Article published Jan 16, 2005

Proposed excise tax distributed to commissioners

If passed, would tax sellers of property

By Byron Hensley
DNJ Staff Writer

A draft of a proposed real estate excise tax has been prepared in Nashville and distributed to members of the Rutherford County Commission for their review.

The commission, at its December meeting, approved the idea of a real estate excise tax that is imposed on the seller of property and asked the state legislature for help in drafting the measure. A draft prepared by the General Assembly's legal department came back last week and was distributed to commissioners.

The crux of the document is contained in one paragraph:

"Upon the adoption of a resolution by a two-thirds vote of the legislative body, the legislative body of any county experiencing rapid growth is authorized to impose an excise tax for county purposes upon each sale of real property in the county, at a rate not exceeding one-quarter of one percent (.25 percent) of the selling price," the draft states.

With an anticipated $550 million in new school costs expected over the next 10 years and needed infrastructure projects such as safety improvements to Halls Hill Pike, County Commissioner Robert Peay doesn't believe the county would have much trouble demonstrating the need for the tax.

By not defining "rapid growth" by a specific rate, the legislation would allow counties to opt out of the tax if they felt they needed rapid growth, Peay noted.

"If you ask people what one of the main problems is in this county, its growth," he said. "If we don't get ahead of the curve and do projects before they've just got to get done, we won't ever catch up.

"You've got smaller counties that percentage wise may have outgrown us, but look at the number of students coming in. We may have a lower growth percentage than a county with a small population, but look at the number of students we've got coming in. When you've got a big population like us, three or four percent is a lot of students."

Most of the eight-page document is occupied by legal definitions of such things as "sale," "selling price" and "total consideration," along with exemptions such as transfers by gift or inheritance, assignment from one spouse to another, etc., and provisions for collecting, administering and enforcing the tax.

"It's in the commission's court now. I just helped them get it drafted," said State Rep. John Hood, who forwarded the commission's request to the legislature's legal department.

The language of the draft is essentially that of a Washington state's law authorizing the tax there. A note on the draft from the attorney who prepared the draft suggested the county reviewing definitions on the document and possible changes to make them conform to Tennessee's real estate transfer tax law. The transfer tax is a state-collected sales tax on real estate imposed on the purchaser.

The draft has been forwarded to the Rutherford County attorney for review, "and unless we have any specific changes, it will probably proceed forward," County Mayor Nancy Allen said.

Unless there are changes, the act in its current form will be the one that is introduced in the General Assembly for state consideration, Allen said.

Even assuming there are no changes to the draft, the act still has a long way to go before becoming law.

"At this point, it's in the hands of the legislators in Nashville," she said. Allen said she will forward the draft to other county mayors and legislative delegations in Middle Tennessee to ask for their support in getting state approval for the tax.

"I believe it will be beneficial to all high growth counties in the state," she said.

The real estate excise tax, and the adequate facilities tax, a square-footage based tax on new construction, are two measures that have been requested by the county to provide added revenue to pay for new capital projects as alternatives to increasing current taxes such as the property or wheel tax.

At Thursday's commission meeting, Susan Allen, an advocate of the revenue alternatives, noted that a petition has been circulating requesting that the county's state legislative delegation support the measures.

"People all over the county have been ready and willing to sign," she said. "Many understand that if the legislature doesn't act to support this legislation, it will be they, and not you, who will be responsible for a property-tax increase."

Allen suggested commissioners lobby state legislators, bringing with them elderly and low-income constituents who can say what increases in the property and wheel taxes would mean to them.