Mills’ veto stops new graduated real estate transfer tax

Should Mainers have to pay more in taxes for buying a new piece of real estate? The Legislature says yes, but thankfully, Gov. Janet Mills says no.

In one of seven vetoes issued last week, Mills prevented the state from raising the real estate transfer tax (RETT) rate.

The tax is levied on every transaction in which real property is exchanged. The seller of the home or building is the one who foots the bill. 

The bill the governor stopped was LD 418, sponsored by Rep. Lynne Williams (D-Bar Harbor), which originally would have lowered the existing RETT for the first $150,000 of a home’s value while establishing a new graduated rate on values over $1 million. The bill was amended, though, to remove the RETT decrease on those lower values, keep the existing RETT and retain the new tax increase.

The existing RETT rate is $2.20 for every $500 of a home’s value. The proposed change would have brought that up to $2.70 for every $500 in excess of $1 million. Mills vetoed this amended version of the bill.

The Senate adopted the amended bill by a 22-13 vote along party lines.

Every House Republican then voted against the amended measure, with eight absent, along with three House Democrats, with two absent, thus resulting in its passage by a 79-62 vote.

A measure to indefinitely postpone the bill then failed in the Senate 15-19, sending it to Gov Mills’ desk.

In her veto notice, Mills reiterated her commitment to not raising taxes on Mainers, especially as the state and its businesses are still recovering from the fallout of the pandemic. “Avoiding tax increases is important for positioning the State’s economy to rebound quickly and strongly,” Mills said in her veto message. 

She also raised the point that the additional revenues taken by the tax would be used for the Housing Opportunities for Maine (HOME) fund, which aims to serve low-income Mainers with affordable housing, which is already “financially sound” and “not in need” of the money LD 418 would generate.

According to Mills, “In FY21 the Real Estate Transfer Tax is projected to generate $4.5 million more for the HOME Fund than in FY20,” and L.D. 418 would only raise an additional $749,000 for the HOME Fund over its first full fiscal year in effect.

“It is more effective,” she writes, “and less detrimental to the broader economy, to manage the State budget responsibly as well as using new federal funds for housing needs, rather than raising taxes.”

A 2003 National Association of Realtors study found that RETTs “place an unfair burden on lower income homebuyers and those who move frequently.” By increasing Maine’s RETT under the guise of helping low-income Mainers, the Legislature likely would have actually hurt the exact group it set out to aid.

The above graph from the study outlines the share of income spent on housing by income bracket. 

The study also cites the regressive nature of RETTs and volatility of the revenue stream of real estate as reasons municipalities and other governments should not adopt them as part of their tax codes.

By vetoing LD 418, Governor Mills stood up to her own party and prevented the legislature from passing a new tax that would surely disadvantage the poor and hamper economic growth at a time when we desperately need it.

Lawmakers would be wise to sustain her veto.