Supplemental Property Taxes
If you haven’t paid the first half of your yearly property taxes you have a little over a week left to do so without incurring a stiff penalty. The due date on the first half was November 1st but property owners have until December 12th. to pay their first installment. If homeowners have an impound account set up with their lender they can relax. The lender will pay the tax but not the Supplemental Tax.
Property taxes can be confusing for many homeowners. For instance, county property taxes are for the fiscal year beginning July 1st of the current year and ending June 30th of the next. So naturally it makes perfect sense to mail one invoice for two installments for property taxes in November, doesn’t it?
Another confusing and irritating aspect of the property tax bill is all the taxes that are added onto the tax. There is a General Tax and then an extended list of other taxes for services including: Bond and Interest, Community Facilities District, County Service Area, Community Service District, General Obligation, Lighting and Landscaping, Public District, Unified School District, Water Assessment District, Water Improvement District, Solid and Hazard Waste, Ambulance West Slope, Fire District and more. I think measure L (additional tax for Libraries) failed not because property owners didn’t think the cause was worthy but they are frustrated with all the additional taxes on top of taxes.
In addition to yearly General and Special Taxes there is also a one time Supplemental Tax. New home owners are often welcomed to their new community by the neighbors and the Welcome Wagon. They are also guaranteed a welcome letter from the county Tax Collector with a “Notice of Supplemental Taxes.” There has been so much confusion about this tax to new home owners that the Legislature recently passed legislation requiring a Supplemental Tax Disclosure Form to be provided to all new home buyers.
The confusion has resulted when property changes ownership and the assessor reassesses its value as of the date of closing. The difference between the old assessed value and the new value (what is paid for the property) results in a separate supplemental tax bill arriving several months after the purchase. Often the new home owners incorrectly assumed that the bill was the responsibility of the seller, that it was paid through escrow or that the lender will pay the tax since the new homeowner has an established impound account. They won’t, so what’s up with that?
Assume the following scenario: You purchase a house for $600,000 and close escrow on January 1st .The tax rate is 1.1 percent of the assessed value, and the old assessed value at the time of your purchase was $300,000 so the tax bill is $3,300. Proposition 13 limits your new assessed value to the purchase price and so your new tax bill will be based upon the $600,000 or $6,600, subject to limited inflationary adjustments. Since your purchase was in the middle of the tax year, the first half, for the period of July 1 through December 31 has already been paid on the old tax basis of $3,300. But what about the second half period between January and July? Do you think that the Tax Collector is going to let you slide based upon the old tax assessed value? Not likely. So he mails you a Supplemental Tax Bill for difference between the current tax bill based upon the old assessment and the new assessment.
To add to the confusion, however, you established an impound account with your lender based on the new assessed value. The lender is then obligated to pay the second half of the taxes in April. The tax bill they receive is based upon the old assessed value. The lender pays the bill and then realizes that they have an overage in your impound account. They refund you the overage and drop your monthly payment to reflect a lower impound based upon the old inaccurate tax bill. The next year when the lender receives the new tax bill based upon the new increased value, they realize they have a shortage in your impound amount and send you an invoice for the difference. They increase your payment to reflect the increased tax and you call your lender to find out what’s happening.
The confusion surrounding a Supplemental Tax bill could be eliminated if the new increased valuation of a property was immediately filed with the tax assessor. Why is it that within a week of your new purchase every credit card company, lender and merchant knows you purchased a new home but it takes months for the tax assessor to change their records?
The new legislated disclosure doesn’t explain how to calculate the amount of the Supplemental Tax or when to expect it. Only that the tax will be due, the bill will not be sent to the lender and it is the home buyer’s responsibility to pay the supplemental bill directly to the Tax Collector. Now isn’t that all very clear?
Property taxes can be confusing for many homeowners. For instance, county property taxes are for the fiscal year beginning July 1st of the current year and ending June 30th of the next. So naturally it makes perfect sense to mail one invoice for two installments for property taxes in November, doesn’t it?
Another confusing and irritating aspect of the property tax bill is all the taxes that are added onto the tax. There is a General Tax and then an extended list of other taxes for services including: Bond and Interest, Community Facilities District, County Service Area, Community Service District, General Obligation, Lighting and Landscaping, Public District, Unified School District, Water Assessment District, Water Improvement District, Solid and Hazard Waste, Ambulance West Slope, Fire District and more. I think measure L (additional tax for Libraries) failed not because property owners didn’t think the cause was worthy but they are frustrated with all the additional taxes on top of taxes.
In addition to yearly General and Special Taxes there is also a one time Supplemental Tax. New home owners are often welcomed to their new community by the neighbors and the Welcome Wagon. They are also guaranteed a welcome letter from the county Tax Collector with a “Notice of Supplemental Taxes.” There has been so much confusion about this tax to new home owners that the Legislature recently passed legislation requiring a Supplemental Tax Disclosure Form to be provided to all new home buyers.
The confusion has resulted when property changes ownership and the assessor reassesses its value as of the date of closing. The difference between the old assessed value and the new value (what is paid for the property) results in a separate supplemental tax bill arriving several months after the purchase. Often the new home owners incorrectly assumed that the bill was the responsibility of the seller, that it was paid through escrow or that the lender will pay the tax since the new homeowner has an established impound account. They won’t, so what’s up with that?
Assume the following scenario: You purchase a house for $600,000 and close escrow on January 1st .The tax rate is 1.1 percent of the assessed value, and the old assessed value at the time of your purchase was $300,000 so the tax bill is $3,300. Proposition 13 limits your new assessed value to the purchase price and so your new tax bill will be based upon the $600,000 or $6,600, subject to limited inflationary adjustments. Since your purchase was in the middle of the tax year, the first half, for the period of July 1 through December 31 has already been paid on the old tax basis of $3,300. But what about the second half period between January and July? Do you think that the Tax Collector is going to let you slide based upon the old tax assessed value? Not likely. So he mails you a Supplemental Tax Bill for difference between the current tax bill based upon the old assessment and the new assessment.
To add to the confusion, however, you established an impound account with your lender based on the new assessed value. The lender is then obligated to pay the second half of the taxes in April. The tax bill they receive is based upon the old assessed value. The lender pays the bill and then realizes that they have an overage in your impound account. They refund you the overage and drop your monthly payment to reflect a lower impound based upon the old inaccurate tax bill. The next year when the lender receives the new tax bill based upon the new increased value, they realize they have a shortage in your impound amount and send you an invoice for the difference. They increase your payment to reflect the increased tax and you call your lender to find out what’s happening.
The confusion surrounding a Supplemental Tax bill could be eliminated if the new increased valuation of a property was immediately filed with the tax assessor. Why is it that within a week of your new purchase every credit card company, lender and merchant knows you purchased a new home but it takes months for the tax assessor to change their records?
The new legislated disclosure doesn’t explain how to calculate the amount of the Supplemental Tax or when to expect it. Only that the tax will be due, the bill will not be sent to the lender and it is the home buyer’s responsibility to pay the supplemental bill directly to the Tax Collector. Now isn’t that all very clear?
posted by Ken Calhoon at 8:21 AM
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