COUNCIL OF THE DISTRICT OIP COLUMBIA THE JOHN A WILSON BUILDING

1350 PENNSYLVANIA AVENUE NW WASHINGTON DC 2001[)4

DAVID A CATANIA Committee Member Council member At Large Finance and Revenue Chair Committee on Health Libraries Parks and Recreation

Government Operations and the Environment

June 30 2011

Dr Natwar Gandhi Chief Financial Officer 1350 Pennsylvania A venue NW Ste 203 Washington DC 20004

Thank you for your reply to requests from Councilmember Evans and me regarding the Office of Tax and Revenues (OTR) failure to collect recordation taxes on the refinancing of commercial property purchase money deeds of trust or mortgages (collectively purchase money loans) as required by the Tax Clarity Act of 2000 (the Act) Your admission that these taxes have not been collected as required by the Act is extremely disconcerting Further your explanation for this state of affairs is disingenuous After reading your responses I have serious concerns about

1 The manner in which you downplay official tax guidance issued from your office

2 Your misrepresentation of the legislative record of the Act and

3 Your flawed interpretation ofa court case to support your position

In short while your attempt to create ambiguity surrounding what is plain and clear may make for a good media strategy it reveals a troubling inability to be forthcoming with District taxpayers

As you know under DC Law if a commercial property is purchased using a loan which is secured by a deed of trust or mortgage (Le a purchase money loan) then a recordation tax is assessed on the recording of the deed but not on the purchase money loan I When that loan is refinanced however this situation is reversed At a refinance there is no recordation tax on the deed (because no deed is recorded during a refinance) but there is a recordation tax applied to the loan Prior to the Act this tax was only assessed on the amount of new debt over and above the existing debt if the loan being refinanced was a purchase money loan The Act however repealed the recordation tax exemption for the existing debt of purchase money loans

1 DC Official Code sect 42-1102(5)

In addition to your failure to acknowledge the impact of the Act I am further concerned

by your efforts to paper over your misapplication of the law

1 Official Tax Guidance Issued From Your Office That You Now Dismiss

As mentioned in my earlier correspondence in April and October 2001 your office

issued official guidance on how to comply with the newly enacted provisions of the Act Both

clearly stated that previously untaxed portions ofpurchase money loans were to be subject to

recordation tax on the entire amount of the loan being refinanced Both noted that this was a

change from previous practice required by the Act That you would now downplay these official

memos as mere intervening correspondence is insincere at best How should residents and

businesses interpret official tax guidance from your office in the future if it will go unenforced

or in this case simply disregarded when questioned

Additionally in your response to question number seven (7) posed in my June 102011 letter you state that Although during 2001 staff of the Recorder of Deeds issued certain

guidance concerning the implementation of the Act the legal interpretation which precipitated

this guidance has since changed This guidance is no longer effective However I am unaware

of any subsequent guidance on this matter As such I am requesting all documentation that

forms the basis of this statement including all documents that would shed light on the timing and

legal basis for this change Please forward these documents along with any revised official tax

guidance evidencing this change that was issued by your office to my office by Monday July 102011

2 Your Misrepresentation of the Legislative Record of the Act

In your letter to Councilmember Evans you state that there is nothing in the legislative

history of the Tax Clarity Act to indicate that the amendment was intended to otherwise limit the

availability of the established exemptions from payment of recordation tax on the original existing debt or to extend the tax to types of existing debt that were previously exempt

(emphasis added) This is simply not true Attached to this letter you will find testimony presented at the hearing on the Act that clearly reflects the understanding of those industries most affected by the language of the Act that this change would subject the existing debt of

purchase money loans to recordation tax during a refinance

Specifically the Apartment and Office Building Association of Metropolitan Washington

(AOBA) argued that

Finally the proposed language would permit the full recordation tax to be applied to the entire amount refinanced ifthe existing debt was not subject to recordation tax We would suggest eliminating this catch-up provision for old

debt that is now being refinanced (Attachment A)

Also please see the testimony from the District of Columbia Land Title Association (DLTA)

who opposed this specific provision of the Act arguing that

At present the District imposes recordation tax only on new debt when the

refinance takes out a purchase money security instrument Was the omission of

the purchase money exemption intentional in Bill J3-586 The loss ofavailability

offavorable tax treatment on refinances ofpurchase money mortgages places an

onerous tax burden on commercial property owners in the District ofColumbia (Attachment B)

Thus the legislative history of the Act is clear and is at odds with your unsupported contention

Those directly affected and experts in the field understood precisely what the plain language of the Act meant

3 Your Flawed Interpretation of Case Law Regarding the Refinance Exemption of Recordation Taxes

I am particularly troubled by your misapplication of1 J37 J9h Street Associates LP v District ofColumbia 769 A2d 155 (DC 2001) In your June 22 2011 response to Councilmember Evans you cite this case to support your belief that both before and after the Act

only the new debt over and above the existing debt is subject to recordation tax for commercial

property purchase money deeds of trust or mortgages at the time of a refinancing Your understanding of the courts holding in this case however is incomplete and leads you to the wrong conclusion

Contrary to your contention the court actually held that plaintiffs J J 37 J9h Street

Associates wer~ responsible for paying recordation taxes on both the existing debt and the new debt when they refinanced their loan The court took special care to note that the loan being refinanced by the plaintiffs was neither a purchase money deed of trust nor a purchase money

mortgage

The court held that the loan in question had not been subject to recordation tax under sect 45-923(a)(3) and therefore plaintiffs were responsible for paying recordation tax on both the existing debt and the new debt Far from supporting your contention the courts reasoning explains why OTR was responsible for collecting recordation taxes on both the existing debt and the new debt of commercial property purchase money loans when they were refinanced after the

enactment of the Act2

Though the refinance in 1137 19th Street Associates occurred prior the Act the courts reasoning is directly

relevant to the issue raised in my first correspondence As I noted in that letter and again here the pre-Act language contained two exemptions for the existing debt at the time ofa refinanciJtlg (1) for purchase money deeds of trust or mortgages or (2) for amounts previously subject to tax under this paragraph The first exemption the one for purchase money deeds of trust or mortgages was subsequently repealed by the Act Because the loan in question in

Finally in your response to my June 10 2011 letter you imply that the Act made no substantive changes to District tax law This is simply a ridiculous contention A quick reading of the Acts long title reveals that it was replete with changes to District tax policies In fact they are too numerous to list out in this letter

It is my opinion that the Council and the public deserve a full explanation of this matter Thus I will be requesting opinions on this matter from both the Districts Attorney General and the Councils General CounseL In the meantime as requested earlier please forward all documents that would evidence a change in the Districts interpretation and policy regarding the collection of recordation taxes on refinanced commercial property loans to my office by

Monday July 112011 If you have further questions about this request please contact my office at (202) 724-7772

Sincerely

ampamp~ David A Catania Councilmember At-Large Chair Committee on Health

cc Mayor Vincent Gray All Councilmembers

1137 19h Street Associates was neither a purchase money deed of trust or mortgage the courts analysis focused on the meaning ofsubject to taxation under this paragraph (language still in sect 45-923(a)(3) [now sect42-1103(a)(3)])

Plaintiffs argued that the DC Council intended for the term under this paragraph to encompass both the section and subsection The court disagreed and held that the recordation tax exemptions for a refmance of a commercial property loan were contained in a distinct paragraph (ie sect 45-923(a)(3)) and therefore the loan in question had not been previously subject to taxation under this paragraph Since the loan was not a purchase

money deed of trust or mortgage it was not eligible for either of the exemptions provided in the pre-Act language Thus the plaintiffs were required to pay recordation tax on both the existing debt and the new debt when the loan

was refinanced

The case is relevant today because as previously mentioned the exemption for purchase money deeds of trust or mortgages was repealed by the Act leaving only the exemption for amounts not previously taxed under sect 45-923(a)(3) As we all agree the existing debt ofthe loan is exempt from recordation tax when it is first recorded according to sect 42-1102(5) [formerly 45-922(5)] But it is not exempt from recordation tax during a refinance because as the court held in 1137 19th Street Associates it has not been previously subject to recordation tax under

this paragraph or more specifically sect 45-923(a)(3)

Attachment A

( OffiCE BUILDING gtshy o

n

gtshy-0

o = omiddot- METROPOlITAN WASHINGTON

APARTMENT AND OFFICE BUILDING

ASSOCIATION of

METROPOUTAN WASHINGTON

TESTIMONY BEFORE

THE

COMMITTEE ON FINANCE AND REVENUE

COUNCIL OF THE DISTRICT OF COLUMBIA

ON

S~e 0 _

Jr(gt1] C r

7

BILL 13-586 THE TAX CLARITY ACT OF 2000 11

MARCH 6 2000

Presented By

David J Chitlik j CAE Director Lodging Sales and Property Tax Marriott Lodging

Co-Chairman AOSA Tax Policy Committee

Michael A Cain Esq Hamilton amp Hamilton LLP

W Shaun Pharr Esq AOBA Vice President of Government Affairs District of Columbia

1050 17th Street NW Washington DC 20036 Phone (202) 296-3390 III Fax (202) 296-3399 II E-Mail webmasteraoba-metroorg

I IRI httnllwwwhlob~-mftrnorn

In addition to your failure to acknowledge the impact of the Act I am further concerned

by your efforts to paper over your misapplication of the law

1 Official Tax Guidance Issued From Your Office That You Now Dismiss

As mentioned in my earlier correspondence in April and October 2001 your office

issued official guidance on how to comply with the newly enacted provisions of the Act Both

clearly stated that previously untaxed portions ofpurchase money loans were to be subject to

recordation tax on the entire amount of the loan being refinanced Both noted that this was a

change from previous practice required by the Act That you would now downplay these official

memos as mere intervening correspondence is insincere at best How should residents and

businesses interpret official tax guidance from your office in the future if it will go unenforced

or in this case simply disregarded when questioned

Additionally in your response to question number seven (7) posed in my June 102011 letter you state that Although during 2001 staff of the Recorder of Deeds issued certain

guidance concerning the implementation of the Act the legal interpretation which precipitated

this guidance has since changed This guidance is no longer effective However I am unaware

of any subsequent guidance on this matter As such I am requesting all documentation that

forms the basis of this statement including all documents that would shed light on the timing and

legal basis for this change Please forward these documents along with any revised official tax

guidance evidencing this change that was issued by your office to my office by Monday July 102011

2 Your Misrepresentation of the Legislative Record of the Act

In your letter to Councilmember Evans you state that there is nothing in the legislative

history of the Tax Clarity Act to indicate that the amendment was intended to otherwise limit the

availability of the established exemptions from payment of recordation tax on the original existing debt or to extend the tax to types of existing debt that were previously exempt

(emphasis added) This is simply not true Attached to this letter you will find testimony presented at the hearing on the Act that clearly reflects the understanding of those industries most affected by the language of the Act that this change would subject the existing debt of

purchase money loans to recordation tax during a refinance

Specifically the Apartment and Office Building Association of Metropolitan Washington

(AOBA) argued that

Finally the proposed language would permit the full recordation tax to be applied to the entire amount refinanced ifthe existing debt was not subject to recordation tax We would suggest eliminating this catch-up provision for old

debt that is now being refinanced (Attachment A)

Also please see the testimony from the District of Columbia Land Title Association (DLTA)

who opposed this specific provision of the Act arguing that

At present the District imposes recordation tax only on new debt when the

refinance takes out a purchase money security instrument Was the omission of

the purchase money exemption intentional in Bill J3-586 The loss ofavailability

offavorable tax treatment on refinances ofpurchase money mortgages places an

onerous tax burden on commercial property owners in the District ofColumbia (Attachment B)

Thus the legislative history of the Act is clear and is at odds with your unsupported contention

Those directly affected and experts in the field understood precisely what the plain language of the Act meant

3 Your Flawed Interpretation of Case Law Regarding the Refinance Exemption of Recordation Taxes

I am particularly troubled by your misapplication of1 J37 J9h Street Associates LP v District ofColumbia 769 A2d 155 (DC 2001) In your June 22 2011 response to Councilmember Evans you cite this case to support your belief that both before and after the Act

only the new debt over and above the existing debt is subject to recordation tax for commercial

property purchase money deeds of trust or mortgages at the time of a refinancing Your understanding of the courts holding in this case however is incomplete and leads you to the wrong conclusion

Contrary to your contention the court actually held that plaintiffs J J 37 J9h Street

Associates wer~ responsible for paying recordation taxes on both the existing debt and the new debt when they refinanced their loan The court took special care to note that the loan being refinanced by the plaintiffs was neither a purchase money deed of trust nor a purchase money

mortgage

The court held that the loan in question had not been subject to recordation tax under sect 45-923(a)(3) and therefore plaintiffs were responsible for paying recordation tax on both the existing debt and the new debt Far from supporting your contention the courts reasoning explains why OTR was responsible for collecting recordation taxes on both the existing debt and the new debt of commercial property purchase money loans when they were refinanced after the

enactment of the Act2

Though the refinance in 1137 19th Street Associates occurred prior the Act the courts reasoning is directly

relevant to the issue raised in my first correspondence As I noted in that letter and again here the pre-Act language contained two exemptions for the existing debt at the time ofa refinanciJtlg (1) for purchase money deeds of trust or mortgages or (2) for amounts previously subject to tax under this paragraph The first exemption the one for purchase money deeds of trust or mortgages was subsequently repealed by the Act Because the loan in question in

Finally in your response to my June 10 2011 letter you imply that the Act made no substantive changes to District tax law This is simply a ridiculous contention A quick reading of the Acts long title reveals that it was replete with changes to District tax policies In fact they are too numerous to list out in this letter

It is my opinion that the Council and the public deserve a full explanation of this matter Thus I will be requesting opinions on this matter from both the Districts Attorney General and the Councils General CounseL In the meantime as requested earlier please forward all documents that would evidence a change in the Districts interpretation and policy regarding the collection of recordation taxes on refinanced commercial property loans to my office by

Monday July 112011 If you have further questions about this request please contact my office at (202) 724-7772

Sincerely

ampamp~ David A Catania Councilmember At-Large Chair Committee on Health

cc Mayor Vincent Gray All Councilmembers

1137 19h Street Associates was neither a purchase money deed of trust or mortgage the courts analysis focused on the meaning ofsubject to taxation under this paragraph (language still in sect 45-923(a)(3) [now sect42-1103(a)(3)])

Plaintiffs argued that the DC Council intended for the term under this paragraph to encompass both the section and subsection The court disagreed and held that the recordation tax exemptions for a refmance of a commercial property loan were contained in a distinct paragraph (ie sect 45-923(a)(3)) and therefore the loan in question had not been previously subject to taxation under this paragraph Since the loan was not a purchase

money deed of trust or mortgage it was not eligible for either of the exemptions provided in the pre-Act language Thus the plaintiffs were required to pay recordation tax on both the existing debt and the new debt when the loan

was refinanced

The case is relevant today because as previously mentioned the exemption for purchase money deeds of trust or mortgages was repealed by the Act leaving only the exemption for amounts not previously taxed under sect 45-923(a)(3) As we all agree the existing debt ofthe loan is exempt from recordation tax when it is first recorded according to sect 42-1102(5) [formerly 45-922(5)] But it is not exempt from recordation tax during a refinance because as the court held in 1137 19th Street Associates it has not been previously subject to recordation tax under

this paragraph or more specifically sect 45-923(a)(3)

Attachment A

( OffiCE BUILDING gtshy o

n

gtshy-0

o = omiddot- METROPOlITAN WASHINGTON

APARTMENT AND OFFICE BUILDING

ASSOCIATION of

METROPOUTAN WASHINGTON

TESTIMONY BEFORE

THE

COMMITTEE ON FINANCE AND REVENUE

COUNCIL OF THE DISTRICT OF COLUMBIA

ON

S~e 0 _

Jr(gt1] C r

7

BILL 13-586 THE TAX CLARITY ACT OF 2000 11

MARCH 6 2000

Presented By

David J Chitlik j CAE Director Lodging Sales and Property Tax Marriott Lodging

Co-Chairman AOSA Tax Policy Committee

Michael A Cain Esq Hamilton amp Hamilton LLP

W Shaun Pharr Esq AOBA Vice President of Government Affairs District of Columbia

1050 17th Street NW Washington DC 20036 Phone (202) 296-3390 III Fax (202) 296-3399 II E-Mail webmasteraoba-metroorg

I IRI httnllwwwhlob~-mftrnorn

Also please see the testimony from the District of Columbia Land Title Association (DLTA)

who opposed this specific provision of the Act arguing that

At present the District imposes recordation tax only on new debt when the

refinance takes out a purchase money security instrument Was the omission of

the purchase money exemption intentional in Bill J3-586 The loss ofavailability

offavorable tax treatment on refinances ofpurchase money mortgages places an

onerous tax burden on commercial property owners in the District ofColumbia (Attachment B)

