Last year the V.I. government collected $63 million in property taxes. This year, primarily because of widespread hurricane damages, it’s expecting just $46 million to $47 million, Tax Assessor Ira Mills told the Source Monday.
Nevertheless, new, lower assessments won’t be effective until property tax bills come out in June – and possibly not then if owners have failed to report losses to the Tax Assessor’s Office.
While most people are focused on whether their property tax bill will decrease because of storm damage, the real estate industry is concerned about a related issue.
That lag time in reassessments is wreaking havoc in the real estate market, making what some industry professionals say was already a bad situation far worse.
The issue revolves around the stamp transfer tax, the money the government collects on every property transaction. Depending on the value, the tax is anywhere from 2 percent to 3.5 percent of either the sale price of the property, or the most recent tax assessment of it, whichever is higher. And most often in recent years, several professionals told the Source, the assessment has been the higher number.
If the discrepancy is small, it may have little effect on a sale. But if it’s large enough it could quell a deal and prompt an appeal of the assessment.
St. Thomas attorney David Bornn, who handles a lot of tax appeals, described what he called his “poster child” illustrating the issue: A Frederiksted property of a little more than an acre, containing two “shells” of buildings that used to be part of a drive-in theater but now “have wild dogs running in and out.” Sale price of the property was $600,000. The assessed value – harkening back to when it was a viable commercial property – was $3 million.
If the stamp tax were determined by the sale price, it would be calculated at 2.5 percent of $600,000 and be $15,000. But the law states the value cannot be less than the most recent assessment, and that the stamp tax on properties valued between $1 million to $5 million is 3 percent, so the stamp tax is calculated as $90,000.
“That’s the kind of bizzareness that we’ve been dealing with,” Bornn said.
While that case is extreme, right now it isn’t as rare as you might think. That’s because there are a lot of badly damaged homes on the market at drastically reduced prices and a lot of people interested in snapping them up. But the stamp tax is being calculated on the most recent assessed value, which means on the 2017 tax bill.
“The real estate market is very busy,” said St. Thomas attorney Ruth Ann Magnuson, who specializes in real estate.
“There’s been a lot of real estate activity since December, with people picking up damaged properties,” Bornn said, adding that buyers are a “mixed bag” of local residents, off-island buyers, and people just moving to the islands. Magnuson said the deals are generally cash since banks aren’t lending on damaged properties.
“The seller has already taken a hit” from Hurricanes Irma and/or Maria. Now, when he tries to sell his home, “he’s being hit again,” Magnuson said.
“It really isn’t fair, but that’s what we’ve got,” she said.
Mills is clear on his position: “There’s no interim adjustment” to assessments, he said. They are made once a year and are based on the value of the property as of January 1 of that year, as determined by the Tax Assessor’s Office. The government has no plans to make exceptions.
“It is not an administrative issue,” he said. “it’s a buyer’s and seller’s issue.” They have to decide whether they want to finalize a transaction despite what they may feel is a high stamp tax as well as which of them will pay it or whether they will split it.
So far, in Magnuson’s experience, few if any sales have been lost because of the issue. Most buyers and sellers are anxious enough for the transaction that they have swallowed the high tax.
Things won’t change for at least a couple more months. While an assessment is based on value as of Jan. 1 of a given year, Magnuson said it becomes effective when tax bills go out. To record a deed, you must have a tax clearance letter and that letter will show an assessment as of the most recent property tax bill.
The 2018 bills are due out June 1. The Tax Assessor’s Office is processing requests from residents to reassess their properties because of hurricane damage. The deadline for requests – as announced previously – is Wednesday. A form for the purpose is available on the website www.ltg.gov.vi and from the offices in St. Thomas 340-774-2991 and St. Croix 340-773-6449.
As of Monday, Mills said his office had received about 1,000 forms from the St. Croix district and about 1,000 forms from the St. Thomas-St. John district. It also has made its own sight views and “fly-overs” of about 5,000 properties.
Information is input right away, he said. The process is time-consuming and could delay property tax bills a bit, but Mills said he expects all of them to be issued by the end of June.