Menino filed House 3119 to repeal the 2004 law. This bill, backed by the Municipal Research Bureau (a powerful corporate lobby, not a “city watchdog” as commonly believed), drops the tax cap back to 175% for 2008. This would have happened under the 2004 law even without the repeal — but the repeal requires the drop and keeps it down, precluding Patrick’s two-year freeze. The Bureau’s director, Sam Tyler, has admitted in the press: “The urgency of passing the [Mayor’s] legislation ?is that there are the bills pending that would keep it up at 183%.” Yes, it is urgent — for the big businesses, who don’t want pay more, at 183%, to give residents relief.
Menino’s bill would help residents in one way: it would repeal two harmful “dirty tricks” slipped into the 2004 law by business interests behind closed doors, after the original “deal” was set. The first trick drops the commercial tax rate down to 170% in 2009 – lower than the pre-existing 175% — permanently shifting more of the city’s tax burden from businesses to residents. The second, and far more devastating to residents, permanently prevents the mandatory residential portion of the tax burden from ever going back down from its highest level, no matter how low housing prices go or how high commercial values go. This portion used to be 30% of the total levy; it is already up at 42%.
This second provision was worded very ambiguously, so the meaning has just become evident as several municipalities were prevented from lowering their residential taxes despite rising commercial assessments. Many officials are angry that business interests used the residential relief law to take advantage of residents – who are already exploited by the lopsided tax system.
With the dirty tricks exposed, the businesses are willing to repeal them — if they can also block Patrick’s residential relief by repealing the rest of the 2004 law. That’s the new “deal.”
Menino didn’t need to block Patrick’s two-year tax relief to repeal the dirty tricks. He could easily have written his bill to accomplish both. But the business lobby is strong, while residents don’t understand enough to fight back. So the Mayor knows he can safely save the business interests millions of dollars at residents’ expense by blocking the Governor’s relief, while boasting of his heroic repeal of the dirty tricks – which were never in the “deal,” should never have been enacted in the first place, and should have been reversed immediately, back in 2004.
House 3119 is on its way to the Governor for signature. I believe it could still be amended if people call and demand that the dirty tricks be repealed AND the 183% two-year commercial tax freeze be added.
Then, we should demand tax system reform so that all property owners pay their fair share.
Residents shouldn’t have to carry the tax load for everyone else.
Let me be the one to ask since noone else is.
But first, I will explain what I see when I get my property tax bill.
There is a residential rate and a commercial rate.
The residential rate is always much lower than the commercial rate.
Currently the rates in my town are around 11$/1000 for residential and 19$/1000 for commercial.
My understanding is that these rates have already hit the cieling imposed by prop 2 1/2 and that the only excuse the cities have had for annualy raising the actual tax bill is that they have gotten away with annual higher assesments of property value due to the recently demised housing boom.
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So what are you talking about, does this apply only in Boston and shouldnt property tax bills stay the same or drop in a falling housing market unless local people are stupid enough to vote for a prop 2 1/2 override in their towns?
have tax classification, which is a different rate for residential and commercial/industrial property. Yours must be one of them. However, the way Prop 2 1/2 works is that each year the town can collect 2.5% more in property taxes than it did in the year before….regardless of assessments. So if your town collected $50,000,000 in property taxes last year, this year it can collect $51,250,000.
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Assessments determine how much of the town’s taxes you pay. That is why during the recent real estate boom, residential property taxes rose more than 2.5% consistently across the state. If residential assessments rise faster than commercial, then residential property owners will have greater than 2.5% increases consistently.
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Because of the downturn in residential prices in the last year or so, many people will see their assessments go down and their property taxes increase. It will depend on the behavior of Commercial/industrial (CIP) in their community. But last year CIP held value better than residential so in one of the few years in the last fifteen or so, CIP property owners may see their taxes increase by more than 2.5%.
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I hope this makes this a bit clearer as there are some misconceptions regarding the issue of Prop 2.5 .
I have to admit that you have peeked my curiousity. I actualy have thought little about this topic other than to complain and blame the rocketing bill on runaway property valuations. My tax is up something like 65% in 3 years because the house next door has sold 4 times in that period and each time for around 20% more.
