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  • Writer's pictureRealFacts Editorial Team

Massachusetts Legislature Considers Property Transfer Tax


Massachusetts

In response to the national housing crisis, Massachusetts legislators are gearing up to consider Governor Maura Healey's ambitious $4 billion housing bond bill to build or renovate over 65,000 homes. A key provision within this bill proposes a property transfer tax on sales exceeding $1 million, with revenues earmarked for affordable housing projects.


Similar measures have been implemented in other major cities, notably Los Angeles and, more recently, Chicago. In April 2023, Los Angeles introduced a transfer tax of 4% on sales over $5 million and 5.5% on sales surpassing $10 million. However, Chicago voters rejected a similar proposal just last March.


The proposed transfer tax in Massachusetts has sparked a familiar debate, with proponents lauding the potential revenue windfall and support from municipal leaders, while critics warn of adverse effects on property transactions and real estate tax revenue.


According to estimates from the state housing agency, a statewide 2% transfer tax could have generated $784 million in fiscal year 2022, with half of that revenue stemming from commercial sales. Municipal leaders, including Boston Mayor Michelle Wu, view the transfer fee as a crucial tool to address the pressing shortage of affordable housing. However, critics argue that the tax burden could strain struggling commercial developers and potentially reduce overall real estate tax revenue.


Evan Horowitz, Executive Director of Tufts University’s Center for State Policy Analysis, highlights the challenges commercial property owners face, noting that while their properties may be valuable, they're often unprofitable, leaving them ill-equipped to handle additional taxes.

A cautionary tale emerges from the Los Angeles experience with Measure ULA, where initial revenue projections of over $900 million annually were significantly downsized after implementation. Transaction volumes plummeted, leading to a stark revenue shortfall compared to projections.


In response to the Massachusetts proposal, opponents, led by Kilroy Realty and the California Business Roundtable, have launched a referendum labeled the Taxpayer Protection and Government Accountability Act, aiming to nullify the transfer tax retroactively. This referendum, if passed in November 2024, would require a two-thirds approval for any new local special tax increases and could invalidate Measure ULA.


Governor Gavin Newsom has petitioned the state Supreme Court to remove the referendum from the ballot, citing concerns about its constitutionality. The court is set to hear arguments on the matter this month, with a ruling expected by June.


As Massachusetts contemplates the implementation of a property transfer tax, it stands at a crossroads where fiscal concerns clash with the urgent need for affordable housing. The outcome of this debate will not only shape the state's housing landscape but may also influence similar discussions across the country.


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