IN THE OREGON TAX COURT MAGISTRATE DIVISION Property Tax
AARON RANKIN and SARA RANKIN, ) ) Plaintiffs, ) TC-MD 180080G ) v. ) ) MULTNOMAH COUNTY ASSESSOR, ) ) Defendant. ) FINAL DECISION1
Plaintiffs appealed exception value added to the subject property’s account by Defendant
for tax year 2017–18. Plaintiff Aaron Rankin (Rankin) appeared at trial and testified on behalf
of Plaintiffs. Scott Elliott and Karla Hartenberger appeared on behalf of Defendant and called
Barry Dayton (Dayton), Oregon Registered Appraiser, as a witness. Plaintiffs’ exhibits 0, 1 to 5,
5.1, 6 to 9, 9.1, 10 to 14, 16, 17, and rebuttal exhibits 19 to 23, 25, 33, 34, and 37 were admitted.
Defendant’s exhibits A to C, G to H, and rebuttal exhibits J to N were admitted.
I. STATEMENT OF FACTS
The subject is a Southeast Portland home built in 1939 that Plaintiffs bought for $415,000
in July 2016. (Exs 1, 22 at 1–2; Ex B at 10, 12.) The most recent prior sale occurred in 1997,
when the subject was transferred between parties with the same last name for a consideration of
$90,000; the sale before that occurred in 1978, also between parties with the same last name.
(Exs 11, 14.) The subject was used as a rental for many years before Plaintiffs’ purchase: every
extant appraisal card from 2006 to 2016 indicates it was a rental, as well as the appraisal card
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1 This Final Decision incorporates without change the court’s Decision, entered July 2, 2019. The court did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court Rule–Magistrate Division (TCR–MD) 16 C(1).
FINAL DECISION TC-MD 180080G 1 of 21 from 1976; intervening appraisal cards do not record data about owner occupancy. (Ex 3 at 2–5,
9–14.)
After inspecting the subject in March 2017, Defendant determined that its records did not
reflect that the subject’s basement had been finished, a second bathroom had been added, and the
subject’s main-floor bathroom, living area, and kitchen had been remodeled. (Ex B at 12; Ex 3
at 1.) Defendant valued the work done at $49,160 and increased the subject’s maximum
assessed value to $159,210 on the 2017–18 tax roll.2 (Ex 3 at 1.)
A. Time of Work on Basement and Second Bathroom
Plaintiffs alleged that the basement and second bathroom had been finished decades
before the year at issue. Plaintiffs submitted two plumbing inspection reports from county
records, one dated in 1939, and one with a 1978 typed date and a 1982 handwritten date.
(Exs 1–2.) The 1939 report reported a quantity of 1 next to items on a preprinted list of
bathroom fixtures; the 1978–1982 report reported a quantity of 1N next to items on a similar
list.3 (Id.) Although the handwriting on the copy in evidence was mostly illegible, the words
“looked” and “final” are discernable next to the 1982 date. Rankin testified to his opinion that it
meant a permit for an additional bathroom had been pulled in 1978 and finalized in 1982.
As additional evidence of the improvements’ age, photographs of the subject showed that
the basement and second bathroom were finished with different materials and in a different style
than the main-level living area and bathroom; e.g., the main-level living area had hardwood
floors, while the basement had wall-to-wall carpeting. (Ex B at 30–31.) Rankin testified that the
basement finish hearkened back to fashions of the 1970s.
2 The subject’s 2017–18 maximum assessed value would have been $134,610 without the exception value. 3 As data on the development of the English language, it is interesting that the fixtures identified as “toilets” in the 1938 form were identified by the presumably old-fashioned term “water closets” in the 1978–1982 form.
FINAL DECISION TC-MD 180080G 2 of 21 Plaintiffs submitted into evidence all of the extant appraisal cards found in Defendant’s
records: those for tax years beginning 2017, 2016, 2015, 2014, 2006, 1997, 1995, 1988, 1982,
1979, and 1976. (Ex 3.) The earliest of those appraisal cards was a form completed by hand;
successive cards were printouts from computer databases in a variety of formats. (Id.) Only the
2017 appraisal card noted the subject’s second bathroom and finished basement. (Id. at 1.) The
cards from 2016 back to 1995 each noted only one bathroom and an unfinished basement.
