However, 35 other states plus the District of Columbia do impose such a tax (source).
What is a real estate transfer tax?
It’s pretty much exactly what it sounds like. It is a state or local government imposed tax that is collected when you transfer ownership of your home, investment property, land or commercial real estate. And like any tax, the rates can be raised.
Why would a state or city impose a RETT? It’s all about the Benjamins. Money. Revenue. According to the Federation of Tax Administrators, in fiscal year 2004 RETTs produced $6.6 billion in tax revenue. Current RETT tax rates across the country range from 0.1% to 2.2%. On a $250,000 home, that would be $250 to $5,500.
Reduction of equity?
Sounds like a bad plan
“But don’t I already pay property tax?”, you may be asking yourself. Of course you do. A RETT is an additional tax burden that comes up when you sell or transfer property. “But isn’t that double taxation?” you may ask. Sort of sounds like it to me. At best, it’s money straight out of your pocket, hardly a good thing. After this, if you want to review your property taxes and make sure you’re not overpaying, there are property tax services you can rely on for those things.
There will be a Proposition on the November ballot in Arizona that would amend the State Constitution to prohibit state and local governments from charging any new tax on the sale or transfer of real property in Arizona.
Here is the full text of Proposition 100:
Be it enacted by the People of the State of Arizona:
1. Article IX, Section 24, Constitution of Arizona is proposed to be added as follows if approved by the voters and on proclamation of the Governor:
ARTICLE IX, SECTION 24, PROHIBITION OF NEW REAL PROPERTY SALE OR TRANSFER TAXES
THE STATE, ANY COUNTY, CITY, TOWN, MUNICIPALITY OR OTHER POLITICAL SUBDIVISION OF THE STATE, OR ANY DISTRICT CREATED BY LAW WITH AUTHORITY TO IMPOSE ANY TAX, FEE, STAMP REQUIREMENT OR OTHER ASSESSMENT, SHALL NOT IMPOSE ANY NEW TAX, FEE, STAMP REQUIREMENT OR OTHER ASSESSMENT, DIRECT OR INDIRECT, ON THE ACT OR PRIVILEGE OF SELLING, PURCHASING, GRANTING, ASSIGNING, TRANSFERRING, RECEIVING, OR OTHERWISE CONVEYING ANY INTEREST IN REAL PROPERTY. THIS SECTION DOES NOT APPLY TO ANY TAX, FEE,OR OTHER ASSESSMENT IN EXISTENCE ON DECEMBER 31, 2007.
A YES vote on Proposition 100 would amend the State Constitution and prevent the possibility of a real estate transfer tax from being implemented. A no vote means state and local governments could implement a RETT at just about any time (in fact, it has been discussed across the state. A bill was introduced in the Legislature last year proposing a RETT).
There is additional information on Prop 100, also known as the Protect our Homes Act, at www.ProtectOurHomes.com.
I won’t be so bold as to tell you how to vote. That is a personal decision only you can make. My vote will be YES on Prop 100. Some states are attempting to repeal existing real estate transfer taxes. Good luck with that. My opinion is it will be a whole lot easier to prevent such a tax before it happens than to repeal it once enacted. The 342,000 that signed petitions to place the initiative on the ballot seem to agree. But signing a petition and pulling the lever in the voting booth are two different things. If you signed the petition, thank you. Just please don’t forget to finish the job.
Updated: Be sure to read Jessica Beganski’s comment below and her blog post about what is happening in Connecticut with regard to an existing real estate tax. Once these taxes get set folks, they are easy to raise and difficult to remove.