Serving Boone, Blowing Rock, Banner Elk, and other towns of the North Carolina High Country
Founded 05-05-05

Under Fire: Proposed Land Transfer Tax

Story by Kathleen McFadden

Postal carriers have been busy lately delivering brochures expressing opposition to the “NC Home Tax,” the name the NC Association of Realtors has given to the proposed local-option real estate transfer tax. Along with the mailers, the association has taken its opposition campaign to the television, the radio and the web.

At the requests of their county governments, state legislators have introduced several bills in the General Assembly this session to give counties the option to levy a 1 percent tax on real estate sales. In addition, on March 27, Senator Bob Atwater (Chatham) filed S1516, a bill that would give all counties the option to hold a voter referendum to enact a land transfer tax of up to 1 percent to help meet rising infrastructure needs.

Both the Avery and Watauga County Boards of Commissioners have asked for the tax option and have passed resolutions accordingly. Avery’s resolution calls for a voter referendum; Watauga’s does not.

In Watauga County, such a tax could generate an estimated $7.3 million per year. In Avery, the estimate is $3.3 million.

The land transfer tax is not unprecedented in North Carolina. In the 1980s, seven counties in North Carolina received the General Assembly’s authorization to impose a 1 percent real estate transfer tax: Camden, Chowan, Currituck, Dare, Pasquotank, Perquimans and Washington.

Now several other counties want the same authorization.

In the face of increasing infrastructure needs resulting from rapid growth, uncertainty about county Medicaid contributions and unfunded state mandates, county governments are looking for a source of revenue other than increasing ad valorem taxes. One alternative is the real estate transfer tax.

Bad idea says the NC Association of Realtors. According to the opposition website—itsabadidea.org—people selling their homes would be forced to pay the tax, essentially taxing their equity. The association maintains that such a tax would significantly damage the state's economy and would make it harder for low-income people to afford their first home.

Evidence from other states does not support the association’s contentions. According to NC Policy Watch, 37 states have some form of transfer tax, including Florida, and the state increased the tax in 1992 to support affordable housing. In the last nine years, Florida’s real estate transactions have more than doubled. Other states with transfer taxes have seen similar trends.

Evidence from the other counties in North Carolina that impose the tax does not support the association’s contentions. According to the NC Association of County Commissioners, the land transfer tax has not impeded growth in the six counties that already have one in place. Camden, Currituck, Pasquotank and Dare counties experienced growth from 2000 to 2006 significantly above the state’s growth rate of 10 percent. According to figures compiled by the NCACC, all six counties ranked in the top 45 in the state in per-pupil spending, with Dare ranked number 1 and Currituck number 8.

Further, the NCACC reports, according to a recent Department of Public Instruction survey, counties face five-year facilities needs of almost $10 billion. Over the next five years, barring any relief from the state, counties are projected to spend more than $3 billion on Medicaid services costs. In addition to schools, counties must provide facilities such as courthouses and jails.

“It’s a question of who pays for the growth,” said David F. Thompson, NCACC executive director in a statement. “Our counties’ infrastructure needs are great. This is a revenue source that allows counties to broaden their tax base so the residential property taxpayer who has been in his house for 20 years isn’t forced to pay an undue burden.”

The NCACC points out that the property tax base is not growing fast enough to keep pace with the demands caused by the state’s rapidly growing population. As an example, North Carolina county Medicaid costs are increasing at nearly 10 percent annually, while the property tax base—the only source of revenue that county boards of commissioners have the authority to increase—is growing at less than 7.5 percent annually.

The NC Association of Realtors counters by maintaining that revenues are unreliable. According to itsabadidea.org, “Revenues generated by transfer taxes are largely dependent upon economic cycles, and thus will fluctuate over time. This makes it difficult to use those revenues to fund bond issues or to cash flow infrastructure development projects, as opposed to revenues generated by property taxes or sales tax. Even extremely high transfer taxes could not come close to meeting most communities' needs for infrastructure development, and thus bond issues would continue to be necessary. This dual funding scheme has the potential for eroding public accountability and understanding of infrastructure funding requirements, which could further diminish support for bonds in the future.”