The Taxation Committee has given its unanimous support for rules that will determine who will be eligible for a working waterfront tax break and for how much – paving the way for smooth sailing through the full Legislature.
The plan gives local assessors a lot of discretion in determining the so-called current-use value of waterfront property used to support commercial fishing. A lower value will mean lower property taxes for landowners, who have been assessed based on what the land would go for if sold for waterfront development.
Landowners must apply for the tax break, and if they sell out to someone not involved in commercial fishing within five years, they owe back taxes plus interest. After five years, the penalty would be a percentage of the difference between the market value of the land and the current-use value.
Retail outlets that only sell seafood to the public are excluded from the tax break. But if that is only a part of the operation, as in the case of a lobster pound, the owner would still be eligible, based on the percentage of the business related to commercial fishing activities.
Those activities are defined as providing access to the water or goods and services to persons directly engaged in commercial fishing.
Sen. Dennis Damon, D-Hancock County, who sponsored the bill after a statewide referendum supported it last November, called it a “very sound solution,” that was crafted by a working group including Damon, Geoff Herman of the Maine Municipal Association and David Ledew of Maine Revenue Service.
“It’s a major piece of legislation, and it has the potential of doing just what the people intended it to do in November,” Damon said.
The November referendum, approved by a vote of 276,116 to 109,508, authorized legislators to change the constitution and draft the rules to give owners of working waterfront property a tax break. The hope is it will keep property owners from succumbing to the high offers being made by real estate developers.
The most contentious issue surrounding the proposed rule was the penalty for selling out.
Sen. Ethan Strimling, D-Cumberland County, who has Portland in his district, questioned whether the penalty was steep enough and argued it could become a tax shelter after 15 or 20 years.
“We’ve got all this working waterfront down there,” he said, and with a current mill rate of $17 on each $1,000 of assessed value in Portland, the decreased valuation adds up to a lot of lost property tax dollars. Strimling said he’d like a penalty where landowners, “at least pay back what you owe plus the interest.”
The proposal only requires back taxes if an owner opts out in the first five years. After that it calls for a penalty of 30 percent of the difference between the market value of the land and the current-use value, if the owner sells out within 10 years. On a property with a $1 million market value, for example, and a current-use value of $800,000, the penalty would be $60,000.
The penalty rate then goes down 1 percent a year until it hits 20 percent at 20 years and then stays there.
Damon said his worry is “if the penalty were too great then that would be a deterrent” for landowners to get into the program.
“I’m a little reluctant to increase the penalties on the back end until we see how this plays out,” Damon said, in terms of how many landowners actually apply.
Rep. Harold Clough, R-Scarborough, a member of the tax committee, said even if a few landowners make out on the deal in the long run, it’s worth something to prevent the seashore from being overrun with condominiums.
The proposed rules, which would affect April, 2007 assessments, put the burden on the local assessors to determine the value of the land as if it were not on the water. They are to look at comparative values for inland commercial enterprises or essentially subtract the value of a water view and access to the sea.
Ledew, head of the property tax division for Maine Revenue Service, said there is an alternative method for those assessors who feel they’re not qualified to make such a determination. In those cases, assessors are advised they can take 20 percent off the market value for land used predominantly – 90 percent or more – for commercial fishing, and 10 percent off land used primarily – 50 percent or more – for that purpose.
While the second method limits the tax break, the first method does not. Ledew expects there will be appeals from landowners whose assessors use the more restrictive calculation.
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