18 Or. Tax 187 | Or. T.C. | 2005
Although taxpayer acquired real property needed for its development plans from certain landowners in fee simple, taxpayer was unable to acquire property owned by William A. Ter Har, Trustee of the Jean R. Ter Har Revocable Living Trust, and Jean R. Ter Har, Trustee of the William A. Ter Har Revocable Living Trust (Ter Har). Ter Har desired to continue its business as an operator of retail stores on that property (the Ter Har land), at least in part due to income tax reasons.
On September 14, 2001, Ter Har and taxpayer entered into a ground lease under which Ter Har granted taxpayer the authority to redevelop the Ter Har land. Under that authority, taxpayer was permitted to construct the project on the Ter Har land and to retain ownership rights in all improvements to the Ter Har land. In addition to the ground lease, the parties also entered into an exchange agreement, which provided that taxpayer would sublease, rent-free, a portion of the project (the retail space) back to Ter Har on or before June 12, 2002. Taxpayer was required to make business interruption payments to Ter Har for any period between the execution of the exchange agreement and the time of the sublease of the retail space back to Ter Har. Tax-payer subleased the retail space to Ter Har during 2002.
As of January 1, 2003, Ter Har and Ter Har tenants occupied most of the retail space. No access exists between the retail space and the project. The retail space has separate electrical, fire, and HVAC systems, separate entrances, and all systems, such as water and sewer, are separately metered. *190
On May 7, 2003, pursuant to the exchange agreement Ter Har transferred title to the Ter Har land to taxpayer. Thereafter, on June 26, 2003, taxpayers recorded on the records of the county a declaration of condominium ownership for the project with an effective date of May 16, 2003. Vouchers creating separate tax lots for each condominium unit were created between July 22 and July 26, 2003. Finally, on September 25, 2003, taxpayer transferred title to seven retail condominium units, which contained the retail space, to Ter Har.
Viewed from a modest distance, those transactions can be characterized as follows. Ter Har owned, in fee simple, land upon which taxpayer desired to construct a portion of the project. Ter Har was willing to permit construction of the project on the Ter Har land and to cede certain ownership rights to taxpayer on the condition that Ter Har receive business interruption payments, leasehold rights to continue business operations, and, ultimately, ownership of seven retail condominium units. As of January 1, 2003, Ter Har did not own any portion of the improvements comprising the project.
On March 31, 2003, taxpayer applied for cancellation of assessment pursuant to ORS
"(1) * * * each new building or structure or addition to an existing building or structure is exempt from taxation for each assessment year of not more than two consecutive years if the building, structure or addition:
"(a) Is in the process of construction on January 1;
"(b) Is not in use or occupancy on January 1;
"(c) Has not been in use or occupancy at any time prior to such January 1 date;
"(d) Is being constructed in furtherance of the production of income; and
"(e) Is, in the case of nonmanufacturing facilities, to be first used or occupied not less than one year from the time construction commences. * * *."
Taxpayer claims the benefit of the property tax exemption in ORS
A. "Each New Building or Structure"
1-3. Although ORS
4. "Building" is a word of common usage and has as its ordinary meaning:
"a constructed edifice designed to stand more or less permanently, covering a space of land, usu. covered by a roof and more or less completely enclosed by walls, and serving as a dwelling, storehouse, factory, shelter for animals, or other structure — distinguished from structures not designed for occupancy (as fences or monuments) and from structures not intended for use in one place (as boats or trailers) even though subject to occupancy."
Webster's Third New Int'l Dictionary 292 (unabridged ed 2002). "Structure," in turn, has an ordinary meaning of "something constructed or built[,] * * * something made up of more or less interdependent elements or parts * * *."Id. at 2267. The court has stated:
"The use of the word `structure' in the disjunctive with the word `building' is instructive. While a building is always a structure, all structures are not buildings. The word `structure' is one of the broadest words in the English language and is very comprehensive. * * * An important connotation of `structure' is a concept of a number of elements or components being viewed as a whole, a universe, an ensemble. * * * The legislature, in using `structure,' is deemed to have contemplated the situation in which a plant, designed for a very specific use and not adaptable for any other purpose, could be regarded as useless until the whole structure is basically operable."
