Boardman Acquisition, LLC v. Dep't of Revenue, SC S063682

• Decision Date: 11 May 2017
• Docket Number: SC S063682
• Citation: 393 P.3d 1147,361 Or. 440
• Parties: BOARDMAN ACQUISITION, LLC, a Delaware limited liability company, Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant. Port of Morrow, Plaintiff-Appellant, v. Department of Revenue, State of Oregon, Defendant-Respondent, and Morrow County Assessor, Defendant.
• Court: Oregon Supreme Court

361 Or. 440

393 P.3d 1147

BOARDMAN ACQUISITION, LLC, a Delaware limited liability company, Plaintiff,

v.DEPARTMENT OF REVENUE, State of Oregon, Defendant.

Port of Morrow, Plaintiff-Appellant,

v.Department of Revenue, State of Oregon, Defendant-Respondent,andMorrow County Assessor, Defendant.

SC S063682

Supreme Court of Oregon.

Argued and submitted January 12, 2017.

May 11, 2017

W. Michael Gillette, Schwabe Williamson & Wyatt PC, Portland, argued the cause and filed the briefs for the appellant. Also on the briefs were Jordon R. Silk and Dan Eller.

Paul L. Smith, Deputy Solicitor General, Salem, argued the cause and filed the brief for respondent. Also on the brief were Ellen F. Rosenblum, Attorney General, and Benjamin Gutman, Solicitor General.

Before Balmer, Chief Justice, and Kistler, Walters, Landau, Brewer, Nakamoto, and Flynn, Justices.^**

BALMER, C. J.

This case involves ad valorem property taxes. The land at issue had been exempted from some property taxes because it was specially assessed as nonexclusive farm use zone farmland under ORS 308A.068 (2013).¹ As we will explain, when that special assessment ends, the property ordinarily has an additional tax levied against it. The question here is whether an exception created by ORS 308A.709(5) applies to excuse the payment of that additional tax. The Tax Court agreed with the Department of Revenue and concluded that the exception was not available. Boardman Acquisition LLC v. Dept. of Rev. , 22 OTR 183, 2015 WL 5695072 (2015). The Port of Morrow appeals. As we will explain, we conclude that the statutory text on which this case turns—"the date the disqualification [from special assessment] is taken into account on the assessment and tax roll," ORS 308A.709(5) —means the date the disqualification becomes effective on the assessment and tax roll. As a result of that holding, we affirm.

I. OVERVIEW OF LAW

Before considering the facts at issue here, it is helpful to first outline farmland special assessments generally. At its core, the farmland special assessment changes how the land is valued for tax purposes. Ordinarily, "[t]he real market value of property is the starting point for determining the amount of property tax." Dept. of Rev. v. River's Edge Investments, LLC , 359 Or. 822, 825, 377 P.3d 540 (2016) (citation and footnote omitted). In the case of farmland, however, the legislature explained that it did not want farmland to be valued at its real market value using "market data from sales for investment or other purposes not connected with bona fide farm use," because doing so would "encourage[ ] the conversion of agricultural land to other uses." ORS 308A.050. Accordingly, the legislature stated that it intended that "bona fide farm properties be assessed for ad valorem property tax purposes at a value that is exclusive of values attributable to urban influences or speculative purposes." Id .

To carry out that purpose, the legislature directed that property that qualifies for the farmland special assessment be valued using the income approach, not by examining comparable sales. See ORS 308A.092(2) ("The values for farm use of farmland shall be determined utilizing an income approach[,]" with the capitalization rate derived from loans on farm properties.). The special assessment thus allows a taxpayer to avoid some property taxes, because the property is valued for tax purposes at less than its real market value.

The avoided taxes remain a potential liability on the property, however, should the land lose its qualification for the special assessment. When specially assessed property is disqualified, the taxes that had been avoided for up to five years (in the case of farmland not zoned exclusively for farm use) are added to the next assessment and tax roll. ORS 308A.703(2), (3)(d)(A) (specifying period is lesser of five years or the actual period the land qualified for special assessment).² The statutes describe the avoided taxes added onto the roll as the "additional tax."

The additional tax is not assessed in some limited circumstances. This case turns on whether the exception set out in ORS 308A.709(5) applies to the land at issue here.

