Agenda Item 6A
September 30,2014
Action
MEMORANDUM
TO:
County Council
FROM:
SUBJECT:
~
Michael Faden, Senior Legislative Attorney
Action:
Expedited Bill 37-14, Real Property Transfer Tax
Enterprise Zones
Exemption
Government Operations and Fiscal Policy Committee recommendation: enact with
amendments.
Expedited Bill 37-14, Real Property Transfer Tax - Exemption - Enterprise Zones,
sponsored by Councilmembers Navarro, Floreen, and Riemer, Council President Rice, and
Councilmember Berliner, was introduced on July 15, 2014. A public hearing was held on
September 9 at which no speakers appeared (but see letter from Buchanan Partners on ©7). A
Government Operations and Fiscal Policy Committee worksession was held on September 22, at
which the Committee recommended enacting the Bill with technical arid conforming
amendments.
Bill 37-14 would exempt transfers of rezoned property located in an enterprise zone from
the 6% rezoning transfer tax. Those properties would still be subject to the underlying 1
%
transfer tax. It would also repeal archaic and obsolete language and references, and make
conforming and stylistic changes.
Fiscal impact
The fiscal impact statement (see ©8-9) did not estimate a revenue loss
from enacting this Bill because of the limited number of properties that are likely to be affected.
Conforming amendments
To reflect updated terminology in the rewritten County zoning
code which takes effect on October 30, the Committee recommended conforming amendments to
©2-4, lines 27-55, suggested by Legislative Attorney Jeff Zyontz, shown by double brackets and
underlines.
Technical amendment
The Committee also recommended a technical amendment
submitted by the County Attorney on ©5, line 91, to
clarify
when the
tax
applies after a rezoning.
This packet contains:
Expedited Bill 37-14
Legislative Request Report
Letter from Buchanan Partners
Fiscal and economic impact statements
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Expedited Bill No.
37-14
Concerning: Real Property Transfer Tax
- Exemption - Enterprise Zones
Revised: 9-24-14
Draft No.
~
Introduced:
July 15, 2014
Expires:
January 15,2016
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date:
_N~o~n!!:::e
_ _ _ _ __
Ch. _ _, laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmembers Navarro, Floreen, and Riemer,
Council President Rice, and Councilmember Berliner
AN EXPEDITED ACT
to:
(1)
exempt from a certain provision of the real property transfer
tax
certain transfers of
rezoned property located in an enterprise zone;
(2)
repeal archaic and obsolete language and references, and make conforming and
stylistic changes; and
(3)
generally amend County law regarding the real property transfer
tax.
By amending
Montgomery County Code
Chapter 52, Taxation
Article II, Real Property Transfer Tax
Section 52-21
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bil/.
Deletedfrom existing law by original bil/.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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ExPEDITED BILL
No. 37 -14
1
Sec 1. Section 52-21 is amended as follows:
52-21.
Levied; amount.
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There is hereby levied a
tax
on
(1)
[all transfers] each transfer in the [county]
County of a fee simple interest in real property, except
~
transfer by [way of]
mortgage, deed of trust", or deed of trust for the benefit of creditors, (2) the initial
transfer of stock or other evidence of ownership in a cooperative housing corporation
or similar entity, and (3) [all transfers] each transfer of a leasehold interest in real
property where the lease or instrument by which a leasehold interest is [demised]
transferred contains a covenant for perpetual renewal, known as ground rent. The
tax
[shall] must be computed on the value of the full consideration for [such] each
transfer at the following rates:
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*
(e)
*
*
On rezoned property, [six (6)]
Q
percent of the value of the
consideration for any transfer of real property which[, after July 1,
1971,] has been rezoned to a more intensive use at the [instance] request
of the transferor, transferee, or any other person who has or had at the
time of application for rezoning a financial, contractual or proprietary
interest in the property, [excluding] not including the value of
[improvements] any improvement constructed after [such] the rezoning.
"Rezoned" as used [herein shall mean] in this subsection means the
classification, reclassification", or change from one zone to another of
any property by local map amendment [by the county council sitting as
the district council for that portion of the Maryland-Washington
Regional District located within Montgomery County, on the "Zoning
Map of the Maryland-Washington Regional District in Montgomery
County, Maryland" dated May 3'1, 1958, and subsequent amendments
thereto] under Chapter 59. "Rezoned to a more intensive use" [shall
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ExPEDITED BILL
No. 37 -14
28
mean] as used in this subsection means a classification, reclassification.:!
or change in zone which permits a greater number of dwelling units per
acre in any residential zone, or which permits a greater number of
permitted uses regardless of area or allows more floor area in a
commercial.l [[zone]] commercial/residential. employment. or industrial
zone,
or is from
any residential
zone to any
commercial,l
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commercial/residential. employment. or industrial zone, or is from any
industrial zone to
employment. zone.
