Lowndes County tax assessors challenge state law

The Supreme Court of Georgia has heard arguments in a case that could affect property valuations of low-income housing units statewide.

The Lowndes County board of tax assessors want to be able to factor in income tax credits when assessing the value of low-income housing properties. In other words, the assessor wants to increase the property assessment because the income tax credits that are tied to the property which increases the potential resale value of such housing units. 

An apartment complex owner that rents to low-income tenants in Valdosta says that the benefits of these tax credits should not be factored under the appraiser's methodology. Attorneys for the owner say that income tax credits are intangible benefits and should not be co-mingled with the assessment of tangible property.

Existing state law prohibits assessors from considering income tax credits in their assessments. The Lowndes County assessors are challenging that law arguing that it violates the state constitutional requirement for uniformity in assessments.  They assert that, similar to rent, income tax breaks make the property more desirable, resulting in a higher fair market value. Assessors are required to consider factors that affect the fair market value. The assessors' attorneys further note that voters rejected a constitutional amendment on the same subject in 2002.

This is a complex case. It will be interesting to see how the Georgia Supreme Court rules.

4 tax elements of DeKalb soccer deal

The draft memorandum of understanding (MOU) between DeKalb County and the new Atlanta United soccer team includes several provisions related to taxes:

Property tax exemption
Sec. 1(i) of the MOU says “…Atlanta United’s interest in the Project will constitute a usufruct, and the County will use its best efforts to cause the DeKalb County Chief Appraiser/Board of Tax Assessors to confirm the Parties’ determination of such interest as a usufruct.” I take this to mean that the property of the soccer headquarters and complex would be exempt from property taxes because the deed would stay in the name of a tax-exempt entity (DeKalb County or the DeKalb County development authority) because the agreement allows Atlanta United to use (as a usufruct) the land without owning it. (See an explanation of usufruct under Georgia tax law here.)

Income tax credits
Sec. 5(a) of the MOU says that DeKalb would seek opportunity zone status from the Georgia Department of Community Affairs. “If awarded, the Operator [Atlanta United] shall be eligible to apply job tax credits up to $3,500 per job created as an offset to its State of Georgia income tax liability.”

Sales tax capital outlay
Sec. 5(c) of the agreement says that “The County’s efforts shall include proposing that the Board of Commissioners of the County include Pedestrian Connectivity improvements in the proposed March 2016 Referendum Ballot for approval as an authorized Capital Outlay Project from a Special Purpose Local Option Sales Tax.” In other words, a portion of one of the existing seven pennies of local sales taxes would go toward pedestrian connectivity from the soccer site to the Kensington MARTA station.

Tax allocation district
Sec. 5(f) of the agreement says that “…The County agrees to discuss in good faith permitting the use of any accumulated funds from any applicable tax allocation district to be utilized for any permissible expense… with respect to the construction, maintenance of Phase 2 of the Project… The County will use its best efforts to obtain the participation of the DeKalb County School Board in this tax allocation district.”

Tax credit cap raised for historic restorations

Gov. Deal signed House Bill 308 on Tuesday, which raises a $300,000 tax credit cap for historic rehabilitation projects up to $5 to $10 million.  The increase is less than what some advocates had originally proposed in an earlier version of the bill which would have increased the cap to $60 million.  Officials, particularly in the Savannah area, see the increase as a powerful economic development tool.  WSAV reports:

Last but Not Least; Historic Property Tax Credit Law to Give Big Bucks for Restorations

SAVANNAH, GA - It was the last bill to meet the Governor's pen on Decision Day but the historic income tax credit bill is now law and has one Savannah representative excited.

Millions of dollars in tax credits can now go towards restoring some of the largest historical properties in the state of Georgia.

"All this bill is trying to do is bring the developers to ground zero so that the significant cost of renovating these projects, getting an investor to come to the table and put the kind of money it's going to take and capital to get this where it needs to be," says local state representative Ron Stephens who sponsored and wrote the bill.

Locally, historic groups see only growth of big projects coming to Savannah with this new law.

"Now we're gonna have a mechanism to entice, incentivize investors, property owners, buyers to get involved in this get developers engaged in preservation," says Historic Savannah Foundation President Daniel Carey who's non profit helped lobby heavily for the bill.

The governor signed the bill into law Tuesday. It removes the old 300,000 dollar tax credit cap for individual historic structure restorations to upwards of 5 to 10 million dollars or a quarter of the aggregate renovation costs.

These caps Carey says move the state in a right direction to compete with neighboring states in the South.

"We were losing business and we were losing revenue, we were losing preservation projects to those surrounding states so now we have a competitive advantage," Carey says.

In the case of Savannah, it can have a huge impact on the restoration and development of the more than 200 million dollar hotel project slated for the West River Street Georgia Power Plant. Now the Kessler Collection restoring the space could see close to 25 million dollars in aggregate credits over a year for the development...

