# Level 3 Communications LLC III v. Dept. of Rev. > Oregon Tax Court · October 25, 2019 · 23 Or. Tax 440 URL: https://www.frixlaw.com/law-library/cases/10607226 ## Case - **Court:** Oregon Tax Court - **Decided:** October 25, 2019 - **Citations:** 23 Or. Tax 440 - **Precedential status:** Published - **Opinion:** Opinion - **Judges:** Manicke - **Cited by:** 5 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10607226 ## How later opinions describe it (automated extraction) - describing parties’ positions relative to roll values ## Opinion text 440 October 25, 2019 No. 21 IN THE OREGON TAX COURT REGULAR DIVISION LEVEL 3 COMMUNICATIONS, LLC, Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant. (TC 5236) Plaintiff (taxpayer) sought a reduction in the real market value of its cen- trally assessed property. In its analysis under the income approach, taxpayer asserted that Defendant Department of Revenue (the department) overestimated future cash flows by including expected income from equipment that had not been acquired as of the assessment date. Taxpayer argued that the potential to acquire additional income-generating property was not “property” belonging to the company, but rather one of a dozen “investment attributes” inseparable from the company’s stock and thus belonging to the company’s shareholders. The court examined the text, context, and legislative history of the relevant statutes, which date in large part to 1909, and concluded that the legislature intended its defini- tion of “property” to include even intangibles that could not be separated from the stock, such as a corporation’s right to exist or a nontransferable franchise. After reviewing relevant cases, the court concluded that the legislature intended the potential for future revenue growth to be considered under the income approach, whether that potential derives from an assemblage of equipment, real property, customer relationships, and workforce in place; or from the ability of the com- pany to attract merger partners and additional capital investment; or from a combination of those factors. Each party performed an analysis of value using the cost approach. The court rejected as unreliable the department’s inclusion of amounts shown as “accounting goodwill” on taxpayer’s financial statements, as those amounts reflect only residual values recorded upon acquisition of other entities and bear no necessary relation to the current value of any intangible property. The court assigned no weight to any cost approach. Only the depart- ment used the market approach, applying the stock and debt method as a proxy. Taxpayer rejected the stock and debt method based on its view that that method counts the value of stock attributes that are not “property”; taxpayer did not offer alternative computations. The court concluded that the values provided by the department’s expert were valid. Taxpayer also challenged the department’s change in the geographic scope of the “unit” of property—from taxpayer’s prop- erty in North America to taxpayer’s property worldwide. The court concluded that taxpayer did not show any abuse of the department’s statutory discretion to choose the geographic area of the unit, and the court rejected taxpayer’s other arguments against the change in unit based on statutory interpretation. Trial was held April 4, 5, and 9 through 13, 2018. Cynthia M. Fraser, Garvey Schubert Barer, PC, Portland, argued the cause for Plaintiff. Cite as 23 OTR 440 (2019) 441 Marilyn J. Harbur, Senior Assistant Attorney General, Department of Justice, Salem, argued the cause for Defendant Department of Revenue. Decision rendered October 25, 2019. ROBERT T. MANICKE, Judge. I. INTRODUCTION These consolidated property tax cases require the court to determine the real market value of centrally assessed property1 for tax years 2014-15, 2015-16, and 2016-17. There are substantial legal issues of general application involving the definition of “property” subject to valuation and assessment, as well as complex factual issues partic- ular to Plaintiff’s business. The court held an eight-day trial that included fact and expert testimony, followed by extensive post-trial briefing. This opinion first states nec- essary background, then organizes its main legal and fac- tual analysis around the three approaches to value on which the parties based their valuation materials. The court con- cludes with analysis of a related issue specific to tax year 2014-15 involving the scope of the unit of property subject to valuation. II. BACKGROUND During all of the tax years at issue, Plaintiff Level 3 Communications, LLC was a telecommunications company and internet service provider headquartered in Broomfield, Colorado, with property throughout North America, includ- ing Oregon. Plaintiff was a wholly owned subsidiary of Level 3 Communications, Inc., a publicly traded company with property in multiple countries.2 Plaintiff and its cor- 1 For general background on Oregon’s central assessment of communication companies and other businesses, see Comcast Corp. v. Dept. of Rev., 356 Or 282, 289-93, 337 P3d 768 (2014). 2 The court notes two points for ease of reference. First, although the opinion describes Plaintiff’s ownership structure as background, the structure raises no significant issues for purposes of this case. Accordingly, this opinion at times uses the terms “corporation” and “company” interchangeably, consistent with the broad definition in ORS 308.505(8) of a person maintaining a centrally assessed business. Second, unless otherwise indicated, references to the Oregon Revised Statutes (ORS) are to the 2013 edition. 442 Level 3 Communications LLC III v. Dept. of Rev. porate parent are hereafter referred to collectively as “tax- payer.” Taxpayer does not contest that it was subject to central assessment as a company engaged in the “communi- cation” business for purposes of ORS 308.515(1)(h) and ORS 308.505(3). Taxpayer was a “facilities-based provider,” which is a provider that generally owns or leases a substantial por- tion of the plant, property, and equipment necessary to pro- vide its services. Taxpayer operated an optical fiber network and provided services such as local switching, local data transport, and carrier common line services for medium to large internet carriers in North America, Latin America, Europe, the Middle East, and Africa. Taxpayer also provided private line, transoceanic, and dark fiber services, as well as related professional services. These services included data transport through taxpayer’s transatlantic cable system, that connects North America, Europe, and Latin America, as well as leased “bulk” capacity on other transoceanic cable systems. In addition, taxpayer offered local and enterprise voice services using Voice over Internet Protocol and tradi- tional circuit switch-based technologies. Taxpayer’s custom- ers were primarily large businesses listed as Fortune 100 or Fortune 500 companies, government entities, and other telecommunication carriers. “Enterprise” customers used taxpayer’s services for specific data transmission needs, while “wholesale” customers used taxpayer’s services to sup- port the telecommunications services they offered to their own customers. The court will cite additional facts below as needed. Taxpayer argues for a reduction in the real market value (RMV) for each tax year at issue. In this court, a party bears the burden of proof to the extent that the party seeks “affirmative relief.” See ORS 305.427. For both parties in this case, the benchmark to determine the extent of affirmative relief each party seeks is the RMV shown on the property tax roll. As the table below shows, not only does taxpayer seek a reduction compared to the roll RMVs, Defendant Department of Revenue (the department) seeks an increase compared to the roll RMVs, whether measured by the rela- tively modest increases derived by the department’s expert Cite as 23 OTR 440 (2019) 443 witness or by the very substantial increases alleged in the department’s amended answers. Each party thus bears some burden of proof in comparison to the roll values. See, e.g., Ellison v. Clackamas County Assessor, 22 OTR 201, 206 (2015) (each party bore burden of proving any favorable devi- ation from value shown on roll—in that case, as amended by order of county board of property tax appeals). See Table 1 on page 444. For all three tax years, taxpayer contends that the department seeks an incorrectly high RMV by attempting to include in the “unit” for valuation purposes certain items that are not “property” within the meaning of the central assessment statutes. In addition, for the 2014-15 tax year only, taxpayer objects to the fact that the department in its original assessment defined the “unit” of property for val- uation purposes as confined to North America, but at trial relied on an appraisal report that defined the unit as tax- payer’s worldwide property. For the 2015-16 and 2016-17 tax years, the department consistently defined the unit as tax- payer’s worldwide property both for purposes of its original assessment and at trial, and taxpayer did not object. III. ISSUES (1) May the department and this court consider the value of taxpayer’s centrally assessed business to be the value of taxpayer’s property, barring a showing of specific fac- tual differences? (2) For tax year 2014-15, may the department at trial rely on an appraisal that values a unit of property different from the unit the department valued when preparing the tax roll? (3) What was the real market value of taxpayer’s property assessable in Oregon for tax years 2014-15, 2015-16, and 2016-17? IV. ANALYSIS Taxpayer summarizes the main issue in this case as follows: “The overriding error in each of the Department’s valuations is that the Department’s expert did not proffer 444 Table 1 ______________ 3 The term “system” value commonly refers to the value of the overall unit of property. The Oregon RMV is derived by multiplying the “system” or unit value by the Oregon allocation factor. See OAR 150-308-0610. The parties do not disagree about the allocation factor. Level 3 Communications LLC III v. Dept. of Rev. Cite as 23 OTR 440 (2019) 445 and present evidence of value of the property of [taxpayer] valuations is that the department’s expert did not proffer and present evidence of value of the property of [taxpayer] but instead performed a business enterprise valuation of the company.” Taxpayer’s arguments are based on the premise that taxpayer as a centrally assessed company is something distinct from the property it owns, holds or uses. Therefore, according to taxpayer, the department may not include in its determination of value any items that are attributes of taxpayer as a company. Because it claims the department has done just that, taxpayer asks the court to reject the department’s valuations and accept taxpayer’s conclusions of value. Except for the issue of the scope of the valuation unit for tax year 2014-15, the parties’ disagree- ment is an all-or-nothing dispute over whether elements of value that taxpayer attributes to itself as a company may be treated as part of the value of the unit of property, an allocable portion of which is assessable and taxable by Oregon. In the abstract, taxpayer’s premise is logical. The ordinary meaning of “property” is “something that is or may be owned or possessed,”4 which implies that the person owning or possessing the property can be identified sepa- rately and may have its own attributes or characteristics that make its value different from that of the property it holds. Taxpayer’s argument, however, requires the court to probe specifically what the Oregon legislature intended in its definition and use of “property” in the central assess- ment statutes. The court organizes its analysis by follow- ing the three customary “approaches” to value: the income approach, the cost approach, and the market approach, as presented by the parties in their experts’ written anal- yses and at trial. Within the discussion of each valuation approach, the court first analyzes whether and to what extent taxpayer’s premise applies as a matter of Oregon law. The court then considers whether, as a fact matter, the department should have excluded the value of those items that taxpayer has identified as attributes of taxpayer as a company. 4 Quoting Webster’s Third New Int’l Dictionary at 1818 (unabridged ed 2002). 446 Level 3 Communications LLC III v. Dept. of Rev. A. Income Approach (Discounted Cash Flow) The court starts with the income approach, on which both parties presented substantial evidence. “Generally speaking, the income approach measures the present value of the anticipated future stream of income attributable to the company’s operating property, by discounting the com- pany’s anticipated cash flows to present value using a cap- italization rate that reflects the company’s costs of invest- ment.” Delta Air Lines, Inc. v. Dept. of Rev., 328 Or 596, 603, 984 P2d 836 (1999). “Income approach theory assumes that an income-producing property is worth the present value of its future income stream. Mathematically under this approach, the value of a company is derived by use of the accounting formula, V = I/R. The ‘I’ in the formula is an estimated future income figure for the company. The ‘R’ is a capitalization rate that is divided into the income figure to obtain the value, ‘V.’ ” PP&L v. Dept. of Rev., 308 Or 49, 58, 775 P2d 303 (1989). Taxpayer relies on its income approach exclusively, except that taxpayer presented a cost approach to determine a “high benchmark” against which to check its income approach. The department relies most heavily on its income approach, places “significant” reliance on its market approach, and places the least reliance on its cost approach. Within the income approach, the parties employ dif- ferent methods. Taxpayer exclusively determines its value based on its computation of the discounted cash flow (DCF) that its property generated. The department uses the DCF method as well, but with assumptions and inputs that dif- fer from those of taxpayer.5 Because the DCF method is the only method that both parties use, the court begins with each party’s analysis based on that method and the dis- agreements between them. The table below shows each par- ty’s asserted “system” value and “Oregon” value under the DCF method (with the overall roll values included for ready comparison). Because the parties do not disagree about the allocation formula, the court focuses on the system value. 