Your property may be subject to one of Oregon’s lesser-known property tax limits, and you may not even know it. Even better, it may be possible for you to take action to increase the likelihood that this limit will apply to your property.
What Is Compression?
Oregon’s Measure 5 limits the taxes individual properties pay to $5 per $1,000 real market value for school taxes, and $10 per $1,000 real market value for general government taxes. If the tax imposed by the county assessor exceeds either limit, it must be reduced, or “compressed”, to or below Measure 5 limits. Local option taxes will be compressed first. If local option taxes are reduced to zero without reaching the Measure 5 limits, then other taxes from the permanent tax rates for each taxing district are reduced proportionately.
The table below is published by the Oregon Department of Revenue Research Section and shows taxes extended, imposed, and compressed for fiscal year 2023-24 by county and by limit:
What Causes Compression?
The broader underlying causes of compression can be complicated, but the two primary factors that impact compression are straightforward. Of course, the first factor is tax rates. If your local government taxing situation is changing significantly in a given year (for example based on new or expiring levies) that change will impact whether compression occurs. Additionally, a property’s ratio of real market value (RMV) to assessed value (AV) plays an important role because tax rates are applied to the AV, but Measure 5 limits are calculated against a property’s RMV. Accordingly, compression is more likely if a property’s RMV is closer to its AV (i.e., the ratio is smaller). In practical terms, that means compression generally increases if market values decline.
Current Market Overview
The commercial market and residential market are unique. Our colleague Mick Harris wrote a recent Ear to the Ground post citing reasons to be optimistic about the Portland Metro region’s residential market, such as increases in sales prices and market activity.
Portland’s commercial real estate market suffered in 2023. Office vacancy rates reached all-time highs, sales volume was at the lowest level since 2012, and both rents and occupancy rates trended downward. So far, 2024 seems more or less on pace with the prior year’s trend, albeit with signs of limited improvement.
This means a property owner may be able to reduce the property taxes on a given property by pursuing a reduction of the RMV even though the reduction does not reduce the RMV below the property’s AV.
Takeaways
Overall, the local real estate market remains dynamic and varied. Property owners would be well served to carefully consider their property’s compression status. Last year’s county level compression rates may serve as a useful guide, but compression impacts each property differently.
