Oregon law creates a significant number of tax carve outs and special assessments; each with its own set of rules and qualifications. If your seller knows of any special tax assessments related to the property, the transaction should include Form 2.22 Special Tax Assessment Addendum. In this form, the parties can disclose when the property is subject to one of eight specific tax assessments, or they can fill in the “other” section. Once special assessments are selected and the parties mutually accept the agreement, the Seller will have a period of time to provide documents that demonstrate the special assessment exists and that seller is in compliance with all necessary requirements to maintain the assessment [e.g. a letter from the assessors office stating that the property is presently subject to a special tax assessment].
If the Seller fails to give the needed proof, the Buyer can send a notice of default. If the Seller is ever disqualified for the tax assessment during the transaction, the Seller must inform the Buyer and the Buyer can terminate the transaction at any time until closing.
Some Possible Tax Assessments:
Exclusive Farm Use
Land (or portions of the land) within an exclusive farm use zone and profitably used to grow, breed, train, or prepare various farm and ranch products [see ORS 308A.056]. Land will receive a special assessed taxation rates based on the soil classes of the land; generally taxing the land at a lower value than would otherwise be applied to the property. If the property is disqualified [e.g. the Buyer stops farming the land], up to 10 years of back taxes can suddenly apply to the property. If the property is in the urban growth boundary, only five years of back taxes can be applied.
Farm or Forest Homesite
10+ acre farms or forest spaces with a dwelling used in conjunction with the farm or forest management can qualify for a farm or forest homesite special assessment. The assessment will treat the homesite value as the market value of bare land [plus a small additional amount]. Disqualification from the homesite does not necessarily result in additional back taxes, unless the owner establishes a non-farm dwelling in an exclusive farm use zone.
Riparian Habitat Exemption
If the property has riparian land [land within 100 feet from a waterway] outside the urban growth boundary, it may be eligible for riparian lands tax incentive programs. The land must be zoned agriculture or forest use, wide enough to support stream stability, erosion control, or other conservation functions, must have a specific level of riparian vegetation or vegetation restoration potential, and must have a conservation plan. The usage of the land will be restricted while it is subject to the special assessment. While subject to the special assessment, parts of the property are exempt from ad valorem taxation. If disqualified, back taxes can be applied for the past five years.
Conservation Easement
If the land has a perpetual, recorded conservation easement and shows that it is or can be “exclusively for conservation” under IRS code section 170(h), it can apply for a special assessment. As long as the land is managed in accordance with the conservation easement terms, the land will be assessed at the lower forest-land or farm land special assessed value. If disqualified, conservation easement land within exclusive farm zones may be subject to 10 years of back taxes, and the rest will be subject to five years of back taxes.
Nonexclusive Farm Use
Similar to the exclusive farm use assessment, except the property is not in an exclusive farm use zone, and has been used for farm/ranch profit for at least the last two years. Disqualification will only apply five years of back-taxes.