Legislative Bulletin
Special Edition, 1998

HOMESTEAD BECOMES LAW

The 118th Legislature has finally enacted direct, meaningful property tax relief.

The goal of significant property tax relief, which Maine’s municipal leaders have been seeking for a decade, became reality on Wednesday, April 1, when a $7,000 homestead exemption was signed into law by Governor Angus King.

Any municipal official who would like a copy of the new law should call Tina Means at MMA, 1-800-452-8786.

Paralleled on Maine’s property tax exemption for veterans of war, the new homestead exemption will lower the property tax bill of all Maine residents by reducing the assessed value of their "homestead" by $7,000, adjusted by the municipal assessing ratio. 100% of the tax revenue lost because of this exemption is reimbursed to the town from the state’s General Fund in a very timely manner so as not to interfere with any municipality’s cash flow.

Broad-based homestead exemptions have been adopted in 20 states across the nation to address in a most simple and direct manner the structural imbalances in a state’s tax system that can develop over time. In Maine, for example, the property tax currently generates 44% of the revenues collected by the three major taxes. The income tax generates 30%, and the sales tax contribution is just 26%. By enacting the homestead exemption, the Legislature has recognized the disproportionate burden placed on Maine’s residential property taxpayers and acted to address that imbalance through the instrument of a homestead exemption.

The homestead exemption takes effect this tax year. In order to ensure that this powerful property tax relief mechanism is uniformly and thoroughly implemented in all the municipalities across the state, and that all residential property owners are provided the property tax relief they deserve, this special edition of the Legislative Bulletin has been prepared to walk municipal officials through: (1) the application distribution and approval process; (2) the details of assessing administration: (3) the reflection of the homestead exemption on the property tax bill; and (4) the reimbursement system.

All municipal officials who receive this Legislative Bulletin are asked to make sure that all the selectmen and councilors in the community have received a copy, and that their municipal assessors, assessing agents, assessing clerks, tax collectors, and treasurers have received a copy as well. For the implementation of this new property tax relief system to be entirely successful, the municipal officers, assessors, tax collectors and treasurers will have to work together as a team.

This special edition of the Legislative Bulletin is intended to be a guidance document to assist in that team effort.

NAMES ARE DIFFERENT, AGENCY’S THE SAME

The state agency that will be taking the lead in working with municipalities in administering the Homestead Exemption Program is Maine Revenue Services. This is the new name for what was formerly called the Bureau of Taxation under the State Department of Administration and Financial Services.

In the new homestead law, there are references to "the Bureau" which now is Maine Revenue Services. For this Legislative Bulletin, we have used different names Maine Revenue Services, Bureau of Taxation, Bureau of Revenue Services, or just Bureau that all refer to the same state agency.

MILESTONE PROPERTY TAX RELIEF LEGISALTION

By George N. Campbell, Jr.

President, Maine Municipal Association; Mayor, City of Portland

On behalf of the MMA Executive Committee and Legislative Policy Committee, I am pleased to thank the 118th Legislature and the Governor for enacting significant property tax relief for Maine residents. Key components of the tax relief package were establishment of a $7,000 homestead exemption for Maine residential homeowners and additional property tax relief for renters through the "Circuit Breaker" program.

I also want to extend sincere appreciation to municipal officials throughout the State for your strong support to ensure that property tax relief was a key part of the tax relief package adopted by the Legislature. Enactment of a homestead exemption is an important step in reforming Maine’s tax structure to reduce the heavy reliance on the local property tax.

We now have a major challenge in front of us implementing the homestead exemption between now and May 15 so that residential homeowners will benefit from the program for this tax year. MMA appreciates the commitment of local officials particularly those with assessing responsibilities to work within a very tight timetable for this initial year. This issue of the Legislative Bulletin is devoted to providing as much information as possible to assist you.

MMA is committed to helping get the word out to Maine residents about this important property tax relief mechanism through announcements in newspapers, and hopefully through public service messages on television and radio stations. Likewise, your efforts on the local level will be crucial to ensuring that this program gets off to a strong start to reduce the property tax burden on Maine citizens. Again, thank you for all your efforts to obtain passage of this milestone legislation and to ensure its successful implementation!

IMPORTANT HOMESTEAD DATES

April 1 -- Municipal assessment date. This is the date that controls all municipal assessments. Thus, it is the date that municipal assessors will use to determine a taxpayer’s eligibility for the homestead exemption. After the first year (1998), this will be the date by which all new applications for the homestead exemption must be filed.

