DENISE ROBILLARD – ‘Very regressive’

As part of their latest budget proposal, Democrats at the State House have included an increase in the conveyance tax at both the state and local levels. Real estate agents are upset with the move, but legislators say the hike may be the only way to keep a steady stream of revenue flowing into municipalities.

While no official vote on the budget has been taken, legislators have been trying to raise votes over the last several weeks. As of The Commercial Record’s press time last Wednesday, the House of Representatives had yet to vote on the budget. Democrats pushing for the budget were still shy a few votes last Tuesday and had not called for an official vote.

Under the proposed increase in the conveyance tax, the town tax would be raised from 0.11 percent of the sales price to 0.5 percent of the sales price. The state tax would be raised from 0.5 percent to 0.75 percent.

Therefore, a home sold for $160,000 would require $176 in current local taxes and $800 in current state taxes. Under the increase, the same house would require $800 in local taxes and $1,200 in state taxes – a total tax increase of $1,024.

In this instance, the conveyance tax would be enforced whenever money changed hands for a property or home.

Opponents of the tax say that is an unfair measure – taxing a segment of the economy that has remained strong in the current economic downturn.

“This tax is very regressive,” said Denise Robillard, president of the Connecticut Association of Realtors. “This is directed toward a special interest group, not a broad-based tax encompassing all of us. It’s making a small portion pay for the state’s budget crisis, which is unfair.”

CAR has started a letter-writing campaign to urge representatives and senators to vote against the tax and find an alternative.

State Senate Majority Leader Martin Looney, D-District 11, said, “This issue was raised because we hear from municipalities that they are limited to a single local revenue source and that’s the local property tax. Towns are always financially strapped and don’t have an alternate or flexible revenue stream.”

Looney suggests that the measure will give municipalities additional revenue at a time when the state is warning of cutbacks in state grants.

Of the proposals under discussion, the money from the additional state conveyance tax would be directed back to municipalities under a formula that would take into account municipal distress or need.

Another proposal would create a list of roughly 16 “targeted investment communities,” according to Looney, that would be allowed to raise their local conveyance tax to 0.75 percent. Those would be communities – including New Haven, Hartford, Bridgeport and Bristol – that require additional need they normally would be receiving from the state government. Each of those communities would have an enterprise zone within its borders.

“Real estate has been the one shining light in this terrible economy,” said Robillard. “A lot of people in this state are losing their jobs and are going to be forced into selling their homes because they can’t make mortgage payment. Now they’ll be slapped for the second time with an additional tax on the sale of their property. So whether they make money on their sale or not, they’ll still owe taxes to the state.”

‘Affordability Problem’

Robillard said it is low- and moderate-income people who will be most affected by the increases.

“These taxes are going to show up in the sales price, further decreasing affordability,” she said. “The homebuilder can’t absorb these types of numbers, so this will further create an affordability problem, which is exactly what we’ve been trying to solve here in Connecticut.”

Robillard said most people don’t realize how big a tax burden it is until they go to sell their home, noting that the average person might not understand or even think to look for the tax.

Maureen Campbell, vice president of corporate and relocation services at H. Pearce Real Estate Co., has sent out graphs to clients and homeowners explaining the tax increase. One of the graphs comes with the heading “A Boston Tea Party Tax! Grossly Unfair!”

“We wanted to demonstrate in real terms how this tax is going to affect them,” said Campbell. “The Legislature is proposing to raise town taxes 455 percent, which will clearly impact different sectors of the population and economy in different ways.”

She and Robillard both noted that for some towns, the increased tax would act as a disincentive for homebuyers.

“This is not the right tax. We need to go back to a more broad-based tax based on ability to pay. I suggest we raise the income tax across the board, and not target special interest groups,” said Robillard.

“I support [an increase in the conveyance tax] in some form. In these difficult times, it’s a good way to help the municipalities,” said Looney.

He stressed that there is 16-month limit on the increase. The tax would be increased on March 1 and run through the end of the 2004 fiscal year, or June 30 of that year.

Looney said this is the period during which municipalities will be most in need of additional revenue.

“The theory is that the fiscal crisis may have passed or moderated by the end of the 2004 fiscal year, and at that point the tax would revert to prior levels,” he said.

Campbell disagreed, saying the original conveyance tax was meant to be temporary, and added that the measure could “paralyze” the real estate market for that 16-month period.

The March 1 start date could affect homebuilders who have already scheduled work for that period. Typically in a building contract the price is already negotiated, and anything scheduled for this spring won’t have to factor in the tax increases. Therefore, Robillard said, the homebuilder will have to eat the cost of the taxes on the sale of the house.

“Why should the building industry pick up all of these taxes?,” she said. “It will be passed on to the consumer in the end. We’ve been doing well in the housing industry in this economy; why would we want to stymie the market now?”