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Dish Network Corp. v. Department of Revenue

Supreme Court of Oregon

January 25, 2019

DEPARTMENT OF REVENUE, Defendant-Appellant.

          Argued and submitted June 13, 2018

          On appeal from the Oregon Tax Court. [*] Henry C. Breithaupt, Judge. (TC 5007 (Control), 5050, 5140, 5201, 5239, 5267, 5293); (SC S065019)

          Benjamin Gutman, Solicitor General, Salem, argued the cause and fled the briefs for appellant. Also on the briefs were Ellen F. Rosenblum, Attorney General, and Marilyn J. Harbur, James C. Strong, and Daniel Paul, Assistant Attorneys General.

          Nicholas G. Green, Orrick, Herrington & Sutcliffe LLP, New York, New York, argued the cause for respondent. Scott G. Seidman, Tonkin Torp LLP, Portland, fled the brief. Also on the brief was Nicholas G. Green.

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

         [364 Or. 255] Case Summary:

         Prior to 2009, the property that taxpayer DISH Network Corporation owned in Oregon was assessed by various local assessors in the counties in which the property was located. In 2009, however, the Department of Revenue concluded that taxpayer was a "communication" business and that, under ORS 308.515(1)(h), its property must be centrally assessed under the procedures set out in ORS 308.505 to ORS 308.565. The department notified taxpayer of its intention to add its property to the central assessment roll as a new unit of property. Using the unitary valuation method, as is permitted for centrally-assessed property, ORS 308.555, the department calculated the real market value of taxpayer's Oregon property as $34.9 million dollars and ultimately entered that amount on the central assessment roll as the unit's assessed value. Taxpayer objected that, insofar as the $34.9 figure represented a two-fold increase from the total assessed value of its property in the preceding year, it violated Article XI, section 11, of the Oregon Constitution (Measure 50 (1997)), which generally limits increases in the assessed value of property to three percent per year. Although the department insisted that, insofar as it had added the property as a new unit to the central assessment roll, an exception to the general three-percent limit for "new property or new improvements to property" applied, taxpayer denied that the new property exception was applicable, and fled a complaint in the Tax Court. When the Tax Court agreed with taxpayer and issued a limited judgment granting the relief that it had requested, the department appealed to the Oregon Supreme Court, arguing that the unit of property it had added to the central assessment roll was "new property" within the meaning of Measure 50, and therefore excepted from the general limitation on increases in assessed value contained in that constitutional measure. Held: The entire unit of property that the department added to the central assessment roll was "new property or new improvements" within the meaning of Measure 50; it therefore was subject to a special formula for determining assessed value, rather than the general formula limiting yearly increases in assessed value to three percent.

         The judgment of the Tax Court is reversed and the case is remanded to the Tax Court for further proceedings.

         [364 Or. 256] WALTERS, C.J.

         In 2009, taxpayer DISH Network Corporation (DISH) received an assessment order from the Department of Revenue showing that the department had valued its property in Oregon for tax purposes at an amount that exceeded the previous year's valuation by nearly 100 percent. The increase came about because the department had subjected DISH's property to central assessment and thus, also, to "unit valuation," a method of valuing property that purports to capture the added value associated with a large, nationwide business network that, by statute, is available for central, but not local, assessments. ORS 308.555 (2007).[1]Although DISH objected to the change from local to central assessment and continued to do so in successive tax years in appeals to the Oregon Tax Court, the department insisted that central assessment was required because DISH was using its property in a "communication" business. See ORS 308.515(1)(h) (stating that property used in certain businesses, including "communication" businesses, shall be assessed by the Department of Revenue). When DISH was forced to concede defeat on that issue, based on this court's decision in DIRECTV, Inc. v. Dept. of Rev., 360 Or. 21, 377 P.3d 568 (2016), another issue came to the fore in DISH's tax appeals: Did the drastic increase in the assessed value of DISH's property starting in the 2009-10 tax year violate Article XI, section 11, of the Oregon Constitution, which provides that the assessed value of a unit of property in any given year cannot exceed the previous year's assessed value by more than three percent? The department argued that, because DISH's property had been newly added to the central assessment rolls in 2009, the property fell into an exception to the three-percent cap on increases in assessed value-for "new property or new improvements to property." Or Const, Art XI, § 11(1)(c)(A). The statutes implementing the constitutional provision define "new property or new improvements" to include "the addition of * * * property to the property tax account." ORS 308.149(5)(a)(C). The Tax Court rejected the department's "new property" theory and [364 Or. 257] held that the department's assessments of DISH's property in the tax years after 2008-09 was unconstitutional.

