Homestead Tax Change Could Have Big Impact On Shore

BERLIN -- State officials this week began checking for and potentially penalizing Homestead Tax Credit scofflaws, and perhaps nowhere in the state could more offenders be found than in Worcester County.

Last spring, the Maryland General Assembly passed a new law providing a mechanism for penalizing property owners who misrepresent a property as their primary residence in order to take advantage of state and local Homestead Tax Credit rates. In Maryland, resident property owners are protected somewhat from exorbitant increases in their property values by setting a cap on the amount of increase on which they can be taxed.

The state sets its limit at 10 percent, while individual counties can set their caps at any rate lower than 10 percent, or even zero in some cases. In simpler terms, if a property is the primary residence of the owner, the most they can be taxed on an increase in the value of that property is 10 percent. In Worcester, county officials a few years back set the Homestead Cap at 3 percent, while Wicomico just this year dropped its cap from 10 percent to 5 percent.

Because of an apparent increase in the number of property owners claiming the Homestead Credit on properties that aren’t their primary residences, the General Assembly last spring passed a law that will penalize those owners who willfully and deceptively claim the Homestead Credit on second homes, vacation properties or investment properties.

The law went into effect on June 1, but enforcement only started this week after the first semi-annual property tax filing deadline passed. The new law is not retroactive and the penalty can only be applied to those misrepresenting their properties as their primary residences starting in 2012.

Because of the resort nature of much of northern Worcester, including Ocean City, the county is considered ripe for finding potential offenders claiming the Homestead Credit on houses, condos and apartments that aren’t there primary residences.

According to State Department of Taxation and Assessment (SDAT) Worcester County Director Robert Smith, 78 percent of all residential properties in the county are not principal residences, fueled by a whopping 91 percent in Ocean City. In many of the other areas of the county, the percentage of primary residences is much higher and in areas such as Ocean Pines, for example, the percentage is around 50-50, according to Smith.

“It’s going to be a pretty big issue here,” he said this week. “It produces a procedure that will penalize someone who willfully and knowingly tries to circumvent the law. By looking at the high percentage of non-primary residences in Worcester, you can see where the potential for offenders is pretty high.”

Smith said the law change, and the associated penalties involved are pretty fresh and couldn’t predict how many offenders there might be in Worcester. In addition, a manpower and resource shortage coupled with the ongoing reassessment of property values in the county’s north end has made enforcement difficult thus far.

“We haven’t had the opportunity to revisit some of these Homestead claims yet,” said Smith. “We just don’t have the manpower. The county has been a tremendous help because they stand to gain from this. We’re just asking all the questions we can under the law.”

The law requires a property owner to live in a residence for at least six months plus a day in order to qualify for the Homestead Tax Credit. In the last few years, SDAT officials have made a concerted effort to assure those who are eligible are getting the tax credit while figuring those who aren’t. With 78 percent of the residential properties in Worcester not primary residences, including 91 percent in Ocean City, the task has been daunting, according to Smith.

“At one time, I thought we were seeing some light at the end of the tunnel, but the applications still keep pouring in,” he said. “Not a day goes by that we don’t get at least five or six calls or letters about the Homestead Credit. It’s an issue every day.”

Because of the changes in the law, and because there is so much potential property tax revenue at stake and added expense for eligible property owner, applying for and receiving the Homestead Credit has become more stringent.

“There was a time when we would make the change over the phone,” said Smith. “Now, we have to a get signed statement from the property owner.”

While there is likely a significant number of Homestead offenders willingly circumventing the law, there are also many who aren’t aware of the tax cap or who have filed for it unwittingly. Others are eligible for the tax cap, but haven’t filed the necessary form with the SDAT office to assure they are getting it.

To that end, SDAT is reminding all homeowners that they have until Dec. 31 to file an application for the Homestead Tax Credit eligibility. Property owners hoping to make sure they have filed the one-time application and are receiving the credit can do so be visiting the SDAT website at www.dat.state.md.us and clicking on the “real property data search” link.