(Id. at 2–10.) The 1988 card noted the existence of a basement, without specifying whether it
was finished, and contained no information about bathrooms. (Id. at 11.) The 1982 card noted
the existence of one bathroom and a basement, without specifying whether it was finished.
(Id. at 12.) The 1979 card contained no information about either bathrooms or basement.
(Id. at 13.) The 1976 card noted a single toilet and assigned a basement square footage, but did
not specify whether the basement was finished. (Id. at 14.)
Rankin testified that, based on his experience analyzing databases, he concluded that
Defendant had altered its computer system several times over the years to which the appraisal
cards related. He further testified that data loss was common when transferring information
between computerized databases.
Plaintiffs also provided evidence regarding the 1997 sale and valuation of the subject.
That evidence, along with additional details from the appraisal cards, is discussed in the analysis
section of this decision.
B. Work on Main Floor
In the course of the work done on the subject’s kitchen, it had received “cherry hardwood
cabinets, solid surface quartz countertops, custom tile backsplash, and stainless appliances,” as
well as new flooring and a new sink. (Ex B at 10; Ex 5.) The main-floor bathroom likewise
FINAL DECISION TC-MD 180080G 3 of 21 received a new vanity, new flooring, a new sink, and a new backsplash. (Ex 5 at 1.) The
evidence does not show what work, if any, was done on the living area.
As evidence of the value of the work done on the main-floor bathroom and kitchen,
Plaintiffs submitted Internet listings and photographs of building components on store shelves
with visible price tags. (Ex 5.) In some cases, such as the countertops, installation costs were
included in pricing; in others, Plaintiffs estimated installation costs. (Id. at 7, 9.)
The kitchen cabinets illustrate Plaintiffs’ method. Plaintiffs located two comparable
products on store shelves. (Ex 5 at 1.) The first comparable was a material sample for “Livorno
Cherry” cabinetry “faced in durable melamine laminate.” (Id. at 6.) An advertisement on the
sample stated “10ft. x 10ft. Kitchens starting at $2477.” (Id.) Plaintiffs’ second comparable was
an online shopping cart from a home-improvement retailer filled with seven cabinets of
indeterminate composition. (Id. at 7–8.) The total with shipping on that order was $2,779. (Id.)
Plaintiffs averaged $2,477 and $2,779, concluding that the cost of materials for the subject’s
cabinetry was $2,628. (Id. at 1.) Plaintiffs also estimated installation costs, claiming that
“[p]rofessional cabinet installers typically charge between $35–$65 [per hour].” (Id. at 7.)
Applying one furnishing retailer’s formula (“1.25 hours per cabinet”), Plaintiffs concluded that
the subject’s cabinets cost $260 to $480 to install; applying another retailer’s formula (“$50 per
cabinet”) yielded an installation cost of $550. (Id.) Plaintiffs added $300 to the latter figure “to
provide [a] conservative estimate” and concluded that the new cabinets cost $850 to install, for a
“total job cost” of $3,478. (Id. at 1, 7.) Plaintiffs concluded that the market value of the
subject’s cabinets was $2,611.98—an amount equal to 75.1 percent of that job cost. (Id. at 1.)
That percentage was drawn from the entry for “major kitchen remodel” in a 2017 Hanley Wood
“cost-vs-value” study showing the average percentages of remodeling costs recouped on sale in
FINAL DECISION TC-MD 180080G 4 of 21 the “Pacific” region (including Alaska, Hawaii, Washington, Oregon, and California). (Ex 5.1
at 4, 6.)
C. Defendant’s Valuation Evidence
To identify the contributory value of the work done on the subject, Dayton completed
two appraisal reports, one valuing the subject as it existed on the assessment date (the actual
appraisal), and the other valuing it as if no work had been done on the subject as of the
assessment date (the hypothetical appraisal). (Exs A, B.)
Dayton’s actual appraisal identified five comparable sales, including Plaintiffs’ purchase
of the subject. (Ex B at 19–20.) Dayton made adjustments for time, traffic, condition, gross
living area, room count, finished or unfinished basement, functional utility, heating and cooling,
garages, fireplaces, and location. (Id.) The location adjustments were the largest, varying from
negative $47,500 for a superior location—one mile northwest of the subject and closer to
downtown—to positive $22,500 for inferior locations approximately 0.7 mile south of the
subject. (Id.) Dayton concluded to a real market value of $430,000 as of the assessment date.
