Member News

Update on Property Tax Issues: July 2019

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep its members up to date with the latest developments in property taxes in the USA and Europe. IPTI has put together a selection of brief reports from articles contained in IPTI Xtracts which can be found on its website (www.ipti.org).

 

USA

California: LA County Hauls In Record $1.6 Trillion In Property Tax Assessments
Los Angeles County brought in a record $1.6 trillion in property tax assessments this year thanks to a robust sales market and new construction.

The 2019 tax roll was $94.41 billion larger than the 2018 roll, an increase of 6.25 percent, the L.A. County Assessor’s Office announced Monday.

“The strong growth in the local real estate market for the ninth consecutive year will have a positive impact on services for LA County’s 10 million residents,” L.A. County Assessor Jeff Prang said in a statement.

According to Prang, the growth was primarily due to three reasons.

About half the increase, $48 billion, was due to the reassessment of properties that were sold this year. Under California’s Proposition 13, property values can only be reassessed at market value when they are sold.

About $28 billion in growth was due to the Proposition 13’s Consumer Price Index (CPI) adjustment of 2 percent. Under that law, as long as a property is not sold, its assessed value cannot increase by more than 2 percent annually.

New construction accounted for about $11 billion in growth. The largest single reassessment of any property was for the new Los Angeles Stadium in Inglewood, which will serve as the future home of the NFL’s Rams and Chargers. The stadium accounted for a whopping $1.95 billion on the tax roll, Prang reported.

According to Prang, city and county programs will see an additional $1 billion this year as a result of the spike in the assessment roll.

“From education, healthcare, and mental health services, to public safety, transportation, and alleviating the homeless crisis, our schools, cities, and county programs will have approximately an additional $1 billion for vital local public services,” Prang said.

The assessment roll is made up of 2.57 million properties. It includes 1.87 million homes, 249,000 apartment complexes, 248,000 commercial and industrial properties and 200,000 businesses.

 

Nebraska: Kearney residents frustrated over property tax valuations
Some say they are too high, others say they are too low, but there is some general agreement that something is wrong with the way Buffalo County valuates property taxes.

This year alone Buffalo County has had over 1,900 protests filed over incorrect property taxes with the county and that has led to concern from some residents.

At last week’s board meeting Kearney realtor Robert Fitzgerald shared his concerns over valuations, concerns he says are shared with many other homeowners and realtors in Kearney.

He believes it is a number of issues causing the incorrect valuations, but that lack of proficiency from the assessor’s office in utilizing software for valuations is one of his main concerns.

“The state gave a program to the counties that they are to use for assessment and for an older workforce sometimes it’s hard to get up to speed on so those aren’t being used properly, but it’s just a big mess. It needs focused attention with a specific plan,” said Fitzgerald in a phone interview.

Speaking to Buffalo County assessor Ethel Skinner, she says that while she personally is not proficient with the software that her staff has enough proficiency to do the job needed.

“We have very proficient people, we have not so proficient people, and we have some who are brand new, so they don’t know anything about it until they have been here for a while. The younger people have no problem learning it or using it. Us older people…I don’t use it every day I don’t use it every day 100% I am not proficient with the MIPS software,” said Skinner.

To combat these issues the county board of commissioners is currently developing an action plan to reduce incorrect valuations. It isn’t complete yet, but they do have some ideas for possible proposals.

“Right off the top of my head I think one of them could be a preliminary notice of valuation change earlier in the year rather than March 30th. That should help get people geared up to come to the assessor’s office ahead of time and see what has changed,” said Chairman of the Buffalo County Commissioners Bill McMullen.

Speaking to county officials it will be a few weeks until the commissioners are ready to unveil their plan, we will continue to keep you updated as these details become available.

 

Pennsylvania: Philly judge orders city and schools to repay nearly $50 million in tax revenue to commercial property owners
Ruling in one of the largest assessment challenges in Philadelphia’s history, a judge on Thursday ordered the city and School District to repay commercial property owners nearly $50 million, after finding that their properties were unconstitutionally targeted for revaluation due to “political pressure” to boost revenue.