What your reply tells me is that if I research this thing I will find that for every dollar someone’s tax has gone up, there is virtualy an equal DECREASE somewhere else to keep it under the 2.5% rule.
Hmmm .. so who is making a killing? I think I will spend a few minutes seeing what I can dig up. đŸ™‚
Prop 2 1/2 allows municipalities to increase the total property valuation, not property taxes, by a maximum 2.5 percent, not including “New Growth”.
You have it exactly backwards. The 2 1/2 is a limit on the total levy, NOT the total valuation. MMA
that might make Gary’s succinct description a more intuitive:
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1) Before Prop 2-1/2 the tax rate (dollars per thousand dollars of valuation) was set each year based on the spending appropriated (by Town Meeting or City Council). That amount “flowed through” to individual taxpayers based on their valuations.
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2) After Prop 2-1/2 the “flow through” works the same way–but the spending level is capped.
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Prop. 2-1/2 does not cap valuations (which are based on market values) and does not even cap the tax rate, just the total spending level that flows through to taxpayers.
This has nothing to do with prop 2 1/2 overrides. The problem is that the cost/value of housing in Boston has skyrocketed in recent years while the value of commercial property has not risen nearly as much. This makes sense because just because the houses in my neighborhood cost more than twice as much as they did ten years ago doesn’t mean that everyone living in them is going to be spending twice as much money in local stores. However, because there is a state law that limits the ratio of the residential to the commercial rate, the city is forced to take a higher percentage of its property taxes from residents instead of businesses. So even if the total amount of property taxes collected were to remain the same, residents end up paying more and businesses pay less than they did before.
where they ran up against the CIP split of >175%. Burlington has had huge residential property tax increase as they brought down their percentage. It was something like 200% and it has been moving down…combined with the increasing homeowner value…they saw like 20%+ increases in residential property taxes last year.
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Other communities were restricted to setting the maximum CIP split at 150%. So the whole thing is a mess and the legislature doesn’t seem to be making it less so. They should probably bite the bullet and make it 175% everywhere in the state. All this means is the local Council or Whoever can split the tax rate to make the Commercial/Industrial 175% of the nominal if there was not split tax. You really need to keep the split high to account for the faster growth in residential values and the different ways that CIp and residential properties are assessed (which tends to make for lower assessments on CIP and higher on residential, all other things being equal). Otherwise residential property tax payers are paying to subsidize businesses.
In my opinion, the law is stupid because it governs rates, not overall tax amounts or share.
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Tax rates have little meaning. If you’re worried about taxes, do you want to live in a community with a $10 tax rate or a $20 rate? It doesn’t matter if the same house is valued at twice as much in the town with the $10 rate – taxes will be identical.
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There is already a natural governor of the tax shift — competition between communities. If Boston decides to soak its businesses, they will move out, or at least business growth will be dampened. Why does there need to be a cap when you have that?
Has anyone checked to ascertain if we do in fact have a resident chief executive officer (and his minions) on Beacon Hill? Does the governor have a clue?
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Menini is in serious deep water politically. I figure that essentially his political career is over. Taxes, violence and BPD and BFD—that’s it. Why he is firing a shot at DP in unknown, but perhaps the fact that DP has done zero for Suffolk County and anyone else for that matter, may have something to do with it. Demasi’s people and Mennino’s people had lunch one day.
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I was talking to my rep last night. (Unfortunately he is going to vote for casino gambling unless he can be convinced otherwise) Anyway—-my rep tells me that Demasi has effected the quietiest and most covert coup d’etat in history. The governor collects a pay check and warms a seat and that’s about it. My rep alleges that Demasi sees the governors spending patterns (intended) to be reckless
and fiscally disastrous and DeMasi has put the brakes on anything coming out of the governors office. Whatever it is. it gets run by DeMasi first, and if it doesn’t pass the smell taste. it goes in the circular file.
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Just so no one is upset that this is only happenung in MA:
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http://www6.comcast….
DiMasi sound more petty, not less. It’s obvious that’s what he’s been doing, but I doubt it’s because of the money factor. If he was so concerned about the state’s financial security, he would have passed Deval’s plans on cutting corporate tax loopholes – which would have made a huge difference over the long term. So, really, your legislator is spouting out trash.
