The Tribune

• But 84% of Bahamian owner-occupied homes compliant

• Foreign owners provide greatest enforcement challenge

• Realtors query ‘disconnect’ between Act, Tyler valuations

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Some 70 percent of commercial properties are in arrears on their real property tax payments, it was revealed yesterday, although a “high proportion” of Bahamian homeowners are compliant.

Realtors told Tribune Business that government officials disclosed during Tuesday’s meeting between the two sides that 84 percent of taxable Bahamian-owned properties on the roll are up-to-date with their payments while, in contrast, foreign-owned real estate provides the greater enforcement challenge.

Multiple Bahamas Real Estate Association (BREA) members said the encounter with Ministry of Finance and Department of Inland Revenue (DIR) officials, which was held to address private concerns over the recent real property revaluations and subsequent hikes of up to 435 percent in some tax bills, did not address concerns over the exercise’s legality.

BREA had previously voiced fears that US-based Tyler Technologies, which was contracted by the DIR to conduct the New Providence-wide mapping exercise behind the triple-digit tax bill increases, could not legally conduct appraisals/valuations in this nation because it is not licensed to do so.

However, senior brokers and appraisers said the meeting instead focused on the process by which homeowners and businesses can challenge their tax bills, as well as an assessment of the data and mathematical algorithms employed by Tyler and the DIR to come up with valuations that have caused an outcry among those subject to steep increases.

Both Mario Carey, the Better Homes and Gardens Real Estate MCR Group Bahamas principal, and David Morley, Morley Realty’s president, told this newspaper that while the meeting was “a step in the right direction” in terms of the willingness to engage with the real estate profession there were still several questions that had gone unanswered.

In particular, Mr Carey said it appeared there was a conflict involving the recent New Providence-wide revaluation’s reliance on “appreciated replacement cost” to determine property values. This, he argued, seemed to contradict the Real Property Tax Act itself, which stipulates that valuations be based on “market value” as opposed to cost.

Meanwhile, the valuation process employed by Tyler and the DIR was a “bulk” assessment that used algorithms to calculate the worth of properties in a particular neighborhood or subdivision based on their dimensions/size and which category - owner-occupied, commercial, undeveloped land etc - they fell into.

Mr Morley said the Government team, which was led by Simon Wilson, the Ministry of Finance’s financial secretary, conceded that if one property owner’s tax bill challenge proved successful they would have to go back and revalue the entire subdivision or area in which it was located.

As for the statistics presented, Mr Carey told Tribune Business: “They said that a very high percentage of Bahamians are compliant in their property taxes..... They said most of the non-compliance is non-Bahamians. The majority of non-compliance is from foreigners, non-Bahamians.”

According to the statistics presented by the Government, some 70 percent of commercial properties captured by the tax roll are in arrears on their real property tax payments. And, while 84 percent of Bahamian owner-occupied properties were current, the DIR’s greater enforcement difficulties lie with foreign-owned real estate that should generate significant tax revenues.

Mr Wilson could not be contacted for comment before press time last night despite calls and messages being sent, but Christine Wallace-Whitfield, BREA’s president and who also attended the meeting, confirmed the percentages as detailed by Mr Carey.

“That was very interesting,” she said. “I’ll be interested to see what happens moving forward in terms of those percentages, foreign versus local Bahamian owners.” While no reasons were given for the high commercial property non-compliance, one factor is likely to have been the COVID-19’s devastating impact on cash flow, revenues and profits that simply left many firms unable to pay.

The seemingly high level of non-compliance comes as little surprise given that the Auditor General’s last report, for the 2017-2018 fiscal year, suggested that some $600m in real property taxes were past due and needed to be collected. A subsequent report from the same office also found that between 30-40 percent of real property tax bills did not reach the intended destination.

“I have always thought that to get your Business Licence you have to be current with your property tax,” Mr Carey added. “The fact we’ve got 70 percent of commercial properties non-compliant, there’s a disconnect in the system of that is not the case. You need to be compliant to get your Business Licence.”

Mr Carey, though, queried the high compliance percentage for Bahamian owner-occupied properties. He said it was well-known that many did not pay due to the belief there would be no consequences for failing to meet their obligations to the Public Treasury, and only settled when they moved to sell their property later in life.

And many Bahamian lower and middle class residential properties were effectively tax-free due to the exemption on the first $250,000 of their value. With a tax rate of less 1 percent on the next portion, Mr Carey said property owners only started to see a four-figure bill once valuations reached over $400,000, meaning their burden was relatively and compliance should not be so difficult.

Mr Morley said Ministry of Finance and DIR personnel informed BREA members on the call that “the majority of people inquiring” about their 2022 tax bills are already “in arrears on their homes”. He added that Mr Wilson responded that the Government had already taken into consideration his concerns on steep commercial property tax bill hikes.

The Bahamas Chamber of Commerce and Employers Confederation (BCCEC) recently said its members had reported tax increases of between 100 percent to 435 percent compared to 2021, and Mr Morley said he pointed out to the officials present that commercial landlords tended to pass on the property tax liabilities to tenants via the CAM (common area maintenance) charges.

Many landlords, he added, were already giving rental rate concessions to keep struggling business tenants going post-COVID, and the effect of such a steep hike in bills could tip many over the edge and render them unable to pay.

Mr Morley explained that any “increase in vacancies” as a result would hurt both landlord and the Public Treasury, as the latter would receive less VAT on the commercial lease payments while the Business Licence fee payment would also be lower.

The Morley Realty president said he also argued the case for the valuation increases, and higher tax bills, to be phased in gradually over a five-year period. The Government responded by saying it had also considered this, but rejected it on the basis it would “not be fair” because some properties would not be paying their full bill while others were.

Mr Carey, meanwhile, said there seemed to be “a disconnect” between the Real Property Tax Act and the valuation method employed by Tyler and the DIR. While the latter’s valuations were based on appreciated replacement value, he added: “There seems to be a conflict with the Act. Everyone in real real estate knows cost does not equal value.

“In the Act, the definition of cost speaks to market value. Market value is different than cost. Some clarification there would be helpful.... One thing about real estate values is location. Algorithms don’t take that into consideration the way market values do. Cost does not equal value, that’s the bottom line.”

Mr Carey said most commercial properties are valued using an income approach, measuring their cash flow, rental revenues and other indicators, all of which are likely to have been sharply slashed due to COVID-19 and the massive economic contraction. And he pointed out that algorithms also fail to measures whether office buildings are ‘Class A’ as opposed to ‘C’ or ‘D’.

The Ministry of Finance and DIR, though, are providing a two-step process for aggrieved commercial and residential property owners to challenge their valuations. “They say you can do a query of the value, and in order to do that they want you to full out a form and have a full appraisal attached to the query. That doesn’t cost you anything apart from the appraisal,” Mr Carey added.

The DIR is supposed to process this in 14 days and, if the matter is not resolved to the taxpayer’s satisfaction, they have to pay the full tax amount assessed before they can file “an objection”. Should they succeed, they will receive a credit to the following year’s bill.

Both Mr Carey and Mr Morley said the Ministry of Finance and DIR officials present, including acting chief valuation officer, Sandra Strachan, indicated the revaluation exercise was “not perfect” and they were willing to listen to challenges provided sufficient supporting evidence was supplied by taxpayers.