Oregon Property Tax Update Archive

UPDATED september 2022

Tax Appeal Deadline December 31

Tax statements arrive in October for locally assessed property. A property owner has until December 31 to file an appeal.  For commercial and residential taxpayers, the appeal is to the county board of tax appeals in the jurisdiciton of the property. Evidence of value should be submitted with the appeal, but the property owner is provided time to submit additional evidence of value prior to a hearing. The appraiser assigned to your appeal will contact you, and this is the best opportunity to resolve the valuation dispute. 

For industrial property, the taxpayer must file in the Magistrate Division of the Oregon Tax Court.  No evidence is submitted with the complaint.  A trial is later held, and evidence of value is required.  

Because property tax is paid on the assessed value, which is the lesser of the Maximun Assessed Value or the Real Market Value (see earlier article explaining this distinction), it is rare for a property owner to be paying taxes on the Real Market Value of the property.   The tax statement does not reflect the distinction between the Real Market Value and the Maximum Assessed Value, therefore it is recommended that the tax payer go to the county website and look up the tax account information on-line.  

Remember, the deadline is jurisdictional, so review your statements early to avoid missing an appeal deadline.   

Cynthia M. Fraser
Foster Garvey, 
American Property Tax Counsel (APTC)

UPDATED december 2021

Property Under Construction and Maximum Assessed Value

There can be confusion when property under construction is first assessed as 100 percent completed under Oregon’s two-tiered property assessment.  The Oregon Tax Court recently confirmed that the assessor may only assess property that is in place as of January 1.   Taxpayer’s home was 56 percent complete as of January 1, 2019 and the parties entered into a settlement that placed a maximum assessment (MAV) value and real market value (RMV) based on a partially completed home.  The County determined that Plaintiffs’ property was 100 percent complete as of January 1, 2020, thus requiring it to compute additional value to the MAV for the 2020-21 tax year.  Taxpayer challenged the MAV as being above the 3 percent constitutional limitation. 

In Oregon real property is assessed on the lesser of its real market value (RMV) or its maximum assessed value (MAV).  ORS 308.146(2).  While a property’s real market value can change dramatically from year to year, the MAV of a property can only increase by three percent each year, unless exceptions to the general rule, such as new property improvements, allow for a greater increase.  ORS 308.146; 308.153.

New property and new improvements not subject to the three percent limit are defined as changes in the property value resulting from, “[n]ew construction, reconstruction, major additions, remodeling, renovation or rehabilitation of property” and are “integral part[s] of the land or improvements on the assessment date.”  ORS 308.149(6)(a)(A); 308.153(3)(a)(A).  When improvements are made during the year, they are added to the property tax account as of the January 1 assessment date of the following tax year.  See Chart Development Corp. v. Dept. of Rev., 17 OTR 170, 171 (2003) (explaining in which situations MAV is subject to recalculation).  For new property and new improvements, the real market value of the new improvements is multiplied by the changed property ratio (CPR) and added to the existing maximum assessed value.  ORS 308.153(1).  The CPR is “the ratio of average maximum assessed value to average real market value of property located in the area in which the property is located that is within the same property class.”  Or Const, Art XI, § 11(1)(c); see also ORS 308.153(1)(b).  The value of new improvements is “the real market value” of the new improvements less the real market value of any retirements. ORS 308.153(2)(a).

Cynthia M Fraser
Foster Garvey 
American Property Tax Counsel (APTC)

UPDATED June 2021

Oregon Tax Court Defines “New Property” for Central Assessment Companies

The Oregon Constitution has a limitation on taxes referred to as “Measure 50.” Property is valued on the lower of the real market value or the Measure 50 value, which is called the “maximum assessed value.” The maximum assessed value of a property can only be increased by 3% each year, with certain limitations when the property first is assessed or from the 1995 property value. Thus, a home may have a real market value of $500,000 but only be taxed at $350,000 if it was first tax assessed in 2000 when it was built. One of the exceptions to this taxation floor is when “new property” is added to the tax account. In the home example, the addition of a garage or a remodel above $10,000 would be a “net addition” to the existing maximum assessed value. The Oregon Tax Court recently made a significant ruling for centrally assessed property in interpreting what is “new property” for purposes of adding on real market value to pre-existing property.

Tesoro Logistics Northwest Pipeline LLC (“Tesoro”), purchased a pipeline route from Chevron in June 2013. Tesoro had never been centrally assessed in Oregon prior to this purchase. As a pipeline, the property is regulated by the Federal Energy Regulatory Commission, which approved the transaction imposing contractual constraints on the transaction, which resulted in no change in the pipeline and no increase in tariffs. Thus, the property that changed ownership remained the same. The Oregon Department of Revenue (the “Department”) asserted that the entire purchase price of the transaction was “new property” and the purchase price could be added onto the existing maximum assessed value. Thus, the taxable value of the property increased by five times.  The Department’s legal position included that because it could “value” the worldwide unit of Tesoro, it could disregard the statutes that taxed “property” with a situs in Oregon. Tesoro asserted that only the addition of property with a situs in Oregon could constitute property or “new property” for Measure 50 purposes.

Based on the interpretation of the statutory context, the Court concluded that only property that had a situs in Oregon could be “new property” and only the addition of Oregon real property, Oregon-sitused tangible personal property, or Oregon-sitused intangible property, triggers the “exception” for new property under Measure 50. The addition of property sitused outside Oregon does not cause the new property “exception” to apply.

The Court also addressed a second argument the Department made that it could disregard the existing Chevron taxable unit because of the sale of property and the creation of a new tax account. The Court concluded that the legislature intended that “unit of property” to the property sitused in Oregon, including all Oregon-sitused real property, Oregon-sitused tangible personal property, or Oregon-sitused intangible property. The court found that because Tesoro acquired the same “Oregon unit of property” that had been assessed to Chevron the previous tax year, Oregon Revised Statute 308.162(1) precluded “revaluation” of the property’s maximum assessed value when the account transferred ownership, citing the holding in Dish Network Corp. v Department of Rev,  364 Or 254, 284, 434 P3d 379 (2019).

This is an unpublished Oregon Tax Court opinion, dated May 18, 2021; Tesoro Logistics Northwest Pipeline LLC v. Department of Revenue, 2021 WL 670471. Tesoro was represented by Cynthia Fraser, APTC counsel for Foster Garvey, Oregon. 