"Rezoned to a more intensive use" [shall] does not include:
any commercial.l commercial/residential.
or
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(1)
A zoning from a residential zone to a [[planned Unit
Development Zone]] [under division S9-C-7 granted after
January 1, 1980], residential floating zone if the approved
[[development]] floating zone plan, including any amendments to
the plan, does not increase the total number ofpermitted dwelling
units and does not permit commercial or industrial uses,
[provided however, that] but the transfer [shall] must be subject
to [additional] any tax otherwise due under this subsection if at
any time an amendment to the [[development]] floating zone plan
increases the total number of permitted dwelling units or permits
commercial or industrial uses;
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(2) A
zoning
from
a
residential
zone to
a
commercial,l
commercial/residential. or employment. zone within one [(1)]
year after the property was down zoned from a [[commercial]]
zone of equal or greater intensity to a residential zone by
sectional map amendment; [or]
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exPEDITED BILL
No.
37 -14
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(3)
A rezomng from an industrial zone to a commercial",
commercial/residential. or employment. zone which:
(i)
Is necessitated by a previously adopted amendment to [the
zoning ordinance text,] Chapter 59 that was not [upon
application or at the instance of] requested
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the
transferor, transferee, owner.!. or fonner owner of the real
property, or by any person who
has
or has previously had
an interest of any kind in the property, including a
contractual interest; and
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(ii)
Allows establishment or continuance of a use or uses
which were pennitted uses on the property under the
industrial zone immediately [prior to] before the text
amendment, to which use or uses the property was
restricted by bona fide covenants recorded among the land
records [prior to] before July 1, 1971, and which covenants
are in effect at the time of a transfer; or
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ill
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rezoning of any property that is located in an enterprise zone
when the property is transferred.
[The
tax
levied and imposed
in
this subsection shall not apply
to
transfers which are made pursuant to a bona fide written contract or
agreement of sale entered into prior to July 1, 1971; provided, that the
director of finance may require satisfactory proof that the contract or
agreement was entered into prior to such date. There shall be deducted
from the consideration as defined in section 59-19 the] The taxpayer
may deduct from the consideration on which the tax is based any cost
[or expense]
actually
incurred by the transferor
for public
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improvements.!. such as sewer, water, roads, sidewalks, stonn drainage
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ExPEDITED BILL
No. 37 -14
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structuresol and pennanent soil erosion and sediment control measures,
[subject to the submission to the director of finance of] if the taxpayer
submits satisfactory proof of [such] costs [or expenses] documented by
certificates from public agencies where applicable[; provided, that]ol but
the rate of [such] the tax on a single transfer [shall] must not exceed [six
(6)]
§
percent of the bona fide market value consideration for the
transfer. [Where] If a transfer is subject both to the tax imposed by this
subsection and the tax imposed by subsection (d), the
tax
imposed by
this subsection [shall] must be the only tax imposed on the transfer.
Any tax collected under this subsection [shall] must be collected only
once on the first taxable transaction after each rezoning to a more
intensive use, and [all transfers] any transfer that does not [subsequent
to] follow a rezoning to a more intensive use [shall] must
be
[taxable]
taxed at the rates applicable under other subsections ofthis section. The
[county executive] Executive may [from time to time] issue [written]
regulations under method (3) [of section 2A-15 of this Code, pertaining
to] regarding the collection ofthe
tax
levied in this subsection.
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*
Sec. 2.
*
*
The Council declares that this
Expedited Effective Date.
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legislation is necessary for the immediate protection of the public interest. This Act
takes effect on the date when it becomes law.
Approved:
104
Craig
L.
Rice, President, County Council
Date
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LEGISLATIVE REQUEST REPORT
Expedite Bi1137-14
Real Property Transfer Tax Exemption
-
Enterprise Zones
DESCRIPTION:
Exempts transfers of rezoned property located in an enterprise zone
from the
6%
rezoning transfer tax. Repeals archaic and obsolete
language and references, and makes conforming and stylistic
changes.
The current rezoning transfer
tax
acts
as
a disincentive to needed
redevelopment in enterprise zones.
