An attempt to review and reassess the imposition of a real estate tax that went into effect July 1, 2012 on mortgages of $1 million or more promises to be a focal point of interest for commercial real estate executives, bankers and developers in the current General Assembly session.
The recordation tax on indemnity deeds of trust, or IDOTs, is administered in some jurisdictions by clerks of the court and in others by county finance offices. It is levied at different rates; the rate in Baltimore is 1 percent of the secured debt.
In the past, the recordation tax was deferred in a majority of large real estate transactions. Often, it was not levied until the loan was retired.
But state lawmakers, trying to raise new tax revenues, passed legislation in mid-May during the first of two special sessions making the IDOT mandatory in large commercial sales.
The tax was seen as a way to raise funds for local jurisdictions to help pay for teacher pension costs as part of a four-year shifting of obligations to the locals from the state. The switch is expected to cost counties and Baltimore city a total of $500 million.
But a Jan. 4 report from a state workgroup formed after the new law passed showed that the IDOT produced much more revenue than anticipated over a three-month study period. During the same period of time, the report showed that the volume of commercial real estate transactions declined.
That report will be used in a bid to help scale back the IDOT during the session, commercial real estate interests said.
Members of the 12-person Indemnity Deed of Trust Workgroup met for six months and included commercial real estate representatives and members of local and state government agencies and the state banking industry.
The report showed that 76 percent of members from the Maryland chapter of NAIOP, a commercial real estate group, who responded to a survey last year reported that the IDOT had impacted their business.
Their response is fueling the charge to try to scale back the IDOT this year, said Tom Ballentine, a lobbyist for the group.
“We’re going to try to put some balance back,” said Ballentine, vice president for policy and government relations for the state’s NAIOP chapter, which has 700 members.
Ballentine said he anticipates an uphill battle in trying to decrease a new state tax already in place.
“We’re going to take a run at it,” he said, with the kind of optimism normally reserved for baseball’s annual opening day. “There is a lot of talk about being more business friendly in Annapolis.”
The IDOT on sales of $1 million or more had been a recurring issue in Annapolis but had been shelved for a number of sessions, Ballentine said.
Other issues facing the real estate industry and developers include the ongoing cleanup of the Chesapeake Bay and efforts to monitor and limit waste water and storm water runoffs, and rural subdivision developments and the extension of sewage lines versus septic systems.