Neighbor not paying her fair share of property tax?

[daylatedollarshort]

Not being a resident of CA, I did not know about Prop. 30, so just looked it up. Passed recently in 2012, it raised sales tax by 0.25%, but only for 4 years. It also raised taxes on incomes over $250K.

The schoolteachers' lament about short funding I read about was in an article by National Geographic issue, who knows how long ago. So, it predates this Prop. 30, which tried to remedy the problem.

It is always a good idea to limit tax increases, else politicians will find all kinds of pet projects to spend money on. But it's a big error to cap the limit to below inflation rate, something that even SS recipients get.

Warren Buffet thought that Prop. 13 should be modified. I do not know the details, but it was a no brainer that it went nowhere. Once people get this "benefit", you can only pry it out of their dead ballot clutching hands. We see that in Greece recent ballot result about the Euro bailout.

Warren Buffet is part of the .01% and not exactly a neutral third party in how to raise funding for education. I would be surprised if he suggested raising taxes on the wealthy or on corporations as a solution.

 

[NW-Bound]

No, I do not think so. Buffet often talked about increasing taxes on people like himself. The most famous example was when he said it was not fair for him to have a lower tax rate than his secretary.

 

[Texas Proud]

As someone that spent some years managing a local government agency department that was a target for tattletales and self-righteous busybodies, this law was written to make sure the Assessors won't have to chase down every report of abuse. My instructions to my front line staff in this situation would be to respond as follows.


"Sir, we appreciate your concern. However, we have no proof that your neighbor has established another permanent residence and that s/he has no intent of returning. Without proof that your neighbor has established another permanent residence and proof of his/her intent not to return, there is no legal basis for further action. Thank you for your concern and have a nice day."

That is kinda what I thought and posted.... they will do nothing...

 

[Texas Proud]

If I were a long-time home owner in CA, I'd love this Prop.13 too, particularly when I see my new neighbors paying 5X what I do. The tax responsibility weighs more on their shoulders than on mine. How can that be not fair?

True, if newcomers do not like it, then they do not buy. I myself would never be one of the suckers. But as you noted, there are plenty of those.

PS. CA also has this Mello Roos additional tax on new subdivisions. This, I can see the basis for, as it pays for development of new facilities that the new homes require.

PPS. A while back, I read about schoolteachers in some districts lamenting about not having enough funding due to Prop. 13. Apparently, not every place has a sufficiently high influx of newcomers to bear the brunt. Proposition 13 limits the tax increase to no more than 2%, which often trails inflation rate. Over a long time, that builds up to a high deficit. People's incomes, even SS, generally track inflation rate.

Thanks for putting down the increase %.... here in Texas it is 10% increase in value.... if they raise the tax rate you can pay more than 10%... I think that is a bit too high, but 2% is way too low...

 

[Walt34]

It is always a good idea to limit tax increases, else politicians will find all kinds of pet projects to spend money on. But it's a big error to cap the limit to below inflation rate, something that even SS recipients get.

I'm not sure you know the history of why Prop. 13 was enacted. People were being forced to sell their lifelong homes because they couldn't afford the rapid rise in property taxes in the 1970's. During that time growth of the size of the state government was also an issue, and Prop. 13 was seen as a way to slow that down. People had just "had their fill" of the perceived greedy state government. But the rapid rise in property taxes was a real problem for huge numbers of people and Prop. 13 did accomplish that goal - Grandma could afford to keep her house.

I still remember the rancor over that and I lived in MD at the time so it wasn't a pressing issue for me. But many other people in other states were having similar issues and for a while it was a popular movement in those states as well although it didn't always pass.

 

[NW-Bound]

I'm not sure you know the history of why Prop. 13 was enacted...

I do.

The problem as I said is that the annual increase is limited to 2%, which is below the usual inflation rate. Proposition 13 was passed nearly 40 years ago. Over time, the below-inflation cap causes huge shortfalls. If they were able to also cap expenses and civil servants' salaries to 2%, then there would be no problem.

Now, try to raise that cap and see if the voters will not lynch you.

 

[Whisper66]

That is kinda what I thought and posted.... they will do nothing...

I wondered if fraud from this type of exemption was really a significant issue or not. If there's not much chance it's significant, I can understand the tax assessor office not wanting to persue, especially if it was difficult to confirm. Found this article at the link below on an investigation into an area in Austin Texas. Apparently in Austin it was not very hard to do some limited investigation and that investigation turned up some reasonable possibility of capturing uncollected tax dollars.

