N.C. closes on transfer tax
Measure lets counties seek increase in controversial levy on land sales
It's a tax you might not have realized you were paying amid all the closing costs when you sold your home.
But under an option that N.C. legislators tentatively approved Saturday, you could pay three times more.
The additional money -- $800 on a $200,000 home, for example -- could help pay for more schools and keep your property tax bill from climbing.
Called a real estate transfer tax, the proposed increase was included in the state budget after a vicious battle between the real estate industry and local governments.
Approving the option to increase the existing tax was a historic move for a legislature that has refused to allow any counties to hike the tax since the 1980s. Legislators will take a final vote Monday that is expected to be a formality.
For fast-growing areas, the option to ask voters to approve a transfer tax increase provides counties with another tool besides property taxes to cope with such things as overcrowded schools, congested jails and inadequate sewer treatment facilities.
In Mecklenburg County, the tax increase could bring in about $53 million a year if adopted. That's enough to build three elementary schools.
To be clear, any increase would require voter approval. And the battle the real estate industry waged against the legislation would likely be renewed if it got to the ballot. But there's still time for it to be considered in this fall's elections.
Cabarrus and Mecklenburg commissioners said they won't seek it this year, though they're considering it for the future.
But Union County commissioners Chairman Kevin Pressley, a Republican, told the Observer on Friday that he'll try to get it in front of voters "as soon as we possibly can" -- ideally in November.
A taxing debate
Thirty-seven states have some form of real estate transfer taxes, according to a 2005 National Conference of State Legislatures' report. But the amounts vary from 0.1 percent of a property's value in a handful of states to as much as 2 percent in Delaware.North Carolina has been charging a transfer tax for decades on all real estate sales, residential and commercial. Sometimes called an excise or deed stamp tax, it amounts to 0.2 percent of the property's price. On a $200,000 home that's $400, typically paid by the seller. Counties keep about half.
Local governments have long sought an increase. This year, as counties worked with legislators over how to pay for rising Medicaid costs, the concept gained momentum.
Real estate agents and builders responded, lobbying against it and calling proponents "the enemies of housing."
In budget negotiations, legislators gave counties the option of asking voters to approve a 0.4 percentage point increase, though earlier bills had proposed as much as a 1 percentage point increase. Meanwhile, real estate agents, representing buyers and sellers, typically earn commissions totaling almost 6 percent of the price.
Under the new option, counties could keep the additional money from the tax. Total cost of the old tax and proposed increase on a $200,000 home: $1,200.
The cost of growth
That tax concerns Niki Paul. The 39-year-old single mother owns three homes, two in Mecklenburg and one in Fort Mill, S.C., that she views as nest eggs.
When she picks a house, she said, she's interested only in the return on her investment. She worries the added tax would be an expense she couldn't recoup when she sells.
But the idea of the tax increase doesn't bother T.L. Harper, who bought a home in southwest Mecklenburg in 2002 and plans to stay.
"I guess I'm just being selfish because I don't want to pay every year for growth," Harper said. "If they're going to buy something, they need to pay for it if we're going to need new roads, new schools."
In the fiscal year that ended last month, a record $13.2 billion in real estate sales took place in Mecklenburg County. With the increased transfer tax, that would have yielded about $53 million more for the county.
To raise that much through property taxes, commissioners would have to increase the rate by 5.8 cents per $100 of a property's assessed value. On a $200,000 home, that would translate to $116 on a tax bill.
But the Charlotte Regional Realtor Association's government affairs director, Elizabeth Barnhardt, said the tax increase would make homes more expensive, pricing out some families.
N.C. Association of County Commissioners spokesman Todd McGee said market forces drive home prices, not the tax. So who is right?
Issues of affordability
Supporters and opponents have analyzed the effect of an additional 1 percent transfer tax that six coastal counties have levied since the 1980s. But each side's conclusions vary, having used different time frames and numbers.It's also hard to apply lessons from those counties to the Charlotte area because they have tourism-based economies. Many of those paying the transfer tax there are investing in vacation property or second homes.
In the Charlotte area, though, most of those who pay the tax would be living and working here. Or they would be developers or commercial interests.
When a home is purchased, the sellers are officially responsible for paying the tax. But some builders use contracts that require the buyer to pick up the cost, said Dot Munson, the Charlotte Regional Realtor Association's president.
And if the tax rate increases, she said, more sellers might try to pass the cost to buyers by raising the property's price.
Most buyers could include the cost in a mortgage. On a typical 30-year mortgage for $200,000, the cost of an additional 0.4 percent transfer tax would amount to an extra $5.33 a month. That's not going to deter some buyers.
But the additional cost could make a difference for first-time owners and lower-income families who spend a greater share of their salaries on housing.
For housing affordability activists, that's cause for concern. Yet the N.C. Housing Coalition, a Raleigh group that pushes for affordable housing, joined an alliance this spring that lobbied for the tax.
Executive Director Chris Estes said the group joined the effort because a transfer tax hike wouldn't occur in a vacuum. Instead, the alternative would likely be a higher property tax rate, which hurts lower-income homeowners, too.
"If you can't pay the cost of maintaining a home, you're not going to stay in it," he said.
He and other affordable housing activists hope that if voters approve an increased transfer tax, counties would make exemptions for those who buy and live in houses under a specified value. Or that those buyers and sellers with the lowest incomes wouldn't have to pay the additional tax.
They also hope that some of the money generated could be set aside for affordable housing.
"We'll be very cautiously watching it because it can affect us. But if we design it right, maybe it can help us," said Pat Garrett, president of the Charlotte-Mecklenburg Housing Partnership.
"Let's make sure it doesn't keep folks at the lower end from buying a home."
Here are the main points argued by opponents and supporters:
• Helps elderly people and those on fixed incomes who might otherwise be taxed out of a home if property taxes increase.
• Is collected when buyers or sellers usually have access to money in the form of equity on their home or through mortgage financing.
• Shifts costs from longtime property owners to those making the real estate deals.
• Saves on the cost of building schools or other big projects because counties might not have to borrow as much money, and thus wouldn't lose as much on interest payments.
• Makes it harder for lower-income residents and first-time buyers to afford homes.
• Encourages home buyers or businesses to look across county, or even state, lines to buy land.
• Hides the tax amid lots of costs in real estate closing documents.
• Varies unpredictably as a revenue source for governments when real estate markets shift.
Kytja Weir: 704-358-5934