Maryland State Legislative Update Center

The Maryland Association of REALTORS^® (MAR) and Howard County Association of REALTORS^® (HCAR) are opposed in principle to the expansion of the sales tax to more services. MAR and HCAR are particularly concerned about the inclusion of real property management services and business brokerage services. It is believed that because business brokerage is not defined in the legislation, the Comptroller's office will have broad discretion to define it as any brokerage business, including real estate, insurance, and mortgage brokerages. By taxing all real estate services, this bill would place affordable rentals and homes further out of reach of Marylanders.

HB 448 would Hurt Affordability in the Rental Market
At a time when landlords are facing increased costs due to rising property tax assessments, increasing insurance costs after 9-11, and higher utility costs, these additional costs will directly and adversely affect their bottom line, adding upward pressure on rents. Because HB 448 would affect renters, families with low to moderate incomes who cannot afford to own a home would be particularly hard hit, making this expansion of the tax extremely regressive.

Real Estate is already Taxed at Many Levels, including the Transaction
A new sales and use tax would be in addition to the numerous taxes already imposed on real estate transactions, which are effectively consumption taxes. Assessed at the time of sale, these taxes are sales taxes for the buyers and sellers who pay them.

Real estate transaction taxes include: transfer taxes imposed at both the state and local level; recordation taxes; state and local property taxes; and excise or impact fees (if the property is new construction). And some of these tax rates are much higher than similar taxes in other states. Maryland's average total state and local transfer tax burden is $4,504, which is at least three times the average for 37 states/localities. The combination of local and state transfer taxes rank Maryland as the state with the fifth highest transfer tax in the country.

Moreover, where market values have softened or declined, some sellers have no equity left in the sale. All of the taxes must be paid out of pocket, a difficult prospect for an individual in financial distress.

Real Estate's Current Contribution to the Maryland Budget
Without increasing any tax rate, transfer tax revenue has doubled to over $132 million in the state budget. At the local level, transfer taxes and recordation taxes have increased significantly; they now account for about $1 billion in revenue. And property tax revenue continues to increase as homestead exemptions result in a long-term phase-in of home value appreciation.

Apart from real estate taxes, the real estate market also contributes a significant portion of unanticipated income tax revenue. In 2005, capital gains tax revenues from real estate accounted for about one third of the unanticipated individual INCOME tax revenue, or about $80 million.

Expanding Sales and Use Taxes in other States
Unlike Maryland, the few states that tax a wide range of services have low or no income taxes or other, broader based ways of raising state revenue.