A proposal to raise the tax on real estate sales in the state of Washington as an alternative to fees on new construction has been postponed after a clash between builders and Realtors.

The Washington Association of Realtors had launched a major advertising campaign in an effort to kill the proposal, saying a higher tax would slash homeowners’ equity in house sales and potentially price more people out of the real estate market.

Bryan Wahl, director of government affairs for the Washington Association of Realtors, said that the legislative proposal, if passed, would have “a tremendous impact on housing sales” in the state, and according to one analysis could potentially price 19,000 people out of the Washington housing market. “This is basically taking $300 million of homeowners’ equity out of circulation.”

Meanwhile, the Building Industry Association of Washington backed the legislative proposal as an alternative to impact fees that local municipalities charge for newly constructed homes.

The builders group charged that Realtors sought to protect their own commissions by working to block new taxes associated with home sales. Realtors typically are paid a percentage of a home’s selling price for their services.

“The real pick-pocketers of homeowners’ equity are Realtors themselves. Realtors routinely charge 6 percent of a home’s selling price for their services, and the housing boom has been very good for Realtors’ bottom line,” the builders’ group charged in a Dec. 2 announcement. “If Realtors were so worried about homeowners keeping all of the equity from the sale of their home, they wouldn’t be gouging sellers with a 6 percent commission,” the group’s tax and housing analyst, Trent Matson, said in a statement.

But Rep. Judy Clibborn (D-Mercer Island), who first introduced the legislation in March, said Monday that the bill still needs more work and she doesn’t expect to introduce it in the approaching legislative session, which begins Jan. 9.

“I don’t think the bill is going to run this year,” she told Inman News. “I will not be running the bill this session and I’m really asking everyone to come back to the table and look for a solution to the problem.”

She added, “The stance I’m taking is, ‘Let’s look for a solution. Let’s not debate this issue hysterically,'” she said. Clibborn also said that she doesn’t believe Realtor support is instrumental for the legislation, though she is happy to listen to any ideas put forth by the Realtor association. “If they’re able to come up with another funding source or another idea, I’m more than willing to go there.”

Wahl said that builders in the state have sought to spread impact fees that are levied on a portion of new construction out to buyers of both new and existing homes through a tax hike on real estate sales. About 80 percent of housing sales are existing homes, while about 20 percent are new construction, he said.

A Web site launched by the state and national Realtors association, www.stopthehometax.com, states that the tax increase on the median-priced home in the state could amount to about $1,657 per sale – “a 130 percent increase in local real estate taxes.” Already, the state of Washington collects about 1.28 percent and local government collects 0.5 percent from every sale of property, which is among the highest tax rates in the nation for real estate sales, according to the site, and the proposed local real estate tax increase would add another 0.65 percent to real estate sales.

The state Realtors group had raised about $250,000 and the National Association of Realtors contributed $750,000 to support the campaign against the legislative proposal, Wahl said. The advertising campaign started up in mid-November and will run through Dec. 15. The campaign, which features radio, television and newspaper ads, will then re-launch after the Jan. 9 start of the 2006 legislative session in Washington, Wahl said.

Clibborn first introduced the legislation in March 2005, and Realtors mobilized to push for legislative opposition to the bill during the 2005 legislative session.

Realtors earlier this year testified in opposition to that bill, and thousands of association members contacted legislators to encourage opposition to the legislation. “We generated more than 10,000 e-mails and lit up the phone lines for days,” according to a report by the state association.

Wahl said that Realtors are committed to finding an alternative source of money to support the necessary amenities as communities grow, and the association has paid for a study – now in its final stages – to identify other potential revenue sources for municipalities.

“We certainly agree with the goals to eliminate impact fees, and additional funding for infrastructure is absolutely necessary,” he said, adding that, “We will continue to oppose legislation as long as a real estate (sales) tax is the funding source.”

Brian Minnich, director of legislative affairs for the Building Industry Association of Washington said while it is clear that Realtors oppose an increase in the tax on real estate sales, “what we’d welcome are some solutions to fund infrastructure needs. Schools and roads are certainly important for any community. If you don’t have that infrastructure you can’t build houses. Our concern with impact fees is that they are very narrowly focused on a small group of individuals,” he said.

Impact fees that municipalities levy on new-home construction can in some cases amount to an additional cost of $10,000 to the buyers of new homes, Minnich said.

“Our feeling – a much better balance is to spread out (infrastructure cost) through the real estate excise tax. The ultimate goal – we’d like to get rid of impact fees. We really think there is a better way to do it,” he said.

According to language in HB 2196 as it was originally proposed, “In addition to any other taxes authorized … the legislative authority of any county or any city may impose an excise tax on each sale of real property in the unincorporated areas of the county for the county tax, and in the corporate limits of the city for the city tax, at a rate not exceeding two-fifths of 1 percent of the selling price,” with proceeds from the tax used solely to finance capital projects. This tax hike is intended to replace impact fees, according to the text of the original bill.

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Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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