City Council

City of Salem, Massachusetts “Know Your Rights Under the Open Meeting Law, M.G.L. c. 30A ss. 18-25 and City Ordinance Sections 2-2028 through 2-2033.” The City Council Committee on Administration and Finance co-posted with the Committee of the Whole_____________________________________________________________________________ met in the Council Chamber on _Wednesday July 30, 2025 _____________ at ______6:00_______P.M. for the purpose of discussing the matters(s) listed below. Notice of this meeting was posted on __July 23, 2025,__ at ___ 3:24 P.M._ (This meeting is being recorded) ATTENDANCE A&F – Merkl (chair) & Davis. COW – Hapworth. From the City – Stephen Cortez ABSENT WERE: A&F - Harvey, Stott, & Watson-Felt. COW – Prosniewski, Cohen, Morsillo, Jerzylo, & Varela. SUBJECT(S) #376 That the City of Salem hereby accepts the provisions of Massachusetts General Law Chapter 59, Section 5, Clause 54, which authorizes municipalities to set a minimum threshold for the taxation of personal property, and hereby sets that minimum taxable value at $1,000. Personal property accounts valued below this amount shall be exempt from taxation. Merkl - Pursuant to City Council Committee, rules section 29. I, as chair hereby appoint Councilor Hapworth as a temporary member of the A&F Committee for this meeting only. This order tonight is to adopt a section of Mass General Law that will provide a measure of tax relief for an estimated 187 small businesses in Salem. This MGL authorizes a city through local action to establish a minimum value under which personal property accounts are exempt from taxation. This order adopts this section of statute and establishes that minimum threshold at $1,000. Not only will this extend some tax relief to our micro and small businesses here in Salem it will improve the efficiency of municipal operations, where in some cases the cost to the city to collect these smaller tax payments exceeds the amount owed. and this personal property tax is primarily on business assets, such as equipment, furnishings, machinery. As of now, 230 Massachusetts municipalities, about 65% have adopted this exemption to some degree. There is more information on this in the back up documentation. In attendance tonight, Stephen Cortez, our Director of Assessing. This is a great opportunity for the city to do something that we can assist our micro and small businesses. Cortez - I'm going to begin by giving the basics of personal property tax in Massachusetts for local assessments and taxation. This might feel like a technical topic, but it plays an important role in how we fund local services. And I want to explain it in a way that's clear, even if you've never dealt with it before. Personal property is anything tangible and movable that isn't part of land or building. Think of furniture, office equipment, machinery, or tools. What isn't personal property, is anything permanently attached to the building or land which would be considered real estate. But if it's something that can be moved, then it's personal property. Intangible things, like stocks, bonds, and trademarks, which have no physical form but represent value, are completely exempt from local taxation in Massachusetts. If you're a Massachusetts resident or business your property is taxable, even if it's temporary or in another state, if you're an out of state business, but your property is only here temporarily, like in transit, then it's not taxable. The key date is January 1, and the city or town where the property is located on that date has the authority to assess the tax. Unlike real estate, there is no automatic lien attached to personal property taxes. It is simply an assessment on the ownership of the property. There are exceptions like an estate. What is property? What property is exempt. Massachusetts law provides exemptions based on who owns the property and what type it is, or how it's used for individuals. Exemptions include household furnishings at your primary residence, not secondary homes, which are considered personal property, clothing, small hand tools used by a mechanic, and small non-motorized farming utensils, boats, and fishing nets up to $10,000 for those engaged exclusively in commercial fishing. Charitable organizations are exempt from personal property tax. Manufacturing corporations are exempt from almost all personal property except certain large electric generating machinery. Telephone companies, financial institutions and insurance companies are also mostly exempt, except for poles, wires, and water. How is tax administered each year? Everyone who owns taxable property must file a form with the assessors by March 1. The annual return contains property scheduled for the taxpayer to detail its assets. The taxpayer should provide original cost and date of acquisition, but they do not have to provide an estimated value. That information provided is not binding by the assessor. If the taxpayer does not file, the assessor must make their best estimate, and the taxpayer loses the right to overvaluation abatement. The property is valued at fair cash value as of January 1. Typically, that means we look at the original cost of the property and then apply depreciation to reflect its age and condition. We rely on industry, cost, and market analysis. What about abatements? If a taxpayer disagrees with the value assessed, they can apply for an abatement just like they can with real estate tax. Assessors have the right to audit a taxpayer's records within 3 years to ensure everything was reported correctly. If someone refuses to cooperate with an audit, they lose the right to have an abatement for that year. Why does this matter for our city? Personal property taxes are important piece of our local revenue. For FY25, it made up 3.33% of the total overall city value, or $6,997,113 in the tax levy. It helps operate the city funds, the schools, public safety, infrastructure, and many services that businesses and homeowners rely on. They ensure that businesses contribute fairly, not just based on the buildings they occupy, but also on the equipment they use to run their operations. and while personal property taxes make up a smaller share of the overall tax base compared to real estate, they remain a stable and meaningful source of revenue, especially for our commercial and industrial taxpayers. In addition, the new growth tax dollars we receive from personal property accounts is always a substantial component which allows us to raise the tax levy and could lower the tax rate for small accounts. State law allows cities and towns to adopt the minimum taxable value for personal property accounts up to $10,000. If we adopt it, very small accounts, those below the threshold we set would not be taxed. This makes sense because it often costs more to bill, collect, and administer these small accounts than the revenue they bring in. Many communities have chosen this option to help small businesses and reduce administrative costs. It becomes effective upon a majority vote passage by the City Council. With options like the small account exemption, we can balance fairness for businesses, reduce administrative burdens and maintain a fair tax base for the entire community. The statute becomes effective upon acceptance by the City Council, which has the authority to both adopt and modify the exemption threshold by vote in future years. Currentyl, 230 out of 352 municipalities in Massachusetts, or approximately 65% have adopted this exemption. The widespread adoption reflects its practical benefits, particularly for communities looking to support small businesses while improving administrative efficiency. A FY25 tax bill of $1,000 value asset would generate a $22.62. Tax bill demand fees for unpaid balances are $30. This is obviously more than the principal tax. Many Massachusetts cities and towns have adopted the same $1,000 threshold because it captures the most inefficient accounts without creating a burden on the remaining tax base. There are 41 communities that have adopted this proposed threshold for comparison with what Salem is looking at. The city has been operating with a careful managed budget for years, making it essential to prioritize policies that maximize efficiency by eliminating low value accounts that cost more to administer than they generate this exemption supports better use of limited resources while maintaining fiscal responsibility. Proposal for adoption. The review of our current personal Property tax accounts demonstrates that adopting the exemption under Mass General Law. Chapter 59, Section 5, Clause 54 of $1,000 would provide direct tax relief to approximately 187 small businesses with a minimal impact on the overall tax levy, amounting to a shift of less than 0.05%. This modest adjustment makes a compelling case for the exemption, especially considering that most municipalities offering similar relief have adopted it to the personal property accounts rather than to the property owners who lease space to small businesses. In addition to offering meaningful support to small businesses, this exemption would streamline operations and reduce administrative burdens across several departments. The collector's office currently allocates significant effort and resources to collect small dollar personal property bills. Unlike real estate taxes, personal property tax lacks strong enforcement mechanisms. As mentioned earlier, no liens are attached to personal property, making collection effort more challenging and less effective. As an example. Adopting this exemption would modernize our tax administration, provide targeted relief where it's most needed and allow city resources to be refocused on higher impact areas. Ultimately, this proposal is about relieving small businesses of a minimal but sometimes burdensome tax, one that is sometimes difficult to collect, while also being