More Taxes for Homeowners in Minnesota!

Tax

Well, at first glance Governor Dayton’s new tax plan doesn’t sound too bad – a $500 property tax rebate for everyone, lower the sales tax rate from 6.875% to 5.5% – not too shabby.  The catch is that the lower rate would apply to many more items, including anything you buy over the internet.  Clothing costing over $100 is one of the new items being taxed.  But how about this:  under his proposal you’ll also pay sales tax on things like dance lessons, cross-country ski passes, legal services, advertising, tax preparation and dozens more services that are not taxed now.  And that leads us to the real kicker for anyone thinking of buying or selling a home:  you’ll also pay a 5.5% tax on real estate agent fees, home inspector fees, well inspections, etc etc.  WOW!  So, let’s say you’re selling your $350,000 home and your agent is collecting a cool 6% fee, or $21,000 (I’m just using 6% as an example, the actual rate is always negotiable with your agent).  Under Governor Dayton’s proposal you’ll also be paying another 5.5% of that $21,000 in sales tax.  That would be another $1,155 on top of the $21,000.  How ’bout them apples?!?!  So, you’re probably already thinking:  I’ll just tell the agent they have to absorb it.  Well, you can always ask.  And some of them might actually do it.  I can tell you right now, I won’t.  Why?  Let’s take a look at that $21,000 fee.  First of all, most likely that’s going to be split up four ways right off the bat:  half to the listing broker (the company you’re actually contracted with if you’re the seller) and half to the selling broker that brought you a buyer.  Then each company is going to split it with the actual agent involved.  That split could be anything from 50% to the agent to 90% or more.  In most cases it’s going to be closer to 50%.  So, let’s use 50% to the agent and assume they’re getting 1/4 of the $21,000, or $5,250.  Still sounds like a nice payday for them, right?  So now let’s take out their expenses and taxes.  They have to pay federal, state, and self employment tax.  If they’re typical, they’ll end up with somewhere around $3400 or so (that a very rough number!).  Then take out their advertising expenses, brochures and flyers, ‘just listed’ or ‘just sold’ cards (yes, most agents pay that out their own pockets).  Then take out their gasoline and auto maintenance expenses.  Don’t forget the costs to install the sign in the front yard.  If you’re using a good agent, they’ll be paying (again, out of their own pocket) a fee to a professional real estate photographer for the pictures of your house.  A really good one will, in some cases, foot the cost for a professional stager to help make your home look it’s best.  Oh, almost forgot, their dues to the Minneapolis Area Association of Realtors, the Minnesota Association of Realtors, and the National Association of Realtors.  Hmm, how about their desk fees – typically in the $100 to $150 per month range.  Did you know they also must pay a hefty annual fee for E & O (Errors and Omissions) insurance??  Almost forgot this one, the quarterly fee to use the Multiple Listing Service and the monthly fee to use the little electronic device for opening electronic lock boxes.  Let’s see, what else?  Oh, one more fee for the brokers  –  most collect an advertising fee from the agents for their national ads.  So what is the agent left with?  Maybe $2,000 to $2,500 or so???  So back to our original question:  can you ask your agent to just absorb the sales tax?  Sure you can…. but would you take $1,155 out of your $2,000 paycheck to pay someone’s sales tax for them?  Not me.  And don’t forget:  you won’t be paying the new sales tax just on the agent’s commission.  You’ll also be paying it on almost every service involved with your transaction.

This is not what we need in an economy struggling to get back on it’s feet.   Tell Governor Dayton to leave the housing market alone and let it continue to recover.

 

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About Bob Gilbert, GRI

Realtor with Edina Realty, Prior Lake, MN
This entry was posted in Home Buying - General, Selling Your Home, Tax Related and tagged , , , . Bookmark the permalink.

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