Climbing to the roof of a downtown Baltimore restaurant with a view of the city's skyline and inner-city neighborhoods, Gov. Martin O'Malley vowed yesterday to close corporate "loopholes" that he said allow large companies to avoid paying millions of dollars in state and local taxes each year.
"Businesses that benefit from our state's services must be willing to invest in those services with their tax dollars, so that everyone is paying their fair share," O'Malley said.
The Democratic governor said the state should close a "glaring loophole" that allows large corporations to avoid real estate recordation and transfer taxes - a levy typically equal to 2 percent of sale prices.
O'Malley climbed a ladder from the upper story of Gardel's restaurant to the roof, where he pointed to the Alex. Brown office building, which was sold last year but, because of the loophole, was not subject to transfer taxes. Philadelphia-based Resource America Inc. sold the 30-story tower last year for $120 million and avoided paying $2.4 million in city and state transfer and recordation fees.
"You know what it paid in transfer tax?" O'Malley said. "Not a single dime. If one of these houses around us had sold for $200,000, that homeowner would have paid $4,000 in the local transfer taxes. ... That's not fair, and that's not right."
Yesterday's news conference was the third this week that the governor has held to roll out more details of his blueprint to close a projected $1.7 billion shortfall in the state general fund budget that begins July 1 next year.
O'Malley has outlined plans to make the state income tax more progressive, increase the sales tax rate from 5 percent to 6 percent and extend it to more services and to reduce the state property tax rate by 3 cents per $100 of assessed value over three years.
Business groups and Republican legislators rapped the governor's business tax proposals yesterday, saying that they would make Maryland less competitive in attracting and keeping jobs.
"It's totally irresponsible for the state to go off on these spending splurges and expect the public to accept it," said Senate Minority Leader David R. Brinkley, a Frederick County Republican.
Some corporations avoid paying transfer taxes by making their real estate part of a limited liability corporation. When the time comes to sell the building, they sell the LLC instead, thus avoiding the 0.5 percent levy that the state charges on property sales. Seventeen counties and Baltimore City levy a transfer tax on real property transactions, with the city and Baltimore County imposing a 1.5 percent tax.
The General Assembly has considered bills several times in recent years to close that loophole, but they have never succeeded.
House Speaker Michael E. Busch, an Anne Arundel County Democrat, has made prohibiting that practice a priority, but Senate President Thomas V. Mike Miller, a Southern Maryland Democrat, has not previously supported it.
However, Miller said recently that he would shepherd such a bill through his chamber if it were part of a budget-balancing package that includes legalized slot machine gambling.
Groups, including the Maryland Chamber of Commerce, Maryland State Builders Association, and Maryland Association of Realtors, have opposed bills closing the loophole.
"It would make Maryland commercial real property less attractive as a business investment, and the bill has been in 12 times since 1990 and defeated 12 times because it is not a good tax policy," said Ronald W. Wineholt, the in-house lobbyist for the Maryland Chamber of Commerce.
Closing the loophole would be worth about $14 million a year for the state, making it a relatively small part of O'Malley's efforts to balance the budget. Most of the money generated by the tax would go to local governments, about $50 million a year.
But the measure could be politically important for O'Malley for two reasons: Not only does it contribute to the governor's effort to pitch his fiscal package as a plan to make state taxes fairer, but it also could help ease the pain of local leaders who could see their finances hurt by the state's budget-balancing.
O'Malley has said that he hopes to avoid making cuts in state aid to local governments - money that helps support schools, public safety and other popular programs but that has often been subject to reductions in tough fiscal times. But Miller, Busch and others have said local governments will have to feel some of the pain. Giving local governments new revenue from the transfer tax could ease that burden.
Anne Arundel County Executive John R. Leopold, a Republican, said support for closing the corporate tax loopholes crosses party lines. He said closing the transfer tax loophole in particular would mean millions for Anne Arundel County that could prove crucial in its ability to maintain public services.
"My concern, of course, is that part of the budget-reduction package will ultimately include reductions in state aid to counties," Leopold said. "Any monies we can secure to counterbalance those cuts are welcome."
