We’re starting to receive calls from farmers who have been visited by representatives of the Oregon Department of Revenue (DOR) asking to look at their agricultural buildings.  If this happens to you – we want to hear from you.

Property taxation in Oregon is predominantly a function of county government.  DOR’s role in Oregon’s property taxation system is primarily a supervisory role, providing assistance and oversight to county tax departments.

But like most programs, there are exceptions to DOR’s jurisdictional authority in Oregon’s property tax system.  

The Origins of SAIP & The Unintended Expansion of DOR’s Role Onto Farmland

One of those exceptions is state-appraised industrial property (SAIP).  In 1989, the Oregon Legislature authorized DOR to appraise all industrial property in Oregon with a value in excess of $1 million. Once DOR conducted the appraisal, they were directed to report the assessed value to the county, which then taxed the property.

The purpose for directing DOR to replace the county assessor and conduct the appraisal of high value industrial property was to establish a single valuation process for higher value industrial properties, to insure that the process and method for valuing properties with large property tax assessments did not vary from county to county.  That made sense at the time.

Unfortunately, it’s been 36 years since the 1989 legislation was approved, and in that time, the DOR valuation threshold has not changed, despite a significant increase in property values during that period.  In other words, a $1 million industrial property in 1989 is more likely a multi-million dollar property today, given that industrial real estate values have significantly outpaced the consumer price index.

Even if we tied the valuation to the CPI, a $1 million industrial property in 1989 is worth $2.6 million today. But unfortunately, the SAIP limits have never changed.

What this means is that all of a sudden DOR is valuing properties that the legislature never intended them to value. Which brings us to today’s problem.

DOR’s Expanding Reach: When Working Farms Start Being Treated Like Factories

We’ve begun to get calls from farmers who are having their agricultural buildings evaluated by DOR as industrial buildings.

Applying common sense, you wouldn’t think that an ag building would be considered an “industrial” building – but the legislature never bothered to define what kinds of buildings constitute “industrial” buildings. 

This led DOR to create it’s own definition. Under the DOR definition, an “industrial” building is “a facility or property engaged in manufacturing or processing,”  while “processing” is defined as “the treatment of materials to produce a new product.” 

Any farm that is preparing farm products on-site could potentially fall into this definition. As the agricultural economy has changed and forced more farmers to integrate on-farm, on-farm preparation in large buildings is becoming increasingly more common.  

So it isn’t surprising that DOR is now starting to look at larger ag operations.  Depending on the size of the farm operation, the combined value of buildings and other property improvements can easily exceed $1 million, meaning that if any part of the property is being used for “the treatment of materials to produce a new product,” the farm property could be appraised by DOR as SAIP. 

We don’t think this is what the legislature ever intended.

Oregon’s Farmers Deserve Better: Time for Legislative Clarity

For a farmer caught up in this situation, it is nearly certain that your property taxes could go up considerably, unless you can successfully appeal the DOR’s decision. DOR values SAIP much differently than your county tax assessor values your ag buildings for farm use, so the market value could rise significantly.

The OPOA Legal Center has a current case with this issue at the Oregon Tax Court.  We’re hoping to set a precedent to nip this problem in the bud before it gets worse. 

In the meantime, the Oregon legislature should act soon and raise the value of SAIP to keep up with the increase in property values over the last 36 years.  No one ever intended DOR’s authority to extend as far as it has.

The opinions expressed in this post are those of the author and do not represent the opinions or positions of any party represented by the OPOA Legal Center on any particular matter.