Senior Common Pleas Court Judge Gene Cohen said the city and district must repay the money collected in 2018 taxes to the owners of about 700 of the city’s most prominent and valuable office complexes, apartment buildings, and hotels — including One Liberty Place, Centre Square, and the Bellevue Hotel.

The reassessment was illegal, Cohen ruled, because commercial properties were revalued while residential assessments were left largely intact.

“The desire and demand of City Council for revenue from a targeted reassessment of commercial properties was a substantial motivating factor,” he wrote.

Cohen’s ruling nullified the 2018 assessments for the properties involved in the case and ordered that the city refund the difference between their 2017 and 2018 taxes. He set a refund deadline of July 2021.

That amount includes property and use-and-occupancy taxes and totals up to $48 million, city spokesperson Mike Dunn said Thursday — excluding interest, which the judge also ordered the city to pay. Of that amount, $14 million would come from city real estate tax revenue and $34 million would be School District revenue from both real estate and use-and-occupancy taxes.

The city is “very likely to appeal” the ruling, Dunn said in an email Thursday. Lawyers for the city and district had argued during trial last month that repaying the taxes would harm their budgets. The district would likely have to make reductions in personnel, they said. Neither the city nor the district had set aside money for potential refunds.

Megan Lello, a spokesperson for the School District, said losing $34 million would have a “significant impact.”

 

Texas: Local governments try to get spending approved ahead of new restrictions
Travis County commissioners are giving themselves a 27 percent raise and handing out big raises to all other elected county officials in advance of the Texas Legislature’s property tax reform bill that takes effect Jan. 1, 2020.

Commissioners are also expected to approve raising property taxes by the maximum 7.99 percent currently allowed by state law. That law will be replaced in the new year by a requirement in Senate Bill 2 that requires local governments to put any tax increase above 3.5 percent to a general vote.

The commissioners set a hearing for July 30 to discuss the additional $647,388 in salary spending. They have scheduled a vote on the county’s full budget for Sept. 24.

As predicted by the Texas Municipal League at the start of the session, passage of SB 2 is encouraging local officials to tax at the current maximum allowed by law to generate sufficient reserves in case of a major project or emergency situation.

Mayors Steve Adler of Austin and Ron Nirenberg of San Antonio have said they are considering the same maximum tax increases for property taxpayers in their cities.

Other local governing bodies, many of which are working on budgets this summer, are likely to consider strategies for dealing with the new spending constraints.

Mayors George Fuller of McKinney and Jeff Cheney of Frisco have said their cities may consider eliminating homestead exemptions to offset their ability to increase taxes up to 8 percent without asking voter approval.

Fuller also said that once the tax reform bill takes effect, the McKinney City Council might have to consider cutting police or fire jobs or spending on libraries and parks, something Houston did when, in 2014, its council approved a self-imposed cap on spending without a citywide vote.

Dallas Mayor Mike Rawlings said SB2 has made the moves inevitable. “I have never seen as much passion around bills like this,” he said. “It’s bad policy for the state of Texas.”

The early responses from Austin, Travis County and elsewhere have angered Republican leaders who made local property tax reform a priority in this past session. Lt. Gov. Dan Patrick in a recent editorial warned local officials not to try to circumvent the new law by getting rid of tax relief measures like homestead exemptions or creating new fees not subject to the law.

“Texas House Speaker Dennis Bonnen and I have jointly announced that we will eliminate any loopholes designed to circumvent the property tax reforms in Senate Bill 2 in the next legislative session,” Patrick wrote.

In an editorial published on the same day, Ed Emmett, former state legislator and longtime Harris County commissioner, said local officials were left little choice by the legislature.

