News: CJ Exclusives

Forces Battle Real Estate Transfer Tax

Opponents see it as a tax on the equity of their homes

As state lawmakers ponder tax changes this spring, only one proposal — a real estate transfer tax — has prompted opponents to create a Web site with the message: “It’s a bad idea.”

“A real estate transfer tax will force the seller to pay a 1 percent sales tax on the value of their property,” said Tim Kent, executive vice president of the N.C. Association of Realtors. “For most North Carolinians, that means a tax on the equity in their home, and we believe that’s wrong.”

Thirty-seven states and the District of Columbia authorize real estate transfer taxes now, according to the Realtors association. “If you are selling a $200,000 home, you would have to pay a $2,000 tax just for the ‘right’ to sell your house,” Kent said. “When people find out about this proposal and what it really means, they are outraged.”

Kent and his colleagues launched on March 26 the Web site itsabadidea.org to detail objections to the land transfer tax. The Realtors group also launched a print and broadcast ad campaign.

“In just the first nine days of this campaign, our Web site generated more than 6,300 e-mail messages to members of the N.C. General Assembly,” Kent said. “About 90 percent are coming from non-Realtors. Our message has clearly struck a nerve with the public.

“They are outraged by this proposed tax and they are taking action,” he added. “Our research tells us that 81 percent of the public is opposed to a 1 percent real estate tax. In addition, 78 percent say tax increases should be shared among all taxpayers and not burden one specific group of people.”

Lawmakers have filed more than a dozen bills this year related to real estate or land transfer taxes. Local bills target counties from Avery in the west to Pamlico in the east. Other bills would give each county the option to schedule a land transfer tax referendum.

“I think local governments need a right to raise funds necessary for them to provide for the infrastructure, to provide for their schools,” said Rep. H.M. “Mickey” Michaux, D-Durham, who included the land transfer tax within a local option tax menu bill he filed. “They ought to not have to come back to the General Assembly every time they need to have an option to raise money.”

Michaux co-chairs the committee that writes the N.C. House’s budget plan. “The land transfer tax seems to be one of the favorites among folks here right now, but my point is to give [counties] an option: land transfer tax today, something else tomorrow,” he said. “They keep coming back and forth to the General Assembly. They don’t need to do that. If the people in their communities want it, then let them vote for it.”

Supporters say a land transfer tax would help growing counties pay for growth. “Finding revenue sources is a real problem,” said Rep. Pricey Harrison, D-Guilford, who has signed on to at least seven local land transfer tax bills. “Nothing is very pleasant. But I think assigning [the tax burden] to property taxes or increased sales taxes is the more regressive alternative.”

“We have to figure out some way to pay for this growth, and this seems like an option,” Harrison added.

Critics say land transfer tax supporters ignore current taxes linked to homeownership. “First of all, you have to understand there’s already about a $19,000 new house tax on every house sold,” said House Minority Leader Paul Stam, R-Wake.

That $19,000 figure includes sales tax on materials and income tax on labor for a typical $200,000 house, Stam said. “There’s also about $12,000 in fees they pay to the governent: acreage fees, sewage fees, inspection fees.”

Another criticism challenges the argument that a land transfer tax is good for communities with high growth. “It’s a tax that’s targeted at what’s perceived to be a particular problem, and yet the solution — this tax — does not hit evenly for those people who are supposedly causing the problem,” said Senate Minority Leader Phil Berger, R-Rockingham. “The idea is we need this because we’re having to build more schools, but the tax would fall not just on those people who have children. It would fall on elderly people. It would fall on folks who are single. It would fall on people that don’t add any burden to our school-age population.”

Support for the tax is “up in the air,” said House Majority Leader Hugh Holliman, D-Davidson. Legislators are also trying to decide whether to keep temporary sales and income taxes, and whether the state will assume county Medicaid costs, he said. “All of those things are part of the budget process, and I don’t see a clear direction just yet.”

Holliman’s Senate counterpart says he’s also unsure about the land transfer tax’s fate. “I don’t think the will exists to do anything on a statewide basis, but I think people do want perhaps to look at a menu approach, so that each county could hold itself responsible for what it’s done,” said Senate Majority Leader Tony Rand, D-Cumberland. “You never know, but the more things get discussed around here the higher the likelihood that something may happen.”

The Realtors plan to continue their campaign, Kent said. “This is a line-in-the-sand issue for our organization because it poses a serious threat to housing affordability in this state,” he said. “We are committed to do what is necessary to educate North Carolinians about this issue.”

Mitch Kokai is an associate editor of Carolina Journal.