PacifiCorp. v. Dep't of Revenue

• Docket Number: TC 5411
• Decision Date: 24 May 2023
• Parties: PACIFICORP, Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.
• Court: Oregon Tax Court

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

No. TC 5411

Tax Court of Oregon, Regular Division, Property Tax

May 24, 2023

OPINION (VALUATION)

Robert T. Manicke, Judge

I. INTRODUCTION

This case concerns the real market value of Plaintiff's Oregon property as of January 1, 2020. Plaintiff is a rate-regulated electric utility with operating property in Oregon, as well as California, Idaho, Utah, Washington, and Wyoming.^[1] (See Ptf's Pretrial Br at 1-2; Def's Ex A at 8.) Because Plaintiff is in the electricity business, its property is subject to central assessment by Defendant. See ORS 308.515(1)(k)^[2]; see generally DISH Network Corp. v. Dept. of Rev., 364 Or. 254, 257-58, 434 P.3d 379 (2019) (explaining central assessment). One consequence of central assessment is that Defendant may determine the value of Plaintiff's Oregon property by first valuing all of Plaintiff's property used in the same business, within and without Oregon, as a unit

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and then allocating a share of that "system" value to the Oregon property based on a formula.^[3] See ORS 308.555 (authorizing unit valuation); 308.550(2) (authorizing allocation). Another consequence is that intangible property (subject to exceptions not relevant here) is included in the definition of Plaintiff's "property." See ORS 308.505(14).

On May 22, 2020, Defendant issued a Notice of Proposed Assessment asserting that the real market value of Plaintiff's Oregon centrally assessed property was $3,180,000,000 on the January 1, 2020, assessment date. (Ptf's Ex 6.) On June 18, 2020, Plaintiff requested a director's conference, as allowed by ORS 308.584; the conference was held July 23, 2020; and on July 31, 2020, Defendant issued an opinion and order (O&O) sustaining the real market value of $3,180,000,000. The O&O showed that the assessment was based on a value of $19,500,000,000 for the entire system. (See Ptf's Compl, Ex 2.)

Plaintiff timely appealed to the Magistrate Division from the O&O under

ORS 308.584(5) and ORS 305.280(1), initially claiming only that Defendant had overvalued its property, including by allocating excessive value to Oregon. (See Ptf's Compl at 2-5.) On the motion of both parties, the court specially designated the case to be heard in the Regular Division. Before trial, Plaintiff moved for leave to amend its complaint to add two claims based on a legal issue already before the court in Delta Airlines, Inc. v. Dept. of Rev., TC 5409, namely, that taxation of Plaintiff's intangible property violates the Oregon Uniformity Clauses. (See Ptf's 1st Amend Compl at 4-7 (citing Or Const, Art I, § 32; Or Const Art IX, § 1).) The court allowed the amendment but stayed proceedings on the Uniformity Clause claims until after trial on the

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valuation issues. (See PacifiCorp v. Dept. of Rev., TC 5411 (Nov 8, 2021).) The court then held a trial (Nov. 15-19, 2021) and accepted extensive post-trial briefing on the valuation issues. This opinion addresses only the valuation issues; the court will issue its order on the Uniformity Clause claims separately.

At trial, both parties presented expert reports and testimony complying with the requirement to "consider[ ] three different approaches to valuation: the cost approach, the comparable sales approach, and the income approach." Powell Street I v. Multnomah County Assessor, 365 Or. 245, 249, 445 P.3d 297 (2019) ("The appraiser is not required to use all three approaches, but the appraiser must consider them.") (Emphasis in original.).

II. LEGAL ISSUES

Before determining the real market value of Plaintiff's property, the court must resolve two issues of law. First, the parties have different views about the extent to which the court must defer to two of Defendant's administrative rules relating to the determination of value. Second, the parties differ as to which party bears the burden of proving in this court a value above or below the value recorded on the central assessment roll.

A. Court's Deference to Defendant's Administrative Rules

The parties disagree over the level of deference the court should afford to OAR 150-3080690 and OAR 150-308-0590. The court addresses these two rules separately.

1. OAR 150-308-0690: WSATA Handbook as Authority for Valuation Under ORS 308.205

OAR 150-308-0690 states in its entirety:

"The 2009 Western States Association of Tax Administrators Appraisal Handbook: Unit Valuation of Centrally Assessed Properties is adopted as the official valuation guide for property assessed by the Oregon Department of Revenue under ORS 308.505 to 308.665 for ad valorem tax purposes."

