Who Pays Transfer Taxes in Real Estate Sales?
According to the Federation of Tax Administrators, transfer tax is a state tax levied on the sale or transfer of property located within the state. The transfer tax also goes by the names "deed recordation tax" and "stamp tax," the latter because in some parts of the country there is or was a practice of attaching stamps to the deed as proof of payment. Because it is a state-authorized tax, rules vary from state to state regarding both the tax rate and who is responsible for paying the tax.
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State Tax
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Thirty-five states and the District of Columbia prescribe a real estate transfer tax. Formulas vary but generally relate to the value of the property being transferred. A 2004 survey by the Federation of Tax Administrators demonstrates a range from a low of .01 percent of property value or property cost in Colorado to a high of 2.2 percent in the District of Columbia. Some states, like New Jersey and New York, have higher tax rates for properties over $1,000,000. Some states specify that the tax rate applies to the property value, as determined by the county tax assessor. Others specify it is based upon the actual cost the buyer pays for the property, which may be different. The Trust for Public Land points out that in some states the buyer or party to which the property is being transferred pays the transfer tax; in others, it is the seller or party transferring the property. In still others, the party taxed is not specified.
Local Tax
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Some states, such as Louisiana, do not tax directly but allow cities and counties the authority to levy transfer tax -- some communities choose to impose the tax and others don't. Some states impose a state tax and also allow local governments to impose an additional transfer tax. In Pennsylvania, there is an overall cap of 4 percent on the combination of state tax, which is 1 percent, and local tax.
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Exemptions
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Exemptions to the property transfer tax are spelled out in the state's transfer tax law. In New Hampshire, for instance, according to the New Hampshire Department of Revenue Administration, transfers pursuant to a divorce decree are exempt, as are transfers occurring as a result of death and inheritance.
Negotiable
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In cases in which state law does not specify who pays the transfer tax, the party is identified during the real estate sales process and is subject to negotiation. Even in cases in which state law specifies which party pays the tax, the value of the tax can be credited through the sales negotiation process from the non-obligated party to the obligated party.
Purpose
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Transfer taxes yield significant income to state and local governments. According to the Federation of Tax Administrators, in 2004, transfer taxes accounted for almost $2 billion in revenue in the state of Florida. Each state determines how the income is used. According to the Trust for Public Land, some states direct the money to the state's general fund; others allow it to remain in the county in which it was collected. Some states, such as Maryland and Florida, apportion some of the proceeds to programs for natural resource protection.
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References
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