Tax breaks have cut into fairness
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By Jesse Roman
Everyone gripes about taxes. Everyone is paying too much. Nobody thinks it’s fair.How to make the tax system more fair is a debate that will surely rage as long as taxes exist.
Is Act 60 fair? Last week, (see last blog post below) we showed that tax-rate discrepancies between Stowe and other towns have shrunk significantly since Vermont’s complicated school-funding law was adopted in 1997. But there’s a lot more to consider.
For instance, if Stowe and Morrisville pay the same tax rate, but Stowe has much higher property values, doesn’t Stowe get a raw deal?
What about the increase in tax exemption programs, such as income sensitivity and current use, which reduce taxes for some and drive up taxes for others?
Vermont Tax Commissioner Richard Westman says income sensitivity and another tax exemption — the current use program, designed to preserve open land — have helped cause property taxes statewide to skyrocket.
Vermonters earning less than $90,000 a year don’t pay school taxes based on property values; their taxes are capped at about 2 percent of their income. That gap between what they should pay and actually do pay, is what drives up taxes for those who don’t qualify for tax exemption programs.
And, when people’s school taxes are not tied directly to actual school budgets, “less people have skin in the game,” Stowe Rep. Heidi Scheuermann said in a recent interview. Why vote down an extravagant school budget if it won’t raise your taxes?
These laws and exemptions actually make the system less fair than it was even before Act 60, Westman says.
“Not only have we created inequities in one community vs. another, we’ve internally built in numerous differences for people, based on income and what kind of property they own, and those inequities have become much greater than we had before we developed the statewide property tax,” Westman said at a presentation in Stowe.
The winners and losers here are clear — those with exempt properties pay less; those making over $90,000 per year, or who don’t qualify for current use, pay much more.
Which category Stowe fits into, however, is less clear-cut than many believe. Stowe benefits from these exemptions much more than the average community.
Stowe benefits
According to the state tax department, just over 55 percent of residential property in Stowe is not taxed fully because of income sensitivity. That is well below the Lamoille County average of 69.1 percent and the state average of 66.3 percent. However, because of Stowe’s high property values, the size of the town’s income-sensitivity tax exemptions far exceeds any other town in the county, and dwarfs the state average.
Stowe taxpayers saved a total of $2.1 million in school taxes last year, an average of $3,282 for each of the 647 properties that qualified for income sensitivity.
The average tax savings per resident in Stowe is the highest in the state except for tiny Landgrove, where residents saved an average of $3,926.
In Morrisville, income sensitivity saved taxpayers a total of about $1 million, an average of just $1,055 per property.
Statewide, the average savings from income sensitivity was $1,182, about a third of what the average Stowe taxpayer saved.
Current use — the law that exempts open land from full taxation — also affects Stowe disproportionately because of its high property values. Last year, Stowe taxpayers in current use didn’t pay taxes on $59.2 million of property, saving over $1 million in taxes, including $961,000 in school taxes, according to state data.
Only Woodstock has more current-use tax exemptions than Stowe.
Current use saved Morrisville taxpayers only about half as much in taxes as Stowe.
When added together, Stowe’s roughly $3.6 million in tax exemptions far exceed any town in Lamoille County, and rank very high statewide, despite the town’s relatively low population of less than 5,000.
Stowe has more tax exemptions than Woodstock, Rutland, Barre (city and town combined), Montpelier, Bennington and Brattleboro, to name a few.
Burlington, which has a population roughly 10 times Stowe’s, has only $1.8 million more in income sensitivity and current use exemptions.
Property values
Of Stowe’s gripes with school funding, the biggest may be the way property is valued.
“I think if you took a look at the increase in property values, I bet values in Stowe have gone up faster than the rest of the county,” Westman said in an interview last week. “So Stowe is forced to pay the same rate as everyone else, but at the same time, their values have gone up faster than everyone else. You can’t just look at the rates; you have to look at the growth in communities, too.”
In a normal year, a house in Stowe is likely to increase about 12 percent in value, says Tom Vickery, the longtime town appraiser. The figure might be 8 percent or less in other towns.
Over time, that adds up.
In essence, “we’re sending more money to Montpelier because inflation is increasing faster (in Stowe) than other parts of the state,” Vickery says.
Since Act 60 was enacted in 1997, the total value of Stowe’s taxable property has grown more than 217 percent, according to state tax figures. Morristown’s grand list has grown 142 percent in that time, and the state average growth since 1997 is 120 percent.
However, rising values aren’t the only thing that expanded Stowe’s total property value. Development, including the huge Spruce Peak project at Stowe Mountain Resort, add huge value to the property-tax rolls.
Vickery says Stowe typically has 2 to 5 percent new construction growth per year, while most communities average 1 percent at best.
However, for the first time in many years, Stowe’s grand list growth was under 2 percent last year, below the county average. And property values in Stowe, for the first time in a long time, are decreasing.
Two years ago, Stowe houses were selling, on average, 20 percent above the appraised value. Now, sale prices are only 5 to 10 percent higher than the appraisal, Vickery said. So, a house assessed at $400,000 for taxes would have sold for about $476,000 in 2007, and for about $420,000 today.
However, state school-tax formulas consider the last three years’ worth of sales. Back in 2006 and 2007, when prices were high, Stowe had 40 percent more sales than in 2008, when prices dipped. So, in calculating Stowe’s property values for school taxes, the formulas are weighted heavily toward those years when prices were high.
Vickery is appealing to the state, hoping for a formula change that better reflects the actual real-estate market in Stowe.
“Everybody in the state has seen some value decrease, but not as much as Stowe,” Vickery said. “My job is to make sure Stowe is treated fairly in regard to where sales actually are.”
If the state agrees with Vickery, the school tax rate could be lowered about 2 percent this year, he said, and even more next year.
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