Gambling with property taxes

In Baltimore Mayor Stephanie Rawlings-Blake’s plan to drop the city’s effective property rate by 20 cents in eights years was approved by a City Council committee Wednesday night. 

The plan is likely to be approved by the City Council during its next meeting scheduled for April 16.

Baltimore currently has the highest property tax rate in the state at $2.268 cents for every $100 of assessed value. That’s more than double the rate charged in neighboring Baltimore County.

The property tax reduction, which will be phased in during the next several years, would result in a $400 tax cut on a home valued at $200,000 and will have to be factored in to the property tax billing software used by the city.

The tax cut, which will be available to homeowners who qualify for the Maryland Homestead Property Tax Credit, will be paid for primarily with revenue from the land lease for a slots casino in Baltimore.

Explaining property tax rises

Ramsey County MN has started to explain to its residents why property taxes have risen while property values have fallen.  Whatever the changes it can be assumed the property tax billing software can handle it, since the change is restricted to the basis of valuation.

Shifts in how property taxes are calculated have brought a dose of tax relief to owners of lower-end homes, forcing higher-end homes and homes that have mostly retained their value to make up the difference.

In other words, while average home values have gone down in recent years, taxes are going up for many. Some homeowners will see tax increases of 10 percent or more. More than a few may see as much as a 40 percent increase on their bills.

Ramsey County Assessor Stephen Baker said a St. Paul home valued at $155,500 in 2010 would likely be valued at $149,300 in 2011, a 4 percent decrease. In 2011, that homeowner paid out about $2,076 in taxes. This year, the same homeowner will pay $2,151, a nearly 4 percent increase.

County and city officials say they’ve done their best to rein in spending, but some of the biggest changes affecting city and county property taxes stem from decisions made by state lawmakers.

The Legislature last year voted to replace the "market value homestead credit" – a state-funded credit on local property taxes – with an exclusion that automatically deducts a percentage of home value as property taxes are calculated. The exclusion is larger for homes with less value, and becomes smaller and smaller as you go up the scale.

As a result, a homeowner with a house valued at $76,000 will have 40 percent of his or her home value excluded when taxes are calculated and qualify for the maximum exclusion of $30,400.

The exclusion percentage drops as home values increase, and disappears entirely for homes valued above $414,000.

Ramsey County officials say the exclusion has eaten up a large chunk of the county’s tax base, and most of that money has to be made up somewhere, even though the county budget has shrunk. The effect is that $23.5 million in tax relief has been shifted from the state to local taxpayers.

First home buyers

Everyone wants to help first home buyers.  Some countries, such as Australia, even provide government handouts and local governments back this up with further exemptions.  So it’s no surprise to read of a local politician in Ulster County, NY, proposing an exemption for property taxes to first home buyers. 

That may a little trickier to administer, as the Australian exemptions mentioned previously are one off, at the time of purchase.  Giving a property tax exemption for the entire time the first home buyer was in the property will require flagging the person in the property tax billing software, and most property tax billing is more interested in the property than the person. 

As well, it may depress turnover in the housing stock as first home buyers resist moving, happier to sit on their property tax exemption than to trade up (or out).

Grey power in Texas

Six years ago the State of Texas gave cities and towns the option to cap the tax paid by senior citizen property owners.  Since older people are known to vote more than younger voters, this seemed like a good electroral bribe for “grey power”.

Now some Texas cities stand to forfeit billions of dollars in values from their property tax rolls this year because of the caps even as many municipalities face their worst budget deficits in years.  Those losses are projected to grow sharply as property values climb and waves of aging baby boomers become eligible.  The permanent local-option caps, which voters added to the state constitution in 2003, apply to residents age 65 and older. At least 244 cities have adopted the municipal tax caps since 2004, according to the state comptroller.

"All of these cities, they are going to cause themselves imminent trouble in the future," said Dick Lavine, a senior fiscal analyst for the nonpartisan Center for Public Policy Priorities in Austin. "That’s all property value that’s no longer able to support schools, fire, police, roads and sewers."

Figuring out how much taxable value the caps have wiped off the books is difficult. Neither the state nor local appraisal districts keep reliable data about the losses.  Clearly, the numbers reach into the billions. By comparison, school districts, which operate under mandatory senior citizen tax caps, forfeited an estimated $47 billion in taxable value in 2008.  In Collin County, tax data shows, the municipal caps erased more than $200 million in value from the books of nine communities last year.

