(Nov. 14, 2014) Ocean City’s resident property owners could be spared a tax increase next year – maybe, depending on how the rest the market goes.
The City Council is considering changing the limit line for the city’s property tax credit from the current 103 percent to 100 percent. Although counter-intuitive, city Finance Administrator Martha Bennett explained, such a move would save resort resident a few dollars.
In Maryland, owner-occupied properties are extended what is known as the Homestead Tax Credit, which is intended to buffer primary residences from tax assessment increases that would threaten to make the homes unaffordable for their inhabitants.
Regardless of the tax rate in a given jurisdiction, the homestead credit caps any rise in assessed property value of a home. Currently, homeowners in Worcester County pay taxes on no more than 103 percent of the home value that they paid on last year. Taxes on the difference between that 103 percent benchmark, and the actual assessed market value of their home, are credited back to them on their tax bill.
“We elected, by default, to go with the rate for the city that the county had set it at, which was 103 percent since 2005,” Bennett said.
However, the city could ask the state tax collector to lower the rate for Ocean City property taxes – all the way down to a 100 percent cap, if the council so chose. This would essentially freeze the value on which owner-occupied property is taxed.
The city has 2,425 owner-occupied properties with a value of just over $272,000 each, for a total assessment of $660 million. The city, however, is not collecting on all of that value, given that many homeowners are still closing the gap between their taxable value and their market value, at a rate of three percent per year.
Putting a freeze on that now, Bennett later clarified, would reduce tax income to the city by about $80,000.
“This isn’t a fiscal policy, since there’s very little impact on tax collection,” Bennett said. “This is a policy used by a lot of places to make it easier for people to own homes and live year-round. It’s often used in historic districts or where homes may be in need of updates. It’s also done to encourage redevelopment.”
This would assume that the city’s tax rate, which is currently 47 cents per $100 of assessed value, stays the same in the coming budget cycle.
New assessments from the state, due at the end of this calendar year, will likely affect the tax rate for the city’s coming 2015-2016 fiscal year budget. If values decline, the city will hike the rate in order to reap the same total dollar value of tax income, and vice-versa if values increase, in a formula known as the constant yield.
However, given that the vast majority of the city’s tax base is in commercial and rental property, residential home values typically do not track to the resort’s overall values. If commercial values rise, everyone would see a constant yield reduction in their tax rate, including homeowners whose values may have stayed flat.
But if commercial values dip, everyone would shoulder a rise in the tax rate – including homeowners, in which case the homestead credit would not insulate them from paying more in real-dollar terms.
The council will discuss the idea of lowering the cap to 100 percent at Monday’s regular meeting.
If given a favorable vote, the measure would have to be passed as an emergency ordinance, given that the state must be notified by Nov. 25 of any tax policy change.