Title: Trendwest Resorts, Inc. v. Dept. of Rev.
Citation: N/A
Docket Number: S52491
State: Oregon
Issuer: Oregon Supreme Court
Date: April 27, 2006

FILED: April 27, 2006
IN THE SUPREME COURT OF THE STATE OF OREGON
TRENDWEST RESORTS, INC.
Appellant,
v.
DEPARTMENT OF REVENUE,
and CLATSOP COUNTY ASSESSOR,
Respondents.
(OTC 4645; SC S52491)
En Banc
On review from the Oregon Tax Court.*
Henry C. Breithaupt, Judge.
Argued and submitted March 9, 2006.
Timothy R. Volpert, of Davis Wright Tremaine LLP, Portland,
argued the cause and filed the brief for appellant.  With him on
the brief were Margarita G. Molina, of Davis Wright Tremaine LLP,
and Carol Vogt Lavine, of Carol Vogt Lavine, LLC, Gladstone.
Joseph A. Laronge, Assistant Attorney General, Salem, argued
the cause and filed the brief for respondent Department of
Revenue.  With him on the brief was Hardy Myers, Attorney
General.
Heather Reynolds, Clatsop County Counsel, Astoria, waived
appearance for respondent Clatsop County Assessor.
GILLETTE, J.
The judgment of the Oregon Tax Court is affirmed.
*18 OTR 187 (2005).
GILLETTE, J.
The issue in this appeal from a judgment of the Oregon
Tax Court is whether that court erred in holding that taxpayer
was not entitled to an ad valorem property tax exemption under
ORS 307.330(1) for the 2003-04 tax year, for a building that was
under construction on January 1, 2003.  The Tax Court concluded
that the building was not eligible for the exemption because, on
January 1, 2003, a part of the building was "in use or
occupancy," as that phrase is used in ORS 307.330(1)(b). 
Trendwest Resorts, Inc. v. Dept. of Rev., 18 OTR 187 (2005). 
Taxpayer appealed to this court.  We affirm.
The relevant facts are not in dispute, although their
legal significance is.  Taxpayer is an Oregon corporation engaged
in the business of developing and managing time-share condominium
resorts.  In 2001, taxpayer began to purchase property for a
planned mixed-use resort development in Seaside.  The development
was designed to include time-share residential condominiums,
retail condominiums, and a parking structure.  Taxpayer acquired
some of the property needed for the development in fee simple but
acquired one property -- the "Ter Har" property -- under a more
complex scheme. 
The Ter Har property previously had been developed as
retail spaces, and the owners of that property wished to continue
to own and operate retail space on it.  Taxpayer and the Ter Har
owners worked out an arrangement that allowed taxpayer to develop
the property according to its plan and, at the same time, to
accommodate the Ter Har owners' wishes.  Specifically, the
parties foresaw construction of a multistory building with
residential condominiums owned by taxpayer on the upper floors
and retail condominiums, some of which would be owned by the Ter
Har owners, on the ground floor.  Toward that end, taxpayer and
the Ter Har owners entered into a ground lease on September 14,
2001, which allowed taxpayer to demolish the existing retail
structure and construct the planned building.  Simultaneously,
the parties entered into an exchange agreement that provided that
(1) as soon as possible and, in any event, by June 12, 2002,
taxpayer would complete and sublease (rent free) to the Ter Har
owners the planned retail part of the building ("the retail
space"); (2) taxpayer would make business interruption payments
to the Ter Har owners in the meantime; (3) the Ter Har owners
ultimately would transfer their title in the land to taxpayer;
and (4) taxpayer then would convert the land and improvements to
condominium ownership and would transfer title to the retail
space (in the form of seven retail condominiums) back to the Ter
Har owners.  
In accordance with that exchange agreement, taxpayer
began building the project and leased the retail space to the Ter
Har owners and their tenants as soon as those spaces were
finished.  The leases continued throughout 2002 and a part of
2003 while the remainder of the project was completed.  On May 7,
2003, the Ter Har owners transferred title to the land to
taxpayer.  Taxpayer thereafter created a separate tax lot for
each condominium unit and recorded that arrangement in the county
records.  On September 25, 2003, taxpayer transferred title to
seven retail condominium units, which constituted the retail
space, to the Ter Har owners.  Thus, the Ter Har owners did not
have title to any part of taxpayer's project (as opposed to the
land) until that date.
On March 31, 2003, taxpayer applied for a cancellation
of the county tax assessment for the 2003-04 tax year for the
entire condominium project.  Taxpayer relied on ORS 307.330(1),
which provides:
"Except for property centrally assessed by the
Department of Revenue, each new building or structure
or addition to an existing building or structure is
exempt from taxation for each assessment year of not
more than two consecutive years if the building,
structure or addition: 
"(a) Is in the process of construction on January 1; 
"(b) Is not in use or occupancy on January 1; 
"(c) Has not been in use or occupancy at any time
prior to such January 1 date;
"(d) Is being constructed in furtherance of the
production of income; and
"(e) Is, in the case of nonmanufacturing
facilities, to be first used or occupied not less than
one year from the time construction commences. 
