Residential Tax Exemption Reduced

CHATHAM – The select board voted Jan. 13 to lower the proposed property tax exemption for year-round residents from 35 to 20 percent. 

The vote was 3-2, with Select Board member Cory Metters joining Chair Dean Nicastro in opposition to the exemption. In September, the board’s vote in support of a 35 percent exemption was 4-1, with only Nicastro dissenting.

Complications regarding how the exemption would apply to properties held in trusts factored into Metters’ decision. Only certain trusts will qualify for the exemption, and the deadline to change trust documents to comply was Jan. 1. Officials concede that they don’t know how many of the 1,500 properties held in trust belong to year-round residents; if those held by year-round residents do not meet the specific requirements, they might not be eligible for the exemption if the board votes to implement it when the tax rate is set in September.

“There’s not enough clarity” on the trust issue, Metters said. “I’d like more information.”

Nicastro continued to vociferously oppose any exemption, calling it a “very foolish idea.”

“I think by nature it’s divisive,” he said. “It divides nonresidents vs. residents, it divides residents vs. residents. That’s bad.”

A number of others spoke out against the exemption while supporters defended it as a way to provide financial relief to year-round residents trying to cope with the town’s high cost of living.

“We must do things to help the folks who live in this community,” said board member Stuart Smith. “And this is one of the things that we can do, and I intend to continue supporting it.”

If the select board votes to enact the residential tax exemption when it sets the fiscal 2027 tax rate in September, Chatham would join six other Cape towns and Nantucket in giving year-round residents a break on their property taxes; Orleans is also planning to adopt the exemption. The exemption percentages in the towns range from 5 percent in Eastham to 35 percent in Provincetown.

In order to implement the exemption, the assessing department will require additional part-time staff to process applications. Assessing Director Candace Cook said to implement the exemption for the next fiscal year, the department would need to start accepting applications as soon as possible, and would need to hire a new staff member now. Funds are available to do so within the current budget, due to the retirement of Assessing Director Ardale Kelley, but $26,000 would have to be added to next year’s budget to fund the position, she said.

“If we’re going to do this, we need to start early,” said Finance Director Carrie Mazerolle. “We need to get as many people to apply for this as possible as soon as possible, because of the effect on our overlay.”

The town will have to appropriate additional money to the assessors’ overlay account to make up for the exemptions in next year’s budget. Along with voting to set the exemption level at 20 percent, the board voted last Tuesday to use $500,000 in free cash and use $500,000 in existing overlay funds. That’s based on an anticipated 60 percent participation rate in the exemption’s first year. 

Under the 20 percent exemption, a year-round homeowner would see a property tax reduction of $719 on the average home value of $1.7 million. Nonresidents would see an increase of $601 on the average home value. Of the town’s 7,403 residential properties, 3,257 or 44 percent are owned by year-round residents, while 4,146 or 56 percent are owned by nonresidents. There is a break-even point with a property value of around $3.7 million where both year-round owners and nonresidents would pay the same rate.

The trust complication caught officials off guard. To qualify for the exemption, according to state law, a homeowner must be both the trustee and beneficiary of a trust. Properties held by LLCs do not qualify for the exemption. Officials don’t know how many of the 1,500 properties in trust are owned by year-round residents or how many meet the criteria for an exemption, Cook and Mazerolle said. That’s one of the reasons additional staff is needed; legal assistance will also likely be required, they said.

The trust details must be in place by Jan. 1, so any resident whose property is in a trust but does not meet the criteria will not get the exemption in the first year.

“That’s going to be unhappy news to some people,” Nicastro said.

Property owners must apply for the exemption just once, Cook said, but it’s anticipated that only 60 percent of residents will apply the first year. Applicants must provide documentation of year-round residency as well as tax returns and other documents.

“Once it’s implemented, then it’s just maintaining,” said Cook.

Board member Jeffrey Dykens previously supported the 35 percent exemption, but said last week that was “too aggressive.” Twenty percent is “the sweet spot” that provides substantial savings for residents and does not overburden nonresidents, he said.

“Twenty percent strikes a pretty good balance,” he said.

The trust issue shows that the board did not do enough analysis before voting to back an exemption, said summer residents advisory committee member Jeff Spalter. He noted that there are more than a dozen other tax exemptions available to resident property owners that are based on need, “but they don’t seem to be well understood or well utilized. Only 87 properties are using those exemptions today.”

He said he was concerned that the board was making a drastic change to tax policy without understanding if it was necessary. He called for the board to “step back, take a breath, determine who is in financial need and determine how we can all best help them,” rather than shifting the tax burden onto nonresidents.

Resident Michael Young said if an owner has to alter trust documents, the cost can absorb several years of tax savings under the exemption.

Resident Nicole Stern said she agreed the exemption was “a good thing to do,” but suggested that it be postponed until more is known about the trust issue. “I think we need more time,” she said.

Don Drinkwater, a member of the summer residents advisory committee, said nonresidents use fewer services than residents and don’t send kids to local schools but don’t ask for lower taxes.

“It just doesn’t seem fair,” he said. “I don’t understand why there is not an appreciation for the people who do come in, who do invest in the town, and who do pay their taxes and do not expect more from the town. Why ask for more?”

A group of resident homeowners have put together a website, Chatham Responsible Tax Payers Alliance (chathamrtpalliance.com/), to make the case against the exemption.

Lifelong resident Rob Stello said the exemption should be postponed and more research done to ensure that it actually helps year-round residents. The exemption has become a divisive issue, he said.

“We’re all one team here,” Stello said. “I don’t see anyone here saying they don’t want to help anyone who really needs it.”

The exemption has been in the board’s sights for several years, said member Shareen Davis. “There has to be a time that we just go for it and try it,” she said. Putting off a decision “just kicks the can down the road,” she added.

Adoption of some state laws that allow other types of tax exemptions will be on the May annual town meeting warrant, said Dykens.

“The residential exemption is a tool in our tool box, as [much of a] cudgel as it is,” he said. “It’s not a surgical knife but a tool in an attempt to provide relief to year-round residents.” Both Dykens and Smith said while they will benefit from the exemption on their primary residences, they also own second homes on which they will pay the higher tax rate.

Dykens added that even with the exemption, the tax rate on nonresident properties will still be “ridiculously low.”