(Id. at 18.) Rankin did not identify any material errors in Dayton’s actual appraisal. (See Ex 22
at 2.)
Dayton’s other appraisal adopted the following as a hypothetical condition:
“The subject property house improvement has an unfinished basement and the main level and finished attic areas are in the condition of a rental property that has not been remodeled or renovated within the last twenty years. Overall, the condition of the house, while perhaps considered average for a rental market, is below average for the market of owner occupied properties that would be considered to be market substitutions regarding location, style, size, age, and functionality. The house has only one full bath located on the main level of the house. Landscaping is very basic and, as a rental, needs maintenance.”
(Ex A at 5 (emphasis deleted).) Dayton’s hypothetical appraisal identified four comparable
sales, all differing from those identified in the actual appraisal, and adjusted for qualities similar
FINAL DECISION TC-MD 180080G 5 of 21 to the actual-appraisal comparables. (Id. at 19–20.) Once again, location adjustments
were the most significant, varying from negative $47,500 to positive $22,500. (Id.) Dayton
concluded to a hypothetical real market value of $358,000 as of the assessment date. (Id. at 17.)
The location adjustments used in both the hypothetical and the actual appraisals were
derived from identical sets of averaged sale statistics from three regions described as “around the
subject,” “south of subject,” and “NW of subject.” (Exs A at 26; B at 26.) Search parameters
show that the three groups included sales of single-family homes near the assessment date built
between 1920 and 1960, not including “fixers” needing repair. (Id.) The search parameters
limited the results to homes with basements by including only properties with a “total” square
footage exceeding “main + upper” square footage. (Id.) The average sale price and square
footage within each group were close to the median, although the standard deviation was not
given. (Id.)
Rankin identified errors in the reported distances between the subject and the
comparables in the hypothetical appraisal. (Ex 23.) Comparables 2 and 3—inferior locations
with positive adjustments—were reported as only half a mile south of the subject, when in fact
they were just over a mile. (Id.) Comparable 1 was reported as 0.38 mile from the subject and
not adjusted; in fact, it was 0.62 mile west. (Id.)
Dayton determined the value added by the main level work, the finished basement, and
the second bathroom by subtracting the hypothetical appraisal value from the actual appraisal
value. (Ex C.) He concluded to a range from $53,000 to $104,000, with the most likely value
being $72,000. (Id.)
Plaintiffs request that the exception value of $49,160 be removed from the 2017–18 tax
roll. Defendant requests that the exception value be increased to $72,000.
FINAL DECISION TC-MD 180080G 6 of 21 II. ANALYSIS
The issues in this case are whether the subject incurred exception value in the 2017–18
tax year and, if so, how much. Plaintiffs presented several arguments for the negative of the first
question, which the court addresses in turn. Finding that Plaintiffs did not carry their burden of
proof, the court then considers Defendant’s request that exception value be increased.
A. Applicable Law
1. Maximum Assessed Value and Exception Value
The Oregon Constitution limits yearly increases in ad valorem property taxes attributable
to increases in property’s real market value. Or Const, Art XI, § 11 (implemented by statute at
ORS 308.142 to 308.166).4 It does that through the concepts of “assessed value” and “maximum
assessed value.” Or Const, Art XI, §§ 11(1)(b), (f); see also ORS 308.146(2). The property tax
rate is applied a property’s assessed value, which is defined as the lesser of its real market value
and its maximum assessed value. Id.
Generally, a property's maximum assessed value increases no more than three percent
each tax year. Or Const, Art XI, §§ 11(1)(a), (b); ORS 308.146(1). However, there are six types
of occurrences—known in legal parlance as “exception events”—that require a special
determination of maximum assessed value, potentially increasing maximum assessed value by
more than three percent in a given year. Or Const, Art XI, § 11(1)(c); ORS 308.146(3). Value
attributable to an exception event is known as “exception value.” When property incurs
exception value, a share of that value is added to its maximum assessed value proportionate to
average maximum assessed value over average real market value. See, e.g., ORS 308.153(1)(b).
