Case Title: Pollin v. Dept. of Rev.

Citation: 

Docket Number: S44044

State: oregon

Court: Oregon Supreme Court

Date: 1998-02-12T00:00:00Z

Document:
FILED:  February 12, 1998

IN THE SUPREME COURT OF THE STATE OF OREGON

HAROLD S. POLLIN,

	Appellant,

	v.

DEPARTMENT OF REVENUE,
State of Oregon,

	Respondent.

(OTC 3812; SC S44044)

		On appeal from the Oregon Tax Court.*

		Carl N. Byers, Judge.

		Argued and submitted January 5, 1998.

		Arden E. Shenker, of Law Offices of Arden E.
Shenker, Portland, argued the cause for appellant. 
With him on the briefs was Gregory L. Baird, of Gordon
& Polscer, Portland.

		Marilyn J. Harbur, Assistant Attorney General,
Salem, argued the cause for respondent.  With her on
the brief was Hardy Myers, Attorney General.

		Before Carson, Chief Justice, and Gillette, 

	Van Hoomissen, Graber, and Durham, Justices.**

		GRABER, J.

		The judgment of the Tax Court is affirmed.

	    *14 OTR 96 (1997).

	   **Fadeley, J., retired January 31, 1998, and did not 	participate in this decision; Kulongoski, J., did not
participate in the consideration or decision of this case.

		GRABER, J.

		The main issue in this case is how to value public
property that is leased by a nonexempt lessee:  Does ORS
307.110(1) (1995)(1) subject to taxation (a) the full value of the
leased property, or (b) only the value of the leasehold interest? 
The Tax Court held that ORS 307.110(1) (1995) provides for
taxation of the full value of the leased property.  On taxpayer's
appeal, we affirm.

		Taxpayer does not challenge the Tax Court's factual
findings.(2)  Accordingly, we take these pertinent findings from
the Tax Court's opinion:

		"The Port [of Portland (Port)] is a municipal
corporation and operates a wide range of facilities,
including the Portland International Airport.  In 1972,
taxpayer and the Port executed a lease for land
immediately adjacent to an airport runway.  The lease
obligated taxpayer to construct improvements to be used
as a full-service Sheraton Motor Hotel.  The lease
restricts the use of the property to a 'motor hotel,'
unless the lessee obtains the lessor's written consent
for another use.  The original lease term is 40 years,
with a 10-year option.  The rent is based on a
percentage of income with a minimum annual rent. 
Taxpayer also agrees to pay any taxes that might be
imposed on the premises.  The lease requires taxpayer
to maintain the improvements to original standards and
also specifies a minimum original dollar investment. 
No modifications can be made to the improvements
without the Port's approval.  The lease also grants
taxpayer an option to obtain use of adjoining land for
expansion of the hotel, but that option expired.

		"Title to the improvements remains with taxpayer
until termination of the lease, at which time the Port
can elect to accept title or require taxpayer to remove
the improvements.  The lease also contains provisions
for insurance, damage, condemnation, assignment,
holding over, default, and other usual terms.  Because
of the location, taxpayer agrees to abide by FAA rules
and the Port's rules governing the airport.  The Port
expressly reserves the right to maintain flights over
the property with the consequent noise.  The motor
hotel and its restaurant must operate 365 days per
year.  The Port seeks to maximize its income and can
disapprove of particular employees of taxpayer. 
Subsequent amendments to the original lease pertain
primarily to rent and options to expand the hotel area. 
Taxpayer may pledge the improvements, but not the land,
as security for a loan."  Pollin v. Dept. of Rev., 14
OTR 96, 97-98 (1997).

		For the 1993-94 tax year, the county assessor assessed
the real market value of the land that taxpayer leased from the
Port, as well as the real market value of the improvements that
taxpayer owned.  The assessed values were $1,246,000 for the land
and $8,214,000 for the improvements, for a total assessed value
of $9,460,000.  Taxpayer appealed that assessment,
unsuccessfully, to the Department of Revenue (department). 
Thereafter, taxpayer filed a complaint in the Tax Court.