Entertainment tax credit extended 3 years

Gov. Nathan Deal has signed House Bill 339 which extends the state income tax credit for film, video, and digital production until 2019. The credit had been scheduled to sunset on January 1, 2016.

Decatur has become a popular location for film shoots.  But the credit also has beneficial economic development impacts statewide.  WALB reports that the film and production tax credit is “widely credited with turning Georgia into one of the top production locations in the country and making movies a 5 billion dollar a year industry here.”

The entertainment tax credit had been deemed so successful that some in the industry were pushing for an expansion of the Georgia credit during this legislative session rather than just an extension. However, legislators have been taking a more critical view lately about the number of tax credits currently offered in the Revenue code.

Lawmakers push to expand historic property rehab tax credit

While federal officials are considering cuts to income tax credits for rehabilitation work on historic properties, state lawmakers are considering an expansion of the state credit. Legislators are recommending that the existing cap on state tax credits for historic properties be increased dramatically. House Bill 308 would raise the cap on credits from $300,000 to $60 million. 

However, the measure could face an uphill climb in the state senate. During a legislative roundtable discussion I attended in Atlanta on Nov. 12, the chairman of the state Senate finance committee, Judson Hill, expressed frustration over the existing 115 tax credits in Georgia. Hill said that he’s generally supportive of tax credits if they’re fiscally responsible, sustainable, and “as long as we can quantify results” in terms of economic development, but in the long run he would like to reduce the number of credits and broaden the tax base. Whether the cap and sunset provisions of HB 308 would satisfy Hill’s concerns is unclear at this point.

The Savannah Morning News editorialized earlier this month that it’s an idea worth considering for economic development as long as it’s researched carefully and the state budget can afford it:

Editorial: Historic tax credit bill needs work

HOW FAR should Georgia’s state government go in using the tax code to pick winners and losers?

That question is at the heart of a debate that’s emerging in Atlanta. State lawmakers from Savannah are apparently pushing statewide legislation, expected to be introduced this week, that would eliminate Georgia’s existing cap on state income tax credit for developers who rehabilitate historic property. 

It’s a debate worth having.

Savannah is known far and wide for its success in historic preservation, a main driver of Savannah’s robust tourism economy. And while tax policies may sound dry and boring. they affect the lifeblood of the economy. 

It’s noteworthy that State Rep. Ron Stephens, R-Savannah, is behind this measure. He chairs the committee in the House where bills that affect economic development generally spring from. 

The specific property prompting this bill is the decommissioned power plant on West River Street. Hotelier Richard Kessler sees this distinctive, century-old, brick structure as the centerpiece of a five-building, $235 million hotel project, which would go on a relatively undeveloped part of the riverfront and create an estimated 700-800 jobs. 

Current state law on historic tax credits allows developers to recover 25 percent of the cost of rehabbing historic property, up to $300,000. Twenty other states have similar provisions. Some cap the maximum tax break, ranging from a skimpy $50,000 to a generous $5 million. Fifteen have no caps at all. 

A $9.7 million increase
If lawmakers vote to remove the cap, Mr. Kessler would reap an estimated $10 million tax break from his investment— a net $9,700,000 increase over $300,000, a 5,233-percent jump. 

Coincidentally, Mr. Kessler paid $9 million for the riverfront property when he bought it on Jan. 1, 2013. Two months later, he laid out impressive plans to redevelop the site.
Given his sterling reputation as the developer of The Mansion and Bohemian hotels, he quickly gained public support, convincing City Council to grant a variance on the new buildings’ heights and to build a $14 million extension of the river walk. 

But nothing was mentioned publicly two years about the need to change the rules of the game to help complete Mr. Kessler’s project. Why now? 

“Those tax credits are crucial,” said Mark Kessler, president and COO of the development company behind this project. “Three-hundred thousand is not an incentive to do anything.” 

It’s true that 300k isn’t much of a carrot to someone spending $235 million. But if scrapping the tax credit is crucial to the success of the Kessler project, why is the bill just going before the Georgia Legislature now, two years after hotel plans were first proposed? That seems backward. 

Tax breaks work
That said, there’s much to like about incentivizing projects that create good-paying jobs. Tax breaks work. Those who insist that government must always take a hands-off approach to tax breaks should consider one example: Savannah-based Gulfstream. 

Two years ago, state lawmakers approved an extension of the sales-tax exemption on parts used to repair airplanes. It’s a powerful incentive for owners of corporate aircraft, who can afford to fly anywhere, to do their preventive maintenance in the city and state where their planes are manufactured. This tax break helps keep thousands of well-paid, skilled blue-collar jobs here at home. 

