Currently the State of Arizona does not impose a “real estate transfer tax” (RETT) on the sale of a home, land, or commercial real estate.
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.
Double taxation?
Reduction of equity?
Additional expense?
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.
The Phoenix Real Estate Guy was started by Jay Thompson, and I have a little blogging problem... he liked to say...
Jay, you're the ones that have McCain. We have Kennedy LOL..
We have a conveyance tax in Connecticut – another name for what Arizona is proposing. I would caution people in your state that the tax is a Pandora's box.
Our legislature originally enacted the tax as a state tax of .5% of a home's sales price then added a municipal portion of .11%. In 2003, municipalities pushed for an additional tax (around the real estate boom, note) and upped the percentage to .25% for most towns and .5% for certain cities who needed additional revenue. The increase in the tax was supposed to sunset in 2004 – it's 2008 and we still have it.
My point is that once you have the tax, you won't ever get rid of it. It's an easy tax to raise because the only people it affects are home sellers.
Every year, our Realtor associations push for the repeal of only the increase, not the entire tax, and the lobbying group for the towns is so powerful that they defeat us every year.
I wrote about it on my blog at http://ctrealestateunleashed.com/2008/05/29/help-…
"My point is that once you have the tax, you won’t ever get rid of it. It’s an easy tax to raise because the only people it affects are home sellers."
Excellent point Jessica. Thanks so much for sharing your direct experience with a real estate sales/transfer/conveyance tax. I've heard there are several states/muni's that are trying to repeal these taxes and your experience in CT proves the point — once these taxes are set (even if "temporary") they are difficult to get rid of.
We lost the most recent battle to repeal just the increase to the conveyance tax. If it were up to the voters, we would have won. But CT voters don't have ballot initiatives – there is a push to amend our state Constitution to allow them but I'm not counting on it ever happening.
Good luck!
With you on this one, Jay.
We have conveyance fees here for our two counties. The amount varies by county. If you can avoid them, do so. When budgets are tight, officials look for around for places to generate extra funds.
Jay – I would definitely try to get as many people fired up to fight this tax. We have that here in Hawaii and now they keep raising it 🙁 Good luck and I wish you the best!!
Jay,
You're right on here. There have been many stories on talk radio and AZCentral about the major declines in tax revenue generated by the state. Largely due to property values declining and estimated future property tax estimations not being hit as well as other real-estate-specific revenue the state depends on.
However, this is like saying that a 400lb man is starving because he can only eat 4000 calories a day instead of the 2000 the rest of us eat.
I think there's been more than enough inflation and dollar crunching in the average Arizonan's wallet to show that we can't afford to GIVE anymore than we currently are.
But, the state CAN afford to cut spending. With illegal immigration and other large issues directly impacting us, there are many measures we could help enforce (this may be a bad word in AZ though *sigh*) that would help us save the money we need for more necessary services.
I'll avoid that tangent, but this definitely needs to avoid being put through. When the candidates were talking about the Fair Tax, Ron Paul said something extremely profound when he said he was against it. That was that, while the concept is nice, if you don't remove the Federal Income Tax first, you're just adding taxes that will never be removed.
It's easy to add taxes, but good luck trying to get the government to take them away. I think Jessica was getting at that as well 🙂
In Philadelphia, we have a 4% transfer tax, which is equally divided between the buyer and the seller. Surrounding counties have a 2% transfer tax, which is also equally divided. Since in real estate everything is negotiable, this tax often becomes a major negotiating point. Many times, buyers will want the seller to pay the full transfer tax, just so they don't have to bring a lot of money at the closing. This is especially true for first-time home buyers.
Website Bucks County Real Estate
Jay,
We have this in CA and I hope you guys stop this from happening. We have a county transfer tax in LA and some cities tax on the city transfer tax as well. It is never a pleasant thing for the seller to find out that they have to pay this so we wish you the greatest success on fighting this.
we have some issues in Myrtle Beach where they want to get rid of the Bike weeks, to replace the tourism money the county owns they are planning to raise taxes.
anytime the county looses money one place, real estate taxes seems to be where they try to make it up at
My wife Jo Ann and I just bought a winter home (secondary residence) in Sun City, AZ. Will we as Wisconsin residence be able to vote on Proposition 100 (RETT)? If so, can we vote online as we do not plan to be down there until after the elections. Thank You. Bob Militano
Robert –
You have to be a resident of Arizona in order to register to vote here. Since you are Wisconsin residents, you wouldn't be able to register to vote in Arizona.
If you could, there would be nothing stopping you, for example, from voting for President in both Wisconsin and Arizona.
This snippet about what defines Arizona residency may help:
I find it funny that the same people that are voting yes to this proposition are the same people who send their kids to public schools and constantly complain about the overcrowded classrooms and programs being cut. This tax isn't going to mean much to people who may sell their home once every 5 – 10 years. It is really getting at new home builders, developers and large businesses who are making tons of transactions every year, many of whom don't even reside in AZ. All of the hype to prevent this is coming from the very wealthy and being disguised as a protection for the middle class in order to create a rally cry to keep this from going into effect. If you are a player in the real estate industry I can see why this scares you. If you are a normal, every day citizen, especially one with children in school, the right vote is NO!
Hi Jay,
Just doing some research on Prop 100 as I am speaking to a group next week asking them to support the proposed amendment.
An item of interest Craig Sanford passed on is the fact that the transfer of real estate does not simply occur when you buy/sell a home. It also happens, legally, when you take it in or out of a trust; when you change your name due to marriage/divorce, or when you gift real estate.
I am told that some states have not exempted these forms of transfer and people are paying the tax every time they modify the real estate portions of their trusts, get married and such. Can you imagine the surprise on a homeowners face when they get a tax bill for several thousand dollars simply because they made changes to their trust or refinanced a home held in a trust?
Another area of interest is what happens when a home goes to foreclosure? Does the homeowner owe the transfer tax? Does the bank take on the debt? Is the tax passed on to the new owner after a successful REO sale? Heaven knows the tax won't be forgiven.
Besides this being a punitive taxing method, the can of worms it opens is potentially frightening… and I am not usually afraid of worms.
As always, I love and respect your work. You do much to make our profession better.
*Gene Urbans last blog post..Proposition 100 … Our Opinion</abbr>
I do think it's a bit of an unfair tax. We have a similar thing here in the UK. Always have done as far back as I can remember, and people just accept it.