The z?oty gained clearly against the dollar after the US currency fell sharply on the international market, which tends to support higher-risk emerging-market assets. The dollar lost ground after China’s central bank said it had a plan to diversify its foreign-exchange reserves, mostly held in US dollars. The EUR/USD rose on Friday to a two-month high at $1.29.

According to Polish officials, the z?oty has room to gain further, buoyed by the economy’s strong performance, and may climb to z?.3.7 against the euro in the medium term, said Deputy Finance Minister Piotr Soroczy?ski. Finance Minister Zyta Gilowska also said the currency should continue recent moderate gains next year.

The z?oty is still supported by economic data, and the unemployment rate is expected to fall to 14.9 percent in October from 15.2 percent a month earlier.

Expectations the central bank will keep interest rates steady till the end of the year and raise them moderately next year also support the debt market alongside limited supply in the final months of the year.

Marek W?grzanowski
X-Trade Brokers Dom Maklerski SA

The euro moved higher vis-? -vis the U.S. dollar today as the single currency tested offers around the US$ 1.2775 level and was supported around the US$ 1.2735 level. Technically, today??™s intraday high was right around the 61.8% retracement of the move from $1.3480 to $1.1640. Traders await the release of tomorrow??™s all-important October non-farm payrolls report with most economists expecting jobs creation of about 125,000. This week??™s October ADP jobs report and the ISM employment index data released this week both printed at a good clip and traders this may result in a decent print tomorrow. Traders also want to see if September??™s relatively weak print of 51,000 is upwardly revised. Data released in the U.S. today saw the Q3 non-farm productivity up 0%, weaker-than-expected, while unit labour costs were up a heady 3.8%, down from Q2??™a 5.4% print. Additionally, initial weekly jobless claims were up 18,000 to 327,000 and September factory orders were up 2.1%. In eurozone news, European Central Bank kept interest rates unchanged, as expected, and ECB President Trichet noted ???strong vigilance??? is required on inflation. Most traders continue to believe the ECB will lift borrowing costs by +25bps to 3.50% next month. Data released in the eurozone today saw the October PMI manufacturing survey move higher to 57.0, more-than-expected, while German unemployment was off 67,000 in October with the jobless rate coming in at 10.4%. Euro bids are cited around the US$ $1.2710/ 1.2655 levels.

??/ CNY

The yen weakened vis-? -vis the U.S. dollar today as the greenback tested offers around the ??117.35 level and was supported around the ??116.65 level. Technically, today??™s intraday high was just above the 23.6% retracement of the move from ??108.95 to ??119.85. MoF??™s Watanabe verbally intervened again, saying there is no reason for the yen to weaken given Japan??™s improving economy. Data released last night saw the October monetary base fall for the eighth consecutive month, down 21.3% y/y. Bank of Japan Governor Fukui spoke overnight and dovishly indicated the central bank can afford to spend ???ample time??? between rate hikes and said the U.S. economy is unlikely to face a recession. BoJ Deputy Governor Muto reported capital expenditures are not overheating but adding policymakers are monitoring upside risks. Japanese financial markets will be closed tomorrow for a national holiday. The Nikkei 225 stock index lost 0.15% to close at ??16,350.02. Dollar bids are cited around the ??116.75/ ??115.70 levels. The euro gained marginal ground vis-? -vis the yen as the single currency tested offers around the ??149.60 level and was supported around the ??148.85 level. The British pound and Swiss franc came off vis-? -vis the yen as the crosses tested bids around the ??222.60 and ??93.60 levels, respectively. The Chinese yuan weakened vis-? -vis the U.S. dollar as the greenback closed at CNY 7.8735 in the over-the-counter market, up from CNY 7.8724, and at CNY 7.8740 in the exchange-traded market. The Chinese government predicted 2006 retail sales growth is expected to rise 13.5% to CNY 7.6 trillion. People??™s Bank of China advisor Fan Gang noted the economy is consolidating but added overheating remains a risk. PBOC member Su Ning predicted the economy ???will maintain a relatively fast and stable growth rate.???

?‚¤

The British pound moved higher vis-? -vis the U.S. dollar today as cable tested offers around the US$ 1.9105 level and was supported around the $1.9035 level. Technically, today??™s intraday high was just above the 23.6% retracement of the move from $1.8670 to $1.9135. Data released in the U.K. today saw Q3 construction orders off 10% q/q and were up 4% y/y while October construction PMI rallied to 58.1, the highest since March 2004. Cable bids are cited around the US$ 1.8995/ 60 levels. The euro moved higher vis-? -vis the British pound as the single currency tested offers around the ?‚¤0.6695 level and was supported around the ?‚¤0.6680 level.

CHF

The Swiss franc appreciated vis-? -vis the U.S. dollar today as the greenback tested bids around the CHF 1.2435 level and was capped around the CHF 1.2475 level. Data released in Switzerland today saw October inflation climb +0.3% m/m and +0.3% y/y ??“ the lowest annual price increase since March 2004. Most traders believe Swiss National Bank will lift interest rates by +25bps next month and then pause in their current tightening cycle. Dollar offers are cited around the CHF 1.2520/ 70 levels. The euro moved higher vis-? -vis the Swiss franc as the single currency tested offers around the CHF 1.5905 level while the British pound moved lower vis-? -vis the Swiss franc and tested bids around the CHF 2.3730 level.

AUD

The Australian dollar came off vis-? -vis the U.S. dollar today as the Aussie tested bids around the US$ 0.7705 level and was capped around the $0.7750 level. Data released in Australia today saw September retail sales up +0.1% m/m while the September trade deficit printed at ??“A$ 646 million from a ??“A$ 324 million deficit in August. Australian dollar bids are cited around the A$ 0.7615 level.

CAD

The Canadian dollar extended recent losses vis-? -vis the U.S. dollar today as the greenback tested offers around the C$ 1.1365 level and was supported around the C$ 1.1305 level. U.S. dollar offers are cited around the C$ 1.1450 level.

NZD

The New Zealand dollar gained marginal ground vis-? -vis the U.S. dollar today as the kiwi tested offers around the US$ 0.6745 level and was supported around the $0.6700 figure. New Zealand dollar offers are cited around the US$ 0.6870 level.

Gold/ Silver

Gold appreciated vis-? -vis the U.S. dollar today as the yellow metal tested offers around the US$ 622.25 level and was supported around the $ 614.20 level. Silver moved higher vis-? -vis the U.S. dollar as the pair tested offers around the $12.61 level and was supported around the $12.36 level.

Crude Oil

Crude oil weakened vis-? -vis the U.S. dollar today as light, sweet NYMEX crude oil futures for December delivery tested bids around the US$ 57.73 level and was capped around the $ 58.75 level. Data released yesterday saw U.S. stocks of gasoline and diesel fuel decline more-than-expected last week. Traders continue to monitor OPEC members to determine if they will live up to their recent decision to curtail production in an effort to keep the price elevated.

By Kathy Lien, Chief Strategist of www.dailyfx.com

??? US Dollar: Lack of Data Until Thanksgiving Keeps Carry Trades in Play
??? Signs of Softer Inflation as Consumer Price Growth Slows in the US
??? Stronger Data Limits Slide in the British Pound

US Dollar ??“ The US dollar refuses to sell-off, even in the face of broadly disappointing economic data. We had five independently important pieces of US data released today and even though four of the five were bearish for the US dollar, the currency managed to accelerate against the Euro, Japanese Yen and British pound. Today??™s price action suggests that the market is focusing more on the hawkish comments from the Federal Reserve than incoming economic data. Given the low volatility environment and lack of meaningful data before Thanksgiving, carry traders are holding onto their long dollar positions. Both inflation and manufacturing sector data failed to live up to the market??™s big expectations while foreign demand for US treasuries waned after record inflow in the month of August. More specifically, consumer prices dropped for the second month in a row by a larger than expected 0.5 percent, driving the annualized rate of growth down from 2.1 percent to 1.3 percent, a four year low. Even though CPI held on far better than PPI, the drop in both headline and core prices should give the Federal Reserve more flexibility to put their primary focus on growth instead of inflation. Improvements were seen in manufacturing activity but the results were hardly encouraging. Industrial production accelerated by a weaker than expected 0.2 percent while the Philadelphia Fed Index rose from -0.7 to 5.1. Despite the improvement in the Philly Fed index, the fact that it did not reflect a similarly impressive rise as the Empire State survey released yesterday was disappointing enough. The underlying details of the index were also very disappointing with the key components (new orders, prices paid and employment) deteriorating. Not all of today??™s news were bad however as the NAHB housing market index accelerated from 31 to 33, suggesting that the real estate market may be finding some support. Even though the Net long term Treasury flows fell short of expectations, traders seem quite pleased that inflows were able to meet the same month??™s trade deficit. The markets should remain quiet until the Thanksgiving holiday, which will keep the EUR/USD trapped within a 1.2750-1.2925 trading range.

Euro and Swiss Franc ??“ The Euro weakened as the market bid up the US dollar. The only economic release on the Eurozone calendar today was consumer prices, which accelerated slightly in the month of October. CPI rose by 0.1 percent after remaining flat the prior month which left the core rate unchanged at 1.5 percent. US data dominated the calendar today, but things will be a bit different tomorrow as we expect the Eurozone trade balance, French payrolls, wages and current account. The trade deficits of France and the Eurozone as a whole are expected to improve, but these pieces of data are not significant enough to cause a meaningful reaction in the EUR/USD. The ECB is still on track to raise interest rates before the end of the year especially after today??™s CPI data confirms that inflationary pressures are still prevalent. However incoming economic data suggests that the ECB may opt to put an end to their tightening cycle after their rate hike in December.

British Pound ??“ Even though the British pound also sold off against the US dollar, it performed far better than the Euro thanks to firmer retail sales and housing market data. The strength of the housing market continues to keep consumers happy and spending. Retail sales jumped by 0.9 percent in the month of October after dropping 0.4 percent the previous month. The RICS house price balance also increased from 46% to 48%, a 4 year high. Unfortunately, despite the more upbeat retail figures, the softer inflation numbers that we saw earlier this week and the downgraded inflation forecasts by the Bank of England still makes the odds of another rate hike by the central bank early next year very low. There is no UK data due for release tomorrow which means that trading should remain very quiet.

Japanese Yen ??“ The Japanese Yen extended its weakness today as the lack of clarity from the Bank of Japan keeps carry trades in play. The central bank left interest rates unchanged at 0.25 percent and did not elaborate much on future policy. Bank of Japan Governor Fukui simply noted that the economy is expected to continue to expand moderately. He added that there were no pre-determined notions on the timing for the next move on rates and reiterated that they would not rule out a December hike. At this point action has a far greater significance than words when it comes to the BoJ. They have tested the market??™s resolve long enough that carry traders are simply ignoring any of their hawkish comments. Except for the GDP data that we saw earlier this week, most other incoming data suggests more weakness than strength. Leading indicators were revised down to 18.2 from 20.0 in the month of September. Eventually though, the weak yen level should begin to have stimulative effects for the Japanese economy and as such, brighter times are set to come.

