Raimondo’s Outrageous Statewide Property Tax Actually an Attack on Property Rights


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  My (admittedly outdated) fourth edition copy of Black’s Law Dictionary further hedges the concept in by defining a “privilege” as “a particular and peculiar benefit or advantage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.

  • Greg

    Why is it that the brightest and most educated among us can be so lacking in common sense? Goes to show you the mindset of Saint Gina and that of her political advisors whose central tenant is that government has the right to control every aspect of our lives. If this legislation passes, the rich like Taylor Swift will just go somewhere else where the tax treatment is better to the detriment of our own economy. Unfortunately, we are not going to drive Raimondo from office. Our legislature will likely go along since this legislation targets a small group of people, and easy target, but with no thought to the consequences of the action.

  • George from Warwick

    It will be real easy for the non-famous non-residents to dodge this tax, just like lots of Rhodents dodge our income & car taxes by claiming Florida residency even tho they only there a few months in the winter

    The DMV’s list of acceptable documents to “prove” residency includes a property tax bill, which the non-resident owners will have even if they only visit here rarely
    [[ see http://www.dmv.ri.gov/documents/forms/checklist/license_checklist.pdf ]]

    With a property tax bill you can get a driver’s license and with that you can register to vote. So who’s to say you aren’t really a resident even if yer only here for a few weeks in July & August ??

    People who own second homes in popular second-home cities with homesteading exemptions — like Charleston SC or Aspen CO — pull this stunt all the time

    And if the non-resident doesn’t file a Rhody state tax return — and why would they if they didn’t earn any reportable income here ?? — they will never come to the attention of the State in the first place

    • Greg

      George, we all know people who pull this stunt. I know retired school teachers within my own family who do the same. However, I believe there are retired RI politicians who lead this field. Honestly, it’s probably the reason no one polices this abuse.

  • mangeek

    Oh, I see this very differently. It’s definitely a ‘slippery slope’, but if carried all the way out, could be a MAJOR win for taxpayers.

    See, each municipality has an assessor, tax collectors, a contract with a third-party appraiser and database-keeper.

    That’s all work that can be efficiently ‘scaled-up’ to a unit the size of the whole state.

    This makes it necessary for ‘property’ to go into a statewide database (to determine if it needs to be taxed). Once everything is there, it makes much more sense for the state to be the central database of property:owner mappings, values, and a single place from which property tax invoices are sent and money is collected.

    Ideally, your town would approve a budget and any exemptions to taxes, then submit the ‘need’ to the state office, which would assign the actual tax rate (the same way town do today) to meet that number. The state would handle all the paperwork/assessment aspects, and 100-300 positions in local governments statewide would collapse into a dozen or so jobs, saving millions.

    Bonus points if the ‘municipality accounts’ are actually kept by the state, because then the ability to collect data, compare costs, and audit spending are all in one place, in 21st-century format instead of terrible scanned PDFs posted to town websites.

    • Greg

      Mangeek, your wrong on this one. Ceding additional taxation and or governmental powers to the State government will have enormous negative repercussions. Not to mention that local politicians will no longer be accountable to local property owners. Your scheme runs counter to taxation without local representation. Those 100-300 jobs your think will be saved will roll into a new state department set up for such purpose. Can we really trust state government to be an impartial and fair steward of such a scheme?

      • Justin Katz

        I’d add a point of emphasis. Mangeek isn’t just asking us to trust the state government to enact a consolidated system for administering a property tax. He’s asking us to trust the state government to eventually get to such a system when it’s actually starting with a brand new, explicitly separate tax on “privilege.”
        I’m sorry. I don’t mean to be harsh, but that’s dangerously delusional.

        • mangeek

          “starting with a brand new, explicitly separate tax”

          Well you gotta get that camel in there somehow! Nobody is going to be OK with the state boldly usurping municipal duties. The unions would have a fit. The hyperlocal conservatives would have a fit. The liberals who think the government is a big jobs program would have a fit. This forces the groundwork to be done under the politically-acceptable-to-most-rhode-islanders guise of a small statewide property tax on rich out-of-towners.

