AKS LLC v. Dept. of Rev.

300 April 18, 2019 No. 14

IN THE OREGON TAX COURT

REGULAR DIVISION

AKS LLC,

an Oregon limited liability company,

and Herman RV Storage LLC,

an Oregon limited liability company,

Plaintiffs,

v.

DEPARTMENT OF REVENUE,

State of Oregon, and

Washington County Assessor,

Defendants.

(TC 5308 & TC 5309)

In these consolidated cases, the taxpayers appealed the assessor’s revalua-

tion of their building after it was subdivided into condominiums. The subdivi-

sion was an “exception” event under Measure 50 that allowed a new maximum

assessed value to be determined based on the real market value (RMV), and

for the year of the subdivision the RMV was subject to the “adjudicated value”

restriction in ORS 309.115. In TC 5308, the court held that the fact that a dispute

about RMV also involves an “adjudicated” value does not change the procedural

requirement to appeal first to the county Board of Property Tax Appeals (BOPTA)

before seeking review by the Magistrate Division. In TC 5309, the court denied

the Department of Revenue’s motion for summary judgment on the substantive

issue determining that a material issue of fact existed as to whether the assessor

correctly determined the RMV. The court concluded that, when a property with

an “adjudicated” value is subdivided, the RMV of the Subject Property is the sum

of (a) the previously adjudicated value determined under ORS 309.115; (b) any

positive or negative change in previously adjudicated RMV for reasons ‘directly

related’ to the subdivision (i.e., changes reasonably related to the subdivision

without any intervening space or time); and (c) the positive or negative effect of

any other adjustments allowed by ORS 309.115(2).

Oral argument on Defendant’s Motion for Summary

Judgment was held May 22, 2018.

Michael J. Mangan, Tonkon Torp, LLP, Portland, filed a

response and argued the cause for Plaintiffs.

Daniel Paul, Assistant Attorney General, Department of

Justice, Salem, filed the motion and argued the cause for

Defendant Department of Revenue.

Decision rendered April 18, 2019

Cite as 23 OTR 300 (2019) 301

ROBERT T. MANICKE, Judge.

I. INTRODUCTION

Plaintiffs (taxpayers), whose property became a

multi-unit condominium in 2015, claim that Defendant-

Intervenor Washington County Assessor (the assessor)

impermissibly increased the property’s real market value

(RMV) for tax year 2016-17. They argue that the “adjudi-

cated value statute,” ORS 309.115,1 prohibited the RMV

increase. Although under Measure 50 and its implement-

ing statutes,2 property no longer is taxed automatically

at RMV, RMV remains important because it is one of two

components in calculating the “maximum assessed value”

(MAV) of property that has been affected by certain “excep-

tion” events, including, for purposes of this case, submission

to the condominium form of ownership.3 MAV, as the name

implies, sets an upper limit on the taxable value of prop-

erty (the “assessed value” or AV). Thus, for the year after an

exception event, a reduction in RMV can reduce MAV, which

in turn reduces the amount of tax due. The same initial

reduction in RMV after an exception event also can reduce

tax over the long term because, once set, MAV generally

cannot increase by more than three percent annually. In

this case, taxpayers claim the assessor lacked any legal or

factual basis to change the RMV from the previously adju-

dicated value, and they therefore also contest the resulting

MAV and AV.

Uncertain how to appeal, taxpayers simultane-

ously followed two different routes, resulting in two cases,

which the court has consolidated. Defendant Department

1

Unless otherwise noted, the court’s references to the Oregon Revised

Statutes (ORS) are to the 2015 edition.

2

“Measure 50” is the common name for Article XI, section 11, of the Oregon

Constitution. The principal implementing statute involved in this case is ORS

308.156. The principles and terms used in this overview paragraph are discussed

in greater detail below.

3

The other component is the “changed property ratio” (CPR), a percentage

that is often well below 100 percent. As relevant in this case, ORS 308.156(5)

prescribes the following formula:

MAV = RMV of affected property × CPR

302 AKS LLC v. Dept. of Rev.

of Revenue (the department)4 asks the court to dismiss Case

No. TC 5308 on procedural grounds and seeks summary

judgment upholding all of the assessor’s values in Case

No. TC 5309, relying on the assessor’s authority to make

“adjustments” to adjudicated value in the case of “[c]hanges

directly related to subdividing or partitioning the property,”

pursuant to ORS 309.115(2)(f). The court will address both

the procedural route of appeal and the merits of the parties’

arguments based on the adjudicated value statute.

II. FACTS

The parties agree on the following facts:

(1) “In the 2014-15 tax year, the [Subject Property]

was identified in the Washington County tax records as

account number R529930. The plaintiff appealed the 2014-

15 real market value of the [Subject Property] in TC-MD

150181C, resulting in a July 24, 2015 stipulated judgment

adjudging that the [RMV] of account number R529930 was

$3,300,000 for the 2014-15 tax year. The assessed value of

the [Subject Property] was reduced to $3,300,000.”

(2) “On January 9, 2015, the property owner filed a

declaration of condominium ownership, subdividing[5] the

[Subject Property] into nine primary units in one concrete

tilt-up building and 97 parking units. Per the agreement,

each unit is considered a parcel of real property subject to

separate assessment and taxation.”

(3) “For the 2016-17 tax year, the Washington County

Assessor assigned individual property tax accounts

to each of the 106 units created by the January 9, 2015

4

Defendant-Intervenor Washington County Assessor did not move for sum-

mary judgment or join in the department’s motion.

5

The parties at various points use the terms “subdivision” and “partition”

when referring to the legal consequence of the declaration of condominium own-

ership, and they agree that any distinction is not relevant for purposes of this

case. A condominium developer generally is required to comply with Oregon’s

Subdivision and Series Partition Control Law, ORS 92.305 to 92.495, as if the

developer were subdividing land. See ORS 100.115(1) (requiring filing of a plat

complying with various provisions of ORS chapter 92); 1 Oregon Real Estate

Deskbook § 36.3-4 (OSB Legal Pubs 2015); 37 Or Op Atty Gen 1045 (1976).

ORS 92.010(9) excludes from the definition of “partitioning land” a division “as

a result of the recording of a * * * condominium plat * * *.” On the other hand,

ORS 92.010(16) contains no such exclusion from the definition of “subdivide

land.” Accordingly, the court generally refers to the event in this case as a

subdivision.

Cite as 23 OTR 300 (2019) 303

condominium subdivision. All land not assigned to one of

the new accounts was retained in account number R529930.

The Washington County Assessor individually valued each

of the 107 tax accounts (the 106 created by the subdivision

and the altered R529930) for the 2016-17 tax year, and

assigned a RMV and a [MAV] to each of the 107 accounts.

The total RMV placed on the tax rolls by the Assessor of

the 107 accounts was $4,904,540; the total MAV placed on

the tax rolls by the Assessor was $3,562,820.”

Taxpayers appealed the assessor’s actions for 2016-

17, claiming that the “Adjudicated Value of the subject prop-

erty should not exceed $3,300,000 pursuant to ORS 309.115

* * *.” Taxpayers also claim that the assessor erred because

“the maximum assessed value of all accounts cannot exceed

the total maximum assessed value of the affected prop-

erty pursuant to ORS 308.162.” Taxpayers do not, however,

allege a specific dollar amount for the correct total MAV of

the Subject Property.

Taxpayers pursued two appeal routes simultane-

ously, as described below.

A. Direct Appeal to Magistrate Division, TC-MD 170007R

(TC 5308)

In TC 5308 (formerly TC-MD 170007R), tax-

payers appealed directly to the Magistrate Division, ask-

ing the court to reduce the RMV and AV of the Subject

Property to no more than $3,300,000. The assessor, defen-

dant in the Magistrate Division proceedings,6 moved to

dismiss taxpayers’ complaint for failure to first appeal to

the Washington County Board of Property Tax Appeals

(the BOPTA). The magistrate held that the BOPTA has

authority to hear the issues presented by taxpayers, and

therefore taxpayers were required to obtain an appealable

order from the BOPTA before instituting proceedings in

the Tax Court. Accordingly, the magistrate dismissed tax-

payers’ complaint. Taxpayers then appealed to the Regular

Division.

6

See ORS 305.560(1)(c)(A) (county assessor is initial defendant in prop-

erty tax valuation cases); ORS 305.501(5)(c) (department becomes defendant in

Regular Division).

304 AKS LLC v. Dept. of Rev.

B. Appeal to BOPTA, Then to Magistrate Division, TC-MD

170202R (TC 5309)

In TC 5309 (formerly TC-MD 170202R), taxpayers

appealed first to the BOPTA, which convened hearings on

all 107 petitions and sustained the assessor’s assessment

values. Taxpayers appealed to the Magistrate Division from

those orders.7 On September 5, 2017, the Regular Division

on its own motion specially designated TC 5309 for hearing

in the Regular Division. AKS, LLC v. Dept. of Rev., TC 5309

(Or Tax, Sept 5, 2017).

C. Consolidation of Cases TC 5308 and TC 5309

On October 5, 2017, the department moved to

dismiss TC 5308, reiterating the assessor’s argument in

the Magistrate Division that taxpayers should have first

appealed to the BOPTA. On November 21, 2017, the Regular

Division denied the department’s motion but granted a

motion by taxpayers to consolidate the two cases for further

proceedings on both the merits and the procedural issue.

AKS LLC v. Dept. of Rev., TC 5309 (Or Tax, Nov 21, 2017).

The department now seeks summary judgment,

arguing that the assessor correctly followed the applicable

statutes in its assessment of the Subject Property and in the

alternative seeking summary judgment as to TC 5308, once

again on the grounds that taxpayers failed to exhaust their

administrative remedies before the BOPTA in that case.

III. ISSUES

(1) Whether taxpayers properly brought their claims

regarding the application of ORS 309.115(2)(f) directly

in the Magistrate Division, or whether taxpayers were

required to first bring those claims before the BOPTA.

(2) Whether the assessor correctly set the RMVs and AVs

for all of the tax accounts existing immediately after the

Subject Property became a multi-unit condominium.

7

Then-Defendant Washington County Assessor challenged the timeliness

of the appeal to the Magistrate Division in a motion to dismiss. The magistrate

denied the motion. AKS LLC v. Washington County Assessor, TC-MD 170202R (Or

Tax M Div, July 28, 2017). In the Regular Division, neither the department nor

Defendant-Intervenor contests the timeliness of the appeal.

Cite as 23 OTR 300 (2019) 305

IV. ANALYSIS

A. Procedure to Appeal Assessor’s Actions Under ORS

309.115

ORS 309.100 provides a specific appeal route for

certain property tax matters. The statute allows a property

taxpayer to appeal to the BOPTA regarding a matter within

the BOPTA’s authority as prescribed in ORS 309.026. ORS

309.100(1). ORS 309.110(7) allows a taxpayer dissatisfied

with a BOPTA order to appeal to the Magistrate Division.

By contrast, ORS 305.275 allows a direct appeal to

the Magistrate Division in a wide range of circumstances,

including matters involving taxes other than property

tax and appeals brought by persons other than taxpayers.

See ORS 305.275(1)(a) (allowing “any person” to appeal if

aggrieved by certain acts or omissions not only of county offi-

cials, but also the department in its administration of “the

revenue and tax laws of this state”). However, ORS 305.275(3)

provides: “If a taxpayer may appeal to the [BOPTA] under

[ORS] 309.100, then no appeal may be allowed [in the Tax

Court].” ORS 305.275(3). Therefore, if taxpayers could have

brought their claim before the BOPTA, the court must dis-

miss their appeal in TC 5308 for failure to do so.

ORS 309.026 provides that the BOPTA “shall hear

petitions for the reduction of * * * the assessed value * * * or

* * * real market value of property * * *.” ORS 309.026(2)(a),

(b). Taxpayers ask the court to determine “that the real mar-

ket and assessed values of the subject property for the 2016-

17 tax year is [sic] no more than $3,300,000.” Nevertheless,

taxpayers argue the BOPTA does not have jurisdiction over

their claims because ORS 309.115(1) sets an “adjudicated

value,” and ORS 309.026 does not specifically authorize a

BOPTA to determine whether an assessor has complied

with the requirement to set, retain, or adjust an adjudicated

value. Therefore, taxpayers argue, they must appeal directly

to the Magistrate Division under ORS 305.275.

The court does not accept taxpayers’ argument.

