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Despite Law, Retroactive Tax Assessment in Question

Feb. 3, 2006 – Although the Legislature passed a bill on June 18, 2003 that would allow the government to collect retroactive taxes for the years 1999 to 2003 on residential properties currently being revalued if the values were considered incorrect, Lieutenant Gov. Vargrave Richards said that retroactive taxes will not be assessed.
"The looming possibility of retroactive property tax bills is wreaking havoc in the business and real estate community," Richards said in a news release issued Thursday.
St. John Realtor Diana Beam of RE/MAX Island Paradise Realty said it sounds like they came to their senses. "What were they thinking?" she asked.
Tax Assessor Roy Martin said Friday that the threat of retroactive bills has delayed real estate closings because the buyers and sellers had to agree on who would be responsible for the retroactive taxes.
St. Croix Realtor Julie San Martin, who owns RE/MAX St. Croix, said the disruption has been huge. "You have to discuss it on each and every offer of purchase," she said.
San Martin said that she'll believe Richards has backed down on the retroactive taxes when she gets a letter to that effect, but not before.
Beam said she didn't see many closing delays because no one seemed to think the retroactive tax policy would actually be implemented.
"I think everybody was optimistic," she said.
Beam said that how the threat of a retroactive tax bill was handled depended on the attorney. She said some attorneys put the money in an escrow account, while others gave the buyer a credit.
San Martin said she saw four ways to handle the situation. In the first, the buyer could accept the risk of reassessment but would get a refund if it turned out the property had been overvalued.
In the second, the seller would agree to pay any taxes due from the reassessment, but would also be entitled to the refund. San Martin said that was not practicable because the seller would have to be tracked down at some distant date. "When you sell a place, you sell a place," she said.
In the third, the seller's attorney would establish an escrow account, but that meant a lot of extra work.
San Martin said that in most cases, the buyer got a credit based on the taxes calculated on the selling price and the previous taxes.
She said that a buyer expected to close early next week got a $14,000 credit.
San Martin said that if the government went forward with its plan to collect retroactive property taxes, she anticipated many taxpayers would have participated in a class-action lawsuit against the government.
Richards said it would not be possible to issue accurate bills for those years included in the proposed retroactive tax bill proposal.
He said that people have already received and paid their tax bills for those years. To send out retroactive bills would be "unfair and unexpected."
The brouhaha started when taxpayers got an Aug. 20, 2003 letter from Tax Assessor Martin accompanying their 2002 tax bill. It indicated that the tax bills were issued based on the 1998 assessment level and that taxpayers could expect a reassessment in 2004 or 2005. It stated that if the property was undervalued for the years 1999 though 2004, they would have to pay taxes retroactively. If the property was overvalued, they would get a refund.
The problem begins with the fact that in 2000, U.S. District Court Judge Thomas K. Moore ruled that the local government was incorrectly assessing commercial properties. He ordered the government to begin assessing real estate based on market value rather than replacement cost, and to tax all properties at the same rate regardless of whether they were used for residential or commercial purposes.
This spurred the re-evaluation now under way by the Tax Assessor's Office.
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Feb. 3, 2006 - Although the Legislature passed a bill on June 18, 2003 that would allow the government to collect retroactive taxes for the years 1999 to 2003 on residential properties currently being revalued if the values were considered incorrect, Lieutenant Gov. Vargrave Richards said that retroactive taxes will not be assessed.
"The looming possibility of retroactive property tax bills is wreaking havoc in the business and real estate community," Richards said in a news release issued Thursday.
St. John Realtor Diana Beam of RE/MAX Island Paradise Realty said it sounds like they came to their senses. "What were they thinking?" she asked.
Tax Assessor Roy Martin said Friday that the threat of retroactive bills has delayed real estate closings because the buyers and sellers had to agree on who would be responsible for the retroactive taxes.
St. Croix Realtor Julie San Martin, who owns RE/MAX St. Croix, said the disruption has been huge. "You have to discuss it on each and every offer of purchase," she said.
San Martin said that she'll believe Richards has backed down on the retroactive taxes when she gets a letter to that effect, but not before.
Beam said she didn't see many closing delays because no one seemed to think the retroactive tax policy would actually be implemented.
"I think everybody was optimistic," she said.
Beam said that how the threat of a retroactive tax bill was handled depended on the attorney. She said some attorneys put the money in an escrow account, while others gave the buyer a credit.
San Martin said she saw four ways to handle the situation. In the first, the buyer could accept the risk of reassessment but would get a refund if it turned out the property had been overvalued.
In the second, the seller would agree to pay any taxes due from the reassessment, but would also be entitled to the refund. San Martin said that was not practicable because the seller would have to be tracked down at some distant date. "When you sell a place, you sell a place," she said.
In the third, the seller's attorney would establish an escrow account, but that meant a lot of extra work.
San Martin said that in most cases, the buyer got a credit based on the taxes calculated on the selling price and the previous taxes.
She said that a buyer expected to close early next week got a $14,000 credit.
San Martin said that if the government went forward with its plan to collect retroactive property taxes, she anticipated many taxpayers would have participated in a class-action lawsuit against the government.
Richards said it would not be possible to issue accurate bills for those years included in the proposed retroactive tax bill proposal.
He said that people have already received and paid their tax bills for those years. To send out retroactive bills would be "unfair and unexpected."
The brouhaha started when taxpayers got an Aug. 20, 2003 letter from Tax Assessor Martin accompanying their 2002 tax bill. It indicated that the tax bills were issued based on the 1998 assessment level and that taxpayers could expect a reassessment in 2004 or 2005. It stated that if the property was undervalued for the years 1999 though 2004, they would have to pay taxes retroactively. If the property was overvalued, they would get a refund.
The problem begins with the fact that in 2000, U.S. District Court Judge Thomas K. Moore ruled that the local government was incorrectly assessing commercial properties. He ordered the government to begin assessing real estate based on market value rather than replacement cost, and to tax all properties at the same rate regardless of whether they were used for residential or commercial purposes.
This spurred the re-evaluation now under way by the Tax Assessor's Office.
Back Talk


Share your reaction to this news with other Source readers. Please include headline, your name and city and state/country or island where you reside.