A one-stop source about accessory dwelling units, multigenerational homes, laneway houses, ADUs, granny flats, in-law units…
(This is Part II of The Death of Detached ADUs in Portland and What To Do About It. Part I, Part III, Part IV, and Part V are also available.)
Action Items for:
1) Adversely impacted homeowners who have completed a detached ADU:
Fill out this form ASAP if you wish to join forces in the appeal process. There is also guidance towards the bottom of this post about appealing this tax issue; it is best for all parties to streamline their appeals.
2) For those who are considering, or were previously considering building an ADU:
The most helpful action that those who are planning to build an ADU can take is to email County Commissioner Deborah Kafoury email@example.com and firstname.lastname@example.org. The County isn’t aware of how damaging these tax policy changes are to grassroots affordable housing options in Portland. Please take a minute to explain the impact of this tax policy change and your decision to build, or not to build, as a result of it. Feel free to blind copy me too (kolpeterson @ gmail.com) so I can track this issue.
You can also email City Commissioners to let them know about the impact of this issue–but bear in mind, this was not a City decision. They are as surprised by this major tax policy change for detached ADUs as the rest of us.
Calculating the Impacts of this ADU Tax Policy Change on Your Property
This issue is complicated for most lay ADU owners to understand. Bear in mind, 80-90% of ADUs are developed by amateur owner/developers. I spent weeks wrapping my head around this tax debacle, and 16 hours writing the last post. This time, to make it simpler, I’ve built this little calculator tool to help homeowners understand what the impacts of this tax policy change are for your property (again, Multnomah County hasn’t done the honors).
Using this calculator, once you enter four values from your recent tax bill, it will spit out the property tax calculations under the common, standard formula that Multnomah County was using until this year, as well as the property tax estimate using the new re-MAV formula. These are approximate estimates, and do not account for the 3%/year increase that the County already applies to properties. So, you should call Multnomah County to get a more authoritative estimate.
The values that you need to use this calculator are listed on your property tax bill, which you can find online by visiting http://www.multcoproptax.org and clicking on “guest”. Type in your address eg. “100 N. Example”. Leave off “St” or “Ave” from the address. Once in, click the “Tax Summary” tab, then click the hyperlink “click to view tax bill”. That’s where the new tax records can be viewed if you don’t have your paper copy handy. Type your values in the yellow boxes.
Or, you can download this Excel version of the spreadsheet to use on your own computer.
Now, on with the rest of this post….
The BIG Update: Statewide Rulemaking
Regarding the treatment of detached ADUs by the County, the State Department of Revenue has recognized that there is disparity occurring between how Multnomah is treating its citizens compared to how other counties in Oregon are treating theirs. Because of this disparity, they are very likely going to do a statewide rule making!
This process will be transparent and will involve public comment. What a concept! Under a rule-making, citizens can feel assured that they will not be blindsided by sneaky tax formula changes made without any public process or notification–changes that damage the lives of so many people. The Department of Revenue will be taking the correct course by stepping in at this point.
When this issue is looked at in the light of day, citizens can feel more confident that a just resolution will be offered. The decision to do a rule-making is not yet definitive, but appears very likely at this point.
But, predictably, rule making is a long process. Resolution will not come quickly. A rule would not be adopted till July, 2016. So, here’s my plea to Multnomah County:
Since Multnomah County appears to be the outlier county in Oregon in terms of how they are treating detached ADUs, it seems like a reasonable approach for Multnomah to forego the tax increases that they could accrue this tax year from the re-MAV approach.
In light of the forthcoming rule, they could simply defer to the State Department of Revenue to make the authoritative call about the appropriate methodology to use.
Multnomah’s tax collectors still have the authority until December 31st to revert to the “improvement” approach, send out corrected tax letters, and wait for the state to adopt a uniform rule.
Citizens across Portland are going to have to spend a lot of time and money appealing their taxes this year. Wouldn’t it make more sense for Multnomah County to use the “improvement” tax method this year and let the State make the call in July?
