Court Opinion

ID: 3844467
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:12:58.422038+00
Date Added: 2024-06-11T13:51:16.694435
License: Public Domain

Decision part for plaintiff, part for defendant rendered February 13, 1984.
Reversed and Remanded 297 Or. 583, 686 P.2d 366 (1984).
Plaintiff owns five service station properties in Lane County. As of January 1, 1979, the Lane County Assessor substantially increased the assessed values of four of those properties over 1978 values, as indicated in Chart 1.
                             CHART 1 -------
                      Assessor            Board of Equalization --------            ---------------------
Account Number          1978             1979              1979 --------        ----             ----              ----
44816        No data given                       $ 45,550 280139       $ 88,770          $117,480           136,180 437358         66,670            81,930            76,320 461630         96,360           130,980           112,080 630283        132,030           159,770           154,250
Plaintiff appealed to the Lane County Board of Equalization. The board reduced the value of the improvements on one property by $18,900 and increased the value of the improvements on another property by $18,700 and reduced the improvements on two other properties by approximately $6,000 each. See Chart 1. Plaintiff appealed to the defendant from the values determined by the board of equalization.
The defendant, in every case, increased the assessments by increasing substantially the value of the land involved. It did so on the basis that plaintiff, who had testified through Mr. John C. Carlson, had not borne the burden of proof by virtue of having failed to perform in a professional manner. (Defendant's Opinion and Order No. VL 81-805 at 11-12.) Plaintiff appealed to this court wherein its principal appraisal witness was again Mr. John C. Carlson. Defendant, however, utilized a different appraisal witness, Mr. Joe D. Rose, Commercial Appraiser, Lane County, as opposed to Ms. Pearl Dotson, Commercial-Industrial Appraiser, Lane County. Both Messrs. Carlson and Rose changed values from *Page 383 
those that had been alleged before, as is indicated in Chart 2, although Mr. Carlson far less so than Mr. Rose.
                             Chart 2 -------
                    Mr. Carlson            Mr. Rose -----------            --------
                              Before    Ms. Dotson     Before Before       Tax       Defendant's     Tax Defendant    Court       Value         Court ---------    -----       -----         -----
44816   Land       $10,500    $11,730      $ 28,600    $ 37,640 Imp.        15,000     14,000        32,550      11,330 -------    -------      --------    -------- Total      $25,500    $25,730      $ 61,150    $ 48,970
280139  Land       $92,000    $92,500      $133,600    $161,990 Imp.         7,500      2,500        17,720      10,860 -------    -------      ---------   -------- Total      $99,500    $95,000      $151,320    $172,850
437358  Land       $35,000    $38,890      $ 43,750    $ 70,170 Imp.        10,500     12,000        23,760      14,180 -------    -------      --------    -------- Total      $45,500    $50,890      $ 67,510    $ 84,350
461630  Land       $39,700    $61,600      $ 70,080    $180,770 Imp.        19,500     33,000        41,200      38,780 -------    -------       -------    -------- Total      $59,200    $94,600       $111,280   $219,550
630283  Land       $85,000    $83,800       $129,210   $120,330 Imp.        12,500     15,000         29,960     22,310 -------    -------      ---------   -------- Total      $97,500    $98,800      $ 156,170   $142,640
GRAND TOTAL                                 $547,430   $668,360
                         VALIDITY OF INCREASING VALUES ON APPEAL TO TAX COURT
As is clear from Charts 1 and 2, each time plaintiff appealed, the Lane County Assessor's Office increased its previous determination of true cash value. Such conduct cannot help but have a chilling effect upon the ardor of a plaintiff considering contesting his assessment or assessments and, presumably, it was the recognition of that practice that prompted plaintiff's witness, Mr. Carlson, to attempt to remove the land value of two accounts from consideration by defendant. The assessor's office refused, testifying to higher values than those appealed from by plaintiff. (Defendant's Opinion and Order No. VL 81-805, at 2.) *Page 384
1. There is no provision in ORS 305.115, the statute governing appeals to defendant, analogous to the provision in ORS305.425(3), the statute governing appeals to this court from the defendant, that "the issues of fact and law shall be restricted to those raised by the parties in the appeal to the department."
