CALIFORNIA REALTORS URGE LEGISLATORS TO VOTE ‘NO’ ON SERVICE TAX

Written by  on Monday, 27 April 2015 1:56 pm

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Last week approximately 2,000 REALTORS®from all areas of California showed up in Sacramento, the state capital, for the purpose of spending some in-person advocacy time with their respective legislative representatives.
Legislative Day, as it is called, is an annual event for the California Association of REALTORS®(CAR). No year goes by without a sizeable number of bills being introduced that would affect property rights, housing, and/or the real estate business. The annual appearance of these representatives from the state’s largest trade organization (approximately 180,000 members currently) is an effective reminder that someone is watching, and with more than casual interest.

This year, one of the bills that received particular attention from the REALTORS®was Senate Bill 8 (Hertzberg), a proposal to impose taxes on services — something that is not currently done in California.

Real estate transactions are service intensive. Among the services that would be taxed under the Senate Bill 8 proposal are appraisal, home inspection, natural hazard disclosure reporting, pest control inspection and repair, title insurance, loan origination, and brokerage. They add up to a substantial number.

CAR legislative analysts estimated that service fees comprise about 13% of a sales price. That number seems a bit high to me, although they were including “services to prep for sale (painting, cleaning, landscaping, staging, etc.etc.”. But even a more modest estimate — say 8% – 10% — yields some significant numbers.

The REALTORS®‘ point to the legislators was that California doesn’t need anything that will increase the already too-high cost of housing. With the state-wide cost of a median-priced home at $447,000 (4th quarter, 2014), California has an affordability crisis. Fewer than 40% of its population can afford the median-priced home. Nationally, 59% can afford the U.S. median. California’s home ownership rate has dropped below 55%.

A 5% tax on the typical services for a median-priced California home would increase the transaction costs by more than $2,000; a 7.5% service tax would add about $3,000 to the total cost. Those numbers have real consequences. At today’s financing costs, the 5% tax would eliminate close to 25,000 potential buyers from that purchase. The 7.5% tax would similarly affect more than 36,000.

It’s easy to look at a tax proposal at a fairly high level of abstraction. Last week, on Legislative Day, 2,000 REALTORS®took it upon themselves to show legislators some of SB 8’s possible effects in the real world of high-cost, hard-to-afford housing.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.