He sounds more responsible!
to back that steaming pile of (fill in the blank) up.
i realize now you were kidding. LOL.
that wraps up our spelling lesson for the day ….
The premise of your post is absurd and so is your spelling…..
…but our tax base is 93% residential.
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After this year’s assessment, while the assessment went up the bill went DOWN, due to the advent of McMansions. Your tax bill is in proportion to the OTHER properties in your community.
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Just another variable to consider.
Another problem with the system is that residential properties get assessed based on the worth of the property, typically in Boston around 90% of worth. However, the commercial properties only get assessed on their income. So, while you get a $500,000 house assessed at approximately $450,000 you can find 800 million dollar office towers assessed at $400 million or less. The poster, Shirley Kressel, can direct people to a Boston Herald article a few years ago which highlighted this discrepancy. I believe the article maybe available at http://www.abnboston.org/.
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If a commercial property is only pulling in enough income/cash such that the PV of the cash flows is $400 million, how could someone reasonably argue that it’s worth $800 million?
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Said differently, if the cash flow of a business indicates a current PV of $400 million, why would someone pay $800?
who have no intention of selling their house for say 20 years get taxed on its MARKET value today. They pay property tax today on value that they may not realize in their lifetime. So where is the fairness?
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Many of the commercial property owners are holding onto space for a variety of business reasons that are not generating income. They expect a payday down the road when say the building gets sold for residential condos. At that point the dwellings will get taxed on their market value, but there will never be any recognition in property tax (not talking capital gains here) of the market value of the commercial property.
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The assessors in many cities and towns have a rough job figuring this all out as assessing commercial property is more art than is the case for residential property. We could all probably easily find commercial property listed for sale in our communities that has a price greater than twice its tax assessment.
I’ve reviewed about 8 years of tax assessments compared to big sales prices for large commercial properties in Boston (easily done by reviewing the Warren books of real estate sales). They average about 50%, and many are far less. Here are a few recent examples:
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Ritz Hotel (Taj): Sold $170,000,000, assessed $48,000,000 (28%)
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One Financial Center 665 Atlantic Ave.: Sold $900,000,000, assessed $370,567,500 (41%)
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John Hancock: Sold $1,300,000,000, assessed $514,600,000 (40%)
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State Street Financial (One Lincoln) Sold $889,000,000; assessed at $377,000,000 (42%) (and it was only $200,000,000 until I alerted the Boston Herald and they wrote a story about it)
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One Federal St: Sold $514,000,000, assessed $335,700,000 (65%)
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125 High St: Sold $730,000,000, assessed $505,800,000 (69%)
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265 Franklin St: Sold $170,000,000, assessed $78,700,000 (46%)
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(Note that we are not including the dozens of Boston developers with huge tax breaks. These are just normal assessments that capitalize the value based on self-reported net income. It’s also possible that the corporations may have figured out ways to understate their income.)
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Commercial buyers’ prices build in speculation about future incomes and future selling prices. For residents, the speculative value is taxed yearly by the assessor, even if it’s never realized. There have been many sales and resales of big commercial properties in Boston; it shouldn’t be so hard to set assessments.
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In sum, businesses only pay taxes they can afford, always based on ability-to-pay. Residents are taxed based on other people’s “ability to pay” to buy their homes, regardless of their own situation. In recessions, when commercial lease rates fall, the business owners automatically get relief; no one asks homeowners and tenants how the recession is treating them.
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And when businesses threaten to leave town, politicians quake and give them whatever they want. If residents are priced out of town, politicians don’t care, and hope that richer people come in to replace them, people who don’t care what taxes they pay, don’t need public services, and do a lot of shopping.
Actually, some people in the business community were not very happy about the proposed change to the law because it eliminated the benefit guaranteed to them in 2004 – the benefit being a business rate reduction to 170% in perpetuity. Other proposals would not have eliminated this provision, only delayed the reduction of the business rate.