Homestead Exemptions Rife With Abuse

In this investigation they founnd ".....more than 200 homeowners identified in this investigation who appear to have been under-billed for their full share of property taxes because they were granted more than the single residence homestead exemption authorized by state Property Tax Code Section 11.13(h) for their primary residence...........The total estimated 2013 taxes under-billed on these homes for which exemptions are questionable is more than $125,000"

 

[MRG]

Very interesting breakout of those of us willing to "let it slide" and those somewhat incensed by paying for someone else's infringement of the law, or even illegal activity.

Wonder how the two sides would feel if it was their banking or investment company explaining to them why they needed to average returns on investments because some people chose a lower yielding investment over a higher yielding investment?

This is the reason the law and hence enforcement has to be a bit cold ...it is, in the end, about right and wrong.


Sent from my iPad using Early Retirement Forum

Not that I disagree with right and wrong.

With that institution I can probably cancel my relationship with a lot easier than move. They probably won't retaliate against me by doing any of the following:
Key your car
Egg your home
Throw rate poison out for your dog
Break out your headlights and taillights

All this was in a good neighborhood, with one coke dealer. Of course you call LE. What can they do without proof of who did it? I tried, ain't worth it for me.

There are some really messed up people out there and some get away with stuff, for a very long time.

Read about Ken McElroy, he's an example of some of the nut jobs out there. Sure he's dead, still since 1981 his is an open murder case. Fourty people saw nothing, no one's come forward with a deathbed confession of who shot Ken in broad daylight.

https://en.m.wikipedia.org/wiki/Ken_McElroy


There's more Ken's out there. I don't want to meet their kind again.

 

[Another Reader]

I guess I was not as clear as I should have been. Changes in ownership and new construction trigger revaluations. Buy a new house? It's reassessed at market value. Build a new master suite? That gets added to your assessed value at the incremental market value. Property tax revenue goes up far more than does the revenue received from the two percent increase in those properties with an established base year value. There is also business personal property, which is taxable but not subject to Prop 13 limitations.


In addition, the voters can, with a two-thirds majority, increase property taxes if they so desire. Hasn't happened yet. What has happened, however, is a big increase in the number and amount of special assessments and parcel taxes, which only require 50 percent majorities to pass. My taxes, which should have gone down as a percentage of assessed value as bonds were paid off, have in fact, increased substantially because of the parcel taxes.


People complain all the time that PG&E has never changed ownership and therefore is not paying its fair share of taxes. Not true. Utilities are valued annually by the State and the total assessed value is allocated by county. It's called the utility (tax) roll.


Finally, the whining teachers are pointing to Prop 13 with no real understanding of how school financing works in California. The courts ruled a long time ago that handing out money based on how much property tax a district could raise is unfair to poorer districts. Think Palo Alto and East Palo Alto as an example. The school tax money now is funneled to Sacramento, which, after deducting a lot of "administrative costs," sends it back to the school districts using a formula that is judged to be "fair." A lot of money is used up in required programs or district and school administrative costs and never gets to the classroom. Eliminating Prop 13 would just mean more frictional waste of money.

 

[NW-Bound]

As an outsider, when I see that two adjacent homes can have a 5x discrepancy between their RE taxes, I just thought that could not be right.

Not being a CA resident, I do not know about all other nuances and special assessments as described above. What you tell me is that the local government still needs and is able to raise money one way or another. Prop. 30 described by DLDS is obviously a patch to raise additional money for schools. And we still read about civil servants getting cushy pensions, with spiking galore.

... Eliminating Prop 13 would just mean more frictional waste of money.

To prevent waste of money, it's better to get to the root cause of the waste: make them account for the expenses. What is the point of limiting the tax here, just to allow them to shift the burden elsewhere?

I think the gummint, both at the local and federal levels, is playing citizens against each other. We think we've got this special deduction or benefit, but hah, how do we know our neighbor doesn't get an even sweeter one?

 

[ERD50]

Something that some people may be missing here -

just because your home doubles in 'value', that doesn't mean your property taxes necessarily double. In our county (and many others I think), the total tax bill is divided up across the property values. What this means is, if the total tax bill goes up 5%, and everyone's home doubled, each tax bill would go up by 5% (not 2x + 5%). There's an equalization formula that covers this.

