Parents Coalition Exclusive: Ike Leggett’s $692 extra credit for Montgomery County landlords

Property tax rate for all Montgomery County homeowners includes hidden surcharge to pay for illegally-issued tax credits

When Montgomery County property tax bills are mailed in July, they will include a bonus for many landlords: Each bill will include a $692 “County Property Tax Credit” that is expressly prohibited by state law to be issued to investment properties.

The credit, officially known as the “Income Tax Offset Credit”, or ITOC, is a discount that Montgomery County is authorized to issue only to properties that are owner-occupied. (In spite of its name, the ITOC has nothing to do with an individual’s income tax and all resident homeowners are eligible to receive the ITOC regardless of whether or not they pay income tax.)

 In 2007, state officials and legislators discovered that hundreds of thousands of residential properties were misidentified in state assessment records as “principal residences.” Because of the miscoding, the state and the counties were issuing millions of dollars of property tax homestead credits and ITOCs every year to real estate investors and landlords who were not entitled to receive them.

The improperly issued credits were offset by higher property tax rates and higher tax bills for resident homeowners, but no one took much notice of this problem until 2007.

In 2007, in an effort to prevent credits that were supposed to be reserved for resident homeowners from being issued to landlords and other investors, the Maryland legislature passed a law that required all resident homeowners to complete a simple, one-time application to prove and affirm that they were actually using their property as their principal residence. The deadline for existing homeowners to submit the application was December 30, 2013.

Only homeowners who actually lived in their homes were required to complete the principal residence affidavit. The plan was that “principal residence” status would be removed starting in 2014 for properties whose owners did not submit the form because it would be presumed that non-submittal indicated that the homeowner did not qualify for credits that were reserved for principal residents. (All income tax and property tax credit qualification processes work the same way: An applicant must apply for the credit if he/she believes they are eligible, and if they don’t apply, the government assumes that they are not eligible for the credit.)

In Maryland, the state government manages the assessment system and determines whether or not a property is coded in the computerized assessment record system as a principal residence. But it’s the counties (and Baltimore City) who actually calculate and print the tax bills, and it’s entirely up to each county to correctly use the state-provided data to generate the tax bills.

According to data supplied by the Department of Assessments and Taxation, principal residence affidavits have not been received for 93,230 residential properties in Montgomery County. Some of these properties are likely to be “principal residences” whose owners were simply remiss in submitting the principal residence affidavit, in spite of receiving numerous reminder notices from the state and county. However, the vast majority of the 93,230 properties are owned by investors who are not entitled to receive the $692 ITOC, and the shortage will be made up by the rest of the taxpayers in the form of a higher property tax rate -- and higher tax bills.

Tomorrow: The internal memo that reveals how the Leggett administration is covering up illegal issuance of the ITOC to investors and landlords in 2014.  (Click here for part 2.)