Member News

Update on Property Tax Issues: November 2017

 By Paul Sanderson | Donald LiebmanIPTI

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep members up to date with the latest developments in property taxes both 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).

As far as Europe is concerned, this month’s report includes articles on Greece, Ireland, the Netherlands and the United Kingdom. There is a separate IPTI report on the United States, with a focus on New York.

Greece: One fifth of Greeks covering 83 pct of annual income taxes

The left-led government’s blasé response to criticism of its over-taxation of the middle class can be explained by the fact that it actually only affects a relatively small section of the population: From a total of about 8.8 million taxpayers, 80 percent, or 7.1 million, pay from zero to 100 euros per month in taxes. As for the Single Property Tax (ENFIA), four in five property owners also pay from zero to just 42 euros per month.

An analysis of tax declarations reveals that 80.8 percent of taxpayers – those who declare a low income – are responsible for just 16.8 percent of the total income tax on individuals, meaning that the remaining 83.2 percent of that tax is covered by 19.2 percent of Greeks.

This is because 7,091,832 taxpayers pay an average of 190 euros per year to the tax authorities, while 1,676,485 taxpayers with relatively higher incomes pay 21 times more on average, or 3,985 euros per year. It also explains why Finance Minister Euclid Tsakalotos had no qualms about admitting to overtaxing the middle classes, given that four in five Greeks are not actually affected by it.

With the exception of the reduction of the tax-free threshold – which was something the country’s creditors insisted on so as to broaden the tax base – all of the other measures adopted by this government have contributed to concentrating the burden on a small section of the population: changes in the calculation of social security contributions and the solidarity levy, the new income tax brackets, changes to the way freelance professionals are taxed, the increase of the burden on people who receive both a salary and work freelance, and shifting part of the ENFIA load through the supplementary property tax.

In ENFIA’s case in particular, from a total of 6,390,936 individuals who receive a payment notice, some 77 percent, or 4,924,012 property owners, have to pay no more than 500 euros per year. This adds up to 911 million euros, which is only one third of the amount individuals pay for the property tax. Consequently, the remaining 1,466,924 people, or 23 percent, have to cover the rest, which is 1.8 billion euros or two thirds of the ENFIA collections the Finance Ministry expects every year from individuals.

 

Ireland: Property tax unfair on Dublin householders and council, city chief says

Tax exemption for new homes needs attention ‘to remove inequity’, says Owen Keegan

Government must “remove the inequity” which allows owners of new homes to escape paying Local Property Tax (LPT), Dublin city chief executive Owen Keegan has said.

Dublin City Council faces losses of €15 million as a result of a loophole which exempts homes built since 2013 from the tax.

The rate of property tax paid by homeowners is based on the value of the property in May 2013. Houses and apartments bought from a builder since 2013 are exempt from property tax. The exemption was due to last until October 2016.

However, in 2015 the then minister for finance Michael Noonan announced the valuation thresholds for LPT would be frozen until October 2019, meaning households paying the tax will not see an increase in their bill until then.

This extension was also applied to the exemption on homes sold by builders after the 2013 valuation date, giving new-home owners an extra three LPT-free years.

In a report to councillors on the city’s budget for 2018 Mr Keegan said the exemption “requires prompt attention to remove the inequity among householders and address the loss of funds”.

Mr Keegan also described the treatment of the city council by the Department of Housing in relation to the allocation and retention of the tax as “disappointing”.

Equalisation fund

The Revenue Commissioners estimates that Dublin city householders will owe just under €80 million in property tax next year. The council gets to keep 80 per cent of the LPT fund with 20 per cent of the money shared out among poorer, largely rural local authorities through the “central equalisation fund”.

The city council gives a 15 per cent discount to householders on the Revenue’s headline rate. However, the discount is applied only to the city council’s portion of the receipts, and not to the 20 per cent doled out to the rural councils.

From 2015 to 2018 almost €64 million paid by Dublin city householders has been “ring-fenced to fund local services outside Dublin city,” Mr Keegan said.

“The LPT has been heralded as the commencement of a stable source of funding for local government. Through the manner in which it has been applied it provides marginal additional funding, unrelated and well below the cost of services demanded.”