I know first hand that many people that live here do not understand this. They think their taxes are directly related to their assessed value. No, it really is your assessed value in relationship to total assessed values.

I suspect many posters here talking about how someone who experiences a real estate boom can't keep up with their taxes is thinking this way. But it may not be the case. Was it this way in CA prior to Prop 13 (or whatever #)? I don't know.

I can't say how many municipalities use the equalization formula versus an absolute % of value formula, but I will guess (based on my experience of how few people here understand it), that it is way more common than most people think. I'll also guess that most municipalities would prefer an equalization formula, or their year-to-year budgets would vary wildly with real estate markets. If the real estate market tanks, you still need to pay fire, police etc.

There are many retirees in our neighborhood who bought houses for under $100K but if their property tax bill went to current rates the tax bill alone alone would consume close to 100% of an average retiree monthly SS benefits. We can't ship everyone over 65 here to Arkansas or some other lower cost of living place. Many have lived here their whole lives and their children and grandchildren live locally.

First, if everyone was paying the full share, the current rates for new owners would be less. So maybe less sticker shock than you think?

Second, if someone can no longer afford to live in an area, is it really the rest of the communities responsibility to chip in and help? I don't think so, I think the retiree needs to plan and adapt. That includes me. I'm not going to 'ship' anyone anywhere, but if they can't afford the area, they ought to move to a lower COL place voluntarily. Or their children can chip in if they want them near.

BTW, this conversation got me looking into the local tax exemption for seniors, since I'm getting close. It's pretty modest, a $5,000 reduction in assessed value (which is oddly ~ 1/3 of market value for tax purposes - I guess commercial is at full rate?). So a $300K home, assessed at $100K, would get a $5,000 reduction in assessed value, so a 5% discount on their tax bill, no caps otherwise. I know there is a means for seniors to defer taxes and have it charged to their equity plus interest. IIRC, not very attractive rates, but something for an elderly person who wants to live their last remaining years at home.

-ERD50

 

[Another Reader]

California operates on an "acquisition value" system. Everyone is treated the same - your property is valued at the time you buy or build it. It's fairness of a different kind. You know what your taxes are going in and the increases are relatively predictable.


You are playing into the hands of the people you are unhappy with by bringing up pension spiking. Schools don't need more money. They need to be given the taxes that were collected without skimming and the money needs to spend on education, not on administrators and meeting mandates from Washington and Sacramento.

 

[Another Reader]

California was never like states back east with assessment ratios and equalization based on what your neighbor pays. Market value was the standard. Assessed value was the market value, even if market value was estimated rather crudely before computers and CAMA modeling.


If you raise my taxes now to 1.6 percent of fair market value, I'll be in the garage shining up the pitchfork and fueling up the torch. Along with everyone else that accepted the system in place when they made the decision to buy.

 

[NW-Bound]

Something that some people may be missing here -

just because your home doubles in 'value', that doesn't mean your property taxes necessarily double. In our county (and many others I think), the total tax bill is divided up across the property values. What this means is, if the total tax bill goes up 5%, and everyone's home doubled, each tax bill would go up by 5% (not 2x + 5%). There's an equalization formula that covers this.

I know first hand that many people that live here do not understand this. They think their taxes are directly related to their assessed value. No, it really is your assessed value in relationship to total assessed values.

I suspect many posters here talking about how someone who experiences a real estate boom can't keep up with their taxes is thinking this way. But it may not be the case. Was it this way in CA prior to Prop 13 (or whatever #)? I don't know.

I can't say how many municipalities use the equalization formula versus an absolute % of value formula, but I will guess (based on my experience of how few people here understand it), that it is way more common than most people think. I'll also guess that most municipalities would prefer an equalization formula, or their year-to-year budgets would vary wildly with real estate markets. If the real estate market tanks, you still need to pay fire, police etc.

This is also how RE taxes in my state work. My home is indeed assessed at only 1/2 of its market value, and as long as equivalent homes in the neighborhood are assessed similarly, the tax burden is equitable. And in a housing bubble or bust, our tax stays steady. The county budget is controlled by other means, and the home assessed values are used as weighting factors to divide the tax burden. In other words, the assessed values are relative to one another.

Apparently, CA taxes used to be based on a straight percentage of true market values, and in a housing bubble, the local government would enjoy a "windfall profit". Of course in a housing bust, they would be hurting. This tax system "sucks".