Thus the legislative history of the Act is clear and is at odds with your unsupported contention

Those directly affected and experts in the field understood precisely what the plain language of the Act meant

3 Your Flawed Interpretation of Case Law Regarding the Refinance Exemption of Recordation Taxes

I am particularly troubled by your misapplication of1 J37 J9h Street Associates LP v District ofColumbia 769 A2d 155 (DC 2001) In your June 22 2011 response to Councilmember Evans you cite this case to support your belief that both before and after the Act

only the new debt over and above the existing debt is subject to recordation tax for commercial

property purchase money deeds of trust or mortgages at the time of a refinancing Your understanding of the courts holding in this case however is incomplete and leads you to the wrong conclusion

Contrary to your contention the court actually held that plaintiffs J J 37 J9h Street

Associates wer~ responsible for paying recordation taxes on both the existing debt and the new debt when they refinanced their loan The court took special care to note that the loan being refinanced by the plaintiffs was neither a purchase money deed of trust nor a purchase money

mortgage

The court held that the loan in question had not been subject to recordation tax under sect 45-923(a)(3) and therefore plaintiffs were responsible for paying recordation tax on both the existing debt and the new debt Far from supporting your contention the courts reasoning explains why OTR was responsible for collecting recordation taxes on both the existing debt and the new debt of commercial property purchase money loans when they were refinanced after the

enactment of the Act2

Though the refinance in 1137 19th Street Associates occurred prior the Act the courts reasoning is directly

relevant to the issue raised in my first correspondence As I noted in that letter and again here the pre-Act language contained two exemptions for the existing debt at the time ofa refinanciJtlg (1) for purchase money deeds of trust or mortgages or (2) for amounts previously subject to tax under this paragraph The first exemption the one for purchase money deeds of trust or mortgages was subsequently repealed by the Act Because the loan in question in

Finally in your response to my June 10 2011 letter you imply that the Act made no substantive changes to District tax law This is simply a ridiculous contention A quick reading of the Acts long title reveals that it was replete with changes to District tax policies In fact they are too numerous to list out in this letter

It is my opinion that the Council and the public deserve a full explanation of this matter Thus I will be requesting opinions on this matter from both the Districts Attorney General and the Councils General CounseL In the meantime as requested earlier please forward all documents that would evidence a change in the Districts interpretation and policy regarding the collection of recordation taxes on refinanced commercial property loans to my office by

Monday July 112011 If you have further questions about this request please contact my office at (202) 724-7772

Sincerely

ampamp~ David A Catania Councilmember At-Large Chair Committee on Health

cc Mayor Vincent Gray All Councilmembers

1137 19h Street Associates was neither a purchase money deed of trust or mortgage the courts analysis focused on the meaning ofsubject to taxation under this paragraph (language still in sect 45-923(a)(3) [now sect42-1103(a)(3)])

Plaintiffs argued that the DC Council intended for the term under this paragraph to encompass both the section and subsection The court disagreed and held that the recordation tax exemptions for a refmance of a commercial property loan were contained in a distinct paragraph (ie sect 45-923(a)(3)) and therefore the loan in question had not been previously subject to taxation under this paragraph Since the loan was not a purchase

money deed of trust or mortgage it was not eligible for either of the exemptions provided in the pre-Act language Thus the plaintiffs were required to pay recordation tax on both the existing debt and the new debt when the loan

was refinanced

The case is relevant today because as previously mentioned the exemption for purchase money deeds of trust or mortgages was repealed by the Act leaving only the exemption for amounts not previously taxed under sect 45-923(a)(3) As we all agree the existing debt ofthe loan is exempt from recordation tax when it is first recorded according to sect 42-1102(5) [formerly 45-922(5)] But it is not exempt from recordation tax during a refinance because as the court held in 1137 19th Street Associates it has not been previously subject to recordation tax under

this paragraph or more specifically sect 45-923(a)(3)

Attachment A

( OffiCE BUILDING gtshy o

n

gtshy-0

o = omiddot- METROPOlITAN WASHINGTON

APARTMENT AND OFFICE BUILDING

ASSOCIATION of

METROPOUTAN WASHINGTON

TESTIMONY BEFORE

THE

COMMITTEE ON FINANCE AND REVENUE

COUNCIL OF THE DISTRICT OF COLUMBIA

ON

S~e 0 _

Jr(gt1] C r

7

BILL 13-586 THE TAX CLARITY ACT OF 2000 11

MARCH 6 2000

Presented By

David J Chitlik j CAE Director Lodging Sales and Property Tax Marriott Lodging

Co-Chairman AOSA Tax Policy Committee

Michael A Cain Esq Hamilton amp Hamilton LLP

W Shaun Pharr Esq AOBA Vice President of Government Affairs District of Columbia

1050 17th Street NW Washington DC 20036 Phone (202) 296-3390 III Fax (202) 296-3399 II E-Mail webmasteraoba-metroorg

I IRI httnllwwwhlob~-mftrnorn

Finally in your response to my June 10 2011 letter you imply that the Act made no substantive changes to District tax law This is simply a ridiculous contention A quick reading of the Acts long title reveals that it was replete with changes to District tax policies In fact they are too numerous to list out in this letter

It is my opinion that the Council and the public deserve a full explanation of this matter Thus I will be requesting opinions on this matter from both the Districts Attorney General and the Councils General CounseL In the meantime as requested earlier please forward all documents that would evidence a change in the Districts interpretation and policy regarding the collection of recordation taxes on refinanced commercial property loans to my office by

Monday July 112011 If you have further questions about this request please contact my office at (202) 724-7772

Sincerely

ampamp~ David A Catania Councilmember At-Large Chair Committee on Health

cc Mayor Vincent Gray All Councilmembers

1137 19h Street Associates was neither a purchase money deed of trust or mortgage the courts analysis focused on the meaning ofsubject to taxation under this paragraph (language still in sect 45-923(a)(3) [now sect42-1103(a)(3)])

Plaintiffs argued that the DC Council intended for the term under this paragraph to encompass both the section and subsection The court disagreed and held that the recordation tax exemptions for a refmance of a commercial property loan were contained in a distinct paragraph (ie sect 45-923(a)(3)) and therefore the loan in question had not been previously subject to taxation under this paragraph Since the loan was not a purchase

money deed of trust or mortgage it was not eligible for either of the exemptions provided in the pre-Act language Thus the plaintiffs were required to pay recordation tax on both the existing debt and the new debt when the loan

was refinanced

The case is relevant today because as previously mentioned the exemption for purchase money deeds of trust or mortgages was repealed by the Act leaving only the exemption for amounts not previously taxed under sect 45-923(a)(3) As we all agree the existing debt ofthe loan is exempt from recordation tax when it is first recorded according to sect 42-1102(5) [formerly 45-922(5)] But it is not exempt from recordation tax during a refinance because as the court held in 1137 19th Street Associates it has not been previously subject to recordation tax under

this paragraph or more specifically sect 45-923(a)(3)

Attachment A

( OffiCE BUILDING gtshy o

n

gtshy-0

o = omiddot- METROPOlITAN WASHINGTON

APARTMENT AND OFFICE BUILDING

ASSOCIATION of

METROPOUTAN WASHINGTON

TESTIMONY BEFORE

THE

COMMITTEE ON FINANCE AND REVENUE

COUNCIL OF THE DISTRICT OF COLUMBIA

ON

S~e 0 _

Jr(gt1] C r

7

BILL 13-586 THE TAX CLARITY ACT OF 2000 11

MARCH 6 2000

Presented By

David J Chitlik j CAE Director Lodging Sales and Property Tax Marriott Lodging

Co-Chairman AOSA Tax Policy Committee

Michael A Cain Esq Hamilton amp Hamilton LLP

W Shaun Pharr Esq AOBA Vice President of Government Affairs District of Columbia

1050 17th Street NW Washington DC 20036 Phone (202) 296-3390 III Fax (202) 296-3399 II E-Mail webmasteraoba-metroorg

I IRI httnllwwwhlob~-mftrnorn

Attachment A

( OffiCE BUILDING gtshy o

n

gtshy-0

o = omiddot- METROPOlITAN WASHINGTON

APARTMENT AND OFFICE BUILDING

ASSOCIATION of

METROPOUTAN WASHINGTON

TESTIMONY BEFORE

THE

COMMITTEE ON FINANCE AND REVENUE

COUNCIL OF THE DISTRICT OF COLUMBIA

ON

S~e 0 _

Jr(gt1] C r

7

BILL 13-586 THE TAX CLARITY ACT OF 2000 11

MARCH 6 2000

Presented By

David J Chitlik j CAE Director Lodging Sales and Property Tax Marriott Lodging

Co-Chairman AOSA Tax Policy Committee

Michael A Cain Esq Hamilton amp Hamilton LLP

W Shaun Pharr Esq AOBA Vice President of Government Affairs District of Columbia

1050 17th Street NW Washington DC 20036 Phone (202) 296-3390 III Fax (202) 296-3399 II E-Mail webmasteraoba-metroorg

I IRI httnllwwwhlob~-mftrnorn

( OffiCE BUILDING gtshy o

n

gtshy-0

o = omiddot- METROPOlITAN WASHINGTON

APARTMENT AND OFFICE BUILDING

ASSOCIATION of

METROPOUTAN WASHINGTON

TESTIMONY BEFORE

THE

COMMITTEE ON FINANCE AND REVENUE

COUNCIL OF THE DISTRICT OF COLUMBIA

ON

S~e 0 _

Jr(gt1] C r

7

BILL 13-586 THE TAX CLARITY ACT OF 2000 11

MARCH 6 2000

Presented By

David J Chitlik j CAE Director Lodging Sales and Property Tax Marriott Lodging

Co-Chairman AOSA Tax Policy Committee

Michael A Cain Esq Hamilton amp Hamilton LLP

W Shaun Pharr Esq AOBA Vice President of Government Affairs District of Columbia

1050 17th Street NW Washington DC 20036 Phone (202) 296-3390 III Fax (202) 296-3399 II E-Mail webmasteraoba-metroorg

I IRI httnllwwwhlob~-mftrnorn

GOOD MORNING CHAIRMAN EVANS AND MEMBERS OF THE

COMMITTEE I AM DAVID l CHITLIK DIRECTOR LODGING SALES

AND PROPERTYmiddot TAX FOR MARRIOTT LODGING AND I AM COshy

CHAIRMAN OF THE TAX POLICY COMMITTEE OF THE APARTMENT

AND OFFICE BUILDING ASSOCIATION OF METROPOLITAN

WASHINGTON (AOBA) AS YOU KNOW AOBA IS A NON-PROFIT

TRADE ASSOCIATION REPRESENTING OWNERS AND MANAGERS OF

MORE THAN 35000 APARTMENT UNITS AND OVER 60 MILLION

SQUARE FEET OF OFFICE SPACE ~N THE DISTRICT I AM

ACCOMPANIED TODAY BY ATTORNEY MICHAEL A CAIN OF THE LAW

FIRM OF HAMILTON amp HAMILTON WHO IS A MEMBER OF OUR

COMMITTEE AND SHAUN PHARR AOBAS VICE PRESIDENT OF

GOVERNMENT AFFAIRS FOR THE DISTRICT

WE APPRECIATE THE OPPORTUNITY TO BE HERE TODAY TO SPEAK

TO BILL 13-586 THE TAX CLARITY ACT OF 2000 THE NEED FOR

GREATER CLARITY THROUGHOUT THE DISTRICTS TAX CODE IS

EVIDENT BY THE SIZE OF THE BILL ITSELF AOBA COMMENDS THE

OFFICE OF TAX AND REVENUE (OTR) FOR TA~ING THE INITIATIVE

AND DEVELOPING THE EARLY DRAFTS OF THE ACT OUR COMMITTEE

WAS PLEASED TO HAVE HAD EXTENSIVE DISCUSSIONS WITH OT~

STAFF ABOUT MANY OF THE REAL PROPERTY TAX PROVISIONS AND

A NUMBER OF REVISIONS AND CL~RIFICATIONS RESULTED FROM

THOSE DISCUSSIONS WE MUST ALSO HOWEVER COMMEND YOU

AND YOUR MANY CO-SPONSO~S CHAIRMAN EVANS FOR NOT

ALLOWING THOSE EFFORTS TO LANGUISH BY INTRODUCING TH E

LEGISLATION YOURSELF TO ENSURE THAT IT RECEIVES TIMELY

CONSIDERATION

EVEN THE MOST REASONABLE MINDS WILL DIFFER MR CHAIRMAN

ABOUT WHETHER THIS PROVISION OR THAT ONE IS TRULY AN

IMPROVEMENT OVER WHAT IS IN THE EXISTING CODE OR ISA

CONCISE REFLECTION OF AN ACTUAL PRACTICE WHICH HAS NEVER

BEEN BUT PERHAPS SHOULD BE CODIFIED OTHER PROVISIONS~

OFFERED IN THE NAME OF CLARITY MAY BE SEEN BY OTHERS AS AN

EXPANSION OR CONTRACTION OF THE RIGHTS OF TAXPAYERS OR

OF THE GOVERNMENT THIS BILL IS NO EXCEPTION RATHER THAN

TAKE TIME TODAY TO ENUMERATE AND EXPLAIN ALL OF THE

PROVISI~N~ WHICH WE THINK MIGHT STILL BE IMPROVEDUPON

AOBA PllOPOSES TO SUBMIT FOR THECOMMITrEES

CONSIDERATION ITS OWN REDRAFT OF THE SAME REAL PROPERTY

TAX SECTIONS OF THE CODE WHICH ARE CONTAINED IN THE BILL

WE REGRET THAT WE COULD NOT DO SO TODAY BUT ASSURE YOU

WE WILL DO SO BEFORE THE RECORD CLOSES THIS MORNING

THJN OUR TESTIMONY WILL SPEAK MAINLY TO SOME OF THE

MAJOR CONCERNS WE HAVE ABOUT CERTAIN PROVISIONS IN BILL

13~586

1 USE OF CONFIDENTIAL OR PROPRIETARY THIRD~PARTY TAXPAYER INFORMATION TO SUPPORT A CHALLENGED ASSESSMENT SHOULD NOT BE PERMITTED

ON PAGE 93 OF TH E BILLOTR SEEKS THE RIGHT-iTO SUBMIT

CONFIDENTIAL RECORDS OF OTHER PROPERTIES TO THE BOARD OF

REAL PROPERTY ASSESSMENT APPEALS (BRPAA) CHAIRMAN 0i=t IN

SUPERIOR COURT AS EVIDENCE SUPPORTING THE CHALLENGED

ASSESSMENT THE AMENDMENTS WOULD PERMIT OTR TO SUBMIT

CONFIDENTIAL THIRD-PARTY TAXPAYER INCOMEEXPENSE AND

PROPRIETARY INFORMATION (eg TENANT LEASING

INFORMATION) FROM WHAT IT CONSIDERS COMPARABLE

PROPERTIES TO SUPPORT AN ASSESSMENT FAIRNESS WOULD

REQUIRE THAr SUCH INFORMATION ALSO BE PROVIDED TO THE

TAXPAYER CHALLENGING THE ASSESSMENT DOING SO HOWEVER

2

WOULD THEN BREACH THE VERY PROMISE OF STRICT

CONFIDENTIALITY WHICH THIS GOVERNMENT ~XTENDED DECADES

AGO WHEN IT BEGAN REQUIRING PROPERTY OWNERS TO PROVIDE

THEIR MOST SENSITIVE BUSmiddotINESS INFORMATION TO DISTRICT

ASSESSORS OTR CAN AND DOES EFFECTIVELY SUPPORT ITS

ASSESSMENTS THROUGH THE USE OF COMPARABLE SALES

INfORMATION INCOMEEXPENSE STUDIES IN NON-IDENTIFIABLE

TAXPAYER FORMAT AND THROUGH CONSTRUCTION COST

INFORMATION THERE IS SIMPLY NO COMPELLING NEED FOR IT TO

RELEASE TAXPAYER SPECIFIC INCOMEEXPENSE AND PROPRIETARY

INFORMATION

MOREOVER IN LIGHT OF THE INFORMATION INVOLVED THE

COUNCIL HAS FELT THAT -rHE PRINCIPLE OF ENSURING STRICT

CONFIDENTIALITY UND~R PENALTY Of LAW IS WORTHY OF

EMPHASIS THROUGH REPETITION THE BILL HOWEVER WOULD

ELIMINATE IT FR~M SEC 47-820 (d) WE OP~OSE THIS AND ALSO

SUGGEST THAT THE FINE FOR DISCLOSING CONFIDENTIAL

INfORMATION BE INCREASED TO $10000

2 DISTRICT POLICY REGARDING PHASE-IN OFmiddotINCREASES RESULTING fROM SUPPLEMENTAL ASSESSMENTS SHOULD BE EXPLICIT

THE PROPOSED LEGISLATION StiOULD EXPLICITLY PROVIDE THAT

S~PPLEMENTAL INCREASES IN ASSESSED VALUE LIKE INCREASES

AS A RESULT OF REGULARLY TIMED REASSESSMENTS WILL BE

PHASED IN WHILE SOME OTR OFFICIALS HAVE INDICATED THAT

THIS IS ITS POLICY IT ISNOT CLEARTHATTHIS PRACTICE IS

CONSISTENTLY FOLLOWED BY ALL ASSESSORS AND THERE IS

UNCERTAINTY ABOUT IT AMONG PROPERTY OWNERS AND TAX

PRACTITIONERS THE POINT COULD AND SHOULD BE CLARIFIED

3

bull

3 CURRENT POLICY ADOPrED BY THE COUNCIL REGARDING SUPPLEMENTAL ASSESSMENTS SHOULD NOT BE CHANGED

THE BILL WOULD AMEND SEC 47-829 (p 96) SO THAT ANY AMOUNT

OF CONSTRUCTION (ie MERE ISSUANCE OF A BUILDING PERMIT)

