Middletown reviews two-tier tax changes as residents report confusion and financial harm from residency reclassifications

Town of Middletown officials reviewed the town’s recently amended two-tier residential tax ordinance and took public testimony after several full-time residents said they had been reclassified as nonresidents for the tax rate midyear.

Town staff and the solicitor explained the ordinance’s intent is to encourage property owners to make units available for long-term rentals rather than short-term rentals. Under the amendments councilors adopted earlier this year, an owner may be eligible for the owner-occupied (lower) residential tax rate for a property containing up to five dwelling units if the owner occupies one unit as their principal residence for more than six months and any rented units are under written leases of at least one year with tenants who make the unit their primary residence. The council kept a limited exception allowing an owner who lives on-site to rent one or two bedrooms on a short-term basis while physically present without losing the owner-occupied rate.

Several residents testified they had relied on prior town communications and expected to remain taxed as residents. Jim Thompson of Renfrew Park said he changed his financial arrangements this year after applying for the owner-occupied rate in February and later received a letter in July saying he no longer qualified, which he said would leave him owing thousands of dollars in unplanned property taxes.

“Back in October, we were told if you were a registered short-term rental last year, you would be grandfathered into the current rules,” Thompson said. “To be told seven months into the year that I no longer qualify — that’s going to cost me thousands of dollars I did not plan for.”

Town staff acknowledged the grandfathering concept in zoning (legal nonconforming use) differs from tax classification; the solicitor and staff clarified that the council’s tax amendments were intended as a fiscal incentive to expand long-term rental stock. The town also noted a limited exception: an owner renting one or two bedrooms in their own primary residence while present would not forfeit the owner rate.

Committee members and other residents suggested refinements, including considering leases shorter than one year in certain circumstances — for example, 9- or 10-month leases for military families stationed locally — and further review of adaptive-reuse projects so converted multiunit buildings are not later used predominantly for short-term rentals. Affordable Housing Committee chair Lawrence Frank urged the town to consider changes that would better support a range of long-term housing options.

What’s next: Councilors received the memorandum and asked staff to work with the tax assessor and town administrator to review implementation, notification processes and potential clarifications to the ordinance. Staff said they will meet with affected residents to review individual cases and return to the council with options.