         The department has appealed that decision, reprising its argument that the "new property" exception applies. We agree with the department that the exception applies and therefore reverse the Tax Court's decision to the contrary.

         I. BACKGROUND

         This case arises at the intersection of two legal constructs-the statutory requirement that certain types of businesses be centrally assessed under ORS 308.505 to 308.665, and the limitations on the assessed value of property set out in Article XI, section 11, of the Oregon Constitution and its implementing statutes. Before we proceed to the specific facts of this case, we provide the following brief introduction.

         A. Local Versus Central Assessment

         Most property in Oregon is assessed locally, by county assessors. ORS 308.210. However, the Department of Revenue is charged with centrally assessing property in Oregon that is "used or held for future use by" certain kinds of businesses-generally, those that provide services through networks or systems that operate over a large geographic area. ORS 308.515. Whether performed locally or centrally, assessment of property for purposes of taxation involves the preparation of an assessment roll. County assessment rolls are organized by "property tax account," an administrative division of property for assessment purposes that generally consists of a parcel of land and the buildings, structures, improvements, machinery, equipment, and fixtures thereon which are assessable to the owner. See ORS 308.215(1) ("real property shall be listed in sequence by account number"); ORS 307.010(1)(b) (defining "real property" for purposes of property assessment as including the land itself and all buildings, structures, improvements, equipment or fixtures thereon). In contrast, the central assessment roll is organized by company and lists all the properties for which the company is liable to assessment under the central assessment statutes-specifically, all property that the company uses or holds for use in its business. ORS 308.515(1); ORS 308.540.

         [364 Or. 258] Although the central assessment process is similar to the local assessment process, there are some notable differences. First, under central assessment, a company is assessed for the property it uses (or holds for future use) in its business, whereas under local assessment, a company (or person) is assessed for property that it owns. Compare ORS 308.515(1) with ORS 308.215. Second, only centrally assessed property may be subjected to "unit valuation," whereby the value of a business's property "both within and without the state" is determined "as a unit" and, based on the proportion of certain of the business's physical assets that are situated in Oregon, part of the unit is deemed to be assessable and taxable in Oregon. ORS 308.555.[2] In fact, as this court explained in Comcast Corp. v. Dept. of Rev., 356 Or. 282, 289-93, 337 P.3d 768 (2014), the central assessment process was adopted in Oregon for the specific purpose of allowing statewide unit assessment of businesses that use property over a large area to operate a single network or system.[3] Finally, and relatedly, while real property and "tangible personal property" are subject to both local and central assessment, [4] only central assessment may also take "intangible personal property" into account.[5] ORS 307.030(2); ORS 308.510(1).

         [364 Or. 259] B. Article XI, Section 11, of the Oregon Constitution (Ballot Measure 50)

         The other legal construct that is the focus of this appeal is the limitation on increases in property taxes, and the exceptions thereto, provided in Article XI, section 11, of the Oregon Constitution and its implementing statutes. Article XI, section 11, was added to the Oregon Constitution in 1997, when the legislature proposed it and the voters adopted it as Measure 50 (1997). The legislature referred Measure 50 to the voters, at least in part, to fix problems in an earlier voter-approved property tax limitation measure that it replaced, Measure 47 (1996).

         In a nutshell, Measure 50 provides that, for the 1997 tax year, each "unit of property" in the state shall have a maximum assessed value (MAV) that does not exceed its real market value for 1995, less 10 percent. It further provides that, for each year after 1997, the property's MAV "shall not increase by more than three percent from the previous tax year." The provision expressly allows for certain exceptions to that rule, but still limits the assessed value of property that falls into those exceptions. It does so by applying a ratio that seeks to produce the same reductions from real market value for exceptional properties that the application of Measure 50 has produced for neighboring properties of the same type. Thus, it provides, in paragraph 1 (Article XI, section 11(1)(c) of the Oregon Constitution):

"Notwithstanding [the described cap on maximum assessed value], property shall be valued at the ratio of average maximum assessed value to average real market [364 Or. 260] value of property located in the area in which the property is located that is within the same property class, if on or after July 1, 1995:
"(A) The property is new property or new improvements to property;
"(B) The property is partitioned or subdivided;
"(C) The property is rezoned and used consistently with the rezoning;
"(D) The property is first taken into account as omitted property;
"(E) The property becomes disqualified from exemption, partial exemption or special assessment; or
"(F) A lot line adjustment is made with respect to the property * * *."

