Deer Hill, Inc. v. Washington County Assessor

Opinion

IN THE OREGON TAX COURT MAGISTRATE DIVISION Property Tax

DEER HILL, INC., ) ) Plaintiff, ) TC-MD 190311G ) v. ) ) ORDER DENYING PLAINTIFF’S WASHINGTON COUNTY ASSESSOR, ) MOTION FOR SUMMARY JUDGMENT ) AND GRANTING DEFENDANT’S Defendant. ) MOTION FOR SUMMARY JUDGMENT

On cross-motions for summary judgment, this case concerns a challenge to the

constitutionality of applying Oregon Administrative Rule (OAR) 150-308-1500 to determine the

subject property’s additional tax after disqualification from special assessment. For the reasons

given below, the court holds that Article XI, section 11(2) of the Oregon Constitution permits the

application of OAR 150-308-1500 to the subject.

I. STATEMENT OF FACTS

The subject is a five-acre parcel with a house, guest house, and outbuilding. (Stip Facts,

¶ 1.) For the 2019–20 tax year, 1.42 acres of the subject were disqualified from forestland

special assessment. Defendant thereupon imposed an additional tax for the preceding five-year

lookback period pursuant to ORS 308A.703 and OAR 150-308-1500. 1

Plaintiff’s principals, Paul and Gail Parker, bought the subject for $359,000 in May

1991. 2 (Id., ¶ 2.) At that time—the 1990–91 tax year—a portion of the subject was specially

assessed as forestland, and the whole subject was assigned a real market value and assessed

1 Unless otherwise noted, all references to the Oregon Revised Statutes (ORS) are to 2017. 2 The Parkers subsequently transferred the subject to their trust and then to Plaintiff; those transfers do not affect this dispute, and for convenience the Parkers will be referred to as the subject’s owners.

ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT TC-MD 190311G 1 of 9 value of $297,640 on the tax statement. (Id.) For tax year 1991–92, the subject’s assessed value

increased to $414,080. (Id.) That value was reduced to $359,000 for the 1992–93 tax year. (Id.,

¶ 3.)

Although the subject’s tax statements for 1991–92 and 1992–93 were annotated “Acres

5.00, Small Woodlands – Potential Additional Tax Liability,” they did not identify any particular

value attributable to special assessment. (Stip Facts, ¶¶ 2–3.) The subject’s 1995–96 tax

statement was similarly annotated, and similarly lacked any statement of an amount at which the

specially assessed portion was assessed. (Id., ¶ 4.) In contrast, Defendant’s 1995–96 appraisal

card identified 3.0 acres of the subject as specially assessed at a total of $1,580. (Id., ¶ 5.)

In 1996, the specially assessed portion of the subject was converted at the Parkers’

request from 3.00 acres of Small Woodlands to 3.82 acres of Designated Forestland. (Stip Facts,

¶¶ 2, 9.)

Measure 50’s provisions decoupling assessed value from market value first took effect on

the 1997–98 tax roll. The subject’s 1997–98 tax statement shows that the subject’s assessed

value was set at $413,370. (Stip Facts, ¶ 8.) With rounding, that amount is 90 percent of its

1995–96 assessed value, indicating that its initial maximum assessed value was set in accordance

with Measure 50. (Id.)

In 2014–15, the subject’s assessed value had risen to $684,240, with 3.82 acres of

forestland specially assessed at $1,580. (Stip Facts, ¶¶ 10, 11.) The real market value of the

1.42 acres that would eventually be disqualified was $518,000. (Id.)

Upon disqualification of those 1.42 acres for 2019–20, Defendant imposed additional

taxes for the preceding five-year lookback period, beginning with 2014–15. Defendant

recalculated the 1.42 acres’ 2014–15 maximum assessed value, raising its assessed value by

ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT TC-MD 190311G 2 of 9 $386,370. (Stip Facts, Ex 7 at 2.) The subsequent years of the lookback saw similar assessed

value increases, trended upward by three percent each year. (Id.)

Plaintiff requests cancellation of the additional taxes, whereas Defendant requests that its

assessment be upheld.

II. ANALYSIS

The principal legal question here is whether the application of OAR 150-308-1500 to

calculate the subject’s additional taxes violates Article XI, section 11(2) of the Oregon

Constitution by resulting in an aggregate tax exceeding what “would have been imposed * * *

had the property not been partially exempt or specially assessed for the years for which the

additional taxes are being collected.”

The court grants summary judgment where the documents on file show that “there is no

genuine issue as to any material fact and that the moving party is entitled to prevail as a matter of

law.” TCR 47 C; TCR–MD 13 B. 3 There is no genuine issue as to a fact “if, based upon the

record before the court viewed in a manner most favorable to the adverse party, no objectively

reasonable juror could return a verdict for the adverse party on the matter that is the subject of

the motion for summary judgment.” TCR 47 C.

