Department of Revenue v. River's Edge Investments, LLC, 359 Or. 822

Background

River’s Edge Investments owned a convention center (and an adjacent hotel in a separate tax account). The Department of Revenue (department) and Deschutes County Assessor appealed the Tax Court’s valuation for the 2008–09 tax year.
Taxpayer’s appraisal used both income and cost approaches and concluded a reconciled real market value of about $4.13 million (Tax Court adjusted to $2.668 million after removing personal property).
Department’s appraisal relied only on the cost approach and concluded a value of $16.7 million; its appraiser declined to perform an income approach because he said hotel income attributable to the convention center could not be isolated.
The Tax Court rejected the department’s appraisal for two independent reasons: (1) the appraiser offered no credible justification for omitting an income approach (a departure from appraisal practice), and (2) the court viewed Measure 50 as limiting cross-account valuation considerations (i.e., not permitting attribution of hotel income to convention-center value).
The Tax Court accepted taxpayer’s income-based valuation as the more reliable indicator of market value and entered judgment for taxpayer; it later awarded taxpayer attorney fees against the department.
The Oregon Supreme Court affirmed the Tax Court’s valuation ruling based on the appraisal-credibility ground, vacated the attorney-fee award (because it partially rested on the Measure 50 conclusion), and remanded the fee issue for further consideration.

Issues

Issue	Plaintiff's Argument (Department/Assessor)	Defendant's Argument (Taxpayer)	Held
Whether Tax Court erred in rejecting department’s appraisal because the appraiser did not perform an income approach	Department: Especial-property rule allowed using cost approach alone when appropriate; appraiser reasonably relied on cost because income attributable to the convention center could not be isolated	Taxpayer: Failure to develop income approach (without credible justification) is a serious departure from appraisal practice and undermines credibility	Court: Affirmed rejection — appraiser’s unexplained omission of an income approach justified placing no reliance on the appraisal
Whether Tax Court should consider department’s cost approach despite omission of income analysis	Department: Even if income approach was omitted, the court should still weigh the cost approach value	Taxpayer: Court may weigh approaches and properly relied on income approach as more reliable here	Court: No error — Tax Court permissibly concluded income approach was more reliable; cost approach would not alter its reconciliation
Whether Measure 50 prohibits valuing property in one tax account by reference to characteristics (e.g., income effects) of property in another account	Department: Department contends Measure 50 does not bar consideration of economic realities; appraiser may consider attributes that affect market value	Taxpayer: Measure 50 (and its statutes) requires account-focused valuation; cross-account attribution (hotel income to convention center) is improper	Court: Declined to decide the constitutional question; held Tax Court’s Measure 50 rationale was of questionable validity and unnecessary to the ultimate decision
Whether attorney fees awarded to taxpayer were proper	Department: Fee award improper because department’s position had objectively reasonable arguments and good faith	Taxpayer: Fees appropriate to deter similar meritless positions and because department’s position was not objectively reasonable	Court: Vacated and remanded fee award — because the Tax Court’s fee analysis depended in part on its Measure 50 conclusion, the fee determination must be reconsidered without that reliance

Key Cases Cited

Hewlett-Packard Co. v. Benton County Assessor, 357 Or 598 (discusses appraisal approaches and regulations governing highest-and-best-use analysis)
Flavorland Foods v. Washington County Assessor, 334 Or 562 (interpretation of Measure 50 as referring to property in a tax account)
STC Submarine, Inc. v. Dept. of Rev., 320 Or 589 (explaining the department’s especial-property rule and just compensation approach)
Brooks Resources Corp. v. Dept. of Revenue, 286 Or 499 (finder of fact may choose income approach even if speculative)
Pacific Power & Light Co. v. Dept. of Rev., 286 Or 529 (weight of valuation approaches is a factual determination for the court)