2. Query: What are the parameters of the restriction? This provision was a part of the bill creating this court and appeared in the sentence immediately following the sentence providing that, "[a]ll proceedings before the court shall be without a jury and de novo." 1961 Or Laws ch 533, § 16. Initially, insofar as property tax valuation cases were concerned, the issue of fact involved was "the true cash value of the property." Balderee v. Commission, 2 OTR 142, 145
(1965). This meant that the amount of the assessment or the approach or approaches to value utilized by the appraiser in determining the value of the assessment were not issues of fact within the meaning of ORS 305.425(3). This was made quite clear in Wilson v. Commission, 3 OTR 312, 313 (1968). That case involved a decision of this court that the true cash value of a ranch in 1964 was $900,000. The value was increased by the county assessor to $1,101,780 in 1967. At the hearing before the State Tax Commission, the assessor conceded that the increase was not based upon any material change in value or upon any new facts. This court, nevertheless, held that:
    "1. This court is not bound by any stipulation, concession or evidence given by anyone in a hearing before the commission because trials in the tax court are de novo proceedings under ORS  305.425." (3 OTR at 313.)
No mention whatever of the statutory provision enacted at the same time by the legislature as "de novo" restricting issues of fact and law "to those raised by the parties" was made.
This construction was not followed in nonproperty tax cases, however. Thus, in a matter involving the personal net income tax, one of the parties moved to amend the complaint by adding an allegation raising a constitutional issue. The other party objected, relying on ORS 305.425(3). The court sustained the objection, finding that: "No issue of constitutionality was raised in the appeal to the department." Jonsson v. Dept. ofRev., 4 OTR 376, 381 (1971). *Page 385 
The construction of ORS 305.425(3), insofar as property tax valuation cases were concerned, appears to have remained unchanged, as indicated by Nepom v. Dept. of Rev., 4 OTR 531,536 (1971), wherein the court observed "[t]he fact that the defendant's witness changed the appraisal approach from that used before the county board of equalization is not significant; the proceedings before the Oregon Tax Court are treated as 'original, independent proceedings and shall be tried without a jury and de novo.' ORS 305.425." Actually ORS305.425(3) is not applicable to hearings before county boards of equalization and, accordingly, the court's statement is correct.
However, in 1976, two property tax cases were decided in which this court modified its position somewhat. The first case involved the failure to register an aircraft by the statutory due date. At the trial, the plaintiff claimed hardship, pursuant to ORS 307.475. This court stated: "The record in this suit does not show that plaintiff ever appealed to the director under the specific provisions of ORS 307.475, and, consequently, the court is precluded from consideration of this issue. ORS 305.425(3)." Norbud, Inc. v. Dept. of Rev., 6 OTR 335,337 (1976).
Actually, this case represents no departure from a property tax valuation case in that the fact situation inNorbud is analogous to the fact situation in Jonsson, supra.
The second case, however, Bauman et al v. Dept. of Rev., 6 OTR 426
(1976), does reflect a modified position insofar as property tax valuation cases are concerned. In that case, the defendant's order affirmed the value of the improvements at $3,801,000. Plaintiffs' complaint prayed for a reduction to $2,219,700. At trial defendant changed its approach to value, substituting cost for income and asserted a value of $4,405,700. This court held that:
  "Under ORS 305.425, the proceedings in this court are tried de novo; i.e., a new trial as to the admission of evidence, but on the same issues as were presented to the administrative tribunal.
[Emphasis supplied.] It must find the alleged true cash value shown by the preponderance of the evidence and within the scope of the pleadings. * * * *Page 386
"* * * * *
 3. "* * * If, subsequent to the issue of its order from which appeal is taken to the Tax Court, the administrative agency, through further study, believes that the true cash value of the subject property on the assessment day should be increased, it should affirmatively plead the increased amount." (6 OTR at 438-39.)
The department had not so pleaded and, accordingly, in effect, was restricted to the value stated in its opinion and order.
The court however, in the following year, did not follow this salutary modification of past decisions. In the case there involved, a centrally assessed company had been assessed for property tax purposes by the department as of January 1, 1975, at a true cash value of $446,670,000. The company requested a reduction. Its request was denied and it appealed. The defendant filed a motion to file an amended answer alleging true cash value as of January 1, 1975, was $560,067,000. In oral argument on the motion, the department proposed a further amendment in true cash value as of January 1, 1975, at $570,472,000. This court allowed the motion (permitting the filing of the amended answer). When plaintiff rested its case, the defendant offered, and the court received in evidence, new appraisals in which there were substantial departures from the appraisal theories originally used by the department and also a value substantially different from the value pled in the department's amended answer. Pacific Power  Light Co. v. Dept.of Rev., 7 OTR 203, 210-212 (1977). Pacific Power  Light Co. appealed. The Oregon Supreme Court reviewed the foregoing, stating:
  "The tax court approved defendant's motion to file these amended answers based upon its interpretation of ORS 305.425(3) * * *. This decision is not disputed by the parties before this court." Pacific Power  Light Co. v. Dept. of Rev., 286 Or. 529, 532, 596 P.2d 912 (1979).
