Appeal from Oregon Tax Court. Carlisle B. Roberts, Judge.
Alfred B. Thomas, Assistant Attorney General, Salem, argued the cause for appellant. With him on the briefs were Lee Johnson, Attorney General, and Theodore W. deLooze, Chief Tax Counsel, Salem.
Vernon D. Gleaves, Eugene, argued the cause for respondents. With him on the brief were Thomas M. Allen, and Butler, Husk & Gleaves, Eugene.
In Banc. Howell, Justice. O'Connell, Chief Justice, and McAllister,*fn* Denecke, Holman, Tongue and Bryson, Justices.
This appeal by the defendant, Department of Revenue, is from an adverse decision of the Tax Court in which the method of valuation of improvements and their assessability to the plaintiffs were in issue. The land itself is not involved in this appeal as the parties have agreed upon its value.
Plaintiffs are copartners and owners of a large regional shopping center in the city of Eugene. As of the assessment date, January 1, 1970, the plaintiffs had entered into approximately 50 leases with various
tenants for business space in the shopping center. Most of the leases were "shell and allowance" leases whereby the plaintiffs constructed only the building shell and the tenant constructed the interior of the premises. Under this type of lease the plaintiffs, as landlords, paid the tenant a specific dollar allowance in partial reimbursement to the tenant for his expenses in completing the interior of the store. In the other leases the plaintiffs completed the entire structure and delivered it to the tenant, who then had only to install his trade fixtures. Our only concern is with the former type of lease.
Only two issues are presented: (1) Is the cost approach or the income approach to market value the proper method of valuation of plaintiffs' buildings, and (2) Are the tenants' improvements over and above the plaintiffs' allowances assessable to plaintiffs as owners, or to the tenants?
In approaching the problem of valuation of plaintiffs' buildings, both parties agreed that no sales of comparable properties were available. The county assessor and the Department of Revenue relied on the income approach. The plaintiffs argued for the cost approach and contended that the income approach was improper under the circumstances because the shopping center was so new that its income and operating expenses had not yet become stabilized.
The Tax Court found that the income approach was "grossly premature" and should not have been used to determine market value. The Tax Court also found that the tenants' improvements should be assessed to the tenants. Defendant appeals.
Regarding the valuation issue, we agree with
and adopt the following from the unpublished opinion of the Tax Court:
"The true cash value of the property must be established as of January 1, 1970, pursuant to ORS 308.210, in accordance with the Department of Revenue Regulation R308.205-(A). The uncontradicted testimony shows that Valley River Center, on January 1, 1970, was a regional shopping center with an enclosed mall, situated on approximately 17 acres of land in Lane County, Oregon; that the first shopping center stores opened in August 1969 and others opened between that date and December 31, 1969; that the Meier & Frank store situated at the southerly end of the shopping center complex opened in August 1969 and the J. C. Penney store located on the northerly portion of the shopping center complex opened in January 1970; that a considerable amount of space owned by the plaintiffs was not leased on January 1, 1970, although a nationally known leasing agent had been seeking leases for all space owned by plaintiffs since September 1, 1967; that no other regional shopping center existed on January 1, 1970, in an area as small as the Eugene-Springfield metropolitan area; that economic conditions were depressed in the area; that lending rates were at an all-time high; that no comparable sales of similar properties were available for comparison purposes in making an appraisal; that no proven income or expense figures were available for the Valley River Center and the only proved figures available on January 1, 1970, were the actual costs and expenses incurred by the plaintiffs in the construction of the improvements as the same existed on January 1, 1970, plus the operating and expense figures for the last four months of the year 1969 during which the center had been in operation.
"The experienced appraiser who testified on behalf of defendant relied wholly on the income approach. The difficulties he experienced in so doing are easily understood because, under the facts of
this case, it is clear that the choice of method was ...