By Mark Zimmerman
Orange County has always prided itself on being a progressive community that strives for fairness. When the Orange County Commissioners chose to add a referendum to the May 6 primary election ballot imposing a new sales tax on property, known as the transfer tax, it abandoned those principles.
The transfer tax is a regressive tax that will disproportionately impact lower-income homeowners, place an unnecessary burden on affordable housing and nonprofit organizations and unfairly concentrate our taxes on a minority of our fellow citizens. The way it works is that when you sell your home or some land, Orange County will take 0.4 percent of your selling price before giving you the rest of your proceeds.
Why is the transfer tax regressive? It is well documented that most fixed-rate sales taxes are regressive. The transfer tax is nothing more than a fixed-rate sales tax on your property. Lower-income homeowners pay more of their income for housing, particularly in a high housing-cost county like Orange. Their homes also account for more of their total assets than higher income households. The lower one’s income and lower the price of one’s home, the greater the impact this transfer tax has on a family’s finances.
Home ownership is one of the best ways for families to raise their standards of living. It is just bad policy to strip them of the equity they worked so hard to earn just because they have to move.
Live in an affordable housing unit? You’ll have to pay. Live in a Habitat House? You’ll have to pay. Building an affordable house? The transfer tax may be paid multiple times by the original property owner, the developer and then the builder. Suddenly that home is no longer so affordable. Own a church or a nonprofit? You don’t have to pay property taxes but, sorry, you’ll have to pay this transfer tax.
No property sale is exempt from the transfer tax.
Why is the transfer tax unfair? The proceeds from this tax will support us all. But the tax itself is piled high on the shoulders of just a few in each year. We shouldn’t tax a minority to pay for the majority.
This problem in principle has an onerous practical effect. By not spreading the burden out to everyone, which would minimize its impact on any one person, the weight of this transfer tax on those who sell their homes is dramatic. For the average home seller in 2007, the transfer tax bill would have been $1,371. If the equivalent amount of money was raised by regular property taxes, it would take 14.3 years to pay off that one transfer tax bill.
There are other problems with electing the transfer tax. Its revenue is historically unpredictable and unreliable because it is tied to the real estate market. Real estate is experiencing some real challenges right now, meaning revenue estimates from the transfer tax have already dropped significantly, down 13 percent so far. Why would we choose to add a new tax on which we cannot depend? Why would we add more costs to people selling their homes in this real estate market?
The transfer tax is a bad idea. So, how do we get more revenues? First, we should continue to push for better fiscal stewardship. Second, we should revisit another new revenue option the commissioners considered, the restoration of the 0.25 cent sales tax. This tax would have minimal individual impact; the average person would only have to pay around $5 per year for an equivalent amount raised by the transfer tax. And this sales tax exempts food and medicine, making it much less regressive. Third, we need to get serious about attracting, nurturing and retaining responsible commercial development in our economic development zones, which have lain fallow for too long. Until we have a more diverse tax base, the commissioners will continue to tax our homes and property, one way or another.
As for the transfer tax, it is certainly not the right tax. It is certainly not the right time. It is not right for Orange County, now or in the future. There are better, fairer alternatives. I urge each of you to vote no on this referendum in the May 6 primary.
Mark Zimmerman owns the Re/Max Winning Edge real estate brokerage in Chapel Hill and is vice president of the Chapel Hill Board of Realtors. He is also spokesperson for Citizens for a Better Orange County.
My nephew was thinking of moving from Raleigh to Chapel Hill because he took a new job in the Chapel Hill area & wanted to cut down on commute time and gas expense. Since reading about the transfer tax, he is now shopping for a house in Durham county. This not only is a loss for Orange county tax base but an additional consumer.
Mr. Zimmerman is right on the mark, so to speak. It’s a sad fact that many houses are sold by individuals under stress; whether it be from divorce, job loss, forced relocation or fear of foreclosure. Just imagine having a short sale and having to bring transfer tax money to the closing. This is really a bad idea!