First, unlike “real market value,” “assessed value,” and

“maximum assessed value,” the term “adjudicated value”

appears nowhere in Oregon’s property tax statutes. Rather,

306 AKS LLC v. Dept. of Rev.

the statute commonly referred to as the “adjudicated value

statute,” ORS 309.115, provides for the setting of real market

value in particular circumstances, subject to adjustments.8

The BOPTA’s enabling statute expressly authorizes it to

reduce real market value, and nothing limits the facts or cir-

cumstances the BOPTA may consider in deciding whether

to do so. ORS 309.026(2)(b).

At oral argument, taxpayers’ counsel stated that

taxpayers are concerned in part that a line of cases address-

ing appeals under ORS 309.115 might be interpreted to mean

that the BOPTA’s authority to reduce a property’s RMV does

not extend to the reduction of an adjustment to a previously

adjudicated RMV. See Pacificorp v. Dept. of Rev., 11 OTR 463

(1990); Niemeyer v. Dept. of Rev., 14 OTR 34 (1996). However,

the court finds nothing in those cases that purports to limit

the BOPTA’s authority to determine whether the assessor

has correctly applied ORS 309.115. Those opinions simply

clarify that a taxpayer whose property is the subject of a

prior adjudication may, within the five-year period, choose

whether to (a) retain the baseline adjudicated value and

merely challenge the accuracy of any adjustments the asses-

sor makes under ORS 309.115(2); or (b) forgo the protection

of the adjudicated value, and put the RMV of the property

generally at issue in the hope of obtaining a new reduction.

If the taxpayer chooses the second alternative, the taxpayer

takes the risk that the court might determine that, not

only is no reduction justified, but in fact the RMV is higher

than the prior adjudicated value. See ORS 305.412 (Tax

Court can determine the “correct” valuation on the basis

of the evidence, regardless of the values pled); Gettman v.

Dept. of Rev., TC 3388, WL 300719 (Or Tax, Aug 5, 1993)

(“[P]laintiffs are not appealing the assessor’s application of

ORS 309.115. Rather, plaintiffs are appealing the real mar-

ket value of the property. Hence, the decision of the court

8

ORS 309.115(1) provides that, following an order of this court or a BOPTA,

“the value so entered shall be the real market value entered on the assessment

and tax rolls for the five assessment years next following the year for which the

order is entered.” ORS 309.115(1) (emphases added). The next subsection provides

exceptions to the general freezing of the value, including for trending, additions

to the property, and as discussed below, changes “directly related to subdividing

or partitioning the property.” ORS 309.115(2). However, the statute refers to all

of these exceptions as “adjustments * * * to the real market value * * *.” Id.

Cite as 23 OTR 300 (2019) 307

in this case is a new determination which may be higher

or lower than the value claimed by either party. See ORS

305.435.”).9 In this case, taxpayers have made clear that

they have selected the first alternative and not the second;

they rely on the RMV of the Subject Property as adjudicated

for the 2014-15 tax year and contest the assessor’s change

to the RMV under the exception in ORS 309.115(2)(f).

Taxpayers were required to appeal to the BOPTA before

seeking review in the court, which is what they did in TC

5309. The court grants the department’s motion as to TC

5308; however, pursuant to the court’s prior order of consoli-

dation, the court will hold TC 5308 in abeyance, and will not

issue a judgment, pending this court’s resolution of TC 5309.

B. Assessor’s Determination of RMV and AV Pursuant to

ORS 309.115(2)(f).

The court next considers whether the assessor cor-

rectly determined the RMV and AV of the Subject Property.

The department’s motion asserts that the assessor’s deter-

minations must stand as a matter of law because taxpayers’

legal theory of the computation of RMV, MAV, and AV follow-

ing a subdivision is incorrect, and because taxpayers have

offered no alternative values specific to the post-subdivision

property. The department argues that all property “affected”

by a subdivision or partition, within the meaning of ORS

308.156(5),10 necessarily undergoes a “change” in value that

9

In Niemeyer, the court noted that the taxpayer had sent the court a letter

“inform[ing] the court that he elected to appeal the adjudicated value under ORS

309.115 rather than the real market value under ORS 308.205.” 14 OTR at 35 n 1

(emphasis added). The footnote should not be read as precluding BOPTA review

of adjustments to adjudicated value under ORS 309.115.

10

ORS 308.156 provides, in relevant part:

“(1) If property is subdivided or partitioned after January 1 of the pre-

ceding assessment year and on or before January 1 of the current assessment

year, then the property’s maximum assessed value shall be established as

provided under this section.

“* * * * *

“(5) The property’s maximum assessed value shall be the sum of:

“(a) The maximum assessed value determined under ORS 308.146 that

is allocable to that portion of the property not affected by an event described

in subsection (1), (2), (3) or (4)(a) of this section; and

“(b) The product of the real market value of that portion of the property

that is affected by an event described in subsection (1), (2), (3) or (4)(a) of this

308 AKS LLC v. Dept. of Rev.

is “directly related” to the subdivision, within the meaning

of ORS 309.115(2)(f). (“The new value, which accounts for

the partition/subdivision of the property, reflects the change

in value directly related to the partition/subdivision.”) (“The

protection of ORS 309.115 was lost when the property was

subdivided, pursuant to ORS 309.115(2)(f).”) The depart-

ment quotes portions of the legislative history as evidence

that the legislature intended this result in order to close

a “loophole” between the interplay of Measure 50 and the

adjudicated value statute.

Taxpayers do not dispute that the Oregon Condo-

minium Act required the assessor to treat each condo-

minium unit created by the 2015 declaration as a “parcel

* * * subject to separate assessment and taxation.” ORS

100.555(1)(a). Nor do taxpayers dispute that the declara-

tion required the assessor to compute a new MAV for each

post-subdivision condominium unit. Taxpayers claim, how-

ever, that for purposes of calculating that new MAV, the

RMV set for the 2014-15 tax year functions as a cap on the

aggregate RMV of all of the condominium units, except

to the extent of any “adjustment” allowed for “changes”

in RMV that are “directly related” to the subdivision

pursuant to ORS 309.115(2)(f). Taxpayers argue that the

court cannot grant the department’s motion for summary

judgment because there is an outstanding issue of mate-

rial fact, namely whether any difference in RMV as of

January 1, 2016, was “directly related” to the act of subdi-

viding the Subject Property. In support, taxpayers’ counsel

submitted a declaration to the effect that taxpayers have

retained an expert prepared to testify that the subdivision

has not increased the value of the Subject Property. See Tax

Court Rule (TCR) 47 E.

section multiplied by the ratio, not greater than 1.00, of the average maxi-

mum assessed value over the average real market value for the assessment

year in the same area and property class.

“(6) The property’s assessed value for the year shall equal the lesser of:

“(a) The property’s maximum assessed value; or

“(b) The property’s real market value.

“(7) The Department of Revenue shall provide by rule the method by

which the allocations described in subsection (5) of this section are to be

made.”

Cite as 23 OTR 300 (2019) 309

When analyzing the meaning of a statutory term,

the court begins with the text because “there is no more

persuasive evidence of the intent of the legislature than the

words by which the legislature undertook to give expres-

sion to its wishes.” State v. Gaines, 346 Or 160, 171, 206 P3d

1042 (2009) (internal quotes omitted). However, the court

also considers the statutory context. Id. The court considers

the relevant legislative history “even if the court does not

perceive an ambiguity in the statute’s text, where that leg-

islative history appears useful to the court’s analysis.” Id. at

172.11 Finally, if the legislature’s intent remains unclear

after examining text, context, and legislative history, the

court may resort to general maxims of statutory construc-

tion to aid in resolving the remaining uncertainty. Id.

1. Text analysis

The term “directly related” is not defined by statute,

and no court has interpreted it for purposes of ORS 309.115.

However, the Supreme Court12 in Willamette Egg Farms, Inc.

v. Dept. of Rev., 331 Or 327, 14 P3d 609 (2000), interpreted

the same phrase, as used in a statute exempting “[e]quip-

ment used for the fresh shell egg industry that is directly

related and reasonably necessary to produce, prepare, pack-

age and ship fresh shell eggs from the place of origin to

market * * *.” Id. at 332 (quoting ORS 307.400(5)(e) (1995)

(emphasis in original)).13 The property at issue was equip-

ment used to raise chicks that ultimately would mature into

egg-laying hens. Id. at 329. The court determined that the

term consisted of words of common usage and thus looked

to dictionary definitions to establish their plain meaning.

Id. at 332. The court concluded that “directly” means “ ‘with-

out any intervening space or time,’ ” and “related” means

“ ‘connected by reason of an established or discoverable rela-

tion.’ ” Id. (quoting Webster’s Third New Int’l Dictionary, 641,

1916 (unabridged ed 1993)). Accordingly, the court defined

11

Citing PGE v. Bureau of Labor and Industries, 317 Or 606, 859 P2d 1143

(1993), and apparently overlooking that opinion’s modification by Gaines, tax-

payers’ argument largely ignores legislative history.

12

Taxpayers cite only the Tax Court opinion in this case, 14 OTR 337 (1998),

without mentioning that the Supreme Court affirmed it in a reasoned opinion.

13

This statutory exemption now resides in ORS 307.397 (2017).

310 AKS LLC v. Dept. of Rev.

the term “directly related” to mean reasonably connected

without any intervening space or time. Id. After considering

additional context, the court determined that the legislature

inserted the term in order to limit the scope of the exemp-

tion, ultimately concluding that property used on chicks was

too attenuated from egg production to qualify. Id.

As in the case of the egg production statute, there is

no indication in ORS 309.115 that the legislature intended

“directly related” to have a specialized meaning, nor has

either party asserted that it does. Accordingly, the court

adopts the plain meaning determined by the Supreme Court

in Willamette Egg Farms.14 Cf. Comcast Corp. v. Dept. of Rev.,

356 Or 282, 295-96, 337 P3d 768 (2014) (agreeing with par-

ties that phrase at issue was a technical term). Applying the

court’s definition to ORS 309.115(2)(f), the court concludes

that an assessor may “adjust” a previously adjudicated RMV

for changes reasonably related to the subdivision without

any intervening space or time. To better understand how

the term should be applied, the court turns to the context.

2. Context

The court first considers other relevant text within

ORS 309.115:

“Effect of real market value correction upon appeal;

exceptions.

“(1) If the Department of Revenue, the board of prop-

erty tax appeals or the tax court or other court enters an

order correcting the real market value of a separate assess-

ment of property and there is no further appeal from that

order, except as provided under subsection (2) or (3) of this

section, the value so entered shall be the real market value

entered on the assessment and tax rolls for the five assess-

ment years next following the year for which the order is

entered.

“(2) Notwithstanding subsection (1) of this section,

the following adjustments may be made to the real market

value during the period described in subsection (1) of this

section:

14

Webster’s today uses the same phrases quoted in Willamette Egg Farms.

https://www.merriam-webster.com/dictionary (accessed Apr 11, 2019).

Cite as 23 OTR 300 (2019) 311

“(a) Annual trending or indexing applied to all prop-

erties of the same property class in the county, or within

clearly defined areas of the county under this chapter.

“(b) Annual trending or depreciation factors applied to

similar property.

“(c) Additions or retirements based upon returns filed

under ORS 308.290.

“(d) Additions, retirements or economic trending from

the annual valuations under ORS 308.505 to 308.681.

“(e) Increases directly related to additions, remodeling

or rehabilitation made to property.

“(f) Changes directly related to subdividing or parti-

tioning the property.

“(g) Changes directly related to rezoning the property

and using the property consistent with the rezoning.

“(h) Property damaged, destroyed or otherwise subject

to loss of real market value.”

The first two adjustments in subsection (2) relate to

“trending,” which has been described generally as “apply-

ing an inflation factor based on sales of similar property in

the same area.” 39 Or Op Atty Gen 150 (1978) (“Twentieth

Question”). The use of trending is not limited to properties

with an adjudicated value; rather, it is an integral part of

the annual process of recording the RMV of each parcel on

the assessment roll, along with numerous other data points

about the property. See ORS 308.215(1)(a). Recognizing

that an assessor may not be able to physically inspect every

property every year on the assessment date of January 1,

the legislature has allowed an assessor to use trending to

capture the periodic appreciation of property, subject to

the legislature’s express intention that trending should

result in “equality and uniformity” as between proper-

ties that are physically appraised and those that are not.

ORS 308.233(2). Additional laws provide direction for the

development of data used for trending.15 The remaining

15

See ORS 309.200; ORS 309.203; see also OAR 150-309-0230 - 150-309-

0250 (defining and explaining “ratio studies” of actual sales in the area from one

312 AKS LLC v. Dept. of Rev.

relevant16 adjustments are for additions and losses of prop-

erty (paragraphs (d) and (h), respectively), and for changes

directly related to subdividing or partitioning the property

(paragraph (f)) or rezoning the property and using it consis-

tently with the rezoning (paragraph (g)).