COULD BE GROUNDS FORA REASSESSMENT THE EXISTING RULE

ADOPTED BY THE COUNCIL-65 0o OF WORK COMPLETION AND

CHANGE OF $100000 OR MORE IN MARKET VALUE-SHOULD BE

MAINTAINED

4 CURRENT POLICY REGARDING A TAXPAYERS RIGHT TO OUTshyOF- CYCLE APPEAL SHOULD BE MAINTAINED PROVISIONS IN THE BILL ARE AWKWARDLY WORDED

SUBSECTION (u) OF THE PROPOSED LEGISLATION (p 91) SEEKS TO

ADo A PARAGRAPH (E) WHICH PROVIDES TAXPAYERS WITH THE

RIGHT TO BRING AN APPEAL OF A PROPERTYS ASSESSMENT EACH

YEAR WHILE THIS PROVISION WOULD APPEAR INTENDED TO

PERMIT APPEALS eVEN IN THOSE YEARS IN WHICH A PROPERTY IS

NOT DUE FOR REASSESSMENT UNDER THE TRIENNIAL SYSTEM IT IS

AWKWARDLY WORDED AND NOT SUFFICIENTLY CLEAR THE LAW

SHOULD BE CLEAR AS TO THE RIGHT AND THAT ANY CHANGE IN

ASSESSMENT REALIZED AS A RESULT OF AN OUT- OF- CYCLE APPEAL

SHOULD ONLY APPLY TO THE YEAR AT ISSUE AND CARRY OVER TO

ANY REMAINING YEARS LEFT IN THE PROPERTYS TRIENNIAL CYCLE

5 EQUALIZATION AND VALUATION SHOULD BE MAINTAINED AS INDEPENDENT BASES FOR APPEALING AN ASSESSMENT

THE BILL CONSlSTENTLY ELIMINATES THESE TWO GROUNDS FOR

APPEAL EVEN THOUGH THEY HAVE BEEN IN tHE DISTRICTS CODe

4

FOR DECADES AND ARE COMMON IN VIRTUAILY EVERY OTHER US

JURISDICTION

6 REFUND OR CREDIT SHOULD BE AT THE TAXPAYERS OPTION WITH INTEREST FROM DATE OF OVERPAYMENT

THE BILL CREATES A NEW SECTION AUTHORIZING THE MAYOR TO

EITHER REFUND OR CRED1T AN OVERPAYMENT AGAINST ANY OTHER

REAL PROPERTY TAX LIABILITY OF THE SAME PROPERTY AND

WOULD NOT OBLIGE THE DISTRICT TO PAY INTEREST UNTIL NINETY

(90) DAYS AFTER RECEIPT OF A CLAIM FOR CREDIT OR REFUND

AOBA BELIEVES THE CREDIT OPTION SHOULD BE THE TAXPAYERS

AND THAT REFUNDS AND CREUITS SHOULD BEAR INTEREST FROM

THE DATE OF THE OVERPAYMENT-- JUST AS THE DISTRICT CHARGES

TAXPAYERS WITH PENALTIES AND INTEREST FROM THE PAYMeNT

DUE DATE THERE IS NO REASON WHY THE DISTRICT SHOULD GET

FREE USE OF A TAXPAYERS MONEY FOR THIS PERIOD IF IT HAP NO

RIGHT TO IT IN THE FIRST PLACE

7 THE PROPOSED AMENDMENT TO THE RECORDATION TAX ON

SECURITY INSTRUMENTS SHOULD BE REVISED

WE BELIEVE THREE PARTICLILAR CHANGES SHOULD BE MADE TO THE

PROPOSED STATUTORY LANGUAGE (po 113 SEC 4S-923(A)3raquo

RELATING TO THE TAX ON REFINANCINGS FIRST THE PROPOSED

LANGUAGE ONLY APPLIES A REFINANCING CREDIT TO THE

REFINANCING OF A DEBT FOR THE FIRST TIME THUS WHILE

TAXES PAID TOWARD INITIAL REFINANCING WOULD BE CREDITED

SUBSEQUENT REFINANCINGS WOULD NOT BE SUBJECT TO CREDIT

FOR TAXES PREVIOUSLY PAID YET MULTIPLE REfINANCINGS ARE

COMMONPLACE AND SHOULD NOT BE SUBJECT TO LOSS OF TAX

5

IMPROVEMENT OVER WHAT IS IN THE EXISTING CODE OR ISA

CONCISE REFLECTION OF AN ACTUAL PRACTICE WHICH HAS NEVER

BEEN BUT PERHAPS SHOULD BE CODIFIED OTHER PROVISIONS~

OFFERED IN THE NAME OF CLARITY MAY BE SEEN BY OTHERS AS AN

EXPANSION OR CONTRACTION OF THE RIGHTS OF TAXPAYERS OR

OF THE GOVERNMENT THIS BILL IS NO EXCEPTION RATHER THAN

TAKE TIME TODAY TO ENUMERATE AND EXPLAIN ALL OF THE

PROVISI~N~ WHICH WE THINK MIGHT STILL BE IMPROVEDUPON

AOBA PllOPOSES TO SUBMIT FOR THECOMMITrEES

CONSIDERATION ITS OWN REDRAFT OF THE SAME REAL PROPERTY

TAX SECTIONS OF THE CODE WHICH ARE CONTAINED IN THE BILL

WE REGRET THAT WE COULD NOT DO SO TODAY BUT ASSURE YOU

WE WILL DO SO BEFORE THE RECORD CLOSES THIS MORNING

THJN OUR TESTIMONY WILL SPEAK MAINLY TO SOME OF THE

MAJOR CONCERNS WE HAVE ABOUT CERTAIN PROVISIONS IN BILL

13~586

1 USE OF CONFIDENTIAL OR PROPRIETARY THIRD~PARTY TAXPAYER INFORMATION TO SUPPORT A CHALLENGED ASSESSMENT SHOULD NOT BE PERMITTED

ON PAGE 93 OF TH E BILLOTR SEEKS THE RIGHT-iTO SUBMIT

CONFIDENTIAL RECORDS OF OTHER PROPERTIES TO THE BOARD OF

REAL PROPERTY ASSESSMENT APPEALS (BRPAA) CHAIRMAN 0i=t IN

SUPERIOR COURT AS EVIDENCE SUPPORTING THE CHALLENGED

ASSESSMENT THE AMENDMENTS WOULD PERMIT OTR TO SUBMIT

CONFIDENTIAL THIRD-PARTY TAXPAYER INCOMEEXPENSE AND

PROPRIETARY INFORMATION (eg TENANT LEASING

INFORMATION) FROM WHAT IT CONSIDERS COMPARABLE

PROPERTIES TO SUPPORT AN ASSESSMENT FAIRNESS WOULD

REQUIRE THAr SUCH INFORMATION ALSO BE PROVIDED TO THE

TAXPAYER CHALLENGING THE ASSESSMENT DOING SO HOWEVER

2

WOULD THEN BREACH THE VERY PROMISE OF STRICT

CONFIDENTIALITY WHICH THIS GOVERNMENT ~XTENDED DECADES

AGO WHEN IT BEGAN REQUIRING PROPERTY OWNERS TO PROVIDE

THEIR MOST SENSITIVE BUSmiddotINESS INFORMATION TO DISTRICT

ASSESSORS OTR CAN AND DOES EFFECTIVELY SUPPORT ITS

ASSESSMENTS THROUGH THE USE OF COMPARABLE SALES

INfORMATION INCOMEEXPENSE STUDIES IN NON-IDENTIFIABLE

TAXPAYER FORMAT AND THROUGH CONSTRUCTION COST

INFORMATION THERE IS SIMPLY NO COMPELLING NEED FOR IT TO

RELEASE TAXPAYER SPECIFIC INCOMEEXPENSE AND PROPRIETARY

INFORMATION

MOREOVER IN LIGHT OF THE INFORMATION INVOLVED THE

COUNCIL HAS FELT THAT -rHE PRINCIPLE OF ENSURING STRICT

CONFIDENTIALITY UND~R PENALTY Of LAW IS WORTHY OF

EMPHASIS THROUGH REPETITION THE BILL HOWEVER WOULD

ELIMINATE IT FR~M SEC 47-820 (d) WE OP~OSE THIS AND ALSO

SUGGEST THAT THE FINE FOR DISCLOSING CONFIDENTIAL

INfORMATION BE INCREASED TO $10000

2 DISTRICT POLICY REGARDING PHASE-IN OFmiddotINCREASES RESULTING fROM SUPPLEMENTAL ASSESSMENTS SHOULD BE EXPLICIT

THE PROPOSED LEGISLATION StiOULD EXPLICITLY PROVIDE THAT

S~PPLEMENTAL INCREASES IN ASSESSED VALUE LIKE INCREASES

AS A RESULT OF REGULARLY TIMED REASSESSMENTS WILL BE

PHASED IN WHILE SOME OTR OFFICIALS HAVE INDICATED THAT

THIS IS ITS POLICY IT ISNOT CLEARTHATTHIS PRACTICE IS

CONSISTENTLY FOLLOWED BY ALL ASSESSORS AND THERE IS

UNCERTAINTY ABOUT IT AMONG PROPERTY OWNERS AND TAX

PRACTITIONERS THE POINT COULD AND SHOULD BE CLARIFIED

3

bull

3 CURRENT POLICY ADOPrED BY THE COUNCIL REGARDING SUPPLEMENTAL ASSESSMENTS SHOULD NOT BE CHANGED

THE BILL WOULD AMEND SEC 47-829 (p 96) SO THAT ANY AMOUNT

OF CONSTRUCTION (ie MERE ISSUANCE OF A BUILDING PERMIT)

COULD BE GROUNDS FORA REASSESSMENT THE EXISTING RULE

ADOPTED BY THE COUNCIL-65 0o OF WORK COMPLETION AND

CHANGE OF $100000 OR MORE IN MARKET VALUE-SHOULD BE

MAINTAINED

4 CURRENT POLICY REGARDING A TAXPAYERS RIGHT TO OUTshyOF- CYCLE APPEAL SHOULD BE MAINTAINED PROVISIONS IN THE BILL ARE AWKWARDLY WORDED

SUBSECTION (u) OF THE PROPOSED LEGISLATION (p 91) SEEKS TO

ADo A PARAGRAPH (E) WHICH PROVIDES TAXPAYERS WITH THE

RIGHT TO BRING AN APPEAL OF A PROPERTYS ASSESSMENT EACH

YEAR WHILE THIS PROVISION WOULD APPEAR INTENDED TO

PERMIT APPEALS eVEN IN THOSE YEARS IN WHICH A PROPERTY IS

NOT DUE FOR REASSESSMENT UNDER THE TRIENNIAL SYSTEM IT IS

AWKWARDLY WORDED AND NOT SUFFICIENTLY CLEAR THE LAW

SHOULD BE CLEAR AS TO THE RIGHT AND THAT ANY CHANGE IN

ASSESSMENT REALIZED AS A RESULT OF AN OUT- OF- CYCLE APPEAL

SHOULD ONLY APPLY TO THE YEAR AT ISSUE AND CARRY OVER TO

ANY REMAINING YEARS LEFT IN THE PROPERTYS TRIENNIAL CYCLE

5 EQUALIZATION AND VALUATION SHOULD BE MAINTAINED AS INDEPENDENT BASES FOR APPEALING AN ASSESSMENT

THE BILL CONSlSTENTLY ELIMINATES THESE TWO GROUNDS FOR

APPEAL EVEN THOUGH THEY HAVE BEEN IN tHE DISTRICTS CODe

4

FOR DECADES AND ARE COMMON IN VIRTUAILY EVERY OTHER US

JURISDICTION

6 REFUND OR CREDIT SHOULD BE AT THE TAXPAYERS OPTION WITH INTEREST FROM DATE OF OVERPAYMENT

THE BILL CREATES A NEW SECTION AUTHORIZING THE MAYOR TO

EITHER REFUND OR CRED1T AN OVERPAYMENT AGAINST ANY OTHER

REAL PROPERTY TAX LIABILITY OF THE SAME PROPERTY AND

WOULD NOT OBLIGE THE DISTRICT TO PAY INTEREST UNTIL NINETY

(90) DAYS AFTER RECEIPT OF A CLAIM FOR CREDIT OR REFUND

AOBA BELIEVES THE CREDIT OPTION SHOULD BE THE TAXPAYERS

AND THAT REFUNDS AND CREUITS SHOULD BEAR INTEREST FROM

THE DATE OF THE OVERPAYMENT-- JUST AS THE DISTRICT CHARGES

TAXPAYERS WITH PENALTIES AND INTEREST FROM THE PAYMeNT

DUE DATE THERE IS NO REASON WHY THE DISTRICT SHOULD GET

FREE USE OF A TAXPAYERS MONEY FOR THIS PERIOD IF IT HAP NO

RIGHT TO IT IN THE FIRST PLACE

7 THE PROPOSED AMENDMENT TO THE RECORDATION TAX ON

SECURITY INSTRUMENTS SHOULD BE REVISED

WE BELIEVE THREE PARTICLILAR CHANGES SHOULD BE MADE TO THE

PROPOSED STATUTORY LANGUAGE (po 113 SEC 4S-923(A)3raquo

RELATING TO THE TAX ON REFINANCINGS FIRST THE PROPOSED

LANGUAGE ONLY APPLIES A REFINANCING CREDIT TO THE

REFINANCING OF A DEBT FOR THE FIRST TIME THUS WHILE

TAXES PAID TOWARD INITIAL REFINANCING WOULD BE CREDITED

SUBSEQUENT REFINANCINGS WOULD NOT BE SUBJECT TO CREDIT

FOR TAXES PREVIOUSLY PAID YET MULTIPLE REfINANCINGS ARE

COMMONPLACE AND SHOULD NOT BE SUBJECT TO LOSS OF TAX

5

WOULD THEN BREACH THE VERY PROMISE OF STRICT

CONFIDENTIALITY WHICH THIS GOVERNMENT ~XTENDED DECADES

AGO WHEN IT BEGAN REQUIRING PROPERTY OWNERS TO PROVIDE

THEIR MOST SENSITIVE BUSmiddotINESS INFORMATION TO DISTRICT

ASSESSORS OTR CAN AND DOES EFFECTIVELY SUPPORT ITS

ASSESSMENTS THROUGH THE USE OF COMPARABLE SALES

INfORMATION INCOMEEXPENSE STUDIES IN NON-IDENTIFIABLE

TAXPAYER FORMAT AND THROUGH CONSTRUCTION COST

INFORMATION THERE IS SIMPLY NO COMPELLING NEED FOR IT TO

RELEASE TAXPAYER SPECIFIC INCOMEEXPENSE AND PROPRIETARY

INFORMATION

MOREOVER IN LIGHT OF THE INFORMATION INVOLVED THE

COUNCIL HAS FELT THAT -rHE PRINCIPLE OF ENSURING STRICT

CONFIDENTIALITY UND~R PENALTY Of LAW IS WORTHY OF

EMPHASIS THROUGH REPETITION THE BILL HOWEVER WOULD

ELIMINATE IT FR~M SEC 47-820 (d) WE OP~OSE THIS AND ALSO

SUGGEST THAT THE FINE FOR DISCLOSING CONFIDENTIAL

INfORMATION BE INCREASED TO $10000

2 DISTRICT POLICY REGARDING PHASE-IN OFmiddotINCREASES RESULTING fROM SUPPLEMENTAL ASSESSMENTS SHOULD BE EXPLICIT

THE PROPOSED LEGISLATION StiOULD EXPLICITLY PROVIDE THAT

S~PPLEMENTAL INCREASES IN ASSESSED VALUE LIKE INCREASES

AS A RESULT OF REGULARLY TIMED REASSESSMENTS WILL BE

PHASED IN WHILE SOME OTR OFFICIALS HAVE INDICATED THAT

THIS IS ITS POLICY IT ISNOT CLEARTHATTHIS PRACTICE IS

CONSISTENTLY FOLLOWED BY ALL ASSESSORS AND THERE IS

UNCERTAINTY ABOUT IT AMONG PROPERTY OWNERS AND TAX

PRACTITIONERS THE POINT COULD AND SHOULD BE CLARIFIED

3

bull

3 CURRENT POLICY ADOPrED BY THE COUNCIL REGARDING SUPPLEMENTAL ASSESSMENTS SHOULD NOT BE CHANGED

THE BILL WOULD AMEND SEC 47-829 (p 96) SO THAT ANY AMOUNT

OF CONSTRUCTION (ie MERE ISSUANCE OF A BUILDING PERMIT)

