Bayridge Associates Ltd. Partnership v. Department of Revenue

• Decision Date: 21 April 1995
• Citation: 321 Or. 21,892 P.2d 1002
• Parties: BAYRIDGE ASSOCIATES LIMITED PARTNERSHIP, formerly known as A & G Builders, Ltd., Respondent, v. DEPARTMENT OF REVENUE, State of Oregon, Appellant. DURHAM PARK LIMITED PARTNERSHIP, Respondent, v. DEPARTMENT OF REVENUE, State of Oregon, Appellant. OTC 3271, OTC 3272; SC S41163.
• Court: Oregon Supreme Court

Page 1002

892 P.2d 1002

321 Or. 21

BAYRIDGE ASSOCIATES LIMITED PARTNERSHIP, formerly known as A & G Builders, Ltd., Respondent, v. DEPARTMENT OF REVENUE, State of Oregon, Appellant.

DURHAM PARK LIMITED PARTNERSHIP, Respondent, v. DEPARTMENT OF REVENUE, State of Oregon, Appellant.

OTC 3271, OTC 3272; SC S41163.

Supreme Court of Oregon,

In Banc.

Argued and Submitted Jan. 5, 1995.

Decided April 21, 1995.

Robert B. Rocklin, Asst. Atty. Gen., Salem, argued the cause for appellant. With him on the briefs were Theodore R. Kulongoski, Atty. Gen., and Virginia L. Linder, Sol. Gen., Salem.

David P. Weiner and Anne L. Meagher, of Samuels, Yoelin, Weiner, Kantor & Seymour, argued the cause and filed the brief for respondents.

GRABER, Justice.

This case involves the valuation, for ad valorem tax purposes in the tax year 1990-91, of two apartment complexes--the Durham Park Apartments, located in Tigard, and the Bayridge Apartments, located in Beaverton. The Tax Court found that the true cash value of the Durham Park property was $6,535,000 and that the true cash value of the Bayridge property was $4,412,000. Bayridge Assoc. Ltd. Partnership v. Dept. of Rev., 13 OTR 24, 31, 1994 WL 33368 (1994). On de novo review, ORS 305.445, we affirm.

Durham Park Limited Partnership and Bayridge Associates Limited Partnership (taxpayers) receive federal income tax credits, under 26 U.S.C. § 42 (IRC § 42), in return for operating the properties at issue as low-income housing. The Tax Court held that that arrangement, as applied by the Oregon Housing Authority (OHA), ¹ constitutes a "governmental restriction as to use" of the properties under ORS 308.205(2) (1989). ² 13 OTR at 27-28. The Tax Court concluded that the "governmental restriction as to use" made taxpayers' appraisal based on actual or contract rents more accurate in determining the true cash value of the properties than the appraisal based on market rents conducted by the Department of Revenue (department). Id. at 31.

The department appealed. The issue presented on appeal is a legal one: whether a property owner's participation in the section 42 low-income housing program constitutes a "governmental restriction as to use" of the property, thereby requiring a reduction in the assessed value of the property pursuant to ORS 308.205(2) (1989). There are no factual issues. The department and taxpayers agree about the operative facts, and they do not quarrel with each other's calculations; we simply must determine whose appraisal to accept.

Durham Park was completed in 1989. The project contains 224 living units in 28 eight-unit (8-plex) buildings. The 8-plexes are all three-story buildings. There are separate one-story buildings that contain garages, offices, and a recreation area. Durham Park was constructed, and is operated, as a low-income housing project.

The Bayridge complex is similar to the Durham Park project. It is a multi-building, 246-unit development. Bayridge was constructed, and is operated, as a low-income housing project. Bayridge was 60 percent complete as of the assessment date.

Under 26 IRC § 42, the owner of an apartment complex may qualify for substantial income tax credits. As the Tax Court properly noted, "[t]he laws governing income tax credits and low-income housing are complex." 13 OTR at 26. See generally Andrew Zack Blatter and Elena Marty-Nelson, An Overview of the Low Income Housing Tax Credit, 17 U.Balt.L.Rev. 253 (1988) (providing a detailed examination of the operation of the low-income housing tax credit). A brief overview of that law will suffice for our purposes here.

The low-income housing tax credit is available for certain low-income housing projects. IRC § 42(a), (c)(2), (g). In order to qualify for that credit, the owner of, or investor in, an apartment complex must make available a certain number of rental units in the project for use by the general public on a residential (i.e., non-transient and non-commercial) basis for not less than 15 years. IRC § 42(g), (i)(1). If the owner or investor qualifies, section 42 provides income tax credits to the owner or investor over a 10-year period, IRC § 42(f)(1), based on the cost of the building and the proportion of the building used by low-income tenants, IRC § 42(a)-(d).

