United States View
New York State–
AGGRIEVED—BUT ARE YOU THE PROPER PARTY?
In the recent court decision in the matter of Larchmont Pancake House v. Town of Mamaroneck, the New York State Appellate Division (the intermediate court) dismissed tax protest proceedings brought in the name of the operator of a restaurant. The court held that even though the petitioner was an aggrieved party given that the taxes had a direct impact on its pecuniary interests, because it was not the property owner it did not have the proper legal standing to commence a proceeding before the Board of Assessment Review (the predicate to going to court).
This is just one outcome. It is important to note that there can be—depending on the taxing jurisdiction—situations in which a party may protest property taxes, such as triple-net lessees, for example.
SALE OF THE SUBJECT OFTEN BEST INDICATOR OF VALUE:
In the annals of New York State property tax law is a decades-old decision stating that a recent arms’-length sale of the subject property, if not explained away as abnormal in any fashion, is “evidence of the highest rank” to determine value (Grant Co. v. Srogi, decided by the Court of Appeals in 1981). The exact circumstances of a sale will be unique and may to some extent mitigate toward a higher or lower value, but once fully vetted, an open-market sale will often garner a good degree of judicial deference.
This proposition was in effect again in the recent case of Weslowski v. City of Schenectady, in which the court found the property to have been diligently and aggressively exposed to the market, and that despite it selling for a particular sum, the taxing authority valued it over 20% higher just two weeks later. The court agreed with the evidence, and dismissed the higher assessment.
Around the U.S.
CALIFORNIA—SECOND HOME BUYERS BEWARE:
The City of Healsdburg in Sonoma County, California is considering the possibility of levying an additional property tax on second homes. There are similar mechanisms in effect elsewhere around the USA and Canada when it comes to non-primary residence or properties not leased to full-time tenants.
Supporters of the measure point to vacant or “hollowed-out” neighborhoods, or those in which there are no “signs of life” and no patronizing of local businesses. They also point out that second homes reduce the available inventory of properties for multi-generational residents who want to stay in the area close to family. They further contend that the tax would help pay for affordable housing programs.
Critics of the measure point to the fact that second homes place less burden on services and infrastructure, such as schools, refuse collection, etc, so that there is less justification to tax them more.
NEW MEXICO—DRILL, BUT PAY:
The Associated Press reports that the Lea County Tax Assessor is urging the county to conduct a physical audit of pipelines and other oil and gas equipment, arguing that it could yield taxable assets that drilling companies may have not reported over the last 10 years.
The assessor pointed out that a 4-year audit in another New Mexico county yielded millions in unpaid taxes in just the first year. The assessor further argues that the revenue to be obtained will benefit a number of school districts and other taxing entities that share the revenue stream, and that it will ensure fairness of burden for other taxpayers, including oil and gas companies that dutifully report all of their taxable assets.
As far as Europe is concerned, this month’s report includes articles on Croatia, Ireland, Portugal, and the United Kingdom. There is a separate IPTI report on the United States, with a focus on New York.
Croatia: Croatia Postpones Property Tax Law after Backlash
After a petition against a proposed law to introduce property taxes attracted over 130,000 signatures, the Croatian government decided to postpone its implementation.
Croatian Prime Minister Andrej Plenkovic announced on Tuesday that the implementation of the new property tax law will be postponed after a sharply negative reaction from the general public.
The decision came after a petition launched by consumer protection NGO Lipa attracted over 130,000 signatures by Tuesday, demanding the law be withdrawn and claiming that “Croatians do not want new taxes to be imposed”.
“We are listening to what people want to say, although it should be noted that this tax, under the Law on Local Taxes, passed a debate in parliament as part of the tax reform package last year,” Plenovic told public broadcaster HRT on Tuesday night.
The new property tax law, which was originally to be implemented from next January, was to replace the current communal fee collected by local authorities.
The new law would slap bills on people with more than one home, or who do not use their real estate. Many people in Croatia have holiday homes, mostly on the coast.
People also complained about the vagueness of the form they would have to fill in, and about the lack of instructions.
Cyprus: Tax Regime
Cyprus has a very favourable tax system that is fully aligned with the European Union legislation and international regulations. Some key features are listed below and include a series of incentives for foreign investors and companies registered in Cyprus. Furthermore, the procedures for registering a company with the relevant authorities in Cyprus can be completed within approximately 4-5 working days, at a fairly low cost.
As a result, international businesses operating in the region often choose Cyprus as a base and include it in their tax-structuring plans.
Corporate tax is charge at a flat rate of 12.5% on the taxable profits of a Cyprus tax resident company.
Various tax exemptions apply such as:
- exemptions in respect of dividends received from other companies
- no tax on capital gains derived from the disposal of securities, provided the disposed company does not hold any immovable property in Cyprus.
- generally, no withholding taxes on payments from Cyprus.
