Ellison I v. Clackamas County Assessor

No. 21 December 3, 2015 201

21

Ellison I v. Clackamas County Assessor December22

3, OTR

2015

IN THE OREGON TAX COURT

REGULAR DIVISION

Barbara ELLISON,

Plaintiff,

v.

CLACKAMAS COUNTY ASSESSOR

and Department of Revenue,

Defendants.

(TC 5177)

Plaintiff (taxpayer) appealed from a Magistrate Division decision as to the

real market value (RMV) of her high-end equestrian facility and adjacent resi-

dence. Taxpayer requested a value below that determined by BOPTA. Defendants

submitted a counterclaim that requested a value considerably higher than that

determined by BOPTA. Appraisers for both parties relied on the cost indicator of

value. The court found that taxpayer had not borne her burden of proof that the

value placed on the property as of the assessment date was lower than that found

by BOPTA. Nor had Defendants borne their burden on the counterclaim value,

with a result that the court found the RMV to be that established by BOPTA.

Trial was held March 3 through 5, 2014, in the courtroom

of the Oregon Tax Court, Salem.

Jack L. Orchard, Jr., Ball Janik LLP, Portland, argued

the cause for Plaintiff (taxpayer).

Kathleen J. Rastetter, Clackamas County Assistant

County Counsel, Oregon City, argued the cause for Defendant

Clackamas County Assessor (the county).

Dan Paul, Assistant Attorney General, Department of

Justice, Salem, filed a brief for Defendant Department of

Revenue (the department).

Decision rendered December 3, 2015.

HENRY C. BREITHAUPT, Judge.

I. INTRODUCTION

This property tax case presents the question of

the real market value (RMV) of land and improvements

(the property) which together comprise a high-end horse

breeding and training property, together with associated

202 Ellison I v. Clackamas County Assessor

residence, located near Wilsonville, Oregon. The valuation

date was January 1, 2011.

Following a determination of RMV and exception

maximum assessed value (MAV) for the property by the

Clackamas County Board of Tax Appeals (BOPTA), Plaintiff

(taxpayer) appealed the orders of BOPTA to this court.

Following a decision by the Magistrate Division, taxpayer

appealed to this division of the court. Taxpayer withdrew

her appeal as to certain accounts, leaving only accounts

00816941 and 00817012 at issue.

Defendants Department of Revenue and Clackamas

County Assessor (the department and the county) filed coun-

terclaims.1 Taxpayer bears the burden of proof as to any

value less than that found by BOPTA. The department and

county bear the burden of proof as to any value in excess of

that found by BOPTA. ORS 305.427.

II. FACTS

The property in question is part of a high-end horse

breeding and training facility. The property includes a large

well-appointed residence house, worker housing, barns,

arenas and other facilities typical of such operations. A

detailed description of the assets is not necessary for pur-

poses of this opinion.

The appraisal experts for all parties agreed to value

the assets at issue as a group. The appraisal experts arrived

at virtually identical RMV amounts for the land in question.

As to the RMV amounts for improvements, the

appraisers differed as to the basic standard of valuation.

The appraiser for Defendants took the view that the provi-

sions of ORS 308.205(2)(c) applied, arguing that the prop-

erty had no immediate market value as of the valuation

1

In referring to “counterclaims” the court is making a generic reference to a

position that the RMV of the property is greater than that found by BOPTA. Such

an assertion can affect the proceedings in this court even if they are not, strictly

speaking, counterclaims. This court has concluded that counterclaims, as such,

have no statutory validity in this court. Village at Main Street Phase II, LLC II v.

Dept. of Rev., 22 OTR 52 (2015). However, even without use of a counterclaim, a

party can request that the court reach a proper value above or below that deter-

mined in prior proceedings. See ORS 305.412 (jurisdiction of court to find correct

value, regardless of positions contained in pleading of the parties).

Cite as 22 OTR 201 (2015) 203

date and that its RMV was therefore an amount that would

justly compensate taxpayer for the loss of the property. The

appraiser concluded that the actual costs incurred by tax-

payer in constructing the property were the measure of just

compensation.

The appraiser for taxpayer asserted that the prop-

erty did have an immediate market value. Although the

appraiser considered evidence as to a comparable sales indi-

cator of value, his conclusion as to RMV was based upon

the cost approach. In considering the cost approach, the

appraiser concluded that there was some physical depre-

ciation to be deducted from replacement cost new. Most

importantly, the appraiser for taxpayer concluded that a

significant deduction was required in respect of economic

obsolescence, some fifty percent in amount.

III. ISSUE

The sole issue in this case is the RMV for the prop-

erty in question as of January 1, 2011.

IV. ANALYSIS

At the hearing on this matter, the court raised the

question as to whether the provisions of ORS 308.205(2)(c)

are consistent with the constitutional definition of RMV

found in Article XI, section 11, of the Oregon Constitution,

which provides:

“The real market value of property shall be the amount

in cash that could reasonably be expected to be paid by

an informed buyer to an informed seller, each acting with-

out compulsion in an arm’s length transaction occurring as

of the assessment date for the tax year, as established by

law.”2

The department argues that the statutory provision

in ORS 308.205(2)(c) is not in conflict with the constitutional

definition. In making that argument the department points

to its administrative rule in OAR 150-308.205-(A)(3) which

specifies that:

“Because a general market for the property does not exist,

the property has no apparent immediate market value.

