Not Really a Tax on Property
It seems like every new stone of Governor Raimondo’s budget hides another disconcerting creepy-crawly of progressive thinking. CoffeeBlack sets one squirming into the light when he or she asks whether the supposed million-dollar-vacation-house tax is actually an apartment tax, and although I think CoffeeBlack is incorrect about the problem, that doesn’t make the legislation any less disturbing. Here’s CoffeeBlack’s point:
The definition from the Budget Act (pg 200 line 22): (d) “Non-owner occupied” means that the residential property is not occupied by the owner of the property for a majority of the privilege year. A seasonal or vacation occupancy is deemed non-owner occupied residency for the purposes of this chapter.
Seasonal and vacation property appears to be an add-on. But the tax is not limited to single family units. It just says residential property.
True, the definitions don’t explicitly limit the tax to single-family units, but it’s the nature of the tax that sets the limits. Technically, Raimondo’s new property tax (on top of a new healthcare tax, remember) is not a property tax at all; it’s a “privilege tax.” Here’s the legal language (emphasis added):
The tax administrator of the state of Rhode Island is empowered to impose a tax upon the privilege of utilizing property as non-owner occupied residential property within the state during any privilege year commencing with the privilege year beginning July 1, 2015 and every tax year thereafter.
We live in Rhode Island, of course, so a close reading of the actual language of the law may not mean anything, but the grammar of the legislation suggests that the person taxed is the one “utilizing” the property “as… residential property.” My (admittedly outdated) fourth edition copy of Black’s Law Dictionary further hedges the concept in by defining a “privilege” as “a particular and peculiar benefit or advantage enjoyed by a person, company, or class, beyond the common advantages of other citizens.”
The owner of the million dollar apartment building is not utilizing it as a residential property, and the renter of a subdivision thereof is not enjoying an unusual legal “privilege.” The tax would therefore not apply.
The possibility that the governor’s legislation secretly targets renters is not what makes it truly disturbing, though.
Taxing a Privilege
Even a quick Internet search will prove that a “privilege tax” is nothing new. However, in the instances that the quick search brings up, a privilege tax is typically a professional or commercial license. The Black’s Law Dictionary definition is “a tax on a privilege of carrying on a business for which a license or franchise is required.”
The right to purchase and own property is not a privilege granted by the government, and it is not a business.
My suspicion is that there is a legal (probably constitutional) problem with targeting a property tax at such a narrow group (people with second homes worth over $1 million). For one, consider Article I, Section 2, of the state constitution, which reads (in part):
All laws… should be made for the good of the whole; and the burdens of the state ought to be fairly distributed among its citizens.
It would be one thing to create a new statewide property tax that is imposed on everybody and then layer it with exemptions and property-value adjustments in order to make it a “fair distribution.” That would still be horrible policy, but the state would not be creating a brand new tax for a certain class of people — saying, “We are creating a tax on property, but only if these people own it.”
It might also be politically dangerous, because even an apathetic public wouldn’t like the fact that their protection has gone from having no statewide property tax at all to having a simple exemption. Their property would still be subject to taxation, just with the General Assembly giving them a pass… for now.
The Danger of Sloppy “Making Use” Precedent
As CoffeeBlack highlights, the confounding part of Raimondo’s new “privilege tax” is the list of assumptions under the “purpose” section. For example:
The non-owner occupation of such property whether for profit speculation, tax benefit, or any other purposes is the making use of that property and as such, is a privilege incident to the ownership of the property.
This makes the proposed law confusing because the bill doesn’t define “non-owner occupied” property as property occupied by somebody other than the owner. It defines it as property that “is not occupied by the owner… for a majority of the privilege year.”
That’s an important distinction because some of the other “purposes” imply that the property is unoccupied when the owner isn’t there. For example:
(e) Non-owner occupied properties sometimes place a greater demand on essential state, city or town services such as police and fire protection than do occupied properties comparably assessed for real estate tax purposes. …
(h) Some properties are deliberately left vacant by their owners in the hope that real estate values will increase, thereby enabling the owners to sell these properties at a substantial profit without making any of the necessary repairs or improvements to the property.
