Realty industry won, lost on taxes

Increase in transfer levy was defeated by Assembly

Howard excise tax was raised

Legislators approved impact fee for Harford

April 18, 2004|By Daniel Taylor | Daniel Taylor,SUN STAFF

The real estate and building industries achieved mixed results from the General Assembly session that ended last week.

Higher real estate transfer taxes, which Realtors opposed, were defeated, but builders could not stop the General Assembly from enacting impact fees for Harford County and increased excise taxes for Howard County that are likely to raise the cost of new homes in those areas.

The Assembly also rejected higher licensing fees for real estate agents and brokers. The increases were designed to make the Maryland Real Estate Commission financially independent.

The move to increase real estate transfer taxes at the county level, which was opposed by the Maryland Association of Realtors, was defeated. The group has fought against increasing transfer taxes in counties where they exist and against creating them elsewhere. It said the recent housing boom has contributed sufficient revenues to state and county government treasuries.

William Castelli, vice president of government affairs at the state Realtors association, said higher fees would make housing more expensive when affordability is a growing problem because of rising property values.

The state's transfer tax is 0.5 percent of the selling price of the home. Buyers and sellers typically split the cost. First-time buyers pay 0.25 percent. Some local governments charge a transfer tax, which is added to the state fee.

The Harford County impact fees were approved despite opposition from the Home Builders Association of Maryland.

Impact fees are levied on new homes to offset the costs associated with home construction, such as those for schools and roads. In Harford, the money would be used for new schools.

The fees have drawn the ire of homebuilders who complain the tax should be more widely spread and not just aimed at the new-home portion of the real estate industry.

County officials will consider the size of the new fees. The fee on a new home cannot exceed $10,000 under the state legislation.

The increase in Howard excise taxes will affect sales of new homes. The money will be used for school construction.

The county's current excise tax is 80 cents a square foot. The money is used for transportation improvements.

Howard County Council Administrator Sheila Tolliver said an excise fee of an additional $1 per square foot on new homes costing more than $200,000 could go in effect this year. The fee is called a schools facilities surcharge in the state legislation.

"It's unfortunate," said John E. Kortecamp, president of the Home Builders Association of Maryland, the trade group that has lobbied against the new fees. "New homebuyers are having to pay 100 percent of the cost for new schools when, even by the county's own standards, new construction is only responsible for 32 percent of the school population."

Local officials said the funds are needed to deal with budget shortfalls and school and road construction.

Kortecamp said his group will continue to propose alternatives to what he calls a "disproportionate [tax] burden that has fallen on homebuyers." The builders favor increased transfer taxes on all home sales as a more equitable way to raise revenue.

The Harford and Howard bills require Gov. Robert L. Ehrlich Jr.'s signature to become law. Neither faces a veto threat.

Another bill, which would have allowed the Real Estate Commission to raise its own funds by imposing higher fees on real estate licenses, was defeated.

Commission members have been pushing for the change for the past few years, saying they need more staff to deal with the rapid increase in the number of agents resulting from the strong housing market.

Currently, money is allocated to the commission from the state's general fund. Liz Williams, a spokeswoman for the Maryland Real Estate Commission, said the commission is swamped with more work than it can handle.

"There is a backlog in terms of addressing complaints," Williams said. "[The commission] has 12 authorized positions, and five are vacant."

The commission received 388 complaints last year, up from 353 in 2002 and 325 in 2001. In Maryland last year, 91,000 homes were sold.

To file a complaint against an agent or broker, a consumer must send a written request to the commission. Because of staff shortages, Williams said, it can take as long as a year to resolve a case.

Steven VanGrack, chairman of the Real Estate Commission, said the industry is willing to pay the higher fees the panel needs to finance itself.

But some in the General Assembly are against removing state oversight.

"Everyone wants to create their own fee system," said Del. Ann Marie Doory, a Baltimore Democrat who is vice chair of the House Economic Matters Committee. "If you created a fee system for everyone, there'd be so many little funds going around that you'd lose control of the budgeting process.

"There's no question that a lot of state government employees are strapped with work because of the financial crunch," she added. "But that's the whole issue [for legislators] this year. ... "

Regardless, proponents say they'll keep trying. "Our next step is to hope that the governor and the secretary will agree to submit the same bill next year as departmental legislation," VanGrack said.

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