May 15 -- Deadline for applications. This is the special cut-off date for residents to apply for a homestead exemption in 1998. For this first year, applications for the homestead exemption must be filed with the local assessor(s) by this date.

June 1 -- Ratio changes and other information. Municipal assessors that intend to use an assessment ratio that is more than 10% over the latest "developed parcel ratio" supplied by Maine Revenue Services will need to get approval from the Bureau to do so. By this date, municipal assessors will also want to provide Maine Revenue Services with information on the number and aggregate amount of homestead exemptions so that the Bureau will be able to calculate their estimated reimbursement to municipalities which will be mailed out in August.

July 1 -- Effective date of supplemental budget. The supplemental state budget, containing the homestead exemption, was passed by the Legislature on March 31 and becomes effective 90 days after that date. The importance of this date is that municipal tax commitments for this year, which include homestead exemptions, will need to be done after July 1 to be compliant with the effective date of the state law.

August 1 -- Estimated reimbursement from state. By this date, Maine Revenue Services shall certify to the State Treasurer 80% of the estimated reimbursement that the state will be making under the homestead exemption program to each municipality.

August 15 -- Reimbursement check from state. By this date, the State Treasurer is to issue a check to each municipality for the amount certified (80% of estimated "homestead" reimbursement) by Maine Revenue Services.

November 1 -- Claim for reimbursement. By this date, each municipality shall submit to Maine Revenue Services a claim for reimbursement under the homestead exemption program. The deadline for municipalities that commit property taxes after October 1 is within 30 days of commitment. Maine Revenue Services will review the claims for reimbursement to determine the total amount that the state will reimburse each municipality under the homestead exemption program.

December 15 -- Final payment by state. The State Treasurer, after receiving certified totals from Maine Revenue Services, shall make final payment to municipalities under the homestead exemption program. Final payment will be the actual cost of the homestead exemptions for each municipality less the estimated reimbursement previously made by the state on August 15. Municipalities that file claims for reimbursement after November 1 will receive their final payment from the state as soon as reasonably possible after December 15.

GETTING THE WORD OUT

Now that the homestead exemption is law, it is imperative that municipal officials get the word out to taxpayers. The homestead exemption is a real tax break for Maine residential homeowners, but those taxpayers will need to learn about the program in order to apply for it.

The Maine Municipal Association will be conducting a media campaign to inform residents about the program and to urge people to take advantage of it, and we encourage municipal officials to do everything they can to apprise their citizens about the program. The municipal newsletter and bulletin boards, prepared public service announcements through the local media, and the local cable television station and your local access channel might all be utilized to get the word out about applying for this tax relief program.

It is important to remember that people do need to make an initial application in order to get into this program. How else will the assessor know for sure whether the property is a person’s primary residence and not a summer camp or a rental property? Also, the Bureau will reimburse the municipality for the tax revenues lost to the homestead exemption only if there are applications to support each exemption. This is not to say that the Bureau will require the town to submit all those applications for reimbursement, but field personnel from the Bureau will be looking for the supporting documentation when they audit the administration of this program.

The new law requires that a standard application form for this program, as prepared by the Bureau, be used throughout the state. As you will see by reviewing the form on pages 5 and 6, it is an easy form to fill out. The homesteader merely has to check some boxes and sign the declaration stating that the subject property is in fact his or her primary residence, and that the taxpayer has been a "homesteader" in Maine for at least the 12-month period preceding the April 1 date of assessment. It is a straightforward self-declaration form for this direct, "just value" $7,000 exemption off one’s property valuation.

While the law does not require that notices and the application form prepared by the Bureau be mailed to every residential taxpayer, MMA encourages it. We have prepared a sample cover letter you may want to use to send out with the forms (see below).

Assessors and other municipal officials will want to make sure that they have taken every step possible to notify their constituents in a timely way, rather than have taxpayers come in after they have received a tax bill and complain they did not get the exemption. Then it will be too late for this tax year.