To encourage redevelopment in enterprise zones
Department of Finance
To be requested.
To be requested.
To be requested.
To
be
researched.
Michael Faden, Senior Legislative Attorney, 240-777-7905
Transfer
tax
applies county-wide.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENALTIES:
Not applicable
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~PARTNERS
Dc~dopi"g
BUCHANAN
Vab..,.
Building
Relati(}lullfp.,
September 9,2014
The Honorable Craig Rice, President
and Members of the Montgomery County Council
Stella B. Werner Council Office Building
100 Maryland A venue, 5th Floor
Rockville, MD 20850
Re: Bill Number
37-14 -
Enterprise Zone Rezoning Tax
Dear President Rice and Members of the Council:
We are writing in support of Bill Number
37-14,
which proposes to exempt properties in enterprise zones
from the additional real property transfer tax of 5% imposed on privately rezoned properties (meaning
certain properties that achieved zoning via a local map amendment). As developers in Montgomery County
with experience in developing areas in need ofrevitalization, we can attest to the critical nature of an
enterprise zone designation and the important role it
has
played in other areas of the County.
It
is
noteworthy that properties in Enterprise Zones have not typically been privately rezoned, and are therefore
usually not impacted by this additional 5% transfer tax (as opposed to the normal 1% transfer tax).
Properties that are rezoned as part of a comprehensive rezoning that have not been the subject of a local map
amendment
(i.e.,
a sectional map amendment) are not subject to this
tax.
As you can imagine, this tax
accounts for a substantial increase in the cost of a project that has gone through a local map amendment; by
definition, projects in enterprise zones need economic assistance to be viable, not additional costs.
The transfer tax on rezonings in an enterprise zone will put certain properties targeted for redevelopment at a
distinct disadvantage to other areas ofthe County and
will
work in opposition to the county's purpose of
encouraging development and economic growth. To impose this additional
tax
on projects in enterprise
zones belies common sense and is, perhaps, an overlooked flaw in the current legislation. The Bill is
supported by sound public policy and is in the public interest.
Thank you for your consideration and we respectfully request that the Council approve the Bill.
Cc:
Steven A. Robins, Esq.
Pete Jervey
9841 Washingtonian Boulevard, Suite 300. Gaithersburg, Maryland 20878 •P: 301.417.05\0. F: 301.417.1594. www.buchanapartners.com
(j)
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Fiscal Impact Statement
Expedited Bill 37-14, Real Property Transfer Tax - Exemption - Enterprise
Zones
1. Legislative Summary
• This legislation would exempt from a certain provision of the 6% real property
transfer tax. properties which are:
o I. Transferred;
o 2. Rezoned to a more intensive use, and;
o 3. Located in an enterprise zone.
• The Bill also repeals archaic and obsolete language and references, and makes
conforming and stylistic changes.
• Currently, only properties that are rezoned to a more intensive use at the request of
the property owner are subject
to
the 6% transfer tax. Properties in which a more
intensive use is imposed by the County are subject to a Jesser 1
%
transfer tax.
• Properties exempted from the 6% transfer tax rate under this Bill would still
be
subject
to
the lesser 1
%
transfer tax rate.
2. An estimate of changes in County revenues and expenditures regardless of whether the
revenues or expenditures are assumed in the recommended or approved budget. Includes
source of infonnation, assumptions, and methodologies used.
• Sources of information include the Department of Finance, Treasury Division
(Treasury).
• Using historical data over the past six fiscal years, Treasury reported 87 enterprise
zone credits. Of that number, seven (or eight percent of the total) transferred
ownership.
• None of the seven properties that transferred ownership were subject to the higher 6%
more intensive use tax, only the lesser I
%
tax rate.
3. Revenue and expenditure estimates covering at least the next 6 fiscal years.
• It is not possible to determine the fiscal impact ofthe Bill over the next six fiscal
years because ofa number ofvariables (detailed
in
#9).
• OMB is aware of one property that will
be
affected in the future. but at this time, the
final terms ofthe sale are unknown. The fiscal impact to the County
\",;11
be the
difference between the 1
%
rate that the property would be subject
to
under this Bill
and the higher 6% rate the property is currently subject to.
• Due
to
the limited application of the legislation, it is unlikely that significant fiscal
impacts will be realized.
4. An actuarial analysis through the entire amortization period for each bill that would affect
retiree pension or group insurance costs.
