Real estate transfer taxes can be enacted at the state, county, and municipal level. They become part of closing costs, usually adding a nominal amount to the associated fees. They are sometimes called "documentary stamp taxes," because they require a "stamped" receipt of payment before the title transfer documents are recorded at a county clerk's office.

Many states and localities already have a RETT on the books, but neighborhood advocates may want to increase it and/or redirect its use. 

For new and amended RETT ordinances alike, there are a number of variables to consider:

What's covered? Residential properties (single family and multifamily, owner-occupied and rental) are usually covered by RETTs. Vacant land, industrial, commercial, and retail properties may be included depending on the circumstances. Jurisdictional decisions are based on market trends. Sometimes, RETTs are used to encourage investment in certain properties, such as industrial developments that will create jobs.

What is the tax rate? A RETT is usually applied as a percent of the sales price or as a set dollar amount per $1,000 of value of a sold property. New Jersey, for example, charges $1.75 per $500 of the first $150,000 of purchase price and an additional $.75 per $500 of any amount over $150,000. The level is usually a balance between raising sufficient funds to meet the goal for the RETT and the politically feasibility of such taxes.

Exemptions. In order to avoid burdening low-income homebuyers, a RETT is often applied only to the amount of the purchase price above a certain threshold, such as $75,000. 

Use of the Revenues. RETTs usually go directly into general revenue. But some or all of the money can also be targeted for specific uses. Affordable housing, schools, and open space preservation are some of the most common uses. New Jersey, for example, shares its revenue between the county where the sale took place and the state, with the bulk of the state's portion going to environmental protection and neighborhood preservation.

RETTs are a very common way to fund housing trust funds. According to the Fannie Mae Foundation, 12 of the 37 state-level housing trust funds are funded by RETTs, and most of the large funds (over $10 million in revenues) get some of their income from RETTs.

Who pays the tax? A RETT may be the responsibility of the buyer, the seller, or both jointly. In practice, the division of the tax is often negotiated at closing.

Anti-Speculation Measures.   RETTs are usually set low enough that they do not affect the market in any noticeable way. But sometimes RETTs are designed to damper speculation, purchases followed by rapid resale and steep price increases, with little or no actual improvement made to the property. Property "flipping" schemes also can employ fraudulent assessments of real estate value or inaccurate claims about the level of renovation. RETTs can reduce the motivation for speculation in a few ways:

• Tax rates can be based on the amount of time the property is held, with very high rates-high enough to affect profit-for properties held for six months or less. Rates then decrease until they reach a more usual, unobtrusive level after 3-6 years. Alternatively, a portion of the profit may be exempt from the tax, but only if a property has been held for a minimum period of time. These practices discourage speculation without penalizing long-term homeowners.
• Taxes can also be based on the amount or increased price , and/or the percent of profit from sales. Thus, windfall profits with little investment would be taxed at a higher rate. The costs of improvements made to a property would be subtracted from the calculations of profit or sales price increase.

In either case, to make sure only speculators pay higher tax rates, exemptions can be made for people over 65, new construction, emergencies, or homeowners in situations such as job loss or transfer, adverse change in income, recent divorce, new children, marriage, or death of a family member.

Anti-speculation measures also make property-flipping scams less appealing and more difficult to carry out, since the enforcement agency will have records of sales that involve rapid ownership turnaround and large price hikes.

Getting a RETT Passed

Secure State Permission. Many states require municipalities to get state approval to pass a new tax. To approve a local RETT in one of these states, a jurisdiction must first make its case to the state, to get a "local option," and then pass it locally. This can require a lot of work (and swift timing). In 1996, residents of Cape Cod, Massachusetts petitioned the state for permission to establish a RETT for conservation purposes. The state legislature approved a voter referendum, but by the time the RETT ordinance came to a vote, the opposition was well organized and the ordinance lost.

Regarding states that require approval for a RETT, Jaimie Ross, affordable housing director of 1000 Friends of Florida, suggests that its most feasible for revenues to be shared between the state agencies and local governments. Ms. Ross brought together a coalition that created a bill to increase the state RETT in Florida and direct some of it to affordable housing (see Tool in Action). Ross says that once state-level players have something to gain from the proposal they will throw their weight behind it, giving it a much better chance of passage.

Build a Coalition. As with any local ordinance, there are many interest groups that might be supportive if they are reassured that the RETT will not harm their interests, or better yet, that it will benefit them in some way. Exemptions that protect long-time or low-income homeowners or agreements to use some of the revenue to fund homeownership (creating business for realtors) may be crucial to winning allies.

To build a coalition like this, it is important to solicit input from all relevant stakeholders before the details of the ordinance are finalized. "Find out what everyone's bottom line is, compromise to meet their needs, and then don't break the integrity of that compromise," says Ross.

Stay Mobilized. RETTs, and the programs they fund, can come under attack in times of economic stress.  Keeping the original coalition together, and keeping track of the good things the money has funded, will be essential to maintaining the RETT as a dedicated source of funding for equitable development.