IN THE OREGON TAX COURT MAGISTRATE DIVISION Property Tax
ANDREW N. MacRITCHIE ) and RACHEL A. MacRITCHIE ) ) Plaintiffs, ) TC-MD 150402D ) v. ) ) CLACKAMAS COUNTY ASSESSOR, ) ) Defendant. ) FINAL DECISION
This Final Decision incorporates without change the court’s Decision, entered
April 1, 2016. The court did not receive a statement of costs and disbursements within 14
days after its Decision was entered. See TCR-MD 16 C(1).
Plaintiffs appeal from an omitted property notice issued by Defendant, dated May
6, 2015, increasing the real market value and maximum assessed value of property
identified as Account 01836767 (subject property) for 2009-10 through 2014-15 tax
years. A trial was held in the Oregon Tax Courtroom on December 7, 2015, in Salem,
Oregon. Andrew MacRitchie (MacRitchie) appeared and testified on behalf of Plaintiffs.
Todd Cooper (Cooper) appeared and testified on behalf of Defendant. Plaintiffs’
Exhibits 1 through 7, and Exhibit 8, pages 1 and 2, were received without objection.
Plaintiffs’ Exhibit 8, page 3 was received over Defendant’s objection. Defendant’s
Exhibits B through E were received without objection. Defendant’s Exhibit A was
received with objection. Defendant’s Exhibits H and I were not received.
On November 30, 2015, Defendant filed a Motion to Dismiss Plaintiffs’
Complaint (Motion) for failure to facilitate the inspection of the subject property. The
court deferred ruling on the Motion until the trial date pursuant to Tax Court Rule-
FINAL DECISION TC-MD 150402D 1 Magistrate Division (TCR-MD) 7 D. In support of its Motion, Defendant cited Poddar v.
Dept. of Revenue, 328 Or 552 (1999) for the proposition that Defendant has a right to
inspect the subject property and interference with that right could be grounds for
dismissal of the case. The court agrees with that general proposition. However, at the
time of Defendant’s request for an inspection Plaintiffs no longer owned the subject
property and did not have the ability to grant access for an inspection.1 In the court’s
prior Order Denying Site Inspection (November 16, 2015) Defendant was instructed to
review the Tax Court Rules, specifically TCR 43 and TCR 55, in seeking to inspect
property that was owned by a non-party to the case. Defendant’s Motion to Dismiss
demonstrated that it has not done so. Defendant’s Motion to Dismiss is denied.
I. STATEMENT OF FACTS
MacRitchie testified that the subject property was built in 1999; he leased it in
2000 and subsequently purchased it in 2004. He testified that in April 2010, Plaintiffs
undertook a remodel of the kitchen and bathroom to better suit their lifestyle and for
general maintenance. MacRitchie testified that the following work was performed:
refinish kitchen cabinets (which were dinged and sun-bleached) at a cost of $17,500;
repaint kitchen and bathroom at a cost of $7,700; reposition the bathroom door and
extend the opening by two feet to allow the door to open inwards and change double
doors to a pocket door at a cost of $7,000; switch positions of the bath and showers, and
replace a Jacuzzi tub with a soaker tub and related plumbing and electrical work at a cost
of $22,300; replace granite in kitchen and extend center island to include a decorative
1 Plaintiffs did try to facilitate an inspection of the property. (See Ptf’s Ltr at 11, Oct 14, 2015), Plaintiffs stated in their letter to the current owners “[w]e ask you if you would be willing to allow the Assessor to view the kitchen and master bathroom of your home.”)
FINAL DECISION TC-MD 150402D 2 semicircular decorative display area and add a second level glass breakfast bar over the
granite at a cost of $9,000; replace tiling in kitchen and bathroom at a cost of $15,000;
move electrical outlets in bathroom and into changing room, add outlets to the kitchen
island at a cost of $9,600; replace and reposition bathroom window for privacy at a cost
of $3,400; sand and re-varnish the kitchen floor, (that was showing evidence of wear) at a
cost of $2,500; and minor work items, including additional wall cabinets in bathroom, at
a cost of $3,300. MacRitchie also testified that he spent around $6,200 for construction
permit fees. MacRitchie testified that the renovations were completed and approved by
the City of Lake Oswego in September 2010.