5 The department also uses the “constant growth yield capitalization” method and computes a value based on a “direct capitalization” method. The court addresses disputes about these methods below. Cite as 23 OTR 440 (2019) 447 Discounted Cash Flow (DCF) Method (System Value) Taxpayer’s Trial Expert 2014-15 $3,400,000,000 2015-16 $8,000,000,000 2016-17 $8,600,000,000 Department’s Trial Expert 2014-15 $11,187,000,000 2015-16 $14,534,000,000 2016-17 $17,546,000,000 As is apparent, the difference between the parties’ results under the DCF method is nearly 100 percent for tax years 2015-16 and 2016-17. For the 2014-15 tax year, the difference in the unit presumably contributes to the much greater overall value difference. The court addresses that difference at the end of this opinion. The court focuses first on the following differences that are common to each year and do not appear to be tied to selection of the unit. The DCF method starts by estimating future cash flows after all expenses, investment in working capital, and capital expenditures are made. The cash flows are dis- counted at a rate that reflects the return an investor would expect, given the level of risk inherent in the investment. 1. Projected growth in revenues The major differences between the parties’ conclu- sions of value based on the DCF method start with the forecast of cash flows. Taxpayer’s principal expert, Dr. Hal Heaton, generally predicted that gross revenue would decline signifi- cantly each year, while the department’s expert, Brent Eyre, predicted steady revenue growth.6 Taxpayer does not neces- sarily disagree with the department’s projected growth rate for the company as a whole, but taxpayer argues that its forecast is premised on valuing only the property in existence on the assessment date for each tax year, and 6 The court omits here discussion of the experts’ qualifications, which was the subject of the court’s order on evidentiary objections, Level 3 Communications, LLC v. Dept. of Rev., 23 OTR 87 (2018). 448 Level 3 Communications LLC III v. Dept. of Rev. taxpayer claims that the department’s forecast erroneously inflates revenue by including revenue from property that taxpayer would have had to acquire after the assessment date. Underlying taxpayer’s forecast is its factual position that customer demand for increased broadband capacity increased dramatically in each tax year, forcing taxpayer to buy and install large amounts of new, additional equipment each year, or to acquire other telecommunications compa- nies that have additional equipment. Meanwhile, taxpayer asserts that constant technological advancements allowed equipment to furnish ever-greater capacity at an ever-lower cost per unit of capacity, rapidly rendering the equipment in place on any assessment date obsolete. An item installed and operating on January 1, 2014, might have a fraction of the capacity of an item that taxpayer could buy some months later for the same price, and taxpayer would be com- pelled to make that subsequent purchase in order to meet the substantial increase in customer demand that would occur during those same months. Taxpayer’s fact witnesses provided thorough and well-organized testimony supporting all of these contentions; the court finds the testimony and related documentary evidence highly persuasive. Just as taxpayer does not seriously dispute the department’s growth predictions for taxpayer as a com- pany, the department does not refute taxpayer’s factual evidence showing that taxpayer’s equipment declines rap- idly in value. The department nevertheless contends that growth in revenue is properly attributable to the property in place on the assessment date, citing this court’s opinion in United Telephone Co. v. Dept. of Rev., 10 OTR 333, 340-41 (1986), modified, 307 Or 428, 770 P2d 43 (1989). The court regards this disagreement as raising a legal issue, the first in a series that reduce to the question whether Oregon law allows the value of a centrally assessed company’s property to be determined by reference to the value of the company itself. 2. Taxpayer’s contention regarding investment attributes Taxpayer’s expert Heaton testified that the depart- ment overestimated future cash flows by counting reve- nues that the department expects taxpayer will generate Cite as 23 OTR 440 (2019) 449 from property it has not yet acquired as of the assessment date. Taxpayer’s expert witness in rebuttal, Robert Reilly, described the potential to acquire additional income- generating property as one of a dozen “investment attributes,” i.e., attributes inhering in the stock or other ownership inter- ests of taxpayer as a legal entity. Taxpayer contends that these investment attributes are not “property” that a com- pany can use or hold, but instead are inseparable from the company’s stock or other ownership interests. Because they cannot be separately identified apart from the company, valu- ing these attributes, according to taxpayer, would amount to valuing the company itself and not its property. Reilly listed these investment attributes in the following table:7 Relationship of Unit Value and Business Value (from Plaintiff’s Exhibit 48) Unit Value + Investment Attributes = Business Value Working Capital Future Tangible Property Value of Debt Securities Tangible Property Future Intangible Property Value of Equity Securities Intangible Present Value of Growth Property Opportunities Potential Mergers and Acquisitions Stock Liquidity Investor Limited Liability No Reinvestment Requirement No Investor Bankruptcy Risk Expected Appreciation (not Depreciation) Small Dollar Amount Investments Investment Diversification Favorable Income Tax Treatment 7 The table essentially replicates Plaintiff’s Exhibit 48, offered to show the department’s alleged error. 450 Level 3 Communications LLC III v. Dept. of Rev. For purposes of its legal analysis, the court (1) denom- inates taxpayer’s list of twelve “investment attributes” as the “Attributes” and (2) initially assumes that the Attributes are, in fact, attributes of the stock or other ownership inter- ests in the company. Based on that assumption, the court now analyzes whether Oregon law allows the department and this court to determine the RMV of taxpayer’s property by reference to the value of taxpayer as a company, includ- ing the Attributes. 3. Statutory analysis The court looks to the legislature’s statutory instruc- tions to the department regarding how to determine the val- ues to record on the central assessment roll. Key statutes, reprinted below, prescribe the department’s duty to “make an annual assessment of any property that has a situs in this state” (ORS 308.515(1)); the definition of “property” that the department can value and assess (ORS 308.505(9)); data that centrally assessed companies are required to report to the department (ORS 308.520 to 308.525); and the instruc- tions for determining the value of the relevant “unit” of prop- erty (ORS 308.545 to 308.555). Although most of the rele- vant statutory language has been in place since 1909,8 the court has found no Oregon case that has squarely addressed the issue taxpayer raises. The court applies the approach prescribed in State v. Gaines, 346 Or 160, 171-72, 206 P3d 1042 (2009), and considers the text, context, and legislative history of these statutes.9 8 See below; see generally Comcast, 356 Or at 289-94. 9 Only limited “legislative history” of the early central assessment laws exists, at least in the strict sense of the “record of a bill’s progress from intro- duction to enactment,” legislator statements, and materials demonstrably before legislators during the session, presumably due to the capitol building fire of 1935. Jack L. Landau, Oregon Statutory Construction, 97 Or L Rev 583, 697 (2019). The information preserved in the House Journals of 1909 and 1913, consisting mainly of amendments to the bill text and records of referrals to committees and votes, is of little use in this case. The court finds it significant, however, that the 1909 act creating the central assessment system adopted nearly verbatim the relevant text of bill proposals contained in a report that the legislature commissioned in 1905 and that was completed in 1906. See Report of the Board of Commissioners Appointed Under the Provisions of Chapter 90, Laws of 1905, for the Purpose of Examining and Reporting on Matters of Assessment and Taxation, etc. (June 30, 1905), available at https://archive.org/details/reportboardcomm00mulk- goog/page/n5 (accessed Oct 25, 2019) (“1906 Oregon Report”). The 1906 Oregon Report includes extensive analysis of the problems of Oregon’s tax system and a Cite as 23 OTR 440 (2019) 451 a. Text The court begins with an analysis of the relevant text: “308.505 Definitions for ORS 308.505 to 308.665. As used in ORS 308.505 to 308.665: “* * * * * “(8) ‘Person,’ ‘company,’ ‘corporation’ or ‘association’ means any person, group of persons, whether organized or unorganized, firm, joint stock company, association, coop- erative or mutual organization, people’s utility district, joint operating agency as defined in ORS 262.005, syndi- cate, entity formed to partner or combine public and private interests, partnership or corporation engaged in perform- ing or maintaining any business or service or in selling any commodity as set forth in ORS 308.515, whether or not the activity is pursuant to any franchise and whether or not the person or other entity or combination of entities pos- sesses characteristics of limited or unlimited liability. “(9) ‘Property’: “(a) Means all property of any kind, whether real, personal, tangible or intangible, that is used or held by a company as owner, occupant, lessee or otherwise, for the performance or maintenance of a business or service or for the sale of a commodity, as described in ORS 308.515; “(b) Includes, but is not limited to, the lands and build- ings, rights of way, roadbed, water powers, vehicles, cars, rolling stock, tracks, office furniture, telephone and trans- mission lines, poles, wires, conduits, switchboards, machin- ery, appliances, appurtenances, docks, watercraft irrespec- tive of the place of registry or enrollment, merchandise, inventories, tools, equipment, machinery, franchises and special franchises, work in progress and all other goods or chattels; and “(c) Does not include items of intangible property that represent: discussion of how the bill proposals seek to address them. Whether categorized as legislative history or as context, the court views the 1906 Report as a valuable resource to shed light on the 1909 law. The Oregon State Archives houses origi- nal prints of the 1906 Report as part of its “Messages and Documents” compila- tion of materials from the 1909 legislative session, side by side with the chapter laws for that session. 452 Level 3 Communications LLC III v. Dept. of Rev. “(A) Claims on other property, including money at interest, bonds, notes, claims, demands or any other evi- dence of indebtedness, secured or unsecured; or “(B) Any shares of stock in corporations, joint stock companies or associations. “(10) ‘Property having situs in this state’ means all property, real and personal, of a company, owned, leased, used, operated or occupied by it and situated wholly within this state, and, as determined under ORS 308.550 and 308.640, the proportion of the movable, transitory or migratory personal property owned, leased, used, oper- ated or occupied by a company, including but not limited to watercraft, aircraft, rolling stock, vehicles and construc- tion equipment, as is used partly within and partly outside of this state. “* * * * * “308.515 Department to make annual assessment of des- ignated utilities and companies. “(1) The Department of Revenue shall make an annual assessment of any property that has a situs in this state and that, except as provided in subsection (3) of this section, is used or held for future use by any company in performing or maintaining any of the following businesses or services or in selling any of the following commodities, whether in domestic or interstate commerce or in any combination of domestic and interstate commerce, and whether mutually or for hire, sale or consumption by other persons: “(a) Railroad transportation; “(b) Railroad switching and terminal; “(c) Electric rail transportation; “(d) Private railcar transportation; “(e) Air transportation; “(f) Water transportation upon inland water of the State of Oregon; “(g) Air or railway express; “(h) Communication; “(i) Heating; Cite as 23 OTR 440 (2019) 453 “(j) Gas; “(k) Electricity; “(L) Pipeline; “(m) Toll bridge; or “(n) Private railcars of all companies not otherwise listed in this subsection, if the private railcars are rented, leased or used in railroad transportation for hire. “* * * * * “308.520 Companies to file statements. “(1) Each company shall make and file with the Department of Revenue, on or before February 1 of each year, in such form as the department may provide, a state- ment, under oath, made by the president, secretary, trea- surer, superintendent or chief officer of the company, cov- ering a period of at least one year, as may be required by the department; except that Class I railroads, Class A elec- tric companies, communication companies, gas companies, large water transportation companies, pipeline companies, air transportation companies and private railcar compa- nies shall file such statement on or before March 15 of each year. “* * * * * “308.525 Contents of statement. Each statement required by ORS 308.520 shall contain the following facts about the company: “(1) The name of the company, the nature of the busi- ness conducted by the company and the state or country under whose laws the company is organized. “(2) The location of the company’s principal office. “(3) The name and address of the chief officer or man- aging agent or attorney in fact in Oregon. “(4) The number of shares of its capital stock autho- rized and issued. “(5) The par value and market value, or actual value if there is no market value, of each issued share of stock on January 1 at 1:00 a.m. of the year in which the report is made. 454 Level 3 Communications LLC III v. Dept. of Rev. “(6) The bonds and other corporate obligations owing by the company. “(7) The par value and market value, or actual value if there is no market value, of the bonds or other obligations owing by the company on January 1 at 1:00 a.m. of the year in which the report is made. “(8) A detailed statement of the real property owned by the company in Oregon on January 1 at 1:00 a.m. of the year in which the report is made, where situated, and the cost thereof. “(9) A detailed statement of the personal property owned by the company in Oregon on January 1 at 1:00 a.m. of the year in which the report is made, where situated, and the cost thereof. “(10) A statement showing the historical or original cost of all of the real property owned by the company as of January 1 at 1:00 a.m. of the year in which the report is made, whether situated within or without the state. “(11) A statement showing the historical or original cost of all of the personal property of the company as of January 1 at 1:00 a.m. of the year in which the report is made, whether situated within or without the state. “(12) A full and complete statement of the historical or original cost and book value of all buildings of every description