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Lawyers Say Senate Can Change Property-tax Rate

Aug. 12, 2004 – Contrary to what Sen. Almando "Rocky" Liburd said earlier this week, it won't take action by Congress to keep the territory's property taxes from rising beyond the ability of many people to pay, according to lawyers familiar with the situation who responded to the Source article "New V.I. Millionaires Might Not Be Happy About It".
St. Thomas attorney James Derr said that although property values will undoubtedly rise when they are reassessed in the next few years, the Legislature has the power to change the rate at which property owners are taxed. "All they have to do is reduce the rate," he said.
William S. McConnell, also an attorney on St. Thomas, similarly wrote that Liburd erred in saying it would take an act of Congress to prevent residential tax bills from skyrocketing: "He and his colleagues are free to adjust the current tax rate at any time, without congressional intervention."
And another St. Thomas lawyer, Chad C. Messier, wrote that District Judge Thomas K. Moore's ruling that property must be assessed on the basis of market value was "to ensure that all taxpayers are treated equally with respect to how their taxes are calculated. Nothing in the litigation in any way prohibits the V.I. Legislature from amending the tax rate."
The first lawsuit challenging of the government's practice of assessing commercial property on the basis of replacement value ended in a historic settlement in December 2000 in which the V.I. government agreed to the District Court naming a special independent master to review the territory's tax assessment system.
In a series of subsequent cases brought by other commercial and residential property owners Moore invoked the federal mandate dating from 1936 that property be assessed at fair market value. He also ordered the government to tax all properties, commercial and residential, at the same rate and eliminated the cap of 10 percent on how much the value of residential properties can be increased at the time of reassessment.
Congress back in 1936 set what is called the millage rate – the rate of taxation – for V.I. property taxes at .0125. This means that the taxes amount to 1.25 percent of the assessed fair market value of the property. Congress gave the Legislature the power to adjust the tax rate, however, and the lawmakers decided in 1982 that the 1.25 percent rate would be levied on only 60 percent of the fair market value.
Derr said senators can change the 1.25 percent millage figure and/or the 60 percent of fair market value figure to whatever they deem necessary.
"I have been lead counsel in the property-tax litigation pending before Judge Moore," Derr wrote, "so I am very familiar with both the issues raised in that litigation and the property-tax system as it exists in the Virgin Islands today."
Messier also identified himself as "one of the attorneys who litigated the real-property case." He added that "if once the reassessment project has been completed, Sen. Liburd believes that the tax burden on Virgin Islands taxpayers is too high, the short answer is that he should sponsor legislation to reduce the rate at which real property is taxed."
St. John resident Sylvia Kudirka hopes the Legislature does something. "You can't tax all residents according to Peter Bay," she said, referring to St. John's most exclusive residential area.
She wondered how St. John residents, particularly senior citizens, would come up with the money to pay the increase in taxes predicted by Liburd. He suggested that many residents would have to sell their homes or lose them through foreclosure if taxes go up.
Kudirka suggested that the Legislature pass a bill freezing taxes for long-time property owners who have made no major improvements.
Also in a letter to the Source, part-time St. John resident Doug Downs said homeowners should not be penalized for a "hot" housing marker. He suggested that properties be reassessed when they are sold, with the new value based on the selling price, or when the owner makes improvements that significantly increase the home's value.
If the tax rate remains unchanged, St. John residents will be in particularly dire straits because their property values have risen higher than those on the other islands. But it's a given that property owners throughout the territory will see larger tax bills. Commercial properties are to be reassessed next year and residential properties, in 2006.
In McConnell's view, "If Sen. Liburd is concerned about his constituents' tax bills, he should introduce legislation to lower the current property tax rate — or, better yet, to provide a system of annual or biannual rate adjustments designed to provide a constant amount of revenue notwithstanding fluctuations in properties' fair market values. This would have the effect of both giving the government a predictable amount of revenue and giving property owners a predictable tax bill."
According to Messier, the way a property taxation system it is supposed to work "is that the government determines its revenue needs, evaluates the aggregate assessed value of property subject to taxation, and then determines a tax rate."
However, he added, "Unfortunately, as noted by the District Court, that is not the way it historically has worked in the Virgin Islands. Here, the tax rate has remained static for decades, and the government tinkered with the assessed value of the properties as a way to raise additional revenue without having to get the Legislature to change the tax rate."
McConnell, who also was involved in the litigation before Moore, similarly said that other U.S. jurisdictions typically "determine the amount of revenue their property tax needs to raise to fund obligations and then set the rate to raise this amount, based on the fair market value of the properties to be taxed." He suggested that "the Virgin Islands is unusual, if not unique," in having adjusted its property tax rate only once in 68 years.
Derr also made the point that "the bottom line is that the Legislature is going to have to take the political heat for property taxes. It is the Legislature, and not the assessor, that has responsibility for the amount of money collected." So, he said, in the campaign for the fall Senate elections, voters "should closely question the candidates on their position regarding property taxes."
Liburd did not return a telephone call requesting comment.

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