In Defense of Good Tax Collections

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May 5, 2013 Comments Off on In Defense of Good Tax Collections Manager

In Defense of Good Tax Collections: Everyone is Expected to Pay

 

Perspective

Since 2002, my office has processed over 7.8 million property tax payments totaling over $17.4 billion dollars. Of those payments only 2% represented payments by third parties for the transfer of tax liens.

 

Collection Practice

Taxpayers and taxing authorities benefit when ALL taxpayers pay taxes on time. With everyone paying taxes, timely, no one taxpayer pays more to make up for the property owner not paying their fair share. Taxes paid on time enables the taxing authorities (schools, county, cities, etc.) to more accurately set taxing rates that will ensure they are able to provide services expected by their constituents. A very small percentage of taxpayers either decide not to pay or are unable to pay their taxes timely.

I am elected to collect taxes for Fulton County and take great pride in providing high collection rates for the taxing authorities in a manner that is best for ALL taxpayers. Given the size of Fulton’s tax digest, the volume of collections, the complexity of distributions, the deadlines taxing authorities must meet to avoid penalties, and the numbers of liens, relative to any other county in Georgia, our practices are most efficient and least costly, while optimizing tax collections for the taxing authorities. The model that works for Fulton County, the largest in the state, is not, necessarily, the model for less complex counties. Due to the varying and many taxing opportunities in each county or city, flexibility in Georgia law allows authorities to utilize the practice that works best for their circumstance. It is my aim to collect taxes in the most efficient and effective manner, benefiting taxpayers and the taxing authorities, using the resources provided by the Board of Commissioners and the collection tools provided by the State legislature as Georgia law. The tax lien transfer model works best for Fulton County.

While other metro counties and the State struggle to balance budgets during this economic downturn and reduction in property values, Fulton County was fortunate to have weathered the storm without raising millage rates, cutting services, or layoffs, due to a combination of high tax collections and skilled budget decisions by the Board of Commissioners.

Always on the forefront of my mind is not just what is best for the taxing authorities but also what is in the best interest of both the taxpayer who pays taxes timely and the property owner who does not—for whatever reason. By law, a tax commissioner or tax collector in Georgia has three options when it comes to delinquent taxes:

1. Do nothing and let the payment of taxes be voluntary.

Under this practice the taxing authorities would be required to raise taxes to make up for the uncollected taxes, or cut services. Neither of these alternatives is fair or advantageous to the 98 percent of taxpayers who pay their taxes. Any tax commissioner or tax collector would be derelict in their duties to take no action to collect delinquent taxes.

2. Foreclose on property after taxes become delinquent. This model is preferred by most tax commissioners and tax collectors. I understand that taxpayers have worked hard to acquire their properties, therefore, tax foreclosure is a last resort in my collection options.

The process of foreclosing to collect delinquent taxes is somewhat lengthy and expensive. Counties and cities choosing to foreclose as their means to collect delinquent taxes may utilize a third party to handle the foreclosure process (title work, notices, posting, advertisement, sale, etc.) or handle the process in house, or a combination thereof. Because this practice is a somewhat lengthy, one under which the tax commissioner or tax collector must prioritize which properties are foreclosed on each month, it is not an efficient means of collecting delinquent taxes but can be effective. Taxpayers paying timely will absorb the cost of foreclosures, whether it is an increase in taxes or a reduction in services.

If the process is handled in house, there is an additional cost for the resources utilized to perform this function only some of which can be charged to the property being foreclosed on. The non-reimbursed costs must be borne by the tax office and ultimately by the greater majority of taxpayers that pay their taxes.

For those tax commissioners and tax collectors that utilize a third party to handle the foreclosure process or portion thereof, some of the additional cost for resources utilized to perform this function may be offset through the use of the third party. Some of the third party costs may also be added to the fees applied to the delinquent property.

As properties are identified for foreclosure, fees are immediately applied to the delinquent property in addition to the 1% per month interest and 10% penalty and additional fees throughout the tax sale process. The foreclosure process can be initiated as soon as the lien is applied which can be just 30 days after the tax due date. Whether done in house or with the use of third parties, the process is more costly to the taxpayers who pay their taxes, it is more costly to the delinquent taxpayer, and it is a much more expedient process for the delinquent taxpayer to lose their property.

3. Transfer tax liens. Preferred in Fulton County.

To understand tax lien transfers one must first understand that a tax lien transfer is not the same as a tax foreclosure. The transfer of a tax lien simply means that a third party pays the county the delinquent amount owed on a property and acquires the legal ability to collect the debt. The party taking transfer of a tax lien has no rights to the property whatsoever and cannot begin foreclosure actions on the property until 12 months after the date of the transfer. The third party can only charge 1% per month interest on the amount paid for the tax lien, the same one-time 10% penalty as could be charged by the tax office, and actual recording costs. Any additional fees may only be charged by the sheriff.

Unlike tax foreclosures, there are no additional resources required when transferring tax liens resulting in no additional cost to the tax office or taxpayers. By transferring tax liens, the delinquent taxpayer is provided at least an additional 12 months before foreclosure actions can begin. Lien transfers give governments and school boards immediate revenue, and I have authority for flexibility, and reversibility if necessary. It is the least costly of the three options for ALL taxpayers and provides the delinquent taxpayer additional time to pay taxes before risking the chance of foreclosure.

