THE BUZZ: Luxury Levy

By on July 5, 2016

How a tax on second homeowners would help the housing crisis.

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JACKSON HOLE, WY – With a sales tax hike looming in the near future in order to establish a funding source for affordable housing and transportation, some elected officials are still murmuring about an alternate tax—one that in previous decades has been a nonstarter every time it’s been mentioned. But the day may be dawning when it’s OK to start talking about a real estate transfer tax as a levy that better targets Jackson Hole’s “1 percent.”

Commissioner Paul Vogelheim floated the idea at the housing summit back in May 2015 and has been bringing it up intermittently ever since. He thinks a real estate transfer tax, or RETT, may be a good local option for authorities looking for ways to tackle housing issues. A recently established Community Priorities Fund currently sits empty with a zero balance—its financial future solely dependent on a general sales tax increase that current polling shows is about a 50-50 gamble at the polls this November when voters decide its fate.

“As a Republican who is supposed to be against taxes, I look at this an alternative, especially in light of the pending effort to increase sales tax that is brewing,” Vogelheim said. “It’s done effectively in many other states where it is crafted in such a way that it better targets second homeowners and keeps locals exempt from a property tax increase. Second homeowners here are not paying much in sales taxes and other fees, but they expect a full boat of services.”

Changing culture in Cheyenne

Taxing the rich to pay for the poor has never been an easy sell in Wyoming. In fact, it’s against the law in the Equality State. But a tariff on real estate transactions in Teton County makes good sense to some in light of falling state revenues and a local real estate market that appears impervious to outside economic influences, or at least resilient in its recovery from dips. If crafted to apply to only mega deals that mostly involve second homeowners, or those acquiring real estate simply as a portfolio asset and not somewhere to call home, the levy could ding those primarily responsible for the valley’s lack of housing options.

So who could be against taxing fat cats for the 43 percent of chic chateaus and McMansions that sit empty for most of the year?

“Real estate agents hate it,” said former House rep Keith Gingery, “and the only ‘anti’ is the rest of the state.”

To become an arrow in the county’s quiver state statute would have to be changed, and it’s been virtually impossible to find even a sympathetic ear in Cheyenne for the past few decades when a form of RETT has been attempted. Bills have been repeatedly defeated in legislation, including a 2005 bill that died in committee, and another more recent attempt that actually passed the House but was stalled in the Senate.

Rep. Andy Schwartz-D says he’s talked to the chair of the House Revenue Committee about a bill next session.

“It’s another form of revenue at a time when the state really needs to explore a whole spectrum of revenue streams,” Schwartz said. “I’m not so sure I would sponsor it. Committee bills historically have a much higher chance of passing. It would be foolhardy not to consider it. But I’m a little dubious about its potential to pass. The real estate lobby is pretty strong.”

Locally, few realtors have had an appetite for RETT discussions. The Teton Board of Realtors has actively fought the tax over the years. Local agent Brett McPeak led an unsuccessful effort to ban such a luxury tax on property sales in 2010. Whenever a “mansion tax” comes up at the state capitol, it’s the Wyoming Association of Realtors (WAR) that slams the door. But David Hardie, a longtime commercial realtor in Jackson Hole and co-chair of the Conservation Alliance, has been working behind the scenes to pave the way for another attempt at changing state statute to allow for some counties and municipalities to use a RETT.

“I have been working on this for six months, trying to come up with clear and coherent reasoning to diffuse the argument before it gets started,” Hardie said. Locals aren’t so bad, some are opposed; Wyoming Association of Realtors definitely is. If I can switch them from opposed to at least neutral then I think the timing is right because we are being hurt by a significant decrease in revenues in a cyclical bust phase of oil, gas and coal, and Cheyenne has not planned ahead.”

Hardie says the obstacles are many, including a negative view of any tax in the fiscally conservative state run mainly by Republicans. And then there is the powerful lobbyist, WAR.

“All their points can be met,” Hardie said, assuredly. “They call it a discriminatory tax targeted at one type of property owner. Yes, well, isn’t that the whole point of it? These high-end property owners say they move around frequently and therefore don’t use local services. They say a tax like this is an unfair levy that would suffocate the market and reduce the likelihood of new homeowners buying a home because they can’t afford to pay it.”

Hardie points to other states where a RETT of some form is used. Only 13 states do not have a tax on property sales—they include states like Alaska, Idaho, Oregon, Texas, Utah, Montana, and Wyoming.

Proponents of a RETT often use Vail, Colo., as an example of a resort town similar to Jackson where the jet set was squeezing out the proletariat for housing. Lavish resorts like Vail and Aspen now have a RETT in place, using the revenue to preserve open space and build affordable housing. Town administrator Bob McLaurin was serving as Vail’s manager when voters rejected a RETT 101-69 in 1978. But the town council instituted it anyway the following year behind an effort led by mayor Rod Slifer.

