In broad terms, county finance as a policy subject this session meant using local revenue, the property tax system, as the source for payments of incentives through expenditures to attract major and modest development. See, for example, central assessment reform (Senate Bill 611) and expansion of the machinery and equipment five-year exemption for food processors (House Bill 3125), which were added to the well-used Strategic Investment Program and now more flexible enterprise zones. You will find more about this in the Economic and Community Development section.
Although there was no attempt this session to reform the thoroughly dysfunctional public finance system, we saw some tip-toeing toward examining potential alternatives. There will be a study by legislative economists this interim on options for state and local revenue systems (House Bill 2171) and likely a study on the effectiveness and relative value of property tax breaks given to the wide array of nonprofit corporations.
This legislative session had other major matters to tend to, some successfully and some not. But sooner rather than later, there will need to be another attempt to conceive, gain public acceptance of, and adopt a public finance system that is fair, sustainable, and stable for state and local governments.
A note on House Bill 3542 and Senate Bill 800, which appear at the top of this report’s section. They both relate to the income tax, which is the state’s overwhelmingly primary source of revenues. AOC keeps an eye on the legislature’s activities in income tax policy, because without adequate receipts from that source the legislature has been known to “forget” long-standing county-state agreements on shared revenues and services. The typical consequence is for the legislature to “sweep” into the state general fund shared revenues that are not explicitly dedicated to counties.
These two laws are printed in this volume, because they are very positive steps toward a more stable state finance system. Requiring a statement of purpose for a new or expanded income tax credit keeps an accounting of that credit; i.e., is it paying for itself, living up to its purpose, and worth the investment. The revenue committees have begun to provide these kinds of statements in the revenue impact report of each bill granting a property tax expenditure. AOC would like to see this practice formalized and more detailed, as is done for income tax credits in HB 3542.
As for SB 800, reserve funds are the only tactic now available to attempt to stabilize an inherently unstable state finance system, which relies so heavily on the income tax. As a short term measure, these reserves need to be adequate and function properly.
HB 3542 Statement of Purpose for Income Tax Credit
Effective date: January 1, 2016 Chapter: 641 (2015 Laws)
Requires the chief sponsor or proponent to submit the policy purpose for measures that create or expand income tax credits. Directs the Legislative Revenue Officer to identify and prepare an analysis on those existing tax credits in which the actual revenue impact has exceed the initial projected impact by 10% or more and include that information in the Tax Expenditure Report.
SB 800 State Task Force on Reserve Funds
Effective date: July 27, 2015 Chapter: 797 (2015 Laws)
Establishes a task force on reserve funds. Directs the task force to review existing reserve funds in terms of performance and adequacy. Specifies task force membership, consisting exclusively of legislators. Directs the Legislative Fiscal Officer and Legislative Revenue Officer to provide support for the task force. Directs the task force to issue a report to the Legislative Assembly no later than September 15, 2016.
Property Tax Administration
HB 2083 Senior and Disabled Property Tax Deferral Program
Effective date: October 5, 2015 Chapter: 309 (2015 Laws)
Creates an exception to the five-year ownership requirement for the homestead of a claimant for deferral under the Senior and Disabled Property Tax Deferral Program if: a) the claimant for deferral moved to a homestead from a homestead that met all the homestead requirements under the program; b) sells the existing qualified homestead within one year of purchasing the new home; c) satisfies the lien for deferral on the existing home; and d) owes no more than 80 percent of the purchase price of the new application homestead. Requires the new homestead to be insured for fire and other casualty. If the homestead meets all other requirements but is not insured, yet is insurable, the Department of Revenue (DOR) may purchase insurance for the uninsured homestead and add the cost of insurance coverage to the lien. Increases from 180 percent to 200 percent the county median real market value qualification limits for taxpayers that have continuously owned and lived in the homestead at least 21 years. Requires DOR to electronically notify an office of Aging and Disability Resource Connection or seniors and people with disabilities division of the Department of Human Services if recertification is not received with 35 days after sending notification to the taxpayer. Conforms new language with existing statutes. Applies changes to property tax years beginning on or after July 1, 2016.