owned by the company within the state. “(13) The total length of the company’s lines or oper- ational routes, the length of its lines or operational routes within the State of Oregon, and also the length of its lines or operational routes without the State of Oregon, includ- ing those which the company controls or uses as owner, les- see or otherwise. “(14) A statement of the number of wire, pipe, pole or operational miles, and miles of main and branch rail- road lines, double track, spurs, yard tracks and sidetracks, owned or leased by the company in each county in this state, and each municipal subdivision thereof, stated separately. “(15) A statement in detail of the entire gross receipts and net earnings of the company from all sources, stated separately, for the fiscal year next preceding the date of the report. Cite as 23 OTR 440 (2019) 455 “(16) Any other facts or information the Department of Revenue requires in the form of return prescribed by it. “* * * * * “308.545 Mode of valuing property. For the purpose of arriving at the amount and charac- ter and assessed value of the property belonging to a com- pany, the Department of Revenue personally may inspect the property, and may take into consideration the state- ments filed under ORS 308.505 to 308.665, the reports, statements or returns of the company filed in the office of any board, office or commission of this state, or any county thereof, the earning power of the company, the franchises and special franchises owned or used by the company, and such other evidence of any kind that is obtainable bearing thereon. However, no report, statement or return shall be conclusive upon the department in arriving at the amount and character and assessed value of the property belonging to the company. “308.550 Valuing property of company operating both within and without state. “(1) When a company owns, leases, operates over or uses rail, wire, pipe or pole lines, operational routes or property within and without this state, if the department values the entire property within and without this state as a unit, it may ascertain the property subject to taxation in Oregon by the proportion which the number of miles of rail, wire, pipe or pole lines or operational routes in Oregon, con- trolled or used by the company, as owner, lessee, or other- wise, bears to the entire mileage of rail, wire, pipe or pole lines or operational routes controlled or used by the com- pany, as owner, lessee, or otherwise. “(2) If the value of any property having a situs in this state, of a company operating both within and without the state, cannot fairly be determined in the manner pre- scribed in subsection (1) of this section, the Department of Revenue may use any other reasonable method to deter- mine the proper proportion of the entire property assess- able for taxation in this state. “* * * * * “308.555 Unit valuation of property. “The Department of Revenue, for the purpose of arriv- ing at the assessed value of the property assessable by 456 Level 3 Communications LLC III v. Dept. of Rev. it, may value the entire property, both within and with- out the State of Oregon, as a unit. If it values the entire property as a unit, either within or without the State of Oregon, or both, the department shall make deduc- tions of the property of the company situated outside the state, and not connected directly with the business thereof, as may be just, to the end that the fair propor- tion of the property of the company in this state may be ascertained. If the department values the entire property within the State of Oregon as a unit, it shall make deduc- tions of the property of the company situated in Oregon, and assessed by the county assessors, to an amount that shall be just. For that purpose the county assessors shall, if the department so requests, certify to the department the assessed value of the property of the companies assess- able by them, but such certification of assessed value is intended to be advisory only and is not conclusive upon the department.” The court does not see within the text a clear answer to whether any of the Attributes are part of the “property” that the department is allowed to value as a unit. None of the Attributes is specifically named in the statutory defi- nition of “property,” but neither do the statutes expressly exclude them or prescribe whether the value of the valua- tion unit is equivalent to the value of the legal entity that owns the property. The legislature left undefined the key term “intangible property,” as well as other terms, in partic- ular, “franchise.” See ORS 308.505(9)(c)(A) - (B). The items of intangible property that the statute excludes from the defi- nition of “property” are specific (items representing claims on other property and shares of stock), and taxpayer has not raised any issue regarding the treatment of any such items. See id. The plain meaning of “intangible property” is unen- lightening. Black’s Law Dictionary as published close in time to the 1909 and 1913 acts10 defined the phrase “intangible property” as follows: “Used chiefly in the law of taxation, this term means such property as has no intrinsic and mar- ketable value, but is merely the representative or evidence of value, such as certificates of stock, bonds, promissory notes, 10 See Comcast, 356 Or at 296 n 7 (stressing importance of consulting dictio- nary definitions contemporaneous with enactment of the statute). Cite as 23 OTR 440 (2019) 457 and franchises.” Black’s Law Dictionary 643 (2d ed 1910).11 From the statutory definition of “property,” the court con- cludes that the legislature viewed a “franchise” as one type of intangible property, but the broad definition otherwise does not aid in determining whether the legislature considered any of the Attributes intangible property. A general dictio- nary definition from 1907 defined the word “franchise” as: “A particular privilege conferred by grant from a sovereign or a government, and vested in individuals; an immunity or exemption from ordinary jurisdiction; a constitutional or statutory right or privilege, esp. the right to vote.” Webster’s Int’l Dictionary of the English Language 592 (1907). Black’s, however, distinguished two types of franchise: “The charter of a corporation is its ‘general’ franchise, while a ‘special’ franchise consists in any rights granted by the public to use property for a public use but with private profit.” See Black’s Law Dictionary 532 (2d ed 1910). The United States Supreme Court used the term “franchise to be” to refer to a “general” franchise, and “franchise to do” to refer to a “special” fran- chise. See Adams Exp. Co. v. Ohio State Auditor, 166 US 185, 224-25, 17 S Ct 604, 41 L Ed 965 (1897); see also Portland v. Portland Gas & Coke Co., 80 Or 194, 201, 156 P 1070 (1916). Like the definition of “intangible property,” however, the plain meanings of “franchise” and “special franchise” alone do not help the court determine whether the department can include the intangible attributes of shares of corporate stock when valuing the unit of property of the company. Turning to the specific text of the unit valuation statutes, the court observes that ORS 308.545 expressly allows the department to consider the value of the compa- ny’s stock and the amount of the company’s income when valuing the company’s property. The statute does this in two ways: by allowing the department to “take into con- sideration” the company’s annual statement, which must report stock value, company income and other items (ORS 11 Today’s most commonly cited dictionary similarly defines “intangible prop- erty” without referring specifically to any of the attributes taxpayer describes (except goodwill): “property having no physical substance apparent to the senses : incorporeal property (as choses in action) often evidenced by documents (as stocks, bonds, notes, judgments, franchises) having no intrinsic value or by rights of action, easements, goodwill, trade secrets.” Webster’s Third New Int’l Dictionary 1173 (unabridged ed 2002). 458 Level 3 Communications LLC III v. Dept. of Rev. 308.525), and by expressly stating that the department may consider “the earning power of the company” as well as the “franchises and special franchises” owned or used by the company (ORS 308.545). The court views this authority to consider the stock value, the income, and the “earning power” of the company as strong factors tending to indicate that the legislature viewed the ability of the company as an entity to earn revenue as relevant to the value of the unit of company property. This text is not conclusive because the phrase “take into consideration” does not specify what weight the department may assign to the stock value and earning power of the company, and the text does not rule out the possibility of equating the two. b. Context and legislative history The court turns to the statutory context. As an ini- tial matter, the court returns to the key terms “franchises and special franchises,”12 which are the subject of much early case law, reflecting the central role that special franchises granted to private businesses played in the development of infrastructure in Oregon and other states.13 Importantly for this case, contemporaneous court decisions show that both types of franchise generally were thought of as per- sonal rights that were not transferable—or, in the case of special franchises, transferable only with the consent of the public body franchisor. One year before the legislature used the word “franchise” in its definition of “property” for cen- tral assessment purposes, the Oregon Supreme Court held 12 Nontax statutes as of 1909 confirm that the legislature had an under- standing of the term “franchise” that was consistent with its plain meaning. See, e.g., Lord’s Oregon Laws, title XLIII, ch I, § 6525 (1910) (“The use of the water of the lakes and running streams of the state of Oregon, for general rental, sale or distribution, for purposes of irrigation, and supplying water for household and domestic consumption, and watering live stock upon dry lands of the state, is a public use, and the right to collect rates or compensation for such use, of said water is a franchise.” (Emphasis added.)). 13 For a critical discussion of the numerous special railroad, streetcar, elec- trical and gas franchises in early twentieth-century Portland, see E. Kimbark MacColl, The Shaping of a City: Business and Politics in Portland, Oregon 1885- 1915 (1976). That work states that Portland granted 191 franchises from 1887 to 1914, 50 percent of which went to major railroads, and 43 percent of which went to the Portland Railway Light & Power Company, predecessor to Portland General Electric Company. Id. at 10; see also Behnke-Walker v. Multnomah County, 173 Or 510, 513, 146 P2d 614 (1944) (describing role of corporations formed by early “special” legislative grants). Cite as 23 OTR 440 (2019) 459 that a state franchise to charge tolls for operating a canal and locks at Willamette Falls was not assignable, based on the terms of the original grant of rights. Oregon v. Portland Gen. Elec. Co., 52 Or 502, 516, 521, 95 P 722, reh’g den, 52 Or 530, 98 P 160 (1908) (“But the construction and operation of a canal and locks as part of a navigable river, and the taking of tolls thereon are franchises that cannot be exer- cised without permission from the State. * * * Again, as to the power of the first company to transfer its franchises, the grant was made to the first company with no power to trans- fer.”). Similarly, an earlier United States Supreme Court decision applying Oregon law declined to find any “general power to sell or lease * * * property or franchises” held by a railroad corporation to which the state had granted the right to operate within the city of Portland. Oregon Ry. & Nav. Co. v. Oregonian Ry. Co., 130 US 1, 30-31, 9 S Ct 409, 32 L Ed 837 (1889). In each case, the respective court concluded that the legislature had not chosen to confer a right of trans- fer in the franchise act itself, and a doctrine of strict con- struction against the franchisee prevented the court from imputing a right of transfer. See Portland Gen. Elec., 52 Or at 517; Oregon Ry. & Nav. Co., 130 US at 26; cf. Eldredge v. Mill Ditch Co., 90 Or 590, 594, 177 P 939 (1919) (citing “the franchise of corporations” as example of “Interests Which Cannot Be Transferred”). From this context, coupled with the dictionary definitions above, the court concludes that the 1909 Legislative Assembly understood a “franchise” as intangible property consisting of a set of rights that were, by default, not transferable. As will be seen, the legislature’s choice to identify as taxable property an item that could not be separated from its corporate owner cuts against taxpay- er’s arguments regarding the Attributes. Although integrated with the general property tax system of laws, the features of the central assessment laws relevant to this case are largely self-contained.14 The 14 Critically, the central assessment statutes use an independent definition of “property.” See ORS 308.505(9); cf. ORS 307.020(1) (defining “personal prop- erty,” “tangible personal property,” and “intangible personal property”); ORS 307.020(2) (foregoing definitions do not apply to centrally assessed property); ORS 307.030 (excluding intangible personal property from regular, local, assessment but not from central assessment); see also Southern Pacific Trans. Co. v. Dept. of Rev., 295 Or 47, 52, 664 P2d 401 (1983) (describing central assessment statutes 460 Level 3 Communications LLC III v. Dept. of Rev. court therefore looks for further indications of legislative intent by examining the statutory development and his- torical context of the statutes reprinted above. The legisla- ture created today’s system of central assessment in 1909, by establishing the department’s predecessor, the Board of State Tax Commissioners, and by delegating to it the task of determining the value of property used or held by railroad companies, telephone companies, and water, gas and elec- tric companies, among others. Or Laws 1909, ch 218; Lord’s Oregon Laws, title XXVII, ch VI, §§ 3614, 3617(15) (1910); see generally Comcast, 356 Or at 289-94. The 1909 law per- mitted the board to value the entire “unit” of property, and to then assign a portion of that overall unit value to the property located in Oregon and its local taxing jurisdictions, superseding the regular property tax laws that required each local assessor to attempt to determine the value of the particular length of track, wire or other property in that county. See Lord’s Oregon Laws, title XXVII, ch VI, §§ 3622, 3623, 3626. However, as summarized in Comcast, central assessment did more than prevent a distortive amalgam of locally determined values: “Central assessment also allowed assessors to capture additional value inherent in certain property. In particu- lar, central assessment made possible ‘assessments which would reach those large intangible values, called franchise value or good will, which could not be effectively taxed by local assessors.’ ” 356 Or at 290 (quoting James C. Bonbright, 2 The Valuation of Property, 637 (1937)). Oregon did not blaze the trail of central assess- ment. From 1854 until shortly before the 1909 enactment of central assessment, Oregon property tax law, though broadly written, did not expressly identify whether or how franchises and other intangible property could be assessed or valued. Oregon v. Pacific States Tel. & Tel. Co., 53 Or 162, 166, 99 P 427 (1909) (As of 1906 “there was no law specifically requiring the franchise of a corporation to be as a “complete and comprehensive * * * scheme of assessment for taxation”); but see, e.g., Northwest Natural Gas Co. v. Dept. of Rev., 347 Or 536, 226 P3d 28 (2010) (certain exemptions apply to locally and centrally assessed property). Cite as 23 OTR 440 (2019) 461 assessed, nor providing the manner of estimating the value thereof[.]”), appeal dismissed, 223 US 118, 32 S Ct 224, 56 L Ed 377 (1912). Meanwhile, other states responded to the growth of railroad, telegraph, telephone, and other increas- ingly large and far-flung enterprises by adopting various forms of unitary valuation, typically combined with central- ized assessment by a single statewide body. A wave of litiga- tion followed nationwide. Some of the laws, or judicial deci- sions interpreting them, addressed whether the value of the unit was equivalent to that of the company. See Bonbright, 1 Valuation of Property at 522-34 (surveying early New York cases starting in 1834). The United States Supreme Court’s 1875 opinion known as the State Railroad Tax Cases was groundbreak- ing at the federal level. See Taylor v. Secor, 92 US 575, 2 Otto 575, 23 L Ed 663 (1875). Those consolidated cases involved Illinois’ 1872 act that expressly listed “[t]he capital stock of companies and associations incorporated under the laws of this state,” along with real property and other personal property, as property to be assessed and taxed. See An act for the assessment of property, and for the levy and collec- tion of taxes, approved 30 March 1872[,] In force 1 July 1872, ch 89, § 436, compiled in E.L. & W.L. Gross, The Statutes of Illinois: An Analytical Digest of All the General Laws of the State in Force at the Present Time: Official and Standard, by Act of the Legislature: 1818 to 1872, Vol. II, 336 (Springfield: E.L. & W.L. Gross, 1872). The same act also created a state board to determine the value of “[t]he capital stock of all companies * * * including the franchise, over and above the assessed value of the tangible property of such company or association.” Id. §§ 438-39. To implement the law, the state board adopted a rule prescribing the method to determine the value of the “capital stock”:15 15 As will be seen, the Illinois statute, like others at the time, generally used the phrase “capital stock” to mean money or property contributed to the cor- poration by its shareholders, including any property that the corporation had acquired using that money or property. By contrast, “shares of stock” or “shares of capital stock” referred to the shares held by the shareholders. Compare id. § 436(2) (“shares of stock” taxable to resident individuals), with § 443 (“capital stock” and franchises taxed to corporation at locality of corporation’s principal office or location where corporation does business). See Henderson Bridge Co. v. Kentucky, 31 SW 486, 17 Ky L Rptr 389 (1895), aff’d, 166 US 150, 17 S Ct 532, 41 L Ed 953 (1897) (discussed below). 462 Level 3 Communications LLC III v. Dept. of Rev. “‘The market or fair cash value of the shares of capital stock, and the market or fair cash value of the debt (excluding from such debt the indebtedness for current expenses), shall be combined or added together; and the aggregate amount so ascertained shall be taken and held to be the fair cash value of the capital stock, including the franchise, respectively, of such companies and associations.’ ” Taylor, 92 US at 604 (quoting board of equalization rule (emphases added)). The rule then required the value of tan- gible property to be deducted from the aggregate value of the shares and the debt, and the resulting difference “shall be taken and held to be the fair cash value of the capital stock, including the franchise * * *.” Id. The Court summa- rized this residual approach, stating plainly that the start- ing point is the value of the company’s shares in the hands of its shareholders, plus debt: “It is therefore obvious, that, when you have ascertained the current cash value of the whole funded debt, and the current cash value of the entire number of shares, you have, by the action of those who above all others can best estimate it, ascertained the true value of the [rail]road, all its property, its capital stock, and its franchises; for these are all represented by the value of its bonded debt and of the shares of its capital stock.” Id. at 605. Like taxpayer in this case, the taxpayers in the State Railroad Tax Cases argued that the Illinois law inval- idly valued rights inherent in the stock. The Court summa- rized the taxpayers’ argument as follows: “that the capital stock and capital of a corporation are dis- tinct and different; that the capital stock belongs to the stockholders, and cannot be assessed against the corpora- tion, but said act requires not only the capital of corpora- tions to be assessed, but their capital stock to be assessed to the corporation in addition thereto * * *.” Id. at 589. The Court briefly acknowledged the distinction, see id. at 602-03, but upheld the tax despite this and many other objections, rejecting the taxpayers’ attempt to distin- guish the value of the total shares held by shareholders, plus corporate debt, from the value of the unit of property that the corporation holds, including such intangible property as the corporation’s “capital stock” and the corporate “franchise.” Cite as 23 OTR 440 (2019) 463 Twenty years later, a similar argument arose in what became known as the Adams Express cases, involv- ing Ohio’s central assessment of express, telephone and telegraph companies. Adams Exp. Co. v. Ohio State Auditor, 166 US 185, 17 S Ct 604, 41 L Ed 965 (1897). An 1893 act directed the state central assessing authority to “be guided by” the value of the “entire capital stock” when determin- ing the value of an express company’s property in the state. An Act to Amend and Supplement Sections 2777, 2778, 2779, and 2780 of the Revised Statutes of Ohio, 1893 vol. 90 at 330, 332.16 In a state-court mandamus action lead- ing up to the United States Supreme Court’s opinion, the central assessment authority sued a local county auditor to compel him to assess and collect property tax on the cen- trally determined value. The county auditor refused, argu- ing that the act invalidly inflated the value of an express company’s tangible personal property by attributing to the property value that is properly attributable to the company itself: “But it is contended in behalf of the defendant that not only was the property of the National Express Company val- ued by a special board, after a special method, but that its property was not assessed at its true value in money, because the value of the capital stock was taken as a guide, thereby, in contravention of the constitution, adding to the intrinsic value of the tangible property in this state a value inherent in the capital stock, and due to the franchise, good will, and business of the company, and the value of its prop- erty in other states. “* * * * * “It is contended that when the value of the shares of the capital stock of a corporation is augmented through the franchise, good will, and successful management of the business of the concern, such value should not avail to add to the true value in money of the tangible property of the corporation for the purpose of taxation.” 16 The Ohio act defined an express company as any person “engaged in the business of conveying to, from or through this state, or any part thereof, money, packages, gold, silver, plate or other article, by express, not including the ordi- nary lines of transportation of merchandise and property in this state * * *.” Id. at 330. 464 Level 3 Communications LLC III v. Dept. of Rev. State ex rel. Poe v. Jones, 51 Ohio St. 492, 509-511, 37 NE 945 (1894) (emphases added). The Ohio Supreme Court rejected these arguments, and the United States Supreme Court quoted the Ohio opinion extensively in its own opinion upholding the Ohio law on Commerce Clause grounds: “‘The market value of property is what it will bring when sold as such property is ordinarily sold in the community where it is situated; and the fact that it is its market value cannot be questioned because attributed somewhat to good will, franchise, skillful management of the property, or any other legitimate agency.’ ” Sanford v. Poe, 165 US 194, 224-25, 17 S Ct 305, 41 L Ed 683 (1897) (quoting 51 Ohio St. at 512).17 At the same time as the Ohio Adams Express cases, a unit valuation case arising in Kentucky prompted the Kentucky appellate court to discuss in depth the conceptual basis for using the value of the total shares to determine the value of a corporation’s franchise. Henderson Bridge Co. v. Kentucky, 31 SW 486, 17 Ky L Rptr 389 (1895), aff’d, 166 US 150, 17 S Ct 532, 41 L Ed 953 (1897). The case involved property tax as applied to the operator of a railroad bridge spanning the Ohio river between Kentucky and Indiana. Id. Kentucky had imposed a tax of 42.5 cents per $100 of value on all real and personal property, later adding a specific pro- vision imposing the tax on any franchise of a corporation or other person engaged in a specified business (railroad, elec- tric power, telephone, etc.). Former Ky. Gen. Stat. §§ 4019 (rate and general imposition), 4022 (definition of assessable property), 4077 (extending the tax to the franchise of any corporation holding one), 4082 (treating franchises held by persons other than corporations similarly). Although the statute was framed as a tax on property of the corporation, the statutory method for valuing the franchise first required 17 Six weeks after issuing its decision entitled Sanford v. Poe, the United States Supreme Court issued its opinion entitled Adams Exp. Co. v. Ohio State Auditor, 166 US 185, 17 S Ct 604, 41 L Ed 965 (1897), in response both to a peti- tion for rehearing in Sanford v. Poe and in a case involving Indiana law. The Adams Express opinion does not change the result in Sanford v. Poe but discusses more specifically states’ power to include the value of franchises and other intan- gible property in the value of other property for property taxation purposes. In Adams Express the Court also commented on its opinion in Henderson Bridge Co. v. Kentucky, as discussed below. Cite as 23 OTR 440 (2019) 465 the taxing authority to “fix the value of the capital stock of the corporation,” and then to “deduct the assessed value of all tangible property * * *.” Former Ky. Gen. Stat. §§ 4079. Similar to the Illinois railroad tax, the Kentucky statute thus determined the value of the franchise as a residual amount: the difference between the value of the “capital stock” and the value of the real and tangible personal prop- erty. Id. at 489 (“The remainder thus found shall be the value of its corporate franchise subject to taxation as aforesaid.”). The Henderson Bridge court discussed at length the meaning of the phrase “capital stock of the corporation,” positing that it might refer either to (a) only what might be called today the cash constituting the paid-in capital con- tributed by investors; or (b) all of the tangible and intangible property of the corporation, including the paid-in capital, the corporation’s “surplus,” and its franchise. 31 SW at 489-91. The court accepted the broader definition, drawing on a line of earlier New York cases. In doing so, the Kentucky court equated the broader definition (b) to the shares of stock in the hands of the shareholders. Id. at 489 (“ ‘The share of stock covers, embraces, and represents all three [paid-in capital, surplus, and franchise] in their totality, for it is a business photograph of all the corporate possessions and possibilities. * * * [W]hile th[e New York] court describes the shares of stock owned by the several individual mem- bers of the corporation as representing in interest and value all these things, yet the same things all combined consti- tute and are the property of the corporation or company.’ ” (Quoting People v. Coleman, 27 NE 818, 126 NY 433 (1891).)); cf. Revenue Cabinet v. Comcast Cablevision of the South, 147 SW 3d 743, 745-46 (Ky 2003) (applying Henderson Bridge in concluding that the proper starting point to determine the value of the taxable franchise was the “business enterprise value,” i.e., “the price at which a willing buyer and a willing seller would buy an entire business as of the date,” including “future values associated with future investment and future property acquisition”). On review, the United States Supreme Court opin- ion laid out this valuation procedure with little comment and otherwise concerned itself with the taxpayer’s Commerce Clause claim, which the Court rejected on narrow factual 466 Level 3 Communications LLC III v. Dept. of Rev. grounds—the Court concluded that the taxpayer did not conduct interstate business; only the persons crossing the bridge and paying tolls did so. Henderson Bridge, 166 US at 153-54.18 In the Adams Express reconsideration opinion, however, the Court referred to the facts of Henderson Bridge, apparently accepting that the value of the share- holders’ stock equaled the value of the entire property of the corporation. See Adams Express, 166 US at 220 (describing Henderson Bridge facts as “The owners, therefore, of that stock, had property which, for purposes of income and pur- poses of sale, was worth $2,900,000. What gives this excess of value? Obviously, the franchises, the privileges the com- pany possesses, its intangible property.”); see also id. at 221-23 (positing generally that “the corporate property” of an express company is worth the same amount as the aggregate shares of stock in the hands of the shareholders, except to the extent the company shows it holds property not used in the business, such as shares of stock in other corporations). By the turn of the twentieth century, therefore, a robust public record was in place consisting of statutes of other states that purported to value on a unitary basis such intangible items as the “franchise,” or the “capital stock,” in addition to the real property and other personal property, of railroad, telephone, and other companies; as well as opin- ions of the United States Supreme Court and the courts of other states on how to determine the value of such intangible items. Prominent court opinions acknowledged the distinc- tion between the