Tax Prepayment Challenges Rural Areas

Dec 29, 2017

With the U.S. undergoing a massive overhaul of its tax code in 2018, ripple effects are being felt in local town halls across the Northeast before the New Year. New York Governor Andrew Cuomo signed an emergency executive order allowing localities across the state to collect  property taxes early, so people can claim the soon-to-disappear state and local tax deduction. Property owners have been flooding town and county offices to pay the taxes in advance.  But in some rural areas, going to the tax collector’s office may not be an option.

President Trump signed the tax overhaul on December 22nd.  Its provisions include a cap of $10,000 on the deductibility of state and local taxes.  On the same day the federal law was signed, New York Governor Andrew Cuomo authorized local governments to immediately issue tax warrants for the collection of 2018 property tax payments and allow taxpayers to pay some or all of that bill before the end of 2017.  
Essex County Treasurer Michael Diskin says even with fresh urgency, prepayment of taxes is not a new concept.  “Tax collectors were authorized to go ahead and collect anything prior to the first of the year anyway. So the Governor’s order really was not necessary in a sense.  Since 1985 there was a New York state comptroller’s opinion that said once the tax collectors received the warrant they were allowed to collect even it was prior to the beginning of the year. So the issuing of the Governor’s executive order kind of confused things ‘cause people thought it was a brand new thing. And it isn’t.”

Nevertheless, calls and visits to treasurers’ and clerks’ offices by taxpayers who want to prepay have increased. But Diskin says in rural areas there could be come complications.  “One of the issues in Essex County, as it is in many rural counties, is that some of the local tax collectors are only part time people and they don’t even go to their town hall and start collecting until after the first of the year. So they aren’t even available. They don’t have an office space, you know, there’s not a place to go to pay them in person.”

Diskin is cautioning taxpayers to be sure it’s wise to prepay and to understand the cap versus the new standard deduction in the new law.  “For most people it’s not going to benefit them to pay it ahead of time because they’re not going to meet that cap anyways. So paying it ahead of time isn’t going to matter. The new standard allowance of 24,000 is probably going to be way more than what they would make by doing their itemized.  So I think they really need to contact their personal tax preparer if they use one to find out and get an opinion from them as to how to do it.”

Diskin mentions that prepayments on escrowed accounts could be problematic.  "People who have their property taxes escrowed are coming in and paying them in advance. And that’s going to create a problem because the escrow company is then going to get the bill and pay it for them so they’re going to get double payment. And then the tax collector is going to have to turn around and refund back to the escrow company because they’re going say hey this is already paid.  So it’s creating a bit of a problem for people who are escrowed trying to pay in advance.”

The IRS issued an advisory on Wednesday regarding the deductibility of prepaid property taxes. It notes in part: “In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.” Clinton County Treasurer Kimberly Davis says the guidelines add to taxpayers’ confusion.  “What would be the simplest is if the IRS could kind-of do a state-by-state scenario instead of using this very general language. They only gave two examples and neither of them completely mesh with what we do here.”

Albany City Treasurer Darius Shahinfar is critical of how the new federal tax provisions impact the state.  “The tax law has really placed New York state and other states in a very difficult position with its treatment of state and local taxes. I fully support the Governor in, I believe, their efforts to sue the federal government to prevent the kind of double taxation that we’re talking about here.”

Governor Cuomo’s executive order allows tax collectors to accept payments until the close of business on December 29th or online until 11:59 p.m. Sunday, December 31st, or by mail postmarked on or before December 31st.