Cynthia M. Fraser
Foster Garvey PC
American Property Tax Counsel (APTC)

UPDATED march 2020

Property Tax Relief Not Expected for 2020

Effective March 23, 2020 Governor Kate Brown issued a stay at home order for Oregonians and shuttered all non-essential business including restaurants, malls and business. The effect on business, and in turn property values will be significant. What property tax relief will be forth coming from the assessor or the Department of Revenue is yet to be known. However, because assessments relate back to January 1 of each tax year and the test is what was known or knowable as of the assessment date, we are not holding our breath. While the COVID-19 virus is a reality in 2020, as of January 1 it had not swept through the United States and been declared a pandemic. Oregon has a statutory provision for property that has been destroyed or damaged that allows a proration or reduction in assessment. ORS 308.425. Unfortunately, it does not address proration of property assessment when there is a catastrophic event. There may be some relief for some properties that were already seeing a decline in property values due to other economic obsolescence events. Additionally, the legislature may be imposed on to provide some relief, particularly when it comes to enterprise zones that require a business to maintain a set number of employees and to remain in operation. The central assessment roll will come out in May and locally assessed property will be valued by June 30. So, we are in a holding pattern and we will continue to explore for means to secure relief for over assessed property. 

Oregon property tax statements for real and personal property are required by statute to be mailed by October 25, 2020 for locally assessed property. Taxpayers who believe their property has been improperly assessed must file their appeal by December 31, 2020 to preserve their statutory rights of appeal. When reviewing the tax statement, review the real market value and the assessed values of the property. The assessor calculates a real market value for both the land and improvements for the current tax year and the previous tax year. The assessed value may be less than the total real market value, but it may not be more. This is because Ballot Measure 50 (ORS 308.142 et seq.) requires the assessor to calculate both the real market value and the maximum assessed value. The lesser of the two values is the assessed value and the value upon which taxes are paid. If the assessed value is less than the real market value, generally the real market value has no effect upon the property taxes you pay. This is because a property’s maximum assessed value may only increase by three percent.

Cynthia M. Fraser
Foster Garvey PC
American Property Tax Counsel (APTC)

UPDATED december 2019

Oregon Supreme Court Upholds Market Value Standard

The Oregon Supreme Court affirmed the Oregon Tax Court and long standing law in Oregon that property tax is assessed on the fee simple interest in the property, not the leased fee, and that an individual property’s vacancy is a factual issue that may be taken into consideration in the valuation. Powell Street LLC v. Multnomah County Assessor, 365 Or 245 (2019). A “fee simple valuation” may deviate from the ordinary concept of real market value if the property is leased at nonmarket rates. In Powell Street, the Tax Court found that on the assessment date, the shopping mall was 51% vacant due to a grocer leaving and that the contractual provisions in the remaining leases applied a discount for the loss of the anchor tenant. The primary dispute at trial was whether the shopping center should be valued as if it had a stabilized occupancy on the date of value. The Tax Court found that the missing anchor tenant and the property’s overall occupancy rate of less than 50 percent represented a major deviation from market vacancy rates. Taxpayer’s appraiser testified that because the property lacked an anchor tenant, and was “non-stabilized”, the only potential buyer for the property would be “value add” buyers: buyers who are willing to incur risk and effort to bring the property back to stabilized lease rates. These buyers expect a higher return on their investment and will pay substantially less for the property due to the time, money and risk of the investment. The Department of Revenue’s appraiser testified that the property was stabilized and tenant turn-over was normal market behavior and the property must be assumed to have a stabilized vacancy for valuation purposes.   

The question before the Supreme Court was if the Tax Court erroneously valued the property based on taxpayer’s individualized ownership of the property – a valuation constrained by the high vacancy rate – rather than determining the market rent and stabilized vacancy of the property itself. The Department contended that the valuations of leased property must always use market rents and market vacancy rates, even when a property’s actual rent or vacancy rates are substantially different. The taxpayer’s appraiser used both market rents and market vacancy rates and then deducted stabilization costs from the value to reflect the risk and value a market participant would pay for the property. The Court recited that the statutory market test is a hypothetical seller and buyer – what a typical seller would accept for the property. Because the record was devoid of any evidence that the vacancy was due to the taxpayer’s management and there were substantial facts that the property would require time and funds for upgrades to secure a new tenant, the vacancy was not due to lack of the owners skill level, but it was a characteristic of the property. The law does not require the court to disregard the actual vacancy of the property to determine market value.

Cynthia M. Fraser
Foster Garvey PC
American Property Tax Counsel (APTC)

UPDATED september 2019

Construction in Process Exemptions Require Strict Statutory Compliance

A company that is building an income producing manufacturing facility, a retail building, or a multifamily project should carefully review the statutes for an opportunity to request the assessor for a construction-in-process (CIP) exemption from property taxes. In Oregon, the CIP exemption is available for a maximum of two years. The exemption must be requested each year between January 1 and April 1. The property must be in the process of construction on January 1 and not in use or occupancy, or in the furtherance of production not less than one year from the time construction commences. Thus, the property must be under construction from January 1 to January 1 – or a full year to qualify for the tax exemption. ORS 301.330. A company that has been approved for an enterprise zone exemption may apply for a CIP exemption under ORS 285C.170. The company then must file for the CIP exemption, between January 1 and April 1, after the “assessment year” (calendar year starting on January 1 and ending on December 31) in which the property is placed in service for the enterprise zone exemption from the assessor. In a July 2019 unpublished decision before the Oregon Tax Court, United Street Car LLC v. Dept. of Revenue, the court addressed the timing of these exemptions and legislative intent behind the statutes.

Cynthia Fraser
Garvey Schubert Barer, P.C.
American Property Tax Counsel (APTC)

UPDATED JUNE 2019

Government Restrictions on Property Impact Real Market Value

Often overlooked by the assessor is the impact of conditions of approval for a development that impact the use of the property. A developer that is required to set aside a portion of its property for non-development uses is not utilizing the property to the highest and best use of the current zoning, and should not be paying full taxes or in some instances any taxes on that property. An example is a developer required to put aside several parcels of property for park use as a condition of a multi-family planned development. These parcels cannot be used for commercial use because of the government restriction on the property's use and the value to the owner is zero. Similarly, a city or county that places a conservation easement over a portion of property is placing a government restriction on that property that must be taken into account when considering the real market value of the property. The impacts of these restrictions need to be pointed out to the assessor who may not be aware of the government restriction and instead place a real market value per square foot over the property without any adjustments.

