Philadelphia has the highest transfer taxes among the nation's 10 most populous cities. Starting next year, the taxes are going to be even more expensive.
Higher Taxes in 2017
In Pennsylvania, transfer taxes are set by municipalities, which add their levies to a 1% fee charged statewide. Currently, Philadelphia charges 3% on top of the state levy for a total of 4% in transfer tax.
The Philadelphia City Council voted to raise the tax by 0.1% effective January 1 to help fund housing-preservation initiatives and home repairs for low and middle-income residents.
Businesses Need Tax Relief
In many cases, transfer taxes are not paid against a property's full purchase price.
State law exempts sales of 89% or less of a real estate company in a three-year period to prevent taxes from hurting business activity.
It may be easier to transfer a business entity rather than its underlying real estate when the property is leased to many tenants.
Transactions are often structured so the tax is paid against a property's assessed value rather than the actual purchase price.
Are Higher Taxes Counterproductive?
City officials say the increase in transfer taxes next year will generate between $3.5 and $7 million annually, depending on the number of real estate transactions that occur. However, analysts question whether raising the tax will actually result in higher revenues.
Robert Inman, a finance professor at the University of Pennsylvania's Wharton School is one of the skeptics. "One of the principles of tax economics is that if the tax is high, people find a way of moving around it," he told the Philadelphia Inquirer. "And I think here the tax is already high."