The rationale for this court's holding that the approach or approaches utilized by an appraiser in determining the amount of the assessment were not issues of fact within the meaning of ORS 305.425(3) is clearly enunciated in a case wherein this court stated: *Page 387 
    "If either the taxpayer or assessor can improve his case, as he moves from successive administrative hearings to the court, by using new approaches (justified by further study) or offering stronger comparable sales (discovered through greater diligence), these changes in presentation are permitted under the statutory provision for a presentation 'de novo,' so long as they aid in reaching the goal of true cash value."  Price v. Dept. of Rev., 7 OTR 18, 23 (1977).
The rationale for so holding fails, however, in light of the Oregon Supreme Court holding in Pacific Power  Light Co. v.Dept. of Rev., supra, at 533, wherein Justice Lent states: "[W]hether 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."
4. That being so, it necessarily follows that ORS 305.425(3) precludes either party subsequently modifying his, her or its position as to the true cash value of the property or as to the valuation approach or approaches utilized on appeal to the department. It is just and equitable that this be so. The local assessor or the defendant in certain circumstances makes the original assessment. At this juncture, under current procedures, the taxpayer has to make a decision as to whether it is likely to be worth the expense of being required (1) to bear the burden of proof (OAR 150-305.115-B; ORS 305.427) by retaining a competent qualified counsel and one or more appraisers; and (2) exhaust his administrative remedies by prosecuting appeals to the county board of equalization, the Department of Revenue and this court. Erwin v. Dept. of Rev. etal, 7 OTR 539, 544-545 (1978), and Rosboro Lbr Co. v. Heine etal, 8 OTR 221, 226 (1979). If the taxpayer decides to go forward, it is the value initially found by the assessor or the defendant that is being contested.
Long ago, Adam Smith set forth the goals of taxation in hisWealth of Nations, Book V, ch II. One of those goals was that "[t]he tax which each individual is bound to pay, ought to be certain * * *. [T]he quantity to be paid, ought all to be clear and plain to the contributor." The New York Court of Appeals indicated that certainty should not be abrogated by appealing an assessment when it stated:
    "When he [the plaintiff] takes the assessment into court, *Page 388 
asking for a reduction thereof, there is nothing in his action which implies a consent to have the assessment increased or a willingness to litigate that question, nor can the action of the commissioners of taxes and assessments in resisting his application for a reduction reasonably be construed into a notice from them that they will ask for an increase." People v. O'Donnel, 198 N.Y. 48, 52, 91 N.E. 276, 277 (1910).
We believe this to be better reasoning than that heretofore followed by this court. Accordingly, ORS 305.425(3) is enforced herein by restricting both parties to the value alleged in the proceeding before the defendant as indicated on Chart 2.
                          HIGHEST AND BEST USE
During the past decade, the oil crisis and double-digit inflation resulted in a fuel shortage and an increase in the price of gasoline. This, in turn, led to reduced hours of operation, conversion to partial or total self-service, station closing or conversion of existing stations from uses other than the sale of petroleum products. The prices paid during the period 1960-1970 were reflections of the great demand at that time for property suitable for gasoline service stations and the extremely short supply of sites that were available. Prices paid today reflect a vast oversupply of gasoline service stations. Encyclopedia of Real Estate Appraising ch 43 (Friedman ed, 3rd ed 1978), at 951-952.