Hardie said the institution of the tax did not slow down the real estate market one bit. Slifer, who heads the largest real estate company in the state of Colorado, admitted the same, saying the tax impacted the industry for “about 30 seconds.”

“If you are spending 5 million on a house, 50 thousand is not going to make or break that transaction. And these are the people who tend to put more of a burden on the community with landscaping crews, caretakers, housekeepers and certain social services.”

Councilman Jim Stanford is the only other local elected who’s given the idea of a RETT serious thought. He thinks the argument that luxury homebuyers would be hurt by a tax on property transfers doesn’t hold water.

“You look in the paper and there are ads for two different private jet companies, for instance. Some people are just burning money in the high-end real estate market here. That argument doesn’t hold any muster,” Stanford said.

How it would work

A law pertaining only to Teton County would never fly in Cheyenne. But by building in thresholds and trigger points, statute could be created that would apply to only counties like Teton and a few others where the real estate industry is a significant driver. Previous incarnations of a bill have set the bar at one million dollars, where any home sold over that amount would be subject to a one percent tax on the transaction. Total home sales in a county could also be a trigger point where a RETT would kick in. Teton County did $808 million in total sales in 2014. Last year the overall dollar amount was $1.095 billion.

Schwartz says, while that’s a lot of money to leave sitting on the table, it can get carved up to a degree that it no longer looks attractive to the state as a revenue source.

“How do you make the state think it’s worthwhile? You have to give them a cut. That would make it much easier to pass,” Schwartz said. “You look at it and figure how much revenue will it generate? If sales in Teton County are one billion a year, and the tax is one percent for deals over one, or one and a half million, and the state gets, say, 15 percent of that—all of the sudden the amount of revenue may be attractive for individual counties, but for the state it’s chump change.”

Vogelheim thinks the timing is right, though, and state leaders might be open to a RETT if it’s crafted to apply to counties that could best utilize it, and it impacts only those who can most afford it. “Timing is everything at the state level. Look at when we tried the lodging tax,” he said. “And it would have to be crafted in such a way to exempt large ranches, for example.”

Schwartz agreed, “Yes, it’s bad enough having the real estate industry fighting you, you don’t want the ag industry in this state against you,” he said. “Compared to a state income tax, increasing property taxes, or removing the sales tax exemption on food, I think there is some enthusiasm here as I’ve been talking to people this summer.”

Hardie says it’s a better option than talking about an income tax or a real estate tax “where you are clobbering the people that are already here. Who you should really be looking to as a source is the transactions and people that are creating the additional demand as newcomers as opposed to people that have been in their home for 30 years and are paying higher and higher taxes.”

Another roadblock

Maybe the biggest obstacle a change to state law would face is the fact that Teton County is viewed by the rest of the state as a prosperous county that hardly needs a handout when it comes to revenue. The county and town subsist mainly on taxing at the cash register.

“Our primary revenue source is sales tax. But that’s sort of like the state putting all their eggs in the energy extraction industry,” Gingery pointed out. Property taxes are kept to a minimum in the county and non-existent in town. “Property taxes are divvied into mills. The county does not use all of their maximum 12 mills, only 9. The town has up to 8 mills and it currently levies none.”

So if Jackson Hole isn’t willing to tax themselves to the fullest extent, they shouldn’t be crawling to Cheyenne with a plan for a new tax, is what many state leaders think.

“You look around the state and there is no county that does all of their mills and all of their sales tax,” Schwartz said. “In Teton County, we’ve been a six-cent [sales tax] county, and I can’t think of another county that’s been there that long. We could go to seven. Between sales tax and property tax, there is not a county in the state that is maximizing their revenue streams.”

But Hardie claims the issue is more about wresting control from the state and putting more power into the hands of local government.

“The irony in Cheyenne is all these politicians down there like to say they reject as much involvement from the federal government as possible—opposing affordable health care for example,” Hardie said. “But in a situation like this they are refusing to allow a local entity to decide for itself whether to implement a tax or not. It could be a classic example of devolving authority to local authorities, and for Cheyenne to deny that is total hypocrisy.”

The Wyoming Association of Municipalities’ legislative committee, which generally supports giving cities and towns more revenue-raising options, may consider a bill in the upcoming 2017 Legislative Session.

“I hope the legislature will give it another look. We’ve lost out on the revenue over the last 10 to 20 years. It makes sense for our county and certainly for other counties, and it makes up for cuts in state funding,” Stanford said. “I wish Paul [Vogelheim] the best as he tries to sway many of his Republican colleagues to consider this. I don’t know that my advocacy will necessarily help but I’m happy to help when the time comes.” PJH

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