What Prop 13 does is to start the tax at 1% of market value when the home is bought, then increases it to allow for inflation, but caps it at 2%. That 2% is the problem.


PS. My RE taxes work out to about 2/3 of 1% of current market values. My 2 homes are in different counties, one urban and the other rural, yet the taxes are about the same.

 

[48Fire]

I wouldn't do anything. Seems like the evidence is sketchy, and likely the tax collectors won't pursue it.

Ironically, I just received a tax assessment that looks like half of what I expected. Maybe I should turn myself in before my neighbor does

 

[NW-Bound]

Talk of the bad idea of basing RE taxes on market values and having it fluctuate with housing bubbles and busts reminds me of the following story.

In 2008, during the gasoline crunch that sent the price to $5/gal in the US, the Europeans suffered much higher prices due to higher taxes. To add insult to injury, some of the taxes are based on price, not on the volume or per liter, making fuel even more expensive.

Thus, when the price went up because of a world-wide shortage, some governments enjoyed a "windfall" profit. That drove fuel consumers nuts, and I read about frequent riots by European truckers, fishermen, etc... Here in the US the gasoline excise taxes are based on volume, I believe. This is "fairer", as it does not increase the tax burden when the price goes up because of external factors which affect world-wide prices.

 

[wolf]

You suspect someone is evading local property taxes, but you don't really know for sure (she could be in a nursing home, she could even be in the house.)
You also don't know the whole story about what is going on with the people there. There could be a very good, decent reason why the owner of the house is inviting these members of her family to live there. She could be caring for her dying sister for a year, her mail still comes to the house, and has let these people live in her house for now--maybe that isn't allowed for in the rules, but the city would have virtually no way to enforce their rules in that case.

It doesn't sound like the family is causing any trouble for you personally. Maybe it's not as quiet as it used to be when the spinster was there alone, and maybe that's bothersome. If Mrs Smith is forced to sell the house to pay the taxes, you don't really know who will move in there. And if she wants to keep the place, she may have to rent it out to pay those taxes (rather than let her kin live there for free or reduced rent). Either way, you could end up with a worse situation next door.

Yes, it would bother me that somebody might be cheating on their property taxes, and I'd resent paying more than they do. I'd have to really examine my motives and decide if I'm upset about the property taxes or if the increased "buzz" at that house is really what's got me peeved, and reporting her for tax issues is a way to get things back the way I liked it before. Maybe you are entirely different, but I suspect that's how I'd perceive things. But given the totality of the factors, I don't think I'd feel comfortable reporting it, and wouldn't feel any obligation to do so.

+ 1. Agree. MYOB. There are bigger issues to worry about.

 

[Running_Man]

From Powell property tax specialists in Houston:
Qualifications for the Over-65 exemption and tax ceiling include:
You are age 65+
Own the home on January 1 of the tax year
Claim it as your primary residence
Claim no other property as a homestead

So as long as SHE considers it her primary residence she does not and does not have another homestead she cannot be proved to be in violation of the law, now do you have anything that shows she is claiming another property as her primary residence? Or do you expect her tax returns to be a matter of public record? This entire thread is a canard, who she lets live in her house is not a matter of discussion as it is irrelevant in determining primary residence.

 

[Running_Man]

And there is a paucity of legal definition of "primary residence" from one legal website:
There have been very few court cases in which principal residence has been defined, but in those cases, the courts provide the same answer: "we will investigate the facts of each case, and make our decision based on those specific facts, on a case-by-case basis." The IRS has a less complex response: it is "usually the home you live in most of the time".
however the IRS also will allow a home to be defined as a primary residence so long as you have lived in the house for 2 of the past 5 years, even if you rented it out for the other 3!!!!!
So the chance of this woman getting this exemption ruled invalid is near zero since she is over 65 and all she really needs to be doing is not claiming this on another house.

 

[pb4uski]

As someone that spent some years managing a local government agency department that was a target for tattletales and self-righteous busybodies, this law was written to make sure the Assessors won't have to chase down every report of abuse. My instructions to my front line staff in this situation would be to respond as follows.


"Sir, we appreciate your concern. However, we have no proof that your neighbor has established another permanent residence and that s/he has no intent of returning. Without proof that your neighbor has established another permanent residence and proof of his/her intent not to return, there is no legal basis for further action. Thank you for your concern and have a nice day."

