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Can ADUs Lead to additional taxes?

I SEE FROM THE CITY’S WEBSITE THAT THE COUNCIL’S PUBLIC HEARING re ADUs WILL BE HELD ON TUESDAY, JAN. 12, 2010, AT 4:30 P.M. IN THE COUNCIL CHAMBERS.
Please Note:
1.     THE STATE allows homeowners to rent out extra space for up to 14 days in one year tax-free, but for more than 14 days, homeowners must declare all rent payments they receive as rental income on their State income tax returns.  I do not know if the Federal government has this 14 day exemption.  As it now stands, no effort is being made by the City to track existing ADU facilities, many of  which include separate rentals.  And, due to lack of tracking provisions in the ADU Ordinance, no effort will be made in the future to ensure state and federal income taxes are paid on rental income received by (a) the owners of existing ADU facilities and (b) the owners of future legal ADU units.
 
2.     THE COUNTY, as we know, levies a tax on new buildings and other improvements to real property via reassessment–IF TOLD.  In addition, COCONINO COUNTY, for example, uses Legal Class (determined by the use of the property) in computing the value of real property for tax purposes.  The most common Legal Classes in Coconiono County are:  Class 1, Commercial Property; Class 3, Residential Owner Occupied; and Class 4, Residential Rental.  If an individual parcel has more than one use, it will be assigned multiple Legal Classes and a “mixed ratio” will be applied to the value.  This Coconino County Legal Class information comes from Form 07ARZ051115, “Commonly Asked Questions About Your Property Taxes.”  Due to lack of tracking provisions, the ADU Ordinance will not ensure that owners of illegal as well as future legal ADUs will pay County property taxes on their accessory units.  
 
3.     COUNTY reassessments for new buildings/improvements incrementally bump up property taxes for all residential properties in each tax district affected.    
 
4.     Why is there no mechanism in the ADU Ordinance that would provide for capturing and reporting the basic rental information needed for County property tax purposes?  Does the City of Sedona sanction the proliferation of tax evasion and tax fraud via its ADU Ordinance?  In my opinion, at best City Hall has failed to do due diligence:  (a) by not consulting a tax attorney about the tax consequences of its ADU Ordinance and promptly informing the public; and (b) by John O’Brien making “inaccurate statements” to the public that omit salient facts, for example, the one in his e-mail below (“The City has a rental tax requirement for projects with three or more rental units.  So, a tax would not be applied to a single ADU.”)
 
5.     Obviously, the way to avoid City fees, County property tax increases, and higher State and Federal income taxes is for homeowners to build ADUs illegally.
 
MORE ABOUT ADU RENTALS:  How can City Hall possibly know which existing ADU rentals, as well as which future ADU rentals, are being/will be rented out legally as opposed to which ADUs are for short-term vacation rental usage?  Doesn’t the laxness of the ADU Ordinance [I was informed by Community Development the Housing Commission doesn’t want to be intrusive] render the short-term vacation rental prohibition wholly unenforceable?  Why won’t the Swiss cheese nature of the Ordinance result in an open sesame for homeowners with ADUs to go the short-term rental route once they learn collection of the data needed for enforcement has been deemed too intrusive?
 
By the way, as you are no doubt aware, homeowners must comply with local, state and federal fair-housing laws when renting out ADUs.  These laws are meant to prevent discrimination.  The Federal Fair Housing Act does not allow landlords to refuse to rent to someone based on race, color, national origin, religion, sex, familial status or handicap.  No way will the City of Sedona be able to enforce its restriction on the number of occupants living in an ADU based on the definition of ‘family’ in its Land Development Code, as claimed in the ADU Ordinance.  The Feds don’t give a hoot about City Hall’s definitions, they are concerned about minorities.  And having requirements based upon familial status, for but one example, is a NO-NO.  
 
FULL, ADEQUATE DISCLOSURE has not occurred.  Instead, the public has been misinformed and let astray by Community Development, the Housing Commission and the ADU Ordinance itself.  This Ordinance is in dire need of going back to the Housing Commission for corrective action. 
 
Happy New Year,
 
Jean 
 

1 Comment

  1. Kathy Howe says:

    Another person who chooses to remain anonymous. Who is “Jean”? Does “Jean” understand that there are occupancy rules (though vague) and that whichever is most stringent is enforced? Is “Jean” trying to say that she/he wants to discriminate and that all the laws will not allow her/he to do so? A confusing argument she makes on the Fair Housing issues. Fair Housing is simple: let anyone who has the credit and the money rent your property, with certain occupancy rules. There are exemptions to the FH laws. “Jean” needs to learn the FH rules before she/he chooses to debate them, or use the law/rules as the basis of her argument.

    If “Jean” wanted to be part of the solution, she/he would have been at the meetings. I don’t remember anyone by the name of “Jean” being part of the 2 meetings I attended.

    Sad…

    Kathy Howe

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