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Seneca Sustainable Energy, LLC v. Department of Revenue

Supreme Court of Oregon

November 8, 2018

SENECA SUSTAINABLE ENERGY, LLC, Plaintiff-Respondent,
v.
DEPARTMENT OF REVENUE, State of Oregon, Defendant-Appellant, and LANE COUNTY, a political subdivision of the State of Oregon, Defendant.

          Argued and Submitted May 8, 2018

          On appeal from the Oregon Tax Court. [*] TC 5193, 5208, Henry Breithaupt, Judge.

          Daniel Paul, Assistant Attorney General, Salem, argued the cause for appellant. Robert M. Wilsey and Daniel Paul, Assistant Attorneys General, fled the briefs. Also on the briefs were Ellen F. Rosenblum, Attorney General, and Benjamin Gutman, Solicitor General.

          Cynthia M. Fraser, Garvey Schubert Barer, Portland, argued the cause and fled the brief for respondent. Also on the brief was John C. Rothermich.

          Before Walters, Chief Justice, and Balmer, Kistler, Nakamoto, Duncan, and Nelson, Justices. [**]

         [363 Or. 783] Case Summary:

         Seneca fled two actions in the Tax Court, challenging as excessive the Department of Revenue's determinations of the real market value of its industrial property for tax years 2012-2013 and 2013-14. The department moved to dismiss the actions on the grounds that the Tax Court did not have jurisdiction over them and that Seneca lacked standing to bring the actions because it was exempt from taxation during the tax years in question. The Tax Court rejected that motion. After the ensuing trial on Seneca's challenges to the determinations of real market value of its property, the Tax Court concluded that the department's appraiser had erroneously relied on a power purchase agreement between Seneca and a customer, which included rates extremely favorable for Seneca and signifcantly above market conditions, in determining the market rate for electricity as of the assessment dates to justify an excessive real market value determination. Held: The Tax Court had jurisdiction to hear Seneca's challenges to the department's real market value determinations, Seneca had standing to assert the issues raised in its complaints, and the Tax Court was correct in rejecting the department's appraiser's real market value determination based on the power purchase agreement and in accepting Seneca's appraiser's determination of real market value instead.

         The judgment of the Tax Court is affrmed.

         [363 Or. 784]NELSON, J.

         In this direct appeal from the Regular Division of the Tax Court, the Department of Revenue argues that the Tax Court erred in concluding that it had jurisdiction to consider a challenge brought by Seneca Sustainable Energy LLC (Seneca) to the department's determination of the real market value of Seneca's electric cogeneration facility and the notation of the real market value on the assessment roll for two tax years, 2012-13 and 2013-14. The department also argues that the Tax Court erred in concluding that the department's determinations of the property's real market values for the 2012-13 and 2013-14 tax years were incorrect and in setting the values at significantly lower amounts. For the reasons set out below, we affirm the Tax Court's rulings.

         BACKGROUND

         The following facts are undisputed. In 2009, Seneca began construction of a biomass cogeneration facility on property that it owns outside of Eugene, Oregon. The cogeneration facility would generate electricity by burning wood waste produced by Seneca's nearby sawmill. Around that time, Seneca also began negotiating a long-term power purchase agreement, under which it would sell the electricity generated at the cogeneration facility to the Eugene Water and Electric Board (EWEB); Seneca and EWEB ultimately finalized the power purchase agreement in February 2010.[1]Among other things, the agreement set the rates that EWEB would pay for electricity, capacity, and renewable energy credits (RECs).[2]

         [363 Or. 785] Seneca's facility is located in an area designated as an "enterprise zone."[3] Seneca applied to the enterprise zone sponsors, the City of Eugene and Lane County, to have the facility exempted from ad valorem property tax on its improvements during the first three years it was in operation, as permitted under the Oregon Enterprise Zone Act, ORS 285C.O45 through ORS 285C.659. The sponsors granted the application with conditions, including a condition that Seneca pay a public benefit contribution for each year that it failed to meet certain economic development and employment goals. The public benefit contribution would be a percentage of the amount of ad valorem property tax that Seneca would have had to pay in the relevant year without its exemption. The amount of property tax that Seneca would have had to pay, in turn, would be based on the department's determination of the real market value of the structures, machinery, and equipment that constitute Seneca's industrial property under ORS 306.126 (requiring department in cases like Seneca's to determine the real market value of industrial property and to advise the county assessor of that value).[4]

