Proposals to create or raise real estate transfer taxes, which add real estate transaction costs for consumers, set the lobbying machines in motion at several state-level Realtor trade associations.
The North Carolina Association of Realtors in late March launched a campaign to mobilize against a proposed tax that would charge sellers 1 percent of the sale price in home-sale transactions.
Realtor groups fear that such taxes will discourage home sales, especially among lower-income consumers. And real estate sales have already slowed in many markets across the country. Transfer taxes can be a recurring issue in cities, counties and states as public officials look for ways to keep money flowing in for public projects and services.
The North Carolina trade group launched a Web site, www.itsabadidea.org, to educate consumers about several local and statewide tax proposals, and the campaign features television, radio, direct mail and print ads. There is a transfer tax calculator to figure out how much the transfer tax would cost if you sold your home, and a “Where’s Angie” link that takes visitors to an online video of a “consumer advocate” named Angie who is on a mission to educate North Carolina consumers about the tax.
The video begins with Angie standing in a large kitchen with granite countertops and stainless steel appliances. “You know you work hard, you save up and you buy a house. It’s the American Dream, right?” she says. “So why do Raleigh politicians want to tax that dream when you sell your home?” she asks.
The tax proposals, she also says, represent “a homeowners’ tax on the equity you’ve built up — money for your kids, vacations, your retirement. This home tax is a bad idea. So I’m hitting the road so politicians hear from you.”
She then drives away in a red pickup truck with a “Stop the NC Home Tax” logo on the door.
The Realtor group’s effort has directed about 8,000 unique e-mail messages to state legislators in support of its “Stop the NC Home Tax” campaign, which was announced March 26. “About 90 percent of those are coming from non-Realtors,” said Tim Kent, executive vice president of the statewide association. The Realtor group has about 42,000 members.
“The public is clearly worked up about this issue,” he said. As the campaign progresses the Web site will feature videos of Angie, a Raleigh resident, as she tours the state talking to people about the proposed legislation. One of the videos, Kent said, will feature a conversation between Angie and a barber who cuts the governor’s hair.
Opposing the transfer tax legislation is “the biggest priority issue — it is our line-in-the-sand issue,” Kent said. Transfer taxes have been proposed in the past, he said, without success.
Preventing the passage of the transfer-tax legislation will help to preserve housing affordability in the state, he added. “Our average house price is $225,000. That’s the key to this state’s economic future and growth, and to use fees, taxes and regulations to drive up the cost of housing is a counterproductive strategy.”
The New Mexico Association of Realtors supported state legislation that would prohibit municipalities in that state from imposing a real estate transfer tax, and launched a Web site: www.stopthehometaxnow.com.
“Some cities in New Mexico are trying to institute a home tax on the sales value of your home that will be added into already expensive closing costs,” according to a flier supporting the Realtor group’s anti-tax campaign.
The legislative proposal, Senate Bill 1056, passed the state Senate but failed in the House, said Nick French, president for the New Mexico Association of Realtors. It was the first time that the association had pursued a bill to block transfer taxes, he said, and the association may push for similar legislation again next year.
Santa Fe had been considering whether to pass a local transfer tax, which propelled the Realtor association to action, he said. “It has not passed the talking stage at this point.”
The Realtor group’s efforts were helpful, he said, in educating consumers about transfer taxes. “Unfortunately, people don’t buy and sell property enough to be totally aware of what’s going on.” Real estate taxes become an economic issue for the state when homeowners “are stuck and can’t move u like they want to because of these burdens and taxes,” he said.
“The campaign was very effective. Should anybody propose transfer taxes there will be some rather major campaigns on our part to defeat them,” French also said.
The National Association of Realtors in 2003 issued a report on the “Potential Impacts of Increases in Real Estate Transfer Taxes,” stating that such taxes can represent a higher tax burden for lower-income households.
The report stated that transfer tax rates of 1 percent or more are in place in Washington, D.C., Delaware, New Hampshire, New York, Washington and Pennsylvania. Typically these taxes are based on a percentage of the property value, and “the state statutes may or may not stipulate who (buyer or seller) is responsible for paying the tax,” according to the NAR report, and the association is opposed to real estate transfer taxes and fees.
A February 2006 report by the Federation of Tax Administrators states that 35 states and Washington, D.C., have a real estate transfer tax. Additionally, there are transfer taxes imposed at the local level in California, Louisiana and Ohio, according to the federation report. And localities in Delaware, Maryland, Michigan, New Jersey, Pennsylvania, Washington and West Virginia can impose a transfer tax in addition to the state transfer tax.
Transfer tax rates range from 0.01 percent in Colorado to 2.2 percent in Washington, D.C., the report states, and the rate is below 0.5 percent in about two-thirds of the states with transfer taxes. The rate is 1 percent or higher in seven states and Washington, D.C. The federation also reported that real estate transfer taxes produced about $7 billion worth of state tax revenue in the 2004 fiscal year.
Real estate agents typically charge a commission for their services that is based on a percentage of the home’s selling price, and the total commission in a real estate transaction typically ranges from 4 percent to 7 percent, with the total commission divided among the brokers and their agents that were involved in the deal.
While the Michigan Association of Realtors “has always been opposed to the transfer tax and any increases to it” in that state, the group is “willing to accept (a) temporary increase” of 0.1 percent increase in the state’s transfer tax, from 0.75 percent to 0.85 percent, according to a notice to association members.
This concession is based on related legislation that would place a property-tax cap for a similar period, allowing buyers to inherit the current owner’s taxable value and avoid a rise in taxes if the home is a principal residence. There is a “net benefit” in freezing that property tax, according to the association notice.
Wisconsin Gov. Jim Doyle has proposed a doubling in his state’s real estate transfer tax, from $3 per $1,000 of value to $6 per $1,000 of value, and the association “is planning an all-out effort to remove this tax increase from the state budget,” according to an association announcement. The seller is responsible for the transfer tax in Wisconsin, and the increase would move the state from the 22nd-highest real estate transfer tax in the nation to the 12th highest.
The tax, according to a statement by association lobbyist Michael Theo, “hurts everyone, from an elderly seller who is counting on the equity from the sale of his or her home to pay for retirement or an alternative living arrangement, to the young couple selling their starter home and looking for a bigger house for a growing family.”
In Pennsylvania, the state’s Realtor group commissioned a statewide poll to support its stance against an increase in the state’s realty transfer tax. In November, the association and the Pennsylvania Builders Association announced opposition to an increase in the transfer tax supporting mass transit. This state’s Transportation Funding and Reform Commission had recommended this increase among other proposals to raise $760 million for mass transit.
The association said in an April 3 announcement, “Quite simply, there is no relationship between mass transit and real estate transactions. Home buyers and sellers should not have to carry the burden of funding mass transit.”
The Illinois association of Realtors reported in late March that there was no movement in transfer tax-related legislative proposal and several transfer tax bills “are now inactive” in that state.
A specialized transfer tax in California that is imposed by developers has drawn fire from the California Association of Realtors.
The association announced in February that it is sponsoring legislation in the state, Senate Bill 670, to eliminate developers’ ability to “impose private transfer taxes on home buyers at the time of purchase.”
These transfer taxes imposed by developers represent “an alarming trend in California,” association president Colleen Badagliacco said in a statement. Such taxes give developers the ability to tax to raise money “for any purpose including their own use,” she said.
The association said that the highest private transfer tax rate it has seen is 1.75 percent of the home’s value, though “under existing law there’s no limit.” That legislation is set for a hearing by the Senate Transportation and Housing Committee on April 17.