Rural property tax relief

Rural Property Owners – Your Property Taxes May Be Too High, Even If Your Property Qualifies For Farm Tax Deferral
By Oregonians In Action

One of the least understood areas of Oregon law is real property taxation.  Most Oregon property owners dutifully pay their property taxes (either directly to the county or through monthly payments to an escrow account established by their lender) without having any idea of whether their taxes are accurate.  For at least one group of Oregon property owners, this is an expensive mistake.

As a result of Oregon’s land use planning system, nearly all private property in Oregon’s rural areas is zoned for exclusive farm use (EFU) or forest use.  In many cases, the EFU zoning on a parcel prohibits any use of the property other than farm use – the property cannot be used for a use that would generate some greater value to the property owner than farming.

But what happens when the property cannot be farmed profitably?  In other words, what if the cost of farming the property exceeds the profit that could potentially result?

Under our land use laws, that’s tough.  EFU property that can’t be farmed profitably must retain its EFU zoning, even if the property owner can demonstrate that a different use of the property would result in the property having some value.  The end result is that the property becomes unproductive open space, generating no economic value to the property owner.

When property cannot be put to any economic use, its real market value should be close to zero.  It won’t be zero, because property that can’t be currently used for any economic use will still have speculative value – a value based on the idea that the zoning of the property might change at some point in the future in a way that would allow the property to be used productively.

But most property owners in EFU zones do not challenge the real market value that the county sets for their rural property.  Why?  Because most EFU zoned property is in farm tax deferral, which results in low property taxes.   When property is in farm tax deferral, the amount of property taxes assessed is not based on the property’s real market value.

In many cases, however, even the reduced property taxes paid by EFU property owners are too high.  The Oregon Tax Court has held that real property that cannot be put to any profitable use (use that generates a net profit) has no value for property tax purposes.  In that case, the property taxes should be zero.

Further, the Oregon Tax Court has held that a county cannot consider speculative value of a property when determining its real market value.  That means that even though a property that cannot be used for any profitable use (through farming, forestry, commercial use, industrial use, as a residence etc.) may still have a real market value based on its speculative use in the future, those speculative uses cannot be used to assign a real market value for property tax purposes.

If you are the owner of unused EFU property, and the property cannot be put to any profitable use or used as a homesite, you should carefully review your next property tax statement – if the county places a real market value on the property, ask the county assessor to explain how the county arrived at that value, and be prepared to file an appeal of that determination.

There are two reasons to file an appeal – first, a finding that the real market value of the property is zero will result in their being no property taxes owed for the property.  Second, a finding that the real market value of the property is zero may give rise to a claim for just compensation against the State of Oregon.

The United States Supreme Court has long held that if a regulation or series of regulations deprives a parcel of land of all its value, the owner of that land is entitled to just compensation for the lost value.  A finding that the real market value of a parcel is zero is a key determination in this type of case.

So EFU property owners – take a close look at your next property tax statement.

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