I have no faith that this perfectly reasonable plea will be granted by Multnomah County, but there it is.:)
Appealing the Property Tax Increase
Below, I’m providing guidance that the Department of Revenue sent to me, to convey to citizens in Multnomah County who were impacted by this issue:
You asked about the ability of the assessor to change tax roll values, and the process for appealing those values. Regardless of whether or not an appeal has been filed, the assessor has the discretionary authority to reduce any value on the tax roll prior to December 31, if he finds reason to do so.
Any property owner or person obligated to pay the tax on the property who believes the real market value or assessed value is overstated on the tax statement can file an appeal to the county’s Board of Property Tax Appeals. The board consists of the chair and two non-office-holding county residents. The chair may be a member of the county governing body, or the governing body may appoint another non-office-holding county resident.
The petition, available at https://multco.us/file/36464/download for Multnomah County, must be filed by December 31. Regarding the ADU question, the property owners can request a reduced real market value if they believe that value is overstated. However the real issue in these cases is the maximum assessed value, which the property owners can address by requesting a reduced assessed value. The property owners must request a specific real market value or assessed value. Although the petition must be filed by December 31, it may be amended anytime, even at the hearing, to change the requested value.
The petitions must be filed with the county clerk, not the county assessor. The clerk’s office will inform the property owners of their hearing dates five to 10 days in advance. Hearings begin the first Monday of February and continue through April 15. Each hearing is usually 15 to 20 minutes.
Either party may appeal the decision of the Board of Property Tax Appeals to the Magistrate Division of the Oregon Tax Court within 30 days of the date the board order is mailed or delivered. To appeal the board’s order, you must file a complaint with the court. The complaint form is available at http://courts.oregon.gov/Tax/docs/MagComplaintForm_Property.pdf. The other party will file an answer to the complaint, and then the court will schedule a case management conference. At the case management conference, the general issue is discussed, but this isn’t the trial. This conference is primarily for setting dates and deadlines for the process. The case management conference is typically held by phone.
The Magistrate Division is intended to be less formal than the Regular Division of the Oregon Tax Court. At either division a person can represent themselves or be represented by an attorney. At the Magistrate Division, a taxpayer can also be represented by a family member; an Oregon real estate broker; an Oregon certified, licensed, or registered appraiser; an Oregon public accountant; or a person with a power of attorney from the party being represented. Either party can appeal the decision of the Magistrate to the Regular Division of the Oregon Tax Court within 60 days of the Magistrate’s final decision.
You also asked if there is an avenue for the correction of the roll for any party that misses a step in the appeals process. Under limited circumstances, a taxpayer may request a review from the Department of Revenue under our supervisory authority. An explanation of those circumstances and the process for requesting a review is available at http://www.oregon.gov/dor/PTD/Pages/IC_303_688.aspx.
In addition, you asked about our rule making process. Any consideration of an administrative rule to address the ADU situation would be part of our spring 2016 process. The process includes:
If a rule is adopted it would likely be effective in July, 2016.
So, that’s the guidance from the Department of Revenue on how to appeal this issue. If this seems confusing or overwhelming, that’s why I suggested joining in to a collective appeal effort rather than doing this by yourself.
Bear in mind that even if the Department of Revenue decides that detached ADUs must be treated as “improvements” moving forward, Multnomah’s effected homeowners from this tax year must still appeal in order to (hopefully) reverse Multnomah’s interpretation on their property taxes.
Let’s move on to the Measure 50 law in question for a moment.
Here’s a look at the Measure 50 regulatory language in question. The County tax directors are justifying their damaging tax policy re-MAV authority on these two sentences from Oregon Administrative Rule (OAR) and the Oregon Revised Statute (ORS) Oregon Adminstrative Rule OAR Section 150-308.156(5)-(B):
Rezoned Property — Calculating Maximum Assessed Value (MAV)
(1) For purposes of determining MAV under ORS 308.142 to 308.166:
(a) “Rezoned” means on or after July 1, 1995, the governmental body that regulates zoning:
(A) Made a change in the zone designation of the property on the zoning map;
(B) Made a change in one or more conditions or restrictions affecting the authorized uses of the property in the zone that is applicable to the property; or
(C) Made any other change in the authorized uses of the property.
As the State Department of Revenue researches the definitions of the word “use” and change in “zone designation” during a rule making process, they will likely come to the same conclusion that everyone else in the state has come to: here has been no change to “use” and there has been no “change in zone designation” that justified re-MAVing.