         Measure 50 does not set out a specific mechanism for effecting its limitations on the assessed value of property; nor does it define many of its own terms-including the term "new property or new improvements to property."[6]However, after the measure passed, the legislature enacted implementing legislation that purports to fill some of those gaps.[7] The resulting statutes include one, ORS 308.146, which provides formulas for calculating the maximum three percent increase in MAV and for determining when the assessed value (AV) must equal that MAV. ORS 308.146(1) and (2).[8] The same statute refers the reader to a different [364 Or. 261] set of statutes, with different formulas or "special determinations of value" for properties that fall within six exceptions-the same six exceptions, described in the same terms, that are identified in Measure 50. ORS 308.146(3).[9]One of the referenced statutes, ORS 308.156, sets out the formula that applies to four of the six exceptions (partition, rezoning, omitted property and disqualification from exemption), while another, ORS 308.153, sets out the formula that applies to the "new property or new improvements" exception. That latter statute provides:

"(1) If new property is added to the assessment roll or improvements are made to property as of January 1 of the assessment year, the maximum assessed value of the property shall be the sum of:
"(a) The maximum assessed value determined under ORS 308.146; and
"(b) The product of the value of the new property or new improvements determined under subsection (2) (a) of this section multiplied by the ratio, not greater than 1.00, of the average maximum assessed value over the average real market value for the assessment year.
"(2)(a) The value of new property or new improvements shall equal the real market value of the new property or new improvements reduced (but not below zero) by the real market value of retirements from the property tax account."

         [364 Or. 262] "New property or new improvements" is denned for purposes of all of the foregoing statutes, at ORS 308.149(5), as

"(a) * * * changes in the value of property as the result of:
"(A) New construction, reconstruction, major additions, remodeling, renovation or rehabilitation of property;
"(B) The siting, installation or rehabilitation of manufactured structures or floating homes; or
"(C) The addition of machinery, fixtures, furnishings, equipment or other taxable real or personal property to the property tax account.
"(b) 'New property or new improvements' does not include changes in the value of the property as the result of:
"(A) General ongoing maintenance and repair; or "(B) Minor construction.
"(c) 'New property or new improvements' includes taxable property that on January 1 of the assessment year is located in a different tax code area than on January 1 of the preceding assessment year."


         DISH is a satellite television provider-it delivers television programming to its customers through satellite signals that are picked up and decoded by equipment that is contained in a box that sits on or near each customer's television set. DISH's physical property in Oregon is limited to the "set-top boxes" that it leases to its Oregon customers and some additional machinery, equipment and furnishings, worth about $23.5 million in total. Most of the property that DISH owns or uses is situated outside of Oregon.

         From the time it began operating in Oregon in the mid-1990s until 2009, DISH's property in Oregon was assessed locally, by the counties in which its tangible property was located. However, by the end of that period, the Department of Revenue had concluded that DISH was using its property in Oregon in a "communication" business within [364 Or. 263] the meaning of ORS 308.515, [10] and that, therefore, its property in Oregon must be assessed by the department under ORS 308.505 to 308.665, i.e., through central assessment. The department notified DISH of its intention to add DISH's property to the central assessment rolls as a "new" unit of property beginning with the 2009-10 tax year. In that first year of central assessment, the department calculated the real market value (RMV) of DISH's property both inside and outside of Oregon as a single unit[11] and then determined that Oregon's proportionate share of that unit was $34.9 million. Then, in order to effect the limitations on the assessed value imposed by Measure 50, it applied the formula set out in ORS 308.153, which is applicable when "new property" is added to the assessment rolls. It entered the resulting AV-$34.9 million dollars-on the central assessment roll.[12] That assessed value of $34.9 million provided the baseline from which, in subsequent years, the department calculated and applied the allowable three percent increase, as provided in ORS 308.146 (1) and (2).