A. Additional Tax under ORS 308A.703 and OAR 150-308-1500

Disqualification of property from special assessment entails tax consequences. One such

consequence is the recalculation of maximum assessed value pursuant to ORS 308.146(3)(e).

See also Or Const Art XI, § 11(1)(c). That recalculated maximum assessed value applies to the

tax year associated with the first January 1 assessment date on which the property is

3 The references are to the Tax Court Rules (TCR) and the Tax Court Rules–Magistrate Division (TCR– MD).

ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT TC-MD 190311G 3 of 9 disqualified—the disqualification year. See ORS 308.156(4). Another consequence is the

imposition of an additional tax by which a county recoups tax revenue lost due to special

assessment in a “lookback period” of five or ten years preceding the disqualification. See ORS

308A.703.

ORS 308A.703(2) requires imposition of the additional tax when property is disqualified

from special assessment:

“The additional tax shall be equal to the difference between the taxes assessed against the land [while under special assessment] and the taxes that would otherwise have been assessed against the land, for each of the number of years determined under subsection (3) of this section.”

For forestland, the lookback period determined under subsection (3) comprises up to five

consecutive years before the disqualification in which the property qualified as designated

forestland. ORS 308A.703(3)(d).

Instructions for computing additional tax are provided by OAR 150-308-1500(2): 4

“Effective August 15, 2018, to calculate the maximum assessed value (MAV) for the computation of the additional tax, multiply the real market value (RMV) of the special assessed land being disqualified for the earliest year in the lookback period by that year’s appropriate change property ratio (CPR) for the classification of the disqualified property as if it would not have been specially assessed. For each subsequent year, calculate the MAV as if the property had not been specially assessed per ORS 308.146.”

OAR 150-308-1500(2) thus requires computing additional tax using a recalculation of maximum

assessed value for the earliest lookback year. That recalculation is in addition to the

recalculation for the disqualification year required by ORS 308.146(3)(e).

4 Before August 15, 2018, OAR 150-308-1500(2) had distinguished computation methods for tax years before and after Measure 5’s limits on tax rates took effect and gave these instructions for the latter: “Additional taxes computed for 1991-92 tax year and thereafter equal the difference between the taxes assessed against the land in that year and the taxes that would have been assessed against the land had the land not been in farm use.” Former OAR 150-308A.703(1)(a) (2000), renumbered as OAR 150-308-1500 (2016).

ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT TC-MD 190311G 4 of 9 Plaintiff does not dispute that OAR 150-308-1500(2) is generally consistent with ORS

308A.703(2), but argues that its application to the subject violates Article XI, section 11(2) of the

Oregon Constitution. Following the parties, the court will analyze the constitutional provision.

Because the statute resembles the constitutional provision in looking to what tax would have

been imposed during the lookback years, a similar analysis could apply to it.

B. Limit on Additional Tax under Oregon Constitution Article XI, Section 11(2)

The additional tax on leaving special assessment is limited by Article XI, section 11(2) of

the Oregon Constitution:

“After disqualification from partial exemption or special assessment, any additional taxes authorized by law may be imposed, but in the aggregate may not exceed the amount that would have been imposed under this section had the property not been partially exempt or specially assessed for the years for which the additional taxes are being collected.”

Or Const Art XI, § 11(2). Additional taxes may not exceed the taxes that “would have been”

owed if the property had not been specially assessed for the pertinent years. Thus, computation

of additional tax requires a hypothetical calculation of what the total aggregate taxes “would

have been”; specifically, what they would have been if the property had not been specially

assessed “for the years for which the additional taxes are being collected.” Those latter are the

years of the lookback period. See ORS 308A.703(5).

How much are the taxes that “would have been?” Both parties agree the amount is found

by looking to a property’s maximum assessed value over its lookback period. The parties further

agree that, after the earliest lookback year, that maximum assessed value should increase

according to the usual three-percent-per-annum rule absent some special event. Their

disagreement lies in how to treat the earliest lookback year. Plaintiff would have that year’s

maximum assessed value equal 103 percent of the prior year, the year before the lookback

ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT TC-MD 190311G 5 of 9 period. Defendant would have the earliest lookback year’s maximum assessed value

recalculated, just as it must be recalculated for the disqualification year.

Briefing indicates that Plaintiff’s proposed method of computing additional tax was once

used in some counties, and a reference to something like that method is found in a footnote to

Haynie v. Department of Revenue, 19 OTR 488, 491 (2008). The county assessor in Haynie had

kept records of a “Rollback MAV” for specially assessed historical property equal to “what the

property’s [maximum assessed value] would be were the property not in the historic special

assessment program.” Haynie, 19 OTR at 491. In a footnote, the court stated that “the county

must keep a record of the property’s Rollback MAV” for purposes of computing additional tax

under ORS 358.525. Id. Further details are not provided, as additional tax was not at issue in

that case. However, one may suppose that a Rollback MAV might be set equal to a property’s

maximum assessed value at the outset of its special assessment, then adjusted each subsequent

year as it would have been if the property were not specially assessed. Upon disqualification, the

difference between the tax computed using each lookback year’s Rollback MAV and that already

assessed using its specially assessed value would constitute its additional tax.