MacRitchie testified that the renovations were not done to increase the value of
the property, but for maintenance and “like for like” replacements of existing items which
were all in a good state of repair. He testified that an unforeseen change in his work
location required Plaintiffs to put the subject property up for sale in May 2014. The
property was sold in May 2015. (Def’s Ex A at 38.) MacRitchie testified that just prior
to the close of escrow he received information from his title insurance company that there
was an issue regarding taxes on the property. MacRitchie testified that he attempted,
from his new residence in New York, to resolve the tax issue with the county, resulting in
a heated discussion. MacRitchie testified that he was forced to pay Defendant the taxes it
demanded related to the remodel of the property so escrow could close on time.
Cooper testified he is a senior appraiser for Defendant. He testified that after
passage of Measure 50, Defendant changed the way it valued properties, which may have
caused a delay in Defendant reevaluating the subject property after its renovation.
Defendant put a note on Plaintiff’s property file until it could review Plaintiffs remodel.
FINAL DECISION TC-MD 150402D 3 When Defendant was contacted by a title insurance company, Cooper quickly prepared a
mass appraisal review of the subject property and prepared an Omitted Property Notice.
Cooper testified that he talked with MacRitchie by telephone and understood from the
conversation that renovations to the subject property occurred in 2009. Cooper testified
that he determined the added value of the improvements using the mass appraisal data at
$41,240. Cooper determined that the additional values based on the renovations were as
follows:
Year Addition RMV Additional AV 2009-10 $37,907 $24,639 2010-11 $35,314 $25,379 2011-12 $33,122 $26,140 2012-13 $32,765 $26,924 2013-14 $33,747 $27,732 2014-15 $41,240 $28,564
(Ptfs’ Ex A at 1.)
In preparation for a trial in this case Cooper prepared an appraisal report. (Def’s
Ex A.) Cooper testified that he considered all three appraisal approaches to value the
property but determined that the income approach was not meaningful for this residential
home in a primarily owner-occupied area.
The appraisal report prepared by Defendant stated that the cost approach was the
basis for the original valuation of the subject property. (Def Ex A at 9.) The values were
determined using mass appraisal techniques based on valuation studies prepared by
Defendant. (Id.)
In considering the market approach, Cooper selected six comparable properties,
with comparables 1, 3 and 5 being the most similar to the subject property, and concluded
that the “after remodel” value as of January 1, 2014, was $1,150,000. Cooper testified he
FINAL DECISION TC-MD 150402D 4 used a paired analysis selecting properties which had no remodel work performed with
properties which had significant remodel work. He testified that this method kept other
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IN THE OREGON TAX COURT MAGISTRATE DIVISION Property Tax
ANDREW N. MacRITCHIE ) and RACHEL A. MacRITCHIE ) ) Plaintiffs, ) TC-MD 150402D ) v. ) ) CLACKAMAS COUNTY ASSESSOR, ) ) Defendant. ) FINAL DECISION
This Final Decision incorporates without change the court’s Decision, entered
April 1, 2016. The court did not receive a statement of costs and disbursements within 14
days after its Decision was entered. See TCR-MD 16 C(1).
Plaintiffs appeal from an omitted property notice issued by Defendant, dated May
6, 2015, increasing the real market value and maximum assessed value of property
identified as Account 01836767 (subject property) for 2009-10 through 2014-15 tax
years. A trial was held in the Oregon Tax Courtroom on December 7, 2015, in Salem,
Oregon. Andrew MacRitchie (MacRitchie) appeared and testified on behalf of Plaintiffs.
Todd Cooper (Cooper) appeared and testified on behalf of Defendant. Plaintiffs’
Exhibits 1 through 7, and Exhibit 8, pages 1 and 2, were received without objection.
Plaintiffs’ Exhibit 8, page 3 was received over Defendant’s objection. Defendant’s
Exhibits B through E were received without objection. Defendant’s Exhibit A was
received with objection. Defendant’s Exhibits H and I were not received.
On November 30, 2015, Defendant filed a Motion to Dismiss Plaintiffs’
Complaint (Motion) for failure to facilitate the inspection of the subject property. The
court deferred ruling on the Motion until the trial date pursuant to Tax Court Rule-
FINAL DECISION TC-MD 150402D 1 Magistrate Division (TCR-MD) 7 D. In support of its Motion, Defendant cited Poddar v.
Dept. of Revenue, 328 Or 552 (1999) for the proposition that Defendant has a right to
inspect the subject property and interference with that right could be grounds for
dismissal of the case. The court agrees with that general proposition. However, at the
time of Defendant’s request for an inspection Plaintiffs no longer owned the subject
property and did not have the ability to grant access for an inspection.1 In the court’s
prior Order Denying Site Inspection (November 16, 2015) Defendant was instructed to
review the Tax Court Rules, specifically TCR 43 and TCR 55, in seeking to inspect
property that was owned by a non-party to the case. Defendant’s Motion to Dismiss
demonstrated that it has not done so. Defendant’s Motion to Dismiss is denied.
