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Excise tax proposals would close loopholes and lower tax

October 09, 2007|By JOSHUA BOWMAN

After two years of revenue shortfalls in Washington County's excise tax, a task force created to suggest changes in the tax will present its final report to the county commissioners today.

If adopted into law, the group's recommendations would result in lower excise taxes for many home builders but would also eliminate some of the exemptions included in the current excise tax ordinance.

Under the recommendations, the excise tax on most new residential construction would change to $2 per square foot. The tax on apartment and condominium units would be less.

The current residential excise tax is a flat fee of $13,000 for single-family homes and $15,500 per unit for town houses, apartments and duplexes.

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For many home builders, the tax rate recommended in the report would be significantly lower than the county's current rate.

But the report also recommends removing tax exemptions for elderly housing and residential additions, a move some have argued would increase revenue by increasing the tax's reach.

Task Force Chairman John Schnebly said the goal of the recommendations is to create a more efficient tax that is easier to administer and collect.

"The changes would end all this controversy over what's taxable and what's not," Schnebly said.

The County Commissioners appointed the 12-member task force in June to recommend changes to the excise tax, which was changed to a flat fee in mid-2005. That fiscal year, the county earned more than $7 million in revenue from the excise tax, which is charged on new construction.

But when the housing market slowed last year, excise tax revenues dwindled.

In fiscal year 2007, the county collected $3.8 million in residential excise taxes-roughly $11.5 milllion below budget projections.

Schnebly said one of the primary goals of the task force was to eliminate exemptions in the current tax ordinance that he and others have argued are serving as loopholes for developers trying to avoid the tax.

"The revenue lost by the county under exemptions that really don't apply is significant," said Daniel Divito, director of the county's permits department.

But at the same time, the task force voted to recommend a relatively low tax rate. Some task force members argued in favor of a $3 or $4 rate per square foot, saying a $2 fee will only exacerbate the county's revenue shortfall.

"The people on the task force representing the home builders drove that majority vote. The commissioners ultimately will have to grapple with whether it is something they can live with," Schnebly said.

The County Commissioners will review the task force's recommendations today but do not have to accept any of them. The commissioners also can alter the recommendations.

The report was also sent to the county's General Assembly delegation. After the commissioners make changes to the report, the delegation might submit a bill during the 2008 General Assembly session for permanent change to the excise tax ordinance.

Other recommendations in the report include a rate of $0.75 per square foot for all nonresidential construction and the elimination of exemptions for affordable housing.

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