Getting Nowhere on the Real Estate Transfer Fee
The JFC tackled one of its first big budget issues yesterday with the governor's proposal to increase the real estate transfer fee from $3 per $1000 of value to $6 per $1000 of value.
The fee, which is paid by the home seller, has been at $3 per $1000 since 1984, although that doesn't seem to be a good enough reason to raise it today. As Republicans have pointed out, since the fee is rated rather than flat, it has actually increased over time as the sale price of homes has increased.
And, of course, no one wants to see the cost of selling a home increase even more. Assuming you have enough equity built up in your house, the fee may not be such a big problem. But in our increasingly mobile society and with the onset of mortgage loans that require as little as nothing down to buy, it seems likely that fewer people today have significant equity stored away when they go to sell (although my guess is that the majority still do).
But, the question becomes, if the fee isn't increased in some way, are you going to raise revenues somewhere else or cut something from the budget? (UPDATE: In the governor's budget, the state's portion of the transfer fee revenue is slated for a new county aid segregated fund.)
Republicans on the JFC not only voted against the proposed increase, they made a proposal to reduce the fee from $3 per $1000 of value to $1 per $1000 over the biennium.
This proposal, to me, was a joke. If this was a serious proposal, then it should come with an explanation of what services are going to be cut from the state budget to account for the millions it would cost over the biennium. And that's millions off the base 2005-2007 level; it would be millions more when considered in light of the proposed 2007-2009 level.
Senator Russ Decker (D-Schofield) got a lot closer to a reasonable proposal when he offered up a plan to keep the rate at $3 per $1000 of value for home sales under the state median of $200,000 and increase it to $6 per $1000 for those above that level. The exact numbers could be shifted around, but the general idea of scaling the fee makes some sense.
Unfortunately, though, Decker's idea was shot down in a party line JFC vote, which essentially ensured Doyle's proposal of $6 per $1000 of value across the board was going to stay, at least for now.
On the question of where the revenue could be made up if the rate was simply kept at $3 across the board, perhaps legislators should consider finally closing the loophole that allows some businesses to avoid paying the transfer fee at all.
It works like this: When property changes hands in the business world, it often comes along with a change in company ownership. Since this is the case, business deals are simply logged with the state as changes in who owns the company and not who owns the property.
It seems to be a distinction without a difference, but that's the way state law is currently written. Even GOP Senator Mike Ellis (R-Neenah) exclaimed back in 2003 that "it doesn't seem to be fair" that homeowners get tagged with a fee when real estate changes hands while many businesses get away without paying a thing on their property transfers.
Rep. Terese Berceau (D-Madison) sponsored a bill the past two legislative sessions that would require the transfer fee to be paid by businesses when over 50 percent of the ownership changes hands, but the proposal failed to pass the GOP-controlled legislature both times (see here and here).
Indeed, rather than double the weight placed on homeowners by increasing the rate to $6 per $1000 of value, why not just bring businesses up to snuff by making them pay the same amount that the rest of us currently do when selling real estate property?
UPDATE (5/6): Rick makes a good point about the difference between share sales and asset sales in the comments below. I'm still not sold on the argument that no property transfer is taking place when merely the ownership of a company changes, but the fact that the new ownership is assuming the old's liabilities, tax situation, etc., is an important point to keep in mind.
The fee, which is paid by the home seller, has been at $3 per $1000 since 1984, although that doesn't seem to be a good enough reason to raise it today. As Republicans have pointed out, since the fee is rated rather than flat, it has actually increased over time as the sale price of homes has increased.
And, of course, no one wants to see the cost of selling a home increase even more. Assuming you have enough equity built up in your house, the fee may not be such a big problem. But in our increasingly mobile society and with the onset of mortgage loans that require as little as nothing down to buy, it seems likely that fewer people today have significant equity stored away when they go to sell (although my guess is that the majority still do).
But, the question becomes, if the fee isn't increased in some way, are you going to raise revenues somewhere else or cut something from the budget? (UPDATE: In the governor's budget, the state's portion of the transfer fee revenue is slated for a new county aid segregated fund.)
Republicans on the JFC not only voted against the proposed increase, they made a proposal to reduce the fee from $3 per $1000 of value to $1 per $1000 over the biennium.
This proposal, to me, was a joke. If this was a serious proposal, then it should come with an explanation of what services are going to be cut from the state budget to account for the millions it would cost over the biennium. And that's millions off the base 2005-2007 level; it would be millions more when considered in light of the proposed 2007-2009 level.
Senator Russ Decker (D-Schofield) got a lot closer to a reasonable proposal when he offered up a plan to keep the rate at $3 per $1000 of value for home sales under the state median of $200,000 and increase it to $6 per $1000 for those above that level. The exact numbers could be shifted around, but the general idea of scaling the fee makes some sense.
Unfortunately, though, Decker's idea was shot down in a party line JFC vote, which essentially ensured Doyle's proposal of $6 per $1000 of value across the board was going to stay, at least for now.
On the question of where the revenue could be made up if the rate was simply kept at $3 across the board, perhaps legislators should consider finally closing the loophole that allows some businesses to avoid paying the transfer fee at all.
It works like this: When property changes hands in the business world, it often comes along with a change in company ownership. Since this is the case, business deals are simply logged with the state as changes in who owns the company and not who owns the property.
It seems to be a distinction without a difference, but that's the way state law is currently written. Even GOP Senator Mike Ellis (R-Neenah) exclaimed back in 2003 that "it doesn't seem to be fair" that homeowners get tagged with a fee when real estate changes hands while many businesses get away without paying a thing on their property transfers.
Rep. Terese Berceau (D-Madison) sponsored a bill the past two legislative sessions that would require the transfer fee to be paid by businesses when over 50 percent of the ownership changes hands, but the proposal failed to pass the GOP-controlled legislature both times (see here and here).
Indeed, rather than double the weight placed on homeowners by increasing the rate to $6 per $1000 of value, why not just bring businesses up to snuff by making them pay the same amount that the rest of us currently do when selling real estate property?
UPDATE (5/6): Rick makes a good point about the difference between share sales and asset sales in the comments below. I'm still not sold on the argument that no property transfer is taking place when merely the ownership of a company changes, but the fact that the new ownership is assuming the old's liabilities, tax situation, etc., is an important point to keep in mind.
Labels: real estate transfer fee, state budget
posted by Seth Zlotocha at Friday, May 04, 2007
30 comments