COULD BE GROUNDS FORA REASSESSMENT THE EXISTING RULE

ADOPTED BY THE COUNCIL-65 0o OF WORK COMPLETION AND

CHANGE OF $100000 OR MORE IN MARKET VALUE-SHOULD BE

MAINTAINED

4 CURRENT POLICY REGARDING A TAXPAYERS RIGHT TO OUTshyOF- CYCLE APPEAL SHOULD BE MAINTAINED PROVISIONS IN THE BILL ARE AWKWARDLY WORDED

SUBSECTION (u) OF THE PROPOSED LEGISLATION (p 91) SEEKS TO

ADo A PARAGRAPH (E) WHICH PROVIDES TAXPAYERS WITH THE

RIGHT TO BRING AN APPEAL OF A PROPERTYS ASSESSMENT EACH

YEAR WHILE THIS PROVISION WOULD APPEAR INTENDED TO

PERMIT APPEALS eVEN IN THOSE YEARS IN WHICH A PROPERTY IS

NOT DUE FOR REASSESSMENT UNDER THE TRIENNIAL SYSTEM IT IS

AWKWARDLY WORDED AND NOT SUFFICIENTLY CLEAR THE LAW

SHOULD BE CLEAR AS TO THE RIGHT AND THAT ANY CHANGE IN

ASSESSMENT REALIZED AS A RESULT OF AN OUT- OF- CYCLE APPEAL

SHOULD ONLY APPLY TO THE YEAR AT ISSUE AND CARRY OVER TO

ANY REMAINING YEARS LEFT IN THE PROPERTYS TRIENNIAL CYCLE

5 EQUALIZATION AND VALUATION SHOULD BE MAINTAINED AS INDEPENDENT BASES FOR APPEALING AN ASSESSMENT

THE BILL CONSlSTENTLY ELIMINATES THESE TWO GROUNDS FOR

APPEAL EVEN THOUGH THEY HAVE BEEN IN tHE DISTRICTS CODe

4

FOR DECADES AND ARE COMMON IN VIRTUAILY EVERY OTHER US

JURISDICTION

6 REFUND OR CREDIT SHOULD BE AT THE TAXPAYERS OPTION WITH INTEREST FROM DATE OF OVERPAYMENT

THE BILL CREATES A NEW SECTION AUTHORIZING THE MAYOR TO

EITHER REFUND OR CRED1T AN OVERPAYMENT AGAINST ANY OTHER

REAL PROPERTY TAX LIABILITY OF THE SAME PROPERTY AND

WOULD NOT OBLIGE THE DISTRICT TO PAY INTEREST UNTIL NINETY

(90) DAYS AFTER RECEIPT OF A CLAIM FOR CREDIT OR REFUND

AOBA BELIEVES THE CREDIT OPTION SHOULD BE THE TAXPAYERS

AND THAT REFUNDS AND CREUITS SHOULD BEAR INTEREST FROM

THE DATE OF THE OVERPAYMENT-- JUST AS THE DISTRICT CHARGES

TAXPAYERS WITH PENALTIES AND INTEREST FROM THE PAYMeNT

DUE DATE THERE IS NO REASON WHY THE DISTRICT SHOULD GET

FREE USE OF A TAXPAYERS MONEY FOR THIS PERIOD IF IT HAP NO

RIGHT TO IT IN THE FIRST PLACE

7 THE PROPOSED AMENDMENT TO THE RECORDATION TAX ON

SECURITY INSTRUMENTS SHOULD BE REVISED

WE BELIEVE THREE PARTICLILAR CHANGES SHOULD BE MADE TO THE

PROPOSED STATUTORY LANGUAGE (po 113 SEC 4S-923(A)3raquo

RELATING TO THE TAX ON REFINANCINGS FIRST THE PROPOSED

LANGUAGE ONLY APPLIES A REFINANCING CREDIT TO THE

REFINANCING OF A DEBT FOR THE FIRST TIME THUS WHILE

TAXES PAID TOWARD INITIAL REFINANCING WOULD BE CREDITED

SUBSEQUENT REFINANCINGS WOULD NOT BE SUBJECT TO CREDIT

FOR TAXES PREVIOUSLY PAID YET MULTIPLE REfINANCINGS ARE

COMMONPLACE AND SHOULD NOT BE SUBJECT TO LOSS OF TAX

5

3 CURRENT POLICY ADOPrED BY THE COUNCIL REGARDING SUPPLEMENTAL ASSESSMENTS SHOULD NOT BE CHANGED

THE BILL WOULD AMEND SEC 47-829 (p 96) SO THAT ANY AMOUNT

OF CONSTRUCTION (ie MERE ISSUANCE OF A BUILDING PERMIT)

COULD BE GROUNDS FORA REASSESSMENT THE EXISTING RULE

ADOPTED BY THE COUNCIL-65 0o OF WORK COMPLETION AND

CHANGE OF $100000 OR MORE IN MARKET VALUE-SHOULD BE

MAINTAINED

4 CURRENT POLICY REGARDING A TAXPAYERS RIGHT TO OUTshyOF- CYCLE APPEAL SHOULD BE MAINTAINED PROVISIONS IN THE BILL ARE AWKWARDLY WORDED

SUBSECTION (u) OF THE PROPOSED LEGISLATION (p 91) SEEKS TO

ADo A PARAGRAPH (E) WHICH PROVIDES TAXPAYERS WITH THE

RIGHT TO BRING AN APPEAL OF A PROPERTYS ASSESSMENT EACH

YEAR WHILE THIS PROVISION WOULD APPEAR INTENDED TO

PERMIT APPEALS eVEN IN THOSE YEARS IN WHICH A PROPERTY IS

NOT DUE FOR REASSESSMENT UNDER THE TRIENNIAL SYSTEM IT IS

AWKWARDLY WORDED AND NOT SUFFICIENTLY CLEAR THE LAW

SHOULD BE CLEAR AS TO THE RIGHT AND THAT ANY CHANGE IN

ASSESSMENT REALIZED AS A RESULT OF AN OUT- OF- CYCLE APPEAL

SHOULD ONLY APPLY TO THE YEAR AT ISSUE AND CARRY OVER TO

ANY REMAINING YEARS LEFT IN THE PROPERTYS TRIENNIAL CYCLE

5 EQUALIZATION AND VALUATION SHOULD BE MAINTAINED AS INDEPENDENT BASES FOR APPEALING AN ASSESSMENT

THE BILL CONSlSTENTLY ELIMINATES THESE TWO GROUNDS FOR

APPEAL EVEN THOUGH THEY HAVE BEEN IN tHE DISTRICTS CODe

4

FOR DECADES AND ARE COMMON IN VIRTUAILY EVERY OTHER US

JURISDICTION

6 REFUND OR CREDIT SHOULD BE AT THE TAXPAYERS OPTION WITH INTEREST FROM DATE OF OVERPAYMENT

THE BILL CREATES A NEW SECTION AUTHORIZING THE MAYOR TO

EITHER REFUND OR CRED1T AN OVERPAYMENT AGAINST ANY OTHER

REAL PROPERTY TAX LIABILITY OF THE SAME PROPERTY AND

WOULD NOT OBLIGE THE DISTRICT TO PAY INTEREST UNTIL NINETY

(90) DAYS AFTER RECEIPT OF A CLAIM FOR CREDIT OR REFUND

AOBA BELIEVES THE CREDIT OPTION SHOULD BE THE TAXPAYERS

AND THAT REFUNDS AND CREUITS SHOULD BEAR INTEREST FROM

THE DATE OF THE OVERPAYMENT-- JUST AS THE DISTRICT CHARGES

TAXPAYERS WITH PENALTIES AND INTEREST FROM THE PAYMeNT

DUE DATE THERE IS NO REASON WHY THE DISTRICT SHOULD GET

FREE USE OF A TAXPAYERS MONEY FOR THIS PERIOD IF IT HAP NO

RIGHT TO IT IN THE FIRST PLACE

7 THE PROPOSED AMENDMENT TO THE RECORDATION TAX ON

SECURITY INSTRUMENTS SHOULD BE REVISED

WE BELIEVE THREE PARTICLILAR CHANGES SHOULD BE MADE TO THE

PROPOSED STATUTORY LANGUAGE (po 113 SEC 4S-923(A)3raquo

RELATING TO THE TAX ON REFINANCINGS FIRST THE PROPOSED

LANGUAGE ONLY APPLIES A REFINANCING CREDIT TO THE

REFINANCING OF A DEBT FOR THE FIRST TIME THUS WHILE

TAXES PAID TOWARD INITIAL REFINANCING WOULD BE CREDITED

SUBSEQUENT REFINANCINGS WOULD NOT BE SUBJECT TO CREDIT

FOR TAXES PREVIOUSLY PAID YET MULTIPLE REfINANCINGS ARE

COMMONPLACE AND SHOULD NOT BE SUBJECT TO LOSS OF TAX

5

FOR DECADES AND ARE COMMON IN VIRTUAILY EVERY OTHER US

JURISDICTION

6 REFUND OR CREDIT SHOULD BE AT THE TAXPAYERS OPTION WITH INTEREST FROM DATE OF OVERPAYMENT

THE BILL CREATES A NEW SECTION AUTHORIZING THE MAYOR TO

EITHER REFUND OR CRED1T AN OVERPAYMENT AGAINST ANY OTHER

REAL PROPERTY TAX LIABILITY OF THE SAME PROPERTY AND

WOULD NOT OBLIGE THE DISTRICT TO PAY INTEREST UNTIL NINETY

(90) DAYS AFTER RECEIPT OF A CLAIM FOR CREDIT OR REFUND

AOBA BELIEVES THE CREDIT OPTION SHOULD BE THE TAXPAYERS

AND THAT REFUNDS AND CREUITS SHOULD BEAR INTEREST FROM

THE DATE OF THE OVERPAYMENT-- JUST AS THE DISTRICT CHARGES

TAXPAYERS WITH PENALTIES AND INTEREST FROM THE PAYMeNT

DUE DATE THERE IS NO REASON WHY THE DISTRICT SHOULD GET

FREE USE OF A TAXPAYERS MONEY FOR THIS PERIOD IF IT HAP NO

RIGHT TO IT IN THE FIRST PLACE

7 THE PROPOSED AMENDMENT TO THE RECORDATION TAX ON

SECURITY INSTRUMENTS SHOULD BE REVISED

WE BELIEVE THREE PARTICLILAR CHANGES SHOULD BE MADE TO THE

PROPOSED STATUTORY LANGUAGE (po 113 SEC 4S-923(A)3raquo

RELATING TO THE TAX ON REFINANCINGS FIRST THE PROPOSED

LANGUAGE ONLY APPLIES A REFINANCING CREDIT TO THE

REFINANCING OF A DEBT FOR THE FIRST TIME THUS WHILE

TAXES PAID TOWARD INITIAL REFINANCING WOULD BE CREDITED

SUBSEQUENT REFINANCINGS WOULD NOT BE SUBJECT TO CREDIT

FOR TAXES PREVIOUSLY PAID YET MULTIPLE REfINANCINGS ARE

COMMONPLACE AND SHOULD NOT BE SUBJECT TO LOSS OF TAX

5

CREDITS ACCORDINGLY THE PHRASE FOR THE FIRST TIME

SHOULD BE DELEtED

SECOND THE PROPOSID LANGUAGE APPEARS TO PROVIDE THAT ~ FOR REFINANCINGS THEAMOUNT TAXED IS THE NEW DEBT OVER

THE UNPAID PRINCIPAL AMOUNT THEN DUE THE TAX LEVY SHOULD

BE BASED ONLY ON INCREASES OVER THE ORIGINAL DEBT NOT ON

THE UNPAID PRINCIPAL AMOUNT THEN DUE SINCE THE INITIAL

TAX PAID WAS BASED UPON THE FULL AMOUNT OF THE ORIGINAL

DEBT FINALLY THE PROPOSED LANGUAGE WOULD PERMIT THE---- FULL RECORDATION TAX TO BE APPLIED TO THE ENTIRE AMOUNT

R~THE EXISTING DEBT WAS NOt SUBJECT TO - ---------- ---- ~--~-

RECORDATION TAX WE WOULD SUGGEST ELIMINATING THIS ~ n C _ _--

CATCH-UP PROVISION FOR OLD DEBT THAT IS NOW BEING

REFINANCED

FINALLY CHAIRMAN EVANS I WANT TO BRIEFLY RETURN TO A FEW

POINTS WHICH AOBA AND DC BIA MADE IN THEIR JOINT

TESTIMONY BEFORE THIS COMMITTEES OVERSIGHT HEARING ON

FEBRUARY 25

EX PARTE COMMUNICATIONS WITH MEMBERS OF THE BRPAA

THIS IS A SERIOUS PROBLEM WHICH CONTINUES TO OCCUR IN

PART WE BELIEVE BECAUSE IT is NOT CURRENTLY ADDRESSED BY

STATUTE AOBA BELIEVES THAT A STATUTORY PROHIBITION OF EX

PARTE CONTACTS WHICH INCLUDES PENALTIES FOR BOARD

MEMBERS TAXPAYERS AND GOVERNMENT eMPLOYEES FOUND TO

HAVE ENGAGED IN THEM SHOULD BE INCLUDED IN THE TAX

CLARITY ACT

6

bull BRPAA RULES AND OTR RULES

IT WILL HAVE BEEN THREE YEARS THIS JULY SINCE THE COUNCIL

ADOPTED LAW 12-40 WHICH CREATED THE TRIENNIAL

ASSESSMENT SYSTEM ASSESSOR-LEVEL REVIEW AND MADE OTHER

SIGNIFlCANT REVISIONS IN THE DISTRICTS ASSESSMENT SCHEME

YET NEITHER THE BRPAA OR OTR HAS ADOPTED RULES WHICH

INFORM AND GUIDE TAXPAYERS IN ANY DETAIL AS TO HOW THEIR

PROPERTV TAX A~SESSMENTS ARE BEING PERFORMED OR HOW

THEIR RIGHTS TO SCRUTINIZE ANDOR APPEAL THEIR

ASSESSMENTS ARE BEING IMPLEMENTED IT IS CRITICAL THAT

SUCH REGULATIONS BE ADOPrEDTHEY A~E OVERDUE AND AOBA

BELIEVES THE COUNCIL IN THE TAX CLARITY ACT SHOULD

MANDATE THEIR ADOPTION BY A TIME CERTAIN

- THAT CONCLUDES OUR TESTIMONY ASI INDICATED THIS IS NOT

AN EXHAUSTIVE LIST OF OUR VIEWS ON THE BILL AND WE WILL BE I

SUBMITTING ADDITIONAL INFORMATION THANKYOU FOR THE

OPPORTUNITY TO BE HERE THIS MORNING WE WILL BE HAPPY TO

ANSWER ANY QUESTIONS

7

Attachment B

DISTRICT OF COLUMBIA LAND TITLE ASSOCIATION

Dedicated to the Public interest in Maintaining the Highest Standards of Integrity and Stability of Title Insurance Praetices

2000 Officen

PresIcIeat laniDc 1 Andricl FU3I Amcri Till lasunnce Compaay 99510 Lee lIIpway Sulle 550 FIlidIX VA 22030 (703) 383-9400

Dl4lfln PnIsIdeJJt StcoVeD M Buctman Bucbnau a LoIsteiD Tid Company 2 WiSCOllM Circlo 800 Chevy Chase MD 20815 (l0l) 986-1200

1st Vb hesideat Vivie M Smi1b COJIlDIJIIIOa1Ih Land Tid lns_ COIIIplIflY 146O1 MsiIl Sttoet Upper Marlbom MD 2077l (301) 627OO

ilfIl Vb PraIdtmt B SIanIey ltoos NaIIoDaI Sdd_ Inc 122 CSlnet NWbullbull 1f16O WaslllDpJa DC 20001 202 347-3894

il Vb PraIdtmt Dorothy M lo1msoD Iolmson a JIanb Inc 122 C Street N W bull 1f16O WashingIoo DC 20001 (202) 347-74S6

7Wampmrer ~ D IIltmdatoff First American Tide JnIlUtllllCe Company tlll5 CoDDOCticut AvCJlUc NW 11700 WasbillgIOIi DC 20036 (202) 330-1457