Loophole and tax law
Gov. Martin O'Malley called yesterday for closing corporate loopholes in his third event this week on his revenue-raising plan. Highlights include:
• Closing a "loophole" - referred to as "controlling interest" - that enables some corporations to avoid recordation and transfer taxes by making their real estate part of a limited liability company. When they sell the LLC, they can avoid the 0.5 percent levy that the state charges on property sales, and additional levies that 17 counties and Baltimore City charge. Because a deed never changes hands, the transfer tax is not triggered. The O'Malley administration says the change could bring the state an additional $14 million per year, with about $50 million flowing to local governments.
• Enacting a tax law - referred to as "combined reporting" - designed to prevent large companies operating in Maryland from hiding profits in other states. Wal-Mart and other large companies have used real estate investment trusts to shift profits to states with low or no corporate taxes. If Maryland approves "combined reporting," the state would receive an additional $25 million. (by James Drew, Baltimore Sun)
Tuesday, October 30, 2007
MD Officials Try To Slow Foreclosures
Maryland officials are trying to slow foreclosures. The Secretary of Licensing and Regulation suggested Tuesday that lawmakers could extend the period between a borrower's default and the legal start of foreclosure actions. That period is currently 15-days, a Governor's Task Force says it should be at least 90.
About 7000 residents lost their homes in this year's third quarter, compared to less than 1600 in the first quarter. (By Katherine Amenta, WMDT)
About 7000 residents lost their homes in this year's third quarter, compared to less than 1600 in the first quarter. (By Katherine Amenta, WMDT)
Friday, October 26, 2007
Increase in sales tax is a bad deal for renters
Gov. Martin O’Malley, as part of his budget proposal, recently proposed that Maryland sales and use taxes would increased to 6 percent and applied to property management services. That means renters in apartments who use property management services will pay that tax through higher rents.
Homeowners and condo owners should take note. Many homeowner associations and condo boards are managed by professional management companies, and will also pay a 6 percent tax on top of their management fees. Those taxes will ultimately be paid by the property owners in higher HOA and condo assessments. This tax is bad enough when considering its impact on renters, but it will hit homeowners too.
This proposal is inconsistent with the governor's pledge to help working families. Maryland should work to help housing affordability not make it worse.
Small business takes it on the chin from this tax too!
Any small business renting space from a building owner using a property management service will ultimately pay this tax as it is passed down to them though higher rents. The property management tax is a bad deal for small business as well as homeowners and renters.
(Terry Fox, gazette.net)
Homeowners and condo owners should take note. Many homeowner associations and condo boards are managed by professional management companies, and will also pay a 6 percent tax on top of their management fees. Those taxes will ultimately be paid by the property owners in higher HOA and condo assessments. This tax is bad enough when considering its impact on renters, but it will hit homeowners too.
This proposal is inconsistent with the governor's pledge to help working families. Maryland should work to help housing affordability not make it worse.
Small business takes it on the chin from this tax too!
Any small business renting space from a building owner using a property management service will ultimately pay this tax as it is passed down to them though higher rents. The property management tax is a bad deal for small business as well as homeowners and renters.
(Terry Fox, gazette.net)
Tuesday, October 16, 2007
Area home sales plunge 30% from September 2006
Baltimore-area housing sales fell last month to the lowest level for a September in at least nine years, as the turmoil in the mortgage industry hit the slumping market full force.
The number of homes sold - 1,975 - dropped nearly 30 percent from a year earlier, already well into the downturn, Metropolitan Regional Information Systems Inc. reported yesterday. It is the lowest sales figure for September since MRIS began tracking the area in 1998.
By comparison, buyers snapped up more than 4,000 homes in September 2005, the last hurrah of the housing boom.
Average home prices still eked out a gain last month, according to MRIS, which runs the local multiple-listing service. Prices in the metro area rose just under 2 percent, to about $315,000, with most jurisdictions seeing slight gains.
It took homes an average of 95 days to sell, a month longer than a year earlier. And the inventory of unsold homes, nearly 21,000, set a record.
