Background:
A real estate transfer tax
is a state and local tax assessed on real property when ownership of the property
is exchanged between parties. All types of real property, including residential,
commercial, and agricultural, are subject to the transfer tax. Although the tax
is generally levied on the value of the property, it is assessed only on the sales
transaction instead of on an annual basis like the general property tax. Transfer
taxes may be assessed on either the buyer or the seller, but both are usually
jointly and severely liable for the tax.
Pennsylvania currently imposes a 1% tax, with an additional tax levied by school districts and municipalities. Generally speaking, the local transfer tax equals an additional 1%.
Recent
Developments:
The Pennsylvania legislature is currently debating
proposals designed to provide a designated funding source for mass transit. State
Senator Vince Fumo, (D-Philadelphia) has proposed legislation that would increase
the PA Realty Transfer Tax by one-half percent to fund mass transit. According
to his estimates, the additional tax would generate an estimated $200 million
annually for the transit agencies.
Talking Points:
• Consumers are already burden with expensive closing costs including an
existing 2% transfer tax, document recording fees, upfront escrow for property
taxes, and local point of sale inspections costs.
• Since public transportation
is a benefit that is open to all members of society, the charge should not be
placed solely on buyers and sellers of property.
• The transfer tax
adds additional burdens on first-time home buyers by increasing the closing costs.
This runs contrary to existing federal, state, and local programs including mortgage
interest deduction, low interest property maintenance loans, and grants to first
time homebuyers.
• If the revenue from the transfer tax is used as a
funding resource for programs like mass transit, there could be pressure to increase
the tax in the future to fund additional programs.
• The transfer tax
is an unpredictable source of revenue due to fluctuating housing conditions.
• As the transfer tax is levied only on buyers and sellers of property,
the burden per taxpayer is greater than the burden from a more broad-based tax
designed to generate the same amount of revenue.
• Currently the Pennsylvania
Realty Transfer Tax exceeds that of six of neighboring states including Maryland,
New Jersey, New York, Ohio, Virginia, and West Virginia.
• Pennsylvania
has one of the highest transfer taxes in the nation. This distinction could contribute
to the “brain-drain” effect and is not an attractive way to draw out-of-state
homebuyers to the Commonwealth.