Tax officials say builders should pay up for lots

By: - July 29, 2005 5:41 am

Wilmington StarNews Online

RALEIGH | Developers and homebuilders would gain millions in annual property tax breaks under the provisions of bills pending in the legislature.
At issue are how and when taxes are assessed on unbuilt lots.
The same open ground is worth more divided into lots than as open acreage. For example, an acre of open land might cost $5,000. But, if subdivided as part of a larger development, a quarter-acre lot on the same property could command $75,000.
Under proposals in the legislature, anyone “engaged in the business of buying real property, making improvements on it and then reselling it” would still pay property tax on undeveloped lots but at the lower open-acreage rate. The full assessment would be applied only after the land is sold.
The change, the industry argues, is only fair. State lawmakers made inventory in stores and on car dealership lots free from taxation almost 20 years ago. Developers are being overtaxed on what essentially is their inventory, they argue.
Local tax officials counter that the legislation would be an unfair benefit for developers that would be paid for by other property owners.
Tax officials in New Hanover, Brunswick and Pender counties said the proposal would cost all three counties, in total, more than $3 million a year in lost revenue. Statewide, counties could lose $30 million because of the change.
Interest in the bills, which were filed in March, has increased recently as rumors have spilled out of the Legislative Building that the proposals might be wrapped into the forthcoming state budget agreement. Legislative leaders say no such thing is in the works, but opponents and proponents are watching the legislature daily.
Tripp Sloane is a developer from Brunswick County and a partner in the Brunswick Plantation and Golf Resort development now going in near Shallotte. He questioned why he must pay higher assessments on buildable lots.
“Just because I subdivide an open field, I have to pay more in property tax,” Mr. Sloane said. “There’s no activity yet, no construction and no sales. But that tax increase carries, year after year after year. We need relief.”
That’s not the whole story, said Boyd Williamson, Brunswick County’s tax administrator.
“There is an equity issue here,” he said. “What they’re saying is that if you’re an individual taxpayer, you have to pay your taxes, and if you’re a builder, you don’t have to pay.”
Brunswick County would lose $500,000 to $600,000 in tax revenue each year if the bill becomes law, he said. The county collects about $74 million in property taxes each year to support schools, courts, police protection and other community services.
Bob Glasgow, tax administrator in New Hanover County, said New Hanover would lose $1.7 million each year. The county will levy $122 million in property taxes this year.
Stan Vance, property tax administrator in Pender County, also opposes the proposals. He said his county could lose $500,000 in revenue. Pender County property owners will pay $24 million in property taxes this year.
Two bills, one each in the N.C. House and Senate, would bar local tax assessors from increasing the assessed value of new lots “as long as the builder continues to hold the property for sale.” Senate Bill 508, sponsored by Sen. Walter Dalton, D-Rutherford, would end the exemption after five years. There’s no time limit in House Bill 648, offered by Rep. Tim Moore, R-Cleveland.
Both would keep assessors from taxing increases in property value resulting from dividing the land into useful lots or making improvements to those lots. Mr. Dalton said the work improvements, in his version, are meant to refer to water and sewer lines and streets that go into a subdivision before the houses are built.
“What we want to do is to create an incentive for responsible development,” said Mr. Dalton, co-chairman of the Senate budget committee. “When a developer knows he’s going to pay more taxes, he’s going to build smaller developments with cheaper lots.”
Home building is big business in North Carolina. More than a fifth of North Carolina’s 3.8 million homes were built after 1995, according to the U.S. Census Bureau.
Mr. Sloane said the taxes paid on land before it is finally sold to a homebuyer are rolled into the price.
“This is driving up the cost of real estate,” he said. “That’s all it’s doing. The counties will get their tax money once the property is sold.”
He said he owns subdivision lots that have gone unsold for 20 years.
Mr. Glasgow of New Hanover County has an alternate view.
“If I build a garage apartment and it’s 90 percent done by January 1, I pay 90 percent of the taxable value of that improvement” he said. “Under this bill, the builder would pay nothing for the improvements he makes before he’s finished with his work.”

Mark Schreiner: (919) 835-1434
[email protected]

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Chris Fitzsimon

Chris Fitzsimon, Founder and Executive Director of N.C. Policy Watch, writes the Fitzsimon File, delivers a radio commentary broadcast on WRAL-FM and hosts "News and Views," a weekly radio news magazine that airs on multiple stations across North Carolina. [email protected] 919-861-2066