Opinion ID: 3218859
Heading Depth: 2
Heading Rank: 2

Heading: Assignments of Error on Merits

Text: As to the Tax Court’s decision on the merits regarding the value of the convention center, the department asserts a narrow range of issues. Specifically, its assignments of error are as follows: “The [T]ax [C]ourt misinterpreted the provisions of Measure 50, and the effect of those provisions on ORS 308.205, when it held that the highest and best use and real market value of property must be determined without reference to any property outside of the tax account under appeal.” 14 The Tax Court’s fee award included fees that taxpayer had incurred before the Magistrate Division. The propriety of that aspect of the award has not been challenged on appeal. 836 Dept. of Rev. v. River’s Edge Investments, LLC “The [T]ax [C]ourt misinterpreted OAR 150-308.205- (A)(3) [the especial property rule] when it held that the department’s cost approach should be given no weight because the department did not also perform an income approach to value the property.”15 As a prudential matter, we begin with the depart- ment’s arguments regarding the administrative rule on especial property, OAR 150-308.205-(A)(3), because it represents the narrowest possible ground on which we might resolve the case. See Wallace P. Carson, Jr., “Last Things Last”: A Methodological Approach to Legal Arguments in State Courts, 19 Willamette L Rev 641, 643-45, 654 (1983) (advocating legal analysis in sequence beginning with administrative rules, then statutes, then state constitution, then federal law, then federal constitution). With respect to that issue, the department makes two arguments. The first is that the Tax Court erroneously concluded that the especial property rule required the department to use an income approach, when in fact the rule only required the department to consider an income approach. The second is that, even if the Tax Court correctly rejected the department’s appraiser’s reasons for declining to perform an income approach, the court still should have considered the department’s cost approach. We believe that the department’s first argument misreads the Tax Court’s opinion. The court recognized that the especial property rule requires an appraiser to consider the various approaches to valuation and that the department’s 15 The department raised four additional issues on the merits in two footnotes of its opening brief. In both footnotes, the department challenged the validity of the taxpayer’s income approach analysis. The first footnote argued that taxpayer’s appraisal should have given more weight to the cost approach, and that its valuation improperly relied on functional and economic obsolescence. The second footnote asserted that the taxpayer’s income approach was incorrect because it did not include the income from the hotel, and because there was no “stabilized income history” for the property. The department’s arguments are not appropriate assignments of error. See ORAP 12.05(1) (rules regarding appeals generally also apply to direct appeals to Supreme Court). Because the department’s additional arguments were not themselves presented as assignments of error, and because they are not implicitly contained within the assignments that the department did make, we do not consider them. See ORAP 5.45(1) (appellate courts do not consider assignments of error that are not presented in the opening brief). Cite as 359 Or 822 (2016) 837 appraiser had failed to develop an income approach. River’s Edge Investments LLC, 21 OTR at 474 (appraiser “did not develop an income indicator”). It was the appraiser’s lack of good reason for not using the income approach, however, that was critical to the court; it put into question the credibility of the appraisal. Id. As we noted, the Tax Court first explained its gen- eral position: “[T]he department’s expert witness did not develop an income indicator. That is a serious departure from appraisal practice. Appraisal Institute, The Appraisal of Real Estate 130 (13th ed 2008). If not adequately justified, it would lead the court to place no reliance on the appraisal of the expert who took the departure.” Id. at 474-75 (emphasis added). The court then concluded that the appraiser’s justification for not performing an income analysis was deficient: “The justification given by the appraiser for the department for this departure from standard practice was that the income information he had for the convention center did not include income augmentation experienced by the hotel by reason of the existence and operation of the convention center. That explanation is deficient for two reasons.” Id. at 475 (emphasis added). Because of the deficiencies (which the court discussed in detail), the court ultimately concluded that there had been “no reason to depart from fundamental appraisal principles or the consideration of the income method required by OAR 150-308.205-(A)(3). Because the expert witness for the department made such departures, the court places no reliance on his conclusion of value.” Id. at 477. The department’s argument that the Tax Court misinterpreted the especial property rule thus fails because it challenges a conclusion that the Tax Court never made. Contrary to the department’s position, the Tax Court did not require all appraisals of especial property to use both a cost approach and an income approach. The Tax Court merely held that an appraisal’s credibility is harmed when 838 Dept. of Rev. v. River’s Edge Investments, LLC the appraiser declines to use one of the two remaining approaches to valuation in the absence of a credible explanation. The department offers no argument as to why the Tax Court would have erred in concluding that that affected the credibility of the