4 The court’s references to the Oregon Revised Statutes (ORS) are to 2015.
FINAL DECISION TC-MD 180080G 7 of 21 In this case, Defendant found the subject incurred exception value because a portion of it
was “new property or new improvements to property[,]” the first of the six enumerated exception
events. Or Const, Art. XI, § 11(1)(c)(A); ORS 308.146(3)(a). Specifically, Defendant identified
the finishing of the basement, the addition of the second bathroom, and the work done on the
main-level kitchen and living area as components yielding exception value.
2. New Property or New Improvements to Property
The meaning of “new property or new improvements to property” has recently been the
subject of an opinion by the Oregon Supreme Court, issued after trial was held in this case.
DISH Network Corp. v. Dept. of Rev., 364 Or 254, 285, 434 P3d 379 (2019) (abrogating Douglas
County Assessor v. Crawford, 21 OTR 6 (2012)). Under the holding of this court in Crawford,
property existing more than a year before the assessment date was not considered “new property
or new improvements.” Thus, assessors could not add older property to a tax account for the
first time without prior notice, but were, instead, required to give advance notice under statutory
procedures for adding “omitted property.” See ORS 311.205 to 311.235.5 That is no longer
always the case; for a property to be “new property or new improvements,” it now suffices that it
has not been previously included in the assessment of the land or improvements. DISH Network,
364 Or at 285.
The constitutional holding of DISH Network was anticipated by the legislature in a 2015
amendment to the statutory definition of “new property.” As amended, ORS 308.153(3) states:
“(a) For purposes of this section, property shall be considered new property, or new improvements to property, for a tax year if the property:
5 Addition of omitted property to the roll for the first time is another exception event. Or Const, Art XI, § 11(1)(c)(D); ORS 308.146(3)(d).
FINAL DECISION TC-MD 180080G 8 of 21 “(A) Constituted an integral part of the land or improvements on the assessment date or the date of a site inspection by the assessor for appraisal purposes for any prior tax year;
“(B) Has been continuously in existence since the prior tax year; and
“(C) Was not included in the assessment of the land or improvements for any prior tax year.
“(b) The following is evidence that the property was not included in the assessment of the land or improvements for a prior tax year:
“(A) There is no express reference to the property in the records of the assessor; and
“(B) The assessor’s valuation of the land or improvements of which the property is an integral part increases as a result of inclusion of the property in the assessment.”
Consistent with DISH Network, the above definition of new property includes property
existing in “any prior tax year” but not previously assessed.
3. Burden of Proof
A party seeking affirmative relief in this court must bear the burden of proof, with the
burden of going forward with the evidence shifting as in other civil litigation. See ORS 305.427.
Here, it is Plaintiffs’ burden to prove the subject incurred no exception value at all, and
Defendant’s burden to prove any exception value above the amount already on the tax roll.
Plaintiffs cite with approval the case of Sullivan v. Multnomah County Assessor, TC–MD
060240B, 2007 WL 900756 (Or Tax M Div Mar 22, 2007) (Tanner, P.M.). In Sullivan, the
taxpayers appealed the addition of exception value for a bathroom and kitchen remodel,
successfully proving that the bathroom was not a new improvement. The court noted that the
assessor “did not separate the real market value of the kitchen remodel from the total amount
added to the tax roll” and ordered the removal of all exception value on the ground that the
undifferentiated total did not meet the statutory requirements.
FINAL DECISION TC-MD 180080G 9 of 21 Sullivan may be understood as reflecting a shift in the burden of going forward with the
evidence that occurred after the taxpayers proved some portion of the exception value had been
added in error. See ORS 305.427. After it was shown that the bathroom was not a new
improvement, it became incumbent on the assessor to present evidence on which the court could
uphold the portion of the exception value attributable to the kitchen remodel. Lacking such
evidence, the court was unable to determine exception value and disallowed the entire amount.
See ORS 305.412 (stating court’s jurisdiction to determine value “on the basis of the evidence”).
B. Plaintiffs’ Arguments
Plaintiffs raised several arguments at trial in varying levels of detail. The court will
address each of them in turn.
1. Five-Year Limit
Plaintiffs allege that Defendant’s addition of value for basement work and a second
bathroom exceeded a statutory five-year limit for inclusion of such property because those
improvements were constructed decades before.
Although the evidence is not conclusive, it is more likely that work was completed on the
basement and second bathroom in 1982 than that it was done at the same time as the main-level
work. The plumbing report is more significant than the basement décor in assigning a date, but
the latter at least tends to show the basement was not finished contemporaneously with the main
level.
