The Hynix factory in west Eugene has been empty for five years, yet executives with the South Korean chipmaker have been busy in that time trying to chip away at the plant’s property tax bill.
In its latest effort, Hynix seeks to cut the value the Lane County assessor’s office assigned the plant in 2012 and this year by about $10 million annually, potentially saving Hynix more than $312,000 in property taxes during that period.
The assessor’s office is contesting the move in Oregon Tax Court.
An analysis by The Register-Guard shows that Hynix has also used appeals to reduce the plant’s assessed value for five prior tax years dating back to 1997, the company’s first full year of owning the Willow Creek Circle property. Over that time, the appeals have cut the plant’s value for tax purposes by at least $404 million and generated $5.2 million in refunds for Hynix, plus resulted in lower tax bills in subsequent years based on the reduced valuations.
The pending case highlights the rapid downward trajectory of a factory that over a period of years was by far Lane County’s single biggest property taxpayer.
The Hynix plant was the most prominent symbol of Lane County’s economic boom prior to the Great Recession, with its tax money funding local governments that are now hurting due to withdrawal of the Hynix cash.
At its heyday 10 years ago, the Hynix plant paid nearly $6 million annually toward local governments, including more than $2.4 million toward the city of Eugene’s operating budget. In the current budget year, based on a valuation that the county is appealing, the figure is $434,000 toward all local governments, including an estimated $221,000 to the city of Eugene’s operating budget.
Hynix claims the plant last year was worth slightly more than $27 million , based on a new appraisal. That’s just 2.7 percent of its peak $996 million market value in 1999, the plant’s second year of operation. The county maintains the empty facility is now worth $37 million.
The plant’s assessed value — its taxable value — and its so-called real market value — its estimated market worth — have remained roughly equal for more than a decade.
Hynix appeals have not generated the lion’s share of the value reduction. The sides are in broad agreement that the plant is worth just a fraction of its former value. Since the shutdown, the chipmaker has removed much of the once state-of-the-art equipment that accounted for much of the plant’s worth at its peak. The company has been unable to find a buyer for the massive complex.
County says value too low
The county under then-Assessor Anette Spickard initially had given the value of the property at nearly $38 million as of January 2012, but Hynix contested that value before the Lane County Board of Property Tax Appeals in late 2012. The fair market value was $27.1 million, based on a valuation carried out for Hynix by a licensed appraiser, Hynix argued in a petition to the board.
The three-member board accepted most of Hynix’s argument and set the value at $27.9 million in March following an executive or closed meeting. The board held the non-public session under a clause in state law that allows such closed meetings to discuss confidential information about how industrial plants are valued.
Lane County Assessor Mike Cowles said the assessor’s office decided to appeal to Oregon Tax Court after concluding the board “did not have an adequate opportunity to review the evidence that was presented.”
Cowles attended the Lane County Board of Property Tax Appeals hearing as the office’s senior sales data analyst. County commissioners appointed him assessor in May when Spickard resigned to take a job with the city of Springfield.
Property tax hearings are generally limited to 15 minutes due to staffing and deadlines, Cowles said, and neither side had seen each other’s evidence prior to the hearing.
“This was a very complex case with many components,” Cowles said.
Spickard filed the appeal to Oregon Tax Court in April, shortly before she left the job, and argued the board’s order “is wrong because the value of this property is higher.” Hynix has asked the court to retain the board’s valuation.
Cowles declined to comment further, citing the confidentiality surrounding the case. David Perkins, an attorney representing Hynix, also declined comment. They did acknowledge the county and Hynix are in discussions to end the dispute.
A hearing in Oregon Tax Court is scheduled for Feb. 12.
County issues refund
In the interim, the assessor’s office has refunded Hynix $155,000 from the 2012 taxes it paid, to prevent the county from having to pay a state-mandated 12 percent annual interest on the refund if it were to lose the appeal. The county has previously paid over a period of years a total of $688,000 in refund interest on property tax appeals that Hynix won, the newspaper’s analysis shows.
For the current tax year, the assessor’s office has billed Hynix the lower, disputed amount pending the outcome of the tax case. Those bills went out last month and are due to be paid this month.
From its first year, 1997, to 2011, Hynix paid a total of $51.5 million in property taxes on the plant, the analysis showed.
Hynix has several other tax accounts for land and equipment and paid taxes on those, but the plant has been assessed the bulk of the chipmaker’s property taxes. For example, the company paid more than $2 million on a personal property account between 1997 and 2012, according to information from the assessor’s office.
The assessor’s office estimated the chipmaker was waived from paying an additional $68.3 million during the plant’s life due to the state’s enterprise zone program, under which the city approved abatements for three years for the initial factory construction and a string of equipment upgrades over the years.
Little tax in early years
Hynix spent hundreds of millions of dollars building and equipping the plant and paid virtually no property taxes in its early years. In the first three years of operation, the company paid less than $100,000 in property taxes. Without the enterprise zone exemption, Hynix would have paid an estimated $40 million in taxes during that period.
Hynix continued to receive tax exemptions until it ceased operation in August 2008 and more than 1,000 employees lost their jobs. While the initial tax waiver expired after three years, the chipmaker received additional three-year exemptions for new investments in plant equipment and upgrades as long as they hired a certain number of new employees.
Information from the assessor’s office shows between 18 percent and 55 percent of the plant’s assessed value was shielded from tax liability between 2001 and 2008, when the tax waivers ended. The percentages can fluctuate due to depreciation and old and new investments beginning and ending their three-year exemption periods, among other factors, Cowles explained.
Even the plant’s closure didn’t dissuade Hynix from seeking enterprise zone property tax relief as if it was still operating.
In 2011, Hynix argued before the Oregon Tax Court that it was entitled to tax waivers for the 2006-08 and 2007-09 periods.
It made two arguments to why it was still eligible for the tax relief. First, it argued it notified Lane County it had suspended production at the plant in 2009 and was therefore qualified for the three-year exemption that ended in 2008. Regardless of that notice, it said, the closure didn’t occur in 2008 because there’s a process between ceasing operations and shuttering the plant. Even after the plant closed in August 2008, Hynix said, there were a small number of employees working and the chipmaker was seeking opportunities to restart or reuse the plant.
The company argued that the state Department of Revenue, which appraised the plant’s value prior to 2012, and the assessor’s office, which does that work now, focused too much “on the narrow operation of the facility rather than the business.”
The tax judge denied the appeal in May 2011. Hynix had paid the $5.4 million in disputed taxes in 2009.
The appeal pending before the Oregon Tax Court represents a potential loss of about $70,000 in revenue to the city of Eugene for the current and prior tax years.
The city is projected to receive $83.5 million in property taxes during the current tax year, Finance Director Sue Cutsogeorge said, so “while this appeal occurs, we’ll be able to manage our finances without any significant disruption.” More significantly for the city, Hynix’s closure came the month before the economic collapse that slowed the annual increase in its property tax revenues and contributed to the city’s budget woes.
The city used primarily one-time funds to close a projected $5.3 million gap in the current budget. City voters defeated a services fee proposal in May that would have generated more revenue.
“Hynix is a piece of that, but it’s not the only piece of what’s been going on with our property tax values. That trend has been difficult,” Cutsogeorge said.