The Senate gave preliminary approval to a bill that would repeal a controversial new law requiring Maryland homeowners to apply for a property tax credit they have been getting automatically until now.
But the ultimate prospects for the repeal measure, which comes up for a final vote next week, are murky. The head of the House committee considering a similar bill says she sees no reason to retreat on a Homestead Tax Credit reform intended to weed out scofflaws.
The Senate voted 41 to 4 to repeal the application requirement, which sailed through the General Assembly unanimously last year.
State officials and legislators have been peppered with questions and complaints from constituents about having to apply for the homestead credit since December, when the Department of Assessments and Taxation included information about the new requirement with reassessment notices mailed to 700,000 property owners across the state.
The credit limits how much a home's assessment can increase in any given year, a cap that can reduce the owner's annual property tax bill by hundreds or possibly even thousands of dollars as real estate values rise. State law limits the assessment increase to 10 percent a year, but most Baltimore area jurisdictions have set even lower caps.
The credit, under which owners pay tax on less than the full value of their home, is estimated to be worth nearly $1 billion to state property owners this year.
The credit has been practically automatic because it gets attached to properties when they change hands. Buyers get it by signing an affidavit saying they intend to live in the home. Many are unaware they were getting it - and many also stray unwittingly, when they buy another home and rent out their old one without notifying the government.
But some apparently misstate their intentions to live in a property they're buying in order to claim the credit, officials say.
Sen. Edward J. Kasemeyer, the Senate majority leader and sponsor of the repeal measure, has said that homeowners, especially the elderly, were confused and upset about the new application requirement - and the possibility they might lose a valuable tax credit that many were not even aware they were receiving.
"We think people should be paying ... for investment homes," he said. "Only our problem is that many people have overlooked the notice, that it hasn't been done in the proper way. We think there's a better way for the department to do this, simply."
But Sen. James C. Rosapepe, a Prince George's County Democrat who sponsored the application requirement law that passed last year, warned that legislators would be turning their backs on apparently widespread tax fraud.
"As a result of the increase in property values over the last few years, there's tremendous incentive for folks who have rental property, for example, to claim to live in a house they don't really live in," Rosapepe said.
He said that in areas of the state with a lot of rental property and vacation homes, such as Ocean City, College Park and the Washington inner suburbs, many people appear to have improperly claimed the credits.
State officials say they don't know how many of the 1.4 million properties getting Homestead Tax Credits are not entitled to them, because there's no easy way to check. Legislative analysts estimated that local governments could miss out on $10 million in revenues if just 2 percent of the credits are improperly claimed.
A recent spot-check by The Sun of nearly 90 rental homes listed in Baltimore and Howard counties found that nearly one in three is identified in state records as the owner's principal residence. That means the owners of those rental properties claim to be living there, potentially allowing them to get a Homestead Tax Credit they don't deserve.
The repeal of the application requirement is supported by the Maryland Association of Realtors. Some real estate agents own investment properties, but their lobbyist said the group supports the repeal, as members say homeowners might miss out on the credit over confusion about it.
Rosapepe, however, said homeowners have nothing to fear, since under the current law they have up to five years to apply before they risk losing the credit. Buyers of new homes are required to file their applications at the time of purchase. "I gather the argument for repealing it is that some people don't like to file a form to prove they're entitled to thousands and thousands of dollars in tax benefits," the Prince George's senator said.
The emergency repeal, which would take effect in July, must pass by a two-thirds majority to become law. Though likely to clear the Senate based on yesterday's preliminary vote, it could be doomed in the House.
Del. Sheila E. Hixson, chairwoman of the House Ways and Means Committee, said yesterday that she's "not inclined to do anything" with a similar Homestead Tax Credit bill now pending in her committee.
"I think people overreacted," said Hixson, a Montgomery County Democrat. But she noted that with five years to apply before losing the credit, there should be ample to sort things out.