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Thursday, November 17, 2005

State Excise Tax Change Proposed

Realtors are gearing up for a fight in Washington State over a proposed change to real estate excise tax law:

The Washington Association of Realtors has launched a $1 million advertising campaign to warn home sellers of a proposed tax increase on the proceeds from their home sales.

A buyer of a new home could find the purchase price increased "by an average of $9,000," according to the campaign, although the ads don't specify the size of the home in the example used.

The media campaign began Wednesday, funded in part by a $750,000 grant from the National Association of Realtors. It is designed to build public opposition to a proposed change in the real estate excise tax, or REET. With advertisements running on local television and radio stations and in area newspapers, the effort is targeting a bill introduced in the last session of the state Legislature by Rep. Judy Clibborn, D-Mercer Island.
That's amusing. If the real danger were to property buyers of having to pay more, why exactly would the realtors care? It seems more likely to me that they're concerned that the actual sale price of homes might fall, as buyers would be unwilling to pay thousands more. Lower sale price = lower commission = realtors spending a million dollars to fight this. Which is not to say I support the change, it's just an observation.
Currently, the state real estate excise tax, paid by the seller at closing, is 1.28 percent of the final price of a property of any type, with counties and cities liable for meeting the requirements of the state's Growth Management Act able to tack on an addition one-half of a percent. In King County, that means an effective tax rate of 1.78 percent on every property transaction.

Under Clibborn's bill, backed by home builders and the Association of Washington Business, school districts would be permitted to assess an additional quarter percent and cities four-tenths of a percent in lieu of the impact fees currently assessed against new residential construction. It would be up to each jurisdiction to decide whether to assess the excise tax or the impact fees.
Like I said, the cost is paid by the seller. It's not necessarily the case that the buyer will be willing to just front it. So anyway, how does all this translate into real dollars?
For instance, new single-family residential construction in the fast growing Kent School District, be it a small rambler or a faux chateau, currently comes with a $4,050 impact fee that is divided among the School District, local municipalities and other taxing districts.
...
With the proposed increase in the REET, the builder would be off the hook for the up front impact fees. But every home seller, in the case of a $300,000 home, could wind up with a $7,290 tax bill.
I'm shedding a tear for the person selling a $300,000 home—worth just $225,000 two years ago—who has to pay an extra $3,240 in taxes.

(Morris Malakoff, King County Journal, 11.17.2005)

8 comments:

Timothy said...

I'm shedding a tear for the person selling a $300,000 home—worth just $225,000 two years ago—who has to pay an extra $3,240 in taxes.

But if you're right about the bubble, then that's not going to be the case very soon--in which case you ought to be shedding a tear.

At any rate, increasing a tax on anything will serve to discourage that thing. Taxing home sellers will decrease the supply of people selling homes & thus further increase prices.

It's interesting--both Democrats & Republicans want to pursue policies that will keep home prices high. Republicans want to do so by making the region attractive to more and more people & businesses, thus increasing demand. Democrats want to do so by adding more & more restrictions & taxes on homes & home sales, thus decreasing supply.

The Tim said...

But if you're right about the bubble, then that's not going to be the case very soon--in which case you ought to be shedding a tear.

Of course, you don't believe I am right, but you do have a point. It seems that since the tax is levied on the seller, it ought to be based on the profit of the sale, rather than the absolute price. Of course that would never happen.

At any rate, increasing a tax on anything will serve to discourage that thing. Taxing home sellers will decrease the supply of people selling homes & thus further increase prices.

So are you saying that if someone is thinking of selling their house at a $75,000 profit, an extra $3,240 in taxes will dissuade them from doing so? Personally, all I think this will discourage will be "flipping." And a decrease in the amount of flipping doesn't translate to a decrease in real supply, in my opinion.

It's interesting--both Democrats & Republicans want to pursue policies that will keep home prices high.

Interesting observations, though I think that "keeping home prices high" is more of a side effect (at the moment, anyway) of the policies of the D's and R's, as opposed to the goal.

Dukes said...

"At any rate, increasing a tax on anything will serve to discourage that thing. Taxing home sellers will decrease the supply of people selling homes & thus further increase prices."

The guy who wrote this is a buffoon. Sorry for stating the obvious. He is just another jackass Seattleite who is living in a perpetual fantasyland. We are NOT immune to the downdraft that is now well underway in CA. It will affect us up here. When 40% of job increases are related to real estate, what do you think happens when real estate slows? We can see this happening now as layoffs at mortgage lenders are now being advertised.

What amazes me is the amount of radical belief in this housing bubble. It is as if we DIDN'T just go through a crushing stock market blowout a couple of years ago. Where is the memory of these people? Do they really thin that 75-100K gains in a short amount of time is justified? Again, what a jackass!

The Tim said...

Dukes,

I appreciate your passion on the topic, but I would appreciate it if we tried to maintain a certain level of civility here. Name-calling is really not necessary. Thanks for understanding.

Dukes said...

What the hell is wrong with you? We can't have a passionate discussion? This is exactly what I mean about people in Seattle, everyone is so god damned PC about everything. The poster I was referring to, is a jackass if he believes what he espouses to believe, I hope you will appreciate that!

The Tim said...

I'm completely supportive of passionate discussion. I even understand that some topics may be emotionally charged for some people. However, I believe we can have a passionate discussion without resorting to name-calling. All I did was make a simple request. I didn't censor you, because I don't believe that should be resorted to.

I'm just asking that we not use the "anonymity" of the Internet as an excuse to treat people with less respect than we would (or should, at least) if we were having a face-to-face conversation.

I have to say, that might be the first time I was ever accused of being "PC". Heh.

Dukes said...

I don't want to come off as a bad person, or in Seattle lingo...insensitive...but WTF? Who cares quite frankly. We are all adults here. I am not trying to be a thorn in your side, but lighten up. This guy's ideas that I was referring to were buffoonery, why not call a spade a spade?

It gets frustrating living in Seattle, men are not really men up here, they are quite feminine and actually very nerd like. And women are more masculine then the men, maybe they should think about wearing some makeup once in awhile. So, I think we should all get over our PCness, grow some backbones, let loose what we want to let loose and get on with this ridiculous bubble deflating. Thanks...

J. Daniels said...

"At any rate, increasing a tax on anything will serve to discourage that thing. Taxing home sellers will decrease the supply of people selling homes & thus further increase prices."

From an economic, scientific and public policy generating standpoint, this statement is precise and correct.