From this context, the court readily concludes that

the legislature intended ORS 309.115 to prohibit an asses-

sor from making an entirely new determination of the value

of property previously adjudicated and corrected. Each

adjustment allows the assessor to lift the five-year “freeze”

on the adjudicated value in subsection (1) to accommodate

a specific set of circumstances but otherwise preserves the

adjudicated value. In this context, the court concludes that

the legislature used the phrase “directly related” to empha-

size the limited nature of a permissible adjustment to the

value previously adjudicated.

Measure 50, its implementing statutes, and the

department’s corresponding administrative rules, all of

which were adopted within four years before ORS 309.115

(2)(f), supply additional context. The court discusses that

context below, in the course of reviewing the relevant legis-

lative history of ORS 309.115.

3. Legislative history

The court considers two sources of legislative his-

tory regarding ORS 309.115. First are the proceedings orig-

inally enacting ORS 309.115, which the legislature passed

as House Bill (HB) 2297 (1989). Or Laws 1989, ch 678, § 2

(HB 2977). The second set of proceedings relates to the

amendment by HB 2205 (2001), which added ORS 309.115

(2)(f) in response to Measure 50. Or Laws 2001, ch 6, § 1

(HB 2205).

year to the next); OAR 150-309-0210(2) (requiring use of ratio studies in applying

trending to properties subject to adjudicated value). In Niemeyer, the taxpayer

challenged the validity of the assessor’s ratio study as applied to the trend factor

the assessor used to determine an adjustment to his property under the adjudi-

cated value statute. 14 OTR at 36-38.

16

The adjustments in paragraphs (c) and (d) apply only to business personal

property or centrally assessed property, respectively, and do not apply to the

Subject Property, which is locally assessed real property.

Cite as 23 OTR 300 (2019) 313

a. Original enactment of ORS 309.115: HB 2977

(1989)

The legislative history of the bill first enacting

ORS 309.115 makes clear that the purpose was to prevent

assessors from reacting to taxpayer valuation appeals in an

overly aggressive manner. Legislators recounted repeated

complaints from constituents, over a number of legislative

sessions, about assessors who assigned an excessive value to

property for a particular tax year, then, after the taxpayer

appealed and the local tribunal or this court ordered the

value to be reduced for that year, assigned the same exces-

sive value (or an even higher value) to the property for the

subsequent year. See Tape Recording, House Committee on

Revenue and School Finance, HB 2977, May 2, 1989, Tape

118A (statements of Chair Carl Hosticka and Rep Kevin

Mannix). Legislators heard testimony from the department

acknowledging that the problem, though not widespread,

likely existed. Id., Tape 119 (statements of Department

of Revenue Director Jim Kenney). Toward the end of the

session, proponents learned that some complaints (includ-

ing from taxpayers who had testified earlier) were about

increases attributable to “trending,” which as described

above refers to formulaically generated increases in value

applied to all property in the same class or area. Id. (testi-

mony of Rep Kevin Mannix). The proponents agreed that

they did not want to limit an assessor’s ability to apply

trending, but only an assessor’s ability to single out property

for revaluation within a five-year period of “repose.” Id.

As originally enacted in 1989, ORS 309.115 did

not address partitions or subdivisions, but it did include

the term “directly related” as part of the exception for

“[i]ncreases directly related to additions, remodeling or reha-

bilitation made to locally appraised property.” ORS 309.115

(2)(e) (originally codified as ORS 309.115(2)(f) (1989)). The

term “directly related” did not appear in the early versions

of HB 2977, which simply provided that the new law would

not apply to “[a]n assessment year for which improvements

are made to the property.” HB 2977 (1989) (A-Engrossed).

That language was later amended to provide that the new

law would not apply to “changes in value as a result of * * *

314 AKS LLC v. Dept. of Rev.

[i]ncreases in value due to additions, remodeling or rehabil-

itation made to locally appraised property.” See Exhibit 9,

Senate Committee on Revenue and School Finance, HB

2977, June 5, 1989, -A4 (emphasis added). The final form

of the bill took shape after Jim Kenney of the department

requested the removal of the first of two redundant ref-

erences to “value” and the insertion of “directly related.”

Tape Recording, Senate Committee on Revenue and School

Finance, HB 2977, June 5, 1989, Tape 180, Side A (state-

ment of Jim Kenney). A representative of Associated Oregon

Industries (AOI) testified that he had met with Kenney, the

director of the department, and representatives of county

assessors, who had agreed to the phrase “directly related” in

order to clarify that the act of making improvements should

not render property wholly ineligible for the protection of

the bill. Id., Tape 179, Side A (statement of Gary Carlson of

AOI). Rather, only the improvements would be valued and

their value added to the previously adjudicated value. Id.

The final text, with respect to additions, read:

“(2) Subsection (1) of this section shall not apply to

changes in value as a result of * * * [i]ncreases directly

related to additions, remodeling or rehabilitation made to

locally appraised property.”

HB 2977 (enrolled).

This legislative history confirms that the legislature

originally intended the term “directly related” to require

the assessor to limit his or her determination of value to

the specific subject of the adjustment, which in 1989 was

“improvements.”

b.  Amendment of ORS 309.115: HB 2205 (2001)

In 2001, the legislature enacted HB 2205, creat-

ing the exception for “[c]hanges directly related to sub-

dividing or partitioning the property.” ORS 309.115(2)(f)

(2001); Or Laws 2001, ch 6, § 1. The legislative history

makes clear that HB 2205 was enacted in response to the

adoption of Measure 50 four years earlier. Accordingly, the

court starts by setting forth relevant aspects of Measure

50.

Cite as 23 OTR 300 (2019) 315

(1) Background and effect of Measure 50

The constitutional amendment known as Measure

50 effected a sea change in Oregon property tax law, sub-

stantially disconnecting the growth of Oregon property tax

revenues from growth in the fair market value of property.

The immediate roots of Measure 50 lie in Measure 47, a

“short-lived” constitutional amendment adopted by the peo-

ple via initiative petition in 1996, but found to be technically

unworkable. See Flavorland Foods v. Washington County

Assessor, 334 Or 562, 564, 54 P3d 582 (2002) (quoting Shilo

Inn v. Multnomah County, 333 Or 101, 107 n 6, 36 P3d 954

(2001), modified on recons, 334 Or 11, 45 P3d 107 (2002)). In

1997, the legislature drafted Measure 50 as a replacement

and referred it to the people, who adopted it that year. See

id. The legislature then enacted or modified dozens of stat-

utes to reflect the constitutional change. See Or Laws 1997,

ch 541. Given its scope, it is not surprising that Measure 50

prompted further correcting and conforming legislation over

the course of several legislative sessions. E.g., Or Laws 1999,

ch 579, § 4 (amending content of tax roll in ORS 308.215 to

remove references to MAV and AV); Or Laws 1999, ch 1003

(allowing changes to MAV when RMV is reduced due to fire

or acts of God); Or Laws 2001, ch 509, §§ 9-10 (CPR may not

exceed 1.00).

Measure 50 achieved property tax reduction by

adopting a “cut and cap” approach. Under the “cut” feature,

for property that existed in the 1997-98 property tax year

“each unit of property in this state shall have a maximum

assessed value for ad valorem property tax purposes that

does not exceed the property’s real market value for the tax

year beginning July 1, 1995, reduced by 10 percent.” Or

Const, Art XI, § 11(1)(a). For tax years after 1997-98, growth

of the MAV is “capped”: MAV “shall not increase by more

than three percent from the previous tax year.” Id. § 1(b).

For each tax year after 1997-98, the property is taxed at

the lesser of (a) its RMV as of the preceding January 1; or

(b) its MAV. Id. § (1)(f). This “lesser-of” amount is the

“assessed value” or AV. See ORS 308.146(2).

There are exceptions to the “cap” feature for six

kinds of events:

316 AKS LLC v. Dept. of Rev.

“(a) The property is new property or new improve-

ments to property;

“(b) The property is partitioned or subdivided;

“(c) The property is rezoned and used consistently with

the rezoning;

“(d) The property is first taken into account as omitted

property;

“(e) The property becomes disqualified from exemp-

tion, partial exemption or special assessment; or

“(f) A lot line adjustment is made with respect to the

property, except that the total assessed value of all prop-

erty affected by a lot line adjustment may not exceed the

total maximum assessed value of the affected property

* * *.”

ORS 308.146(3).17 If an exception applies, the assessor must

set a new MAV. In this case, the parties ask the court to

decide how to apply the exception for partition or subdivi-

sion when the property is subject to the adjudicated value

statute, ORS 309.115. Because the computation of MAV is

at the heart of the parties’ arguments, the court presents a

series of examples.

The court first discusses the conceptually simpler

and more frequently used exception for new property, which

starts with the RMV of the new property. “New property”

is defined as “changes in the value of property as the result

of * * * [n]ew construction, reconstruction, major additions,

remodeling, renovation or rehabilitation of property”; the

“addition of * * * taxable real or personal property to the

property tax account”; and certain other, less common,

changes. ORS 308.149(6)(a)(A), (C). See DISH Network Corp.

v. Dept. of Rev., 364 Or 254, passim, 434 P3d 379 (2019) (dis-

cussing numerous aspects of definition). When this excep-

tion applies, the new MAV is determined by multiplying the

RMV of the new property by “the ratio of average maximum

assessed value to average real market value of property

17

See DISH Network Corp. v. Dept. of Rev., 364 Or 254, 269, 434 P3d 379

(2019) (noting that the list of exceptions in ORS 308.146(3) “exactly mirrors

Measure 50’s list of exceptions”); Or Const, Art XI, § 11(1)(c).

Cite as 23 OTR 300 (2019) 317

located in the area in which the property is located that is

within the same property class.” Or Const, Art XI, § 11(1)(c).

This ratio is commonly referred to as the “changed prop-

erty ratio” or “CPR,” a percentage that is subject to change

each year. For many classes of real property, CPR often is

substantially lower than 100 percent,18 roughly replicating

the discount that similar, preexisting property in the area

enjoys as a result of application of the “cut and cap” features

over time. As the final step, the assessor adds the MAV of

the preexisting property to the MAV of the new property to

arrive at the total MAV for the parcel. See ORS 308.153(1).

Example 1: New MAV After an Addition; No Adju-

dication. As an example of the exception for new prop-

erty or new improvements, assume that a property owner

builds a new commercial building on a previously undevel-

oped lot. Before construction, the bare land has an RMV

of $130,000 and a MAV of $100,000. As of January 1 after

construction, the assessor determines that the RMV of the

new building is $500,000; thus the total RMV of the par-

cel is $630,000 ($130,0000 land + $500,000 improvements).

Assume further that the CPR for commercial property in

the area is 70 percent. The assessor sets the MAV attrib-

utable to the new building at $350,000 ($500,000 × 70%).

The assessor must add that MAV amount to the MAV of the

existing bare lot; the result is the total MAV of the parcel:

$450,000 ($350,000 + $100,000).19 Because the parcel’s MAV

is less than its RMV, Measure 50 requires that the assessed

value of the entire improved parcel, i.e., the value to which

the local tax rate actually will be applied, is also set at

$450,000, providing in effect a 28.6 percent “discount” com-

pared to the pre-Measure 50 approach of taxing property at

18

In this case, the department supplied evidence that the assessor applied

a CPR of 72.5 percent to the Subject Property for the 2016-17 tax year. See, e.g.,

Haynie v. Dept. of Rev., 19 OTR 488, 492 (2008) (CPR for residential property in

Hood River County was 54.6 percent for the 2006-07 tax year); public records from

the Marion County assessor at https://www.co.marion.or.us/AO/Documents/

ReportsAndData/CPR/2001cpr.pdf (CPRs for the 2001-02 tax year included 81.3

percent for residential property, 70.96 percent for commercial property and 80.7

percent for industrial property); see OAR 150-308-0310 (defining classes of prop-

erty and prescribing numeric codes to describe them).

19

For simplicity, Examples 1-3 ignore any potential three percent increase in

MAV; thus in this Example 1, MAV of the land remains $100,000.

318 AKS LLC v. Dept. of Rev.

its RMV ($630,000 – $450,000 = $180,000. $180,000/$630,000

= 28.57%).20

Example 2: Basic MAV Reset after a Subdivision;

No Adjudication. The court now turns to the exception for

property that has been subdivided. As with new property,

the assessor must compute a new MAV that is the sum of

two components, in this case: (1) the existing MAV of any

part of the property not “affected” by the subdivision;21 plus

(2) the RMV of the property affected by the subdivision mul-

tiplied by the CPR. ORS 308.156(5).

