Opinion ID: 2606278
Heading Depth: 1
Heading Rank: 2

Heading: the availability of the exemption

Text: Under ORS 307.112, if it is applicable, the property is tax exempt if Mercy Health uses the property in the manner required by law for the exemption and if it is expressly agreed within the lease    that the rent    has been established to reflect the savings resulting from the exemption from taxation. It is undisputed that Mercy Health meets both these requirements. However, DOR contends that ORS 307.112 does not apply to the property because Mercy Health rents the property from another exempt organization, Douglas County. DOR contends that ORS 307.166, a statute specifically dealing with leases between exempt organizations, preempts what DOR views as the more general provisions of ORS 307.112. Normally, when interpreting an unambiguous statute, we follow the plain meaning of the statutory language. Our job is not to insert what has been omitted, or to omit what has been inserted. ORS 174.010. By its terms, ORS 307.166 specifically applies to the situation before us. On the other hand, ORS 307.112 contains no language limiting its effect only to situations where an exempt organization leases property from a non-exempt lessor; its terms also may be applied to the situation before us. The language of the two statutes therefore only suggests an answer to the question before us; it does not conclusively demonstrate that answer. We turn to DOR's various arguments in support of its position. DOR argues that applying ORS 307.112 to leases between exempt organizations would completely nullify ORS 307.166. ORS 307.112 takes a rent-down approach to determining what rent may be charged without forfeiting a tax exemption. It begins with the rent that would be charged for property on which taxes must be paid in a normal market and reduces it by an amount that transfers the benefit of the exemption from the property owner to the charitable organization, the party for whose benefit the exemption was created. ORS 307.166, on the other hand, takes a rent-up approach. It assumes that in a lease agreement between two exempt organizations, the property owner should always be permitted to recover its expenses. Thus, ORS 307.166 permits the organization to keep its exemption on the property if the rent charged does not exceed the cost of repairs, maintenance, amortization and upkeep. DOR apparently assumes that the rent chargeable under ORS 307.166 always will be less than the rent chargeable under ORS 307.112. Nothing in the law requires such a result. One could easily imagine a situation where a building carries a heavy load of debt and requires a great deal of upkeep and repair, but which would command a relatively low rent on the open market. Under such circumstances, the rent calculated by the method contemplated in ORS 307.166 could exceed the rent calculated by the method contemplated in ORS 307.112. Therefore, applying 307.112 to leases between two exempt organizations would not, as the DOR claims, result in erasing ORS 307.166 from the law books. [7] DOR next suggests that an examination of the legislative history demonstrates that the legislature intended ORS 307.166 to be the only statute applicable when an exempt organization leases property from another exempt organization. We do not find the legislative history to be so helpful. The 1977 legislature was presented with two distinct, but somewhat similar, problems: (1) A lease-option agreement between the Medford School District and the private owner of its administration building upon which property the School District was required to pay taxes. This problem was brought to the attention of the House Revenue and School Finance Committee and resulted in the enactment of what is now ORS 307.112. [8] (2) A lease of a building between Albany General Hospital and Linn County upon which property the hospital was required to pay taxes. This problem first came to the Senate Committee on Revenue and School Finance and resulted in ORS 307.166. At no time did a member of any of the committees which considered either measure demonstrate any awareness of a possible conflict or interaction with the other provision. The Tax Court stated: [T]his is an instance where the ambidextrous legislature failed to coordinate its handiwork. With one statute originating in the Senate and the other in the House, neither making any reference to the other, it seems likely that they were enacted without consideration of each other. 