However, the court is unaware of a statutory limit on the age of property that may be
added to a current year’s tax roll. Assessors’ authority to add omitted property extends to “any
year or years not exceeding five years prior to the last certified roll[.]” ORS 311.216(1). That
FINAL DECISION TC-MD 180080G 10 of 21 five-year limitation pertains to the number of prior years’ back taxes that may be assessed, not to
the age of the omitted property so added.
The omitted property statutes are not applicable in the present case because Defendant
added the finished basement and second bathroom as “new property” rather than omitted
property. In so doing, Defendant added value only to the current year’s roll and did not assess
back taxes. No five-year limitation was exceeded.
2. Property Included in Prior Year’s Assessment
Plaintiffs allege that the finished basement and the second bathroom were not “new
property” because they had been included in prior years’ assessments. See ORS
308.153(3)(a)(C). ORS 308.153(3)(b) provides guidance on evidence indicating whether
property has previously been included in an assessment:
“(b) The following is evidence that the property was not included in the assessment of the land or improvements for a prior tax year:
“(A) There is no express reference to the property in the records of the assessor; and
“(B) The assessor’s valuation of the land or improvements of which the property is an integral part increases as a result of inclusion of the property in the assessment.”
The two conditions laid out in ORS 308.153(3)(b) are not conclusive; by the statute’s own terms
they are merely “evidence.” Nevertheless, the court is bound to decide cases based on evidence.
To prevail in the face of silent assessor’s records and an increased assessment, a taxpayer would
need to provide countervailing evidence that the property in question had formerly been
assessed.
In this case, Rankin credibly explained how the record of a prior assessment of the
subject’s finished basement and second bathroom might have been lost as Defendant transferred
FINAL DECISION TC-MD 180080G 11 of 21 its records from paper and then through various software-based records-retention systems.
Defendant’s 1979 appraisal card—the first stored in a computer system—dropped virtually all of
the details about the subject’s improvements contained in its paper appraisal card from 1976.
(Ex 3 at 13–14.) Defendant appears to have changed its software during the years between each
of the next several appraisal cards, with each card containing different fields for information.
Thus, the 1982 appraisal card states the subject had one bathroom, but the 1988 appraisal card
did not report on bathrooms at all. (Ex 3 at 11–12.) The subject’s basement was first expressly
described as unfinished in the 1995 appraisal card. (Ex 3 at 10.)
Although Plaintiffs showed grounds for questioning the reliability of the data contained
in the assessor’s records, their burden may be met only with evidence that the improvements in
question were actually included in a prior assessment. Plaintiffs argue that such evidence can be
found in documents available from two years: 1976 and 1997.
a. 1976
The subject’s 1976 appraisal card contains numerous details about improvements and a
line-by-line itemization of factors contributing to their assessed value. (Ex 3 at 14.) The subject
is assigned a “base factor” of $17,500 on the line at the top noting its class (“4D”), number of
stories (“1 + Att”), and square footage (“806”). The line immediately below adds $4,300 to that
base factor, noting the subject has a concrete slab foundation and an 806-square-foot basement.
Subsequent lines add value for trim, fireplaces, a finished 300-square-foot attic, and setting, and
subtract $550 for a single bathroom.
Plaintiffs argue that the addition of value for basement square footage shows the
basement was finished in 1976. However, the available evidence does not go that far. Assuming
that at least some portion of the $4,300 was added for the basement and not for the concrete
FINAL DECISION TC-MD 180080G 12 of 21 foundation, Plaintiffs’ argument presumes either that the assessor would not have noted
unfinished square footage or that an unfinished basement would have contributed less value to
the subject than was assigned. No evidence before the court supports either presumption.
Without an express reference to a finished basement, it is just as likely that the additional value
was added for an unfinished basement. The fact that “Unf.” and “Fin.” were not preprinted as
checkable items in the basement section of the form—although they were in the attic section—
may indicate the assessor at that time did not consider whether a basement was finished when
assigning value. The 1976 appraisal card is ambiguous.
b. 1997
Plaintiffs’ evidence from 1997 revolves around the sale of the subject in that year for
$90,000. (Ex 14.) Rankin generated a list of 1997 comparable sales of similarly-sized, older
homes in the subject’s zip code “from public records, primarily [Defendant].” (Ex 17 at 16.)
