Q&A – A Property Transfer Tax, As Opposed to Property Taxes
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Today’s entry: Has there been a study done to convert the property tax to a simple sales tax at your buying transaction for the house? That would be a solid middle for the people who do not want property taxes to go away. The school taxes, sanitary taxes, and water management taxes could be switched to fees that way if those were not paid, it doesn’t go against your house. It goes against you as an individual.
Bottom Line: There aren’t many angles of the property tax conversation and debate that we haven’t discussed on this show, however this is one of them...until now. You raise a great question with excellent points worthy of discussing. In answer to your question, yes – we do have studies we can lean on for this. The best kind of studies actually...countries/territories where this exists.
While all 50 states and U.S. territories impose property taxes, there are 11 examples worldwide where no annual property taxes are imposed (including the largest in the world). These countries don’t impose properties taxes...
- Bahrain
- Cayman Islands
- China
- Dominica
- Malta
- Mauritius
- Monaco
- Oman
- Turks and Caicos
- United Arab Emirates
- Vanuatu
Those countries represent over 17% of the world's population, providing a large sample size to be able to draw examples from. Policies do vary between these countries, for example some don’t apply any property taxes, some apply them only to commercial property, etc. What they have in common is that all of these countries do not impose an annual property tax for a primary residence. Instead, what is commonly charged is an example of what you’ve suggested. What’s commonly known as a transfer tax, deed tax, or “stamp duty”.
The rate of the one-time taxes paid at the point-of-purchasing property ranges from a low of 1.2% in China to 8% in the Turks & Caicos – with a median rate of 5% among these countries. To further put this into perspective in the context of, say attempting to eliminate Florida’s property tax system with a similar model, Florida’s average imposed residential property tax rate, factoring in current homesteaded exemptions, is about 0.8% annually. In other words, the tax collected at the point-of-sale by these governments' equals six and a quarter year’s worth of taxes.
Aside from the false premise of imposed property taxes, whereby you never actually own your property but rather are forced to rent it from taxing authorities, I’m rather certain that most Floridians would jump at the chance to pay the equivalent of just over six years' worth of property taxes as part of a purchase (that could obviously be financed as part of a mortgage or loan as needed), if it were to mean they’d never have property tax liability from that point forward.
There are lots of varied ways we could discuss how that could and would work, like for example, the collected taxes being invested/annuitized by the taxing authorities providing regular income that could be used to pay for services without necessarily needing to charge additionally fees to cover the expenses. The common theme with the topic of property taxation isn’t whether a functioning society can eliminate property taxes; it’s doable. It’s about having the political will to do it in the face of taxing bureaucracies that are satisfied with the status quo and that have no problem with a historic injustice which includes literally taxing people out of their homes.