2.a. For example, using the same assumptions

above, the parcel has an RMV of $630,000 and a MAV of

$450,000 in the year after the building is constructed (“Year

1”). Now assume that the parcel undergoes subdivision three

years later (“Year 4”). As a base case, assume the RMV

remains the same and the CPR is still 70 percent. If all por-

tions of the parcel are “affected” by the subdivision, then a

new MAV will be calculated for the entire parcel. Not sur-

prisingly, assuming no “natural” appreciation of RMV due

to market forces, and also no increase in RMV attributable

to the act of subdivision, the new MAV is similar to the MAV

set in Year 1: $441,000 ($630,000 × 70%).

2.b. If, however, the RMV in Year 4 were to rise to

$850,000, whether due to natural appreciation or because

of the act of subdividing the property, the new MAV would

be $595,000 ($850,000 × 70%). In other words, a $220,000

increase in RMV by Year 4 would cause a substantial

increase in MAV of $154,000. ($850,000 – $630,000 =

$220,000. $595,000 – $441,000 = $154,000.)

2.c. As a variation, assume that the RMV of the

parcel in Year 4 drops from the base-case value of $630,000

to $525,000 because the building has declined in value due

20

This “discount” is slightly less than the 30 percent discount afforded by the

70 percent CPR. That is because a portion of the $180,000 difference consists of

the existing $100,000 MAV of the land, which is not eligible to be multiplied by

CPR.

21

The department has defined “affected” in an administrative rule that the

court discusses below. See OAR 150-308-0190(2), formerly 150-308.156(5)(A). The

rule generally defines all portions of subdivided land, as well as any improve-

ments divided into separate units, as “affected” per se.

Cite as 23 OTR 300 (2019) 319

to depreciation, and any appreciation of the underlying land

is not enough to offset the declining value of the building.

If no subdivision or other Measure 50 “exception” event

occurs, there will be no change in the property’s taxable

value (AV) because RMV ($525,000) is still greater than

MAV ($450,000). AV remains flat at $450,000. However, if

the owner subdivides the property following this decline

in RMV, and the act of subdividing the property does not

change the RMV, the new MAV will drop to $367,500 to

reflect the drop in RMV ($525,000 × 70%). In this variation,

the subdivision of the property has allowed the owner to

take advantage of the decline in RMV due to depreciation

because Measure 50 requires a MAV reset, which necessar-

ily requires multiplying the decreased RMV by the CPR.

AV has now dropped by $82,500 ($450,000 – $367,500).

Example 3: MAV Reset after a Subdivision of

Property with Adjudicated RMV. The final example incor-

porates the main issue in this case: calculating the new MAV

for property that is subdivided but is subject to the RMV

protection of ORS 309.115(1). Assume the same base-case

facts for Year 1 as in Example 2.a. above (RMV is $630,000

and MAV is $450,000). However, in Year 2, before any sub-

division, the taxpayer challenges the RMV, settles the case,

and obtains a stipulated judgment from this court that the

RMV of the parcel has declined from $630,000 to $430,000.

As of Year 2, the MAV remains unchanged at $450,000

because there has been no “exception” under Measure 50

and the adjudicated value statute applies only to RMV, not

MAV. The AV for Year 2 must be set at the lower of RMV and

MAV: $430,000.

Now assume that in Year 4 the taxpayer subdivides

the property. Assume that the act of subdividing the prop-

erty causes the actual RMV to increase to $850,000 by Year

4. Absent the adjustment allowed by ORS 309.115(2)(f), the

RMV recorded on the tax roll would be required to remain

frozen at the adjudicated value of $430,000, and the new

MAV would be $301,000 ($430,000 × 70%). In other words, as

a result of the “frozen” RMV from two years before, the new

MAV in Year 4 would be $294,000 less than if the RMV had

not been frozen ($595,000 from Example 2.b. – $301,000).

320 AKS LLC v. Dept. of Rev.

The new MAV also would be $149,000 less than the old MAV

before subdivision ($450,000 from Example 1 – $301,000)

because the frozen RMV would have to be multiplied by the

CPR. As in Example 2, the subdivision of the property would

allow the owner to reduce the property’s MAV by applying

the CPR to a relatively low RMV, but this time the reason

the RMV is low is that it has been “frozen” by the adjudica-

tion in Year 2.

As posited in Example 3, the court understands

taxpayers to be claiming that, as a matter of law, the asses-

sor must use the “frozen” RMV that was adjudicated for tax

year 2014-15 as the starting point for determining the new

MAV for 2016-17. Taxpayers tacitly acknowledge that the

assessor could “adjust” the adjudicated RMV for any change

attributable to the act of subdividing the property, but tax-

payers claim they can prove as a matter of fact that there

was no such change.22 If taxpayers can succeed with this

claim, then the fact that they would then end up with a MAV

that is less than their adjudicated RMV is simply a func-

tion of the Measure 50 formula, which requires multiplying

RMV by CPR, as illustrated in Example 2.c.

(2) Legislative hearings on HB 2205

With the foregoing examples in mind, the court

considers the discussions in the legislative commit-

tees that heard HB 2205 in 2001. The department for-

mally requested the bill and apparently was involved in

its drafting.23 The bill was “presession filed,” meaning

that the department filed it with the Office of Legislative

Counsel weeks, if not months, before the session began on

January 7, 2001.24 It was introduced and passed early in

22

Neither party discusses the possible effect of trending or other adjust-

ments allowed by ORS 309.115(2).

23

See HB 2205 (2001) at 1 (“Presession filed (at the request of Governor John

A. Kitzhaber, M.D., for Department of Revenue).”); see generally ORS 171.127(1)

(requiring that a bill list the name of any agency making a “formal request” for

its introduction; defining “formal request” as “presentation, submission or pro-

viding of a drafted measure”).

24

See Oregon State Archives, Oregon Legislators and Staff Guide 2001,

https://sos.oregon.gov/archives/ Documents/records/ legislative/statehood /

2001-regular-session-legislators.pdf (accessed Apr 11, 2019) (2001 regular ses-

sion began January 8, 2001); Legislative Style Manual at 92 (identifying statutory

Cite as 23 OTR 300 (2019) 321

the session with only one substantive committee hearing

in each chamber, each lasting about 25 minutes, and on

each occasion the same representative of the department

provided the sole testimony and answered committee mem-

bers’ questions.25 No one in the legislature proposed any

amendments. HB 2205 passed both committees unani-

mously and passed both chambers of the legislature with

only one opposing vote, in the House. Journal of the House of

Representatives, 72nd Legislative Assembly - 2001 Regular

Session, H-43. The court’s transcriptions of the hearings are

set forth in full at Appendix 1 and 2. See Tape Recording,

House Committee on School Funding and Tax Fairness/

Revenue (HB 2205), Jan 19, 2001, Tape 16, Side A (“House

Hearing”); Tape Recording, Senate Committee on Revenue

(HB 2205), Feb 7, 2001, Tape 34, Side B (“Senate Hearing”).

From the legislative record, it is clear to the court

that the committee members had two general intentions in

approving HB 2205. First, they intended to alter the adjudi-

cated value statute’s “freeze” on RMV in the case of properties

that had undergone a subdivision or partition, or rezoning,

in order to promote long-term “equity in taxation” between

those properties that had benefited from an adjudication and

those that had not. Second, in doing so, the committee mem-

bers intended to preserve the benefit of the “freeze” to the

extent the new value was not attributable to the subdivision,

partition, or rezoning. In forming these intentions, the com-

mittee members made a key factual assumption: that the act

of subdividing, partitioning, or rezoning the property would

cause the property’s value to increase.

(3) Promoting “equity in taxation”

The first intention was to promote “equity” or parity

between properties whose values had been redetermined by

adjudication before undergoing a partition, subdivision or

rezoning, and properties that did not have a prior adjudica-

tion. The department’s representative, John Phillips, first

requirements in ORS 171.130 and ORS 171.133 for presession filing of measures);

ORS 171.130 (generally requiring filing on or before December 15 of year preced-

ing regular session).

25

See Journal of the House of Representatives, 72nd Legislative Assembly - 2001

Regular Session, H33-34 (indicating introduction in House of Representatives

January 10, 2001, and passage on February 14, 2001).

322 AKS LLC v. Dept. of Rev.

explained the origin and purpose of the adjudicated value

statute as a temporary check against overreach by county

assessors who might otherwise compel taxpayers to pursue

expensive and unnecessary appeals in successive years. See

House Hearing ¶¶ 9-13; Senate Hearing ¶¶ 1-2.

The representative, building on data provided by

a legislative staff economist in introductory comments,

then explained that Measure 50 had reduced the need to

protect against an assessor’s repeated value increases

because Measure 50 established its own new base value

that would apply in perpetuity—barring an exception event

and ignoring the permissible annual increase of three per-

cent. Moreover, when applied together with Measure 50, the

capped value set by the adjudicated value statute created

a perpetual gap between adjudicated and nonadjudicated

properties, a gap that the assessor could never “recoup.”

John Phillips: “So for example, we use the new con-

struction example. Let’s say you have a ten-acre parcel and

you didn’t appeal your value and you divide it into five two-

acre parcels. Under Measure 50, the taxable value for that

change is allowed to grow because now you have, maybe,

five properties that are maybe buildable now and the value

of those individual properties exceeds the total value of

the ten-acre parcel. So, under Measure 50, the assessor is

allowed to calculate the change in real market value and

the corresponding change in taxable value.

“If you take the same property under an adjudicated

situation, you would have the ten-acre parcel, they would

subdivide it into five two-acre parcels, and the assessor

would not be able to make a change in the real market

value of that property. Therefore, there would be no change

in the taxable value of that property.[26] After the five years

26

This statement is inaccurate. Independent of any amendment to the adju-

dicated value statute, ORS 308.156 would require the taxable (assessed) value

to be recalculated because the MAV of all “affected” property would be recalcu-

lated. Framed in terms of Example 3 above, the department’s testimony incor-

rectly implies that MAV would remain frozen at the “old,” pre-subdivision level of

$450,000, a result not possible under Measure 50.

Separately, in both the Senate and House committee hearings, the depart-

ment understated the extent to which property affected by a subdivision is reval-

ued for purposes of the new MAV determination under Measure 50, ignoring any

adjudicated RMV. The department’s representative stated erroneously that only

the difference in value after subdivision is multiplied by CPR. See Senate Hearing

Cite as 23 OTR 300 (2019) 323

that property would then come out of adjudication and the

assessor would still not be able to make a change in the tax-

able value and would never be able to make a change. So,

two ten-acre parcels side by side and one was adjudicated

and one was not, the taxable value of those two properties

would be, indefinitely into the future, different.[27] And so,

that’s why I am characterizing this as an equity in taxation

issue.”

House Hearing ¶¶ 16-17.

Although the department’s description likely under-

stated the issue as noted above, committee members in

both chambers quickly used the term “loophole” to describe

the long-term benefit that an adjudicated property would

receive, based on the department’s description.

Rep. Witt: “Follow-up: so the statute as it currently

is written relative to adjudicated property apparently has

a loophole if you compare it to the Measure 50 standard.

Correct?”

Phillips: “Chair Shetterly, Representative Witt, loop-

hole, yes.”

Rep. Witt: “Yeah, certainly it is inconsistent when you

compare it to the Measure 50 standard.”

Phillips: “That’s correct.”

House Hearing ¶¶ 40-43; see also Senate Hearing ¶ 21.

Representative Alan Bates proffered a hypothetical to spell

out how this “loophole” might work:

¶¶ 14-16; House Hearing ¶ 25. In fact, as shown in Example 2 above, ORS 308.156(1)

and (5) require that the entire new real market value of the affected property be

multiplied by CPR. It is unclear whether the committee members internalized

this separate error, which tends to understate the increase in assessed (taxable)

value that can arise when the MAV of an entire parcel is reset after a subdivi-

sion causes a substantial increase in RMV. If the committee members took the

department’s statements into account, they may have thought that undoing the

protection of the adjudicated value statute would have a less significant effect on

the assessed value of property that had previously been adjudicated.

Because no committee members specifically commented on this portion of the

department’s testimony, the court assigns no weight to the foregoing errors.

