Update on Property Tax Exemption Legislation

March 3, 2022

HB 1168 (Watts) would allow a taxpayer who is eligible for the mandatory real property tax exemption for disabled veterans or their surviving spouses or the surviving spouses of servicemembers who are killed in action to claim a refund retroactive to his/her date of eligibility.  Under the bill, the window for claiming refunds would extend back to the dates the exemptions were originally implemented (2011 for the disabled veterans’ exemption and 2015 for the surviving spouses of servicemembers killed in action).  The bill sought to clarify some ambiguity between the statutes implementing the property tax exemptions and a separate, more general statute that provides for a three-year lookback for refunds for local taxes.  The Attorney General issued an opinion in 2017 interpreting the exemptions as retroactive.

VACo had expressed concerns about the bill’s potential exposure of localities to large, unexpected refund requests.  For example, under the bill, someone who was eligible for the disabled veterans’ exemption in 2011 but never claimed the exemption could seek a refund many years in the future, and the locality would owe a refund dating back to 2011.  To mitigate the unpredictability of the impact on localities, VACo encouraged the placement of some guardrails on the retroactivity of the refund window.  The bill was heard by the Senate Finance and Appropriations Committee on March 2; a potential committee substitute that would provide for a three-year lookback period was discussed but never formally adopted, as the patron indicated a preference to carry the bill over to 2023 and develop a consensus, and the Committee opted for this approach.

HB 957 (Tran) allows a locality to classify real property owned by a surviving spouse of a servicemember who died in the line of duty as a separate class of property and to impose real property taxes on this property at a different rate than the rate imposed on other real property (provided that the rate is not zero and does not exceed the rate of tax on other real property).  The existing mandatory real property tax exemption does not encompass taxpayers in this situation (it applies when the servicemember was killed in action as determined by the Department of Defense, but not to situations such as training accidents).  The bill has passed the House, was favorably reported by the Senate Finance and Appropriations Committee on March 2, and now heads to the Senate floor.  Constitutional amendments that would have mandated such an exemption (HJ 83 (Tran) and SJ 19 (Reeves)) did not move forward this session, as the traditional cycle for Constitutional amendments would provide for consideration of new proposed amendments to begin in 2023.

VACo Contact:  Katie Boyle

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