House Bill 519: Developmental Tax
This was completely flopped onto my lap today.
In 2012 the Legislature passed HB 519, which basically states that a builder/developer will not be taxed on their inventory/development costs on a specific piece of land until two items happen, 1, they build something on the land, 2: they resell the land.
The thought is that a builder is not taxed on inventory, just like a car lot is not taxed on their cars until they sell one.
A specific article giving the ins and outs link here: http://www.idahoreporter.com/2012/bill-allowing-developers-to-count-site-improvements-as-inventory-passes-senate/
A copy of the actual bill is here: http://legislature.idaho.gov/legislation/2012/H0519.htm
Looks like a builder/developer has to apply for the Tax Exemption by May 1st of each year.
So the intention of this bill looks pretty good.
But there is now an unintended consequence, and that is a buyer of this new home.
Today we have received numerous calls from clients, saying that they got bills in the mail today for this tax.
After lots and lots of phone calls to County Assessors, Title Companies, Builders and Realtors here is what we know.
The developer should be paying this tax, or it should be negotiated into the purchase and sales agreement.
If the tax is assessed and the title has transferred from the builder/developer to the buyer, the county is going to tax the buyer.
If the buyer does not pay, they will have a tax lien put on their house.
The one bill we have seen was for $217.24, although we heard one was over $500
This bill is not part of the buyer’s escrow account, this is a development bill, and handled in the Real Estate Contract.
So here is how this should be handled, and remember I am not a licensed RE agent in the State or Idaho or your Broker.
In the RE-21 or RE -22 or in the Builder’s PSA or on an addendum I recommend the following line.
“If post close, the buyer received a tax bill that is based on 2012 House Bill 519, Development Delayed Tax, the builder agrees to pay this tax”
Or something close to that, or reimburse the buyer for this tax, yadda, yadda, yadda. Get with your brokers to establish a policy for this.
Now the question comes up: How do I know this is a tax based on HB 519? The buyer will need to, upon receipt of the bill, call the county to verify that this is a tax based on HB 519 and not an occupancy tax.
If it is an occupancy tax, then they should send that tax bill to their lender to be paid out of their escrow account. (Yes you should be telling you clients about the occupancy tax on new construction, if you don’t know what this is, call me)
If it is a HB 519 tax, then they will need to get with their Realtor to assist them in getting this bill paid for by the builder or however it is described in the PSA.
If it is not described in the PSA…well…I don’t know, probably the buyer will have to pay this tax. I guess you could call the builder as see if they will pay for this.
So the moral of this story is, document, document, document or pay a bill.