27

This statement is largely accurate despite the inaccuracy noted in the pre-

ceding footnote. In Example 3, the post-subdivision MAV using “frozen” RMV is

$301,000, while the post-partition MAV without a frozen RMV is $595,000. The

inaccuracy noted in the prior footnote makes the “delta” between the application

of “frozen” and non-frozen RMV seem smaller than it is, but there is such a “delta”

in any case.

324 AKS LLC v. Dept. of Rev.

Rep. Bates: “* * * Let me ask you a question of poten-

tially of something that could happen or maybe has hap-

pened. If I have a 100-acre tract and know that I am going

to subdivide it in the next year or two, would it be worth-

while for me to ask for—go to court on it, get it adjudicated,

then subdivide it, and permanently lower the tax on that?”

Phillips: “Chair Shetterly, Representative Bates, that

would be a strategy that might save you some tax money

[laughter], but [I] don’t want to get that on the record

[laughter].”

Rep. Bates: “And that’s, and what I’m saying is that

I’m afraid that could have happened and may be happening

and this change would prevent that from happening.”

Phillips: “That’s correct.”

House Hearing ¶¶ 57-60. The chairman of the House com-

mittee, Representative Lane Shetterly, had worked on the

drafting of Measure 50 and its implementing legislation

four years earlier. He made the following comments at the

conclusion of the hearing:

Chair Shetterly: “I can’t believe we overlooked this.

[Laughter] * * * I tell you, I’m only too glad that this doesn’t

require a constitutional amendment.”

House Hearing ¶ 69. Other legislators remarked on the fact

that the adjudicated value statute and Measure 50 were

“inconsistent,” “not synchronous,” even if “not in direct con-

flict”; that the disparity was “inequitable”; and that “concil-

iation” of the adjudicated value statute to make it “coincide”

with Measure 50 was desirable, as a “housekeeping” matter.

House Hearing ¶ 42, Senate Hearing ¶¶ 23, 36, 39, 43, 48.

The court interprets these statements as expressions of an

intention to change the adjudicated value statute to allow

RMV to be reset after a partition, subdivision, or rezoning.

(4) Preserving some adjudicated value protection

On the other hand, the committee members clearly

did not see themselves as abolishing all protection of the

adjudicated value statute.28 The hearings provide ample

28

At one point, Senator Beyer asked: “John, why not just repeal this thing

[i.e., the adjudicated value statute]? Doesn’t Measure 50 take care of it?” Senate

Hearing ¶ 7. In response, the department’s representative confirmed that the

Cite as 23 OTR 300 (2019) 325

evidence that the committee members intended to avoid

“wholesale revaluation” of a parcel after a subdivision or

partition. Before the House committee, the department’s

representative stated:

Phillips: “[C]ertain words were chosen for very partic-

ular reasons. In the bill itself, it uses the word ‘adjustment,’

so it presumes that the part of the property that’s not affected

should not lose its protection for the adjudicated value. So if

only a portion of the property is adjusted due to subdivision,

partition or rezoning with consistent use, then that doesn’t

mean there’s a wholesale revaluation of the property—that

was our intent, not to do that. And the other words were

‘directly affected,’ and I think that’s on line 19 of the bill,

section 1: ‘Changes directly related to the subdivision and

partition,’ so that other changes, not directly related to that,

would not change the taxable value for that property.”

House Hearing ¶ 34 (emphasis added). An exchange in the

Senate committee followed similar lines:

Sen. Witt: “So this could be viewed as a tax increase

bill.”

“* * * * *

Sen. George: “Mr. Chairman, at the bottom of one

of our reports, it says: ‘This measure will add a minimal

amount of additional taxes to the counties’ tax rolls annu-

ally.’ But up above—I’m trying to get a balance on this—it

also says the advantage to that taxpayer would be that, if

in fact they have an adjudicated value established, that’s

what it’s gonna be. They’re protected—well, I’ll just read

it. It says, ‘This protects the taxpayer from unwarranted

value increases that must be appealed again, following—.’

Apparently, somebody ignored adjudication. So it looks like

there’s kind of a plus and a minus to taxpayers. It does

make it worse, it looks like.”

Phillips: “Chair Ferrioli, Senator George, it does—

we tried to draft it so it does retain the protections of the

adjudicated value for the property that’s unchanged. The

issue would be is that if you just changed a small portion of

your property then all of the property shouldn’t necessarily

be changed. You should retain your protection under the

bill did not effect a repeal. Id. ¶ 8. Chair Ferrioli also declared at the end of the

hearing that “a simple repeal of the adjudication process in favor of Measure 50’s

adjudication process is not warranted * * *.” Senate Hearing ¶ 43.

326 AKS LLC v. Dept. of Rev.

adjudication statute. And in the bill, actually, if I might

point out on line 10, the word toward the end of line 10 on

page 1 says ‘adjustments,’ and so ‘adjustments’ are allowed

under this bill, not a wholesale revaluation of the property,

but just adjustments. And then down below on lines 19 and

20, the sections we’re adding, the words we’re adding use

the words ‘changes directly related.’ So that if you have a

large property and you subdivide—or partition I should

say—one acre off of it, that all of the buildings don’t neces-

sary get revalued. This is just relating to the property that’s

changed. So, to answer your question, I think it does retain

the protections of adjudicated value but it does remove two

to make them consistent with Measure 50.”

Senate Hearing ¶¶ 30-33 (emphasis added).

The court finds that the department’s testimony at

times blurs the Measure 50 concept of property “affected”

by a subdivision, partition or rezoning with the concept of

“directly related” as used in HB 2205. Despite this ambi-

guity, the court does not attribute to the legislature an

intention to allow a “wholesale revaluation” of all property

“affected” by subdivision based on the foregoing testimony.

Taken as a whole, the court finds that the testimony repeat-

edly assured legislators that HB 2205 would allow no such

thing.29

29

The court finds similar ambiguity in the sole relevant portion of the

department’s written testimony:

“This concept retains the protections of the current statute for the property

that was adjudicated. The value of the property adjudicated should remain

adjudicated and continue to protect the property owner against further liti-

gation. However, if the property is changed by subdivision, partition or rezon-

ing, meeting the consistent use test, in addition to the current new construc-

tion and trending exceptions, the value of the changed property should be an

adjustment to the adjudicated value.”

Exhibit 6, House Committee on School Funding and Tax Fairness/Revenue, HB

2205, Jan 19, 2001, 1 (emphases added). This statement can be read to support

the department’s position in this case that all changes in value, including any

appreciation not attributable to the subdivision, must become the new RMV that

is then used to calculate the new MAV. However, it is unclear whether the first

reference to a “change” is to a change in the nature of the property or to a change

in the property’s value. If the latter, a taxpayer that can prove that the subdivi-

sion did not cause a change in value should retain the full benefit of the adjudi-

cated RMV. If the former, it is difficult to picture how to apply the “value of the

changed property” as an “adjustment” to the adjudicated value without creating

the “wholesale revaluation” that the department testified was not the intent of the

bill.

Cite as 23 OTR 300 (2019) 327

(5) Assumption that subdivision enhances value

Virtually all dialogue in the committee hearings

assumes that the act of subdividing would enhance the

property’s value:

John Phillips: “Let’s say you have a ten-acre parcel

and you didn’t appeal your value and you divide it into five

two-acre parcels. Under Measure 50, the taxable value

for that change is allowed to grow because now you have,

maybe, five properties that are maybe buildable now and the

value of those individual properties exceeds the total value

of the ten-acre parcel. So, under Measure 50, the assessor is

allowed to calculate the change in real market value and

the corresponding change in taxable value.”

House Hearing ¶ 16 (emphasis added).

Phillips: “Chair Ferrioli, Senator Beyer, what the real

crux of the problem is, is that the property that I described,

the 10-acre parcel that’s then the value is increased because

of the subdivision, the formula for increasing the taxable

value is the increase in real market value multiplied by

the changed property ratio, increases the taxable value

by that much. On the same property under adjudication,

you take the change in real market value due to the subdi-

vision, multiplied by the changed property ratio, but the

adjudication statute does not allow the real market value

to increase, so it’s essentially, the formula is zero multiplied

by the changed property ratio equals no increase in taxable

value. So you’ve got the two ten-acre parcels, both subdi-

vided, one’s adjudicated, one’s not. And one has an increase

in taxable value, the other doesn’t, and then when the five

years lapse, they go on, perpetually, at different taxable

values.”

Senate Hearing ¶ 16 (emphases added). One senator simi-

larly commented:

“Yeah, except as I understand it the Measure 50 excep-

tion would be: if you decide to take some action that increases

your value, you fall under the exceptions. The fact is that

Measure 50 and * * * existing statute—maybe they’re not

in direct conflict, but they’re certainly not synchronous.”

Senate Hearing ¶ 23.

328 AKS LLC v. Dept. of Rev.

Chairman Ted Ferrioli stated, as follows, during a

portion of the hearing discussing how HB 2205 would inter-

act with recently approved “Measure 7,”30 dealing with land

use issues:

Sen. Ferrioli: “And certainly rezoning, and use con-

sistent with that rezoning, your subdivision added value,

or value added, actions in some cases and reasonably that

ought to be a basis for an adjustment in value notwith-

standing the adjudication or the protection under Measure

50. It just makes sense, as something that increases the

value, but it’s an action already taken on the property.”

Senate Hearing ¶ 45 (emphasis added).

c.  Conclusions as to RMV based on legislative

history

The court must decide what light, if any, the legis-

lative history shines on the question of whether the RMV

of property affected by a subdivision or partition is capped

by a previously adjudicated value pursuant to ORS 309.115.

The court concludes that, although the committee members

thought it inequitable to have a perpetual gap in assessed

value between property whose value has been adjudicated

and property whose value has not been adjudicated, the

committee members also intended to preserve some protec-

tion of the adjudicated value statute, even when property is

subdivided and all portions of the parcel are affected by the

subdivision. The committee members apparently believed

they were adopting a compromise when they approved lan-

guage by which the previously frozen adjudicated value

would be “adjusted,” not subjected to a “wholesale revalu-

ation,” and only the “changes” in value that were “directly

related” to the exception event (in this case, subdivision)

would be taken into account in making this adjustment. The

committee members clearly assumed that, as a fact matter,

a partition, subdivision or rezoning would always cause an

increase in RMV, and their main goal seemed to be to pro-

mote “equity,” and to close a “loophole,” by capturing at least

the value of that increase, as discounted by the changed

30

The Supreme Court later declared Measure 7 void due to violation of

Article XVII, section 1, of the Oregon Constitution. League of Oregon Cities v.

State of Oregon, 334 Or 645, 677, 56 P3d 892 (2002).

Cite as 23 OTR 300 (2019) 329

property ratio, in a new MAV. No one seemed to consider the

possibility that a partition, subdivision or rezoning might

occur that would “affect” the entire property but not directly

cause an increase in RMV.

The court concludes that, consistent with the court’s

interpretation of the relevant statutory text and context,

the committee members intended that the RMV of property

that is within the protection of ORS 309.115 and is affected

by a subdivision or partition be the sum of (a) the previously

adjudicated value determined under ORS 309.115; (b) any

positive or negative change in previously adjudicated RMV

for reasons “directly related” to the subdivision, (i.e. changes

reasonably related to the subdivision without any interven-

ing space or time); and (c) the positive or negative effect of

any other adjustments allowed by ORS 309.115(2). The sum

of (a) through (c) may, depending on the facts, be greater or

less than, or the same as, the previously adjudicated RMV

or the new RMV as determined without regard to any previ-

ously adjudicated RMV.

4. Interaction with MAV

The court now reviews how the resulting RMV

applies within the statutory formula for recomputing MAV

after a subdivision or partition, as set forth at the beginning

of this order. This requires the court to determine which

portions of property are considered “affected” by the subdi-

vision or partition. ORS 308.156(7) requires the department

to “provide by rule the method by which the allocations * * *

are to be made” as between the portions of property affected

and not affected by the subdivision or partition. The depart-

ment’s rule, OAR 150-308-0190, materially unchanged since

2003, provides:

“For purposes of calculating the maximum assessed

value when a property is subdivided or partitioned, the por-

tion of the property that is ‘affected’ includes:

“(1) The entire land that was subdivided or partitioned

into smaller lots or parcels, if any.

“(2) The improvements if one or more of the following

apply:

330 AKS LLC v. Dept. of Rev.

“(a) The act of subdividing or partitioning the land

results in the apportionment of a single improvement

(building or structure) to more than one tax lot.

“Example 1: A lot improved with a duplex is parti-

tioned such that the duplex is split into two single-family

residences.

“(b) The act of subdividing or partitioning the land

changes the market’s perception of the value of the

improvements.