Rankin derived a price per square foot for each comparable by dividing the figure from the “total
sq ft” column by the sales price. He concluded that homes similar to the subject sold for a
minimum of $15 per square foot, a maximum of $62 per square foot, and an average of $46 per
square foot in 1997. Rankin then considered the subject’s square footage both with and without
its basement square footage, finding that the subject’s 1997 sale price was $47 per square foot
with the basement, but $82 per square foot without it. Rankin reasoned that if the subject’s
basement had been unfinished in 1997, its total square footage would have been reduced such
that its sale price per square foot would have far exceeded all comparables. On the other hand,
its sales price was squarely within the range if its total square footage included a basement.
Rankin’s reasoning depends on the square footage of an unfinished basement being
excluded from total square footage. That fact is not in evidence. The parameters provided by
FINAL DECISION TC-MD 180080G 13 of 21 Defendant to support Dayton’s location adjustments indicate that basement square footage is
included in total square footage in county records, but not whether that square footage was
finished. Because Rankin drew on county records for his 1997 comparables, it is not clear
whether unfinished basements are excluded from the square footages of those comparable
properties.
Rankin also noted that the subject’s 1997 sale price was relatively close to the real market
values assigned by Defendant at that time: $95,300 in 1996 and $103,900 in 1997. (Ex 10.)
From that fact, he concluded that the subject’s assessment actually included the market value of
all its improvements, regardless of errors in the appraisal cards.
The evidence is insufficient to support Rankin’s argument. The subject’s 1996 and 1997
tax roll values are not entitled to any presumption of correctness. J.R. Widmer, Inc. v. Dept. of
Rev., 261 Or 371, 377, 494 P2d 854 (1972). The market evidence is tenuous—the 1997
comparables are unverified, and their sales prices are unadjusted. Those prices vary widely, with
maximum sale prices per square foot more than quadruple the minimum. What is more, there is
evidence that the subject’s 1997 sale was an intrafamily transfer and therefore not
arm’s-length: the transaction took place between parties with the same last name, just as the prior
sale in 1978 had. The sale price of such a transfer cannot be relied on to have included the value
of improvements unknown to the assessor; related parties may have agreed on a sale price near
the assessed value, thereby carrying forward any error on the tax roll.
3. Code Violations
As an alternative argument, Plaintiffs allege the basement windows of the subject do not
meet current City of Portland height requirements for egress in living spaces. The conclusion
FINAL DECISION TC-MD 180080G 14 of 21 drawn is that the code violations leave the subject’s basement unfinished and therefore not
susceptible to being added as new property.
However, nowhere in the statutes is the addition of new property made contingent on a
category such as “finished” or “unfinished.” The relevant definition is found at ORS 308.149(6),
and states that new property means “changes in the value of property” resulting from, inter alia,
“[n]ew construction, reconstruction, major additions, remodeling, renovation or rehabilitation of
property[.]” ORS 308.149(6)(a)(A). Improvements out of compliance with building codes may
still constitute additions, remodeling, or renovation. Whether they change the value of property
is determined by the market rather than the building codes. In this case, Rankin testified that
Plaintiffs did not consider the code violations at all when they purchased the subject.
4. General Ongoing Maintenance and Repair
Turning from the basement and second bathroom, Plaintiffs allege that the work done on
the subject’s main level was general ongoing maintenance and repair (GOMAR) or minor
construction, rather than remodeling. Those two categories are specifically excluded from the
definition of new property found in ORS 308.149(6), which states:
“(a) ‘New property or new improvements’ means changes in the value of property as the result of:
“(A) New construction, reconstruction, major additions, remodeling, renovation or rehabilitation of property[.]
“* * * * *
“(b) ‘New property or new improvements’ does not include changes in the value of the property as the result of:
“(A) General ongoing maintenance and repair; or
“(B) Minor construction.”
FINAL DECISION TC-MD 180080G 15 of 21 Terms enumerated in the statute are defined by OAR 150-308-0130, which states:
“(1) For purposes of ORS 308.149:
“(d) ‘Remodeling’ means a type of renovation that changes the basic plan, form or style of the property.
“(e) ‘Renovation’ means the process by which older structures or historic buildings are modernized, remodeled or restored.
“(f) ‘Rehabilitation’ means to restore to a former condition without changing the basic plan, form or style of the structure.