I. STATEMENT OF FACTS
MacRitchie testified that the subject property was built in 1999; he leased it in
2000 and subsequently purchased it in 2004. He testified that in April 2010, Plaintiffs
undertook a remodel of the kitchen and bathroom to better suit their lifestyle and for
general maintenance. MacRitchie testified that the following work was performed:
refinish kitchen cabinets (which were dinged and sun-bleached) at a cost of $17,500;
repaint kitchen and bathroom at a cost of $7,700; reposition the bathroom door and
extend the opening by two feet to allow the door to open inwards and change double
doors to a pocket door at a cost of $7,000; switch positions of the bath and showers, and
replace a Jacuzzi tub with a soaker tub and related plumbing and electrical work at a cost
of $22,300; replace granite in kitchen and extend center island to include a decorative
1 Plaintiffs did try to facilitate an inspection of the property. (See Ptf’s Ltr at 11, Oct 14, 2015), Plaintiffs stated in their letter to the current owners “[w]e ask you if you would be willing to allow the Assessor to view the kitchen and master bathroom of your home.”)
FINAL DECISION TC-MD 150402D 2 semicircular decorative display area and add a second level glass breakfast bar over the
granite at a cost of $9,000; replace tiling in kitchen and bathroom at a cost of $15,000;
move electrical outlets in bathroom and into changing room, add outlets to the kitchen
island at a cost of $9,600; replace and reposition bathroom window for privacy at a cost
of $3,400; sand and re-varnish the kitchen floor, (that was showing evidence of wear) at a
cost of $2,500; and minor work items, including additional wall cabinets in bathroom, at
a cost of $3,300. MacRitchie also testified that he spent around $6,200 for construction
permit fees. MacRitchie testified that the renovations were completed and approved by
the City of Lake Oswego in September 2010.
MacRitchie testified that the renovations were not done to increase the value of
the property, but for maintenance and “like for like” replacements of existing items which
were all in a good state of repair. He testified that an unforeseen change in his work
location required Plaintiffs to put the subject property up for sale in May 2014. The
property was sold in May 2015. (Def’s Ex A at 38.) MacRitchie testified that just prior
to the close of escrow he received information from his title insurance company that there
was an issue regarding taxes on the property. MacRitchie testified that he attempted,
from his new residence in New York, to resolve the tax issue with the county, resulting in
a heated discussion. MacRitchie testified that he was forced to pay Defendant the taxes it
demanded related to the remodel of the property so escrow could close on time.
Cooper testified he is a senior appraiser for Defendant. He testified that after
passage of Measure 50, Defendant changed the way it valued properties, which may have
caused a delay in Defendant reevaluating the subject property after its renovation.
Defendant put a note on Plaintiff’s property file until it could review Plaintiffs remodel.
FINAL DECISION TC-MD 150402D 3 When Defendant was contacted by a title insurance company, Cooper quickly prepared a
mass appraisal review of the subject property and prepared an Omitted Property Notice.
Cooper testified that he talked with MacRitchie by telephone and understood from the
conversation that renovations to the subject property occurred in 2009. Cooper testified
that he determined the added value of the improvements using the mass appraisal data at
$41,240. Cooper determined that the additional values based on the renovations were as
follows:
Year Addition RMV Additional AV 2009-10 $37,907 $24,639 2010-11 $35,314 $25,379 2011-12 $33,122 $26,140 2012-13 $32,765 $26,924 2013-14 $33,747 $27,732 2014-15 $41,240 $28,564
(Ptfs’ Ex A at 1.)
In preparation for a trial in this case Cooper prepared an appraisal report. (Def’s
Ex A.) Cooper testified that he considered all three appraisal approaches to value the
property but determined that the income approach was not meaningful for this residential
home in a primarily owner-occupied area.
The appraisal report prepared by Defendant stated that the cost approach was the
basis for the original valuation of the subject property. (Def Ex A at 9.) The values were
determined using mass appraisal techniques based on valuation studies prepared by
Defendant. (Id.)