~ Elisabeth C bull Zajic Fint AmericaIl Tid Insurance Company 102S CormecIiax A_ NWbullbull Il7OO WasbillgIoJI DC 20036 (l0l) 530-1450

BoaftI MalJblaquo(S) Larry Blasslogame Pint ~C81l Titl Insurance Co

Addie Bowlet CoDgressiDnal TItle a Escrow Co

Aidrea B~ks FU3I Amcrican Title Insurance Co

RicirJ CEiscn Esen Rome Pe John GJrml Gilbert S ~idelity Nalional TIde IllsuraDCe Co

- Imiddot

Post Office Box 65075 Washington Square Washington DC 20035

Testimony of the

DC Land Title Association

before the DC Council Committee on Finance and Revenue

on Bill 13-586

the Tax Clarity Act of 2000

March 6 2000

~~ )

bull BRPAA RULES AND OTR RULES

IT WILL HAVE BEEN THREE YEARS THIS JULY SINCE THE COUNCIL

ADOPTED LAW 12-40 WHICH CREATED THE TRIENNIAL

ASSESSMENT SYSTEM ASSESSOR-LEVEL REVIEW AND MADE OTHER

SIGNIFlCANT REVISIONS IN THE DISTRICTS ASSESSMENT SCHEME

YET NEITHER THE BRPAA OR OTR HAS ADOPTED RULES WHICH

INFORM AND GUIDE TAXPAYERS IN ANY DETAIL AS TO HOW THEIR

PROPERTV TAX A~SESSMENTS ARE BEING PERFORMED OR HOW

THEIR RIGHTS TO SCRUTINIZE ANDOR APPEAL THEIR

ASSESSMENTS ARE BEING IMPLEMENTED IT IS CRITICAL THAT

SUCH REGULATIONS BE ADOPrEDTHEY A~E OVERDUE AND AOBA

BELIEVES THE COUNCIL IN THE TAX CLARITY ACT SHOULD

MANDATE THEIR ADOPTION BY A TIME CERTAIN

- THAT CONCLUDES OUR TESTIMONY ASI INDICATED THIS IS NOT

AN EXHAUSTIVE LIST OF OUR VIEWS ON THE BILL AND WE WILL BE I

SUBMITTING ADDITIONAL INFORMATION THANKYOU FOR THE

OPPORTUNITY TO BE HERE THIS MORNING WE WILL BE HAPPY TO

ANSWER ANY QUESTIONS

7

Attachment B

DISTRICT OF COLUMBIA LAND TITLE ASSOCIATION

Dedicated to the Public interest in Maintaining the Highest Standards of Integrity and Stability of Title Insurance Praetices

2000 Officen

PresIcIeat laniDc 1 Andricl FU3I Amcri Till lasunnce Compaay 99510 Lee lIIpway Sulle 550 FIlidIX VA 22030 (703) 383-9400

Dl4lfln PnIsIdeJJt StcoVeD M Buctman Bucbnau a LoIsteiD Tid Company 2 WiSCOllM Circlo 800 Chevy Chase MD 20815 (l0l) 986-1200

1st Vb hesideat Vivie M Smi1b COJIlDIJIIIOa1Ih Land Tid lns_ COIIIplIflY 146O1 MsiIl Sttoet Upper Marlbom MD 2077l (301) 627OO

ilfIl Vb PraIdtmt B SIanIey ltoos NaIIoDaI Sdd_ Inc 122 CSlnet NWbullbull 1f16O WaslllDpJa DC 20001 202 347-3894

il Vb PraIdtmt Dorothy M lo1msoD Iolmson a JIanb Inc 122 C Street N W bull 1f16O WashingIoo DC 20001 (202) 347-74S6

7Wampmrer ~ D IIltmdatoff First American Tide JnIlUtllllCe Company tlll5 CoDDOCticut AvCJlUc NW 11700 WasbillgIOIi DC 20036 (202) 330-1457

~ Elisabeth C bull Zajic Fint AmericaIl Tid Insurance Company 102S CormecIiax A_ NWbullbull Il7OO WasbillgIoJI DC 20036 (l0l) 530-1450

BoaftI MalJblaquo(S) Larry Blasslogame Pint ~C81l Titl Insurance Co

Addie Bowlet CoDgressiDnal TItle a Escrow Co

Aidrea B~ks FU3I Amcrican Title Insurance Co

RicirJ CEiscn Esen Rome Pe John GJrml Gilbert S ~idelity Nalional TIde IllsuraDCe Co

- Imiddot

Post Office Box 65075 Washington Square Washington DC 20035

Testimony of the

DC Land Title Association

before the DC Council Committee on Finance and Revenue

on Bill 13-586

the Tax Clarity Act of 2000

March 6 2000

~~ )

Attachment B

DISTRICT OF COLUMBIA LAND TITLE ASSOCIATION

Dedicated to the Public interest in Maintaining the Highest Standards of Integrity and Stability of Title Insurance Praetices

2000 Officen

PresIcIeat laniDc 1 Andricl FU3I Amcri Till lasunnce Compaay 99510 Lee lIIpway Sulle 550 FIlidIX VA 22030 (703) 383-9400

Dl4lfln PnIsIdeJJt StcoVeD M Buctman Bucbnau a LoIsteiD Tid Company 2 WiSCOllM Circlo 800 Chevy Chase MD 20815 (l0l) 986-1200

1st Vb hesideat Vivie M Smi1b COJIlDIJIIIOa1Ih Land Tid lns_ COIIIplIflY 146O1 MsiIl Sttoet Upper Marlbom MD 2077l (301) 627OO

ilfIl Vb PraIdtmt B SIanIey ltoos NaIIoDaI Sdd_ Inc 122 CSlnet NWbullbull 1f16O WaslllDpJa DC 20001 202 347-3894

il Vb PraIdtmt Dorothy M lo1msoD Iolmson a JIanb Inc 122 C Street N W bull 1f16O WashingIoo DC 20001 (202) 347-74S6

7Wampmrer ~ D IIltmdatoff First American Tide JnIlUtllllCe Company tlll5 CoDDOCticut AvCJlUc NW 11700 WasbillgIOIi DC 20036 (202) 330-1457

~ Elisabeth C bull Zajic Fint AmericaIl Tid Insurance Company 102S CormecIiax A_ NWbullbull Il7OO WasbillgIoJI DC 20036 (l0l) 530-1450

BoaftI MalJblaquo(S) Larry Blasslogame Pint ~C81l Titl Insurance Co

Addie Bowlet CoDgressiDnal TItle a Escrow Co

Aidrea B~ks FU3I Amcrican Title Insurance Co

RicirJ CEiscn Esen Rome Pe John GJrml Gilbert S ~idelity Nalional TIde IllsuraDCe Co

- Imiddot

Post Office Box 65075 Washington Square Washington DC 20035

Testimony of the

DC Land Title Association

before the DC Council Committee on Finance and Revenue

on Bill 13-586

the Tax Clarity Act of 2000

March 6 2000

~~ )

DISTRICT OF COLUMBIA LAND TITLE ASSOCIATION

Dedicated to the Public interest in Maintaining the Highest Standards of Integrity and Stability of Title Insurance Praetices

2000 Officen

PresIcIeat laniDc 1 Andricl FU3I Amcri Till lasunnce Compaay 99510 Lee lIIpway Sulle 550 FIlidIX VA 22030 (703) 383-9400

Dl4lfln PnIsIdeJJt StcoVeD M Buctman Bucbnau a LoIsteiD Tid Company 2 WiSCOllM Circlo 800 Chevy Chase MD 20815 (l0l) 986-1200

1st Vb hesideat Vivie M Smi1b COJIlDIJIIIOa1Ih Land Tid lns_ COIIIplIflY 146O1 MsiIl Sttoet Upper Marlbom MD 2077l (301) 627OO

ilfIl Vb PraIdtmt B SIanIey ltoos NaIIoDaI Sdd_ Inc 122 CSlnet NWbullbull 1f16O WaslllDpJa DC 20001 202 347-3894

il Vb PraIdtmt Dorothy M lo1msoD Iolmson a JIanb Inc 122 C Street N W bull 1f16O WashingIoo DC 20001 (202) 347-74S6

7Wampmrer ~ D IIltmdatoff First American Tide JnIlUtllllCe Company tlll5 CoDDOCticut AvCJlUc NW 11700 WasbillgIOIi DC 20036 (202) 330-1457

~ Elisabeth C bull Zajic Fint AmericaIl Tid Insurance Company 102S CormecIiax A_ NWbullbull Il7OO WasbillgIoJI DC 20036 (l0l) 530-1450

BoaftI MalJblaquo(S) Larry Blasslogame Pint ~C81l Titl Insurance Co

Addie Bowlet CoDgressiDnal TItle a Escrow Co

Aidrea B~ks FU3I Amcrican Title Insurance Co

RicirJ CEiscn Esen Rome Pe John GJrml Gilbert S ~idelity Nalional TIde IllsuraDCe Co

- Imiddot

Post Office Box 65075 Washington Square Washington DC 20035

Testimony of the

DC Land Title Association

before the DC Council Committee on Finance and Revenue

on Bill 13-586

the Tax Clarity Act of 2000

March 6 2000

~~ )

L

Chainnan Evans members of the Committee on Finance and Revenue My name is

Elizabeth Zajic I am the chairman of the legislative committee for the District ofColumbia Land

Title Association The members of the DC Land Title Association appreciate the opportunity of

presenting our views on certain aspects ofBil113-586 the Tax Clarity Act of2000 We would

like to emphasize that our purpose here today is not to criticize but rather to suggest certain

measures which if implemented could improve the mutually beneficial relationship between the

DC Land Title Association and the Office of Tax and Revenue in the collection of real property

tltXes and assessments owed to the District We believe that the amendments to the real property

tax laws and procedures as contemplated in Bill 13-586 need to be considered in the context of

these measures

WE ARE TAX COLLECTORS

The members of the D C Land Title Association include title insurers settlement agents

and attorneys real estate abstractors surveyors and appraisers The constituent members ofthe

association handle virtually all DC real property transfers made for consideration as well as most

real estate loans transactions As part of any real estate settlement a search is undertaken to

determine what if any real property taxes are due and owing to the District of Columbia In

connection with the real estate settlement the taxes are collected from the responsible parties and

paid to the District of Columbia hence the role ofour members as tax collectors

However theability of members of the District of Columbia Land Title Association to act

1

as an effective tax collection agent for real property taxes and assessments is totally dependent on

their ability to obtain accurate and timely real property tax and assessment information from the

DC Office ofTax and Revenue Historically we have encountered many problems in gaining the

information that we require Although tl1e Office ofTax and Revenue is not responsible for all of

the problems it stands squarely in the middle of a flawed information process

II LEGAL CONSEQUENCES OF FAILING TO PAY TAXES TAX SALES

The District of Columbia has a continuing lien for real property taxes for all property

located in the District Ifreal property taxes are delinquent forca given property the Mayor

acting through the Office ofTax and Revenue may sell the property at tax sale to collect the

taxes The tax sale remedy however is not limited exclusively toreal property taxes Other liens

which may be collected via the tax sale mechanism include without limitation water and Sewer

service charges special assessments nuisance or clean it or lien it assessments vault taxes

public space rental and charges for failure to file and Income and Expense report for rental

property Although the Office of Tax and Revenue may not administer the routine billing and

collecting ofthese taxes and charges it is responsible for enforcing them through the tax sale

process once they have become delinquent

The tax sale ifnot timely redeemed will result in a total failure oftitle of an owner or

loss of total security for the mortgage lien of a lender lithe taxes or assessments giving rise to

the tax sale predate the recordation of a deed or deed of trust insured by a title insurer they must

be paid by the insurer to prevent the total failure of title

2

m REVISED REAL PROPERTY TAX SALE PROVISIONS OF THE TAX

CLARITY ACT OF 2000

Section 506 ofBill 13-586 would amend Title 47 of the DC Code by adding a new

Chapter 13A entitled Revised Real Property Tax Sale [pages 113- 160] These proposed new

DC Code Sections 47-1330 through 47-1386 involve drastic revisions to the tax sale and tax

deed procedures in the District ofColumbia Section 506 would also repeal any inconsistent

provisions ofcurrent law as they affect tax sales occurring after December 31 1999 and would

instead subject in some cases apparently retroactively any sales after December 31 1999 to the

new law The proposed revised statutory provisions are in general strikingly similar to the tax sale

procedures in effect in Maryland

At present in the District of Columbia a tax sale certificate holder (Le the person who has

bought the righfto a property at tax sale unless redeemed by the owner) may request a tax deed

from the Mayor six months after thesale and must do so within a year of the sale to preserve his

rights Under current DC law the burden ofnotice to property owners and holders of security

interests falls on the District of Columbia government The tax deed itself when issued is prima

facie evidence ofgood and perfect title in fee simple (current DC Code Section 47-13033)

However in practice the tax deed grantee must file and bring to a successful conclusion a quiet

action to extinguish the interest ofthe proprietary owners and all lienholders before the property

will be deemed insurable for title insurance Many ofthese quiet title actions are vigorously

defended alleging errors and irregularities in the Districts real property tax billing and collection

process A number ofjudicial decisions have also addressed thesufficiency of notice provided by

the District government

3

In Maryland and under the proposed provisions of the Tax Clarity Act the process is

reversed to the extent that no tax deed would be issued until such time as the tax sale certificate

holder has successfully foreclosed the proprietary owners equity of redemption (ie the right of

the property owner to pay the delinquencies and retain the property) IfBill 13-586 is enacted

the primary burden of proper due diligence in locating those persons entitled to notice as well as

publication and legal costs wouldmiddotbecome the responsibility ofthe tax sale certificate holder

Although the proposed tax sale provisions of the Tax Clarity Act are closely modeled on

Maryland law there are some significant difference some ofwhich may be briefly stated as

follows

1 Section 47-1340 Notice to agencies certification of taxes due agencies general

fund [page 118] Taxes which are not certified for tax sale by other agencies would still be able to

be collected In Maryland ifa taxing agency omits certifYing delinquencies for tax sale the taxes

are not a lien on real property-- Le the governments failure to certifY acts as a bar to collection

2 Section 47-1341 Notice of delinquency [page 119] The Notice ofDelinquency and

Final Bill required to be sent to the taxpayer would not need to include all taxes in arrears In

Maryland the Final Bill and Legal Notice sets forth the total tax indebtedness

3 Section 47-1342 Public notice costs [page 120] Bill 13-586 provides that a property

may be sold more than once at the same sale for different taxes In Maryland there is one sale for

all tax indebtedness seemingly a far less complicated procedure

The above-cited proposed DC Code sections seem to create the possibility of a very

complicated scenario whereby multiple tax sale purchasers of the same property may be

competing for ownership rights This seems at odds with the overall purpose of Bill 13-586

4

which is to simplify and clarifY tax law and procedure These proposed provisions also allow for

the continuation ofa present problem namely the virtual impossibility of obtaining easily or

timely from the DC government a single dollar amouIit representing all assessment and real

property tax liability for any given property But more importantly there is a fundamental

difference in the very philosophy of the District ofColumbia and Maryland in the tax sale process

In Maryland the goal ofmost persons who purchase at tax sale is to earn the hefty interest

rate of 18 on their tax sale investment Since the right to earn the interest is deemed extremely

valuable the bid prices in Maryland tax sales are very high frequently far more than the value of

the property much less the amount of delinquent taxes Since the full amount of the bid would

take effect in any action to foreclose the equity of redemption the instances of loss of the

property by the taxpayer are very rare

In the District ofColumbia on the other hand tax sale bidders seek to actually acquire

title to real property sold at tax sale In the case ofMalone v Robinson cecided by the DC

Court ofAppeals before the redemption period was shortened by previous Council action from

two years to six months the court bent over backwards to protect the rights ofproperty owners

responding to inequities of the tax sale process in the District of Columbia under which the right

ofredemption may have expired without the taxpayer ever knowing of the delinquency The

court found that the District cannot deprive a taxpayer oftheir property without due process

including a duty to try give adequate notice to the delinquent taxpayer

Briefly stated in the District ofColumbia tax sale purchasers seek a windfall ie

acquisition of real property at a fraction of its fair market value realizing almost all of the

taxpayers equity for a nominal investment In Maryland tax sale purchasers seek primarily to

