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The municipal tax ruse By Ranit Nachum-Halevi Tags: property, taxation  Insurance agent Rafi Chen is a familiar name in Carmiel. Many local residents are still trying to understand how he managed to win his battle against the city's municipal tax assessor, a goal that many before him failed to achieve. "I had a desk and a computer, and because I am an insurance agent, they decided I owned a business and should pay the municipal tax rate for a business," relates Chen. "I was sent a bill for NIS 8,000, retroactive for three years." Chen's personal battle began after his ex-wife squealed on him to the municipal tax office, claiming that half of his residential apartment was being used as an insurance agency. This cost Chen three difficult years, during which he testified at most of the regional courts and planning committees. Advertisement "The city filed a high tax assessment against him, using business rates," explains Barak Lasri, Chen's attorney. "The reclassification and the retroactive fee created an excessive charge of thousands of shekels, that Chen was ordered to pay immediately." But even that was not enough for the municipal tax director in Carmiel. Shortly after that charge, liens were imposed on Chen's assets in various banks. "The municipal tax director's actions were undertaken despite the surprise visits to my client's apartment," continues Lasri, "following these, it was decided that the apartment was not used as an insurance office. The municipal tax director acted of his own accord, arbitrarily, trampling on all of my client's rights along the way." After a four-year legal wrangle, the municipal tax director retracted the charge, but Chen was not satisfied with that and later sued the city for his legal expenses. Chen is just one of many Israelis who out of the blue received such unfriendly notices from local authorities. Usually the recipients submit to the caprices of the authorities and pay the full amount of the charge, as the sum is not substantial enough to make it worthwhile going to court. "Such cases almost always end before reaching a court hearing," explains attorney Shai Cohen, of the Gindi-Caspi law firm, which specializes in real estate law. "People usually don't even know where to turn, and when sums are not large, people prefer to give in to the authority's demands. People are also deterred by the collection procedures the authorities are liable to commence, and would rather settle matters nicely." Inconsistent policies Local authorities charge the municipal tax for financing operations. Still, the laws that govern this tax are unorganized, relying mainly on municipal ordinances from the British Mandate period and the Economic Arrangements Law from 1992. The policy practiced in each local authority is slightly different, making it difficult for residents to understand the minutiae of the bills they receive. Even though the local authorities are not allowed to alter the definitions of the basis for calculating municipal tax (such changes require the approval of the finance and interior ministries), the definitions are altered, and can affect the charges by hundreds of percent. "Kafkaesque is an understatement when describing the Israeli municipal tax reality," said attorney Yitzhak Meyuhas, who specializes in municipal and land taxation. "There are so many inconsistencies in municipal tax charges. Sometimes the taxes are raised beyond the legally-approved hikes; and there are mistakes in the information used to calculate taxes, the classification of a property's use and in the calculation of linkage [to the Consumer Price Index] in periodic bills." Meyuhas' office is currently handling the charge for the sea space in Ashdod, sent recently to the Ports Authority. Meyhas has also faced off against the Petah Tikva municipality, regarding the inclusion of passageways between buildings in the calculation of the tax on apartments, which added 15% to the resident's tax assessments. In another case, a local authority tried to charge municipal tax on space occupied by a drink dispenser. Annual municipal tax rates range from NIS 30-80 per square meter for residential space, and upwards of NIS 287 per square meter for businesses. In addition, there is fine of 0.75% per month on late payments. A resident of Or Yehuda in his sixties who worked at an academic institution fought city hall when the latter wanted to charge him the business tax rate. For decades, the man had leased 14 dunams of land from the Israel Lands Administration to research the cultivation of ornamental palm trees. About seven years ago, the municipality decided he was managing a plant nursery, and therefore had to pay taxes at double the previous rate. "The city had difficulty defining my use of the land, and decided I was managing a nursery for commercial purposes," explains the man. "I am a researcher, not a merchant. I never sold [a palm tree] and never grew palm trees for commercial purposes. To this day, city inspectors come knocking at my door, threatening me with confiscation orders. At this point they are demanding retroactive payments to the tune of NIS 400,000, including 11% annual interest. Where am I supposed to get that kind of money?" "The authorities have draconian means of enforcing [tax] collection - and citizens have no way of defending themselves," says Meyuhas. "The authorities have the power to sue a citizen in an abbreviated procedure, levy fines and even impose dual administrative collection, which means that property can be confiscated without a legal proceeding. The authorities employ tax collectors, and property owners must contend with a rigid system that levies high fines without hesitation. These means are intended for use against recalcitrant tax payers, but are used arbitrarily and disproportionately." Twisted perspective The local authorities obtain information on residents from land surveys and according to rumors and announcements in the press. "The smaller the announcement, the more suspicious we are," said a clerk in the Netanya municipal tax department. What exactly constitutes business activity in a room or a residential building? "A lot of binders in the room," "receiving clients," "a sign outside" and "a separate entrance," are some of the criteria. "The local authorities have difficulty determining when a person is running a business from his home, and therefore charges the business rate for the entire space," says Cohen. "Why should a psychiatrist who sees patients in his home be charged the business rate for municipal tax, while a writer or newspaper journalist who works from home is exempt?" Cohen adds that sources in the municipal tax departments of various local authorities admit their goal is to tax any space used for commercial activity at the business rate, even if such activity is marginal to the main use of a property as a residence. One couple, for example, wanted to host a ceramics class in their home once a week, and installed special machinery in a room measuring 30 square meters. About three years ago, the municipal tax office contacted them and threatened to charge them NIS 30,000. The office claimed the couple was operating a business and had additional income from their property. Whereas the couple had paid NIS 50 per square meter on their home until then, the city now wanted to charge NIS 270 per square meter. "At first we figured it was a mistake, and paid no attention," recalls the husband. "We had never operated a business, never sold anything and done nothing to increase our income. Then we received bills amounting to NIS 30,000. What about people who hold lectures in their homes. Are they also running businesses?" "The authorities do not hesitate to charge the same business rate for a home as for a downtown store," says Cohen. "Even though a class is only for a few hours a week, the authorities tend to view it as a regular business. This is a twisted perspective that is not recognized by the courts." Legal rulings dictate that commercial and industrial properties must be classified in keeping with the use of each part. When space is used for several purposes, it must be broken down into the use of each part of that space. Cohen says that in the absence of information on the breakdown into categories, in many cases homeowners are helpless and pay the tax they are charged. "There is no reason whatsoever for the space classification laws not to be applied to residential apartments. Such a policy would make tax collection more efficient and would prevent the authorities from demanding the business rate on home offices." Bookmark to del.icio.us   Beatle terror Islamic militant leader threatens to kill former Beatle, Sir Paul McCartney, over Israel gig. Fugee Fridays Every Friday, volunteers bring donated food from Carmel Market to African refugees.

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