Item C: Meas.37/Goal 5 Actions - Laserfiche WebLink

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There are two limitations that are worth noting with respect to creation of a possible tax on increases in value for real property: 1) Measure 5's $10 limitation on "taxes on property" for general government purposes; and 2) the preemption in ORS 306.815 on "real estate transfer taxes." As noted below, these limitations are obstacles to how the council might structure a "givings" tax, but should not preclude the council from adopting some form of a "givings" tax. Measure 5 (Article XI, section 1 lb of the Oregon Constitution) limits the amount of"property tax" that general governments (city, county, special districts) can impose on property to $10 per $1,000 of assessed value. Measure 5 contains its own definition of"property tax" for purposes of that limitation: a "property tax" includes both 1) a tax levied against the property itself (like the annual ad valorem property tax), and 2) a tax imposed on the property owner as a direct consequence of ownership of the real property. However, a charge that is imposed upon the owner for some other reason, and is not imposed as a "direct consequence" of ownership of the property, is not covered by the $10 limit. Thus, for example, a monthly stormwater fee that is imposed only on owners of developed property is not imposed on the property owner as a direct consequence of ownership, but instead, as a direct consequence of the property being developed. ORS 306.815 preempts the council's authority to adopt a "real estate transfer tax." More specifically, that provision provides that a city cannot impose "a tax or fee upon the transfer of a fee estate in real property, or measured by the consideration paid or received upon transfer of a fee state in real property." Any tax adopted by the council to obtain a portion of an increase in fair market value caused by governmental actions will need to be drafted so that it is not covered by this statutory preemption. One final note in terms of limitations, although not a legal limitation: depending on the type of tax, there may be some significant administrative costs for the City in implementing and collecting a tax. For example, one idea being discussed at the state level is some type of "capital gains" tax (on the increase in value of real property attributable to actions by the government) that is collected as part of the state income tax; the tax would be due with the first tax statement filed after the real property transfers. If the City were to craft something similar, it would need to develop an administrative structure to collect and enforce the tax. If the council decides that the City should pursue development of some type of"givings" tax, there are several other questions that the council should discuss: 1. Should the tax apply only where property is vacant, or to all property whether developed or undeveloped? 2. To whom should the tax apply: all property owners; or owners of only certain types or classes of property (for example, exclude low income, non-profit, etc)? 3. To what does the tax apply: the value of only the bare or unimproved land; or the land plus all improvements? 4. When and how would such a tax be imposed and collected: annually; only after property changes hands; or annually but deferred until transfer of the property? 5. Whether, to what extent, and how the tax should account for increases in value due to factors other than regulation (e.g., inflation). In addition, once these questions are answered, additional questions would need to be discussed related to how the funds from a "givings" tax would be spent, including criteria about priorities for spending the new funds. L:\CMO\2005 Council Agendas\M050613\S050613C.doc