5

acquire a short-term (2 year) investment at a very high interest rate

Even so the members of the DC Land Title Association have no objection per se to the

overall restructuring of the tax sale statutes as proposed by Bill 13-586 which would shift most of

the burden and expense ofthe process to the tax sale purchaser and which would mandate a final

court decree foreclosing the taxpayers equity of redemption before a tax deed may issue But we

note that a fundamental flaw in the tax collection process will taint the operation of any tax

collection law no matter how fairly and artfully drafted namely the accuracy and timely

production ofdefinitive statement of delinquency for real property taxes and assessments on

which taxpayers may rely

In some other jurisdictions notably Maryland deeds transferring title to real property will

not be accepted for recording until they have been certified and stamped to reflect that all taxes

and assessments are paid and current The applicable office is located in close proximity to the

appropriate recording office and providing the necessary ceItification regarding taxes is a

ministerial process which can be accomplished virtually immediately With this system taxes are

collected promptly and economically and the title insurance companies may confidentially insure

purchasers of real property and their lenders that their real property interests will not be

jeopardized in the future by liens for property taxes and assessments incurred by former owners

Tax sales become the exception not the rule

A similar law have been on the books for some time in the District of Columbia requiring j

the payment of all taxes and assessments prior to recordation It has neVer been enforced

however because the Office of Tax and Revenue is unable to provide a definitive statement of all

amounts owed for real property taxes and assessments within any kind of appropriate time frame

6

Until such time as the Office of Tax and Revenue has the resources to integrate all the tax

and assessment information which it generates itself and which it receives from other branches of

the DC government and make that information quickly available to interested parties serious

problems will remain The members ofthe DC Land Title Association are willing even eager

tax collectorst but we cannot collect taxes and assessments from sellers of real property unless we

know about them Title insurance and settlement companies could be the most effective

collection agents for these taxes owed to the District ofColumbia if the tax and assessment

information could be quickly and accurately provided prior to transfers ofreal property and

obviate the proliferation oftax sales In any event no tax sale law or procedure will be effective

ifbased on inaccurate tax information

IV RECORDATION AND TRANSFER TAX ISSUES

A Leases and Life Estates Section 504 ofBiU 13-586 [page 109] would amend D C

Code Section 47-901(3) and Section 505(a) ofBill 13-586 [page 112J would amend current law

(DC Code 47-901(3) and 45-921(3)(B) respectively) to impose transfer and recordation taxes

on leases in excess of thirty years and on ~e estates The proposed new provisions seem to

parallel to some degteethe formulas for valuation bfthe leasehold estate found in Maryland law

The proposed revisions however lack clarity and appear to require some technical corrections

For example proposed language for Section 47-903(a)(1) [page 110] probably was meant to refer

to annual not actual average rental The phrase Additional actual consideration in the

same subsection needs specific definition and defined parameters Clarity and specificity in the

fonnulas employed in calculating the consideration on which transfer and recordation taxes are

7

-----------------------------------------

---------------------------

based serve the best interest ofboth the public and private sectors

B Refinances Section 505(c) ofBill 13-586 would amend the Residential Real

Property Transfer Excise Act of 1978 (DC Code 45-923(a)(3)) [page 113] to require that the

recordation tax be paid on the full amount of a security instmment except for the first only

refinance ofexisting debt which was subject to recordation tax and for which the recordation tax

was paid At present the District imposes recordation tax only on new debt when the refinance

takes oui a purchase money security instrument Was the omission of the purchase money

exemption intentional in Bill 13-586 The loss ofavailability offavorable tax treatment on

refinances of purchase money mortgages places an onerous tax burden on commercial property

owners in the District ofColumbia

c Transfer and Recordation Tax Liability Section 405 ofBill 13-586 would amend

DC Code Title 47 by adding a new chapter 44 concerning tax collections Proposed new

Section 47-44013 Taxes related to real property recordation and transfer [page 52] seems to

impose liability for recordation and transfer taxes on the owner of the property Does this mean

that a seller responsible for paying transfer taxes gets away scot-free Is the lien ofthe delinquent

taxes intended to be in personam only or is it intended to be~ an in rem lien

V SUPERPRIORITY LIENS

Proposed new DC Code sections 47-44021 and 47-44023 [page 56J as drafted lead to

the conclusion that only withholding taxes are a super priority lien (other than in rem liens such as

real property taxes) Is this reading correct Should Section 47 A4023(c) include nonjudicial

foreclosure sales The whole area of so-called superpriority liens is in desperate need of

8

clarification

VI CONCLUSION

The Tax Clarity Act of2000 includes some improvements to the existing tax collection

scheme specifically in requiring the foreclosure ofthe equity of redemption prior to the issuance

of a tax deed However many of the proposed provisions create ambiguities which require

clarification prior to final enactment of the Bill

Moreover until such time as the Office of Tax and Revenue has the resources to integrate

all the tax and assessment information which it generates itself and which it receives from other

branches of the DC government and make that information quickly available to interested

parties serious problems will remain

Mr Chairman that concludes our testimony I would be happy to answer any questions

9

as an effective tax collection agent for real property taxes and assessments is totally dependent on

their ability to obtain accurate and timely real property tax and assessment information from the

DC Office ofTax and Revenue Historically we have encountered many problems in gaining the

information that we require Although tl1e Office ofTax and Revenue is not responsible for all of

the problems it stands squarely in the middle of a flawed information process

II LEGAL CONSEQUENCES OF FAILING TO PAY TAXES TAX SALES

The District of Columbia has a continuing lien for real property taxes for all property

located in the District Ifreal property taxes are delinquent forca given property the Mayor

acting through the Office ofTax and Revenue may sell the property at tax sale to collect the

taxes The tax sale remedy however is not limited exclusively toreal property taxes Other liens

which may be collected via the tax sale mechanism include without limitation water and Sewer

service charges special assessments nuisance or clean it or lien it assessments vault taxes

public space rental and charges for failure to file and Income and Expense report for rental

property Although the Office of Tax and Revenue may not administer the routine billing and

collecting ofthese taxes and charges it is responsible for enforcing them through the tax sale

process once they have become delinquent

The tax sale ifnot timely redeemed will result in a total failure oftitle of an owner or

loss of total security for the mortgage lien of a lender lithe taxes or assessments giving rise to

the tax sale predate the recordation of a deed or deed of trust insured by a title insurer they must

be paid by the insurer to prevent the total failure of title

2

m REVISED REAL PROPERTY TAX SALE PROVISIONS OF THE TAX

CLARITY ACT OF 2000

Section 506 ofBill 13-586 would amend Title 47 of the DC Code by adding a new

Chapter 13A entitled Revised Real Property Tax Sale [pages 113- 160] These proposed new

DC Code Sections 47-1330 through 47-1386 involve drastic revisions to the tax sale and tax

deed procedures in the District ofColumbia Section 506 would also repeal any inconsistent

provisions ofcurrent law as they affect tax sales occurring after December 31 1999 and would

instead subject in some cases apparently retroactively any sales after December 31 1999 to the

new law The proposed revised statutory provisions are in general strikingly similar to the tax sale

procedures in effect in Maryland

At present in the District of Columbia a tax sale certificate holder (Le the person who has

bought the righfto a property at tax sale unless redeemed by the owner) may request a tax deed

from the Mayor six months after thesale and must do so within a year of the sale to preserve his

rights Under current DC law the burden ofnotice to property owners and holders of security

interests falls on the District of Columbia government The tax deed itself when issued is prima

facie evidence ofgood and perfect title in fee simple (current DC Code Section 47-13033)

However in practice the tax deed grantee must file and bring to a successful conclusion a quiet

action to extinguish the interest ofthe proprietary owners and all lienholders before the property

will be deemed insurable for title insurance Many ofthese quiet title actions are vigorously

defended alleging errors and irregularities in the Districts real property tax billing and collection

process A number ofjudicial decisions have also addressed thesufficiency of notice provided by

the District government

3

In Maryland and under the proposed provisions of the Tax Clarity Act the process is

reversed to the extent that no tax deed would be issued until such time as the tax sale certificate

holder has successfully foreclosed the proprietary owners equity of redemption (ie the right of

the property owner to pay the delinquencies and retain the property) IfBill 13-586 is enacted

the primary burden of proper due diligence in locating those persons entitled to notice as well as

publication and legal costs wouldmiddotbecome the responsibility ofthe tax sale certificate holder

Although the proposed tax sale provisions of the Tax Clarity Act are closely modeled on

Maryland law there are some significant difference some ofwhich may be briefly stated as

follows

1 Section 47-1340 Notice to agencies certification of taxes due agencies general

fund [page 118] Taxes which are not certified for tax sale by other agencies would still be able to

be collected In Maryland ifa taxing agency omits certifYing delinquencies for tax sale the taxes

are not a lien on real property-- Le the governments failure to certifY acts as a bar to collection

2 Section 47-1341 Notice of delinquency [page 119] The Notice ofDelinquency and

Final Bill required to be sent to the taxpayer would not need to include all taxes in arrears In

Maryland the Final Bill and Legal Notice sets forth the total tax indebtedness

3 Section 47-1342 Public notice costs [page 120] Bill 13-586 provides that a property

may be sold more than once at the same sale for different taxes In Maryland there is one sale for

all tax indebtedness seemingly a far less complicated procedure

The above-cited proposed DC Code sections seem to create the possibility of a very

complicated scenario whereby multiple tax sale purchasers of the same property may be

competing for ownership rights This seems at odds with the overall purpose of Bill 13-586

4

which is to simplify and clarifY tax law and procedure These proposed provisions also allow for

the continuation ofa present problem namely the virtual impossibility of obtaining easily or

timely from the DC government a single dollar amouIit representing all assessment and real

property tax liability for any given property But more importantly there is a fundamental

difference in the very philosophy of the District ofColumbia and Maryland in the tax sale process

In Maryland the goal ofmost persons who purchase at tax sale is to earn the hefty interest

rate of 18 on their tax sale investment Since the right to earn the interest is deemed extremely

valuable the bid prices in Maryland tax sales are very high frequently far more than the value of

the property much less the amount of delinquent taxes Since the full amount of the bid would

take effect in any action to foreclose the equity of redemption the instances of loss of the

property by the taxpayer are very rare

In the District ofColumbia on the other hand tax sale bidders seek to actually acquire

title to real property sold at tax sale In the case ofMalone v Robinson cecided by the DC

Court ofAppeals before the redemption period was shortened by previous Council action from

two years to six months the court bent over backwards to protect the rights ofproperty owners

responding to inequities of the tax sale process in the District of Columbia under which the right

ofredemption may have expired without the taxpayer ever knowing of the delinquency The

court found that the District cannot deprive a taxpayer oftheir property without due process

including a duty to try give adequate notice to the delinquent taxpayer

Briefly stated in the District ofColumbia tax sale purchasers seek a windfall ie

acquisition of real property at a fraction of its fair market value realizing almost all of the

taxpayers equity for a nominal investment In Maryland tax sale purchasers seek primarily to

5

acquire a short-term (2 year) investment at a very high interest rate

Even so the members of the DC Land Title Association have no objection per se to the

overall restructuring of the tax sale statutes as proposed by Bill 13-586 which would shift most of

the burden and expense ofthe process to the tax sale purchaser and which would mandate a final

court decree foreclosing the taxpayers equity of redemption before a tax deed may issue But we

note that a fundamental flaw in the tax collection process will taint the operation of any tax

collection law no matter how fairly and artfully drafted namely the accuracy and timely

production ofdefinitive statement of delinquency for real property taxes and assessments on

which taxpayers may rely

In some other jurisdictions notably Maryland deeds transferring title to real property will

not be accepted for recording until they have been certified and stamped to reflect that all taxes

and assessments are paid and current The applicable office is located in close proximity to the

appropriate recording office and providing the necessary ceItification regarding taxes is a

ministerial process which can be accomplished virtually immediately With this system taxes are

collected promptly and economically and the title insurance companies may confidentially insure

purchasers of real property and their lenders that their real property interests will not be

jeopardized in the future by liens for property taxes and assessments incurred by former owners

Tax sales become the exception not the rule

A similar law have been on the books for some time in the District of Columbia requiring j

the payment of all taxes and assessments prior to recordation It has neVer been enforced

however because the Office of Tax and Revenue is unable to provide a definitive statement of all

amounts owed for real property taxes and assessments within any kind of appropriate time frame

6

Until such time as the Office of Tax and Revenue has the resources to integrate all the tax

and assessment information which it generates itself and which it receives from other branches of

the DC government and make that information quickly available to interested parties serious

problems will remain The members ofthe DC Land Title Association are willing even eager

tax collectorst but we cannot collect taxes and assessments from sellers of real property unless we

know about them Title insurance and settlement companies could be the most effective

collection agents for these taxes owed to the District ofColumbia if the tax and assessment

information could be quickly and accurately provided prior to transfers ofreal property and

obviate the proliferation oftax sales In any event no tax sale law or procedure will be effective

ifbased on inaccurate tax information

IV RECORDATION AND TRANSFER TAX ISSUES

A Leases and Life Estates Section 504 ofBiU 13-586 [page 109] would amend D C

Code Section 47-901(3) and Section 505(a) ofBill 13-586 [page 112J would amend current law

(DC Code 47-901(3) and 45-921(3)(B) respectively) to impose transfer and recordation taxes

on leases in excess of thirty years and on ~e estates The proposed new provisions seem to

parallel to some degteethe formulas for valuation bfthe leasehold estate found in Maryland law

The proposed revisions however lack clarity and appear to require some technical corrections

For example proposed language for Section 47-903(a)(1) [page 110] probably was meant to refer

to annual not actual average rental The phrase Additional actual consideration in the

same subsection needs specific definition and defined parameters Clarity and specificity in the

fonnulas employed in calculating the consideration on which transfer and recordation taxes are

7

-----------------------------------------

---------------------------

based serve the best interest ofboth the public and private sectors

B Refinances Section 505(c) ofBill 13-586 would amend the Residential Real

Property Transfer Excise Act of 1978 (DC Code 45-923(a)(3)) [page 113] to require that the

recordation tax be paid on the full amount of a security instmment except for the first only

refinance ofexisting debt which was subject to recordation tax and for which the recordation tax

was paid At present the District imposes recordation tax only on new debt when the refinance

takes oui a purchase money security instrument Was the omission of the purchase money

exemption intentional in Bill 13-586 The loss ofavailability offavorable tax treatment on

refinances of purchase money mortgages places an onerous tax burden on commercial property

owners in the District ofColumbia

c Transfer and Recordation Tax Liability Section 405 ofBill 13-586 would amend

DC Code Title 47 by adding a new chapter 44 concerning tax collections Proposed new

Section 47-44013 Taxes related to real property recordation and transfer [page 52] seems to

impose liability for recordation and transfer taxes on the owner of the property Does this mean

that a seller responsible for paying transfer taxes gets away scot-free Is the lien ofthe delinquent

taxes intended to be in personam only or is it intended to be~ an in rem lien

V SUPERPRIORITY LIENS

Proposed new DC Code sections 47-44021 and 47-44023 [page 56J as drafted lead to

the conclusion that only withholding taxes are a super priority lien (other than in rem liens such as

real property taxes) Is this reading correct Should Section 47 A4023(c) include nonjudicial

foreclosure sales The whole area of so-called superpriority liens is in desperate need of

8

clarification

VI CONCLUSION

The Tax Clarity Act of2000 includes some improvements to the existing tax collection

scheme specifically in requiring the foreclosure ofthe equity of redemption prior to the issuance

of a tax deed However many of the proposed provisions create ambiguities which require

clarification prior to final enactment of the Bill

Moreover until such time as the Office of Tax and Revenue has the resources to integrate

all the tax and assessment information which it generates itself and which it receives from other

branches of the DC government and make that information quickly available to interested

parties serious problems will remain

Mr Chairman that concludes our testimony I would be happy to answer any questions

9

m REVISED REAL PROPERTY TAX SALE PROVISIONS OF THE TAX

CLARITY ACT OF 2000

Section 506 ofBill 13-586 would amend Title 47 of the DC Code by adding a new

Chapter 13A entitled Revised Real Property Tax Sale [pages 113- 160] These proposed new

DC Code Sections 47-1330 through 47-1386 involve drastic revisions to the tax sale and tax

deed procedures in the District ofColumbia Section 506 would also repeal any inconsistent

provisions ofcurrent law as they affect tax sales occurring after December 31 1999 and would

instead subject in some cases apparently retroactively any sales after December 31 1999 to the

new law The proposed revised statutory provisions are in general strikingly similar to the tax sale

procedures in effect in Maryland

At present in the District of Columbia a tax sale certificate holder (Le the person who has

bought the righfto a property at tax sale unless redeemed by the owner) may request a tax deed

from the Mayor six months after thesale and must do so within a year of the sale to preserve his

rights Under current DC law the burden ofnotice to property owners and holders of security

interests falls on the District of Columbia government The tax deed itself when issued is prima

facie evidence ofgood and perfect title in fee simple (current DC Code Section 47-13033)