ORS 308A.709, which lists the situations in which the additional tax is eliminated, provides:

"Notwithstanding that land may have been disqualified from special assessment, no additional taxes may be imposed under ORS 308A.703 if, as of the date the disqualification is taken into account on the assessment and tax roll, the land is any of the following:

" * * * * *

"(5) Public property that was leased or rented to a taxable owner as described in ORS 307.110 at the time of disqualification, and the reason for the disqualification was the termination of the lease under which the land was assessed."

This case turns on which particular date is meant by the phrase "the date the disqualification [was] taken into account on the assessment and tax roll." The port argues that, on that date as correctly understood, the property was still owned by the port and therefore was "public property." Because the other conditions of the statute also had been met, the port asserts that under the statute, "no additional taxes may be imposed." The department counters that the port incorrectly identifies the date on which the disqualification was taken into account on the assessment and tax roll. As of the correct date, the department argues, the property was owned by a private entity and was no longer "public property." For that reason, it asserts, the additional tax was properly imposed.

II. FACTS

The Tax Court granted summary judgment in favor of the department based on stipulated facts, which we summarize here. At issue are taxes on two adjacent lots for the tax year 2013-14. For at least five years before that time, the Port of Morrow had owned that property and had leased it to a tenant. The tenant was subject to property tax. See ORS 307.110. The tenant qualified the property for special assessment as nonexclusive farm use zone farmland under ORS 308A.068.

Effective August 6, 2012, the port and the tenant cancelled the lease. The port notified the county assessor of the lease termination on August 7. In doing so, it asked the county assessor to disqualify the property from special farm use and special assessment. See ORS 308A.116(1)(a) (specially assessed property may be disqualified on "request" of the taxpayer). The assessor's staff responded by email the same day:

"This [disqualification] will be processed for 1/1/13, it is too late to process a [disqualification] for the current year. We are in the middle of a computer software change here and things are pretty hectic * * * so I won't be processing this until later this fall but go ahead and send the official request letter[.]"

Four days after the lease was cancelled—on August 10, 2012—the port sold the property to Boardman Acquisition (Boardman). There is no contention that Boardman qualified the property for this special assessment (or any other). The sale contract required the port to pay any additional taxes assessed against the property because of the termination of the prior lease and the end of the special assessment. In May 2013, the county assessor sent a notice of disqualification to Boardman. The notice stated that the additional tax incurred by the prior tenant, $127,270.61, would be added to the 2013-14 tax year. Pursuant to its contract with Boardman, the port paid those taxes.

The port sought a refund of the taxes that it paid on behalf of Boardman. The county assessor denied the refund. The matter proceeded through the Magistrate Division of the Oregon Tax Court to the Regular Division, where the parties filed opposing motions for summary judgment. The Regular Division (the Tax Court) granted summary judgment for the department.

The Tax Court began with the statutory text, which eliminates the additional tax only " ‘if, as of the date the disqualification is taken into account on the assessment and tax roll, the land is ' " " ‘[p]ublic property’ " that had previously been leased to a taxable party and disqualified by the lease termination. 22 OTR at 190 (emphasis in original; additional emphasis deleted; quoting ORS 308A.709(5) ). From that, the court concluded that it had to determine the date on which the disqualification had been "taken into account on the assessment and tax roll," so that it could determine whether the land, at that particular point in time, met the conditions of ORS 308A.709(5) : that it was, at that time, public property that previously had been leased to a taxable owner and the special assessment for which had been disqualified by termination of lease. 22 OTR at 190. Based on ORS 308A.068(3) (which we will discuss shortly), the court held that the disqualification was not "taken into account on the assessment and tax roll" until January 1, 2013. 22 OTR at 191. Because the land was not "public property" on January 1—Boardman had bought the property nearly four months earlier—the requirements of ORS 308A.709(5) had not been met. Therefore, the exception did not apply, and the additional tax was properly assessed against the property. 22 OTR at 191-92.

III. DISCUSSION

Throughout this opinion, we refer to the port as if it were the taxpayer. We emphasize, however, that the port's liability is through its agreement with Boardman to pay any additional taxes due because of the disqualification. See ORS 307.090(1) (generally, ports not liable for property taxes).

A. Statutory Text and Context

The text of the exception at issue here, ORS 308A.709, provides, in part:

"Notwithstanding that land may have been disqualified from special assessment, no additional taxes may be imposed under ORS 308A.703 if, as of the date the disqualification is taken into account on the assessment and tax roll, the land is any of the following:

" * * * * *

"(5) Public property that was leased or rented to a taxable owner as described in ORS 307.110 at the time of disqualification, and the reason for

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