The Legislature has budgeted $715,000 to reimburse municipalities this year to cover 90% of the local administrative costs that will be incurred to administer this program. This appropriation was provided to conform to the "mandate" law in Maine’s Constitution, and represents the first time since that law was adopted that the statute which governs the distribution of state funds to cover a municipal mandate will be implemented on a statewide basis. The $715,000 appropriation was calculated on the basis of a municipal survey, which suggested that the first-year local administrative costs would be $2.20 per application on average. Although the details of the administrative-cost reimbursement schedule are not entirely known at this point in time, it is likely the appropriation will be distributed on flat rate, per application basis.

Most importantly, the Legislature has appropriated $46 million to reimburse communities so that they can provide the homestead property tax exemption for their citizens. Let us be sure that the citizens get the full benefit of that long-awaited tax relief!

SAMPLE COVER LETTER FOR HOMESTEAD APPLICATION MAILING

Important Notice!!!

Dear Homeowner in (municipality)

The State Legislature has enacted, and Governor King has signed, new legislation giving homeowners in Maine significant property tax relief. Municipal officials have sought this property relief for years, and we thank the Governor and Legislature for providing it.

Most homeowners whose principal residence is in Maine are entitled to a $7,000 reduction in valuation (adjusted by the community’s ratio of valuation to actual market sales). Using last year's tax rate, if you qualify for this homestead exemption, your property taxes would be reduced by approximately $_______. The actual amount of the reduction will, of course, be based on this year’s tax rate.

To qualify, you the taxpayer need to fill out the enclosed form certifying that your home in (municipality) is your permanent residence. You can not claim residency in more than one community either in Maine or in another state. You must also have owned and resided in a Maine homestead for the past 12 months.

It is a simple form. Just fill in the blanks for your name, address, property description, and check off the items that attest this property is your principal residence. Return it to: Assessor, (municipality's address). (The town may want to enclose as self-addressed envelope.)

You must return this form to qualify! The municipality is not allowed to give you this exemption without proof of your application. The application must be returned to the municipal assessor no later than May 15, 1998.

Sincerely,

Municipal Assessor(s)

ADMINISTERING HOMESTEAD EXEMPTION

One role of the assessor is to ensure the availability of the homestead exemption application form throughout the community, review the signed applications that are returned, and verify the eligibility of those applicants who do not appear to be eligible.

A vast majority of returned applications will be acceptable on their face because the applicants are known by the municipality to be long-term residents. A small percentage of applications, however, will need further review, however, because the applicant has some level of residency in another community or state, or it is not entirely clear that the applicant has been a homesteader in Maine during the entire 12-month period prior to the April 1 assessing date.

Adjusting Exemption

The centerpiece of the assessing function for this property tax relief program is correctly adjusting the $7,000 exemption value by the proper adjusting ratio.

Because the certified ratio to use for this program is not necessarily the same certified ratio that assessors register on the municipal valuation return or use to adjust the value of the veteran’s exemption, it is important that assessors pay particular attention to this step in the process.

The pertinent provision of the new homestead exemption law reads as follows:

"The certified ratio developed by the municipality must be considered accurate by the bureau if it is within 10% of the assessed ratio last determined by the bureau in its annual report of ratio studies involving developed parcels of property." If the assessor has evidence to support a different ratio, approval will be needed from the Bureau to justify its use.

Given this statutory requirement, the three steps the assessor will take to determine the adjusted value of the homestead exemption in any particular municipality are as follows:

1. Obtain the municipality’s developed parcel ratio. The bureau has told MMA that it will be sending out to all municipalities within the next couple of weeks the most recent "developed parcel ratio" for each municipality. If for any reason you do not receive this mailing and are unable to locate your "developed parcel ratio", call the bureau at 287-2011 or MMA at 1-800-452-8786.

2. Determine whether to use the exact value of the developed parcel ratio or to round it off within the 10% window of deviation allowed by law.

3. Multiply the certified ratio as finally determined by the $7,000 exemption value to yield the exact dollar reduction in value that will be applied to every eligible applicant’s homestead assessment.

Changing Assessing Records

After the assessor has made the final calculation of the municipality’s adjusted value of the $7,000 homestead exemption and compiled the final list of homesteads in the community that are eligible for the exemption, the last step for the assessor is simply inputting that data into the municipal assessing records, including each eligible homeowner’s property tax card, the computerized assessing data, and the final assessing list.

It is very important to note that the aggregate value of the homestead exemption is not subtracted from the municipality’s overall assessed value. The homestead exemption is designed to have zero impact on the municipal mill rate, and since full reimbursement is provided from the state’s General Fund, the homestead exemption applies only with respect to taxation of the property owner and not with respect to aggregate taxable value of the municipality.