Councillors will tonight be asked to approve a total budget of €917 million for running the city’s services next year, its largest budget since 2009 and €54 million higher than in 2017.

However, most of the budget increases next year will be absorbed by the homelessness crisis. More than €142 million is to be spent providing homeless services in 2018. In 2017 the council budgeted just over €119 million for this cost but this has been revised upwards to €134 million.

Left-wing councillors are to seek a deferment of the budget meeting until “sufficient resources to build public housing on publicly-owned are obtained”. The councillors want the Government to fund the construction of 12,000 additional homes.

 

Netherlands: Amsterdam WOZ property values hit highest-ever level

The average value of homes in the Netherlands has increased for the second consecutive year, the national statistics office CBS reported on Thursday.

On 1 January 2017, the average valuation stood at €216,000, 3.3% higher than in 2016. Amsterdam has the highest WOZ value in the country at €290,000 per unit. This is up 11% on the previous record which dates from 2010.

Valuations in Utrecht and in towns near Amsterdam also saw substantial increases. The WOZ value of a property is used to calculate local government taxes and is based on the sales price of similar homes over the past few years. This is why the WOZ value lags behind actual house price developments.

In Amsterdam, for example, the average price of a city apartment is now over €370,000, according to figures from the city’s real estate agents’ association. In Noord-Holland province the average valuation rose by 8% to €259,000, the biggest increase in all 12 provinces. The lowest average valuation (€157,000) was seen in northern Groningen province which nevertheless registered a small increase of 1.3% over 2016.

 

UK: English private schools on alert as Scotland raises tax

Nicola Sturgeon has been accused of fighting a class war

Private schools in Scotland are to be forced to pay full business rates as part of a drive by Nicola Sturgeon that has been branded a class war.

Independent school leaders warned this weekend that parents could see hundreds of pounds added to their annual fees after the Scottish government announced the plans, which will cost the sector an extra £5m a year.

If the government in Westminster took a similar step, some smaller schools would have to close, head teachers warned.

Top schools such as Eton College are eligible for huge discounts on their business rates because, like most independent schools, they are charities. This saved Eton more than £500,000 last year.

The tax increase comes as Sturgeon’s government tacks to the left, with plans to raise income tax for higher earners and to reduce university entry requirements for deprived children to ensure the poorest account for 20% of places by 2030.

Barnaby Lenon, chairman of the Independent Schools Council, said: “The average independent school in the UK has only 150 pupils and makes very little in terms of financial surplus each year.

“The imposition of additional business rates on independent schools will cause some to close. Others would have to cut back on bursary funding for low-income families — one of the things the English government has said it wants more of.”

He added: “By educating children that would otherwise be in the state sector, independent schools will save the UK taxpayer £4bn this year — a huge sum compared with the benefits of business rates relief.”

Head teachers in Scotland say that having to pay the tax will put schools with boarders, such as Fettes College, attended by Tony Blair, at a competitive disadvantage compared with schools elsewhere in the UK

Scottish ministers are examining how they might mitigate the charge for smaller independent schools that cater for children with special needs.

About 30,000 pupils in Scotland are educated in the independent sector, including one in four pupils in Edinburgh.

Private schools in Scotland have been required to pass public interest tests to retain their status as charities, including providing means-tested bursaries for those least able to pay and making sports facilities available to the wider community.

John Edwards, head of the Scottish Council of Independent Schools, said: “Taking away the relief will simply undo the widened access and shared facilities that charitable status requires.

“In both cases the state and other bodies will pay more as a result.”

Richard Cairns, head master of Brighton College, said: “Independent schools already pay millions of pounds in taxation each year and, more importantly, they educate hundreds of thousands of children at no expense to the taxpayer. This measure is politically motivated and short-sighted in the extreme.”

 

UK: Launch of All Party Parliamentary Group on Land Value Capture

In July of this year ALTER floated the idea of a Progressive Alliance round Land Value Taxation and put out a call for the formation of an All Party Parliamentary Group on Land Value Tax in advance of our fringe at Bournemouth on this theme.

In a pre-budget speech in the City of London this week, Sir Vince Cable laid out Liberal Democrat proposals for tax reform including investigating the feasibility of Land Value Taxation (LVT).