Collier Carbon v. Dept. of Rev.,
Citing to Collier Carbon, taxpayer asserts that the project, minus the retail space occupied by Ter Har and Ter Har's tenants as of January 1, 2003, qualifies for property tax exemption because the project is essentially a structure composed of a number of individual structures, each of which must be viewed separately. In support of that argument, tax-payer asserts that each space that ultimately became a condominium was a structure. Having implicated the condominium form of property ownership, taxpayer points to ORS
The court need not address what impact, if any, the condominium form of property ownership might have on the application of ORS
On that basis, therefore, the court concludes that taxpayer's argument that the portion of the project subleased to Ter Har was a separate structure or set of structures must fail. It is the improvement on the property that attracts the benefits of the property tax exemption under ORS
5. In a related argument, taxpayer further asserts that the retail space may be considered a separate structure or set of structures because it was functionally separate from the rest of the project. In particular, taxpayer points to the fact that no access existed between the retail space and the project, the retail space has separate electrical, fire, and HVAC systems and separate entrances, and all systems, such as water and sewer, are separately metered. The department contends that portions of the same building or structure may not be treated as separate buildings or structures. This court has held "that use of any part of a building or structure will disqualify the whole." Multnomah County v. Dept. of Rev.,
6. That finding is consistent with the context in which ORS
*195"the exemptions [in ORS
307.330 ] are not provided for in increments, but apply to entire buildings or structures. In short, the statute does not establish a finely-tuned partnership between government and private enterprise, but a basic benefit with large and simple parameters."
Multnomah County,
Based on the foregoing, the court concludes that the retail space used or occupied by Ter Har as of January 1, 2003, was not a building or structure separate from the remainder of the project within the meaning of ORS
B. Intended Use or Occupancy
7, 8. A property may qualify for property tax exemption] under ORS
The court has found that as of the measuring date of January 1, 2003, taxpayer owned a single building or structure, a portion of which was located on land that taxpayer had leased from Ter Har pursuant to a ground lease. Taxpayer was the developer of that building; therefore, it is tax-payer's intended use for the overall building or structure, and not its component parts, that is the measure for whether the building or structure was in use as of January 1, 2003.
In the parties' stipulation of facts, taxpayer's intent is discussed: "[taxpayer] acquired certain real property * * * for the purpose of constructing a mixed use project consisting of retail condominiums, time share condominiums and a parking structure." Moreover, the record establishes that *196 taxpayer intended to construct a mixed-use, retail and commercial project, a portion of which taxpayer intended to sub-lease to Ter Har until the completed project was ready to be segmented into legally cognizable condominiums. In fact, Ter Har used or occupied a portion of the project for that intended purpose. On this record, therefore, the court finds that, as of January 1, 2003, the building or structure was used or occupied consistent with taxpayer's overall purpose.
Taxpayer further contends, however, that the court should consider the use intended by Ter Har as being separate from that of taxpayer. In effect, taxpayer urges the court to consider that in substance taxpayer and Ter Har desired to separately own distinct portions of the project and, therefore, the intent of each should control the inquiry. Taxpayer's theory ignores, however, the fact that as of January 1, 2003, tax-payer held all the ownership rights in the project. Ter Har did not separately own any portion of the improvements constituting the project. Ter Har merely was subleasing a portion, rent-free, from taxpayer.
Although the record indicates that taxpayer and Ter Har did eventually consummate their various agreements, that is irrelevant under ORS
C. Taxpayer's Desire to Overrule Recent Precedent
Taxpayer asserts that, even if it does not prevail on either of the two preceding arguments, it nonetheless may prevail in this case if this court overrules Multnomah County, *197
to the extent that case held "that use of any part of a building or structure will disqualify the whole."
"It is inconceivable that the legislature could have intended that in the case of a mixed use project, where different parties separately own distinct portions for very different and distinct purposes, such as the Project at issue, should be disqualified simply because one small part of the project owned by one party is in use for its intended purpose, while the majority of the project is still under construction and is thus not capable of being used for its intended purpose by the entrepreneur."
(Emphasis added.) In its responsive briefing on its cross-motion for summary judgment, taxpayer reiterated that:
"the question is whether the text of ORS
307.330 allows condominium units in a multipurpose project developed for use by multiple, unrelated owners for different uses, and which are in fact owned and operated by multiple, unrelated owners for different uses, to be treated as separate structures."
(Emphasis added.)
Thus, taxpayer has narrowly framed its request for a review of this court's decision in Multnomah County to situations in which separate parties separately own distinct portions of the same building or structure. That request must be denied here because, as the court has found above, as of the measuring date of January 1, 2003, the improvements constituting the project were owned solely by taxpayer. The project was not composed of distinct portions separately owned by different parties. On that basis the court declines to address whether or how the court's opinion in MultnomahCounty would apply to portions of an improvement separately owned on the statutory determination date.
IT IS ORDERED that Plaintiffs Cross Motion for Summary Judgment is denied; and
IT IS FURTHER ORDERED that Defendant's Cross Motion for Summary Judgment is granted.