Commodity Currencies (CAD, AUD, NZD) ??“ The Australian and New Zealand dollars were the only currencies to accelerate against the US dollar thanks to the recent trend of stronger economic data. Last night, wage growth in Australia accelerated while the ANZ Business PMI index for New Zealand increased from 50.5 to 56.4. The Canadian dollar did not participate in the rally however as international security transactions dropped by a larger than expected C$3.077 billion in the month of October. The outflow was concentrated in equities, which is most likely attributed to the same month??™s drop in stock prices. Like Australia and New Zealand, Canada does not have any further data due for release until next week.

Focusing only on the Won’s appreciation would probably cause some technical analysts to back off, while comparing it only to the highs of a couple years ago would lead others to pile in, without knowing examining other indicators. In my opinion, this is a situation in which technical analysis – because of the potential to send conflicting signals – falls short. Ergo, let’s turn to the fundamental picture.

The Korea Won has adhered closely to the overarching forex narrative. When the credit crisis struck, investors fled from Korea, and the Won lost 50% of its value practically overnight. With the return of risk-taking in the second quarter of 2009, however, the safe-haven appeal of the Dollar faded, and the Won rebounded strongly. With the potential end of the carry trade in sight, however, the Won has stuttered, and some analysts portend a decline in the near-term.

However, while many currencies will no doubt experience a correction if/when the Fed raises interest rates, the Korean Won probably won’t be one of them. Korean investments have certainly been buoyant of late, but not nearly to the same extent as in other emerging markets, where it could be argued speculative bubbles are now forming. In addition, Korean interest rates are hardly lofty; its benchmark rate is only 2%, hardly enough to justify a carry trade strategy in and of itself.

Instead, investors have been flocking to Korea for the economic fundamentals. Despite an appreciating currency, Korea’s trade surplus is on pace to hit a record $45 Billion this year, with a healthy $15-20 Billion forecast for 2010. In fact, the rising Won has has virtually no effect on exports, as Korean companies had prudently assumed that the Korean Won would be even more expensive (based on 2007 levels). In the automobile industry, for example, “New models being introduced now were designed and engineered two years ago to keep the company in the black even if the won strengthened to 900 to the dollar.” For that reason, analysts expect 2010 will be a banner year for the economy. After a modest expansion in 2009, GDP is projected to grow by 4.5-5% next year, the third highest among large economies, behind only China and India.

The Central Bank of Korea is also operating as though the Won will keep appreciating, irrespective of what happens to the carry trade. In one session last week, it intervened in forex markets to the tune of $500 million, with the goal of depressing the Won. With the recent expiration of a currency swap with the Fed, this is just as well, as Dollars could soon once again be in short supply. Korean monetary policy remains expansionary, but if the economy takes off in 2010 as expected, the Central Bank will have no choice but to raise rates and keep inflation within its target range.

In addition, there is now talk of turning the Korean Won into an international currency. ” ‘Korea has the opportunity to upgrade the won’s global status as a host country of the G20 2010 Summit.’ International use of the Korean won has been insignificant, although the nation’s share in international trade and finance has increased quickly,” analysts have observed. That the government of Korea is looking to promote the Won as a stable currency implies that it is comfortable with the prospect of further appreciation.

In short, the Won will probably be one of the standouts in 2010. Many currencies will suffer as changes in global monetary policy and the appearance of asset price bubbles cause investors to back off of the carry trade and exit certain emerging markets. South Korea won’t be one of them. With strong fundamentals and a growing profile, it’s no wonder that most analysts expect the Won to appreciate by another 10% in 2010.

Given that tomorrow is the first day of 2010, we won’t have to wait long to find out! On that note, happy new year!

Marilyn J. Harbur, Esq.
Peter R. Jarvis
Robert T. Manicke, Esq.
Bart D. Jeffress, Esq.

§ 38-000. INTRODUCTION. Oregon continues to adapt to property tax limitation provisions adopted in 1997 pursuant to Ballot Measure 50. Or Const Art XI, § 11. Measure 50 (a constitutional amendment) and its implementing legislation established a “cut and cap” system of rate limitations and introduced a new concept of “maximum assessed value” as an overlay on the existing key term “real market value.” The date for valuing property (the “assessment date”) was changed to the January 1 preceding the start of the tax year (which begins July 1). See definitions in § 38-110, et seq.

Real and tangible personal property, but not intangible property (except utility intangible property), generally is subject to property taxation. Exemptions exist for certain charitable and non-profit property uses. In addition, and to encourage certain types of land use, farmland, timberland and certain other property is entitled to either full or partial exemption. See § 38-610. Certain industrial properties and utility properties are centrally assessed by the Oregon Department of Revenue, while county assessors appraise and assess all residential, commercial and some industrial properties. See § 38-115. The Oregon Department of Revenue also has general supervisory authority over the administration of the assessment and taxation laws.

Also effective in 1997, Oregon returned to a unitary system of administrative appeals (county Boards of Property Tax Appeals), with judicial review in the magistrate and regular divisions of the Oregon Tax Court and final appeal to the Oregon Supreme Court. As is explained more fully in subsequent sections of this chapter, a taxpayer who wishes to challenge the value assessed for any particular tax year must file a petition with the Board of Property Tax Appeals between the date property tax statements are mailed for the tax year and December 31 of that year. See § 38-116. Effective September 1, 1997, appeals from the Board of Property Tax Appeals are heard by the magistrate division of the Oregon Tax Court, which was created by the 1995 legislature. Appeals formerly were heard by the Department of Revenue. See § 38-521.

§ 38-100. DEFINITIONS & CITATIONS

§ 38-110 Definitions of Terms Used in Chapter.

§ 38-111. Assessed Value (AV) is the term used in 1997 legislation to define the value by which the amount of tax will be measured. In general, the AV is the lesser of (1) the property’s “maximum assessed value” or (2) the property’s “real market value.” ORS 308.146(2).

§ 38-112. Maximum Assessed Value (MAV). For the tax year July 1, 1997 through June 30, 1998 the MAV is the property’s real market value for the 1995-96 tax year, reduced by 10 percent. 1997 Or Laws ch 541, § 2. (This is the tax “cut” portion of the 1997 changes.) For tax years beginning July 1, 1998 and later, the MAV may not exceed the lesser of (1) 103 percent of the previous year’s assessed value or (2) 100 percent of the property’s MAV from the prior year, whichever is greater. ORS 308.146(1). (This is the “cap” portion of the 1997 changes.)

Special rules apply to determine the MAV of new property, new improvements, and property that is subdivided, partitioned or rezoned, is disqualified from exemption or is subject to lot line adjustment. ORS 308.146(3). In those cases, MAV essentially is determined according to its RMV (defined below) multiplied by the so-called “changed property ratio,” which is the area-wide average of MAV over RMV for property of the same class for the assessment year. ORS 308.153(1), 308.156(5).

§ 38-113. Real Market Value (RMV) means the minimum amount in cash which could reasonably be expected by an informed seller acting without compulsion from an informed buyer acting without compulsion, in an arm’s-length transaction occurring as of the assessment date for the tax year. OR Const, Art 11b, § (2)(a); ORS 308.205(1). With this definition, Oregon essentially returns to the concept of “true cash value,” as in effect in tax years prior to 1991.

§ 38-114. Assessment Date, for purposes of determining RMV, has been changed from July 1 to the January 1 preceding the start of the tax year (which begins July 1). ORS 308.210(1) and 308.250(1). For the tax year 1997-98, the assessment date remained July 1. The 1998-99 tax year was the first year for which the shift in assessment date took effect; the assessment date for 1998-99 was January 1, 1998.

§ 38-115. The Oregon Department of Revenue (DOR) is charged, inter alia, with overall administration of property tax matters in Oregon. ORS 306.115. Specific responsibilities of the DOR include, but are not limited to:

assessing most utility property. ORS 308.505, et seq.

assessing industrial properties with a real market value during the prior year of $1 million or more. ORS 306.126.

conducting an annual training program for members of the county BPTAs. ORS 306.152.

§ 38-116. The Board of Property Tax Appeals (BPTA) (until December 31, 1997 known as the Board of Equalization) hears petitions for reduction of the AV, RMV, or MAV of property as of January 1 of the assessment year. In addition, the BPTA hears petitions for the reduction of assessors’ corrections to value made under the correction procedure discussed at § 38-312 and considers applications to waive liability for all or a portion of the penalty imposed under ORS 308.295 or 308.296 for the failure of certain individuals and entities to file a real or personal property return. The value that is the subject of the petition must have been added to the roll before December 1 of the tax year. Each board has three members, who must receive training approved by the DOR. The term of office runs from the date of appointment to the June 30 next following appointment. The BPTA must convene not later than the date necessary for the Board to complete the functions of the Board by April 15. ORS 309.020, 309.022, 309.026, 309.067.

Each county has its own board. Larger counties with heavy workloads may appoint board members in order to process the work through multiple panels. ORS 309.020(1)(b).

A petition must be filed with the clerk of the board between the date property tax statements are mailed for the tax year and December 31 of that year. ORS 309.100(2). With regard to the required contents of the petition, see ORS 309.100(3).

§ 38-117. Centrally Assessed Property. Utility, transportation and communications property, specifically described in ORS 308.510, et seq.

§ 38-120. Citations to Statutes, Regulations & Cases Cited.

§ 38-121. Oregon Revised Statutes (ORS). The provisions of the Oregon Revised Statutes (ORS) that address property tax matters generally can be found at ORS chapters 305 through 312. ORS 321 covers timber and forestland taxation.

§ 38-122. Oregon Administrative Rules (OAR). The DOR is authorized to adopt administrative rules pertaining to tax procedure as well as rules interpreting substantive taxing statutes. ORS 305.100. These rules can be found at chapter 150 of the Oregon Administrative Rules (OAR).

§ 38-123. Oregon Tax Reports (OTR). Decisions of significance by the Oregon Tax Court (OTC) are published in the Oregon Tax Reports (OTR), Oregon Appellate Courts Advance Sheets and computerized case services. ORS 305.450. Recent opinions of both the regular division and the magistrate division also are available on the court’s Web site at www.ojd.state.or.us/tax/tax.nsf/pages/home. Unpublished OTC decisions are available through the OTC for a copying charge, currently $.25 per page.

