April 5, 1999
PROS AND CONS OF ALLOWING TOWNS TO LEVY A REAL ESTATE CONVEYANCE TAX TO ACQUIRE AND PRESERVE OPEN SPACES
By: John Rappa, Principal Analyst
You wanted to know the pros and cons of allowing towns to levy a real estate conveyance tax to acquire and preserve open spaces.
STATE REAL ESTATE CONVEYANCE TAX
Currently, people selling real property pay a conveyance tax to the state based on the type of property and the consideration, which includes the purchase price and the value of any goods and services the buyer received. The tax applies to the legal documents conveying ownership. Since these documents are recorded with town clerks, the towns collect and remit the tax to the state. Towns receive .0011% of the consideration, which becomes part of their general revenue. (Attachment 1 compares Connecticut's tax with that of several other states.)
The legislature is considering at least two bills that would allow towns to impose a local conveyance tax on top of the .0011% they already keep from the state tax. HB 1223, which is before the Finance, Revenue and Bonding Committee, allows towns to levy a tax of up to 0.005% of the consideration (Attachment 2). Towns can use the tax revenue only to acquire open spaces. The committee heard the bill on March 19th.
The Planning and Development Committee favorably reported sHB 6810 to the Finance Committee on March 31st (Attachment 3). That bill allows towns to levy a tax of up to .0025%, but limits the amount of revenue some towns can use to acquire open spaces. Towns that are exempted from the affordable housing land use appeals procedure can use all of the revenue for open space, while the others must split the revenue between open space and community economic development.
PROS AND CONS
Selectmen, town and regional planners, and environmental advocates generally supported sHB 6810 at the Planning and Development Committee hearing on the bill and offered the following arguments.
1. A local conveyance tax provides a dedicated funding source for acquiring open spaces. Now, towns must compete against each other for state open space grants or increase property taxes to purchase open spaces.
2. Towns can impose the tax at their own discretion. And neither bill prevents them from tapping other sources
3. Levying a local tax would impose no additional administrative burden on the towns since they already collect the state's conveyance tax.
4. The tax would help towns cope with development pressure by generating the revenue needed to acquire and preserve land that would otherwise be developed.
Developers and realtors generally opposed the bill for the following reasons.
1. The tax requires a small group of people (sellers) to pay for open spaces, which benefit everyone in the town.
2. The tax drives up housing costs, which could undermine efforts to attract new businesses and jobs to the state.
3. Towns already receive .0011% of the consideration for collecting the state tax.
4. The state has already authorized $160 million in bonds toward acquiring open spaces.