“At its core, SB 2 continues state leaders’ war against local governments,” Emmett wrote. “The bill fails to recognize that Texas counties differ widely, so an arbitrary, one-size-fits-all approach is bad policy for a county such as Harris, where almost two million people live in the unincorporated part of the county and so rely on county government to provide roads, flood control, parks and other infrastructure — as well as law enforcement.”

The Texas Monitor attempted to contact Travis County Judge Sarah Eckhardt, who presides over the commissioner’s court, to explain why SB 2 prompted across-the-board raises for elected officials. Eckhardt did not respond.

Eckhardt told the Austin American-Statesman, however, that the legislature put Travis County in a position where it needed to speed up what had been gradual pay increases.

“They are high. I completely concede,” Eckhardt told the Statesman. “These elected officials’ salaries are considerably behind market and they have been for some time.”

Included in the proposal is an annual salary increase for commissioners from $119,508 to $151,817. The 27 percent boost is the biggest in the pay package, but none of the other increases is less than 6 percent, compared to the 2 to 3 percent raises granted in past fiscal years.

Gerald Daugherty, the only conservative on the commissioner’s court, was also the only commissioner who opposed the pay package. “While I am cognizant that elected officials probably deserve some sort of a raise, I think they ought to be much more in line with rank and file,” Daugherty told the Statesman.

James Quintero, director of local government policy for the conservative Texas Public Policy Foundation, called the raises “outrageous.” Quintero spent much of the past legislative session on social media promoting the property tax reform bill, stressing that it was not a local spending cap, but a mechanism for citizens to approve tax increases above 3.5 percent.

“Travis County is home to high taxes and big debt,” Quintero told The Texas Monitor. “Austinites are already fleeing the urban core because of a raging affordability crisis. Instead of giving themselves a 27 percent pay raise, county commissioners should put that money toward righting its fiscal ship.”

Bennett Sandlin, executive director of the Texas Municipal League, said local governments know how best to shape spending to fit the needs of their communities. The backlash over what he called the “Goldilocks” effect — “The feds are big and bad, the cities are small and bad, but somehow states get it just right” — is just beginning, he predicted.

Quintero said he hopes state legislators are paying attention. “Take note, Texas Legislature,” he said. “There’s more work to be done at the local level to rein in big government.”

 

Colorado: Airbnbs are commercial properties, assessor says; the fallout could be huge.
Assessor Steve Schleiker says shifting how short-term rentals are assessed for tax purposes could have far-reaching consequences.

In an explosive move with potentially devastating consequences for some, the El Paso County Assessor’s Office plans to tax short-term rentals, often simply called by the brand name Airbnb, as commercial properties.

The change opens a can of worms regarding how those properties are handled by city and county officials, insurance companies and lenders. It also means hefty tax bills for local short-term rental (STR) owners. While the residential assessment rate is 7.15 percent of assessed value, the non-residential assessment rate stands at 29 percent, meaning property tax bills on STRs could quadruple.

The revelation comes after Colorado Springs City Councilor Wayne Williams asked County Assessor Steve Schleiker how short-term rentals are assessed, and Schleiker responded in a July 9 email obtained by the Independent.

Asked to comment, Schleiker tells the Indy via email: “Short term rentals and Airbnbs have been a topic of discussion over the past several years at the State Capital and throughout all 64 county assessor’s offices on the challenges of discovering and valuing these types of properties, and the voices from hotel/motel/and bed & breakfast properties throughout the State have been loud requesting fair and equal valuation and taxation.”

So far, Schleiker has made no changes, but he says that assessing single-family properties as short- term rental commercial properties could have other major consequences.

