The "Circuit Breaker"Property Tax Credit
The "Circuit Breaker"
Property Tax Credit
The "circuit breaker" property tax credit is our only tax credit (out of hundreds) that we can be certain benefits persons who have the least in financial resources. It is the best tool we have to make property tax less regressive.
Recent criticisms that this tax credit benefits renters are either bad politics or are based on a lack of knowledge of how rent is calculated and how low-income seniors and disabled persons are unable to be homeowners - but still pay property taxes through their rent.
Missourians for Tax Justice supported updating both the amount of this property tax credit and the income eligibility amounts.
As part of CCS/HCS/SS/SCS/SB 711, the much-amended bill that was finally passed, changes were made in both the Circuit Breaker property tax credit and the "homestead preservation" tax credit program. The description below is taken primarily from the official summary of the legislation. As of June 7, 2008, the bill has not yet been signed by the Governor.
The income exemption for married claimants, under the "Circuit Breaker" property tax credit program, is increased from two thousand dollars to four thousand dollars for claimants that own and occupy their homestead for the entire year. The maximum award under the property tax credit program is increased from seven hundred fifty dollars to eleven hundred dollars for homeowners. (Note the discrimination against renters.) The maximum upper limit and minimum base amounts, for the property tax credit for calendar year 2008, are extended to all subsequent calendar years. For homeowners claiming the property tax credit, the maximum upper income limit is increased to thirty thousand dollars.
For homestead preservation tax credits filed between Dec 31, 2008, and Dec 31, 2011, the homestead exemption limit will be based on the increase in property tax liability from the base year to the year prior to the application year. For applications filed on or after January 1, 2012, the homestead exemption limit will be based on the increase to tax liability from two years prior to application to the year immediately prior to application. The term "base year" means the year prior to the first year in which the eligible owner's application was approved, or 2006, whichever is later. Under current law, in the event the general assembly fails to appropriate sufficient moneys to fully fund the homestead preservation tax credit, the exemption limit is increased – thus limiting the number of otherwise eligible applicants who would receive a credit. This act would allow for a pro rata allocation of tax credits among all eligible applicants in years in which state appropriation is insufficient to fully fund the homestead preservation tax credit program.
The “Circuit Breaker” Senior Citizen’s Property Tax Credit
Missourians for Tax Justice Report – March 2008
The Missouri Senior Citizen’s Property Tax Credit, commonly known as the “circuit breaker” is a means-tested income tax credit based upon property taxes or gross rent paid and is available to qualifying seniors, to people who are 100% disabled, and disabled veterans. It is called a "circuit breaker" because it protects taxpayers from a property tax "overload just like an electric circuit breaker: when a property tax exceeds a certain percentage of a taxpayer's income, the circuit breaker reduces property taxes in excess of this "overload" level. The statutes governing this tax credit are found beginning in Section 135.010. (http://www.moga.mo.gov/statutes/chapters/chap135.htm)
This is the first-ever income tax credit in Missouri, established in 1974. The circuit breaker is designed to reduce the impact of residential property tax increases on seniors with a low, and possibly fixed, income. Renters are also eligible for this help. People who rent their home pay property tax through the rent they pay to their landlord. In Missouri, 20% of rent is considered for determining the property tax credit.
Individuals who are 65 years of age or older and who were residents of Missouri during the entire calendar year may be entitled to a property tax credit. The credit is based upon a formula that uses both the income and property tax or rent equivalent paid. See the 2008 Tax Expenditure Report Exhibit D.01 (page 90):
In 1978 the maximum credit was $500. Eligibility was limited to maximum income (single & combined) of $7,500. ($7500 = $23,843.38 in 2007.) Mimimum income was $2,400 (individuals with this amount or lower could receive the full amount of tax/rent paid not to exceed the maximum credit for that year).
The maximum credit remained at $500 until 1985 when it increased to $750 where it remains today. The maximum and minimum income limits increased steadily (generally by about $500 a year for the maximum limit) during 1974 – 1985.
There were small increases in the minimum and maximum income figures until 1998.
In 1998, there was a sizeable increase in these eligibility limits to $25,000 single and $27,000 for a couple, maximum. These limits are still in use in 2008 (for the calendar year of 2007).
In 2007, an amendment was passed to SB 30 that changed the income limits to a maximum of $27,500 for single taxpayers and $29,500 for a couple. But the amendment was flawed and applies only to tax returns for calendar year 2008.
How do the previous income limits and maximum credit amounts compare to dollar values today? (These figures are based on the Consumer Price Index in computing the relative value; 2007 is latest year data is available.)
1978: $500 maximum credit = $1,589.56 today; Maximum income of $7500 = $23,843.38; Minimum income of $2400 = $7,629.88.
1985: $750 maximum credit = $1,445.23 today; Maximum income of $11,500 = $22,160.16 today.
1998 to 2007: $750 maximum credit in 1998 = $1,445.23 today; Maximum income of $25,000 for single = $31,800.92 today; Max income of $27,000 for combined = $34,344.99 today. Minimum income of $13,000 = $16,536.48 today.
More information about eligibility for the property tax credit is available on the Dept. of Revenue web site: (http://dor.mo.gov/tax/personal/ptc/)
2008 Legislation
SS/SCS/SB711 (Sen. Gibbons, sponsor) was passed by the Senate on February 27. It is expected that it will be assigned to a House committee soon after the Spring Break ends on March 25.