department’s appraisal. The department’s second argument is that the Tax Court was required to consider the cost approach that its appraiser had performed, even if the court had correctly concluded that the department’s appraiser also should have performed an income approach. According to the department, there is no authority under the especial property rule for the Tax Court to refuse to consider the department’s cost approach. We do not find that argument persuasive. The department’s argument appears to assume that the mere existence of a cost approach analysis would have affected how the Tax Court determined the final value of the property. That assumption, however, is inconsistent with the reconciliation process in appraisals. A final value is not determined by averaging results from different methods, but by comparing the approaches used and their reliability in context. See The Appraisal of Real Estate at 597-98 (“The final value opinion does not simply represent the average of the different value indications derived. No mechanical formula is used to select one indication over the others, rather, final reconciliation relies on the proper application of appraisal techniques and the appraiser’s judgment and experience.”); id. at 65 (“The nature of reconciliation depends on the appraisal problem, the approaches that have been used, and the reliability of the value indications derived.”). The department does not assert that the especial property rule—which provides that just compensation for especial property shall be estimated “through either the cost or income approaches, whichever is applicable, or a combination of both”—indicates otherwise. In this case, the Tax Court explicitly found, when evaluating the taxpayer’s appraisal, that the income approach was the more correct approach to valuation. River’s Edge Investments LLC, 21 OTR at 478. The weight to be given to the various approaches is a question of fact, and evidence in the record supports the Tax Court’s Cite as 359 Or 822 (2016) 839 determination. See Pacific Power & Light Co. v. Dept. of Rev., 286 Or 529, 533, 596 P2d 912 (1979) (“While, under the statute and rule, it is allowable for defendant to use only one approach in valuing property, whether in any given assessment one approach should be used exclusive of the others or is preferable to another or to a combination of approaches is a question of fact to be determined by the court upon the record.”); see also Brooks Resources Corp. v. Dept. of Revenue, 286 Or 499, 505-06, 595 P2d 1358 (1979) (although income approach was “speculative,” the finder of fact “may decide as a matter of fact that despite its inadequacies, the income approach is a better measure of value than the cost approach with respect to” the property at issue (emphasis omitted)). Because the Tax Court permissibly chose to accept the income approach valuation, the department’s cost approach simply would not have affected the Tax Court’s final valuation decision. In sum: The Tax Court determined that the income approach—not the cost approach or a combination of the cost and income approaches—was applicable in this case. The department has not shown that the Tax Court erred in making that determination, either factually or legally. Because the Tax Court permissibly made that determination, the details of the department’s cost approach would not affect the Tax Court’s final conclusion on valuation. We thus find no merit in either of the department’s arguments based on the especial property rule, OAR 150-308.205-(A)(3). D. Measure 50 The department’s second assignment of error is that the Tax Court incorrectly interpreted Measure 50 to require that a property’s highest and best use and its real market value be determined without reference to property outside the tax account at issue on appeal. In order to assess the department’s argument, we review in greater detail the Tax Court’s holding regarding Measure 50. After explaining that Measure 50 required the assessed value to be the lesser of the maximum assessed value or the real market value, the court noted that ORS 308.146(2) required the comparison to be made using the 840 Dept. of Rev. v. River’s Edge Investments, LLC real market value and maximum assessed value of all property in a single property tax account: “Consistently with the constitution, the assessed value is the lesser of the [real market value] or the [maximum assessed value] for ‘property.’ ORS 308.146(2). For purposes of determining whether the [assessed value] of property exceeds the property’s [maximum assessed value], ‘property’ means, except for centrally assessed property not relevant here, ‘[a]ll property included within a single property tax account.’ ORS 308.142(1)(a).” River’s Edge Investments LLC, 21 OTR at 473 (final alteration in original). Because the real market value for property in a tax account was compared to the maximum assessed value for property in the same account, according to the Tax Court, the real market value could not include value from property in another tax account. Id.16 From that point, the Tax Court drew the additional conclusion that the real market value of property in one tax account must be determined without any reference to other property tax accounts. Id. The court stated that “[n]othing in the language of the constitution, the statutes or the Flavorland decision provides any support for determining the [real market value] of property in one property tax account by reference to the [real market value] or any other characteristic of property in a different property tax account.” River’s Edge Investments LLC, 21 OTR at 473. As we understand the Tax Court’s rationale, it drew from Measure 50 the idea that income from property in separate tax accounts should be treated