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Consumer Tax on Real Estate Services? No Way!

How do you think it might impact your business if buyers, sellers, tenants and landlords are taxed on commissions or fees they pay to real estate professionals or property managers in the future?

A 6% sales or service tax, for example, would turn each $1000 paid by consumers for commissions or fees into $1060.

Why should you care if this is an issue in Maryland? Very simple. If it passes here, YOUR Governor and Legislature will be emboldened to propose and pass it in YOUR state.

On November 1, Maryland Realtors will rally at the state capitol in Annapolis to demonstrate opposition to a tax on real estate commissions and fees for property management. This bill is generally considered a "trial balloon" for a far-reaching tax-on-services bill, ultimately taxing ALL real estate commissions and fees paid by consumers. Maryland's Governor O'Malley called a special session of the State Legislature in order to shortcut this tax and others into effect, without regard for the normal time-frames required for committee discussions/votes and public hearings during the regular legislative session, January-April of each year.

According to a press release by Maryland Association of Realtors, over 20 different housing-related taxes and add-on fees have already been increased or imposed by Maryland state and local governments in the past five years. These include property taxes, transfer taxes, recordation taxes, capital gains taxes, excise taxes, and impact fees - contributing hundreds of millions of dollars to state and local budgets.

Of course, real estate licensees and property managers already pay income and self-employment taxes on these same fees now. So, if this bill passes, the people who pay the fees will be taxed AND the people who receive them will be taxed.

vote no tax The Maryland Association of Realtors has initiated a media campaign to educate consumers on this issue, warning that this proposed tax will impact the following people:

Renters in the 7th most expensive rental market in the country
Property owners who pay homeowner association and condo fees
Seniors in managed age-restricted housing and
Small business owners who lease retail, office or warehouse space.

If this bill passes, experts predict that home sellers and buyers will soon be paying this new tax on commissions for selling or buying a home. The governor is focusing solely on the real estate industry, for now, but taxes on other services could soon follow - accountants, attorneys, doctors, dentists, decorators, home improvement contractors, home inspectors, stagers, maintenance/cleaning servces, barbers and hairdressers... Where are people in these industries, and why aren't they helping to fight this because service fees are a whole new untapped source of revenue for greedy state and local governments. Could the Feds follow?

How many ways can we say NO!

If you live in Maryland, CLICK HERE to contact the Governor and your Legislators. To learn more about the rally in Annapolis on November 1, CLICK HERE. If you live in a state that already has this in effect, I would be interested in hearing how it impacts your business.

FOLLOW-UP: Over 300 Realtors from around the state showed up in Annapolis for the MAR-organized rally on Nov. 1, and then visited their local legislators.

Posted by Margaret Woda, Maryland Real Estate on 10/28/2007 11:55 PM

Comments (27)

real estate fees, real estate taxes, maryland, margaret woda, crofton maryland, remax vision

Originally posted at: Fort Meade - USNA - Andrews AFB: Consumer Tax on Real Estate Services? No Way!

This post has been included in Maryland Information Anne Arundel County, MD Information

27 Comments on Consumer Tax on Real Estate Services? No Way!

OCT

2007

We have these taxes and More here in Hawaii. All you can do is fight. We lost the fight.

We do not have a sales tax - but if they tax the REALTORS® commission - do they tax doctors appoinments, hospital bills and the like? It is my understanding that a service is not something for sale -

We (agents) pay our own taxes on the commissions received as independent contractors. We have state and federal (I pay my estimated taxes quarterly) and we have General Excise Tax as well. It was just raised from 4% to 4.5% and depending on what we make we pay monthly quarterly or every six months. I pay quarterly. 2 year owner occupant and not making over 250,000 net profit and paying.

Paying double taxes for commission...uh, no.

http://www.hawaii.gov/tax/tax.html

Is this what you're asking?

Margaret: We in Texas have a very active TAR... Texas Association of Realtors. We are constantly fighting issues like this. Luckily we have a local representative, Vicki Truett, who is excellent at keeping us aware of what is going on. She supports us, we support her. Thanks for the post.

Margaret- You must fight this Tax! We have been fighting it here and so far we have won, We have no income tax here either.

Sally- Maryland is trying to pass the taxes on commissions. In most states you are not taxed on your commissions. In some states that is passed on the buyer and seller. In the state of Washington they do have to pay tax on commissions. We are talking about the state excise tax on our commissions. Katerina

General Excise Tax?