		The Tax Court concluded that ORS 307.110(1) (1995)
provides for assessment of the full amount of the real market
value of the leased land.  Id. at 100.  The Tax Court further
concluded that the length of the remaining term of a lease is not
a "governmental restriction as to use" within the meaning of ORS
308.205(2)(d).  Id. at 101-02.  The Tax Court also rejected the
parties' evidence of value.  It rejected taxpayer's appraisal,
which suggested that the assessed value of the subject property
was too high, because that appraisal analyzed taxpayer's
leasehold interest instead of analyzing the full value of the
leased land.  The court rejected the department's appraisal,
which suggested that the assessed value of the subject property
was too low, because that appraisal failed to view any of the
conditions in the lease as "governmental restriction[s] as to
use" under ORS 308.205(2)(d).  Id. at 105-06.  The Tax Court held
that the assessed value of the land and improvements --
$9,460,000 -- was the real market value of the subject property
in the light of all the evidence, and the court sustained the
department's order of assessment.  Id. at 106-07.

		On appeal, taxpayer first argues that the Tax Court
misconstrued ORS 307.110(1) (1995), which provides:

		"Except as provided in ORS 307.120,(3) all real and
personal property of this state or any institution or
department thereof or of any county or city, town or
other municipal corporation or political subdivision of
this state, held under a lease or other interest or
estate less than a fee simple, by any person whose real
property, if any, is taxable, except employees of the
state, municipality or political subdivision as an
incident to such employment, shall be subject to
assessment and taxation for the real market or
specially assessed value thereof uniformly with real
property of nonexempt ownerships."(4)  (Emphasis added.)

We apply the template established in PGE v. Bureau of Labor and
Industries, 317 Or 606, 610-12, 859 P2d 1143 (1993), to construe
that statute.

		Taxpayer reads ORS 307.110(1) (1995) to provide for the
assessment and taxation of "property * * * held under a lease"
and then argues that "ORS 307.110(1) limits the 'property'
subject to taxation to that 'held under lease.'  By doing so, the
legislature has expressed its intent that only the property
rights 'held under lease' shall be subject to taxation." 
(Emphasis added.)

		Taxpayer's argument suffers from two difficulties.  The
first is that it transforms the term "property * * * held under a
lease" into the term "property rights * * * held under a lease." 
We are not free to add to a statute that the legislature wrote. 
ORS 174.010; PGE, 317 Or at 611.

		The second difficulty is that taxpayer overlooks the
grammar of the sentence as a whole.  Taxpayer's argument suggests
that "value thereof" refers back to the "lease," so that it is
the leasehold interest that is to be assessed and taxed.  That
suggestion is at odds with the text.

		With the modifying clause removed, the core text of ORS
307.110(1) (1995) provides:  "all real and personal property 
* * * of any * * * municipal corporation * * * shall be subject
to assessment and taxation for the real market * * * value
thereof."  "Thereof" refers back to the noun "property" (i.e.,
all real and personal property of a municipal corporation).  The
modifying clause in the middle of the sentence modifies the noun
"property."  As the sentence is structured, it means that all
real and personal property of a municipal corporation is subject
to assessment and taxation for the value thereof, if that
property also meets the additional limitations in the sentence. 
Specifically, the phrase "held under a lease or other interest or
estate less than a fee simple, by any person whose real property,
if any, is taxable, except employees of the state, municipality
or political subdivision as an incident to such employment" is an
adjectival clause that modifies the noun "property."  In other
words, the modifying phrase concerning leases serves only to
limit which pieces of governmental real and personal property are
"subject to assessment and taxation for the real market * * *
value thereof."  Under ORS 307.110(1) (1995), only those pieces
of governmental property that are "held [by a nonexempt taxpayer]
under a lease or other interest or estate less than a fee simple"
are "subject to assessment and taxation for the real market * * *
value thereof"; governmental property held otherwise is not
subject to assessment or taxation.  That which is to be taxed or
not taxed, as the case may be, is the real market value of the
piece of governmental property.