If you have in mind a rich pop singer’s summer mansion, these assumptions are laughable. Indeed, working in construction during the market crash, I can attest that much of the work that remained during the worst months was in fixing up and remodeling rich folks’ summer homes, improving the value of the neighborhood. In fact, Raimondo’s new tax could discourage property improvements. Somebody with a $990,000 vacation home would have incentive to prevent it from picking up another $10,000 of value, because then the tax would kick in.
Moreover, well-kept properties that are uninhabited for much of the year are generally beneficial for municipalities. They don’t bring forward children to be educated; they don’t produce domestic disturbances when empty; occupants aren’t doing things that can start fires when not there; and so on.
In actuality, this whole section is simply a sloppy copy and paste job from a section of existing law enabling a “Real Estate Nonutilization Tax.” In that law, the “purposes” actually make some sense. It’s easy to see how “vacant and abandoned properties” can “contribute to the deterioration” of a town’s “viable real estate.” Raimondo is ripping off the language and pretending it still applies to vacation mansions.
I’d argue that the nonutilization tax, passed in the ’80s, was still a step too far, but at least the rationale was plausible. The legal mechanism to distinguish between the right to own property and the privilege of holding it for no apparent reason was the concept of “making use,” which is “incident to ownership” (that is, not inherent to ownership).
Returning to Black’s, a “use” is “a right in one person… to take the profits of land of which another has the legal title and possession.” Suppose a land owner with no desire to get into the details of business were to lease the land to a farmer, miner, oil driller, or anybody else who can profit from its use. The “use” is therefore different from the “ownership,” and the “privilege” granted by the state is much more like a license to do business in the state.
With the nonutilization tax, the General Assembly of the 1980s was saying that doing nothing with land is essentially holding it for some other purpose, like an investment, which is a financial “use” that can be taxed separately from ownership.
Even then, however, the law didn’t really impose a tax, but rather, it enabled cities and towns to choose to do so.
More importantly, the nonutilization tax was at least implemented to solve a real problem: Owners of vacant or abandoned property had no incentive to keep it in good condition and needed to “be encouraged to use the properties in a positive manner.” The problem that Governor Raimondo is trying to solve is that the state government is spending more money than it’s able to collect and needs to find another vein from which to draw tax blood.
Another Right Bites the Dust
In short, the rationale for creating a new “privilege tax” is founded in very thin, tenuous precedent. There’s already a tax on vacant properties, but it doesn’t bleed wealthy people who come to the state for less than half of the year, and it doesn’t send the money to the state government. From there, the governor makes the leap that people don’t really have a right to own second homes, but rather, the state is granting them the privilege of holding on to land as an investment.
That’s an astounding notion for the governor to attempt to enshrine in law, and it’s a breath-taking breach of the principle that the rights of the people are inherent. If Rhode Islanders don’t have a right to spend their own money on property for their own personal use, then what rights do we actually have?
This is where progressives will attempt to muddy the waters by scoffing at anybody who would presume to defend “the rich,” but by doing so, they’d only expose their shallowness. If we — any of us — are to have any hope of preserving our rights as the insiders who control Rhode Island dismantle our state, we must have clear lines for where our rights end and where government-granted “privileges” begin.
If it’s a government-granted “privilege” to buy a million-dollar second home, why is it a right, not a privilege, to buy any second home at all? And if it is not a right to buy a second home, why is it a right, not a “privilege,” to buy real estate in the first place?
The history of tyranny shows that rights are removed first from those whom it is easy for the tyrant to target — often small, despised groups. The history also shows that the targeted groups tend to expand until only a small, powerful minority still has any rights. In a free society, this should be non-negotiable, and the desire of Gina Raimondo to grab revenue and power for the state government in this way should be grounds for driving her out of office.