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The "WSATA Handbook" consists of approximately 350 pages of guidance, in varying degrees of depth, about methods and tools for unit valuation and allocation of utilities and other centrally assessed property. It "serves as the primary textbook * * * to train state government appraisers of centrally assessed properties." WSATA Handbook at vi. As such it "incorporates WSATA's opinion of the current state of academic and appraisal theory" as applicable to centrally assessed property. Id. at I-1. As will be seen, the authors of the WSATA Handbook identify strengths and weaknesses in various valuation methods and theories; they rarely mandate or entirely condemn the use of a particular method, but they express reasons to prefer some techniques and to reject others. Cf., e.g., Minn. R. 8100.0300 (prescribing specific procedures for determining and weighting cost, income and other indicators of value for "public utility companies"); Minn Stat Ann § 270C.06 (rules "have the force of law."); Utah Admin. Code r R884-24p-62(4)(b)(iii) (setting forth "preferred valuation methods" as "rebuttable presumptions"; requiring "any party challenging a preferred valuation method [to] demonstrate, by a preponderance of evidence, that the proposed alternative establishes a more accurate estimate of fair market value").

Plaintiff argues that the WSATA Handbook does not "restrict the discretion of this Court or any other party (including the Department) in a de novo proceeding." (Ptf's Post-Trial Br at 56.) Elsewhere, Plaintiff argues that "this Court is not bound by the WSATA Handbook." (Ptf's Response at 5.) Defendant, on the other hand, argues that, because of the WSATA Handbook's status as an administrative rule, "this court need not engage in debate over the theoretical propriety of various of the issues raised in this case because the administrative rule answers the questions." (Def's Opening Post-Trial Br at 30.) Defendant argues further: "Contrary to PacifiCorp's assertions, a de novo appeal to the Tax Court does not give the taxpayer license to disregard the approaches called for by law. In this centrally assessed property matter, that means

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following the WSATA Handbook." (Def's Response at 3.) Defendant concludes: "Thus, to determine the real market value of PacifiCorp's centrally assessed property, the court must apply the 'methods and procedures' found in the WSATA Handbook." (Def's Reply at 1-2.)

a. Analysis under published sources of statutory authority for OAR 150-308-0690: ORS 305.100 and ORS 308.655.

Any analysis of the level of deference to afford an administrative rule must begin by identifying the statute or statutes that are the source of the agency's authority to adopt the rule. See Trebesch v. Employment Division, 300 Or. 264, 267, 710 P.2d 136 (1985) ("We seek to derive the legislature's intent from an analysis of the statutes by which a particular agency operates."). The Administrative Procedures Act generally requires agencies to specify that source when adopting or amending a rule. See ORS 183.335(2)(b)(A), (B). Although neither party refers to this requirement, it is clear that courts may look to the statute or statutes referred to in the published rule when analyzing what level of deference to apply. See, e.g., Clackamas Cty Assessor v. Village at Main Street Phase II, 349 Or. 330, 336 n 8, 245 P.3d 81 (2010) (referring to published statutory authority (ORS 305.100) in determining degree of deference to afford to Defendant's rule). In this case, a notation included with the officially published OAR 150-3080690 states: "Statutory/Other Authority: ORS 305.100 &308.655; Statutes/Other Implemented: ORS 308.655." Therefore, the court begins its analysis with those two statutes.

The first statute referred to in the published rule states in relevant part: "The Department of Revenue shall: (1) Make such rules and regulations it deems proper to regulate its own procedure and to effectually carry out the purposes for which it is constituted." ORS 305.100(1). The second statute states in full: "The Department of Revenue may prescribe directions, rules and regulations to be followed in answering any requirement of ORS 308.505 to 308.674." ORS 308.655. Both provisions originate in the 1909 act that created Defendant's predecessor

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(the Board of State Tax Commissioners) to supervise the statewide tax system and to centrally assess the property of utilities and other listed businesses. See Or Laws 1909, ch 218, § 4(1)("It shall be the duty of the said Board of State Tax Commissioners * * * [T]o make such rules and regulations as the board shall deem proper, effectually to carry out the purposes for which the board is constituted, and to regulate its own procedure."); id. § 7(14) ("The board is hereby given the power to prescribe directions, rules and regulations to be followed in answering any of the requirements of this act.").

(1) ORS 305.100 does not require court to defer to OAR 150-308-0690.

As to the first statute, the Oregon Supreme Court repeatedly has characterized ORS 305.100 as "granting to department interpretative, but not substantive, rulemaking authority," such that, "[t]o the extent that [a rule adopted under the authority of that statute] is inconsistent with legislative...