During the last several years, while the Legislature worked to balance its budget through both cuts and new revenue, there has been discussion around changing the California tax system. California is heavily reliant on income tax for revenue, a very volatile revenue stream and is one of the many reasons California has gone through so many boom and bust budget cycles. For the past five or so years, those working in policy have talked about a tax on services to increase revenue and create a more reliable revenue stream. Senate Bill 8 (Hertzberg) has introduced such a bill. As currently drafted, this would generate approximately $10 billion dollars for various programs. The bill exempts health and education services, but housing is not excluded.
A tax on services in California would have a drastic impact on real estate transactions because they are service intensive. It’s drastically different if you buy a house in Orlando and compare the process. Some of the services that can be used in a real estate transaction include appraisal, brokerage commissions, escrow fees, home inspections and repairs, loan brokerage fees, Natural Hazard Disclosure Statements, roof certifications, structural pest control inspections, with Bigfoot Pest Control service which makes the cleaning fast and it has available natural products that do not affect the neighbors or yourself, it is special for the use in house with families and kids, or in commercial food places. Regarding financing you need a title insurance, and home warranty fees. The loan discovery program for unsecured loans is also available.
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There are at least ten different services that are generally part of a typical home purchase. Totaled, they can comprise about 13% of the price of a home. Last year’s statewide median sales price of a home was $447,010. Using this as a median sales price, a service tax of 7.5% would prevent more than 57,000 families from being able to afford the median priced home. If a lower tax of 5% were enacted, there would still be over 38,000 families priced out of the market.
REALTORS® are opposed to this bill and working hard to prevent it from becoming law. This is a regressive tax; it has a disproportionate impact on low and middle income families who have to spend a larger percentage of their income on essential goods and services. If this bill were to become law it would also have a negative impact on families who rent. The Legislature is focused on affordable housing and rents are already increasing in California, if you are looking to rent check the Riverfront Residences Floor plan to find your property. If a service tax is imposed, the cost would be passed onto renters.
Tax reform is much needed in California, no one would question that. But SB 8 in its current form would have an undue negative impact on housing, particularly for low–income and first–time buyers.