PROPERTY TAX; PROPERTY TAX RELIEF;

TAXES - PROPERTY;

You wanted to know (1) the history of the state income tax credits for property tax payments, (2) whether the legislature considered imposing a statewide mill rate to fund education, (3) about recent efforts to control special education spending, and (4) if the legislature imposed any limits on state mandates on municipalities.

SUMMARY

In 1995, the legislature authorized income tax credits for property taxes people paid on their primary homes and the motor vehicles they owned. It subsequently increased the credit amount in 1997 and 1999 and set an income threshold above which taxpayers had to reduce the amount of credit over $ 100 based on their income and filing status. It reduced the credit amount in 2003. The legislature extended the credit to property taxes paid on vehicles leased for more than one year (1997) and changed the criteria for calculating credits (1998).

Since 1988, legislative commissions and individual legislators have proposed a statewide motor vehicle tax, but the legislature has not adopted it. Since 1995, legislators have proposed at least 12 bills to study or impose the tax, but all died in committee.

PA 03-6, June Special Session, contains two provisions intended to control special education spending. One delays from July 1, 2003 to July 1, 2005 the date on which a local school district’s maximum share of the funding for high-cost special education placements will be reduced from five to four-and-a-half times its average per pupil expenditure for the preceding fiscal year. By law, the state is responsible for all costs exceeding the local share. The second requires a proportional reduction in the grant amounts for FYs 2004 and 2005 if the grant total exceeds the amount appropriated for (1) excess cost grants or (2) expenses for special education students placed by state agencies or residing on state property.

The legislature addresses state mandates on towns by requiring legislative staff to identify bills that impose these mandates and estimate their potential costs before it votes on them. It imposes no statutory limit on the number, type, or dollar value of mandates it can enact. It also requires a post session report listing acts imposing mandates.

PROPERTY TAX CREDITS

PA 95-160

Among other things, this act gave taxpayers a $ 100 income tax credit for property taxes paid on their primary Connecticut residence and the motor vehicles they own. The credit applied to the property taxes paid for the assessment years beginning October 1, 1995, and to returns for income years that began on January 1, 1996. The credit amount could not exceed the taxpayer’s liability or the amount he actually paid and could not be used when calculating the amount of withholding or estimated payments due.

PA 97-309

This act increased the maximum property tax credit to $ 215 for the 1997 tax year and $ 275 in subsequent years. It limited the credit to one vehicle for individuals, heads of households, and married people filing separately and to two vehicles for married people filing jointly.

The act also reduced the amount of the credit above $ 100 by 10% for every $ 10,000 in income above a certain threshold for every filing status except married filing separately. (For this group, the reduction was 10% for every $ 5,000. ) For individual filers, the threshold was a Connecticut adjusted gross income of $ 52,500; for married people filing separately, $ 50,250; for heads of households, $ 78,500; and joint filers, $ 100,500.

The act extended the credit to property taxes paid on vehicles leased for more than one year.

PA 98-262

This act required taxpayers to exclude interests, fees, and charges when calculating their property tax credit.

PA 99-173

The act increased the maximum property tax credit to $ 425 for 1999 and $ 500 for subsequent years. Beginning with the 2000 tax year, the act gradually raised the income threshold above which singles must reduce the credit amount from $ 52,500 to $ 64,500 by 2007.

PA 03-1, June 30 Special Session

This act reduced the maximum property tax credit against the income tax from $ 500 to $ 350 and eliminated the residual $ 100 property tax credit currently available to higher income taxpayers. It continued to require taxpayers to reduce the maximum credit by 10% for each $ 10,000 of a taxpayer’s Connecticut adjusted gross income (10% for each $ 5,000 for married people filing separately) above specified levels. But it required them to apply the reductions to the entire credit instead of only to the credit over $ 100 (see Table 5).

Table 1: Old and New Maximum Property Tax Credits

The income levels at which the maximum credit reduction starts for singles shown in Table 1 apply for the 2003 tax year. Starting January 1, 2004, the income at which the reduction starts for single filers is scheduled to increase every year until January 1, 2009, when it reaches $ 64,501. The act implements this phase-out reduction schedule over an additional year until January 1, 2010. It takes effect upon and applies to tax years starting on or after January 1, 2003.

CONNECTICUT PROPOSALS FOR STATEWIDE MOTOR VEHICLE TAX

Tax Reform Commission Proposals

Since 1988, three property tax reform studies have recommended that the state either enact a statewide motor vehicle tax in lieu of the local property tax or study the issue.

A 1988 Price Waterhouse report recommended that the state study how towns administer the motor vehicle property tax. The report concluded that taxing vehicles at the local level was “a major source of tax shifting” and “a significant drain on the resources of local assessors” (Property Assessment and Property Tax Relief in Connecticut, Price Waterhouse, February 8, 1988).

In 1988, a legislative task force studied various aspects of the property tax system, including the centralization of the motor vehicle property tax. A subcommittee studied three options:

1. State tax collection based on a statewide uniform mill rate with towns receiving the actual tax revenue from the vehicles registered in each town.

2. State tax collection based on a statewide weighted average mill rate with revenue distributed to towns so they receive the same amount of revenue as under the current system.

3. Repeal of the local motor vehicle tax with no state tax to replace it.

The subcommittee recommended the second option, which was adopted by the full task force (Property Tax Task Force Final Report, January 1989).

In 1995, another legislative property tax commission recommended replacing the local property tax on motor vehicle with a state tax that rebated the entire proceeds to municipalities. The commission proposed that the state tax be set at a statewide mill rate high enough to collect the same amount of total revenue as the local property tax. The statewide tax would be administered by the Office of Policy and Management and the Department of Motor Vehicles (Report of the State of Connecticut Property Tax Reform Commission, January 1995).

Proposed Legislation Since 1995

Since 1995, 12 bills have been proposed to either establish or study a statewide motor vehicle property tax or to eliminate the local tax on motor vehicles. None received a favorable report. The bills are listed in Table 2.

Table 2: Statewide Motor Vehicle Tax Legislation Introduced Since 1995

LIMITING STATE MANDATES

“State mandates” are state laws that require towns to start a new activity or modify an existing one and to pay for it with their own funds. They do not include laws the state had to enact in order to comply with federal laws. The legislature’s procedures identify bills that impose mandates before either chamber votes on them, but the law neither bans nor limits mandates.

Normally, legislators can vote on a bill only after a standing committee favorably reported it to the House or Senate. But, the chamber receiving the bill must first refer it to the Appropriations Committee if the Office of Fiscal Analysis determines that the bill or any amendments the chamber made to it impose a mandate (CGS § 2-23b).

After each legislative session, the Connecticut Advisory Commission on Intergovernmental Relations must submit a report to the legislative leaders listing each state mandate that the legislature enacted during the session. Within five days after receiving the report, the House speaker and Senate president pro tempore must send a copy of the report to the Office of Policy and Management Secretary and refer each enacted mandate to the appropriate standing or select committee. (PA 97-243 eliminated a requirement that the committees hold a public hearing on the mandates referred to them and advise the leaders as to whether they should be approved, rejected, or modified. ) The secretary must notify towns about the report (CGS § 2-23c).

JR/JG: eh