County revenue impact: None; this is a state-funded program.
HB 2127 Property of Taxable Owner Transferred to Exempt Owner
Effective date: October 5, 2015 Chapter: 96 (2015 Laws)
A county clerk may not record a deed transferring property to a non-taxable entity under ORS 307.040 or 307.090, unless the deed is accompanied by a newly created certificate prescribed by the Department of Revenue and signed by the county assessor that states that all taxes, fees, and interest have been paid. An agent who is authorized to close and settle the conveyance is allowed to collect the property taxes, fees, and interest that have been or will be charged against the property before distribution of the transfer proceeds to the transferor. These amounts are to be held in trust and subsequently paid to the tax collector of the county.
Any amounts that are not paid and remain delinquent after the tranbsfer are considered a personal debt of the transferor and thus can be collected in the same manner as business personal property taxes.
HB 2128 Taxable Leaseholder of Non-taxable Property; Delinquent Taxes
Effective date: October 5, 2015 Chapter: 52 (2015 Laws)
Establishes personal liability of lessee for property taxes related to property leased from a tax-exempt government owner. Allows the county to take legal action against the lessee’s real and personal property to collect property taxes that remain unpaid after the lease has expired.
Requires the county clerk to issue writs of attachment on application of the county tax collector or district attorney as plaintiff.
HB 2129 Correction of Maximum Assessed Value
Effective date: October 5, 2015 Chapter: 97 (2015 Laws)
Allows a taxpayer-owner to petition the county assessor for correction in the maximum assessed value (MAV) of the property for the current tax year upon demonstrating that new property or improvement added to the tax roll in a prior tax year did not exist as of the assessment date of that prior tax year or any subsequent tax year. Requires the assessor to correct the MAV for the current tax year in a manner determined by the assessor. The correction must reflect removal of the non-existent new property or improvement.
If the assessor discovers that new property or improvements to property has existed in prior years but has not been assessed for those prior years or for the current year, the assessor must correct the roll and the MAV.
HB 2148 Taxation of Improvements on Tribal Trust Land
Effective date: October 5, 2015 Chapter: 65 (2015 Laws)
A county may not tax real property improvements on Tribal trust land of Oregon’s nine federally recognized Tribes. The legislation is based on Confederated Tribes of the Chehalis Reservation v. Thurston County Board of Equalization (U.S. Ninth Circuit 2013), which held that federal law (25 USC sec. 465) preempts state and local taxes on permanent improvements, without regard to ownership, located on Tribal lands held in trust by the United States.
The legislation is limited to permanent improvements on real property as defined by ORS 307.010. It does not address other taxes or property interests. Tribal fee lands and centrally assessed property are not affected by the legislation.
HB 2171 Public Finance Study; Property Tax Expenditure for Museums
Effective date: October 5, 2015 Chapter: 701 (2015 Laws)
Directs the Legislative Revenue Officer to analyze options for reforming the state and local revenue system, including alternatives to restructure the property tax system and taxing consumption, business, and personal income. The analysis is to include the impact on the economy, revenue, distribution of the tax burden, and stability of the system. The Legislative Revenue Officer is to report to the legislature by December 1, 2015.
Expands the existing property tax exemption for museums under ORS 307.130. At last count there are 246 museums in 35 counties (Jefferson excepted) that will require reappraisal based on the new standards imposed to benefit the Evergreen property in Yamhill County. Two examples: i) unimproved land contiguous to the museum that is not specially assessed is exempt; and ii) a theater located in the museum building may show films, up to 25 percent of which are not related to the museum [note: there is no clarification as to the basis of compliance with this standard, e.g., revenue collected, number of showings, attendance totals?]. Applies to tax years on or after July 1, 2015. Sunsets for tax years on or after July 1, 2019. Extends sunsets on certain income and excise tax credits.
County revenue impact: Unknown, but likely not substantial.
