"It's a perfect example of a lose-lose situation," O'Hagan said.
Arts Central doesn't earn enough off the gallery to pay those kinds of taxes on the property, which, because of its location, has been assessed at almost $5 million.
The group is already working on a plan to transition the gallery over to a museum of sorts, where pieces from regional artists will likely be displayed, but not offered for sale.
The move from gallery to museum will cut off one of the organization's only ongoing revenue streams - the rest of its money comes from grants, donations and fees - potentially cutting into funding for Arts Central's education and regional arts promotion programs. At the same time, artists who rely on the gallery as a place to get their work in front of the public will have to look elsewhere for patronage. They can also expect a smaller cut of the profits if or when their work does move at a commercial gallery, which O'Hagan, who has worked in the arts industry for several decades in Bend, Portland and Washington D.C., says often divide profits in favor of the gallery. Artists who sell a piece through Mirror Pond gallery, by contrast, keep a majority - 55 percent - of the profit from the sale of their work.
"One thing I really like about Mirror Pond is that they have these juried shows where artists and emerging artists can enter their work and get recognition and galleries don't do that. Retail galleries only bring in artists that they know are going to make money for them," said Cindy Briggs, a local painter who shows at several galleries in Bend and in Park City.
Despite the demand for her own work - Briggs is known for her earthy watercolor canvases - Briggs said she is deeply involved with Mirrror Pond Gallery and Arts Central, contributing art for shows and teaching classes as a volunteer, because she believes in the organization's mission of spreading art opportunities in the region.
At this point, O'Hagan said the city of Bend, which owns the building and leases it to Arts Central for $1 a year, is open to allowing the organization to retool its operations at Mirror Pond. The gallery will have until the end of next June to get that change implemented, until then it's free to continue with its retail operations.
Still, O'Hagan, who helped launch the gallery in the early 1990s, says it's frustrating to lose the gallery after so much work has been put into it by the organization and its members. O'Hagan estimates that Arts Central has poured $300,000 in cash material and labors into restoring the historic home where the gallery operates.
She's also miffed that the county isn't willing to do more for an organization whose sole mission is to promote the arts in the region. She described the law, which specifically describes art galleries as a non-tax exempt use as "very poorly written and narrowly interpreted" - a jab at the county assessor's office.
Tana West, the county's assessment manager, has a different perspective. West said she went out of her way to help O'Hagan and the organization navigate the application process, providing them materials and advice on their options.
"I didn't have to do that," West said. "I did feel that I tried with everything. I went and looked at their website. I went beyond the information that (O'Hagan) gave me to see if the organization qualified. So, I was a little disappointed that she felt that way."
In the end, though, West said the state statute on art galleries was clear and there was no room for interpretation. The application for exemption was denied on August 4.
When asked if the decision to deny Mirror Pond's tax exempt application (the gallery never originally applied and only did so this year after the assessor's office realized the gallery was off the tax roles) could have implications for other non-profits, such as the Central Oregon Humane Society's Thrift Store, West said she was confident it wouldn't. The major difference, said West, is that thrift stores operate typically with donated inventory, plowing all their profits back into charitable work. While making art for a living may feel like charity, the reality is that there is a buck to be made.
At this point, it remains to be seen just how the assessor's ruling will play out through the local and regional non-profit world.
Arts Central's attorney Steven Hultberg of the high-powered law firm Ball Janik said he thinks it's just a matter of time before other non-profits find themselves in a similar bind with the taxman, or tax woman, as the case may be.
"I think there are other organizations that are probably similarly situated that sort of remain to be found, not just perhaps in this state," Hultberg said.
In the meantime, O'Hagan said her organization will continue to work with the city and county to find an approved tax-exempt use for the building that supports Arts Central's mission. She also left open the possibility of re-opening the retail gallery at a different location.