Oregon Tax Court Rejects Department’s Attempt to Ignore Measure 50 Limitation

In Tesoro Logistics Northwest Pipeline LLC v. Department of Revenue (002), the Oregon Tax Court, Regular Division, held that although a unit of property acquired by one centrally assessed company from another qualified as “new property” for purposes of Or. Const. Art. XI, § 11 (Measure 50), the unit of property’s existing maximum assessed value (MAV) was preserved in the hands of the new owner. Tesoro Logistics Nw. Pipeline LLC v. Dep’t of Revenue, No. TC 5252, 2021 WL 6700471 (Or. Tax Ct., Reg. Div., Feb. 19, 2021). As a result, the Oregon Department of Revenue was not entitled to redetermine the MAV on account of the acquisition.

The assessed value of property in Oregon is equal to the lesser of the property’s real market value or MAV. Under Measure 50 and its implementing statutes, the MAV of a unit of property cannot increase more than 3% from the previous tax year, unless one of six exceptions applies. One such exception allows the MAV to be redetermined in the case of “new property or new improvements,” which is defined under ORS 308.149(6)(a)(C) as “changes in the value of property as the result of … [t]he addition of machinery, fixtures, furnishings, equipment or other taxable real or personal property to the property tax account.” At the same time, ORS 308.162(1) provides that when property attributable to one account is changed to another account, the MAV may be adjusted to reflect the change, but the total MAV for all affected accounts cannot exceed the total MAV the accounts would have had but for the change.

The taxpayer in Tesoro Logistics (Tesoro) was owned by a publicly traded limited partnership in the business of “gathering” crude oil, as well as “terminalling,” transporting and storing crude oil and refined oil products, including through pipelines. In 2013, Tesoro and another affiliate acquired the “Northwest Products System” from two third-party taxpayers that were subject to central assessment. The Northwest Products System consisted of (1) a federally regulated petroleum products pipeline extending from Utah through Idaho and Oregon to Washington, and (2) other related assets. For the 2013-14 tax year and years prior, the Department maintained a centrally assessed property tax account for the previous owners that included property constituting the Oregon portion of the Northwest Products System. Before acquiring the Northwest Products System, Tesoro did not have any property in Oregon. The Department redetermined the MAV of the property for the 2014-15 tax year, resulting in a MAV that was substantially higher than that previously assigned for the 2013-14 tax year and, in any event, in excess of Measure 50’s 3% limitation. Tesoro appealed the Department’s assessment to the Oregon Tax Court.

The tax court first looked to whether the “new property” exception to Measure 50 applied. The tax court relied on the Oregon Supreme Court’s recent decision in DISH Network Corp. v. Department of Revenue, where the Oregon Supreme Court interpreted “new property” as including “additions to the accounts of businesses on the central assessment roll.” 364 Or. 254, 271 (2019). The tax court found that the Department properly established a property tax account for Tesoro, and therefore a new unit of property, on the central assessment roll for the 2014-15 tax year. Consistent with DISH Network, the tax court concluded that Tesoro’s acquisition of the Northwest Products System fell within the exception for “new property” for purposes of determining the MAV for the 2014-15 tax year.

Nevertheless, the tax court agreed with Tesoro that even though the property in question qualified as “new property” under ORS 308.149(6)(a)(C), ORS 308.162(1) prohibited the Department from ignoring the property’s existing MAV. In DISH Network, the Oregon Supreme Court described ORS 308.162(1) as an exception to or limitation on Measure 50’s “new property” exception. The tax court explained, “Under Dish Network, even if property moved from one account to another is ‘new property,’ in practical terms, the property’s MAV from the former account limits the amount that can be set as MAV after the property has been moved to the new account.” The tax court found that Tesoro’s acquisition of the “new property” in question satisfied ORS 308.162(1). Accordingly, the tax court concluded that the Department was required to preserve the property’s existing MAV for purposes of determining the MAV for the 2014-15 tax year.

Tesoro Logistics marks the latest chapter in a years-long dispute between centrally assessed taxpayers and the Department over the application of Measure 50. If the Department appeals the tax court’s decision, the appeal will be to the Oregon Supreme Court. The Pillsbury SALT Team will continue to monitor developments in this case.