Oppose Further Increases in the Conveyance Tax

The legislature passed an increase in the conveyance tax during 2003 that was supposed to sunset on July 1, 2004.  Then in 2004, the legislature extended that sunset date to July 1, 2005.  Again, in 2005, the legislature passed HB 6841 to extend the sunset date to July 1, 2007.  We urged legislators to repeal the higher municipal conveyance tax.  We had also asked the Governor to veto HB 6841 so that this regressive and unfair tax will return to its prior lower level, but the bill was signed and became law.


Our position statement from 2004 during the legislative debate appears below.

 

The state budget mess and its potential fixes are moving targets.  One piece of the solution that is being given serious consideration is another  increase in the real estate conveyance tax.  An increase was in the Governor’s proposal in January and is in the latest proposal for next year's budget.  An increase was also in the Democratic budget “fix” in February.  The current year budget that passed the legislature and was signed by the Governor on February 28 included a rise in the municipal portion of the conveyance tax from the current $1.10 per $1,000 to $2.50 per $1,000 of transaction sales price.  No increase occurred for the state portion of this tax - as of yet.  However, targeted investment communities (i.e., the 18 largest/poorest cities in CT) are given a local option to raise their conveyance tax to $5.00 per $1,000 of sales price (so much for driving sales out of the cities).  As important as the rate itself is that the current year budget adjustment (i.e., the municipal increases in the conveyance tax) will become effective for all closing occurring on March 15, 2003, until July 1, 2004 (i.e., for any contracts you currently have, the seller will end up paying the increase).

 

The Governor's budget proposal for the next fiscal year calls for the following increase in the state portion of the conveyance tax:  1) no increase for homes sold up to $300,000; 2) a quarter percent increase - 0.50% to 0.75% for homes sold between $300,000 and $800,000; and 3) a half percent increase - 1.0% to 1.5% for homes sold above $800,000 and for all other real estate transactions.

 

Any more of an increase on real estate to fix next year's budget should be opposed for all of the following reasons:

  • This tax is unwise because it damages one of the few bright areas of our economy – i.e., real estate and particularly housing.  Housing has upheld the economy of the nation and the state and kept us out of a worse economic situation.  We should be encouraging continued growth of this sector rather than throwing a wet blanket on it.
  • This tax is inherently unfair.  It imposes costs on a small segment of the population – sellers and buyers of real estate and homes – while the revenues are used for government services for all citizens.  It also is based on the sales price of the real estate regardless of whether the seller makes any gain or incurs a loss.
  • This tax increases the financial burden on sellers and buyers of real estate when Connecticut already has high housing costs.  It is an additional burden on attracting and keeping people in the state – including employees needed by a growing business community.
  • This tax hits real estate developers especially hard, placing a double or triple burden on new development.  The tax is charged when land is sold to the developer, again when a developer sells the developed property to a builder (if the developer and builder are different entities), and again when the builder sells to the home buyer or other buyer.

In keeping with the Governor's call to suggest alternatives to his budget, instead of raising the real estate conveyance tax, legislators should adopt a broad based approach to controlling state payroll costs, program spending cuts and, if necessary, tax increases, such as further incremental increases across the board to our income tax rates or a moratorium on prevailing wage requirements that could save the state and municipalities millions of dollars in expenses.

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