         DISH objected to being centrally assessed and to the corresponding increase in the assessed value of its property and filed complaints in the Tax Court in 2009-10 and in [364 Or. 264] each subsequent tax year.[13] It argued that it was not subject to central assessment as a "communication" business, and that, in any event, the department's valuation of its property had violated the limitations on assessed value imposed by Measure 50. While those cases were pending in the Tax Court, this court decided DIRECTV, holding that, because satellite television providers are "in the business of transmitting electronically coded data between computer-like devices," they are "communication" businesses and subject to central assessment under ORS 308.515(1). 360 Or at 24. DISH then conceded, in the Tax Court, that DIRECTV controlled, and that it was subject to central assessment as a communication business. However, it moved for summary judgment on its Measure 50 argument.

         With regard to that argument, DISH noted that, in the 2008-09 tax year, the total statewide assessed value of its Oregon property, as determined by adding up the assessments of the relevant local assessors, was some $17.4 million. DISH then pointed out that its assessment for essentially the same property in the 2009-10 tax year was nearly double that amount-$34.9 million-and clearly exceeded the three-percent-increase from the previous year's assessed value that was permitted under Measure 50. The department responded that, when it added DISH's property to the central assessment roll for the first time in 2009, it created a new unit of property, which required the calculation of a new MAV under the rule for determining the MAV for new property or improvements set out in ORS 308.153. After 2009, the department added, it had properly used that new MAV when calculating the allowable increase in assessed value under Measure 50. DISH replied, however, that the department's decision to value its property as a unit in 2009 did not create "new property" and did not otherwise make the new property exception applicable.

         The Tax Court granted DISH's motion for summary judgment and entered a limited judgment in DISH's favor on [364 Or. 265] the Measure 50 claim (other issues remained, which the Tax Court stayed pending resolution of the department's anticipated appeal of the limited judgment). The Tax Court briefly explained that the claim was controlled by its then-recent decision in Comcast v. Dept. of Rev., 22 OTR 233 (2016), which it summarized as holding that "the department could not apply the new property exception to property previously subject to, but not subjected to, central assessment." For a fuller explanation of the Tax Court's decision, we turn to that case, the facts, arguments and issues of which are identical to those in the present case in all pertinent respects.[14]

         III. COMCAST

         The ultimate question before the Tax Court in Comcast was-as it is here-whether the department's decision to centrally assess a business's property that previously had been assessed locally implicates the exceptional treatment in Measure 50 for "new property or new improvements." In answering that question, the Tax Court began with the proposition that, to the extent that the definition of "new property or new improvements" in Measure 50's implementing statutes does not conflict with Measure 50, it controlled the outcome of the case. 22 OTR at 243. However, after quoting part of that statutory definition, which appears at ORS 308.149(5), the Tax Court immediately turned to an entirely different proposition-that, as used in another implementing statute, ORS 308.146(3), "new property or new improvements" are those that "come into existence" between January 1 of the preceding assessment year and January 1 of the current assessment year.[15] Id. at 244-45. The Tax Court drew that proposition from one of its own cases, Douglas County v. Crawford, 21 OTR 6 (2012), which we discuss at some length below.

         The Tax Court in Comcast thus at least initially interpreted the term "new property or new improvements" [364 Or. 266] without reference to the statutory definition of the term at ORS 308.149(5), on which the department had relied in asserting that it could count the taxpayer's centrally assessed property as new. However, later in the opinion, it addressed the department's contention that, insofar as the taxpayer's property was added for the first time to the central assessment roll, it was "new" within the meaning of one prong of the statutory definition, subparagraph (5)(a)(C) ("The addition of machinery, fixture, furnishings, equipment or other taxable real or personal property to the property tax account."). The Tax Court suggested, first, that that subparagraph of the statutory definition was not relevant because the taxpayer's property already had appeared on various county assessment rolls. It insisted that the "addition" of the taxpayer's property to the central roll could not negate or erase the property's prior appearance on those county assessment rolls; neither could it negate the property's previously-determined MAV that had appeared on those rolls. Id. at 251-52. Second, after acknowledging that the use of the passive voice in subparagraph (5)(a)(C) left some ambiguity with respect to whether it could be read to refer to a change in value of property resulting from the assessor's addition of taxable property to the property tax account, the Tax Court concluded that it was clear from context that the sentence refers only to additions made by the taxpayer itself. Id. at 252-54.

