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Stuart Sendell (Comments from 2006 Tax Summit)
Mendham:
SILVER BRIGADE:
Stuart Sendell (Comments from 2006 Tax Summit)
     By . . on Tuesday, May 23, 2006 - 9:53 pm: |
Comments by Stuart Sendell at the 5/31/06 Silver Brigade Tax Summit
Real Estate Taxes - The Dysfunctional Tax
the Ratable Chase 20 Years Later
As the owner of the largest NJ based commercial mortgage banking company I have watched the deterioration of the real estate tax system in New Jersey. It was never rational but the effects of a myriad of ill thought out decisions has now produced a system that defies description.
As a business person I have felt two laws are always at play:
1. The Law of Supply & Demand &
2. The Law of Unintended Consequences
My experience financing much of the commercial development in New Jersey has focused on two unique aspects of the real estate tax system:
1. The government’s ability to "mark to market" values on real estate, and
2. The radically different tax appeal processes for commercial properties and residential homes.
Real estate is the only asset that is taxed at its inflated level prior to its sale. If we brought a stock (i.e. Google) at $10 and it later rose to $400 we are not taxed unless we sell the stock and the tax we pay is influenced by our income or tax bracket. In the case of our homes the government updates (marks to market) the value of our houses and assesses a tax regardless of our income. In some cases this higher tax forces us to sell our homes if we cannot afford the higher amount.
In the case of tax appeals, I suggest a hypothetical situation where your home is next to a large office building which has lost a portion (say 25%) of its tenants. Most large owners of commercial real estate have a lawyer(s) on retainer to systematically appeal property taxes if the property’s income is reduced. These tax appeals, if successful, transfer the reduced tax amount to the residential home owner like you. In contrast, if you lost your job, stopping all your income does not allow you to appeal your taxes. In effect the government tells you to sell the property to settle your taxes. Commercial developers are used to risk and if their taxes remained the same could decide to ride it out until a new tenant is found or sell the property to a buyer at a reduced price. Our current system rewards the developer and punishes the homeowner.
Lets look at the effect of “supply and demand” and “unintended consequences” as it relates to the misguided actions of government in Morris County over the last 20 years. The ratable race convinced mayors, councils and freeholders to encourage “clean ratables” i.e. office buildings and discourage housing, particularly affordable family starter homes. Children were labeled “negative ratables”. In effect we said that moving to the suburbs with children was a construct we couldn’t encourage or support. What a concept!
What were the consequences of these decisions to increase the supply of office buildings and decrease the supply of affordable housing?
1. Office buildings were over built and 20% vacancies resulted leading to tax appeals which shifted taxes to homeowners.
2. Affordable housing was restricted forcing the price of existing homes in the $150,000 range to increase faster than all other real estate to inflated prices of $350-450,000. Because the government marks home values to market the homeowner was now paying high taxes on this inflated value and also picking up a portion of the office building tax burden resulting from tax appeals.
Since the total of the ratable base increased because inflated home values exceeded the lower commercial ratables the County Freeholders could brag that they were reducing the tax rate while they were actually shifting the tax burden to existing homeowners and dramatically increasing the actual taxes homeowner paid “The ultimate shell game.”
It probably is a coincidence that developers make more campaign contributions than homeowners but no logical person can justify the current real estate tax system based on equity, fairness or good planning. The lack of affordable housing is often highlighted when employers (office building tenants) don’t choose to move to or stay in Morris County.
We need a new tax system and only taxpayers can lead the process. Government has become part of the problem and refuses to become part of the solution. |
| By 2....... . . on Friday, May 26, 2006 - 6:57 am: |
I personally don't see any "tax fairness" advantage in finding ways to increase the relative tax burden on commercial propertys... Another fundamental rule, I think you're forgetting, is the fact that the costs of doing business are inevitably paid by the consumer-- usually rather regressively. Most local business property is basically social infrastructure and it really doesn't make any more sense to tax it, than it would to tax our own roads for example.
quote:"We need a new tax system and only taxpayers can lead the process. Government has become part of the problem and refuses to become part of the solution."
In the first place, this is a democracy and taxpayers ARE the government... the problem isn't some evil external force, the problem is "we the people", on average, are not very intelligent or honest, and are too self-interested to think in terms of the best efficiency/fairness on a "general welfare", entire society, scale.
If you add it all up probably 90 percent of the property tax burden funds social services for children. As having children is a popular human activity, that majority has the power (although I would question the right) to oblige all to invest in their reproductive decisions. Compounding the problem is the sympathetic innocence and vulnerability of children and an appropriate, practically universal, desire to prevent any cruel deprivations. Then there's the problem of the scale of the social service providing network which is a powerful voting constituency that humanly votes in its own greedy selfish interest.
Fairness is not something you feel personally, it is something you understand in principle. What needs to happen, for things to productively change, is for people to acquire an understanding and devotion to principle... and sadly, quite the opposite seems to be the trend. |
| By 07. 1... on Friday, January 15, 2016 - 9:27 pm: |
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