A single constitutional amendment faces voters on the Nov. 19 ballot, a little outlier that a Legislature with a wiser sense of timing should have bundled with the five other amendments decided upon in October’s primary election.
The pending amendment is a ban on new real estate transfer taxes, which almost do not exist in Louisiana.
The taxes, which typically are tacked onto closing costs when properties are transferred from sellers to buyers, are reasonably common in other states.
Only New Orleans gets a small amount of revenue from its version of this tax, about $3.6 million in 2010.
The amendment does not interfere with the existing tax, although New Orleans would not be able to raise its “documentary transaction tax” in the future.
In Livingston Parish, a version of this tax was proposed several years ago, $300 per transaction.
But local government backed off the idea because the Legislature had not specifically authorized the tax to be collected, so there was a legal question — never really settled finally —about whether legislative requirement is necessary.
So today, there are significant political barriers to levying such a tax, even in parishes or cities that have home-rule charters, without the need for cluttering the constitution with further amendments.
Why ban a tax that does not exist? That’s a great question, and real estate interests promoting this amendment don’t have entirely great answers.
After all, none of us likes paying taxes. Why not ban them all? Skeptical voters might well ask why they should pay sales taxes on buying things, but this particular real estate tax should be forbidden.
One answer: As a relatively small revenue producer, this kind of tax is unlikely to be a major source of tax dollars for local services. In richer states, it’s been overused.
When the financial markets collapsed in 2008, the states or cities used to rich rewards from such taxes found themselves suddenly short of revenue. Any tax, of course, can be overused, but a volatile source of revenue should not be preferred over more stable taxes, such as property millages that do not vary so much from year to year.
We understand that local government in Louisiana already is hobbled by other prohibitions in the state constitution from levying different types of taxes that, like this one, are much more common in other parts of the country. The more local government is restricted, the more our public officials are dependent on the State Capitol.
In its guide to the constitutional amendments, the Public Affairs Research Council noted this drawback: “The amendment further increases local authorities’ dependence on state government.”
While true, as this is not a big revenue-raiser, we do not see this amendment as a major shift in the balance of taxing power.
The best argument promoters of this amendment have is that, in a poor state, the relatively small additional up-front cost might be enough to be a real barrier to home purchases. With real estate still suffering from the consequences of the recession, this amendment has a natural selling point.
We do not believe this amendment should be oversold as a huge tax cut or as a huge incentive for home ownership.
Closing costs already are substantial, with existing fees — such as recording fees for clerks of court. Those fees would not be affected by this amendment, nor would “impact fees” on developments to pay for roads, drainage or other needed infrastructure. Only this specific tax is to be affected, boosters argue.
The amendment is a modest step that might give a small boost to home sales. In commercial transactions, it would be another cost that would be passed on to consumers.
We urge voters to approve the amendment, even if it does reflect the “write it into the constitution” way of doing business that has become too common in the State Capitol. Sooner or later, comprehensive tax reform will have to revisit all these provisions, constitutional or not.