However in practice the tax deed grantee must file and bring to a successful conclusion a quiet

action to extinguish the interest ofthe proprietary owners and all lienholders before the property

will be deemed insurable for title insurance Many ofthese quiet title actions are vigorously

defended alleging errors and irregularities in the Districts real property tax billing and collection

process A number ofjudicial decisions have also addressed thesufficiency of notice provided by

the District government

3

In Maryland and under the proposed provisions of the Tax Clarity Act the process is

reversed to the extent that no tax deed would be issued until such time as the tax sale certificate

holder has successfully foreclosed the proprietary owners equity of redemption (ie the right of

the property owner to pay the delinquencies and retain the property) IfBill 13-586 is enacted

the primary burden of proper due diligence in locating those persons entitled to notice as well as

publication and legal costs wouldmiddotbecome the responsibility ofthe tax sale certificate holder

Although the proposed tax sale provisions of the Tax Clarity Act are closely modeled on

Maryland law there are some significant difference some ofwhich may be briefly stated as

follows

1 Section 47-1340 Notice to agencies certification of taxes due agencies general

fund [page 118] Taxes which are not certified for tax sale by other agencies would still be able to

be collected In Maryland ifa taxing agency omits certifYing delinquencies for tax sale the taxes

are not a lien on real property-- Le the governments failure to certifY acts as a bar to collection

2 Section 47-1341 Notice of delinquency [page 119] The Notice ofDelinquency and

Final Bill required to be sent to the taxpayer would not need to include all taxes in arrears In

Maryland the Final Bill and Legal Notice sets forth the total tax indebtedness

3 Section 47-1342 Public notice costs [page 120] Bill 13-586 provides that a property

may be sold more than once at the same sale for different taxes In Maryland there is one sale for

all tax indebtedness seemingly a far less complicated procedure

The above-cited proposed DC Code sections seem to create the possibility of a very

complicated scenario whereby multiple tax sale purchasers of the same property may be

competing for ownership rights This seems at odds with the overall purpose of Bill 13-586

4

which is to simplify and clarifY tax law and procedure These proposed provisions also allow for

the continuation ofa present problem namely the virtual impossibility of obtaining easily or

timely from the DC government a single dollar amouIit representing all assessment and real

property tax liability for any given property But more importantly there is a fundamental

difference in the very philosophy of the District ofColumbia and Maryland in the tax sale process

In Maryland the goal ofmost persons who purchase at tax sale is to earn the hefty interest

rate of 18 on their tax sale investment Since the right to earn the interest is deemed extremely

valuable the bid prices in Maryland tax sales are very high frequently far more than the value of

the property much less the amount of delinquent taxes Since the full amount of the bid would

take effect in any action to foreclose the equity of redemption the instances of loss of the

property by the taxpayer are very rare

In the District ofColumbia on the other hand tax sale bidders seek to actually acquire

title to real property sold at tax sale In the case ofMalone v Robinson cecided by the DC

Court ofAppeals before the redemption period was shortened by previous Council action from

two years to six months the court bent over backwards to protect the rights ofproperty owners

responding to inequities of the tax sale process in the District of Columbia under which the right

ofredemption may have expired without the taxpayer ever knowing of the delinquency The

court found that the District cannot deprive a taxpayer oftheir property without due process

including a duty to try give adequate notice to the delinquent taxpayer

Briefly stated in the District ofColumbia tax sale purchasers seek a windfall ie

acquisition of real property at a fraction of its fair market value realizing almost all of the

taxpayers equity for a nominal investment In Maryland tax sale purchasers seek primarily to

5

acquire a short-term (2 year) investment at a very high interest rate

Even so the members of the DC Land Title Association have no objection per se to the

overall restructuring of the tax sale statutes as proposed by Bill 13-586 which would shift most of

the burden and expense ofthe process to the tax sale purchaser and which would mandate a final

court decree foreclosing the taxpayers equity of redemption before a tax deed may issue But we

note that a fundamental flaw in the tax collection process will taint the operation of any tax

collection law no matter how fairly and artfully drafted namely the accuracy and timely

production ofdefinitive statement of delinquency for real property taxes and assessments on

which taxpayers may rely

In some other jurisdictions notably Maryland deeds transferring title to real property will

not be accepted for recording until they have been certified and stamped to reflect that all taxes

and assessments are paid and current The applicable office is located in close proximity to the

appropriate recording office and providing the necessary ceItification regarding taxes is a

ministerial process which can be accomplished virtually immediately With this system taxes are

collected promptly and economically and the title insurance companies may confidentially insure

purchasers of real property and their lenders that their real property interests will not be

jeopardized in the future by liens for property taxes and assessments incurred by former owners

Tax sales become the exception not the rule

A similar law have been on the books for some time in the District of Columbia requiring j

the payment of all taxes and assessments prior to recordation It has neVer been enforced

however because the Office of Tax and Revenue is unable to provide a definitive statement of all

amounts owed for real property taxes and assessments within any kind of appropriate time frame

6

Until such time as the Office of Tax and Revenue has the resources to integrate all the tax

and assessment information which it generates itself and which it receives from other branches of

the DC government and make that information quickly available to interested parties serious

problems will remain The members ofthe DC Land Title Association are willing even eager

tax collectorst but we cannot collect taxes and assessments from sellers of real property unless we

know about them Title insurance and settlement companies could be the most effective

collection agents for these taxes owed to the District ofColumbia if the tax and assessment

information could be quickly and accurately provided prior to transfers ofreal property and

obviate the proliferation oftax sales In any event no tax sale law or procedure will be effective

ifbased on inaccurate tax information

IV RECORDATION AND TRANSFER TAX ISSUES

A Leases and Life Estates Section 504 ofBiU 13-586 [page 109] would amend D C

Code Section 47-901(3) and Section 505(a) ofBill 13-586 [page 112J would amend current law

(DC Code 47-901(3) and 45-921(3)(B) respectively) to impose transfer and recordation taxes

on leases in excess of thirty years and on ~e estates The proposed new provisions seem to

parallel to some degteethe formulas for valuation bfthe leasehold estate found in Maryland law

The proposed revisions however lack clarity and appear to require some technical corrections

For example proposed language for Section 47-903(a)(1) [page 110] probably was meant to refer

to annual not actual average rental The phrase Additional actual consideration in the

same subsection needs specific definition and defined parameters Clarity and specificity in the

fonnulas employed in calculating the consideration on which transfer and recordation taxes are

7

-----------------------------------------

---------------------------

based serve the best interest ofboth the public and private sectors

B Refinances Section 505(c) ofBill 13-586 would amend the Residential Real

Property Transfer Excise Act of 1978 (DC Code 45-923(a)(3)) [page 113] to require that the

recordation tax be paid on the full amount of a security instmment except for the first only

refinance ofexisting debt which was subject to recordation tax and for which the recordation tax

was paid At present the District imposes recordation tax only on new debt when the refinance

takes oui a purchase money security instrument Was the omission of the purchase money

exemption intentional in Bill 13-586 The loss ofavailability offavorable tax treatment on

refinances of purchase money mortgages places an onerous tax burden on commercial property

owners in the District ofColumbia

c Transfer and Recordation Tax Liability Section 405 ofBill 13-586 would amend

DC Code Title 47 by adding a new chapter 44 concerning tax collections Proposed new

Section 47-44013 Taxes related to real property recordation and transfer [page 52] seems to

impose liability for recordation and transfer taxes on the owner of the property Does this mean

that a seller responsible for paying transfer taxes gets away scot-free Is the lien ofthe delinquent

taxes intended to be in personam only or is it intended to be~ an in rem lien

V SUPERPRIORITY LIENS

Proposed new DC Code sections 47-44021 and 47-44023 [page 56J as drafted lead to

the conclusion that only withholding taxes are a super priority lien (other than in rem liens such as

real property taxes) Is this reading correct Should Section 47 A4023(c) include nonjudicial

foreclosure sales The whole area of so-called superpriority liens is in desperate need of

8

clarification

VI CONCLUSION

The Tax Clarity Act of2000 includes some improvements to the existing tax collection

scheme specifically in requiring the foreclosure ofthe equity of redemption prior to the issuance

of a tax deed However many of the proposed provisions create ambiguities which require

clarification prior to final enactment of the Bill

Moreover until such time as the Office of Tax and Revenue has the resources to integrate

all the tax and assessment information which it generates itself and which it receives from other

branches of the DC government and make that information quickly available to interested

parties serious problems will remain

Mr Chairman that concludes our testimony I would be happy to answer any questions

9

In Maryland and under the proposed provisions of the Tax Clarity Act the process is

reversed to the extent that no tax deed would be issued until such time as the tax sale certificate

holder has successfully foreclosed the proprietary owners equity of redemption (ie the right of

the property owner to pay the delinquencies and retain the property) IfBill 13-586 is enacted

the primary burden of proper due diligence in locating those persons entitled to notice as well as

publication and legal costs wouldmiddotbecome the responsibility ofthe tax sale certificate holder

Although the proposed tax sale provisions of the Tax Clarity Act are closely modeled on

Maryland law there are some significant difference some ofwhich may be briefly stated as

follows

1 Section 47-1340 Notice to agencies certification of taxes due agencies general

fund [page 118] Taxes which are not certified for tax sale by other agencies would still be able to

be collected In Maryland ifa taxing agency omits certifYing delinquencies for tax sale the taxes

are not a lien on real property-- Le the governments failure to certifY acts as a bar to collection

2 Section 47-1341 Notice of delinquency [page 119] The Notice ofDelinquency and

Final Bill required to be sent to the taxpayer would not need to include all taxes in arrears In

Maryland the Final Bill and Legal Notice sets forth the total tax indebtedness

3 Section 47-1342 Public notice costs [page 120] Bill 13-586 provides that a property

may be sold more than once at the same sale for different taxes In Maryland there is one sale for

all tax indebtedness seemingly a far less complicated procedure

The above-cited proposed DC Code sections seem to create the possibility of a very

complicated scenario whereby multiple tax sale purchasers of the same property may be

competing for ownership rights This seems at odds with the overall purpose of Bill 13-586

4

which is to simplify and clarifY tax law and procedure These proposed provisions also allow for

the continuation ofa present problem namely the virtual impossibility of obtaining easily or

timely from the DC government a single dollar amouIit representing all assessment and real

property tax liability for any given property But more importantly there is a fundamental

difference in the very philosophy of the District ofColumbia and Maryland in the tax sale process

In Maryland the goal ofmost persons who purchase at tax sale is to earn the hefty interest

rate of 18 on their tax sale investment Since the right to earn the interest is deemed extremely

valuable the bid prices in Maryland tax sales are very high frequently far more than the value of

the property much less the amount of delinquent taxes Since the full amount of the bid would

take effect in any action to foreclose the equity of redemption the instances of loss of the

property by the taxpayer are very rare

In the District ofColumbia on the other hand tax sale bidders seek to actually acquire

title to real property sold at tax sale In the case ofMalone v Robinson cecided by the DC

Court ofAppeals before the redemption period was shortened by previous Council action from

two years to six months the court bent over backwards to protect the rights ofproperty owners

responding to inequities of the tax sale process in the District of Columbia under which the right

ofredemption may have expired without the taxpayer ever knowing of the delinquency The

court found that the District cannot deprive a taxpayer oftheir property without due process

including a duty to try give adequate notice to the delinquent taxpayer

Briefly stated in the District ofColumbia tax sale purchasers seek a windfall ie

acquisition of real property at a fraction of its fair market value realizing almost all of the

taxpayers equity for a nominal investment In Maryland tax sale purchasers seek primarily to

5

acquire a short-term (2 year) investment at a very high interest rate

Even so the members of the DC Land Title Association have no objection per se to the

overall restructuring of the tax sale statutes as proposed by Bill 13-586 which would shift most of

the burden and expense ofthe process to the tax sale purchaser and which would mandate a final

court decree foreclosing the taxpayers equity of redemption before a tax deed may issue But we

note that a fundamental flaw in the tax collection process will taint the operation of any tax

collection law no matter how fairly and artfully drafted namely the accuracy and timely

production ofdefinitive statement of delinquency for real property taxes and assessments on

which taxpayers may rely

In some other jurisdictions notably Maryland deeds transferring title to real property will

not be accepted for recording until they have been certified and stamped to reflect that all taxes

and assessments are paid and current The applicable office is located in close proximity to the

appropriate recording office and providing the necessary ceItification regarding taxes is a

ministerial process which can be accomplished virtually immediately With this system taxes are

collected promptly and economically and the title insurance companies may confidentially insure

purchasers of real property and their lenders that their real property interests will not be

jeopardized in the future by liens for property taxes and assessments incurred by former owners

Tax sales become the exception not the rule

A similar law have been on the books for some time in the District of Columbia requiring j

the payment of all taxes and assessments prior to recordation It has neVer been enforced

however because the Office of Tax and Revenue is unable to provide a definitive statement of all

amounts owed for real property taxes and assessments within any kind of appropriate time frame

6

Until such time as the Office of Tax and Revenue has the resources to integrate all the tax

and assessment information which it generates itself and which it receives from other branches of

the DC government and make that information quickly available to interested parties serious

problems will remain The members ofthe DC Land Title Association are willing even eager

tax collectorst but we cannot collect taxes and assessments from sellers of real property unless we

know about them Title insurance and settlement companies could be the most effective

collection agents for these taxes owed to the District ofColumbia if the tax and assessment

information could be quickly and accurately provided prior to transfers ofreal property and

obviate the proliferation oftax sales In any event no tax sale law or procedure will be effective

ifbased on inaccurate tax information

IV RECORDATION AND TRANSFER TAX ISSUES

A Leases and Life Estates Section 504 ofBiU 13-586 [page 109] would amend D C

Code Section 47-901(3) and Section 505(a) ofBill 13-586 [page 112J would amend current law

(DC Code 47-901(3) and 45-921(3)(B) respectively) to impose transfer and recordation taxes

on leases in excess of thirty years and on ~e estates The proposed new provisions seem to

parallel to some degteethe formulas for valuation bfthe leasehold estate found in Maryland law

The proposed revisions however lack clarity and appear to require some technical corrections

For example proposed language for Section 47-903(a)(1) [page 110] probably was meant to refer

to annual not actual average rental The phrase Additional actual consideration in the

same subsection needs specific definition and defined parameters Clarity and specificity in the

fonnulas employed in calculating the consideration on which transfer and recordation taxes are

7

-----------------------------------------

---------------------------

based serve the best interest ofboth the public and private sectors

B Refinances Section 505(c) ofBill 13-586 would amend the Residential Real

Property Transfer Excise Act of 1978 (DC Code 45-923(a)(3)) [page 113] to require that the

recordation tax be paid on the full amount of a security instmment except for the first only

refinance ofexisting debt which was subject to recordation tax and for which the recordation tax

was paid At present the District imposes recordation tax only on new debt when the refinance

takes oui a purchase money security instrument Was the omission of the purchase money

exemption intentional in Bill 13-586 The loss ofavailability offavorable tax treatment on

refinances of purchase money mortgages places an onerous tax burden on commercial property

owners in the District ofColumbia

c Transfer and Recordation Tax Liability Section 405 ofBill 13-586 would amend

DC Code Title 47 by adding a new chapter 44 concerning tax collections Proposed new

Section 47-44013 Taxes related to real property recordation and transfer [page 52] seems to

impose liability for recordation and transfer taxes on the owner of the property Does this mean

that a seller responsible for paying transfer taxes gets away scot-free Is the lien ofthe delinquent

taxes intended to be in personam only or is it intended to be~ an in rem lien

V SUPERPRIORITY LIENS

Proposed new DC Code sections 47-44021 and 47-44023 [page 56J as drafted lead to

the conclusion that only withholding taxes are a super priority lien (other than in rem liens such as

real property taxes) Is this reading correct Should Section 47 A4023(c) include nonjudicial

foreclosure sales The whole area of so-called superpriority liens is in desperate need of

8

clarification

VI CONCLUSION

The Tax Clarity Act of2000 includes some improvements to the existing tax collection

scheme specifically in requiring the foreclosure ofthe equity of redemption prior to the issuance

of a tax deed However many of the proposed provisions create ambiguities which require

clarification prior to final enactment of the Bill

Moreover until such time as the Office of Tax and Revenue has the resources to integrate

all the tax and assessment information which it generates itself and which it receives from other

branches of the DC government and make that information quickly available to interested

parties serious problems will remain

Mr Chairman that concludes our testimony I would be happy to answer any questions

9

which is to simplify and clarifY tax law and procedure These proposed provisions also allow for

the continuation ofa present problem namely the virtual impossibility of obtaining easily or

timely from the DC government a single dollar amouIit representing all assessment and real

property tax liability for any given property But more importantly there is a fundamental

difference in the very philosophy of the District ofColumbia and Maryland in the tax sale process

In Maryland the goal ofmost persons who purchase at tax sale is to earn the hefty interest

rate of 18 on their tax sale investment Since the right to earn the interest is deemed extremely

valuable the bid prices in Maryland tax sales are very high frequently far more than the value of

the property much less the amount of delinquent taxes Since the full amount of the bid would

take effect in any action to foreclose the equity of redemption the instances of loss of the

property by the taxpayer are very rare

In the District ofColumbia on the other hand tax sale bidders seek to actually acquire

title to real property sold at tax sale In the case ofMalone v Robinson cecided by the DC

