HARTFORD — Cities and towns are opposing a proposed change in state law for assessing rental properties that could lower tax bills for landlords.
State lawmakers on the Planning and Development Committee are considering legislation to remove potential rental income from appraisal calculations.
State law authorizes tax assessors in Connecticut to appraise rental properties based on the market value of the land and buildings, their income-making potential, or comparable sales.
Tax assessors from across the state and the Connecticut Association of Assessing Officers testified against House Bill 5180 on Monday. The Connecticut Council of Small Towns also opposed the measure.
The National Federation of Independent Business supported the proposed change, and so did Carla Perugini-Erickson, an attorney and member of the Prospect Town Council.
Business owners in Prospect strongly object to income approach, Perugini-Erickson told the Planning and Development Committee.
She said building owners in town believe their rental income is being taxed twice because they must pay business taxes and property taxes on those earnings.
One of those property owners in Prospect is James DeCosta.
DeCosta, a Prospect resident, owns Forklift Service & Sales in the industrial park and rents out a commercial warehouse on the property with four bays. In a previous interview with the Citizen’s News, DeCosta argued that assessing rental properties on their income-making potential is a roundabout way for the town to charge an income tax.
Prospect Assessor James Clynes said in a previous interview with the Citizen’s News assessing properties like the one DeCosta owns using the income approach is the best method to get a fair assessment because there aren’t a lot of comparable sales of similar buildings in town, and using the market value is hard to judge because of depreciation.
The city of Waterbury uses the income approach to assess the majority of its commercial and industrial properties, said David Dietsch, the city’s tax assessor.
“We use the income approach for those types of property because it is the best way to determine fair market value,” he told the Planning and Development Committee.
Dietsch and other assessors observed that prospective buyers, sellers, banks and insurance companies do the same.
The proposed change would lead to rental properties being assessed at less than market value, and this would shift the property tax burden to already overburdened homeowners, said Betsy Gara, the executive director of COST.
“The income approach is essential to determining a rental property’s true and actual market value,” she said. “It is widely regarded as an accurate and fair method of appraisal and considered an industry standard by most real estate professionals.”
The National Federation of Independent Business argued the proposed change would provide needed tax relief to small businesses.
The NFIB is receiving reports that some towns and cities may be using this income approach for the first time and requiring additional financial disclosures from property owners, said Andy Markowski, state director of the NFIB.
“NFIB has heard about this issue from several small business owners and it appears that there has been little, if any, notice to these business owners in advance of these new assessment requirements, as well as inconsistencies from municipality to municipality,” he said.
The additional information includes tax returns, and property owners are subject to penalties for refusing to comply.
Elio Gugliotti contributed to this article.