11 OTR at 211. We do not know if this criticism is justified. We do know, however, that the legislative history is of no help beyond establishing that the facts of the problems addressed by the two bills differed. Finally, DOR claims that applying ORS 307.112 to leases between exempt organizations would present severe practical difficulties. According to DOR, when a non-exempt lessor decides to lease to an exempt organization it is easy to calculate the value of the tax exemption which needs to be accounted for in the lease under ORS 307.112. The parties need only look at the prior year's tax bill when the property was leased to a non-exempt lessee and adjust that amount to account for any changes in property value or tax rates. On the other hand, when the property belongs to an exempt organization which has held the property for many years without paying property taxes, DOR asserts that it is not easy to determine what the tax savings would be  any assessment of the property's value for tax purposes would be nothing more than a guess. We reject this argument. Normally, valuing tax-exempt property should pose no greater challenge than valuing taxable property. There is no reason why the parties to a lease cannot hire an appraiser to determine the value of the property. Using that figure and the local tax rate from recent years, the parties can determine the amount of the tax saving. The faults with DOR's arguments for the applicability of ORS 307.166 do nothing to establish the correctness of Mercy Health's responding argument in favor of ORS 307.112. Essentially, we are left with two statutes, enacted by the same legislature, and both by their terms applicable to the situation before us (although one is more clearly applicable than the other). We are left to harmonize the statutes in the way we think most likely to be what the legislature would have done had it considered the problem. See Miller v. City of Portland, 288 Or. 271, 278, 604 P.2d 1261 (1980). For the reasons already expressed, policy arguments for harmonizing the statutes in one way or the other are not overwhelmingly persuasive. When all other arguments fail, the best thing to do is fall back to where we began  the statutory language. We have said that the language does not necessarily resolve the question before us, but in saying that we only mean that we look to other considerations if they will more fully inform us as to the legislature's intent. Where other considerations fail to do that, however, we think it appropriate in such circumstances to raise the specific statutory language to decisive status. Where, as here, the legislature by ORS 307.166 addressed the precise situation we face, while in ORS 307.112 it addressed our present situation only because that situation falls within a very broad class of cases, all of which are addressed equally, we think it appropriate to apply the more specific statute to the case before us. We therefore hold that the statute applicable to the case before us is ORS 307.166. The Tax Court's contrary conclusion, while reasonable, was erroneous. It follows from the foregoing that, if the property in question is to be deemed exempt, it must be because the lease between the parties complies with the requirements of ORS 307.166. DOR does not dispute that the use of the property complies. DOR asserts, however, that the lease does not comply with the statute because it provides for a rental in excess of the amortization a lessor may recover under such a lease. Under ORS 307.166(1), a rental agreement complies with the statute if the rent charged [for the exempt property] does not exceed the cost of repairs, maintenance, amortization and upkeep. Under the terms of the lease, Mercy Health already has assumed responsibility for repairs and maintenance. [9] Thus, only the cost of amortization can be charged as rent. However, according to DOR, the cost to lessor of amortization of the property is zero, because Douglas County owns the property outright and the property is not encumbered by any debt. It follows, therefore, according to DOR, that Douglas County cannot charge any rent for the property, or the exemption will be lost. We find this interpretation of the statute unreasonable. There doubtless will be many circumstances in which there is nothing for the lessor to amortize. This probably will be true, for example, when the property leased has no improvements which can deteriorate and which will need to be replaced from time to time. But where, as here, the leased premises are improved property, we find nothing in the legislative history to suggest that the legislature did not intend amortization to have its usual meaning, viz., an amount representing the depreciation of improvements on the premises. Indeed, for a public body like the county to lease some of its property without providing for a way to create a sinking fund or otherwise to provide for the replacement of improvements as they deteriorate could create serious problems down the road, and we do not believe that the legislature intended to require the public bodies subject to ORS 307.166 to be unable to charge rent that takes the depreciation of improvements into account. DOR argues that giving amortization the meaning we here give it creates a problem, because establishing the initial basis of the property for depreciation purposes frequently will be nothing more than a guess. We reject this argument for the same reasons that we rejected DOR's earlier argument concerning calculation of the tax benefit derived by a lessee in a lease under ORS 307.112. We hold that the lease in question complies with the requirements of ORS 307.166.