Cynthia M. Fraser
cfraser@gsblaw.com
Garvey Schubert Barer,P.C.
American Property Tax Counsel (APTC)

UPDATED MARCH 2019

DISH Network Corp. v. Dept. of Revenue, 364 Or 254 (2019)

The Oregon Supreme Court held that, for purposes of Article XI, section 11, of the Oregon Constitution (Measure 50), the Department of Revenue had properly treated property used by DISH Network Corporation in its communication business as "new property or new improvements" when, for the first time, it added that property as a unit to the central assessment roll. In so holding, the Court reversed the Oregon Tax Court.

Prior to 2009, the property that DISH owned in Oregon was assessed by various local assessors in the counties in which the property was located. In 2009, however, the department concluded that DISH was a "communication" business and that, under ORS 308.515(1)(h), its property must be centrally assessed under the procedures set out in ORS 308.505 to ORS 308.565. The department notified DISH of its intention to add all property DISH used in its business to the 2009-2010 central assessment roll as a new unit of property. In Oregon, intangible property is not taxable under local assessment but is allowed under central assessment which substantially increased DISH’s taxable property. 

Using the unitary valuation method, as is permitted under Oregon’s central assessment regime, the department allocated the unit value of DISH’s real market value of its Oregon property as $34.9 million dollars. The Department then turned to Article XI, section 11, of the Oregon Constitution (Measure 50), which generally limits yearly increases in the assessed value of property to three percent, and its implementing statutes, which set out specific formulas for determining assessed value and maximum assessed for ordinary property and property that falls within specified exceptions. After concluding that DISH's property fell within an exception for "new property or new improvements" because it had been newly added as a unit to the central assessment roll, the Department applied the "new property" formula set out at ORS 308.153 for determining the assessed value of DISH's property, and concluded that the property's assessed value for the 2009-2010 tax year was $34.9 million. That amount exceeded the total assessed value of DISH's Oregon property by nearly one hundred percent.

DISH argued that the "new property" exception that the department had employed did not apply to its property, that, instead, its property was subject to Article XI, section 11's general limitation on increases in assessed value (to three percent), and that the two-fold increase in assessed value that the department had calculated violated Article XI, section 11. The Tax Court ultimately agreed with DISH and issued a limited judgment in its favor. The department appealed, arguing that the unit of property that it had added to the central assessment roll fell within the "new property" exception recognized in Article XI, section 11, and its implementing statutes.

The Court concluded that, for purposes of Article XI, section 11's implementing statutes, "new property" includes all property that is lawfully added by the assessor to a taxpayer's account on an assessment roll -- although the Court acknowledged that property that previously has been assessed under a different account must be valued as though the change in accounts had not occurred.

Although acknowledging that DISH's tangible property had previously been subjected to local assessment, the Court concluded that the unit of property that the department had added to the central assessment roll, which looked at DISH's business as a going concern, was categorically different from that tangible property. Accordingly, the Court concluded, the entire unit of property that the department had added to the central assessment roll was "new property or new improvements" within the meaning of Article XI, section 11, and therefore was subject to a special formula set out at ORS 308.153 for determining assessed value, rather than the general formula limiting yearly increases in assessed value to three percent.

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel (APTC)

UPDATED december 2018

Seneca Sustainable Energy, LLC v. Department of Revenue

Seneca Sustainable Energy, LLC v. Department of Revenue, (TC 5193, 5208) (S064613)

On appeal from a judgment of the Oregon Tax Court, Henry Breithaupt, Judge.  22 OTR 263 (2016).  The judgment of the Tax Court is affirmed.

The Supreme Court held that the Tax Court had jurisdiction to hear challenges by Seneca Sustainable Energy, LLC, to the Department of Revenue’s determinations of the real market value of its industrial property, that Seneca had standing to bring those challenges, and that the Tax Court was correct to determine that the department’s appraisal supporting its real market value determination of Seneca’s industrial property for 2012-2013 was erroneous, insofar as it relied on above-market rates that Seneca received under a power purchase agreement with one of its customers.  Further, it affirmed the Tax Court decision setting the real market values of Seneca’s industrial property on the assessment dates at significantly lower amounts that the department’s valuations.

Seneca began operating a biomass cogeneration facility in Eugene, Oregon, in 2010.  Before the facility was completed, Seneca entered into a power purchase agreement with Eugene Water and Electric Board (EWEB), which, among other things, set the rates that EWEB would pay for electricity.  Seneca’s facility is located in an enterprise zone, and Seneca sought and obtained from the enterprise zone sponsors an exemption from taxes on certain of its industrial property for the first three years of its operation.  The exemption was granted under certain conditions, including the condition that Seneca pay a public benefit contribution if it failed to meet certain economic and development goals.  The public benefit contribution was calculated as a percentage of the property taxes that Seneca would have had to pay if its industrial property had not been tax exempt, and the amount of property taxes due, in turn, was calculated based on the department’s determination of the real market value of Seneca’s industrial property.

Seneca failed to meet its economic and development goals in tax year 2012-2013 and again in tax year 2013-2014, and for each of those years, the zone sponsors imposed public benefit contributions based on the department’s real market value determinations.   Seneca considered the real market value determinations in those years to be excessive and filed actions in the Tax Court to challenge those determinations.  The department filed a motion to dismiss the actions on the ground that the Tax Court did not have jurisdiction to hear the challenges, insofar as Seneca was actually challenging the imposition of the public benefit contributions by the enterprise sponsors and that type of claim did not arise out of the tax laws of the state.  The department also argued that Seneca did not have standing to bring its claims, because it was not a taxpayer and it was not aggrieved by an action of the department, insofar as it was exempt from taxation.  The tax court ruled that it did have jurisdiction over Seneca’s challenges to the real market value determination and that Seneca had standing to bring its claims.