“REZONING” means when a property is “REZONED”
An example of rezoning is when a property is turned from “residential” (eg. R5) to Multifamily (R1) or, multifamily (R1) to commercial (CG). There has been no rezoning for properties that have added detached ADUs.
And, there has been NO CHANGE IN USE
There is explicit language from Portland’s ADU program guide about how properties with ADUs have no impact on the number of residents that are allowed on the property:
“The total number of residents that can live in both units (the ADU and the primary house) is limited to the total allowed for a household. Under the Zoning Code, a household is defined as follows: Household. One or more persons related by blood, marriage, legal adoption or guardianship, plus not more than 5 additional persons, who live together in one dwelling unit; or one or more handicapped persons as defined in the Fair Housing Amendments Act of 1988, plus not more than 5 additional persons, who live together in one dwelling unit.”
It is still totally unfathomable to me how and why the County tax directors have opted to interpret the law to the detriment of detached ADU owners. Did they talk to anyone about their new interpretation? I can’t imagine that they spent much time researching this issue.
At this point, anything is better than Multnomah’s backwards interpretation of the law. So, it is a victory that the State will step in, effectively rescuing Multnomah citizens from our tax directors’ poor political and regulatory calculations.
The Timing of the Rule Making Process Relative to the SDC Waiver
For many homeowners, this July 2016 rule adoption effectively puts an end to the prospect of taking advantage of Portland’s current ADU SDC waiver, which is set to lapse on July 31st, 2016.
Until there is Department of Revenue assurance around how their properties with detached ADUs will be taxed moving forward, many prospective detached ADU homeowner/developers will opt NOT to proceed with their ADU plans- 2/3rd of Portland’s ADUs are detached and most of those properties are adversely impacted by this change. Some homeowners have already invested $10,000 or more in ADU design plans and permits, and even so, they are putting everything on hold because these re-MAV tax impacts are so damaging to their economic future. And by the time the Department of Revenue rule is definitive (sometime in July, 2016), there won’t be adequate reasonable time remaining for them to take advantage of the current ADU SDC waiver.
For others, the benefit of the ADU SDC waiver is great enough to outweigh the negative repercussions of the tax re-MAV formula, regardless of how the rule making turns out. And to them, I say, proceed with your plans! It’s too early to fully understand what the full impacts of this tax change are on prospective homeowner/developers. I hope that many homeowners will find the ADU investment and return on investment are still compelling enough to proceed, even with with the assumption of re-MAVing still at play.
Alas, I stand disenchanted by those who did not think this decision through carefully enough before making it. But, there’s a glimmer of hope that come July, 2016, detached ADUs in Portland will see a resurgence.
Stay tuned to AccessoryDwellings.org for more thrilling updates about your property taxes.
Pingback: The Death of Detached ADUs in Portland and What To Do About It | Accessory Dwellings
Kol- is this going to turn more and more people towards the Tiny Homes with them trying to circumvent all permits and taxes? It seems to me this just makes way more sense. Damn they just don’t get it! We have to find a way to live.
What do you think this does to ADU’s VS Tiny’s or are they just way to distinct to compare? I appreciate all you do – we all do!
They’re fairly distinct ‘products’ in my mind, but to the extent that they are comparable, this kind of regulatory /financial burden does certainly put one more chip on the tiny house column.
But, other factors, such as finding legal places to actually live in tiny houses, trump the tax increase in the big picture. I like tiny houses, but due to legality/zoning, there are very few of them actually be lived in relative to the vast amount of media exposure they have received. It would be great if the legal barriers were removed–they would then play a much more significant role in housing than they can right now.
Where ADU zoning regulations are reasonable (such as in Portland), ADUs have the capacity to be a fairly effective form of small, alternative housing.
Thanks for the info. Using this spreadsheet I will only have to pay $600/year with this new taxing technique so I’m planning on continuing. Now I just gotta get financing squared away…
great new info Kol. For whatever reason, my taxes went up a reasonable amount, maybe because my ADU was finished in mid-2013. I’m helping my daughter plan hers and things have changed, considerably. Count us in to any effort forward to change things.
