Pictured above: A modest two-bedroom home built in the 1970’s is dwarfed by its neighbor — a more recent eight-bedroom villa.
If you’ve ever wondered how the Office of the Tax Assessor calculates the value of your property, you’re not alone. Property tax assessments have been a source of confusion and controversy for nearly two decades, but the turmoil reached its peak on St. John following the 2006 revaluation at the height of the housing bubble.
“I had my property appraised, and the value my appraiser gave was hundreds of thousands of dollars less than the assessment on my property tax bill,” said Myrtle Barry, a member of the Williams family that has owned property in Great Cruz Bay for several generations.
Outraged by her sky-high property tax bill, Barry started organizing other concerned property owners on St. John. Along with Lorelei Monsanto, Pam Gaffin and others, Barry formed the Virgin Islands Unity Day Group and successfully challenged the 2006 revaluation. As a result, the property tax rates in 2008 reverted to the rates set in 1998 and remained at those levels through 2012.
By law, the government must conduct a revaluation every five years, and in 2013 the government conducted another revaluation that is currently in effect.
The Office of the Tax Assessor’s website contains a brief explanation of how the 2013 rates were set:
“The 2013 property tax bills are based on new property values which reflect the USVI real estate market as of January 1, 2013. The recently completed revaluation was conducted by the Tax Assessor’s Office, as required by law.
“The values are based on neighborhood sampling and analysis of arms-length sales that took place from 2009 through 2012, with a time adjustment to bring them to January 1, 2013. For commercial properties, income and expense questionnaires submitted by USVI commercial property owners were analyzed and an income approach to value was applied.
“Valuation methods and standards recognized by the International Association of Assessing Officers (IAAO) were employed throughout the revaluation.”
The V.I. Unity Day Group, however, claims the entire system for evaluating property is flawed and tax bills from 2013-2015 should be rescinded.
In fact, in February 2015, Unity Day filed a suit on behalf of 500 property owners. “The goal of our case is to bring fair property assessment to St. John,” said Barry.
Property values on St. John have continued to rise faster than on St. Thomas or St. Croix partly because of the presence of the Virgin Islands National Park which encompasses nearly 60% of the land.
The scarcity of land available for development has driven up property prices while the pristine nature of the island attracts a robust market for luxury villas.
St. John has carried more than its share of the property tax burden; although its population is only about 5% of the overall population of the territory, its property owners pay 23% of collected property taxes.
Because the current mass appraisal system bases the value of property partly on comparable sales within neighborhoods, St. Johnians who have lived in modest homes have found that their property taxes have increased when someone builds a luxury villa next door.
The fear now is that St. Johnians are being forced to sell their land because they cannot pay their property tax bills.
“I know of elders in our community who live on Social Security and who have had to borrow $20,000 every year, or sell a piece of their land in order to pay their taxes,” said Pam Gaffin, an accountant who has become an expert on the Virgin Islands property tax system.
Gaffin joined up with Unity Day when her own home, a simple, small, wood cottage, was taxed as if it was a vacation villa with luxury amenities and a dazzling view. She filed an informal appeal, and after not receiving a response from the Tax Review Board, filed a formal appeal which she won.
To educate herself, she pored over data from the Office of the Tax Assessor’s database and Map Geo site and ended up creating her own database. For her hearing, she prepared five pages of testimony in tiny print citing inconsistencies in comparable land values, violations in property tax law, and flaws in the formula used for the mass appraisal in 2013.
Why the 2013 mass appraisal does not work
According to Gaffin, the 2013 mass appraisal is impossibly flawed for several reasons.
One reason mass appraisal does not work on St. John is that it is designed for stateside subdivisions where all the homes in a particular area were built within a certain time period and are of similar value. The homes may vary to some degree—one may have a carport and another a garage; one may have an extra bedroom and another a swimming pool–but these factors can be accommodated within the formula for determining the tax value.
Although there are areas in St. John where all the homes are of similar value, such as Peter Bay where all the homes are luxurious, it is not true throughout most of the island where plywood shacks and concrete villas share the same estate road.