separately and, for that reason, the department’s efforts to attribute some hotel income (from one tax account) to the convention center (in 16 The Tax Court explained: “The [assessed value] of any property can be determined only after comparing the [real market value] of the property and the [maximum assessed value] determined for the property. It therefore logically follows that the [real market value] of any property must be determined by reference to what the [real market value] of all property in a tax account is. Consideration of the [real market value] or [maximum assessed value] of property found in another tax account is, as a necessary conclusion, not permitted.” Id. at 473. Cite as 359 Or 822 (2016) 841 another tax account) were impermissible. As the court saw it, the notion of discrete tax accounts and the provisions of Measure 50 provided a simple way of separating one incomeproducing property from another. The concern that we have with that rationale is that tax accounts are an administrative means of tracking property that may or may not reflect whether the property contained in one or more tax accounts is a single economic unit. See ORS 308.142(2) (for purposes of Measure 50, the term “property tax account” means “the administrative division of property for purposes of listing on the assessment roll”). Sometimes property comprising a single economic operation will be contained in multiple tax accounts and sometimes not. Measure 50 does not teach us one thing or another about that. It is universally recognized that the location of real estate affects its value—so much so that the principle needs no citation. A convention center is worth more next to a hotel than to a factory; a gasoline station is worth more next to a freeway than to a rural road; a house is worth more next to a golf course than to a railway. The real market value of property thus will undisputedly be affected by some “characteristics of property in a different property tax account,” even though the Tax Court seemingly thought otherwise. See River’s Edge Investments LLC, 21 OTR at 473 (real market value is not to be determined “by reference to the [real market value] or any other characteristic of property in a different property tax account” (emphasis added)). Measure 50 does not exclude those sorts of characteristics from the valuation process.17 Neither does Flavorland Foods meaningfully inform our analysis. That case dealt only with the internal aspects of a single property tax account: Specifically, this court 17 It does not appear that the Tax Court found the common ownership of the two properties to be the characteristic forbidden by Measure 50. The court seems to have treated common ownership as a matter separate and apart from the constitutional question. See River’s Edge Investments LLC, 21 OTR at 476 (court’s statement that “the identity of an owner is not a factor that is taken into account in valuation of property” is not part of its Measure 50 discussion, but rather part of its explanation of the independent reasons why court rejected department’s appraisal). 842 Dept. of Rev. v. River’s Edge Investments, LLC considered whether the phrase “each unit of property” in Measure 50 established a single maximum assessed value for all of the property in a tax account, or separate maximum assessed values for the land and the improvements. 334 Or at 567. When this court in Flavorland Foods stated that the voters intended Measure 50 “to refer to all the property in a property tax account,” id. at 578, the court was only indicating that the property in a property tax account should be treated as a unified whole. The court did not address the relationship between property held in different property tax accounts or make any statement about how real property should be valued. In short, there is no support in the pertinent statutes, this court’s decisions, or in the evidentiary record in this case, for the proposition that the determination of what constitutes an economic unit (or the appropriate unit to value) for purposes of the income approach valuation corresponds to or is driven by the existence of separate tax accounts. Because there is no indication that tax accounts define an economic unit for the purposes of the income approach, the Tax Court’s reliance on Measure 50 to support its rejection of the department’s appraisal is of questionable validity. We do not believe, however, that it is necessary for us to resolve the Measure 50 question in this case, because, as indicated, the Tax Court also found another independent and fully adequate reason for accepting the real market value proposed by taxpayer. The issue in this case is the real market value to be assigned to the property. In determining the property’s value, the Tax Court had before it two appraisals. As discussed, the court concluded that the department’s appraisal was not credible. The court’s conclusion on that issue did not depend on its holding regarding Measure 50. See River’s Edge Investments LLC, 21 OTR at 475 (explaining why appraiser’s justification for not performing income approach was deficient; “even if Measure 50 did not compel separate consideration of the convention center and the hotel, basic valuation principles would”). The court then independently evaluated taxpayer’s appraisal, concluded that it was reliable, and accepted taxpayer’s valuation. See Cite as 359 Or 822 (2016) 843 id. at 477-78. Again, the court’s decision to accept taxpayer’s valuation did not depend on Measure 50. Those conclusions support the result that the Tax Court reached. The court accepted the real market value of the only credible appraisal before it. The department has not successfully challenged any of those conclusions, and so we must affirm the