13 Or. Tax 436 | Or. T.C. | 1996
In this appeal, plaintiffs (taxpayers) claim that Oregon's constitutional definition of real market value controls the assessed value of property damaged by fire. Resolving this claim requires the court to construe statutes providing for review of changes in value (ORS
The subject property is taxpayers' personal residence in Portland. The assessed value as of July 1, 1993, was $198,500, allocating $56,000 to land and $142,500 to improvements. On June 15, 1994, the home was extensively damaged by fire.2 Taxpayers and the assessor agreed the real market value of the property after the fire was $103,000. The assessor placed that amount on the tax roll for the July 1, 1994, assessment.
Taxpayers appealed the 1993-94 assessed value to the Multnomah County Board of Ratio Review under ORS *438
Prior to the adoption of Article XI, section 11b (section 11b) to the Oregon Constitution, Oregon's property tax assessment system was prospective, or forward-looking. Real property subject to taxation was identified and valued as of 1:00 a.m. on January 1 of each year. Former ORS
In discussing Oregon's property tax system, it is helpful to remember two points concerning the concept of value. First, value must be established at a particular point in time. Property values constantly change due to wear and tear; obsolescence; additions and subtractions; and changes in the economy, technology and culture.
"Because value exists at a given moment, an appraisal reflects value at a particular point in time. Value as of a given time represents the monetary worth of property, goods, or services to buyers and sellers." Appraisal Institute, The Appraisal of Real Estate 18 (10th ed 1992).
The second point to remember is that estimates of value are just estimates. In reality, there is a range of value.Price v. Dept. of Rev.,
The significance of the above two points becomes clear when discussing section 11b's definition of real market value. That definition states:
" 'Real market value' is the minimum amount in cash which could reasonably be expected by an informed seller acting without compulsion, from an informed buyer acting without compulsion, in an 'arms-length' transaction during the period for which the property is taxed." Or Const, Art XI, § 11b(2)(a).
By specifying that real market value is the minimum amount "during the period for which the property is taxed," the definition extends the valuation period to one year.4 This definition is retrospective, or backward looking, because the minimum amount cannot be determined until after the year has passed.
When the people enacted section 11b by initiative, the Oregon legislature could have responded by suspending property taxes for one year. If taxes were delayed one year, tax assessments could be retrospective and consistent with the constitutional definition of real market value. Presumably, that alternative was not acceptable because local governments would be without operating revenues for one year. Instead, the legislature attempted to adapt a prospective tax system to a retrospective concept of value.
The legislature amended ORS
"Real market value of all property, real and personal, as the property exists on the date of assessment, means the minimum amount in cash which could reasonably be expected by an informed seller acting without compulsion from an informed buyer acting without compulsion, in an arm's-length transaction during the fiscal year." (Emphasis added.)
This definition is essentially the same as that contained in section 11b except for the added phrase: "as the property exists on the date of assessment." ORS
The department argues the legislature intended by this definition to take a "snapshot" of each property on July 1 and impose taxes on the basis of the "snapshot." The legislature also amended ORS
4. The department contends that the legislature may fix a date for determining the identity, character, and extent of the taxable property and that no subsequent changes in the property will be recognized for that tax year. However, the power of the legislature is circumscribed by the constitution. While the legislature may act to implement constitutional provisions, it may not override or conflict with the constitution. BernsteinBros. v. Dept. of Rev.,
The department reasons that the fire damage was so great that the property became something different than the property assessed for taxation; it was no longer the same property as that taken in the "snapshot" on July 1. Aside from the difficulty of deciding how much change is required to make a property different, such an explanation is incompatible with the definition of real market value. Because taxes are imposed on property for an annual period, section 11b defines the taxable value as the least amount for which the property would change hands during that period. A house destroyed by fire will not bring the same amount as the house before the fire.
5, 6. The court recognizes there is tension between the retrospective definition of real market value and the prospective administrative statutes. Fundamental principles require the court to construe the statutes, if possible, consistent with the constitution. Tharalson v. Dept. of Rev.,
The section 11b definition of real market value renders ORS
7. ORS
In view of the above, taxpayers' Motion for Summary Judgment must be granted. Now, therefore,
IT IS ORDERED that taxpayers' Motion for Summary Judgment is granted.