Another reason the formula doesn’t work well, according to Gaffin, is that it includes features that are rarely used in local construction, such as attics and garages, but doesn’t include elements that are important for island living, such as cisterns and hurricane-proof roofing construction.
Furthermore, Gaffin contends that data for determining comparable sales only exists for luxury homes, which are bought and sold for investment purposes, but not for homes for under $500,000 where ordinary people live. “How many local people do you know who have sold their homes to outsiders?” she asked.
“People from here keep their homes for their children. They may sell off a piece of land when they need money, but they can’t sell their home because where else would they go?” In the current market, downsizing to a smaller unit would be more costly than staying where they were, she said.
Finally, based on the map published by the Office of the Tax Assessor, data is missing for huge portions of the island, especially on the East End of St. John. The data is “fairly okay” for the South Shore of St. John, Gaffin said, but “if a property has never been part of a massive subdivision, the record is no good.”
All of this means the Office of the Tax Assessor has a pretty tough job ahead if it wants to establish a new formula for a mass revaluation. It’s one of the reasons that Lieutenant Governor Osbert Potter has established a Property Tax Reform Task Force which has been meeting monthly since April.
“It would be really hard to come up with a formula for a mass appraisal that would work for St. John,” said Gaffin. “Robert Glouderman, the man who literally wrote the book on this for the International Association of Assessing Officers (IAAO), said it could be done, but he would need a list of details from a certified appraiser and include all the variables that apply here. And he would need to include non-investment houses that rarely sell because people live in them and have nowhere else on island to move.”
If an accurate formula was created, a second problem would have to be addressed, and that is finding enough qualified people (certified by the International Association of Assessing Officers) to go house-to-house and appraise the homes throughout the island. The lack of qualified personnel for such a task was one of the reasons the 2006 revaluation was declared invalid, according to Myrtle Barry.
A solution: “Last fair price paid”
Designing a revaluation formula, training the personnel, and gathering the data for a mass appraisal is technically possible, but the entire process would be massively expensive.
Gaffin has identified a solution, one that has been used in various locations throughout the U.S., which is much simpler, cheaper and easier to implement. It simply says that the value of a particular property will be based on the “last fair price paid.”
“’Last fair price paid’ means the property is worth whatever you paid for it, or if it was inherited, whatever your granddaddy, or great granddaddy, paid for it. If the price was $250, then that is the value. If the price was $5 million, then that is the value. Of course, if you build improvements on the property, the value would increase by the amount it cost you to build the improvement,” said Gaffin. Improvements could be verified by plans submitted to public agencies.
Such a provision was invoked in order to keep land prices from escalating, speculators from profiting, and local people from bearing the ensuing tax burden when the Divi Carina Resort and Casino was built on St. Croix, according to Gaffin.
Gaffin enumerates the advantages of this system. It would:
- Eliminate the need for native families to sell or develop their land to pay the property taxes every year.
- Save the approximately $5 million cost of doing mass appraisals every five years.
- Reduce the workload in the Property Tax Office since most of the data will come from the Recorder of Deeds and the Department of Planning and Natural Resources (for new construction.) The need for many certified appraisers would also be eliminated.
- Reduce the massive number of cases to be handled by the Board of Tax Review.
- Generate more revenue. All of the owners of extremely expensive properties bought on St. John and other islands would finally be paying taxes on the actual purchase price.
- Avoid a lengthy court case—The V.I. Unity Day Group is prepared to go to court if the mass appraisal system is used for any tax bill.
A bill proposing this “Last fair price paid” system has been drafted by the Virgin Islands Legislature. Sponsored by Senator Myron Jackson and Janette Millin Young, and co-sponsored by nine other senators as of September 2015, Bill Number 31-0234 is still awaiting consideration by the full Senate body, according to Toya Malone, Senator Jackson’s chief of staff.
It remains to be seen whether this system will generate or exceed the $76,644,290 in property tax billing for the territory sent out for 2015. Common sense suggests it may be time to start crunching the numbers in order to find out.
Property tax bills for 2016 will be issued by the end of June, according to the Office of the Tax Assessor.