A dozen realtors called on Democratic leaders Thursday to cancel plans for a special session to extend the real estate conveyance tax.
Legislative leaders plan to reconvene in June to extend a tax that generates about $40 million per year for cities and towns, which didn’t receive as big a boost in state aid as initially anticipated.
Bob Fiorito, former president of the Connecticut Association of Realtors, said “every other contingency has managed to make due with less,” and the municipalities shouldn’t be any different. Ken DelVecchio, president of CAR, said the conveyance tax is a regressive levy because it’s based on the price of the home and not a person’s ability to pay.
Not to mention, it was never meant to be a permanent tax, DelVecchio said. The tax, which is paid by people selling their home, was created in 2003 to fill a budget hole. It was supposed to end after 15 months, but the tax was extended year, after year, until it was finally expected to sunset June 30.
The average homeowner pays about 1 percent of the value of their home at the closing, so for homeowners selling a home valued at $250,000 the tax would be $2,500.
The realtors say the problem is that foreclosures have gone up 40 percent when you compare the market in March 2007 with March 2008. And even homeowners selling their homes at a loss have to pay the tax.
Nicole Dagata, a realtor for 11 years in Central Connecticut, said she sold a house for a young couple in Middletown and they had to borrow money from their parents to pay the closing fees. She said she also had an elderly New Britain couple, on a fixed income find a buyer for their home, but at the end of the day they owed more money on the house than they could sell it for in this market, so they ended up walking away from it and it went into foreclosure.
When this happens, the bank doesn’t pay the conveyance tax, Fiorito said. And it’s almost impossible to figure out how many homeowners will be selling at a loss since none of the realtors, banks, attorneys, or courts track what are called short sales.
Lawmakers had initially wanted to exempt homeowners selling at a loss, but Senate President Donald Williams, has said he doesn’t think that will be possible because it “may have a significant impact on the revenue,” the conveyance tax raises for cities and towns.
“The conveyance tax is extremely important tax,” Speaker of the House James Amann has said. “The best we can do is give some sort of relief.”
But what DelVecchio can’t understand is “How can a tax be tax relief?” He said “The $40 million collected by municipalities isn’t coming off trees. It’s coming from the pockets of home sellers. Now more than ever, they need a break.”