Donald L. Lippert, Jr.
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On Jan. 25, 2019, the Oregon Supreme Court held that property transitioned from local assessment to central assessment did not violate the Oregon Constitution’s 3% cap on annual increases in assessed value, even though the assessed value substantially increased.1
The Court determined that when property is moved from local to central assessment, it constitutes a new unit of property, which is an exception to the annual cap.
The taxpayer, DISH Network Corporation (“DISH”), is a satellite television provider that delivers television programs to its customers through satellite signals that are decoded by boxes located near the customers’ television sets. During the audit period at issue, DISH’s property in Oregon was limited to the boxes distributed to its customers and some additional equipment that was worth approximately $23.5 million in the aggregate. Prior to 2009, DISH’s property in Oregon was assessed by the counties in which the tangible property was located. In 2009, the Oregon Department of Revenue determined that DISH used its property located within Oregon in a “communication” business and therefore should be centrally assessed. The Department notified DISH that its property would be added to the central assessment rolls for the 2009-2010 tax year. As a result of the change from local assessment to central assessment methods, DISH’s overall assessment substantially increased, from $17.4 million to $34.9 million that year.
DISH objected to being centrally assessed as a “communication” business and to the corresponding increase in the assessed value of the property. As a result, DISH filed complaints in the Oregon Tax Court beginning in the 2009-2010 tax year. In 2016, the Oregon Supreme Court determined in DIRECTV, Inc. v. Department of Revenue2
that satellite television providers are “communication” businesses that are subject to central assessment. DISH subsequently conceded that it was subject to central assessment, but moved for summary judgment because the resulting annual increase violated the three percent annual cap provided in the Oregon Constitution. The Tax Court granted DISH’s motion for summary judgment and entered a limited judgment on the maximum assessed value limitation claim. According to the Tax Court, it was bound by its decision in Comcast Corp. v. Department of Revenue
in which it held that the Department “could not apply the new property exception to property previously subject to, but not subjected to, central assessment.” The Department appealed this ruling to the Oregon Supreme Court.
Oregon local and central assessments
In Oregon, most property is assessed locally by county assessors.4
However, an Oregon statute provides a list of business types for which the Department is responsible for assessing property.5
The businesses subject to central assessment typically provide services across county lines such as transportation, utility or communication companies. The method to calculate the assessed value of property differs depending on whether the property is locally or centrally assessed. Locally assessed property is valued by location based on the physical assets owned at that specific location within the county.6
Centrally assessed property may be subject to unit valuation, which calculates the value on a company level, instead of specific locations. The company is valued based on all of its property, both within and outside the state, “as a unit.”7
The assessed value is then determined by the proportion of the physical assets of the company used within the state of Oregon. Further, under local assessment, a company is assessed for the property it owns, whereas under central assessment, a company is assessed for the property it uses.8
Lastly, intangible personal property may be included in centrally assessed property, but not for locally assessed property.9
The distinct methods of local and central assessment often result in very different assessed values for a discrete item of property, leading to controversies over which assessment method is appropriate for a company to use.
Constitutional limit on assessed value increases
In 1997, Oregon voters approved a constitutional amendment through Ballot Measure 50 that places a limitation on annual assessed value increases. Under the Oregon Constitution, a property’s maximum assessed value “shall not increase by more than 3% from the previous tax year.”10
However, the provision contains exceptions to the general rule, which include property that is new property or new improvements to property.11
An Oregon statute that implements the limitation defines “new property or new improvements” in relevant part as “[t]he addition of machinery, fixtures, furnishings, equipment or other taxable real or personal property to the property tax account.”12
The term also includes “taxable property that on Jan. 1 of the assessment year is located in a different tax code area than on January 1 of the preceding assessment year.”13
New property exception to assessed value limitation applied to taxpayer
In reversing the Tax Court, the Oregon Supreme Court held that the transfer of the taxpayer’s property to the central assessment roll satisfied the exception to the 3% limitation on assessed value increases for “new property or new improvements to property” provided by the Oregon Constitution and its implementing statutes. The Court determined that “new property or new improvements” is not limited to property that was created or acquired by the taxpayer in the year before the current assessment year. The new property exception also refers to property that is new to an assessment roll or new to a property tax account on an assessment roll based on a decision by the taxing authority.
The Oregon Supreme Court thoroughly analyzed the arguments made by the Department and DISH. The Department argued that the Tax Court’s14
interpretation that the “new property” exception is limited to newly acquired or created property was incorrect because “new” encompasses a variety of meanings. According to the Department, all of DISH’s Oregon property was “new property or new improvements” in 2009 because it was newly added to the central assessment roll that year. DISH argued that the Tax Court correctly determined that the “new property” exception only refers to newly created or acquired property. Furthermore, DISH argued that application of the exception could not depend on an assessor’s “unilateral” decision to add the property to a different assessment roll. DISH contended that the exception is limited to additions by the assessor that result from a taxpayer’s action.
The Court first considered the meaning of “new property or new improvements to property” contained within the statutes that implement the constitutional assessment limitation. In rejecting DISH’s argument that the new property must be created or acquired by the taxpayer during the preceding year, the Court noted that the statute does not mention any specific action necessary to be made by the taxpayer. The Court also rejected DISH’s argument that the context made clear that the relevant new property statute referred only to additions by the assessor that resulted from the taxpayer’s action. The fact that another statutory provision includes the relocation of property into a different tax code area in the definition of “new property or new improvements” conflicted with DISH’s narrow interpretation of the term and supported the Department’s argument that the assessor’s act of adding property to the assessment roll is key. The Court concluded that the meaning of “new property or new improvements” in the implementing statutes is “not limited to property that has been created or acquired by the taxpayer within some designated time period, but includes all property that is lawfully added by the assessor to a taxpayer’s property tax account on an assessment roll.”
Furthermore, the Court concluded that its interpretation of the “new property or new improvements” exception in the implementing statute did not conflict with the intent of voter-approved Measure 50, as reflected in the wording of this measure, the surrounding context and the history of the measure’s adoption.
Finally, the Court held that the addition of DISH’s property to the central assessment roll constituted “new property or new improvements.” Because unit valuation is used for central assessment, the property that the Department added to DISH’s new account in the central assessment roll was not the same as the property that had appeared in DISH’s property tax accounts in the local assessment rolls. The Court explained that the “unit of property (or proportion thereof) that was added to the central assessment roll had never previously been assessed in any
Prior to this decision, the exceptions to the constitutional assessment valuation cap were interpreted to be triggered based solely on a specific action or acquisition by the taxpayer. However, this decision makes it clear that action performed by a county assessor or the Department can also trigger an exception to the limit on an increase in assessed value. Despite regularly being assessed locally, the taxpayer was not afforded the constitutional protections due to the taxing authority’s decision to change the party responsible for assessing the property. Oregon property owners should note that this broader definition of new property may swiftly eliminate the annual protection of a limited increase in assessed value assumed to be in place.
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