         Seneca's cogeneration facility was completed and became operational in April 2011. The department therefore determined the real market value of Seneca's industrial property for the first time for the 2012-13 tax year. At that time, the department determined that the real market value of Seneca's exempt industrial property was $62, 065, 350.[5] [363 Or. 786] Under ORS 285C.175(7), for each year that a property is exempt from taxation under the enterprise zone statutes, the county assessor is required to enter a notation in the property tax assessment roll showing the assessed value of the property and the amount of additional taxes that would have been due without the enterprise zone exemption.[6]Accordingly, the department reported the real market valuation of Seneca's industrial property to the Lane County assessor, who then entered it as a notation on the assessment roll. Because of the enterprise zone exemption, no property tax was assessed against most of Seneca's industrial property for that tax year, or, as relevant here, for tax year 2013-14. Notably, however, for each tax year, part of Seneca's industrial property was not tax exempt. Seneca paid property taxes on the real market value of its non-exempt industrial property for both the 2012-13 and 2013-14 tax years.

         Seneca failed to meet its economic and development goals for tax year 2012-13. The enterprise zone sponsors therefore imposed a public benefit contribution under the enterprise zone contract provisions. Using the department's real market value determination for Seneca's exempt industrial property, as noted on the assessment roll by the county assessor, the enterprise zone sponsors calculated the public benefit contribution by first determining the amount of tax on the industrial property that Seneca would have owed had that property not been exempt and then multiplying that amount by the percentage set out in the enterprise zone contract. Ultimately, the zone sponsors required Seneca to pay a public benefit contribution of $217, 781 for the 2012-13 tax year. Seneca again failed to meet its economic and development goals the following year, and the zone [363 Or. 787] sponsors imposed a public benefit contribution of $199, 874 for tax year 2013-14.

         THE TAX COURT PROCEEDING

         Seneca objected to the amount of the 2012-13 public benefit contribution but paid it under protest in September 2013. Shortly thereafter, it filed the present action in the Tax Court against the department, Lane County, and the City of Eugene, challenging the department's determination of the property's real market value, the assessor's notation of the assessed value of the property under ORS 285C.175(7), and the enterprise zone's sponsors' imposition of the public benefit contribution. Specifically, Seneca sought five forms of relief: (1) a determination that the real market value of its industrial property did not exceed $30 million for the 2012-13 tax year; (2) an order requiring the department and Lane County to place the appropriate real market value and tax exempt value on the "tax rolls"[7]; (3) an order directing the zone sponsors to recalculate the public benefit contribution using the correct real market value; (4) an order directing that any tax refund be paid with statutory interest; and (5) an order requiring the payments of costs, disbursements, and expert and attorney fees.

         The department and the county moved to dismiss Seneca's complaint on the grounds that the Tax Court lacked jurisdiction over the action and that Seneca lacked standing to bring its complaint. In April 2014, the Tax Court issued an Amended Order granting in part and denying in part the [363 Or. 788] department's motion to dismiss. Seneca Sustainable Energy v. Lane County Assessor, 21 OTR 366 (2014). The Tax Court ruled that it had jurisdiction to hear Seneca's appeal of the department's determination of the real market value of the exempt property, the county's notation of that value on the assessment roll, and Seneca's request for an order that the tax roll properly reflect what the statutes require be placed on it. Id. at 368-70. The Tax Court also implicitly ruled that Seneca had standing to bring those claims. Id. In addition, it ruled that it had jurisdiction over the claim related to the tax refund as well as the claim for costs, disbursements, and certain fees. Id. at 373. However, the court granted the department's motion to dismiss Seneca's appeal of the imposition of the public benefit contribution, because, the court concluded, those claims arose out of Seneca's enterprise zone agreement with the zone sponsors and not under the tax laws of this state.[8] Id. The Tax Court ordered the parties to proceed to trial on Seneca's appeal of the real market value determination and the placement of the allegedly excessive assessed value on the tax rolls. Id. at 374.

