Commercial property is primarily income producing or supports institutional objectives. It may be owned by the occupant as the location for their busineess, or by an investor or institiution. Typical examples include apartment buildings, mobile home parks offering leased sites, retail stores, office buildings, warehouses, most government facilities, and hospitals. The category also is defined by what is not: principally residential properties with four or fewer units, farm and forest property, and industrial property (property to be used to manufacture a product).
Three primary approaches are used to value commercial property: the income approach, in which either a single year of income, or multiple years of income plus a reversionary interest, are capitalized; the cost approach, which entails determining the reproduction or replacement cost, subtracting any accrued depreciation, and adding estimated land value plus entrepreneurial profit; the sales comparison approach, in which the subject property is compared with similar properties that have sold recently, applying appropriate units of comparison, and making adjustments to the sales prices of the comparable properties based on the elements of comparison.The Marion County Assessor currently uses either the income or cost approach for most commercial properties, using models designed to predict actual selling prices observed in the market. This results in the estimate of Real Market Value (RMV) shown on tax statements. The Assessor also tracks other values assigned to properties per the regulations of statewide Measures 5 and 50, determines changes to Maximum Assessed Value (a Measure 50 mandated value) based on alterations to the property, and determines the value of exemptions for which the owner or a tenant have applied.
This is a common source of misunderstanding, especially in recessionary times. The Assessor is required by Oregon statute and legal precedent to estimate Real Market Value (RMV) based on the real estate only (defined as land and the appurtenances attached to the land). Value added or subtracted by business entrepreneurship is not taxed. During difficult economic times some loss of RMV is typical (although not universally certain). However, the decline may not be proportional to the decline in business or rental income experienced by individual commercial property owners. One reason is that RMV is based on average or typical experience. Suppose there are two office buildings, side by side, absolutely identical. One is owned by a business that is doing well. The neighboring business is doing poorly. The two would probably have very different business values, but the same real estate value. This is because, if both buildings were empty, a buyer (or renter) would be expected to pay the same for either one. Another reason a commercial or other property may not experience a decline in taxes during a recession is that Oregon’s tax system has created a gap for most properties between RMV (typically the higher figure) and Assessed Value (AV). Until RMV falls to the point where it either begins to “compress” tax rates (as provided by Measure 5) or falls below Maximum Assessed Value (as provided by Measure 50), there is no tax reduction. Furthermore, as long as a gap exists, Measure 50 actually allows taxes to go up 3% annually! This provides a degree of revenue certainty for schools and government agencies such as police and fire, but it can seem unfair to struggling business owners or property investors. Other possible reasons that RMV may not fall as much as expected during a recession include a decline in capitalization (“cap”) rates (the expected earnings from real estate) due to a general decline in interest rates, reappraisal by the Assessor of properties that have not been reappraised for a long time, or changes to the property.
During difficult economic times some loss of RMV is typical (although not universally certain). However, the decline may not be proportional to the decline in business or rental income experienced by individual commercial property owners. One reason is that RMV is based on average or typical experience. Suppose there are two office buildings, side by side, absolutely identical. One is owned by a business that is doing well. The neighboring business is doing poorly. The two would probably have very different business values, but the same real estate value. This is because, if both buildings were empty, a buyer (or renter) would be expected to pay the same for either one.
Another reason a commercial or other property may not experience a decline in taxes during a recession is that Oregon’s tax system has created a gap for most properties between RMV (typically the higher figure) and Assessed Value (AV). Until RMV falls to the point where it either begins to “compress” tax rates (as provided by Measure 5) or falls below Maximum Assessed Value (as provided by Measure 50), there is no tax reduction. Furthermore, as long as a gap exists, Measure 50 actually allows taxes to go up 3% annually! This provides a degree of revenue certainty for schools and government agencies such as police and fire, but it can seem unfair to struggling business owners or property investors.
Other possible reasons that RMV may not fall as much as expected during a recession include a decline in capitalization (“cap”) rates (the expected earnings from real estate) due to a general decline in interest rates, reappraisal by the Assessor of properties that have not been reappraised for a long time, or changes to the property.
In Oregon, business-related personal property is taxed under a separate set of regulations from those governing real property taxation. Please see the Business Personal Property section of this website for more details.
You may file an appeal or a request for review. The links for either are in the left hand blue column.
The Assessor is required to estimate Real Market Value that reflects as closely as possible actual selling prices in true market transactions. But accomplishing this mission requires comprehensive and accurate data. If you are involved in commercial property, here are ways you can help: Accurately report the selling price and properties included in the transaction when you record a purchase. If you are a buyer or seller and receive a sales verification form in the mail, or a call from an appraiser, answer their questions truthfully and as fully as possible. They are trying to determine if the reported selling price is accurate, what was and was not included in the transaction, whether it was a true market transaction, what lessons it may hold for valuing other properties, and whether current valuation models are accurately predicting sales prices. If you receive an Income & Expense Questionnaire in the mail, please take the time to fill it out, and by all means call if you don’t understand one or more of the questions. These surveys are designed to determine how commercial properties are actually performing. The Assessor needs to know what rents are being charged, and what vacancy, credit loss, and other expenses are encountered by commercial property owners in order to create an accurate valuation model. You may be called or personally interviewed by an appraiser who wants to know about your experiences in the market or as a property manager. Please try to help.Remember, the Assessor does not use the information collected in these studies to specifically value your individual property. Instead, the data is used to create a model to fairly value all property with similar characteristics.
In Oregon there are nearly 120 property tax exemption programs. In addition to most publicly owned (e.g., government) property, exemptions are available for tenants and owners engaged in nonprofit religious, educational, and charitable purposes. But a key point to understand is that it is necessary to apply, because exemptions are not automatic (except in cases of government ownership). The subject of exemptions is too complicated for this FAQ discussion, but you can research available exemptions at the Oregon Department of Revenue website