Preservation groups, including the Historic Savannah Foundation, are right to see tax credits as a way to save buildings with historic value from the wrecking ball. But at this point, this bill needs more work. Supporters suggest that Georgia may be losing by capping these credits. How? What about raising the existing cap instead of scrapping it? 

One early version of the proposed bill is a non-starter: Tying elimination of the cap to freezing property values for tax purposes. Such a move unfairly robs local governments of revenue they count on. There’s no legitimate reason to hamstring them. 

The bigger question for the Georgia Legislature is whether the benefits from eliminating the $300,000 cap outweigh the hit to the state’s treasury. It could be particularly hard sell this year, given the need to plug a $1 billion hole in Georgia’s road-building budget...

Bills to watch in 2015

The Georgia General Assembly convenes today. Here’s a look at some of the proposals at the Gold Dome that could affect taxes locally or statewide if enacted:

• Expansion of homestead exemptions in Decatur. The Decatur City Commission approved a proposal late last year to expand two existing homestead exemptions and add a new one. The next step would be for the General Assembly to pass it before a referendum that would take place later this year. 
• DeKalb property tax freeze. Both Rep. Mike Jacobs (R-Brookhaven) and state Sen. Fran Millar (R-North DeKalb) said during their 2014 reelection campaigns that they intend to renew the real property tax freeze in DeKalb. The freeze reduces county tax bills for all DeKalb's homeowners by offsetting increases in their assessed value (even for homeowners in Decatur), but does not affect your city taxes. 
• Decatur's proposed annexation. The Decatur City Commission has approved an annexation proposal in December and is looking for a legislative sponsor.  This would affect the property taxes of currently unincorporated residents if approved by the legislature and then by voters in a referendum later this year.
• Property assessment reform.  During his reelection campaign, Sen. Millar promised "to enact true property tax assessment reform" during the 2015 session that would affect assessments statewide.  We may see a reintroduction of a bill along the lines of SB 293 that Millar proposed last year. 
• Tax lien changes.  Newly elected state Rep. Beth Beskin (R-Buckhead) has proposed requiring certified notice before selling a property tax lien. Neither Decatur nor DeKalb sells liens, but the proposal would affect Fulton County which routinely transfers liens.
• PILOT assessment reform.  A special study committee met during the legislative break to review payments-in-lieu-of-tax agreements and their affect on school funding. While they focused on administrative changes rather than new legislation, there could be some proposals stemming from the committee's hearings to provide for greater involvement and notification by tax assessors of PILOT values to school boards for budgeting purposes.
• Tax credit changes.  There has been some discussion during the legislative break about changes to state tax credits (possibly including a reduction in the number of credits available but a continuation or even an expansion of the state entertainment/film tax credit).  There have also been two pre-filed bills that would affect state income taxes. HB 20 would extend the state income tax credit for low-income housing to any owner who owned it even for part of the tax year, and HB 35 would increase the amount of qualified education tax credits available.

Cuts to federal tax credits for historic property rehabilitation under consideration

Stephanie Meeks, president and CEO of the National Trust for Historic Preservation, recently wrote an opinion piece highlighting the effectiveness of income tax credits for historic preservation of properties leading up to a national historic preservation conference in Savannah last month. Meeks also says that Congress is considering a repeal of the tax credit:

…Unfortunately, the federal historic tax credit has recently come under threat in Washington. As part of a broader proposal for comprehensive tax reform, the current chairman of the House of Representatives’ tax-writing committee has proposed a repeal of the federal credit. This would consign hundreds of worthy historic rehabilitation projects across the state to uncertain futures. It would harm the Georgia state credit — without the coupling impact of the federal and state tax credit programs, the effectiveness of Georgia’s investments would be vastly diminished. As the Senate Finance Committee considers tax reform proposals in the new Congress, we stand ready to work with Sen. Johnny Isakson — a member of the committee and soon to be Georgia’s senior senator — on legislative efforts to improve the tax credit without losing these vital benefits for communities.

These tax credits are going to be a focal point of discussion at our conference. We’re excited to hear from Macon Mayor Robert Reichert, who will discuss how, over the past two years, his city has had the most tax credit projects in the state of Georgia… 

For property tax purposes in Georgia, properties that have undergone rehabilitative work within set timeframes and improved the property value by set amounts can qualify for an assessment freeze of their property value for 8½ years. Interested property owners can apply for certification by the state Department of Natural Resources then apply for preferential assessment with the DeKalb County tax assessors office. This tax benefit is separate and additional to the state and federal income tax credits that Meeks described.

Tax news round-up

In his state of the county address last week, DeKalb County CEO Burrell Ellis said that an increase in DeKalb County’s property tax rates may be necessary. (See articles here, here, and view Ellis’s full speech here.)

It’s important to emphasize here that the City of Decatur prepares its own budget, adopts its own millage rates, and bills for property taxes completely separately from DeKalb County. Nonetheless, I think it's important to pass this news along to Decatur residents (who pay both city and county taxes) as any change could affect your overall taxes owed.