“(2)(a) For purposes of ORS 308.149 ‘general ongoing maintenance and repair’ means activity that:
“(A) Preserves the condition of existing improvements without significantly changing design or materials and achieves an average useful life that is typical of the type and quality so the property continues to perform and function efficiently;
“(B) Does not create new structures, additions to existing real property improvements or replacement of real or personal property machinery and equipment;
“(C) Does not affect a sufficient portion of the improvements to qualify as new construction, reconstruction, major additions, remodeling, renovation or rehabilitation; and
“(D) For income producing properties is part of a regularly scheduled maintenance program.
“(b) Regardless of cost, the value of general ongoing maintenance and repairs may not be included as additions for the calculation of maximum assessed value.”
This court applied the above definitions in Strom v. Dept. of Rev., 15 OTR 309 (Or Tax
2001). The subject property in Strom was an older home that had “deteriorated in condition and
appearance” over the course of many years’ use as a rental property. Id. at 310. The taxpayer
had performed extensive remodeling and renovation work on that property. The court
FINAL DECISION TC-MD 180080G 16 of 21 specifically found that installing new kitchen cabinets and counters “clearly” qualified as
remodeling, whereas replacing kitchen and bath fixtures constituted renovation. Id. at 313. The
court rejected the argument that the work done was GOMAR because “[m]uch of the existing
materials were removed, discarded, and replaced with new materials.” Id.
Not all replacements of counters and cabinets are remodeling, as shown by the
Department of Revenue’s May 2018 Maximum Assessed Value Manual. (Ex 8.) That
publication lists the replacing of worn-out kitchen countertops among its examples of GOMAR,
and further states that replacing 10-year-old kitchen cabinets is only “usually” more than just
maintaining property. (Id. at 25.) In general, “[a] change to the modern equivalent of original
materials for the same class of construction is allowed, such as the replacement of old aluminum
frame windows with new vinyl windows that would be used in the same class of building today.”
(Id.)
On the evidence before the court, it is unclear whether the new cabinets and counters
constituted remodeling or whether they merely replaced worn-out equivalents. Although
Defendant highlights the fact that the new counters were made of quartz and the cabinets made
of hardwood, it is unknown whether quartz counters or hardwood cabinets are now unusual in a
class 4 home such as the subject.
If the main-level work was not remodeling, however, it appears likely that it was
rehabilitation. Like the property in Strom, the subject had been a rental for many years—
Plaintiffs allege it was rented out for more than 40 years. Under such circumstances, it is
reasonable to suppose that its condition had deteriorated from that of an owner-occupied home,
as Defendant’s appraiser did in his hypothetical appraisal. At trial, Rankin admitted that the
subject had not been maintained for at least 20 years before 2016 and that it had suffered from
FINAL DECISION TC-MD 180080G 17 of 21 deferred maintenance. At the time of Defendant’s physical appraisal in 2006, an overall
condition of “average” was placed on the subject’s appraisal card. (Ex 3 at 5.) In 2017,
Defendant found the subject’s overall condition had improved from “average” to “A+.”
(Id. at 1.) Although Plaintiffs might not agree with that condition adjustment, Rankin admitted at
trial that the subject was a nice house. The photographs confirm that statement; the subject’s
condition exceeds that of a rental with deferred maintenance.
On balance, the evidence tends to show that the work done on the subject’s main level
was either remodeling or rehabilitation, and therefore did not qualify as GOMAR.
5. Minor Construction
Plaintiffs argue the kitchen and bathroom work was also excluded from the definition of
new property as “minor construction.” See ORS 308.149(6)(b)(B). “ ‘Minor construction’
means 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). The test for minor construction “is not the cost of the work but
whether the work increases the [real market value] $10,000 or more in any assessment year or
$25,000 for cumulative additions made over five assessment years.” Strom, 15 OTR at 313–14.
Plaintiffs’ evidence of the total value of the main-level work is unconvincing on its own
terms. Their estimates of material costs did not clearly align with the actual materials used in the
subject kitchen. For example, Plaintiffs provided evidence of the cost of laminate-faced
cabinets, but did not rebut Defendant’s assertion that the subject’s cabinets were hardwood.