The Tax Court conducted a trial on the merits of Seneca’s claims, during which the parties submitted appraisals of Seneca’s industrial property to support their respective views on an appropriate real market value determination.  The department’s appraiser based his determination of real market value on his understanding that the rates set out in Seneca’s power purchase agreement with EWEB were rates that a purchaser of the facility could expect to receive for electricity during the tax years at issue and into the future.  Seneca presented evidence that, for various reasons, as of the assessment dates, the power purchase agreement produced revenues significantly above what a purchaser of the property on those dates could have obtained.  The Tax Court agreed with Seneca and found, as a factual matter, that, because of changes to the market after Seneca had entered into the power purchase agreement, the rates in the power purchase agreement would not have been available to a purchaser of the facility as of the assessment dates.  The Tax Court also found that the department’s appraisal contained certain significant errors and adopted an incorrect approach, which rendered it unpersuasive.  The Tax Court generally agreed with Seneca’s approach and set real market values for the property consistent with that approach.

The department appealed the Tax Court’s determination of the real market value of Seneca’s cogeneration facility to the Supreme Court, arguing that the Tax Court erred in denying its motion to dismiss Seneca’s complaints and that the Tax Court erred in determining the real market value of Seneca’s industrial property without reference to the terms of the power purchase agreement.

In a unanimous opinion authored by Justice Adrienne C. Nelson, the Supreme Court affirmed the decisions of the Tax Court.  With respect to the department’s procedural arguments, the Court held that the Tax Court had had jurisdiction over Seneca’s claims for relief – a determination that the real market value did not exceed a certain value and an order requiring the department to place the correct real market value on the tax rolls – because both those claims arose under the tax laws of the State of Oregon.  Further, it ruled that Seneca had standing to bring those challenges, because it was a “taxpayer” for purposes of the tax laws, even if most of its property was exempt from taxation, and it was “aggrieved and affected’ by the department’s real market value determination, because that determination affected the amount of property tax that Seneca had been required to pay on its non-exempt industrial property. 

Regarding the determinations of the real market value of Seneca’s property, the Court agreed with the Tax Court’s conclusion that it was inappropriate to consider the power purchase agreement between Seneca and EWEB. The value of intangible contract rights cannot be taken into account to the extent that they produce returns in excess of those obtainable in the market.  The Tax Court had found as a fact that the agreement did not reflect market rates as of the assessment dates, and the Court accepted that factual finding because it was supported by substantial evidence in the record.  The Court also noted that the Tax Court had concluded that the department’s appraiser had made other serious errors in valuing Seneca’s property, which made the department’s appraisal unpersuasive, and that the department had not challenged that conclusion on appeal.  Because many of the department’s arguments were predicated on its contention that its appraiser correctly determined that Seneca’s power purchase agreement with EWEB reflected market rates, and because the department’s appraisal contained other serious errors, the Court affirmed the Tax Court’s real market value determinations for Seneca’s industrial property.

Cynthia M. Fraser
Garvey Schubert Barer P.C.
American Property Tax Counsel (APTC)

UPDATED September 2018

Oregon Tax Court Has a New Judge

Governor Kate Brown appointed Judge Robert Manicke to the Oregon Tax Court effective January 1, 2018 after Judge Henry Breithaupt retired from the bench. Judge Manicke was managing partner of Stoel Rives LLP, tax and estate planning law firm in Portland, Oregon. Judge Manicke’s practice focused on state and local tax, employment tax, including tax controversies, transactions and legislative matters. He has a history of serving the legal community including past Chair of the Oregon State Bar Tax Section and he chaired the Sections Laws Committee for 10 years until his appointment to the bench. He received the Oregon State Bar Tax Sections Award of Merit for his contributions to the Bar.  He brings a commitment to fairness and a keen intellect to the bench.

Oregon is one of a few states that has a dedicated Tax Court. The Oregon Tax Court has two divisions: the Magistrate Division and the Regular Division. Some property tax appeals are filed directly to the Magistrate Division and not to the County Board. The Magistrate Division has four Magistrates and is designed to be a more taxpayer-friendly forum, with no rules of evidence and cases are usually decided within a year. All Magistrate Division decisions can be appealed to the Regular Division of the tax court, where the rules of evidence apply. A taxpayer may also request that a matter be “specially designated” to the Regular Division. It is discretionary for the Tax Court Judge to accept such a request. There is only one Judge for the Oregon Tax Court, and these decisions can only be appealed directly to the Oregon Supreme Court.
 
Cynthia M. Fraser

Garvey Schubert Barer
American Property Tax Counsel (APTC) Oregon Representative

UPDATED September 2017

Oregon’s Only Tax Court Judge Retires

The Honorable Henry C. Breithaupt will retire from the Oregon Tax Court on December 31, 2017 after nearly 16 years on the bench. Judge Breithaupt came to the bench after practicing state and federal taxation and business transactions at a prominent Portland law firm. Oregon is one of three states in the nation that has a dedicated tax court and the loss of its sole Tax Court Judge could potentially have significant impact on tax cases in Oregon. His experience and dedication to fairness in the courtroom has made him a respected adjudicator of the law.

The Oregon Tax Court is made up two divisions: the Regular Division and the Magistrate’s Division. The Magistrate Division began its proceedings in September 1997 and is intended to be a more informal appeals process with three Magistrates overseeing the appeals. The Magistrate has primary jurisdiction over tax appeals, it handles County appeals from the Board of Equalization, and is the first formal appeal step for industrial property and centrally assessed property tax appeals. The Regular Division is presided over by the Tax Court Judge and adheres to the Oregon Rules of Evidence and hears all cases de novo. Jurisdiction in the Regular Division arises from an appeal of a judgment in the Magistrate’s Division or by “special request” that a case be transferred into the Regular Division and forge the Magistrate hearing. Because Judge Breithaupt retired midway through his elected term, Governor Kate Brown will make an appointment to fill his remaining term. With just one Tax Court Judge presiding over all tax cases in Oregon, this next new appointment by the Governor will impact the Tax Court for years to come.

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel (APTC)

UPDATED MARCH 2017

Property Tax Reform Proposed in Oregon

The Oregon legislature is in session and is looking, once again, at property tax legislation to fill a 3 billion dollar deficit.  The focus is on repealing the 1997 constitutional amendments that limit property tax increases in Oregon. There are two constitutional amendments that place limitations on taxation of the real market value of property but the focus is on measure 50. Measure 50 sets the real market value of a property at 1995 values, or if constructed after 1995, when the property is first placed on the tax rolls.  This is called the maximum assessed value. The property owner pays taxes on either the real market value of the property or the maximum assessed value, whichever value is lower. The maximum assessed value can increase by three percent a year and new additions are taxed at the real market value.

