Chapter § 56.2 ASSESSMENT

• Jurisdiction: Oregon

§ 56.2 ASSESSMENT

§ 56.2-1 In General

Oregon's procedures for property-tax assessment and taxation were overhauled by the passage of Ballot Measure 50 in May 1997, along with the approval of Senate Bill 1215 (Or Laws 1997, ch 541), which supplied the implementation directives to the assessment officials at the Department of Revenue and each of Oregon's 36 counties.

Before Ballot Measure 50, property taxes were based on the real market value of property. Property-tax assessments were limited to the lowest market value of the property occurring at any time during the tax year; the assessments and taxes were still linked to the assessor's opinion of value in the marketplace.

The 1997 amendment to ORS 308.205 provides the following definition: "[r]eal market value of all property, real and personal, means the amount in cash that could reasonably be expected to be paid by an informed buyer to an informed seller, each acting without compulsion in an arm's-length transaction occurring as of the assessment date for the tax year." ORS 308.205(1).

Under ORS 308.232, all real property not exempt from taxation will be "valued at 100 percent of its real market value. Unless the property is subject to maximum assessed value adjustment . . . the property shall be assessed at the property's assessed value determined under ORS 308.146." The maximum assessed value of property under ORS 308.146(1) is "103 percent of the property's assessed value from the prior year or 100 percent of the property's maximum assessed value from the prior year, whichever is greater." See § 56.2-2.

§ 56.2-2 Effect of Ballot Measure 50

Oregon's property-tax assessment and taxation system has evolved from one that was based on a levy system with taxes limited according to voter-approved levies and real market value (RMV), which used to apportion the levy among individual properties in the district. Under Ballot Measure 50 (1997), a rate system replaced the levy system. Each district's levies were replaced by a semipermanent tax rate.

Ballot Measure 50 amended the Oregon Constitution and has two fundamental consequences: (1) property-tax reduction and (2) limited growth of property taxes in subsequent years. The property-tax bill is no longer based on RMV but is based on assessed or maximum assessed value (MAV). As a result, the link between market value and the property-tax bill has been broken, except in limited situations, that is, new construction, etc. (see below).

For the tax year 1997-98, the MAV for each property was reduced to 90 percent of the property's assessed value for the 1995-96 tax year. For subsequent years, the growth in assessed value is limited to three percent per year.

EXAMPLE: Jones owns an office building in Portland. The 1995-96 RMV for this property was $1 million. The 1997-98 taxable assessed value was $900,000. At the most, the increase for each subsequent year would be three percent. Thus, Jones's MAV for 1999-2000 would be at most $1,074,647.

The Ballot Measure 50 formula does not apply to the following property:

(1) Property constructed after July 1, 1995, or to new improvements made after July 1, 1995, to existing property;

(2) Property that has been partitioned or subdivided;

(3) Property that has been rezoned and is used consistent with the rezoning;

(4) Property that has been added to the tax rolls as omitted property; and

(5) Property that becomes disqualified from exemption or special assessment.

ORS 308.146(3).

New construction and the RMV and assessed value attributable to the other exceptions would be added to the base value determined by the Ballot Measure 50 formula. Assessment ratios are applied to the "exception values" that are designed to assess new construction or additional improvements at the same level as for existing properties. The assessment ratio for each class of property within the county will be computed by dividing the average MAV by the average RMV.

Average MAV for each class of property/Average RMV for each class of property = Assessment Ratio

§ 56.2-3 Local Option Levies

Taxpayers may approve taxing levies above the semipermanent rates established by the Department of Revenue. Passage of these levies must meet the double-majority requirements mandated by Ballot Measure 50: in special elections, at least 50 percent of the registered voters must vote, and a majority of those voting must approve the tax measure.

Despite the passage of Measure 50 in 1997, Ballot Measure 5 (1990) continues to limit the taxes that school districts can impose to $5 per $1,000 real market value, and limits taxes that can be imposed by other government taxing districts to $10 per $1,000 of real market value. Or Const art XI, § 11b; Shilo Inn v. Multnomah Cnty., 333 Or 101, 108, 36 P3d 954 (2001), modified on recons sub nom Shilo Inn Portland/205, LLC v. Multnomah Cnty., 334 Or 11, 45 P3d 107 (2002).

In an urban-renewal area, a taxing district's tax rates are assessed against the entire assessed value of properties; the taxes on the incremental increase in the property's value after adoption of the urban-renewal plan (taxes on the increment) are disbursed to the urban-renewal agency, not to the taxing district imposing the tax. Shilo Inn, 333 Or at 110-12. Under ORS 310.150(7), the tax assessor is directed to measure compliance with Measure 5's property-tax limits according to the function of the taxing unit imposing the tax.

