Grab a cup of coffee to keep yourself awake, since we’re talking about property taxes today. Those of you who own homes in Oregon just got that dreaded envelope in the mail telling you how much you owe for the year, for which I am profoundly sorry. It’s not my fault though. That’s just life, and at least we don’t pay sales tax.
There are a couple of topics I’d like to touch on regarding property taxes. First, I’m going to do my level best to explain how they’re calculated, which in true government fashion is convoluted and full of acronyms. Then, I’ll talk about the difference in what you’re paying when you make it over here to the west side (well, most of the west side). We all know, anecdotally, that property taxes in Washington or Clackamas County are lower than Multnomah County. I’ll add some science to it and show just how much lower. Onward!
Disclaimers first: I am not a tax professional, nor do I pretend to be. This is essentially a layman’s understanding, along with some data I crunched. If you want real tax advice, go hire one of those people.
Property taxes in Oregon are calculated from your home’s assessed value. The assessed value is the lower of two numbers: the Real Market Value (RMV) and the Maximum Assessed Value (MAV). The RMV is whatever number the county assessor thinks your house and land are worth each year, and what sorcery they use to determine this is unknown to me. The MAV, by law, cannot rise higher than 3% each year.
I’ll use my own tax bill to illustrate what that looks like in real life. The county wizard says my property’s RMV is $649,370, which is actually lower than last year’s number. Hooray, lower taxes for me? Of course not. My net assessed value (which is for all intents and purposes the same as the MAV) is $367,190, so the calculation for taxes is off of that number. That assessed value rose 3% from last year, because that’s what the law allows.
The reason there is such a large gap between the RMV and the MAV has to do with when the law was enacted that capped this to 3%. Measures 5 and 50 were the big changes that Oregon made to the tax system back in the 1990s. Measure 50, which went into effect in 1997, rolled every property’s market value back to the 1995 level, minus 10%. It is from that number that the annual 3% increase started, and for the majority of houses that starting cost basis is even lower (I could explain, but I’m not going to). The actual, real value of property has outpaced 3% growth quite a bunch of those years, hence the large gap between RMV and MAV.
There are ways for property taxes to increase more than 3% each year, and it does seem to happen more often than not. First, your home’s assessed value can rise if you do a bunch of things to improve the value and the county knows about it (subtle hint). Also, voter-approved levies (think school bonds and the like) are exempt from the caps. 17% of my total tax bill is going to levies like this, with the biggest chunk going toward the Beaverton School District. They have built a bunch of fancy new schools, at least, and levies by law have to be temporary. There’s also the concept of compression, which is what happens when each taxing district tries to tax you at higher than their legally-allowed rates. Education taxes are legally capped at $5 per $1000 in market value, while non-education is $10 (not counting those levies, of course). If they need/want/try to tax you higher than those amounts, your bill gets compressed (meaning they can’t charge it). If the following year there’s no compression, the difference between bills might appear higher. Sorry, I know that was a lot to take in.
So how much cheaper is it to live in Washington or Clackamas County? I looked at three months of transactions that occurred over this past summer (about 5,000 sales), and compared what each house’s prior year’s tax bill was. Here’s how those compare:
On average, homes that were sold in Washington County had an effective property tax rate 20% lower than those in Multnomah County. The houses themselves cost about 5% more, but they were also a bit bigger. Clackamas County homes were 18% lower, but considerably more expensive (hello Lake Oswego, where the average sale price was over $1 million).
Reasons why? Back when Measures 5 and 50 was passed, every county picked a permanent tax rate, which can’t be changed. Multnomah County’s permanent rate, as measured now, is about 13% higher than the Washington or Clackamas County rate. Then there’s the assortment of bonds and levies that will cause temporary changes, and all of the other deep-in-the-math reasons there can be differences. Voila, higher taxes in Multnomah County.
By the way, if you think we’re getting taxed to death here in Oregon, just know that it could be worse. Nationally, Oregon is about middle-of-the-pack on effective property tax rates– 24th, according to this study. It sure beats Texas.
