The Blue Ribbon Tax Commission recommended a slate of tax increases to be considered in the special state legislative session held in October. While that session failed to generate a comprehensive tax reform package, it is likely these proposals will return again.
One of the more troublesome suggestions made by the commission, and grasped warmly by a significant number of legislators, is the imposition of a real estate transfer tax — a tax based on the value of your home at its sale.
This proposed tax would be charged to home buyers, or home sellers, when residential homes are re-sold. Worse, these taxes, if enacted, would be in addition to the taxes already paid as part of the real estate transaction.
Professional services, from real estate agents and appraisers to home inspectors and those hired to make repairs, are charged gross-receipts taxes. As it stands, the taxes on services can total hundreds of dollars or more. On a $150,000 home, the taxes paid would be in the neighborhood of $750. The real estate transfer tax would add up to another $500. Together, closing costs include $1,250 just in taxes.
Adding transfer taxes on top of gross-receipts taxes amounts to double taxation. Double taxation is something to which most people who live in our democracy are opposed. As a result, those who write tax policy now coyly refer to it as “tax pyramiding” — stacking taxes on top of taxes.
A number of people I have talked to about the transfer tax have asked me why the Legislature would choose to stack these taxes and create new taxes, instead of simply raising the property taxes.
The answer is all too simple. Under our laws, any increase in property taxes must be approved by the people.
At one point in New Mexico history, property taxes were so high that many people lost their homes because they couldn’t afford to pay. In an effort to ensure this would never happen again, the state constitution gives people the power to veto any proposed property tax increase.
The Legislature knows the citizens are unlikely to pass a property tax increase so they simply created a way to charge a property tax and call it something else. Most people understand that a tax based on the value of your home is a property tax, regardless of any fancy name.
Unfortunately, history has a habit of repeating itself. Once upon a time, you could lose your home because you couldn’t afford to pay your taxes; now you may never be able to buy a home because you cannot afford the transfer tax.
Since these proposed transfer taxes will become part of the closing costs, coming up with the additional cash to settle will become more difficult and banks will be less likely to provide financing. As a Realtor, I have seen many, many people who failed to qualify for financing over as little as $50. High closing costs or lack of income can prevent you from obtaining the American dream. Transfer taxes will deny countless New Mexicans the joy of walking through the door to their own home.
Transfer taxes are wrong for New Mexico. Gov. Richardson has stated his opposition to transfer taxes and the Realtors Association of New Mexico has thanked him for standing against this risky scheme. We can only hope the Legislature will see the danger inherent in creating such a tax and just say no to double taxation.
Gayla Brumfield of Clovis is president of the Realtors Association of New Mexico. She can be contacted at 769-1951 or 693-6745.