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As of July 1, , the assessment date at issue in this case, Delta served domestic cities in 45 states, the District of Columbia, and United States possessions, and provided air transportation service to 33 foreign countries.
It also operated six domestic and two international "hub" airports within the United States, as well as a European hub in Germany. One of the international hub airports within the United States was located in Portland. That facility served both international and domestic flights, and also served as a maintenance facility. Delta's air transportation property located in Oregon was subject to ad valorem taxation under ORS Those leased aircraft also were subject to taxation, assessable to Delta under ORS Delta challenged that Oregon valuation by filing a complaint in the Tax Court.
In reaching their valuation figures, the appraisers for Delta and the department both utilized three approaches to value, or "value indicators" -- the income approach, the cost approach, and a market-based "stock and debt" approach.
In following those approaches, however, the two appraisers utilized different procedures, the most significant of which concerned treatment of Delta's leased aircraft. In general, Delta's appraiser did not include lease payments -- which the department asserts represented the lessors' ownership interest in Delta's leased aircraft -- as part of the unit value in the income and the stock and debt indicators of value, reasoning that the value of leased aircraft already was reflected in those indicators.
In contrast, the department's appraiser made significant adjustments for leased aircraft, adding a separate value for lease payments to the system-wide unit value for Delta's owned property in both the income and the stock and debt indicators, resulting in higher unit values. The Tax Court concluded that Delta's approaches to value were erroneous, because they focused upon the value of Delta itself, rather than the value of Delta's taxable property. We first address an issue concerning the proper standard of review.
When this case was briefed and argued in this court, review of appeals from the Tax Court was de novo on the record made in the Tax Court. See ORS However, the Legislature amended ORS The Legislature further provided that the changes to the tax laws set out in chapter would "become[] operative on September 1, We must determine whether the legislature intended the new standard of review -- errors of law or substantial evidence -- to apply retroactively to cases that were commenced in this court before September 1, , the operative date of the amendment, and that still were pending on that date.
To answer that question, we first examine the text and context of the amendment to ORS See PGE v. Bureau of Labor and Industries, Or , , P2d setting out methodology ; Owens v. Maass, Or , , P2d applying PGE when determining whether an amended statutory time limitation should apply retroactively. Context includes all provisions of Oregon Laws , chapter , including the operative date set out in section 1. As noted, the new standard of review provision originally was set out in section 25 of Oregon Laws , chapter , which provides:.
The sole and exclusive remedy for review of any decision or order of the judge of the tax court shall be by appeal to the Supreme Court. Jurisdiction hereby is vested in the Supreme Court to hear and determine all appeals from final decisions and final orders of the judge of the tax court[, except with respect to the small claims division of the tax court].
The scope of the review of either a decision or order of the tax court judge shall be limited to errors or questions of law or lack of substantial evidence in the record to support the tax court's decision or order.
Such appeals, and the review of final decisions and final orders of the tax court, shall be in accordance with the procedure in [equity cases] actions at law on appeal from a circuit court, but without regard to the sum involved. Upon such appeal and review, the Supreme Court shall have power to affirm, modify or reverse the order or decision of the tax court appealed from, with or without remanding the case for further hearing, as justice may require.
In order to understand the changes made to ORS Turning, then, to section 25, we first observe that the text does not indicate whether the new standard of review applies to cases commenced in this court before September 1, Other aspects of section 25, however, suggest that the new standard applies only to cases filed in the Tax Court on or after September 1, For example, by adding the words "judge of the" before "tax court" in two other sentences, the legislature clarified that, as of September 1, , the Tax Court included the magistrate division, staffed with magistrates, as well as the regular division, staffed with a judge.
It is plausible, therefore, that the new standard of review provision, which similarly refers to the "tax court judge," applies only to cases appealed from the Tax Court after the new magistrate and regular divisions began operation. The context of section 25 supports that reading. With one minor exception, 4 all the amendments, new statutory provisions, and repeal provisions set out in chapter relate to the creation of the new magistrate division and certain processes related to that division, and the adaptation of existing tax statutes to the new appeals process.
It therefore is logical to conclude that the legislature intended the new standard of review to be a part of that new process. We have found nothing in the text or context of Oregon Laws , chapter , that points to a contrary reading of the standard of review provision in section We conclude that the new standard of review was intended to apply only to cases filed in or transferred to the Tax Court on or after September 1, It follows that the new standard of review does not apply retroactively to this case.
Accordingly, we proceed to review this case de novo under ORS Delta must prove its claims by a preponderance of the evidence.
ORS The central dispute between the parties is whether the unit valuation of Delta's taxable property should have included a so-called "leased-equipment adjustment," that is, an adjustment for aircraft leased, rather than owned, by Delta.
Stated differently, in determining a value for Delta's taxable property, the issue is whether it was permissible for the department to include in that value a separate calculation of the value of aircraft that Delta leases. In order to understand the parties' contentions concerning the leased-equipment adjustment, it first is necessary to explain the three approaches to value and how the parties' appraisers applied them in this case.
The income approach to value focuses upon investor anticipation of future benefits to be derived from property owned and used by a company. Generally speaking, the income approach measures the present value of the anticipated future stream of income attributable to the company's operating property, by discounting the company's anticipated cash flows to present value using a capitalization rate that reflects the company's costs of investment.
