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December 11, 2018

7/10/2018 10:09:00 AM
Increase in Real Estate Transfer Tax Still a Possibility
By Larry Gavin

On July 9, City Council continued discussing a possible increase to the real estate transfer tax as one way to reduce the City’s projected budget deficit. Council members discussed various approaches, but did not reach a decision.

Staff first floated the idea at the June 18 Council meeting. They proposed that  Council increase the real estate transfer tax from its current rate of $5 per $1,000 on the sale of real estate to $7 per $1,000. On a home sold for $400,000, a $2 increase in the tax would increase the transfer tax by $800. On property sold in Evanston, the seller pays the tax.

If the rate would increase to $7 per $1,000, then total transfer tax on a $400,000 sale would be $2,800.

Staff estimated that a $2 increase would generate about $1.4 million in additional revenues for the City on an annual basis.

Some nearby suburbs have a $3 transfer tax per $1,000 sales price, including Lincolnshire, Morton Grove, Niles, Skokie, and Wilmette, according to City staff.  Highland Park has a $5 transfer tax; Chicago has a $5.25 transfer tax; and Oak Park has an $8 one.  A few suburbs, Berwyn and Harwood Heights, have a $10 transfer tax.

Some municipalities provide that the seller pays the tax, some the buyer, and some split the payment between the buyer and seller.

On June 18, Alderman Ann Rainey, 8th Ward, opposed a flat $2 increase per $1,000, saying it was a regressive tax. She reiterated that position on July 9 and suggested that the tax be structured as a progressive tax, meaning a higher tax rate for property with a higher sales price. She said if the City increased the tax by $2 per thousand only on properties that sold for more than $1.225 million, the City would have generated an additional $211,751 in revenues in 2016.

In a July 9 memo, Mario Treto, Jr., Assistant City Attorney, said no municipality in the State of Illinois has a progressive real estate transfer tax. He said nothing authorizes it, and nothing prohibits it.  “While the State law’s silence on this matter indicates that the City could move forward with such a tax, I advise that the City Council consider a progressive real estate tax with much caution, as this would set precedent in the State of Illinois,” he said.

Mr. Treto added that San Francisco implemented a progressive real estate transfer tax in 2016. 

Alderman Judy Fiske, 1st Ward, said people who sell their homes and plan to go into a retirement home may need all the money they can get. She suggested that the City could provide that the seller continue to pay the $5 per $1,000 of the sales price, but that the buyer pay any increase.

Mayor Stephen Hagerty suggested that if the tax rate was increased to $7 per $1,000, that the seller and buyer could each pay 50%.

Alderman Eleanor Revelle, 7th Ward, said, “If we’re testing the waters with a graduated transfer tax, my concern is we would be sued for that. I would rather we do something that does not have a strong likelihood of a lawsuit.”

Alderman Melissa Wynne, 3rd Ward, asked the legal department to research whether any other states had ruled on the legality of a graduated transfer tax. She also asked that staff provide the number of real estate transactions in the last five years and the number of property sold for more than $1.225 million.

Mayor Hagerty asked that the data differentiate between residential and commercial properties, and asked staff to provide the information at Council’s July 23 meeting.

Mr. Treto said the City may only increase the real estate transfer tax through a referendum in which voters approve the increase. To place the question on the Nov. 6, 2018 ballot, City Council would need to approve the referendum question before Aug. 17, 2018, and it must hold a public hearing on the question before then, said Mr. Treto.


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