NEW Homestead Exemption Proposal

By Tom Ferrio

At Monday’s Town Council meeting I presented a proposal by the Charlestown Democratic Town Committee to give a property tax credit to people who declare Charlestown as their primary residence.

This article explains the tax credit and its purpose.

Funding for the services we enjoy

Our payments of taxes, licenses and fees pay for the infrastructure and services that we receive in Charlestown. Our primary payment to the town is the real estate property tax. We also pay a tax on the value of motor vehicles and we pay licenses and fees for things such as beach passes and the Residential Collection Center.

And our payments to the state, in the form of income tax, sales and fuel tax and state licenses and fees also produce funds that benefit the town.

This state money is crucial for Charlestown. Even after the recent reduction in state aid, we receive $1.5 million to support our cost of Chariho Schools. State money is also essential for our state roads, beaches, recreation areas and the activities of state agencies such as Environmental Management, Natural Resources, Emergency Management, Health Department, the State Police and our colleges and universities. And, of course, the state provides numerous services for the elderly, handicapped, unemployed and low-income families.

All of those items benefit people who live in Charlestown and nearly all benefit our seasonal visitors.

Non-resident homeowners pay their normal share of property tax but make no contribution to income tax and reduced payments of sales tax and other taxes and fees. In fact, we know that many property owners plan their seasonal travels to ensure that they are not subject to Rhode Island income tax.

Charlestown and the state provide a 12-month infrastructure here to support a 3-month peak population. Year-round residents end up paying for more than their share of it.

Balancing the load on taxpayers

Many places around the country balance the load for funding local and state services by providing a Homestead Exemption which reduces the property tax for those who declare their residence in the town. Some examples are

Florida – $50,000 valuation reduction
Illinois – $20,000 valuation reduction
Indiana – $35,000 valuation plus 10% tax reduction
Texas – 20% valuation reduction

In Rhode Island, the state allows a Homestead Exemption on a town-by-town basis. Most are provided by reducing the assessed value and here are some examples:

Johnston – 20% valuation reduction
Lincoln – 35% valuation reduction
N. Providence – 20% valuation reduction
West Greenwich – 13% valuation reduction

Our proposal and how it will work

We are proposing a Homestead Exemption for Charlestown that would apply to properties occupied by the owner who is a resident for more than 6 months of the year. Existing exemptions in Charlestown, which we do not propose changing, are stated as tax credits so we propose this exemption should also be stated as a tax credit, a $1,000 tax bill reduction for residents.

We estimate that 2,600 of the 4,500 residential properties in Charlestown will qualify for this.

To make this proposal revenue-neutral for the town, we estimate that it will require a tax rate adjustment of  $1.10 per $1,000 valuation. That will cause the net savings to be less than the $1,000 reduction depending on the value of the property. 

Since so much business in Charlestown is seasonal, we propose that the tax rate on commercial properties remain unchanged.

Here is how the combined tax credit and rate adjustment works out for specific home values:

Home Value	Current  Tax	Proposed Tax	Reduction
$300,000	$2,717	$2,055	$662
500,000	4,528	4,091	437
750,000	6,792	6,636	156
1,000,000	9,056	9,182	(126)

For homes valued over about $800,000, the combination of the tax credit and the rate adjustment yields a small tax increase.

I explained that the purpose is to balance the tax load, so non-resident owners end up paying more property tax. Here are some examples:

Home Value	Current  Tax	Proposed Tax	Increase
$300,000	$2,717	$3,055	$338
500,000	4,528	5,091	563
750,000	6,792	7,636	844
1,000,000	9,056	10,182	1,126

We know this cost increase is extremely small compared to the cost of maintaining two homes and, in almost every case, is much less than the homeowner would pay in Rhode Island income tax.

Making this happen

To implement the Homestead Exemption tax credit we need two things:

1. State legislation to enable Charlestown to have the tax credit
2. A town ordinance with the specific tax credit amount and application details

The state legislation does not commit the town to implement the tax credit so that can be easily requested in the next legislative session. The Town Council only needs to pass a resolution to request it.

I have provided a draft of the state legislation to our Town Council.

The town ordinance can be modeled on other existing exemptions and be on a track for approval in February, in time for our July 2012 tax bills.

Closing Comments

Property tax is just one source of government funds that serve all people who live in or visit Charlestown. While non-resident owners are not subject to all of the taxes that serve us there is very little town savings from part-time properties.

Many places use a Homestead Exemption to give some balance to the tax load and we can easily implement that for our next tax year.


The presentation slides that I showed to the Town Council on November 14 are here. The draft State enabling legislation is on the last page.