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City of Newport takes note of Court of Appeals prohibition of local governments taxing real estate income.

When a political entity like a city or county charges a property management firm more for a business license because they manage a lot of properties, does that constitute an illegal tax? A circuit court judge in Portland said no. But the State Court of Appeals Friday overruled the lower court by declaring that such a tax escalator based on “income levels” of a real estate firm is not legal and ordered the city of Portland to refund the illegal “overage.”

How this latest ruling might affect Newport’s business license ordinance as applied to local property management firms like Dolphin Realty, Yaquina Bay Properties and Mishey Real Estate remains unclear. The city’s attorney and others will be studying the ruling with an eye to seeing if the city of Portland appeals the case to the State Supreme Court.

But in the meantime, the ruling caught the eye of Newport Finance Director David Marshall who immediately conferred with city officials and announced that the city will drop it’s “business license surcharge” on the property management firms while it revamps its entire business license ordinance. Marshall also said the ruling will certainly add to the discussions with the firms and the city attorney when they meet for a workshop on the issue at city hall September 19th. Dolphin Realty, Yaquina Bay Properties, and Mishey Real Estate have protested the graduated business license fee based on the number of housing or commercial properties they manage, which they view as constituting a graduated tax based on income.

The Newport property management firms contend that they should be subject to no more than the same flat rate business license fee as any other business, with a slight surcharge indexed for the number of employees. They have protested vehemently an additional escalator that was imposed by the city for the number of residential and commercial units they manage on behalf of their client property owners which they claim is at the heart of Friday’s State Court of Appeals ruling. One school of thought suggests that any property that is income property is, in fact, a business, and so should be subject to a business license fee (or tax as some call it), and that it should be paid by the property owner not the property manager.

We’ll see what they all come up with at their September 19th workshop at city hall.

 

 

 

 

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