 

History

Lien transfers were conducted in Fulton County prior to my joining the county as Tax Commissioner in 1997. In 1994, the County issued a Request For Proposals for parties interested in purchasing a substantial backlog of delinquent tax fifas or liens. Capital Asset was the only bidder. The contract was approved by the Board of Commissioners as was the law at that time. It provided for Capital Asset to purchase the liens for 92% of their value. (I transfer them at 100 percent of face value.) The then County Manager, Gen. John Stanford, stipulated the transaction had to be consummated by the end of the calendar year.

Timing is still important, since by law, Tax Anticipation Notes and other loans are due by December 31st of the calendar year. It would be unethical for me as Tax Commissioner to forego an opportunity to collect and distribute taxes to the two School Boards, five cities, 14 Tax Allocation Districts, and 7 Community Improvement Districts, so the County may benefit from penalties it did not anticipate, to the detriment of those authorities. By law, only Fulton County benefits from penalties.

In 1997, my first year as Tax Commissioner, the collection rate was less than 89% with a rising millage rate. The delinquent taxes were $204 million with yearly tax receivables of less than a billion dollars. That delinquent amount is on par with Detroit today—a city in decay, with a collection rate of about 50%, where tax payment is voluntary, and services virtually non-existent. In 1997 we boosted the collection rate to 96% and began an unprecedented run of no millage rate increases in Fulton County. Today, the collection rate is 99%, even with the economic downturn. The citizens of Fulton County benefited with lower taxes because everyone was required to pay their fair share.

In 2002 the Georgia Legislature (HB337) banned the sales of tax liens by repealing the statute that made lien sales legal, Ga. Code §48-3-19. The legislature failed to repeal a separate code section which the Court ruled legal for lien transfers. Instead of closing this oversight, in 2006 the legislature enacted new tax lien transfer legislation (SB585) allowing for the transfer of tax liens.

Capital Asset was the first dominant purchaser of tax liens in Fulton County. Today it is VESTA Holdings. VESTA continually does due diligence on available properties and acts quickly with large lien purchase requests.

 

Opposition
The loudest voices raised against tax sales come from property owners or officials who did not pay taxes at all, paid late, or were in violation of tax laws. The perennial sponsor of bills to curtail lien sales or limit my compensation is Representative Wendell Willard whose liens were transferred several years for non-payment of taxes. Of my critics on the Fulton County Board of Commissioners, Commissioner Hausmann had liens issued and recorded, and Commissioner Pitts had two homestead exemptions at once. In 2002, the main sponsor of the legislation making the Tax Commissioner position in Fulton County an elected position was then Representative Douglas Dean who did not pay taxes on many properties owned by his development company. Liens were therefore applied and subsequently transferred. Representative Jan Jones was late in paying taxes one year and after having been sent a subsequent tax bill and a notice of intent to issue fifa, a lien was placed on her property. Payment was not received and the lien was transferred. Cox Enterprises, parent company of the Atlanta Journal Constitution, had liens transferred in 2010. No one is above the law.

Some believe it is the tax commissioner or tax collector’s responsibility to maximize tax collections whereas I believe it is to optimize tax collections. With Georgia law requiring a 1% per month interest charge and a one-time 10% penalty after 90 days charge to delinquent accounts, to maximize tax collections one could conceivably let as many taxpayers become delinquent as possible and allow the delinquent taxes sit as long as possible before being collected. In that way the taxing authorities could get a return in the first year of 22% and 12% per annum thereafter. It may sound good from a strictly financial investment standpoint but not practical in a taxation and service environment. I would question any taxing authority allowing this to occur. A taxing authority delaying to collect for this reason could also be viewed as overtaxing citizens since governments should not seek to profit off the backs of taxpayers, but tax them only to cover the cost of providing necessary services.

10% Penalty

Any penalty charged by the Fulton County Tax Commissioner and collected on delinquent property taxes is distributed solely to Fulton County under Georgia Law. The Fulton County School Board, Atlanta Public Schools, City of Atlanta, City of Sandy Springs, City of Johns Creek, City of Chattahoochee Hills, City of Mountain Park, the 7 Community Improvement Districts and 14 Tax Allocation Districts have always expressed their need for me to optimize the collection of taxes and expect efficient collection and distribution. To defer the collection of taxes to the possible benefit of one entity would be improper and unethical. Under Georgia Law, Tax Anticipation Notes acquired by almost all taxing authorities must be repaid by December 31st making the timely collection of taxes essential. Tax collection rates and the timely collection of taxes are an essential part in the borrowing ability and credit rating of the taxing authorities.

Georgia Law states “The 10 percent penalty shall be paid over to the county to assist the County in paying the expense of collecting the delinquent taxes.” For tax liens transferred to third parties, the expense and risk of collecting delinquent taxes is borne by the third party. This alone saves the 98% of taxpayers who pay their taxes timely the expense of funding collection actions on the less than 2% of taxpayers who don’t. In the statute legalizing the transfer of tax liens, the State Legislature specifically allows third party transferees of tax liens to charge and collect the 10% penalty. The County is not entitled to the penalty when the transfer takes place as there was no expense incurred in the delinquent collection.

To be clear, selling tax liens is legal. It is Georgia law.