“Example 2: A partition includes a vacant warehouse

that was previously part of a large industrial complex.

Prior to the partition, the market perceived the warehouse

as unnecessary to the industrial complex and of little or no

value. After the partition, the warehouse is a stand-alone

improvement no longer associated with the industrial com-

plex. The market now perceives the warehouse as a prop-

erty that can be used for many different purposes with con-

siderable value. By contrast, there is no change in market

perception regarding the remaining improvements in the

industrial complex.

“(c) The improvements are divided into separate units

of property.

“Example 3: The legal subdivision of an apartment

building into condominium units.”

OAR 150-308-0190 (2017).31 The rule purports to treat two

kinds of property as per se “affected”: land that is subdivided

or partitioned (section (1)) and improvements apportioned

to more than one tax lot or divided into separate units

(section (2)(a) and (c)). Improvements not affected under the

per se rules may still be affected if “[t]he act of subdividing

or partitioning the land changes the market’s perception of

the value of the improvements” (section (2)(b)).

In this case, the parties agree that the declaration of

condominium ownership filed on January 9, 2015, subdivided

the Subject Property into nine units within the sole “building,”

plus 97 “parking units.” The “parking units,” would appear to

be per se “affected” by the subdivision, either as bare land that

was subdivided (section (1) of the rule) or as “improvements”

31

OAR 150-308.156(5)-(A) (1998) was renumbered to OAR 150-308-0190 in

2016, but has not substantively been amended since 2003. The court uses the

current numbering here for ease of future reference.

Cite as 23 OTR 300 (2019) 331

apportioned to more than one tax lot or divided into separate

units of property (section (2)(c)). The building would appear to

be per se affected by virtue of its having been divided into nine

separate units of property (section (2)(c)).32

Subject to any further factual development, the

court tentatively concludes that application of the depart-

ment’s rule in this case causes a situation in which all of

the Subject Property is “affected” by the subdivision pursu-

ant to the per se provisions. Accordingly, a new MAV must

be determined for the entire Subject Property. However,

contrary to the department’s argument that the Subject

Property lost the protection of the adjudicated value stat-

ute simply because the property was subdivided,33 the court

32

The original version of the rule would have treated the entire Subject

Property as “affected” per se:

“When a property is subdivided or partitioned after January 1 of the

assessment year preceding the current assessment year and before January

1 of the current assessment year, the entire property is affected and a new

MAV is calculated for all property tax accounts.”

OAR 150-308.156(5)-(A) (1998). The rule was next amended in 2001—the same

year as HB 2205—without any material change for purposes of this case:

“(1) For purposes of calculating maximum assessed value when a prop-

erty is subdivided or partitioned, the portion of the property that is ‘affected’

includes:

“(a) The entire land that was subdivided or partitioned into smaller lots

or parcels, if any;

“(b) The improvements that are divided into separate units of property,

if any.

“Example: The legal subdivision of an apartment building into condo-

minium units.”

OAR 150-308.156(5)-(A) (2001).

33

To the extent the department’s argument is based on equating “affected by”

with “directly related to,” the court rejects the argument as inconsistent with the

text, context, and legislative history of ORS 309.115. The reference in statute and

rule to property “affected by” a subdivision, partition or rezoning arose at the same

time the department was litigating the meaning of “directly related” in Willamette

Egg Farms and approximately 10 years after the department itself requested the

insertion of “directly related” into the original text of ORS 309.115 following dis-

cussions with AOI. See HJR 85 (1997) (referring text to voters that later became

Measure 50); Or Laws 1997, ch 541, § 13 (enacting ORS 308.156); former OAR 150-

308.156(5)-(A) (1998) (original version of OAR 150-308-0190 containing phrase

“affected by”); Willamette Egg Farms, Inc., 14 OTR 337 (1998), aff’d, 331 Or 327

(2000). As of 2001, the court considers both the legislature and the department

to have been well aware of the distinct meanings of those respective phrases. See

OR-OSHA v. CBI Services, Inc., 356 Or 577, 593, 341 P3d 701 (2014); IAFF, Local

3564 v. City of Grants Pass, 262 Or App 657, 662, 326 P3d 1214, (2014).

332 AKS LLC v. Dept. of Rev.

concludes that when determining the MAV of each new

unit, ORS 309.115(2) requires the assessor to start with the

previously adjudicated RMV of the Subject Property, and

to adjust the RMV solely to account for changes in value

“directly related” to the subdivision (i.e., changes in value

reasonably related to the subdivision without any interven-

ing space or time), or any other adjustments allowed pursu-

ant to ORS 309.115(2).34 Taxpayers apparently seek to prove

that no such changes in value occurred, which could result

in a new MAV that is lower than the existing MAV.35 The

court denies the department’s motion for summary judg-

ment as to TC 5309. Taxpayers are entitled to an opportu-

nity to present their expert testimony and other evidence in

support of their claim.

V. CONCLUSION

Taxpayers rely on the RMV of the Subject Property

as adjudicated for the 2014-15 tax year and contest the

assessor’s redetermination of RMV under the exception in

ORS 309.115(2)(f). Taxpayers were required to appeal to the

BOPTA before seeking review in the court, which is what

they did in TC 5309. The court grants the department’s

motion as to TC 5308; however, pursuant to the court’s prior

order of consolidation, the court will hold TC 5308 in abey-

ance, and will not issue a judgment, pending this court’s

resolution of TC 5309.

As to TC 5309, the parties agree that the declara-

tion of condominium ownership constituted a “subdivision”

of the Subject Property for purposes of ORS 308.146(3) and

Measure 50. Under that theory, the court concludes based

34

On reply, the department also offers a legal theory pursuant to which the

subdivision fundamentally changed the nature of the Subject Property, such

that the pre-subdivision property “no longer exists.” The department claims

that, because the assessor was required to assign all new values to each subdi-

vided property account, it would be “contrary to Oregon law” to seek to apply the

pre-subdivision adjudicated RMV to the subdivided property. But if the depart-

ment’s theory were accurate, there would have been no need for ORS 309.115

(2)(f). HB 2205 (2001) would have been surplusage. The court declines to con-

strue ORS 308.156(5) in a manner that would give no effect to ORS 309.115

(2)(f), a statute the legislature adopted precisely because of ORS 308.156(5). See

ORS 174.010.

35

In terms of the hypothetical amounts in Example 3 above, taxpayers seek

to prove that the MAV has dropped from the $450,000 to $301,000.

Cite as 23 OTR 300 (2019) 333

on the relevant statutory text, context and legislative his-

tory that the RMV of the Subject Property is the sum of

(a) the previously adjudicated value determined under ORS

309.115; (b) any positive or negative change in previously

adjudicated RMV for reasons “directly related” to the sub-

division (i.e., changes reasonably related to the subdivision

without any intervening space or time); and (c) the positive

or negative effect of any other adjustments allowed by ORS

309.115(2). Now, therefore,

IT IS ORDERED that the Defendant’s Motion for

Summary Judgment is granted in part and denied in part.

IT IS FURTHER ORDERED that Case No. TC

5308 is held in abeyance pending further notification by the

court.

The parties are directed to confer with each other

and with the Clerk of the Court to set a date for trial in Case

No. TC 5309.

334 AKS LLC v. Dept. of Rev.

APPENDIX 1

Tape Recording, House Committee on School Funding and Tax

Fairness/Revenue, HB 2205, Jan 19, 2001, Tape 16, Side A,

Minutes 24 to 45.

(1) Chair Shetterly: “We have an agenda today, our first

dry run through some bills after several weeks of ori-

entation—this ought to feel good, he said hopefully.

(2) “* * * * *

(3) “Last one today on the agenda is House Bill 2205,

opening a public hearing on that, and we have this

time John Phillips on board. And Lizbeth do you want

to give us a staff update?”

(4) Lizbeth Martin-Mahar: “Chairman Shetterly, mem-

bers of the committee, I’ve given you a Staff Measure

Summary of House Bill 2205, and that’s a prelimi-

nary, and then a brief Revenue Impact Statement.

What this bill is doing—House Bill 2205—is creating

new exceptions when property tax accounts which

are adjudicated, when they have an adjudicated real

market value, when they can be increased. You have

to have two particular events, one of two events that

may occur on the property during that five-year adju-

dication period. There would have to be a rezoning

and a change of use that is consistent with the zoning

change, or a subdivision or a partitioning of the prop-

erty. And it is applying to a change in the real market

value made on or after the effective date of the bill.

(5) “So just so you’re aware of, since the changes with

Measure 50 we’ve seen that the total number of

property tax appeals with the board of property tax

appeals decline significantly in this state to on an

average about 7,135 accounts that are actually adju-

dicated each year. So, Measure 50 has really stabi-

lized the assessed values and the taxes, in addition

appeals of real market value do not oftentimes have

an impact on the property and their taxes. So, this

really does discourage appeals. * * * What we’re also

seeing with appeals now—which hasn’t really been so

Cite as 23 OTR 300 (2019) 335

much a change, but it’s one of the reasons why there’s

not much of a revenue impact from this bill—is that

you have about 63 percent of the property owners who

are appealing their value are residential home own-

ers, and they’re not typically ones who will then be

rezoning or subdividing their land once it has been

adjudicated. So, * * * House Bill 2205, it really only is

[going to] pertain to a really small number of proper-

ties each year, so the revenue impact is minimal.”

(6) Chair Shetterly: “Mr. Phillips.”

(7) John Phillips: “Thank you, Chair Shetterly, mem-

bers of the committee. My name is John Phillips,

Department of Revenue’s property tax division. House

Bill 2205 is fundamentally, in our opinion, an equity

in taxation bill. We have an old law that’s been around

quite a while, the adjudication statute. And we have

Measure 50, which is relatively new. And each of them

have to do with establishing a base for taxable value

on property. But they handle them in two fundamen-

tally different ways. I’d like to first talk about what

the change is proposed, and then talk about the adju-

dication statute, and then go on to Measure 50’s appli-

cation to that.

(8) “The bill essentially adds two conditions under which

adjustments to adjudicated value can be made. One,

for subdivisions and partitions, and two, as Lizbeth

mentioned, for rezoning of property where that prop-

erty is then used consistent with that zoning.

(9) “Long, long ago and far, far away in a faraway county,

there was a taxpayer—now I’m talking about the

adjudication statute. And the taxpayer’s value on their

property was set at a certain amount, we’ll just say at

$130,000. And they looked at their tax statement and

they said, ‘That’s pretty high. I don’t think it’s that,

so I think I’m going to appeal.’ So they appealed their

property tax value, and they asked the court to reduce

it to $100,000, and the court said, ‘Well, I think it’s

worth $110,000.’ So they received $20,000 of relief; the

property value was lowered.

336 AKS LLC v. Dept. of Rev.

(10) “The following year, the assessor looks at that property

and says, ‘I think my original opinion was correct. I

think I’m gonna value it this year at $130,000 again.’

And so the assessor increases the value on that prop-

erty to $130,000. The taxpayer then says, ‘Well, I’m

having to go back and appeal this again. I may incur

some costs. I may have to hire an attorney and get an

additional appraisal.’ And so what happened was that

this was very burdensome on taxpayers, particularly

residential taxpayers, who had to go every year and

appeal their values. A very unfortunate situation.

(11) “Then comes the adjudication statute, which says,

‘We’d like to provide some protection for taxpayers.

We’ll allow that taxpayer five years in which they can

count on the value that’s adjudicated as determined

by the court.’ And so for five years the real mar-

ket value is stabilized. After that, the assessor can

make another determination, and we’ll start all over

again. But during that five-year period, there is that

protection.

(12) “The legislature, this committee, decided that there

were conditions under which there should be adjust-

ments to that adjudicated value, and those are spelled

out in the statute. Let’s say the property was bare

land, and during the five years the taxpayer builds a

home. It seemed reasonable, it is reasonable to expect

that the value of their property would increase during

that five-year adjudication; the property has changed.

(13) “That’s essentially the adjudicated value statute—it’s

a protection.

(14) “Then comes Measure 50, and it also establishes a

base of taxable value. And in your orientation you were

told that’s called maximum assessed value. That’s the

value on which the property is taxed. That value is

allowed to grow at, as you were told, three percent,

and then there are certain conditions under which

that three percent can be exceeded. One of those con-

ditions is if you have bare land and you build a home

on it; the three percent can be exceeded for the new

Cite as 23 OTR 300 (2019) 337

construction. So in the adjudicated value statute, and

in Measure 50, anytime there’s new construction that

reaches a certain threshold, then the taxable value

can be increased.