The Commitment Process

The newly enacted homestead exemption places a special responsibility on the municipal officers at the point of commitment to make sure the property tax relief system has been accurately administered. In order to fulfill this responsibility, the selectmen should convene the assessors and the tax collector during the commitment process and make sure the following steps have been taken.

Has the assessor properly processed all applications for the exemption and identified all eligible homesteaders? Are there any disputes or appeals in process that can be resolved by the municipal officers?

Has the calculation of the homestead exemption value for the municipality in accordance with the formula involving the developed parcel ratio been properly calculated and applied to all eligible homesteads?

Does the assessment list properly reflect all the homestead exemptions and accurately sum the aggregate value of all homestead exemptions granted?

Does the assessment list’s bottom-line value of all taxable property in the community properly include the aggregate value of all homestead exemptions granted?

As soon as an affirmative answer is given to each of these four questions (and all other pre-commitment reviews are conducted), the municipal officers are in a position to commit to the tax collector the collection of taxes.

Preparation Of Tax Bills

The only special responsibility created by this new law that applies to the tax collector is with regard to the property tax bill itself. Under the new law, the property tax bill must reflect the overall assessed value of the homesteader’s property and, as a separate line, the value of the homestead exemption before the bottom line, which is the total assessed value for the purposes of taxation.

With this identification on the tax bill, the municipal responsibility to demonstrate the amount of property tax reduction provided by the homestead exemption has been met, and it is not necessary to include the homestead exemption in the calculation of the percentage reduction provided by revenue sharing and education subsidy which is already required by law.

Q & A ON HOMESTEAD EXEMPTION

Are municipalities required to mail the homestead exemption application form to all property taxpayers and will the state be providing forms to us?

The law does not require that the homestead exemption application form be mailed. However, MMA strongly encourages municipalities to mail the application form this year. It is the first year of the program and there is a very short timeframe for people to apply. Distributing the form by mail will undoubtably improve participation.

Maine Revenue Services will be providing copies of the Homestead Exemption Application Form to municipalities in sufficient quantities sufficient to cover mailing to residential homeowners. Bureau staff have told MMA that these forms should be out to the municipal assessors during the week of April 13th. If municipal assessors do not want to wait for the Bureau's mailing, they can photocopy and distribute the final application form which appears on pages 5 and 6 of this Bulletin.

Does the municipal tax rate or municipal valuation change under the homestead exemption program?

No. Unlike the veterans and other exemptions, the homestead exemption is not taken off the municipal valuation and therefore does not affect a munici-pality’s mill rate or state valuation.

After the homestead exemption is adjusted to full value using the "developed parcel ratio" can it be adjusted any further?

The "developed parcel ratio", or sometimes referred to as the overall residential property ratio, is the modifier that will be used to adjust the $7,000 homestead exemption to its "just value". These ratios are calculated by Property Tax Division of Maine Revenue Services and provided to each municipality. Larry Record at Maine Revenue Services has told MMA staff that his agency will be mailing the most recent (1996) "developed parcel ratios" to municipal assessors within the next couple of weeks with an explanation of how they are to be used in adjusting the homestead exemption to its "just value".

To answer the question, yes the "developed parcel ratio" provided by the state can be changed: (1) up to 10% without approval by the Bureau (Maine Revenue Services); (2) over 10% with Bureau approval if the municipal assessor can prove that a different ratio should apply.

Is the appeal process for people who are denied a homestead exemption the same as any other property tax appeal?

Yes, it is. 36 MRSA, section 841 covers the abatement process. As with other tax appeals, the process starts with a written application to the municipal assessor, followed by the Local Board of Assessment Review or County Commissioners, and then to Superior Court.

What does the assessor do if a homeowner’s (adjusted) valuation for his/her primary residence is less than $7,000?

Tax liability does not go below "zero". It is doubtful that municipal assessors will have to deal with this issue very much, since the vast majority of homes will have a "just value" of over $7,000. However, MMA is aware that some Maine homes, oftentimes when the land is leased, will have a value below the $7,000 threshold. In these cases, the property tax bill will be "zero". The reimbursement for the homestead exemption will be limited to the "just value" of the home.

Are the municipal assessors responsible if someone receives a homestead exemption who doesn’t qualify?