That figure does not include an optional tax cap for seniors on county property taxes, which expunged an additional $560.9 million, the analysis showed. More than 100 counties, including Dallas and Tarrant, have passed optional senior tax caps. The city of Dallas has not.  All of that lost taxable value translates into millions of dollars in revenue for local government – more than $2.4 million this fiscal year in Collin County and its cities. And it puts greater pressure on leaders in those communities to slash services or raise property tax rates for nonseniors.

The story continues in The Dallas News.

Excluding entitlements

The best way to ensure that citizens don’t get what they’re entitled to is to make the process difficult to understand.  Apparently that seems to have been a successful ploy in Cape Cod, where newspaper writer Jack Edmonston comments “As one who counsels seniors on ways they can stay in their homes, I can add that most seniors do not take advantage of any of the several programs designed to help them.  The seniors I talk to usually do not know what’s available, and even when they do, they are often reluctant to accept any help. And when they are willing, they can find the application process onerous.”  The full story can be found here.

Equity and property taxes

In Vermont Rich Westman says in all likelihood he will become the first tax commissioner to recommend an increase in the statewide property tax rate since there has been a statewide property tax. That has started Westman thinking about bigger questions like how equitable the property tax and education funding systems are and how exemptions and tweaks to the property tax, from income sensitivity to local option taxes to current use, have lead to the change.  Each year, the tax commissioner recommends a rate based on factors he has have little control over – such as spending by schools and the growth (or decline) in the value of land, houses and other property. While spending has gone up, the increase in Vermont property values have outpaced it, meaning the rate typically has gone down even while the total amount of money collected has increased.

Add to that the fact Westman, a former state representative, only has been in his new job a few months.That doesn’t mean he won’t get the blame."I expect it will be a case of ‘shoot the messenger,’" Westman said.  The value of the state’s education grand list is expected to decrease in 2010, 2011 (by as much as 3 percentage points) and in 2012.  The way the value of that property is calculated – with a three-year rolling average – means the impact will be not as sudden, but will stretch out longer than if it were based on the value of property taken each year.  The anticipated rate increase is one reason Westman has put together a presentation on what has happened to the statewide property tax system since Act 60 – the often-maligned education funding system put in place by the Legislature in 1997 – with "Westman of Cambridge" among the "yes" votes.  He has begun going on the road with his show to the association of listers, to the state Department of Education and, last week, to the Rotary Club of Stowe.

Property tax concessions to attract retirees

Colorado is a " tax-friendly destination for retirees" because of a low income-tax rate and various exemptions available to seniors, Kiplinger.com says, reports the Denver Business Journal.  In its state-by-state "Guide to Taxes on Retirees" by the personal-finance and business website, Kiplinger says Colorado’s income tax rate is 4.64 percent of federal taxable income, lower than most states.  It also said Colorado taxpayers ages 55 to 64 can exclude up to $20,000 of Social Security and qualified retirement income from state income taxes, while those 65 and older can exclude up to $24,000.  As for property taxes, it said full-time Coloradans age 65 and older can qualify for a homestead exemption of up to 50 percent of their property value, up to a maximum reduction of $200,000.  There also are property-tax rebate and deferral programs for Colorado residents age 65 or older or disabled, or a surviving spouse age 58 or older, Kiplinger said.  There is no state inheritance tax, and the state estate tax does not apply to those who died after Jan. 1, 2005, the report said.

Deferring property taxes

In North Carolina, home builders with unsold houses on their hands will have the choice of deferring payment of property taxes beginning next year. Under a bill recently passed by the state legislature, builders may opt to delay payment of property taxes for up to three years. The option is not in effect for the 2009 tax year. Starting in 2010, builders may defer payment for one, two or three years. The break is not free, since those taking advantage of the deferment will be billed for interest when property taxes are due.

The deferment applies only to houses that are 100 percent complete as of Jan. 1, 2010. They must be ready for sale and occupancy by that date. It does not apply to houses under construction, nor does it apply to commercial property. The bipartisan legislation passed both houses with overwhelming support. It now awaits the governor’s signature.

