Property Tax Resources

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Oregon Property Tax Updates

UPDATED december 2019

Oregon Supreme Court Upholds Market Value Standard

The Oregon Supreme Court affirmed the Oregon Tax Court and long standing law in Oregon that property tax is assessed on the fee simple interest in the property, not the leased fee, and that an individual property’s vacancy is a factual issue that may be taken into consideration in the valuation. Powell Street LLC v. Multnomah County Assessor, 365 Or 245 (2019). A “fee simple valuation” may deviate from the ordinary concept of real market value if the property is leased at nonmarket rates. In Powell Street, the Tax Court found that on the assessment date, the shopping mall was 51% vacant due to a grocer leaving and that the contractual provisions in the remaining leases applied a discount for the loss of the anchor tenant. The primary dispute at trial was whether the shopping center should be valued as if it had a stabilized occupancy on the date of value. The Tax Court found that the missing anchor tenant and the property’s overall occupancy rate of less than 50 percent represented a major deviation from market vacancy rates. Taxpayer’s appraiser testified that because the property lacked an anchor tenant, and was “non-stabilized”, the only potential buyer for the property would be “value add” buyers: buyers who are willing to incur risk and effort to bring the property back to stabilized lease rates. These buyers expect a higher return on their investment and will pay substantially less for the property due to the time, money and risk of the investment. The Department of Revenue’s appraiser testified that the property was stabilized and tenant turn-over was normal market behavior and the property must be assumed to have a stabilized vacancy for valuation purposes.   

The question before the Supreme Court was if the Tax Court erroneously valued the property based on taxpayer’s individualized ownership of the property – a valuation constrained by the high vacancy rate – rather than determining the market rent and stabilized vacancy of the property itself. The Department contended that the valuations of leased property must always use market rents and market vacancy rates, even when a property’s actual rent or vacancy rates are substantially different. The taxpayer’s appraiser used both market rents and market vacancy rates and then deducted stabilization costs from the value to reflect the risk and value a market participant would pay for the property. The Court recited that the statutory market test is a hypothetical seller and buyer – what a typical seller would accept for the property. Because the record was devoid of any evidence that the vacancy was due to the taxpayer’s management and there were substantial facts that the property would require time and funds for upgrades to secure a new tenant, the vacancy was not due to lack of the owners skill level, but it was a characteristic of the property. The law does not require the court to disregard the actual vacancy of the property to determine market value.

Cynthia M. Fraser
Foster Garvey PC
American Property Tax Counsel (APTC)

Oklahoma Property Tax Updates
Pennsylvania Property Tax Updates

American Property Tax Counsel

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