There are several other exceptions to the real market value being reset, but importantly, a sale of the property does not reset the real market value of the property.  Thus, homeowners and business owners with low maximum assessed values benefit from the property tax limitations of measure 50.  Because homeowner pays between 60 and 70 percent of Oregon property taxes, an amendment allowing the sale of a property to reset the tax value for property taxes purposes would significantly increase property tax revenue.  However, “selling” this proposal to homeowners is going to be difficult.  The housing market in Oregon, and particularly in the Portland metropolitan area, is hot with the median home price $379,500, up from $329,000 in 2016.  The proposed legislation preserves a $10,000 homestead exemption for a sale of property, which fails to reflect the reality of the housing market and that there will be little tax relief for a property owner if the housing market continues to push home prices up.

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel (APTC)

Updated September 2016

Oregon Tax Court Accepts Comcast’s Legal Argument that the Oregon Department of Revenue’s value exceeds the constitutional limitation on assessment.

In a 2015 ruling, the Oregon Supreme Court held that cable and internet companies were subject to central assessment. Comcast Corp. v Dept. of Rev., 356 Or 282,337 P3d 783 (2014) (Oregon Tax Court and Supreme Court rulings are summarized in previous postings). As a result, over 125 companies that had been previously locally assessed were now subject to central assessment, which allows for the assessment of intangible property.  The assessments for many companies increased by over 100%.  The Supreme Court remanded the case back to the Tax Court for resolution of a crucial legal issue regarding the maximum assessed value of Comcast’s property under Measure 50 – codified in Article XI, section 11 of the Oregon Constitution – and the statues implementing Measure 50.  Measure 50 dictates that the assessed value (AV) of property must be the lessor of the real market value (RMV) or the maximum assessed value (MAV). The calculation of the MAV relates back to 1995 RMV.

Comcast argued that the Department’s new central assessment value was incorrect because the MAV determined by the Department exceeded the 3% limitation allowed by Measure 50.  Measure 50 has 6 exceptions to the 3% limitation on increasing a property’s assessed value. The Department relied on one of these exceptions, treating all of Comcast’s property, including property previously assessed property, as “new property” (a Measure 50 exception) to disregard the MAV limitation on assessment.  At issue in the Tax Court’s recent ruling was whether the Department’s act of transitioning taxpayer’s property from local assessment to central assessment qualifies as an event triggering the “new property” exception to the 3% limit.  

The Tax Court found that the Department’s action of adding the taxpayer’s property to the central assessment tax roll does not, absent some action attributable to the taxpayer, qualify as an “addition” to a property tax account for purposes of the new property exception under Measure 50’s implementing statutes. This is an important ruling for all central assessment companies that challenged the Measure 50 value when their properties were transitioned to central assessment in 2009. The Tax Court has ordered an evidentiary hearing on the value placed on the roll for the 2009-2010 tax year.

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel

Updated June 2016

The Oregon Department of Revenue Attempts to Defeat Constitutional Limitations on Property Taxation

In Oregon, there are certain constitutional limitations on the amount of taxation that a property may be assessed. As can be expected, the legal interpretation of these constitutional terms are regularly before the courts. Perhaps the most significant limitation on taxation of property is the constitutional amendment referred to as Measure 50. In 1997, the Oregon voters amended the Oregon Constitution with Measure 50 that set a maximum assessed value for property and limited the assessed value increase to 3% annually. There are six exceptions to the 3% limitation on increasing the maximum assessed value of taxable property; (1) new property or new improvements to the property, (2) subdividing or partitioning the property, (3) rezoning the property and using the property consistent with that zoning, (4) the property is first taken into account as omitted property, (5) the property becomes disqualified from exemption, and (6) a lot line adjustment.

The loss of the maximum assessed value to a property from one of the first five exceptions can result in a significant increase in a property’s tax value because the assessed value is the lesser of the real market value or the maximum assessed value. Thus, a property that has been on the tax rolls for years, may have a real market value far in excess of the maximum assessed value. A home purchased new in 2000 may have a real market value of $550,000 in 2016 but the property will be assessed at $440,000 because the maximum assessed value has limited the increase in taxable value to 3% a year.

The Assessor and the Department of Revenue are continually looking for creative ways to up the maximum assessed value under one of the five exceptions that allow it to add value to the tax rolls beyond the 3% limitation. In the past several years, there are several cases challenging what constitutes “new property” for purposes of Measure 50 exception. The Department of Revenue has taken the position that when a centrally assessed company purchases another centrally assessed company, the Department may add the newly acquired company’s purchase price to the roll as a “new property” exception to the account of the purchaser – thus increasing the maximum assessed value exponentially. There are several cases pending in Oregon, each with unique factual scenario’s, where the taxpayer has challenged what is “new property” or how the Department of Revenue arrives at the maximum assessed value when locally assessed property becomes centrally assessed. Oregon remains in a “wait in see” mode with millions of taxpayer dollars at stake as these cases make their way through courts.

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel

Updated March 2016

2016 Legislation Impacting Oregon Property Taxpayers

SB 611 makes changes to Oregon’s central assessment statutes. As discussed in previous articles, the Oregon Supreme Court in Comcast v Department of Revenue, 356 Or 252, 337 P.3d 768 (2014), held that for purposes of central assessment, communication companies include cable television and internet service providers. Thus, 125 new communication companies were subject to assessment which allows the state to tax intangible property. SB 611 imposes a cap on the value of the intangible property that is assessable by Oregon. The cap is 130 percent of the company’s historical or original cost of real property and tangible personal property. The law also allowed exemptions for certain communication satellites, communication franchises, and certain residential high-speed communication services. HB 2127 eliminated extensions for filing personal property tax returns. Personal property tax returns are now due annually on March 15th instead of March 1st and extensions of time will no longer be granted. The new law applies to property tax years beginning on or after July 1, 2016. SB 161 requires that a seller of “business personal property” (which is defined to include tangible personal property, and machinery and equipment that a tax collector treats as personal property pursuant to ORS 311.549) must provide a purchaser of business personal property a detailed notice addressing potential tax liens on the property. A bona fide purchaser must also take several “due diligence” steps to ensure that they are not acquiring property that has a tax lien or they will be held responsible for the tax lien. HB 2482 amended the statutes governing the appraisal of industrial properties. Appeals for state appraised industrial properties must be brought in the Oregon Tax Court, while appeals of county appraiser industrial property must be brought in the county board of property tax appeals. The law was retroactive, applying to appeals filed by December 31, 2016.