Moore County Tax Administrator J. Wayne Vest said he has heard little reaction from local developers and thinks most would prefer to pay their taxes on time than pay interest one to three years later. However, he says it would be a definite advantage to any builder currently cash-strapped with several completed houses available but no buyers in sight. The property tax deferment is optional, and builders must apply for the temporary benefit. Such speculative property is valued according to the same schedule of values used for other residential property in Moore County.

Everyone pays property taxes

In a case that could affect other nonprofit groups, a Wisconsin judge has ruled that ProHealth Care must pay property taxes for desks, office equipment and other furnishings inside its corporate headquarters. Culminating a three-year court fight in Waukesha County, the ruling means that the health care provider faces a property tax bill of more than $12,000 a year despite its status as a tax-exempt nonprofit corporation. Waukesha County Circuit Judge Michael O. Bohren determined that ProHealth Care could be taxed on its headquarters because the corporation supports many for-profit ventures and because it does not pass a litmus test as a “benevolent” organization.

The leader of a statewide coalition of 170 nonprofit groups said the case appears to represent the latest example of government tax collectors turning to nonprofit entities to replenish depleted tax coffers. “That’s a topic that’s rising,” said Deborah Blanks, president of the Wisconsin Nonprofits Association. “That’s something that a lot of nonprofits are going to have to look at.”

Attorney Stan Riffle, who represented the City of Pewaukee in the case, said he suspects ProHealth Care hoped to establish a precedent in Pewaukee that could be used later to seek property tax exemptions in other communities where the company has property. Instead, Riffle said, the ruling likely will embolden other municipal tax assessors faced with nonprofit property owners trying to avoid paying taxes. “Obviously assessors talk to one another,” he said. “The word of this decision will get around.”

ProHealth Care spokeswoman Sandra Peterson said the company would not appeal the ruling. The company owns Waukesha Memorial Hospital and Oconomowoc Memorial Hospital, neither of which pays property taxes or is directly affected by the court case. Peterson said she disagreed that the case had any implications beyond ProHealth Care’s own tax obligation on its headquarters, which is at N17-W24100 Riverwood Drive in Pewaukee. Asked why the company litigated the issue for three years, Peterson said, “There are times when you have to take a stand.”

ProHealth Care was established in 1998 through the merger of the Waukesha and Oconomowoc hospitals. The corporation moved its headquarters to the Pewaukee site in 2002. At issue was the City of Pewaukee’s refusal to grant ProHealth Care a property tax exemption on $1 million worth of interior office furnishings at the company’s headquarters. From 2004 to 2007, the tax bills ranged from $12,687 to $28,378, with a total of $68,000 paid over four years. Taxes on the real estate itself were not an issue because ProHealth Care leases the Riverwood Drive property.

ProHealth Care filed suit against the city in February 2006, arguing that the exemption should be granted because the vast majority of administrative functions in the corporate headquarters support the operations of the company’s two tax-exempt hospitals. Departments inside the location include accounting, purchasing, human resources, public relations, patient scheduling and information technology services.

In his July 1 ruling, Bohren found that the corporate offices support several for-profit ProHealth Care ventures as well, including the West Wood Health & Fitness Center in Pewaukee. He also ruled that qualifying as nonprofit was not sufficient to justify a property tax exemption. “Though organizations do not have to be charities to qualify as benevolent, they must serve a public purpose in order to be relieved of their tax burden,” he wrote. In court pleadings, Pewaukee’s attorneys analyzed ProHealth Care’s charitable work, asserting that such activities were dwarfed by the millions of dollars channeled into the company’s profit-making endeavors. The attorneys concluded: “ProHealth is merely a holding company organized and operated for the purpose of coordinating and facilitating operations of other multimillion-dollar organizations.”

Peterson responded by citing ProHealth Care’s many programs providing care to the indigent. Those programs were estimated to be worth $32 million last year and brought the company acclaim from a national hospital service group, Peterson said. “I don’t think anyone in the community would question the millions of dollars and dozens of programs,” she added.

Pewaukee City Assessor Michele Cullen, whose work was scrutinized in the lawsuit, said she was happy that the judge upheld her efforts. “I think it’s important that we do follow the letter of the law,” she said. “If we don’t follow that, we’re doing a disservice to the other taxpayers in the city.”