Repeal of tax law being considered

Bill restores automatic homeowner protection

General Assembly

January 31, 2008|By Timothy B. Wheeler | Timothy B. Wheeler,Sun reporter

Stung by public backlash, a growing number of lawmakers are considering the repeal of a new law requiring that all Maryland homeowners apply for a tax credit they previously had received automatically.

A bill heard yesterday by the Senate Budget and Taxation Committee would restore the automatic protection homeowners have had from being taxed for the full value of their homes when property assessments rise rapidly.

Last year, the General Assembly unanimously approved the new law, which requires that all homeowners apply for the Homestead Tax Credit. They did so after state and local officials warned that owners of multiple properties or vacation homes might be cheating the government out of millions of dollars in revenue by improperly claiming the credits, which are reserved for principal residences only.

Sen. Edward J. Kasemeyer, sponsor of the repeal bill, said the public is confused and angry about the application requirement, which was included in the annual property assessment notices mailed in December to more than 700,000 property owners.

"All this is doing is adding an extra level of anxiety to the average Joe," said Kasemeyer, a Howard County Democrat and the Senate majority leader.

Testifying yesterday before the Budget and Taxation Committee, Kasemeyer said that the effort to weed out tax cheats was well-intentioned. But doing it now is "bad timing," he said, given the many Marylanders' struggle to cope with rising costs of various types and homeowners' complaints about the applications .

Nineteen of the Senate's 47 members signed on to the repeal bill when it was submitted, and Kasemeyer told the committee yesterday that the measure had picked up three more co-sponsors. As emergency legislation that would take effect immediately, it needs a three-fifths supermajority to pass.

About 42 percent of the homeowners to whom assessment notices were maiiled at the end of last year have filed applications for the homestead tax credit, said C. John Sullivan Jr., director of the state Department of Assessments and Taxation.

Electronic filing

Of more than 200,000 homeowners who have filed for the tax credits, about 50,000 have done so electronically, with the rest submitting paper applications, Sullivan said.

He said his department is handling a huge amount of paperwork and that many property owners have questions. A toll-free number set up to field the questions has logged more than 22,000 calls, he said.

Lobbyists for the state's real estate agents endorsed the repeal, arguing that the application process is confusing and that it might prevent some homeowners who are legitimately entitled to the tax credit from getting it.

"If even one of these people has trouble applying for the credit, and lose it, it's a tragedy," said Mark Feinroth, lobbyist for the Maryland Association of Realtors.

Failure to get the tax credit could be costly, as it can shave hundreds or, in some cases, thousands of dollars off of a homeowner's annual tax bill.

10 percent cap

The state homestead credit law puts a 10 percent cap on the amount of a home's increased value that can be taxed each year. The law allows localities to set even lower ceilings, and many have.

People who have bought a home this year have 180 days to apply for the credit. Current homeowners have until the end of 2012 to apply for the credit. But only those who received assessment notices in December have been advised to apply, and only those homeowners have been given access codes to do so online.

The online process was confusing, Feinroth said, pointing out that the letter he got with his reassessment notice said he had until April 1 to file electronically. State officials said that deadline was set to avoid overloading the computer system they are using to process the applications, but it doesn't prevent homeowners from submitting a paper application later.

State officials said they have no idea how many of the 1.4 million property owners receiving homestead tax credits are claiming them improperly. If even 2 percent of the credits are wrongly claimed, that costs the state $10 million a year in taxes, they said.

Sullivan, the chief of state assessments and taxation, warned lawmakers that eliminating the application would substantially reduce the state's ability to weed out property owners getting the homestead tax credit on multiple properties or vacation homes.

Opposing repeal

Representatives of county governments also opposed the repeal, arguing that those who are wrongly claiming tax credits are forcing everyone else to pay more in taxes. They urged the legislature to give the department a chance to upgrade its public information on the credit or amend the law somehow.

Kasemeyer said the state probably could have done a better job of informing the public about the application requirement.

"I think it's a good idea," Kasemeyer said of the tax-credit screening, "but not the right time."

He said he didn't mind the application requirement but that "right now, I'd like to get rid of it."

tim.wheeler@baltsun.com

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