- tax relief of foreign tax paid
Introduction of Notional Interest Deduction (“NID”) on ‘New Capital’ contributed and paid to Cypriot companies from 2015 onwards. Cyprus tax resident companies benefit from Cyprus’ extensive double taxation treaty network with over 43 countries worldwide
The recent introduction of the non-domiciled (“non-dom”) tax resident status applies to individuals who physically spend less than 183 days on the island. Non-domiciled residents are entitled to exemption from the special defense contribution (SDC) on dividends, interest and rental income, even if derived from sources within Cyprus and regardless of whether such income is used in Cyprus. Contact us for full details.
Immovable Property Tax (IPT) was abolished as from 1 January 2017. Low municipality taxes for property owners. Exemption from future Capital Gains Tax on properties (land and land with buildings) purchased by the end of 2016. In general, the taxes associated with property ownership in Cyprus are relatively low compared to other EU countries.
Ireland: ‘Vital decisions needed’ on distribution of local property tax
Housing Minister Eoghan Murphy has been told it is vital the Government decides on changes to the distribution of the local property tax (LPT) next year so local authorities can fix budgets.
The advice will add pressure on the Government to decide on raising the tax in line with house price rises a year ahead of schedule.
The 77-page briefing document released last night, details how the Government must decide on its distribution by early next year, otherwise councils will lack funds. It states: “A government decision/memo for information in relation to the distribution model for LPT in 2018 is essential in the immediate term… to provide funding certainty for local authorities as early as possible, in order to enable them to meet statutory deadlines and budgetary obligations.”
The Thornhill review of the tax in 2015 saw any changes frozen until 2019. However, a decision on distributing the tax from counties will likely see the Government having to indicate if the tax will be increased or what level it will be at for house prices sometime next year, before changes apply in 2019.
The original distribution model saw 80% of it locally retained while a remaining 20% went as top ups to other areas with lower tax bases.
Portugal: Higher taxes for 211,000 property owners in Portugal
A change to Portugal’s property tax laws will see higher ‘Imposto Municipal sobre Imóveis’ (IMI) demands landing on owners’ door mats this month. The new tax is to be levied on individuals who own multiple properties whose total tax value (valor patrimonial tributário) exceeds €600,000.
The tax office has reported that 211,690 taxpayers will be stumping up more. This number includes both companies and individuals, inherited properties that have yet to be divided up and over 100,000 cases in which the property’s definition is incomplete or out-of-date.
The change to the IMI tax calculation was created to replace the previous system used for ‘luxury buildings’ and by bundling together owners’ properties, the treasury will increase the overall tax take.
The new rates will have to be paid once a year, in September, and an official source at the Ministry of Finance said that 56,412 companies that own real estate will be caught in the net. To this can be added 15,873 individuals with property assets, defined as housing and land for construction, whose value is over €600,000, plus 14 undivided inheritances.
The government estimates that it will be raking in an additional €130 million from the amended tax.
on the plus side, banks will be paying the additional IMI on houses that have been repossessed and construction companies will be paying the new tax on houses that sit on their books.
The president of the Lisbon Association of Owners, Menezes Leitão, pointed out that many landlords will raise rents to cover the costs of the new IMI rates.
The new tax rates do not apply to owners living in offshore tax havens.
The President of the Republic signed an amendment that allows residents of tax havens holding high-value properties in Portugal not to pay the increased IMI rates.
An explanatory memorandum to the law states that, “as in the case of the Municipal Property Tax, persons residing in countries, territories or regions with a clearly more favorable tax regime … are not subject to the increased rate of IMI.”
Companies domiciled in tax havens – offshore companies – are subject to the increased rate on buildings they hold in Portugal, a whopping of 7.5% of the total valor patrimonial.
United Kingdom: Seize the Brexit opportunity to rethink property tax in London
Over the past 25 years, London has attained a position as a pre-eminent world city. It still tops league tables – for ease of doing business, for its diversity, for its cultural and educational offer.
But since the EU referendum, competitor cities have been circling, seeking to lure businesses from London. Meeting their challenge requires not just the right Brexit deal, but more fundamental reform too.
There is still all to play for in the Brexit negotiations. Centre for London’s new report, Open City: London After Brexit, argues for a deal that protects London’s position and its contribution to the UK economy.
We are urging government to retain freedom of movement and access to the Single Market during a transitional period, and to replicate frictionless access to talent and trade in long term arrangements.
But Brexit raises some bigger question about how London sustains its position. For many Londoners, whether born in the UK or overseas, living in the city is becoming increasingly tough: house prices and rents are spiralling up, public transport and streets are congested, infrastructure is feeling the strain of a city with more residents than ever before.
Affordability constraints hit the restaurants and hotels that sustain London’s global services, and the cultural and creative buzz that gives London its “soft power” and also makes it a magnet for talent.
