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It’s Always Money Out of Your Pocket

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By Lowell L. Kalapa

We always like to think that we would all be better off if someone else paid the taxes that government needs to pay for the services it provides to its constituents.
At a recent summit convened by the governor on the issue of the shortage of affordable housing, attendees were asked to break up into three groups to look at various facets of how to increase the supply of affordable housing in the state. While there were a number of suggestions on how to make it easier to build more affordable housing, like getting rid of regulatory barriers and providing financial incentives, much of the discussion came back to finding a pot of gold to pay for or subsidize affordable housing.
While participants soundly rejected the idea of mandating affordable housing as part of the approval process for new housing, a failed edict of a previous administration which only created a larger gap group of potential homeowners, some groups toyed with the idea of dedicated funding. The primary focus was on increasing the current amount earmarked from the conveyance tax for the affordable rental housing trust fund. However, the governor’s initial rejection of the idea in an impromptu news conference after the summit probably will mean that it is not one of the proposals that will be seriously considered.
The current earmarking for the affordable rental housing trust fund came about in the early 1990’s when affordable housing advocates joined forces with the conservationists and pushed for a doubling of the tax rate.
The problem with using the conveyance tax is that it was never intended to be a revenue source for the state. The history of the conveyance tax dates back to 1966 when the legislature – after the repeal of the federal law requiring stamps for transfers of real property – adopted the tax as a means of tracking valuation of real property sold. It was enacted for the sole purpose of providing the department of taxation with additional data for the determination of market value of properties transferred. This information was also to assist the department in establishing real property assessed values. While the legislature was considering the proposal, the department stated that the conveyance tax was not intended to be a revenue raising device but a means of collecting information on value.
Prior to 1993, the conveyance tax was imposed at the rate of 5 cents per $100 of actual and full consideration paid for a transfer of property. The legislature, by Act 195, SLH 1993, increased the conveyance tax to 10 cents per $100 and earmarked 25% of the tax to the rental housing trust fund and another 25% to the natural area reserve fund.
As recently as this past legislative session, lawmakers continued to tinker with the conveyance tax rate for what seemed to be an attempt to put the burden on transfers representing large dollar amounts. Whether or not it was the intent, the perception appeared to be to want high-end housing to pay more into the pot perhaps with the belief that those who could afford multimillion dollar transfers should pay more.
However, what lawmakers seem to not understand is that multimillion dollar transfers of real property aren’t necessarily limited to luxury homes in Portlock but also include the transfer of land that may eventually be developed into affordable housing either for ownership or for rent. The added cost would thus be passed on to buyers and renters of “affordable” housing. So much for holding the cost of affordable housing “affordable.”
The other point that should not be lost on taxpayers is that the conveyance tax is one of the least dependable sources upon which to rely for funding with collections rising and falling with the fortunes of the real estate market. Any amount collected under this tax will depend on activity in the real estate market. If the housing market slows down, revenues may not be sufficient to meet the expectations of the fund. Should the additional revenues not be sufficient or another “important” program need funding, will the conveyance tax be increased to generate even more revenue?
Finally, advocates chide that it is only another nickel. Well, actually it is 50 cents for every thousand dollars of value. So, doubling it to ten cents is like raising the property tax rate from 50 cents to one dollar per thousand dollars of value. While paid only when property is transferred, it is still money that adds to the cost of the sale.

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