Tax Clubs

Training for: Legal Notes

Tax “clubs” are periodic (usually monthly) installment plans for payment of property taxes that allow taxpayers to pay in smaller increments throughout the year and avoid interest for late payments. They are an effective way for taxpayers to budget their property tax payments over several months rather than tendering a single or semi-annual tax payment(s).

Tax clubs are authorized by 36 M.R.S. § 505, which allows a municipality’s legislative body (town meeting or council) to annually set one or more due dates and interest dates for property taxes. As a result, tax clubs must be approved annually by a vote of the municipal legislative body authorizing the tax collector to enter into a standard agreement with participating taxpayers.

Considerations for developing a tax club program:

• The tax club should provide for equal installments based on the taxpayer’s actual or estimated annual property tax assessment. Most clubs establish a monthly payment plan having between 8 and 12 payments, but any installment interval would be legal. No matter the number of payments, the plan should be coordinated with the timetable for real estate tax liens, which must be initiated between 9 and 12 months from the commitment date of the tax. For that reason, it is advisable to set the due date for the last payment under the tax club to occur before the tax collector needs to begin a lien process.

• If payments are made on time, no interest is charged. The club terms should provide that if any payment is late, the agreement is automatically terminated, and the participant is then subject to the same due date(s) and interest penalties as non-participating taxpayers.

• Interested taxpayers should be required to join annually by a specified date. Participation should be limited to taxpayers who are current on their tax obligations. Some municipalities provide coupon booklets for participants.

• Some municipalities restrict participation to residential taxpayers, although fewer concerns may arise by making it available to business and residential taxpayers alike and for both real and personal property taxes. (Note: the sample wording below does not distinguish between categories of taxpayers or property taxes).

• Charter municipalities must determine whether a tax club would conflict with any charter requirements.

A sample warrant article appears below:

Art. . To see if the Town will vote to approve multiple due dates pursuant to 36 M.R.S. § 505 for the purpose of establishing a “tax club” payment plan for property taxes and to authorize the tax collector to enter into a standard agreement with taxpayers, whereby: (1) the taxpayer signs a completed agreement with the tax collector by a publicly advertised deadline determined by the tax collector; (2) the taxpayer agrees to pay [#] [equal/monthly] installment payments to the Town beginning [date of 1st installment] based on the taxpayer’s estimated and actual tax obligation for current year property taxes; (3) interest will not be charged on timely payments made pursuant to the tax club agreement; (4) per 36 M.R.S. § 506, the collector may accept tax club payments for current year taxes which may be due prior to the commitment of those taxes; (5) the agreement is automatically terminated if a scheduled payment is late and the taxpayer then becomes subject to the same due date(s), interest date(s) and interest rate as taxpayers who are not participating in a tax club; and (6) only taxpayers who do not have outstanding tax obligations for prior tax years are eligible to participate in the tax club program.

Tax “clubs” are periodic (usually monthly) installment plans for payment of property taxes that allow taxpayers to pay in smaller increments throughout the year and avoid interest for late payments. They are an effective way for taxpayers to budget their property tax payments over several months rather than tendering a single or semi-annual tax payment(s).

Tax clubs are authorized by 36 M.R.S. § 505, which allows a municipality’s legislative body (town meeting or council) to annually set one or more due dates and interest dates for property taxes. As a result, tax clubs must be approved annually by a vote of the municipal legislative body authorizing the tax collector to enter into a standard agreement with participating taxpayers.

Considerations for developing a tax club program:

• The tax club should provide for equal installments based on the taxpayer’s actual or estimated annual property tax assessment. Most clubs establish a monthly payment plan having between 8 and 12 payments, but any installment interval would be legal. No matter the number of payments, the plan should be coordinated with the timetable for real estate tax liens, which must be initiated between 9 and 12 months from the commitment date of the tax. For that reason, it is advisable to set the due date for the last payment under the tax club to occur before the tax collector needs to begin a lien process.

• If payments are made on time, no interest is charged. The club terms should provide that if any payment is late, the agreement is automatically terminated, and the participant is then subject to the same due date(s) and interest penalties as non-participating taxpayers.

• Interested taxpayers should be required to join annually by a specified date. Participation should be limited to taxpayers who are current on their tax obligations. Some municipalities provide coupon booklets for participants.

• Some municipalities restrict participation to residential taxpayers, although fewer concerns may arise by making it available to business and residential taxpayers alike and for both real and personal property taxes. (Note: the sample wording below does not distinguish between categories of taxpayers or property taxes).

• Charter municipalities must determine whether a tax club would conflict with any charter requirements.

A sample warrant article appears below:

Art. . To see if the Town will vote to approve multiple due dates pursuant to 36 M.R.S. § 505 for the purpose of establishing a “tax club” payment plan for property taxes and to authorize the tax collector to enter into a standard agreement with taxpayers, whereby: (1) the taxpayer signs a completed agreement with the tax collector by a publicly advertised deadline determined by the tax collector; (2) the taxpayer agrees to pay [#] [equal/monthly] installment payments to the Town beginning [date of 1st installment] based on the taxpayer’s estimated and actual tax obligation for current year property taxes; (3) interest will not be charged on timely payments made pursuant to the tax club agreement; (4) per 36 M.R.S. § 506, the collector may accept tax club payments for current year taxes which may be due prior to the commitment of those taxes; (5) the agreement is automatically terminated if a scheduled payment is late and the taxpayer then becomes subject to the same due date(s), interest date(s) and interest rate as taxpayers who are not participating in a tax club; and (6) only taxpayers who do not have outstanding tax obligations for prior tax years are eligible to participate in the tax club program.

Contact MMA Legal Services at (800) 452-8786 or legal@memun.org for more information or links to sample club agreements. (By S.F.P.)