That’s right Susan. ADUs completed in 2013 would have seen their taxes raised in 2013 or 2014. Tax increases prior to this year were reasonable (generally a $1,000-$1,500 increase). They’ve changed the tax formula starting this year. This year, the increases have become unreasonable.
What if a Tiny home came as a portable unit that was able to be lifted off a frame and bolted onto a slab/foundation and affixed as an ADU and maintained it’s viability as a Tiny home later. It seems the ease of acquisition from a cost and construction standpoint, the limited size, and the lower tax costs as well as the ability to move it off and remove it from the Tax Rolls would create a hybrid worthy of some very serious considerations.
How do we win this affordable and sustainable housing game in the face of our over zealous banker overlords?
One has to wonder!
Obviously it’s point B that’s very sticky. Allowing an ADU was a change in a restriction to the use of the property. I would consider this more to be use as per the OSSC, i.e., Residential, Assembly, Mercantile, Retail, etc. It’s true, no use changes were made under that system either. It went from residential use in a residential zone to… residential use in a residential zone!
I would consider only one situation to be a “change in authorized use”: short-term rentals, e.g. Airbnb. That’s my own opinion, and I have no idea where that fits in with the regulatory/statutory language.
For Mult Co to claim that *all* ADUs create by *default* a change in authorized use is absurd.
For Mult Co to argue that *some* ADUs are effectively hotels would make a lot more sense to me. And that would be a very easy trail to follow, since Portland now requires that Airbnb hosts apply for a permit. (https://www.portlandoregon.gov/bds/65603) That is, if you construct an ADU and apply for an “Accessory Short-Term Rental” permit, then a new “authorized use” has been allowed, and re-MAV would be triggered. Or something along those lines, with various exceptions for certain situations.
But the fact remains that, even if the ADU is intended for short term rental, the HOUSE remains with the same use. This is the objection, as I understand it: revaluing the entire property as if it were new construction.
The petition mentions a document that explains the type of evidence that result in a successful appeal, but I’ve been unable to find that document (titled: “How
to Appeal Your Property Value”).
Can you recommend the type of evidence that might be useful to submit with the petition or are you able to locate the doc they are referring to?
I’ve had an appraisal done ~1 year that shows my property is work ~100k less than the current RMV, but I’m not sure what else I should include with my petition. I plan to build an ADU in 2016.
Thanks for all your research,
1 year ago*
worth ~100k less**
Steve, I’d recommend that you call the County and seek clarification from them about the impacts of building an ADU on your property.
The Department of Revenue referred to this petition for those who wish to appeal their property tax increase that resulted from re-MAVing their property after building a detached ADU. https://multco.us/file/36464/download
That form requires us to provide evidence of our desired RMV. I’m seeking clarity on what constitutes as evidence for this petition. I’ll try calling the County Tax office.
Thanks very much for so much detailed information. We were considering a garage to ADU conversion in 2017, but can’t until this issue is resolved. One question: you continually refer to “directors of the Multnomah County Division of Assessment, Recording & Taxation.” Who are they? I can’t find any names or reference to “directors” on the county’s website for the assessment office.
I really appreciate all the focused research and advocacy for ADUs and their continued construction in Portland. However, I am concerned that we get too fixated on correcting this particular problem and fail to grapple with the Oregon’s larger and broader need for serious property tax reform- to correct the severe (and in some cases more unjust) inequities in the system.
I’m with Jim–this discussion reveals the tremendous inequities created by Measure 50. But trying to make up lost tax revenue on the backs of a few hundred detached ADU owners is also wrong. People were encouraged to build ADUs by city policy and now face radically higher costs with no warning. It also bugs me that the legal basis for this change is dishonest — allowing detached ADUs is not “rezoning.” But absolutely, let’s begin by passing a “re-MAV-on-sale” clause, like they have in Calif., to slowly erode away the crazy differences between neighborhoods.
It appears that Multnomah County has finally concdeded that there HAS BEEN a tax policy change! http://www.oregonlive.com/front-porch/index.ssf/2015/11/boom_in_granny_flats_causes_un.html
Up till now, they had been (amazingly) denying this fact.
Great story, the county admitting that they had been doing it wrong all along. Well somebody needed to let taxpayers know that. Hopefully this will make filing appeals a success. Will you be posting anything about the meeting last night? Thanks for all your work and insight on this matter.
