Landlords to be billed

County seeks to recover undeserved tax breaks

August 17, 2008|By Larry Carson | Larry Carson,Sun reporter

Hundreds of Howard County homeowners who also own rental properties soon will receive bills for undeserved property tax breaks they received under Maryland's Homestead Tax Credit program.

The county expects to collect an extra $1.5 million in revenue after newspaper articles in April prompted officials to check their list of rental licenses against the state Department of Assessments and Taxation records of those receiving credits.

As a result, county Finance Director Sharon Greisz said, $800,000 in credits were removed from 1,000 tax bills that were mailed to rental property owners July 1, and the county is seeking $725,000 more in back payments from those who collected the credits over the previous three fiscal years.

"It has to be for your principal residence," Greisz said about the property tax credit. Howard, along with Baltimore City and Baltimore County, requires rental properties to be registered.

State law changed last year, requiring homeowners to apply for the Homestead Tax Credit by 2013 instead of receiving it automatically. Concern that some homeowners who are eligible might miss getting the credit prompted an unsuccessful attempt in the General Assembly this year to repeal the change, which was aimed at revealing which property owners are receiving undeserved credits.

An article in The Sun on Aug. 10 disclosed that five state legislators had received the credits on multiple properties, though none represent Howard County. All said they were unaware that they were getting benefits to which they were not entitled.

"You sign 100 documents at settlement, and five years later you may have moved. In most cases, it's an honest unawareness," Greisz said of the duplicate credits.

Of those 1,000 rental property owners who lost credits for this fiscal year, 640 had received a total $500,000 in credits for the fiscal year that ended June 30, while 350 got $175,000 in credits for the year before that, and 190 got $50,000 in credits for fiscal 2006.

Individually, the bills due for mailing this month range from a low of $92 to a high of $2,800, with most about $1,000, Greisz said. Recipients will have time to pay up, she said.

"We're willing to work out a payment plan as long as it gets paid by February or March," Greisz said, referring to the time when the county starts preparing the list of properties for the annual tax sale in May.

The Homestead Tax Credit program limits how much of a home's increased value is taxed each year as a way of protecting longtime residents from sudden, sharp increases when home values rise. Howard County limits that taxable assessment increase to 5 percent per year.

"It's very important that we only give the homestead credit to people who deserve it," County Executive Ken Ulman said. "I'm very pleased we've taken a proactive position on this."

The number of people receiving the credit rose precipitously this decade as home values sharply escalated, Greisz said.

In fiscal 2002, only 6,200 county homeowners got the credit, worth a cumulative $465,000. This year, she said, 72,000 county homeowners got $103 million worth of tax breaks.

"We've had huge increases in values," she said.

Statewide, the tax breaks are worth nearly $1 billion.

Ulman said the unexpected revenue is welcome, a sentiment echoed by Raymond S. Wacks, the county's budget director.

"It is even more important right now with the economy tightening," Ulman said.

Said Wacks, "It is going to be a difficult year. I'm anticipating potential shortfalls in highway user money, transfer and recordation taxes and maybe in income taxes. There hasn't been much good news lately."

Greisz began her inquiries in April, she said, and Howard Levenson, state assessment supervisor for Howard, said it took his staff several weeks to manually compare the rental records with tax credit records. Ulman said the county found that software used to record the rental licenses would not communicate with software used for tax records.

The county is in the midst of a major effort to upgrade and unify computer software countywide, he added.

Ulman has a double interest in the issue as both county executive and as a homeowner who also owns a rental home. He was careful when his family bought a detached home and rented their River Hill townhouse not to receive the credit on both properties.

"I knew that homestead cap is only for a primary residence," he said. "I clearly understood that when I got my rental license."

At the same time, he said he understood that people who are not real estate professionals might miss it.

"There are good, well-meaning people who just don't understand," he said.

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