Florida: The Case of the Missing Tax Break
In the past year, Florida lawmakers (and voters) have ratified a couple of measures designed to reduce property taxes, by forcing local government tax rates downward and expanding homestead exemptions. So one would expect homeowner taxes to “drop like a rock” (to steal a phrase from Governor Charlie Crist) in the wake of these changes, right?
Well, no. As the Pensacola News-Journal’s Michael Stewart points out, for many homeowners part of the tax savings from the previously enacted tax cuts is getting eaten up by an arcane “recapture rule.” In a nutshell, the recapture rule says that if a home’s market value falls, its assessed value will still rise by up to 3 percent.
If this rule sounds screwy, it’s not– or, at least no screwier than the “Save our Homes” tax break that is entirely responsible for it.
Here’s the problem: since 1995, Florida has had in place a cap on the amount by which a home’s assessed value can grow each year. It’s 3% or inflation, whichever is less. This cap is known popularly (and with a touch of drama) as “Save Our Homes.”
Of course, when market values are growing and the assessed value is not allowed to grow along with it, the result is a gap between what a home is really worth and what the tax system says it’s worth. This gap is an inequity– it takes the tax system further away from being fair and measuring things properly. The recapture rule is designed to undo this inequity. Simple as that.
An example: suppose you bought your house in 1995 for $100,000. Between 1995 and 2006, your home value doubles to $200,000. A properly functioning tax system would take account of the fact that your home is worth a lot more. But Florida’s tax system only allows your home’s value to grow at 3 percent a year. At this rate, the assessed value of your home in 2006 would only have risen to $138,000.
So in this example, your home is worth $200,000 and the tax system is treating it as if it were worth $138,000– the tax system is basically pretending one-third of the value of your home doesn’t exist. And all you’ve done to “deserve” this tax break is to not sell your house. Doesn’t matter if you’re rich or poor. Doesn’t matter who you are, just that you didn’t sell your house.
If you treat this $62,000 as basically an unearned, incorrect tax giveaway, then a mechanism that reduces the size of that giveaway seems like a good idea.
And that’s what the recapture does.
Palm Beach County Appraiser Gary Nikolits knows this perfectly well, which is why it’s a laughably political move when he writes a letter to the governor expressing shock that this sort of thing could happen. As Stewart reports:
“Can you imagine the outcry when they open their (tax notices) in August to find that while their market value may have decreased, their taxable value increased?” Nikolits stated in the letter.
Nikolits (and other appraisers around the state) have plenty of reason to be politically nervous about the impact of the recapture rule, but that doesn’t make this rule wrong.
Put another way, anyone who thinks the recapture rule is “unfair” has got it exactly backwards. The true “unfairness” is in the Save Our Homes break, which creates a huge gap between market value and assessed value. The recapture rule is a perfectly acceptable way of mitigating that unfairness.
This lesson holds true, of course, in any other state that has similar caps on assessed value. Caps inherently create inequities, and require mechanisms like the Florida recapture to help reduce these inequities. Complaining about the recapture process amounts to missing the forest for the trees. That means you, Michigan!
Garnishment Scam
January 27, 2009 by Tax Blog
Filed under Questions & Answers
Today TaxMama hears from Phyllis in Florida with this problem. “Is it legal to garnish wages for 1997 state taxes? I didn’t know anything about them until recently, when I received a collection letter from an agency. I thought for sure it was a scam because so much time had lapsed.”
Dear Phyllis,
Find out from the state in question if these are really taxes you owe. Go back to source to get the proof of the taxes due.
You don’t say who is garnishing your wages. Is it a state agency? Or is it a collection agency?
A state, depending on their arrangements with the courts in your state, has the right to collect taxes as long as their statutes of limitations on collections are open. States have different time frames during which they may collect. For instance, California’s is either unlimited, or 30 years, I am not sure which. Either way, it’s a lifetime.
If it’s a collection agency, you may want to have an attorney get an injunction to prevent the garnishment. Or you may want to go to court to sue the collections agency. It’s quite possible that the collections agency does NOT have the right – if they cannot prove the actual tax liability to the court’s satisfaction. Consult with an attorney for some guidance.
There are some interesting twists in collections laws as it relates to agencies. And some agencies operate aggressively because the debtor doesn’t know enough to stop them.
And remember, you can find answers to all kinds of questions about wage levies and other tax issues, free. Where? Where else? At TaxMama.com
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Lower Taxes and Economic Growth: Response to a Flawed Analysis
When the Speaker and other leaders of Florida’s House of Representatives released their plan to roll back property taxes and place a tight growth limit on state and local revenues, they included a report in their release by the firm Arduin, Laffer and Moore that claims lower taxes will lead to higher economic growth. We examine and point out the flaws in this analysis and show the authors’ fundamental result is due to how they constructed their data and an elementary statistical mistake.
New IRS Guidelines for Tax Filers in 2007
The 2007 tax season will get down as planned. How, due to the recent changes the IRS will not be able to action tax returns of tax filers who will be taking (1) state and local sales tax discounts, (2) higher education tutorship and fees discounts and (3) educator expenses, until early February.
Unsurprising, January is the slowest time of the tax season with maximum six percent of the tax returns filed in the first 2 weeks; last year, around 6.7 million returns were filed along January 27. Statistics for 2005 shows that almost 930,000 taxpayers took any of the three discounts by February 1. This year the IRS counters around 136 million tax returns.
According to IRS Commissioner, Mark W. Everson, “the IRS is taking a number of steps to insure taxpayers have the right information on these discounts when they prepare and file their tax returns.” The IRS advances those who may be desirable for these discounts to file electronically. “They will get their refund faster by e-file. Even more significantly, e-file will great come down the chances of making an fault compared to claiming the discounts on the paper 1040″, said Everson.
The primary forms – Forms 1040, 1040A and Schedule A&B that are already in count do not include the dicounts that were approved by the copulation in December. To insure a smoothen sailing, the IRS has created a special effect of Publication 600. Tax filers and tax professionals can get the updated information on the late lawmaking by visiting irs.gov. In addition, the IRS will carry on a special posting of Publication 600 which will be sent out to over 6 million taxpayers. For those taxpayers who mean to e-file, the IRS has informed the tax software to admit the three new discounts.
The sales tax discounts which was took by around 11.2 million tax returns last year goes for to nine states” Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. To claim the sales tax discounts taxpayers must fill line 5 Schedule A (Form 1040) by coming in ST on the line to the left of line 5 to show that you are exacting the sales tax discounts alternatively of the deduction for state and local income tax.
The higher education planning (Hope credit and Lifetime Learning credits) was filed by around 4.7 million taxpayers last year. The credit which is up to $4000 for tutionship and fees paid to post-secondary institutions cannot be claimed on Form 1040A. It must be claimed on Form 1040 on line 23.
The planning for education expenses, which allows educators (particularly teachers) to deduce equal to $250 on personal expenses on school issues, was took by 3.5 taxpayers in 2005. The discounts can be took by filling line 23 on Form 1040.