Will my property taxes drop if I buy a house below market value?

A commentary by Yamhill County Tax Assessor Scott Maytubby for The News Register, published November 7, 2009.

Despite the fact that we receive tax statements in the mail every fall, most people are not aware of how Oregon’s property tax system works. If you are like the vast majority, you probably just pay your taxes and never question the amount or the values on the statement.

This year, however, lots of people are asking how their property taxes can go up when the real market value of their homes is going down. This is a good opportunity for me, as Yamhill County’s new assessor, to explain how the property tax system works.

For the past two years, we have been experiencing a declining real estate market, which you may think should lower property taxes. Unfortunately, this is not true.

The biggest misunderstanding surrounding property taxes centers on the effects of Measure 50, passed by voters in 1997. The measure accomplished exactly what its authors intended.

It allows for the predictability of slow, steady growth in property taxes, uninfluenced by fluctuations in real estate values. Measure 50, a voter initiative, modified the Oregon Constitution and virtually every property-tax statute.

Beginning with the 1997-98 tax year, in addition to Real Market Value (RMV), Measure 50 required a second value, Maximum Assessed Value (MAV), to be established for every property in Oregon. The new value was calculated by subtracting 10 percent from each property’s 1995-96 RMV.

Under Measure 50, property tax is based on the lower of the RMV or the MAV and is labeled assessed value on the tax statement.

The MAV increases by 3 percent each year as long as the RMV of the property is greater than the MAV. The RMV changes with the real estate market and, in most cases, has more than doubled since 1997. Meanwhile, assessed values have increased by only 3 percent a year.

Average assessed value in Yamhill County is 40 percent lower than real market values. Despite real estate prices skyrocketing a few years ago, property taxes valuations increased only 3 percent.

If you take nothing else from this message, just remember that the maximum assessed value is not a percentage of the real market value; therefore, decreasing property prices do not decrease taxes unless the RMV drops below the MAV. Knowing this, if you feel like your expenses are getting out of hand and want to relocate, you can check out places like Andorra overseas, where the tax system might be more favorable for you (more information available here).

Many taxpayers may not be aware of the assessment date. The RMV on your current tax statement is from Jan. 1, 2009. Therefore, decreases in the market from January until now will not be reflected until next year’s tax statement.

During an increasing market, this makes some people think that RMVs are too low. Conversely, during a declining market, they may think they are too high.

Here’s a simple summary:

– RMV equals the approximate value of your property in the real estate market as of Jan. 1.

– MAV equals the 1995-96 RMV minus 10 percent, plus 3 percent in each subsequent year.

– Assessed value equals the lower of MAV and RMV.

To save money in these difficult economic times, I recommend paying your taxes on time. Take advantage of the 3 percent discount if paid in full by Nov. 16 or a 2 percent discount if you pay two-thirds of the amount on the due date.

It’s wise to mail payments early; if the payment is just one day late, all discounts are lost and you will be charged one month’s interest.

Taxpayers may appeal their RMVs. If you are considering such an appeal, contact one of the appraisers in the county tax assessor’s office. Yamhill County has almost 45,000 accounts, and it is possible that not all values are correct. Contacting our office may save you the time and hassle of an appeal.

A preliminary study for next year indicates a continuing decline in real market value. But even with a further decline, taxpayers will likely see a minimum 3 percent increase in their assessed values next year. Measure 50 did exactly what taxpayers in the state intended by providing predictability in property taxes.

Since Measure 50 was a constitutional amendment, no one can change it except the voters. As your assessor, I must implement the laws passed by the voters and our legislature.

I hope this explanation makes Measure 50 and your tax statement a little more clear. If you still have questions, feel free to contact me at maytubs@co.yamhill.or.us or 503-434-7521.

Guest writer Scott Maytubby was elected Yamhill County Tax Assessor in 2008 after working as an appraiser analyst in the department for 18 years. He moved to Oregon in 1990 to learn how to windsurf and never left. Other hobbies include mountain biking, kayaking and backpacking. He lives in Newberg.