He said: Authoritative analysis of the British tax system, notably the Mirrlees Report, makes it clear that the taxation of land is the most economically efficient and rational form of taxation, the least open to evasion and avoidance and the most relevant to contemporary needs such as better utilisation of land for housing. The Lib Dems are committed as a first step to replacing business rates with site value taxation.

Sir Vince will Chair the inaugural meeting of the All Party Parliamentary Group (APPG) on Land Value Capture to be launched at Westminster next month, supported by Sir Edward Davey MP who has been active in investigating cartel-like practices and leasehold abuses in retirement homes

The 2017 Conservative manifesto included a commitment to registering all UK land and reforming land value capture as a means of funding local infrastructure. Richard Bacon MP (Conservative), who steered the Self-Build and Custom Housebuilding Bill through Parliament in 2015 will serve as Vice-Chair of the APPG. The South Norfolk MP has called for a revolution in people building their own homes as a means of fixing the broken housing system. According to Mr. Bacon, serviced plots can be sold for £55,000 (or rented out by local authorities) and a house built for between £80,000 and £160,000 dramatically reducing the costs that new households currently face.

Caroline Lucas MP (Green) who presented a private members bill in 2012 calling on the government to undertake a feasibility study into the introduction of LVT will also serve as a vice-chair.

Labour’s 2017 manifesto promised to “…review council tax and business rates and consider … land value tax, to ensure local government has sustainable funding for the long term.” Ruth Cadbury MP, who has served as part of Labour’s shadow housing team will represent the Labour party position on the groups governing committee.

The SNP conference passed a resolution in March this year backing LVT as a mainstay of Scotland’s land reform program,

ALTER is a member of the Coalition for Economic Justice. The CEJ comprises political groups, pressure groups and charities who came together in 2008 in response to the economic crisis of that year and who have continued to work together for the establishment of justice in economic affairs. The cross-party group proposes the introduction of LVT and will furnish secretariat services to the new APPG on Land Value Capture.

 

UK: List reveals more than 100 local authorities are failing to distribute business rate relief properly

The Association of Convenience Stores (ACS) has called on the government to take further action to ensure that local authorities distribute rate relief properly after it was revealed that more than 100 authorities were yet to issue amended bills to businesses.

The list, published this week by the Department of Communities and Local Government (DCLG), shows that as of 13 November, 110 local authorities have not rebilled businesses to reflect the £300m discretionary relief scheme announced in the Spring Budget earlier this year.

James Lowman, ACS chief executive, said: “Thousands of local shops saw significant increases in their business rates bills as a result of the revaluation earlier this year.

“The £300m discretionary scheme is supposed to alleviate some of the pressure of rising business rates costs, but businesses in over 100 local authority areas are still waiting to find out how councils are planning to spend that money.  The government needs to apply further pressure to ensure that businesses receive the reliefs that they’re entitled to as soon as possible.”

The list also revealed that 35 local authorities were yet to issue amended bills which cap the annual business rates increase for those losing small business rate relief or rural rate relief as a result of the revaluation, another measure announced in the Spring Budget.

Lowman added: “Local shops trading in rural and otherwise isolated locations are absolutely essential to their communities and many of them are having to delay or cancel investment plans as a result of increases in their rates bills. It is vital that the affected businesses in these areas are issued with accurate bills reflecting the cap announced in the Budget so that they can plan for the future.”

In October high streets minister Jake Berry spoke to ACS’ annual Heart of the Community conference, urging retailers to contact him directly if local authorities had not issued reliefs properly. At the time, more than 150 councils had not issued discretionary relief.

A DCLG spokesman said: “Ministers have been clear that all relief available under these schemes must be awarded to eligible businesses as soon as possible.

“Following the publication of the list, which allows local businesses to scrutinise how their authority is progressing, we are continuing to encourage councils to take forward their schemes and re-bill their local businesses.”

 

New York State–

  • PAY TAXES—OR TAKE THE RISK

New York City had for decades utilized a system to deal with unpaid real estate taxes that is commonly referred to as “In Rem”.

