As Tucson and the rest of the state struggles to balance budgets, there is a growing tendency to look to the golden goose n real estate n to meet financial needs. Impact fees on new development have been enacted and Tucson proposes more.
Property taxes, real estate transfer taxes, removal of the 1 percent tax cap, limiting tax credits, and tax on services are the latest proposals that will affect the bottom line for the business and residential owners and tenants who ultimately will have to absorb the cost.
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It is essentially a sales tax on the value of the property paid at closing. If enacted as some have proposed, it would apply to both residential and commercial property and would be the sixth highest in the country. We know Arizona is trying to improve its ranking in many areas but do we really want to be included in the top 10 for a real estate transfer tax? This RETT is being modeled after Washington State n where the RETT on a $175,000 home is over $4,800. That's $4,800 you as the seller lose in your equity. And if the seller has to pay more at the closing table, it's likely the price the property is offered at will be increased to compensate for the tax. How many potential buyers will this affect?
Tom Farley, vice president of government affairs for the Arizona Association of REALTORS®, said about 760 buyers are knocked out of the housing market for every $100 increase in price. Will that be one of your children or grandchildren? Or maybe even you?
Multi-state and national corporations should check out one reform proposal that is gaining momentum. The "100% sales factor allocation" would change the structure of business taxes and stop penalizing companies who expand their physical plants and hire additional employees. Making growth attractive for companies will eventually expand our tax base. Unfortunately, this proposal would cost the state money as it is phased in and that short- term problem may be enough to kill the bill.
Then there are the "little" new taxes that are not as readily apparent n like the "expansion of the Transaction Privilege Tax" proposal. I say little taxes because it will only be a little here and a little there n taxes on your hair care, getting your nails done, car repairs, laundry and dry cleaning. How does that impact real estate? It would also be an additional tax on escrow agent services, your real estate specialist, condo/co-op maintenance fees, and that all-important home inspection, the appraisal, termite inspection n any service considered a "professional" service might be subject to the tax. And do you think for a moment those that provide professional services are just going to absorb the additional taxes they have to pay n when they already pay income taxes? Would you?
These taxes are just some of the reforms being considered by the Citizen's Finance Review Commission (appointed by the Governor). I think everyone would agree tax reform is sorely needed in the state. There needs to be a better balance between residential and commercial taxation. The one area that has remained strong in Arizona during the recession has been real estate -- let's not kill it. We need to look at how and why we are taxed and how and why we spend the money; just like you and I do with our own budgets. Then we will see how to best reform tax policy so it is fair, equitable and provides the services needed.
Laura Kelly Mance is the 2003 President of the Tucson Association of REALTORS® and designated broker and general manager for Coldwell Banker Success Southwest. She has over 20 years experience in the real estate industry.
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