Don't Mess With Taxes

San Francisco now offers up to $500,000 to unofficial tax police who turn in property owners who've evaded paying tax on their holdings.

According to a story by Bloomberg News (and printed here in the Houston Chronicle), San Francisco's new city ordinance appears to be the first citizen-watchdog program related to property taxes in the United States.

In fiscal 2004, San Francisco collected $1.18 billion in property taxes. City officials say they can't put an exact amount on how much tax revenue could be recovered, but the city assessor told Bloomberg that San Francisco's current property tax collection process "is costing the city millions of dollars."

The process to which the assessor refers is one established by California's famous (or, in the eyes of some, infamous) Proposition 13, which was passed almost 30 years ago. Under that law, a property's assessed value, upon which taxes are based, doesn't change until it's sold.

To avoid facing the new assessment and generally higher taxes that follow, property transfer participants sometimes try to hide the transactions.

But now, San Francisco's assessor has the discretion to pay informants out of any back taxes that are collected. Some tax tattlers already have contacted authorities with potentially lucrative information on violations.

It's obvious what the buyers get out of the process, but this story doesn't say how it benefits the seller. Maybe you have to agree to keep the deal on the down low to move the property.

Also, I'm fascinated by the confidence that California apparently puts in its citizens to report their new, potentially higher taxes. The story says, "Tax officials rely on buyers and sellers to declare ownership changes so the higher taxes can be collected promptly rather than retroactively."

Wow! How did that come about? Every place I've ever lived has been diligent about recording all real estate deals, commercial and residential. And they've always been quickly made a part of the public record. In fact, that's one of our favorite sections of the local paper, and we regularly check out what properties sold where and for how much.

I guess San Francisco's ordinance may be an indication that at least there, taxing officials are starting to take the words of another Californian, Ronald Reagan, to heart: Trust but verify.