unit of property belonging to a corporation and the shares in that corporation belonging to the share- holders. Yet the courts approved valuing the franchise or capital stock by a residual method that used as the starting point the value of the total shares held by the shareholders and that then subtracted the separately determined value of tangible personal property and real property, ultimately 18 In a 1981 opinion dissenting from denial of certiorari, Justice Byron White stated that, although Henderson Bridge remained good law, it would likely be upheld under modern theories of apportionment, rather than on the basis that the taxpayer’s activity did not constitute interstate commerce. Newell Bridge & Railway Co. v. Dailey, 451 US 942, 944-45, 101 S Ct 2026, 68 L Ed 2d 331 (1981) (White, J., dissenting). Cite as 23 OTR 440 (2019) 467 treating the value of the company and the value of the com- pany’s total property as one and the same. Against this backdrop of reported cases from other states, the court now reexamines for further context the relevant developments in Oregon in the years leading up to 1909. By the late 1800s, Oregon assessors had begun to incorporate elements of the unit valuation concept, includ- ing reference to the value of the shares of company stock, into the valuation of railroad and telephone companies. Although Oregon property tax law did not refer specifically to franchises until 1907, the definition of “real property” expansively included land, structures, and fixtures, as well as “all rights and privileges belonging or in any wise apper- taining thereto,” and “personal property” was defined to include “goods” and “chattels,” as well as “moneys,” debts, shares in corporations, and “such portion of the capital of incorporated companies liable to taxation on their capital as shall not be invested in real estate.” General Laws of Oregon, Civ Code, ch LIII, title I, §§ 2-3, p 893-94 (Deady 1845-1864); The Codes and Statutes of Oregon, title XXX, ch I, § 3038, and ch III, § 3057 (Bellinger & Cotton 1901). In at least one instance, a local assessor sought to include the value of a railroad’s franchise in the value of its “roadbed.” See O. & C. R. R. Co. v. Jackson County, 38 Or 589, 605, 65 P 307, modified on recons, 38 Or 589, 65 P 369 (1901) (O. & C. Railroad).19 On appeal, the Oregon Supreme Court rejected the assessor’s value as arbitrary, in part because the asses- sor had relied heavily on per-mile values that the California state board of equalization had determined for the por- tion of the company’s roadbeds located across the border in California. Id. at 615. The court noted that California law prescribed a substantially different method of assessment, including an express requirement to assess the franchise, as well as a rule that assigned higher values to portions of the track nearer to population centers. Id. at 615-16. Having concluded that the assessor’s valuation was not grounded in fact, the court determined what appears to be a unit value, 19 The assessor purported to assess the company’s “roadbed and franchise.” O. & C. Railroad, 38 Or at 611. Although the local board of equalization ordered all reference to the franchise to be stricken from the roll, the board made no change to the value that the assessor had determined. Id. at 613. 468 Level 3 Communications LLC III v. Dept. of Rev. apportioned by mile, based on trial evidence, relying pri- marily on the “net earnings” per mile of road and testing the result against the replacement cost and the “market value of the bonds and stock of the company.” Id. at 621-22. As to the market value of the stock and bonds, the court noted: “So, too, the value of stocks and bonds may furnish an ele- ment by which to determine the worth of such property. The conditions which may unite to influence the market must be borne in mind, as they may be unnatural, and out of the usual course; but the criterion is one that may be legit- imately resorted to in determining the value of the property which they represent.” Id. at 608 (emphasis added);20 see also Pacific States Tel. & Tel. Co., 53 Or at 166 (discussed below) (telephone company contended that the value of its franchise had been included for property tax purposes). This court concludes that, even before the legislature made franchises or other intangible rights expressly taxable, the Oregon Supreme Court implic- itly included their value when measuring the value of other property and, more importantly for this case, looked to the value of shares of stock and bonds of the corporation as an indicator of the property’s value. Between the 1901 O. & C. Railroad case and the 1909 enactment of central assessment, four significant Oregon law changes occurred that affected the taxation of intangi- ble items. First, in 1903, the legislature imposed an annual fee on all corporations for the privilege of doing business in Oregon, ranging from $10 to $200, depending on the “amount of its authorized capital stock.” Or Laws 1903 at 39, 43-44 (HB 2). Variously described as a tax or as a fee, this charge burdened a corporation’s right to exist as a legal entity—the “general” franchise or “franchise to be.” The “franchise to be” a corporation obviously is a nontransferable right per- sonal to each corporation; the court concludes that in that 20 This favorable reference to use of the value of stocks and bonds is notable because the court cited as support two federal circuit court opinions that sharply criticized reference to the value of the corporation’s shares as liable to be inac- curate because the share value includes goodwill. O. & C. Railroad, 38 Or at 608 (citing Railroad & Telephone Companies v. Board of Equalizers of Tennessee, 85 F 302, 313-14 (1897); Cotting v. Kansas City Stock-Yards Co., 82 F 850 (C.C.D. Kan. 1897), rev’d sub nom, Cotting v. Godard, 183 US 79, 22 S Ct 30, 46 L Ed 92 (1901). Cite as 23 OTR 440 (2019) 469 respect it is analogous to an intangible Attribute described by taxpayer in this case. Further discussion of this 1903 annual registration charge appears below. Second, in 1905, the legislature, apparently respond- ing to longstanding complaints of “unequal taxation” and failure to capture the taxable value of railroad franchises, express company goodwill, and patent rights, among other items,21 directed the formation of a one-year bipartisan com- mission “for the purpose of examining and reporting upon the matters of assessment and taxation of property in this State, the collection of revenue in taxes, and the framing of laws upon that subject, to be submitted to the Legislative Assembly of this State at its next regular session.” Or Laws 1905, ch 90, § 1. The duty of the commissioners included “mak[ing] a tax code for the State of Oregon * * * includ[ing] a complete system of the just and equitable assessment and taxation of all forms of property, both tangible and intan- gible * * *.” Id. § 4. The 1905 act required the Governor and Secretary of State to print 5,000 copies of the report and the commission’s proposed laws and to distribute them to all legislators and newspapers, and to county clerks. Id. § 11. On June 30, 1906, the three lawyers appointed to the commission delivered their 300-page report, recom- mendations, and draft bills. The 1906 Oregon Report cov- ered a great deal of ground,22 but the treatment of fran- chises and other intangible property was a major point of detailed discussion. Throughout the report, including a 10-page appendix, the commission expressed its views about how the value of a franchise should be determined. 21 See “Assessor C.P. Strain on ‘Invisible Values,’ ” East Oregonian pp 3-4 (Dec 3, 1904) (reprinting circular letter from Umatilla County assessor to the legislature complaining that the state loses “$200,000 per annum by a failure to reach the franchise of railroads and express companies” and proposing a tem- porary commission to provide guidance to assessors); see also James Wilkinson Chapman, State Tax Commissions in the United States, 522-24 (Johns Hopkins, 1897) (describing earlier Oregon commissions of 1885 and 1890 that publicly raised similar concerns), available at https://books.google.com.nf/books?id= ZOAYAAAAYAAJ&printsec=copyright#v=onepage&q&f=false (accessed Sept 9, 2019). 22 Topics included Oregon’s restrictive Uniformity Clauses and longstanding statutes that made state finances ostensibly dependent on ad valorem property taxes but pitted counties against each other, leading to widely acknowledged undervaluation by elected local assessors. 470 Level 3 Communications LLC III v. Dept. of Rev. These portions included original research but also drew heavily from two sources: the Oregon Supreme Court’s 1901 opinion in O. & C. Railroad, and a nationwide analysis, as of 1904, of railroad valuation conducted by the US Census Bureau, later published in a bulletin of the US Department of Commerce and Labor. See Department of Commerce & Labor, Bureau of the Census, Commercial Valuation of Railway Operating Property in the United States: 1904, Bulletin 21 (1906), available at https://books.google.com/ b o ok s?id=Xp 5WOM Z O 0M kC&pg=PA7&lpg=PA7&d- q= Commercial+Valuation+of+Railway+Operating+Prop- erty+in+the+United+States:+1904&source=bl&ots=Yh- QEG6jk5i&sig=ACf U3U1hvI8X3QairYzKv1DguHilCngy- bQ&hl=en&sa=X&ved=2ahUKEwjWwvbo6sTkAhWUtZ- 4KHfGwBf IQ6AEwA3oECAMQAQ#v= onepage&q= Com- mercial%20Valuation%20of%20Railway%20Operating%20 Property%20in%20the%20United%20States%3A%20 1904&f=false (last accessed Sept 19, 2019) (“1904 Census Bureau Report”). The Oregon commission and its sources gener- ally agreed on the extent to which the value of the shares of stock of a railroad company is useful as an indicator of the value of the company’s property. As quoted above, the Oregon Supreme Court viewed the value of the shares as a legitimate source of information. O. & C. Railroad, 38 Or at 608. The main problems identified are that (1) railroad com- panies tend to invest in what now is called “non-operating property,” property used in unrelated lines of business, such as hotels, mines, etc. (or in shares of stock in companies that operate nonrailroad businesses);23 and (2) the sale of all of the shares of stock in a railroad company is rare, and the sources expressed uncertainty about reliance on the prices of a few shares sold in thin trading, or on the price for only a controlling interest.24 Those problems are not at issue in 23 See 1904 Census Bureau Report at 9, 17 (discussing inadequacy of a pure “stock and debt” method in separating income from nonrailroad properties such as hotels, as well as income from other railroad companies that already are assessed in their own right), cited in 1906 Oregon Report at 193. 24 1906 Oregon Report at 194 (“To the extent that the purchase of railway securities is not the purchase of the whole property, but merely of an undivided interest therein, and that the price paid for an undivided interest is not a sure criterion of what the price would have been for the purchase of the property as a Cite as 23 OTR 440 (2019) 471 this case, and nothing in the 1906 Oregon Report raises the concerns that taxpayer raises here, that using the aggre- gate value of the shares as a proxy for the value of the tan- gible and intangible property that the company owns might incorrectly incorporate Attributes that reside in the shares but not in the company’s property. The portions of the 1909 law that are relevant to this case incorporate nearly verba- tim the draft bills in the 1906 Oregon Report. The third major legislative development preceding the 1909 act occurred several weeks before the Oregon com- mission completed the 1906 Oregon Report, on June 4, 1906, when the voters used the newly adopted right of the citizens’ initiative to pass two short-lived laws imposing “license” charges on telephone companies and companies operating certain other of the types of businesses that would later be centrally assessed. Or Laws 1907, chs 1 - 2; see Official Voters’ Pamphlets, General Election, June 4, 1906.25 The two 1906 “license” laws imposed a tax of either two percent or three percent on the company’s annual “gross receipts” or “gross earnings,” depending on the type of business. A company was subject to the telephone company tax “when engaged” in the subject business. Or Laws 1907, ch 1, § 3. Except for basic identifying information, the gross receipts were the only data that the company was required to supply under either tax. The Pacific States Telephone and Telegraph Company immediately, but unsuccessfully, challenged the 1906 gross receipts tax on a number of grounds, including “double taxation,” on the theory that the company’s fran- chise was already subject to tax under the 1903 general reg- istration charge act and under the property tax laws. Pacific States Tel. & Tel. Co., 53 Or at 166. The Oregon Supreme unit, the values ascertained in the report, by the second method, are too high.”); but see 1904 Census Bureau Report at 19 (“The method of valuing railway prop- erties on the basis of the market quotations of their stocks and bonds is regarded by many as the most defensible of all methods, for the reason that the price of railway securities established on the stock exchanges is the resultant of a combi- nation of the greatest possible number of judgments.”). 25 The Voters’ Pamphlets were titled, “To Propose An Act Requiring Sleeping Car Companies, Refrigerator Car Companies, And Oil Companies to Pay An Annual License Upon Gross Earnings”; and “To Propose An Act Requiring Express Companies, Telegraph Companies, And Telephone Companies to Pay An Annual License Upon Gross Earnings.” Id. 472 Level 3 Communications LLC III v. Dept. of Rev. Court26 rejected the company’s argument as to the 1903 general registration charge, describing the 1903 charge as imposed “on the right to be or exercise the powers of a corporation,” i.e., a general right to exist, while the 1906 gross receipts tax was “a tax on the business or franchise which the corporation, when organized, may exercise,” i.e., a franchise “to do” or “special” franchise. Id. at 164-65. As to the company’s claim that its property tax assessment had “include[ed] the value of its franchise,” the court declared that no law as of 1906 specifically required the franchise of a corporation to be assessed, noting that “clearly a law on the subject [of franchise taxation] regularly enacted could not be rendered nugatory or invalid by local assessors including in the value of corporate property their estimate of the value of the franchise.” Id. at 166. In other words, the court again acknowledged that pre-1907 law may have allowed local assessors to include the value of a corporate franchise when assessing other property, but the court saw no impermis- sible “double taxation” in also allowing the state to impose a gross receipts tax on a percentage of the entire earnings from operation of a telephone business. Id. Finally, while the state and federal appeals of the 1906 “license” laws were pending in Pacific States Telephone, the 1907 Oregon legislature enacted another property tax law change, which Wells Fargo and other companies argued impliedly repealed the 1906 gross receipts tax laws. See State of Oregon v. Wells, Fargo & Co., 64 Or 421, 126 P 611 (1913) (Wells Fargo). The 1907 law added “franchise” to the items listed in the definition of “land, real estate and real prop- erty” for property tax purposes, thus expanding the property tax base to include franchises “to do.” Or Laws 1907, ch 268, § 2.27 But this law expressly excluded from the definition of real property “the right to be a corporation,” avoiding the 26 The United States Supreme Court’s subsequent review of Pacific States Tel. & Tel. was limited to whether the initiative provisions violated the United States Constitution’s guarantee of a republican form of government. See US Const Art IV, § 4. The Court dismissed the appeal on the ground that the issue was nonjusticiable. See Kiernan v. City of Portland, 223 US 151, 32 S Ct 151, 56 L Ed 380 (1912). 