OCEAN CITY – City officials voted to have an emergency ordinance brought forward on Monday to approve a change in the Homestead Tax Credit for Ocean City in order to meet the state’s deadline.
At the conclusion of Wednesday’s Mayor and City Council work session, Finance Administrator Martha Bennett brought forward a last-minute item to amend the local Homestead Tax Credit percentage for Ocean City to 100 percent in accordance with the Town of Ocean City Strategic Plan.
Bennett recognized the third goal of the strategic plan is “More Livable Community for Residents” with objectives to create more reasons for people and employees to make the choice to live in Ocean City and to increase the number of year-round residents.
According to Bennett, the Tax Property Article of the Annotated Code of Maryland allows municipal corporations to set a Homestead Tax Credit percentage by Nov. 25 of each year to be no greater than 110 percent and no less than 100 percent.
Bennett explained setting a credit percentage of 100 percent would support the objectives of the plan. A change in the property tax credit for owner-occupied homes to 100 percent would mean the taxable assessment would not increase each year unless there is a change in use or the property is sold.
The potential impact to owner-occupied home owners of reducing the homestead tax credit to 100 percent, or a 0-percent increase in their assessment each year, at the FY15 tax rate of .4704 cents per $100 assessed valuation, the reduction in their tax bills would be approximately $80,000.
The current rate set by Worcester County is 103 percent, which Ocean City elected to go along with by default.
“That means your assessment is allowed to go up 3 percent per year for principal residences, so if the old assessment for instance was $100,000 and the new value is $110,000 then the new phase-in assessment for owner occupied homes would be $103,000. A 3-percent increase is allowed under the law,” Bennett explained. “That Homestead Credit then becomes $7,000, the difference between the new value in this example of $110,000 and the phase-in of a 3-percent increase.”
The other option is to set the Homestead Tax Credit at 0 percent.
“Under a 0 percent tax credit, the old assessment would have $100,000 with the new assessment value of $110,000. The phase-in assessment would remain $100,000 and the homestead credit becomes $10,000. That is a difference between new value of $110,000 and old value of $100,000. Essentially the assessment would stay the same, even though the value had increased,” Bennett said.
Bennett furthered this is not a fiscal policy.
“There is very low impact in taxes that are collected. This is a policy used by many cities in Maryland to retain homeowners, support the neighborhoods by having more people living in a community year-round but it is also used to encourage repair and restoration of older homes as improvements would not change assessed value,” she explained.
Councilman Dennis Dare agreed the strategic plan has helped the Town focus on the future of Ocean City, and more livable communities are certainly high on that list.
“This does address that,” he said. “We started talking about the Homestead Tax Credit maybe 20 years ago, and we went from 5 [percent] to 3 [percent] where we are now … the fiscal impact is not that significant for the Town but it certainly is for the residents. Our residents our encouraged to live in town, and they patronize the businesses, and the businesses then flourish.”
Dare made a motion to reduce the Homestead Tax Credit to zero percent and to come before the Mayor and City Council on Monday night in form of an emergency ordinance. The council voted unanimously to approve.
According to the State of Maryland Department of Assessments and Taxation, to help homeowners deal with large assessment increases on their principal residence, state law had established the Homestead Property Tax Credit. The Homestead Credit limits the increase in taxable assessments each year to a fixed percentage. Every county and municipality in Maryland is required to limit taxable assessment increases to 10 percent or less each year.
Technically, the Homestead Credit does not limit the market value of the property as determined by the Department of Assessments and Taxation. Instead, it is actually a credit calculated on any assessment increase exceeding 10 percent, or the lower cap enacted by the local governments, from one year to the next. The credit is calculated based on the 10 percent limit for purposes of the state property tax, and 10 percent or less as determined by local governments for purposes of local taxation. In other words, the homeowner pays no property tax on the market value increase which is above the limit.