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You Can Fight the Property Taxman
by Ron Davis

A battle over the property tax that an Oregon shopping center owes has concluded with a decisive victory for the center’s owner.

The shopping center is Barbur Plaza in Portland, and the property-tax issue arose after the county appraiser set the value of the center. From that appraisal, the center’s owner learned that he owed taxes on his property at a figure far more than he had estimated. Instead of his property-value estimate of $2 million, the county’s estimate was 50 percent higher.

The owner of Barbur Plaza disputed the county’s calculation and sued to force a reduction in the tax appraisal. He pointed out that he bought the center in 1999 for $1,770,000, intending to build an adjacent second building on the property. But he said legalities nixed those plans. He added that he would not have bought the property had he known of the problems he would later encounter. Those problems, he contended, included poor structural design.

The owner also claimed that the center’s current vacancy had dropped to 45 percent of capacity and rent rates had dropped substantially. He also noted functional problems he had experienced, and his leasing agent spoke of “significant challenges in marketing the available space.”

The county insisted that potential gross income from the property was greater than the center’s owner had stated. Tax officials also based their appraisal on sales of other shopping center properties. Finally, the county concluded that Barbur Plaza’s expenses were not as great as claimed. Even after “adjustments” that a judge later demanded, the county assessment was based on a value of $3,049,600.

The tax dispute eventually reached the courts, where a judge pointed to Oregon law that pertained to such matters. That law stated, in part, that the real market value of property is found by estimating the amount in cash that an “informed” buyer would be expected to pay to an “informed” seller for such real estate. Plus, the buyer and seller must be acting without compulsion in “an arm’s-length transaction” at the time of a tax assessment. Of course, the judge added, not every sale is comparable in every detail. So, he added, adjustments are often made.

Nevertheless, the court ruled in favor of the center’s owner, explaining that the county “offered no supportable adjustments” to any of the sales data used. The judge also noted that the county had not considered any time adjustments, despite the wide range in comparable sales dates.

The judge continued, “The subject property is unique in layout and hampered by design difficulties and prospective tenant reluctance. [County] estimates of income are inflated; the expenses are too slight. Further, the appropriate capitalization rate by [the center’s owner] is drawn directly from the market and reflects the increased inherent risk at the subject property.”

(2010 WL 3836061 [Or.Tax Magistrate Div.])

Decision: October 2010
Published: December 2010



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