Plaintiff's witness, Mr. Paget, in discussing economic obsolescence, testified similarly (Transcript 12-20), as did plaintiff's appraiser, as he discussed the appraisals involved generally (Plaintiff's Exhibit 1 at 10) and as he discussed his appraisal of each of the five properties involved. The foregoing is reflected in the fact that plaintiff's appraiser found only two of the five properties to have a highest and best use as a service station (Plaintiff's Exhibit 4 at 6; Plaintiff's Exhibit 5 at 6), the other three having an alternative highest and best use. (Plaintiff's Exhibit 2 at 5, professional office, intense retail commercial or high-rise residential; Plaintiff's Exhibit 3 at 7, recreational vehicle or boat sales, retail commercial or service; Plaintiff's Exhibit 6 at 5, very limited possibilities for alternate use.) *Page 389 
5. As a first step in estimating value, the appraiser must form an opinion as to the highest and best use to which the property may be put. Oregon Broadcasting v. Dept of Rev., 7 OTR 379,382-383 (1978). This for the reason that if it is determined that the highest and best use of a gasoline service station is some alternative type of use, the property must be appraised as though it were put to such other use. For example, if the highest and best use is a retail liquor store, then the property should be appraised as such, listing and comparing factors peculiar to a liquor store site. If the highest and best use is as an office building, then the property should be appraised as a proposed office building. Encyclopedia of RealEstate Appraising, supra, at 952. Defendant's appraiser, in his appraisal, mentioned highest and best use with reference to only one property (Account No. 280139) indicating that such use as a service station was questionable. (Defendant's Exhibit A at 9.) At the trial, however, Mr. Rose testified that the highest and best use of that property was neighborhood commercial, a convenience store location or an office (Transcript at 87-88). On Account No. 437358, Mr. Rose testified at the trial that the highest and best use was strip commercial-neighborhood commercial type development. (Transcript at 118.) On Account No. 461630, Mr. Rose testified that the highest and best use was mixed commercial-industrial. (Transcript at 198.) Mr. Rose did not testify as to the highest and best use of Account Nos. 630283 or 44816. Mr. Carlson indicated two properties as having a highest and best use as a service station, i.e., Account Nos. 630283 and 461630. Mr. Rose did not indicate either as such.
6. Highest and best use is a specific use, not a general use, such as any one of a number of uses permitted by a zoning ordinance designation. If highest and best use as a service station is selected, the rationale for selecting that use depends upon a number of factors such as adequacy of the size of the site, neighborhood business potential, grade of street and topography, visibility from roadway, compatibility of traffic flow, transient business potential, ease of approach, etc. Encyclopedia of Real Estate Appraising, supra, at 954. Mr. Carlson clearly has an edge over Mr. Rose in terms of knowledge of the market and the industry, in that he has considerable experience as a fee appraiser for Standard Oil *Page 390 
Company, Humble Oil Company, Phillips Petroleum Company, Franko Oil Company, Truax, Oil Company and plaintiff herein, much of which involved the appraisal of service stations for property tax purposes. (Plaintiffs Exhibit 1 at 4, 5.) His specific determination of highest and best use is therefore more convincing than Mr. Rose's general determination.
As to the land value of Account No. 630283, Mr. Carlson's market data analysis utilized ten sales in the immediate vicinity, adjusted for time, location, size, frontage and access, and with respect to three sales, a "motivational adjustment." With the foregoing adjustments, the values range from $4.32 to $8.35 per square foot. After eliminating the high and low sales, Mr. Carlson determined, based on the median, a square foot value of $5.85. (Plaintiff's Exhibit 4 at 9.) Mr. Rose's analysis utilized three sales, adjusted for time and location with values ranging from $8.18 to $8.78. Mr. Rose selected a square foot value of $8.40. (Defendant's Exhibit A at 19-20).)
As to the land value of Account No. 461630, Mr. Carlson's market data analysis utilized eight sales, adjusted for time, location, size, in three instances for traffic and in one instance for zoning. (Plaintiff's Exhibit 5, at 9.) Mr. Rose utilized three sales and adjusted for time, location, stability and shape. (Defendant's Exhibit A at 28.) Each appraiser segregated the land into categories. Mr. Carlson into four categories, Mr. Rose into two categories, depending on the amount of land regarded as partially or wholly filled and compacted. Both Mr. Carlson and Mr. Rose have utilized the market approach to determine land value. That approach is a comparative method wherein the appraiser compares the subject property with properties recently sold and adjusts for differences. Ideally service stations should be compared with service stations, but as a practical matter, a sufficient number of comparable sales is often lacking. Several of the ten sales included in Mr. Carlson's analysis of Account No. 630283 however, had been service stations. (Transcript at 156-157.) One of those sales was also utilized by Mr. Rose, and regarded by him as the best indicator of value. Defendant attacked Mr. Carlson for making too many adjustments in this instance,i.e. for time, location, size, frontage and access. Mr. Rose made *Page 391 
one adjustment, i.e., for time. Adjustments for differences, however, are based upon the same considerations that were used to determine highest and best use. The adjustments made by Mr. Carlson were critical to achieving a comparable in this instance and accordingly, were properly taken into consideration in his market data analysis. Under the circumstances, his determination of $5.85 per square foot (Plaintiff's Exhibit 4 at 14) is more convincing than Mr. Rose's determination of $8.40 (Defendant's Exhibit A at 19).