Plaintiff’s position is that Article XI, section 11(2) forbids an additional tax greater than

that computed using the above-described Rollback MAV method.

On a first reading, Plaintiff’s position is appealing. Article XI, section 11(2) limits

aggregate taxes to what they would have been if the property had not been specially assessed.

By relying on a maximum assessed value continued over from before the property was placed in

special assessment, the Rollback MAV method yields a tax equal to the difference between what

was actually paid and what would have been paid if the property had never been put in special

assessment.

ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT TC-MD 190311G 6 of 9 However, Plaintiff’s reading of Article XI, section 11(2) neglects a key phrase. The

constitutional limit is not what the taxes would have been if the property had never been

specially assessed, but rather what the taxes would have been if the property had not been

specially assessed “for the years for which the additional taxes are being collected.” Or Const,

Art XI, § 11(2). That last phrase is crucial because it restricts the time for which the property is

considered as not having been specially assessed to the lookback period.

It makes a difference if only the lookback period is considered as out of special

assessment in cases where the property was specially assessed the year preceding the lookback

period. Where a property is in special assessment one year, but out of it the next, it has ipso

facto “become[] disqualified from * * * special assessment” and must have its maximum

assessed value recalculated. See ORS 308.146(3)(e). If the question is how much “would have

been imposed” in taxes in the earliest lookback year, the answer must depend on whether that

year “would have been” a disqualification year. If the property had been out of special

assessment in the lookback period, but not in the year before, then its taxes for the earliest

lookback year would have reflected the recalculation required by ORS 308.146(3)(e).

The recalculation required by OAR 150-308-1500(2) yields the taxes that would have

been imposed if the property had been specially assessed immediately before the lookback

period. The Rollback MAV method yields the taxes that would have been imposed if the

property had not been specially assessed immediately before the lookback period—in that case,

the earliest lookback year would not have been a disqualification year.

It might be objected that recalculating maximum assessed value both for the beginning of

the lookback period and for the disqualification year violates another constitutional provision,

Article XI, section 11(1)(d). That provision states:

ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT TC-MD 190311G 7 of 9 “Property shall be valued under paragraph (c) of this subsection only for the first tax year in which the changes described in paragraph (c) of this subsection are taken into account following the effective date of this section. For each tax year thereafter, the limits described in paragraph (b) of this subsection apply.”

Or Const, Art XI, § 11(1)(d). The referenced paragraph (c) requires recalculation of maximum

assessed value when there is an exception event, such as removal from special assessment.

Article XI, section 11(1)(d) thus requires assessors to “only” recalculate maximum assessed

value for exception years and to resume normal assessment thereafter. It forbids assessors from

recalculating maximum assessed value for years in which no exception event occurred.

There is no conflict between Article XI, section 11(1)(d) and a lookback-period

recalculation where the earliest lookback year would have been a disqualification year. Under

that supposition, recalculation is precisely what section 11(1)(d) would require. Furthermore, the

property is not “valued under” the lookback-year recalculation. That recalculation underlies the

additional tax placed on “the next assessment and tax roll,” ORS 308A.703(2), but it does not

result in placing a new value on the roll for any year, past or present.

OAR 150-308-1500(2) is therefore constitutional as applied to a property that has been in

special assessment longer than its lookback period.

Here, the disqualified portion of the subject had been in special assessment since at least

1996, over twenty years before being disqualified. Its lookback period was only five years. The

amount it would have been taxed if it had been out of special assessment those five years is the

amount it would have been taxed if its maximum assessed value had been recalculated at the

beginning of those five years. See Or Const, Art XI, section 11(2); ORS 308.146(3)(e). Because

that is the calculation required by OAR 150-308-1500(2), Defendant appropriately followed

OAR 150-308-1500(2) in determining the subject’s additional tax.

ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT TC-MD 190311G 8 of 9 III. CONCLUSION

Article XI, section 11(2) of the Oregon Constitution permits the application of OAR 150-

308-1500(2) to calculate the subject’s additional tax for year at issue. Now, therefore,

IT IS ORDERED that Plaintiff’s motion for summary judgment is denied.

IT IS FURTHER ORDERED that Defendant’s motion for summary judgment is granted.

Dated this _____ day of January 2021.

POUL F. LUNDGREN MAGISTRATE

This is a dispositive order pursuant to Tax Court Rule – Magistrate Division 16 C(1). The court will issue a decision after waiting 14 days to determine whether there is a dispute about costs and disbursements. Any claim of error in regard to this order should be raised in an appeal of the Magistrate’s decision when all issues have been resolved. See TCR-MD 19.

This document was signed by Magistrate Poul F. Lundgren and entered on January 13, 2021.

ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT TC-MD 190311G 9 of 9