Those include:

  • Homeowners could face major problems with their mortgages. Many lenders require “owner occupancy” and for the home to be used primarily as a “single-family home.” In the worst-case scenario, a commercial STR designation could lead a lender to “call the note,” meaning the full loan would be due immediately. There’s a chance that this could even impact a home that is a main residence. Consider, for instance, soldiers who lists their homes as an STR while they’re deployed.
  • Utilities bills could change. Once a home is converted to non-residential use as a short-term rental, Colorado Springs Utilities or other utility providers in El Paso County could consider charging those properties commercial rates.
  • Homeowners might  need  to  buy  different  insurance.  Most  homeowners  pay  homeowner’s insurance. But if an STR is a commercial property, the insurance needed to protect it could change.
  • More paperwork could be required, and it could mean a larger tax bill. Non-residential property owners must submit an annual Business Personal Property Tax (BPPT) declaration form that lists business equipment associated with the business. While the city and county no longer collect the

BPPT, the assessor is still required to gather the information and value it for school districts, fire districts, the library district and the like. “The current State of Colorado BPPT Exemption is $7,700, which means any Business Personal Property that has an actual value of less than $7,700 is exempt from this tax,” he says.

  • Homeowners could be in trouble with their HOAs. Some of STRs may be in violation of their homeowner association covenants and city and county zoning. Is it proper to operate a commercial short-term rental in a single-family residential neighborhood?

Schleiker also notes that his office’s task of running down all the properties being used as short-term rentals could be a nightmare. While the city licenses short-term rentals and could merely hand over the list to the Assessor’s Office for changes in taxation, the county requires no such license, making the tracking of unincorporated STRs difficult.

Schleiker says he plans to host a series of community meetings to explain what’s going on and why. He also tells the Indy that property is assessed as it stands on January 1, not willy nilly throughout the year as properties shift from one use to another. And since not all STR owners keep their properties listed all the time, the exact time that the property is listed could also have a big impact.

 

Illinois: Cook County Property Tax Bills: Where Does Your Money Go?
Every year when Cook County property tax bills come out, property owners are shocked by increases they cannot understand.

Establishing the amount you owe is a complicated process, and for years the CBS 2 Investigators have been reporting on breakdowns in the system the county’s new assessor hopes to fix.

Pam Zekman has answers for one of the most common questions: where does your property tax money go?

On a North Side home with a $10,000 property tax payment, 54% goes to school taxes; 30% goes to various city taxes; including city government, public libraries, and mass transit projects; 7% goes to various Cook County government bodies; and 9% goes to miscellaneous taxes, including the Chicago Park District and the Metropolitan Water Reclamation District. Of that $10,000 in tax revenue, $2,766 goes to paying for various pension obligations.

The breakdown on where your tax money goes varies for every municipality, depending on what government bodies collect property taxes where you live.

Property values in Cook County are reassessed by the Cook County Assessor’s office every three years, divided into three groups; Chicago, the northern suburbs, and the southern suburbs.

Chicago property owners are getting a bigger hit than the rest of the county this year, because of last year’s reassessments under Cook County Assessor Joe Berrios.

This year, new Cook County Assessor Fritz Kaegi is overseeing the reassessments for the north and northwest suburbs. South and southwest properties are scheduled for reassessments next year. All using a different model than the past.

“One thing you should know is an increase in your assessment does not automatically mean an increase in your tax bill. It has a lot to do with how municipal taxing bodies create the levy for parks, and schools, and libraries, and that sort of thing,” Cook County Assessor’s office spokesman Scott Smith said.

Reassessments typically catch improvements in homes that increase their value, and therefore their taxes; which might explain some of the increases.

CBS 2 previously disclosed reassessment failures under past administrations, like a large home taxed as a vacant lot; and property owners saving thousands of dollars in taxes by claiming homeowner’s exemptions on multiple properties, when you’re only entitled to one on the home where you actually live.

Newly elected last fall, Kaegi now is trying to get state lawmakers to pass legislation to reform the reported underassessment of large commercial buildings, which might result in an unfair burden on residential property owners.

“We feel already we’re making this fairer for people, but we know we have a lot more work to do,” Smith said.

State lawmakers recently shut him down on reforming the reassessment system for large commercial buildings. Smith said Kaegi will try again.

