IS IT TRUE? Part 2 June 2, 2011

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Buy Me! No Taxes for Two Years

IS IT TRUE? Part 2 June 2, 2011

IS IT TRUE that our article yesterday regarding the tax liability of ZERO for one Front Door Pride house inspired comments and elicited several direct responses?…that one of these responses was from the Deputy Treasurer of Vanderburgh County who proceeded to explain to us exactly how such a thing happens?…that this is a clever scheme that that begs for answers?…that the explanation that we received is believed to be legal but does show favoritism?…that just two weeks ago that the City County Observer submitted a word to both the Webster’s Dictionary and the Urban Dictionary?…that the word is SNEGAL and is defined as “SNEAKY BUT LEGAL”?… that SCHEMES like the one that takes residential properties off of the tax roles for a couple of years in a LEGAL way are the reason the word SNEGAL will be a part of the English language in the near future?

IS IT TRUE that the buyers of the Front Door Pride homes are not a part of the SCHEME and are in many cases not even aware of the favoritism that is awarded to them?…that the buyers of these homes are innocent as sheep when it comes to taxation of their property?…that the following is a narrative of how this little SCHEME works?

IS IT TRUE that the first step of this scheme starts when the City of Evansville or any city for that matter acquires a property that is zoned residential?…that the second step in the scheme is to TRANSFER OWNERSHIP OF A PROPERTY TO A 501-C3 NON-PROFIT?…that the third step of this scheme happens when the 501c-3 non-profit is granted an exemption in the amount of the previous assessment under the “other” category?…that in the case of the Front Door Pride program that the entity that is used to hold the properties is called Hope of Evansville?

IS IT TRUE that step four of this scheme is to construct a new dwelling on the property and place it on the market?…that pricing does not matter to this scenario?…that the next step is to wait for a buyer?…that if a buyer is never found that these properties are permanently off of the tax rolls?…that the time to find a buyer is currently about a year during which time there are no taxes paid on these homes?…that when a buyer is found the clock starts for going back onto the tax rolls?

IS IT TRUE that the property taxation system in Indiana has a time lag of between 18 and 24 months to catch up to a transaction?…that is why the taxes that were just paid were the 2010 taxes that were due in 2011?…that those taxes are usually based on assessment that happened in 2009?…that in the case of a property that was held in a 501c-3 non-profit that is transferred to private ownership that the ZERO tax obligation does not change until the roughly the first May 10th, following the second March after closing the transaction?…that the buyers of the Front Door Pride Homes that were held by Hope of Evansville inherit at least 3 and in special cases 4 tax payment cycles with ZERO tax liability due to the time it takes to a) remove the full assessment exemption, and b) reach the time when a year has passed when taxes are actually due?…that if you or I were to purchase one of the six Phase 2 FDP homes that are currently on the market today that the first date that we would be getting a real tax bill based on the sale price of the house will be due May 10, 2013?…that to enact and embrace a system that is this inefficient and preferentially benefits a select few is just asinine and needs to be changed so that it is fair to all Hoosiers?

IS IT TRUE that this convoluted system actually works as it was designed but that it has serious design flaws?…that simply changing assessments immediately upon sale is one step to eliminate part of this loophole?…that immediate elimination of all 501-c3 based exemptions upon sale will cut a year off of the time lag that is inherent in our system of taxation?…that this system is SNEGAL but is not SNEGAL on the part of any buyer?…that the SNEGALITY that deserves some examination lies in the basis for transferring the property to a 501c-3 in the first place and in the complacency with the removal of the exemptions granted that were based solely on the fact that a 501c-3 non-profit organization was used to hold the property?

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5 COMMENTS

  1. You are right that there are design flaws, but please explain how any of this is sneaky? If I buy the property in December of this 2011, the two installments due in 2012 are for a time period that I didn’t even own the property. So rightfully, the first bill of the new assessed purchase price would be the May 2013 installment. The flaw is actually in the Vanderburgh Co buying process. It is customary in most other parts of the country for the taxes to be prorated and the seller to give the buyer a credit for the next year’s installments due, but Vanderburgh Co can’t be normal and do it that way.

    You seem to imply that the sneaky part is the transfer to the nonprofit that is exempt from taxes. I’m not sure what the purpose of this is, and would like to hear the reasoning, but even if the City kept title in its own name, it would be paying taxes to itself with a net gain of zero, same as the nonprofit, correct?

    • I would guess that the transfer to a not for profit has to do with one or all of the following.

      1. Where the actual money came from to buy/build the house (Fed)
      2. What the actual cost of raising the property and building the FDP property
      3. The selling price of the finished FDP property VS #2

      Take it out of the city’s hands turn it over to a non profit, lengthens the money trail and diverts the bad investment out of the city’s control….ie cost $200k to build but only sells for $80k so the city can’t be blamed for misappropriating federal grant money, or making a truly bad investment with public funds.

      I do have to agree it’s probably SNEGAL but it does reek to high heaven.

    • Your last paragraph is the only part of this scheme that we consider to be sneaky. We assume that it is legal but have not tested that. As you correctly point out the if the property were kept in the city’s name the taxes are a net zero transaction. It would seem that the only financial reason to transfer this to a non-profit is to game the system so that the benefit is passed on to the buyer. That would be sneaky.

  3. How about another Urban dictionary suggestion?

    “News Winchor”
    ————–
    (pronounced, winker, but not to be confused with the urban definition already in use for “winker”, as this would be spelled differently.): Winchor would be the combination of Winker (Websters version) and Anchor.

    Like a prized stallion, the anchor, looks pretty and has great capabilities. But like a stallion wearing his winker, the “News Winchor” is largely unaware of the events going on around him/her. (If you don’t know what a winker is, look it up…)

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