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F I S C A L I M P A C T R E P O R T

SPONSOR Grubesic

ORIGINAL DATE

LAST UPDATED

1/23/08

HB

SHORT TITLE Prohibit Municipal Property Transfer Tax

SB 160

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

NFI

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Municipal League (NMML)

SUMMARY

Synopsis of Bill

Senate Bill 160 would prohibit municipalities from taxing real property sales. Currently, excise

taxes on the transfer of real property from one owner to another are not included in prohibited

items and so can be levied.

There is no effective date so it is assumed the effective date is May 14, 2008.

FISCAL IMPLICATIONS

Currently there are no municipalities that levy this tax so there is no fiscal impact associated with

this bill.

SIGNIFICANT ISSUES

A real estate transfer tax is an excise tax on the sale of real property. Some type of transfer tax is

in effect in all but 13 states (see attached table). New Mexico is one of those states but the

statute that gives municipalities taxing authority does not automatically exclude transfer taxes

and some municipalities have discussed enacting such a tax. This bill would preempt that

discussion.

Senate Bill 160 – Page

2

It is a generally accepted principle that increasing a tax on a transaction would increase the price

of that transaction and therefore lower demand for the related good or service. Levying a

transfer tax on real estate transfers, under this theory, would dampen demand for real estate.

However, the size of the tax is a critical issue.

Currently, real estate agents typically charge a 6 percent commission on the transfer of real

estate, split between the buyer’s agent and the seller’s agent unless they are the same. There has

been anecdotal evidence that during the housing boom of the last few years there has been

pressure on these commissions which operate identically to a transfer tax. That pressure has

been more related to the volume of transfers and the huge increase in real estate agents giving

both buyers and sellers a negotiating point. There, however, has been no empirical evidence that

this convention of 6 percent has changed.

The City of Santa Fe has seen property values increase dramatically over the last few years and

that has put pressure on long time homeowners’ property taxes. The level of affordable housing

is extremely low and many workers have to find housing outside the city due to the high prices.

There has been discussion

NMML reports “the prohibition contained in this bill would be contrary to New Mexico

Municipal League Policy. The New Mexico Municipal League has established policy that calls

for a local option real estate transfer tax on property priced above a level set by the municipality.

The New Mexico Municipal League proposes that the transfer tax be used for affordable

housing, a growing need in many municipalities."

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Municipalities will be able to levy real estate transfer taxes.

POSSIBLE QUESTIONS

If a transfer tax were enacted in a municipality, what would the effect be on the real estate

market.

Does a transfer tax affect principal residences or second homes more.

NF/mt

Senate Bill 160 – Page

3

State Real Estate Transfer/Deed Recordation Taxes

State

Description

Rate in Percent

Alabama

$.50 per $500 of property conveyed

0. 10%

Arizona

$2 per deed required to be recorded

NA

Arkansas

$3.30 per $1,000 of consideration in excess of $100

0.33%

California

Local taxes only

Colorado

$.01 per $100 of consideration in excess of $500

0.01%

Connecticut 1.25 percent of consideration paid if consideration exceeds $2,000 -- Other rates for

commercial transfers

1. 25%

D.C.

2.2 percent of consideration or fair market value

2.20%

Delaware

2-3 percent (depending on local tax) on transfers in excess of $100; 1 percent on

contracts for improvements to realty in excess of $10,000

2.0-3.0%

Florida

$.70 per $100 of consideration except in Miami-Dade County where it is $.60 per $100

0.70%

Georgia

$1 for first $1,000 of consideration plus $.10 per $100 of additional consideration

0.10%

Hawaii

$.10 per $100 of consideration

0. 10%

Illinois

$.50 per each $500 of value or fraction of $50

0.10%

Iowa

$.80 per $500 paid for the real property transferred

0.16%

Kansas

0.26 percent of debt or obligation secured by real estate

0.26%

Kentucky

$.50 per $500 of value conveyed in deed

0. 10%

Louisiana

Local taxes only

Maine

$2.20 per $500 of value conveyed - Split between grantor and grantee

0.44%

Maryland

0.5 percent of consideration paid for realty -- Also local deed recordation taxes ranging

from $2 20

-

$5 00 per $500 of value and local transfer taxes ranging up to 1 5 percent of

Variable depending on local rates

Massachusetts $4.56 per $1,000 of consideration

0. 46%

Michigan

$3.75 per $500 of value for property being transferred plus local taxes of $.55 - $.75 per

0.75%

Minnesota

$1.65 plus .33 percent of value in excess of $500 plus .23 percent of debt secured by real

estate for mortgage registry

0. 56%

Nebraska

$2.25 per $1,000 of value transferred

0. 23%

Nevada

$1.95 - $2.55 per $500 of consideration depending on population of county

0.255% max.

New Hampshire $1.50 per $100 of consideration split equally between buyer and seller

1.50%

New Jersey

Four transfer fees -- Basic is $1.25 state and $.50 county each $500 of consideration;

additional fees range from $.25 - $4.30 per $500 of consideration; a fifth fee of 1 percent

is imposed on buyers for an entire consideration in excess of $1 million for certain

id i l d f l d

1.21% max. if less than $1 million

New York

$2.00 per $500 of consideration. An additional 1 percent on transfers of a personal

residence of more than $1 million

0.4% on the basic tax plus and

a dditional 1.0% on residence over $1

illi

North Carolina $1 per $500 of consideration or value transferred with 51 percent of revenue retained at

0.20%

Ohio

Local taxes only ranging from $.10 -$.40 per $100 of value

0.4% max.

Oklahoma

$.75 per $500 of consideration

0. 15%

Pennsylvania 1 percent of consideration or fair market value with local transfer taxes of 1 - 3 percent

4.0% max.

Rhode Island $2 per $500 of consideration

0. 40%

South Carolina $1.85 per $500 of value with $.55 per $500 retained at the local level

0.37%

South Dakota $.50 per $500 of consideration payable by grantor

0.10%

Te nnessee

$.37 per $100 of consideration plus a mortgage tax of $.115 per $100 of indebtedness in

0.49%

Vermont

1.25 percent of value of property transferred; lower rates on certain homes and farms

1.25% max.

Virginia

$.25 per $100 of conveyance plus $.50 per $500 of consideration for transfer of realty

0.35%

Washington 1.28 percent of selling price plus local tax of 0.3-0.5 percent

1.33$% max.

West Virginia $1.10 per $500 of consideration plus local taxes that may run to another $1.10 per $500

0.44% max.

Wisconsin

$.30 per $100 of value

0. 30%

Source: FTA compilation based on CCH, State Tax Handbok (2006), data from the U.S. Bureau of the Census, Governments Division and information from