Tough Call on Real Estate Transfer Taxes

Yesterday’s St. Louis Post-Dispatch had a story about the effort by Realtors to pass an amendment to Missouri’s Constitution that would ban real estate transfer taxes, which are essentially sales taxes you pay when you sell your house. Now, we don’t currently have this tax anywhere in Missouri, and Realtors want to keep it that way.

All of our neighboring states have this tax, and it is generally pretty small, but just because it might be small does not mean it is good tax policy. I agree with the Realtors that in a state that makes heavy use of property taxes to fund local government, a transfer tax amounts to double taxation. I oppose their implementation in Missouri at the city and county levels, and at the state level as well — with one potential exception, which I will get to shortly.

A few interesting things jumped out at me in the article:

In other mountain resort towns in Colorado, such as Aspen, Vail and Telluride, the taxes are used to help preserve open space or provide low-income housing.

Regular readers might recall that I love to ski, and I do so each year near Vail. From the perspective of Vail residents, it is a no-brainer to institute a transfer tax. Of course they want to tax the out-of-towners who own property in Vail; it is no different from the high real estate taxes on second homes for Missourians with property along the lake in Western Michigan or in Door County, Wis. The Great Lakes or Rocky Mountains are not easy to replace. If you keep such a tax within reason, it is a way to make people from outside your community pay more so that the full-time residents will pay less. I am not saying I like it, just that it is easy to see why they do it.

I don’t really think, thankfully, that this is something we can repeat in Missouri. Tourists visit Branson, but they don’t really own homes there. As for the Lake of the Ozarks, where people DO own the homes, I have to guess that most of them are Missourians from other parts of the state, so implementing such a tax would just end up screwing ourselves.

The other thing that jumped out at me was this:

While the taxes aren’t high, the revenue adds up when applied to every sale or transfer of property in a state. In Tennessee, the tax produced more than $174 million in revenue in 2004, according to a study of the Federation of Tax Administrators.

What do we have that Tennessee does not have? You guessed it: an income tax. Speaking generally, I would support the passage of some type of state transfer tax in exchange for getting rid of the state income tax. So, while I certainly support the Realtors’ position and oppose not only all local transfer taxes, but also any state transfer tax (short of possibly using it to replace the state’s income tax), I guess I wouldn’t want to enshrine it in the state’s Constitution if that would make it even harder to replace the income tax in Missouri.