In the typical In Rem scenario, the government acquires title, through legal proceedings, to properties on which taxes have been delinquent for a certain minimum period. The In Rem process in New York City historically took a very long time, encountered various legal challenges, and resulted in the government shouldering the responsibility for operation and management of many buildings that may have been rundown or otherwise marginal. Also, it might be many further years before the City recouped some if not all of the tax delinquencies through auctioning of the In Rem foreclosure properties to private buyers.

In the 1990’s the City shifted to a system of annual tax lien sales. The benefit and simplicity of the lien sale system is that the City gets repaid the delinquencies promptly, and the trust set up to raise the capital to purchase the liens bears the burden of ultimately foreclosing upon and selling the properties in order to recoup its investment.

The system seems to have been working well for New York City, and at least one recent case shows it to be working well further down the process. In NYCTL 2013-A TRUST v. Ali, the NY State Appellate Division upheld a lower court decision approving the foreclosure and sale of certain property, finding that there was no basis to challenge service of process in the foreclosure action brought by the lien trust.

 

  • GEORGIA —TO COLLECT OR NOT TO COLLECT

The Georgia State Department of Revenue (DOR) had temporary halted the collection of taxes by Fulton County—the state’s most populous — until a judge could hear arguments as to whether the County’s 2017 tax digest was enforceable.

The dispute arose as to whether the 2017 assessments—some of which reportedly spiked 200%—were properly issued and whether appeal rights of taxpayers were properly administered. County leaders sought to at least temporarily collect taxes based on 2016 assessments, but the DOR questioned their authority to do so.

In November, the Superior Court issued a decision following argument on the County’s request for the immediate and temporary collection of taxes recognizing the dire economic consequences of prohibiting any collection of taxes, authorizing billing and collection of taxes using the 2017 tax digest.

  • CALIFORNIA —WILDFIRE LOSSES REDUCE TAXES

It is a given in the property tax field that an assessor must recognize fire damage. That is exactly what will be happening following the October 2017 wildfires that roared through Northern California. Estimates of the losses over 24 days included 245,000 acres (98,148 hectares), 8,900 buildings, US $3.3 billion, and unfortunately, 43 fatalities.  (California law requires it.)

The Sonoma County Assessor’s Office has sent staff into the field to inspect some of the damage and calculate tax relief. They report that their work has been aided by aerial photography and GIS software, especially in the more remote and mountainous areas of the state.

The impacts to the tax levy have yet to be fully realized, and unfortunately the municipality may very well have to do more with less.

 

  • PENNSYLVANIA —TAX FREE LIVING?

Some time ago, we reported on a proposal known as the Property Tax Independence Act, under which its proponents argued property taxes should be eliminated, and replaced with sales and income taxes, in the State of Pennsylvania.

In the November election, Pennsylvania voters approved a ballot referendum that would allow the state legislature to pass a law permitting local taxing jurisdictions to exempt primary residences from taxation. Even were such a law to be enacted, many questions remained unanswered, such as: How would the localities compensate for the revenue losses? How would school district budgets be funded?  Would years of legal wrangling ensue over the passage of new laws necessary to raise other types of taxes?

Stay tuned.

 

  • BIG-BOX UPDATES:

Indiana: A settlement agreement entered into between St. Joseph County and Meijer (a supermarket chain selling groceries, clothing, gasoline, sporting goods, electronics, etc.) will refund about US $3.5 million to the giant retailer, it has been reported. Although the property tax appeals were settled, the pay-out may have a material impact on local coffers.

Michigan: The midwestern United States, and specifically Michigan, has been the epicentre of major property tax cases utilizing the “Dark Store” approach. Proponents of this valuation approach argue that big-box retailers and home-improvement chains—such as Menards, Loews, Home Depot, Kohl’s, and Walmart—are so unique, and their properties so large-scale and purpose-built, that a typical retail tenant would have no use for their properties. Thus, goes the argument, such properties should be valued for property tax purposes as if vacant (hence “dark”).

The Michigan Supreme Court recently rejected an appeal by Menards from a 2016 decision favouring the municipality. The case has been returned to the Tax Tribunal for further proceedings.

*   *   *

Compliments of IPTI, a member of the EACCNY