SB 711 and the Senate Committee Substitute for SB 711 takes the income limits (passed in 2007) of $27,500 and $29,500 and makes them permanent. The minimum income base is changed to $14,300 from $13,000. The maximum credit is increased to $1100 for both homeowners and renters.
The Senate Substitute (SS/SCS/SB 711) made further changes and helps homeowners more than renters. The income exemption for married claimants is increased from $2,000 to $10,000 for claimants that own and occupy their homestead for the entire year. For individual homeowners, the maximum upper income limit is increased to $30,000, and $40,000 for married homeowners. The minimum base amount is increased to $15,000. (Note that these increases for homeowners discriminate against renters.)
House Bills Re the Property Tax Credit
The House Ways & Means Committee reported HCS HB 1321 & 1695 Do Pass on March 13. It has been referred to the Rules Committee. HB 1321 is the Property Tax Credit bill sponsored by Rep. Mike Sutherland. Rep. Clint Zweifel is sponsor of HB 1695 and its original provisions were proposed by Attorney General Jay Nixon on January 10, 2008.
Click the Bill Number below to see the bill and activity on it on the web. Neither the text nor a summary of HCS HB 1321 & 1695 is available as of March 20 on the House web site.
Summary of HB 1695: (Zweifel)
This bill changes the qualifications for and the amount of credit allowed under the senior citizen/disabled person property tax credit, commonly known as circuit breaker. Beginning January 1, 2009, the bill:
(1) Increases from $27,500 to $32,000 the maximum income allowed in order to claim the credit;
(2) Increases from $14,300 to $18,000 the minimum income allowed in order to claim the full credit;
(3) Increases from $2,000 to $20,000 the amount of the exemption allowed for a married couple; and
(4) Increases the maximum credit amount from $750 to $1,500.
Beginning January 1, 2010, the bill indexes the upper and lower income limits, spouse exemption, and maximum tax credit amount by the same percentage increase in the federal poverty income guidelines.
Summary of HB 1321: (Sutherland)
This bill changes the qualifications for and the amount of credit allowed under the senior citizen/disabled person property tax credit, commonly known as circuit breaker. The bill:
(1) Increases from $27,500 to $32,500 the maximum income allowed in order to claim the credit for single, head of household, qualifying widow(er), or married filing separately;
(2) Increases from $27,500 to $36,500 the maximum income allowed in order to claim the credit for married filing combined;
(3) Increases from $14,300 to $15,000 the minimum income allowed in order to claim the full credit;
(4) Increases from $2,000 to $4,000 the amount of the exemption allowed for a married couple; and
(5) Increases the maximum credit amount from $750 to $800.
The bill also extends the requirement for certain political subdivisions to deposit a percentage of property tax collections into county assessment funds to December 31, 2012.
Note: Both HB 1695 and HB 1321 increase the amount of the exemption allowed for a married couple. The “marriage penalty” in the present statute is a point raised by Attorney General Nixon.Note: A story by David A Lieb/The Associated Press on February 24 raised objections to the fact that the property tax credit benefits renters. The story says, “…Rep. Chuck Portwood contends that lawmakers would be fooling themselves — and the public — if they raise the property tax break under the belief it would answer the cries for help from elderly homeowners.”
This AP story also says, “Senate President Pro Tem Michael Gibbons counts the increased tax credit as an important, but not the most essential, part of his legislation.
Who are these renters that Rep. Portwood, R-Ballwin, complains about?
According to the Department of Revenue report re the Property Tax Credit for 2006, renters were:
Senior Citizens 49,128
Disabled Veterans 947
100% Disabled 48,210
Widows/Widowers 732
Of course, all 99,017 renters had to meet the means test for income in order to qualify for this assistance.
The complete data on recipients of the 2006 Property Tax Credit follows.
WHO RECEIVED THE 2006 PROPERTY TAX CREDIT?
A report from the Missouri Department of Revenue shows this:
Senior Citizens: 120,339 for a total of $52.639,894
Disabled Veterans: 1,589 for a total of $821,958
100% Disabled: 60,095 for a total of $30,728,482
Widows/Widowers 2,343 for a total of $1,037,319
TOTALS: 184,366 $85,227,653.
Owners vs. Renters
Senior Citizens Total in $$
Renters: 49,128 — $24,135,892
Owners: 69,296 — $27,643,408
Both: 1,915 — $ 860,594
Disabled Veterans
Renters: 947 — $520,903
Owners: 624 — $291,404
Both: 18 — $9,651
100% Disabled
Renters: 48,210 — $25,866,760
Owners: 11,276 — $4,562,874
Both: 609 — $298,848
Widows/Widowers
Renters: 732 — $365.659
Owners: 1,577 — $659,931
Both: 34 — $14,729
TOTALS:
Renters: 99,017 — $50,889,214
Owners: 82,773 — $33,154,617
Both: 2,576 — $1,183,822
184,366 — $85,227,653
Renter Types
Apartment, House, etc: 65,246 $ 34,277,036
Mobile Home Lot: 2,927 1,235,254
Boarding Home/Res Care: 6,997 4,184,699
Nursing Home 9,780 5,540,370
Hotel 100 57,643
Low Income Housing 13,421 5,441,262
Shared Residence 3,152 1,349,954
Renter & Owner 2,576 1,183,822
TOTAL RETURNS FILED 2006: 184,366 $85,227,653