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The city of Portland and Multnomah County have fought over issues ranging from funding for a new Sellwood Bridge to use of urban renewal money.

Now they’re fighting over a $40,466 property tax bill.

The Oregon Tax Court on Monday ruled that the Portland Development Commission doesn’t owe property taxes for fiscal 2010 on a downtown building that Multnomah County says has mistakenly received a property tax exemption since 2001. However, the court didn’t make clear whether the city will owe property taxes on the property in the future.

The Fairfield, in downtown Portland, has 82 single-room units atop commercial retail space. The PDC, acting for the Portland Housing Bureau, purchased the building in 2001 from a for-profit business profiting through a contract with the federal Department of Housing and Urban Development’s Section 8 program.

According to Maileen Hamto, spokeswoman for the Portland Housing Bureau, the former owner was considering whether to sell the property to a party that did not intend to preserve the housing affordability for very low-income residents. As part of the city’s ‘no net loss’ housing initiative, the PDC purchased the building for the housing bureau, under the condition that it maintain the low-income housing and the HUD Section 8 contract, she said.

The city proceeded to pay property taxes on the commercial portion of the property, but considered the housing exemption still in effect. That arrangement wasn’t an issue until Sept. 21, 2009, when the Multnomah County assessor determined that the property was exempt in error and then decided to add it to the tax roll for fiscal 2010.

The problem, according to the court decision, was that Multnomah County neither gave a reason why the property was no longer exempt (aside from PDC ownership not meeting statutory requirements), nor why the exemption was given in the first place. The county wouldn’t elaborate further in case the ruling was appealed and the parties had to return to court, said Shawn Cunningham, spokesman for the county.

According to the ruling, “There was no rationale … provided for why this shift (revoking the exemption) was made nor why the county’s administration of the exemption statuses was supposedly erroneous in 2001 (through 2009). Making this more noteworthy was the conscious decision by the assessor in 2001 to create an exemption for the Fairfield upon the PDC’s acquisition of ownership.”

But the court ruled only that the city wasn’t notified properly during the 2009-10 tax year, and not whether the exemption was deserved. This has left the city wondering whether it will have to pay the property taxes in coming years.

“(The housing bureau’s) position is that the residential component of the Fairfield is exempt from property taxes under Oregon law because the city owns it and is using it for an essential and mission-driven purpose: providing deeply affordable housing for very low-income residents through a federal operating subsidy,” Hamto said.

According to Cunningham, the county’s legal team is still reviewing the findings and will determine within the next two months whether to file an appeal.

“If the county decides not to appeal, then (the housing bureau) does not owe any taxes for the 2009-2010 tax year,” Hamto said. “We do not know if we have to pay property taxes in future years, because this is the subject of pending litigation that is being determined by a tax court.”