§ 38-124. Oregon Tax Court Rules (TCR). The TCR are a slightly modified version of the Oregon Rules of Civil Procedure which, in turn, are a modified version of the Federal Rules of Civil Procedure. The TCR recognize the Oregon Uniform Trial Court Rules (UTCR) as a guideline. The magistrate division has adopted a brief set of rules (MDR) and generally incorporates the TCR. The MDR and TCR are available on the court’s Web site. See §§ 38-123.

§ 38-200. CLASSIFICATION & VALUATION OF PROPERTY.

§ 38-210. Classification of Property.

§ 38-211. Real Property includes the land itself, above or under water; all buildings, structures, improvements, machinery, equipment or fixtures erected upon, above or affixed to the same; all mines, minerals, quarries and trees in, under or upon the land; all water rights and water powers and all other rights and privileges in any wise appertaining to the land; and any estate, right, title or interest whatever in the land or real property, less than the fee simple. ORS 307.010(1). Oregon courts recently held that concessions granted to car rental companies at a publicly-owned airport are taxable real property. Avis Rent-A-Car System, Inc. v. Department of Revenue, 14 OTR 487 (1998), affd, 330 Or 35, ___ P2d ___ (2000).

§ 38-212. Personal Property means (unless otherwise specifically provided) “tangible personal property” and includes all chattels and movables, such as boats and vessels, merchandise and stock in trade, furniture and personal effects, goods, livestock, vehicles, farming implements, movable machinery, movable tools and movable equipment. ORS 307.020(2) and (3).

§ 38-213. Inventory means certain types of tangible personal property among which are: 1) Farm machinery and equipment used primarily in the preparation and cultivation of land, or for the purposes of raising and selling livestock, poultry, fur-bearing animals or bees, for dairying, or in any other agricultural or horticultural use; 2) Any items, owned by or in the possession or under the control of the taxpayer, used primarily to maintain such farm machinery and equipment; and 3) Materials, supplies, containers, goods in process, finished goods and other personal property owned by or in possession of the taxpayer that are or will become part of the stock in trade of the taxpayer held for sale in the ordinary course of business. ORS 307.400.

Note that not all machinery and equipment engaged in bringing forth produce from the ground will satisfy the definition of inventory. The Supreme Court of Oregon recently held that machinery and equipment utilized in a winery to process and sell wine did not constitute inventory under ORS 307.400 and thus did not qualify for a property tax exemption. King Estate Winery, Inc. v. Department of Revenue, 329 Or 414, 988 P2d 369 (1999). ORS 307.400.

In another recent case interpreting ORS 307.400, a magistrate of the tax court ruled that equipment used to remove timber from property in order to convert that property into pastureland is not farm machinery and equipment within the meaning of the statute and thus is not exempt from property tax as inventory. Peterson v. Lincoln County Assessor (Oregon Tax Court Magistrate Division, February 17, 2000).

§ 38-214. Land means land in its natural state. For purposes of assessment of property other than special-use property, land includes any site development made to the land. “Site development” includes fill, grading, leveling, underground utilities, underground utility connections and any other elements identified by rule of the Department of Revenue. ORS 307.010(3).

§ 38-215. Intangible Property includes money at interest, bonds, notes, claims, demands and all other evidences of indebtedness, secured or unsecured, including notes, bonds or certificates secured by mortgages; all shares of stock in corporations, joint stock companies or associations; media constituting business records, computer software, files, records of accounts, title records, surveys, designs, credit references, and data contained therein. “Media” includes, but is not limited to, paper, film, punch cards, magnetic tape and disk storage. ORS 307.020(1).

§ 38-220. Valuation of Property.

§ 38-221. Valuation Methods. As a general proposition, Oregon law requires consideration of market, cost and income approaches. ORS 308.411. The OTC greatly prefers market approaches whenever market data are available. See, e.g., Rhodes v. Department of Revenue, 12 OTR 24 (1991). For a general discussion of valuation methods in Oregon, see Brummell v. Department of Revenue, 14 OTR 303 (1998). Production of documents and information to support the three approaches may be required of the taxpayer by the DOR under ORS 305.190 and 305.192; See also ORS 308.316.

Under ORS 308.411, the owner of an industrial plant may elect not to provide income information to an assessor. Under certain circumstances, legislation enacted in 1999 will require an owner making such an election to furnish an itemization of operating expenses. The statute formerly prevented the Department from considering functional or economic obsolescence for an electing taxpayer’s property. However, 1995 amendments repeal that prohibition for property tax years beginning on or after July 1, 1996. For application of ORS 308.411, see, e.g., Roseburg Forest Products v. Department of Revenue, 14 OTR 417 (1998); Grant County v. Department of Revenue, 14 OTR 324 (1998). For an extensive discussion and application of functional obsolescence, see, Les Schwab Tire Centers of Oregon, Inc. v. Crook County Assessor, 14 OTR 588 (1999).

The Oregon legislature passed House Bill 2043 in 1999, a taxpayer relief provision that allows the maximum assessed value and assessed value of property to be reduced due to fire or other destruction that occurs during the property tax year. In particular, the Act is designed to prevent overvaluation of improvements that replace the damaged property. ORS 308.146 to 308.153.

§ 38-223. Valuation of Centrally Assessed Utilities, Telecommunications, Railroads and Airlines. For purposes of assessment of designated utilities, telecommunications, railroad, airline, and other companies, ORS 308.510 defines property subject to taxation as “all property, real and personal, tangible and intangible, used or held by a company as owner, occupant, lessee, or otherwise, for or in use in the performance or maintenance of a business or service or in a sale of any commodity * * *.” Typically, the appraisal approaches used in valuing centrally assessed property are the cost approach, income approach and a stock and debt approach (in the absence of comparison sales information). When valuing leased property, or other unowned property, the property tax is imposed on all interests in the operating property – not the firm – regardless of who holds ownership of the property, so the value of the lessor’s interest must be added to the value of the lessee’s interest when determining the value of the leased property. See Delta Air Lines, Inc. v. Dept. of Revenue, 13 OTR 372, 377-78 (1995), affd 328 Or 596, 984 P2d 836 (1999). Equalization issues raised by the same airlines were resolved in favor of the state in Northwest Airlines, Inc. v. Department of Revenue, 325 Or 530, 943 P2d 175 (1997).

§ 38-300. ASSESSMENT PROCEDURE.

§ 38-310. By Local Assessing Agency.

§ 38-311. Tax Assessment Notice to Taxpayer. By October 25, the county tax collector prepares statements showing real market and assessed values entered on the assessment and tax roll by either the county assessor or the DOR. Tax statements are mailed to taxpayers on or before that date. Payments may be made in thirds on November 15, February 15 and May 15. A three percent payment discount is applied if payment is made in full on November 15. ORS 311.250 and 311.505.

§ 38-312. New Correction Procedure. Pursuant to 1997 legislation, the county assessor may correct the value of property as shown on the current roll after the roll has been certified and prior to December 1. ORS 311.205 and 311.208. If the correction increases the value of the property, notice of the correction must be mailed to the property owner. The correction may be appealed to the BPTA pursuant to ORS 309.100. See § 38-511.

§ 38-313 Request for Hearing/Conference. An owner of any taxable property or any person who holds an interest in locally assessed property that obligates the person to pay taxes imposed on the property including a lessee may appeal valuation by filing a petition with the clerk of the county BPTA as discussed in § 38-511.

§ 38-314. Hearing Procedure at Local Level. See § 38-511.

§ 38-315. Practice & Procedure at Local Level. The district attorney is the legal advisor to the BPTA. The board hires one or more appraisers registered under ORS 308.010, or licensed or certified under ORS 674.310, and not otherwise employed by the county, and other personnel as necessary. ORS 309.024. The BPTA may convene on or after the first Monday in February of each year, but not later than the date necessary for the board to complete the functions of the board by April 15. ORS 309.026.

§ 38-320. By Department of Revenue–Central Assessing Agency.

§ 38-321. Tax Assessment Notice to Taxpayer. For property that is centrally assessed by the DOR, the DOR is required to publish in three weekly publications of the state capital newspaper that it will publicly review and examine the tentative assessment roll on the second Monday in June. ORS 308.580. By August 1 of the tax year, the Director of the DOR is required to complete the examination, review, correction, equalization and apportionment of the assessment roll. ORS 308.600.

§ 38-322. Request For Hearing. Before the Director increases the valuation of any property on the tentative assessment roll or adds omitted property thereto, six days’ written notice must be provided to centrally assessed property owners to appear and show cause, if any, why the valuation of the assessable property should not be increased or why the property should not be added to the roll. The DOR mails a notice of the value it intends to place on the roll at least 20 days prior to the beginning of the review period on the second Monday in June. Appeal from this notice of assessment may be filed no later than the second Monday in June prior to the July 1 beginning of the tax year, or within 10 days thereafter if no notice of assessment is mailed. ORS 308.595.

§ 38-400. ASSESSMENT PRACTICE BY TAXPAYERS

§ 38-410. The Property Tax Case Summarized. An owner of property receives a tax statement in late October or early November. The owner may appeal the property value shown on the statement by filing a petition with the county BPTA by December 31. Some industrial property appeals may be filed directly in the magistrate division of the Oregon Tax Court.

The order of the BPTA generally is issued before April 15 and may be appealed within 30 days by filing a complaint in the OTC magistrate division. Before September 1, 1997, appeals were to the DOR. Several of the present magistrates are former DOR hearing officers. Proceedings are informal, and hearings may be conducted by telephone or at a location other than the courthouse in Salem. A matter may be assigned to nonbinding mediation at the request of a party or on the motion of the magistrate. A small claims proceeding (which results in a nonappealable decision) is available if the assessed value of the property is $250,000 or less. More complex cases may be removed from the magistrate division to the regular division upon motion of either party and order of special designation from the Tax Court Judge. Appeals from the OTC magistrate division are to the OTC regular division, where the case is heard de novo. A case management telephone conference typically is held by the Tax Court approximately 30 days following the filing of the answer or a responsive motion. Depending on the complexity, the schedules of the parties and the need for discovery, the trial will be scheduled within 4 months to 9 months thereafter. The court encourages stipulation of undisputed facts. Discovery conferences will be held at the request of a party, or upon the court’s own motion.Trial is generally scheduled between the hours of 8:30 – 9:00 am and 5:00 pm, with an hour lunch break and 15 minute breaks mid-morning and afternoon. Opening statements are typically given by counsel (or the taxpayer without representation) and closing arguments are frequently submitted in briefs after trial.

The OTC regular division decision may be appealed to the Oregon Supreme Court within 30 days after entry of judgment. Review is limited to errors of law or lack of substantial evidence in the record. ORS 305.445.

