjustment in the stock and debt
approach.

11.     11	Delta also cites Burlington Northern v. Dept. of Rev.,
291 Or 729, 738-39, 635 P2d 347 (1981), for the proposition that
a perpetuity model, rather than a limited-life model, is
appropriate when conducting a unit valuation of a multi-state
company.  It is true that, in Burlington Northern, which involved
a company in a regulated industry, this court rejected an
approach similar to the department's and approved a perpetuity
approach similar to Delta's.  However, as this court repeatedly
has stated, "when this court evaluates and then either accepts or
rejects various theories of valuation offered by the parties, it
almost always does so as a finder of fact on de novo review of
the record made in the Tax Court."  United Telephone Co. v. Dept.
of Rev., 307 Or 428, 431, 770 P2d 43 (1989).  In short, "this
court decides each case on its own record," id. at 432, and,
consequently, earlier valuation cases provide no precedential
value to our determination of the issues before us here.  We
further note that OAR 150-308.205-(B)(7)(a)(B), which requires
the department to follow the WSATA Handbook in the income
approach, was adopted after this court's decision in Burlington
Northern.

12.     12	The WSATA Handbook does not provide a clear answer on
this issue.  The handbook provides that, when conducting a
valuation under the cost approach by examining historical costs
less depreciation, as both appraisers did here, obsolescence
deductions are improper for cost-regulated companies or
utilities.  WSATA Handbook at 27.  However, the handbook does not
mention whether, or what type of, obsolescence adjustment is
proper when analyzing historical costs less depreciation for
other companies.  The WSATA Handbook does support using the
income-deficiency method to calculate obsolescence, but only in
certain circumstances that do not exist here.  WSATA Handbook at
31-32.  In sum, the handbook does not speak to the
appropriateness of an obsolescence adjustment, using the income-deficiency method or some other method, when appraising an
airline such as Delta.

13.     13	Delta's appraiser also testified that a different
Avmark schedule might have been helpful in calculating
depreciation; however, the department's appraiser did not use
that schedule.

		In his cost approach, the department's appraiser also
used data contained in a 1993 Avmark publication to make a real
market value adjustment.  That data represented sales prices for
certain aircraft.  In making the adjustment, the department's
appraiser calculated a total value under the cost approach that
exceeded his earlier value using his depreciation scheme based
upon Avmark's 1991 "Current Aircraft Values" publication.  In the
appraiser's view, his second, higher calculation confirmed that
his earlier valuation, based upon the 1991 publication, was
reasonable.

		On review, the department asks this court to accept its
appraiser's second, higher calculation, based upon the 1993
Avmark publication, as the most reliable indicator of the value
of Delta's owned and leased aircraft.  However, that calculation
was not presented below as a substitute for the department's
trial appraisal.  Further, the department's appraiser made a
number of last-minute adjustments to his second, higher
calculation during trial.  In short, the record does not
demonstrate that we should consider the department's second,
higher calculation to represent either an accurate reflection of
a value figure under the cost approach or a substitute approach
to valuing Delta's assets.

14.     14	We emphasize that we do not hold that Avmark is an
inappropriate source of data in every case.  Rather, we conclude
that the department's depreciation scheme in the record here did
not reliably reflect depreciation.

15.     15	For example, the department's appraiser assumed that
the majority of Delta's deferred credits represented deferred
income taxes, when the record demonstrates that the majority of
Delta's deferred credits instead related to deferred gains.  The
department's appraiser also testified that he was not familiar
with Delta's deferred-gain credits and did not necessarily know
if they should have been included when calculating the value of
Delta's debt.

16.     16	Indeed, before the leased-equipment adjustment, the
department's value under the stock and debt approach was more
than $12 million less than Delta's final value of $6,786,155,000
under the stock and debt approach.