I think the core legal question will be what is an “authorized use”? The state rule uses this phrase to define “rezoned,” which is what the Constitution says. But “use” isn’t further defined. In Portland, as in most jurisdictions, allowing an additional kind of structure like a detached ADU is not considered a change in “use.” Before and after the change, the use is the same: “Household Living. (See Portland Zoning Code 33.920.110) I’d say the zoning language change allowed a different kind of *development* but did not change the use or the zone. If you want to interpret the word “use” broadly enough, virtually any change to any zoning language done since 1995 would be enough to allow a re-MAV.
Thank you for your work in researching and outlining this issue.
We are (were) in the planning stages of a detached ADu but until this is sorted out I’m not sure we will proceed.
Interesting. So the “much hoped for” rule clarification would come at nearly the exact same time the city ends its SDC moratorium, yes?
An Oregonian editorial just got released about this issue.
“The last couple of weeks have been intensely uncomfortable for the Multnomah County assessor’s office, which has found itself at the center of a controversy involving the taxation of so-called accessory dwelling units, aka granny flats. That’s only fair, we suppose, as “intensely uncomfortable” also describes the experience of opening a property tax statement, as a number of Portland residents did recently, to discover a significant increase that most reasonable people could not have anticipated. These people are entitled to some relief, and the assessor’s office should do everything possible to provide it.”
Yet another major critique of Multnomah’s wayward tax directors: http://www.pamplinmedia.com/pt/10-opinion/280355-154658-county-city-must-get-in-sync-on-adus
Wake up Multnomah tax directors!
Literally NO ONE agrees with what you’ve done or how you did it.
I’m trying to figure out if I did the Xcel worksheet wrong? Or if my taxes will not be as affected as other people’s by this new tax formula? I’ve come up with a difference of $1,177 if my place were taxed using the new re-MAV formula vs the standard common formula. Don’t get me wrong, I would much rather pay the amount figured in the common formula, but at least this doesn’t sound as outrageous as other people’s increases. I estimated the worth of my ADU to be $100,000. That is definitely a guess, as I have no idea how much it will be worth if assessed. It is a garage conversion. Can someone please help me to be sure that I’ve done this math correctly?
This is the tax information that I have for THIS YEAR:
Total RMV Value: 299,350
Assessed Value: 128,120
Property Taxes: 3,029.70
The amount I am getting for the standard common formula is: 4,434.80
The amount I am getting for the re-MAV formula is: 5,611.27
Could there be anything that I am not understanding because I am a new owner of this property? I purchased the property in August 2015.
I didn’t run your numbers, but you’re probably right. In some cases, people’s taxes would barely change at all between the two formulas. In many cases, people get a $1-2K increase like you calculated, and then some people get totally screwed with a $3K increase, a $4K increase, a $5K increase, or worse.
There’s strange dynamics at play regarding how your property has been been assessed, that make the impact ‘dynamic’ like this for each property. For the vast majority of those planning to built an ADU however, the outcome is BAD–it’s just a question of how BAD.
So, in your case, you may say to yourself, “Ok, so my taxes go up for $1,777/year. That’s another $120/month for the rest of my life. It sucks, and means I’ll have to charge more for rent, but I can deal with that.” If that’s how you’re thinking about it, then, yes, PROCEED with your plans.
Think of the amount of financial damage that it does to you as an indicator of how mad you should be. So, you should “very mad”, but not “completely outraged”. 🙂 And tell your commissioner about it! Because just like everyone else who has commented on the original post, you’re getting screwed by this sneaky change.
Thank you for your response. I will write a letter to the County Commissioner you listed above addressing my frustration – although my case isn’t quite as bad as others’ cases. It is still undesirable.
Did anyone attend the Nov 12 council hearing on the ADU rule changes and tax fiasco? I was unable to attend and can’t find any record, minutes, blog post, or anything online. What happened? Thanks.
More back story from Portland Tribune: http://pamplinmedia.com/pt/9-news/282031-158477-county-may-backpedal-on-its-new-property-tax-policy-for-granny-flats
Momentum growing against county tax decision…keep the pressure on the commissioners and other politicians
An article that the county commissioner sent me:
I have not seen comment as of yet but for those in process of converting a “existing basement” to a ADU will we see the same large tax increase? The County transparency on this matter does not offer much guidance.
