Freedom Federal Sav. and Loan Ass'n v. Department of Revenue, State of Or.

• Decision Date: 26 November 1990
• Citation: 801 P.2d 809,310 Or. 723
• Parties: FREEDOM FEDERAL SAVINGS AND LOAN ASSOCIATION, a Federally chartered savings and loan association, Appellant, v. DEPARTMENT OF REVENUE, STATE OF OREGON, Respondent. OTC 2806; SC S36758.
• Court: Oregon Supreme Court

Page 809

801 P.2d 809

310 Or. 723

FREEDOM FEDERAL SAVINGS AND LOAN ASSOCIATION, a Federally chartered savings and loan association, Appellant, v. DEPARTMENT OF REVENUE, STATE OF OREGON, Respondent.

OTC 2806; SC S36758.

Supreme Court of Oregon In Banc.

Argued and Submitted July 10, 1990.

Decided Nov. 26, 1990.

James H. Conley, Salem, argued the cause and filed the briefs for appellant. With him on appellant's opening brief was Larry Jon Pound, Salem.

James C. Wallace, Asst. Atty. Gen., Salem, argued the cause for respondent. With him on the brief was Dave Frohnmayer, Atty. Gen., Salem. GRABER, Justice.

Taxpayer is a savings and loan association. This ad valorem tax case concerns the true cash value of its headquarters in Corvallis. Taxpayer appeals from the Tax Court's judgment that $4,261,720 was the true cash value of the property for the 1986-87 and 1987-88 tax years. Freedom Fed. Savings and Loan v. Dept. of Rev., 11 OTR 317, 1989 WL 135448 (1989). We review de novo, ORS 305.445; ORS 19.125, and affirm.

The property consists of 4.02 acres of land and a building containing about 39,000 square feet. Cascade Federal Savings and Loan Association constructed the building in 1979 for its headquarters. In 1983, Far West Federal Bank, with whom Cascade Federal had merged, sold the property to State Savings and Loan Association for $4,260,000. State Savings used the property for its headquarters. The Federal Savings and Loan Insurance Corporation (FSLIC) closed State Savings in December 1985, and taxpayer then acquired the property. Taxpayer used the property as its headquarters from December 1985 through the assessment dates, January 1, 1986, and January 1, 1987.

Taxpayer argues that the true cash value of the property on the assessment dates was $1,900,000, while the Department of Revenue (the Department) contends that the true cash value was $4,261,720. The disparity results from differing opinions about the highest and best use of the property, on which value is based.

The parties' expert witnesses provided several definitions of "highest and best use," all of which were similar. Taxpayer's appraiser, Howard, gave this definition:

"[T]hat reasonable and probable use that will support the highest present value as of the date of the appraisal; alternatively, that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible which results in the highest land value. This definition is applied specifically to the highest and best use of land. It is recognized that in cases where a site has existing improvements, the highest and best use as if vacant may very well be determined to be different from that given the existing improvements (as improved). The existing use will continue, however, until the land value, in its highest and best use, exceeds that total value of the property under its existing use plus the cost of removing or altering the existing structure." (Emphasis added.)

That definition is consistent with ORS 308.232, which requires property to be assessed at 100 percent of its true cash value, and with ORS 308.205, which defines true cash value as market value as of the assessment date. Oregon Broadcasting Co. v. Dept. of Revenue, 287 Or. 267, 274-75, 598 P.2d 689, reh. den. 287 Or. 499, 601 P.2d 473 (1979).

Although the parties agree generally on the definition of highest and best use, they disagree about how to apply the definition to the subject property. Taxpayer asserts that the highest and best use on the assessment dates was as a "first class, multi-tenant office building." In contrast, the Department contends that the highest and best use of the property was its then-existing use as a financial institution's headquarters. Taxpayer rejects a financial institution's headquarters as the highest and best use, arguing that the decline of the savings and loan industry made it highly improbable that another financial institution would have wanted to buy the property on the assessment dates.

We agree with the Department that, at the relevant times, the highest and best use of the property was as a financial institution's headquarters. The building was specifically designed and was used for that purpose. It contained extensive open space and expensive amenities, making it difficult to adapt for multi-tenant use. Although the savings and loan industry may have been weak, on the assessment dates taxpayer fully occupied the property as its headquarters. Whether the highest and best use would continue to be a financial institution's headquarters after the assessment dates is irrelevant.

Taxpayer argues that, if there were no immediate market for the property as a financial institution's headquarters, then the property had to be valued at an alternative use for which an immediate market existed. The question whether an immediate market exists for a building at a particular use is separate, however, from the question whether that use is highest and best. If taxpayer were correct, then ORS 308.205(1) would have little purpose. ORS 308.205(1) provides for the valuation of property that has no immediate market: "If the property has no immediate market value, its true cash value is the amount of money that would justly compensate the owner for loss of the property." The first issue is the highest and best use of the property; the second issue is the market value of the property at that use.

Moreover, Howard, taxpayer's own appraiser, contradicted the argument that a multi-tenant office building was the highest and best use of the subject property. He appraised the building for its "value-in-use" as a financial institution's headquarters, as well as for its value as a multi-tenant office building. Howard estimated the value as a financial institution's headquarters at $2.2 million ¹ and the value as a multi-tenant office building at $1.9 million. By taxpayer's own analysis, therefore, the existing use, which surely was "reasonable and probable," resulted in "the highest present value as of the date of the appraisal."

Having determined the highest and best use, we now consider the value of the property at that use. The county must assess real property at 100 percent of its "true cash value." ORS 308.232. ORS 308.205 defines "true cash value" as the market value of the property as of the assessment date. Our inquiry is not determined by fixed principles of law, but is a factual determination based on the record. Brooks Resources Corp. v. Dept. of Revenue, 286 Or. 499, 503-04, 595 P.2d 1358 (1979). Taxpayer has the burden to show that its approach to valuation best reflects true cash value. ORS 305.427; Lewis v. Dept. of Rev., 302 Or. 289, 293, 728 P.2d 1378 (1986).

Taxpayer's appraiser, Howard, performed two appraisals at the request of FSLIC. In the first, which Howard performed in late 1985 and early 1986, he found the market and liquidation values of the property. In...