Court ofAppeals before the redemption period was shortened by previous Council action from

two years to six months the court bent over backwards to protect the rights ofproperty owners

responding to inequities of the tax sale process in the District of Columbia under which the right

ofredemption may have expired without the taxpayer ever knowing of the delinquency The

court found that the District cannot deprive a taxpayer oftheir property without due process

including a duty to try give adequate notice to the delinquent taxpayer

Briefly stated in the District ofColumbia tax sale purchasers seek a windfall ie

acquisition of real property at a fraction of its fair market value realizing almost all of the

taxpayers equity for a nominal investment In Maryland tax sale purchasers seek primarily to

5

acquire a short-term (2 year) investment at a very high interest rate

Even so the members of the DC Land Title Association have no objection per se to the

overall restructuring of the tax sale statutes as proposed by Bill 13-586 which would shift most of

the burden and expense ofthe process to the tax sale purchaser and which would mandate a final

court decree foreclosing the taxpayers equity of redemption before a tax deed may issue But we

note that a fundamental flaw in the tax collection process will taint the operation of any tax

collection law no matter how fairly and artfully drafted namely the accuracy and timely

production ofdefinitive statement of delinquency for real property taxes and assessments on

which taxpayers may rely

In some other jurisdictions notably Maryland deeds transferring title to real property will

not be accepted for recording until they have been certified and stamped to reflect that all taxes

and assessments are paid and current The applicable office is located in close proximity to the

appropriate recording office and providing the necessary ceItification regarding taxes is a

ministerial process which can be accomplished virtually immediately With this system taxes are

collected promptly and economically and the title insurance companies may confidentially insure

purchasers of real property and their lenders that their real property interests will not be

jeopardized in the future by liens for property taxes and assessments incurred by former owners

Tax sales become the exception not the rule

A similar law have been on the books for some time in the District of Columbia requiring j

the payment of all taxes and assessments prior to recordation It has neVer been enforced

however because the Office of Tax and Revenue is unable to provide a definitive statement of all

amounts owed for real property taxes and assessments within any kind of appropriate time frame

6

Until such time as the Office of Tax and Revenue has the resources to integrate all the tax

and assessment information which it generates itself and which it receives from other branches of

the DC government and make that information quickly available to interested parties serious

problems will remain The members ofthe DC Land Title Association are willing even eager

tax collectorst but we cannot collect taxes and assessments from sellers of real property unless we

know about them Title insurance and settlement companies could be the most effective

collection agents for these taxes owed to the District ofColumbia if the tax and assessment

information could be quickly and accurately provided prior to transfers ofreal property and

obviate the proliferation oftax sales In any event no tax sale law or procedure will be effective

ifbased on inaccurate tax information

IV RECORDATION AND TRANSFER TAX ISSUES

A Leases and Life Estates Section 504 ofBiU 13-586 [page 109] would amend D C

Code Section 47-901(3) and Section 505(a) ofBill 13-586 [page 112J would amend current law

(DC Code 47-901(3) and 45-921(3)(B) respectively) to impose transfer and recordation taxes

on leases in excess of thirty years and on ~e estates The proposed new provisions seem to

parallel to some degteethe formulas for valuation bfthe leasehold estate found in Maryland law

The proposed revisions however lack clarity and appear to require some technical corrections

For example proposed language for Section 47-903(a)(1) [page 110] probably was meant to refer

to annual not actual average rental The phrase Additional actual consideration in the

same subsection needs specific definition and defined parameters Clarity and specificity in the

fonnulas employed in calculating the consideration on which transfer and recordation taxes are

7

-----------------------------------------

---------------------------

based serve the best interest ofboth the public and private sectors

B Refinances Section 505(c) ofBill 13-586 would amend the Residential Real

Property Transfer Excise Act of 1978 (DC Code 45-923(a)(3)) [page 113] to require that the

recordation tax be paid on the full amount of a security instmment except for the first only

refinance ofexisting debt which was subject to recordation tax and for which the recordation tax

was paid At present the District imposes recordation tax only on new debt when the refinance

takes oui a purchase money security instrument Was the omission of the purchase money

exemption intentional in Bill 13-586 The loss ofavailability offavorable tax treatment on

refinances of purchase money mortgages places an onerous tax burden on commercial property

owners in the District ofColumbia

c Transfer and Recordation Tax Liability Section 405 ofBill 13-586 would amend

DC Code Title 47 by adding a new chapter 44 concerning tax collections Proposed new

Section 47-44013 Taxes related to real property recordation and transfer [page 52] seems to

impose liability for recordation and transfer taxes on the owner of the property Does this mean

that a seller responsible for paying transfer taxes gets away scot-free Is the lien ofthe delinquent

taxes intended to be in personam only or is it intended to be~ an in rem lien

V SUPERPRIORITY LIENS

Proposed new DC Code sections 47-44021 and 47-44023 [page 56J as drafted lead to

the conclusion that only withholding taxes are a super priority lien (other than in rem liens such as

real property taxes) Is this reading correct Should Section 47 A4023(c) include nonjudicial

foreclosure sales The whole area of so-called superpriority liens is in desperate need of

8

clarification

VI CONCLUSION

The Tax Clarity Act of2000 includes some improvements to the existing tax collection

scheme specifically in requiring the foreclosure ofthe equity of redemption prior to the issuance

of a tax deed However many of the proposed provisions create ambiguities which require

clarification prior to final enactment of the Bill

Moreover until such time as the Office of Tax and Revenue has the resources to integrate

all the tax and assessment information which it generates itself and which it receives from other

branches of the DC government and make that information quickly available to interested

parties serious problems will remain

Mr Chairman that concludes our testimony I would be happy to answer any questions

9

acquire a short-term (2 year) investment at a very high interest rate

Even so the members of the DC Land Title Association have no objection per se to the

overall restructuring of the tax sale statutes as proposed by Bill 13-586 which would shift most of

the burden and expense ofthe process to the tax sale purchaser and which would mandate a final

court decree foreclosing the taxpayers equity of redemption before a tax deed may issue But we

note that a fundamental flaw in the tax collection process will taint the operation of any tax

collection law no matter how fairly and artfully drafted namely the accuracy and timely

production ofdefinitive statement of delinquency for real property taxes and assessments on

which taxpayers may rely

In some other jurisdictions notably Maryland deeds transferring title to real property will

not be accepted for recording until they have been certified and stamped to reflect that all taxes

and assessments are paid and current The applicable office is located in close proximity to the

appropriate recording office and providing the necessary ceItification regarding taxes is a

ministerial process which can be accomplished virtually immediately With this system taxes are

collected promptly and economically and the title insurance companies may confidentially insure

purchasers of real property and their lenders that their real property interests will not be

jeopardized in the future by liens for property taxes and assessments incurred by former owners

Tax sales become the exception not the rule

A similar law have been on the books for some time in the District of Columbia requiring j

the payment of all taxes and assessments prior to recordation It has neVer been enforced

however because the Office of Tax and Revenue is unable to provide a definitive statement of all

amounts owed for real property taxes and assessments within any kind of appropriate time frame

6

Until such time as the Office of Tax and Revenue has the resources to integrate all the tax

and assessment information which it generates itself and which it receives from other branches of

the DC government and make that information quickly available to interested parties serious

problems will remain The members ofthe DC Land Title Association are willing even eager

tax collectorst but we cannot collect taxes and assessments from sellers of real property unless we

know about them Title insurance and settlement companies could be the most effective

collection agents for these taxes owed to the District ofColumbia if the tax and assessment

information could be quickly and accurately provided prior to transfers ofreal property and

obviate the proliferation oftax sales In any event no tax sale law or procedure will be effective

ifbased on inaccurate tax information

IV RECORDATION AND TRANSFER TAX ISSUES

A Leases and Life Estates Section 504 ofBiU 13-586 [page 109] would amend D C

Code Section 47-901(3) and Section 505(a) ofBill 13-586 [page 112J would amend current law

(DC Code 47-901(3) and 45-921(3)(B) respectively) to impose transfer and recordation taxes

on leases in excess of thirty years and on ~e estates The proposed new provisions seem to

parallel to some degteethe formulas for valuation bfthe leasehold estate found in Maryland law

The proposed revisions however lack clarity and appear to require some technical corrections

For example proposed language for Section 47-903(a)(1) [page 110] probably was meant to refer

to annual not actual average rental The phrase Additional actual consideration in the

same subsection needs specific definition and defined parameters Clarity and specificity in the

fonnulas employed in calculating the consideration on which transfer and recordation taxes are

7

-----------------------------------------

---------------------------

based serve the best interest ofboth the public and private sectors

B Refinances Section 505(c) ofBill 13-586 would amend the Residential Real

Property Transfer Excise Act of 1978 (DC Code 45-923(a)(3)) [page 113] to require that the

recordation tax be paid on the full amount of a security instmment except for the first only

refinance ofexisting debt which was subject to recordation tax and for which the recordation tax

was paid At present the District imposes recordation tax only on new debt when the refinance

takes oui a purchase money security instrument Was the omission of the purchase money

exemption intentional in Bill 13-586 The loss ofavailability offavorable tax treatment on

refinances of purchase money mortgages places an onerous tax burden on commercial property

owners in the District ofColumbia

c Transfer and Recordation Tax Liability Section 405 ofBill 13-586 would amend

DC Code Title 47 by adding a new chapter 44 concerning tax collections Proposed new

Section 47-44013 Taxes related to real property recordation and transfer [page 52] seems to

impose liability for recordation and transfer taxes on the owner of the property Does this mean

that a seller responsible for paying transfer taxes gets away scot-free Is the lien ofthe delinquent

taxes intended to be in personam only or is it intended to be~ an in rem lien

V SUPERPRIORITY LIENS

Proposed new DC Code sections 47-44021 and 47-44023 [page 56J as drafted lead to

the conclusion that only withholding taxes are a super priority lien (other than in rem liens such as

real property taxes) Is this reading correct Should Section 47 A4023(c) include nonjudicial

foreclosure sales The whole area of so-called superpriority liens is in desperate need of

8

clarification

VI CONCLUSION

The Tax Clarity Act of2000 includes some improvements to the existing tax collection

scheme specifically in requiring the foreclosure ofthe equity of redemption prior to the issuance

of a tax deed However many of the proposed provisions create ambiguities which require

clarification prior to final enactment of the Bill

Moreover until such time as the Office of Tax and Revenue has the resources to integrate

all the tax and assessment information which it generates itself and which it receives from other

branches of the DC government and make that information quickly available to interested

parties serious problems will remain

Mr Chairman that concludes our testimony I would be happy to answer any questions

9

Until such time as the Office of Tax and Revenue has the resources to integrate all the tax

and assessment information which it generates itself and which it receives from other branches of

the DC government and make that information quickly available to interested parties serious

problems will remain The members ofthe DC Land Title Association are willing even eager

tax collectorst but we cannot collect taxes and assessments from sellers of real property unless we

know about them Title insurance and settlement companies could be the most effective

collection agents for these taxes owed to the District ofColumbia if the tax and assessment

information could be quickly and accurately provided prior to transfers ofreal property and

obviate the proliferation oftax sales In any event no tax sale law or procedure will be effective

ifbased on inaccurate tax information

IV RECORDATION AND TRANSFER TAX ISSUES

A Leases and Life Estates Section 504 ofBiU 13-586 [page 109] would amend D C

Code Section 47-901(3) and Section 505(a) ofBill 13-586 [page 112J would amend current law

(DC Code 47-901(3) and 45-921(3)(B) respectively) to impose transfer and recordation taxes

on leases in excess of thirty years and on ~e estates The proposed new provisions seem to

parallel to some degteethe formulas for valuation bfthe leasehold estate found in Maryland law

The proposed revisions however lack clarity and appear to require some technical corrections

For example proposed language for Section 47-903(a)(1) [page 110] probably was meant to refer

to annual not actual average rental The phrase Additional actual consideration in the

same subsection needs specific definition and defined parameters Clarity and specificity in the

fonnulas employed in calculating the consideration on which transfer and recordation taxes are

7

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---------------------------

based serve the best interest ofboth the public and private sectors

B Refinances Section 505(c) ofBill 13-586 would amend the Residential Real

Property Transfer Excise Act of 1978 (DC Code 45-923(a)(3)) [page 113] to require that the

recordation tax be paid on the full amount of a security instmment except for the first only

refinance ofexisting debt which was subject to recordation tax and for which the recordation tax

was paid At present the District imposes recordation tax only on new debt when the refinance

takes oui a purchase money security instrument Was the omission of the purchase money

exemption intentional in Bill 13-586 The loss ofavailability offavorable tax treatment on

refinances of purchase money mortgages places an onerous tax burden on commercial property

owners in the District ofColumbia

c Transfer and Recordation Tax Liability Section 405 ofBill 13-586 would amend

DC Code Title 47 by adding a new chapter 44 concerning tax collections Proposed new

Section 47-44013 Taxes related to real property recordation and transfer [page 52] seems to

impose liability for recordation and transfer taxes on the owner of the property Does this mean

that a seller responsible for paying transfer taxes gets away scot-free Is the lien ofthe delinquent

taxes intended to be in personam only or is it intended to be~ an in rem lien

V SUPERPRIORITY LIENS

Proposed new DC Code sections 47-44021 and 47-44023 [page 56J as drafted lead to

the conclusion that only withholding taxes are a super priority lien (other than in rem liens such as

real property taxes) Is this reading correct Should Section 47 A4023(c) include nonjudicial

foreclosure sales The whole area of so-called superpriority liens is in desperate need of

8

clarification

VI CONCLUSION

The Tax Clarity Act of2000 includes some improvements to the existing tax collection

scheme specifically in requiring the foreclosure ofthe equity of redemption prior to the issuance

of a tax deed However many of the proposed provisions create ambiguities which require

clarification prior to final enactment of the Bill

Moreover until such time as the Office of Tax and Revenue has the resources to integrate

all the tax and assessment information which it generates itself and which it receives from other

branches of the DC government and make that information quickly available to interested

parties serious problems will remain

Mr Chairman that concludes our testimony I would be happy to answer any questions

9

-----------------------------------------

---------------------------

based serve the best interest ofboth the public and private sectors

B Refinances Section 505(c) ofBill 13-586 would amend the Residential Real

Property Transfer Excise Act of 1978 (DC Code 45-923(a)(3)) [page 113] to require that the

recordation tax be paid on the full amount of a security instmment except for the first only

refinance ofexisting debt which was subject to recordation tax and for which the recordation tax

was paid At present the District imposes recordation tax only on new debt when the refinance

takes oui a purchase money security instrument Was the omission of the purchase money

exemption intentional in Bill 13-586 The loss ofavailability offavorable tax treatment on

refinances of purchase money mortgages places an onerous tax burden on commercial property

owners in the District ofColumbia

c Transfer and Recordation Tax Liability Section 405 ofBill 13-586 would amend

DC Code Title 47 by adding a new chapter 44 concerning tax collections Proposed new

Section 47-44013 Taxes related to real property recordation and transfer [page 52] seems to

impose liability for recordation and transfer taxes on the owner of the property Does this mean

that a seller responsible for paying transfer taxes gets away scot-free Is the lien ofthe delinquent

taxes intended to be in personam only or is it intended to be~ an in rem lien

V SUPERPRIORITY LIENS

Proposed new DC Code sections 47-44021 and 47-44023 [page 56J as drafted lead to

the conclusion that only withholding taxes are a super priority lien (other than in rem liens such as

real property taxes) Is this reading correct Should Section 47 A4023(c) include nonjudicial

foreclosure sales The whole area of so-called superpriority liens is in desperate need of

8

clarification

VI CONCLUSION

The Tax Clarity Act of2000 includes some improvements to the existing tax collection

scheme specifically in requiring the foreclosure ofthe equity of redemption prior to the issuance

of a tax deed However many of the proposed provisions create ambiguities which require

clarification prior to final enactment of the Bill

Moreover until such time as the Office of Tax and Revenue has the resources to integrate

all the tax and assessment information which it generates itself and which it receives from other

branches of the DC government and make that information quickly available to interested

parties serious problems will remain

Mr Chairman that concludes our testimony I would be happy to answer any questions

9

clarification

VI CONCLUSION

The Tax Clarity Act of2000 includes some improvements to the existing tax collection

scheme specifically in requiring the foreclosure ofthe equity of redemption prior to the issuance

of a tax deed However many of the proposed provisions create ambiguities which require

clarification prior to final enactment of the Bill

Moreover until such time as the Office of Tax and Revenue has the resources to integrate

all the tax and assessment information which it generates itself and which it receives from other

branches of the DC government and make that information quickly available to interested

parties serious problems will remain

Mr Chairman that concludes our testimony I would be happy to answer any questions

9