§ 38-420. The Appraiser. A certified, licensed, or registered appraiser may represent a taxpayer in appeal proceedings before the BPTA and magistrate division of the OTC. ORS 305.230 and 309.100. In cases in the regular division of the OTC, the appraiser usually appears as an expert witness. See TCR 57D(5).

§ 38-430. The Attorney.

§ 38-431. Appearance by Non-Resident Attorneys. Attorneys may appear on behalf of any taxpayer/owner or other sufficiently interested/aggrieved person, if duly licensed in Oregon, pursuant to ORS 9.320. Attorneys not licensed to practice law in Oregon may not appear on behalf of clients in Oregon proceedings, except upon application and after association by local counsel in accordance with pro hac vice rules. ORS 9.241. See TCR 11.

§ 38-432. Appearance by In-House Attorneys & Officers. Notwithstanding ORS 9.320, licensed attorneys, public accountants, tax representatives, persons licensed by the State Board of Tax Service Examiners, stockholders in S corporations, licensed real estate brokers, certified, licensed, or registered appraisers, and general partners in a partnership may represent a taxpayer before the OTC magistrate division in any conference or proceeding with respect to the administration of any tax. ORS 305.230. In addition, non-resident in-house attorneys and officers may represent the corporation in proceedings before the magistrate division of the OTC. ORS 305.230(1). Typically such persons must first file a written authorization with the magistrate, a form for which is available on the court’s Web site. See § 38-123. ORS 305.230(7). However, in proceedings before the judge of the regular division of the OTC, corporations may appear only by an attorney licensed in Oregon (subject to the pro hac vice rules noted above). ORS 9.320.

§ 38-440. The Consultant. A licensed real estate broker and a certified,licensed, or registered appraiser may represent the taxpayer in appeal proceedings before the BPTA or the magistrate division of the OTC. ORS 305.230(4) and 309.100(4)(a)(D) and (E). In trials in the regular division of the Tax Court, witnesses must be qualified under the Oregon Evidence Code (OEC) to give opinions of value or other opinions in support of valuation testimony, e.g., economists or other finance experts. Realtors have not generally been recognized as valuation experts in Tax Court.

§ 38-450. Other Persons. A stockholder in an S corporation may, with written authorization, represent the corporation in any proceeding before the magistrate or regular division of the OTC in the same manner as if the stockholder were a partner and the S corporation were a partnership. ORS 305.230(3) and 305.494.

A general partner, designated by the partnership as a “tax matters partner,” may represent the partners before the Department of Revenue in any conference or before a tax court magistrate in any proceeding with respect to the administration of any tax on or measured by net income. ORS 305.230(5) and 305.242.

§ 38-500. APPEAL OF TAX ASSESSMENT.

§ 38-510. Hearing/Conference at Local Level.

§ 38-511. Petition to BPTA. A taxpayer dissatisfied with the assessed value, specially assessed value, real market value, or maximum assessed value, entered on the tax rolls has a right of appeal to the county BPTA. ORS 309.100(1) and 309.026. A petition to the BPTA must be filed after the date the tax statements are mailed for the year (generally on or before October 25) and on or before December 31 of that year. ORS 309.100(2). The petition must state the facts and the grounds upon which the petition is made. ORS 309.100(3)(b). The BPTA gives petitioners requesting a hearing at least five days’ written notice of the time and place to appear. ORS 309.100(5). The BPTA keeps a written or audio record of all proceedings. ORS 309.024. The BPTA acts on petitions by entry of a formal order mailed to the petitioner and delivered to the assessor. ORS 309.110. See also OAR 150-309.022(1) to 150-309.110(1)-(A).

In accordance with its general supervisory powers under ORS 306.115, the DOR may, in its discretion, also act on a petition to change the tax roll, even if a taxpayer failed to appeal within the ordinary time periods set forth above. OAR 150-306.116. Over time, however, the authority and willingness of DOR to accept such petitions has been reduced. A supervisory order of the DOR may be appealed to the OTC magistrate division. ORS 305.275(1)(a)(A). With regard to the effect of values adjudicated for prior years, see ORS 305.285 and 309.115.

§ 38-520. Appeal from Order of BPTA.

§ 38-521. Complaint in Oregon Tax Court Magistrate Division. Beginning September 1, 1997, after an adverse decision by a county BPTA, the taxpayer or assessor may appeal to the OTC magistrate division by filing a complaint in the Oregon Tax Court magistrate division, along with a $25 filing fee. ORS 309.110(7) and 305.490(1)(a). The general period for the filing of the complaint is 30 days. ORS 305.280(4). A copy of the BPTA order must be attached to the complaint. ORS 305.560(1)(c)(B).

Proceedings before the magistrate division are informal and de novo. Hearings may be conducted by telephone or, at the discretion of the magistrate, at locations other than Salem. ORS 305.501(4)(a). A matter may be assigned to mediation, either at the request of a party or on the motion of the magistrate. If the mediation does not result in an agreed settlement within 60 days of the assignment, the appeal is reassigned to the magistrate division. ORS 305.501(2). New OTC magistrate division rules may be obtained from the court by calling (503) 986-5650 or on the Tax Court’s Web site. See § 38-123.

A taxpayer may elect to file pursuant to a small claims procedure if the assessed value of the property is not in excess of $250,000. Such a proceeding is not recorded, and the magistrate’s decision is final. ORS 305.514.

Appeals formerly were heard by the DOR. Transition rules apply to appeals filed before September 1, 1997. See Or Laws 1995, ch 650 §§ 11, 116.

§ 38-530. Further Judicial Appeal & Review.

§ 38-531. Appeal to OTC Regular Division. The regular division judge of the OTC reviews magistrate division decisions de novo. ORS 305.501(5) and 305.425(1). An appeal is perfected by filing a complaint in the OTC regular division, with the $50 filing fee, within 60 days of the date of mailing of the magistrate’s decision. ORS 305.490(1)(c) and 305.501(6), (7).

§ 38-532. Standing. The issue of taxpayer standing in property tax cases before the OTC was the subject of two recent cases. Both of those cases arose under former ORS 305.570(1) (1997), which granted a right of appeal from BPTA orders. The court opinions took a strict interpretation of the statute and denied standing to a lessee and a contract seller of property. See Kaup v. Department of Revenue, 13 OTR 432 (1996) (lessee lacked standing because not “directly affected” by DOR order, as required by former ORS 305.570(1)); Columbia Sun, Inc. v. Department of Revenue, 321 Or 514, 900 P2d 1039 (1995) (seller of property who was contractually obligated to reimburse purchaser for taxes lacked standing under former ORS 305.570). Taxpayer is not “aggrieved” and therefore has no standing, unless real market value reduction claimed reduces value below assessed value. Parks Westsac L.L.C. v. Deptment of Revenue, TC No. 4366 (Sept. 1999).

Recent legislative changes appear to have overturned the result in both cases. New amendments to ORS 309.100 now allow any person who holds an interest in property that obligates that person to pay taxes imposed on the property, including a person so obligated by lease or contract, to petition the BPTA for a reduction of assessed, specially assessed, real market, or maximum assessed value. But, see Ron Staley Enterprises v. Dept. of Revenue and Linn Co., TC No. 4403 (Nov. 1999). Under ORS 309.110(7), the BPTA decision may be appealed to the magistrate division.

§ 38-533. Appeal to Oregon Supreme Court. An adverse decision of the regular division of the OTC may be appealed to the Oregon Supreme Court. ORS 305.445. Pursuant to 1995 statutory amendments, the standard of review is no longer de novo on the record, but is limited to errors of law or lack of “substantial evidence in the record.” The new “errors of law” standard of review for issues of law does not differ from the former de novo. See Miller v. Department of Revenue, 327 Or 129, 132 n. 1, 958 P.2d 833 (1998); Schuette v. Department of Revenue, 326 Or 213, 215 n. 1, 951 P.2d 690 (1997). A notice of appeal must be filed within 30 days after the tax court enters judgment. ORS 19.255.

§ 38-540. Practice & Procedure.

§ 38-541. Use of Appraisals. Appraisal reports are a common part of property tax litigation in Oregon as elsewhere. Pursuant to TCR 56.B, as amended, documents relied upon by the appraiser generally must be exchanged at least 30 days prior to trial, and all other documents and exhibits to be introduced in support of a party’s case in chief must be exchanged at least five working pays before trial. Failure to exchange the exhibits, appraisal report and supporting documentation may result in an objection to the introduction of the evidence being sustained.

The OTC pays particular attention to consistent and proper applications of appraisal theory.

§ 38-542. Expert Witnesses. Pursuant to ORS 308.231, real property appraisals must be performed by appraisers registered under ORS 308.010.

§ 38-543. Forms & Pleadings. A complaint filed in OTC reads and looks substantially like complaints in civil litigation more generally. The same is true for other forms of pleading such as motions. See TCR 16.

§ 38-544. Method of Filing/Delivery. As a general proposition, service by certified or registered mail is sufficient. ORS 305.415, 305.418, and TCR 9.

§ 38-545. Who May Appear for Taxpayer. Only duly licensed attorneys or attorneys admitted in Oregon and attorneys from other states admitted pro hac vice may represent parties in the regular division of the OTC. TCR 11, 17(A), and ORS 9.241.

§ 38-550. Payment of Property Taxes & Protest Procedures.

§ 38-551. Payment and Interest. At least the first third of the taxes for each year is due by November 15. ORS 311.505(1). Property tax appeal petitions for noncentrally assessed properties must be filed with the clerk of the county BPTA in the period after the mailing date of the statements and on or before December 31 during the year being appealed. See § 38-511. No provision exists for “payment under protest.” If the taxpayer prevails on appeal, the taxes refunded are paid with interest at the statutory rate of one percent per month. See ORS 311.812. If the county or state prevails on appeal, any additional property tax must be paid with interest at the statutory rate of one and one third percent per month. ORS 311.505(2).

§ 38-552. Time for Payment. Property taxes are due and payable in one-third installments on November 15, February 15 and May 15, with a maximum of 3 percent early payment discount. ORS 311.505.

§ 38-560. Jurisdictional Requirements.

§ 38-561. General. The OTC has exclusive jurisdiction of all issues arising under the tax laws of the State of Oregon. ORS 305.410. Taxpayers appealing from a written decision of a tax court magistrate or seeking a remedy in the tax court provided by statute, other than as provided in ORS 305.275(1), have standing to appeal to the regular division of the Oregon Tax Court under ORS 305.570. Taxpayers appealing from an act, omission, order or determination of the DOR, a county assessor, or a tax collector, as well as certain BPTA orders have standing to appeal to the magistrate division of the Oregon Tax Court under ORS 305.275. See also ORS 309.110(7) (appeals from BPTA orders are to magistrate division).

