Changes draw mixed reviews

August 1, 2003 - Many real estate professionals and market watchers say the real estate transfer and payroll taxes passed by the Legislature will have little effect on Southern Nevada's residential and commercial real estate markets.

But others said the increased transfer tax could keep the dream of buying a home out of reach for some and that the payroll tax could lead to increased prices for real estate.

As part of the estimated $836 million tax package that the Legislature passed in July, the two taxes that have the potential to have the biggest impact on the real estate industry are the real estate transfer tax and the payroll tax, industry experts said.

The state will now impose a transfer tax on the sale of real estate at $2.60 per $1,000 of value starting Oct. 1 That rate is on top of the local transfer tax that counties already collect. The amount varies statewide, but in Clark County that rate is $2.50 per $1,000 of value. That brings the transfer tax rate in Clark county to $5.10 per $1,000 of value starting in October.

Not including Clark County's share of the assessment, the state's transfer tax would produce $51.5 million the fiscal year for the state and an estimated $69.9 million the following year.ddsfds

"It could have been a lot worse," said Tim Snow, president of Thomas & Mack Development Group. "Some of the earlier proposals floated had it at three times this number."

Snow said the transfer tax isn't a major factor when considering the overall costs of major commercial developments.

Mark Bouchard, CB Richard Ellis managing partner, said the commercial real estate market will adapt to the increased transfer tax.

"I think that at the end of the day it's not going to have a specific bearing on our market or our market moving forward," he said.

What the commercial real estate industry was fearful of was a gross receipts tax, which many called a draconian tax that would discourage growth and new businesses from coming to the state.

"We thought it was a disincentive to diversification and economic growth," said John Restrepo, a member of the National Association of Office and Industrial Properties and principal of Restrepo Consulting Group. "If you have a slowdown in economic diversification and economic growth due to tax policy, it will cause a lowering of demand for commercial real estate."

Restrepo said the while there may not be a slowdown of commercial development with a new state-level transfer tax, the precedent has now been set to increase the tax at a future date.

"The problem with all taxes is that once in place, there's the potential for an increase over time," he said.

Restrepo said a property tax increase, while not popular, would have been a more stable source of revenue for the state.

Many are concerned that while a proper transfer tax appears to raise millions of needed dollars for the state, it is an unstable tax that could plummet or remain stagnant depending on local and national market conditions.

"It wasn't a revenue source that we had recommended, largely because the real property transfer tax is destined to be an extremely volatile revenue source,'" said Guy Hobbs, former Clark County chief financial officer and a member of last year's Governor's Task Force on Tax Policy in Nevada.

Economist Jeremy Aguero, who worked with the task force, said Southern Nevada residential and commercial property transfers totaled $21.5 billion last year. But he said there's no assurance business will remain that brisk.

Aguero said he doesn't expect the increased property tax to damper commercial development in Southern Nevada.

While the consensus is that the increased transfer tax will have little affect on commercial real estate, residential agents worry that it could price people out of the market.

Rocky Finseth, government affairs director for the Greater Las Vegas Association of Realtors, was in Carson City for much of the legislative session and lobbied against a large transfer tax increase.

"We have argued from the start that Clark County and the state of Nevada has one of the lowest transfer taxes in the nation, and we think that's a good thing," he said. "It spurs housing and affordable housing."

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