STEVE RYAN
Proposal ‘inequitable’

Facing anew a battle it has fought several times over the last few years, the real estate industry is challenging a town’s plan to charge buyers a transfer tax when they purchase a home.

Under a proposal in Winchester, buyers purchasing a home in the community would have to pay a 2 percent sales tax. In Winchester, where the median price of single-family homes sold last year was $569,950, that could amount to as much as $11,399 that a consumer would have to pay upfront in order to purchase a typical home.

Winchester voters passed a warrant article – a home rule petition that needs the approval of the state Legislature – at Town Meeting in May. Supporters say the tax measure will help pump more money into town coffers to pay for schools and other services as Winchester struggles with a mounting budget deficit.

But opponents argue that the proposed tax, which if approved by the state Legislature still needs to go before Winchester voters in the form of a ballot question, is unfair. Any new tax should be applied to all residents, not just homebuyers, according to detractors of the measure, which includes the Massachusetts Association of Realtors.

“Singling out a small population to pay for benefits that are enjoyed by all is inequitable,” said Steve Ryan, general counsel for MAR.

Testifying at a public hearing of the Joint Committee on Taxation last Tuesday, Ryan presented several newspaper editorials that have been written over the last several years in opposition to real estate transfer tax proposals.

Critics say this is the worst time to implement a transfer tax because people are already struggling to afford housing. “The barriers to homeownership have never been higher,” said Ryan.

Winchester School Committee Chairman Peter J. Haley said the measure is similar to legislation that already exists in Martha’s Vineyard and Nantucket. Buyers purchasing a home on the two islands must pay a tax, which is collected and put into a land bank that is used to purchase and preserve open space.

Haley said the tax would help generate money for Winchester, which faced a budget deficit of more than $1 million this year and is expected to face a $2.7 million deficit during the next fiscal year. The deficit has forced the town to cut foreign language instruction for some grades and to impose new fees on students who participate in music, sports and other programs.

“The education of our children is a burden, but it is a burden we should and must shoulder,” said Haley.

Some residents, however, maintain that tax overrides, which apply to all residents, are meant to pay for such town expenses.

“I really feel that Proposition 2½ overrides take care of matters like this,” said Helen Babcock, a longtime Winchester resident and local Realtor. “It’s [the proposal] based on fundamentally flawed tax policy,” she said.

‘Island’ Creation

Real estate transfer taxes have been unsuccessfully pitched by several other communities, including Westford and Haverhill. Four years ago, the real estate industry successfully fought efforts to include a real estate transfer tax provision in the Community Preservation Act. The Community Preservation Act, which was passed in 2000, allows communities to impose up to a 3 percent property tax surcharge on all property owners to pay for affordable housing, open space and historic preservation projects.

In Winchester, Realtors like Babcock say the transfer tax would hurt property values and discourage people from purchasing a home in town. The tax ultimately would hurt sellers, according to Babcock, because buyers who are unable to shoulder the extra expense of the tax would force sellers to factor the tax into the selling price.

But Haley said a transfer tax “won’t affect it [values] differently than increases in property taxes.” Most homebuyers have to figure in property taxes when they’re purchasing a house, he explained. “It’s easier to plan for a fixed amount,” said Haley.

Some 288 homes were sold in Winchester last year, 124 of which were sold at $400,000 or lower. Of the 124 homes that were sold for under $400,000, 83 percent were purchased with mortgage loans, according to Marion C. Crandall, a resident and Realtor with Carlson GMAC Real Estate in Winchester. One-third of those mortgage loans were for 90 percent or more of the purchase price, she said.

“Those people don’t have an extra $8,000 to put down,” said Crandall.

Crandall, who has been a town meeting member for 25 years, said she has never been as “outraged” as she was when this tax issue was discussed. Crandall said she wasn’t given an opportunity to talk at the Town Meeting because the moderator restricted discussion to an amendment that had been proposed by the finance committee. The amendment, to have the transfer tax collections go for one-time expenses only instead of having the money go to general municipal expenses, was rejected.

“The public never had a chance to hear a full debate on the merits of the proposal,” said Crandall.

Melanie Eleftherio, who along with her husband Peter buys and restores old homes in Winchester, said the transfer tax would be a “disaster.”

Eleftherio said the proponents make it sound like the transfer tax is only going to affect newcomers to Winchester, but in reality it will affect dozens of residents who choose to sell their homes and buy another one in town.

“It’s going to affect home values,” said Eleftherio. “It’s going to have a much greater impact than that 2 percent [tax].”

About 16 percent of the homes sold in Winchester last year were purchased by people already living in town, according to Crandall.

Some real estate industry leaders fear that if Winchester is successful in its efforts, other towns and cities will attempt to pass their own transfer taxes.

MAR’s Ryan said whether it’s one community or a dozen that pass a real estate transfer tax, “the principles that make it a bad policy are the same.”

For Babcock, the tax policy is “regressive” and “irresponsible.” Babcock said the tax would make Winchester an elitist community because it would be charging and “entrance and exit fee” to anyone wishing to buy a new home.

“We would make Winchester an island. That’s not what we’re about,” said Babcock.