2015-03-19 / Around Town

Second-Home Tax Plan Assailed in Newport

By Tom Walsh

Some Newporters, especially those in real estate, are casting a wary eye at Gov. Gina M. Raimondo’s proposal to create a new state tax targeting second homes worth more than $1 million as part of her plan to balance an $8.6-billion budget for fiscal 2015-2016.

The governor’s proposal—described by some as the “Taylor Swift tax” after the pop singer who owns a multimillion-dollar home on the ocean in the Watch Hill section of Westerly—is designed to produce $11.8 million in new state revenue. The proposal is contained in the budget Raimondo sent to the General Assembly on March 12. Under the plan, those with second homes worth more than $1 million would pay an annual tax of $2.50 per thousand dollars of property value.

Thus, a $1 million home would generate a tax bill of $2,500 under the governor’s formula.

“This budget asks those among us who are most able to pay a little more,” the governor declared in her budget address to lawmakers. “I propose asking those who have second homes worth more than $1 million to pay a modest assessment on those homes.” She maintained that the new tax, as well as other “revenue enhancements,” would enable the state to "invest in creating jobs.”

Paul Leys, broker-owner of Gustave White Sotheby’s International Real Estate in Newport that specializes in the luxury home market, said a healthy real estate market drives numerous other job sectors such as construction, furniture, plumbing, heating and many others. “This could impact the bounce back we’ve seen over the last 18 months,” Leys said. “It could put a dagger into the second home market.”

Melanie Delman, of the Lila Delman real estate agency in Newport, also decried the proposed tax. In a blog available on the agency's website, Delman declared, “It’s difficult to understand the logic in imposing new state-level taxes on property owners just as the economically important housing sector begins to recover. While we are in support of the governor’s goal, using this vehicle to stimulate the economy will negatively affect our community.”

“I think it’s awful,” said Third Ward City Councilor Kathryn E. Leonard, who also works as a real estate agent. “It’s going to kill the real estate market for second homes. I think it’s really bad news.”

It was not immediately clear how state taxing authorities would determine who actually owned a second home that falls into the million dollar-plus category. Newport This Week asked city Tax Assessor John Hocking that question.

“Records do not reveal whether a house is a first or second home,” Hocking said. “I don’t know how anyone would identify whether a particular dwelling was a first or second home.”

State Senate President Teresa Paiva Weed, D-Newport, declined to be interviewed for this story.

Other Newport state lawmakers are taking a cautious approach to the new tax issue.

Rep. Lauren Carson, D-Newport, said she had yet to decide whether she will support the proposal. She did suggest, though, that the $1 million threshold may be too low. Even more concerning, she said, was the idea of instituting a new statewide tax.

“That could be a slippery slope,” Carson said. “I think it is something we need to understand a little better.” Carson recently hosted a constituent meeting that attracted around 20 people. Although news of the governor’s tax proposal was still fresh, Carson said the issue generated little discussion at the meeting.

Rep. Marvin L. Abney, D-Newport, who serves on the House Finance Committee that will first consider Raimondo’s budget proposal, said he had yet to look closely at the statewide property tax issue.

“But off the cuff,” he said, “I’d like to know how many people it would affect in Newport.”

State Sen. Louis P. DiPalma, DMiddletown, whose district also includes Newport, Tiverton and Little Compton, serves on the Senate Finance Committee. He said, “In some regard, this would be a first of its kind in Rhode Island, a statewide property tax." He used the same words as Carson to describe the challenge. “It is a slippery slope,” he said. “Once you’ve added something like this, the people will hold legislators responsible for what happens afterward. It is a risk.”

By that, DiPalma said, there is always concern that a future legislature could be tempted to alter the provisions that the governor has proposed for the new tax. “We need to tease out any unwanted consequences,” he said.

Mike Stenhouse, CEO of the Rhode Island Center for Freedom and Prosperity, called the proposed tax “very, very dangerous” and characterized the idea as a “sin tax.” He added his voice to others who described the idea as potentially a slippery slope leading to higher levels of taxation in the future.

Leonard said she planned to propose that the council adopt a resolution against enacting the statewide property tax.

However, Mayor Jeanne-Marie Napolitano, said that such a resolution is unlikely. She added that, “I’m concerned that the issue could pit one group of citizens in the city against another.”

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