Lender bankruptcies, a credit crunch and a jump in interest rates for jumbo mortgages in August continue to depress sales nationwide. Yesterday, the National Association of Realtors lowered its forecast of 2007 U.S. existing-home sales for the eighth month in a row. It now expects that the number of homes changing hands will be off about 11 percent from last year.
"I think the buyers are scared - they're afraid that if they buy today, that tomorrow [the price] is going to drop 15 percent," said George Brookhart, an agent with Long & Foster in Ellicott City.
Moody's Economy.com predicts that the local and national markets will not hit bottom until late next year, and its forecasts show values falling about 15 percent in the Baltimore area over those months. There are signs of backtracking now: Average prices dropped about 4 percent in Harford and Howard counties last month, the MRIS data showed.
Prices rose about 4 percent in Baltimore County, 3.6 percent in Anne Arundel, 2 percent in Carroll and half a percent in the city.
Economy.com says prices in the region would be down overall if they included the value of incentives that sellers now routinely give to buyers, such as thousands of dollars in closing-cost help.
High-priced Howard County was hardest hit last month, with the number of sales dropping by 34 percent. The average home there sold for about $418,000 - the point at which buyers would need a jumbo loan if they were financing the entire purchase. Harford, with an average price of $285,000, saw the smallest decline, but sales were down 22 percent.
Jada Krall, who is trying to sell a two-year-old colonial in Harford for $444,400, said she sees homes for sale everywhere she goes in the county. She counts 15 in her subdivision alone. To make hers stand out, she's offering a $7,500 incentive to be used toward closing costs or upgrade work.
"We've seen a few houses in the neighborhood sell," said Krall, whose family is relocating to Tampa, Fla. "We're just hoping ours is going to be next."
She can expect good deals in Florida, at least. Economy.com expects price declines of 20 percent to 30 percent in some of the once-hot housing markets there.
Celia Chen, director of housing economics at Economy.com, said recent tightening of credit is holding back demand nationally even as foreclosures increase supply. Borrowers with good credit can still get traditional mortgages, she said, but 40 percent of the loans issued last year were "subprime" and "nonprime" - from jumbo to interest-only.
"The lack of that kind of funding is going to have a big negative impact on housing this year," Chen said.
To avoid the higher rates of jumbo loans, city residents Bonita and Radames Rodriguez are opting for a regular mortgage plus an equity line of credit to purchase a $615,000 new home in Canton.
"I don't like the idea of having two separate loans, but it's better, much better, than the alternative," said Bonita Rodriguez.
The couple, who work in sales, will settle on that house this month and also complete the sale of the Bolton Hill rowhouse they've owned for eight years. They're selling it for $575,000, $74,000 less than the original asking price in April.
But they're buying their new home for $135,000 less than the builder's original price.
Bonita Rodriguez believes it was priced way too high to begin with. "I think we got a good deal, but I don't think we got a real bargain," she said.
Real estate agents say the days of setting prices based on past sales are over. Now, said Ron Howard with ReMax Sails in Baltimore, it's about the competition - other homes on the market.
After one of his Canton rehabs sat on the market for six months, Mel Stachura of Urban Rehab Consultants LLC decided to deal with the competition by adding a bathroom and more closet space.
"You have to adapt to survive," said Stachura, who was reacting to feedback from prospective buyers who looked and left. More than 60 came through. "There's buyers out there - they're just picky."
They're much more demanding from start to finish than they used to be, said Tressa Manna, his agent.
"Buyers are asking for everything on the home inspection, to the point of, 'I want the burnt-out bulb in the hallway replaced,'" said Manna, with ReMax Sails.(By Jamie Smith Hopkins, Baltimore Sun )
The number of homes sold - 1,975 - dropped nearly 30 percent from a year earlier, already well into the downturn, Metropolitan Regional Information Systems Inc. reported yesterday. It is the lowest sales figure for September since MRIS began tracking the area in 1998.
By comparison, buyers snapped up more than 4,000 homes in September 2005, the last hurrah of the housing boom.