• N/A
5. Later actions that may affect future revenue and ex.penditures ifthe bill authorizes future
spending.
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• N/A
6. An estimate ofthe staff time needed to implement the bilL
• No additional staff time would
be
required by the Department of Finance.
7.
An explanation of how the addition of new staff responsibilities would affect other duties.
• See #6
8.
An estimate of costs when an additional appropriation is needed.
• N/A
9.
A description of any variable that could affect revenue and cost estimates.
Variables affecting revenue and cost estimates include, but
are
not limited
to:
• Number of properties which
are
transferred, rezoned to a more intensive use
at
the request ofthe property owner. and
are
also located in
an
enterprise zone
• Assessed value of properties
• Sale price ofproperties
• Transfer
tax
rates
• Impacts ofdie zoning code rewrite
• Market conditions
10. Ranges of revenue
or
expenditures that
are
Wlcertain or difficult to
project.
• See #3
II. If a bill is likely to have no fiscal impact. why that is the case.
• Due to the limited application ofthe legislation (only affecting properties that are
transferred and subject to the 6% transfer
tax,
rezoned
to
a more intensive use, and
located in an enterprise zone), significant fiscal impacts
are
not likely to be realized.
t
2. Other fiscal impacts or comments.
• N/A
13. The following contributed to and concurred with this analysis:
• Jedediah Millard, Office of Management and Budget
• David Platt. Department ofFinance
• Michael Coveyou, Department of Finance
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Economic Impact Statement
BiJl37-14, Real Property Transfer Tax - Exemption Enterprise Zones
Background:
This legislation would exempt from the 6% rezoning transfer tax transfers ofrezoned
property located in an enterprise zone; and repeal archaic and obsolete language and
references, and make conforming and stylistic changes.
1. The sonrces of information, assumptions, and methodologies used.
Sources of infonnation include:
Treasury Division, Department of Finance,
MNCP&PC, Department of Planning,
State Department of Assessments and Taxation, and
Bureau of Labor Statistics,
U.S.
Department of Labor.
Each source of infonnation provided the following data and assumptions:
• Treasury Division detennined that there were eighty-seven
(87)
property tax
accounts that received Enterprise Zone credits over the past six fiscal years.
Of that number, seven
accounts,
or eight percent
(8%),
transferred during that
period. However, Ulere are no data on how many of the seven properties were
rezoned.
This economic impact
statement. assumes
that
all
seven
properties
were rezoned and are newly re-developed properties.
• MNCP&PC, Department of Planning (Planning) provided data on the ratio of
square footage to employee. The ratios are 255
square
feet per office
employee,
400
square feet per retail employee, and
450
square feet per
industrial employee, and 500
square
feet per "other" employee.
• The State Department of Assessments and Taxation (SDA
T)
provided the
square footage for each of the seven properties that received an Enterprise
Zone credit and the Department of Finance (Finance) divided the square
footage by the data provided by MNCPPC to determine the maximum number
of
employees.
• The Bureau of Labor Statistics (BLS) provided the annual average
pay
for
an
employee in the private sector for Montgomery County
in
2013. The annual
average pay was
$63,080
that year.
2. A description of
any
variable that
could
affect the economic impact estimates.
The following variables
that
could affect me economic impact estimates are:
• The number of rezoned properties. However, mere
are
no data on how many
ofthe properties that transferred over me six-year period were rezoned. For
me purpose of this economic impact statement, Finance assumes that
the
seven properties were rezoned,
.
• The ratio of
square
footage per employee by sector,
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Economic Impact Statement
Bill 37-14, ReaJ Property Transfer Tax - Exemption Enterprise Zones
• The amount of square footage for rezone property, and
• The annual average pay per employee
in
Montgomery County
in
future years.
3.
The Bill's positive or negative effect,
if
any on employment, spending, saYing,
investment, incomes, and property yalues in the County.
Given the limited application
of
the proposed legislation
(Le.
properties in an
Enterprise Zone
that
are rezoned and subsequently transferred) and the limited
incentive to transfer or redevelop, it
is
unlikely that the subject legislation would
result in
a material
economic impact.
4.
If
a Bill is likely to have no economic impact, why is that the case?
If
Bill 37-14 has
an economic impact, such an impact on employment and wage
income would be modest at best for the reasons
cited
in paragraph
#3
above.
5. The following contributed to or concurred with this anaJysis:
David
Platt
and
Michael Coveyou, Finance; Jedediah Millard, Office ofManagement and Budget
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