A real estate transfer tax is a tax assessed when ownership of property is transferred from one party to another.  Some states also assess such a tax on long-term leases.  This type of tax typically comes in the form of a percentage of the value of the property.  Real estate transfer taxes are highly regressive, meaning higher burderns for low-income people.  Growing families, seniors/retirees, and transferred employees and military would also be heavily affected.  NAR commissioned a study to analyze the effects of a transfer tax on real estate.  The report assumed a tax rate of 0.5% (one-half percent) and a $125,000 purchase price.  Based on these assumptions, the cost of buying a home would increase by about $600, and home sales would decline by almost 3%.  In addition, the Real Estate Center concluded that the creation of a transfer tax on real estate may create more problems than it solves.  This type of tax could cost Texas $955.5 million in lost economic activity with 11,575 jobs lost.


Some Texas legislative discussions have included expanding the state sales-tax base to include professional services.  All services, including real estate services covered on the HUD-1 form, would be taxed under these proposals.  The National Assocation of Realtors studied the effects of expaniding sales-tax bases to include real estate services.  The report assumed a 6% sales tax and included the most common services associated with the purchase of residential property.  Based on the preliminary results, homebuyers would experience a $621 increase in the cost of buying a home.  Using the 6.25% sales-tax rate in Texas brings that increase to $775.  If the local option of 2% was added, the cost of purchasing a home would increase by $1,022.  According to the report, home sales in Texas would decline by 3% when real estate services are taxed at a rate of 6%.  In addition, the Real Estate Center at Texas A&M Univeristy concluded in a similar report that expanding the sales-tax base to include professional services would cause irreparable harm to the real estate industry and the Texas economy.  The Texas Association of Realtors opposes efforts to expand the state sales-tax base to include professional services.  Such an action may quickly increase revenue; however, the effect of a sales tax on real estate services is likely to hinder economic recovery.  In the past, a strong TREPAC has prevented a tax on services from becoming a reality in Texas.  But a state budget deficit is looming for 2011, and lawmakers will be looking for new sources of revenue.