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Nepom v. Department of Revenue

December 29, 1972

NEPOM, APPELLANT,
v.
DEPARTMENT OF REVENUE, RESPONDENT



Appeal from Oregon Tax Court. Carlisle B. Roberts, Judge.

Morris J. Galen, Portland, argued the cause for appellant. On the briefs were Tonkon, Galen & Baker, Portland.

Glen V. Sorensen, Assistant Attorney General, Salem, argued the cause for respondent. With him on the brief were Lee Johnson, Attorney General, and Ted E. Barbera, Assistant Attorney General, Salem.

In Banc. O'Connell, C.J.

O'connell

Plaintiff appeals from a decree of the Oregon Tax Court on the ground that her property was overassessed for the tax years 1969-1970 and 1970-1971. 4 OTR 531 (1971).

The property in question consists of a parcel of land together with improvements in the form of 44 apartment units and a garage, all of which were constructed between 1923 and 1925. Major repairs were made on the apartments in 1969 and the units were producing rental income at the time of the assessment.

The land is located in an M-2 zone, which designates the area as one for light manufacturing and distribution and it is agreed that the highest and best use of the property is for these purposes. Likewise, it is agreed that the use of the land for apartment purposes is inconsistent with the highest and best use of the property.

The property was assessed at $270,500. Of this total assessment, $200,000 was allocated as the value of the land and $70,500 as the value of the improvements.

In the trial court plaintiff took the position that the "income approach," (the capitalization of rentals) was the most appropriate method of appraising the

property. Using this approach, plaintiff's appraiser accepted defendant's $200,000 assessment of the land but allocated no value to the existing improvements.

The method employed by the assessor was essentially the method described in texts on appraisal as the "building residual technique." The principle of this technique is that where land is not being utilized for its highest and best use the value of an improvement incompatible with the highest and best use of the land is "equal only to the capitalized value of the income it contributes over and above the income the land would produce if developed to its highest and best use."*fn1

Defendant's appraiser testified that the income approach was only incidentally applicable and that the market data approach was the appropriate method of appraisal. He pointed out that although the highest and best use of the land was for M-2 purposes, the property was in a transition stage in which the land was not being actually used for its best purposes. He concluded ...


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