2

The court’s references to the Oregon Revised Statutes (ORS) are to 2011.

204 Ellison I v. Clackamas County Assessor

Real market value must be determined by estimating just

compensation for loss to the owner of the unit of property

through either the cost or income approaches, whichever is

applicable, or a combination of both.”

In this case, neither taxpayer nor Defendants assert

that the comparable sales indicator of value should be relied

upon to determine RMV. Neither does either party rely on

the income indicator of value. That being the case, all parties

rely on the cost indicator. It follows that this case presents

no occasion to analyze further the question presented by the

court. This case can be resolved based on the strength of the

case made by the two appraisers.

That said, the strength of each appraiser’s case

must be separately analyzed. As to taxpayer’s claim for a

RMV of $8,800,000, the question is whether taxpayer has

demonstrated more probably than not, that the value of the

property was as asserted.

However, as to the counterclaim of Defendants that

the value of the property in question is $19,815,225, the

question is whether Defendants have demonstrated, more

probably than not, that the value of the property was as

asserted by the Defendants.

As to taxpayer’s case for a value below that found by

BOPTA, that case depends upon the persuasiveness of her

appraiser’s conclusion as to replacement cost new, his con-

clusion as to physical depreciation and, most importantly,

his conclusion as to economic or external obsolescence.

Defendants challenged the conclusion of taxpay-

er’s appraiser as to his starting cost number, noting that it

was approximately $4 million less than actual construction

costs and also approximately the same amount below his

calculation of cost using the Marshall & Swift cost factors.

The appraiser did not give a persuasive explanation of these

differences.

As to physical depreciation, taxpayer’s appraiser

took not insignificant subtractions from initial cost even

though the properties in question were essentially new. The

explanation given by the appraiser was that these proper-

ties, like new cars, experience immediate depreciation once

Cite as 22 OTR 201 (2015) 205

any use occurs. That explanation seems at odds with the

age life method the appraiser purportedly used. Again the

approach of the appraiser is not persuasive.

The most important adjustment to initial cost made

by taxpayer’s expert was in respect of economic obsoles-

cence. As to this adjustment the appraiser relied upon work

and analysis done by other appraisers in other regions of

the county as to horse properties and upon other more local

appraisers as to obsolescence affecting the residence. None

of these appraisers testified or were available for cross-

examination. In addition, except for a summary writing

prepared by one of these appraisers, very little narrative

explanation was given as to what the appraisers had done.

Based on this work by others, taxpayer’s expert established

a range of economic obsolescence levels and chose one in the

middle of the range.

The court acknowledges the experience of taxpay-

er’s appraiser with respect to agricultural properties in gen-

eral and horse properties in particular. The court has no

difficulty accepting the general conclusion reached by tax-

payer’s appraiser—that external or economic obsolescence

affected the property in question in more than insignificant

amounts. His testimony about the depressed state of the

national market for horse properties as of the appraisal date

supports the general conclusion.

However, the court can give no more than limited

weight to the evidence presented by taxpayer on this point

in determining what specific amount of economic obsoles-

cence was experienced by the property in question. It rests

on the work of persons who gave no persuasive written dis-

cussions of their work and the conclusions that followed

and were not available to be tested by cross-examination.

In addition, other than accepting the appraiser’s judgment

alone, there appeared to be little reason for arriving at the

ultimate obsolescence level ultimately chosen.

The court concludes that taxpayer has not borne her

burden of proof that the value placed on the property as of

the assessment date was lower than that found by BOPTA.

Taxpayer’s claim on appeal is not established.

206 Ellison I v. Clackamas County Assessor

As to the counterclaim of Defendants, the same

conclusion exists. The appraiser for Defendants lacked any

experience in appraising the types of property at issue. The

appraiser made very limited inquiry into the state of the

market for properties of this type. This failure may have

been due to his view (which the court finds unsupported)

that the only market into which he could inquire was the

local market. The evidence presented by taxpayer estab-

lishes without question that horse properties of the type

involved here are bought and sold in a national market.

The appraiser for Defendants simply concluded that

just compensation for taxpayer would be a complete refund

of all costs incurred in bringing the property into exis-

tence. Throughout his report and testimony, the appraiser

for Defendants repeatedly indicated a profound inability to

distinguish between value in use and market value. This

may well have been a product of the belief of this appraiser

that this property was “especial” property. The acceptance

by Defendants’ witness of a premise that cost is equivalent

to value ignores taxpayer’s persuasive evidence that exter-

nal obsolescence of a not insignificant amount affected this

property.

The court places no reliance upon the conclusions

of the witness for the Defendants. Accordingly, they are not

entitled to prevail on their counterclaim.

V. CONCLUSION

The parties have been unsuccessful in bearing

their respective burdens of proof. This is not a case where

the court is able to rely on the conclusions of either appraiser

as to some components of the analysis, making adjustments

to component parts of an analysis on which the court cannot

rely.

On this record, the court is not in a position to reach

a conclusion of value for the property at some point between

the values asserted by the parties. Now, therefore,

IT IS THE OPINION OF THIS COURT that the

RMV of the property at issue is as found by BOPTA.