Well then I'm glad you are not in municipal management here. Do you really think that the burden of proof belongs to the whistleblower? WADR, that's one of the stupidest things I've ever heard of. Like reporting a crime to the police and the police saying thanks for letting us know but unless you have proof we won't do anything. If the suspicion has merit it is your job to investigate, not the whistleblowers. If your attitude was adopted then essentially there is zero enforcement.

 

[pb4uski]

Talk of the bad idea of basing RE taxes on market values and having it fluctuate with housing bubbles and busts ....

But you have it wrong, if the municipal budget is stable then property taxes will be stable even if market values rise (or fall) dramatically. The tax rate is the budget divided by the grand list, which is the fair value of all properties in the municipality.

So if the budget is $10 million and the grand list is $500 million then the tax rate will be $2 per hundred... if your home is valued at $250k then your property tax will be $5,000.

If the budget is $10 million and property valued increase 40% then the grand list is now $700 million and the tax rate drops to $1.4285 per hundred and the tax on your now $350k home is still $5,000.

 

[PhrugalPhan]

Let me come at this from a different view point. I too work for local government, in my case writing software that in one case was for the county's group that tracked cases of overpayment of benefits (i.e. usually fraud) to county residents and their negotiated repayments. The amount per year was in the 10's of millions (8 years ago - it may have hit 100 million by now). We take any type of fraud seriously and investigate it. Any manager saying don't bother us without directing them to the appropriate investigative group wouldn't be a manager here very long.

That money does of course go into the general pool of funds, but there are so many useful programs that need money, and without these funds who knows which ones would end up getting cut (or kicking the funding can down the road). Personally I would not like to have our government finances end up like Greece, but that's just my opinion.

As for the family in the OP, if they are as needy as some hypothesize, there are most likely legal benefits they can apply for that will give them just as much money as they may be saving in other ways. All they need to do is apply for it. The OP doesn't have to feel bad at all for letting the local government know about the current situation. That's exactly what should be done.

As someone that spent some years managing a local government agency department that was a target for tattletales and self-righteous busybodies, this law was written to make sure the Assessors won't have to chase down every report of abuse. My instructions to my front line staff in this situation would be to respond as follows.


"Sir, we appreciate your concern. However, we have no proof that your neighbor has established another permanent residence and that s/he has no intent of returning. Without proof that your neighbor has established another permanent residence and proof of his/her intent not to return, there is no legal basis for further action. Thank you for your concern and have a nice day."

 

[Another Reader]

It's not my job if there is no point to it. In a County agency, I would not have the staff or time to chase after someone that only has to state it is her intent to return to the property to win the argument. Intent is a VERY slippery slope.


Now if you mailed me a copy of her senior citizen exemption in another jurisdiction, that would merit a phone call to the other jurisdiction to verify the duplication and then a matter of fact letter to the individual stating she had two exemptions, and asking her to verify which property was her primary residence. I'm sure the two agencies involved would make the necessary corrections to insure only one exemption was granted.


This happens with the homeowner's exemption in California. Often someone moves to another County, rents out their house, forgets to notify the Assessor they moved, and applies for the exemption in the new County. IIRC, there is a matching state database now that turns up duplicates. A letter is sent to verify primary residence, and the other exemption is canceled.


It's not fraud, it's a lack of knowledge or inattention. Heck, half the homeowners out there don't know if they are getting an exemption for their primary residence. My guess is there is no intent to defraud in this case either.

 

[pb4uski]

But she has to do more than just state it is her intent to return to the property to win the argument.

You wouldn't check to see where her home address is on her driver's license, where she is registered to vote, the address shown on her latest tax return, the home address on vehicle registrations, so on and so forth? Even if she states that she intends to return to the property, that is not sufficient if the preponderance of evidence indicates otherwise.

 

[Another Reader]

Welfare fraud is a completely different matter. Intent is not the standard applied.


When all the person has to do is state that it is her intent to return to the property as her primary residence to meet the test, doing anything other than making sure two exemptions are not granted is a waste of the Assessor's resources.


I'll bet that the remedy where PhrugalPhan works is repayment, not prosecution, unless the fraud is egregious. You would be laughed out of the DA's office if you wanted to prosecute every welfare recipient that got an extra check by mistake and failed to report it.