Committee hears plan to replace statewide property tax credit with income‑based homestead exemption

Committee staff reviewed the bill section that would repeal the statewide property tax credit and replace it with a homestead property tax exemption computed by household income.

Structure and purpose

Under the proposal the statewide PTC would be repealed and municipal credits retained; a new homestead exemption would reduce the taxable house‑site value subject to the statewide education tax and the supplemental district spending tax. The statutory purpose language attached to the exemption states the intent to reduce property tax liability for low‑ and moderate‑income households.

Income‑sensitive exemption schedule and limits

The exemption schedule in the draft would provide graduated reductions in house‑site value across multiple income brackets. As outlined in committee, a claimant with household income equal to or less than $25,000 would receive a 95% exemption of house‑site value (no cap on dollar value was included in the draft), while higher brackets would receive smaller percentage exemptions down to a 10% exemption for incomes up to $115,000. Staff noted the schedule has more brackets and smaller jumps between brackets than the existing PTC to smooth the relief curve.

Transfer/pro rata rule and municipal allocation

To address purchase timing, the bill would allocate any municipal property tax credit for a residence to the transferor at closing when a residence sells after April 1 in the claim year. The draft also allows a transferee who would otherwise be eligible (but purchased after April 1) to file a homestead declaration and claim the exemption for that claim year by the statutory filing date, subject to procedural requirements. Committee staff discussed an option that would require a transferee to pay a prorated difference to the seller if the seller had already received a credit.

Late‑filing penalty

The draft replaces the PTC's late‑reduction mechanics with a late‑filing penalty: a $150 fee for late homestead exemption declarations, mirroring past changes to the credit procedure but implemented as a penalty rather than a reduction of credit.

Fiscal note preview

Joint Fiscal Office staff told the committee their initial modeling (using FY 2025 baseline figures) indicates the proposed homestead exemption would increase the net cost relative to the current statewide property tax credit by approximately $45 million to $54 million, absent other policy changes. Staff said that increase would be borne through the property tax system because the statewide education tax is set to fully fund the Education Fund after accounting for non‑property revenues; absent offsetting changes, the statewide rate would likely adjust to cover the additional exemption cost.

Points raised in committee

Several members expressed concern about very low‑income households owning high‑value properties (for example, retirees in vacation communities). Counsel and fiscal staff acknowledged the draft places no cap on eligible house‑site value and said that is a policy choice the legislature could revisit. Senators suggested geographic sensitivity (county or regional thresholds) to better align relief with local price variation.

Next steps

Staff said they will provide more detailed modeling comparing the draft exemption to the current PTC and will return with charts showing winners and losers under the draft schedule. The committee did not take formal action on the exemption during the briefing.