Maryland Overreaching on Transfer Taxes?

[Megan Hughes]

I'm in the midst of recording several land title transfers for clients right now, and so recording fees and transfer taxes are on my mind.

I was surprised to read of the decision by Anne Arundel County in Maryland to apply extra transfer taxes on properties being sold where debt forgiveness applies. In other words, no matter what the property sells at, transfer taxes will be applied to the full value. In the example I was reading, a property with a $125,000 mortgage, that was sold for $100,000 (and had $25,000 of debt forgiven), was charged transfer taxes on the full $125,000.

Reaction has been swift and angry. The state's Attorney General's office has been asked to look at the issue and provide a legal opinion on whether Anne Arundel Co is acting within the scope of Maryland law. So far, no other states are willing to take the same position ... at least until the A-G releases their findings. But if the A-G finds in favor of the county, I can see this decision spreading, not only to other counties in Maryland, but to other states as well.

[Diane Kennedy]

Interesting note Megan.

I'm noticing that local governments are very reluctant to lower property values for property tax purposes, too.

[wayside]

We just got new tax bills on several of our rentals, and the assessed values (and the tax bills) were all significantly lower.

We had appealed the valuations and been turned down on all of them the year before. This year we got it without doing a thing.

[Diane Kennedy]

I wonder if that was a local anomaly or the whole state is doing that for you?

From the stories I've heard out of California and Arizona, the govt is not that cooperative.

[wayside]

Our property taxes are done on a town-by-town basis, and the state requires the towns to reassess to "market value" every year.

Of course, "market value" is often in the eye of the beholder, and most cities and towns have been reluctant to adjust valuations when most of the comps are foreclosures and short sales, where they can claim that the sales are "distressed" and don't represent actual market value.

At some point though, the distressed sales drive real sale prices, and the gov't is in a bind because they can't continue to claim every sale is distressed.

The way property taxes work here though is that the towns can adjust the tax rate to keep tax revenues level (or no more than a 2.5% increase). So even if your assessed value goes down you don't necessarily pay less in taxes unless you went down more than the average.