Summary:

• Transfer taxes are levied against all real estate transactions: new development, commercial property and existing homes.
• Transfer taxes will moderate the pressure on increasing property taxes and are an alternative to significant property tax increases for all homeowners.
• Transfer taxes are usually paid for by the buyer, rather than the seller (i.e. the existing homeowner).
• Transfer taxes will be an important contributor in paying for the rapidly increasing costs of growth and development.
• Transfer taxes will keep the state of North Carolina, including its 100 counties, financially strong. A high quality of life, i.e. good schools, community colleges, roads and parks, water and sewers, etc. will help attract new jobs, and transfer taxes can help pay for these infrastructure costs.
• Transfer taxes have been tried and successfully tested all over the nation and in six NC counties. They provide for sustainable growth.
• County commissioners around NC are requesting the legislative authority for local fair growth funding options, including transfer taxes.
• The attack on transfer taxes is being conducted by the most powerful lobby in the state -- the NC Association of Realtors (NCAR) – which spends far more than any other PAC to influence elections (over $690,000 last year). This lobby is trying to sustain the choke-hold they have had on the General Assembly and local governments for almost twenty years. NCAR says it’s wrong to take 1% from equity to fund infrastructure. But they take 6% (billions of dollars) in commissions from equity across the state.

Introduction:

In an effort to derail the momentum building toward the passage of a transfer tax for school construction and other much-needed public infrastructure, the North Carolina Association of Realtors (NCAR) has launched a massive, statewide, highly expensive, attack campaign under the banner “Stop the NC Home Tax”. Their campaign is based on half-truths and distortions. The intent of the campaign is to deceive the public; intimidate elected officials and generally muddy the water regarding the transfer tax (TT). Taxpayers should “wake up” and protect their wallets, rather than the protecting the financial interests of a single industry.

Below is factual information about transfer taxes, so that all citizens can participate in this important policy decision that could affect our quality of life for decades to come.
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Q: What is a TT (aka: a land transfer tax, a real estate transfer tax or a property transfer tax)?
A: A TT is a sales tax on all real estate transactions involving land, new residential construction as well as timber, construction of offices, factories, retail shops, as well as existing residences. It is paid every time a deed changes hand. For new development, it is paid when a developer buys unimproved land, when improvements such as streets and utilities are made and lots sold to builders, and when builders sell new homes, office buildings or shopping malls. NCAR’s half-truth is focusing on your home. For those intending to live in their home indefinitely, the only TT that would be paid is when your estate sells your home. For many of us, it would be paid when we sell our homes and move, typically every seven years.

Q: Is a TT a new tax on homes?
A: The only tax on homes is the property tax, paid by all homeowners every year. A TT would only be paid at time of real estate transfer. A TT would be an extension of the existing deed stamp excise tax of .2%

Q: What TT legislation has been introduced in the General Assembly?
A: Many TT bills have been introduced in the NC General Assembly: three bills are statewide in scope, two bills enabling a TT in Wake County, and seven for other NC counties. Two of the bills are for “menu’s,” providing a tool-kit of options including a transfer tax an impact fee, an added sales tax and for some counties a hotel and prepared meals tax. All TT bills are earmarked for infrastructure: primarily for public school construction.

Legislation has been introduced often at the urging of county commissioners and concerned citizen groups because the only alternative local commissioners have to pay for the growth and the enormous rate of inflation in construction costs is the property tax. In Wake, a 1% TT would have generated this year as much revenue as a property tax increase of 15-20 cents. The estimated revenue from a 1% TT in Wake and across the state has doubled in 4-5 years, tracking the combined effects of growth plus inflation in construction costs.

Rep. Jennifer Weiss’ (D-Wake) bill would permit a 1% TT for Wake County, all earmarked for school construction. Senator Janet Cowell’s (D-Wake) bill for Wake County is for any infrastructure, e.g. public schools, community colleges, parks and open space. All but one statewide and local bills are subject to a referendum of the voters. Cowell’s bill would put an impact fee, an increase in the sales tax and a TT on the ballot.

Senator Clodfelter’s (D-Mecklenburg) bill would require a statewide TT, for the state to distribute. While this approach raises issues of how much high-growth counties, such as Wake, would receive, it would prevent local special interests from conducting anti-referendum battles. This bill, as the others, will likely be altered by the Finance and other relevant committees, including the Fiscal Modernization.

