Tuesday, March 11, 2008

Another Tax Scandal

The latest estimate of losses from the DC property tax refund scheme is over $50 million. Although that number is shocking, there is another albeit quieter scam that is costing DC taxpayers that much every year.

The Washington Business Journal reported on the lack of enforcement of the vacant property tax all the way back in 1998 (see below). At the time Natwar Gandhi, then director of the Office of Tax and Revenue, said, "Unfortunately, there are many properties that should be in Class 5 (vacant rate) but are not." The situation remains the same today.

Let's try to estimate the magnitude of the problem. We can easily assume that there are at least 3,000 vacant properties in DC. No one knows the true number but DCRA has put the number in the 2000-3000 range and many many properties known to be vacant are still not listed on DC's rolls. Say half are not paying the class 3 rate. This is a very conservative estimate. The median property value in the District is about $435,350 according to the DC Fiscal Policy Institute. And the vacant property tax now stands at 10%. So here we go:

1,500 (half of 3,000 properties) x $435,350 (median property value) x 10% (tax rate) =


That is $65 million in tax dollars that goes uncollected every year. The real numbers are probably higher. We won't know until the mayor, the city council, or congress fully investigates these properties. Not only are heavily taxed residents and businesses getting ripped off by inflated taxes due in part to these properties not being properly taxed, but vacant properties contribute to crime and blight in DC's most needy neighborhoods.

Why is this allowed to occur? I can only assume that some vacant property owners must have enough political pull to avoid penalties. Not surprisingly, DC city government owns the most vacant properties. Churches own another large portion of rundown buildings. Certain well-connected developers also fail to pay the proper taxes on their numerous "investments". Granted, the mayor inherited this mess. But we should question the lack of action by two figures that have been around from the beginning, Natwar Gandhi and the chairman of the finance committee, Jack Evans. They've done little to address this problem.


Anonymous said...

What about people who are hit with HUGE tax bills while they have multiple valid permits, have a crew at the property daily and are investing significant monies rehabbing a former dump of a property? These tax payers are exempt from registering and paying the vacant tax rate under DC Code 42-3131.06 #3. These permits are ON FILE at DCRA yet the taxpayer has to fight them on the tax rate. What a waste of resources.

ed said...

Unfair taxes on properties with valid class 3 exemptions may also be a problem. But that is not the case with the vast majority of vacant buildings.

By the way, the owners that are rehabbing vacant buildings are not exempt from registering. They must register in order to get the class 3 exemption. Responsible owners that are making improvements should be especially outraged by negligent owners of many rundown buildings that are not paying the higher tax.

si said...

weve all been bitching about this for years now and its absolutely true its a sleeping BEAST. I calculated how much the city was losing on one block that contained 7 valuable vacant properties owned by Jemal. from 2005 including 2008 (they havent changed em to class 3) the total loss is one million dollars give or take. A small sample indicating a very large problem.

Tom said...

DCRA apparently overlooks many long term vacant properties. It also defeats the purpose of the code when it reclassifies properties that are clearly being rehabbed (permits in windows, obvious activity, etc.). In our case, due to administrative delays largely caused by DC government, restoring our home has taken more than a year. We are there every day to collect mail, supervise and clean up. Its home and the family has lived there for several generations. Nevertheless, DCRA reclassified the site as "vacant" without notice. We've talked to DCRA three times, who could not provide a copy of any notice and who insisted on inspection. We waited all day and they never showed. DCRA should spend its resources on abandoned and vacant properties that endanger the community (such as those listed here), not on properties that are being restored.

ed said...


Even properties that are "clearly being rehabbed" have to be registered as vacant. Of course, properties undergoing active renovation may apply for an exemption from the class 3 tax rate. Please see my post above.

Sorry to hear that DCRA inspectors did not show up for the inspection.

Aparelho de DVD said...
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Anonymous said...

well, I've lived in my home for 22 years and it don't look vacant and yet I GOT SENT a tax bill at the vacant property rate meaning I am supposed to cough up $26,000 dollars by April 25!! I've tried to fix it and the idiots at DCRA tell me that the list they keep doesn't match the list that DC Tax&Revenue office has. One has it by addresses and the other has it by square-lot number and "they can't merge databases" so there is apparently a secret list that someone has created of whatever property they want to throw on it. There are at least ten homeowners in this jam due to this attempt to squeeze yet more funds out of property owners (in a down market too!). So now I have to unravel this mess or find my home on the tax arrears list and perhaps sold out from under me by the greedy tax pigs and developers that are circling DC like vultures.

ed said...

Correction: The vacant property tax rate is still 5%, not 10%.