 

Illinois: Assessment sticker shock: Property values — and taxes — keep rising in suburbs
Commercial and industrial property assessments are about 90% higher this year than in 2018

Since taking office more than six months ago, Cook County Assessor Fritz Kaegi has assessed the total value of north suburban commercial and industrial properties about 90 percent higher on average than last year, an effort he says brings the properties more in line with their actual worth.

The sharpest increases have been in Evanston and Barrington, according to Crain’s, which first reported on the county assessor’s numbers.

The move has alarmed some real estate investors, who say the sudden tax hike could force them to scrap planned apartment and office buildings.

Residential property valuations also rose, though less dramatically, jumping almost 17 percent on average between 2018 and this year. The fastest increases were recorded in the O’Hare-area suburbs of Norridge and Harwood Heights, which saw assessed home values spike 27 percent.

Kaegi has said his team is simply following valuation data more closely than his predecessor, Joe Berrios, whose “imaginary” capitalization rate calculations lowered the tax burden on some commercial properties, he said.

Kaegi calculated a 6 percent capitalization rate for apartments in the suburbs of Northbrook, Glenview and Northfield, where Berrios used a 10.5 percent rate, according to Crain’s. A lower rate indicates a higher property value, and commercial properties in wealthier areas rarely post rates over 8 percent.

Kaegi championed a bill in Springfield that would have required large commercial property owners to turn over income data for more accurate assessments, but the bill never made it to the floor of the state House of Representatives.

 

EUROPE

UK: Business rates change ‘must be adequately funded’
Councils have warned that reforms to increase the frequency of business rates revaluations must be properly resourced and contain measures to manage the impact on appeals.

New legislation will see property revaluations in England take place every three years, instead of the current five, and the next revaluation brought forward from 2022 to 2021.

Local government minister Rishi Sunak said the move would ensure estimates reflected property market values and maintain fairness by redistributing the total amount payable across the country.

“We’ve listened to businesses asking for more frequent revaluations and are now acting so their bills will more accurately reflect current property values,” he said. “By bringing forward the next revaluation to 2021, we are making sure businesses can benefit from the change as soon as possible.”

The commitment to introduce more frequent revaluations was announced in the Autumn budget of 2017, while the bringing forward of the 2022 revaluation was included in last year’s Spring Statement. Legislation to bring in three yearly revaluations for business rates north of the border was introduced in the Scottish Parliament in March.

However, the Local Government Association warned that councils were already grappling with a backlog of appeals dating back almost a decade and said adequate resources would need to be provided for the new regime. “It is essential that the Valuation Office Agency and other relevant organisations are properly resourced for more frequent valuations and that the issues with appeals still need to be sorted out,” said an LGA spokesman.

Around £2.6bn is held in provision by councils for revaluation appeals, mostly in relation to the 2010 revaluation for which 55,000 appeals are still outstanding. “These are resources which could be spent on local authority services which are already under severe pressure,” the association said.

But local authorities in London called for the government to go further and introduce yearly revaluations as part of a fundamental reform of the system. “We think government should be more ambitious and bring in annual revaluations,” said a spokesman for London Councils.

Many businesses in the capital had been hit by rate increases of as much as 45% overnight in the last revaluation, which came into effect in 2017, with London businesses as a whole facing a collective business rate hike of up to £1.2bn, he said. “This is clearly a system that is not working for businesses or local councils,” he said.

“We need a system that is more responsive to local needs, reflects the broader context of business taxation and provides a stable funding stream for local government that incentivises growth.”

 

Germany: Germany’s grand coalition to present bill on property tax reform
German lawmakers in the ruling coalition have settled a dispute over property tax reform. A bill is expected to be presented to parliament before the summer break.

Germany’s grand coalition has reached an agreement regarding property tax reform, according to a joint statement from coalition leaders on Monday.

