Wednesday, January 19, 2011

No New Taxes for Texans? We Sure Hope Not.

With the 82nd legislative session in high gear now in the state of Texas, all of us who live or work in the state are keeping a close eye on Austin.  Last November, the Republicans took control of the Texas legislature with a promise to balance the budget with no new taxes.  In fact, that was the specific campaign promise that El Paso's new state rep, Dee Margo, made to get elected.  So now that the legislature is in session and lawmakers are trying to correct a $15 billion dollar shortfall (some estimates say $27 billion) can they keep their promise?

Well, time will tell.  Lawmakers have already announced that there are no sacred cows--even education can take some deep cuts.  But cutting education is politically unpopular--almost as unpopular as raising taxes after promising not to.  So if our lawmakers decided that raising taxes was unavoidable where might they go for the money?  The Texas Association of Realtors (TAR) has several items on their radar screen for this legislative session which would affect a lot of Texans if passed:

1.  Transfer taxes on the sale of property.  Texas is a state that currently does not have transfer tax on the sale of real estate, but such a tax has been proposed before and the concept is apparently floating around again.  A proposal, which was defeated in the last legislative session in 2009, would have allowed various counties to set their own tax rates on the sale of real estate.  The tax would have to paid before recording any documents relating to the real estate transaction.

This is a bad idea on so many levels.  First of all, in a time of declining home values and loss of home equity, to continue to chip away at the equity of sellers discourages sales and encourages more frustrated sellers to allow their homes to go into foreclosure.  A seller who is selling his home for the value of the note because he can't afford the payments is not going to have several thousand dollars to bring in to pay the taxes, and likewise the buyer is not going to want to see his out of pocket costs expand by thousands of dollars. On a $200,000 home, a 1.5% tax would add $3000 in costs to the transaction.  That can push a homeowner who has virtually no equity and was just "breaking even" on the sale into a position of losing money.  Remember that the health care law includes a tax on the sale of real estate for homeowner's earning over $250,000, so even a relatively small tax layered on top of that tax is going to cost homebuyers and sellers a lot of money.

Additionally, from a loan officer's standpoint, this poses a problem because the 2010 GFE requires that loan officers put the exact dollar amount of transfer taxes on the initial good faith estimate.  This is a "no tolerance" category, so if the tax rate were set by the county, the loan officer would need access to the transfer tax rate in each county before completing the estimate or he or she will end up paying the taxes!  Let's hope this proposal gets voted down.

2.  Taxes on virtually all goods and services.  This idea has been floating around Texas for years, but fortunately it has never actually gained any traction.  Potentially, we could pay taxes on virtually all of the services we use, including the real estate agent's commission, the loan originator's commission, the pest inspection fee, the home inspection fee, etc.  This also adds up to a lot of additional costs.  If we want business to continue to prosper in this state, we have to resist the desire to tax business to death.  A tax on most goods and services will make all costs go up, and will ultimately harm the small business owners, which adds to unemployment, and in the end costs the state more money in unemployment compensation and lost revenues.

3.  Mandatory sales price disclosure.  To me this is a very interesting and subtle way of increasing taxes which might actually pass.  Texas is a non-disclosure state for real estate transactions.  The assessor's office sends out notices to property owners asking what they paid for the properties, but the property owners are not required to disclose the amount paid for a property.  This can also create an interesting dilemma for appraisers as they struggle to find out the "real" sales price of a piece of property.  Granted, counties have become more aggressive in their estimations of the value of property than in past years, but mandatory disclosure of sales price would take the guess work out of property valuation for the county.  It would also make it much harder for the property owner to go back and fight the valuation on the grounds that it was over valued.  However, since this is not really a new tax, but just a new disclosure requirement, this one might actually go through.

Governor Perry reiterated his own commitment to no new taxes.  I hope that he stands firm on that and requires that the legislature find the money in other places to balance the state budget.  Otherwise, the recession may hit Texas much harder in the next few years.

For related posts, go to

No comments:

Post a Comment