Construction shall not be deemed to have commenced
until after demolition, if any, is completed."
The county tax assessor denied taxpayer's request on the ground
that retail spaces on the ground floor of the project were "in
use or occupancy" on January 1, 2003, and, therefore, the project
was ineligible for the exemption.  
Taxpayer appealed that denial to the Tax Court, where
both taxpayer and the Department of Revenue (department) 
(representing the county assessor) moved for summary judgment. 
The Tax Court granted the department's motion, concluding that
ORS 307.330(1) did not exempt taxpayer's project from taxation
for the time period in question.  Trendwest Resorts, 18 OTR at
197-98.  The court held that the term "building" in that statute
means "a single, self-contained unit designed for occupancy" and
that the term "structure" contemplates "a single, self-contained
unit not designed for occupancy or a combination of at least two
interdependent units, one of which may be a building."  Id. at
192-93.  Applying those meanings, the court concluded that, as of
January 1, 2003 (the relevant date for purposes of the statute),
taxpayer's project was a single building or structure that was
owned entirely by taxpayer.  Noting that the project was not
converted to condominium ownership until the middle of 2003, the
court specifically rejected taxpayer's suggestion that the retail
part of the project was a separate "structure" at the relevant
time.  Id. at 193. 
The Tax Court also rejected taxpayer's alternative
argument that the retail space could be considered separate
because it was "functionally" separate, having separate
utilities, separate entrances, and the like.  The Tax Court
adverted to the following statement from one of its own
precedents, Multnomah County v. Dept. of Rev, 13 OTR 223, 229 (1995):
"[T]he exemptions [in ORS 307.330] are not provided for
in increments, but apply to entire buildings or
structures.  In short, the statute does not establish a
finely tuned partnership between government and private
enterprise, but a basic benefit with large and simple
parameters."
Finally, the Tax Court also rejected taxpayer's
argument that the department had misconstrued the requirement in
paragraph (b) of the statute that the structure or building not
be "in use or occupancy" on January 1.  Taxpayer had argued that,
when the legislative history of the statute as a whole and the
context of the phrase "use or occupancy" were considered, it was
clear that the phrase meant use or occupancy that directly
produced income for the taxpayer (and that the taxpayer then
could use to pay taxes on the property).  The Tax Court agreed
with taxpayer that any disqualifying "use" must relate to the
taxpayer's intended income-producing purpose in building the
structure or building, but ruled that taxpayer was defining its
own intentions too narrowly.  The court concluded that occupancy
of the retail space by the Ter Har owners was part of taxpayer's
overall intended commercial use of the property (as a mixed-use
condominium project) and that that use was sufficient to meet the
statutory standard.   
Based on the foregoing reasoning, the Tax Court granted
the department's motion for summary judgment and denied
taxpayer's cross-motion, thereby affirming the county assessor's
denial of taxpayer's request.  The present appeal followed.
As discussed above, the Tax Court held that taxpayer's
property did not qualify for that exemption under ORS
307.330(1)(b) because part of the property was "in use or
occupancy" on January 1.  Taxpayer attacks that analysis with
three arguments.  First, taxpayer argues that, when the text of
that statutory subsection is considered in the context of the
introductory part of subsection (1), it becomes apparent that the
Tax Court has misconstrued ORS 307.330(1)(b). (1)  It argues
that the phrase, "building, structure or addition," in ORS
307.330(1) is 
"susceptible to varying interpretations because that
phrase is not modified to specify whether it means the
entire building[,] structure or addition, or some part
thereof.  On the other hand, any apparent ambiguity in
this regard is likely resolved by the legislature's
inclusion of the word 'addition.'  Such inclusion
demonstrates the legislature's intent that the
exemption apply to portions of buildings and
structures."
As we have mentioned, the Tax Court did not accept the
foregoing argument.  Neither do we.  There is no ambiguity in the
statutory wording respecting the facts of this case.  The
building at issue was constructed after the former building was
demolished.  The present building is not, under any reasonable
definition of the word, an "addition."  It is, instead, a new
building.  Taxpayer's contrary argument does nothing to advance
our inquiry, and we reject it without further discussion.
Taxpayer's second argument focuses on the Tax Court's
interpretation of the requirement in ORS 307.330(1)(b) that the
building or structure in question not be "in use or occupancy" on
January 1 of the year in question.  Taxpayer asserts that that
requirement must be read in the context of the requirement in ORS
307.330(1)(d) that the building or structure be "constructed in
furtherance of the production of income."  Taxpayer then contends
that, when the two provisions are read together, it is clear that
"use or occupancy" is restricted to uses that can produce income
for the taxpayer in the form of an income stream that the
taxpayer can use to pay taxes. (2)  And it follows, taxpayer
reasons, that, until such persons who otherwise might be regarded
as users or occupants are producing for the taxpayer the type of
income that was contemplated by the project, the project is not
"in use or occupancy."  