In other news, the signs from the Georgia General Assembly are that the state senate may introduce a bill to extend deadlines for homeowners to file appeals for their property assessments. The Tuesday night newscast of “Lawmakers” on GPB covered a tax assessments & appeals committee hearing on the subject. (The full 30 minute broadcast is available on GPB’s website, and the property tax appeal story is about 80 percent of the way through—sorry, but they don’t display the minutes and seconds.)

Lastly, the Journal of Accountancy has released a list of income tax provisions that expired on Dec. 31, 2009. (Thanks goes out to TaxProf Blog as well, or I would never have discovered this item!) I found several tax breaks on the list that were related to homeownership or property investment that are now expired:

1. The tax credit for first-time homebuyers in Washington, D.C.,
2. The additional standard deduction for local and state real property taxes (but the basic standard deduction on property taxes remains in effect),
3. The deduction of contributions for conservation purposes made from real estate capital gains, and
4. Qualified investment treatment for companies regulated under the Foreign Investment in Real Property Tax Act of 1980.

I suspect few Decatur residents would be significantly affected by those expiring provisions, but you may want to check with your tax professional.

Homebuyer tax credits: two views

Looking back over 2009, the first-time homebuyer tax credit is still generating controversy in political and tax circles. TaxVox, the tax blog of the Urban Institute and Brookings Institution, called the first-time homebuyer tax credit the third worst tax idea of 2009. The Tax Policy Foundation, using the credit as an example, called the “influence of the housing lobby on the federal tax code,” one of the top ten tax stories of the decade.

Today I want to share excerpts from both sides of the argument. First, the skeptic’s view from TaxVox:

The early returns are coming in on the First-Time Homebuyer Tax Credit. And it appears to be a bigger boondoggle than even I thought it would be.

At a House Ways & Means Oversight subcommittee hearing today, the Internal Revenue Service inspector general reported that the IRS is auditing more than 100,000 of the roughly 1.4 million returns that included a claim for the credit. This is a staggering audit rate for an agency that usually reviews only about 1 percent of returns.

And what the agency has found is jaw-dropping. Almost 74,000 buyers claimed the credit even though they probably owned a house over the past three years (the credit is only available to those who did not own during that period). One dead give-away: More than 12,000 of this bunch claimed the residential energy credit sometime during the past three years. Another 19,000 filed for the homebuyer credit even though they had not actually gotten around to buying a house, a fairly spectacular exhibition of chutzpah. And 580 credits were claimed on behalf of children, including at least one four-year-old—obviously a budding real estate developer.

Some taxpayers were more confused than crooked. Almost 50,000, who didn’t realize the credit increased from $7,500 to $8,000 in 2009, may have claimed less they deserved. But there was plenty of fraud too. The agency is investigating 167 separate criminal schemes associated with the credit.

And there is more. In a separate study, the Government Accountability Office concluded that in 2008-2009 more than 25,000 credits were claimed by people who reported no income and another 165,000 by those earning $25,000 or less. Care to wager how long it will be before those houses end up in foreclosure? If they were ever actually purchased, that is.

Meanwhile, supporters of the homebuyer tax credit have argued that the homebuyer tax credit has buoyed the housing market during difficult times. Georgia’s own Sen. Johnny Isakson has been a forceful advocate for the credit, and he made the following remarks on the Senate floor in November during debates on extending the credit:

We learned about 8 months ago that a tax credit for first-time home buyers worked. It worked to bring back the entry level marketplace in housing, and it helped to begin to stabilize the housing market which led us in late 2007 into the difficulties we have experienced over the last 20 months. Extending it is important, as long as everybody still understands permanent extension would be bad. Extending it to next April, which this bill does, with a closing no later than June 30, allows the American housing market and first-time home buyers to exercise their right to take tax they pay, convert it to equity in the investment and net appreciating asset, and help stimulate what is the rock-solid base of the American economy.

We also add, in addition to the $8,000 credit extension for first-time home buyers, a move-up buyer tax credit of $6,500. This is the cornerstone of the substitute before us now. It offers to any previous homeowner who has lived in their home for at least the last 5 years the opportunity to sell that home, invest in a new home, and take up to a $6,500 tax credit…

In response to the Internal Revenue Service concerns we expressed a few months ago on fraud, we put in every single request they made for fraud to see to it the HUD-1 is attached to tax statements, to see to it there is no fraudulent claim of the money, and to see to it the IRS has every tool they can to prosecute to the fullest anybody who would abuse this credit…

I urge all Americans who have always dreamed, if they are a first-time home buyer, of having a home of their own or Americans who have been gridlocked in the failure of our move-up market to actually move up and work, you have a 7-month opportunity that is good for you, it is good for the United States of America, and it is good for this economy.