In considering the market approach, Cooper selected six comparable properties,
with comparables 1, 3 and 5 being the most similar to the subject property, and concluded
that the “after remodel” value as of January 1, 2014, was $1,150,000. Cooper testified he
FINAL DECISION TC-MD 150402D 4 used a paired analysis selecting properties which had no remodel work performed with
properties which had significant remodel work. He testified that this method kept other
factors such as inflation and property value trends constant while showing differences in
value based on improvements. Cooper testified that he then used an estimated 22 to 25
percent adjustment to account for the approximate amount of Plaintiffs’ remodel of their
home. Cooper testified that he ultimately concluded that, based on the paired analysis,
the exception value should be $55,000, the difference between the “before remodel”
estimate of value of $1,095,000 and the “after remodel” estimate of $1,150,000.
II. ANALYSIS
The issue is the subject property’s exception real market value for the 2009-10
through 2014-15 tax years. More specifically, whether the 2010 renovations by Plaintiffs
to the subject property represented “[n]ew property or new improvements” to property
under ORS 308.149(5)2, and if so, the effect of those renovations on its real market value
for the years in issue.
A. Standard of Proof
Under ORS 305.427, the party seeking affirmative relief in this court bears the
burden of proof, and “a preponderance of the evidence shall suffice to sustain the burden
of proof.” Preponderance of the evidence is the lowest degree of proof required by
courts, and is satisfied by a showing that “the facts asserted are more probably true than
false.” Cook v. Michael, 214 Or 513, 527, 330 P2d 1026 (1958); see also Riley Hill
General Contractor v. Tandy Corp., 303 Or 390, 402, 737 P2d 595 (1987) (Cook analysis
of standards of proof “has been endorsed repeatedly” by the Oregon Supreme Court). In
2 The court’s references to the Oregon Revised Statutes (ORS) are to the 2013 edition.
FINAL DECISION TC-MD 150402D 5 addition, this court has jurisdiction to determine the real market value of property “on the
basis of the evidence before the court, without regard to the values pleaded by the
parties.” ORS 305.412.
In this case, Plaintiffs bear the burden of proving when the renovations were made
to the subject property, whether the renovations were “improvements” justifying an
exception value, and the amount of additional exception value. Defendant bears the
burden of proving its contention that the exception real market value is higher than
provided in its original Omitted Property Notice.
B. Years in Issue
ORS 308.153 provides that if new property is added or improvements are made to
property as of January 1 of the assessment year, the county may add exception value.
Exception maximum assessed value is calculated by first determining the real market
value of any improvements and then using a ratio to determine the maximum assessed
value.
The evidence shows that Defendant believed Plaintiffs made renovations to the
subject property in 2009, based on conversations between MacRitchie and Cooper.
However, the testimony by MacRitchie and documents from Lake Oswego’s Building
Department (Ptfs’ Ex 4), show those renovations did not begin until April 2010 and were
not completed until September 2010. Since renovations were neither started nor
completed by January 1 of 2009 or 2010, those tax years should not be included in the
omitted property assessments. Plaintiffs’ appeal is granted with regard to the 2009-10
and 2010-11 tax years.
///
FINAL DECISION TC-MD 150402D 6 C. Were Renovations to the Subject Property Improvements?
Generally, annual increases to maximum assessed value are capped at three
percent. However, ORS 308.146(3)(a) provides that “new improvements to property”
trigger an exception value. New improvements means changes in property value as the
result of “[n]ew construction, reconstruction, major additions, remodeling, renovation or
rehabilitation of property.” ORS 308.149(6)(a)(A). It does not include general
maintenance and repair or minor construction. ORS 308.149(6)(b). Minor construction
is defined as “additions of real property improvements, the real market value of which
does not exceed $10,000 in any assessment year or $25,000 for cumulative additions
made over five assessment years.” ORS 308.149(5).
Plaintiffs argued that renovations to the subject property did not represent
“improvements” triggering an exception value change, but rather, were in part general
maintenance and repair, and in part “like for like” replacements. Defendant conceded
that some of the work performed such as painting and refinishing cabinet doors and
hardwood floors represented general maintenance. Defendant asserted that work
performed in the kitchen included extending an island and adding a display area, adding a
second level of glass on the island to make a breakfast bar, changing granite surfaces, and
changing tile all represented improvements. Defendant also asserted that reconfiguring
the bathroom, replacing the bathtub, replacing a window, and moving the structural
entrance to the bathroom were all improvements because the items were not in need of
maintenance. Plaintiff conceded that the items improved were not in need of
“maintenance” but were changed based on personal preference.