(15) “What we’re trying to do is to add two situations to

adjust adjudicated value. They’re allowed under

Measure 50, but they’re not allowed under the adju-

dication statute. And those two situations, like I said

are subdivisions/partitions and rezoning of property.

(16) “So for example, we use the new construction exam-

ple. Let’s say you have a ten-acre parcel and you didn’t

appeal your value and you divide it into five two-acre

parcels. Under Measure 50, the taxable value for that

change is allowed to grow because now you have,

maybe, five properties that are maybe buildable now

and the value of those individual properties exceeds

the total value of the ten-acre parcel. So, under

Measure 50, the assessor is allowed to calculate the

change in real market value and the corresponding

change in taxable value.

(17) “If you take the same property under an adjudicated

situation, you would have the ten-acre parcel, they

would subdivide it into five two-acre parcels, and the

assessor would not be able to make a change in the

real market value of that property. Therefore, there

would be no change in the taxable value of that prop-

erty. After the five years that property would then

come out of adjudication and the assessor would still

not be able to make a change in the taxable value and

would never be able to make a change. So, two ten-

acre parcels side by side and one was adjudicated and

one was not, the taxable value of those two properties

would be, indefinitely into the future, different. And

so, that’s why I am characterizing this as an equity in

taxation issue.

(18) “Lizbeth is correct, there’s a lot of properties appealed

and a there’s a lot of properties that subdivide, but the

number that are appealed and subdivide during that

five-year period are relatively small.

338 AKS LLC v. Dept. of Rev.

(19) “And without getting deeper into it, which I could, are

there any questions?”

(20) Rep. Beck: “Mr. Chair?”

(21) Chair Shetterly: “Representative Beck.”

(22) Rep. Beck: “I want to get into our Tax 101 from ear-

lier in the week—whenever that was—on real mar-

ket versus assessed market value. This just applies to

the real market value, or does it apply to the assessed

market value under Measure 50?”

(23) Phillips: “This bill proposes a change to the adjudi-

cation statute, which sets and freezes, if you will, real

market value.”

(24) Rep. Beck: “Okay, but to keep following up here, the

tax that someone pays is based on the assessed value

that grows at three percent per year under Measure

50, so it won’t affect the taxes. And real market value

is the Measure 5—I’m repeating this to make sure I

understand it.”

(25) Phillips: “Right, and there’s an odd link here. The

adjudication statute won’t allow the increase in real

market value, and it doesn’t talk about maximum

assessed value, the taxable value part, you’re abso-

lutely correct. But when the assessor under Measure

50 goes to calculate that taxable value, the calculation

is the real market value increase times—multiplied

by—the changed property ratio, and I can go into that

in detail, but if there’s no change in real market value,

then the answer is zero on the increase on the taxable

value side. So, it isn’t a restriction of growing the max-

imum assessed value, but the formula works out that

it’s a no-net increase.”

(26) Chair Shetterly: “So is it similar to the situation

where you have the comparable value of proper-

ties that the assessor uses to average the maximum

assessed value?”

(27) Phillips: “Exactly.”

(28) Rep. Beck: “So the real market value in the situa-

tions under this bill, for adjudicated cases, would be

Cite as 23 OTR 300 (2019) 339

allowed to increase, theoretically, and their taxable

value would increase—”

(29) Chair Shetterly: “According to the formula—”

(30) Rep. Beck: “Because of the formula I’d forgotten

about, right?”

(31) Phillips: “Yes.”

(32) Rep. Beck: “The tax is not just based on the assessed

value, it’s based on the formula that involves the real

market—okay. I’m thinking of all these graphs—”

(33) Chair Shetterly: “That formula establishes the max-

imum assessed value for the property.”

(34) Phillips: “That’s correct. And if I might follow up, cer-

tain words were chosen for very particular reasons. In

the bill itself, it uses the word ‘adjustment,’ so it pre-

sumes that the part of the property that’s not affected

should not lose its protection for the adjudicated value.

So if only a portion of the property is adjusted due to

subdivision, partition or rezoning with consistent use,

then that doesn’t mean there’s a wholesale revalua-

tion of the property—that was our intent, not to do

that. And the other words were ‘directly affected,’ and

I think that’s on line 19 of the bill, section 1: ‘Changes

directly related to the subdivision and partition,’ so

that other changes, not directly related to that, would

not change the taxable value for that property.”

(35) Chair Shetterly: “Any further questions?”

(36) Rep. Witt: “Mr. Chair?”

(37) Chair Shetterly: “Representative Witt.”

(38) Rep. Witt: “I guess the question I have is if Measure

50 hadn’t addressed these two specific circumstances,

in which the value can be readjusted over and beyond

what Measure 50 allows, would the Department have

brought this bill?”

(39) Phillips: “Chair Shetterly, Representative Witt,

it’s hard to speculate what the Department would

have done if Measure 50 would have been written

340 AKS LLC v. Dept. of Rev.

differently, but I think—in my mind the change in

the value was sufficient enough in the minds of those

that crafted Measure 50, your committee, to feel that

that was a reasonable condition under which taxable

value should be increased. So it’s persuasive to us

that, if someone who hasn’t appealed has their taxes

increased, that someone who has appealed for the

same conditions and with no difference, it seems like

a fair solution to parallel those two provisions. So my

answer to your question: probably not.”

(40) Rep. Witt: “Follow-up: so the statute as it currently

is written relative to adjudicated property apparently

has a loophole if you compare it to the Measure 50

standard. Correct?”

(41) Phillips: “Chair Shetterly, Representative Witt, loop-

hole, yes.”

(42) Rep. Witt: “Yeah, certainly it is inconsistent when

you compare it to the Measure 50 standard.”

(43) Phillips: “That’s correct.”

(44) Rep. Witt: “And maybe you aren’t able to answer this

question, but if you put Measure 50 aside, I mean, is

it the Department’s opinion that this is appropriate

and good tax policy relative to valuing property for

property tax purposes?”

(45) Phillips: “Chair Shetterly, Representative Witt, the

situation, if you set Measure 50 aside, well, prior to

Measure 50 the taxable value was the real market

value, so the protection for those properties that were

subdivided, let’s say, existed for the full five years,

but after the fifth year, then the assessor would say,

‘What is the real market value of this property,’ and

take into consideration the subdivision and raise that

value up. If the taxpayer had a problem with that,

they then appealed and the court would then look at

that property and would say, ‘What would, on the open

market, a reasonable buyer and seller exchange this

property for?’ And there wasn’t really an issue, but for

those five years, under the old law.”

Cite as 23 OTR 300 (2019) 341

(46) Chair Shetterly: “And we’re saying under the cur-

rent law now once that adjudicated property value is

established, you don’t have that catch-up then at the

end of the five years—is that it? Under Measure 50?”

(47) Phillips: “Chair Shetterly, that’s exactly right.

There’s never a recoup.”

(48) Chair Shetterly: “So two properties are identical * * *

they’re taxed at different values.”

(49) Phillips: “Mm-hmm.”

(50) Chair Shetterly: “I guess this is a Measure 50-driven

problem.”

(51) Rep. Witt: “Mr. Chair, I’m a little confused by that,

because it seems to me the adjudication provision with

the five-year protection specifically related to the fact

that it was an adjudicated property. I mean, after that

five years the Department could still come back in and

revalue the property even with Measure 50 on the

books—isn’t that correct—to recognize these changes,

subdividing and partitioning and zoning issues—to

recognize those changes, to get a significant increase

in the value of the property? So you would catch up

after five years.”

(52) Phillips: “Chair Shetterly, Representative Witt,

that’s absolutely correct—the first part. And the sec-

ond part I would comment on: After the five-year adju-

dication, under Measure 50 the assessor can go back

in and revalue that property and set the real mar-

ket value at what they feel is an appropriate amount,

including the subdivision. But there’s no trigger there

than with the taxable value to track with that change.

The maximum assessed value—the Measure 50 tax-

able value—has to be adjusted in the year subsequent

to the change, whether the change is building a new

home, subdivision or partition, or rezoning. So once

that link is broken, then yes, the real market value is

high, and the taxable assessed value is low, and it will

always track then three percent only.”

342 AKS LLC v. Dept. of Rev.

(53) Rep. Witt: “Even five years down the road, after the

adjudication period has run out?”

(54) Phillips: “Correct.”

(55) Chair Shetterly: “Representative Bates.”

(56) Rep. Bates: “Yeah, I thought that was the case

because you said those properties never catch up to

each other. And I understand you’re saying once that

one-year link is broken, it’s set.

(57) “Let me ask you a question of potentially of something

that could happen or maybe has happened. If I have a

100-acre tract and know that I am going to subdivide

it in the next year or two, would it be worthwhile for

me to ask for—go to court on it, get it adjudicated,

then subdivide it, and permanently lower the tax on

that?”

(58) Phillips: “Chair Shetterly, Representative Bates,

that would be a strategy that might save you some tax

money [laughter], but [I] don’t want to get that on the

record [laughter].”

(59) Rep. Bates: “And that’s, and what I’m saying is that

I’m afraid that could have happened and may be

happening and this change would prevent that from

happening.”

(60) Phillips: “That’s correct.”

(61) Rep. [_____]: “* * * same thing, particularly from

our area, Representative Witt’s area and mine, if you

froze in a value in 1992, to 1999, I think it would be a

huge savings. Given what property values have done.”

(62) Chair Shetterly: “Representative Bates, I was just

looking at the effective date, January 1 of next year—

it looks like you’ve got time [laughter].”

(63) *****

(64) Rep. Bates: “Mr. Chairman? Is this going to have a

financial impact, I mean is this going to be a situa-

tion where people who have already broken that one-

year time limit can go back and try to recapture that

Cite as 23 OTR 300 (2019) 343

and adjust those property values? Or is this going to

affect things in the future, I mean is there a financial

impact to individuals and to the state in general?”

(65) Phillips: “Chair Shetterly, Representative Bates,

this is a strictly prospective change, so any condi-

tions under which property was subdivided and the

assessed value didn’t track than with a similar prop-

erty that was non-adjudicated, those properties will

continue on at the assessed value that they’re set at,

and not ever experience an increase in that value, so

this would have only a prospective effect.”

(66) Rep. Bates: “Follow-up question. If those properties

are sold, do we then pick them up on the assessed

value change then?”

(67) Phillips: “Chair Shetterly, Representative Bates, no,

the selling of property has absolutely no impact on

that whatsoever. The conditions are strictly limited

to three-percent growth in maximum assessed value,

but for the exceptions of Measure 50, which include

new construction.”

(68) Rep. Bates: “I understand, I just wanted to be sure.

Thank you.”

(69) Chair Shetterly: “I can’t believe we overlooked this.

[Laughter] * * * I tell you, I’m only too glad that this

doesn’t require a constitutional amendment. * * *

Is there any further testimony on House Bill 2205?

Okay, thank you very much.”

(70) [Close of the public hearing and opening of a work ses-

sion on House Bill 2205.]

(71) Rep. Beck: “Chair?”

(72) Chair Shetterly: “Representative Beck.”

(73) Rep. Beck: “I move House Bill 2205 to the floor with

a do-pass recommendation.”

(74) [Voting]

(75) Chair Shetterly: “I’ll take this one; I’m the survivor

of Measure 50.”

344 AKS LLC v. Dept. of Rev.

APPENDIX 2

Tape Recording, Senate Committee on Revenue, HB 2205, Feb 7,

2001, Tape 34, Side B, Minutes 0 to 24.

*****

(1) John Phillips: “The adjudication statute, I’d like to

describe that first. And what happened, a long time

ago, in a county that will remain unnamed, a tax-

payer got a tax bill, let’s say on their residential prop-

erty, for $150,000, and they felt that that value was

too high, so they appealed their value and the court

agreed with them and it was reduced to $100,000. Now

the assessor in the following year felt that their value

was correct in the very first place, so in the follow-

ing year the assessor year raised the value back up to

$150,000. And the taxpayer felt that the value should

still be lower and then was forced to appeal again.

And this went on and on and on, incurring costs,

and possible attorney and possible appraisal issues.

And so this law came about, known as the adjudica-

tion statute, which protected a taxpayer’s value for

five years, thus guaranteeing some sort of protection

against increases in real market value, which at that

time—this is pre Measure 50—increases in real mar-

ket value was directly correlated to the taxable value:

real market and taxable was the same thing at that

time.

(2) “There are certain exceptions in the adjudication

statute. Let’s say it was a bare land appeal. The tax-

payer had bare land, they appealed it, the following

year they build a new home. Then that would be con-

sidered an exception, and the protection doesn’t last

for five years for that situation. And there are other

exceptions.