Cynthia M. Fraser is an owner in the law firm of Garvey Schubert Barer in the firm\'s Portland Oregon office, and is the Oregon Representative of American Property Tax Counsel (APTC)

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel

Updated December 2015

Oregon Supreme Court Agrees that Excess Operating Costs Create Negative Value for Campus

The Oregon Supreme Court upheld a win for Hewlett-Packard finding that the Tax Court properly identified the “value of the loss” as the additional operating expenses that an owner would incur to operate the campus property. Hewlett-Packard Company v. Benton County Assessor et al., 357 Or 598, 356 P.3d 70 (2015). The value of the loss measures the negative value created by components of the property that prevent it from cost-effectively serving its highest and best use.

Hewlett-Packard owns a 178-acre manufacturing and research campus in Corvallis, Oregon. The parties disputed the value of the real estate improvements on that campus for the three tax years beginning in 2008 and ending in 2011. The improvements consisted of 11 buildings containing approximately 2 million square feet of flex industrial space.

To determine the real market value of those improvements, the Tax Court considered the various alternative uses proposed by the parties and determined that the highest and best use of HP’s property was a continuation of its use as a single tenant, owner-occupied manufacturing and research facility.

The Tax Court also found that a prospective owner would only value some of the improvements on the campus. HP had moved out of several of the buildings and offered evidence, that was accepted by the Tax Court, that a prospective owner would value only 1.2 million square feet of the improvements, called the core space, and would assign no value to the remaining 800,000 square feet of the improvements, called the non-core space. The Tax Court concluded that the most cost-effective use of the non-core space was to leave it vacant. In reaching that conclusion, the Tax Court rejected the Department of Revenue’s argument that the property’s highest and best use was a mixed use property where the core space would continue to be used for manufacturing and research and the non-core space would be used to generate rental income. The Tax Court applied OAR 150-308.205-(F)(3)(k) to determine the value of the loss created by the non-core space. To do so, the Tax Court calculated the additional operating expenses that an owner would incur while operating the subject property – both the core and non-core space – as compared to the operating expenses that an owner would incur while operating a cost-effective version of the property consisting of only the core space. The Tax Court calculated the value of the loss and the property’s ultimate real market value by accepting and adopting the analysis offered by HP. The department contended that the Tax Court erred because it should have calculated the value of the loss as if a potential owner would convert the non-core space to generate rental income, which, according to the department, would result in more value than leaving the non-core space vacant.

In a unanimous opinion written by Chief Justice Thomas A. Balmer, the Supreme Court affirmed the Tax Court’s application of OAR 150-308.205-(F)(3)(k). The Court explained that OAR 150-308.205-(F)(3)(k) must be applied consistently with the Tax Court’s highest and best use determination. The department’s argument that a potential owner would convert the non-core space to generate rental income was inconsistent with the Tax Court’s analysis of the highest and best use of the property. The department did not challenge the Tax Court’s highest and best use determination, and in fact presented no support for its own highest and best use theory. Based on the highest and best use determination, the Tax Court properly identified the value of the loss as the additional operating expenses that an owner would incur to operate the subject property compared to the most cost-effective option.

Cynthia M Fraser is an owner in the law firm of Garvey Schubert Barer in the firm's Portland, Oregon office, and is the Oregon Representative of the American Property Tax Council.

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel (APTC)

Updated September 2015

Tax Appeal Deadline in Oregon is December 31st

Tax Appeal Deadline in Oregon is December 31st. Oregon property tax statements for real and personal property are required by statute to be mailed by October 25, 2015. Taxpayers who believe their property has been improperly assessed must file their appeal by December 31, 2016 to preserve their statutory rights of appeal. Taxpayers have an affirmative duty to provide address changes and property title changes to the assessor and to ensure that property taxes are paid on property owned or leased. Do not assume that a new owner or lessee of the property will pay the taxes if you receive the tax statement. Correspondingly, if you own property in Oregon and do not receive a tax statement contact the County Assessor. When reviewing the tax statement, review the real market value and the assessed values of the property. The assessor calculates a real market value for both the land and improvements for the current tax year and the previous tax year. The assessed value may be less than the total real market value, but it may not be more. This is because Ballot Measure 50 (ORS 308.142 et seq) requires the assessor to calculate both the real market value and the maximally assessed value. The lesser of the two values is the assessed value and the value upon which taxes are paid. If the assessed value is less than the real market value, generally the real market value has no effect upon the property taxes you pay. This is because a property’s maximum assessed value may only increase by three percent. There a six statutory exceptions to this cap including new property or new improvements that add value to the property in the tax account. Cynthia M. Fraser is an owner at Garvey Schubert Barer and the firm’s Oregon Representative of American Property Tax Counsel.

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel (APTC)

Updated June 2015

Oregon Legislature Passes Limited Exemption for Assessment of Communication Companies

The Oregon Legislature Provides Limited Exemption for Assessment of Communication Companies

The governor has signed a compromise bill into law that creates new exemptions to communication companies subject to central assessment. The new exemptions relate to the value of franchises, satellites used to provide service directly to retail consumers, and an alternative exemption calculation based on a company’s historical or original cost of real property and tangible personal property multiplied by 130%. For companies receiving an exemption related to a new qualified project, Oregon allocated value will be based upon the greater of $250 million or the real market value of real and tangible personal property located in Oregon as of the assessment date. The exemptions apply to tax years beginning July 1, 2016.

Companies owning or leasing a data center are also given an exemption from being brought into central assessment if they meet certain monetary thresholds based on the costs of the construction and size of the company. These exemptions are related to property tax years beginning on or after July 1, 2015.

