'Tis The Season For Tax Rate Debate | Local communities weigh their options
Over the past decade or so Timothy Hicks has noticed an exodus of retail businesses out of his hometown of Auburn and into neighboring Millbury.
According to Hicks, the chairman of the Auburn Board of Selectmen, there could be numerous reasons big-box stores like Barnes & Noble and Pier One have closed in Auburn and opened just down the street out of town.
But he believes there is one overriding issue: the town’s split tax rate.
Thanks to a series of court cases and a 1970s-era state constitutional amendment, Massachusetts municipalities are allowed to tax businesses at different rates than residents. So each year community officials decide how much of the total amount that will be raised in taxes, which is capped by state law, will be paid by residents, and how much will be paid by businesses.
It’s that time of the season now and there are movements afoot in some communities to reconsider the disparity between rates businesses and residents pay.
Attracting Businesses
In Auburn, four of the five seats on the board of selectmen have turned over in the past few years. The new blood on the board has agreed, in principle, to even out the tax rate between residents and businesses. Two years ago, businesses paid 154 percent more in taxes than residents. Selectmen dropped that to 140 percent last year. Just recently the board voted to drop it again to 135 percent. Hicks hopes that in the coming years the board will continue to lower the rate and get it to a more equitable figure. With board elections every two years, however, it’s difficult to say if future boards will stay committed to the plan.
Last year in Auburn residents paid $14.34 per $1,000 of assessed value and businesses paid $24.06 per $1,000 of assessed value. In neighboring Millbury, both businesses and residents paid a single tax rate of $13.46 per $1,000 of assessed value.
“I can’t say that if we had a single rate this retail migration would not have happened, but it’s only logical to assume that it’s at least one factor, and an important one, that businesses consider,” Hicks said.
In Worcester this year, the discussion about the tax rate could be very important to at least one man.
Newly elected mayor Joseph O’Brien commissioned a report in April soon after taking office to examine business retention and job growth in the city. Of the more than 30 recommendations the 36-member committee made, the one that got the most headlines was to promote “a fair and equitable taxation system.”
The issue is a hot-button for businesses in Worcester, partly because for the last four years the city council has shifted the most amount allowed by law from residents to businesses. Last year, businesses paid more than twice the rate of residents. The rate is expected to be set by the city council before Dec. 14.
While O’Brien told the Worcester Business Journal he’s committed to making “measurable progress” toward addressing the issue, he tempered the public’s expectations about making a big change in a single year.
“This is a problem that’s been going on for 20 years; we’re not going to solve it in one,” O’Brien said.
O’Brien said he’s looking at creative and long-term solutions to help chip away at the problem.
For example, the city could apply for a home-rule petition, which is a piece of state legislation that only applies to Worcester. One idea is to tax large residential properties, or those with more than four units, at the commercial tax rate. That would bring in more tax revenue, allowing the city to lower the overall commercial rate.
The question, of course, is whether a more equitable tax structure will even attract new businesses to a city like Worcester.
And the answer, according to Michael Lanava, business resource manager for the Worcester Regional Chamber of Commerce, depends on the type of business.
For service-oriented businesses that rely on clients walking in the door, being in an urban area with a high density of people is essential and the tax rate may not matter much, Lanava said. But for manufacturing businesses, the tax rate may play a bigger role.
As for Worcester’s tax rate, Lanava said he’s optimistic after hearing O’Brien’s rhetoric on the subject.
“This is a breath of fresh air,” he said. “It’s not just lip service. I think he’s looking outside the box.”
Regional Perspective
About two-thirds of communities in Massachusetts already have a single tax rate, mostly the smaller ones, and that is a number that has changed little over the past two decades. In 1992 there were 103 communities with a split tax rate and for the past three years that number has dropped from 108 to 106 out of the state’s 351 cities and towns.
Southborough, home to two executive office parks, almost migrated away from a single tax rate this fall but then decided against it. About a month after creating a dual tax rate the board reversed its decision and maintained the single tax rate the town has had for years.
Bonnie Phaneuf, chairman of the Southborough Board of Selectmen, said that her mind was swayed after considering owners of vacant land, who would have to pay different rates even though both use minimal town services.
“I guess I’m just not comfortable with having those imbalances, those inequities,” she said. “It’s just simply not fair.”
Once a community has a split tax rate, it can be hard to go back, according to Michael Widmer, president of the Massachusetts Taxpayers Foundation in Boston.
“It’s an easy political vote to take, to provide tax relief to the voters that have elected you,” he said.
While Widmer said in a perfect world he would advocate for all communities to have a single tax rate, the reality is that an immediate shift to a single rate would be a drastic change for many taxpayers. In Auburn, for example, the difference between a split tax rate and single tax rate is about a 33 percent savings for businesses and about a 25 percent increase in taxes for residents; much too dramatic of a shift for most elected officials to institute in a single year.
Instead, Widmer calls for communities to act cautiously and think about a long-term planning.
WBJ Web Partners
Most Recent
Most Recent
0 Comments