Item A: Measure 37 Givings Tax - Laserfiche WebLink

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ATTACHMENT D OPTION 4 – Tax on “Capital Gains” Description: The first three options each would impose a tax on increases in fair market value resulting from specific, identifiable and discrete events: an upzoning, a public improvement, or a legislative change to the Metro Plan, refinement plan or land use code. Each of those options also likely would be prospective only – i.e., the tax would be imposed only for future upzonings, public improvements and legislative amendments. (In theory, the tax could be imposed for past upzonings, public improvements and legislative amendments, but the administrative costs and problems would increase significantly.) all Option 4 would impose a tax on increases in fair market value during the time period that someone owns a piece of real property except for (a) increases in value that result from the owner’s investment (for example, a remodel), and (b) inflation as measured by the CPI or some other index. In theory, the tax (1) could be imposed (and collected) on an annual basis, or alternatively, (2) could become due upon some triggering event, such as the sale of the property or the issuance of a building permit to undertake new construction or a remodel on the property. If the council chose the first alternative (annual basis), each year, the City would have to calculate and all owners of real property (with increased value) would have to pay the tax. If the council chose the second alternative, the tax would be calculated only upon the triggering event. The tax would operate similar to a capital gains tax. First, a difference in value would be calculated by comparing the value from one year to the next (for the first alternative), or the value between triggering events (for the second alternative). Second, “investments” by the owner (such as a remodel) would be subtracted from that difference (along with inflation any other factors chosen by the council), and the remainder would be taxed at a rate set by council. Is the fee/tax legally permissible, or somehow preempted (by statute or constitution)? As noted previously, the City’s home-rule powers authorize the council to adopt any type of fee or charge that is not preempted by federal or state law and that does not violate the U.S. or Oregon Constitutions. The tax limitation created by Measure 5 (Article XI, section 11b of the Oregon Constitution), and the preemption on real estate transfer taxes (ORS 308.615) create some limits on the City’s ability to adopt a “givings” tax that is structured like a capital gains type tax. Measure 5 limits the amount of “property tax” that governments can impose. 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 not as a “direct consequence” of ownership of the property, is not covered by Measure 5’s limits. 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 begin developed. Here, if the council chose to impose this tax for L:\CMO\2006 Council Agendas\M060125\S060125A.doc