Those transfer taxes ... Ouch!

Maryland ranks No. 5 in imposing them

Nice revenue for the state

But amount can make a homebuyer 'freak out'

February 08, 2004|By TRACY SWARTZ | TRACY SWARTZ,SUN STAFF

Maryland homebuyers and sellers pay some of the highest real estate transfer taxes in the country, according to a recent study by a state Realtor group.

Maryland ranks fifth in the nation among states that levy state and local transfer taxes - the fees paid when buying and selling property, the Maryland Association of Realtors reported. The average combined state and local transfer tax on a home sold in Maryland last year was $2,954, up from $2,210 in 2002. The state ranked fifth the previous year, too.

As Maryland governments face budget woes, several local officials have considered increasing taxes on property transfers to generate revenue as home sales have hit records during each of the past three years. But several real estate professionals, state lawmakers and tax opponents consistently have fought against any increase.

The state generated a record $85.97 million in transfer taxes last year, up from $65 million in 2002, according to the study. The state's transfer tax is 0.5 percent of the sales price of the home. First-time buyers pay 0.25 percent. The costs usually are split between buyer and seller.

Some local governments also impose an additional transfer tax. Homebuyers and sellers in Baltimore City and Baltimore County pay 1.5 percent in local transfer taxes, while their counterparts in Prince George's County pay 1.4 percent.

Members of Carroll County's state delegation recently refused a request by county leaders to levy a 1 percent transfer tax to help pay for volunteer fire and emergency services, public schools and police protection.

Carroll County Commissioner Dean L. Minnich argued that the tax would have placed most of the burden on the newcomers who contribute to the growth, instead of "raising the rate on already overburdened taxpayers."

The transfer tax plan won't be abandoned, Minnich said, but instead commissioners will focus on educating residents on how the tax is necessary to support county programs. The delegation said it would consider the proposal next year.

Gilbert D. Marsiglia, Maryland Association of Realtors president, said there are few alternatives to transfer taxes, but if counties made zoning less restrictive, more houses could be built, fostering more competition and stabilizing housing prices.

"Every time they raise those taxes, first-time homebuyers can afford less house," Marsiglia said.

First-time homebuyer Dennis Payne said high closing costs nearly discouraged him from purchasing his single-story Parkville house in December.

"I saw the closing cost in general and got freaked out," said Payne, a 23-year-old newlywed. "I very nearly just went back to planning on renting instead of buying."

Pat Hiban of ReMax in Columbia said the price of property transfer taxes often surprises those relocating to the state.

"I've seen people who have looked at that number and considered going elsewhere," Hiban said. "But I always tell them it could be worse."

Pennsylvania, Delaware, Washington and New Hampshire rank higher than Maryland in average state and local transfer tax burdens.

Maryland ranks 12th in the nation in state transfer taxes, improving from 2002's 10th-place ranking. Thirty states and the District of Columbia charge state transfer taxes.

The Realtor study also estimated that real estate has contributed about 15 percent of Maryland's gross state product during the past decade. The group's membership grew 17 percent in the past year to more than 23,000 members.

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