We have three....State, Federal and State GET too. Buyer/Seller do not pay tax on our commissions. We do have an option for the seller to pay the GET tax plus commission but not many do that.

Besides the usual state and federal taxes we also pay a BPOL (Business, Professional and Occupational License Tax) tax in VA on every transaction. Do you pay that in MD too? It is insane that they want to add sales tax to commissions. How can you tax both the home seller-who is the one generating the transaction-and the realtor who is the "employee" of the seller. They don't charge sales tax at your CPA or Doctor's office. This just doesn't make any sense other than a way to fill the state coffers.

Gary Bland - Gary, are you saying Hawaii DOES already charge consumers a tax on real estate services? How does that work... Is it another buyer or seller charge on the HUD-1 at settlement? Do buyers and sellers use this to try to negotiate a lower fee than you customarily charge?

Central Oregon Real Estate | Thesa Chambers, Broker, Sunriver Realty - Not yet, but no doubt those are in our future, if they get away with this. Pretty soon they'll also have consumers paying a service tax for a haircut or a bartender,

Celeste "Sally" Cheeseman(RA) Century 21 Liberty Homes *Hawaii* - Tell me more about this General Excise Tax... is that like a sales tax? Do you currently pay a service tax, too (as Gary suggets?)

Karen Anne Stone - Fort Worth Real Estate Online - Maryland actually has a good state association, as well, but the Governor's strategy of calling a special session to railroad this through without the normal opportunities for committee discusssions/votes and public input is designed to minimize the effectiveness of any opposition. It just may work. For now, it will "just" be a service tax for property management, but everyone knows that all services, starting with other real estate services, will eventually follow.

Nestor & Katerina Gasset, Realtors® Wellington Florida Luxury Homes - Thanks for telling me about Washington State. Maybe someone from their will answer the questions I asked Gary in the beginning of this comment.

Celeste "Sally" Cheeseman(RA) Century 21 Liberty Homes *Hawaii* - Okay, so explain this General Excise Tax to me... is it a sales tax?

Cindy Jones Fairfax County Real Estate - Do you mean a tax on licensing fees (which are a tax in themselves!), or is it based on pay received in addition to income taxes, or a transaction fee (in that case, is it based on the commission amount and who pays it?)

Margaret, do you have a REALTOR PAC (political action committee) in Maryland? Our Wisconsin RPAC was instrumental in defeating an increase in the state deed transfer tax recently. They did an excellent job of putting the issue before the public, and it was public outrage that was responsible for defeating the tax increase.

Margaret, certainly the last thing we need is more taxes and more government intrusion into the way we do business. To answer your question to Cindy, the BPOL is Virginia license tax paid to the local jurisdiction based on your GROSS revenue not your NET. Pretty unfair if you ask me.

Eric Kodner CRS, ABR, e-PRO, CLHMS, Madeline Island Real Estate Wisconsin - Welcome back, Eric! Since we're in the shadow of our Nation's Capitol, Maryland is extremely active politically and we have a very effective PAC and Legislative Committees statewide and locally. Heck, we have a high percentage of retired high-level government bureaucrats from every area of federal government and politicos amongst our Association members. What's unique about this situation is the Governor calling a special session to address the budget shortfall he created, beginning the day he took office, (Remember the name Martin O'Malley because he has national office on his personal list of goals) and he proposed a take-it or leave-it solution (which includes this item) that is not subject to normal committee and subcommimttee discussions and votes or public input. With a Legislature that is overwhelmingly the same party as the Governor, it's not looking good for the opposition who has little, if any, opportunity to be heard on this.

Brian Block -- Northern Virginia & D.C. Real Estate - Thanks for jumping in to answer the question. Sorta. So let me understand this: You pay a license tax on your gross revenue AND income tax on your net? Oh my goodness! That's a lot of taxation. But then, it sounds like consumers do NOT pay a tax on the fees they pay for your services - is that right? (By the way, I didn't think this post fit the guidelines for your group... was I right?)

GET is a State sales tax for businessess (we are independent contractors with GET licenses...therefore pay additional taxes) When they raised our taxes for GET in January it was for our island of Oahu only....to get more money for the mass transit system (rail) ...so I guess us agents are going to hop on this thing with our clients...:)

They are focusing on Realtors® to charge and convict for failure to pay GET...and another one was just in the news the other day.