I’d like to add that Multnomah County is not the only one in Oregon unjustly raising the tax. Last year I completed a 750sqft SDU in Eugene, Lane county. My tax bill went from $1,689 in 2014 to $5,892 in 2015. The resulting tax impact and increase in tax bill of over 4,000 annually would have effected my decision to build one if i knew of it. The impact was tremendous, especially considering that Eugene’s real estate market is not nearly as robust as Portland’s. I am looking for resolution to this issue and would be interested to learn whether there is action I can take as well as part of a group or individually.
Pingback: The Death of Detached ADUs in Portland and What To Do About (Part IV) | Accessory Dwellings
Pingback: The Death of Detached ADUs in Portland and What To Do About (Part III) | Accessory Dwellings
Pingback: The Second Coming of Detached ADUs in Portland | Accessory Dwellings
I just received a 37% property tax increase after building a 200 square foot detached habitable bedroom; not an ADU. I saw a new section in Portland Maps citing “segments” on my property I’d not seen in previous years; liked I have a 254 square foot carport. In reality the carport in 192 square feet and didn’t require a permit. I feel kind of lost in all of this mess and wonder if this kind of increase fits in with the above concerns? I could see it if I built an ADU or 400 square feet with a second sink, but I didn’t. Help!
Sally, how much did you taxes go up in $$ (% doesn’t really matter)? If it went up by $500-$1K or so, that’s approximately correct for what you added.
Hi, it went up just about $1,000. You think that’s accurate then? I don’t want to go through a big appeal for naught. I already kind of had a melt down with them on the phone!
Yes, that’s approximately accurate. You may be able to get it lowered by a few hundred dollars at most through an appeal. Don’t hesitate to appeal if your certain that they overassessed the contributory value of the improvements.
They’re saying your improvements added about $80K of value to the property.
$80K? That sounds high to me. I had it appraised after my build in 2015 and it about $50K less than this new assessment. Could the value actually go up that much in less than 1 year? I don’t know how to be certain; do you have ideas of how to be more certain rather than me just being angry? I didn’t let the assessor my my property.
I looked up contributory value. I find it hard to believe $80K. Can they try to assess income I might generate through Airbnb?I did register as a short term rental.
If you can successfully claim that your improvement is not worth as much as the County claimed, then you can potentially reduce your taxes a bit.
In your best case scenario, based on what you’ve said, you may be able reduce your taxes by $300/year (if the value of the improvement was actually only $50K, for example).
Just call the county, ask to speak with an ‘appraiser on duty’ and describe the improvements you’ve made, and see whether they feel that have a viable case to make.
Or, if $300/year doesn’t seem worth the effort to you, that’s your call.
You’re great! Wow, $300 a year less would be great. I hesitate to call and ask for an appraiser on duty, but heck what have I got to lose. I’m also in contact with someone who does 100s of appeals yearly so at least I’m getting some information; unlike when I called the county tax office and then chatted online as well, where I got nothing but you can appeal if you don’t agree and we can assess as much as we want! I’ll let you know if I get anywhere. Thank you so much for your time and expertise. Sally
Well, now we’re getting somewhere. I called and it took some doing but I got through to the appraiser on duty. They assumed my detached habitable bedroom was an adu regardless of permits so they are willing to come back out and also look at the appraisal I had done recently which included the studio. Wow, they assume alot. The guy was polite, but they really don’t care about permits; they just assume alot if they don’t get onto the property. I explained how intrusive and subjective this is and he agreed to try to have someone schedule an appt. with me this time instead of just showing up and making assumptions. I’ll let you know what happens, but at this point it looks like my taxes might be lowered, at least somewhat! Thank you so much.
Yeah, that’s good news.
Just be aware that,as you invite them on to your property, they have the right to also add in other improvements that were made to your property since the last in-person assessment.
If there was other non-permitted improvements, those improvements would be added to your taxable assessed value. The value of those could exceed the hypothetical $30K error they may have made when assessing your detached bedroom. ie. There’s a chance this could actually backfire on you.
But, at least it will be a more accurate tax assessment, which is probably the right way to think about it, however the chips may fall.