A bill that could give Virginia homeowners immediate real estate tax relief at the expense apartment and commercial property owners and their tenants is attracting significant support in the state Senate.
The measure, introduced by Sen. Wiley F. Mitchell Jr. (R-Alexandria), would establish owner-occupied, single-family dwellings as a separate class of property for tax purposes and permit cities and counties to tax these residential units at a rate lower than that applied to other property.
At what was intended to be a preliminary discussion of the bill in a Senate Local Government Committee meeting Tuesday afternoon, the Mitchell proposal was endorsed in principle by the Virginia Municipal League, a group that represents the state's urban areas and usually finds itself lobbying the legislature for new city and county taxing power.
Members of the committee, especially from urban areas where real estate taxes have been inflating rapidly with home values, expressed a strong interest in the legislation.
Sen. Joseph V. Gartlan (D-Fairfax) asked Mitchell a series of critical questions about the bill, but in calling for a well publicized public hearing on the measure, said: "We may not have another revenue measure affecting localities to come before the Assembly in this season that is any more far-reaching than this one."
The Mitchell proposal is intended to achieve the same type of homeowner tax relief that has been sought in recent years in other jurisdictions including Maryalnd and the District of Columbia.
Acting Gov. Blair Lee III in Maryland is supporting a constitutional amendment that would establish owner-occupied homes as a separate class of property that could then be given favored tax treatment. A number of bills have been introduced in the Maryland Assembly proposing such treatment.
In Washington, homeowners already may deduct $6,000 from the market value of their homes before applying the city tax rate of $1.83 per $100 of assessed value. A proposal has been made to extend this residential tax break to multifamily dwellings of up to five units.
Gov. John N. Dalton told the Virginia Assembly in his legislative message Jan. 17 that he will have a resolution introduced that will establish a commission to study ways to hold down property tax increases. Should the Mitchell bill fail to pass, it undoubtedly would be placed on the study agenda.
Mitchell told the Virginia Senate committee that his proposal is intended to redress what he called the "inequity" of rapid inflation in single-family values in Alexandria and other areas when compared with commercial properties.
"Over the last decade," Mitchell said, "owner-occupied, single-family homes have been increasing in value about 9 or 10 percent a year while rental and commercial properties have been gaining in value no more than 5 percent, and often as little as 3 percent a year."
The result, he said,has been an increasingly rapid shift in the tax burden from investor-owned property to owner-occupied homes.
Assistant Alexandria City Attorney Burton K. Hanbury told the committee that in the last three years alone the owner-occupied residential share of the Alexandria real estate tax base has grown from 48.5 percent to 51 percent of the total.
He said condominiums have been excluded from the city's calculation of tax burden trend because of rapidly fluctuating condominium values. Had these owner-occupied apartments been excluded he said, the transfer of tax burden from investors to homeowners would be even more dramatic.
Mitchell said that the disparity in inflation between owner-occupied homes and investor-owned property is the natural result of proper assessment procedures.
THese assessment procedures, he said, require cities and counties to value investor-owned property on the basis of the income they produce. Homes, on the other hand, are valued on the basis of recent sales prices that have been escalating with demand for urban housing.
The growing tax burden on homeowners cannot be blamed on assessments, Mitchell said. In fact, he said, "the more effectively the tax assessor does his job, the greater the disparity between the values of owner-occupied and commercial property values."
Mitchell said the most dramatic recent example of the disparities produced by the current system is the difference between assessments of two identical high-rise residential buildings in Alexandria, the Summit Apartments at 260 So. Reynolds Ave. and Templeton of Alexandria, a condominium building next door at 250 S. Reynolds Ave.
Because of the different assessment procedures, Mitchell said, the condominium building was assessed at a value of 67 percent higher than the apartment building.
Mitchell acknowledged that his bill would eventually shift more of the real estate tax burden to investor-owners, who pass on taxes to tenants.
He said, however, that he believes it is fair to try to redistribute the real estate tax burden as it was "5 or 10 years ago" before the rapid escalation in housing prices.
To prevent abuse of the favored rate for owner-occupied homes, Mitchell's bill would prohibit cities and counties from taxing other property at a rate more than 25 percent.
Mitchell told the committee that his bill should not be viewed as "radical" because the Assembly already has established separate classes of residential property - such as recently rahabilitated housing - for tax purposes. He said the Virginia Supreme Court has upheld the principle of separate property classifications for tax purposes.
The bill was assigned to a subcommittee chaired by Sen. Charles J. Colgan (D-Prince William). He scheduled a public hearing for 1:30 p.m. next Thursday in Senate Room A of the General Assembly Building in Richmond.