§ 38-562. Exhaustion of Administrative Remedies. 1995 legislative changes that became operative September 1, 1997 moved the initial appeal function from the DOR to the OTC magistrate division and repealed Oregon’s statutory requirement of exhaustion of administrative remedies. See ORS 305.275(4) (1995). Although its contours are unclear, case law indicates that a judicial exhaustion requirement exists. See e.g., Fifth Avenue Corp. v. Washington Co., 282 Or 591, 581 P.2d 50 (1978).

§ 38-562. Other Requirements. See generally ORS 309.020, et seq., 309.100, et seq., and ORS 305.405 et seq., regarding the general jurisdictional requirements with respect to the BPTA and OTC. Regarding the DOR’s rulemaking authority, duty to construe and enforce the tax laws, and other powers, see generally ORS 305.100, et seq., and ORS 306.113, et seq.

§ 38-570. Adjudicated Value Five Year Freeze.

§ 38-571. ORS 309.115. If the DOR, a county BPTA, the OTC, or another court enters an order correcting the real market value of a separate assessment of property and there is no further appeal, the value so entered shall be the real market value entered on the assessment and tax rolls for the five assessment years next following the year for which the order is entered. The above rule does not apply to adjustments of real market value during the five year period due to, among other things, annual trending, additions, retirements, and property damage or destruction. Legislative changes in 1999 no longer permit adjustments to the adjudicated value based on a regularly scheduled six-year reappraisal. If, during the five year period in which assessed property is subject to an order, the DOR, a county BPTA, the OTC, or another court issues an order correcting the real market value of the property subject to the order, the later order supplants the old order and applies for five years subsequent to the year the later order is entered.

§ 38-600. EXEMPTION FROM TAXATION.

§ 38-610. Exempt Property. Certain types of property are partially or wholly exempt from ad valorem property taxation. Others, such as farmland (ORS 308A.050-308A.128) and historic property (ORS 358.475-358.565) are specially assessed at frozen values. Partially or wholly exempt property includes but is not limited to the following: Livestock, poultry, fur-bearing animals, bees, inventory (defined as certain types of tangible personal property among which are: 1) Farm machinery and equipment used primarily in the preparation and cultivation of land, or for the purposes of raising and selling livestock, poultry, fur-bearing animals or bees, for dairying, or in any other agricultural or horticultural use; 2) Any items, owned by or in the possession or under the control of the taxpayer, used primarily to maintain such farm machinery and equipment; and 3) Materials, supplies, containers, goods in process, finished goods and other personal property owned by or in possession of the taxpayer that are or will become part of the stock in trade of the taxpayer held for sale in the ordinary course of business. ORS 307.400 (Note that not all machinery and equipment engaged in bringing forth produce from the ground will satisfy the definition of inventory. The Supreme Court of Oregon recently held that machinery and equipment utilized in a winery to process and sell wine did not constitute inventory under ORS 307.400 and thus did not qualify for a property tax exemption. King Estate Winery, Inc. v. Department of Revenue, 329 Or 414, 988 P2d 369 (1999). In another recent case interpreting ORS 307.400, a magistrate of the tax court ruled that equipment used to remove timber from property in order to convert that property into pastureland is not farm machinery and equipment within the meaning of the statute and thus is not exempt from property tax as inventory. Peterson v. Lincoln County Assessor (Oregon Tax Court, February 17, 2000).)

Also, certain beach lands (ORS 307.450), pollution control facilities (ORS 307.405), boats held for sale or exchange (ORS 830.790), tangible personal property held by the owner for personal use (ORS 307.190), aircraft (ORS 308.558, 837.040, 837.045 and 837.060), alternative energy systems (ORS 307.175), burial grounds and lots, cemetery lands, personal property of a cemetery or crematory association used or held exclusively for burial purposes (ORS 65.855 and 307.150), commercial facilities under construction (ORS 307.330), child care facilities owned by incorporated eleemosynary corporations or religious organizations and used for educational purposes (ORS 307.145), deciduous trees, shrubs, plants or crops, cultured Christmas trees, growing on agricultural land devoted to agricultural purposes (ORS 307.320), enterprise zone property (ORS 285B.650 to 285B.728), farm labor camps (ORS 307.480 to 307.510), ethanol production facilities (ORS 307.701), homesteads of war veterans (ORS 23.240, 307.250, and 307.270), household furnishings owned and used by non-profit organizations (including sororities, fraternities, and student living organizations) furnishing living quarters for students attending institutions of higher education (ORS 307.195), intangible personal property (ORS 307.030(2)), public property leased or rented by taxable owner (ORS 307.110), motor vehicles (ORS 803.585), open space lands (subject to special assessment under ORS 308A.300 to 308A.330), timber (ORS 321.420, 321.272, and 321.720), and environmentally sensitive logging equipment (ORS 307.824 to 307.831). Some of these properties are subject to taxes in lieu of ad valorem property tax, e.g., a tax is imposed upon the privilege of harvesting timber.

§ 38-620. Exempt Taxpayers. ORS chapter 307 contains numerous exemptions from ad valorem property taxation depending upon the nature of the taxpayer-owner. These generally seem to parallel those of other states. They include but are not limited to exemptions for most public property (ORS 307.040, et seq.), charitable organization exemptions (ORS 307.130, et seq.), war veterans and widows (ORS 307.250), and others.

§ 38-630. Constitutional Issues. The Uniformity Clauses of the Oregon Constitution prohibit nonuniform taxation and by implication require that all property within the same class be equally assessed or exempted. “No tax or duty shall be imposed without the consent of the people or their representatives in the Legislative Assembly; and all taxation shall be uniform on the same class of subjects within the territorial limits of the authority levying the tax.” Or Const, Art I, ‘ 32. See also Or Const, Art IX, § 1. The provisions of Article XI, Section 11, including the “cut and cap” provisions enacted in 1997 as Measure 50, expressly supersede the Uniformity Clauses. Or Const, Art XI, Section 11(18).

§ 38-640. Practice & Procedure in Exemption Cases. Generally an application for exemption for a tax year must be filed on or before April 1 of the corresponding assessment year, on a form prescribed by the Department of Revenue, with the county assessor in the county in which the property is located. ORS 307.162. Special application rules apply to exempt property of a taxable owner that is exempt in the hands of a lessee. ORS 307.112. Upon payment of a late fee, an application for exemption may be filed up to December 31 of the assessment year for which exemption is first desired. In addition, ORS 307.475 allows a late application under certain circumstances based on “hardship”.

ORS 311.410 provides that real property or personal property which is subject to taxation on July 1 shall remain taxable and taxes levied thereon for the ensuing tax year shall become due and payable, notwithstanding any subsequent transfer of the property to an exempt ownership or use. Conversely, property that is exempt on July 1 remains exempt for the ensuing tax year, despite transfer of ownership.

§ 38-700. MISCELLANEOUS ITEMS.

§ 38-710. Current Issues & Topics. Many low income housing property appeals are currently pending in the magistrate and regular divisions of the Oregon Tax Court, as well as at the Department of Revenue. Trial was held in February 1998 on the lead consolidated cases. A recent 28-page decision of the Oregon Tax Court Judge in those cases, finding that such properties should appropriately be valued using a “just compensation to the owner” valuation, may be appealed by the taxpayers. See Piedmont Plaza Investors and Spencer House Assocs. v. Department of Revenue, 4 OTR 440 (1998) (on appeal). It recently was decided that a taxpayer may not challenge 1995 and 1996 valuations under the guise of an appeal of the 1997 maximum assessed value determination under Measure 50 (Robert Ellis and Dept. of Revenue v. Laroti et al., 14 OTR 525 (1999)), (upheld/challenge denied (see Irwin v. Dept. of Revenue, 14 OTR ___ (1999))).

§ 38-720. Jurisdiction of State & Local Agencies [names, phone & fax, & addresses]. Oregon Department of Revenue information and taxpayer assistance: Phone (503) 378-4988. The DOR maintains a very helpful web site (with links to some county assessor pages) at www.dor.state.or.us.

Each of the 36 Oregon counties has an elected county Assessor and Tax Collector. County information may be obtained from the Oregon Department of Revenue. See the DOR’s website for links to county Web sites. See also the Tax Court’s Web site, the address for which is at § 38-123.

§ 38-730. List of Forms [and where to get them]. Under ORS 305.840, a county assessor must make available to a taxpayer at the office of the city assessor any form required by a provision of law to be supplied by a city assessor. If an assessor voluntarily mails forms to a taxpayer, the assessor does not undertake any responsibility for actual receipt of the form by the taxpayer, and no estoppel applies against the assessor if the taxpayer does not receive the form. See also the DOR’s web site (with links to some county assessor pages) at www.dor.state.or.us.

§ 38-800 Other [reserved].

Senate Bill 764 was passed on July 4th as part of a larger compromise involving Governor John Kitzhaber’s prescription drug formulary proposal. The bill itself, which was signed into law on August 9, 2001, is a classic compromise between competing interests. Industry sought to preserve as much of the pollution control facility tax credit program as possible, while the Governor wanted to allow the program to sunset. In particular, the Governor wanted to eliminate the credit for pollution control facilities whose principal purpose is simply to comply with requirements already imposed by other environmental laws. The resulting compromise signals a shift in policy that favors the construction and installation of facilities that are voluntary and not already required by law.

Background
The Oregon legislature first adopted a pollution control facility tax credit in 1967. The credit provided a means for Oregon industries to offset the costs of complying with new environmental statutes and regulations that were coming into existence during this era. Over time, the statutory wording and related administrative rules were refined, resulting in two basic categories of pollution control facilities that could qualify for the credit. A facility could qualify for a tax credit if it met either the definition of “principal purpose facility” or “sole purpose facility.”

As defined by statute, a principal purpose facility is a pollution control facility whose principal purpose “is to comply with a requirement imposed by theDepartment of Environmental Quality, the federal Environmental Protection Agency or regional air pollution authority to prevent, control or reduce air, water or noise pollution or solid or hazardous waste or to recycle or provide the appropriate disposal of used oil.” ORS468.155(1)(a)(A). By contrast, a sole purpose facility is a pollution control facility whose sole purpose “is to prevent, control or reduce a substantial quantity of air, water or noise pollution or solid or hazardous waste or to recycle or provide for the appropriate disposal of used oil.” ORS 468.155(1)(a)(B). These definitions remain unchanged by SB 764, and applicants will need to show that their facilities fit within one of the definitions as the initial hurdle for qualifying for a credit.