HB 2482 Valuation of Industrial Properties
Effective date: October 5, 2015 Chapter: 36 (2015 Laws)
Upon request of the county assessor, the Department of Revenue (DOR) may delegate assessment responsibility to the county assessor of industrial properties valued over $1 million. The request must be made before January 1 of the following assessment year and accompanied by information required by DOR. Upon delegation to the county assessor, the property shall remain county-appraised for five consecutive assessment years. The county responsibility shall continue after the five years until the assessor requests DOR to resume responsibility, at which time the property will revert to state appraisal the next following assessment year. For county-assessed industrial property, the owner must file an appeal with the county board of property tax appeals.
HB 2483 Party’s Right to Appeal Components or Entire Unit of Property Value
Effective date: October 5, 2015 Chapter: 37 (2015 Laws)
When a party appeals the real market value of one or more components of a property tax account, any other party may appeal the value of any other of the components of the account or the entire unit of property, i.e., all contiguous property under common ownership within a single code area in the county.
HB 2485 Tax Collection Housekeeping
Effective date: October 5, 2015 Chapter: 31 (2015 Laws)
Refunds are paid to the individual who paid the tax, although this may not be the current owner of the property. Prorated property tax refunds resulting from destroyed or damaged property are made to the person who requested the proration. Amounts less than $10 are not required to be refunded. Aligns the time limitation for property tax refunds with the time limitation for roll corrections, i.e., five years. If the tax collector receives a written request from a mortgagee who is authorized to pay property taxes on a floating home, the tax collector shall send to the mortgagee a copy of the property tax statement required to be mailed to the taxpayer. The request to the tax collector must be made on or before October 1. Refunds of property taxes relating to floating homes are treated the same as those to manufactured structures. A county governing body may cancel delinquent real or personal property taxes of $10 or less.
HB 2486 Measure 5 (1990); Categorization of Property Tax Revenue
Effective date: October 5, 2015 Chapter: 368 (2015 Laws)
It is the use of revenues, not the source, which determines under what category (education or general government) Measure 5 (1990) limits are calculated. In Urhausen v. City of Eugene (2006), the Oregon Supreme Court upheld the judgment by the Tax Court that subsections (2) and (3) of ORS 310.155 are unconstitutional. This legislation deletes those subsections.
HB 2487 Correction of Maximum Assessed Value by Property Square Footage
Effective date: October 5, 2015 Chapter: 39 (2015 Laws)
Requires that the formula to use to reduce the maximum assessed value, due to lesser actual square footage of the property than is on the tax roll, is the resulting reduction in market value of the property, rather than the proportionate difference in square footage.
HB 2690 Property Tax Exemption for Construction of Certain Low Income Housing
Effective date: October 5, 2015 Chapter: 520 (2015 Laws)
Exempts from property taxation land acquired and held by a nonprofit corporation for the purpose of building on the land residences to be sold to individuals with income not greater than 80 percent of area median income as adjusted for family size. Requires the nonprofit corporation, within 10 years immediately preceding filing of the claim for exemption, to have sold at least one residence to individuals with income not greater than 80 percent of area median income as adjusted for family size. Requires the exemption to end at the time of title transfer. Absent title transfer, the exemption is required to end after seven consecutive years with the option for a three-year extension if a claim is filed and the filing fee paid. Requires additional taxes and penalties to be imposed on the nonprofit, if the nonprofit corporation has not transferred title to the residences on the land by end of seven or ten-year exemption period. Applies to property tax years beginning on or after July 1, 2015.
County revenue impact: Likely less than $100,000 annually statewide.
HB 3001 Destroyed or Damaged Property
Effective date: October 5, 2015 Chapter: 92 (2015 Laws)
Allows application for determination of real market value and assessed value of property destroyed or damaged between January 1 and July 1 to be filed on or before December 31.
Requires an application filed after the later of August 1 of the current year or the 60th day
following the date on which the property was damaged or destroyed, but still filed before December 31, to be accompanied by a late filing fee in an amount equal to the greater of $200 or one-tenth of one percent of the real market value of property to which the application relates. Applies to property tax years beginning on or after July 1, 2014.
