Commercial developers nervous about transfer tax legislation

Under state law, a 0.5 percent transfer tax is imposed on the direct sale or transfer of real property. The transfer tax is not imposed when an entity, usually a limited liability company, that owns real property in Maryland changes ownership.

O?Malley recently said he intends to propose legislation that would “close corporate loopholes” and expand the tax to transfers that include changes in ownership or control of a real estate entity.

The change would do little to cut into the state?s estimated $1.7 billion deficit next year, but property management officials called O?Malley?s proposal an unfair tax.

“They ignore the fact that commercial real estate developers already pay income taxes on transfers,” said Catherine Ward, president of the Maryland Chapter of the National Association of Industrial and Office Properties, and senior vice president of asset management for Columbia-based Corporate Office Properties Trust. “It?s almost a double taxation.”

Homeowners have to pay a transfer tax when selling their homes, but they do not have to pay high income taxes on the sales like commercial developers, Ward said.

“If the legislation passed, we would absolutely have the value of our properties reduced by the amount of the transfer tax,” Ward said.

When selling commercial properties for millions of dollars, the income tax is already expensive, said Cole Schnorf, president elect of NAIOP and senior vice president and director of development for Columbia-based Manekin LLC.

When selling a $9 million property for $10 million, the income tax could be as high as $425,000. A transfer tax could add as much as $150,000 for the sale, as counties like Howard have their own transfer tax rates.

“We should be compared to businesses, not residential homeowners,” Schnorf said. “I?m nervous that it will go through, because it?s wrapped in this $1.7 billion tax package.”

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