We've had a few emails asking our opinion about Proposition 100, the Protect Our Homes Initiative. In short, we are in favor of the proposition.
The initiative, simply stated, would add a amendment to the Arizona Constitution prohibiting the legislature from passing laws allowing for the taxation of real estate during a transfer. In other words, disallowing a real estate transfer tax.
First, let's look at what a transfer of real estate looks like. Most of us think this only occurs when we buy or sell a home. However, there are four well recognized forms of transfer.
- The buying or selling of residential or commercial land and/or buildings.
- The transfer of real property within a trust.
- A change in the marital status of a property owner.
- A gift of real property to a family member or charity.
Here lies the first problem in establishing a real estate transfer tax, something that has been proposed at the State level on several occasions. It does not just happen when you sell a home. It can happen when you get married or set-up/modify a trust. Do you want to pay the State a few thousand bucks just because you've modified a piece of paper or found the love of your life? I don't. My wife and I have modified our trust a couple times during the past five years and this could have cost us plenty if a transfer tax were in place.
Let us look at some other simple problems with a transfer tax.
- Generally, the tax is initiated by the State one lives in. However, counties and cities can add create their own transfer tax in addition to the State's. Not many have done this, but some have, proving it can be done.
- The tax can get pretty hefty over time. Click here to see a table of transfer taxes by State in PDF format. The rate varies by state from .1% to 2%. This may not sound like much but let's say you lived in Delaware and sold your $500,000 home... a nice middle-class home but not a mansion by any standards. The transfer tax would be ten thousand bucks. Now that is a high tax example, so let's look a Florida, a snow bird state like our own; Your transfer tax would be $3500.00. I don't know about you, but that's real money to me, especially when my equity has been gobbled up in this sub-prime debacle.
- Some say the tax is important as it could be targeted to provide low income housing assistance.
My first question is, How does taxing real estate make it more affordable? Sure, some would be helped but everyone else would be penalized by higher housing prices. Add to this the ongoing problem with States creating special session laws allowing them to grab supposedly targeting money for other purposes. Just look at the tobacco tax that was originally sold to the voters as a means to fund anti-smoking educational programs and is now used to fund much else. - What if your home gets transfered due to foreclosure? Do you get saddled with back taxes? Will the bank taking back the house pay the tax or pass on the burden to the person who buys it? In a market where down payment dollars are short this could pose a real problem.
There are many other issues a real estate transfer tax brings up such as double taxation for property owners, damaged equity and an additional burden on an already weak market segment. I think you get the point that a real estate transfer tax has few merit-able qualities and many problems.
For more information from the folks at "Protect Our Homes" on this proposition, you can visit their web site by clicking here.
Gene Urban
The Urban Team at Realty Executives
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