Average home prices still eked out a gain last month, according to MRIS, which runs the local multiple-listing service. Prices in the metro area rose just under 2 percent, to about $315,000, with most jurisdictions seeing slight gains.
It took homes an average of 95 days to sell, a month longer than a year earlier. And the inventory of unsold homes, nearly 21,000, set a record.
Lender bankruptcies, a credit crunch and a jump in interest rates for jumbo mortgages in August continue to depress sales nationwide. Yesterday, the National Association of Realtors lowered its forecast of 2007 U.S. existing-home sales for the eighth month in a row. It now expects that the number of homes changing hands will be off about 11 percent from last year.
"I think the buyers are scared - they're afraid that if they buy today, that tomorrow [the price] is going to drop 15 percent," said George Brookhart, an agent with Long & Foster in Ellicott City.
Moody's Economy.com predicts that the local and national markets will not hit bottom until late next year, and its forecasts show values falling about 15 percent in the Baltimore area over those months. There are signs of backtracking now: Average prices dropped about 4 percent in Harford and Howard counties last month, the MRIS data showed.
Prices rose about 4 percent in Baltimore County, 3.6 percent in Anne Arundel, 2 percent in Carroll and half a percent in the city.
Economy.com says prices in the region would be down overall if they included the value of incentives that sellers now routinely give to buyers, such as thousands of dollars in closing-cost help.
High-priced Howard County was hardest hit last month, with the number of sales dropping by 34 percent. The average home there sold for about $418,000 - the point at which buyers would need a jumbo loan if they were financing the entire purchase. Harford, with an average price of $285,000, saw the smallest decline, but sales were down 22 percent.
Jada Krall, who is trying to sell a two-year-old colonial in Harford for $444,400, said she sees homes for sale everywhere she goes in the county. She counts 15 in her subdivision alone. To make hers stand out, she's offering a $7,500 incentive to be used toward closing costs or upgrade work.
"We've seen a few houses in the neighborhood sell," said Krall, whose family is relocating to Tampa, Fla. "We're just hoping ours is going to be next."
She can expect good deals in Florida, at least. Economy.com expects price declines of 20 percent to 30 percent in some of the once-hot housing markets there.
Celia Chen, director of housing economics at Economy.com, said recent tightening of credit is holding back demand nationally even as foreclosures increase supply. Borrowers with good credit can still get traditional mortgages, she said, but 40 percent of the loans issued last year were "subprime" and "nonprime" - from jumbo to interest-only.
"The lack of that kind of funding is going to have a big negative impact on housing this year," Chen said.
To avoid the higher rates of jumbo loans, city residents Bonita and Radames Rodriguez are opting for a regular mortgage plus an equity line of credit to purchase a $615,000 new home in Canton.
"I don't like the idea of having two separate loans, but it's better, much better, than the alternative," said Bonita Rodriguez.
The couple, who work in sales, will settle on that house this month and also complete the sale of the Bolton Hill rowhouse they've owned for eight years. They're selling it for $575,000, $74,000 less than the original asking price in April.
But they're buying their new home for $135,000 less than the builder's original price.
Bonita Rodriguez believes it was priced way too high to begin with. "I think we got a good deal, but I don't think we got a real bargain," she said.
Real estate agents say the days of setting prices based on past sales are over. Now, said Ron Howard with ReMax Sails in Baltimore, it's about the competition - other homes on the market.
After one of his Canton rehabs sat on the market for six months, Mel Stachura of Urban Rehab Consultants LLC decided to deal with the competition by adding a bathroom and more closet space.
"You have to adapt to survive," said Stachura, who was reacting to feedback from prospective buyers who looked and left. More than 60 came through. "There's buyers out there - they're just picky."
They're much more demanding from start to finish than they used to be, said Tressa Manna, his agent.
"Buyers are asking for everything on the home inspection, to the point of, 'I want the burnt-out bulb in the hallway replaced,'" said Manna, with ReMax Sails.(By Jamie Smith Hopkins, Baltimore Sun )
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