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ORANGE COUNTY LOCAL REVENUE OPTIONS <br />EDUCATION ADVISORY COMMITTEE <br />Pros/Cons/Observations on Local Revenue Options <br />February 14, 2008 <br />Either option, if implemented, would relieve the pressure on Orange County ad valorem <br />property taxes. Without either of these alternate forms of taxation, the likely alternative is <br />higher ad valorem property taxes for everyone given the county's expected revenue needs <br />and the loss of revenue the county will experience as a result of the state's assumption of <br />the article 44 sales tax (as part of its assumption of Medicaid responsibilities). <br />Citizens need to realize that any possible tax option on the ballot is choosing how they <br />wish to be taxed, not how much they wish to be taxed. <br />Pros FOR Transfer Tax <br />• Predicted to produce more revenue over the long run than the sales tax option <br />(though Donna is going to re-run the numbers at our request) <br />• Diversifies Orange County's possible revenue streams (as opposed to increasing <br />one of the existing two); creating more stable base for investment in essential <br />infrastructure <br />• Transfer taxes allow fixed income residents to defer their taxation <br />• The majority of the group believes that because the transfer tax will be a known cost <br />at closing, in reality it will be factored into the sale price. Technically the tax is paid <br />by the seller, however the party that bears the cost in the economic sense may <br />vary. <br />• Unlike ad valorem property taxes (the likely alternative if Orange County needs <br />more revenue), it is only paid at the time of sale, not every year <br />• It is capped by statute at %0.4 of the sale value of the home. <br />• The transfer tax is levied based on the sale price and not the assessed value (as <br />compared to ad valorem property tax) <br />• The majority of the group believes that the transfer tax is more progressive than <br />sales tax. <br />• The transfer tax revenue will track the real estate market. <br />• One Time Tax assessed when property is sold. <br />• Gifts of real estate & inherited transfers are exempt by statute <br />Cons AGAINST Transfer Tax <br />• In the course of new development, a transfer tax may be paid multiple times before <br />a new house gets sold. For example, in 2007, this would have applied to 14% of <br />the sales in Orange County, that were new construction (Source: 2007 TMLS). This <br />may make new construction more expensive. For example, a farmer may sell land