Hynix could get whopping refund on tax.

Byline: SHERRI BURI McDONALD The Register-Guard

Hynix is in line to get a big property-tax refund in an appeal it quietly filed in Oregon Tax Court in December challenging the value the assessor put on its computer-chip plant in west Eugene.

The exact amount of the refund was not available Friday, but it could be about $1 million - and theoretically, though not likely, up to $1.9 million - based on figures from Lane County tax assessor Jim Gangle.

Hynix's tax revenues are divvied up among scores of taxing districts, the largest being the city of Eugene, the Eugene School District and Lane County. Those same districts will have to pay the refund. For example, Eugene would pay for 25 percent of the refund, the Eugene School District 19 percent and Lane County almost 10 percent.

The tax appeal, not widely known until this week, has surprised and irked some elected officials.

Eugene city councilors said that when they approved a special $2.2 million property tax break for Hynix earlier this year, they were unaware the company was contesting last year's tax bill. Councilor Gary Rayor, who supported the tax break in March, said he wouldn't have voted for it had he known about Hynix's appeal.

Having to now hand Hynix a refund after voluntarily giving the company a tax break is galling, some councilors said.

It's unclear when the taxing districts will have to pay up. Hynix and the Lane County assessor and the Oregon Department of Revenue, the defendants named in Hynix's Dec. 28 complaint, reached an agreement on the appeal earlier this month, but it will be at least a month before it becomes final, Gangle said. Until then, the state and county won't reveal details of the agreement.

Hynix officials declined to comment for this article.

Taxing districts won't have to write a check from their general funds. The refund will be paid from taxes the county has collected but not yet distributed to taxing districts.

The Department of Revenue, which performs property valuation work on large industrial complexes statewide, put the real market value of Hynix's plant at $752 million. In its complaint, the company said the value should be $500 million.

If assessors accepted Hynix's $500 million real market value, the company's tax bill last year would have been only $3.8 million, not the $5.6 million Hynix paid in November.

Word of a possible Hynix refund rippled through city and county government this week, raising the specter of wider budget shortfalls and deeper program cuts.

Eugene, for instance, already faces a $375,000 budget shortfall in the fiscal year that starts July 1.

The prospect of a Hynix refund irked some city councilors who in March granted the company a special tax break that waived the company of $2.2 million in property taxes over the next three years on its $156 million upgrade of the factory.

Had the council known in March that Hynix was appealing its taxes, some councilors said they probably wouldn't have approved the tax break. Mayor Jim Torrey broke a 4-4 tie, casting the deciding vote in favor of the tax break.

"I would have considered it (Hynix's tax break request) after some resolution on the Oregon Tax Court," Councilor Rayor said.

Other councilors said they regretted not having the chance to add conditions to the tax-break agreement with Hynix, requiring the company, for example, to drop its appeal, or changing the value of the waiver based on the outcome of the appeal.

"We ought to make our decision based on all the significant facts," Councilor David Kelly said. "An appeal that could have hundreds of thousands of dollars of impact to the city is a significant fact. It would be to my mind unconscionable if some city staff knew that at the time and didn't tell the council and the mayor."

Planning and Development Division staff knew of Hynix's tax appeal but didn't mention it in council briefings, said Tom Coyle, executive director of the Eugene Planning and Development Division.

"In retrospect, it would have been a good decision to forward that (information) to the council," Coyle said.

An early assessment of the potential impact of the appeal on city coffers suggested it was less than $100,000, Coyle said. Now, it's definitely more than that, Gangle said.

"Going into the appeal process, it wasn't expected that the appeal would have the magnitude that it did," Gangle said.

It's not uncommon for a large manufacturer to challenge its property tax assessment.

"We have seen a number of industrial account appeals, especially in high-tech," said Eric Smith, a supervisor in the Department of Revenue's valuation section. "When you have a significant downturn in the economy, they generally like us to reconsider what their property values are."

Shut-downs at high-tech factories also raise valuation questions, he said.

Department of Revenue assessors evaluated the value of Hynix's land and equipment as of January 1, 2001, Smith said. Assessors look at the same factors that potential buyers would look at to determine how much an industrial property might fetch, he said. Chip factories are less valuable in a slow chip market than in a thriving one. A shuttered plant probably would sell for less than a fully operating plant.

Hynix shut its Eugene plant from July 2001 to January 2002 while it upgraded to produce a more advanced chip. The company did not submit detailed information with its complaint to Tax Court explaining why it felt the $752 million assessment value was too high. The complaint alleged that the "Department of Revenue has failed to adequately quantify functional and economic obsolescence" at the plant.

Property tax is figured on the lesser of two values: the real market value (what a property would sell for at a given time) or its maximum assessed value (a number calculated using formulas spelled out in Measure 50.) In Hynix's case, the real market value is lower than the assessed value.