The Internal Revenue Code (Code) places a limit of $1.25 per capita on the aggregate amount for each taxable year that may be claimed as credits by all the taxpayers in a given state. IRC § 42(h)(3)(C). The Code requires that "the State housing credit ceiling for each calendar year shall be allocated to the housing credit agency of" each state. IRC § 42(h)(3)(B). The state agency allocates those credits to owners or investors. IRC § 42(h)(3)(A). In 1990, Oregon had $2,643,750 in tax credits to allocate.

If a project fails to comply with the tenant and rent limitations in IRC § 42 at any time during the 15-year compliance period, the taxpayer is subject to a recapture of a portion of the credit claimed. IRC § 42(j). Additional taxes, plus interest, will be due as a result. IRC § 42(j)(2). When a sale occurs before the end of the 15-year compliance period, it is possible to avoid recapture on the sale of a low-income housing project that qualifies for tax credits under IRC § 42. To accomplish that, the seller of the project must post a bond in an amount satisfactory to, and for the period required by, the Secretary of the Treasury, if it reasonably is expected that the project will continue to be operated as a qualified low-income project for the remainder of the building's compliance period. IRC § 42(j)(6). The amount of the required bond generally equals or exceeds the value of the credits claimed or available. See Rev.Rul. 90-60, 1990-2, CB 2 (explaining bond).

In Oregon, for the tax year in question, the OHA administered the distribution of federal tax credits for low-income housing. ORS 456.559(1)(f) (1989). That agency was established by statute, ORS 456.553(1) (1989), in response to the legislature's conclusion that there was an inadequate supply of low-income housing in Oregon and that it was the desire of the state to ensure an adequate supply of such housing. ORS 456.550 (1989). If a taxpayer received credits under IRC § 42 and later failed to comply with the federal statutory requirement, OHA would report that noncompliance to the Internal Revenue Service. See Treas.Reg. § 1.42-5(e)(1).

Under IRC § 42, as already noted, the taxpayer claiming the credit must limit rents in the complex to obtain the tax credits. OHA set additional requirements. For example, OHA's allocation document pertaining to the properties in question incorporated by reference the terms and conditions set forth in taxpayers' applications for tax credits. Those applications provide that taxpayers must

"[a]gree to rent, or hold available for occupancy, for 15 years at least 20% of the dwelling as Rent Restricted Units for low-income tenants whose incomes are 50% or less of area median gross income adjusted for family size, or at least 40% of the dwelling as Rent Restricted Units for low-income tenants whose incomes are 60% or less of area median gross income adjusted for family size."

Against that background, we examine the applicable Oregon statutes. ORS 308.232 (1989) required all property to be assessed at 100 percent of its true cash value. ORS 308.205 (1989), quoted at note 1, ante, defined "true cash value" as "the market value" of the property. However, ORS 308.205(2) (1989) also provided that, when a property was "subject to governmental restriction as to use," true cash value must be adjusted to reflect or take into account that restriction.

Taxpayers argue (and the Tax Court held) that the federal low-income housing tax credit program, as administered by OHA, constitutes a "governmental restriction as to use" that needs to be taken into account in determining the true cash value of the property pursuant to ORS 308.205(2) (1989). The department counters that the section 42 program is not a "governmental restriction," because a "governmental restriction" must be involuntary and it must not be to a taxpayer's financial advantage. The department further contends that, even if the program is a "governmental restriction," it is not a governmental restriction "as to use" of the property. For the reasons that follow, we agree with taxpayers and the Tax Court.

In interpreting a statute, our task is to discern the intent of the legislature. ORS 174.020; PGE v. Bureau of Labor and Industries, 317 Or. 606, 610, 859 P.2d 1143 (1993). The text of the statutory provision in question is the best evidence of the legislature's intent and the starting point for our inquiry. Id. at 610, 859 P.2d 1143. Words of common usage typically should be given their plain, natural, and ordinary meaning. Griffin v. Tri-Met, 318 Or. 500, 508, 870 P.2d 808 (1994).

We use the foregoing principles in interpreting ORS 308.205(2) (1989). That statute did not define "restriction." In ordinary usage, a "restriction" is:

"1: something that restricts: QUALIFICATION: as a: a regulation that restricts or restrains * * * b: a limitation placed on the use or enjoyment of real or other property; esp: an encumbrance on land restricting the uses to which it may be put." Webster's Third New Int'l Dictionary, 1937 (unabridged ed 1993).

A restriction thus is "a limitation placed on the use or enjoyment" of the property, without any necessary reference to the process that led to the placement of that restriction, without any necessary reference to the form of the restriction (e.g., by statute or by contract), and without any necessary reference to the absence of an economic benefit in exchange for placement of that restriction.

ORS 308.205(2) (1989) also used, without defining it, the adjective "governmental" to modify the noun "restriction." In ordinary usage, "governmental" means "of or relating to government or to the government of a particular political...