Lawmakers from Chancellor Angela Merkel’s conservative Christian Democratic Union (CDU), its Christian Social Union (CSU) sister party and center-left coalition partner Social Democratic Party (SPD) had met for the first time since the resignation of former SPD leader Andrea Nahles.

The agreement on property tax reform came after a month’s long dispute. Finance Minister and SPD member Olaf Scholz had presented a value-based model for calculating property tax that would apply countrywide. But Bavarian and other CDU/CSU lawmakers wanted a system based on land area and demanded that the states have the right to deviate from federal requirements.

The details of the agreement have not been disclosed, but the document addresses “all substantial questions” in regard to property tax reform. The coalition intends to put the legislation up for debate in the German parliament before it goes on a summer break so the reforms can be implemented this year.

At 49.4%, Germany has the second highest tax rate among developed countries, according to data from the Organization for Economic Cooperation and Development (OECD). Property taxes make up around 2.7% of the tax share.

Property tax has been a hot button issue since Germany’s constitutional court deemed the tax unconstitutional in 2018 because properties are taxed based on their value from the early 1960s (1930s in East Germany).

 

France: What Are Property Taxes Like in the South of France?
There are a wide variety of fees homeowners and renters must pay—though a break is on the way for many

There are two main property taxes in France, plus a wealth tax, according to Jessica Duterlay, a tax associate at Attorney-Counsel, a law firm with offices in London and Nice, France.

The Taxe Foncière is a tax for all property owners and is based on the cadastral income of the property, Ms. Duterlay explained. Typically, the potential rental income is halved to calculate the cadastral income, she said. “The tax is equal to the cadastral income multiplied by the rates fixed by the local authorities,” she said.

Each local municipality has its own rate, and “these rates may be modified from one year to the next,” she said.

A second tax, Taxe d’Habitation, is traditionally paid by the residents of the home, whether they own or rent. It is also based on the cadastral income of the buildings on the property, Ms. Duterlay said.

This tax has gotten more attention in the last few years, and under French President Emmanuel Macron’s administration, most French households will no longer have to pay the levy by 2021. But that’s only if the home is used as a primary residence, according to Ms. Duterlay.

Second-home owners will still be on the hook for the tax, and, in many areas, a house could also be subject to a tax on vacant housing, she added. Authorities may add as much as a 60% surcharge on the tax for furnished homes that are left vacant for more than 120 days per year. So vacation-home owners could be looking at a significant tax hike.

In addition, French households pay a wealth tax (impôt sur la fortune immobilière) on real estate assets of €1.3 million (US$1.45 million) or greater, according to Ms. Duterlay. That applies to non- residents, as well.

There are also transfer taxes due when a home is purchased, she said. These include a departmental tax, usually 4.5% of the purchase price, as well as a communal tax at the rate of 1.20%, and another government charge of 2.37%.

 

Greece: ENFIA to be cut by 30 pct in two years
The new tax bill that the Finance Ministry plans to submit to Parliament by the end of the month will provide for the reduction of the Single Property Tax (ENFIA) by about 30 percent for all owners within a couple of years, starting from 2020.

According to sources, the changes to property taxation that will start applying as of next year foresee a horizontal 20 percent reduction in 2020 and a further 10 percent in 2021. This will come to a cost for the budget in 2020 of 565 million euros plus an additional 285 million euros in 2021.

The changes that will be introduced mean that property owners who currently pay 500 euros in ENFIA each year will see a 100-euro reduction in 2020, paying 400 euros, and a further reduction by 50 euros in 2021, to 350 euros. Owners of large properties paying 2,500 euros in ENFIA per year will get a 500- euro reduction next year and pay 2,000 euros. A further 10 percent decline will apply from 2021.

This year’s ENFIA will be calculated in August, when the pay notices will be forwarded to owners, with the first of the five instalments due by end-September and the last one due by the end of January 2020.

Compliments of the International Property Tax Institute (IPTI), a member of the EACCNY