BERLIN – A seemingly innocent bill introduced in the General Assembly could allow property owners in Maryland to claim the Homestead Tax Credit on second homes, but the legislation, if approved, could have grave consequences in Worcester County where vacation homes make up nearly 80 percent of the residential real estate.
Senate Bill 232, introduced by western Maryland Senator David Brinkley and others, would, if approved, allow homeowners in the state to claim the Homestead credit on second homes provided the second property is at least 90 miles away from their primary residence. Brinkley primarily introduced the bill on behalf of a happily married couple in his district that plan to live separately in two homes they own and are seeking to reap the benefits of the Homestead cap for the two properties.
However, the bill would apply to all areas of the state and could have serious repercussions in terms of property tax revenue in resort areas of the state where second homes, or vacation homes, are so prevalent. In Worcester, roughly 78 percent of all residential real estate is made up of second homes or vacation homes, which are generally not protected by the Homestead cap. Extending the tax relief to the glut of vacation homes in Worcester that qualify under the provisions of the bill could put a serious dent in property tax revenue in the county, by far the largest contributor to the local tax base.
“This kind of bill has surfaced before without getting much play, but this definitely deserves close attention,” said Robert Smith, State Department of Assessment and Taxation (SDAT) Director for Worcester County this week. “A lot of times, these bills are introduced for a specific set of circumstances, but the thing they have to remember and take into consideration is that this would, if approved, apply to the entire state.”
The Homestead Tax Credit is designed to provide tax relief to homeowners on their primary residences by capping the amount of their annual assessment at 10 percent for property tax purposes. The state sets its cap at 10 percent, but local jurisdictions can set their cap at any level lower than 10 percent. In Worcester, the Homestead Tax Credit is set at just three percent, protecting resident homeowners from exorbitant property tax increases while allowing the county to collect property tax on the full assessed value of non-owner-occupied residences.
In a county where nearly 80 percent of all residential property is not owner-occupied, extending the Homestead cap to second homes could have a severely negative impact on property tax revenue.
Smith said this week Worcester County, with its thousands of vacation homes and second homes in and around the resort areas, could stand to lose the most if Senate Bill 232 passes.
“I would imagine our county would be affected the most by this,” he said. “For a county like ours, this could have definite negative circumstances. I just hope everybody does their homework and considers what this could mean before they vote on it. This could greatly affect the economies of the state, the counties and the municipalities.”
According to the language of the bill, the Homestead cap could be extended only to second homes at least 90 miles away from the property owner’s primary residence. In Worcester, that would mean practically every property owner whose primary residence is on the western shore in places like Baltimore, Montgomery, Prince George’s and Anne Arundel counties, for example, who own second homes in Worcester would be eligible for the tax relief.
Of course, the caveat is the second home would have to meet some of the existing qualifications for the tax credit, most importantly the requirement the property is occupied by the owner for at least six months of the year. Smith said that requirement could prevent most of the second homes or vacation homes in the resort areas of Worcester County from qualifying under the language of the bill.
“Regardless of what happens with this legislation, that six months plus a day requirement is not going away,” he said. “That is the standard for a primary residence and I think that would be tough to get around regardless of what happens with this bill.”
Already the Maryland Association of Counties (MACo) has come out strongly opposed to the bill, citing its potential impact on all important property tax revenues for the counties in the state.
In a letter to the Senate Budget and Taxation Committee, MACo officials urged the committee to give the bill an unfavorable report, if only to level the playing field for property owners around the state.
“While it is true that this bill will negatively impact property tax revenues, which is a concern of MACo, it will also provide an advantage to homeowners who can afford second homes,” the letter reads. “MACo believes this action is unfair to other taxpayers as it depresses the tax base beyond the intent of the program.”