         Meanwhile, in December 2013, Seneca filed a second complaint in the Tax Court, challenging the department's real market valuation of its industrial property for the 2013-14 tax year and the placement of that value on the tax rolls. Seneca's complaint concerning the 2013-14 tax year did not assert any claim relating to the public benefit contribution, nor did it name the City of Eugene as a party. In November 2014, the Tax Court granted Seneca's motion to consolidate the two cases for trial.

         The Tax Court conducted an eight-day trial in April 2015 in the consolidated cases. The issues before the court were the determinations of the real market value of Seneca's industrial property as of the assessment dates for the 2012-13 and 2013-14 tax years, viz., January 1, 2012, and January 1, 2013. Notably, as a sanction for a discovery violation, the Tax Court prohibited the department from introducing evidence concerning the real market value of the [363 Or. 789] property for the 2013-14 tax year.[9] Both sides presented evidence and expert testimony regarding the proper methods for determining the real market value of a cogeneration facility, the income that that facility could be expected to produce, and the markets for electricity, generating capacity, and RECs. In addition, the Tax Court admitted into evidence appraisals of the property prepared by each party's valuation expert, as well as all the supporting documentation. In accordance with the Tax Court's sanction order, the department submitted evidence pertaining to the real market value of the property only as of January 1, 2012.

         For the 2012-13 tax year, the department's appraiser valued the property at $59.9 million. The department's appraiser based his valuation of the property on the terms of Seneca's power purchase agreement, which he considered to be reflective of the market rates during the relevant time frame. Seneca's appraiser valued the property at $34.9 million for the 2012-13 tax year and at $18.2 million for the 2013-14 tax year. Seneca's appraiser relied generally on "spot" market electricity prices on the assessment dates and did not rely on the rates that EWEB actually paid to Seneca for electricity under the power purchase agreement. The Tax Court issued an opinion rejecting the department's appraisal as fundamentally flawed in numerous respects, generally agreeing with Seneca's appraiser's conclusions, and setting the real market value of Seneca's cogeneration facility at $38.2 million as of January 1, 2012, and $19.1 million as of January 1, 2013. Seneca Sustainable Energy, LLC v. Dept. of Rev., 22 OTR 263 (2016).

         The department appeals the Tax Court's determination of the real market value of Seneca's cogeneration facility. The department makes both a procedural and a substantive argument. The department contends that the Tax Court erred in failing to grant its motion to dismiss Seneca's complaint, and on the merits, it argues that the Tax Court erred in determining the real market value of Seneca's industrial property without reference to the terms of Seneca's power purchase agreement with EWEB. We address the procedural arguments first.

         [363 Or. 790] THE DEPARTMENT'S PROCEDURAL ARGUMENTS

         In contending that the Tax Court erred in denying its motion to dismiss, the department makes two arguments: First, the department argues that the Tax Court did not have jurisdiction over Seneca's complaint, because Seneca's claims do not arise out of the tax laws of this state.[10] Second, the department argues that Seneca did not have standing to bring the two complaints, because it was not a "taxpayer" insofar as its property was tax exempt, and because it was not "aggrieved" by an act of the department in its administration of the tax laws of the state. To the extent that those issues involve overlapping considerations, we address them together.

         As relevant here, in its complaint concerning the 2012-2103 tax year, Seneca requested that the Tax Court:

"(1) [Determine that the] real market value of the subject property does not exceed $30, 000, 000 for the 2012-2013 tax year;
"[and]
"(2) Order defendants to place the appropriate real market value and tax exempt value for the subject property upon the 2012-2013 tax rolls[.]"

         [363 Or. 791] The consolidated complaint pertaining to the 2013-2014 tax year contains parallel requests for relief.[11]

         The first claim for relief is a request for a determination of the real market value of Seneca's industrial property, and, as such, it falls squarely within the statute governing appeals pertaining to the assessed value of industrial properties, ORS 305.403. That statute provides, in pertinent part:

"(1) An appeal by a taxpayer dissatisfied with the assessed value or specially assessed value of land or improvements of a state-appraised industrial property must be brought in the tax court.
"(2) An appeal under this section is taken by filing a complaint with the tax court in the manner prescribed under ORS 305.560 [setting out steps for filing and service of Tax Court complaints] during the period following the date the tax statements are mailed for the current tax year and ending December 31."

