Real estate transfer taxes are levies on the sale of property by a state and/or local government based on a percentage of the sale price. They are also known as excise tax in some states and local jurisdictions.

Issue

Real estate transfer taxes are levies on the sale of commercial and residential properties by some state and/or local governments. The one-time tax is assessed as part of the property’s closing costs and submitted at the time of the deed’s recordation on the property’s transfer of ownership between the seller and buyer. Depending on the jurisdiction, the transfer tax is paid by the seller, buyer, or a combination of the two parties.

State and local governments are more and more turning to real estate transfer tax increases in order to generate additional revenue in providing government services and programs for affordable housing, infrastructure and other priorities. High transfer taxes discourage investment in the sale of commercial and residential properties, and in some instances, render the transaction financially infeasible. These higher taxes also disincentivize the sale and purchase of underutilized commercial properties and their adaptive reuse for affordable housing and other purposes.

Talking Points

• High transfer taxes will require more capital at the time of closing and may render large commercial real estate transactions as no longer financially feasible.
• The upfront cost of high transfer taxes is regressive and discourages investment in commercial and residential properties.
• High transfer taxes hinder capital investments for the adaptive reuse and repurposing of underutilized commercial properties to economically productivity. The global pandemic has compounded the situation.
• Transfer taxes are a violate and unstable source of government revenue with collections varying from year-to-year based real estate transactions. Governments need to rely on predictable sources of revenue in establishing their budgets.
• High transfer taxes, as residential home prices have risen, may disincentive low-income households and first-time home buyers. The upfront closing costs include the excessive transfer tax, mortgage down payment and other and will require additional savings leading to fewer residential transactions.

Resources

The Unintended Consequences of Excessive Transfer Fees (Sage Analysis)

Transfer Tax Post by Tamara Small, NAIOP MA CEO

Washington’s Real Estate Excise Tax (ECONorthwest on behalf of NAIOP Washington State)

What are Real Estate Transfer Taxes (Forbes Advisor)

Quorum Report – transfer tax

Quorum Report – excise tax