(3) “But then Measure 50 came along. And what Measure

50 did was it set a base value also. In Measure 50, in

your determination, was built in certain exceptions to

the base value, such as new construction. A very sim-

ilar and parallel-type exception to the adjudication

statute. And so what we have is the situation where a

Cite as 23 OTR 300 (2019) 345

property is adjudicated and there’s a new home built

and the value is allowed to change due to that new

home—the taxable value. And under Measure 50

we’ve got the same circumstance.

(4) “But Measure 50 allows additional exceptions than

are allowed under the adjudication statute. What this

bill is trying to do is to add exceptions to the adjudi-

cation statute to make them in sync, so that if you

can increase taxable value for Measure 50, constitu-

tionally, you should be able to increase taxable value

under the adjudication statute.”

(5) *****

(6) Chair Ferrioli: “Colleagues, this bill seems to be rel-

atively straightforward, allowing some flexibility, but

we do have some questions. Senator Beyer?”

(7) Sen. Beyer: “Yeah. John, why not just repeal this

thing[, i.e., the adjudicated value statute]? Doesn’t

Measure 50 take care of it? If this wasn’t on the

books—and I realize this has been there a long time—

but if you didn’t have this on the books, wouldn’t the

adjustment standards that were in Measure 50 just

naturally take care of the problem?”

(8) Phillips: “Chair Ferrioli, Senator Beyer, I think

there are some other issues, primarily—and they’re

not all coming to mind right now, but the first one I

think of is—the importance of real market value. The

adjudication statute protects the real market value

for those five years. And even though properties aren’t

generally, normally, taxed on the real market value,

it does come into play in certain situations, specifi-

cally, the test for Measure 5. So if you have increases

or decreases in the real market value, it could affect

what we refer to as the ‘compression.’ ”

(9) Sen. Beyer: [Unintelligible] “It’s hard to think that

one through, Mr. Chair, sorry.”

(10) Phillips: “For me, I visualize a tax statement, and

the real market value and assessed value being sig-

nificantly different—”

346 AKS LLC v. Dept. of Rev.

(11) Sen. Beyer: “Give me an example of where this might

occur. I suspect it’s more in the commercial and indus-

trial area rather than in residential.”

(12) Phillips: “This type of situation would primar-

ily occur on residential because the subdivisions, as

Lizbeth was mentioning in the orientation, is primar-

ily on land that’s going to be subdivided and it may or

may not be commercial, but * * * let’s say you have a

ten-acre parcel and you want to divide that parcel into

five two-acre lots, the market views the value of those

subdivided lots as greater than the whole, and so if

a property is subdivided such as that, then if there

were no appeal, the assessor would reappraise those

properties in the following year, the real market value

would be increased, and instead of $10,000 for the ten-

acre tract it might be $20,000 distributed among the

five parcels.”

(13) Sen. Beyer: “So how would Measure 50—you know,

this law standing aside—how would Measure 50 treat

that?”

(14) Phillips: “Measure 50 would treat that as an excep-

tion to the limit of maximum assessed value. Maximum

assessed value is that rollback of value to ‘95 minus

10 percent, and it’s allowed under statute and consti-

tution to grow at three percent per year unless certain

situations occur. One of those being new construction,

another one [being] subdivisions or partitions. So, the

assessor then would say what’s the difference in real

market value between the property prior to subdivi-

sion, after subdivision, and you would take the differ-

ence in real market value on each property, multiply

it by what we call the changed property ratio, * * * it

simulates the rollback, and so real market value is

increased but the taxable obligation of that property

or that property owner is not increased proportionally,

but it does track.”

(15) Sen. Beyer: “So what this does is * * * a voluntary

action by the property owner, which increased the

value of their asset, and it then says, equal system,

Cite as 23 OTR 300 (2019) 347

you are taxed on that new value consistent with all

other taxpayers. What this does is allows the taxpayer

to adjudicate that and get it set at, frozen at, the prior

level, as if it were not subdivided?”

(16) Phillips: “Chair Ferrioli, Senator Beyer, what the

real crux of the problem is, is that the property that

I described, the 10-acre parcel that’s then the value

is increased because of the subdivision, the formula

for increasing the taxable value is the increase in

real market value multiplied by the changed prop-

erty ratio, increases the taxable value by that much.

On the same property under adjudication, you take

the change in real market value due to the subdivi-

sion, multiplied by the changed property ratio, but the

adjudication statute does not allow the real market

value to increase, so it’s essentially, the formula is

zero multiplied by the changed property ratio equals

no increase in taxable value. So you’ve got the two

ten-acre parcels, both subdivided, one’s adjudicated,

one’s not. And one has an increase in taxable value,

the other doesn’t, and then when the five years lapse,

they go on, perpetually, at different taxable values.”

(17) Sen. Beyer: “This law, what we’re doing here, the old

law preserves the right of that tax advantage to the

property owner who subdivided their land?”

(18) *****

(19) Sen. Witt: “Obviously, if you’re in a position where

you’re situated and you have this occurrence where

you’ve subdivided your property, current statute pre-

vents that increase in real market value, which keeps

your taxes lower.”

(20) Sen. [_____]: “Forever.”

(21) Sen. Witt: “Well, yeah, in perpetuity. So that’s an

advantage to people who subdivide and build low-

income housing and other kinds of things * * *. But so

I guess if the committee chooses to pass the bill, even

though we’re making it consistent with Measure 50

in the Constitution, we are perhaps causing certain

348 AKS LLC v. Dept. of Rev.

individuals who might subdivide their properties and

invest resources, who take advantage of this ‘loophole,’

so to speak, causing them to have to pay higher taxes,

so—”

(22) Sen. [_____]: “I thought it was the other way around.”

(23) Sen. [_____]: “Yeah, except as I understand it the

Measure 50 exception would be: if you decide to take

some action that increases your value, you fall under

the exceptions. The fact is that Measure 50 and * * *

existing statute—maybe they’re not in direct conflict,

but they’re certainly not synchronous.”

(24) Sen. Beyer: “Mr. Chair, that’s at the heart of the

issue. I’m not clear whether this—the change being

proposed here—preserves that tax advantage, or

takes it away.”

(25) Phillips: “Chair, Senator Beyer, what this does is, it

allows— What the protection of the adjudicated stat-

ute does is, it actually does more than it did prior to

Measure 50. It protects not only that real market value

for five years, but it can, under the changes mentioned

in the bill, allow that property’s taxable value not to

increase. So under the current law, those properties,

albeit very few, get an advantage in perpetuity.”

(26) Sen. Beyer: “That’s what I thought. It sets that lower

value in place in perpetuity—”

(27) Phillips: “It would never be increased.”

(28) Sen. Witt: “And isn’t that a tax advantage * * *?”

(29) Sen. [_____]: “Oh, yeah, I think your characteriza-

tion is accurate on that.”

(30) Sen. Witt: “So this could be viewed as a tax increase

bill.”

(31) *****

(32) Sen. George: “Mr. Chairman, at the bottom of one of

our reports, it says: ‘This measure will add a minimal

amount of additional taxes to the counties’ tax rolls

Cite as 23 OTR 300 (2019) 349

annually.’ But up above—I’m trying to get a balance

on this—it also says the advantage to that taxpayer

would be that, if in fact they have an adjudicated

value established, that’s what it’s gonna be. They’re

protected—well, I’ll just read it. It says, ‘This protects

the taxpayer from unwarranted value increases that

must be appealed again, following—.’ Apparently,

somebody ignored adjudication. So it looks like there’s

kind of a plus and a minus to taxpayers. It does make

it worse, it looks like.”

(33) Phillips: “Chair Ferrioli, Senator George, it does—we

tried to draft it so it does retain the protections of the

adjudicated value for the property that’s unchanged.

The issue would be is that if you just changed a small

portion of your property then all of the property

shouldn’t necessarily be changed. You should retain

your protection under the adjudication statute. And

in the bill, actually, if I might point out on line 10, the

word toward the end of line 10 on page 1 says ‘adjust-

ments,’ and so ‘adjustments’ are allowed under this

bill, not a wholesale revaluation of the property, but

just adjustments. And then down below on lines 19

and 20, the sections we’re adding, the words we’re

adding use the words ‘changes directly related.’ So

that if you have a large property and you subdivide—

or partition I should say—one acre off of it, that all of

the buildings don’t necessary get revalued. This is just

relating to the property that’s changed. So, to answer

your question, I think it does retain the protections

of adjudicated value but it does remove two to make

them consistent with Measure 50.”

(34) Sen. Beyer: “Does this make the Department’s life

easier?”

(35) Phillips: “Chair Ferrioli, Senator Beyer, it doesn’t

really affect our administration of the property tax

system. It’s just an equity in taxation issue that we

see similar properties being treated differently.”

(36) Sen. Beyer: “And that would be inequitable, and

therefore [inaudible] unconstitutional.”

350 AKS LLC v. Dept. of Rev.

(37) Sen. [_____]: “They’d be treated unequally in the

future, too, under this, but it’s probably so minor

that—”

(38) *****

(39) Chair Ferrioli: “Well, it appears to be just a process

of conciliation between Measure 50 and existing por-

tions of the old law. And what occurred to me is, will

this have any connection, because it’s rezoning and

valuation changes, will there be any implications,

for instance, when Measure 7’s full implications are

known [under] the Attorney General’s interpretation?

In other words, we act on this today, is there likely to

be any implications that you can foresee coming out of

Measure 7?”

(40) *****

(41) Phillips: “Chair Ferrioli, we’ve looked at it, we hav-

en’t gotten an Attorney General opinion on that issue,

but we can see that, depending on what a person does

with their property, their value will be appraised

by the assessor and it should—I’m not aware of any

effect.”

(42) *****

(43) Chair Ferrioli: “Any questions—further questions?

Any other person here present wishing to testify on

House Bill 2205? * * * Colleagues, let’s have some

discussion on this bill. It seems to me to simply be a

housekeeping amendment to coincide the old statute

with the actions of Measure 50. In response to a rea-

sonable question from Senator Beyer, is there any rea-

son to have this statute remain on the books, and the

answer is yes, there are certain valuation situations

that do come into play, so a simple repeal of the adju-

dication process in favor of Measure 50’s adjudication

process is not warranted—good question, Senator. I

see no reason, if the agency feels that this concilia-

tion is necessary, not to move the bill forward. I am

vaguely disquieted by the idea that anything having

to do with valuation and rezoning may be implicated,

Cite as 23 OTR 300 (2019) 351

or that there may be implications for Measure 7, I

don’t know what they’d be.”

(44) Sen. [_____]: “Actually, Mr. Chair, there shouldn’t be

any negative side, because actually, it’s not a big deal,

I guess I don’t have a lot of concern about it. But it’s

an advantage, not a disadvantage, to somebody going

through this process because it preserves a lower tax

value in perpetuity, which should add to their proper-

ty’s value, not take it away.”

(45) Chair Ferrioli: “And certainly rezoning, and use

consistent with that rezoning, your subdivision added

value, or value added, actions in some cases and rea-

sonably that ought to be a basis for an adjustment in

value notwithstanding the adjudication or the pro-

tection under Measure 50. It just makes sense, as

something that increases the value, but it’s an action

already taken on the property. But the protection that

artificially holds the value down is at least arguably

unreasonable. Questions?”

(46) Sen. [_____]: “Mr. Chair, you make a good argument.

I’m not exactly sure why you brought up Measure 7,

but it seems to me that Senator Beyer is right, that to

the extent you increase the value of the property, and

the government somehow comes along and changes

the value or devaluates it, you increase the potential

obligation of the municipality in that devaluation or

taking, so—”

(47) *****

(48) Chair Ferrioli: “Colleagues, if we could go into work

session on this thing, my inclination is to do that,

because I think the agency has brought the issue, it

coincides Measure 50 with the older law by changing

the older law, it adds rezoning and subdivision as a

basis for adjudication and adjustments. That seems

reasonable to the chairman. Any other questions?”

(49) *****

(50) Chair Ferrioli: “We’re in a work session on House

Bill 2205.”

352 AKS LLC v. Dept. of Rev.

(51) Sen. Beyer: “Mr. Chair?”

(52) Chair Ferrioli: “Senator Beyer.”

(53) Sen. Beyer: “Move House Bill 2205 to the floor with

a do-pass.”

(54) Chair Ferrioli: “The Vice-Chair moves House Bill

2205 to the floor with a do-pass. Any questions? Any

objections to the motion? Seeing none, so ordered.”