Final Report: Private Transfer Tax Task ForceOctober 5, 2006The Task Force was appointed in July, 2006, with the following charge: Mission Statement:
Become familiar with how various forms of private transfer taxes (PTTs) operate. Generally, PTTs are fees imposed on sellers and/or buyers by way of a deed restriction requiring the payment of a fee based on some percentage of the purchase price each time the home transfers.
Determine what, if any, problems PTTs present for REALTORS® in their role as agents for sellers and buyers.
Make recommendations as to what, if any, actions (legislative or otherwise) C.A.R. should take with regard to PTTs and report to the C.A.R. Board of Directors at their October Board meeting.
Members:Lawrence Fargher, Chair Ilse Cordoni Greg Galli Stephen Hanleigh Brian Holloway James Irving Peter Morris Leslie Munger Frank Nelson Dianne RathMeetings:August 2, Burbank September 6, Oakland October 4, SacramentoStatus/Summary. “Private” transfer “taxes” (PTTs) are increasingly being used tosettle disputes between environmentalists and builders or, in the alternative, by builders to proactively avoid a lawsuit by environmentalists or to smooth development negotiations with the local government. Typically, in return for anagreement by the environmental group to not pursue a lawsuit based on one of the state’s environmental protection acts, the builder agrees to the imposition of one or more PTTs through a covenant included in the CC&Rs. ThesePTTs have totaled as much as 1.75 percent of the purchase price of a home and is paid by every buyer of a home in the development for 20 to 25 years or, even, in perpetuity. The monies generated by a PTT can be used for everything fromenvironmental mitigation to the development of affordable housing. Some believe that PTTs usurp functions that properly belong to local government and, as a result, that the imposition of PTTs should be limited, prohibited or, at a minimum, that the existence of a PTT should be explicitly disclosed to potential home buyers.Problems.The task force concluded that PTTs present the following problems:
A PTT can be imposed by a developer for an excessive number of years. Generally, the minimum length of time that PTTs are currently being imposed ranges from 20 to 25 years; however, many are imposed in perpetuity.
The cost of a PTT can be prohibitively expensive for home owners and buyers. PTTs of up to 1.75 percent of a home’s sales price have been seen; however, there is no upper limit on the percentage of a home’s sales price at which a PTT can be set.
PTTs can be levied on individuals who already have to stretch financially to buy a home. PTTs imposed on affordable housing only serves to make that housing lessaffordable.
The requirements for disclosing the existence of a PTT are limited at best. In addition, the PTT requirement can be masked by the developer by not having it apply to the first buyer but having it, instead, apply only to subsequent buyers.
There is no guarantee that PTTs will be imposed only on what are generally considered legal transfers of title; determining which transfers are exempt from a PTT is the exclusive province of the developer. For example, placing a home into a trust or a transfer between a parent and his or her child could theoretically trigger the requirement to pay a PTT.
There is no limit to the number of PTTs a developer can impose. Multiple PTTs have been imposed by developers on each home in a development with each PTT funding a different purported benefit.
The funds generated by a PTT can be used to pay for projects that do not directly benefit the development or the immediately surrounding community. Individuals living in a development in which a PTT has been imposed may be shouldering a disproportionate burden in that they are paying for things that, in many instances, benefit the general public.
The nonprofit organizations that receive PTT funds are not required to accountto any independent oversight entity and, as a result, there are no assurances that these organizations will work to achieve the goals with which they have been entrusted.
The nonprofit organizations that receive PTT funds are not required to limit their administrative costs to those that are reasonable and necessary. As a result, funds intended to pay for specific projects may, instead, end up as salary increases for nonprofit administrators.
The developers that impose PTTs are not required to coordinate the project benefits for which PTT funds are generated with the general plan of the local city and, as a result, those supposed benefits may be at odds with those in a city’s general plan. For example, land which a city is planning to develop for housing might instead be preserved as open space by the nonprofit receiving PTT funds.
Possible Solutions. The task force considered the following possible solutions:
Legal action challenging the legality of PTTs.
Legislation imposing restrictions ordisclosure requirements on PTTs that would, to an extent, address each of the problems posed by PTTs identified by the Task Force.
Legislation prohibiting the imposition of a PTT.
Evaluating Solutions.The task force used the following principal to evaluate possible solutions:A proposed course of action should be taken only if it will advance REALTOR® and consumer interests, and is the alternative that mostcompletely addresses the problems that have been identified.Recommendations. The task force made the following recommendations:
C.A.R. should sponsor legislation to prohibit the imposition of any PTTs.
C.A.R.’s Legislative Committee should determine in January 2007 whether legislation is needed in connection with the disclosure of existing PTTs to avoid real estatelicensee liability associated with that disclosure.
C.A.R.’s Standard Forms Committee should determine whether a separate form is needed that would be provided by sellers to buyers at the time a home islisted (or, if not listed, at the same time at which the Transfer Disclosure Statement is required to be provided) disclosing to the buyer the existence, cost and duration of any PTTs. In addition, the Standard Forms Committee should determine if information relating to PTTs should be included in the statewide advisory and/or in the buyer advisory.