Select Board Talks Residential Exemption

ORLEANS – Following the will of voters at May’s annual town meeting, the select board has started wading into conversations about adopting a partial property tax exemption for year-round residents.

The board on Aug. 20 heard a presentation by Town Assessor Brad Hinote walking members through what an exemption would entail, complete with figures and comparisons between other Cape and Islands towns that have already adopted exemptions. The board will continue discussion on the potential exemption at its Sept. 24 meeting.

A petition article directing the board to explore the possible adoption of a residential exemption passed with voters in May. While the option is annually on the table for the board to consider, the board has historically voted to assess all residential property at the same tax rate during its annual tax classification hearing each November.

But proponents for an exemption see it as a way to lessen the tax burden on year-round property owners at a time where money is tight for many. Tim Counihan, who authored the petition article, argued that the single tax rate serves to “subsidize” property owners who do not live in town full-time. 

A nine-member working group began meeting after the spring town meeting to explore options for a residential exemption. In his presentation, Hinote said that Orleans has the second highest average residential property value on the Cape at $1.2 million.

Of the 4,900 residential households in town, just over half, 54 percent, are primary dwellings, Hinote said. The remaining 46 percent of residential properties are 
“non-primary.”

If the select board were to adopt an exemption, Orleans would join a number of other Cape and Islands communities that have already adopted their own exemptions. Most recently, the Chatham select board voted 4-1 to adopt an annual exemption of 35 percent for properties that are occupied year-round by full-time residents. The exemption goes into effect at the start of the 2027 fiscal year, which begins next July 1.

Other communities including Barnstable (25 percent), Mashpee (20 percent), Nantucket (35 percent), Oak Bluffs (15 percent) Provincetown (35 percent), Tisbury (22 percent), Truro (35 percent) and Wellfleet (33 percent) also have exemptions in place. Eastham is in the process of adopting their own exemption at 5 percent.

How much could eligible Orleans property owners save with an exemption? That depends on the amount of the exemption. Using a property with an assessed value of $1 million as an example, Hinote said that eligible property owners would save $220 on their tax bills annually with a 5 percent exemption; $957 annually with a 20 percent exemption; and $1,829 with an exemption of 35 percent. Non-residential property owners, meanwhile, would see increases of $160, $690 and $1,310 with exemptions of 5, 20 and 35 percent respectively.

Mefford Runyon of the select board said that with large capital projects such as a new library, fire station and possible elementary school in the pipeline in the coming years, a residential exemption could help offset future costs. He asked that figures showing the impact those projects will have on residential tax bills be provided at the Sept. 24 meeting.

Hinote said that property owners can apply for an exemption by filling out a one-page application through the assessor’s office. Applicants also must submit copies of their most recent state and federal tax returns showing that their Orleans property is their primary residence. Applicants should redact any financial or personal information, Hinote said.

Properties in LLCs do not qualify. But properties held in trusts are eligible as long as applicants who own the property are the primary residents. Hinote said applicants also must have “legal and beneficial interest” in the trust.

“Of the 2,600 properties I estimate would qualify, approximately 900 of them are held in some form of trust,” Hinite said. He added that non-residents can be trustees, but reiterated that the applying trustee must live in the property year-round.

Setting the town up to allow for the exemptions would come at some expense to the town. That includes $6,000 to update the town’s assessing software to accommodate the exemptions, as well as $15,000 for the additional staffing that would be needed to process the estimated 2,600 applications. That funding was authorized through the May town meeting article.

There would also be an additional $200,000 to $300,000 needed to cover “overlay” costs associated with the exemption.The town’s overlay fund helps “plug holes in tax collections” that are left annually through exemptions afforded residents who apply for and qualify for them, Hinote said. That figure comes in at approximately $75,000 in a given year, but with the number of anticipated residential exemptions, more overlay funding will be needed, he said.

Hinote estimates that 92 percent of the town’s year-round property owners would receive some benefit from an exemption. But the exemption would not apply to owners who rent their property, even to year-round renters.

However, the town can adopt a separate affordable housing exemption that would apply to those owners who rent their properties affordably at up to 200 percent of the area median income in Barnstable County. An article would need to be brought to a future town meeting and pass with voters to adopt the affordable exemption.

Select Board Chair Kevin Galligan said the affordable exemption could serve as “another tool in the toolbox” in the town’s ongoing efforts to secure more affordable and attainable housing. Without it, he said, the residential exemption would work against those owners trying to provide affordable housing locally.

“This would not be friendly to affordable housing, but this measure or provision could help,” he said.

Others addressed rumors that the state may reclassify rental properties as commercial to be in line with hotels and motels. 

“I’m just wondering if we need to get some clarity on what the state is going to say is commercial and what’s residential,” said Mark Mathison of the select board.

Elizabeth Jenkins, the town’s assistant director of planning and community development, said that those changes might come in the way that rentals are inspected.

“What I don’t think they’ve clarified exactly is what the building commissioners are inspecting for.” she said. “Are they going to be required to have lighted exit signs and sprinklers in these short-term rentals if they’re grouping them in with these other classes?”

Hinote said that the Bureau of Local Assessment will give guidance to town assessors about any tax reclassifications that are needed going forward.

While a residential exemption would benefit year-round property owners, it doesn’t help the renters themselves, noted Michael Herman of the select board. He said the town needs to continue to look for ways to help renters in town, who he said are often those in the community most in need of assistance. Many of them, he added, are those who were heralded as “essential workers” and “heroes” during the pandemic.

“And we are essentially giving a tax cut to residents, but we’re not including all of our residents,” he said.

Members of the public can view the Aug. 20 presentation online, while questions and comments can be emailed to rte@town.orleans.ma.us ahead of the Sept. 24 meeting. Hinote said Fiscal Year 2028 FY 2028 would be the “most realistic target” for implementing exemption if the town chooses to do so.

 “We want to hear your questions,” Galligan said.

Orleans resident Mary Wright advised the board to be careful about the possible divisiveness that the proposed exemption could create between year-round residents and property owners and seasonal owners.

“As much as we’re concerned about who’s paying who’s [the] freight…these are people who bought property here, and we don’t want them to think they’re quote ‘unwelcome,’” she said.