If London is to thrive outside the EU, it needs to sharpen its offer for workers and businesses alike. We need to build more houses, but also to look again at the framework of incentives put in place by our current system of property taxation.
We have a council tax system based on property valuations from 1991, which charges Mayfair townhouses a mere three times more than the smallest studio flats, and a fraction of what businesses would pay in the same premises. Meanwhile, stamp duty land tax, which raises half of its English revenue in London, taxes transactions, seizing up the property market and providing an unpredictable tax base.
Our report supports the arguments of the London Finance Commission that these and other property taxes should be devolved to the Mayor and to London boroughs, so they can work together to design a tax system that works for the capital by promoting the efficient use of scarce land in a growing city.
Once taxes were devolved, they could be reformed. A revaluation of domestic property would be a starting point, reflecting the wide differences in how house prices have moved since 1991. To make council tax more progressive, more bands could be added – as has happened in Scotland and Wales – or the ratio between the top and bottom tax levels could be expanded from 3:1.
A more radical option would be to tax property value or rental value (the same approach used for business rates). We estimate that a rate of seven per cent of rental value would have a minimal impact on mid-range homes, while increasing bills to £3,000 plus for more expensive homes, and reducing them to less than £600 for the cheapest.
Going one step further, you could consider taxing land value.
Land value taxes have been discussed for more than a century. Their proponents argue that they would discourage land banking and low-density development. As they do not tax economic activity but only the economic rent arising from a fixed quantity of land, they encourage efficient use and development.
We estimate that a land value tax of 2.3 per cent could generate the same revenues as council tax and stamp duty together.
Land value taxes are highly controversial, but Brexit both creates the opportunity to rethink how London works for all its citizens, and makes the task urgent.
London will need to be open, liveable and affordable to tackle the threats posed by Brexit and capitalise on its opportunities. London’s Mayor, boroughs, and businesses should argue strongly for the powers that will sustain London’s place in the world.
United Kingdom: Changes to business rates appeals system fears ignored ahead of start date
The Government pushed ahead with plans to overhaul the appeals system for business rates despite not receiving a single consultation response in support of them, The Sunday Telegraph can reveal.
Businesses were consulted about the new “check, challenge, appeal” process in August 2016, which has overhauled the grounds on which companies can argue against rating decisions by introducing a power to throw out appeals that are within a margin of error of around 15pc. The system was implemented in April this year along with a revaluation of rates across the country.
However, of 287 responses to the consultation, not a single company, trade organisation or individual wrote in support of the proposed system.
Responses were received from many of the UK’s leading companies across a range of industries – including Boots, Tesco, Unilever, British Steel, BT, Eurostar, Greene King and Whitbread – as well as trade bodies such as the British Chambers of Commerce, the CBI and the British Retail Consortium.
The submissions, which were obtained via Freedom of Information requests to the Valuation Office Agency (VOA) by property firm Gerald Eve, raised a number of potential problems with the system. These included an increased burden on ratepayers and a lack of transparency from the VOA over how decisions about setting rates were made.
People also suggested it was unfair that firms had to provide any evidence that would support an appeal up front, without having the opportunity to add to it at a later date, and raised fears that the VOA portal would be too difficult to use if people owned a number of properties.
Jerry Schurder, head of business rates at Gerald Eve, said: “It was clear as soon as the proposals were unveiled that the new procedures would create major obstacles for ratepayers, but the release, at last, of the representations reveals just how much opposition there was and remains among UK plc.”
He called the revelations about the lack of support a “damning indictment” of the Government’s changes.
“The fact that the proposals were pushed through regardless, riding roughshod over the legitimate and genuine concerns of ratepayers nationwide, shows that government has no real ambition to deliver a fairer business rates system,” he said.
He also said that the Government’s response to the consultation findings had been delayed, only being released at the last minute.
The “check, challenge, appeal” process drew warnings ahead of its implementation about a new clause meaning ratepayers were not able to argue against a rates bill if its margin of error was inside 15pc.
Last week it emerged that the VOA was facing potential embarrassment as its own figures revealed almost 90pc of users were dissatisfied with the new process.
Respondents asked about their experience using the new system said it did not work properly, that it was too slow, and parts of the website were missing or not working.
Mr Schurder said HMRC had been brought in to make improvements to the system mechanics. “Now there is hope that they might at least deliver the IT to deal with the process,” he said. “The way to reduce unnecessary appeals is for the VOA to be more transparent.”
The overhaul of the business rates system in April this year came after the Government had delayed revaluing properties for two years. Many businesses argued this had left them paying higher rates which had been set at a time when the economic outlook was different.
However, central London retailers were hit with huge increased to rates after the changes were made, despite concerns raised by the Mayor of London’s office and business groups.
From April 1, some 510,000 businesses saw an increase in their business rates, 420,000 pay the same and 920,000 saw a decrease according to Government estimates published earlier this year.
Compliments of IPTI