Summary: The Property Tax Circuit Breaker Act creates a real property tax credit based on the income of the household and the percentage that the household pays for real property taxes.
Source: This is the ALICE model, based on New York SB 4239A (2009). For a discussion, see ITEP Property Tax Circuit Breakers.
Rationale: By limiting property taxes to a percentage of income, a circuit breaker reduces burdensome property taxes while making what are often regressive property taxes into a more equitable tax system.
SECTION 1. SHORT TITLE
This Act shall be called the “Property Tax Circuit Breaker Act.”
SECTION 2. PURPOSE
This law is enacted to make the tax system more equitable.
SECTION 3. PROPERTY TAX CIRCUIT BREAKER
In section XXX, the following new paragraphs shall be inserted:
(A) DEFINITIONS—In this section:
(1) “Household” means a qualified taxpayer and all other persons, not necessarily related, who all reside in the residential real property owned or rented by the taxpayer, and share its furnishings, facilities and accommodations, and is not a member of another household.
(2) “Household gross income” means the aggregate adjusted gross income of all members of a household for the taxable year as reported for federal income tax purposes, or which would be reported as adjusted gross income if a federal income tax return were required to be filed, plus any portion of the gain from the sale or exchange of property otherwise excluded from such amount.
[Policy Option: Household Income: State policymakers may want to exclude additional items from household income that are included in federal income taxes, as NY SB 4239 (2009) does.]
(3) “Net real property tax” means the taxes on real residential property owned and occupied by the taxpayer for which the taxpayer would be liable, including special service area taxes, and special assessments on real property for which the taxpayer would be liable to a unit of local government after any exemption or abatement received pursuant to [cite property tax law].
(4) “Qualified taxpayer” means a resident individual of the state who owns or rents the residential real property in which he or she resides, and has resided in for the five years immediately preceding.
(5) “Real property tax equivalent” means [twenty-five percent] of the adjusted rent paid in the taxable year by a household solely for the right of occupancy of its residence in this state for the taxable year. If a residence is rented by [two] or more individuals as co-tenants, or they share in the payment of a single rent for the right of occupancy of a residence; and at least two individuals are members of different households, one or more of which shares the residence, “real property tax equivalent” is that portion of [twenty-five percent] of the adjusted rent paid in the taxable year which reflects the portion of the rent attributable to the qualified taxpayer and the members of the household of the qualified taxpayer.
[Policy Option: Rent Equivalent Level: Different states use a different number to assume the percentage of property taxes passed onto tenants in the form of a percentage of their rent. States generally use a range between 15-25 percent.]
(B) TAX CREDIT
A qualified taxpayer shall be allowed a credit against state income taxes due/paid, equal to [one hundred percent] of the amount by which the taxpayer’s net real property tax or the taxpayer’s real property tax equivalent exceeds the taxpayer’s maximum real property tax or the taxpayer’s real property tax equivalent exceeds the taxpayer’s maximum, the [comptroller] shall pay as an overpayment, without interest, any amount in excess of the state income tax due/paid. If a qualified taxpayer is not required to file a return, the [comptroller] shall pay as an overpayment the full amount of the credit, without interest.
[Policy Option: Percentage of Property Tax Offered as a Credit: States can offer a circuit breaker based on a percentage of property taxes owed above the “maximum property tax” amount, such as fifty percent or seventy percent. States currently offer circuit breaker credits of as much as 100 percent of property taxes paid above the “maximum property tax” amount (Vermont). Some states cap the amount not as a percentage owned but by an amount, such as no more than $2100 (Oregon). States offering only a partial credit might consider integrating a tax deferral mechanism to allow residents to defer property tax payments that they do not receive a full tax credit to cover.]
[Policy Option: Credits for States without Income Taxes: States can create a credit paid out of general revenues, as Washington States has done. While not funded, this is language from SB 6809 (2008): “A working families’ tax exemption, in the form of a remittance tax due under this chapter …is provided to eligible low-income persons for sales taxes paid under this chapter.”]
(C) MAXIMUM REAL PROPERTY TAX.
(a) A qualified taxpayer’s maximum real property tax shall be as follows:
(1) [three percent] of household gross income if household gross income is less than [$100,000];
(2) [three percent] of [$100,000], plus [five percent] of household gross income greater than [$100,000] but less than [$150,000];
(3) [three percent] of [$100,000] plus [five percent] of [$150,000] plus [seven percent] of household gross income in excess of [$150,000] but less than [$250,000]; and unlimited on household gross income in excess of [$250,000].
[Policy Option: Brackets and Percentages: Different states offer either more or fewer (sometimes just one) income bracket for different percentages of income to cap maximum property taxes. Percentage caps in states range from 3.5 percent in a number of states to 9 percent of income (for the top bracket in Maryland). The income tax percentage and the percentage above that amount offered as a credit in Section 3 will determine the overall fiscal burden of the policy for the state.
(b) The dollar amounts set forth in paragraph (a) shall be indexed for inflation for tax years beginning in the year after the effective date of this [act] and thereafter.
(1) In this paragraph, “consumer price index” means the average of the consumer price index over each [12-month] period, all items, U.S. city average, as determined by the Bureau of Labor Statistics of the U.S. Department of Labor.
(2) No later than December 1 of each year, the department shall adjust income amounts specified each year by a percentage equal to the percentage change between the U.S. consumer price index for all urban consumers, U.S. city average, for the month of October of the current year and the U.S. consumer price index for all urban consumers, U.S. city average, for the month of October [of the year of enactment] as determined by the federal department of labor. The adjustment may occur only if the resulting amount is greater than the corresponding amount that was calculated for the previous year. Each amount that is revised under this paragraph shall be rounded to the nearest multiple of [$10] if the revised amount is not a multiple of [$10] or, if the revised amount is a multiple of [$5], such an amount shall be increased to the next higher multiple of [$10].
(3) The [department of revenue] shall annually adjust the changes in dollar amounts required under this paragraph and incorporate the changes into the income tax forms and instructions.
SECTION 4. EFFECTIVE DATE
This law shall become effective on July 1, 202X.