Under the prior law, once it was established that a facility met the principal purpose or sole purpose definition, the process was relatively straight-forward. Applications for tax credit certification had to be filed within two years of the date that construction of the facility was substantially complete, and the credit was equal to 50 percent of the certified cost of the facility.

SB 764
Under SB 764, the filing dates and credit rates are changed,with different rates depending on the type of facility and when the facility is completed. It should be noted that the bill does not undo or otherwise affect credits that have already been certified.

KEY SB 764 PROVISIONS INCLUDE:

NEW SUNSET DATE FOR ENTIRE TAX CREDIT PROGRAM: December 31, 2007. For any pollution control facility, construction must be complete, and the facility placed in service, on or before December 31,2007. (Prior law imposed a deadline of December 31, 2001.)

APPLICATION DEADLINE SHORTENED FROM 2 YEARS TO 1 YEAR: The bill requires a taxpayer to apply for certification within one year after construction is substantially completed. (The prior deadline was two years after completion of construction.) The application deadline may not be extended beyond December 31, 2008.(Under prior law, this deadline had been December 31, 2003.)

GRADUAL PHASE-OUT OF CREDIT: For facilities that do not qualify as “upper tier” facilities (see bullet below), the credit is phased down from 50 percent of eligible costs to zero. The phase-out is somewhat complicated. For facilities where construction commenced before January 1, 2001 and that are completed before January 1, 2004 (or certified by December 31, 2001), the credit is 50 percent of certified costs. Similarly, for facilities that are “certified under ORS 468.155 to 468.190 (1999 Edition),” the credit is 50 percent of certified costs. This provision, found in SB 764, section 6(1), was intended to create a safe harbor for projects under construction prior to the legislative session.

If a facility is certified pursuant to an application for certification filed on or after January 1, 2002, and the construction is commenced on or after January 1, 2001, and on or before December 31, 2003, the credit is 25 percent of certified costs.If a facility is certified pursuant to an application filed on or after January 1, 2002, and the construction is commenced on or afterDecember 31, 2003, and on or before December 31, 2005, the credit is 15 percent of certified costs. For facilities that commence construction after December 31, 2005, the facility is not eligible for a credit (unless it qualifies as an “upper tier” facility, described below).

Unfortunately, the final language in the bill is vague with respect to facilities where construction is commenced after January 1, 2001 but are completed on or before December 31, 2001. In addition, the bill’s language has created confusion over whether the two-year application deadline under the 1999 law or the one-year application deadline under HB 764 will be applicable to applications seeking certification for facilities completed prior to the effective date of the bill. (The bill takes effect on the ninety-first day after the date on which the legislature adjourned, meaning that the bill takes effect on October 6,2001.)

To address these issues, the Department of Environmental Quality (DEQ) is preparing to undertake an emergency rulemaking, currently scheduled for consideration by the Environmental Quality Commission (EQC) on September 21, 2001. The rule would make clear that facilities completed on or before December 31, 2001 would be subject to the 1999 law, thereby clarifying that the credit for such facilities will be 50 percent of eligible costs and that applicants for such facilities will have two years from the date of completed construction to file their applications. Such a rule is fully consistent with legislative intent. Assuming that the Commission adopts such a rule, the phase-out for the credit is as follows:

In the event the Commission does not adopt the above-described proposed rule, it is unclear at this time howDEQ will treat affected applications.

CREATION OF “UPPER TIER” CREDIT FOR LOW-COST, “VOLUNTARY,” AND CERTAIN OTHER PROJECTS: Not withstanding the phase-out described above, the bill creates a new upper tier of facilities that is immune from the phase-out.Any of the following facilities may qualify for a 35% credit, without phase-out, if the application for certification is filed on or after January 1, 2002 and construction is completed on or before December 31, 2007:

Applicant is certified under ISO 14001

DEQ green permit for the facility has been issued

Facility is a nonpoint source or is regulated as a confined animal feeding operation

Facility is used for material recovery or recycling

Facility is used in anagricultural or forest products operation and is used for energy recovery

Certified cost of the facility does not exceed $200,000

No portion of the facility is required by state or federal environmental law and construction of the facility is “entirely voluntary”

Facility is located within an enterprise zone or within an area designated as a distressed area (this provision was added by House Bill 2332 and does not appear in SB 764)

Applicant uses an “environmental management system” at the facility (discussed below).

ENVIRONMENTAL MANAGEMENT SYSTEM: For applicants for the “upper tier” credit, the bill creates the new concept of an environmental management system, defined as “a continual cycle of planning, implementing, reviewing and improving the actions undertaken at the facility to meet environmental obligations and improve environmental performance.” The actions must meet ISO 14001 standards, standards established in the Green Permit program, or other standards specified by Commission rule.

DEFINITION OF COMMENCING CONSTRUCTION: With the new statutory scheme, the bill’s authors realized the importance of clearly defining the point at which construction commences. The bill provides that construction commences when the person constructing or installing the facility has obtained all necessary preliminary approvals and has begun continuous on-site modification, construction, installation, or other activity leading to certification of the credit. Special rules apply for delays caused by matters beyond the owner’s control. The applicant bears the burden of proving that construction has commenced.

CARRY-FORWARD EXTENDED FOR EXISTING CREDITS: Forcredits that are unexpired as of the tax year beginning in 2001, the bill extends the regular three-year carry-forward period by an additional three years.

ENVIRONMENTAL CRIMES: The bill denies the credit for any tax year during which the taxpayer is convicted of a facility-related felony pursuant to state environmental statutes. The denial continues for the four years following the year of conviction. For purposes of determining the amount of credit that may be claimed after the denial period, the taxpayer is deemed to have used the credit during the period of denial.

TASK FORCE CREATED: Thebill creates the Pollution Control Tax Credit Improvement and Review Task Force to study and report to the legislature on the credit. The task forcewill include Governor-appointed representatives from agriculture, business, environmental advocacy, the general public, DEQ, EQC, and the Economic and Community Development Department. One Senator and one Representative will also be appointed by their respective chambers.

Applying to the Pollution Control Facility Tax Credit Program: Recent Case Law
As noted above, under the prior law and SB 764, an applicant must first establish that its facility meets the definition of “pollution control facility” to be eligible for the tax credit program, with most facilities qualifying either under the principal purpose test or sole purpose test. See ORS468.155. There is usually little controversy over whether a facility qualifies as a principal purpose facility, which includes those facilities that are constructed or installed to comply with a requirement imposed by DEQ, the US Environmental Protection Agency (EPA), or a regional air pollution authority (e.g., LRAPA). However, what qualifies as a sole purpose facility-i.e., a facility whose sole, or exclusive, purpose is to prevent, control or reduce a substantial quantity of air, water or noise pollution or solid or hazardous waste-is often the subject of dispute.

A good example of the controversy involves a pollution control facility tax credit application filed by Tidewater Barge Lines, Inc. in 1995 (Application No. 4417). The application involved the addition of a double hull to its petroleum barge, The Pioneer. Double hulls create a void,or containment area, between the cargo tanks and the water. Double hulls are designed such that any failure in the cargo tanks will result in the petroleum product being captured in the secondary hull, preventing the product from entering the water. The voids can then be pumped and cleaned, eliminating any pollution to the river system. In addition, double hulls create a buffer for the cargo tanks, such that damage to the exterior hull caused by collision or grounding will not affect the cargo tanks. In this way, the cargo does not reach the river system. Tidewater claimed that the construction of the double hull qualified for tax credit relief as a “sole purpose facility,” as the sole purpose of adding the double hull to The Pioneer was to prevent water pollution. (The double hull did not qualify as a principal purpose facility, as it was not required by DEQ, EPA, or a regional air pollution authority.)

The EQC originally denied Tidewater’s application for The Pioneer, stating at the time of the denial that The Pioneer’s double hulling did not qualify as a sole purpose facility because the sole and exclusive purpose of double hulling was not pollution control. According to the EQC order denying the application, the double hulling served other purposes, such as improving safety, lowering insurance costs, avoiding loss of the petroleum product, and providing other business-related benefits. The EQC’s decision touched off a long dispute over the procedural aspects of the EQC’s decision, which eventually led to a settlement. See Tidewater Barge Lines Inc. v. Oregon Environmental Quality Commission, 159 Or App 296 (1999), appeal dismissed, 330 Or 253 (2000).

In the meantime, as the Pioneer appeal was making its way through the court system, Tidewater filed two additional pollution control facility tax credit applications for double hulls that were added to two additional barges. The EQC eventually approved both applications, but not before addressing several key issues on what might disqualify a facility from the sole purpose facility definition.

EQC’s position was that to the extent that double hulling served any purpose other than pollution control, the facility would be disqualified under the sole purpose test. Thus, Tidewater was put in the position of having to disprove other purposes. Regarding EQC’s claim that the addition of a second hull would lower insurance rates, evidence from the insurers indicated that Tidewater in fact paid a higher premium on double-hulled vessels. Regarding EQC’s claim that the double hull was really added to improve the safety of the vessel and crew, evidence indicated that the addition of a double hull made it more difficult for the crew to enter and clean the void and also potentially increased the risk of an on-board explosion. On the claim that the purpose of a double hull was to avoid the loss of petroleum product, Tidewater pointed that it did not insure the cargo it transports against loss, and even if it did, there was no discounted rate for marine cargo insurance based upon the use of a barge with a double hull as compared to a barge with a single hull.

While the alleged “incidental” business benefits described above turned out not to be benefits at all, the case highlighted the underlying legal issue, which was to what extent would incidental, business-related benefits become so great as to disqualify a facility as a sole purpose facility. From Tidewater’s perspective, even if it had been established that safety improvements, lower insurance costs, and avoiding product loss had some negligible effect on the overall expense of double hulling, these benefits would be incidental at best and did not contribute to the “purpose” behind Tidewater’s decision to add the doublehulls. Stated directly, Tidewater claimed that it did not add the double hulls to its barges for the purpose of gaining the alleged, and at best incidental, benefits.

In fact, it is likely that every sole purpose facility will generate at least some incidental benefit to the facility owner. For example, any business that adds a pollution control facility, whether required by law or not, will gain benefits in the nature of good will. Thus, just because Tidewater may have been able to secure a better public image because it added double hulls to its petroleum barges, such an incidental benefit should not be the basis for ruling out double hulls as sole purpose facilities.

DEQ has since recognized this point. In a Department memorandum to the Commission, DEQ takes the following position: “The Department recognizes that whenever an applicant installs a pollution control facility, there will always be incidental benefits even if those benefits are only to improve public relations and reputation. However, the EQC has the discretion to determine when an incidental benefit becomes the ‘purpose’ of the facility.” See Memo. from Langdon Marsh to EQC, June 8, 1999, at 2-3. It is this subtle distinction that is likely to continue to be the focus of inquiry into whether facilities are truly sole purpose pollution control facilities eligible for tax credit relief.