Applying its conclusion about the meaning of "use and
occupancy" to the property at issue, taxpayer contends that the
statutory exemption must apply because the Ter Har owners'
occupation of the retail space as of January 1, 2003, did not and
could not generate income for taxpayer.  Taxpayer argues,
moreover, that the Ter Har owners' occupancy of the retail space
was not a "use" within the meaning of ORS 307.330(1)(b) because
it had nothing to do with taxpayer's primary purpose in
constructing the project.  In that regard, taxpayer defines its
purpose narrowly -- as "selling time-share condominiums" for a
profit.  Taxpayer rejects the idea that it ever had any intention
to make a profit from subleasing retail condominiums to the Ter
Har owners or to any other third party.  It argues:
"The only reason the Ter Har retail condominiums
were built was to acquire title to the real property
from Ter Har. * * * [B]uilding and conveying title to
the retail condominiums to Ter Har was solely a means
to an end.  And Ter Har's use and occupancy of those
condominiums had nothing whatsoever to do with
[taxpayer's] purpose in building the timeshare resort. 
The legislature could not have intended for [taxpayer]
to lose the exemption purely because of happenstance."
We are unpersuaded by taxpayer's interpretation and
application of the "in use or occupancy" criterion for two
reasons.  First, "income," as that term is used in ORS
307.330(1)(d), is not, by its plain terms, either when read alone
or in context, limited to income produced for the taxpayer. 
Thus, that part of taxpayer's premise is not well taken.  
Second, and even if taxpayer's premise were correct,
taxpayer's attempt to fold the requirement of paragraph (d) of
ORS 307.330(1) into paragraph (b) of that same statute cannot, in
our view, be correct.  Each of those two statutory paragraphs is
independent; each provides a separate criterion that a taxpayer
must meet in order to qualify for the statutory exemption, and a
taxpayer must satisfy them all.  But, if the "in furtherance of
the production of income" criterion of paragraph (d) is read back
into the "not in use or occupancy" criterion in paragraph (b),
the "in furtherance of the production of income" criterion in
fact would be used twice, to the derogation of the "not in use or
occupancy" criterion.  We can perceive no justification for such
a double reading of one paragraph in order to modify the plain
content of the other. (3)  It follows that, absent a more
compelling argument on taxpayer's part, we are of the opinion
that the Tax Court correctly interpreted and applied the
pertinent statutory wording.
Taxpayer argues that certain Tax Court case law under
ORS 307.330(1) does not support the Tax Court's application of
the phrase, "use or occupancy."  That argument misses the mark. 
Although we commonly give tax court case law close attention for
its intrinsic logical value, this court is not bound by decisions
of the Oregon Tax Court.  We therefore decline to enter into the
extensive study of Tax Court precedents that taxpayer offers and
that the department to some extent joins.  The only truly
pertinent Tax Court opinion at the moment is the one under review
in this appeal, and we confine our inquiry to that case and the
sources of law that underpin it.
Finally, and assuming that the retail space part of the
project was "in use or occupancy" on January 1, 2003, taxpayer
advances its third theory.  It contends that ORS 307.330(1)
provides for a partial exemption from taxation when a building is
only partially in use or occupancy.  However, as we already have
explained, we find no wording in the statute that suggests the
possibility of a partial exemption like the one that taxpayer
claims here.  This is one new building; the exemption either
applies to the building as a building, or it does not. (4)   In summary, we do not find any of taxpayer's
arguments in favor of the exemption to be well taken.  The Tax
Court properly granted the department's motion for summary
judgment and denied taxpayer's cross-motion for summary judgment.
The judgment of the Oregon Tax Court is affirmed.
1. We set out the wording of that introductory paragraph again to assist the reader:
"Except for property centrally assessed by the Department of Revenue,
each new building or structure or addition to an existing building or structure is
exempt from taxation for each assessment year of not more than two consecutive
years if the building, structure or addition * * *."
2. In other words, according to taxpayer, the fact that the
project is "in use or occupancy" in the sense that persons are
present in the project on either a permanent or periodic basis
and engaged in the kinds of activity contemplated by the project
is not enough to defeat taxpayer's entitlement to an exemption
under ORS 307.330(1), when paragraph (b) is read in context.
3. Taxpayer suggests that the meaning for which it contends is consistent with the
legislative history of ORS 307.330, which (according to taxpayer) shows that the legislature was
concerned with providing relief from the disincentive to economic activity that arises when
property is subjected to taxation before it produces income.  We do not deem it necessary to
consult legislative history to resolve this problem, inasmuch as the text of the statute seems clear
to us.  However, we nonetheless have examined the legislative history that taxpayer has proffered
to us.  Aside from a clear legislative intent to encourage construction by making an ad valorem
tax exemption available under certain carefully defined circumstances, we find the legislative
history to be ambiguous and unhelpful.  Certainly, it does nothing to negate our reading of the
statutory text itself, read in context.
4. We note also that, as the department points out, other
statutes in the same chapter that provide for partial exemption
do so in express terms.  See, e.g., ORS 307.517(1) ("Property or
a portion of the property that meets the following criteria * * *
shall be exempt.").