      • mangeek

        “local politicians will no longer be accountable to local property owners. Your scheme runs counter to taxation without local representation.”

        How so? In the end, what it really amounts to is the state sending out the envelopes and doing the accounting on behalf of the towns. Local politicians would still be responsible for their local budgets, which is where the tax rates come from.

        “Those 100-300 jobs your think will be saved will roll into a new state department set up for such purpose.”

        There are economies of scale and benefits of modernization that you Just Can’t Get down at the town level. Times have changed, and it’s silly to have four or five full-time workers covering one town’s property values/taxes when a team of 20 could probably handle the whole state.

        • Max

          “Ideally, your town would approve a budget and any exemptions to taxes,
          then submit the ‘need’ to the state office, which would assign the
          actual tax rate (the same way town do today) to meet that number.”

          Who determines how much of the ‘need’ the state will fund?

          • mangeek

            “Who determines how much of the ‘need’ the state will fund?”

            The state would fund all of it to start with, or it would merge this with the ‘funding formula/aid for cities and towns’ to further simplify things. It’s the same as the process today, except the parts of it that would benefit from economies-of-scale would be moved up to a larger unit that can realize them.

            I really don’t understand the resistance. What I describe is a major money saver and tool to reduce corruption and improve auditing. The only assumption it makes is that the state handles things in a better way than towns do, and my experience has been that they do (moving from ‘terrible’ to ‘bad’ is still an improvement).

          • Mike678

            It all comes down to trust…and that is something few do with this government. In theory, what you propose could work…in a perfect world. But add corrupt, self-serving politicians pandering to unions, buying votes with constituent tax dollars to the mix-as well as people in general and the theory gòes out the window. Btw, centralizing control rarely reduces corruption…it just makes it easier for those in power to get away with being corrupt. Nice theory, major fail in the real world.

          • Max

            I’d be afraid that it puts us on the ‘progressive’ path to subsidizing bad government in other communities especially Providence. As Mike said, it all comes down to trust. I’m afraid It will be like opening Pandora’s box. How many taxes are we paying now that were supposed to be temporary. Once you go down that path it’s like a runaway train.

          • mangeek

            “subsidizing bad government in other communities”

            Any tax/regionalization plan of the future is going to have to have ‘lowering Providence’s costs’as a main goal. The property tax rates in Providence are one of the major reasons the economy here is in the dumps, and the only real way out is to regionalize things and smooth the costs out between communities.

            Look, I need some hard evidence that Providence’s operational costs that are out-of-line with other Rhode Island communities. I know that about 40% of the real estate value of Providence is tied-up in non-profits, non-profits which host thousands of middle class jobs that are mostly worked by people in other communities (I know, I’m one of them!). We also know tht Providence hosts one of the richest and some of the poorest communities in the state, making the property tax there a real tricky beast to administer. I’m not saying it’s run well, but I’m saying there are reasons why it’s a high-tax, low-value city.

            In any case, ‘fixing Providence’ needs to be in-scope for all Rhode Islanders. Providence is the engine (rusty and ragged as it is) that makes it possible for Barrington to be a nice bedroom community. Doing things like what I’m saying helps fix Providence, and it also helps Barrington, even if it does share some costs in the end.

          • Max

            This would be a progressive’s dream come true.

  • Guest

    The same day Raimondo was sworn in as Governor, she held a $500 per plate fundraiser later that evening. Who paid this kind of money to attend a dinner? The average taxpayer? No – it was special interests and lobbyists who were already lining up to line Gina’s pockets, and this proposal is the result.

  • Warrington Faust

    “Eventually, you run out of other people’s money”

  • Mike Rollins

    Along our southern Rhode Island coast there actually are many single
    family residences that are both rented out part time, and used part time as a personal vacation residence, so the new “Taylor Swift tax” most certainly does apply to them!

  • Art

    Unfortunately, it looks like in Gina that we got Chafee II. Even winning 40% of the vote is similar.

    If this tax were to pass, watch it eventually expand and creep down into the lives of more people — such as RIers from Greater Providence who own beach cottages worth well under $1 million.

    Gina, in your quest for even higher office, suck up to your progressive pals elsewhere. Go away.