The hypocrisy of the realtors association is astounding. Remember those three important things in real estate? Location, location, location. Quality public services result in higher property values that increase equity. Transfer tax can be a predictable way to help pay for that equity when the money is in play at closing rather than annually when cash flow fluctuates.
Rising annual expenses such as property taxes and user fees can trigger mortgage defaults which, in a rising market, can be resolved by sales or refinance. In a declining market foreclosures become more likely. Housing prices are quite sensitive to job growth and to basic quality of life factors like schools and infrastructure. When costs for infrastructure are not collected up front the pressure on the housing market is deferred, not eliminated. Need will manifest itself later either as increased taxation leading to defaults and/or reduced levels of service contributing to price depreciation and foreclosures.
If a home is sold for $250,000 a realtor commission is 6% or $15,000. A transfer tax of 0.4% would be $1,000 or 1/15th of a realtor fee which we don’t flinch at because it is paid when the assets are liquid. When there is a “crunch” it is usually because there is no liquidity, credit or income to address rising costs.
If that home appreciates in value, say 5% every year, after 30 years the home will have a value of $1,029,034. If the same home is sold every 5 years, with 6% going to realtors every time, the total amount spent on realtor commissions over 30 years will be $234,224 for a house that originally sold for $250,000.
Over the same period just $15,615 would represent the amount going to a transfer tax of 0.4%. Over the 30 year history of the house 23% of the final value of the house will have gone to realtors while just 1.5% would have gone towards transfer tax for public services essential to maintaining the value of a home.
Or to put it another way, Over the 30 year history of the house 94% of the original value of the house will have gone to realtors while just 6% would have gone towards transfer tax for public services essential to maintaining and increasing the value of a home, over 30 years.
I’m not sure why Mr. Flynn wants to talk about realtors. They don’t pay this tax. The homeowner does. There are lots of costs associated with owning a home. If you want to get upset with someone, how about your banker? Ever see what that mortgage actually costs over 30 years! No one has to use a realtor, but you have to get a mortgage.
The salient point is homeowners pay annual property tax every year for their public services. Should they have to pay again – essentially pay twice – when they are leaving? The only question is this tax a fair one and does it hurt low income home owners. Even if realtors went away (and many folks don’t use them) people would still have to pay this tax, and the bill would still be a doozy. Mr. Zimmerman makes many good points that Mr. Flynn just chooses to ignore. Comparing this cost to other costs is just a diversion.
John,
“Mr.” Flynn never lets the facts get in the way of a good smear campaign…
Best,
David
How many times does the average person sell a house in Orange County? Once? Twice?
How many times do big money developers sell homes in Orange County? MANY times.
Face it–the county needs money. A transfer tax, at only 4% would raise the price of a $250,000 home by $1000. The cost of a $100,000 home would raise by $400. That’s peanuts!
As for low-income families, adding $400 to a 30 year or even 20 year mortgage is negligible at best. This tax wouldn’t hurt low-income families trying to purchase a home. However, adding a sales tax would add to every purchase made by everyone–not just low income families.
Let’s stop all the silliness here. The ones that will be hardest hit are the big money developers–not the average citizen selling a home. As we have seen, they are spending a LOT of money to stop this tax. There are signs and ads everywhere, and they’re using the pity-factor card with how it will affect low-income families.
Additional taxes affect everyone. Chosing a tax that will affect you as little as possible, like the transfer tax, is certainly the way to go.
Vote YES on the Transfer Tax! Don’t let your opinion be swayed by the people that have the most to lose–and the ones with the most money!
Very good article, Mr Zimmerman! My lack of support for the transfer tax has won me no support among my more liberal colleagues, so it’s good to know there are some people that can see how harmful and ridiculous this tax really is. I was concerned that over time the tax would be passed on to renters and would hurt business development in Orange County as well. The businesses on Franklin St turn over about every two years and not all of the office space is bought up even now, despite the city’s campaign talk of attempts to attract business. If businesses struggle and won’t come to even the best location in the county, we certainly don’t need to tax them if they want to buy a piece of property. I don’t know about you, but I’m really tired of saving up my shopping for my biweekly drive to Wake County. ..the gas is soooo expensive!