FINAL DECISION TC-MD 150402D 7 Plaintiff’s theory of “like for like” improvements is reflected in ORS
308.153(2)(a) which provides that “the value of new property or new improvements shall
equal the real market value of the new property or new improvements reduced (but not
below zero) by the real market value of retirements from the property tax account.” As a
conceptual matter, replacing a 10 year old bathtub, even one that is not in need of
maintenance, with a brand new bathtub is replacing older for newer; it is not “like for
like.” Additionally, Plaintiffs argument is not well taken with respect to the kitchen
island, the changes in granite and tile work, updated electrical work, or substantial
changes in the bathroom window. Those items are clearly improvements, creating an
exception market value.
D. Effect of Improvements on Value
Real market value is defined by ORS 308.205(1) as:
“the amount in cash that could reasonably be expected to be paid by an informed buyer to an informed seller, each acting without compulsion in an arm’s-length transaction occurring as of the assessment date for the tax year.”
Three approaches are used to determine the value of real property: the sales
comparison approach, the income approach, and the cost approach. Allen v. Dept. of
Rev., 17 OTR 248, 252 (2003); see also OAR 150-308.205-(A)(2)(a) (requiring county
assessors to consider, but not necessarily apply, each of the three approaches).
“[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 to be
determined by the court upon the record.” Pacific Power & Light Co. v. Dept. of
Revenue, 286 Or 529, 533, 596 P2d 912 (1979).
FINAL DECISION TC-MD 150402D 8 1. Plaintiffs’ evidence
Plaintiffs did not present evidence of value using any of the traditional valuation
approaches. MacRitchie did present evidence of the costs of renovations of the subject
property. As stated above, the court agrees with the parties that those portions of the
renovation for painting and refinishing the wood floors were maintenance and should not
be included in arriving at an exception value. What remains is: the bathroom door
extension at $7,000; the bathroom work involving replacement and realignment of the
shower and tub at $22,300; the kitchen granite, countertop and breakfast bar at $9,000;
the tile work at $15,000; the electrical work at $9,600; the window replacement at
$3,400, and the other miscellaneous minor work at $3,300. The total costs of
improvements subject to exception value are approximately $69,600. However, Plaintiffs
did not take cost evidence one step further to show how the cost factor would influence
the real market value of the subject property. “Because new improvements are defined as
‘changes in value’ rather than the improvements themselves, it appears that the
legislature intended to measure the increase in [real market value] of the remodeled
property as opposed to the value of the improvements themselves.” Hoxie v. Dept. of
Rev., 15 OTR 322, 326 (2001). It is impossible from Plaintiffs’ evidence to determine an
appropriate adjustment to value for the subject property using only costs of the remodel
work. Thus, the court finds that Plaintiff has failed to meet its burden of proof.
2. Defendant’s evidence
Using a “paring” approach, Defendant found several comparable properties where
no remodel was done and compared those properties with properties that had significant
remodeling. Defendant testified that that approach was to keep other factors such as
FINAL DECISION TC-MD 150402D 9 market changes from affecting the valuation. The court’s issue with Defendant’s
approach is systemic; no information was provided about the level of renovations
performed on the comparable properties. Defendant’s theory requires the court to treat
all remodels as exactly the same. Additionally, in this case, the sample size, of only a
couple of properties, was too small to remove doubts as to variation on the amount of
remodel performed. The court is unable to rely on Defendant’s appraisal. Defendant
noted in its original “Omitted Property Notice” that the additional real market value in the
2014-15 year was $41,240 and that taxes were retroactively assessed. That approach is
sustained as a result of a failure by either party to meet their respective burden of proof,
with the caveat that there is no exception value for the for the 2009-10 and 2010-11 tax
years.
III. CONCLUSION
After carefully considering the testimony and evidence presented, the court
concludes that the renovations to the subject property in 2010 did result in exception real
market value for the 2011-12 through 2014-15 tax years, but not for the 2009-10 and
2010-11 tax years. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is granted for the
2009-2010 and 2010-11 tax years, and denied for the 2011-12 through 2014-15 tax years.
FINAL DECISION TC-MD 150402D 10 IT IS FURTHER THE DECISION OF THIS COURT that Defendant must revise
its Omitted Property Notice to remove the assessment for the 2009-10 and 2010-11 tax
years and refund to Plaintiffs any overpayment.
Dated this day of April 2016.
RICHARD DAVIS MAGISTRATE
If you want to appeal this Final Decision, file a Complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your Complaint must be submitted within 60 days after the date of the Final Decision or this Final Decision cannot be changed. TCR-MD 19 B.
This document was filed and entered on April 19, 2016.
FINAL DECISION TC-MD 150402D 11