Dept. of Rev. v. River’s Edge Investments, LLC

Under ORS 308.232, and OAR 150-308.205-(A)(3), the “especial property” rule, a property’s real market value, and final value for tax purposes, is not determined by averaging the figures of the various appraisal methods, but by comparing the approaches used and comparing their reliability in context. The weight to be accorded each method is a question of fact for the Tax Court.

The Department of Revenue (Department) appealed a Tax Court decision involving the valuation of a convention center owned by River’s Edge Investments, LLC (Taxpayer). The Department and Taxpayer appraised the convention center at two different values. Under ORS 308.232, unless property is exempt from ad valorem taxation, it should “be valued at 100 percent of its real market value.” “Real market value,” in turn, is appraised via three different methods under OAR 150-308.205-(A)(2)(a): cost, income, and comparable sales. The cost approach estimates value from what it would cost to construct a similar property; the income approach estimates value from income that the property could be expected to generate; and the comparable sales approach estimates value from the prices paid for similar properties. However, some properties are developed for a specific purpose, and have value only for that purpose. These are called especial properties, and are valued under ORS 308.205(2)(c) (“If the property has no immediate market value, its real market value is the amount of money that would justly compensate the owner for loss of the property.”), and the Department’s “especial property” rule, OAR 150-308.205-(A)(3). Under the “especial property” rule, appraisers need not use the comparable sales approach to value property because the property has no comparable sales; as such, “real market value must be determined by estimating just compensation for loss to the owner of the unit of property through either the cost or income approaches, whichever is applicable, or a combination of both.” OAR 150-308.205-(A)(3) (emphasis added). The Department assigned error to the Tax Court’s rejection of the Department’s appraisal because the Department used only the cost method, not the income method, for its appraisal of the convention center. The Court held that the Tax Court did not err, because the Department could not justify why it did not use the income method as well. Under ORS 308.232, a final value is not determined by averaging results from different methods, but by comparing the approaches used and their reliability in context. The weight to be given to the various approaches is a question of fact. The Court held that the Tax Court did not err, when evaluating Taxpayer’s appraisal, in determining that the income approach was the more correct approach to valuation in this case. The judgment of the Tax Court is affirmed. The supplemental judgment awarding attorney fees is vacated, and the matter is remanded to the Tax Court for further proceedings.