A taxpayer who files an application form for the homestead exemption does so under penalty of perjury. The taxpayer would be guilty of a Class E crime for falsely filed information. Maine Revenue Services has a statutory responsibility to do periodic and random audits of municipal records for the homestead exemption. If the Bureau finds individuals who have improperly been given an exemption, future reimbursements to the municipalities for the homestead will be lowered to reflect the unqualified exemptions. Municipalities can levy supplemental assessments when taxpayers who did not qualify have received the homestead exemption.

Can an owner-occupied multi-family home qualify for the homestead exemption?

Yes. That portion of the property which is apportioned to the owner as his/her principal residence is eligible for the homestead exemption. For example, a four unit house valued at $80,000 would have a $20,000 per unit value. If the owner’s portion of a multi-family home were valued at less than $7,000 (adjusted), the assessor would treat it the same as any single family residence with a "just value" under $7,000.

How does the municipal assessor treat the homeowner who qualifies for other property tax exemptions, e.g., veterans?

The new law states that the (homestead) exemption "is in addition to the exemptions provided in sections 653 and 654". These two sections of Title 36 deal with exemptions for veterans or blind persons. Since the law says "in addition to," it is assumed that the veteran and blind exemptions would be applied before the homestead exemption.

Is the homeowner who ceases to use his/her property as a "permanent residence" required to notify the assessor that he/she no longer qualifies for the exemption? What responsibility does the assessor have in reviewing the renewals of eligibility?

The answer to the first question is "yes". However, there is no penalty specified in the law for those who do not notify the assessor of changes in property ownership or use. Therefore, municipal assessors will want to keep an eye on real estate transfers in their community to see when properties change hands. The sale of a homestead as recorded on a real estate transfer document presumptively disqualifies that property for a homestead exemption until a new owner files an application. A number of red flags, such as real estate transfers, will guide assessors in the renewal process. Where there is no change in ownership or use, the renewal will be automatic and not require any action of the assessor.

If the first year application is not filed in a timely manner (by May 15, 1998) are residents disqualified for a full year? Do they need to reapply next April 1?

The answer to the first question is "yes". The law specifically gives May 15, 1998 as the deadline for homestead exemption applications. Without a signed application delivered or postmarked by May 15th, the municipal assessors would not be permitted to give the taxpayer the exemption. It appears that if the person files after the May 15th date, and they would otherwise qualify for the exemption, that they are then qualified for the homestead exemption next year without filing a new application. The assessor would want to provide the same level of review that he/she provides to renewal of first year applications (i.e., make sure that ownership or use has not changed).

Some of our tax bills go directly to mortgage holders. Who should get notified about the homestead exemption, the mortgage holder or the homeowner?

The homeowner, not the mortgage company, must complete and sign the homestead exemption application. When sending out applications, you will want to make sure that the homeowner, not the mortgage company, is on your mailing list.

Renters do not qualify for this program; what property tax relief are they entitled to receive?

Several years ago the Maine Residents Property Tax Program, often referred to as the "Circuit Breaker Program", was enacted to help homeowners and renters whose property tax burden was high relative to their income. For renters, a certain portion of their rent is treated as their property tax obligation. If the property tax portion of the rent exceeds a certain percentage of their income, they are eligible for payment under the program. This session, the Legislature raised the percentage of rent being treated as property taxes, thereby increasing the number of renters potentially eligible for the program.

Our town usually commits its taxes before July 1. Does this pose a problem?

You should hold off committing your taxes until after July 1, 1998 in this first year of the homestead exemption program because technically the law does not take effect until July 1. MMA believes that there are only a few communities that regularly commit property taxes before July 1. We are advising those communities to wait until after July 1, this year to commit their taxes.

Our municipality's developed parcel ratio is over 100%, does this mean our exemption will be over $7,000?

Yes it does. The law states that the $7,000 homestead exemption will be adjusted to its "just value". For this reason, it is reasonable and fair for those communities overvaluing (as opposed to undervaluing) property to use their "developed parcel ratio" even if it is over 100%.

THE HOMESTEAD EXEMPTION APPLICATION FORM IS INCLUDED ON PAGES 5 AND 6 OF THIS SPECIAL EDITION OF THE LEGISLATIVE BULLETIN, BUT WE ARE UNABLE TO INCLUDE THE FORM IN MINET.