Tax Proposal Considerations

The April 1, 2019 Town Council discussion of the proposed adjustments to the Senior Exemptions and the institution of a Homestead Exemption was complicated by the reminder that the Town is waiting for a RIPEC study of the 2018 proposal to completely change the way taxes are assessed in Middletown.

In October, 2018, I reviewed the tax rolls and compared the taxes paid by every town resident for the past 4 tax years, including the years of re-evaluation. In early May, I addressed my concerns to the Middletown Town Council as follows:

Following observations based on comparative study of actual data, I determined that Seniors who own property in close proximity to the beach will see increases in their property taxes, and Seniors who live more centrally or on the west side will see decreases in their property taxes.

These observations led to the conclusion that statements that suggest that seniors are being forced out of their homes by taxes are misleading or at least disingenuous.

Actual personal experience with two houses of different values reflected minimal increases of an average $115 per year over a 17 year period and $66 per year over a 12 year period, including 5 re-evaluations, which did not seem excessive.

This experience led to the conclusion that the system that is being proposed seems to be aimed at those property owners who seem to need relief the least rather than those who are in the most need. It seemed clear that the existing exemptions seemed to be providing necessary relief.

There appeared to be a number of major concerns going forward.

Making revolutionary changes to the tax system in a single town needs to be based on more research as it would apply to the local economy and its relation to the state economy than on experiences in another state. 

The listed owners of many Middletown properties are legal trusts, which would facilitate property value stagnation, effectively protecting the properties from tax increases in perpetuity.

The burden in Middletown would shift to the average property owner who might see a drop in value but an increase in taxes

We do not know what the impact will be on the Town’s revenue and expenditures.

We do not know the possible impact on sales of property – both residential and commercial. For example, could a hotel evaluated a $6 mil be harder to sell if its value increased to $13 mil with concurrent tax increases?

I concluded my remarks by saying that the TC had been reluctant to spend resources on many projects that are pending.  Furthermore, rushing to institute a revolutionary tax system without complete information provided by an unbiased source suggests a reluctance to hear about potential issues that could negatively affect the town for decades.

Before the end of 2018, Middletown contracted for a RIPEC study.

Exemptions Proposed at April 1, 2019 TC meeting

At the April1, 2019 meeting of the Middletown Town Council, there was considerable discussion about proposals regarding property tax exemptions. The Town currently provides a variety of exemptions:

                                    Veterans                      Real Estate, Motor Vehicle Exemptions

                                    Seniors 65-74              Flat Exemption

                                                                        Income Based Exemption

                                    Seniors 75+                 Flat Exemption

                                                                        Income Based Exemption

One proposal focused on increasing the exemptions on residential property, based on age as well as on income.

The second, a Homestead Exemption, was intended to provide tax relief to those whose primary residence is in Middletown.

The new proposal to increase the Senior Exemptions recommends changing the age brackets  to 65-69 and 70+. It also adjusts the income-based requirements.

The Homestead Exemption is intended to provide tax relief to residents whose primary residence in in Middletown.

The fact that Middletown is an attractive destination for tourists has resulted in an increase of short-term rentals, which many regard as profit-making entities, while the year-round residents are responsible for maintaining the superstructure that supports that commercialism.

The proposal for a Homestead Exemption is intended to level the playing field by shifting more of the financial responsibility to those who benefit.

 The Homestead Exemption would apply to property which is the resident taxpayer’s “principal residence and legal domicile.”

The principal residence would be “legally titled to the resident taxpayer, a trust to which the resident taxpayer is the named beneficiary, or to a corporate entity owned and controlled by the resident taxpayer.”

The property would have to be “used exclusively for residential purposes and improved with a dwelling containing less than five units, or used for a combination of residential and commercial uses.”

The resident taxpayer must hold legal title to the property as evidenced by the address on the owner’s driver’s license, car registration, federal income tax return, state income tax return, the Middletown voter’s address and/or other documents.

In the case of multiple units within the property, the property tax would be pro-rated to reflect the owner-occupied area

One of the most important issues to be resolved is the impact of exemptions on Town revenue. In the development of the Town Budget, the proposed expenditures are identified – those items that require funding, such as salaries and superstructure, as well as new efforts to promote economic growth and development. Taxes provide that support.

Before exemptions can be increased, it is important to identify the consequences of the resulting loss of revenue and identify the sources of replacement. How would the costs shift? What would be the impact?

As a new entity, a Homestead Exemption must be approved by the legislature.  While the details – the exact amounts, age requirements, etc. – need not be identified at this time, a basic proposal must be presented and approved within the next few weeks if a Homestead Exemption is to be implemented for the next tax assessment.

A delayed decision means that no action can be taken this year, and residents will have to wait another year for potential relief.