Likewise, Plaintiffs accepted an advertised “starting” price for cabinets to fit a 10-foot-by-10-
foot kitchen as comparable to the subject’s installed cabinets, but did not show the size of the
subject’s kitchen or what options could affect that “starting” price. Plaintiffs did not disclose
FINAL DECISION TC-MD 180080G 18 of 21 how they derived their estimate of hourly rates for cabinet installation, nor were their two
divergent estimation methods supported with market data.
More fundamentally, however, Plaintiffs’ method errs in attempting to value the kitchen
and bathroom improvements from the market price of their component parts, without regard to
those parts being integrated into the total unit. Real market value must be determined “by
methods and procedures in accordance with rules adopted by the Department of Revenue.” ORS
308.205(2). OAR 150-308-0240(2)(b) forbids the kind of piece-by-piece valuation Plaintiffs
attempt, and for good reason. Such a valuation ignores the “assemblage” value, which is the
value reflecting “the cost of assemblage and the risk reduction feature that successful assemblage
adds.” Norpac Foods, Inc. v. Dept. of Rev., 18 OTR 41, 50 (2004). The value of a whole may be
greater or less than the sum of the values of its parts.
C. Defendant’s Evidence of Increased Exception Value
Although Defendant placed an exception value of $49,160 on the tax roll, the value
indicated by Dayton’s actual appraisal was $72,000 more than the value indicated by his
hypothetical appraisal. On that basis, Defendant requests that the subject’s exception value be
increased to $72,000. Defendant must bear the burden of proof on that issue. See ORS 305.427.
Dayton’s appraisals are the only competent evidence of value before the court. They are
not free from criticism, and Plaintiffs effectively criticized some of the adjustments made. Even
after considering those criticisms, however, it appears likely that Defendant will have shown a
significant value difference between the subject with and without the new property added.
Before evaluating that difference, however, it is appropriate to ask whether that difference is the
measure of exception value in this case.
FINAL DECISION TC-MD 180080G 19 of 21 This court has long held that the calculation of exception value must exclude changes due
to external factors such as “inflation, market demand, and construction codes.” Magno v. Dept.
of Rev., 19 OTR 51, 63 (Or Tax 2006) (citing Hoxie v. Dept. of Rev., 15 OTR 322, 326 (Or Tax
2001)). That requirement flows directly from the language of ORS 308.149(6)(a) defining new
property as changes in value “as a result of” improvements. See Hoxie, 15 OTR at 326.
Changes in value due to inflation and market activity over time are not “the result of”
improvements added as new property.6
In the present case, the balance of the evidence shows that the second bathroom and
basement were finished many years before the assessment date. Plaintiffs provided a plumbing
permit that is consistent with the second bathroom having been completed over 30 years before it
was added to the subject; it is possible that the basement was also finished at that time.
Dayton’s hypothetical appraisal assumed the subject had one bathroom and an unfinished
basement on the assessment date. If the second bathroom and basement were actually finished
30 years before, then their portion of the exception value so concluded incorporated 30 years’
worth of inflation and market activity. That inflation and market activity must be excluded to
determine how much value was the result of the actual work done. See Hoxie, 15 OTR at 326.
Dayton’s appraisals do not provide a means to exclude those factors; it is doubtful that any
credible adjustment could be made over such an extended period. Because the requested
$72,000 exception value includes some unquantified portion attributable to inflation and market
6 When Hoxie and Magno were decided, the court treated the concept of “new property” as including a temporal component, such that improvements made more than a year or two before the assessment date “would not be considered ‘new improvements’ under ORS 308.153.” Hoxie, 15 OTR at 327; see also Magno, 19 OTR at 66. Although DISH Network has now abrogated that interpretation, its holding does not address the requirement that exception value for new property be “the result of” the improvements added.
FINAL DECISION TC-MD 180080G 20 of 21 demand, the entire number is unreliable. See Sullivan v. Multnomah County Assessor, TC–MD
060240B, 2007 WL 900756 (Or Tax M Div Mar 22, 2007).
III. CONCLUSION
The evidence failed to show that improvements could not be added to the subject as “new
property” pursuant to the holding of DISH Network. Likewise, no increase to the exception
value is warranted because the evidence does not show that inflation and market demand were
excluded from the valuation provided. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiffs’ appeal is denied.
Dated this day of July, 2019.
POUL F. LUNDGREN 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 signed by Magistrate Poul F. Lundgren and entered on July 22, 2019.
FINAL DECISION TC-MD 180080G 21 of 21