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel (APTC)

Updated March 2015

Central Assessment of Communication Companies

In the 2009 and 2010 tax year, the Oregon Department of Revenue (DOR) made a little noticed change that has had big impacts for communication companies. At that time, the DOR changed its interpretation of what companies would be considered a “communication company” for purposes of central assessment. This change resulted in cable companies, internet service providers and data centers being subject to central assessment. When a company is centrally assessed, the composition of the company’s total tangible and intangible value is allocated back to Oregon. Because the assessment now includes intangible value, such as a company’s brand name, the tax assessment can be significantly larger than the previous method of assessment. In fact, several companies saw their property taxes triple or quadruple. .

The consequences of that change continue to play out, including in the Oregon legislature. Senate Bill 611 arose from tech companies’ concern over Oregon’s unusual methodology for valuing the assets of the newly categorized “communication companies,” including cable companies, internet service providers, and data centers. The tech companies have communicated to the legislature that DOR’s new definition of communication and resulting central assessment is holding up investment in Oregon, including Google Fiber’s decision to bring hyper-fast internet services to the Portland area and Apple’s plan to expand its Prineville data center.

Senate Bill 611 attempts to find a middle ground regarding the inclusion of cable companies, internet service providers and data centers into the definition of communication. First, the bill places a cap on central assessment of cable TV companies based on a formula that draws on the historical costs of the company’s Oregon investments and subtracts the value of their franchise agreements. Second, the bill exempts data centers from central assessment altogether. Third, the bill creates a new central assessment exemption for internet service providers that offer super-fast connections of at least 1 gigabyte per second.

While future central assessment revenue would be diminished, supporters of the bill say cities may never collect the money because of uncertainty surrounding litigation still pending in the tax court. As of the date of this article, the compromised bill has passed the Senate and is being debated in the House. Those supporting the bill say its passage will encourage new investment in the state, especially in rural Oregon where even a few dozen data center jobs can make a substantial difference in a community.

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel (APTC)

Updated December 2014

Definition of a Communication Business

In a surprising opinion the Oregon Supreme Court reversed the Oregon Tax Court’s and held that a 1973 definition of a communication business that included the words“data transmission services” encompasses cable television and internet access services. Comcast Corporation v. Department of Revenue, 356 Or 282, ______ P2d ______ 214 WL 4924281 Or., 2014.

The Oregon Tax Court had concluded that Comcast internet access service, but not its cable television service, was a “data transmission service” under the definition of communication. 20 ORT 319 (2011). The Tax Court also was required to look at the primary use of Comcast in determining whether or not to bring Comcast under the purview of central assessment. Because the Tax Court determined that the primary use of Comcast property was for cable television service, the property was not central to central assessment.

Why does this matter? It matters because in Oregon, intangible property is subject to central assessment. Therefore, Comcast and any other company that the Department of Revenue determines is a communication company and its services include “data transmission service” will now be subject to central assessment and have its intangibles taxes, doubling or tripling a tax liability in Oregon. The implications of this tax on large companies (including Amazon, Yahoo, Facebook, Microsoft, Apple) are yet to be known, but clearly the landscape in Oregon has changed for business and whether or not these large companies will place their future investment dollars elsewhere remains to be seen. Most recently, Google had announced a $300 million investment in a communication infrastructure for Oregon that may now be in jeopardy.

The Supreme Court definition of “data transmission service” was held to be a technical term drawn from the telecommunication field. The court held that it should include “services that provide the means to send data from one computer or computers/like device to another across a transmission network.” With that definition in place, both Comcast cable television and internet access service are data transmission services and the Department of Revenue has now entered into its rulemaking process to further its assessing role. Which industries it targets and which it does not will be a question for the next 30 days as the Department begins notifying companies that they are now subject to central assessment and their intangibles are at issue. Thus, many companies will see their tax bills doubled or tripled over the next few weeks.

Cynthia Fraser is an owner at Garvey Schubert Barer in Portland, Oregon and is the American Property Tax Counsel Attorney for the State of Oregon.

Cynthia M. Fraser
Garvey Schubert Barer
American Property Tax Counsel (APTC)

Updated June 2014

December 31st Is Due Date for Filing Property Tax Appeals in Oregon

Property tax bills have arrived in the mail and, understandably, you are upset with the fact that in the current economic climate your taxes are going up, while your property value is going down. You have a right to appeal your property tax assessment to either the local county Board of Property Tax Appeals (BOPTA) or, if you are an industrial taxpayer, directly to the Magistrate Division of the Oregon Tax Court. However, your appeal must be filed by December 31, 2009, to be considered by BOPTA or the Tax Court.

So, what are you appealing? Unfortunately, the amount of property taxes you are paying cannot be the basis for appealing the assessment. Property taxes are the product of multiplying two numbers: the tax rate and the assessed value of the property. The tax rate is limited to 1.5 percent of real market value by Ballot Measure 5, plus any local option property tax approved by voters in your district. Only in very limited circumstances may property owners challenge the tax rate.

What you are appealing is the property’s assessed value. The assessed value is the lower of the Maximum Assessed Value (MAV) or the real market value (RMV) of the property. Under Ballot Measure 50, except for six exceptions, assessed value may not be increased by more than three percent per year – which becomes the property’s MAV. RMV, on the other hand, is the amount the property would sell for between a willing buyer and a willing seller in the open market in an arm’s length transaction. Both the RMV and the assessed value appear on the property tax bill. Typically, the assessed value will be a lower value than RMV, in which case you are being assessed on the property’s MAV.

To be successful in a property tax appeal, you must prove that the actual price for which you could sell your property as of January 1, 2009, its actual RMV (as opposed to the RMV appearing on the tax bill), is below the assessed value. How do you know what is the actual RMV of your property? First, if you recently purchased the property for less than the assessed value, the sale price is a very good indication of the property’s RMV. However, do not base your appeal upon the assessed value of other properties. The Tax Court has ruled that the assessed value of other properties is not a sufficient legal basis for seeking a property tax reduction.

An examination of the income generated by your income-producing property may give you an indication if the assessed value is too high. Income may be generated by lease or rental rates of commercial real estate that have been suffering from high vacancy rates. In the case of owner-occupied industrial property, RMV may be measured by the cash flow generated by the operating facility. If the income generated from the property is far below the expected rate of return of the debt and equity capital invested in the property, this may indicate that the property is overassessed because it suffers from functional or economic obsolescence.

