Single (vs. Split) Property Tax Rate for Longmeadow

Bill Low, a member of the Longmeadow Select Board shares the reasons for his vote last month to continue a single property tax rate (vs. split tax rate ) for residential and commercial property owners.

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Every year the town Select Board must vote to have a single or split tax rate. The split rate creates a separate rate for residents and commercial/industrial property owners. The intent of a split rate is to shift more of the tax burden onto businesses, presumably because they make a profit, as opposed to home owners who are just supporting town services. When a City, like Springfield, with 20%-25% of the real estate classified as commercial/ industrial/ personal shifts the tax to that category, it can make a big difference to home owner’s tax costs while raising the business owners by a nominal amount. Don’t misunderstand; Springfield’s commercial tax rate is the highest in the state and, in many people’s minds, stifles new business development, but homeowners still benefit with a lower tax rate.

However, as is the case in Longmeadow with less than 5% categorized as commercial/industrial, a split tax rate has the following effect: every 1% shift to the commercial owners, raises their rates by $.25 per $1,000 of value ($525 per year on average) and reduces residential rates by only a penny, or $3.50 a year on average.

Additionally, the commercial property owners, who are landlords, pass those cost to their tenants. In the case of retail properties, leases are “net” or “triple net” (the terms are misused constantly), what’s important is; the total real estate taxes are passed on to the tenant. With office buildings, the increase is also paid by the tenant via “escalators” or “expense stops” regardless if the lease is all inclusive or a “gross lease”, the increase in any operating expense is paid by the tenant.

Regardless of whether the tax rate is split or single, the amount of tax revenue raised by a town in Massachusetts is not effected.

So, what does this shift accomplish? In 30 years in the real estate industry I have dealt with large, national companies, public real estate investment firms (REIT's) and small family owned businesses. Small family owned businesses can be put out of business by this kind of increase, while larger companies will pass this cost to the consumer. In the case of a town like Longmeadow, it’s a lose-lose proposition.

William H. Low
Longmeadow Select Board