Adjustments made by Mr. Carlson were critical to achieving a comparable in this instance and, accordingly, were properly taken into consideration in his market data analysis. Defendant also attacks the use by Mr. Carlson of an adjustment for motivation, alleging that it is "a term unique to Mr. Carlson." (Defendant's Memorandum at 2.) It is not. For example,Encyclopedia of Real Estate Appraising, supra, at 67, states:
  "[T]he appraiser must delve into the real motivation of buyers and sellers and try to fathom the reasons behind actual prices at which comparable properties were sold."
See also The Appraisal of Real Estate, ch 15 (7th ed 1978), at 290-292. Under the circumstances, Mr. Carlson's determination of land value for Account No. 630283 of $83,800 and for Account No. 461630 of $61,600 is more convincing than Mr. Rose's determination of land value for Account No. 630283 of $120,330 and for Account No. 461630 of $180,770.
Insofar as the value of improvements are concerned, Mr. Carlson used a residual method, i.e., deducted his determination of land value from sales price, resulting in the value of the improvement. As such, the value of the improvements were not directly estimated. (Transcript at 53.) Mr. Rose, on the other hand, relied on the cost approach, using the 1980 edition of the state's factor book. (Transcript at 88.) Plaintiff's witness, Mr. Paget, testified that the improvements on independent operations, such as plaintiff's, contributed "hardly anything" to value. (Transcript at 15.) Mr. Carlson indicated that analysis of the market indicated that the total of three elements of depreciation, i.e., physical deterioration, functional inadequacies and economic obsolescence "range from 60 percent to more than 100 percent." (Plaintiff's *Page 392 
Exhibit 1 at 11.) These statements are in accord withEncyclopedia of Real Estate Appraising, supra, at 964, wherein the following appears:
    "The cost approach should not be relied on extensively in valuation of completed service station projects. * * *
"* * * * *
    "Land is the basic element of value in gasoline service stations; improvements are usually only an appendage to be added to the land."
Notwithstanding the foregoing, Mr. Carlson estimates that a substantial amount for improvements on Account No. 630283,i.e., $15,000, and on Account No. 461630, $33,000. While these amounts are substantially less than Mr. Rose's estimates of $22,310 for Account No. 630283 and $38,780 for Account No. 461630, the two appraisers would be quite close if Mr. Rose had, with reference to Account No. 630283, recognized, in addition to depreciation and functional obsolescence, economic obsolescence (Defendant's Exhibit A at 22-23) and with reference to Account 461630 recognized both functional and economic obsolescence, rather than depreciation only (Defendant's Exhibit A at 30). Under the circumstances, Mr. Carlson's determination of improvement values is more convincing than Mr. Rose's determination.
7. As to the balance of the three properties, neither of the parties' appraisers utilized properly the concept of highest and best use. This court, in one of its earlier opinions after creation of the court, observed that "the entire concept of value presupposes the theory of highest and best use." Williamsv. Commission, 1 OTR 265, 267 (1963). Put another way, one cannot arrive at a property's value without determining first its highest and best use. While both appraisers made the error in all proceedings before the Tax Court, the burden of proof falls upon the party seeking affirmative relief. ORS 305.427. The plaintiff, accordingly, has failed to meet the burden and must pay the penalty for so doing. The defendant's Opinion and Order is affirmed as to the true cash value for Account Nos. 437358, 280139 and 44816.
Earlier in this opinion both parties were restricted to *Page 393 
values alleged in the proceedings before defendant as indicated on Chart 2. (See page 383, supra.) The total land and improvement value of Account No. 630283 alleged by plaintiff before defendant was $97,500. The court having found the plaintiff more persuasive, accordingly, the defendant's Opinion and Order No. VL 81-805 is amended to provide that Account No. 630283 shall be valued at $97,500. The total land and improvement value for Account No. 461630 alleged by plaintiff before defendant was $59,200. The court, having found the plaintiff more persuasive, accordingly, the defendant's Opinion and Order No. VL 81-805 is amended to provide that Account No. 461630 shall be valued at $59,200.
The valuation of the remaining three accounts determined by the defendant in the hearing below is hereby affirmed. Therefore, the true cash value of land and improvements on January 1, 1979, was:
  Account No. 437358                          $  67,510 Account No. 280139                            151,320 Account No. 44816                              61,150