OCEAN CITY — While Ocean City wrestles with ways to encourage more year-round residents and make homeownership more affordable, a bill in the General Assembly that threatened to derail those efforts on the state level died in committee late Wednesday night.
On Monday, House Bill 1628, or the Sales and Use Tax-Rate Reduction and Services bill, had a hearing in front of the House Ways and Means Committee in Annapolis and the local, regional and state Realtor community was well-represented both inside and outside the committee chambers. The proposed legislation would, if approved, lower the state sales tax from 6% to 5%, but it would also expand taxes on many previously untaxed services in Maryland.
Primary among the services that could be taxed under the legislation is an additional tax on many real estate-related services. In addition, the proposed tax could be applied to a myriad of other services including, for example, but not limited to legal services, accounting and tax preparation services, insurance services and more.
Late Wednesday, the seven-member revenue subcommittee of the Ways and Means Committee – including five Democrats and two Republicans — voted to kill the bill. By Thursday morning, the Coastal Association of Realtors (Coastal) were celebrating.
“Thanks to the efforts of Realtors, business owners, residents and more who spoke up, House Bill 1628 died last night in committee,” the brief statement reads. “We anticipate additional efforts to increase taxes for the purpose of funding Kirwan Commission recommendations, but this bill in particular is no longer a threat to Maryland homeownership.”
The intent of the legislation was to provide a funding source for the ambitious recommendations from the Kirwan Commission. The commission’s recommendations include funneling an additional $4 billion into public education in Maryland annually and creating a tax structure on many services provided in the state would help meet those lofty goals.
For example, the bill would have generated an additional estimated $2.9 billion per year, according to the state’s Department of Legislative Services. However, much of that revenue would be borne on the backs of the state’s real estate industry. To that end, Realtors from all over the state crowded into the committee hearing on Monday and hundreds more rallied outside the state house in a show of solidarity. Inside committee chambers, Maryland Realtors President Joseph Harrison said the unintended consequence of the proposed legislation would be an increased strain on homeownership for many first-time buyers.
“This will hurt working families the hardest,” Harrison said. “It’s unclear who will pay this tax. Will it be the seller? Will it be negotiated as part of the contract? Will it be the buyer? Either way, this tax will be tough on sellers and buyers.”
According to a study commissioned by Maryland Realtors, the industry already contributed $9.4 billion annually to the state’s economy. Harrison said the proposed tax on real estate services would burden those scrimping and saving to buy their first home by adding layers of additional taxes on the various services in the home buying and selling process.
Coastal President Joe Wilson said the local contingent was in strong support of its statewide brethren in opposition to the legislation.
“CAR went to Annapolis this week to ensure the Realtor voice is loud and clear on this bill,” he said. “$9.4 billion is enough. Our association stands with Maryland Realtors in its opposition to this bill that reaches into the pockets of every single Marylander, especially our members and their clients.”
Back inside the state house, Delegate Wayne Hartman (R-38C), who represents Ocean City and Worcester County and serves on the Ways and Means Committee, questioned the bill’s sponsors if the impact on the cost of a home had been considered.
“We heard mention of the cost of a new home,” he said. “I want to take that a step further and try to figure out how you’re going to offset the cost of ownership overall if that new home comes in $10,000 higher because of this tax, for example.”
Ironically, that rather nebulous $10,000 figure Hartman mentioned is around the same amount resort officials are trying to reduce from the cost of a new home in Ocean City. Hartman said the tax on real estate commissions would just be the tip of the iceberg.
“We’ve heard discussions about the tax on commissions, for example,” he said. “If you look at the typical settlement table, you have fees for the surveyor, fees for termite inspection, real estate commissions, you have a title fee, you have other legal fees, the appraisal and the home inspection. All of those are services and they would be taxed under this proposal. Have you calculated the increased cost of homeownership from this bill?”