County revenue impact: Insignificant.
HB 3125 Exemption for Qualifying Food Processing Machinery and Equipment Expanded
Effective date: October 5, 2015 Chapter: 827 (2015 Laws)
Expands the existing five-year property tax exemption for qualified machinery and equipment (M&E) used in food processing to include M&E used to process grains, bakery products, dairy products, and eggs, effective for property tax years beginning on or after July 1, 2016. Beginning on or after property tax years July 1, 2015, excludes a person engaged in the business of producing any product that contains marijuana or a marijuana extract. Requires qualified M&E used to process grains and bakery products to have a real market value of at least $100,000 when placed in service. Excludes M&E used to process bakery products if proceeds from retail sales at the processing site amount to more than 10 percent of all proceeds from sales at the site. Beginning with tax years on or after July 1, 2015, allows the State Department of Agriculture (ODA) to fix, assess, and collect or cause to be collected fees on food processors in an amount necessary to cover costs of certification. Requires (ODA) to submit a report on the impact of the expanded exemption to the interim legislative revenue committees not later than September 15, 2018. Retains the June 30, 2020 sunset of the property tax expenditure. Does not change the role of the county assessor in the process.
County revenue impact: Anticipated to grow by 2018 to $2 million annually statewide.
HB 5005/5035/SB 5507 Department of Revenue Biennial Budget Related to Property Tax Administration
CAFFA funding shortfall. Appropriates $1,836,836 of general funds across 10 full-time positions to the Department of Revenue (DOR) to backfill a revenue shortfall in the County Assessment Function Funding Assistance Account (CAFFA). DOR forecasts lower revenue due to a decline in mortgage refinancing activities and lower recording fees. Provides no corresponding revenue backfill to counties’ 90 percent share of CAFFA, which equals $16,531,524. Also no provision to restart the state general fund contribution to CAFFA, which began in 1999 and ended in 2009 at $5.2 million-plus CPA/ biennium.
Property Valuation System. Funds the purchase of a commercial off-the-shelf computer assisted mass appraisal software system. This would ensure the continued ability to provide accurate property valuations and ensure timely information to the counties and taxpayers necessary for completion of the annual tax roll. Includes $1,880,000 for project costs and the establishment of one permanent full-time position (0.92 FTE), which is to be financed with revenue bonds.
SB 161 Collection of Business Personal Property Taxes
Effective date: October 5, 2015 Chapter: 444 (2015 Laws)
Allows the county tax collector to electronically file warrants for delinquent property taxes on business personal property. Requires the Secretary of State (SOS) to mark, hold, and index filed warrants in accordance with provisions of the Uniform Commercial Code. Requires that the tax collector to electronically file release or cancellation of warrants to the SOS. Requires the SOS to maintain public access to notices and cancellations. Allows the SOS to charge a fee for accepting electronic notices and allows the county tax collector to add the SOS fee to the amount due on a warrant. A fee amount is not specified. Requires the tax collector continue to properly record the warrant. Provides that notice of the warrant expires 10 years from date of filing, unless extended for additional 10 years with a properly filed certificate of extension. Requires the seller of business personal property to provide the purchaser with notice that includes whether property taxes were assessed against the property; liens were filed against the property; other counties have assessed taxes against the property; others who have had possession, control, or ownership of property; and requirements of a bona fide purchaser of business personal property. Specifies that the bona fide business property purchaser is not liable for assessed taxes if the purchase was in good faith, for value, at arms-length, and without notice of delinquent taxes. Lists the criteria for the “without notice” standard. Allows the tax collector to accept equitable compromise payment on the property from the purchaser. Maintains the right to recovery against the former owner personally.
SB 611 Revision of Central Assessment
Effective date: October 5, 2015 Chapter: 23 (2015 Laws)
Creates and makes available new property tax exemptions to a company 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 percent.
For a company 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.
If a centrally assessed communications company is approved for a property tax exemption by the Public Utility Commission, the PUC must notify the assessor of each county in which the project is approved.