27 For noncentrally assessed property, the term “franchise” continued to be listed as one item in the definition of “land,” “real estate,” and “real property” until 1935. Compare OCA § 69-102 with Or Laws 1935, ch 274, § 2. Cite as 23 OTR 440 (2019) 473 possibility that the new definition would impose a “double tax” on the franchise “to be.” Wells Fargo also argued that the 1909 central assessment law itself, which left the 1907 definition of real property unchanged for property that was locally assessed, impliedly repealed the 1906 gross receipts taxes by adding both “franchise” and “special franchise” to the definition of “property” for centrally assessed taxpay- ers.28 See Wells Fargo, 64 Or at 424; see generally Portland v. Portland Ry., L. & P. Co., 80 Or 271, 293, 156 P 1058 (1916) (noting this difference). The Oregon Supreme Court agreed with Wells Fargo that the 1909 central assessment provisions impliedly repealed the 1906 gross receipts taxes because the 1909 and 1906 tax laws covered the same ground. See Wells Fargo, 64 Or at 432 (“[T]he act of 1909 * * * covers the whole field of taxation embraced in the [gross receipts tax] act of 1906 * * *. It covers the same ground, deals with the same subject, and was, no doubt, intended to be a complete and comprehensive scheme of taxation, * * * taking the place of previous laws for the assessment and taxation of express, telephone, and tele- graph companies; and therefore repeals such previous stat- utes by implication.”)29 Turning to the instant case, an argu- ment could be made that, because the gross receipts taxes were imposed on the entire income of the subject companies (at least to the extent of their engagement in the subject busi- ness), the implied replacement of those taxes with a prop- erty tax base that includes the value of a general and special franchise suggests legislative approval of valuing the entire 28 The 1909 law ambiguously included “franchises” and “special franchises” in the definition of “property” subject to assessment while also providing that, for purposes of valuing the unit, “said franchises and special franchises [are] not to be directly assessed, but [are] to be taken into consideration in determining the value of the other property * * *.” Or Laws 1909, ch 218, §§ 5, 9; see Portland v. Portland Ry., L. & P. Co., 80 Or 271, 294-95, 156 P 1058 (1916) (“if it can be said that the franchise is assessed at all”). In 1941, the legislature resolved this ambiguity as to whether franchises could be assessed vs. merely used as a valuation tool, deleting the quoted phrase from what is now ORS 308.545 while retaining the reference to franchises and spe- cial franchises in the definition of “property” in what is now ORS 308.505(14)(b) (2017). See Or Laws 1941, ch 440, § 14. 29 The court declined to reach whether the 1907 change to the definition of real property, which remained in place for noncentrally assessed taxpayers, impliedly repealed the 1906 gross receipts taxes. See id. at 432. 474 Level 3 Communications LLC III v. Dept. of Rev. subject enterprise for property tax purposes. This court does not reach that argument, as the opinion in Wells Fargo is brief and says nothing about whether the 1909 legislature intended to value the property of a company engaged in a centrally assessed business by the value of the business and the company as a whole, or whether it intended to limit the valuation of intangible property to only defined items belong- ing to the corporation as a separate entity. This court draws no particular conclusion from the implied repeal of the 1906 gross receipts taxes by the 1909 central assessment statutes. Keeping in mind these Oregon developments that closely preceded the 1909 act, the court now reviews the 1909 central assessment provisions anew. The court finds the 1909 definition of “property” remarkable for its emphatic breadth, using the phrase “all property,” or variants thereof, a total of three times. The definition immediately declares that “property” includes “all property, real and personal,” belonging to or held by the company. The definition goes on to list a number of specific items, but again adds “and all other property of a like or different kind” used in the busi- ness, as well as “all other real and personal property,” finally adding “and all franchises and special franchises” before concluding with the proviso that excludes certain property not used in the centrally assessed business. Or Laws 1909, ch 218, § 5.30 Based on this repeated intention to include “all” property, the court concludes that the legislature intended “property” and its constituent terms, such as “franchise,” to be interpreted expansively. As to the specific issue taxpayer has raised, the legislature is considered to have known, from the opinions in State Railroad Tax Cases, Adams Express, Henderson Bridge, and others noted above, that the United 30 The full definition, less the proviso, read: “The term ‘property,’ as used in this act, shall be deemed to include all property, real and personal, subject to assessment for taxation under this act belonging to the corporation, or held by it as occupant, lessee, or otherwise, and shall include the rights of way, roadbed, cars, rolling-stock, tracks, wag- ons, horses, office furniture, telegraph, telephone and transmission poles, wires, conduits, switchboards, machinery, appliances, appurtenances, and all other property of a like or different kind, used in the carrying on of the business of said corporation, and owned, leased, or operated by them respec- tively, and all other real and personal property, and all franchises and special franchises * * *.” Or Laws 1909, ch 218, § 5 (emphases added). Cite as 23 OTR 440 (2019) 475 States Constitution would allow Oregon to treat the value of all shares in a company as equivalent to the value of the entirety of a corporation’s tangible and intangible property. The legislature would have been aware that the Oregon Supreme Court eight years previously had endorsed a val- uation method that primarily used the net earnings of the company, and also commented favorably on using the value of shares of company stock and debt, assuming that an ade- quate market existed for the shares of stock and that prop- erty not used in the unit could be excluded. The legislature’s own commission had issued a similar endorsement in an extensive report from June 1906 that urged the legislature to adopt specific bill language to enable a new, permanent state board of tax commissioners to consider corporate share prices and corporate earnings. The 1909 legislature enacted the commission’s proposed language nearly verbatim. The 1909 act expressly allowed the new board of tax commission- ers to take into account not only the value of any “special” franchise but also the corporation’s very right to exist (the “general” franchise). The former was generally considered an intangible right inseparable from the company itself, and the latter clearly was. On the basis of this context, the court concludes that, despite the important differences for many purposes between the property held or used by the corpora- tion and shares held by the shareholders, the legislature in 1909 intended to authorize the department’s predecessor to treat the value of the total shares as equivalent to the value of the unit of corporate property for property tax purposes, at least absent some factual reason not to do so.31 c. Post-1909 statutory development The court now reviews whether the legislature intended any of its later amendments to the 1909 law to 31 This conclusion assumes away certain potential factual complexities, such as a single corporation operating more than one type of business or owning prop- erty that is not used or held for purposes of any business whose property is cen- trally assessed. The conclusion posits a corporation that is solely engaged in a business listed in the central assessment statutes, all of whose properties are used or held for use in that business. The cases discussed above appear to involve facts consistent with those assumptions. The court views this assumption as fair for this case, given that nearly all of taxpayer’s property is used or held for future use in its communication business and that the amount of other, “non-operating,” property is small and uncontested. 476 Level 3 Communications LLC III v. Dept. of Rev. change the way centrally assessed property could be val- ued. The first amendments, in 1913, most notably added the phrase “tangible and intangible” to the definition of “prop- erty.” Or Laws 1913, ch 193, § 5. The court views this change as either a clarification32 or as a further broadening of the definition, presumably to encompass businesses operating without a formal franchise. See Adams Express, 166 US at 218 (“The statutes grant no privilege of doing an express business, charge nothing for doing such a business, and contemplate only the assessment and levy of taxes upon the property of the express companies situated within the respective states * * *.”).33 The 1941 Legislative Assembly added a provision that closely identifies centrally assessed companies with their property by making all property tax a personal debt of the centrally assessed taxpayer. By contrast, for a locally assessed taxpayer, only the tax debt on personal property is a personal obligation; the tax imposed on real property applies only in rem. Compare ORS 311.655 (centrally assessed taxpayers) and ORS 311.455 (personal property of locally assessed tax- payers) with ORS 312.010 (tax on locally assessed real prop- erty is collected by foreclosure). Or Laws 1941, ch 12, § 1. As noted earlier, the 1941 legislature also eliminated ambiguous limiting language that seemed to prevent the direct assess- ment of franchises. See Or Laws 1941, ch 440, § 14. The court has found no statutory history, context, or legislative history on this change, but the court sees no reason to conclude that the 1941 change limited the department’s authority to use the value of corporate stock as the basis for the value of corporate property. Following other changes in the 1940s not relevant to this case, in 1951 the legislature repealed the central assess- ment laws and reenacted without substantive change all of the content relevant to this case. See Or Laws 1951, ch 586; Memorandum from Legal Department, State Tax Commission 32 The 1909 definition already encompassed “all property”; the 1905 Legislative Assembly had directed the commission to draft bill proposals to tax “all forms of property, both tangible and intangible”; and the commissioners’ 1906 Oregon Report indicated that they thought their bill proposals did that. See Or Laws 1905, ch 90, §§ 1, 4; 1906 Oregon Report at 16-17, 22, 26. 33 Other noteworthy changes enacted in 1913 included changing the name of the central assessment authority from “Board of State Tax Commissioners” to “State Tax Commission,” and broadening the commission’s authority to deter- mine how to allocate the overall unit value to Oregon. See Or Laws 1913, ch 193, §§ 1, 9. Cite as 23 OTR 440 (2019) 477 to Subcommittee of House Committee on Taxation (Mar 26, 1951), available from Oregon State Archives; see also Comcast, 356 Or at 292. Since 1953, when the legislature recodified the central assessment laws as part of the creation of the Oregon Revised Statutes, the relevant language has been materially changed only twice: first, in 1977 the legislature added a specific exclusion from the definition of “property” for certain intangible property representing shares of stock or claims on other property (bonds and other debt instruments). See Or Laws 1977, ch 602, now codified at ORS 308.505(14)(c) (2017). However, the department’s representative testified to the Senate Revenue and School Finance Committee that the exclusion merely codified the department’s appraisal practices “almost from year one” of the central assessment law, and the committee immediately voted to approve the language as an amendment to the bill. Tape Recording, Senate Committee on Revenue and School Finance, SB 113, June 7, 1977, Tape 31, Side 2 (statement of Assistant Attorney General Ira Jones).34 Second, in 2015, the legislature adopted an exemption for a portion of the real market value of a centrally assessed com- pany’s property; the exemption generally applies to the extent that the aggregate value of the real property, tangible per- sonal property and intangible property exceeds 130 percent of the historical or original cost of the real property and tangible personal property that is included in the unit. Or Laws 2015, ch 23, § 3; ORS 308.674. The court sees nothing in this exemp- tion that changes the approach to valuing the unit of proper- ty.35 Overall, the court concludes that later statutory changes have not changed the legislature’s original intention in 1909, as clarified in 1913 and 1941, that the value of the property 34 The 1977 amendment of the definition of “property” in ORS 308.505 occurred as an amendment of a larger bill, the main purpose of which was to affect the treatment of noncentrally assessed property, particularly “title plants” and other business records stored on electronic or other media. See Northwest Natural Gas. Co. v. Dept. of Rev., 347 Or 536, 550-51, 226 P3d 28 (2010) (back- ground on 1977 law). 35 The department argues that statements in the legislative history of the 2015 amendment showing that the legislature intended the exemption as a cap on the taxation of “goodwill” imply that the legislature always intended that goodwill be subject to tax. The court rejects any such implication because the laws defining the scope of valuation and taxation predate the 2015 statements by more than a century. See, e.g., DeFazio v. WPPSS, 296 Or 550, 561, 679 P2d 1316 (1984) (“The views legislators have of existing law may shed light on a new enact- ment, but it is of no weight in interpreting a law enacted by their predecessors.”). 478 Level 3 Communications LLC III v. Dept. of Rev. held by a centrally assessed company may be determined by the value of the company itself, absent a demonstrable factual difference. d. Cases cited by the parties The court now tests its understanding of the stat- utes against the cases the parties have cited. Taxpayer cites two cases in which the Oregon Supreme Court has commented on the difference between the value of the firm or business and the value of the property subject to assess- ment. Taxpayer cites Delta Airlines, Inc. v. Dept. of Rev., 328 Or 596, 616, 984 P2d 836 (1999) (“Under Oregon law, tax- able property must be assessed as of a particular assess- ment date. * * * Thus, the department’s task in this case was to value Delta’s taxable property, as a unit, as of the assess- ment date at issue. * * * [T]he department’s task was to determine the value of Delta’s assets, not the value of Delta as a firm.”), and Comcast, 356 Or at 294 (“It bears emphasiz- ing * * * that only the property used in the business, service, or commodity is assessed (and thus taxed). The value of the business, service, or commodity itself is not subject to cen- tral assessment.” (Emphasis in original.)). Delta was the last of a long series of property tax valuation cases in which the Supreme Court sat as a trier of fact, reviewing Tax Court cases under the former de novo- on-the-record standard in place until a 1995 law change became operative. See Delta, 328 Or at 600-03 (discussing former standard); United Telephone Co. v. Dept. of Rev., 307 Or 428, 432, 770 P2d 43 (1989) (same); cf. Powell Street I v. Multnomah County Assessor, 365 Or 245, 445 P3d 297 (2019) (applying current “substantial evidence” standard in ORS 305.445). In Delta, the main issue was the treatment of a substantial portion of the taxpayer’s aircraft fleet, of which the taxpayer was the lessee under “operating leases,” that the court characterized as “more traditional” leases. Delta, 328 Or at 599 n 2.36 The taxpayer presented an income approach based on a “perpetuity” model, which asked the court to assume that the taxpayer would enter into new air- craft leases, continually and into the indefinite future, as 36 By contrast, both parties treated aircraft financed pursuant to “capital leases” as owned by the taxpayer. See Delta, 13 OTR at 374-75. Cite as 23 OTR 440 (2019) 479 the current ones expired. Based on this assumption, the tax- payer’s approach assumed that the proper starting point to estimate future income was the net stream of revenue that the taxpayer earned from each aircraft, ignoring the gross earning potential of each aircraft. As the Supreme Court stated: “The effect of that calculation was to remove lease payments to Delta’s lessors from the income stream subject to capitalization.” 328 Or at 604. The department presented an opposing, “limited-life” approach that started with the gross earning potential of each aircraft, with deductions for financing costs and depreciation over the term of the prop- erty’s useful life. Id. The court rejected the taxpayer’s perpetuity model and adopted the department’s limited-life model, relying in part on the 1989 edition of the Western States Association of Tax Administrator’s (WSATA) Handbook, which the depart- ment at that time had adopted by reference as an Oregon administrative rule. See former OAR 150-308.655 (1999).37 It was in the course of rejecting the taxpayer’s proffered perpetuity approach—and with it the taxpayer’s net income starting point—that the court made its statement that the department’s task was to value Delta’s property, not the firm: “The handbook * * * answers the question whether use of the limited-life or perpetuity model was appropriate in this case. The handbook provides that, when the taxation requirement is to value assets that exist on the assessment date, it is proper to forecast the expected income ‘over the remaining economic life of the existing assets,’ i.e., to fol- low a limited-life model. * * * In contrast, the handbook provides that ‘[f]orecasting income into perpetuity is proper when the corporate entity is being valued.’ * * * “* * * [T]he perpetuity model would not have been appro- priate here, because the department’s task was to deter- mine the value of Delta’s assets, not the value of Delta as a firm. Accordingly, we reject Delta’s contention that the department erroneously applied the limited-life model in its income approach.” Delta, 328 Or at 615-16 (emphasis added). 37 Today’s Oregon rule adopts the 2009 edition of the WSATA Handbook. See OAR 150-308-0690. 480 Level 3 Communications LLC III v. Dept. of Rev. Since the Supreme Court’s opinion in Delta, the WSATA Handbook has been revised “substantially.” See WSATA Handbook at I-1 (2009 ed). It is not clear that the Supreme Court would interpret the current discus- sion of perpetual vs. limited-life approaches in the same way it viewed the discussion in the then-current 1989 edi- tion. In contrast to the passage that the Supreme Court quoted above, the 2009 edition of the Handbook provides: “Forecasting income into perpetuity is proper when a going concern is being valued.” Id. at III-7 (emphasis added). A footnote on the preceding page offers the following discus- sion: “ ‘Going concern’ as used here is not synonymous with enterprise value. Enterprise value is a broader term which encompasses the value of a corporate entity including all of its tangible and intangible assets; it is a valuation of the present owner’s total business in contrast to the exchange valuation of operating assets as a going concern.” Id. at III-6 n 36 (emphases added). The current WSATA Handbook dis- cussion thus seems to imply that the perpetuity approach may be appropriate even when the subject of the valuation is limited to the operating property and is not the corporate entity. Without expressing any view about the correctness of the current WSATA Handbook, the court concludes that the difference compared to the prior edition’s discussion of this topic reduces any precedential value that Delta other- wise might have. In any event, in Delta as in many prior cases under the former de novo-on-the-record standard, the Supreme Court frequently cautioned litigants against assigning precedential weight to the court’s choice of one or another valuation method. See Delta, 328 Or at 615 n 11 (referring to the court’s “repeatedly” made statements that its “earlier valuation cases provide no precedential value”).38 For all of these reasons, this court interprets the language in Delta on which taxpayer relies as primarily directed at rejecting Delta’s attempt to discount the projected revenue 38 In addition, more recent decisions suggest that the Supreme Court today might reach the same ultimate conclusion on the facts in Delta based on a differ- ent analysis, by focusing on Delta’s full “use” of the aircraft rather than on Delta’s interest as owner vs. as lessee. See PacifiCorp Power Marketing v. Dept. of Rev., 340 Or 204, 210, 131 P3d 725 (2006) (finding that taxpayer’s contracts demon- strated that it “used” property constituting the Intertie within the meaning of ORS 308.515(1)). Cite as 23 OTR 440 (2019) 481 stream based on Delta’s choice to lease its income-producing property instead of owning it. The court declines to assign any weight to the Supreme Court’s statement as it relates to using the value of Delta as a company to determine the value of Delta’s property. Turning to taxpayer’s second case, in Comcast, 356 Or at 282, the comment that taxpayer cites appeared as part of the Supreme Court’s introduction to the concepts of cen- tral assessment and was the only statement in the 53-page opinion that mentioned a distinction between the property and the business. The Supreme Court never reached the issue of valuation; it focused on the antecedent question of whether Comcast was engaged in the “communication” busi- ness within the meaning of ORS 308.515(1). Rather than rely on that comment, this court turns to the most recent opinion on which the parties supplied supplemental briefing shortly after its issuance, namely, DISH Network Corp. v. Dept. of Rev., 364 Or 254, 434 P3d 379 (2019). There, the Supreme Court stated that unit valuation as permitted by ORS 308.555 “actually values the company as a going con- cern: It considers a company’s market value as a whole and does not, either in practice or in theory, purport to assess the various component parts that go into that whole.” 364 Or at 292. In DISH Network, in contrast to Comcast, the court’s statement was in response to the taxpayer’s argu- ment on a point actually at issue in the case: whether the centrally assessed unit of property could be added to the roll without offset for any tangible personal property that county assessors already had subjected to local assessment. The taxpayer argued that the addition would subject the company’s tangible personal property and real property in Oregon to double taxation, relying on a description of the unit valuation approach that the court concluded ignored Oregon’s express statutory inclusion of intangible property in the definition of “property.” See id. at 291. The quoted pas- sage in DISH Network is consistent with the view of courts dating as far back as the State Railroad Tax Cases that the value of the company as a whole is a permissible indicator of the value of all of its tangible and intangible property. Overall, regarding taxpayer’s legal question, the court concludes that Oregon’s central assessment law does 482 Level 3 Communications LLC III v. Dept. of Rev. not dictate a specific valuation method, but it certainly does not stand for the proposition that use of the value of the com- pany or its shares of stock as an indicator of, or proxy for, value is invalid as a matter of law. The court sees no indica- tion in the statutory text or context that the legislature has imposed any legal requirement to distinguish between the value of the company to its shareholders and the value of all of the company’s tangible and intangible property. Indeed, the legislature has blurred the line between a centrally assessed company and the property it uses, most notably by incorporating into the definition of “property” a corpora- tion’s inalienable right to exist. e. Taxpayer’s no-growth argument (investment Attributes 1 through 4) The court now returns to taxpayer’s argument that the court must reject the only factors that could generate growth in gross revenue because those factors are intangi- ble Attributes of the shares of taxpayer stock and are not property that taxpayer owns. The court considers taxpayer’s description of each such Attribute, starting with future tan- gible and intangible property, as well as the present value of future growth opportunities and potential mergers and acquisitions (numbered in the table above as Attributes 1 through 4). As recited above, taxpayer presented compre- hensive, and largely unrefuted, evidence that the equipment in place on any assessment date was not capable of generat- ing growth in revenue because it quickly became obsolete, even as customer demand for capacity constantly increased. The court agrees with taxpayer, and finds as a fact, that the only way taxpayer could satisfy customers’ increasing demand and increase taxpayer’s own revenue was by con- stantly acquiring new equipment by direct purchase or by acquiring or merging with other companies that had the needed equipment. However, from that factual premise tax- payer argues that the court should not consider the value of equipment resulting from future direct purchases or future mergers or company acquisitions because each of those pur- chases or other transactions depends on an investor’s will- ingness to invest in taxpayer’s shares of stock, as opposed to the value of property that taxpayer had in use on the assessment date. Taxpayer does not argue that the company Cite as 23 OTR 440 (2019) 483 had no prospects for growth. Therefore, the court views tax- payer’s argument regarding Attributes 1 through 4 as pri- marily a legal argument that the court should ignore the value of these Attributes because they inhere in taxpayer’s shares of stock and are not property that taxpayer itself owns. The department cites one case on point with respect to taxpayer’s no-growth argument. United Telephone Co. v. Dept. of Rev., 10 OTR 333, 340-41 (1986), modified, 307 Or 428, 770 P2d 43 (1989). The department relies in particular on the following statement of this court: “[The taxpayer’s expert] reasons that ‘we’re valuing just the assets in the asset pool today. We cannot consider future growth in plant because it’s not legal to assess plant not in existence.’ * * * “In this regard, [the taxpayer’s expert] makes a funda- mental error. It is true that the tax laws tax only the exist- ing assets. However, the ad valorem tax is levied on the present value of the assets. That value includes all benefits expected to be received in the future from those assets. If any growth is expected, the present value of those expecta- tions must be reflected in the fair market value of the prop- erty. Growth must come from something. If any growth is expected, it is the taxable assets which will produce it. Hence, the value of existing assets includes their poten- tial for growth, just as the value of a thoroughbred horse includes the potential for future offspring. While the state cannot tax that future offspring because it is not in exis- tence, the potential of the thoroughbred horse to produce offspring is an element of value which can be and must be taxed. Utilizing a market rate of return which includes expectations of future growth but projecting income with- out growth results in an undervaluation of the assets.” 10 OTR at 340-41. Taxpayer does not respond in briefing, but during trial taxpayer pointed out that the Supreme Court modified this court’s opinion on appeal and countered that taxpayer’s property, unlike the racehorse in the court’s analogy, was equipment that could not reproduce. In review- ing both opinions, it is clear that the taxpayer in United Telephone squarely presented the question whether the value of today’s centrally assessed property can be determined by 484 Level 3 Communications LLC III v. Dept. of Rev. an income approach that looks to the income to be gener- ated by property that will be acquired after the assessment date. However, the ultimate answer to that question from this court and the Supreme Court is less clear. This court squarely answered “yes” in the passage quoted above. Under the de novo-on-the-record standard of review in place at the time, however, the Supreme Court did not reach this court’s legal conclusion that future growth in revenue is necessar- ily attributable to the property presently in place, because the Supreme Court agreed with the taxpayer as a factual matter that no growth in revenue was likely to occur. United Telephone, 307 Or at 441-42.39 The Supreme Court’s conclu- sion of value using the income approach assumed no growth in revenue, and no growth in the rate of investor return; in addition, the Supreme Court adopted a projected income amount slightly different from that apparently used by this court. Id. at 434-35, 442. The Supreme Court’s modification of this court’s judgment in United Telephone leaves the precedential effect of this court’s statement about attributing future revenue growth to existing property open to question. This is par- ticularly true because, as the Supreme Court pointed out, this court did not fully explain the source of its conclusion of value under the income approach. See id. at 441. The court now declines the department’s invitation to rely on this court’s statement in United Telephone.40 39 The Supreme Court apparently accepted that the taxpayer would do no more than reinvest recovered depreciation on company property continuously, thus assuring a future income stream, but not creating growth. See United Telephone, 307 Or at 435. 40 Similarly, while the Supreme Court appeal in United Telephone was pend- ing, this court also decided PP&L v. Dept. of Rev., 10 OTR 417 (1987), modified, 308 Or 49, 775 P2d 303 (1989), in which the parties relied on the same set of valuation expert witnesses as in United Telephone. As in United Telephone, the taxpayer’s expert presented an income approach that assumed no growth in future revenues, stating his understanding that the state “ ‘cannot tax assets not in existence.’ ” PP&L, 10 OTR at 429. This court, citing its opinion in United Telephone before modification, rejected the expert’s position on the ground that the law does not tax future property but assigns value to the current property based on the an “anticipation of future benefits” inherent in the current property. PP&L, 10 OTR at 431. The Supreme Court likewise rejected the taxpayer’s “no growth” position, but it did so on the factual ground that the company’s own projections indicated that it anticipated growth, and without commenting on this court’s rationale on that point. 308 Or at 58-59. Cite as 23 OTR 440 (2019) 485 The court finds more apposite the Supreme Court’s reasoning in Union Pacific Railroad Co. v. Dept. of Rev., 315 Or 11, 843 P2d 864 (1992). There, the court, applying the same former de novo-on-the-record review standard, expressed no concern about looking to the revenues from property to be acquired in the future, although the court also ultimately accepted the taxpayer’s “no-growth” argument as a factual matter. The court stated as a general proposition: “Growth in net cash flows will arise either because the present asset base generates additional income or because additions to the asset base produce income beyond the cost of the additions themselves, including the costs of operat- ing them. The latter source of growth will be possible only if an investor is prepared to forego some immediate return on investment (i.e., an amount equal to the cost of the new income-producing assets) in order to experience more satis- factory returns in the long run. If the net cash flows gener- ated by increases in the asset base do not exceed the cost of the additional asset base and the costs of their opera- tion, then there has been no ‘growth’ from an investor’s standpoint.” 315 Or at 22 (emphases added). The Supreme Court’s com- ments reflect an apparent conclusion that Oregon law allows the department to consider future additions to the asset base in estimating future cash flows, even though those additions will occur only if investors—shareholders or lenders—invest more money in the company itself. Although the case is not precedential as to how to determine the value of a centrally assessed unit of property,41 it is an indicator that Oregon recognizes no legal barrier to considering the cash flows to be generated by future properties, and it indirectly supports the conclusion that an Attribute that attracts outside invest- ment in the company may be included in the value of the unit of property. This court cannot accept taxpayer’s no-growth argument. The court is of the view that the potential for revenue growth may derive from an attribute of the unit of 41 As noted above, while the de novo-on-the-record standard of review was in place, the Supreme Court repeatedly cautioned parties that its own opinions carried no precedential weight, to the extent the court engaged in the factual determination of the value of property. See Delta, 328 Or at 615 n 11. 486 Level 3 Communications LLC III v. Dept. of Rev. assembled equipment, real property, customer relationships and workforce in place, or from the ability of the company to attract merger partners and additional capital investment as taxpayer argues, or from a combination of these factors. It is not necessary to pinpoint the source of the growth potential in this case, however, because the court concludes that the legislature fully intended any or all such factors to “count” in the valuation of the unit of real, tangible and intangible property in place on any given assessment date. Taxpayer’s sole objection regarding these Attributes is based on its legal position that the potential for any such growth derives from Attributes inherent in taxpayer as a company. Taxpayer has not sought to contest the department’s pro- jections, supported by the department’s appraisal evidence, that taxpayer as a company will experience growth in reve- nue of three percent as of January 1, 2014, or two percent as of January 1 of 2015 and 2016. f. Investment Attributes 5 through 12 The court next considers the remaining Attributes Nos. 5 through 12: stock liquidity; investor limited liability; the absence of a requirement to reinvest; protection from the risk of personal bankruptcy; the prospect that taxpayer stock will appreciate in value instead of depreciating; the ability to make small-dollar-amount investments and thus to create a diversified investment portfolio, and the prospect of favorable income tax treatment upon the sale of appre- ciated stock (presumably referring to benefits such as a reduced federal income tax rate for gain from disposition of stock held as a capital asset; and the absence of depreciation recapture upon the disposition of stock). Taxpayer essen- tially argues that these Attributes have value, and that value belongs to taxpayer’s shareholders, not to taxpayer as a company. The court is skeptical that some of the Attributes actually created value for taxpayer’s shareholders as a factual matter. Taxpayer has not attempted to quantify the specific increment of value associated with any one Attribute, nor has taxpayer presented evidence from which the court could determine an incremental value. The value of some Attributes seems uncertain, or potentially illusory, Cite as 23 OTR 440 (2019) 487 when the task is to consider the value of all shares of stock together. The court questions whether liquidity, i.e., the abil- ity to make small and limited investments and to diversify (Attributes 7, 10, and 11) actually is different for the holder or holders of all shares of company stock considered together than for the company as holder of all company property. Even the Attributes of limited liability and protection from the risk of bankruptcy or creditor claims (Nos. 6 and 8) are dif- ficult to assign cleanly to the shares in the corporate entity when all tangible and intangible property is at issue. An arm’s-length transaction to acquire all of the property can burden the buyer with substantial liabilities attributable to the seller’s conduct. See Howard L. Shecter, Selected Risk Issues in Merger and Acquisition Transactions, 51 U Miami L Rev 719, 740-44 (1997) (discussing asset purchaser’s risk of successor liability under product liability, environmental, employee benefit, and labor and employment law); Jerome R. Hellerstein, Walter Hellerstein & John A. Swain, State Taxation ¶ 19.11 (3d ed updated 2019) (discussing potential liability of purchaser of substantially all assets for delin- quent sales taxes of seller). An informed buyer of assets may require the seller to agree to indemnify the buyer, provide other personal guarantees, or accept a lower pur- chase price in order to offset those risks. See Lou R. Kling, Eileen Nugent Simon, and Michael Goldman, Summary of Acquisition Agreements, 51 U Miami L Rev 779, 804-08 (1997) (indemnification provisions). Ultimately, the choice whether to “structure” a substantial transaction as a sale of all the shares of stock or as a sale of all the corporate prop- erty may require a sophisticated analysis of competing con- siderations in which the benefits of liability limitation and protection from creditors may be unclear or minimal. As to the prospect of favorable income tax treatment (Attribute 12), the court finds that Attribute of only speculative value given the possibility of law changes and the prospect that any particular seller of stock may be factually unable to take advantage of any particular income tax law. See Boris Bittker & Lawrence Lokken, Federal Taxation of Income, Estates and Gifts, ¶ 49.1 (2d ed updated 2019) (“Gain or loss on a sale or exchange of a capital asset is long-term capital gain or loss only if the property was held for more than one 488 Level 3 Communications LLC III v. Dept. of Rev. year; it is short-term capital gain or loss if the property was held for one year or less.”); see also Joseph Hydro Associates, Ltd. v. Dept. of Rev., 10 OTR 277, 280-85 (1986) (questioning value to assign to state energy and federal investment tax credits). Finally, because virtually all of the subject property in taxpayer’s case is used in the same centrally assessed business of communications, the court need not, and does not, reach a decision as to whether any of the Attributes inhere in the corporation or in its property: they are prop- erly taken into account regardless. Because taxpayer does not disagree with the department’s factual conclusion as to their value, and does not present a factual case on the spe- cific effect of any one Attribute on the value of the property, the court accepts the department’s revenue growth rates of three percent for tax year 2014-15 and two percent for tax years 2015-16 and 2016-17. B. Cost Approach Each party performed an analysis of value using the cost approach. “The cost approach to value is based upon the principle of substitution, that is, it assumes that property is worth its cost or the cost of a satisfactory sub- stitute with equal utility. Thus, the cost approach seeks to determine the cost of the unit that is being valued.” Delta, 328 Or at 605. The department’s expert gave “the least reli- ance” to the cost approach, compared to the income and market approaches. Taxpayer uses the cost approach only as a “high benchmark” of value but assigns it no weight in taxpayer’s overall conclusion of value. Taxpayer’s main crit- icism is that the department erred by treating “accounting goodwill” as property with a value that can be counted as part of the value of the overall unit for central assessment purposes.42 The Accounting Goodwill to which taxpayer refers is reflected in an entry appearing on each of taxpay- er’s annual financial statements as filed with the Securities and Exchange Commission (SEC) as follows: 42 For convenience, the court adopts taxpayer’s term “Accounting Goodwill” to refer to the amounts that the department included and that taxpayer contends should be excluded or ignored. The court intends its usage to be synonymous with the definition in ASC 805-30-20 as discussed below. Cite as 23 OTR 440 (2019) 489 Cal- “Accounting endar Goodwill” Year Amount Citations Notes 2013 $2,577,000,000 Def’s Ex A at 63 Def’s Ex Q at 107, 125 2014 $7,689,000,000 Def’s Ex B at 63 Form 10K states that Def’s Ex R at 109, $5,124,000,000 of total good- 126 will is “Goodwill acquired in tw telecom acquisition” 2015 $7,749,000,000 Def’s Ex C at 63 Form 10K states that Def’s Ex S at 116, $5,124,000,000 of total good- 122 will is “Goodwill acquired in tw telecom acquisition” The department’s expert Eyre included the Account- ing Goodwill as a line item for “goodwill” in his list of items that add up to his overall conclusion for each tax year under the cost approach. He described this type of goodwill as “operating property.” To illustrate, the chart below repro- duces the contents of an exhibit showing Eyre’s conclusions for tax year 2016-17: 2016-17 Tax Year Defendant’s Historical Cost Less Depreciation Indicator of Value (Def’s Ex C at 63) Land $ 180,000,000 Land Improvements $ 76,000,000 Facility & Leasehold Improvements $ 2,582,000,000 Network Infrastructure $ 8,979,000,000 Operating Equipment $ 7,988,000,000 Furniture, Fixtures and Office Equipment $ 242,000,000 Other $ 28,000,000 Total Property, Plant & Equipment $ 20,075,000,000 Less: Accumulated Depreciation $ (10,365,000,000) Net Property, Plant & Equipment $ 9,710,000,000 Construction Work in Progress $ 168,000,000 Goodwill $ 7,749,000,000 Other Intangible Property, net $ 1,127,000,000 Historical Cost Less Depreciation Indicator of Value $ 18,754,000,000 490 Level 3 Communications LLC III v. Dept. of Rev. For tax years 2015-16 and 2016-17, the entry for Accounting Goodwill constitutes approximately 41 percent of overall value; for tax year 2014-15, it is approximately 23 percent. Taxpayer notes that simply removing the depart- ment’s entry for Accounting Goodwill from the department’s overall cost indicator of value for each year would bring the department’s indicator much closer to the value taxpayer asserts. Taxpayer’s rebuttal expert Reilly testified at length about the origin and use of the amounts shown as Account- ing Goodwill on taxpayer’s filings with the SEC. As a pub- licly traded company, taxpayer calculated and reported the amounts in order to comply with the SEC’s require- ment to prepare and disclose reports in accordance with “generally accepted accounting principles” (GAAP). See 17 CFR §§ 210.4-01. GAAP includes the Financial Accounting Standards Board’s rules set forth in the Accounting Standards Codification (ASC), among them ASC 805-30, which prescribes when and how a company must record an entry for goodwill after a business combination such as an acquisition. The ASC defines goodwill as “[a]n asset rep- resenting the future economic benefits arising from other assets acquired in a business combination * * * that are not individually and separately recognized.” ASC 805-30-20. Reilly, whose extensive credentials include a CPA license, licensure as a certified general appraiser in Oregon, and an MBA from Columbia University, testified essentially that Accounting Goodwill, as thus reported, is simply a residual amount that represents the positive difference between the fair value of the identifiable assets and the act [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10607226. Public record. Not legal advice.