judgment. Nothing that we could say about Measure 50 would change that. E. Attorney Fees In addition to its arguments on the merits, the department also challenges the Tax Court’s award of attorney fees to taxpayer. We turn now to that issue. The Tax Court is authorized to award attorney fees when the court rules in favor of the taxpayer in an ad valorem property tax case. The relevant statute, ORS 305.490, provides in part: “(4)(a) If, in any proceeding before the tax court judge involving ad valorem property taxation, exemptions, special assessments or omitted property, the court finds in favor of the taxpayer, the court may allow the taxpayer, in addition to costs and disbursements, the following: “(A) Reasonable attorney fees for the proceeding under this subsection and for the prior proceeding in the matter, if any, before the magistrate[.]” In reviewing an award of attorney fees under that statute, the ultimate question is whether the Tax Court abused its discretion. See Clackamas Cty. Assessor v. Village at Main Street, 352 Or 144, 151, 282 P3d 814 (2012) (so noting). The Tax Court’s exercise of discretion is guided by the factors found in ORS 20.075(1). Id. at 153 (“[i]n determining whether to exercise its discretionary authority to award attorney fees under ORS 305.490(4)(a)(A), a court must consider the factors listed in ORS 20.075(1)”).18 18 ORS 20.075 provides in part: “(1) A court shall consider the following factors in determining whether to award attorney fees in any case in which an award of attorney fees is authorized by statute and in which the court has discretion to decide whether to award attorney fees: 844 Dept. of Rev. v. River’s Edge Investments, LLC In this case, the Tax Court relied on four statutory factors to conclude that it was appropriate to award attorney fees against the department: that the department’s position was not objectively reasonable (ORS 20.075(1)(b)); that an award of attorney fees would deter the department from making meritless arguments (ORS 20.075(1)(d)); that the department had not objectively been reasonable or diligent in pursuing settlement (ORS 20.075(1)(f)); and that another unspecified factor (ORS 20.075(1)(h))—the importance of the Tax Court’s Measure 50 determination—also justified an award. River’s Edge Investments, LLC II, 22 OTR 47-49. The department asserts that the award of fees was inappropriate because the department acted in good faith and presented objectively reasonable arguments to the Tax Court. The department’s appraiser had a reasonable basis in fact and law, it asserts, for not using the income approach and instead relying on the cost approach. Taxpayer counters, consistently with the Tax Court’s analysis, that the award of attorney fees was justified. In light of our concerns about the Tax Court’s holding with respect to Measure 50, we conclude that we should vacate the attorney fee award and remand to that court for further consideration. The Tax Court’s conclusions about Measure 50 thread through most of the factors that the court identified in favor of an award of attorney fees. It was “(a) The conduct of the parties in the transactions or occurrences that gave rise to the litigation, including any conduct of a party that was reckless, willful, malicious, in bad faith or illegal. “(b) The objective reasonableness of the claims and defenses asserted by the parties. “(c) The extent to which an award of an attorney fee in the case would deter others from asserting good faith claims or defenses in similar cases. “(d) The extent to which an award of an attorney fee in the case would deter others from asserting meritless claims and defenses. “(e) The objective reasonableness of the parties and the diligence of the parties and their attorneys during the proceedings. “(f) The objective reasonableness of the parties and the diligence of the parties in pursuing settlement of the dispute. “(g) The amount that the court has awarded as a prevailing party fee under ORS 20.190. “(h) Such other factors as the court may consider appropriate under the circumstances of the case.” Cite as 359 Or 822 (2016) 845 the only explicit “other factor” that the court found under ORS 20.075(1)(h)—the conclusion that a decision regarding Measure 50 resolved an important legal question that would benefit taxpayers, the department, and other county assessors. Id. at 49.19 It underlies at least part of the court’s conclusion that the department’s position was not objectively reasonable. See id. at 48 (asserting that “Measure 50, as interpreted by the Oregon Supreme Court[,] makes such consideration of other tax accounts improper”). The Tax Court’s conclusion regarding deterrence (ORS 20.075(1)(d)) depended on its conclusion that the department’s position was not objectively reasonable, and so its deterrence analysis turned at least in some part on the Tax Court’s Measure 50 holding. River’s Edge Investments, LLC II, 22 OTR at 48. In short, of the factors identified by the Tax Court, most of them depended at least in part on its conclusions regarding Measure 50. Because the Measure 50 issue seemingly was raised by the Tax Court rather than the parties, it is difficult to say that the department had a position on Measure 50, much less a position that was unreasonable. As noted, the decision to award attorney fees is a discretionary one, granted to the Tax Court. Our opinion here substantially affects the Tax Court’s original basis for awarding fees. For that reason, we vacate the Tax Court’s award of attorney fees and remand to that court. Because it is not clear whether the Tax Court will choose to award attorney fees on remand without regard to the Measure 50 issue, we do not at this time address the department’s other challenges to the present attorney fee award.