Owners Complain of Double Tax

Every month, many people who belong to homeowners’ associations must pay assessments to cover necessities like lighting, trash removal and sewers. Frequently, they also pay local property or real estate taxes that theoretically cover the same services.

This has led many homeowners’ association activists to complain that they are subjected to double taxation.

In New Jersey, politically potent homeowners’ association residents pushed for a landmark law that deals with the question of double taxation. The law, which is being contemplated in several other states but not as yet in California, requires local governments to reimburse homeowners’ associations for services that they are providing with funds from assessments.

“There’s a fairness to this type of legislation since homeowners get some relief from paying twice,” said Richard Fiore, chair of the California Legislative Action Committee of the national Community Assn. Institute. “A lot of homeowners are quite concerned because they’ve got to pay upkeep for private streets, road maintenance, green-area maintenance, et cetera and they’re paying the same property tax they would otherwise be paying.”

But while many in the homeowners’ association community applaud the new law, others criticize it as setting a dangerous precedent.

“The argument goes, ‘If I have private parks and private streets, then I should not have to pay for any public parks, or for cleaning public streets.’ But it’s a fallacy that people who live in associations do not use the public parks and the public streets,” said Evan McKenzie, a political scientist and former association attorney who has written a book on homeowners’ associations.

Ben Lambert, a real estate attorney representing the Community Assns. Institute in New Jersey, argues that the law passed in his state reflects the history of homeowners’ associations.

“Most of these associations were created so that municipalities would get all the benefits but none of the burdens of large groups of homeowners,” Lambert said. But if the homeowners do not burden local governments with needs for services, than they should not be paying for those services, he said.

New Jersey homeowners’ association residents first began flexing their political muscles over the taxation issue in the late 1980s. There are close to 1 million people living in community associations, including retirement communities, in New Jersey. “Because of their numbers, they got the ears of senators and assemblymen,” Lambert said.

That led to the Municipal Services Act, first drafted in 1989, which mandates that services such as garbage removal, street sweeping, recycling pickup and street lighting must be provided by municipalities. Alternatively, the municipalities can choose to provide reimbursement to the homeowners’ associations in lieu of services.

To ease the financial burden on local government, the law was structured so that the reimbursement payments would be phased in over five years. The law went into effect on Jan. 1, 1993 after several years of legal haggling.

Under the five-year plan, towns will have to reimburse 20% of the services’ cost each year until 100% reimbursement begins in the fifth year.

As a result of New Jersey’s experience, Lambert said, Florida, Virginia, Connecticut and Pennsylvania are looking into similar legislation.

But California has not yet opened the double taxation can of worms. “Nothing has happened in California yet and I don’t suspect it will in the near future, with our cities and counties in such bad financial shape,” said James Beaver, counsel for the state’s Department of Real Estate.

“In California, the total homeowners’ assessments paid each year are close to $3 billion,” McKenzie said. “What would happen to Orange County, where 80% of the new housing over the last 15 years has been in common-interest developments, if a law like this was passed there? They’d have to sell the courthouse in Santa Ana at an auction if they exempted property taxes for CID owners.”

Nationwide, McKenzie said, homeowners’ association residents pay about $20 billion annually in assessments.