The TT is not a new tax, rather it is an extension to the existing deed stamp excise tax of 0.2%. In most proposed bills, it is a separate 1% tax. In one bill the deed stamp tax is raised from 0.2% to 0.5%.

Q: Where else is the TT used?
A: All over the world. Thirty four U.S. states have a TT. In several states it is higher than the 1% proposed in most bills. Delaware, with a growth rate close to NC, has a TT rate is 2X-3X higher than proposed here. Six counties in NC have had a separate 1% TT for almost two decades, benefiting from years of the TT paying for schools and local roads, and they have prospered and continued to grow. Why didn’t NCAR tell you that?

Dare County, has the lowest property tax rate in the state, 26 cents versus Wake’s 60.5 cents, in part due to the TT. Dare’s well-equipped schools are the envy of educators across the state. Is it fair for all the other 94 counties not to have that important source of revenues?

Q: NCAR says the TT comes from the equity in my home. Is that true?
A: Other than that the realtors haven’t mentioned their six percent commissions which also come from equity, it’s true. Another half truth. For most of us, it’s better to pay for infrastructure from equity, in the form of homesale profits, the few times we buy homes. The alternative is to pay annually from our checkbooks as enormous spike in property taxes.

Q: Who actually pays the TT?
A: It depends. Who pays the sales tax when you buy a pair of shoes? The proposed bills say the seller pays, but in real estate negotiations, the buyer ultimately pays the costs. NCAR’s framing of the burden falling solely on the homeowner is just a clever trick, based on a half-truth. In the strong markets typical of high growth areas of NC, buyers will treat the TT just as they would a real estate broker’s commission, they will add it on to their asking price, allowing growth to pay for growth.

Remember that quality schools, roads and other infrastructure paid for by a TT help keep the market strong. Areas with good schools and roads are preferred by buyers and are willing to pay more for homes. Prospective employers look for areas with strong public schools and community colleges.

Q: Can TT’s adversely affect low income buyers and sellers?
A: It could. Any tax or fee tends to drive up the price for housing, and low-income sellers who sell in a weak market could be hurt. That’s why WakeUP and some legislators advocate for the first $50,000 of a transaction to be exempt from the TT. Furthermore, the alternative for low-income home owners and small-businesses is far worse…a huge increase in the property tax. Some groups also support the concept of using part of the funds to relieve taxpayers in low-wealth counties from the burden of paying for Medicaid.

Q: Who is NCAR and why do they oppose the TT?
A: The NC Association of Realtors (NCAR) represents thousand of realtors across the state who annually receive billions in commissions (from homeowners equity) based on $90 billion in real estate transactions across the state (over $12 billion in Wake alone). NCAR’s PAC (political action committee) far outspends all other PACs in the state, giving $690,711 mostly to state legislative campaigns in 2006. In addition, owners of large realty businesses are major contributors to campaigns for the NC General Assembly, county commissioners, city and town councils, and likely donate over $1 million per year. Not surprisingly, NCAR often lobbies together with the NC Home Builders because some very large realtors are also very large developers.

NCAR knows that attack ad campaigns, like this one opposing the TT, has worked for decades with little opposition. They do it because the can. Over the years, realtors and developers and builders have lobbied together. They both have large staffs of professional lobbyists and multi-million dollar lobbying budgets.

NCAR’s premise is that money, rather than the will of the people can determine votes in the legislature. They want a big return on the roughly $1 million their statewide attack campaign will cost.

Q: Who is WakeUP?
A; WakeUP is a fast growing 501(c)(3) non-profit group of about 250 citizens. Our staff is a dedicated group of twenty part-time volunteers who have donated both time and money in order to serve the community. WakeUP is non-partisan and our mission is to educate the public and government decisionmakers about the need for well-planned, sustainable growth and ways to get there. We are organized around five key issues that involve growth. (Education, Transportation, Environment and Energy, Parks and Open Space and Urban and Regional Planning).

We meet through the internet, by conference calls, in our homes, in local restaurants and coffee houses. Our budget is tiny. However, in terms of community and political experience we have great expertise. Our active volunteers have served on countless government advisory boards, worked for non-profit organizations, in the business and government sectors. Among us are parents, grandparents, journalists, a bank officer, homebuilder, realtor, educators, engineers and architects, health care professional, corporate managers, policy advocates and a graduate student.

And every single one of us can see through the distortions of the NCAR campaign. With this information and a few minutes thought, we know you will as well.

For more information: www.wakeupwakecounty.com

Contact: Stan Norwalk, stann@nc.rr.com

4/10/07