Farmer's Direct, Inc. v. Dep't of Revenue

• Decision Date: 03 February 2021
• Docket Number: TC 5328
• Parties: FARMER'S DIRECT, INC., Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.
• Court: Oregon Tax Court

FARMER'S DIRECT, INC., Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.

TC 5328

OREGON TAX COURT REGULAR DIVISION Property Tax

February 3, 2021

ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

Plaintiff ("Taxpayer") uses a Steffen Systems Model 4600SP Big Bale Compression System (the "Compression System") in its business of compressing bales of hay and straw for shipping. Taxpayer seeks exemption from property tax for the Compression System under ORS 307.394(1)¹ for tax years 2016-17 and 2017-18. Taxpayer appeals from an adverse decision from the Magistrate Division. Defendant (the "Department") has filed a motion for summary judgment, which Taxpayer resists.

The court will deny the Department's motion. Although the parties have helpfully stipulated to numerous facts and have provided other documentary and graphic evidence, those presentations leave factual gaps because they are based in part on legal theories that the courtconcludes conflict with governing law. To apply the governing statutes as the court construes them, the court will set the case for trial, preferably after an opportunity to view the Compression System pursuant to Tax Court Rule ("TCR") 56 E. As part of the analysis in this order, the court identifies additional areas of factual development that may be relevant.

II. FACTS

The parties have stipulated to a number of facts and have submitted 11 pages of stipulated photographs and three videos showing the Compression System in operation. In addition, Taxpayer has submitted three declarations from an owner and two employees. Solely for purposes of its motion, the Department does not dispute the facts alleged in Taxpayer's declarations. (Def's Reply at 1.)

Taxpayer is in the business of compressing bales of hay and straw sourced from the individuals who own Taxpayer and from other farms. (Stip Facts at 2, ¶ 4; id. at 4, ¶ 20.) Taxpayer uses the Compression System to compress the large bales produced at the farms into smaller, much denser, bales to facilitate shipment overseas. (See id. at 2, ¶¶ 4-5; id. at 3, ¶¶ 10, 12, 16.) The Compression System takes up approximately 1,372.2 square feet of space and is housed in a pole barn that Taxpayer leases in Yamhill County. (Id. at 2, ¶7; id. at 4, ¶¶ 17-18.) The Compression System includes the following main components: an infeed system, a main press, an outfeed system, hydraulic and electric power units, and a control system. (Id. at 2-3, ¶ 8.) Hay and straw bales are initially placed into the infeed system which can hold up to 12 big bales and which severs the bales in two. (Id. at 3, ¶¶ 10, 15.) The main press compresses the bales lengthwise. The bales are then wrapped for shipment. (Id. at 3, ¶ 10.)

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/ / / To prevent the Compression System from moving during operation, (1) the infeed and outfeed systems and the main press are bolted together; and (2) most of the Compression System is bolted to the concrete floor. (Id. at 4-5, ¶¶ 26-28.)

The Compression System obtains the hydraulic pressure it requires through 20 separate hydraulic hose connections. (Id. at 5, ¶ 33.) The parties supplied photographs captioned "Hydraulic plumbing" or "Hydraulic pump." (Stip Ex C at 3, 6.) The Department characterizes the hydraulic system as "extensive" and asserts that the Compression System is "hard plumbed into the hydraulic system of the barn." (Def's Mot Summ J at 2, 10.) Taxpayer supplied a declaration of its General Manager stating that the hydraulic hoses can be disconnected quickly using basic tools. (Ptf's Decl of Lerwick at 2, ¶ 9.) Taxpayer asserts that, after being disconnected from the Compression System, the hydraulic "component" can be moved as one unit, using skids already attached to its underside. (Id. at 3, ¶ 22.)

The Compression System is connected to an electrical power unit that is bolted to the floor and is "hardwired" to a power panel that is attached to a wall. (Stip Facts at 5, ¶¶ 29, 30.) Taxpayer's office manager submitted a declaration stating that this panel is a dedicated unit that is separate from the panel that powers the barn lights and barn electricity. (Ptf's Decl of Schuld at 2, ¶¶ 8-9.) A transformer located outside the barn was installed to support electrical power needed for the Compression System and for the barn generally. (Stip Facts at 5, ¶¶ 30-31.) The parties supplied photographs captioned "Electrical panel that services hydraulic pump and compression machine," "Electrical panel interior," and "Hard-wiring in electrical conduit," as well as two photographs of the transformer. (Stip Ex C at 3-5.) The Department characterizes the electrical system as "expansive" and the electrical panel as "large," and the Department states that there are "electrical lines running from the[] [transformer] to the panel inside the barn, inorder to accommodate the electrical needs of the Compression System." (Def's Mot Summ J at 2.) Taxpayer objects to the Department's use of the terms "large" and "expansive"; Taxpayer seeks to prove at trial that the power panel is a component of the Compression System which will be moved with it.