		Context supports our reading of the text.  In general,
all property of the state and its subdivisions is exempt from
taxation.  ORS 307.090(1).(5)  ORS 307.110, the statute under
consideration here, is one in a series of statutory exceptions to
that general rule of exemption of governmental property.  See,
e.g., ORS 307.095 (state property rented to private individuals
for parking purposes is subject to ad valorem taxation); ORS
307.100 (government property held by a taxable owner under a
contract of purchase is taxable).  Structurally, then, ORS
307.110 restores to the tax rolls property that ORS 307.090(1)
removed.

		More specific contextual clues send the same message. 
For example, ORS 307.110(2) provides:

		"Each leased or rented premises not exempt under
ORS 307.120 and subject to assessment and taxation
under this section which is located on property used as
an airport and owned by and serving a municipality or
port shall be separately assessed and taxed." 
(Emphasis added.)

That subsection makes clear that the things that are "subject to
assessment and taxation" under ORS 307.110 are "premises" or
particular pieces of property, rather than legal interests (such
as leases) in such premises.

		Similarly, ORS 307.110(3) provides that several kinds
of "publicly owned property" that otherwise would be included in
the general description of ORS 307.110 are not subjected to
assessment or taxation.  That list excepts certain pieces of
property, not legal interests in those properties, from the
command of ORS 307.110.

		This court's previous construction of the pertinent
statutory wording confirms the foregoing interpretation.  In
Johnson v. Dept. of Revenue, 292 Or 373, 639 P2d 128 (1982), the
court held that, under ORS 307.110 (1977), submerged and
submersible land owned by the state and leased to a nonexempt
taxpayer was subject to ad valorem property taxation by Clatsop
County, to the full value of the land.  The key wording of ORS
307.110(1) was the same then as it is now.  See Johnson, 292 Or
at 376 (quoting statute).  After noting that ORS 307.110 is an
exception to the exemption from taxation of public property, id.
at 377, the court held that, under ORS 307.110, "the tax is
assessed upon the full property value," even though the lien
resulting from the tax is enforceable only against the nonexempt
taxpayer's leasehold interest, id. at 383.(6)

		The legislature's intention is clear at the first level
of analysis.  We conclude that ORS 307.110(1) (1995) makes public
property that is leased to a nonexempt taxpayer taxable. 
Further, ORS 307.110(1) (1995) subjects such property to
assessment and taxation at its full value if the lessee has full
use of the property for private gain.  The Tax Court did not err
in so concluding.

		Taxpayer next argues that such an interpretation of ORS
307.110(1) (1995) makes it unconstitutional as a non-uniform
method of taxation, in violation of Article I, section 32, and
Article IX, section 1, of the Oregon Constitution, or as a
violation of the privileges and immunities clause of Article I,
section 20, or as a violation of the Fourteenth Amendment to the
United States Constitution.  None of those arguments is well
taken, and none of them requires discussion here.  The Tax Court
did not err in rejecting taxpayer's constitutional contentions.

		Taxpayer's final argument is that the remaining length
of the lease term is a "governmental restriction as to use," ORS
308.205(2)(d), that must be taken into account in assessing the
property, because the term of a government lease affects the
value of the leasehold interest.  The pertinent statute does not,
however, take account of every restriction that affects the value
of the subject property; it covers only "governmental
restriction[s] as to use."  ORS 308.205(2)(d) provides:

		"If the property is subject to governmental
restriction as to use on the assessment date under
applicable law or regulation, real market value shall
not be based upon sales that reflect for the property a
value that the property would have if the use of the
property were not subject to the restriction unless
adjustments in value are made reflecting the effect of
the restrictions."(7)

		This court interpreted that statute in detail in
Bayridge Assoc. Ltd. Partnership v. Dept. of Rev., 321 Or 21, 27-29, 892 P2d 1002 (1995).  Examining the meaning of the noun
"use," the court stated that a "governmental restriction as to
use" refers to "a governmental restriction as to the method or
manner of using the property in question, or as to how the
property is employed or occupied."  321 Or at 29.

