A move to reduce the state’s realty transfer tax for some residential and commercial properties didn’t survive a committee hearing Wednesday. Photo by Kelly/Pexels
Another Republican attempt to lower the costs of buying a house by reducing taxes associated with it was shot down along party lines Wednesday.
Rep. Lyndon Yearick’sHouse Bill 343would have dropped the real estate transfer tax from 4% now to $3% in January 2018.
That was the rate it was in 2016 before being raised in 2017 to bring in more money amid budget woes in Gov. John Carney’s early years.
The hike made it the highest transfer tax in the country.
Recently, the state has seen four years of huge surpluses, many near $1 billion, and Yearick argued — as other Republicans have before him — that the state should use some of that to pay back the people of Delaware.
His bill would have limited the tax cuts to residential properties costing $500,000 or less and commercial properties costing $1 million or less. Many sales would not qualify, he said.
Yearick, the House minority whip whose district is in Camden, said he hoped the move would help ease the affordable housing crisis and help more people buy their first home.
Reducing the transfer tax isn’t a silver bullet, but would be a tool at the state’s disposal, he said.
Rep. Jeff Spiegelman, R-Claymont, who works in real estate, noted that the transfer tax on a $300,000 home would cost the buyer $12,000 out of their pocket at 4%. At 3%, it was only $9,000.
That $3,000 can make a difference in whether someone can buy a house or buy the house they really want, he sad.
Transfer tax v. income tax
Democrats, however, argued in Wednesday’s House Revenue and Finance Committee that available houses appear to be selling fine and the real problem is that there’s not enough of them.
Rep. Madinah Wilson-Anton, D-Newark, said she would rather see the state raise income tax and bring in more revenue that way before changing the transfer tax. So far, she noted, the legislature has resisted any income tax hikes.
Rep. Pete Schwartzkopf, D-Rehoboth Beach, wanted to know why taxes couldn’t be rolled into mortgages and what could be done by the legislature to fix that.
Spiegelman and other real estate experts explained that banks and mortgage holders would not allow taxes and fees to be included.
Banks lend money tied to real property they can take that property and sell it if the loan goes bad, he said. There’s no way for a bank to recoup taxes or fees.
Schwartzkopf persisted, asking several times what the state could do about that. No one ever answered.
Yearick’s proposal would cause the state to lose between $30 million and $47.7 million in revenue, according to the fiscal note and a representative of the state Finance Department.
Rebecca Goldsmith said the department thought the transfer tax should not be lowered unless it was a part of a larger budgetary initiative.
Rep. Kendra Johnson, D-Bear, said she thought there were too many other areas that needed money and the state couldn’t look at the transfer tax in isolation.
Rep. Danny Short, R-Seaford, who sits on the Delaware Economic Financial and Advisory Council, said the state could handle the reduced realty tax.
In just the last few months, the state’s revenues were upgraded by $240 million for next year, he said.
That comes as the state budget is expected to be $6.3 billion, a 9.9% increase in a year that was expected to be tough, he noted.
Republicans pointed out that when the transfer tax was raised, they expected it to be reduced when state revenues rose.
Democrats said they didn’t remember that ever being a promise.