On or before December 15 of each year, each assessor of a county in which is located centrally assessed property granted an exemption as a communications company shall submit to the Department of Revenue a report stating the amount of the exemption granted to the property of each company, the amount of property taxes imposed on the property and the amount of property taxes that were not imposed on the property because of the exemption for the current property tax year, and estimates of these amounts for the following property tax year.
Provides that qualifying data centers are to be locally assessed.
A company that is in the business of communication and is the owner or lessee of a data center is not centrally assessed if the historical or original cost of all real and tangible personal property, other than data centers, that is owned or leased by the company in Oregon, is in service and is used by the company in the business of communication, is less than or equal to 10 percent of the historical or original cost of the real and tangible personal property of all data centers owned, leased, or used by the company in Oregon and all additions to the data center property.
Property other than data centers used in the business of communication does not include property to the extent the property constitutes: (a) an office; (b) a warehouse; (c) a manufacturing plant; (d) a retail outlet; (e) property used in connection with a data center to generate electricity; or (f) electricity generated by the property described in (e).
A company is not a company in the business of communication solely because the company manufactures or holds out for sale property used by any person in communication.
The following real and tangible personal property used or held for future use by a company described in the next paragraph shall be locally assessed:
(a) Property constituting a data center or used in connection with the operation of data center property;
(b) Property used on the data center property to generate electricity; and
(c) Electricity generated by property described in (b).
The paragraph above applies to a company that is:
(a) Not a company that is centrally assessed under ORS 308.515 (1); or
(b) A company that is centrally assessed under ORS 308.515 (1) and the historical or original cost of the real and tangible personal property of all data centers owned, leased, or used by the company in Oregon and all additions to the data center property, excluding property described in (b) and (c) in the paragraph next above, is equal to or greater than $200 million.
Provisions related to data centers apply to property tax years beginning on or after July 1, 2015.
County revenue impact: About $2 million annually statewide.
Bills That Did Not Pass
HB 2132 County collection of forest protection district assessments; recovery of costs.
Allows a county that collects a forest protection district assessment or surcharge to retain a percentage of the collected moneys for the purpose of paying county administrative costs.
If the State Forestry Department plans a project that may result in a county incurring uncommon administrative costs, including but not limited to a project resulting from work by a county forestland-urban interface classification committee, before the start of the project: (1) the department and the county shall identify the nature and scope of the project, the resources necessary to carry out the project and the cost of those resources; (2) the department and the county shall enter into an agreement that sets forth the responsibilities of the department and the county to ensure that project work is properly performed in a timely manner; (3) the department shall identify and pre-approve any uncommon administrative costs that the county might reasonably be expected to incur due to the project; and (4) the county shall bill the department for uncommon administrative costs incurred by the county due to the project, not to exceed the amount preapproved by the department.
HB 3034 Nonprofit health care facilities, clarification of property tax exemption for.
Clarifies the property-tax exempt status of nonprofit corporations that provide health services by removing them from ORS 307.130 and creating a new statute that addresses only these facilities. Grants a full property tax exemption to a facility if the Oregon Health Authority (OHA) finds that the property is used to provide diagnosis and medical and surgical treatment primarily for patients who are acutely ill or victims of accidents. The exemption would include property used for necessary administrative services. Grants a partial exemption to property if the OHA finds that the property is used to provide charity care and administrative services necessary to provide that care. The partial exemption is granted if charity care accounts for at least 15 percent of the gross annual patient revenue of the nonprofit corporation that provides health services. The percentage of the partial exemption shall equal twice the percentage of the gross annual patient revenue attributable to charity care bears to the total gross annual patient revenue of the nonprofit corporation. The partial exemption allowed may be equal to, but not greater than, 100 percent. Most health care facilities in Oregon are not-for-profit tax exempt institutions. Legally these hospitals and other health care facilities, either related or unrelated to a hospital, are deemed to be charities and are exempt from federal, state and local taxes, raise money through tax exempt bond offerings and receive charitable contributions that are tax deductible to the donors. Oregon law has historically exempted property taxes for nonprofit hospital enterprises, citing the beneficial work they provide a community. In recent years the charity care provided by many nonprofit health care facilities is so paltry that to continue to permit these nonprofits to qualify for a property tax exemption is in question. Moreover, the property tax exemption statute used by these facilities (ORS 307.130) is antiquated, frequently amended, vague, difficult to interpret, and applies to art museums, volunteer fire departments, and literary, benevolent, charitable, and scientific institutions. It has been so difficult to administer, assessors either throw up their hands or end up in litigation. There has been no clear direction from the courts. Consequently these health care facilities are treated differently across the state and the exemptions are huge.