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In addition, the current proposal does actually address the ‘ambiguous’ language about the minimum residential factor by striking it out of the law. The bill before the Governor strikes all of Section 1 – which contains both of the ‘dirty trick’ provisions you reference. You can read both the current bill and the old law (Chapter 3 of the Acts of 2004) on the state website at http://www.mass.gov/legis.
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Other proposals pending before the Legislature did NOT address this minimum residential factor, and in fact only addressed the business side of the equation.
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And by securing a business factor of 175% in perpetuity, rather than the current 170%, the proposal before the Governor more adequately addresses the business/residential split in affected communities.
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Bottom line: While other proposals would have given more residential relief in the short term, this will give residential relief in the mid/long-term.
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The bottom line is that Patrick’s proposal would give short-term relief — two years. But Menino’s doesn’t really give any relief, because he and Sam Tyler are just eliminating the two shameful dirty tricks that the politicians should have repealed back in 2004, when they saw that the businesses sneaked them into the law. The 170% and the up-but-never-down residential levy share should never have made it into the 2004 law in the first place, and were never part of the “deal” between the businesses and the politicians. (How did those guys think they’d get away with this? The probably figured no one would notice because residential taxes have gone so wild, people would just think it’s more of the same. Residents have no idea how the tax system works; it’s too complicated. So we’re just sitting ducks for the corporate lobbyists.)
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The point is that Menino could easily have amended his bill, to repeal only the part of Section 1 that would get rid of the two dirty tricks — and also to incorporate Patrick’s relief proposal, rather than forcing the commercial rate cap down to 175% next year by repealing all of Section 1.
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Sam Tyler’s quote in a story in the “Regional Review” (a local paper that’s not on line so I can’t link to it) revealed that the big commercial owners want to rush Menino’s bill through to protect themselves from Patrick’s residential relief: “The urgency of passing the [Mayor’s] legislation is that there are the bills pending that would keep it up at 183%.”
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This indicates that Menino is bending to the business interests when he could specifically remedy the underhanded corporate subversion of the 2004 law and also work with the Governor to give residents another two years of relief.
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That relief would help residents (owners and tenants) in all municipalities with a substantial commercial property base, not just Boston.
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If we could get Patrick to propose amending 3119 to add his two-year commercial freeze, we’d get a couple of years of relief — which we should use to devise permanent reforms to make a fair tax system.
Couple of additional corrections:
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1.) The business rate will be 175% next year whether or not this bill becomes law. The current bill does not “force” businesses to that level.
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2.) If, as you suggest, the current bill struck out those two “dirty trick” sections instead of Section 1 entirely, the end result would be the same – business rate goes to 175% next year, it stays at 175%, and that language that affects the residential share is removed.
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3.) To your point “we should … devise permanent reforms to make a fair tax system.” Doesn’t this open that door by putting everything back to how it started? While some people think fighting about something for a few years is the way to go, rather than actually doing something concrete to change the situation, I will point out that there were bills filed last session and this session to change this law, and this is the first one that passed the Legislature.
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You should note that some cities and towns will be able to pass on actual savings to residential taxpayers this upcoming year, rather than just talk about how they’d like to do so. Doing something to help residential taxpayers in the immediate future and for the long-term is more important than fighting about it. Especially when all the current bill does is restore the status quo from 2004.
Of course, commercial would go down to 175% next year under the 2004 law or Menino’s bill; I just mean Menino would assure that it does and preclude Patrick’s relief detour — as Tyler’s quote confirms.
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Patrick’s bill would significantly help residents being squeezed by the commercial rate roll-back, for two years. That’s pretty concrete.
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Maybe this is the first legislation to pass because it hurts commercial the least; all they lose is the two dirty tricks, which weren’t supposed to be there in the first place. It doesn’t improve the residents’ basic pre-2004 condition.
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The system is rigged to favor big commercial property owners. When Mayor Menino was testifying for the 2004 law, he called it a “band-aid” and said we need an “overhaul” of the tax system. That’s still true. And this 200% cap was proposed as a new permanent level — and you can imagine how unfair things are for politicians to want to hit businesses — but the businesses beat them back. So, residents are still at a disadvantage in the long term. We need reform, at least in municipalities with sizeable commercial sectors.