Delta's appraiser followed a "perpetuity" model in his income approach, which assumed that Delta would continue operation into the indefinite future. He then applied an estimated operating margin of 7.
The effect of that calculation was to remove lease payments to Delta's lessors from the income stream subject to capitalization. The department's appraiser, in contrast, followed a "limited-life" model in his income approach. That model sought to determine the income that reasonably could have been expected to be generated from the group of assets subject to valuation, for the average anticipated life of those assets.
Applying a capitalization rate of The cost approach to value is based upon the principle of substitution, that is, it assumes that property is worth its cost or the cost of a satisfactory substitute with equal utility. Thus, the cost approach seeks to determine the cost of the unit that is being valued.
In his cost approach, Delta's appraiser first determined the original, or historical, cost of Delta's owned assets, by examining Delta's books. Next, he calculated an obsolescence factor of The department's appraiser used different approaches to determine cost, depending upon the type of asset being valued.
For airport terminal property and certain equipment, he followed an approach similar to Delta's appraiser, using Delta's books to determine historical costs and depreciation. In contrast, for both owned and leased aircraft, the department's appraiser began with historical costs, but then applied his own depreciation scheme, based upon his analysis of market transactions as reported in a publication by Avmark, Inc.
He did not make a separate adjustment for obsolescence because, in his view, his market depreciation analysis accounted for any obsolescence that might have existed. The stock and debt approach to value, which is a substitute for a market-sales approach, is based upon the premise that the value of assets is equal to total liabilities plus equity.
Thus, the stock and debt approach assumes that the market value of a company's assets can be imputed from the market value of its equity and debt. Delta's appraiser did not make a leased-equipment adjustment because, in his view, the value of Delta's leased aircraft was reflected in the value of its securities, particularly in the current market value of its stock.
He also did not include the value of Delta's deferred credits, comprised primarily of deferred income taxes and deferred gains on certain sale and lease-back transactions, in his debt calculation. Like Delta's appraiser, the department's appraiser determined a value for all Delta's stock and debt.
However, he utilized stock prices and long-term debt figures that differed from those used by Delta's appraiser. Additionally, unlike Delta's appraiser, the department's appraiser included the value of deferred credits in his debt calculation because, in his view, such credits represented potential claims against Delta's assets. After completing the three approaches to value, both appraisers then used their results under those approaches to calculate a system-wide value for Delta's taxable property.
In order to determine the Oregon value of Delta's property subject to taxation, both appraisers then applied an allocation factor of 0. As can be seen, in the income and the stock and debt approaches to value, Delta's appraiser did not make a separate adjustment for aircraft leased by Delta. In addition, although his cost approach included the cost of leased aircraft, Delta's appraiser relied upon figures calculated in his income approach, which did not adjust for leased aircraft, to calculate obsolescence.
In contrast, the department's appraiser made a separate adjustment for leased aircraft in both the income and the stock and debt approaches, and included the cost of leased aircraft, without relying upon figures from the income approach, in the cost approach. Delta argues that, because the concept of unit valuation seeks to value an integrated set of assets as a single operating unit, it was inappropriate for the department to make a separate adjustment for leased equipment.
In Delta's view, such an adjustment effectively combined the unit concept with the summation concept, which values individual assets separately and then adds those values to calculate a final valuation figure. Delta further argues that making a separate adjustment for leased equipment, as the department did, resulted in a "double-counting" of that equipment.
Specifically, in the income approach, Delta reasons that its final valuation figure, as calculated by its appraiser, represented all the income generated by all Delta's owned and leased aircraft, and, therefore, the value of its leased aircraft was captured in that final valuation figure. In the stock and debt approach, Delta similarly reasons that the value of leased aircraft already was reflected in the value of its stock and other securities, and, therefore, the department's leased-equipment adjustment double-counted that value.
The department responds that it did not violate the unit concept when it calculated a separate value for Delta's leased aircraft and included that value in the income and in the stock and debt approaches. The department asserts that the purpose of a unit valuation is to capture the incremental increase in value that derives from the operation of several assets as a unit. It follows, in the department's view, that Delta's income and its stock and debt approaches valued only Delta's owned property and the incremental benefit derived from Delta's owned and leased property operating as a unit.
The department continues, however, that Delta's income and its stock and debt approaches did not capture the value of Delta's leased aircraft, represented by lease payments to the lessors. In the department's view, a leased-equipment adjustment is required in order to capture the lessors' ownership interest in the leased aircraft. Before this court and the Tax Court, both parties focused their arguments upon the theoretical propriety of making a leased-equipment adjustment when appraising Delta's taxable property.
We need not engage in that debate, however, because an administrative rule answers the question whether such an adjustment is permissible. OAR Thus, OAR In light of that express requirement, Delta cannot argue persuasively that the Tax Court erred in approving the department's decision to make leased-equipment adjustments in its approaches to value.
Delta raises additional issues that concern the manner in which the department adjusted for Delta's leased aircraft, which we address below. Before doing so, we note that OAR Further, OAR Delta first contends that, even if a leased-equipment adjustment were required, the department should have employed the traditional method of adjusting for such equipment. According to the record, the traditional method treats leased property as if it were owned by the lessee. The courses provide participants with the administrative framework and technical skills to effectively work in the area of utility valuation.
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