Current, former committee chairmen: Dept. of Revenue not adhering to intent of bill
The two committee chairmen who ushered through the Capitol a bill they thought would clarify tax liability-calculation rules for Section 42 housing developments said last week the Department of Revenue had been ignoring the bill’s intent.
Passed during the legislative session in 2005, Senate Bill 3100 directed tax assessors to use the income capitalization approach when figuring the ad valorem tax bills for Section 42, or what are commonly called affordable rental housing, developments. The income capitalization method takes into account all income derived from a development, including the revenue from sales of federal tax credits developers are awarded for building Section 42 housing.
Shortly after Gov. Haley Barbour signed the bill in 2005, the then-State Tax Commission amended its Land Appraisal Manual to preclude tax credit-sale revenue, which can run into the millions of dollars, from the assessors’ calculations. The only income they could count was whatever rent tenants paid. Because the federal government caps the rent on Section 42 housing, the ad valorem tax liability was limited.
The Mississippi Association of Supervisors, the Mississippi Municipal League and a few dozen cities and counties have sued the Department of Revenue (formerly the State Tax Commission) in an effort to allow the tax credit-sale revenue to be counted. The lawsuit was filed in Hinds County Chancery Court.
In the complaint, the plaintiffs allege the loss of tax money tied to the sale of tax credits has created an unfair financial burden, and that the Department of Revenue has been ignoring legislative intent since shortly after the 2005 bill became law, when the agency’s Land Appraisal Manual was amended.
House Ways and Means Committee Chairman Rep. Percy Watson, D-Hattiesburg, and former Sen. Tommy Robertson, who chaired the Finance Committee in 2005, said last week that the bill they started on its path to Barbour’s desk intended for revenue generated from the sale of tax credits to be counted in the overall tax liability configuration.
“It was not our intent that the legislation be interpreted the way the tax commission interpreted the bill,” Watson said in an interview with the Mississippi Business Journal. “It was a matter of them implementing it in a way different than the way we had drafted the bill.”
In the 2010 legislative session, Watson’s Ways and Means Committee sent a bill to the House floor, where it passed, that would have exempted 35 percent of the revenue generated from Section 42 housing from ad valorem taxes. That bill died in the Senate Finance Committee.
Robertson, who is now in private practice as an attorney in Moss Point, echoed Watson’s assertion that the Department of Revenue has misinterpreted the 2005 bill.
“The intent of the bill was, in those types of housing developments, the income approach would be used. The income approach basically meant (accounting for) all the revenue generated off of it. (Tax credit sale revenue) would be included in that. It’s the whole package. A private housing development, you take in their revenue, land value, everything else. The same should be true for these Section 42s. That was the intent, that all sources of revenue would come into play.”
Reached on his cell phone, Joe Blount, who was chairman of the old tax commission when the 2005 changes were made, said he remembered meeting with officials from the MAS and a handful of tax assessors, but could not recall the details of those meetings.
Blount, who said he was unaware of the lawsuit against his old agency, left the tax commission in 2008 after four- and-a-half years.
“We made several changes (to the appraisal manual) while I was there,” he said. “I don’t remember ever having any kind of comments on any of the changes we made.”
Joel Yelverton, who was the executive director of the Mississippi Association of Supervisors in 2005, did not return a message left on his cell phone.