…if the state legislature isn’t willing to impose income taxes on so-called “non-profit” organizations, they should at least allow cities and towns (not just Boston) to impose property taxes on them. Much of the property in Boston, Cambridge, and, yes, Wellesley, is property tax exempt. Universities, colleges, and, yes, churches.
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Charge them the full freight and see how the coffers of the cities and towns are revived.
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And that’s aside from local option income and sales taxes.
Aren’t these organizatins federally recognized 501(c)3 non-profits and therefor not taxable?
…states usually piggy-back on IRS determinations for tax exemptions. However, because of this strange thing referred to as federalism, states aren’t required to slavishly adhere to IRS determinations. And, sometimes, they don’t.
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26 USC Sec. 501c3 only applies to federal income tax. Nothing more.
States could, if they wanted to, tax federally-recognized nonprofits. You can bet your bottom dollar that churches and other religious organizations would raise 1st Amendment objections, but that’s a separate subject.
You can bet your bottom dollar that churches and other religious organizations would raise 1st Amendment objections, but that’s a separate subject
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would certainly try to, but one of the touchstones of 1st amendment “establishment of religion” jurisprudence is neutrality regarding establishments of religion and non-establishments of religion. In other words, it should be unconstitutional for government to tax properties owned by entities that are not establishments of religion, if the government does not tax properties owned by entities that are establishments of religion.
I have long advocated exempting actual sanctuaries and campus buildings, but applying property tax to residential and commercial properties which are owned by these entities for investment purposes.
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It doesn’t matter to the person paying rent if the building is owned by Flatley or MIT – but MIT gets a substantial break by being able to charge market rate rents without paying taxes.
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To me, exempting investment properties was not the intention of the charitable tax exemption.
It doesn’t matter to the person paying rent if the building is owned by Flatley or MIT
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but IIRC, if the building owned by MIT is not a residence hall (a dormitory) and if MIT is renting it out to the general public, the income and the property would likely be taxed as an “unrelated business” (i.e., unrelated to its “charitable” mission). If that’s the case, MIT would be paying income and property taxes at the same rate as Flatley.
That may be true of non-profits in general, but MIT already pays property taxes to Cambridge, and has done so voluntarily for a long time.
From the article
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MIT owns 157 tax-exempt acres in Cambridge that are used for educational purposes and 84 acres of commercial land, making a total of 241 acres or 5.29 percent of the city’s total land area.
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It is the bolded portion that relates to the “unrelated business income” that I have mentioned elsewhere here.
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If MIT were to run a fitness studio (gym) or a restaurant open to the general public, it would have to pay income and property tax on that income and property. If they did not pay such taxes, they would be at a commercial advantage over private companies. Hence the “unrelated business” exclusion from tax exemption.
JKW – when it’s voluntary, it’s called PILOT money (Payment In Lieu Of Taxes), and it is not a tax. Because they can stop voluneering at any time, and it’s unenforceable if they do not.
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Just ask any town with a state park in the 2001 budget crisis – no PILOT money, but the continued responsibility to provide services.
…from what I understand, Wellesley College makes payments in lieu of taxes. They are in the form of a couple of scholarships a year to Wellesley town residents.
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Big frigging deal. It doesn’t do the town much good.
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I don’t know what Babson College does, but I do know that it educate a number of rich aliens from out of the US. The Wellesley town cops arrests more than a few of them zooming up Forest Street (the main drag next to Babson) a year.
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Tax them all.
Under the first amendment, religious organizations have to be treated the same as non-religious organizations. States can tax religious organizations without causing any problems, but only if they tax them the same way as other organizations. I believe that one of the reasons that non-profit tax-exempt status was created was that politicians did not want to tax churches and had to create a legally separate category from regular businesses. So states can choose to tax non-profits, as long as they tax them all under the same rules.
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It would violate the 1st amendment if states taxed non-profits in general but excluded religious organizations, or if only religious organizations were eligible for non-profit status. This is the desired outcome because it means that the state does not have to make a legal decision about whether an organization is religious or not, which would certainly qualify as a forbidden “law respecting an establishment of religion.”
Thank you for the info…