Summary

In sum, SB 764 extends the sunset for the Oregon pollution control facility tax credit program, but with new application deadlines and adjusted rates. Applicants should pay close attention to facility construction and installation schedules and application deadlines to maximize the value of their credits. Finally, when applicants seek to qualify a facility under the sole purpose prong of the definition of pollution control facility, applicants should be careful to consider other potential benefits of the facility and should be prepared for inquiries into whether those other benefits become the purpose of the facility, thereby making the facility ineligible for the credit.

FOR ADDITIONAL INFORMATION, CONTACT: Robert T. Manicke, Stoel Rives LLP, 503/ 294-9664, and David E. Filippi, Stoel Rives LLP, 503/ 294-9529. The authors represented Tidewater Barge Lines in the case described above.
DEQ CONTACT: Maggie Vandehey, DEQ Tax Credit Manager, 503/ 229-6878.

Published September 1, 2001 in Issue 279 of Oregon Insider, a twice-monthly environmental management and regulatory update. David Light, Editor, Oregon Insider, Phone: 541/343-8504, epi@rio.com.

Energy efficiency and renewable energy

Water stewardship

Environmentally preferable building materials and specifications

Waste reduction

Toxics reduction

Indoor environment

Smart growth and sustainable development

Green building offers a number of environmental and economic advantages. Although up-front costs can exceed traditional building design costs, improvements in efficiency of energy use eventually offset the higher up-front costs.

To promote green building, federal and state governments have proposed a variety of incentives. The State of California, its subdivisions, and its utilities have a host of incentive programs designed to encourage the implementation of green building practices. From rebates for solar panels to fee waivers for projects exceeding existing energy efficiency standards, there are numerous incentive programs to be considered when deciding if your California construction project would benefit from going green. Due to the large volume of available incentives and the host of factors affecting which programs apply to a given project, an exhaustive listing of available programs here is impractical. The summary below is intended to provide you with an overview of the types of incentives that may apply to your project. Further information is available at http://www.dsireusa.org.

FEDERAL TAX INCENTIVES

A number of federal income tax benefits may be available with respect to an energy-efficient commercial building. Section 179D of the Internal Revenue Code of 1986, as amended (”Code”), allows a deduction for the cost of certain energy-efficient commercial building property placed in service during a taxable year. The amount of the deduction is generally equal to the cost of depreciable interior lighting systems; depreciable heating, cooling, ventilation and hot water systems; and depreciable building envelope property. To qualify for the deduction, this property must be certified as being installed as part of a plan designed to reduce the total annual energy and power costs for respective systems of the building by at least 50 percent in comparison to the minimum requirements of Standard 90.1-2001 of the American Society of Heating, Refrigerating and Air-Conditioning Engineers and the Illuminating Engineering Society of North America.

The lifetime amount of the deduction with respect to any building is limited to $1.80 per square foot. If a building fails to meet the 50 percent certification requirement, but is certified as meeting energy-savings targets to be established by the Internal Revenue Service, the deduction is limited to $0.60 per square foot. In either event, under current law, the deduction is only allowed for buildings that are placed in service before January 1, 2014.

In addition to the deduction for energy-efficient commercial building property, a building owner may be able to qualify for accelerated deductions and federal income tax credits or grants applicable to renewable energy production facilities. For example, section 48 of the Code allows for an income tax credit equal to 30 percent of the cost of any equipment used to generate electricity from solar energy that is placed in service during a taxable year. This is a nonrefundable credit against income tax liability that can be claimed entirely in the year the solar equipment is placed in service. Under current law, a solar facility must be placed in service before January 1, 2017 to qualify for the credit.

Pursuant to the American Recovery and Reinvestment Act of 2009, which was signed by the President in early February, the owner of a qualifying renewable energy facility can elect to receive a cash grant from the Treasury Department in lieu of claiming applicable tax credits. Like the tax credit for solar projects, the amount of the cash grant generally is 30 percent of the cost of equipment used to generate electricity from the renewable resource. This cash grant is available even if the owner of the qualifying facility does not have sufficient tax liability to utilize an income tax credit that otherwise would apply. The cash grant generally applies to equipment that is placed in service in 2009 or 2010, and the amount of the grant is not included in the recipient’s taxable income.

In addition to the tax credit or cash grant, certain renewable energy property (including solar) also may qualify for 50 percent bonus first-year depreciation deductions and five-year accelerated depreciation, which can generate significant federal income tax savings.

For more information regarding federal tax incentives for sustainable development, contact the following Stoel Rives LLP attorneys: Kevin T. Pearson (at 503-294-9622 or ktpearson@stoel.com) or Adam C. Kobos (at 503-294-9246 or ackobos@stoel.com).

CALIFORNIA STATE TAX INCENTIVES

California does not provide any uniform specific state tax benefits for energy efficient commercial buildings analogous to the Federal benefit under Section 107D (discussed above). However, for state income tax purposes, California excludes from gross income certain grants awarded under the 2001 Energy Conservation Act to qualified small businesses and low-income residential property owners for constructing improvements or retrofitting buildings to be more energy efficient. A qualified small business is an independently owned and operated business that is not dominant in its field of operation, the principal office of which is located in California, the officers of which are domiciled in California, and that, together with affiliates, has 100 or fewer employees, and average annual gross receipts of ten million dollars or less over the previous three years.

A taxpayer that receives certain state non-tax incentives also may be eligible to exclude the value of those incentives from income for California state income tax purposes. This exclusion applies to any rebate, voucher, or other financial incentive issued by the California Energy Commission, the Public Utility Commission, or a local publicly owned electrical utility for the purchase or installation of a solar or thermal system, a wind energy system that produces electricity, or a fuel cell generating system that produces energy.

California provides a credit against corporate franchise tax liability for sales or use tax paid upon the purchase of certain equipment used to produce renewable energy resources, or for air or water pollution control mechanisms, so long as the taxpayer is engaged in a trade or business located in a specially designated enterprise zone.

For property tax purposes, reassessment under Proposition 13 does not apply to the construction or addition of any active solar energy system. This provision can prevent the taxable value of the taxpayer’s property from being increased when a solar system is installed. Qualifying active solar energy systems are defined as those that “are thermally isolated from living space or any other area where the energy is used, to provide for the collection, storage, or distribution of solar energy.” These include solar space conditioning systems, solar water heating systems, active solar energy systems, solar process heating systems, photovoltaic (PV) systems, and solar thermal electric systems, and solar mechanical energy. The system must be installed between January 1, 1999 and December 31, 2016.

For more information regarding California state tax incentives for sustainable development, contact the following Stoel Rives LLP attorneys: Robert Manicke (at 503-294-9664 or rtmanicke@stoel.com) or Mark Astling (at 801-5678-6983 or mlastling@stoel.com).

CALIFORNIA STATE NON-TAX INCENTIVES

California’s Feed-In Tariff

For those considering inclusion of renewable power generation in their next winery project, California has created a market for your project’s excess electricity. The California feed-in tariff allows eligible customer-generators to enter into 10-year, 15-year or 20-year standard contracts with their utilities to sell the electricity produced by small renewable energy systems—up to 1.5 megawatt (MW)—at time-differentiated market-based prices. Time-of-use adjustments will be applied by each utility and will reflect the increased value of the electricity to the utility during peak periods and its lesser value during off-peak periods. A special, higher-level rate is provided for solar electricity generated between 8 a.m. and 6 p.m.

California Property Tax Exemption

Section 73 of the California Revenue and Taxation Code allows a property tax exclusion for certain types of solar energy systems installed between January 1, 1999, and December 31, 2016. Qualifying active solar energy systems are defined as those that “are thermally isolated from living space or any other area where the energy is used, to provide for the collection, storage, or distribution of solar energy.” These include solar space conditioning systems, solar water heating systems, active solar energy systems, solar process heating systems, photovoltaic (PV) systems, and solar thermal electric systems, and solar mechanical energy.

County/City-Specific Financial Incentives for Green Building

Costa Mesa – Fee Waiver for Green Building

Marin County – Green Building Incentive Program

San Bernardino County – Green Building Incentive

San Diego County – Green Building Program

Santa Monica – Building Permit Fee Waiver for Solar Projects

Santa Monica – Expedited Permitting for Green Buildings

Marin County – Green Building Incentive Program

For example, the Community Development Agency of Marin County provides incentives for new construction that incorporates green elements. The incentives were adopted in October 2001 by the Marin County Board of Supervisors. The goal of the program is to enhance energy efficiency and conservation in residential, commercial, and community facilities.

The incentive program includes the following incentives:

Waiver of the Title 24 (California Building Energy Efficiency Standards) energy fee (new construction projects only)

Fast-track permit processing

Free green building technical assistance, design consultation, resources and information for all Marin County residents.

A project must fulfill one of the following requirements to qualify for the first two incentives:

Exceed Title 24 requirements by 20%, or

Install an on-site renewable energy system that produces a minimum of 75% of the annual energy use for the building and site amenities.

There is also a rebate program offered by the Marin County Sustainability Team that provides incentives to local residences, businesses and County employees who install solar energy systems. Rebates include $500 for a photovoltaic system, $300 for a solar hot water heater, and $200 for a solar pool heater.

Napa County

At the other end of the spectrum is Napa County. Although open to alternative energy use and encouraging solar energy by waving permit fees, Napa County currently does not have a formal program of green building initiatives.

City of Healdsburg – PV Incentive Program

Under the City of Healdsburg’s PV Buy-down Program, residential and commercial customers are eligible for a $2.52-per-watt AC rebate on qualifying grid-connected PV systems. The incentive level will decrease annually over the 10 year life of the program. Rebates are available on a first come, first served basis.

Local Utility Loan and Rebate Programs

Location warranting, incentives may also be available from your electrical service provider. The following programs are representative of the available local utility incentives:

Lodi Electric Utility – PV Rebate Program

Lodi Electric Utility offers rebates to its residential, commercial, industrial and municipal customers who install photovoltaic (PV) systems. The rebate program was funded with approximately $6 million to support systems installed between January 1, 2008 and January 1, 2018. The total amount available for qualified installations in 2008 is $600,000. Rebates for both residential and non-residential PV systems installed in 2008 are $2.80/watt. This incentive amount will decrease 7% each year after 2008. The maximum rebate is $375,000 per system, with a maximum payment of $75,000 per customer per year until the entire rebate commitment is paid.