         We note that ORS 305.403(1) requires a taxpayer who is dissatisfied with the assessed value of industrial property to bring an appeal in the Tax Court. However, determination of assessed value is predicated in part on a determination of real market value. ORS 308.146(2) (assessed value equals the lesser of the property's maximum assessed value or the property's real market value). Therefore, a challenge to a determination of real market value also falls under ORS 305.403(1). Additionally, the second claim for relief is derived from the first, insofar as it requests an order directing that the tax rolls properly reflect the correct real market values as the statutes require, and therefore also falls under ORS 305.403(1).

         In addition, both claims for relief fall within the jurisdictional grant in ORS 305.410(1), which makes the Tax Court, subject to certain exceptions not applicable here, [363 Or. 792] "the sole, exclusive and final judicial authority for the hearing and determination of all questions of law and fact arising under the tax laws of this state."[12] Generally speaking, a claim arises "under the tax laws of this state" if "it has some bearing on tax liability." Sanok v. Grimes, 294 Or. 684, 701, 662 P.2d 693, 703 (1983). Here, all the statutes related to Seneca's claims bear on tax liability. The first claim arises out of the department's obligation to determine real market value for industrial properties. ORS 306.126 (requiring department to determine the real market value of industrial property and to advise the county assessor of that value). The second claim arises out of the assessor's obligation to ensure that the tax rolls correctly reflect assessed values. ORS 305.440(2) (directing correction of assessment and tax rolls upon the final determination of any ad valorem tax matter); ORS 311.205 (authorizing correction of errors on the assessment and tax rolls). Moreover, the Lane County tax assessor entered the department's valuation of Seneca's industrial property on the assessment roll, along with a notation that Seneca would be "subject to potential additional penalties" if it lost its tax exemption, as required by ORS 285C.l75(7)(a) and (c). Thus, both claims "arise[] out of the tax laws of this state."

         The department objects that the Tax Court does not have jurisdiction under either ORS 305.403 or ORS 305.410, because those statutes apply only to appeals by taxpayers. According to the department, Seneca was not a "taxpayer" with respect to the cogeneration facility, because that property was exempt from taxation during the years at issue. That objection need not detain us long. It is undisputed that Seneca owns the parcel of land on which the cogeneration facility sits, as well as the improvements to that property- the structures, machinery, and equipment that constitute Seneca's industrial property. Under ORS 307.030, all of that property is taxable. That statute provides:

[363 Or. 793] "All real property within this state and all tangible personal property situated within this state, except as otherwise provided by law, shall be subject to assessment and taxation in equal and ratable proportion."[13]

         At all times material to this case, Seneca, as noted, has been paying property taxes on the real property underlying the cogeneration facility. Under ORS 307.030, Seneca also is subject to taxation on the improvements to that property. Although Seneca was exempt from taxation on some of the improvements to its property during the period of the enterprise zone exemption, [14] it would again be taxed on its industrial property at the expiration of the exemption period. ORS 285C.I75(2). The fact that Seneca's property tax bill was reduced temporarily by operation of the enterprise zone exemption does not alter the conclusion that Seneca was a taxpayer for purposes of the tax laws of this state.

         That conclusion is consistent with the use of the term "taxpayer" throughout the tax laws of this state to refer to a person who is subject to potential taxation, whether or not that person owes taxes in a given year. To take just a few examples, a tax credit is allowed against taxes otherwise due for a "taxpayer" that is a corporation or other eligible business in a reservation enterprise zone, even though such credits may offset the entire tax owed. ORS 315.506(1) - (3). Similarly, ORS 291.349(5)(f), which deals with "disposition of revenue in excess of estimate," or Oregon's "kicker" tax rebate system, also contemplates that a "taxpayer" may not pay taxes in a given year. That statute provides for a tax refund rather than a tax credit "for personal income taxpayers" if the kicker "reduces tax liability to zero." Likewise, ORS 307.145 provides that a child care facility run by a charitable or religious institution that is exempt from taxation must submit a statement to the department that is "signed by the taxpayer." ORS 3O7.145(3)(b)(C). And ORS [363 Or. 794] 317.124(2), dealing with excise tax credits for certain corporations, refers to "a taxpayer that owns a facility that is exempt from property ...


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