The California Association of Realtors® (CAR) opposes private transfer taxes and has sought legislation that would prohibit them. To say the least, CAR's efforts to prohibit or at least limit private transfer taxes have run into serious resistance.

Private transfer taxes are not really taxes; only government has the ability to tax. Rather, they are fees. Nevertheless, they sure act and feel like taxes. These fees are deed restrictions imposed by a developer which require a fee to be paid every time a property within the development is sold. Many in Orange County are familiar with similar transfer fees that are used to fund community service organizations. These may support various community amenities such as golf courses, club houses, and social activities.

The private transfer taxes that CAR opposes differ in important ways. There is no requirement that their proceeds be used to benefit the individual property or the neighborhood. This is perfectly legal. Indeed, even individuals can do this. For example, I could place a deed restriction on my house that would require that, in every future sale, 1 percent of the purchase amount would go to fund the Hunt Family Perpetual Vacation Fund. Of course, no one would then be inclined to purchase the property.

Why would a developer impose a private transfer tax? The word "extortion" comes to mind; but let me illustrate with a fictional example. Suppose you are a developer with a large project standing before the various governmental agencies who must approve it.

I come to you on behalf of my organization, Friends of the Gnatcatchers (FOG) with this "proposal." They respond, "If you will set up a fund to purchase and preserve a certain gnatcatcher habitat -- which, by the way, is thirty miles from here -- we will not sue to block your development on environmental grounds. Otherwise, FOG and its friends will see you in court and guarantee that you'll be there for years." This deal may be agreeable to you, but where is the money to come from? A private transfer tax. Every time -- not just the first time -- a home in the development is sold, 1 percent of the purchase price will be assessed and deposited into the gnatcatcher fund administered by FOG.

Doesn't the imposition of a private transfer tax hinder the developer's sales? Not so far, for at least two reasons. First, sometimes the fee is not assessed on the first sale, so the original buyer doesn't feel it. It only kicks in for subsequent sales. Second, disclosure and explanation of these fees has often been weak -- buried in the volumes of disclosure documents which most people don't read very carefully anyhow.

CAR sponsored Senate Bill 670 (Correa) which would have prohibited private transfer taxes. However, that bill was strangled in committee and is going nowhere. On the other hand, there is Assembly Bill 1574 (Huston) which would, for the first time in the law, specifically allow such fees, with very little restriction on their amount, duration, use, or cost of administration. That bill is moving smartly through the legislative process, despite CAR's strong opposition.

Why? After all, being against private transfer taxes would seem to be a motherhood and apple pie sort of position -- keeping down the cost of housing, protecting innocent consumers, etc. Moreover, it is hard to imagine that legislators have heard much from constituents in favor of private transfer taxes.

The answer, as always, is in politics, which sometimes has to do with money. Legislation specifically enabling private transfer taxes is supported by a powerful and paradoxical coalition: the California Building Industry Association and the Sierra Club (along with other environmentalist groups).

At a recent meeting of CAR directors in Sacramento, their chief legislative advocate remarked that this was probably the first time in history that the Sierra Club and the building industry have been on the same side of an issue. But, then, both stand to profit from this one. Question answered.

Published: June 22, 2007

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Bob Hunt is a director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .