Oakmont, LLC v. Dept. of Rev.

No. 41 June 30, 2016 779

IN THE SUPREME COURT OF THE

STATE OF OREGON

OAKMONT, LLC,

an Oregon limited liability company,

Respondent,

v.

DEPARTMENT OF REVENUE,

State of Oregon; and

Clackamas County Assessor,

Appellants.

(TC 5178; SC S062342)

On appeal from the Oregon Tax Court.*

Argued and submitted September 14, 2015.

Kathleen J. Rastetter, Senior County Counsel, Oregon

City, argued the cause and filed the briefs for appellant

Clackamas County. With her on the briefs was Stephen L.

Madkour.

Melisse S. Cunningham, Assistant Attorney General,

Salem, argued the cause and filed the briefs for appellant

Department of Revenue. With her on the briefs were Ellen F.

Rosenblum, Attorney General, and Daniel Paul, Assistant

Attorney General.

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

cause and filed the brief for respondent. With him on the

brief was Amy Heverly.

Before Balmer, Chief Justice, and Kistler, Walters,

Landau, Baldwin, Brewer, and Nakamoto, Justices.**

KISTLER, J.

The judgment of the Tax Court is affirmed.

______________

**  21 OTR 375 (2014).

**  Linder, J., retired December 31, 2015, and did not participate in the deci-

sion of this case.

780 Oakmont, LLC v. Dept. of Rev.

Case Summary: Taxpayer owns an apartment complex in Clackamas County.

The Clackamas County Assessor valued the property at approximately $23 mil-

lion as of January 1, 2008. In February 2008, taxpayer discovered construction

defects and related damage. Taxpayer filed an appeal for the 2009-10 tax year,

and the county agreed to reduce the assessed value from $21.7 million to $8.5

million to reflect decreased market value due to damages resulting from the con-

struction defects. Taxpayer then asked the Department of Revenue to exercise

its supervisory jurisdiction and correct the assessed value for the 2008-09 tax

year. The department determined that it lacked supervisory jurisdiction, and

the Tax Court reversed. Held: (1) The department erred in determining that the

taxpayer and the county did not agree to facts indicating a likely error on the tax

roll; the taxpayer and the county later agreed to significantly lower the value of

the property for the 2009-10 tax year, and the only reasonable conclusion is that

that agreement indicated a likely error on the rolls for the preceding tax year;

(2) in determining whether the parties agree to facts indicating a likely error on

the roll, the department can consider an agreement made after the assessment

date concerning facts learned after that date, as long as the facts were reasonably

discoverable as of the assessment date.

The judgment of the Tax Court is affirmed. The case is remanded for further

proceedings consistent with this opinion.

Cite as 359 Or 779 (2016) 781

KISTLER, J.

Oakmont LLC owns an apartment complex built in

1996. Oakmont appealed the assessed value for the 2009-10

tax year for that complex on the ground that structural

damages resulting from construction defects had substan-

tially reduced the property’s value. In 2011, the county

assessor and Oakmont agreed to reduce the assessed value

of the complex from over $21 million to $8.5 million for the

2009-10 tax year. Because the time for appealing the val-

uation for the 2008-09 tax year had passed, the taxpayer

asked the Department of Revenue to exercise its supervi-

sory jurisdiction to correct a “likely error” in the 2008-09

assessment. The department concluded that it had no juris-

diction to consider Oakmont’s request, and the Tax Court

reversed. Oakmont LLC v. Clackamas County Assessor, 21

OTR 375 (2014). Both the county and the department have

appealed. For the reasons explained below, we affirm the

Tax Court’s judgment.

Before turning to the facts of this case, we describe

the applicable statutes briefly. Oregon’s ad valorem prop-

erty tax system depends on assessments of taxable prop-

erty within each county. Every year, each county assesses

the value of all taxable property within the county. ORS

308.210(1). The county assessor must determine the real

market value of each parcel of property “as of” January 1 of

the assessment year. Id. After making those assessments,

the assessor places the value of the property on the assess-

ment and tax rolls, and that value is used to determine the

amount of taxes owed that year.1

Some taxpayers, inevitably, will disagree with the

county’s assessment of their property’s value. Under the

1

Measure 50 (1997) significantly changed property tax assessment and tax-

ation procedures in Oregon. Essentially, Measure 50 established that, for the

1997-98 tax year, the maximum assessed value for subject property was 90 per-

cent of that property’s real market value for the 1995-96 tax year. See Or Const,

Art XI, § 11(1)(a). Measure 50 limited the extent to which the maximum assessed

value could increase each year, and it provided that, with some exceptions, prop-

erty would be taxed based either on its maximum assessed value or its real mar-

ket value, whichever was lower. See ORS 308.146 (implementing Measure 50);

Flavorland Foods v. Washington County Assessor, 334 Or 562, 565, 54 P3d 582

(2002) (discussing Measure 50).

782 Oakmont, LLC v. Dept. of Rev.

“normal” appeals procedure, a taxpayer who disagrees with

the county’s assessment can file a petition with the county’s

board of property tax appeals by December 31 of that tax

year. ORS 309.100(1), (2). The taxpayer may then appeal

“an order of the board [to the magistrate division of the Tax

Court] as a result of the appeal filed under ORS 309.100[.]”

ORS 305.275(3); see also ESCO Corp. v. Dept. of Rev., 307

Or 639, 642, 772 P2d 413 (1989) (describing normal appeals

procedure). A taxpayer has 30 days after the board’s order

is issued or delivered in which to file an appeal under ORS

305.275 to the magistrate division. See ORS 305.280(4)

(specifying more particularly the events from which the

30-day time limit for filing an appeal will run).

Independently of the “normal” taxpayer-initiated

appeals process, the legislature has given the Oregon

Department of Revenue “general supervision and control”

over Oregon’s property taxation system. ORS 306.115 pro-

vides, in part:

“(1)  The Department of Revenue shall exercise gen-

eral supervision and control over the system of property

taxation throughout the state. * * * Among other acts or

orders deemed necessary by the department in exercising

its supervisory powers, the department may order the cor-

rection of clerical errors, errors in valuation or the correc-

tion of any other kind of error or omission in an assessment

or tax roll as provided under subsections (2) to (4) of this

section.

“* * * * *

“(3)  The department may order a change or correc-

tion applicable to a separate assessment of property to the

assessment or tax roll for the current tax year and for either

of the two tax years immediately preceding the current tax

year if for the year to which the change or correction is

applicable the department discovers reason to correct the

roll which, in its discretion, it deems necessary to conform

the roll to applicable law without regard to any failure to

exercise a right of appeal.

“(4)  Before ordering a change or correction to the

assessment or tax roll under subsection (3) of this section,

the department may determine whether any of the condi-

tions specified in subsection (3) of this section exist[s] in

Cite as 359 Or 779 (2016) 783

a particular case. If the department determines that one

of the conditions specified does exist, the department shall

hold a conference to determine whether to order a change

or correction in the roll.”

ORS 306.115 gives the department supervisory

authority that is both expansive and narrow. It gives the

department broad discretion to “order the correction of cler-

ical errors, errors in valuation or the correction of any other

kind of error or omission in an assessment or tax roll.” Id.

The department, however, is limited temporally to ordering

corrections for “the current tax year and for either of the two

tax years immediately preceding the current tax year[.]” Id.

The department has promulgated a rule that guides

and limits the exercise of its supervisory authority. That

rule provides, in part:

“(1)  ORS 306.115 is an extraordinary remedy that

gives the Department of Revenue authority to order a

change or correction to a separate assessment of property.

An assessor or taxpayer may request a change or correction

by filing a petition with the department. * * *

“(2)  The department may correct any errors or omis-

sions in the assessment or tax roll under ORS 306.115(2)

through (4), including but not limited to clerical errors and

errors in property value, classification, or exemption.

“(3)  Before the department will consider the substan-

tive issue in a petition (for example, value of the property,

qualification for exemption, etc.), the petitioner has the

burden of showing that the requirements for supervisory

jurisdiction, as stated in ORS 306.115 and section (4) of

this rule, have been met. The department will base its

determination on the record before it.

“* * * * *

“(4)  The department will consider the substantive

issue in the petition only when:

“(a)  The assessor or taxpayer has no remaining statu-

tory right of appeal; and

“(b)  The department determines that an error on the

roll is likely as indicated by at least one of the following

standards:

784 Oakmont, LLC v. Dept. of Rev.

“(A)  The parties to the petition agree to facts indicat-

ing likely error; or

“(B)  There is an extraordinary circumstance indicat-

ing a likely error. [The rule then specifies the categories

of extraordinary circumstances that will indicate a likely

error].”

OAR 150-306.115.

Under OAR 150-306.115, a petition invoking the

department’s supervisory authority proceeds in two steps.

See Willamette Estates II, LLC v. Dept. of Rev., 357 Or 113,

118, 346 P3d 1207 (2015) (describing two-step process to

correct tax rolls under OAR 150-306.115). First, a petitioner

must demonstrate that the department has “supervisory

jurisdiction” over the petition. See id.; OAR 150-306.115(3)

(explaining that “[b]efore the department will consider the

substantive issue in a petition,” the petitioner must establish

the predicates listed in OAR 150-306.115(4) for invoking

that jurisdiction). One method of establishing supervisory

jurisdiction—the method at issue in this case—requires a

petitioner to establish two prerequisites: (1) the petitioner

has no remaining statutory right of appeal; and (2) the par-

ties to the petition “agree to facts indicating likely error”

on the tax roll. OAR 150-306.115(4)(b)(A). If a petitioner

demonstrates those two predicates, the department has

supervisory jurisdiction, and the petition proceeds to the

second step. At that step, the question for the department

is whether there is actually an error or omission on the rolls

and, if so, whether the department should exercise its dis-

cretion to correct it. See Willamette Estates II, LLC, 357 Or

at 118 (describing two-step procedure); OAR 150-306.115(2)

(providing that “[t]he department may correct any errors in

the assessment or tax roll under ORS 306.115(2) and (4)”).

In 2003, Oakmont purchased a 266-unit apartment

complex built in 1996 and located in Clackamas County.

The Clackamas County assessor valued that property at

$22,914,810 as of January 1, 2008, and placed that value

on the assessment and tax rolls for the 2008-09 tax year.

Oakmont did not appeal that valuation. In February 2008,

a maintenance worker noticed unusual swelling on the exte-

rior surfaces of some of the apartment buildings. Oakmont

Cite as 359 Or 779 (2016) 785

hired a forensic building inspection firm to determine the

cause of the swelling. The firm inspected the buildings

between May and June 2008. The inspection report, dated

July 24, 2008, revealed significant construction defects

and associated damage in the building exteriors, including

water intrusion and wood rot due to elevated moisture lev-

els. In November 2008, Oakmont initiated litigation against

various contractors and architects for negligence in the con-

struction and repair of the property. That litigation eventu-

ally settled, and Oakmont obtained undisclosed damages.

For the 2009-10 tax year, the county valued the

property at $21,726,425. Oakmont appealed that valua-

tion. After Oakmont filed its appeal, the county conducted

an appraisal of the property in 2011. The county’s apprais-

ers initially concluded that construction defects affected

the value of the property in the 2009-10 tax year, and they

determined an “as is” real market value of $13,065,000 for

the property as of January 1, 2009.2 Later that year, after

Oakmont’s litigation against the contractors and archi-

tects concluded, Oakmont and the assessor agreed that

the real market value of the property on January 1, 2009,

was $8,500,000—a 60 percent reduction from the initial

$21,726,425 valuation for the 2009-10 tax year. They also

agreed to an approximately 70 percent reduction for 2010-11

tax year, compared to the initial 2009-10 valuation.3

When Oakmont and the county agreed on the value

of the property for the 2009-10 tax year, the time for appealing

the assessment for the 2008-09 tax year had passed. Oakmont

accordingly asked the department to exercise its supervisory

authority under ORS 306.115 and OAR 150-306.115 to cor-

rect the value on the rolls for the 2008-09 tax year. Oakmont

argued that the construction defects discovered in early 2008

predated the January 1, 2008, valuation date, meaning that

the value listed on the rolls for the 2008-09 tax year was far

in excess of the actual real market value of the property.

2

The county reached that figure by deducting the cost of repairs for the

construction defects and associated rental loss from the initial valuation of

$21,726,425.

3

The parties agreed that the real market value of the property for the

2010-11 tax year was $6,800,000. When compared to the listed valuation for the

2009-10 tax year, that amounts to a 69 percent reduction in value.

786 Oakmont, LLC v. Dept. of Rev.

To satisfy the applicable requirements for invok-

ing the department’s supervisory jurisdiction, Oakmont

had to demonstrate that it no longer had any remaining

right to appeal and that the parties agreed to facts that

indicated a likely error on the roll. At a hearing before the

department, Oakmont identified three “agreed facts” that

demonstrated, in its view, a likely error in the valuation for

the 2008-09 tax year. First, the county had acknowledged

in the 2011 appraisal report that the construction defects

were discovered in 2007 and thus predated January 1,

2008—the valuation date for the 2008-09 tax year. Second,

the county had agreed to substantially reduce the valu-

ations for the 2009-10 and 2010-11 tax years. Third, the

county had made a determination to wait until the litiga-

tion between Oakmont and the contractors and architects

concluded before adjusting the valuations for the 2009-10

and 2010-11 tax years.

Oakmont argued that those agreed facts “indi-

cat[ed] likely error” in the 2008-09 assessed value. The

county replied that it did not agree that the assessed value

for the 2008-09 tax year should be reduced, stating that

“we don’t agree to facts for 2008, we didn’t have any facts”

that the 2008-09 valuation was incorrect. After consider-

ing Oakmont and the assessor’s arguments, the department

conference officer concluded that the department lacked

supervisory jurisdiction over Oakmont’s petition. The officer

explained:

“The petitioner presented written documentation from

previous court records asserting three agreements to facts

that would predate the date of the value January 1, 2008

for the tax year 2008-09 that could likely indicate a valua-

tion error. The first written evidence is from an appraisal

report by Ron Saunders of Clackamas County dated

February 11, 2011. [That appraisal report mentioned con-

struction defects that were discovered in 2007 but did]

not specify the nature or extent of th[os]e construction

defects, only that some were noted and investigated. Since

there is no agreement as to the condition of the property

as of January 1, 2008 the agreed fact that that [sic] an

investigation was conducted [in 2007] is not an indication

of a likely error on the roll. The other two written asser-

tions offered did not predate the [January 1, 2008] date of

Cite as 359 Or 779 (2016) 787

valu[ation] or indicate the condition of the property as of

the valuation date. Consequently, they cannot indicate a

likely error on the roll as of January 1, 2008.

“The only relevant agreement is an ambiguous statement

in a county appraisal prepared three years (February 11,

2011) after the [January 1, 2008] date of valu[ation] for the

tax year in question. That statement does not account for

the conditions that existed at the date of valu[ation] with

sufficient specificity to indicate a likely error on the roll.

The record indicates knowledge and extent of the condition

of the property was not known for the tax year in question

as of the January 1, 2008 valuation date.”

To summarize, the conference officer found that

none of the three agreed facts established a likely error on

the rolls as of January 1, 2008. Regarding the first agreed

fact, the officer found that the references in the county’s

2011 appraisal report to the discovery of construction

defects in 2007 were not sufficiently specific to indicate a

likely error in the January 1, 2008, valuation. Regarding

the second and third agreed facts, he found that they “did

not predate the [January 1, 2008,] date of valu[ation] or

indicate the condition of the property as of the valuation

date.” He accordingly concluded that no agreed facts indi-

cated a likely error on the rolls and that the department

lacked supervisory jurisdiction to consider Oakmont’s

petition. As a result, the conference officer did not decide

whether there was in fact an error on the rolls, nor did he

decide whether the department should exercise its discre-

tion to correct any error.

Oakmont appealed the conference officer’s decision,

and the magistrate division affirmed. Before the regular

division, Oakmont moved for summary judgment and the

department and county filed cross-motions for summary

judgment. After considering the parties’ arguments, the

regular division of the Tax Court (the Tax Court) granted

Oakmont’s motion for summary judgment and remanded

the case to the department for a hearing on the merits of

Oakmont’s petition. The Tax Court explained that, ordi-

narily, it reviews the department’s decisions de novo. See

ORS 305.425(1) (“All proceedings before the judge of the Tax

Court shall be original, independent proceedings and shall

788 Oakmont, LLC v. Dept. of Rev.

be tried without a jury and de novo.”). However, because

the legislature gave the department discretion to decide

whether to exercise its authority to correct an error on the

tax roll, see ORS 306.115(3), the court stated that it reviews

that decision for abuse of discretion. Oakmont LLC, 21 OTR

at 377; see also ADC Kentrox v. Dept. of Rev., 19 OTR 91,

100 (2006) (so stating). The court explained that the depart-

ment abuses its discretion when it acts arbitrarily and capri-

ciously or arrives at a decision that is clearly wrong. See

Martin Bros. v. Tax Commission, 252 Or 331, 338, 449 P2d

430 (1969).

As the Tax Court framed the issue, the ques-

tion before it was whether the department’s decision that

it lacked supervisory jurisdiction was clearly wrong.

Specifically, the court asked whether the record showed

that “ ‘the parties to the petition agree[d] to facts which

indicate it is likely that an error exists on the roll,’ ” con-

trary to the department’s conclusion. Oakmont LLC, 21

OTR at 378 (quoting rule). The court emphasized that the

department’s supervisory jurisdiction does not turn on the

parties’ agreeing to an error on the roll—rather, the par-

ties need agree only to facts that indicate a likely error.

Id. (citing Ghazi-Moghaddam v. Dept. of Rev., 20 OTR 288

(2011)). The court also explained that both the agreement

between the parties and the facts indicating a likely error

on the roll can arise after the original valuation date. Put

another way, the parties can agree to facts that were not

known until after the valuation date, and those facts can

indicate a likely error on the roll as of that date. The agree-

ment, therefore, “can occur, and often does occur, after a

valuation date has passed.” Id. at 379.

Applying that framework, the court first found that

the assessor “clearly agreed” with Oakmont that construc-

tion defects existed and affected the value of the property

as of January 1, 2009, when the assessor agreed to the stip-

ulated judgment reducing the assessed value of the prop-

erty from over $21 million to $8.5 million for the 2009-10

tax year. The court also reasoned that the assessor “implic-

itly, if not explicitly, agreed that the defects dated from

the time of construction in 1996.” Id. at 380. That agree-

ment, in turn, indicated a “likely error” on the rolls in the

Cite as 359 Or 779 (2016) 789

$22,914,810 valuation for the 2008-09 tax year.4 The Tax

Court concluded that the department abused its discretion

in declining to exercise supervisory jurisdiction because the

department was “clearly wrong” in concluding that the par-

ties had not agreed to facts indicating a likely error as of the

January 1, 2008, valuation date. Id.

Before considering the parties’ arguments on appeal,

we briefly address the appropriate standard of review of the

department’s order. As we explained in Espinoza v. Evergreen

Helicopters, Inc., “[w]hen a trial court [or administrative

agency] exercises discretion, it acts within certain legal

boundaries to choose from several permissible outcomes[.]”

359 Or 63, 116, ___ P3d ___ (2016). More specifically, a dis-

cretionary ruling by a trial court or agency can subsume both

factual and legal issues. In reviewing a ruling for abuse of

discretion, it can be important to distinguish the factual and

legal issues that underlie an agency or a trial court’s exer-

cise of discretion. See State v. Rogers, 330 Or 282, 312, 4 P3d

1261 (2000) (explaining that, when a trial court’s exercise of

discretion rests on an incorrect legal premise, an appellate

court will review that legal premise independently).

In this case, the department’s conference officer

did not “choose from several permissible outcomes” when

he determined that the department lacked supervisory

jurisdiction. Rather, he ruled, as a legal matter, that the

second and third agreed facts that Oakmont identified did

not establish a “likely error” because they did not predate

January 1, 2008, the valuation date for the 2008-09 tax

year.5 Alternatively, he ruled, as a factual matter, that those

4

Clackamas County argues that the statement in its 2011 appraisal report

that construction defects were discovered in 2007 was incorrect; the county con-

tends that no construction defects were discovered until 2008 at the earliest.

Oakmont does not argue otherwise, and it notes that the defects were first dis-

covered in February 2008. As we read the Tax Court’s opinion, it did not rely

on the erroneous statement in the county’s 2011 appraisal report that construc-

tion defects were discovered in 2007. Rather, it relied on the proposition that the

magnitude of the agreed reduction in value for the 2009-10 tax year (from over

$21 million to $8.5 million) and the cause of that reduction (construction defects)

necessarily indicated a likely error in the valuation for the 2008-09 tax year.

5

As noted, no party disputes that the first “agreed fact” that Oakmont iden-

tified before the department was based on an erroneous statement in the county’s

2011 appraisal report. Accordingly, we focus, as the Tax Court did, on the second

and third agreed facts that Oakmont identified.

790 Oakmont, LLC v. Dept. of Rev.

agreed facts did not establish a “likely error” on the rolls

because they did not “indicate the condition of the property

as of valuation date.” The conference officer’s first ruling

presents a legal issue while his second ruling presents a

factual one. It follows that, in reviewing those two rulings,

the question is not, generically, whether the conference offi-

cer abused his discretion. Rather, the question is whether

the first ruling was correct as a matter of law and whether

there was sufficient evidence in the record to support the

second.

We begin with the factual issue on which the confer-

ence officer’s order rests—that Clackamas County’s agree-

ment to reduce the valuation for the 2009-10 tax year from

over $21 million to $8.5 million did not “indicate the con-

dition of the property” for the 2008-09 tax year. See Bay

v. State Board of Education, 233 Or 601, 605, 378 P2d 558

(1963) (“Whether or not the Board arrived at a conclusion

that was clearly wrong depends upon whether a review of

the entire record discloses any facts from which the conclu-

sion drawn by the Board could be reached by reasonable

minds.”).

On that issue, the county and the department contend that

there was evidence from which the conference officer could

have found that the assessor and Oakmont did not agree

to facts showing a likely error on the roll for the 2008-09

tax year. They note that the county assessor stated at the

hearing before the department, “[W]e don’t agree to facts for

2008, we don’t have any facts” regarding the condition of the

property on January 1, 2008. They reason that, because the

assessor did not agree that construction defects affected the

value of Oakmont’s property as of January 1, 2008, there is

evidence from which the conference officer could have found

that no agreed fact indicated a likely error on the rolls

regarding the 2008-09 tax year.

It is certainly true that the county assessor never

agreed that the valuation for the 2008-09 tax year was

erroneous, nor did he agree to the condition of the property

on January 1, 2008. However, as the Tax Court observed,

the county assessor agreed to facts regarding the value

of the property for the 2009-10 tax year that necessarily

Cite as 359 Or 779 (2016) 791

“indicat[ed] likely error” on the tax rolls for the preceding

tax year. After Oakmont filed its tax appeal for the 2009-10

tax year, the county conducted an appraisal of the prop-

erty. The county’s appraisers concluded that construction

defects affected the value of the property in the 2009-10 tax

year. Consequently, they assigned an “as is” market value of

$13,065,000 as of January 1, 2009—a value that they deter-

mined by subtracting the cost of repairing the construction

defects and the associated loss of rental income from the

initial valuation for the 2009-10 tax year.6

That agreed value—$13,065,000—is significantly

lower than the initial valuation of $21,726,425. Moreover,

later in 2011, Oakmont and the county agreed to a fur-

ther reduction in the value of the property for the 2009-10

tax year; specifically, they agreed to an approximately

60 percent reduction in the valuation for the 2009-10 tax

year from $21,726,425 to $8,500,000. Given the magnitude

of the agreed reduction in value for the 2009-10 tax year

and given the only identified reason for the county’s agreed

reduction in value (construction defects), the Tax Court cor-

rectly determined that the only reasonable finding that the

conference officer could have made on this record was that

the parties agreed to facts indicating a likely error in the

valuation for the 2008-09 tax year.

The county and the department raise a second

argument, which goes to the legal premise underlying the

conference officer’s order. They argue that, when a taxpayer

contends that the “likely error” that gives rise to supervi-

sory jurisdiction is a valuation error, only facts that were

actually known on the date of valuation may be consid-

ered in determining whether the listed valuation is erro-

neous.7 As the county puts it, “Facts which are not known

to the market as of the date of valuation cannot be used

6

The Tax Court noted that the construction defects had existed since 1996

when the apartment complex was constructed. Although the damages resulting

from those defects presumably increased as time passed, it is at least likely that

the damages that resulted in the property’s value being substantially reduced

for the 2009-10 tax year also affected the property’s value in the preceding tax

year.

7

The county and the department phrase this argument in different ways,

but the same principle underlies most of their arguments on appeal.

792 Oakmont, LLC v. Dept. of Rev.

to value the property because such facts can have no effect

on value.”8 As we understand the basis for the county and

the department’s argument, it runs as follows: The legis-

lature has limited the department’s supervisory authority

to making changes or corrections to a tax roll “to conform

the roll to applicable law.” ORS 306.115(3). When a taxpayer

claims that the roll contains an error in valuing property,

“conform[ing] the roll to applicable law” means conforming

the roll to the property’s “real market value”—“the amount

in cash that could reasonably be expected to be paid by an

informed buyer to an informed seller, each acting without

compulsion in an arm’s-length transaction occurring as of

the assessment date for the tax year.” See ORS 308.205(1)

(defining “real market value”).9

The county and the department reason that, if facts

affecting the condition of property were not actually known

to the market on January 1, 2008, then those facts, by defi-

nition, cannot affect the property’s real market value and

thus there was no error (or likely error) on the rolls. Both the

county and the department find support for their position in

Sabin v. Dept. of Rev., 270 Or 422, 528 P2d 69 (1974). The

department argues alternatively that, even if there were

other ways to read the phrase “likely error” in OAR 150-

306.115(4)(b)(A), its reading of its own rule is plausible and

we should defer to it. See Crystal Communications, Inc. v.

Dept. of Rev., 353 Or 300, 311, 297 P3d 1256 (2013) (explain-

ing that courts will defer to the department’s interpretation

of its own rule as long as the department’s interpretation is

plausible and “not inconsistent with the rule, its context, or

any other source of law”).

8

The conference officer explained that he could not consider the second and

third agreed facts that Oakmont identified because they “did not predate the

[January 1, 2008] date of value or indicate the condition of the property as of the

valuation date.” (Emphasis added.) His order thus suggested that, even if the

agreed facts postdated the January 1, 2008, valuation date, those facts could

be considered if they indicated the condition of the property on that date. The

county and the department appear to take a more absolute position. They appear

to argue that, even if the agreed reduction in the assessed value for the 2009-10

tax year did “indicate the condition of the property as of [January 1, 2008],” that

agreement still could not be considered because the defective condition of the

property was not actually known on that date.

9

The statutory definition echoes, nearly verbatim, the definition used in the

Oregon Constitution. See Or Const, Art XI, § 11(11)(a)(A).

Cite as 359 Or 779 (2016) 793

We note, as an initial matter, that the county and the

department’s argument is difficult to square with the statu-

tory definition of “real market value.” The statutory defini-

tion does not say that only facts that are actually known on

the date of valuation can be considered in determining prop-

erty’s real market value. Rather, the statute says that real

market value means “the amount in cash that could rea-

sonably be expected to be paid by an informed buyer to an

informed seller, each acting without compulsion in an arm’s-

length transaction occurring as of the assessment date for

the tax year.” See ORS 308.205(1) (defining “real market

value”). Implicit in the phrase “informed buyer” is the prop-

osition that an “informed buyer” would have engaged in a

reasonable inspection of the property and thus would have

learned facts that a reasonable inspection on the date of val-

uation would have revealed, even if those facts did not actu-

ally come to light until later.

The county and the department argue, however,

that this court held in Sabin that only facts that were actu-

ally known on the date of valuation can be considered in

determining property’s true market value. That argument

is at odds with both the result and the reasoning in Sabin.

In Sabin, the county assessor had determined that the tax-

payers’ commercial property was worth between $6.00 and

$7.00 per square foot. 270 Or at 425. The taxpayers con-

tended that the assessor had overvalued their property and

appealed. Approximately two years after the date of valua-

tion, part of the property sold for $5.00 per square foot, and

the taxpayers argued that the Tax Court should have con-

sidered that sale in determining the value of their property

two years earlier. Id. at 426. This court agreed, explaining

that “[a] sale of the property within a reasonable time of

the assessment[,] while not conclusive, is very persuasive of

market value.” Id. This court remanded the case to the Tax

Court with directions to consider the later sale—a fact that

was not actually known at the date of valuation—in deter-

mining the property’s real market value. Id. at 428.

Not only is that result at odds with the county and

the department’s argument, but so is the court’s reasoning

in Sabin. This court rejected the “assumption” that “evidence

of events subsequent to the assessment date is irrelevant” to

794 Oakmont, LLC v. Dept. of Rev.

determining property’s real market value. Id. at 427 n 11;

see also Truitt Brothers, Inc. v. Dept. of Rev., 302 Or 603,

609, 732 P2d 497 (1987) (sale of similar industrial facility

15 months after assessment date was properly considered

in determining whether earlier assessment was correct).

In rejecting that assumption, the court explained in Sabin

that the condition of the taxpayer’s property had remained

essentially unchanged and that the post-valuation sale was

thus relevant to determining the real market value of the

property two years earlier. 270 Or at 427 n 11; accord Ernst

Brothers Corp. v. Dept. of Rev., 320 Or 294, 305, 882 P2d 591

(1994) (applying that principle). The court contrasted that

situation with a later discovery that the property contained

valuable minerals. 270 Or at 427 n 11. The court observed

that “hindsight acquired by a later discovery of such facts

should not be employed to change the valuation found on the

assessment date.” Id.

As we read Sabin, the discovery of valuable min-

erals involved a condition of the property that was neither

known nor reasonably knowable as of the date of valuation.

By contrast, the sale in Sabin two years after the date of

the valuation bore on the value of the existing use of the

property. The information may not have been known at the

date of valuation but it was the type of information that an

informed buyer and seller reasonably could have discov-

ered on the date of valuation. The same is true here. We

assume that Oakmont and the county did not actually know

of the construction defects on January 1, 2008. However, as

the worker’s discovery in February 2008 suggests and an

inspection in May and June of that year revealed, a reason-

able inspection of the property would have revealed those

defects. In that respect, the discovery of those defects is like

the later sale in Sabin. It is after-acquired information that

reasonably could have been discovered on the valuation date

and that bears on whether the assessor correctly valued the

property on that date.

Not only is the legal principle on which the county

and the department’s second argument turns—that only

facts that are actually known on the date of valuation may

be considered in determining property’s real market value—

squarely at odds with our decision in Sabin and other cases,

Cite as 359 Or 779 (2016) 795

but that principle is also difficult to reconcile with the text of

OAR 150-306.115. The text of that rule requires only that the

parties agree to facts “indicating likely error” on the tax roll.

It may be that, on further review, the department could find

that the construction defects would not have been discovered

if a reasonable buyer and seller had inspected the apart-

ment complex on January 1, 2008. See Willamette Estates II,

LLC, 357 Or at 118 (distinguishing between likely error and

actual error for the purposes of OAR 150-306.115). However,

the agreed facts “indicate” that it is at least “likely” that a

reasonable inspection would have uncovered the existence of

construction defects and that the error in the assessment for

the 2008-09 tax year should be corrected. We recognize that

the department argues that we should defer to its interpre-

tation of its rule. However, the department’s interpretation

of its rule rests on a legal principle that we rejected in Sabin.

See Crystal Communications, Inc., 353 Or at 311 (explaining

that no deference is due when department’s interpretation is

“inconsistent with * * * any other source of law”).

The Tax Court correctly held that the department

had supervisory jurisdiction over Oakmont’s petition to

reduce the assessed value of the property for the 2008-09 tax

year. Oakmont had no remaining statutory right of appeal,

and the parties to the petition agreed to facts indicating a

likely error on the tax rolls. It follows that the department

had supervisory jurisdiction to consider whether there was

in fact an error on the tax rolls and whether, if there was,

the department should exercise its discretion to correct any

error. The department did not reach those issues, and we

express no opinion on them.10 Rather, we agree with the Tax

Court that the case should be remanded to the department

to consider those issues in the first instance.

The judgment of the Tax Court is affirmed.

10

The county argues that we should reverse the Tax Court’s decision and

affirm the department’s order because the department correctly exercised its dis-

cretion to decline to correct any error on the rolls. As we read the department’s

order, the department ruled that it lacked supervisory jurisdiction to consider

the issue raised by Oakmont’s petition and thus never exercised its discretion. It

follows that the county’s argument is premature.