Home Excise Taxes are called "Transfer Taxes"
Unlike property taxes, real estate transfer taxes are state and local taxes that are assessed on real property when ownership of the property is transferred between parties. 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 a general property tax. Transfer taxes may be assessed on either the buyer or the seller, but both are usually jointly and severally liable for the tax. Transfer taxes are generally levied on the transfer of all types of real property, including residential, commercial, and agricultural property.
Initially these taxes were adopted by states to help cover expenses related to the documentation and recording of the ownership transfer on the deed or title when the property was sold. However, transfer taxes today are increasingly used to fund other government activities as well.
As a source of general fund revenues, the transfer tax is roundly criticized, since it is;
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an unstable and unpredictable source of revenue, and
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is a relatively burdensome tax applied to a narrow tax base.
Because the real estate market is very sensitive to economic conditions, as the supply and demand for housing fluctuates, it creates a high degree of volatility in revenues derived from transfer taxes -- making it difficult for legislators to provide consistent funding for programs. In addition because the transfer tax is levied only on buyers and sellers of property, the burden per taxpayer is much greater than the burden from a more broad-based tax designed to generate the same amount of revenue.
Types of Property Transfer Taxes
States levy three types of property transfer taxes: 1) home excise or realty transfer taxes; 2) document recordation taxes or fees; and 3) mortgage taxes. It is rare for states to impose all three.
Home Excise or Realty Transfer Taxes
The home excise or realty transfer tax is the most common transfer tax imposed by states. Variously identified in state statutes as a real property transfer tax, realty transfer tax, real estate sales tax, or home excise tax, it is levied on the sales price or gross receipts from the sale of real property. In several states, however, the tax base is the sales price of the property exclusive of any liens or encumbrances (notably mortgages) that are attached to the property. The tax rate is usually expressed as a percentage of the sales price, or as a dollar amount per $1,000 of value. Most states that levy these taxes exempt transfers of property under a certain value, usually $100 to $500.
Document Recordation Taxes
This tax is also known as deed transfer taxes, documentary stamp taxes, and title or deed recordation taxes. These taxes typically must be paid before the transfer of ownership can be properly recorded in the county records office. Usually a stamp must be affixed to the title or deed indicating the tax has been paid before the property transfer becomes legally binding. Like the realty transfer tax rate, the recordation tax rate is usually levied as a percentage of the sales or purchase price, and is expressed in terms of dollars per $1,000 of value or a percentage of the sales price. Again, some states apply the tax rate to the sales price less the amount of any mortgage or other liens attached to the property. Several states only impose a small fixed dollar amount (usually less than $10) to cover administrative costs when the deed or title is recorded.
Mortgage Taxes
Also known as mortgage recordation taxes, these are levied on the amount of the mortgage used to purchase real property. Currently, only seven states levy a mortgage tax. The tax rate is typically expressed as a dollar amount per $1,000 of the mortgage amount, and is levied upon the person who obtains the mortgage.
Exemption
Most states that levy property transfer taxes grant a number of exemptions to the tax. Many states currently exempt transfers below a certain dollar amount (usually $100 to $500), although Connecticut and Tennessee exempt transfers under $2,000, and Maryland exempts the first $30,000 of property value. The majority of state exemptions, however, relate either to the type of entity or to the type of transfer involved in the transaction. For example, most states exempt from such taxes transfers between husband and wife and between parents and minor children. Other exemptions include transfers of cemetery plots, transfers to or between governmental entities, transfers conveying gifts of realty, transfers of property conveying realty sold for delinquent taxes, and transfers of real property between corporations related to a merger, consolidation or liquidation.
Why oppose Home Excise or Transfer Taxes?
These taxes are a major burden to buyers and sellers, particularly at time of closing. These taxes:
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Are arbitrary and discriminatory by hitting those with the least amount of disposable income the hardest;
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Add unnecessary transaction costs disproportionate to the incomes of low-income workers, working families, and first-time home buyers.
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Amount to "double taxation" by penalizing the seller of real property twice, taxing New Mexico homeowners on the market value of their largest asset at the time of sale after taxing the property owner's home each and every year based on the annual assessed value;
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Encourage urban sprawl by driving home buyers and home builders to outlying areas in the counties in an effort to afford home taxes;
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Add new costs to home ownership, preventing individuals from using their these funds for college tuition, home improvements, or retirement;
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Reduce housing opportunities across the income spectrum;
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Are a particularly poor revenue source states and local governments because of their volatility as they are entirely dependent upon real estate market fluctuations;
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Discourage home sales by senior citizens and others, reducing investment in both residential and commercial real estate; and
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Are susceptible to "tax creep" as they can be raised by governments as needs arise.
In New Mexico gross receipts taxes are currently imposed on all of the services surrounding a real estate transaction; a transfer tax would be a second tax on the transaction.
A home excise or transfer tax would put the dream of home ownership out of the reach of far too many New Mexicans.
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