The Homestead Exemption a Bust: Is this a Boon or Bane? ~ Hampton Roads Real Estate Ramblings

The Homestead Exemption a Bust: Is this a Boon or Bane?

Sunday, February 10, 2008

Hello Hampton Roads,

This past Thursday, the Senate Finance Committee defeated Governor Kaine’s the proposed constitutional amendment to allow localities to increase the homestead exemption.

The vote for Senate Joint Resolution 6 (SJ 6) was as follows:
8 (Y) to 8(N)

YEAS
Houck (D), Howell (D), Saslaw (D), Miller, Y.B. (D), Marsh (D), Lucas (D), Whipple (D), Reynolds (D) – 8

NAYS
Colgan (D), Wampler (R), Stosch (R), Stolle (R), Quayle (R), Norment (R), Hanger (R), Watkins(R) – 8



Sidebar: It is interesting to note that all 7 Republicans who voted against this proposal voted for it last year. Keep in mind that legislators are heavily dependent on campaign dollars from lobbyists who are employed by businesses. The Virginia Public Access Project states that in 2006-07, non-freshman legislators received $10.9 million of their $24.8 million contributions from businesses.


The homestead exemption would have allowed local governments to exempt from property taxes up to 20% of the value of residential and farm properties used as a primary residence. This would have saved homeowners money in the form of a direct reduction in property taxes in the face of increasing assessments. It would be left to local governments to decide the amount of the exemption as well as who would be eligible.

Though the proposed amendment passed the House of Delegates, it was defeated in the Senate Finance Committed due to huge opposition in the business community, including the Virginia Chamber of Commerce, Hampton Roads Chamber of Commerce, and various trade associations. When taxes are decreased in one part, they are increased in another; and in this case the tax burden would be shifted to the owners of industrial and commercial properties which are not exempt. According to the VA Foundation for Research and Economic Foundation, the proposal could cost businesses an additional $1 Billion in taxes.

The fear is two fold in that if businesses are taxed excessively, the state will be seen as not business-friendly and businesses will leave or the increased taxes imposed on businesses will be passed on to the consumer, or both. If taxes to businesses increase, they pay for it by increasing prices for their goods and services. Indirectly, the consumer will pay for all tax increases.

As a counter argument, according to the Virginia Beach Taxpayer Alliance, residential properties account for 87% of the tax base while commercial and industrial properties account for only 13%. Additionally, the Viriginia Beach Taxpayer Alliance, together with Chesapeake Citizens for Fair Real Estate Tax, and the Portsmouth Taxpayer Alliance state that the homestead exemption would help businesses since it would give homeowners more spending money.

A second version of the bill was sent to the Senate for consideration. It must pass the General Assembly a second time before it is put on the ballot in November. If the change is approved, it will take effect July 2009.

Homestead exemption—boon or bane? You decide.

Added Value:
Current Real Estate Tax Rates in Hampton Roads Cities
More Information on Homestead Exemption: http://hamptonroads.com/2008/02/hard-questions-no-easy-answers


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