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IN THE OREGON TAX COURT REGULAR DIVISION Property Tax HOPE VILLAGE, INC., an Oregon nonprofit organization, Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant. ) ) ) ) ) ) ) ) ) )

TC 4602 PRELIMINARY RULING

I. INTRODUCTION In this property tax case both parties have requested that the court issue preliminary rulings on several questions to assist them in preparing for trial.1 Each question relates to the construction of ORS 308.490,2 a statute that both parties agree dictates the method of valuation for the property in question, a nonprofit home for the elderly. ORS 308.490 provides: "(1) The Legislative Assembly finds that ordinary methods of determining the assessed value of real property, particularly by consideration of the cost of replacing a structure with a similar and comparable one of equivalent utility, are not appropriate with respect to property of nonprofit homes for elderly persons, operated by corporations described in ORS 307.375. The Legislative Assembly declares that the benefits inherent in operation of these homes, especially in the housing and care furnished to elderly persons for whom this state and its political subdivisions otherwise might be responsible, justifies the use of criteria set out in subsection (2) of this section. "(2) In determining the assessed value of the property of a nonprofit home for
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This process has been used before. See Boise Cascade Corp. v. Dept. of Rev., 12 OTR 263, 264 (1992). All references to the Oregon Revised Statutes (ORS) are to 2001. Page 1.

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elderly persons, operated by a corporation described in ORS 307.375, the county assessor shall not take into account considerations of replacement cost, but shall consider: "(a) The amount of money or money's worth for which the property may be exchanged within a reasonable period of time under conditions in which both parties to the exchange are able, willing and reasonably well informed. "(b) The gross income that reasonably could be expected from the property if leased or rented to the public generally, less annual operating expenses, reserves for replacements and insurance, depreciation and taxes. "(c) The relative supply and demand for similar properties. "(d) The relative value of the location of the property." II. PRELIMINARY RULINGS REQUESTED Plaintiff (taxpayer) and the Department of Revenue (the department) have requested preliminary rulings on the following issues: A. The Sales Comparison Approach Taxpayer requests a preliminary ruling that the assessor may consider an ordinary sales comparison approach under ORS 308.490(2)(a) and a modified income approach under ORS 308.490(2)(b), both approaches to be informed by the considerations listed in ORS 308.490(2)(c) and (d). In contrast, the department views the provisions of ORS 308.490(2)(a) as stating an overall market value goal rather than a description of a sales comparison approach. The department further contends that in analyzing comparable sales it can, with proper adjustments, consider sales of apartments or condominiums. B. The Modified Income Approach Regarding the application of the modified income approach set out in ORS 308.490(2)(b), taxpayer requests a ruling that the assessor should apply the statutory formula by

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determining the gross income that could be expected if the property were leased or rented to the public generally, less the expenses listed in the statute, each of which is a mandatory deduction, and dividing the resulting net operating income by a market capitalization rate. Conversely, the department believes that statutory provision calls for "consideration of a pro forma income approach designed to estimate market value of the subject nonprofit retirement home if it was operated on a for profit basis." (Def's Mot at 22.) C. Reconciliation of Value Indicators Taxpayer asks for a ruling that, in reconciling divergent indicators of value, the assessor should adopt the modified income approach when its indicated valuation is lower than the valuation indicated by the market exchange approach. The department argues that indicators should be reconciled to the overall goal of arriving at market value. III. INITIAL ANALYSIS The court will proceed with the particular issues identified in the briefs of the parties. However, at the outset, it is important to address whether ORS 308.490 is a statute implementing special assessment principles. The foundation argument of the department on which most, if not all, of its particular points are based is that the goal of the procedures outlined in ORS 308.490 is to arrive at real market value. The department asserts that the 1969 legislation that produced ORS 308.490 was only a response to a finding that the practices then used in the valuation of nonprofit homes for the elderly produced assessments in excess of fair market value. The department argues that the statute did not, however, abandon a goal of fair market value (now referred to statutorily as real market value) and, specifically, did not authorize a special assessment process for retirement homes owned by nonprofit corporations.

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Analysis of that point involves the methodology spelled out in PGE v. Bureau of Labor and Industries, 317 Or 606, 859 P2d 1143 (1993). The court has considered both the text and the context of the statute and reviewed the legislative history from 1969. This is necessary because the statute is far from clear on a number of points. That said, the legislative history presents a special problem because the finalized version of the statute was drafted anew in conference committee and adopted within a very short time period, without hearings. The conference solution was preceded by a series of attempts to follow other approaches, each of which failed to command the necessary votes. The legislative findings stated in ORS 308.490(1) reflect the legislative history of the discussions and legislative activity that occurred prior to the conference committee action. That legislative history shows legislators were concerned that, with few actual sales of retirement homes for use in a sales indicator and no "profit" on which to base an income indicator, the assessors were placing undue, if not sole, reliance on replacement cost as the indicator of value.3 A number of legislators were concerned that value conclusions for retirement homes were in excess of values for similar "private" housing. Proposals to have statutorily objective and fixed percentage reductions to otherwise determined assessed values for retirement homes were defeated. When the 1969 Legislative Assembly met, the base for determining property tax was "true cash value," which was, in substance, fair market value as of the assessment date. True cash value was to be determined by methods and procedures in accordance with rules and regulations of the department's predecessor. ORS 308.205, as amended by Or Laws 1955,
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The court notes that it does not necessarily accept the view that an income indicator requires that the owner be a for-profit entity. PRELIMINARY RULING Page 4.

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