Note: The Chairs of the two revenue committees and the Legislative Revenue Officer are seriously contemplating an interim study of statutes that grant exemptions from taxation of property owned, leased, or used by nonprofit corporations, including clear definitions of the criteria for qualification, expected public benefits of granting the exemptions, and consistent interpretation and application statewide. The study is spurred by inconsistent judicial interpretations and thus inconsistent applications by county assessors of ORS 307.130. County assessors will need to participate for this study to succeed. A result would be proposed legislation for the 2017 session.
SB 903 Construction excise taxes imposed by schools, sunset repealed; preemption on construction excise taxes by local governments made permanent.
Repeals the January 2, 2018 sunset on imposition by a school district of an excise tax on new construction in the district. This taxing authority for schools was enacted by SB 1036 (2007), which also preempted that existing authority of a local government to impose the same type of tax. Repeal of the January 2, 2018 sunset would have made the preemption on local government authority permanent. The tax rate for schools was initially limited to a maximum of $1 per square foot for residential use and $0.50 for nonresidential use. The tax on nonresidential use was also set at a maximum of $25,000 per structure or building permit, whichever was less. The maximum rates were indexed beginning in 2009. The legislation exempted certain properties from this tax. In the school year 2012-13, 56 school districts used this option, raising a total of $15.5 million, much of which is collected by counties for schools for an administrative fee of four percent of collections (HB 2014 (2009)). School districts are to use revenues from this tax only for capital
HJR 21 Adjustment of permanent property tax rates for certain counties.
With voter approval, amends the Oregon Constitution to:
Require each county to have a permanent property tax rate limit of at least $2.00 per thousand of assessed value (AV) as determined by law (i.e., under Measure 50 ).
Require each county for each property tax year to impose operating taxes in the amount necessary to bring the total tax rate imposed to at least $2.00 per thousand. The rate includes the permanent property tax rate and any local option levy. As the local option levy expires, and the result is a total property tax rate imposed below $2.00, the county’s permanent rate will rise to keep taxes imposed at no less than $2.00 per thousand AV.
Except the $2.00 per thousand minimum county tax rate from compression under Measure 5 (1990). That is, $2.00 of the county tax rate is outside the calculation of compression. Compression would operate on all other local taxing districts, plus the amount of total tax imposed by the county above the $2.00 rate. Compression examples:
County A has a permanent property tax rate (PPTR) of $1.50 and a local option levy tax rate (LOLTR) of $1.00. The county need not increase its PPTR, because its total property tax rate (TPTR) imposed is at least $2.00. The PPTR plus $0.50 of the LOLTR are outside of the calculation of compression; $0.50 of the LOLTR is compressed.
County B has a PPTR of $2.50 and an LOLTR of $0.50. $2.00 of the PPTR is outside of compression; $0.50 of the PPTR and the $0.50 LOLTR are compressed as under current law (i.e., the LOLTR is compressed to zero before compression begins on the $0.50 of PPTR).
County C has a PPTR of $0.50 and a LOLTR of $0.50. The county must impose an additional $1.00 rate as the PPTR, bringing the PPTR to $1.50 and the TPTR imposed to $2.00 and thus outside of compression.
Refer the proposed amendment to the next primary election.
Applies the provisions to property tax years beginning on or after July 1, 2016.