So....we pay state taxes, federal taxes and state get sales tax. It also allowed the businesses (grocery etc) to raise their sales tax to the consumer.

So, we pay GET on commission and pay it again when we go to the store.

Celeste "Sally" Cheeseman(RA) Century 21 Liberty Homes *Hawaii* - Goodness, that's a lot of taxation! I always found it interesting how states differe, and wish there were some research out there (sounds like a good research topic for some enterprising MBA or PhD student) with a comprehensive chart. I know consumers are taxed on groceries in Virginia, but not in Maryland, and Virginia has a personal property tax, which Maryland does not. But beyond that, I am clueless. I do strongly suspect that consumers will expect agents to reduce fees enough so they don't feel a tax on fees.

MARGARET: This is yet another obstacle that the government wants to throw into the real estate transaction mix. In a local town on Long Island, they have been trying to increase the transfer tax (which is being fought by REALTORS). With the economy the way that it is, and the daily reports of doom and gloom by the media about the housing market, the last thing that we need is the government adding in more fees to make the process even more difficult.

Margaret Each day when I listen to our area news it never ceases to amaze me how many different schemes there are to raise taxes, not just on real estate. Of course, your new governor is about to try to get away with a massive tax increase and we are not much better off in Virginia due to the reduction in revenue due to the weak real estate market, Karen

Adam Waldman - Long Island, NY Real Estate - Adam, Yes, this is a heck of a time to add to real estate costs, especially for renters - among the people who can least afford it.

Karen Kruschka - "Helping People Find Their Way Home" - Karen, You're right - After four years of tightening our belt to get spending under control and the budget under control, it took Martin O'Malley less than 24 hours to reverse the trend. With a Legislature dominated by the same party, they're just having a ball spending other people's money to buy prospective votes from uneducated, illegal immigrants, and poor who don't realize these taxes impact them more than anyone else in the state. We have a saying in Maryland... "If you can dream it, we can tax it!"

Margaret -- I think Karen K has said it best. See ya at the rally if I am in town.

Aziz Abdur-Raoof,Howard Co. Real Estate Scoop - Aziz, Thank you for popping in to comment. 'Wish I could go to the rally, but I have a root canal that day. If you go, mybe you can post a follow-up blog to this and throw in some photos.

Washington Realtors do NOT have to collect a tax on their commissions.

Washington Realtors fought it- and won. The state was proposing a tax on services provided by professionals. I believe they were going to tax all services, not just goods.

So there was a general hue and cry and it was beat back.

We REALTORS decided to raise money for a 'special occasions' fund here, and now our State Association gets to tap into that and make a big impact whenever we have to fight something like this, or proposal to increase Excise Tax.

Keep fighting.

We're fighting that same tax here in North Carolina. I find it to be interesting that Realtors are the easy target of every politician who wants more money to fritter away. Seems like they would do just a little research once in a while and note how much we already pay as 1099s.

OCT

2007

Sarah, thank you for updating us on that. I don't know that any amount of funds or outcry can stop a bill during a special session like this, but maybe if there's enough resistance from consumers and other professions, in addition to Realtors, something might be done to address this in the regular session in 2008.

Leigh, you're right. Not sure why we're such targets except that the big potential for revenue, and the fact that consumers don't care unless/until they're faced with the bill - and that's not when the matter is being considered.

Margaret, I marched on the Capital Steps the first time. I can't make it this time.

Bob Carney, Frederick MD Real Estate - Bob - Me either. I have a root canal, instead. :)

OCT

2007

What a patently terrible idea. We need this in the industry right now like the Hindenberg needed more flamable gasses. Dumb, dumb, dumb!

Paul Slaybaugh, Scottsdale Realty Executives - Paul, I couldn't have said it better myself!

We just dodged this bullet in Michigan thanks to our Rpac lobbying action at the state level. The legislature decided in their wisdom to tax other groups of small businesses that did not have lobbyists, ie, interior designers, installers, etc. and raise our income tax.Good luck with this fight. If you don't contribute to Rpac, now might be the time.

NOV

2007

Here in NJ we are currently fighting a transfer realty tax to be levied by local municipalities. All we need is Gov. Jon Corzine to hear about Maryland's proposed tax and he'll try putting that through next. Why are REALTORS looked at as endless sources of income for the states?

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