On Spike TV’s “MXC”, a humorous dub of Tokyo Broadcast System’s “Takeshi’s Castle”, the Captain Tenneal character had a catch phrase he used right after he asked the contestants an opening question. That phrase, “Well, you’re wrong,” applies to both the Mark Neumann campaign’s sales pitch of his property tax shift and some of the critics of that plan.
First things first, it is not a tax cut (with a possible exception which I’ll address as a concern in a bit). Rather, it is a shift of when the property taxes are paid. Instead of the 2011 property tax (the first bill that would be affected by Neumann’s proposal) being paid either at the end of 2011 or over the first 5 months of 2012, it would be paid over the course of the entirety of 2012.
On a related note, the “no other enterprise waits an entire year to bill for services” bit is a bunch of smoke and mirrors. Who here has paid their entire 2010 income tax? Who filed their 2010 income tax return back in April? Indeed, because the property tax bill comes in December of the named year with the ability to settle the entire tax bill before the end of the year, the dating of a particular property tax bill makes more sense than the dating of the income tax bill, which cannot be settled in full until sometime in the following year.
Indeed, Neumann’s plan, unless he simply decides to call the 2011 property tax the 2012 property tax, makes it worse. Instead of waiting a maximum of 17 months (to the end of the following May) for the final payment, one would wait a full 2 years for the final payment.
As for the criticism that the tax deductibility would be lost, that also is false. For those that itemize on their federal income tax return, the amount paid in property tax is deductible on the same year’s tax return that the property tax is paid, regardless of the date on the property tax bill. The reason why a lot of people pay their property taxes in full in December is that they don’t want to wait two return cycles to deduct the property tax payment. In fact, I am sure there are some people who wait to pay one year’s property tax until January (or even May) and then turn around and pay the next year’s property tax in December to get effectively a “double” reduction on the second year’s income tax.
As for the plan itself, there are two concerns I have. The first is that, once an owner decides to get in, there’s no way out, not even for a new owner.
The second relates to the liability of the previous owner in a sale. Currently, tax liability for the previous owner extends to the month of the sale. Neumann was unclear on whether that means the previous owner gets to walk away from a year’s worth of taxes or whether that owner has to pay property taxes on his or her old property for 12 months after the sale.
Beyond that, I could just as easily flip a coin weighted slightly against the proposal. Offering a smaller per-payment tax bill that is paid more often will allow property-taxing authorities to grease the skids for a bigger property tax hike.