Private Transfer Taxes

A loophole in California law now lets developers and others impose a “private transfer tax” on home buyers EVERY time the home is sold – with NO oversight, NO accountability over how the money is spent, and NO limit on how many different “private transfer taxes” can be added or “piled” onto a home.

Private Transfer Taxes must be eliminated because:

These taxes will hurt the housing market. Home buyers will either avoid homes that require paying a private transfer tax or seek to offset the cost of the tax.
This is REAL money! If you impose a 1.75% private transfer tax – the highest rate that’s come to light so far – on the state’s median priced home of $567,690, that’s a tax of almost $10,000, due and payable EVERY TIME the property is sold!
Private transfer taxes increase the already substantial cost of buying a home. A recent C.A.R. study shows that every time the cost of a home increases by $10,000, another 200,000 potential purchasers can’t afford to buy a home.
These schemes increase the price of housing without adding any value to the property. Buyers are forced to pay inflated prices to cover the cost of the private transfer tax.
Despite what some developers claim, these aren’t “mitigation fees” – they’re taxes. They don’t benefit the assessed homeowners but are an ongoing revenue source for those who receive the funds from homeowners.
The taxes are imposed on buyers EACH AND EVERY TIME the property sells. Private transfer taxes can go on and on and on. These taxes are collected as long as mandated by the deed, which can be indefinitely.
There are no controls over how the collected revenue is spent. Whoever is levying the tax is free to decide how the money is spent – with absolutely NO controls. The proceeds may even be used for personal benefit!
Only government should have the power to tax. Unfortunately, anyone selling a home is free to add a “private transfer tax” that has to be paid at the time of every subsequent sale. The highest rate C.A.R. is aware of is currently 1.75% of the home’s value – but there’s no limit.

Unfortunately the Senate bill that C.A.R. sponsored, SB670, didn't make it out of committee. It would have eliminated private transfer taxes all together. Fortunately though, C.A.R. was able to get A.B. 980, the requirement of a disclosure where PTT's are imposed, passed through committee.

And recently C.A.R. scored a victory in defeating AB 1574, legislation legitimizing private transfer taxes. It was withdrawn from last week’s agenda for the Senate Judiciary Committee, having failed to receive adequate support from committee members.

The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) vigorously opposes AB 1574, which would authorize developers to surcharge home buyers through a “private transfer tax” and add to the cost of owning a home. The deadline for policy committees to hear and report on bills was Friday, July 13; AB 1574 now cannot be acted upon until next year. An interim hearing is expected to be held during the fall to investigate the imposition of “private transfer taxes” by developers.

“The legislature wisely decided this week that AB 1574 should not move forward,” said C.A.R. President Colleen Badagliacco. “This bill would have legitimatized developer-imposed transfer taxes on home buyers at the point of purchase. Under Assemblyman Houston’s bill, 2 percent of the home sales price could be imposed every time the home sells--for 99 years into the future. This unfairly burdens future home buyers without any guarantee that they will receive benefit or value in exchange for the transfer taxes.

“We commend Senator Corbett, who chairs the Judiciary Committee, for encouraging further legislative investigation of this unacceptable practice, just as we encourage legislation prohibiting such ‘taxes’ altogether,” said Badagliacco.

Update - October 16th, 2007

C.A.R. is the sponsor of AB 980 (Calderon) Disclosure of Already Imposed Private Transfer Taxes, which was approved by both the Senate and the Assembly that concurred in Senate amendments on September 11. The bill is now on the Governor’s desk awaiting his approval. This bill will require that a stand alone document on the private transfer tax (PTT) be recorded to become part of the title record, as well as a separate disclosure to potential home buyers as to whether the home they are considering purchasing requires the payment of a private transfer tax, the percentage of the home price constituting the PTT, the duration of the payment obligation, and the recipient of the PTT payment. If the stand alone PTT document is not recorded, the new home buyer will not have to pay the PTT.