Aside from the sale of your property at or near the assessment date, the best evidence of the property’s actual RMV is an appraisal of the property by a qualified expert for property tax purposes. It may be that your property has been appraised already for other purposes – insurance, partnership buyout, or estate planning purposes. These appraisals may give you an indication whether the assessment of your property is inappropriately high, or not. However, appraisals for property tax purposes require that the appraiser render an opinion of the real market value of the fee simple interest of the property as of January 1 st of the tax year. An insurance appraisal that estimates insurable or replacement value is not sufficient. Likewise, an appraisal for estate planning or investment purposes may not fit the requirements necessary for a property tax appeal.

A competent appraiser will determine the RMV of the property by use of one or more of the three approaches to value: the cost approach, the sales comparison approach, and the income approach. The cost approach adds the land value to the depreciated cost of the property’s improvements. The sales comparison approach compares the sale price (not assessed value) of comparable properties with the property being appraised and makes adjustments for any differences between the two. Finally, the income approach capitalizes either the market rental rate or the cash flow of the property by an appropriate rate of return that reflects the return on, and return of, the investment. Not all of these approaches may be applicable to the specific property being appraised, but all three will be considered by a competent expert.

Taxpayers who own residential or commercial properties must first appeal their assessments to the BOPTA of the county in which the property is located. Taxpayers who own industrial property may elect to appeal to BOPTA, or skip BOPTA and appeal directly to the Magistrate Division of the Oregon Tax Court. It is highly recommended that taxpayers who desire to appeal the assessment of commercial or industrial property consult with a professional familiar with property taxation and the appeal process. However you chose to proceed, please remember that your appeal must be filed no later than December 31, 2009.

David L. Canary, Esq.
Garvey Schubert Barer
American Property Tax Counsel (APTC)

Updated March 2008

April 1st Is An Important Tax Date For Property Taxpayers

While April 15th is "tax day" for federal and state income taxpayers, April 1st is equally important to property taxpayers who wish to avoid paying property taxes for the upcoming year. Below is a list of exemptions for selected types of properties for which applications or statements must be filed with the local county assessor or the Oregon Department of Revenue on or before April 1st to qualify for exemption from property taxes.

Cancellation of assessment for commercial facilities under construction. New buildings or additions to existing buildings are exempt from property tax assessment for up to two years while under construction. The building or structure must be under construction on January 1, 2007, not have been used or occupied before that time, constructed in the furtherance of the production of income (e.g. an industrial or commercial building or condo), and in the case of nonmanufacturing facilities, the building or structure must first be used or occupied not less than one year from the time construction commences. For manufacturing facilities, any machinery and equipment located at the construction site which is or will be installed in or affixed to the building or structure under construction may also be exempt.

Cancellation of assessment of pollution control facilities. A pollution control facility constructed in accordance with specific Oregon statutes and that has been certified by the Environmental Quality Commission may be exempt to the extent of the highest percentage figure certified by the Commission as the portion of the actual cost properly allocable to the prevention, control or reduction of pollution.

Exemption of nonprofit student housing. Student housing that is rented exclusively to students of any educational institution that offers at least a two-year program acceptable for full credit towards a baccalaureate degree may be exempt from certain ad valorem assessment. The exemption applies to student housing of an educational institution that is either public or private.

Exemption of low income housing. Property owned or being purchased by a nonprofit corporation that is occupied by low income persons or held for future development as low income housing, or a portion thereof, may qualify for tax exemption.

Exemption of ethanol production facilities. The real and personal property of an ethanol production facility may qualify for exemption of fifty percent of the assessed value of its property for up to five assessment years.

Exemption of rural health care facilities. The real and personal property of a health care facility with an average travel time of more than thirty minutes from a population center of 30,000 or more may be exempt from property taxation if the property constitutes new construction, new additions, new modifications or new installations of property as of January 1st. Additionally, the exemption must be authorized by the county governing body in which the facility is located. The exemption can be for up to three years.

Exemption of long term care facilities. The real and personal property of a nursing facility, assisted living facility, residential care facility or adult foster home may qualify for exemption if the facility has been certified for the tax year as an essential community long term care facility. The Legislature specifically declared that a property tax exemption would enable essential long term care facilities to increase the quality of care provided to the residents because the full value of the exemption is applied to increasing the direct caregiver wages and physical plant improvements that directly benefit the facility residents and staff.

Special assessment of nonexclusive fare use zone farmland. Any land that is not within an EFU zone but that is being used, and has been used for the preceding two years, exclusively for farm use may qualify for farm use special assessment if the gross income derived from the farming operation meets a certain amount that depends upon the size of the farmland.

Special assessment of designated forestland in Western and Eastern Oregon. Forestland being held or used for the predominant purpose of growing and harvesting trees of a marketable species and that has been designated as forestland, or land in either Western or Eastern Oregon, the highest and best use of which is the growing and harvesting of trees, may qualify for special assessment if certain other requirements are met and a timely application filed.

Taxpayers who believe they qualify for cancellations of assessments, exemptions or special assessment should contact the office of the county assessor in which the property is located, or contact the Oregon Department of Revenue, to request application forms and instructions. The fact that a cancellation, exemption or special assessment is granted for one year does not mean the property automatically qualifies for exemption in subsequent tax years. A number of these cancellations, exemptions and special assessments require that applications be filed with the county assessor or the Department of Revenue each year. That is, an exemption or special assessment may be lost if an application is not filed in each successive year.

April 1 is the last day to file for the above-mentioned cancellations, exemptions and special assessments and assessing authorities do not have discretion to accept a late filing.

Updated December 2007

December 31ST Is Due Date For Filing Property Tax Appeals

Property tax bills have arrived in the mail and, understandably, you are upset with the amount of taxes you are paying on your real and personal property. You have a right to appeal your property tax assessment to either the local county Board of Property Tax Appeals (BOPTA) or, if you are an industrial taxpayer, directly to the Magistrate Division of the Oregon Tax Court. However, your appeal must be filed by December 31, 2007, to be considered by BOPTA or the Tax Court.

What you are appealing is the property's assessed value. The assessed value is the lower of the Maximum Assessed Value (MAV) or the real market value (RMV) of the property. To be successful in a property tax appeal, you must prove that the actual price for which you could sell your property is below the assessed value. The best evidence of the property's actual RMV is an appraisal of the property by a qualified expert for property tax purposes.