In Shilo Inn, a taxpayer owned two parcels of land within an urban-renewal area in Portland. Consistent with ORS 310.150(7), the assessor treated all property taxes assessed against the taxpayer's properties by application of school district taxing district tax rates, including taxes on the increment, as falling in the Measure 5 school category, even though part of those taxes were disbursed to the urban-renewal agency and used to fund an urban-renewal project. The taxpayer challenged his property-tax bill for those properties for the 1998-1999 tax year on the ground that Measure 5 requires urban-renewal taxes be placed on the "other government" category, and because they were not, the taxpayer was overcharged by more than $6,000. Shilo Inn, 333 Or at 104-05.

The tax court ruled that ORS 310.150(7) is not inconsistent with Measure 5, and therefore the taxpayer was not overcharged. The supreme court reversed and remanded. Measure 5 requires property taxes to be separated into categories according to the purpose for which they were raised. Nothing in Measure 50 changed the scheme, and therefore taxes on the increment to fund urban-renewal projects belonged to the non-school category for purposes of assessing compliance with the Measure 5 property-tax limits. Shilo Inn, 333 Or at 134.

§ 56.2-4 Impact of Government Restrictions on Value and Affordable Multifamily Housing

If the property is subject to government restriction regarding use on the assessment date under applicable law or regulation, the real market value (RMV) must not be based on sales that reflect a value for the property that the property would have if the use of the property was not subject to the restriction, "unless adjustments in value are made reflecting the effect of the restrictions." ORS 308.205(2)(d).

To provide affordable housing to the lower-income populace, low-income housing projects created under federal and state housing laws are typically encumbered with significant restrictions in exchange for various incentives offered under different programs. These restrictions include restricted rents (often at levels below the level of the unregulated housing market), restrictions on sale or transfer, restrictions on refinancing, compliance requirements that increase operating expenses, requirements of annual replacement reserve payments, etc. In other words, the government controls many of the owner's traditional bundle of rights. For certain kinds of programs, the government restrictions extend the full term of the loan, up to 40 to 50 years.

Since 1994 there has been considerable litigation involving the appropriate methodologies to determine the RMv of affordable-housing apartment projects. The Oregon courts have ruled that county assessors must consider the government restrictions on use in the assessment and valuation of low-income housing projects, regardless of whether the restrictions are voluntarily or involuntarily imposed. See ORS 308.205(2)(d); Bayridge Associates Ltd. P'ship v. Dep't of Revenue, 13 OTR 24 (1994), aff'd, 321 Or 21, 892 P2d 1002 (1995); Douglas Cnty. Assessor v. Dep't of Revenue, 13 OTR 448 (1996); Pollin v. Dep't of Revenue, 13 OTR 478 (1996); Piedmont Plaza Investors v. Dep't of Revenue, 14 OTR 440 (1998), rev'd, 331 Or 585, 18 P3d 1092 (2001); Wilsonville Heights Assoc., Ltd. v. Dep't of Revenue, 17 OTR 139 (2003), aff'd sub nom Wilsonville Heights Assoc., Ltd. v. Dep't of Revenue, State of Or., 339 Or 462, 122 P3d 499 (2005).

The tax court observed in Bayridge that "[t]here is no question low-income housing benefits the public. To the extent that low-income housing restrictions diminish the value of the property, they reduce its taxable value." Bayridge Associates Ltd. P'ship, 13 OTR at 29. The public-interest rules are also discussed in Tualatin Dev. Co. v. Dep't of Revenue, 256 Or 323, 332, 473 P2d 660 (1970), in which the Oregon Supreme Court cited with approval the decision in Borough of Englewood Cliffs v. Allison's Estate, 69 NJ Super 514, 174 A2d 631 (App Div 1961) (approving substantial assessment reductions for land held in trust for public benefit). This rule is also discussed in the tax court's opinion in Willamette Factors v. Dep't of Revenue, 8 OTR 400, 405-06 (1980), aff'd sub nom Willamette Factors, Inc. v. Dep't of Revenue, 291 Or 568, 633 P2d 781 (1981).

Most recently, the tax court stated in Wilsonville Heights Assoc., Ltd., 17 OTR at 146-47, that

[t]he government interest in the project is a substantial economic interest, as demonstrated by the economic exposure the government

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