Membership Fee (aka Transfer Tax)
Summary
The use of membership fees, referred to as transfer taxes in
this document, on properties belonging to an association is currently in use in
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It has been supported when legally
challenged as long as the by-laws of the association include a provision for
the tax.
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The tax is generally not supported when
it is enacted based solely upon the board’s decision.
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On average, the transfer tax rate in
both
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The term “flip tax” is rarely used in
If a transfer tax is not part of the association’s original
by-laws documents then a vote of the membership is required.
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Usually the vote must be passed with a
66%-75% majority voting for it.
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Legal counsel is required and there are
firms in
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Once voted in, it is legally binding
even for those who voted against it.
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There is usually a provision for homes
that sell to immediate family members.
Types of Transfer Taxes:
1. Percentage
of Sales Price
a. A
percentage of the gross sale price
b. It
may prompt collusion between seller and buyer to “beat the system”. For
example, by agreeing on a sales price of $100,000 for the apartment (subject to
the transfer tax), and a separate transaction of $50,000 for the built-in
bookcases and the kitchen counters (which should be part of the overall sales
price.)
c. It
may be wise to get an affidavit from the buyer and seller, ensuring that there
is no other consideration between them.
2. Per
Share Amount
a. Most
conventional and simplest type of transfer tax.
b. Treats
all shareholders equally by imposing a tax of a fixed dollar amount per share.
c. Can
benefit sellers who bought years ago and paid less than the current market rate
because they are taxed the same amount as those who
bought more recently at higher rates.
3. Flat
Fee
a. Charge
a certain flat dollar amount per transaction (e.g., $5,000 per transfer).
b. Benefits
the owners of larger units who pay the same amount as the seller of a small
unit.
c. May
be considered a good compromise in places where values vary.
4. Percentage
of Net Profit
a. Perhaps
the most controversial form of a transfer tax is one based on net profit. It
must be very carefully defined exactly what the formula will be for determining
the net profit and the formula must be strictly and consistently applied.
5. Combining
Methods
a. It
is also possible to set-up a transfer tax that combines two or more of the
above methods. For instance, the transfer tax could be a percentage of the
gross sale price provided it exceeds the original purchase price. Or,
protections could be put in so that somebody who has not made a profit on a
deal can pay a lower fee.
b. Rule
of thumb, “the more convoluted it get, the more opposition you get”.
Explanation to Association Members of a transfer tax
project.
·
Most professionals believe that a
transfer tax should be put into a reserve fund to pay for future capital
expenses. The money can be used for either operating expenses or to just build
up the reserves.
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You will have to work hard to convince
your neighbors to vote for it.
o
Your best allies will be shareholders
who intend to stay for the next 6-10 years or longer because they plan to be
around long enough to see building projects funded by the transfer tax proceeds
which would otherwise have come out of their own pockets, either as maintenance
increases, assessments or additional debt service.
o
Document this by making a chart of a
capital improvement made over a recent period and the sales that took place
during the same time. Calculate what would have come in through the transfer
tax and how it would have offset the cost to shareholders.
·
Hold informational meetings and answer
all questions that arise.
·
Be practical and realistic in your
planning.
·
Don’t try to convince someone who plans
to sell this year or next that they should support a transfer tax, it simply isn’t in their best interest.
·
Once you have successfully enacted a
transfer tax, keep shareholders aware of how it is working for them at the
annual meetings.
Sources:
Nantucket’s Land Bank: Using Growth to
The Trust for
Paying the Mansion Tax on $1Million NJ Homes by Jay Romano
Council of NY Cooperatives & Condominiums Published
Autumn 2002
New York Times
Realtor’s Association
Voting “Yes” to Flip Taxes, Generating Income by Keith Loria
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For
consideration up to $350K: $2.00/$500
first $150K $3.35/$500
from $150K to $200K $3.90/$500
from $200K to$350K For
consideration in excess of $350K: $2.90/$500
first $150K $4.25/$500
from $150K to $200K $4.80/$500
from $200K to $550K $5.30/$500
from $550K to $850 $5.80/$500
from $850 to $1million $6.05/$500
amount over $1 million For
consideration in excess of $1 million
(residential only)in addition to above: $5/$500 |
0.4%
first $150K 0.67%
from $150K to $200K 0.78%
from $200K to $350K 0.58%
first $150K 0.85%
from $150K to $200K 0.96%
from $200k to $550K 1.06%
from $550K to $850K 1.16%
from $850 to $1 million 1.21%
amount over $1 million 1% County:
up to 0.1% additional tax |
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