Saturday, July 7, 2012

City of Derby Taxes / Confusion

Our business is located in Derby, CT.  It is a classic "mill town" with much of it's earlier industry focused along both the Housatonic and Naugatuck river to obtain power in the form of canals and sluices running water wheels and machinery.  When I say "classic" mill town, I also refer to the demise of industrial businesses, and vacant brick buildings becoming decrepit and eyesores before eventually being demolished.  The downtown core has experienced this gradual decline, and it detracts on the surface of what the City has as potential.

Derby is also the smallest "City" in Connecticut (meaning an incorporated municipality).With little real-estate for new business to locate into, and the tax base (Grand List) shrinking as business departs - the burden of operating government falls upon those remaining.

There was a nail clipper manufacturer that operated here for years - gone.  Next door to our company was a business that made rubber gasket for washing machines, refrigerators, and automobiles - sold and moved out of state.  There were car dealerships - shuttered.  There were lumber stores - vacant.  Downtown was a national company that processed yearbooks and school photos - consolidated elsewhere.  Those are just a few examples of reductions to Derby's Grand List.

There have been new business faces arrive in the City, but they are usually rehabilitations of existing facilities.  A Kmart retail store is remade into a Lowes Home Improvement.  A Pearl Vision Center becomes a Starbucks.  A former Woolworth's retail location becomes a restaurant.  None of these are true expansions or growth of our tax base, which is desperately needed.

Despite the arrival or departure of businesses, there are costs that remain to be paid for such as Police, Education, Public Works of Bridges/Roads, etc.  The majority of income provided to Connecticut municipalities comes from Property Taxes based upon value assessed of real-property (real-estate and buildings) multiplied against a mill rate.  Personal property (cars, trailers, business machinery, office equipment) also generates Property Taxes with the same multiplier of a "mill rate".  The mill-rate is set every year via a budget process of elected officials with opportunity for public comment.  The assessors valuations used in the calculations of Property Tax due, is 70% of market value.

Market values change, and the State of Ct requires a re-valuation periodically of all real property (real-estate and buildings).  This occurred in Derby in 2011 and was implemented upon our tax bills for 2012.  In "theory" if all property in the city faced a market downturn of 10%, and the mill-rate went up 10%, the net taxes paid would be level to the previous year.  The reality is that certain property becomes more valued, some less, some have had improvements since last valuations, and thus the total taxes paid for real-property is a guessing game until the mill-rate is set.  It's this guessing game and period of confusion that usually causes incorrect comments by the media or elected officials on the subject.

Lost in such confusion is the fact that the mill-rate is also applied to personal property, and if real-estate values have gone down as a whole across town, and thus the mill rate goes up as a multiplier, then the property tax paid on vehicles, machinery, equipment, etc - will likely go up.

This year offers an extreme of confusion given the disparity of values arrived at in the re-valuation process.  To better explain this, I will be open with our information to use as example.

Our facility is located on three parcels of land, all of which abut one another and are within an Industrial Zone that defines how it can be used.  Each parcel gets it's own property tax bill as a legal lot of land.  Two of the parcels are vacant and are only used for surface storage.  They have had no change in character over the past years, and are of similar size.

During the revaluation, one of those two parcels went down in valuation by 16%, understandable in the current economic climate compared to several years ago.  With the new mill rate we paid 6% more in taxes on that parcel.  The second of those two vacant parcels went down in value by 50%, and with the new mill rate we paid 37% less in taxes.  The third parcel that is not vacant and has structures upon it (termed improvements) went down in value by 19% and we paid 4% more in taxes.  Overall, our real-estate holdings went down in value by 21% and we paid essentially a zero% change of $73.30 more in property taxes on real-estate only.  On the whole however (including personal property taxes on vehicles and machinery), our total personal property taxes remitted to City of Derby increased by 29%.

How can one parcel be valued 16% less, and the adjacent (abutting) parcel of similar size, same zoning, and likewise no change in character from simply being a vacant lot go down in value by 50%?

I went to a re-valuation appeal hearing, but basically got no answers as to why such a discrepancy could occur.

On top of this, there has been much current confusion in the public with City Government firing the Finance Director, or maybe he resigned, but possibly the resignation letter was forged, so a lawsuit ensued.  In short order, the parties arrived at a settlement between them, but then it wasn't confirmed or agreed to by the Alderman, and thus it was taken to court, where it has been stated that the Finance Director was not qualified for the position, yet hired anyway.  All of this soap opera occurred while the operations of finances and annual City budget approval were left to be delayed without any leadership or guidance from a Finance Director, on top of this year being a challenging period of implementing the revaluation and subsequent tax bill mailing.

This sad comedy of staff/leadership caused me to pay attention to all of our Property Tax bills.  What I found was unsettling.

Of easy comparison, is the Personal Property Tax for vehicles, of which we have fourteen of various types ranging from trucks, vans, trailers, and passenger cars.  As a vehicle ages, it's value decreases.  The values are arrived at via a standardized listing throughout the state, thus a car in suburban Easton has the same value as in urban New Haven.

One of our vehicles stood out, a 2011 F250 4x4 Diesel Crew Cab Pickup.  In 2011, it was assessed at $27,590 and we paid $769.76 in property taxes.  The year's 2012 tax bill showed an assessed value of $31,160 and $1,106.18 in property taxes.

How can a 2yr old truck with over 100,000 miles on it go up in value by 13%, and with the new mill rate, go up in property taxes by 44%?

The assessed value used on a tax bill is by definition 70% of market value.  State law: "Motor vehicle assessments are based upon 70% of average retail value as determined by your local assessor".

Using the NADA (National Automobile Dealers Association) guide, this vehicle has an "average trade-in" value of $27,200.  70% of this 3rd party arrived at market value is $19,040.  If this value were used, the tax bill at 35.5 mill rate would be $675.92, or $430.26 less.

The total Personal Property Taxes (all vehicles, machinery, equipment, etc - not including the Real-Estate Property Tax) rose by 29% this year.

I will be appealing my vehicle's property tax assessment.

UPDATE: I visited the Tax Assessors office and questioned the valuation for the truck.  The staff person looked it up in a reference guide, noted that the valuation was incorrect and provided a corrected tax bill.  It took 20min.

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