         The Tax Court in Comcast also rejected the department's contention that unit valuation of the taxpayer's property effectively placed a new unit of property, which had never been assessed before, on the assessment rolls. The Tax Court explained that unit valuation is just a rule for valuing property that already exists and does not create new property. It was unmoved by the taxpayer's observation that "property" is defined, for purposes of determining whether an assessment has violated Measure 50, as "the total statewide value of all property assessed to a company [that is subject to central assessment]." ORS 308.142(1)(b). In that regard, the Tax Court noted that the use of "value" in that definition was a by-product of the definition's particular function in the statutory scheme. It further noted that, under a more immediately relevant definition of "property"-"all property [364 Or. 267] assessed to each company that is subject to assessment [under the central assessment statutes]," ORS 308.510(6)- the focus is clearly on property, rather than on value. Id. at 254-56.

         Finally, the Tax Court dismissed the department's argument that the taxpayer would obtain a windfall- permanent freedom from taxation for its previously unas-sessed intangible property-if the department is precluded from treating a transition from local assessment to central assessment and unit valuation as within the exception for the addition of new property. The Tax Court explained that that outcome may be simply a necessary result of the operation of Measure 50 and its limitations on increases in assessed value. It also suggested that another exception to the ordinary mode of calculating MAV might apply- seemingly referring to the exception for property "first taken into account as omitted property," ORS 308.146(3)(d) (although, as a practical matter, that exception was no longer available to the department as a means for taking into account the value not captured by local assessments).

         As noted, the Tax Court's brief opinion in the present case says little more than that the case is controlled by its earlier opinion in Comcast. Accordingly, when the department appealed from the Tax Court's ruling in the present case that the addition of DISH's property to the central assessment rolls did not qualify it as "new property" within the noted exception, it directed its arguments against the Tax Court's opinion in Comcast.[[1]]


         The department contends that the Tax Court's interpretation of the "new property" exception in Measure 50 and its implementing statutes cannot be justified under the interpretive methodology that must be applied. It contends that, as used in the constitutional provision, the term "new property" could encompass a range of meanings, based [364 Or. 268] on ordinary understandings of the word "new." It further contends that, as used and defined in the implementing statutes, the term is not limited to property that has "come into existence" during a specified period, but instead encompasses property that is newly added to an account on the assessment rolls. The department concludes that, under that standard, all of DISH's Oregon property was "new property or new improvements" in 2009, because it was newly added to the central assessment rolls in that year. At the very least, the department adds, any property of DISH's that had not previously appeared on any assessment roll (i.e., intangible personal property and property that DISH used in its communication business, but did not own) would constitute "new property" when added to the central assessment roll.

         DISH responds that the Tax Court correctly surmised that "new property" in this context must refer to property that is newly created or acquired by the taxpayer, and that the term's applicability cannot depend on an assessor's "unilateral" action of adding the property to a different assessment roll.

         V. ANALYSIS

         The primary question before this court, then, is whether a taxpayer's property that is moved from local to central assessment falls into the exception for "new property or new improvements to property" set out in Measure 50 and its implementing statutes. Put differently, does the term "new property or new improvements" in those contexts refer only to property that was created or acquired by a taxpayer in the year before the current assessment year, or can it refer to property that is new to an assessment roll (or to a property tax account on an assessment roll), based on a decision by the taxing authority? Although the parties treat the constitutional and statutory provisions as interchangeable, freely mixing arguments about the statutory context with arguments about the history of the constitutional provision's adoption, we think that a more orderly approach is required. Accordingly, and consistent with our usual practice of addressing subconstitutional arguments before constitutional arguments, Haynes v. Board of Parole, 362 Or. 15, 22, 403 P.3d 394 (2017), we first construe the "new property" [364 Or. 269] exception as it appears in the statutes, and then consider whether that construction conflicts with any aspect of the constitutional provision.

         A. The Implementing Statutes

         As noted above, the implementing statutes include a provision, ORS 308.146(3), that exactly mirrors Measure 50's list of exceptions to the general formulas for calculating and increasing a property's AV and MAV. They also include a definition of the exception that is at issue here-"new property or new improvements to property." The parties appear to agree that, unless that statutory definition, as construed, conflicts with Measure 50, ...

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