Texas: A Proposed Sales Tax on Real Estate –

Texas, like many states, is currently facing an economic shortfall and our Legislators are scrambling to make up the difference. There are many proposed bills being brought for consideration to try to shore up the State’s coffers. While I realize the money has to come from somewhere, an informed consumer is wise consumer.

Political party affiliations aside, as a Realtor, I am a fierce proponent of private property rights. I will be running a series of discussions about the proposed bills to share available information so that you aware of items that could negatively impact your property rights and your pocket-book.

Taxes on real estate transactions: Combined State and Local sales tax rate would be applied when a property is sold or changes ownership and on long-term leases.

This is similar to buying a car now but could come into play whether a home is bought, sold, or transfers ownership due to divorce, probate, etc. The position of the Texas Association of Realtors (TAR) is that this will actually drive down the number of transactions and potentially  increase the future tax rates needed to cover earmarked expenditures, burdening both buyers and sellers and hurting the real estate market and the Texas Economy.

As a Buyer: This would certainly eat into the cash reserves for your down payment, repairs, furnishings, etc. And if your margins for borrowing are narrow, this could actually diminish the amount you can finance or size of home you can purchase.

As a Seller: This will eat into the equity or net proceeds you walk away with from the sale and could end up raising the costs of housing in your area.

As a Tenant/Landlord: One concern is what will be designated as a “long-term lease” and how much will this impact lease costs because someone has to bear the expense:  landlord, tenant or both. As an investor, this could certainly impact your ROI.

What are your thoughts on this proposed sales tax item?

4 Responses to Texas: A Proposed Sales Tax on Real Estate –

  1. Texas: A Proposed Sales Tax on Real Estate – « The Borden Report | FlipThisForeclosureNow - dot - com says:

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  2. Matt Stigliano says:

    Christi – As a TAR member, I don’t always rubber stamp everything our association says, but the real estate taxes that are always the next “golden ticket” to budgetary problems are never the answer.

    Proponents often argue that it works in other states. I do believe that we could eventually adjust and “get used” to the idea of real estate transfer taxes and our markets would eventually overcome the sudden burden of these taxes, I don’t think they’re a good idea in the short term. Imagine waking up one day in Texas with this new tax. With the new rules in place (and what may be coming from lending regulations) since the housing market crisis, lenders have tightened their standards so much that many borrowers that would normally (in a non-housing boom and lending frenzy as we saw) be good to go, simply can’t get a loan. Imagine if they now had the additional burden of needed extra reserves to cover this new tax.

    In the long term, I don’t think it’s a good solution either. It places a larger burden on home owners (and not every resident, ie renters) and creates a situation where those who can buy get taxed heavily, while those that can’t buy don’t see the tax. It creates a very lopsided taxation situation, one which could easily push more and more into the rental market. This isn’t a case of “you can tax those people, because they have lots of money” either. Home owners are not necessarily the wealthy. While some argue against taxes being unbalanced between rich and poor, few ever seem to pick up on the imbalance between home owners and renters that these taxes would cause.

    I would rather see a state tax before I saw a real estate transfer tax (and I don’t want to see state tax). Of course, our lack of a state tax is one of the prides of Texas and something that helps attract so many to our state. Get rid of that and I think our state economy would slow as well.

    My thoughts on best solutions for deficits (and this applies to all states as well as the federal government)? Work to eliminate wasteful spending. We all know it occurs. We all talk about it. Our elected officials rail against it. But no change ever comes of it. We continue to waste money hand over fist and then wonder why we are broke.

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