Although it took Taxpayer three to four weeks to install the Compression System, the parties stipulate that it could be installed at its current location in a couple of days.² (Stip Facts at 4, ¶¶ 23-24.) To move the Compression System from its current location, the hydraulic and electrical components must be disconnected, and bolts connecting components together and connecting the Compression System to the floor must be removed. (Id. at 5, ¶ 34.) Taxpayer's General Manager testified that his crew would "shear off" the bolts connecting the feet of the Compression System to the floor so that holes are not left behind. (Ptf's Decl of Lerwick at 2, ¶ 15.) Disassembling the various components requires "an impact gun and other basic tools, a couple of forklifts, trucks and trailers, and * * * a basic working knowledge of how to use such tools and equipment." (Stip Facts at 4, ¶ 24; id. at 5, ¶¶ 34, 36.) The parties have stipulated that the Compression System could be disassembled and moved "in a day or less." (Id. at 5, ¶ 36.) Taxpayer's General Manager has estimated that it will take one to two days to disassemble, move, and reassemble the Compression System at a new location, using about six people, the two forklifts already in use for Taxpayer's operations, and a truck with a flat-bed trailer system. (Id. at 5-6, ¶¶ 13-14, 20.) Taxpayer has not moved the Compression System since acquiring it, other than to remove the stacking system from the outfeed system component. (Id. at 5, ¶ 37.) The parties have not identified what features or improvements would be required at a new site before the Compression System could be installed.

III. LEGAL BACKGROUND

ORS 307.394 exempts from property tax tangible personal property constituting farm machinery and equipment used for certain purposes:

"(1) The following tangible personal property is exempt from ad valorem property taxation:

"(a) Farm machinery and equipment used primarily in the preparation of land, planting, raising, cultivating, irrigating, harvesting or placing in storage of farm crops;

"(b) Farm machinery and equipment used primarily for the purpose of feeding, breeding, management and sale of, or the produce of, livestock, poultry, fur-bearing animals or bees or for dairying and the sale of dairy products;

"(c) Machinery and equipment used primarily to implement a remediation plan as defined in ORS 308A.053 for the period of time for which the remediation plan is certified; or

"(d) Farm machinery and equipment used primarily in any other agricultural or horticultural use or animal husbandry or any combination of these activities."

The statute thus requires an exempt item to be (1) "tangible personal property," (2) "farm machinery and equipment,"³ and (3) used primarily for one of the purposes listed in ORS 307.394. Case law adds a fourth requirement, as discussed below, that the item be "generally * * * moved or movable in the ordinary course of business." See Saunders v. Dept. of Rev., 300 Or 384, 390, 711 P2d 961 (1985).⁴

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/ / / Most of the parties' arguments relate to the first requirement, that an item be "tangible personal property."⁵ Oregon classifies locally assessed property⁶ such as the Compression System as either "personal property" or "real property." See ORS 307.020 (defining "personal property"); ORS 307.010 (defining "real property"). Personal property is either "tangible personal property" or "intangible personal property," but of the two, only "tangible personal property" is subject to assessment and taxation. See ORS 307.010(1) (definitions); ORS 307.030(2) (intangible personal property not subject to assessment or taxation unless centrally assessed). Neither party asserts that the Compression System includes any intangible personal property; therefore, the choice in this case is binary: the Compression System is either "tangible personal property" or "real property."

The Department argues that the Compression System is "real property" and therefore not "tangible personal property." The court follows that sequence in its analysis, in part because the statutory definition of "real property" is the older of the two and thus is part of the context in which the legislature defined "tangible personal property." As of the tax years at issue in this case, ORS 307.010(1)(b)(B) defines "real property" in relevant part as follows:

"'Real property' includes * * * [a]ll buildings, structures, improvements, machinery, equipment or fixtures erected upon, above or affixed to the land * * *."

ORS 307.020(1)(c) defines "tangible personal property" as follows:

"'Tangible personal property' includes but is not limited to all chattels and movables, such as boats and vessels, merchandise and stock in trade, furniture and personal effects, goods, livestock, vehicles, farming implements, movable machinery, movable tools and movable

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