		The Tax Court held that several provisions in the lease
here are governmental restrictions as to use.

	"For example, the lease specifies that the property can
only be used as a Sheraton Motor Hotel * * *.  The
lease also specifies that:  (1) taxpayer may have no
banner signs or other advertising devices on the
property, (2) the improvements must be maintained
without alteration or improvements, (3) the hotel must
be operated every day of the year 24 hours per day, and
(4) the Port has a right to maintain air flights over
the property."  14 OTR at 101-02.

The Tax Court held, however, that the term of the lease "does not
limit the use of the property," even though it limits the
leasehold interest.  Id. at 102 (emphasis in original).  See
R.L.K. and Co. v. Tax Commission, 249 Or 603, 606, 438 P2d 985
(1968) (under analogous provision of ORS 307.060 (1967), lessee
has full use of public property for each year the lessee remains
in possession under the lease, notwithstanding limited term of
lease).  We agree that the nature of the use is not necessarily
restricted by a limitation on the length of the use and that ORS
308.205(2)(d) pertains only to the former.  The Tax Court did not
err in applying that statute to the facts of this case.

		Finally, apart from the legal arguments discussed
above, in this court taxpayer does not challenge the
reasonableness of the assessed value of the subject property. 
Accordingly, the Tax Court did not err in sustaining the
department's order of assessment for $9,460,000.

		The judgment of the Tax Court is affirmed.

1. 	The text of ORS 307.110(1) (1995) appears below, ___ Or
at ___ (slip op at 4).

2. 	Because the material facts are not in dispute, we need
not decide whether the present or previous version of ORS 305.445
applies in this case.  That statute now provides in part that
this court's "review of either a decision or order of the tax
court judge shall be limited to * * * lack of substantial
evidence in the record to support the tax court's decision or
order."  ORS 305.445 (1995) provided for de novo review.

3. 	That exception is not pertinent to the present case.

4. 	In 1997, the legislature amended ORS 307.110(1) by
replacing the words "real market" with the word "assessed."  Or
Laws 1997, ch 541, § 101.  However, that amendment does not
affect our decision in this case, because the amendment applies
to tax years beginning on and after July 1, 1997.  Or Laws 1997,
ch 541, § 464.  The legislature also amended ORS 307.110(5), but
that subsection is not relevant to this case.  Or Laws 1997, ch
819, § 12.

5. 	ORS 307.090(1) provides:

		"Except as provided by law, all property of the
state and all public or corporate property used or
intended for corporate purposes of the several
counties, cities, towns, school districts, irrigation
districts, drainage districts, ports, water districts,
housing authorities and all other public or municipal
corporations in this state, is exempt from taxation."

6. 	The method of assessing and taxing leased public
property, which this court described in Johnson, is the same as
the method of assessing and taxing leased private property, which
this court described in Swan Lake Mldg. Co. v. Dept. of Rev., 257
Or 622, 625, 478 P2d 393, 480 P2d 713 (1971):

	"In fixing the true cash value of land for property tax
purposes the effect of existing leases on the value to
the owner is disregarded.  The basis for such a
principle is that the tax is levied upon the land and
is a tax upon all the interests into which the land
might be divided.  Admittedly, a lease might decrease
the price which the owner might receive; however, the
tax is not merely upon the owner's interest; the tax is
upon all the interests in the land, including the
leasehold interest.  That is so because of the
corollary principle that taxes are assessed only
against the one having title[.]"

7. 	Other portions of ORS 308.205 were amended during the
1997 legislative session.  Or Laws 1997, ch 541, § 152.  Those
amendments are not relevant to this case.