Pacific Power – Irrigation Initiative

Pacific Power, through the FinAnswer® Express and Energy FinAnswer® programs, offers incentives for agricultural irrigation customers to help upgrade their system and receive cash incentives. The Energy FinAnswer program provides no-cost pump testing, irrigation system analysis and custom incentives of $0.12 per kilowatt-hour annual energy savings plus $50 per kilowatt average monthly demand savings. In addition, eligible customers can receive cash incentives when replacing worn nozzles or upgrading to premium efficiency motors.

Ukiah Utilities – PV Buy-Down Program

Through Ukiah Utilities’ PV Buy-Down Program, residential and commercial customers are eligible for a $2.52-per-watt AC rebate on qualifying grid-connected PV systems up to a maximum system size of 1 MW. In keeping with SB1, the incentive level will decrease annually on July 1 over the 10 year life of the program. Rebates are available on a first come, first served basis and are limited to $6,000 per residential installation and $15,000 per commercial installation.

For more information regarding California state non-tax incentives for sustainable development,
contact the following Stoel Rives LLP attorneys: Jennifer D. McCrary (at 916-319-4668 or jdmccrary@stoel.com) or Daniel A. King (at 916-319-4678 or daking@stoel.com).

For more information regarding any aspect of federal or California state incentives for sustainable development, or any aspect of this paper, contact Stoel Rives LLP attorney James A. Zehren (at 503-294-9616 or jazehren@stoel.com).

Police said that no one reported the crime. Were it not that the pair were President Karzai’s cousins — and that the murder had all the hallmarks of a revenge killing connected to a Karzai dynasty feud — the shooting would in all likelihood have languished as little more than a footnote in Kandahar’s long catalogue of violence.

“The family didn’t report it so we couldn’t start an investigation,” police General Fazel Ahmed Sherzad, the head of security for Kandahar province, told The Times.

Revenge killings are enshrined as a noble and legitimate part of traditional Afghan culture, especially in Pashtun areas. Blood feuds can last for generations, according to the ancient pashtunwali honour code, and there is little state justice could, or would, do to interfere.

Mr Karzai said yesterday that he had personally ordered a police inquiry after details of the killing were reported in The New York Times.

Local elders said that a gunman flanked by at least three bodyguards stormed into 12-year-old Sona’s home, which is directly opposite the village mosque in the President’s home town of Karz, about 20 minutes drive outside Kandahar city.

She begged the men for mercy but to no avail. The murderer, who witnesses said was wearing traditional Afghan robes, shot her brother Waheed three times. “We heard shooting and women screaming,” said Haji Wali Jan, one of the Karzais’ neighbours.

As the intruders fled, another cousin, Zalal Karzai, 25, ran in from elsewhere in the compound and saw Waheed, 18, stagger out of the bedroom. “Hashmat shot me!” he gasped. Relatives said that Waheed provided the same account to other family members before dying two days later at a US military hospital in Kandahar.

He was referring to Hashmat Karzai, the relatives said, a first cousin of the President, who owns a private security company with close ties to the Afghan Government and millions of dollars worth of US military contracts. Mr Hashmat, 40, is said to be the son of one of Mr Karzai’s uncles who was murdered three decades ago in an alleged honour killing.

Mr Karzai admitted that the shooting may have been linked to the murder of his uncle in Quetta, in Pakistan. “There was an unfortunate incident about 30 years ago, when we were refugees in Pakistan in the time of jihad. My uncle was killed in the house of that member of the family,” he told a news conference as he stood alongside the Nato Secretary-General. Anders Fogh Rasmussen.

“Now some months ago a young son, an 18-year-old son of that family was killed in our village in Karz, so because of that history naturally attention would come to that other cousin.”

The shooting, in a quiet farming village surrounded by vineyards and pomegranate orchards, happened on October 16. A spokesman for the Ministry of Interior said that its investigation started on Saturday — more than ten weeks after Waheed was shot.

The slow police response, and the reluctance of the Karzai clan to discuss the killing, has cast doubt over the President’s resolve to stamp out corruption and “the culture of impunity” that is crippling Western efforts to rebuild the country.

“Both sides have contacted me within the family,” the President said. Waheed’s family had accused Hashmat of murder, he added.

Hashmat has denied any involvement. “They mixed up the houses and killed the boy by mistake,” he told The New York Times in a telephone interview from Dubai, where he is staying with his family. “I had nothing to do with it.”

Other relatives said that they were under strict orders not to discuss the case. “This is family business,” said Ahmad Wali Karzai, the President’s half-brother, who acts as head of the family in Kandahar. “I have orders from New York not to talk to journalists.”

Relatives of Waheed in America accused the President’s brothers of trying to block an investigation. “Not a single soul has come to investigate,” Waheed’s father, Yar Mohammad Karzai, 62, said. “I told one local official, what do you want me to do, knock on Obama’s door?”

“Anything could be possible, so we will have to wait and investigate,” President Karzai said.

This is not the first time that the Afghan President faces embarrassing revelations about his family. His half-brother Ahmad Wali, long accused of links to the narcotics trade, was embroiled in controversy two months ago when an American newspaper reported that he had been on the CIA’s payroll for much of the past eight years.

The New York Times said that Ahmad Wali Karzai had been paid for services including arranging contacts with the Taleban and helping to operate an Afghan paramilitary force in Kandahar.

He was also paid for allowing the CIA, US special forces and local paramilitaries known as the Kandahar Strike Force to use a large compound outside the city that used to be the home of Mullah Omar, the founder of the Taleban, the newspaper said.

Ahmad Wali confirmed that the CIA, US special forces and the militia used the compound, but denied receiving payment from the CIA.

The Highlanders (4 Scots) joined the Royal Navy and RAF in a two-day operation after an “enemy invasion” on the islands, 8,000 miles from the UK, in the South Atlantic.

Argentina invaded the Falklands in April 1982. The war lasted 74 days and led

to the loss of 255 British service personnel, three civilian Falkland islanders and 649 Argentine servicemen.

The Highlanders are currently on a tour of the Falklands and form part of the permanent joint protection force in the South Atlantic until January, when they will be replaced.

The regiment is expected to deploy to Afghanistan in early 2011 and the exercise, Cape Bayonet, was seen as a vital part of their pre-deployment training.

Officer commanding Major Jonas Fieldhouse said: “The key thing for us here is that we have come as a whole company.

“Back in Germany where we are based it is very hard to get everyone together at the one time to do this kind of training.

“We’re back to the basics of training, all the companies here are getting a lot done and that will help us wherever we go in the world in the next two and a half years, and not just Afghanistan.”

The exercise saw 100 Highlanders picked up by state-of-the-art protection vessel HMS Clyde at Mount Pleasant and transported overnight to San Carlos, scene of a major British amphibious landing during the 1982 conflict.

The soldiers arrived in a landing craft in three lots and marched ten miles before spotting the enemy embedded up a steep hill.

Their orders were to identify, attack and defeat the force on foot.

After an hour of fierce fighting, the enemy were captured and the company marched onwards over the unforgiving terrain.

Before being picked up and transported by Search and Rescue helicopter for the second stage of the gruelling exercise, the troops, each carrying upwards of 40lb of kit as well as rifles and ammunition, visited a memorial to pay their respects to the fallen at San Carlos.

Then they spent a night at Onion Range, a remote part of East Falkland, before embarking on a live firing exercise which saw them use live ammunition in a training field.

As they did so, two Typhoon jets, the RAF’s most modern multi-role fighter, were called in to join the exercise offering unrivalled air support to the troops on the ground.

It was vital that all three services worked in unison to defeat the enemy.

The exercise is seen as important training in the planning and execution of tactical manoeuvres which the forces will experience in the battlefield.

Regimental Sergeant Major Robert Loudon, 34, from Motherwell, Lanarkshire, has already completed two tours of Iraq.

He said: “This is ideal training for Afghanistan. It is good to get the boys back out on their feet and into the field, back to soldiering. It means they can sharpen their skills.”

The exercise was deemed a success following a debrief with all the officers involved.

But the Highlanders are not just in the Falklands to train, they are there to carry out protection duties.

Following the conflict there has been a strong military presence in the Falklands, and a major base and airport were built at Mount Pleasant, 35 miles from the capital Stanley.

Daily patrols throughout the islands, nicknamed the Penguin Patrols, are seen as a visible demonstration of the United Kingdom’s sovereignty over the Falkland Islands and they are welcomed by the locals.

Maj Fieldhouse said: “We’re here in support of the mission that the British forces have in the South Atlantic to deter military aggression against these islands.”

Standard & Poor’s Equity Research keeps buy

S&P equity analyst Tuna Amobi said in a Dec. 22 note that Disney and CBS Corp. (CBS) could be among the initial content partners for a new online TV subscription service for 2010 launch by Apple Inc. (AAPL), based on an unconfirmed Wall Street Journal story. Amobi thinks the news underscores the confluence of online video strategies, as “entertainment content providers stake some claim in evolving digital landscape”.

Added to the planned launch of Disney’s own subscription service, and its Hulu internet video joint venture with News Corp. (NWS) and General Electric Co. (GE) NBC, “the news could complicate relations with major content providers”, said Amobi.

Jabil Circuit (JBL)

Needham keeps buy; raises estimates, price target

Jabil Circuit’s first quarter results, released after the close of trading Dec. 21, topped Wall Street forecasts. Needham & Co. analyst Sean Hannan said on Dec. 22 that the maker of circuit board assemblies reported $3.1 billion in first-quarter revenues, at the mid-point of the company’s guidance, while its 32 cents non-GAAP earnings per share (EPS) were at the high end of its guidance. Hannan’s estimates had been $3.1 billion and 29 cents, respectively.

Hannan said that Jabil continues to show “diligent execution” within its business, as the broader economy slowly improves from its recent downturn.

The analyst raised his $1.01 fiscal 2010 (ending August) EPS estimate to $1.22, and his $1.27 EPS forecast for fiscal 2011 to $1.38; he also hiked his $16 price target to $19.

Liz Claiborne (LIZ)

KeyBanc Capital Markets initiates coverage with hold

KeyBanc analyst Edward Yruma initiated coverage on Liz Claiborne with a hold recommendation on Dec. 22, saying that while he sees significant upside potential at the women’s apparel company should it be able to complete its transformation, he believes the risk profile remains “exceedingly high”.

“The risk profile leaves us somewhat disconcerted, as the business attempts another transformation while grappling with high financial leverage,” wrote Yruma in a note.

Yruma thinks the recent moves to license the Liz Claiborne brand to JCPenney and QVC — and realign the company around four key brands (Juicy, Kate Spade, Lucky and Mexx) will be accretive to 2010 results, noting that the company believes it can drive at least $165 million in additional selling, general and administrative expense savings. “Nevertheless, earnings are likely to remain negative during 2010, and patience with management is running thin as it has not demonstrated an ability to drive an operational turn in the business,” he wrote.