Real Market Values and "Compression" – Property Taxes Continue to Climb in Oregon

by Tonkon Torp LLP
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Tonkon Torp LLP

One of the most significant reasons taxes have increased so much this year is "Compression."
 
Due to Measure 5, Oregon's constitution limits the amount of taxes that can be collected from each property for two categories of tax: Education related taxes are limited to a threshold of $5 per $1,000 of Real Market Value (RMV) and General Government related taxes to $10 of $1,000 of RMV. The taxes themselves are listed on the right side of every statement – though the limits do not appear anywhere.
 
Compression occurs when taxes in either category exceed these limits for a property. The taxes are then reduced or "compressed" by the Assessor until the Measure 5 limitations for each tax are reached. Local option taxes are compressed first. If the local option tax is compressed to zero and the limit still hasn't been reached, other taxes in the relevant category are proportionally reduced.
 
2015-16 Tax Year Example
 

--> Scroll to see full table data
  Real Market Value Assessed Value Overall Millage Rate Education
Tax Millage
General Tax Rate Overall Millage Rate Tax ($)
  $100,000 $100,000 $0.020 $0.006 $0.014 $0.020 $2,000
Limit       ($0.005) ($0.010)    
Compression       $0.001 $0.004 $0.005 ($500)
Total Tax             $1,500
--> Scroll to see full table data

Many taxpayers have been in Compression for several years, but didn't know it. But what happens when a property comes out of Compression? That is – what happens when Assessors adjust RMVs based on the trend in the market? To learn more about how Assessors determine a property's RMV, see my earlier article: Is RMV Accurate?
 
From TY 2015/16 to TY 2016/17 TY, Oregon County Assessors increased RMVs a state-wide average of 10.5% – with Deschutes, Morrow, Malheur, Clackamas, Washington, and Multnomah counties all seeing greater than 12% increases (see 2016-17 Property Tax Statistics). This is the average for all property types: residential and commercial property owners saw much greater increases in their RMVs.
 
Add to this the New Bond Measures in the tri-county area that caused overall millage rates to reach a 20-year high, and the compounding effect has been drastic.
 
You can see the compounding effect in the following example:
 
2016-17 Tax Year Example

--> Scroll to see full table data
  Real Market Value Assessed Value Overall Millage Rate Education
Tax Millage
General Tax Rate Overall Millage Rate Tax ($)
  $180,000 $100,000 $0.024 $0.006 $0.014 $0.024 $2,400
Limit       NA NA    
Compression       NA NA NA  
2016/17
Total Tax
            $2,400
--> Scroll to see full table data

Change in Tax 2015/16 to 2016/17
 

2015/16 Tax $1,500
2016/17 Tax $2,400
Change (% increase) $900 (62.5%)

 
Should You Still Be in Compression?

Compression is not well understood and, when you are subject to it, you usually don't know. Some property owners would be well served by exploring their compression status as many properties that have recently trended out (due to mass appraisal principals used by assessors) should still be in compression. Next week I will identify the property types that should remain in compression and will provide an example of a property that lost its compression benefit when it should not have.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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