Nov. 2 Measure Would Prevent Governments From Imposing Transfer Tax On Real Estate
Amendment 3 is preemptive measure to avoid "double taxation" on real estate sales/transfers
10/01/2010 - Missouri voters will decide in November whether to take preemptive action to block additional taxation on residences, farms and other land properties.
Amendment 3 concerns the transfer tax, which according to the Department of Revenue Administration is a tax on the sale, granting and transfer of real property or an interest in real property.
Should Amendment 3 be passed by voters with a "yes" vote at the Nov. 2 election, state law would then forbid the levying of transfer taxes by Missouri governments at the state, county and local levels.
Peter Salsich, professor of law at Saint Louis University, said that incorporating the exclusion of transfer taxes into the state constitution sets a bad precedent.
"The ideal way (to amend the constitution) is through debate in the general assembly," Salsich said. "The constitution should be a document of fundamental principles."
The amendment language reads:
"Shall the Missouri Constitution be amended to prevent the state, counties and other political subdivisions from imposing any new tax, including a sales tax, on the sale or transfer of homes or any other real estate?"
A transfer tax requires property owners to pay a flat deed registration tax, or a percentage of the current property value, at the time of sale. The tax typically applies to residential, commercial and industrial properties.
Opponents to transfer taxes say that it equates as a double tax, since Missouri owners already pay annual property taxes. The Missouri Association of Realtors (MAR) is the leading opponent to the transfer tax and was the force in placing Amendment 3 on the ballot. MAR argues transfer taxes can become appealing options for tight government budgets during difficult times.
"We decided to take initiative to never allow Missouri to use a transfer tax," explained Sonny Brockman, co-owner of Prudential Advantage Realtors and supporter of Amendment 3.
Since no transfer taxes are currently on the books in Missouri, Amendment 3 would be a preventative measure against such taxes in the future. Thirty-seven states and the District of Columbia impose transfer taxes, including each of the states that border Missouri.
According to an August 2010 report by the National Conference of State Legislators, Kansas imposes a .26 percent mortgage fee, Arkansas taxes at .33 percent on current property value, and Iowa issues a .16 percent tax. In Illinois, owners face a statewide .15 percent transfer tax, but rates increase in Chicago, the highest being 1.05 percent of the property value. Nationally, New York City imposes the highest transfer tax at 2.625 percent.
Using these tax rates, a home valued at $200,000 would yield a $300 tax at the time of transfer in Illinois, $520 in Kansas, $660 in Arkansas and $320 in Iowa.
Who pays the transfer tax also varies by state, but primarily falls upon the seller. Some sellers choose to negotiate the additional fee into the selling price with the buyer. No matter who pays, Brockman said it's a bad policy at a bad time.
"Somebody's going to pay it," said Brockman. "(The transfer tax) means fewer people will be able to buy or sell."
The use of funds collected through transfer taxes varies by state. Some states depend on its counties to collect the tax, then pool the funds into the state general fund. Others provide authority to local governments to collect and use the tax resources at their own discretion.
In the past, transfer taxes supported not-for-profits or organizations for affordable housing for lower income people and the homeless. States have also used the revenue to support natural resource protection, including creating parks and preserving open space.
Amendment 3 faced a turbulent road on its way to the ballot.
Upon submission of the citizen initiative petition, Secretary of State Robin Carnahan ruled the petition invalid due to faulty signatures. MAR appealed Carnahan's ruling, and Cole County Circuit Court Judge Paul Wilson overruled Carnahan's decision.
The Secretary of State sought to appeal Wilson's decision, but later agreed to drop the appeal, finally placing the issue on the ballot.