LAND TRANSFER TAX
By Rep. Paul Stam
April 24, 2007
An attractive concept is the "menu of local options". A menu is good for restaurants and for computers. But before adding an item to the menu you want to know that it is healthy for you.
I will ask Republicans to reject land transfer taxes on the menu for the following reasons:
Most versions of this call for a 1% land transfer tax. On a $200,000 house that would be an added tax of $2,000.00 every time the house is sold.
A land transfer tax is not new. This proposal just increases the existing excise tax on land sales by 600%. The seller of a $200,000 house already pays a tax of $400, even if the seller has no profit in it and even if the entire nominal profit is only inflation.
If the house is new a second tax that is paid is the sales tax on materials. A $200,000 house includes $80,000 worth of materials. At 7% that is $5,600 in sales tax. Approximately $2,000 of this will go to the County and that is used mostly for schools.
There is a third "new house tax". The builders, laborers and developers must report the sale of a house and their labor as ordinary income which is taxed at varying rates - an average of 20% Federal and 6% State for a combined 26%. A $200,000 house would have labor and profit of about $50,000. That's $13,000 in income tax. Add all these together and you have a "new house tax" of $19,000.00 on a home selling for $200,000.
In addition there are sewer and water acreage and capacity fees as well as inspection fees, averaging $12,000 in the Triangle. And I could add the property taxes on the land from the time it left agricultural use and the time that the development process started - all of which goes to the county and cities. And all the laborers pay FICA and Medicare. And the material suppliers pay income tax on the value they add to their products.
To all these taxes and fees they want to add a $2,000 tax each time the house sells!!
A land transfer tax imposes this new tax on sellers of older houses as well as new houses - even if the new owner has fewer kids or fewer drivers than the selling family. As a way to make "growth pay for itself" this new tax is misaimed. The Smith family (with 3 cars and 3 kids in public school) sells to the Jones family (with 2 cars and 2 kids who are already in college). That's another $2,000 tax even though our "infrastructure" is less burdened. If two identically situated families trade houses so that each can live closer to work, that's another $4,000 in taxes - even though the burden on the roads is lessened.
Or take two identical houses - one on Elm Street and another on Maple Street. The Elm Street house is owned by the Smiths who have two cars and two kids who mature from birth to age 25 until they are out of the nest. The Smiths die and will the house to their children. No tax. The Maple Street house is owned by the Allens who sell to a succession of 5 owners who each have two cars and two kids at the same ages as the Smith children. This house pays an extra $10,000 in tax - a bizarre difference.
"Don't tax me, don't tax thee, tax the fellow behind the tree" is the battle cry of demagogues who want to extract more money out of other people. But we have met the taxpayer and "we are it."