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Preserve The Conveyance Tax

Editorial By Courant

March 03, 2008

Connecticut's real estate conveyance tax, one part payable to the state and another part payable to its municipalities, has been in effect for many years.

In 2003, state lawmakers boosted the amount that towns and cities could collect as a temporary measure to compensate them for drastic cuts in state aid to municipalities. Legislators have renewed the increase two more times since then. It is due to expire again on June 30.

The tax is essentially a band-aid. But cash-strapped towns and cities have so come to rely on that extra jolt of tax revenue to balance their budgets that, in the absence of true property tax reform, the General Assembly should extend the increase indefinitely.

Cities and towns can charge the seller of a piece of property between $2.50 and $5 per $1,000 of the selling price, depending on where the property is located. The higher rate is for 18 distressed communities such as Hartford. Sellers pay another $5 per $1,000 to the state.

If the existing rate for municipalities is allowed to expire, it would revert back to its pre-2003 level of $1.40 per $1,000, a loss of about $40 million a year. Municipalities are fighting hard to keep things just as they are.

Real estate agents and home builders have opposed another extension on grounds that it affects sales. They're even more vocal now that the market appears to be slumping.

However, they have yet to produce solid evidence that the tax has halted a single property transaction. It's unlikely that a $1,000 tax would stop the sale of a $255,000 house (the median sales price in Connecticut).

The legislature's Committee on Insurance and Real Estate is considering a compromise proposal that just might work.

The measure cuts the state's portion of the tax to $3.60 per $1,000 and preserves the municipal portion in its present form indefinitely, thus reducing the total rate to roughly what existed before 2003.

The state would have to absorb an estimated $40 million reduction in revenues, something that Gov. M. Jodi Rell, who favors letting the new rate expire, might not appreciate. But unless she and the legislature are prepared to provide towns with better ways of raising revenues, they should make the present municipal conveyance tax rate permanent.